AMI-Partners Tracking Study Shows U.S. Small and Medium Businesses -SMBs- Spent $1.8 Billion on IT Security in 2003.

Business Editors/High-Tech Writers

NEW YORK--(BUSINESS WIRE)--Feb. 23, 2004

AMI-Partners

-- AMI's Global Studies Indicate Total Global Security Spending

Among SMBs Exceeded $5 Billion -- Expected to Grow 25-30%

Annually in Developed Countries in North America, Europe and

Asia Pacific

-- Analysis Reveals Sharp Differences in IT Security Adoption by

U.S. SMBs -- One-Fourth of the 7.8 Million SMBs Drive Most of

Security Spending, While 2.8 Million (39%) SMBs Lack Basic

Protection

-- Clear Brand Leaders Emerging With Industry Primed for Further

Consolidation

Total U.S. small and medium business (SMB) spending on IT security reached $1.8 billion during 2003, spurred in part by the growth of anti-virus solutions, content filtering and firewalls/VPNs. AMI forecasts this spending to increase by 29% annually in the coming years. The focus on IT security has increased significantly in the last couple of years, although the interest of SBs does fluctuate somewhat with current headlines of threats from viruses, worms, trojans, etc. According to AMI's latest surveys, over 1.2 million SBs and 67,000 MBs in the U.S. indicated they want to enhance their IT security. At the same time, almost 2.8 million SBs with PCs still remain without any form of IT security, including anti-virus.

The above findings were released today by New York-based Access Markets International (AMI) Partners, Inc., a leading consulting firm specializing in IT, Internet, telecom and business services market intelligence, trends and strategy with a strong focus on global small and medium business enterprises. AMI conducts the IT industry's most comprehensive annual tracking surveys of small and medium business (SMB) enterprises in several countries including the U.S., France, Germany, U.K., Australia, China, India, Japan, Singapore, South Korea, Brazil and Mexico.

The survey found that while anti-virus software and firewalls are becoming commonplace among SMBs, these businesses are also increasingly using other security measures such as, intrusion detection, VPNs, remote data backup, redundant systems, remote network security management, etc. "U.S. small and medium businesses are realizing that as they increase their use of Internet-and network-based applications that expose their customers', as well as their own business data, the cost of potential security breaches is increasing rapidly. IT security is therefore becoming an integral part of their operations," said Anil Miglani, Vice President at AMI. Reflecting this focus on IT security, many SMBs give high importance to security when purchasing new products, developing new systems and selecting IT service providers.

The spending on security is being driven by the increasing utilization of Internet and networking-related technologies by SMBs, which increase their risk and vulnerability to various forms of unwanted intrusions by others. AMI estimates that almost 6 million U.S. SMBs access the Internet, of which nearly 3.3 million use broadband. In addition, about 94% of all MBs and 40% of PC SBs use LANs.

The rising inter-connectivity among businesses is also leading many large companies to influence their customers and suppliers to enhance their IT security. Over half of all MBs and one-fifth of all SBs sell to large businesses. "Their sizable purchasing power gives large businesses tremendous ability to influence their SMB business partners and for many SMBs, enhanced security is becoming a requirement for conducting business with them," said Andy Bose, CEO and Founder of AMI Partners.

Security is also becoming a requirement for SMBs that wish to provide remote access to their employees who either work from home or travel for work. Many firms are increasingly relying on VPNs (virtual private networks) to provide secure remote access to their employees as well as their branch offices and customers & suppliers, who have direct access to the SMBs' information sources. AMI estimates that over 425,000 SBs and 67,000 MBs currently use VPNs and projects these numbers to increase to almost 1.75 million SBs and 104,000 MBs by 2008.

The increased emphasis on IT security is emerging as a global phenomenon and AMI's surveys in almost a dozen other countries reveal a significant and growing emphasis on IT security among SMBs in those countries as well.

Emerging Industry Trends

Given their limited budgets and in-house IT skills and resources, SMBs need products that are easy to adopt and maintain. As a result, they seem to be showing preferences for security appliances with integrated functionality (e.g. firewalls with VPNs, content filtering, etc.) and managed security services.

IT security companies are also responding to the needs of SMBs, which have provided a welcome avenue of growth to vendors seeking new markets. These vendors are either developing new products or adapting existing ones to the needs of SMBs, which often have limited budgets and technical skills:

-- Vendors are integrating security into their hardware and

software products to make them safer.

-- Vendors such as, Symantec and Network Associates/McAfee now

offer IT security solutions via the ASP model, which includes

automatic updates of software and virus definitions,

minimizing the time and technical skills required by the users

to maintain the service.

-- Several vendors now offer separate plug 'n play security

appliances which require little technical knowledge on the

part of the users (e.g. Celestix, Check Point, Cisco, Network

Associates, NetScreen, Nokia, SonicWALL, Symantec, etc.).

These appliances also increasingly provide integrated

functionality of firewalls, VPNs, content filtering, etc.,

easing the overall implementation and maintenance requirements

for SMBs.

-- Finally, vendors are also increasingly offering IT security as

an outsourced managed service, whereby businesses can

outsource their entire IT security operations to an external

service provider.

Given the SMBs' need for easy-to-use and easy-to-maintain security, AMI expects security appliances and outsourced security services to grow rapidly in the coming years.

Ongoing Industry Consolidation

The IT security industry has been consolidating in recent times as companies like Symantec, Network Associates, VeriSign and Trend Micro grew faster than their competitors, especially those that were highly dependent on revenues from large enterprises. The consolidation has also occurred due to ongoing acquisition activity. However, the industry remains highly fragmented, consisting of scores of small companies. Even the largest IT security vendors can claim annual revenues of only $1-1.5 billion while mainstream IT companies have revenues in the tens of billions. The continuing consolidation in the near future will see mergers and acquisition activity among the IT security companies as well as acquisition of IT security companies by the larger IT/telecom vendors. "As security becomes mainstream, the large computing/networking/telecommunications equipment vendors will find it necessary to complement their product portfolios with security products and services, as we saw with Juniper's acquisition of NetScreen recently," said Andy Bose.

IT Channel Partners Offer IT Security to their SMB Customers

The emphasis on IT security was also seen in a separate study of U.S. SMB channel partners conducted by AMI, which included VARs, system integrators, independent software vendors, etc. SMB channel partners, those that derive 50% or more of their revenues from SMBs, are a crucial link to serving the vast and highly fragmented SMB market. Reflecting the high demand for security products from their SMB customers, almost two-thirds of SMB channel partners now offer firewalls, 60% offer data backup & storage, almost half offer VPNs and one-third offer outsourced security services. Five of the top eight most common software vendors, among SMB channel partners, include security companies such as, Symantec, Network Associates and VeriSign. The number of SMB channel partners that resell Symantec's products is second only to those that resell Microsoft's products, reflecting the high importance of security among SMBs.

SMB Market Segmentation

A more detailed analysis by AMI grouped the 7.8 million U.S. SMBs into four tiers based on factors such as their current and planned adoption of new technologies, attitudes towards technology, etc. (In addition, these four tiers also vary significantly in their average size, industry specialization, types of customers and suppliers, employee mobility, etc.) The analysis revealed that about one-fourth of all SMBs belonging to Tier 1 and Tier 2 account for a majority of total IT security-related spending by all SMBs. These SMBs tend to be early adopters of most new technologies, have a high technological orientation and view IT as an integral part of their business. On average, they spend several times as much on IT as their counterparts in Tier 3 and Tier 4.

In sharp contrast to these high spenders, the remaining three-fourths of the SMBs that belong to Tier 3 and Tier 4 are somewhat reluctant adopters of new technologies, waiting for new products to become commonplace and more affordable before acquiring them. Nearly 2.8 million of these SMBs have not implemented any security solutions, including anti-virus software, making them highly vulnerable to internal and external threats.

Thus, while the more technology savvy SMBs -- who comprise about one-fourth of the U.S. SMB population -- are looking to further enhance their IT security by adopting higher end solutions, the vast majority of less savvy ones are not. It will take a concerted effort by the industry to raise the security awareness of these businesses and educate them about the need for safety measures.

About Access Markets International (AMI) Partners, Inc. (AMI-Partners)

AMI-Partners specializes in IT, Internet, telecommunications and business services strategy, venture capital and actionable market intelligence -- focusing on global small and medium business (SMB) enterprises. The AMI-Partners mission is to empower the firm's clients for success with the highest quality data, business planning and "go-to-market" solutions. AMI-Partners was founded in 1996 under the name of Access Media International (USA), Inc. (AMI-USA) by Andy Bose, formerly a group vice president at IDC. Since its inception, the firm has built a world-class management team spanning 10 to 25 years in IT, telecommunications, online communications, and multimedia. The team is comprised of individuals who formerly built careers at leading industry-companies such as ADP, Cablevision, Compaq, IBM, IDC, Gartner, McKinsey, and other major corporations.

AMI-Partners has helped shape the go-to-market SMB strategies of more than 130 leading IT, Internet, telecom and business services companies in the last seven years. The firm is well known for its IT and Internet-adoption-based segmentation of the SMB markets; its annual retainership services based on global SMB tracking surveys; and its proprietary database of several thousand SMBs in the U.S., Europe, Asia Pacific and Latin America. The firm invests significantly in collecting survey-based information with several thousand SMBs globally through the industry's most comprehensive SMB survey instrument, and is considered to be the leading benchmark for tracking SMB trends.

For more information on AMI-Partners or our Global SMB surveys please visit www.ami-partners.com or call 212-944-5100.