The scramble for market share in the email security appliance space is frantic, as the increasingly lucrative market teeters on the verge of consolidation.
As companies vie for market share and quick expansion using anti-spam systems as an entry point, more cash is being pumped into the private vendors, and rumors of initial public offerings are emerging.
IronPort Systems Inc it to announce that it has doubled the amount of venture capital it has received to date, with a $45 million fourth round led by New Enterprise Associates, with participation from four other VC firms.
CEO Scott Weiss told ComputerWire IronPort is winning about 85% of the deals where its boxes are submitted for evaluation, and he expects the company to record about $25 million to $35 million revenue in 2004, more than doubling to $50 million to $80 million next year.
Weiss said IronPort booked sales in the third quarter of $16.5 million (not revenue, which is recognized differently and not reported), which he claimed was larger, for the first time, than rival CipherTrust Inc’s bookings for the same period.
CipherTrust, which could not be reached for comment, was named by IDC as the leader in the secure content management appliance market for 2003, with an almost 20% share. The company is rumored to be in the process of preparing its IPO papers.
The two companies clash frequently. A little over a month ago, IronPort agreed to pay $2 million to settle a trademark infringement suit with CipherTrust, which calls its appliances IronMail and has a US trademark on the term.
IronPort says its growth is due to unprecedented adoption of its C-Series appliances, which focus on email security. Weiss said that when the company loses out to competitors, it is mainly down to aggressive pricing.
There’s never any obvious reason for losing. Occasionally somebody just drops their shorts on price, Weiss said. It’s not like we feel we have a feature deficit. Rivals attest to the competitiveness of the market.
Reporting its third quarter results last Thursday, Tumbleweed Communications Inc described an email security space with intense competition and declining average selling prices when it came to appliances.
Tumbleweed CFO Tim Conley said that the company saw the average deal size for software sales to new customers go up in the third quarter, but the average size of spam-focused appliance deals was down
The spam-only appliance market remained highly competitive and fragmented, as we expected, Conley said in a conference call Thursday. Our strategy for this market segment is to grow market share, creating up-sell opportunities.
It looks like a classic pre-consolidation share grab. Tumbleweed CEO Jeff Smith said in the same call: The level of market fragmentation is beginning to contract and should continue to consolidate over the next couple of years.
Smith went so far as to say that the company does not see any single competitor in more than 5% of its sales pipeline. Tumbleweed saw about 10% of its $11.2 million third-quarter revenue coming from email appliance sales. Its overall revenue was up 30% on 2003.
In terms of revenue expectations, IronPort seems to be about a year behind Brightmail Inc, the services-oriented anti-spam firm that reported 2003 revenue of about $26 million. Brightmail had filed for an IPO, but then got acquired.
Weiss said that the company is not preening itself for an IPO or a sell-off just yet. I’ve seen so many companies bump their asses on the IPO bar as they go over, he said. We want to be somewhere between a Salesforce.com and a Google.
IronPort also plans to announce today that it has added to its board of directors Robert Thomas, who was CEO of firewall maker NetScreen Technologies until its acquisition by Juniper Networks Inc earlier this year.
NetScreen is, as IronPort executives have said in the past, a company IronPort has learned from. Weiss also says Network Appliance and F5 Networks are role models, from a technology and business perspective.
Right now what we’re replacing is legacy stuff and freeware, particularly Sendmail running on Sun boxes, Weiss said. Like how all of a sudden people dropped in one NetApp box and took out four Sun boxes.
The email security market is densely populated. IronPort, CipherTrust and Tumbleweed also compete against the likes of Mirapoint, Barracuda, Borderware and McAfee, as well sometimes again service-oriented players like Postini and MessageLabs.