Q&A: Websense's CEO Outlines Security Challenges In Troubling Times

At a time when malware is rising to unprecedented levels, many customers are faced with tough decisions about how to cut IT security budgets while finding new technologies to get the most for their security dollars. And with the majority of malware delivered via the Web, many anticipate that Web security solutions will have to accommodate the customer's declining security spending as well as the ever-changing threat landscape.

Everything Channel spoke with Gene Hodges, CEO of Web security company Websense, San Diego, Calif. in a phone interview to get his take on the impact of the challenged economy on the channel, end user customers, emerging security technologies and new threats going into 2009.

In light of the Wall Street collapse and credit crisis, what strategies has Websense implemented to survive and remain profitable going into 2009?

We have a fantastic business model and industry placement for a recessionary economy. All of our revenue is taken pro rata. From a P&L perspective, a good portion of our 2009 revenue is already done. In Q4, 85 percent of our 2008 revenue is on the books and certain. That allows us to follow what I characterize as using the downturn as a time to try to improve our position with the channel and taking share in the marketplace.

What affect does the credit crunch have on your end user customers? Do you see customers cutting their security budgets?

What we're going to see in security overall is the end user being more miserly. There's going to be fierce price and margin competition on legacy security implementations that protect infrastructure.

I think that business managers have gone beyond cutting IT or growing IT. As I talk to our CIO, my discussion with him is what areas can and should we disinvest in. We expect that to play out as disinvestment in the form of increased price competition in legacy products. We would expect to see less money in margins for antivirus. Some of that money is going to the bottom line.

Overall spending will not tank, but I think our reseller principals, they're going to see a lot of margin and price pressure on their largest product lines. It's just going to get a lot worse.

How do you see the declining economy affecting the channel?

This is a time of pretty serious concern for a lot of people who are resellers. It's going to be a pretty tough year for most of those companies in terms of margins. In IT security, margins are going to be crushed. The message is, there are still ways for them to improve their bottom line.

How is security in general weathering the economic downturn? And what areas of security are most likely to survive?

Web security in a Web 2.0 environment are going to be areas that weather the storm fairly well. The Web security arena is one where you try to go on the offense with business applications, building your user community. Those types of initiatives are more directly relatable to keeping the top line up.

Some of those savings will be made available for the newer threats, such as DLP, the Web 2.0 security and hosted security services. In the U.S., we're going to see a slowdown in spending overall. We're seeing more CSOs and CIOs of medium-sized companies ask, "Why are we spending this much the way we always have in these legacy areas?"

DLP actually plays in two directions. It plays in a positive market by preventing damage as an insurance policy and prevents the risk from acquisitions and layoffs with purposeful data loss. This is when employees are most angry. Most data loss comes from laziness. But when the economy gets bad, you have to worry about willful theft of information.

Those areas -- Web 2.0, DLP and the cloud security services -- will be fairly strong for distributed accounts. They simply don't have the manpower to put the boxes out there.

Do you currently see customers leaving hardware security solutions and gravitating toward managed security services as the economy worsens?

More distributed organizations will move more in that direction simply because they'll have more pressures on their budgets. With centralized organizations we wouldn't expect to see big shifts. That always involves costs, and companies that are fairly well-served will tend to go more value-focused than what I'd characterize as strategic expansion.

What kind of opportunities does that mean for partners?

Most of our partners are running a 70-30, 60-40 mix between product resale and service margin. That will continue to shift. We think we will tend to have a 60-40 services focus.

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