Palisade Systems Bets Big On Data Loss Prevention

Palisade Systems is banking big-time on data loss prevention, one of the fastest-growing segments of the security market, and the upstart security software maker is betting that the channel will make it a winning move.

Kurt Shedenhelm, who took the CEO reins at Palisade in March 2004, decided to change the Ames, Iowa-based company's course that fall after a venture capitalist pointed out that its technology was ready-made for preventing critical data from leaving a network. "At that point, there wasn't a market called data loss prevention," Shedenhelm said.

Palisade launched its first data loss prevention product in October 2005 and beefed it up last July. Now the company has modules that cover a range of data loss compliance solutions, including for the payment card industry (credit- and debit-card information), HIPAA (confidential patient information) and Graham Leach Bliley (corporate financial information). And in December, Palisade launched the PacketSure Appliance, which provides a single solution for auditing, blocking, encrypting and preventing sensitive data from being sent outside the network.

With an ever-increasing number of companies revealing breaches in payment card, patient and customer information, Shedenhelm expects Palisade's sales to double this year to $8 million. He also expects the company, which this year made a significant investment to build up its channel ranks, to break-even by midyear.

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"This is a gold mine," Shedenhelm said of the data loss prevention space. "This is a huge market opportunity over the next five years, with double-digit growth."

Palisade has a several-year head start on larger rivals, which are acquiring companies to get into the data loss prevention game, according to Shedenhelm. He said Palisade's solution is deeper and more comprehensive than rival products, which are much more narrowly focused.

Palisade's patented core security technology, which monitors network traffic for internal and external breaches, was developed Dr. Doug Jacobson, a professor of computer engineering at Iowa State University, who founded Palisade 11 years ago and continues to oversee product development as CTO. The Palisade technology is even used to prevent illegal downloading of copyrighted music by college students as a result of a cross-licensing and development pact with Audible Magic, a copyright protection company that has attracted much attention from deals with the likes of and Sony Music.

Shedenhelm said the toughest task wasn't adapting the Palisade technology for data loss prevention but defining product requirements in a market that was just emerging. "It was so new that we didn't know what customers were going to want," he said. "We learned as we went along."

NEXT: Palisade commits to the channel

And to help drive the move to data loss prevention, Shedenhelm shifted the company from a direct-sales model to a 100 percent channel model. That meant convincing a somewhat skeptical board of directors and replacing direct-sales reps who "didn't want to give up control to the channel," he said.

"Most venture-backed organizations want their companies to be self-directed," Shedenhelm said. "They want to control their own future rather than hand it off to a third party."

But as a former reseller, Shedenhelm felt Palisade's success depended on building a network of channel partners. "Companies are more comfortable buying security products from trusted advisers in local cities," he said.

Since officially launching its channel effort last January, Palisade has signed up 75 VARs, half of which are contributing sales month in and month out. The company also recently hired Richard Watt, a former WebSense regional sales director, as vice president of sales. In addition, Palisade is adding channel reps -- it has six now and plans to add two more -- as it moves to expand its U.S. partner ranks to 125 to 150 this year.

Shedenhelm said the VAR intiative is being boosted by a 45 percent margin for partners that register deals with Palisade, compared with an industry average of 20 percent to 25 percent. "No one offers that type of margin in this space," he said.

David Wren, vice president of SpearTip Technologies, a St. Louis security specialist that became a Palisade partner five months ago, said the margin boost from the deal registration program is extremely attractive.

"What sets Palisade apart is their ability to protect confidential data you don't want to leave the network," Wren said. "That could be any Excel spreadsheet or e-mail leaving the network with bank account information, or a hacker getting into the network and trying to pull information. Palisade sees that data and blocks it, preventing it from being transferred over the network. The technology is very good. There are not a lot of products on the market that we have been able to find that do this."

Palisade's products also aren't overdistributed, Wren added. "That shows their commitment to the partner. That's very important for us," he said. "If we work on an opportunity or a deal, we have to have confidence that we will be compensated for it. Palisade is very good about protecting partner margins."

Shedenhelm noted that massive data breaches are happening daily. One recent example was the widely publicized security breach at retail chain TJ Maxx that exposed consumer credit- and debit-card information -- a situation that Palisade's product set would have prevented, he said.

"Our goal is to reach out to channel organizations and get them to sell our product before these breaches take place," he said.