soros private equity

The Hebrew University of Jerusalem Business school – computer science school Internet Entrepreneurship Final case study: Whale communications Group members: Gali Berger Geula Swortz Liat Russo Lital Shapira Kohen Ephy Senderov Nadav Oz- Ari 1 Table of contents Executive Summery Overall analyses Technology Products The security market Customers Competitors Marketing strategy Business model Strengths and weaknesses Conclusion Bibliography 3-5 6-11 12-14 14-16 17-20 21 22-23 24-25 26 27 28 29 2 Executive Summery Overall analyses Whale Communications is one of the companies in the emerging network security category known as Air gap technology. The innovative technology fills the space where traditional firewalls and VPNs fall short, due to its ability to maintain disconnect network while allowing secure, real time data transfer and secure browsing of the internet. Both founders founded in the early nineties a company called Softlink, which specialized in data transfer. During a pilot installation at Goldman Sachs Company they were asked to stop the pilot. They were surprised because at first the company was satisfied with the pilot and when they asked for the reason they were told that the security officer doesn’t allow their protocol to enter the system. Goldman Sachs told them in a cynical tone that the only solution that will be expectable is a physical disconnection between the networks. So they went home and started playing with the idea. They figured that this could be a solution to a verity of security problem, and that a separated company needs to handle this new development. Today whale consists of 50 employees. The president and the R&D team sit in Israel. The CEO and 15 more employees are located in New – Jersey. Another branch is in Germany and the CFO lives in Belgium – representing the company there. The technology – Air - Gap “The best way to secure a server is to disconnect it from the web”. This rather simple sentence is taken out of the big book of jokes (for web security managers), but rather than a joke, the idea behind it is the bases for the technology used by Whale - the Air-Gap technology. The need for this technology arises from the nature of the web and the developments it has gone throw the last few years. The Air-Gap is a hardware that shares memory banks between two separate networks. One network is typically regarded as the trusted network The Intranet. The other is regarded as the un - trusted (or less trusted) network - The Internet. Air-gap technology creates a physical disconnection between these two networks. Products We can see the air gap technology in 3 different products.   The network separator - Gives the organization the ability to maintain disconnected networks while allowing real time transfer of information between them. The web mail system (This is a unique product of whale that was developed especially for the American market). The web mail offers organizations the features and 3 functionalities that they need while maintaining the stringent security necessary for protecting corporate system and data.  The e-Gap e-Business System provides organizations with the ability to secure web servers and application servers by placing them in a secure zone, away from hackers' reach, yet simultaneously enables the server to conduct real-time e-business. The e-Gap protects Web based applications at all layers, beginning from the physical layer all the way up to the application layer, and is completely transparent to the applications it protects. Market Overall information security solutions market worth in 2000 was estimated to be approximately $10.3 billion, and according to RBC capital market , annual growth of the market is estimated to be 25 percent for the next 5 years and will reach approximately $32 billion. Marketing segmentation- The traditional market segmentation identifies 12 categories. Each segment presented in the graph represents a unique solution by its relative profitability (image 1). Whale aspires to be the leader of its own industrial technological group– the Air - Gap technology. Customers Whale has managed to establish a circle of clientele, including some of the most leading companies in their own fields of domain: large scale financial institution (banking and insurance), consulting firms, telecommunications operators, hosting providers, government and military agencies, manufacturers and so on. Competitors HP and its Virtual-Vault – The concept behind HP’s solution is similar to Whale’s but air-gap technology is not used within the product nor within any other physical disconnections. Spearhead - Spearhead is a direct competitor of Whale using Air - Gap technology. Spearhead’s solution is similar to the Network-Separator. Sanctum – The company develop application scanning for vulnerability and application security. Marketing strategy The company’s field of operation is protecting sensitive applications. Therefore the company’s aim is not to replace firewall, which has become a standard product in security software market, but to address this specific market where firewall is not enough. Thus, this 4 company has positioned itself as the “Mercedes” and not as the “Subaru” of computer security. Business Model Whale products’ prices range between 40,000 and 50,000 dollars. The customer pays an additional annual fee of 18% of the purchase’s price for updating and support. Strengths and weakness Strengths:      High quality product. Flexibility due to market needs. Weakness: Flag ship product – questionable. Product – not a must have Organizational structure - problematic 5 General Whale Communications is one of the companies in the emerging network security category known as Air gap technology. The innovative technology fills the space where traditional firewalls and VPNs fall short, due to its ability to maintain disconnect network while allowing secure, real time data transfer and secure browsing of the internet. Whale’s e-gap product suite, based on Air Gap technology, can be found in three different products: E - business, the Network Separator and the E-Gap Webmail. All three of them provide security at all data layers from the physical layer through the application layer and prevent hackers from breaking into their sensitive systems. Whether it’s customers, employees, or business partners engaged in electronic billing, on-line banking, eCRM, or simply transferring data between disconnected networks, Air Gap technology is security designed specifically for these types of real-time transactions. Commercial enterprises and governmental organizations throughout the world have certified and adopted the E-Gap System for use in their networks. Customers include financial institutions, Fortune 50 manufacturers, telecommunications companies, militarygovernment agencies etc’. Whale actively partners with leading e-business system providers, including Oracle, Artnet Experts, Bynet Data Communications, CIS Networking, Elron Telesoft, intellect, InterSecurity Solutions and Consulting, Ness, Publicom, Resonate , Securenet, and IT GlobalSecure. The Goldman Sachs Group, investment affiliates of Soros Private Equity Partners LLC, and the BRM Group, co-founder of Check Point Software Technologies and BackWeb, back whale financially and guiding them in there way. In addition, Network Associates Inc. a leading supplier of security and availability solutions for e-business has made a strategic investment in Whale, joining the investment firm Dain Rauscher Wessels, and the seed fund Ex-Seed. Among Whale’s advisory board members are leading figures from the IT security field including Mr. Eli Singer, former president of Memco (now part of Computer Associates), and Ms. Christine Hughes, previously Senior VP Marketing and Business Development for Secure Computing. 6 History Whale was founded at the end of 1998. Previously both founders Elad Baron and Daniel Steiner were partners of a different company named “Soft Link”. “Soft link” is a privet company that specializes in mission critical data transfer for customers such as NASA, the US Securities and Exchange Commission and level 3. During a pilot installation at Goldman Sachs Company they were asked to stop the pilot. They were surprised because at first the company was satisfied with the pilot and when they asked for the reason they were told that although they have firewalls the security officer doesn’t allow their protocol to enter the system. Goldman Sachs told them in a cynical tone that the only solution that will be expectable is a physical disconnection between the networks. They started a research on the subject while . They realized that they are dealing with something bigger then they initially thought, and figured that this could be a solution to a verity of security problem. A different company was established in order the new development. The founders understood during the R&D process that there are situations where a different technology that deals not only with files, but also gives solutions to those who need to make transactions on the net is needed. That was the first time the e- business concept was brought up. After building the first prototype, which helped them get their firs two customers from the military area, They made their first financing round of $2 million from BRM group. At the end of 1999 Elad Baron moved to New Jersey in order to register “whale” as a company in the United States, and started marketing “whales” products there. A few monthes later, in march 2000 they made the second financing round of $23 million from Goldman Sachs, BRM group, Soros and some other smaler investors. 7 Organizational structure CEO - Elad Baron New - Jersey President - Daniel Steiner New - Jersey Marketing Department U.S.A Marketing Department Israel & Europe R&D Technology Department Finance & Administration (CFO - B elgium ) Branch G ermany “Whale” counts approximately 50 Employees all around the world. It has four branches: The headquarters sits in Israel, the second branch located in New Jersey – U.S.A, there is a small branch in Germany and the CFO sits in Belgium, where he represents Whale. Mr. Steiner and Mr. Baron are the founders of the company, managing Whale together, determining the strategy. Mr. Daniel Steiner the president sits in Israel and is responsible for all the employees here. The Israeli branch contains the following departments:      Research and Development – 17 employees. Marketing and sales. Hardware. Administration – accounts, secretaries and etc. Human resources. The last counts 19 employees. Among with his Israeli responsibilities Mr. Steiner is handling all the marketing efforts in Europe. Mr. Elad Baron – CEO works in New Jersey and mainly deals with the American market. The branch there contains 10 employees. 8 In Germany Whales office counts 4 employees. Management team Elad Baron, Chief Executive Officer, Co-founder - Mr. Baron previously served as Chief Technology Officer and then as Chief Executive Officer at SoftLink. Mr. Baron also innovated the Air Gap technology, which led to the foundation of Whale Communications. Previously, Mr. Baron served in the Communications Corps of the Israeli Ministry of Defense as a software developer and system manager. Daniel Steiner, President, Co-founder - Mr. Steiner was previously Vice President of Marketing at SoftLink and then President. Prior to founding SoftLink, Mr. Steiner served in the Israeli Ministry of Defense as a Computing Officer and specialized in networking technologies. Carmi Merimovich, Chief Technological Officer - Dr. Merimovich spent the last 13 years at the Center for Educational Technology (CET), a non-profit body in Israel aimed at advancing the country’s educational system. Prior to this, Dr. Merimovich served in the Israeli Defense forces for five years where he designed a large scale military project and created real time drivers for highly secure military applications Arnon Maman, VP Finance and Administration - Mr. Maman was previously CFO at XTL Biopharmaceuticals Ltd., where he raised $21M in two successful private placements in the US and Europe, and was responsible for all financial activities. Prior to that, he was the CFO at Pharmos Ltd., where he also participated in raising equity and R&D grants, and prepared subsidiary documents for the parent company Pharmos Corp. Lior Kohavi, VP, Research and Development - Mr. Kovahi was previously Managing Director of Cylink VPN Labs, a fully-owned subsidiary of Cylink Corporation.. Prior to that, Mr. Kohavi led developers and engineers at Algorithmic Research, a producer of highlevel cryptographic security. He also has served as the head of the Israel Air Force's Network and Operations Systems Department. 9 In addition to co-founders, Daniel Steiner and Elad Baron, Whales board of directors includes: Nir Barkat, CEO, BRM Group - Mr. Barkat co-founded the BRM Group in 1988 and is its Managing Director. He guided BRM in its evolution from a software engineering organization to a leader in the Israeli venture capital market. He helped create Check Point Software Technologies, the global leader in network security, and served as its first Chairman of the Board until the summer of 1997. He has also directed joint ventures with companies such as Norton and Phoenix Technologies. Joseph H. Gleberman, Managing Director, Goldman Sachs - Mr. Gleberman, a 20-year veteran of the firm and a Managing Director of its Principal Investment Area, oversees the firm's technology-related investments. Mr. Gleberman also serves on the Board of Directors for such technology companies as Applied Analytical Industries, Inc., Backweb Inc., Ticketmaster/CitySearch, Inc., and Dade Behring Holdings, Inc. Neal Moszkowski, Partner, Soros Private Equity Partners LLC - Mr. Moszkowski is a Partner of Soros Private Equity Partners LLC. Mr. Moszkowski currently serves on the Board of Directors of JetBlue Airways Corporation, Integra Life Sciences Holdings Corporation, MedicaLogic, Inc., Bluefly, Inc. and is a former Director of BackWeb Technologies, Inc. Advisory Board - Whale Communications’ advisory board includes key figures in the field of network security. Its members include: Dan Geisler, Active Member Advisory Board - Dan Geisler is an entrepreneur, investor and marketing expert. Previously Mr. Geisler joined NetManage in 1991, as the first Sales and Marketing Chief, and held various domestic and international sales and marketing positions until he left in 1996 as Senior Vice President. During this period the company grew from zero to $125 million in sales, earning the top position in Business Week’s fastest growing US company two years in a row. 10 Eli Singer, Chief Executive Officer and Co-founder - Eli Singer is WebCollage’s CEO and one of the company’s founders. His experience and expertise include building highgrowth businesses in enterprise software and Internet and launching innovative technology products. He previously held position as president of Memco Software, Inc. There, Singer founded Memco’s North American business, directed the company’s sales and marketing activities, grew revenues from zero to more than $50 Million in just four years and oversaw its successful IPO. Prior to joining Memco in 1995, Singer served five years as a senior IT consultant for major Wall Street banks. He started his career in the Israeli Navy, where he served for more than six years as an officer and technology specialist Ziv Dascalu, General Partner, exseed - Mr. Dascalu is a recognized industry technology leader and entrepreneur. He founded AbirNet, a networking start-up, which was acquired by Memco, in turn acquired by Platinum and Computer Associates (CA). Mr. Dascalu's entrepreneurial career also includes serving as R&D manager in NetManage, a start-up whose NASDAQ valuation has reached $1.2 billion, and as R&D leader in Mitan, a startup acquired by Microsoft, and whose product has become part of the Windows core offering. Christine Hughes - Christine Hughes has over 19 years of Marketing and Business Development experience, most recently as Sr. Vice President of Marketing and Business Development for Secure Computing Corporation (NASDAQ:SCUR), a leading provider of networked and e-commerce security solutions. Before joining Secure, Hughes was Senior Vice President of Corporate Marketing for Novell (NASDAQ: NOVL), and prior to that Vice President of Marketing for U.S. Operations at Xerox Corporation (NYSE: XRX). Prior to Xerox, Hughes spent over 10 years in consulting including Vice President at Gartner Group (1983-89) and Director of Research at Quantum Science (1980-83). 11 “The best way to secure a server is to disconnect it from the web”. This rather simple sentence is taken out of the big book of jokes (for web security managers), but rather than a joke, the idea behind it is the bases for the technology used by Whale - the Air-Gap technology. The need for this technology arises from the nature of the web and the developments it has gone throw the last few years: more and more information is shared on the web. Thus, the security level demands more complex and creative solutions. But there’s a paradox - as the security level arises the ability to share information is hurt. The Air-Gap technology gives a good solution to this paradox. It enables enterprises connection to the internet without exposing their systems to hackers. This is done by creating an environment in which two networks are physically disconnected, but logically connected. The best way to describe the concept is by comparing it to visit the lion zone in the zoo. When you enter the lion zone you must go through a special set of gates. Only after the first gate closes the other gate will open. There is never a situation when both gates are open simultaneously. The Air-Gap is a hardware that shares memory banks between two separate networks. One network is typically regarded as the trusted network - The Intranet. The other is regarded as the untrusted (or less trusted) network - The Internet. Air-gap technology creates a physical disconnection between these two networks. This means that network packets can’t flow from one network to the other, and there is never a live connection between a computer on the untrusted network and a computer on the trusted network. There are various ways in which hackers can exploit a live connection in order to gain control over the connected computer and its peers, and physical disconnection puts an end to these exploits. Despite the physical disconnection, Air - Gap technology does allow data, resources and information to be safely exchanged between the networks. Air - Gap technology is implemented through several components that are typically three machines: two servers and a hardware appliance. 12 1. The external server: This host takes the incoming requests, strips off the net working information and leads the application-level information from the original network packets onto the hardware appliance. By removing destination IP information, Air - Gap technology eliminates a hacker’s ability to address systems that are not intended to be externally addressable. By stripping off the whole TCP/IP header, any attacks against the protocol stack are prevented. The external server is typically connected to the internet. 2. The hardware appliance: This device consists of a power supply, memory bank, two SCSI parts, and a high-speed analog switch that can be connected to only one part at a time. After the external server loads the application-level information onto the memory bank, the analog switch in the appliance disconnects the memory bank from the external server, and then connects the memory bank to the internal server. 3. The internal server: This server sits on the trusted network, and fetches the application-level information from the hardware appliance, decrypts (if necessary), and inspects. The contents for correctness and conformity to pre-defined acceptability rules. If the application request passes all of the inspection routines on the internal server, the internal server rebuilds a TCP/IP packet on the internal network, and sends the request to the real server. Air - Gap technology protects against vulnerabilities at all layers, from the physical layer, through the application layer. The products are a multi-layered web security solution. It provides infrastructure protection, authorization authentication services and encryption. Infrastructure protection prevents hackers from entering and assuming control over the operating system thus enabling only application level control. Authentication and authorization provide validity checking of the end user. Encryption hides thus disabling access to servers, internal information. The premier implementation of Air - Gap technology is whale's e-Gap suite of products, which includes different solutions tailored to each targeted application. As far as we know the supervisor of banking (a division of the Bank of Israel) instructed the Israeli banks to disconnect their computing systems from the Internet. His instructions is a good example for the Air – Gap solution - the technology can serve as a physical disconnection that can be used by the banks. The AIR GAP system slows down the speed of transporting information between one computer to the other. 13 The e-Gap product suite utilizes patent-pending Air Gap technology to fill in the space left by traditional firewalls and VPNs, providing the ultimate in system security at all data layers from the physical layer through the application layer. Once a port is opened on a firewall, a hacker can take advantage of that hole by sending an attack encrypted to look like standard traffic; the firewall will permit all such traffic (harmless or toxic) to pass right through, since it cannot inspect encrypted traffic. But by keeping sensitive systems and data physically disconnected from untrusted networks and users, and by enforcing thorough application-level control on data flowing in and out of the sensitive systems, the e-Gap Systems can mitigate against the risk of hackers and provide organizations with peace-ofmind. The positive logic employed by the e-Gap Systems application-level control engine protects against vulnerabilities known at the time the system is deployed, and it even protects against vulnerabilities before they are discovered. Vulnerabilities from being exploited, the e-Gap products reduce the urgency for applying vendor patches, and reduce the time, effort and cost of managing the patching process. Each e-Gap system is a combined hardware/software system, with multiple hardware platforms available, and high availability options. Whale communications have three main products: 1. Network separator system – the system allows organizations to maintain disconnected networks while allowing real time secure transfer of information between them. This is useful for organizations wishing to transfer files, exchange email or allow TCP based connectivity between DMZS (“demilitarized zone”, which is secure zone) and internal networks or between networks of different trust levels. Utilizing Air Gap technology and application level filtering, the system ensures that the transfer of only pre determined application level data is permitted between the disconnected networks, and the physical disconnection cannot be circumvented. The Air Gap network offers an optional one way mode enforced in software or hardware for organizations that wish to transfer data in one direction and must meet highly stringent security requirements. By keeping sensitive networks offline, yet 14 enabling selective data transfer the network separator is a solution for preventing cyber terrorism or hacker attacks. The e-Gap Network Separator System is comprised of several application shuttles, the File Shuttle, Mail Shuttle and Dynamic (Custom) Shuttle. The software shuttles are deployed on the underlying Air Gap technology. Multiple application shuttles may be run over the same e-Gap System or high availability array, and quality of service (QoS) parameters may dictate priorities and minimum bandwidth requirements among them. The system may be used to provide secure web browsing for organizations that otherwise would not provide internet access from the desktop. This is useful, for example in government offices, financial institutions and more which would not connect their internal networks to the internet either due to security reasons or legal regulations. In this case the browser runs in the DMZ while the system shuttles to the user only the image display using Microsoft terminal services. Complementing the secure browsing with email connectivity the system provides full access to the internet. It eliminates the possibility of malicious content such as viruses or trojan horses entering into the trusted network through a java applet or activex code, since all active content remains outside in the dmz. This product appeals to those who gave up the firewall and need extra defense on their networks. Especially governmental and military industry for example Refael, social security and the Germany government they all classify their information as highly confidential and even the smallest breach into their system will be considered as a disaster, in 2 words “especially paranoid”. 2. E Gap webmail system – the webmail is a secure browser based access to ms exchange / lotus notes data anytime, anywhere. Today mobile workforce needs to stays in touch and log onto their corporate servers several times a day for emails, calendar updates and other information. However users often find themselves in a situation where only a simple internet kiosk or a few minutes on a colleague’s or client borrowed computer is all that is available so a VPN or client based solution is not always feasible. Serious security risks both to companies’ internal servers and to entire networks on which they reside can accompany the typical implementation of web based access to email. The web mail offers rapidly deployable web based messaging combined with a full range of security protections. 15 The e-Gap Webmail System offers organizations the features and functionalities that they need, while maintaining the stringent security necessary for protecting corporate systems and data. the dominate company in this market. 3. E -gap E -business – Whale considers this product to be its flag product. Its turns to a different need of organizations. It applies to those who conduct their services via the web, offering them a quality security solution. The e-Gap e-Business System provides organizations with the ability to secure web servers and application servers by placing them in a secure zone, away from hackers' reach, yet simultaneously enables the server to conduct real-time e-business. The e-Gap protects Web based applications at all layers, beginning from the physical layer all the way up to the application layer, and is completely transparent to the applications it protects. By implementing a secure zone isolated from the outside world by a true air gap, an organization can ensure that its most sensitive systems are adequately shielded from any hostile activity originating on the Internet. Machines in the secure zone are inaccessible to anything and anyone outside of the zone – only application-level communications between servers in the secure zone and other networks takes place, and all of the application-level information is shuttled through the e-Gap System and its rigid security-enforcement mechanisms. Critical systems are thus protected from attacks at all the layers, from the physical through the application layer. In the developing internet environment there is a raising demand from customers to get services on the web like bank accounts, cell phone accounts etc. companies are facing a conflict. On one hand exposing their networks to penetration, and on the other hand expending their services to the web in order to stay in the market. From the organizations point of view expanding to the web is a strategic decision, as well as how to secure it the best way. 16 Since the evolving of the computer world, and the entrance of the World Wide Web into our life a security problem has accrued. Although information became more and more accessible, it also became breached. We always hear about all sorts of penetrations to data storage and Hackers has become professionals. The phenomena of breaking into data storage and organization network computers have become an acute problem. Conducting sales thorough the web has decreased due to this problem and organizations around the world suffer from continuously terror of breaking into their system and crashing down their networks. There are three kind of threats to organizations: 1. Causing direct damage to the information: Breaking into network computer in order to distort information and implement viruses (e.g. changing and erasing information files, change the data of a given web site and planting the seed for later on damage). 2. Usage of classified information: Stealing data from internal and external data storage (e.g. credit card number of a client - is considered an external data), listening to the network traffic (stealing emails) and selling the information to unauthorized sources outside and inside the organization. This trend hurts the organization financial interests and causes bad image. 3. The denial of online service: Causes mainly damage to the image of the organizations that deals with on-line services (e.g. e – commerce, home banking etc.). All companies playing in the security market inspire to give solutions to one or more of those threats. During the Year 1999 the number of attempted to break into computers around the untied states (according to the American ministry of defense) were more then 300,000. The estimate is that only 5% of all attempts are being discovered and that the real number of the breaks is much higher. Market capacity: 17 Overall information security solutions market worth in 2000 was estimated to be approximately $10.3 billion, and according to RBC capital market , annual growth of the market is estimated to be 25 percent for the next 5 years and will reach approximately $32 billion. Marketing Segmentation The traditional market segmentation identifies 12 categories. Each segment presented in the graph represents a unique solution by its relative profitability (image 1). Whale aspires to be the leader of its own industrial technological group– the Air - Gap technology. As you can see from the pie chart, Air - Gap is not yet considered a separate category. Therefore, we took the following information under consideration and placed Air Gap in the market: 1. Matching air gap to the most related segment when regarding the solution type. This segment is the yellow segment in the pie chart representing security appliances. Revenues in this segment add up to 1.3 billion dollars and a 35% annual growth rate turning it into the largest and most profitable segment (see image 1 and image 2). Among the solutions you can find VPN, firewall and ID appliances. Included within this segment are direct and indirect competitors. 2. Air gap is an integrated security solution system. Other solutions which include one of the levels of security are represented in the four different segments as you can see. Therefore these are all indirect competitors of Whale because, when the customer makes its priority for choosing a security system he might want to emphasize one of these levels instead of taking the whole package. 18 Managed Security Services 14% Security Appliances 22% Anti Virus Software 24% image 1 Content Security/ Scaning 2% Internet Access Control 3% Firewall Software 12% Encryption Software 3% Authorization 3% PKI Software 5% VPN Software 5% Authentication 4% PKI Services 3% Image 1 – Relative Profitability 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Content Security/ Scaning Authorization Managed Security Services PKI Software Anti Virus Software Authentication - non PKI 1 VPN Software PKI Services Security Appliances (VPN,Firewall,ID) Firewall Software Encryption Software Image 2 – Compound Annual Growth Rate 19 Unlike the traditional segmentation, the market as the company sees it will be divided into 3 major segments based on their 3 products. Each product is positioned for a different market: 1. Network separator: The defense industry market. This is a specific market that needs a very high quality of security because of the sensitivity of the data flowing in the organization. 2. The webmail market: the relevant market is the organizations that want to safely and securely offer access to email from any web browser any where. This is a limited market in search of a specific answer to a specific problem. 3. The e – business system market: This is a new market that has not yet been completed. The existing organizations that want to go into e – business will need to secure their web servers and web applications from hackers. For example a bank wants his customers to be able to see and interact with their account over the web. This bank will need a system that will secure the web. Because this is a new technology and a new concept an organization must take a strategic decision. For that reason one can not determine at this point the size of this segment. 20 The need: Traditional network security measures have been effective, however vulnerabilities still remain. Skilled hackers have made their way thorough every defense that companies have implemented. Taking this into consideration, companies should build a variety of technologies into their security infrastructure. As a company adds additional layers of security to it’s network, it will become increasingly difficult for unauthorized parties and malicious hackers to inflict damage. According to a resent study conducted by Forester Research, companies will spend 55% more on security solutions in 2002 than they did in 2000. It is estimated that 4.5$ billion will be spend on security where as 44% will be focused on access control in incident response. This indicates that companies are increasingly concerned about risks of unauthorized parties breaching existing security measures. Entering the Market: Whale has managed to establish a circle of clientele, including some of the most leading companies in their own fields of domain: large scale financial institution (banking and insurance), consulting firms, telecommunications operators, hosting providers, government and military agencies, manufacturers and so on. Examples for a few clients of the company are: “SuperSal, “Rafael” (Israel arms development authority), “Israel union bank”, “Investec bank”, “Leumi card”, “partner” (orange), “Pelephone”, “Bezeq”, “Yes”, “Social Security” and more. “Migdal”, 21 First of all, we would like to emphasis the differences between the Air - Gap technology and the leading solutions in the appliances segment. The dominant company of the security appliances segment is the Israeli company Check Point. Check Point’s most leading product is the Firewall, which has turned into a commodity in every organization. Whale does not acclaim to be a competitor to Firewall nor does it aim to replace it. Whale sees itself as an essential addition where ever firewall cannot stand by itself. One of the main goals when Whale placed itself in a separate category was to distinguish itself from Check Point and the firewall industry. As mentioned above, Whale’s efforts in creating a separate category for their product has not succeeded yet. Analysts do mention this kind of solution when explaining upcoming solutions, though they predict that most of those new start ups would be swallowed by the giant companies. Comparing air Gap to Firewall 1. Physically disconnected: The Air - Gap is based on a physical disconnection between a secure intranet and exposed internet Firewall which is based only on logical disconnection. 2. Universal solution against specific solution: Firewall gives a universal network security solution unlike the air Gap which provides “tailor made” solution to a specific exposure of each enterprise which usually means a better solution. 3. Air Gap does not use operating system nor a protocol (like the use of TCP/IP with Firewall): With the air Gap technology all data transfers between the untrusted CPU, which is exposed to the internet, and the trusted CPU, that contains all the sensitive applications, is made by a propriety designed hardware device that cannot be altered or bypassed by any hacker. The security policy on Firewall and proxies is exposed to a skilled hacker who can penetrate the computer connected to the internet utilizing new and undiscovered software and operating system “bugs” or a misconfigured security policy. This will allow an attack on the company’s rule-base that relies on the computer connected to the internet. 4. Type of hackering methods: Firewall gives security defense against well known hackering while the air gap gives a security defense to both known and un – known hackers. 22 Whale’s direct competitors include: HP and its Virtual-Vault – The concept behind HP’s solution is similar to Whale’s but air-gap technology is not used within the product nor within any other physical disconnections. Several prizes were awarded for the development of Virtual-Vault: such as the Best Security Service Award and Best General Security Product. HP’s main advantage is its world widespread brand name, which makes the penetrations to the markets easier. Spearhead – Spearhead is a direct competitor of Whale using Air - Gap technology. Spearhead sued Whale for using the brand name air gap. The court rejected Spearhead’s claim and declared that both companies can use the name Air - Gap. Spearhead’s solution is similar to the Network-Separator and those two companies compete over the market for this product only. Sanctum – The company develop application scanning for vulnerability and application security. Sanctum develops automated web application security and control software. The software works autonomously and continuously to monitor how individuals interact with web applications. By detecting the defense against any unauthorized behavior, the company prevents web application perversion, even if a site has unknown security holes or flaws. Thus sanctum competes with whale just in one character of the Air Gap – the application layer. 23 The company’s field of operation is protecting sensitive applications. Therefore the company’s aim is not to replace firewall, which has become a standard product in security software market, but to address this specific market where firewall is not enough. Thus, this company has positioned itself as the “Mercedes” and not as the “Subaru” of computer security. We would like to analyze Whale’s marketing strategy by using the four P’s method of the discipline of business marketing, meaning Product, Price, Place and Promotion. Product - The products stated above apply to the professional customer looking for high quality security solutions. Each product consists of several layers of security in one product. This integration holds the advantage over a combination of different products, since communication flow is quicker and physically less equipment is needed for implementation of the system. By quoting the analyst firm “Giga information group”: “For most links to the back office the most efficient and effective is the Whale communication e-gap.” Price – Keeping a high standard of Quality is well defined in Whale’s prices ranging between $40000 for the Web Mail system and $50000 for the E-business and NetworkSeparator systems. These expensive prices are above the common prices charged for similar products for example HP’s Virtual-Vault-Product which range between 18,000 and 25,000 dollars. Place – Whale’s geographic business arena includes big enterprises in Europe, the US and Israel. Promotion – How does Whale promote actual selling? Whale first started selling its products in Israel and regarded it as a pilot market. Promoting its products was mainly done through integrators, a.k.a as VARS (value added reseller), which form the connection with the customers and distributed the product according to their needs. Israeli integrators include NESS among others. Whale expanded its business activity to Europe and the States. Integrators were used in Europe as well, and this strategy proved to be successful, especially when using a third party to encourage business with integrators. Take for example Belgium: The Belgian police had advertised a tender for securing its computer systems putting air-gap on its list of demands. The awareness of the Belgian police to air-gap brought all the major players among integrating companies to Whale’s. However, problems rose when this method was 24 attempted in the states and Whale switched to the American common marketing strategy, hence direct marketing. By selling the Webmail Whale hopes to gain a footstep in the organization and hopes that in time they will succeed in selling them their main product the E- business. 25 As stated before, Whale products’ prices range between 40,000 and 50,000 dollars. The customer pays an additional annual fee of 18% of the purchase’s price for updating and support. The pie chart gives the information regarding sells percentages. Web-Mail’s share is 15% of selling only in the States. Network-Separator’s percentage is 35% and E- business sells are 50% of the total. However, E-business is still not sold in the States because companies using internet services for their business have usually already implemented a security system and thus discharging the need for a new one, unless proved otherwise adding to the big expense involved. Annual revenue for this year is estimated to be over a million dollars. Break even is expected to take place during the fourth quarter of 2002. Sales distribution: webmail 20% network separetor 35% e -business 45% 26 We would like to start by describing our perception of Whale. First, let’s go through its advantages as a company, those advantages are: 1. Whale has developed a high quality, technology updated product overcoming potential limitations of capacity. 2. Whale was aware of its incorrect strategies and was flexible about changing them rather than holding it against the market. 3. Whale seized the day and took advantage of given opportunities when creating the Web-Mail system. Our desire is not to give alternative solutions and strategies but rather to raise problematic points for reconsideration: 1. Placing the E-business as a flag product seems to be problematic: considering the fact that it doesn’t sell in the United States. The strategy was based especially on speculations and expectations for a rapid growth and development of the e-business market which did not fulfill itself. Needless to mention the numerous start-ups which entered difficult, sometimes fatal, financial difficulties when their business model expected huge sells to a non-existing or non-developed market. There for the problem is that in the USA, organizations who went to the web created there own security system by combining a few products together and they don’t seem to invest more money in a new security system until their own system will be proved as not good enough. So far Whale has managed to sell this system only in Israel. 2. Product price: We consider the product’s price to be rather expensive and unaproportionate to Whale’s share in the market and to its reputation. 3. Organizational structure: the company is very well spread around the world, which is a problem. The synchronization between the branches is hurt due to their geographical location. Also a CFO of a company can not sit in Belgium. He needs to be at the headquarters. 4. The product – not necessary: up until now the Air – Gap technology although it’s quality is unquestionable, has not yet succeeded in convincing the companies that this is a must have product. 27 In this work we have learned the steps of a new company. It’s struggles with in the market – methods of selling, competitors etc’. It’s need to be with a finger on the market’s trends at all times, and to be able to change its’ course of action if needed. We believe that this is a strong company that will be able to survive the harsh competition and to make it on their own – successfully. We believe that we will run into Whale – communications in the future. 28 Hunt steve, Optimal extranet security: a methodology, 2001 giga information group, march 15, 2001 Sigmond Stephen H, kaura vikram, safe and sound a treatise on internet security, RBC capital markets, November 1, 2001 www.computeruser.com www.hp.com www.idc.com www.spearheadsecurity.com www.whale-com.com 29