soros private equity partners by abe27

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									  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                      3-5

Overall analyses                       6-11

Technology                             12-14

Products                               14-16

The security market                    17-20

Customers                              21

Competitors                            22-23

Marketing strategy                     24-25

Business model                         26

Strengths and weaknesses               27

Conclusion                             28

Bibliography                           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, military-
government 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                     President - Daniel Steiner

              New - Jersey                          New - Jersey




         Marketing        Marketing                                     Finance &
                                                        Technology
         Department      Department          R&D                      Administration
                                                        Department
           U.S.A       Israel & Europe                               (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 high-
level 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 high-
growth 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 start-
up 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-of-
mind.
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
                                              Anti Virus
                         Security              Software
Managed Security                                 24%                    Content Security/
                        Appliances
    Services                                                                Scaning
                           22%
      14%                              image 1                                 2%




                                                                            Internet Access
                                                                                 Control
                                                                                   3%

Firewall Software                                                                Encryption
      12%                                                                         Software
                                                                                     3%

                                                                                 Authorization
                                                                                     3%


                                                                                 PKI Services
                                                           Authentication
                PKI Software                                                          3%
                                     VPN Software               4%
                     5%                  5%




                           Image 1 – Relative Profitability

50%
45%
40%
35%
30%
25%
20%
15%
10%
  5%
  0%
  Content Security/ Scaning              1   VPN Software
  Authorization                              PKI Services
  Managed Security Services                  Security Appliances (VPN,Firewall,ID)
  PKI Software                               Firewall Software
  Anti Virus Software                        Encryption Software
  Authentication - non PKI




                    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”,         “Migdal”,
“Yes”, “Social Security” and more.




                                          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 Network-
Separator 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




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