NetDogDECK v2 005

NetDog: 

NetDog Business Concept Assessment October 16, 2003

Venture Description: 

Venture Description NetDog is a concept stage technology that will occupy a space in the Intrusion Prevention market. This is an emerging market that will replace the current Intrusion Detection (ID) market. NetDog represents a paradigm shift in the IDS market. While current IDS passively monitor network traffic, this technology will allow ID to be active, evaluating packets at wire speeds after packets have passed through the firewall. NetDog is an appliance that will be placed on the customer’s network and will be located between the firewall and the company’s network. NetDog is the result of federally funded research project supported by the Air Force Office of Scientific Research, Air Force Materiel Command, and the National Science Foundation.

Opportunity/Need: 

Opportunity/Need Market Opportunity Spending on emerging security technology is increasing and Intrusion Prevention Systems are viewed as the next major growth area in the space. 2002 spending in the IDP/ISP market was $382 million, increasing to $1.6 billion by 2006. Most of this growth will come from the IPS market as there is a transition in progress from network intrusion detection to network intrusion prevention. At this point there are no market leaders or market standards. The IPS market is growing at a compound annual growth rate of 65%. Network based systems will continue to capture the largest share of the market (currently 46%) and Few, if any, products provide the features necessary for true IPS. Market Structure The market is somewhat fragmented, however the top three players account for nearly 50% of the market. Products are sold primarily through value-added resellers, systems integrators or direct to customers. The regional market structure breaks down as follows: North America accounts for 61% of IDS product revenue, EMEA has 19%, Asia Pacific has 17%, and CALA has 3%; Asia Pacific will slowly eat into North America’s share: by 2006, North America drops to 57% and Asia Pacific rises to 22%. Organizations are rapidly adopting this technology. Market penetration rates in 2002 were 48% and are projected to be 83% in 2007. Compelling Need Computer viruses (i.e. Slammer), denial of service attacks and hackers have become more efficient and damaging, and the velocity of the propagation of these attacks continues to increase. These attacks cost companies of every size billions of dollars per year. The threat of cyber-terrorism is also becoming more of a reality, further increasing the need for additional network security measures. Intrusion detection systems have failed the market because of false positives, the burden on the IT staff, a taxing incident-response process, and inability to keep up with high bandwidth connections (2). The product provides peace of mind to IT managers and execs (filling an emotional needs, protects data from theft or damage (a physical need) and helps mitigate losses from virus and hacker attacks (a financial need).

Product/Service Description: 

Product/Service Description What NetDog does: Through the use of proprietary, SIENA-based technology and a deep understanding of the needs of our customers, we have developed NetDog to integrate seamlessly with your existing security prevention measures to create a complete system that not only detects harmful or unwanted data, but can actually prevent it from entering your network. NetDog is a next-generation network intrusion protection system (NIPS) that works providing a suite of all of the existing network intrusion detection system (NIDS) on the market. NetDog works with any existing NIDS to provide customers with a complete NIPS. The product: Comes pre-configured with all of the top NIDS available on the market today. NetDog is offered in three tiers. Platinum 2000: our technology is available on the latest Intel processor and a Dell Power Edge 6650 . The Platinum level offers network intrusion protection for network speeds up to 2.0 GB Gold 600: Offers protection for networks up to 600 MB. Runs on a Dell Power Edge 2650. Silver 150: Offers protection for networks up to 150 MB. Runs on a Dell Power Edge 1750. Availability: the product is available for direct purchase exclusively through licensed resellers, and is typically available within two weeks of order. Performance: NetDog is currently working as a prototype, with initial data proving our claims in terms of security. Service: comes with a two-year limited warranty with available upgrades, training and maintenance contracts on an installed product. Customer support is available 24x7x365 via the Web and 800 line. Pricing: NetDog: Platinum 2000: $100,000 up to 2.0 GB Gold 600: $50,000 up to 600 MB Silver 150: $20,000 up to 100 MB NetDog services: Installation, training, maintenance, product upgrades, NIDS upgrades and repair service contracts are all available, with pricing dependent upon the size of the network and specific needs and goals. These are also available in three tiers based upon the needs of each customer. Production/Delivery: Flextronics will be responsible for the production of NetDog using Dell Servers. NetDog will be made available exclusively through the use of top-rated third-party resellers and will be distributed through UPS Small-Business Services until volume warrants the investment of in-house processing and shipping.

Target Market: 

Target Market Companies with large distributed networks, Internet backbone and service providers, Colleges and Universities, governmental and NGOs The majority of the customers are in North America, however the fastest growing market is in Asia The target market currently views network intrusion detections as weak, inefficient, and a generally poor investment. They are looking to network intrusion prevention systems to provide an added layer of security, on top of what the firewall already provides. Payment terms are generally net 30, however the sales cycle, given the cost of the products can be quite long (3-6 months) Purchases are typically made through a reseller, systems integrator, or direct. Buying decisions are made on the following factors: 1) support; 2) effectiveness of the product; 3) proof-of-concept and side-by-side comparisons are often used; 4) cost-benefit analyses and ROI

Unique Benefits: 

Unique Benefits Why NetDog: NetDog combines its own SIENA-based technology to diverts traffic coming into a network through the use of packet identification with that of a combination of ALL of the top NIDS available on the market today. This allows companies of all sizes to have a complete NIPS while maintaining wire speed even under huge data flows. Corporate understanding: Target market understands the need to enhance their security measures in order to reduce their costs stemming from network intrusions. These costs are preventative in nature, with the customer recognizing financial benefit dependent upon their current state of vulnerability. This product has the opportunity to realize billions of dollars in savings for companies each year while at the same time providing a realistic sense of security. Everyone is at risk of suffering from a network intrusion. This is not a matter of if, but a matter of when. Even insurance companies have stayed away from the imminent risk here. Every corporate network needs this level of security – NOW

Competitive Analysis: 

Competitive Analysis Major companies in the marketplace compete on highest quality and newest functionality. Prices are similar across most competition Since network security is such a major issue, corporations are likely to buy only from safe and established companies or resellers. Customers remain loyal to their vendors, so it is important that we pursue partnerships with the large network systems vendors and resellers. Switching costs are high because a customer needs to learn a new technology if they go with a new vendor. In addition, many installations are customized and optimized to the network that they are on, which takes time and money to do. Most competitors perceive themselves as the best, most powerful and robust option available to customers. They sell on total security, with more focus on the types of intrusion and efficacy than on the actual technical features.

Sustainable Competitive Advantage: 

Sustainable Competitive Advantage Advantage NetDog has the industry’s only second generation network intrusion prevention system that is able to route packets based on type. This proprietary technology makes network intrusion prevention a faster, more reliable, and more efficient process. The competition uses older technology that does not intelligently route packets. Control Market prices are similar across our first generation competitors, which we will match in order to have an advantage in competitive sales and gain market share. Our technology is based on proprietary knowledge of the inventors, who are supplying the intellectual property to differentiate the product. This type of algorithm has never been used in a network intrusion prevention system and the inventors are the only industry experts in this technology. We will distribute the product through the usual VAR and SI channels of distribution. It will be a challenge to introduce this new product when most channels already are selling a different solution, but our product is significantly unique that it is worth adding to the sales portfolio. Barriers to entry Existing IDS/IPS technology is fairly easy to emulate, however there is some proprietary code that we would need to develop to further differentiate ourselves in this area. While the algorithm itself is open source, there is a lot of technology that goes into tailoring this algorithm for the purpose of intelligently distributing network traffic to network intrusion detection systems. This security-specific software is complete and copyrighted. There are no plans to release this software open source pending the outcome of the business plan class. It is anticipated that some patentable ideas will result from the current research. The competition is bound to try to emulate our technology once it becomes public, but we feel that none of them have the expertise in designing these types of algorithms. We approach the problem from a completely new direction

Profitability: 

Profitability NetDog anticipates achieving a 5% market share, giving us a customer base of 925 customers by 2007. This is based on estimates of future market penetration rates. The pro forma income statement was generated using the percent of sales method, using Cisco and NetScreen as benchmark companies. Both firm operate in our market space and have represented industry cost strucutres. We will sell three products tailored to different customers requirements. The high end product will constitute 10% of unit sales, the mid-range product about 60%, and the low-end product about 30%. High End Product: $100,000 Mid-Range Product: $50,000 Low-End Product: $20,000

Conclusions: 

Conclusions In the infancy of the network security industry, there is currently no product that has made available all of the major NIDS, allowing customers to use all of their protection. NetDog provides this while maintaining network speed and monitoring up to 100% of incoming data, meaning an end to dropped packets. As proof of demand for NetDog’s benefits, Forrester states that 58% of companies world-wide will be budgeting to upgrade their existing security applications. After four years, 86% According to BusinessWeek, this is because the 76,404 virus attacks reported in the first half of 2003 nearly matches the total from 2002. It is expected that business damage from viruses alone will amount to $13 billion in the US in 2003. No other technology offers the complete set of services that provides the power of the major NIDS with enhanced speed, load balancing and intelligent routing, resulting in a complete NIPS for any company. NetDog’s technology is sustainable, and is currently in the patent pending process. NetDog maintains its two inventors on staff, both researchers at the University of Colorado at Boulder. Based upon the availability of product levels for all businesses and demand forecasted in the network security industry, NetDog is a viable business.