Roger Garrett, March 2023

Pandemic-related trends in the technology space such as increased working from home and business digitisation as well as rising geopolitical tensions have greatly increased the prevalence of cybercrime.

Cybersecurity is now viewed by organisations as an essential function given the dramatic impact a successful attack can have on an organisation’s performance, reputation and ultimately profitability.

Cyber attacks are growing fast yet surveys suggest up to 75% of organisations worldwide remain vulnerable. As such, the outlook for cybersecurity spending remains strong over a sustained period of time.

What is Cybersecurity?

Our increasing dependence on the internet, digital devices and vast corporate networks provides key challenges in securing essential data, intellectual property and personal information.

Cybersecurity is the use of technologies and controls aimed at protecting business systems, networks, programmes, devices and data from cyber-attacks.

Cyber criminals and cyber attacks are becoming more sophisticated, with attacks evolving in their complexity as they increasingly deploy artificial intelligence.

Today, the average cyber-attack now is not coming from a person sitting behind a keyboard but from an artificial intelligence algorithm running on a super-computer 24 hours per day and seven days a week.

It is attacking every IP address it can find (both large and small enterprises and individuals) and the impact and cost is increasing.

Businesses are increasingly viewing cybersecurity as a mission critical function given the significant business and reputational risk associated with a security breach.

The need for leading edge protection against cyber-attacks is aimed at preventing theft of intellectual property, financial data and assets as well as protecting brand equity through reduced reputational risk.

Software company Red Hat, in a global survey of over 1,700 companies, found that 44% of respondents put IT security as their top IT funding priority, even ahead of cloud related priorities.

The rising cost of cybercrime

The cost of cybercrime is astonishing. Estimates vary with Cybersecurity Ventures, a leading cybersecurity researcher, taking a more expansive view of the costs incorporating damage and destruction of data, stolen capital, lost productivity, lost revenue, equipment damage, theft of personal data, embezzlement, fraud, business disruption (innovation headwind) and the reputational risk associated with a successful hack.

It estimates that cybercrime inflicted damages totalling US$6tn in 2021 and expects this to grow 15% per annum over the next 5 years to over US$10tn, representing the greatest transfer of wealth in global history and threatening innovation and investment in the process.

The bottom line is that cybercrime costs are significant across many industries, the pace and sophistication of attacks are growing at a rapid pace and the time taken to resolve them is also increasing.

As the internet, digitisation and the interconnectivity of various IT platform becomes even more pervasive, the opportunity set for cyber attacks increase.

Artificial intelligence and machine learning continue to drive both attack and defence and this will sustain strong growth in the cybersecurity industry for decades, in our view.

Detection and prosecution levels are very low, rewards can be high and attack vectors and attack opportunities continue to increase, thereby sustaining growth in the attempt to ward off threats for the foreseeable future.

In summary, the outlook for the cybersecurity market is robust. Both government and private enterprise understand the considerable costs associated with more frequent and sophisticated cyber attacks.

Sales in the industry are expected to grow mid-teens over the next five years and while R&D as a percentage of sales will remain relatively high, we expect it to fall from the elevated levels of recent years as companies scale their operations and look more to protecting moats around their businesses rather than building them.

This will underpin healthy earnings growth in the industry over the medium term.

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