smbt10028 T H E YANKEE G R O U P Small & Medium Business Technologies RESEARCH NOTE May 2003 by J. P. Gownder Check Point Targets the Small Business Market Product Background Check Point Software Technologies enjoys elite status among large enterprise end-users. The company provides security solutions to 95 percent of Fortune 100 companies, 80 percent of Fortune 500 companies, and 97 percent of Fortune 500 financial institutions. In Q1, the company met its financial expectations on flat revenues of $104.8 million. Check Point is making an aggressive move to expand its sales in the small and medium business (SMB) market. Although the company already competes effectively in the medium business (100 to 499 employees) segment, it has now set its sights on the very small (2 to 19) and small (20 to 99) segments. Its Safe@Internet Security series of products, which includes firewall or firewall and VPN appliances, targets home offices and small businesses with up to 100 employees and 1 to 3 office locations that use DSL or cable Internet access. Check Point works with a variety of hardware partners that manufacture the appliances, all of which are powered by Check Point software. With its entry into the low end of the SMB market, Check Point will compete with SonicWall, Watchguard, and Symantec, among others. Exhibit 1 summarizes Check Point s offering for small businesses. Product Strategy and Trajectory The 2 to 100-employee segment targeted by Check Point s Safe@Internet Security product line is comprised of approximately 5.8 million firms (Exhibit 2). Of those, 1.8 million currently use broadband Internet access (33 percent employ DSL; 23 percent use cable; 23 percent subscribe to T1 or fractional T1 lines; and 21 percent employ other forms of broadband, such as ISDN, fixed wireless, satellite, or T3). Exhibit 1 Check Point Small Business Suite Source: The Yankee Group, 2003 Product Name Product Scope Industry Focus Relevant Partners Installed Base The Check Point Small Business suite of products, including the Safe@Internet Security Appliances Small businesses with 2 to 100 employees VPN and firewall (CPE-based) Prices start around $300 per site Security Management Platform (SMP) for service provider or VAR managed service provision and management Options include managed anti-virus, Web filtering with SMP Network security Celestix, Intrusion, NEC, Nokia, VPN Dynamics, local VARs, ISPs, telcos, others 273,000 (from Q1 2003 earnings conference Call), which includes VPN/firewall and Safe@ total Copyright 2003, the Yankee Group
Small & Medium Business Technologies Exhibit 2 Check Point s Overall U.S. Small Business Market Opportunity Source: The Yankee Group 2002 Future of Broadband Survey; U.S. Small Business Administration SMB Employee Size Segments Overall Market Opportunity: 2 to 4 5 to 9 10 to 19 20 to 49 50 to 99 Total Number of SMBs in Segment Percentage of SMBs with Internet Access Percentage of Broadband SMBs Number of Broadband SMBs Breakdown of Broadband SMBs by Access Technology: Total 2 to 99 3,593,935 1,059,098 632,142 403,580 126,088 5,814,843 75% 81% 89% 89% 96% N/A 31% 47% 47% 62% 69% N/A 832,427 404,692 264,425 220,193 83,260 1,804,817 DSL 40% 47% 45% 37% 33% N/A Cable Broadband 51% 34% 32% 22% 23% N/A T1 or Fractional T1 5% 10% 14% 23% 23% N/A Other Broadband 4% 9% 9% 18% 21% N/A Office Locations by Size Segment: Mean Number 1.3 1.8 2.0 2.5 5.0 N/A Median Number 1.0 1.0 1.0 1.0 2.0 N/A To succeed in this market today, network infrastructure equipment vendors must solve several dilemmas, such as: Creating products to appeal to sub-segments. Exhibit 2 depicts some basic differences between five size-based sub-segments in the 2 to 99-employee market. The 10 to 19-employee sub-segment is the smallest to institutionalize its commitment to the value-added reseller (VAR) channel for purchasing; smaller sub-segments are more retail outlet-oriented. Developing VAR channels with capillarity and loyalty. On April 7, 2003, Check Point announced its Small Business Partner Program, which offers VARs lead generation, marketing funds, logo use, and other benefits while requiring only the completion of online sales and technical training. Exploring alternative sales channels. The managed services channel continues to grow. Less noticed is the trend of interindustry collaboration. Open any Dell SMB catalogue and you ll find WatchGuard firewall and VPN appliances for sale alongside Dell PCs and servers. Adding managed services and interindustry channels will be key to reaching the low end of the market. Solve the price-value dilemma. SMBs consistently choose price as a major consideration in purchasing decisions, but price often means value or return on investment. Rather than going after price seekers, Check Point competes for the dollars of small businesses for which data communications are integral to business processes. These end users will choose Check Point based on its technology, features (such as remote access), ease of use, and brand name. Product Strengths SMB demand for security products continues to increase. SMBs rely more heavily on data communications each year, both in the office and for telecommuting and mobile workers. Eventually, firewall and VPN products, along with anti-virus products, will be nearly universal among broadband SMBs. 2 Copyright 2003, the Yankee Group. All rights reserved.
May 2003 Brand name, reputation, and technology. The company s dominant position in the enterprise market lends instant credibility to its small business products among end-users and VARs. The company has a strong VAR focus. In addition to its burgeoning channel, Check Point uses the VAR networks of hardware partners like Celestix. Check Point has enjoyed a great deal of success managing complex partner relationships, and is 100 percent indirect in its sales models. Its prospects for success here are high. The Security Management Platform primes the product for managed service success. SMP allows VARs or service providers to centrally manage the appliances and to add anti-virus and content filtering capabilities. This feature enables sales through the managed services channel, a key to the SMB market. Product Challenges Not all SMBs can discern between different types of firewalls. Some of Check Point s rivals will sell inferior products at lower prices. However, Check Point knows it must educate end users on this issue. It created a small business newsletter, a series of getting started white papers, and a Web site in addition to its VAR training initiatives. Small (20 to 99) broadband businesses are moving to T1 access. Check Point may have to pitch higher-capacity devices at the small segment as T1s sometimes integrated with voice and data lines over one pipe-become more prevalent in this segment. Will it be Intel Inside? Check Point must prove that its branding approach can translate directly into a message for small businesses. The company has the opportunity to become for SMB network security what Intel Inside is to PCs. Check Point Recommendations Pursue interindustry bundling and managed services in the U.S. Creative partnerships in with telecommunications carriers, PC manufacturers, and hardware and software vendors will complement its strong VAR strategy. Recognize the growing prevalence of T1 small businesses. Its offerings can currently accommodate users of all sizes, but it must be careful to specify which products will go to which users. Aggressively seek to unseat incumbents. SMBs seeking premier security solutions but employing legacy equipment can be a strong market for Check Point; trade-in programs or other incentives might help induce churn. Competitive Recommendations Ensure VAR loyalty. Competitors must ensure that the VARs currently selling their products continue to favor them. Most VARs do not sell one brand exclusively. Competitors must ensure their products are easier for VARs to both sell and gain margin on than Check Point devices. Defend against Check Point s messaging. Competitors will be forced to explain why their products are more suited to small business protection than Check Point (which enjoys an incredibly high technology reputation and success rate). Copyright 2003, the Yankee Group. All rights reserved. 3
Small & Medium Business Technologies Differentiate along other dimensions. Bundling intrusion detection, anti-virus, content filtering, and other security products may allow competitors to become one-stop shops for small business security buyers. SMB Recommendations Learn more about Check Point s new offerings. Ask your trusted reseller or business consultant about the Safe@Internet Security line, and add it to your choices for security. Ensure a growth path. When purchasing security solutions, be certain your company s planned growth (number of office locations, PCs, or bandwidth capacity) does not exceed the capacity of the solution. 4 Copyright 2003, the Yankee Group. All rights reserved.
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