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Follow the Money

The New York Times had a report on the booming security trade. The article says that “big companies are expected to spend $32.8 billion on computer security this year, up 9 percent from last year”, and that the future looks great for the industry as well, as “small and medium-size businesses will spend more on security than on other information technology purchases in the next three years”. The Times then went on to list firms that have successfully entered the capital markets, including the likes of Imperva, Splunk, an Plao Alto Networks. In addition, there are also firms that have been sold for big bucks, such as AuthenTec and NetWitness. Things are even looking swell for start-up companies, as they collectively raised $935 million last year, nearly double the $498 million the year before. Bing winners include Lookout, who raised $78 million from top-tier firms like Accel Partners and Andreessen Horowitz, Zenprise, who raised $65 million, and Solera Networks, who has raised over $50 million from Intel Capital and others. This shouldn’t be hard to understand. After all, while cyber crimes may or may not cost $1 trillion of damage a year, cash cows like Visa and Mastercard have been and will always be targets. Even Internet companies like Linkedin are not immune to breaches either. If big data is indeed the future, then there will only be more enticement for thieves, and along with them, more police on the beat.

On the other side of the fence, the far better known Facebook, a site that attracted so much wider attention and affect everyone’s daily lives, is getting slaughtered because it cannot produce any money for its investors. Technology firms can do much more in enterprise, as even farmers, one of the oldest traditions, may be in need of computer wares to help them manage their business. Groupon and its Chinese knock-offs are suffering the same fate.

The lesson, as always, is that helping other people make money is much more lucrative than helping people consume. That is not to say there is no money to be made in entertaining people, Apple has already disproved that notion. However, behind every Apple, there is always a graveyard littered with failures. In today’s world, people have so many choices that they can afford to be fickle with their money. While the called Downgrade Strategy that’s been proliferating in the Chinese Internet circles in the past few days probably won’t work, for many companies, re-evaluate their orientation would probably help. Rather than entering a crowded consumer market, produce products and services that enterprises want may be a better choice. This will not make the company a house name, but it will put food on the table. This is especially for China, where everyone lusts after a billion plus customers. What they don’t see is that China lacks the proper infrastructure for many forms of consumptions to properly function, and the Chinese are probably one of the world’s stringiest customers.

However, Chinese entrepreneurs and businessmen are also willing to bear huge risks in order to make money. Maybe the key to success in China lies not in the way of reaching a billion customers, but convince others that El Dorado exists, and sell them shovels while they search for the illusive gold.