Intel's McAfee Acquisition: Waiting For Clarity

As the dust settles on Intel's massive acquisition of McAfee, it's no more clear than it was in August as to why the giant chip maker paid a 60 percent premium at $7.68 billion to make security as their next big focus.

While McAfee has maintained that, at least for a while, it will operate as a standalone security entity, analysts and pundits believe otherwise, contending that it is more likely McAfee's security offerings will be used to embed technology into the chip set.

Thus far, both Intel and McAfee have been tight-lipped about what role security will eventually play for the world's biggest chip maker and experts have speculated the purchase could have been driven by McAfee's brand awareness, its global reach and its strategic relationships with companies like Verizon and Adobe as well as the government sector.

If anything, experts agree that the marriage of the processor maker and the second largest security company in the world has major implications, both for the future of McAfee and the security industry in general.

For McAfee itself, the merger shifts its focus and transforms the company from a standalone product vendor to a parts producer for the chip manufacturer.

"It's not wildly clear as to the implications," said Patrick Sweeney, vice president of product management for SonicWall. "It's almost like a devolution. McAfee ceases to become the arms supplier and devolved into a manufacturing supplier to the arms supplier."

That transformation to a parts supplier could eventually take McAfee out of the running as a major security competitor and instead make them part of the food chain that will be subsequently consumed by other security vendors.

"Security to the silicon -- that has a lot of implications. It makes most security vendors probably in the position to utilize some of that silicon, instead of competing with McAfee," Sweeney said.

Executives from security company Unisys, one of McAfee's existing security partners, said that the merger represented a significant change of paradigm and a turning point for the security industry in general.

Perhaps one of the biggest changes would be the implementation of security directly into the chip, which could be put into 'just about anything," said Rene Head, Unisys global engagement manager for managed security services.

In particular, the security-enhanced chip could increase Intel's avenue for protecting the mobile space, particularly smartphones, as more consumer devices are used in the workplace, Head added.

A recent Gartner study projected that more mobile phones will be accessing the Internet than PCs -- a statistic addressed by McAfee's recent acquisition of mobile security company Trust Digital.

Meanwhile, Intel is far from the only major IT vendor to have acquired a security company, Head added. Indeed, over the next several years, security could become a more integrated part of IT infrastructure in light of IBM's acquisition of BigFix and HP's purchase of Fortify as well as others others. "The endpoint has become weaker to support the demand of business goals," Head said. "Intel could fill that gap completely."

Next: The Changing Concept Of Security

The gradual evolution toward embedded security could eventually shift the concept of security to something that is more inherently integrated as opposed to a separate "bolted on" entity.

"That perception alone is going to put pressure on some of the other chip makers and manufacturers," Head said. "Having this protection built into the endpoint platform, it takes care of itself. It's part of the product you bought."

However, experts say that the shifting paradigm of embedded security will likely not replace the need for standalone security products and suites.

"There's no doubt that larger companies are looking to acquire security elements to build their platform," Bryce said. 'Still I think there's room for all. The positive aspect is that security has been place or positioned as one of the major pillars going forward."

There is a concerted shift away from point products, which are continually becoming features of larger product sets.

"The midmarket is trying to move away from all of these point products. The market is demanding more consolidated approach," Bryce said.

"There's ample opportunity for security platforms and suites. Best of breed technology (companies) will always be the true innovators," he added.

Many vendors were quick to look ahead to opportunities, and potential holes in the security market that may be opened up down the road as McAfee's priorities change. The fact that McAfee's emphasis will be on the embedded chip leaves a wide open playing field in standalone endpoint security market.

Executives at Sophos contend that this could be good news for the company as the market demands research for evolving security threats.

"From our perspective, we see this as potentially good news. The acquisition of McAfee could focus more on embedded security and consumer-oriented hardware -- how do they extend it to the chip set," said Arabella Hallawell, Sophos vice president of corporate strategy.

But corporate security is not necessarily going to be determined by the chip, especially in the smaller markets that rely on security products for compliance and to secure business critical systems.

"Companies need security in terms of putting in place capabilities everyone needs. A lot of malware is coming from the endpoint," she added. "Having it in the chip set is not going to help you."

Next: The Security Market Opens

Some application firewall vendors, such as Palo Alto Networks, say McAfee's integration with Intel would ultimately serve to distract the security company from its burgeoning network security business, and subsequently provide a greater playing field for other, and perhaps more innovative, niche players.

Sweeney said that in light of McAfee's 2008 acquisition of Secure Computing, the company "was in a good position to make a significant push into next generation firewalls. I don’t' see that as being likely right now."

Lane Bess, CEO of San Jose, Calif.-based Palo Alto Networks, said that the acquisition created opportunities in the firewall space as partners and customers became disenfranchised or looked for another standalone firewall alternative.

"Clearly we believe that with the integration of McAfee into Intel, there are going to be many distractions, which we think will further leave McAfee behind," said Ed Bryce, senior vice president of worldwide marketing for Lumension. "If there are customers that are using a McAfee product, I'd be surprised if they aren't at least considering 'why don't we look at an alternative.'"

In addition, Bess said that Palo Alto Networks could possibly benefit from the fallout if disconcerted McAfee channel partners were to consider an alternative in the wake of the acquisition.

"As some more acquisitions take place, this could be very disruptive and unsettling to a channel partner," he added.

Going forward, Bess said that Intel's interest in McAfee had little to do with its hardware and networking security business, and speculated that the security company would eventually be forced to let that segment go by the wayside as Intel put increasing emphasis on the endpoint security software technologies.

"Intel has never been in the network hardware business. McAfee hasn't been successful there. This will clearly move McAfee out of the hardware business," Bess said.

Next: Vendors Grab At Channel Opportunities

Meanwhile, some competing security vendors are taking even bigger steps in an attempt to capitalize on the acquisition. In the wake of the merger, Websense launched a promotional campaign touting a 25 percent deal registration discount for McAfee displacement opportunities.

The deal was promoted with an e-mail issued to Websense channel partners sporting the subject line "Intel's Acquisition of McAfee is a Huge Opportunity For You."

"Intel's acquisition jeopardizes McAfee's secure Web gateway, data loss prevention, and email security products, which are now likely to receive less investment, innovation, and support going forward," the e-mail read. "So what does this mean for you? Simply put, their loss is your opportunity to gain. Since Websense is already considered the leader in content security, McAfee has effectively ceded the content security market. Its customers will undoubtedly re-evaluate their investment, and they and other prospects will likely look first to the market leader, Websense. Our work now is to maximize this opportunity, working strategically together."

"Whenever you have an acquisition, it represents an opportunity to further engage with our partner base to sell content security," said David Meizlik, director of product marketing and communications for Websense. "We see the opportunity in the enterprise security space to address the modern threats."

Meizlik said that Websense was trying to open up possible opportunities for its channel partners with its promotional and saw a chance to market enhanced margins.

"Our focus with the channel is providing all the support that we possibly can. At the same time, selling those solutions at a greater margin is helping the channel be more effective. Naturally they are going to have some questions. It's going to take some time before we really see whether or not the impact of those questions emerges in customer buying decisions." And no doubt disparities in the channel strategy will likely be one of the biggest challenges Intel, which is around 50 percent channel driven, will face as it digests primarily channel-focused McAfee.

"That's not exactly who Intel is," Sweeney said.

In the immediate term, it will likely be business as usual for McAfee, as terms of the deal are hammered out before it closes. And if embedded security is to play a part of Intel's product strategy, it is likely that the chip maker is only just beginning on its security-related endeavors.

"There's a greater vision that we've not seen yet, and McAfee happened to fit the bill," Unisys' Head said. "If Intel is acquiring, then we're not seeing the full picture. If Intel is making security their strategic pillar, is Intel finished yet?"