Symantec has closed its acquisition of Blue Coat for US$4.65 billion, almost double the US$2.4 billion that Bain Capital paid for it just last year. Symantec has gone through significant turmoil and has been on the search for a new CEO since April (see Canalys report ‘Challenging times at Symantec’, published 25 May 2016). More change isn’t what should have been prescribed for Symantec, but it decided to go on and acquire Blue Coat in hope of reigniting growth. The deal attempts to solve several challenges, including positioning Symantec in adjacent high-growth product segments and bringing in much needed executive talent. Blue Coat’s current CEO, Greg Clark, will run the collective company.

Coming from a pure play security vendor, Clark has always been a good candidate for the role of Symantec CEO. He should show good judgment in rolling out a new security-centric initiative for the wider Symantec organization. His background includes 11 years at Blue Coat and prior to this he served as president and CEO of Mincom, a global software and services provider to asset-intensive industries. Before that, he was a founder and CEO of E2open, a provider of cloud-based supply chain software. Overall, Clark has a strong background in security and cloud service delivery, which will doubtless be important for the new Symantec strategy.

Blue Coat abandoned its IPO plans when the acquisition was announced in June. According to its initial filing, Blue Coat made a loss of US$289 million in the 12 months that ended on 30 April 2016. This was roughly the same loss (US$271 million) as in the previous fiscal year. Though making a loss is not encouraging, Blue Coat can boast 17% revenue growth over the same period. The same cannot be said for Symantec, which is continuing to deliver lackluster financial results and losing market share amid greater competition from old and new rivals. The addition of Blue Coat will work to lift staff morale, which has been declining for some time. The combined company will roughly reach US$4.4 billion in gross revenue and further solidify Symantec’s position as the world’s largest standalone security vendor. The prospect of new and interesting solutions will also reinvigorate its channel, which has largely been frustrated with continual operational and strategic disruptions.

From a portfolio perspective, Symantec finally enters the network security market, which has long been seen as a portfolio gap. This has been felt even more acutely in recent years as the move to integrated solutions continues to grow. Security increases in complexity, and vendors with wider portfolio sets are capitalizing by touting ease of management features. Symantec will immediately gain from adding Blue Coat’s web filtering solution, which includes robust application-level features. The addition of the crossbeam firewall offerings might not prove an immediate fit, as Symantec has predominantly focused on software as opposed to hardware. Also, Canalys estimates the Crossbeam business has declined since its acquisition and the success of this business unit still remains to be seen as channel partners do not see Crossbeam as a major competitor in the wider network security arena.

Symantec must shift from being product-focused to services-oriented

Symantec must shift from being product-focused to services-oriented Blue Coat also has other new assets in the form of security analytics solutions and, perhaps the crown jewel of the acquisition, cloud access security brokerage (CASB) services. This is an emerging area of the security market and is essentially defined as security controls for cloud services. CASBs are centralized points of security policy enforcement which are either on-premises or cloud-based (or both). Positioned between the end user and cloud service provider, they perform traffic inspection, manage and enforce policy, flag up irregular behavior patterns, and can also provide various other functions such as encryption, authentication and DLP. By leveraging API’s, a CASB becomes the central point of control and security administration for all of a company’s cloud based apps. For Symantec this is a strong differentiator. It will enable it to become a so-called ‘secure cloud aggregator’. But for this strategy to be truly successful, Symantec must shift away from being a product-driven company to become a services-focused one instead.

Symantec has always had a cloud initiative, but its cloud platforms lacked integration and it always remained more focused on its core endpoint solutions. Under its new CEO, this mentality will undoubtedly change and cloud will become a major theme across its portfolio. This is the right ingredient to move Symantec from the legacy security measures for the old infrastructure, and into the new cloud and mobile environment of today. There have been other vendors engaging in acquisition activity in this space already: Microsoft bought Adallom and Cisco bought CloudLock. IBM has launched its own CASB, and VMware added CASBs to its Mobile Security Alliance (including Blue Coat, CloudLock, Netskope, Palo Alto Networks and Skyhigh Networks).

Symantec still has a lot to overcome. Before the acquisition, it was re-focusing and trying to strengthen the parts left after the divestment of Veritas. Acquisitions have never been Symantec’s strong suit, because integration processes never seem to be well established and executed on. The security market is moving so quickly, it is difficult for any vendor to keep up. Blue Coat may prove to be a better fit for Symantec as it doesn’t have major overlap from a portfolio perspective. Greg Clark has stated that initially the two companies will continue to operate as they are, and that integration has already begun but will take a few more quarters to complete. So for this acquisition, product integration may be less painful. But other sales and channel-related integrations must be handled with even more care.

Channel focus will be key to getting the new Symantec back on track

Symantec has strength in small and large enterprises. While Blue Coat’s major strengths lie in large enterprises and the mid-market. This will help Symantec on its quest to become less reliant on its consumer business and focus on the more profitable enterprise space. The two vendors will have slightly less channel overlap, but many of Symantec’s partners will be interested in taking on Blue Coat’s offerings as they provide new, and higher-margin, feature sets. Because Blue Coat was mostly focused on the larger enterprise market segment, it will have good systems integrator relationships and larger distributor partnerships. It will immediately benefit from Symantec’s strength in the SMB reseller channel but will need to tailor its channel incentives and solutions set to suit this community.

Symantec needs to work on delivering an efficient order fulfillment system to facilitate its global channel. It needs to focus on making a clear upgrade to its channel partner programs without much disruption to existing partners, and invest in training and enablement across its existing channel to effectively sell its new portfolio set. Partners will be excited to get new skills and an opportunity to shift into analytics and cloud service security. But Symantec will need to make it worth their while and provide enough margin incentive as well as clear roadmaps on technology progression. Regaining the channel’s trust should be Symantec’s major priority and not more acquisitions or further portfolio change.

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