The software business is in transition. The Software as a Service business model and cloud-based delivery are rapidly changing the traditional business models. The changes are also visible in the device market. While PCs continue to play an important role in the device landscape, especially in business use, the majority of the growth in new device sales will come from post-PC mobile devices; i.e. tablets, smartphones and other Internet-connected devices. The use of private and personal clouds to store and share data is now growing quickly. Gartner predicts that the reign of the personal computer as the sole corporate access device is coming to a close, and by 2014, the personal cloud will replace the personal computer at the center of users’ digital lives.
Worldwide PC shipments have decreased over seven consecutive quarters. Consumers’ shift from PCs to mobile devices for daily content consumption has continued to decrease the installed base of PCs in both mature and emerging markets. Tablet computers and smartphones are becoming the most dominant form of devices on the market, although the highest growth has passed, according to IDC (December 2013).
The growing variety of connected devices and services create increasing complexity for both businesses and individuals. The threat landscape is becoming more sophisticated and threats to online security have grown and evolved considerably. Social media and mobile devices are making users’ security and privacy more vulnerable. And in addition to traditional malware, governmental surveillance and espionage is a reality. After Snowden’s revelations, consumers and corporations have become much more conscious about the need for security.
The overall size of the security software market is about $20 billion and growing. The consumer security software market will grow to approximately $6 billion by 2016 ($4.3 billion in 2012), and the mobile security software market is growing almost at 40% per year over the next four years (Gartner, Jan 2013). The market landscape for security software technology will change. Based on several industry analyst estimates, the Security as a Service (SaaS) business model is expected to see continued strong growth and to increase its market share over traditional license sales. By 2015, 10 percent of overall IT security enterprise product capabilities will be delivered in the cloud, according to Gartner (April 2013). The analyst firm expects the cloud-based security services market to reach $4.2 billion by 2016. In today’s world, consumers and companies are looking for products that are simple to use and engaging, while keeping their data safe. The personal cloud business opportunity is emerging. In 2011, Forrester already estimated that this market would reach $12 billion by 2016, based on subscriber growth and new business models.
F-Secure is in a great position to capture the opportunity in the growing security and personal cloud market, with its extensive security heritage developed over the past 25 years. The company’s strong commitment to data privacy also derives from the fact that its roots are in Finland, where privacy is protected by law.
Long-term objectives and strategy summary for 2014–16
F-Secure has revised its strategy for a new strategy period. The company is focusing on cloud-based initiatives to protect people’s identity, data and devices in the post-PC era and multi-device environment. The new strategy is built on the following three trends that are changing the security market:
Mobility and new devices. The vast growth of post-PC devices is changing the traditional way of using the Internet. In this new world, protecting the irreplaceable, in the form of digital memories, privacy, reputation, and time, is even more relevant than protecting just physical devices.
Cloudification. In the future, most of the data and services will be in the cloud – or rather, in many clouds. This means that there will be an opportunity to solve both the security and usability challenges that people and businesses have while using many clouds, as well as to deliver products and services, including security, from the cloud.
Consumerization and BYOD. Software products and apps that consumers adopt and love are finding their way to the corporate stage, and products made for corporate use are expected to exhibit the same user-friendliness and simplicity that people have come to expect from consumer products.
The needs and desires for both hardware and software are often the same, regardless of whether the use is personal or professional in nature. Based on the company’s strong technology assets, foresight on the security landscape and customer insights, F-Secure is continuing to create new innovative products and business models. The company will increasingly use the cloud for powering existing PC and mobile security products and develop new products that are fully cloud-based. The cloud is a scalable way to provide security for the ever-growing range of devices. In 2013, F-Secure launched a new cloud-based security product, Freedome, as well as a personal cloud product, younited, that put users in control of their digital lives. The company will focus primarily on small and medium-sized businesses and consumers by leveraging its current channels. F-Secure has a strong relationship and solid track record of doing business with over 200 operator partners that serve hundreds of millions consumers and businesses in over 40 countries. The company also has thousands of resellers providing services to businesses. F-Secure has built direct-to-consumer capabilities to drive revenues, to get customer insight directly from consumers and to build brand awareness globally.
The company will increase its investments in sales and marketing activities to enforce its brand and expand its geographical presence. The investments in direct business, social media, viral marketing and sales will strengthen the brand and product awareness and support the expansion in the SMB business segment. F-Secure will also expand its partner network.
During the strategy period 2014–2016, the company aims to grow the overall subscriber base by tens of millions of users and seeks accelerating revenue growth. The subscriber growth will contribute to both brand recognition and revenues. The growth is expected to come from the western hemisphere and certain emerging markets, such as Latin America and the APAC region. As the company invests in growth, the relative profitability remains at its current level and longer-term profitability continues to be driven by revenue growth and scalable operations.
Outlook for 2014
Investments in 2014 will focus on sales and marketing activities and on bringing new cloud-based initiatives successfully to the market to achieve significant growth in the subscriber base. Traditional PC security sales through operator partners is expected to improve slightly, driven by Safe Avenue. Geographically, Latin America is expected to continue as a growth driver. New cloud-based products are expected to contribute to growth towards the end of the year. Content cloud sales in the form of F Secure’s younited product are expected to develop favorably through operators, and especially through small and medium-sized businesses. Next-generation security products, such as the recently launched Freedome for consumers, will soon be launched also for small and medium-sized business, and they are expected to change the security market.
Significant growth is expected especially from annual subscriptions of security and content cloud products for consumers as well as small and medium-sized businesses. As a consequence, estimated sales growth is higher than revenue growth in 2014, and this will also be visible in increasing deferred revenues. The company expects overall one-off costs to be less than 3 million, related to efficiency improvements and reorganization in F-Secure SDC (France).
The management’s estimation for the year is as follows: annual revenue is estimated to grow from 2013 with a stronger second half. The annual profitability is estimated to be around 15% of revenues, excluding the one-off costs mentioned above. The revenue estimate is based on the sales pipeline at the time of publishing, existing subscriptions and support contracts as well as current exchange rates. The company continues to prioritize growth over short-term profitability and plans to invest the majority of the improved earnings in growth opportunities in its core business.