Will the Antivirus Industry Survive the Cloud?

Tech industry analysts have been predicting the demise of the desktop and download antivirus (AV) security model for years, due in large part to the ongoing transition to "the cloud." But the traditional antivirus business isn't going away soon.

The thinking goes that as more businesses and consumers shift to the cloud's Internet-based software applications, the relevance of desktop antivirus products diminishes. Basically, since fewer programs are physically installed on a desktop or laptop, there's less need for physically installed antivirus programs. Research at the University of Michigan and elsewhere has also shown a potentially higher degree of virus detection by an in-the-cloud antivirus system, due to its ability to combine multiple AV platforms and conduct real-time updates.

Although there is no question cloud computing has an important impact on the security industry, it's not necessarily cannibalizing the security software market.

Consider these facts:

The University of Michigan unveiled its CloudAV platform in 2008, and the AV industry has only grown bigger since.

According to Gartner, the security software market grew from $7.5 billion in 2005 to an estimated $16.4 billion in 2010.

The number of computer viruses worldwide is rapidly increasing: G Data SecurityLabs reports a new record high of 1,017,208 viruses in the first half of 2010, a 50 percent increase over last year. G Data also predicts the total number of computer viruses will set a record high of 2 million by yearend.

The bottom-line is that computer threats are dramatically expanding, both in volume and sophistication, which is driving the demand for stronger multilayered security services. AV companies are incorporating cloud components into their antivirus suites but not dumping the desktop AV altogether. Rather than replacing desktop AV, the cloud migration is merely expanding the entire AV market to include both out-of-cloud and in-the-cloud AV packages. Traditional desktop AV is likely to remain an important part of the market for some time to come.

Here's a look at how the antivirus industry might evolve over the next five years:

Cloud-Based Antivirus: The cloud won't gobble up the antivirus industry, but it will become an important sector of the market. AV companies will have to deploy cloud equivalents to their traditional AV software, or they will be unable to compete, except in niche markets. The benefit of a cloud-based antivirus system is that it will scan much faster and provide more comprehensive virus detection. In the cloud, viruses can be scanned against a host of antivirus parameters vs. just one in a downloaded version.

Whitelisting (Application Control): A recently emerged field of virus protection prevents applications from running unapproved operations on a computer or network—such as executing malware or distributing information to an unapproved third party. Companies already providing it include Bit9, Sophos, McAfee (MFE), Symantec (SYMC). and Microsoft (MSFT).

Virus-Resistant Computers: Intel (INTC) recently bought McAfee for $7.7 billion to allow Intel to build virus-resistant chipsets. Hard-coded devices—from chipsets, to computers, to phones, to networked appliances—will likely see strong growth in the next five years.

Social AV: For the past year, Symantec has used a reputation-based layer of evaluation to help judge the safety of new software, or software that comes from a very small developer. This crowdsource program is now a key part of the company's AV suite. Future AV software is likely to follow this crowdsourcing model, to become more social in order to find new and emerging threats.

Internet Filters: Another innovation for malware security is Web filtering. It's is a new twist on an old idea. Traditionally, Web filters were used for blocking specific URLs from employees or used to make a browser safer for kids. Now filters are used in conjunction with malware scanners and compared against cloud-based reputation managers. That means Web filters can give users a real-time idea about sites that might pose a security risk.

Smartphone AV: At a meeting of the Messaging Anti-Abuse Working Group (a nonprofit industry group that includes such members as Apple (AAPL), Cisco Systems (CSCO), McAfee, PayPal (EBAY), and Sprint Nextel (S)), Tim Armstrong, a malware analyst at Kaspersky Labs, said in reference to mobile malware: "It's only a matter of time before we see some really huge malware infections." What's holding it back is that criminals haven't yet figured out how to make much money from mobile attacks, but this could soon change as smartphones become increasingly used for commerce. Phone security is an issue that has yet to catch on with consumers; however, as mobile phones are increasingly integrated with bank accounts and credit cards, security will become a necessity.

The security software industry will remain strong over the next five years. Although the industry is facing transformational changes with the rise of cloud computing, this is not expected to replace the need for AV products but instead to increase the markets for them.

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