The Accenture / Dragos / runZero / NetRise deal may be the most significant single event in the OT Security Community & Market since Colonial Pipeline. I tackle this in 3 parts over the next 3 days.
- Part 1 – Accenture & Dragos
- Part 2 – The Dragos Product
- Part 3 – The Impact On The OT Security Product & Services Market
- NEW – Part 4 From Feedback On Series
The gap between the largest and second largest OT security company is now huge. Dragos’ valuation is 2 to 3 times the valuation of the Claroty and Nozomi. 4x if you include runZero and NetRise. The Armis acquisition isn’t a fair comparison because OT was a minority portion of their revenue.
Nozomi was acquired by Mitsubishi Electric for just under $1B and is the clearest comparison. Claroty has talked about an IPO, and acquisition is a possibility. The challenge for Claroty is they have raised almost $900M, more than double what Dragos raised. Claroty’s valuation needs to be closer to Dragos’ than Nozomi’s for a sale or IPO to make sense. The Dragos valuation is likely helpful for Claroty.
OT Market Impact
The Dragos acquisition price and acquirer are good for the OT security market. Why?
1) It validates to investors there is an OT security market. It’s one thing for a couple of companies to crack $1B valuation. It’s another to double that twice more and have the promise of further growth. Confidence building to have a main line consulting company like Accenture value their OT security investment at 1/20 of their current market cap.
2) It opens funding opportunities for the next OT security product or service category. While the battle is mostly over in the OT detection & asset inventory space, barring some new, significant, and difficult to copy innovation, the question is not can an OT security company be worth billions. The question is what’s next?
Before this deal I was receiving a call from a VC asking what they should be funding in OT security about every month. They want a bet in the OT security space. It’s similar to 2017 – 2019 timeframe when VC’s wanted a play in the OT detection & asset inventory space. There were almost 20 companies funded and competing in that space in the early days.
Companies trying to answer the “what’s next” question will need to convince investors and customers that an IT security product is insufficient. That an OT security solution is required. They have a great data point after this deal. Is an OT security solution required for microsegmentation? remote access? backup and recovery? forensics? … And if an OT security solution is required, how big is the market?
Note: Annual Recurring Revenue (ARR) can blur the line between product or service and is what investors desire. This Accenture investment settled the disagreement Rob & I had in the early years on whether Dragos was a service or product company. We were both right and wrong. It ended up well for Dragos that the market moved this way.
The next wave of OT security companies will be looking to have an ARR story.
3) There will continue to be an opportunity to be the “not Dragos” solution. Some asset owners will have had a bad experience with Dragos, the product, the team assigned to the account, the culture, bad luck, etc. I know asset owners that have had a bad experience with Dragos and love Nozomi or Claroty, and vice versa.
This was true when they were essentially the same products, plus the Dragos strength of additional services. It will be more true if Dragos goes ahead as planned and integrates the Network Perception, Phosphorus, runZero, and NetRise capabilities into their platform. Competitors in each one of these categories will have a “not Dragos” pitch. If the asset owner selects Dragos for one solution, then they will be eventually be fighting the argument that the platform can solve all problems.
Competitors in another product category could reasonably have a concern that Dragos could become a future competitor, unless they are chosen to be acquired by Dragos.
Similarly there are integrators and consultants that compete with Accenture. While Dragos is allowed, and likely eager, to sell to and through them, there will be some hesitancy to lead with Dragos. If it makes the sale easy, integrators and consultants won’t fight it. That being said, they are likely to have other options that won’t open the door to Accenture.