Will Cloud Data Security Concerns Derail SaaS Companies?

Posted by skyhighnetworks on June 10th, 2014

Despite the $19 billion WhatsApp acquition by Facebook, the hottest market for technology right now is enterprise software, the kind purchased and deployed by big companies. So far this year 12 companies have filed to go public, 11 of them enterprise. Given the market opportunity, "It's shocking we don't see more entrepreneurs interested in enterprise," the Sequoia Capital partner Jim Goetz.

In the last few years, numerous Silicon Valley based firms focused on the enterprise have gone public with multi-billion dollars IPOs including Workday, Palo Alto Networks, FireEye, and Zendesk. However, a recent survey of IT leaders suggest cloud data security could actually be holding back a more rapid adoption of SaaS applications, with fear of security breaches holding back 41% of projects.

Many on Wall Stret are watching the Box IPO closely. The company filed to go public earlier in 2014 but has delayed in offering due to market conditions. In the last several months the SaaS industry has been hit by concerns about cloud data security from NSA PRISM to the Target breach that wiped 46% from the company’s Q4 profit. The CIO and CEO of the company recently resigned following that breach.

The question for entrepreneurs and investors is whether this is a temporary correction in the market driven by macroeconomic factors or a more long-lasting change. There are several possibilities including the underlying subscription business model which forces SaaS providers to accrue all costs upfront but recognize revenue overall several years for each transaction.

Given that cloud data security concerns are the primary concern holding back SaaS projects, it’s likely that this is having an impact on revenue for these companies. If they can solve the security question and gain confidence of large enterprise customers, it looks like they are poised for significant growth in the years ahead. Box recently announced blue chip companies GE signed a multi-year purchase of its software that could signal companies are coming around to the cloud.

Author :
Skyhigh Networks, the Cloud Data Security Services company, enables companies to embrace Cloud Security Services with appropriate levels of security, compliance, and governance while lowering overall risk and cost. With customers in financial services, healthcare, high technology, media, manufacturing, and legal verticals, the company was a finalist for the RSA Conference 2013 Most Innovative Company award and was recently named a "Cool Vendor" by Gartner, Inc. Headquartered in Cupertino, Calif., Skyhigh Networks is led by an experienced team and is venture-backed by Greylock Partners and Sequoia Capital. For more information, visit us at http://www.skyhighnetworks.com/cloud-data-security/ or follow us on Twitter@skyhighnetworks.

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