Cybersecurity spending isn't recession-proof. But it's pretty close.

Due to regulatory forces and intensifying cyberthreats, experts say that security budgets are more likely than other tech segments to be preserved during a slowdown.

Encryption your data illustration

Cybersecurity is now a far higher priority in the C-suite and board level than it used to be, given the intensifying threat landscape.

Illustration: JuSun/iStock/Getty Images Plus

Concerns are growing that a broader economic slowdown is coming our way over the next year or two, prompting a number of tech companies to preemptively freeze hiring or lay off employees. No sector within the tech world could expect to be totally immune to worsening economic conditions, of course. But for many reasons, the cybersecurity industry is likely to be spared more than most, according to industry experts.

With many in the industry gathering this week in San Francisco for the return of the in-person RSA Conference, the question of what’s in store for security budgets is sure to be a popular discussion topic. History isn't too helpful when considering the impact of a downturn on cybersecurity spending, given that security budgets are so much larger than they were during the Great Recession of 2007 to 2009, said Jeff Pollard, a vice president and principal analyst at Forrester.

Still, if a global slowdown is ahead, "I do think that cybersecurity spending will be more resilient than other areas," said Pollard, a specialist on security budgets and the role of the chief information security officer (CISO).

Some prominent cybersecurity vendors are expecting the same. On Thursday, CrowdStrike and Okta said that they’re each raising their revenue guidance for their current fiscal years (both of which run through the end of January 2023). CrowdStrike and Okta raised their fiscal 2023 guidance by about 2% and 1%, respectively, from the prior guidance disclosures in March.

The perks of regulation

The confidence felt by security vendors, Pollard said, stems from the fact that a large amount of cybersecurity spending is now essentially built in, due to regulatory and market forces that didn't exist to the same degree during the last major downturn.

And on top of existing regulations, newly proposed SEC rules around cyberattack disclosure could soon provide another incentive for public companies to refrain from slashing their security budgets, said former CISA director Chris Krebs, who is now a founding partner at cybersecurity consulting firm Krebs Stamos Group.

If adopted, the rules would require a “material cybersecurity incident” such as a ransomware attack or data theft be disclosed within four business days. While pressures on security budgets may grow, "the requirements aren't going away," Krebs said.

Along with the need for many businesses to meet regulatory and compliance standards around security and data privacy, many cyber insurance policies also necessitate some level of spending on cybersecurity, Pollard noted.

Companies that cut back too much on security spending might see a negative impact on revenue, as well, since it could discourage potential customers from doing business, he said. There's now a "much higher bar" for the cybersecurity posture that customers have come to expect from their suppliers during security reviews, such as demonstrating competence around data security and privacy, and incident response capabilities including breach notification.

"You've got to spend money on cybersecurity," Pollard said, "because it's going to cost you deals if you don't."

A board-level concern

Meanwhile, cybersecurity is now a far higher priority in the C-suite and board level than it used to be, given the intensifying threat landscape, said Steven Weber, a professor at the University of California, Berkeley, who specializes in international business and information security. Particularly at the board level, the mindset has shifted dramatically in the past few years, said Weber, who also serves as an adviser to the boards at several publicly traded companies.

There's now a "sense of vulnerability and liability at the board level" that didn't exist previously, he said. In the wake of incidents such as the SolarWinds breach and a spate of high-profile ransomware attacks in 2021, 88% of boards now see cybersecurity more as a business risk than a technology risk, a survey from Gartner found in the fall.

RSA Conference signage at RSA 2020.RSA Conference signage at RSA 2020. Photo: RSA

For the leadership at many companies, cybersecurity is now seen "as something we have to protect — and that [may require] cuts elsewhere in order to protect it," Weber said.

With the shift to digital, businesses can no longer afford to draw a distinction between "getting the job done" and "getting the job done securely," said William MacMillan, a senior vice president at Salesforce and formerly the CISO for the CIA.

"It doesn't work anymore to say, 'We can cut back on security as long as we get the business done,'" MacMillan said. "Because you won't get the business done if you don't prioritize getting it done securely."

That means security is likely to be "more recession-proof than probably any other area of technology," said Jay Leek, managing partner at cybersecurity-focused VC firm SYN Ventures and the former CISO of The Blackstone Group. Just because there's a recession, that "doesn't mean the cybersecurity threats go away," he said.

There could be other impacts on security teams, however. The pressure could grow on CISOs to demonstrate the return on investment from security spending, which is seen as more difficult in cybersecurity than in most other areas of technology, experts said.

Measuring the effectiveness of a cyberattack detection tool, for instance, is notoriously challenging. "You can't always say, 'Hey, we found all the things,'" Pollard said. "That's hard to prove."

It’s also likely that some businesses will look to decrease security spending by consolidating more of their tools with a single vendor, to take advantage of the discounts associated with doing that, he said.

Impact on startups

The massive influx of venture investment into cybersecurity in recent years also means that some security startups — especially those that have done a lot of hiring on the back of limited revenue — would likely see a greater impact than more-established players during an economic slowdown, Pollard said.

VC funding for security companies surged from $12.4 billion in 2020 to $29.3 billion in 2021, according to advisory firm Momentum Cyber. And 30 cybersecurity startups achieved billion-dollar valuations last year, compared to six in 2020.

"The companies that have solid foundations, that have great customer relationships, that are doing good things from a security perspective — I think we'll see them thrive," Pollard said.

But for other security startups, "I think we are going to see a bit of a reckoning," he said.

So far, the security industry hasn't seen hiring freezes or layoffs on a broad scale. The two exceptions in recent weeks are cloud security firm Lacework, which laid off 20% of its staff, and attack detection firm Cybereason, which reduced its staff by about 10%.

Lacework leaders disclosed the layoffs in response to what they called a "seismic shift" in "both the public and private markets" recently. The company had raised a $1.3 billion funding round in November, which it called a record for the security industry, and previously reported having more than 1,000 employees as of March.

Cybereason, which raised $325 million in funding last year, cited its inability to go public in the near term as the driver for its layoffs, which impacted 100 employees. “As the bullish tech market conditions have turned and the tech IPO market has essentially closed, companies like us must now exercise more strict financial discipline and prioritize profitability over top line growth,” the company said in a statement.

On the whole, though, today's business realities and cyberthreat environment suggest that cybersecurity won't see the worst of the spending cuts, experts told Protocol. "I think it'll be a lot less than we see in other places," Pollard said.

Veronica Irwin contributed to this report.


Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.


Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories