News & Analysis

Network Security Market Revenues Slide

The decline is being mapped to a sharp drop in hardware-based solutions, says a report

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A sharp drop in hardware-based solutions has resulted in a decline in the growth of the network security markets during 2023, says a new report. Revenues which touched $22.5 billion during the year, still only contributed to single-digit growth, says the report put together by the Dell’Oro Group. 

The market analytics company named Palo Alto Networks and Zscaler as the major winners during the year in what was a very sluggish market. The report said revenues of hardware-based solution providers fell by one percent while those in the SaaS and virtual network security segments saw a 26% surge taking the figure to $9.6 billion. 

Of this number, more than half the growth was attributed to the secure service edge or SSE market that saw growth touching 30% during 2023, thus reflecting the widespread adoption of remote work and cloud applications across geographies. This also meant that a SaaS-based approach like SSE was the first choice. 

The industry is going agile with a vengeance

The growing chasm between hardware-based network security and the innovations such as SaaS and virtual solutions showcased the industry’s shift towards more agile security solutions that were cloud-centric. These changes are piggybacking the need from companies to navigate the emerging threatscape from cybercriminals in the fast-growing digital landscape, says the report. 

“In a year marked by economic recalibration and strategic introspection within the network security domain, the industry’s gravitation towards SaaS and virtual solutions has been nothing short of revolutionary,” Mauricio Sanchez, Sr. director of enterprise security and networking at Dell’Oro Group, has said in a statement.

He also noted that the tempered growth rate of 2023, juxtaposed with the explosive rise in demand for adaptable, cloud-centric security measures, paints a vivid picture of an industry at a crossroads, eagerly charting its course towards a more resilient, agile future. 

A skewed growth over 12 months

In fact, research reports around the network security market has indicated that the one for firewalls grew in the low single digits over the 12 months of 2023 to touch $13 billion. This further underscores the relevance of such technologies in the enterprise data defense and security strategies. 

The report further noted that during the October-December quarter of 2023, virtual firewalls generated a 60% growth in revenues while the web application firewall market saw a low double-digit growth, largely driven by SaaS-based solutions. Hardware-based firewalls saw a near 8% drop in revenues during the same quarter. 

Spending fatigue among customers

In fact, industry leaders such as Fortinet founder and CEO Ken Xie acknowledged this slowdown during an earnings call while Palo Alto Networks boss Nikesh Arora noted that they were seeing customers facing some sort of a spending fatigue when it came to cybersecurity. 

In fact, the whole market, including the firewall vendors, were facing tough times by varying degrees due to the drop in spending by the service providers customers in high-end firewalls. According to experts, one possible reason could be the drop in spending among the service providers who had gone extravagant during the pandemic period over expectations of sustained growth and concerns around supply chain challenges. 

The report also notes that Palo Alto Networks, Cisco, Fortinet, Zcaler and CheckPoint were the top five vendors in the network security space during the last quarter of 2023. The first named on this list extended its firewall revenue shares to over 25%. The company had also announced plans to offer a no-cost period for its platforms to customers.