Anti-spam market braces for shakeout

With the onslaught of vendors jumping on the spam-fighting bandwagon, choosing the right anti-spam product can be almost as tedious as wading through an in-box of junk mail. But signs are pointing to a shakeout in the anti-spam market over the next year or two that will eliminate many of today's players.

By most counts there are about 70 anti-spam vendors, although The Radicati Group pins the number of companies selling any type of spam filter at about 300. As with other hot technology categories before it, the anti-spam market will shake down to a few significant players, as smaller companies that cannot distinguish their products are gobbled up or perish, observers say. This should come as good news to IT managers who will have fewer options to wade through and can look forward to building relationships with large, sustainable vendors.

As evidence of the frenzy, Meta Group analyst Matt Cain says at least $150 million of venture capital has been invested in anti-spam companies over the past six months. "There will be a heck of a lot of dissatisfied [venture capitalists] because not all of these companies will make it," he says. "We see the market expanding through 2004 and expect in 2005 there will be a severe contraction and market consolidation characterized by vendor failure and very aggressive merger and acquisition activity."

In the short term, pricing for anti-spam products will decline as competition remains strong, Cain continues, but once market players establish themselves, companies can expect to pay more. "Over the next two years, once we see consolidation down to 10, then maybe five vendors, we expect to see prices escalate. However, the products will mature and functionality will expand, so you'll be paying more but you'll be getting more," he says.

No one expects the market to contract just yet, although signs of consolidation are beginning to emerge. E-mail services company IronPort last week announced the acquisition of anti-spam community and blacklist maintainer SpamCop, with plans to integrate SpamCop's feedback on spammers into its e-mail rating system. Other moves include anti-virus vendor Sophos' acquisition of spam filter maker ActiveState and security company Network Associates' purchase of anti-spam software developer Deersoft.

Nonetheless, with only about 30 percent of all corporations employing spam filters today, there are still plenty of opportunities for vendors. "The market is so big that lots of [anti-spam] companies are doing well," says Doug Carlisle, managing director of Menlo Ventures, a venture capital firm that has investments in anti-spam players IronPort and MailFrontier. "But we will end up with around 10 companies that provide functionality at the high and low end, and that can differentiate their products and services."

So many vendors are rushing to provide spam filters because corporations recently have realized just how strategic e-mail communication is to their organization and are looking for ways to protect it. "Business is undergoing a huge transformation from phone-based conversations to [Simple Mail Transfer Protocol]-based conversations, be it through e-mail or attached messages," Carlisle says. "Big companies are waking up around the world saying 'we run our business on SMTP' but didn't really realize that they don't have an industrial-strength solution in place."