An authentic and secure success?

The UK is outperforming western Europe at selling security software, not least because of the rise of authentication technology, says Senthuran Premakumar

Over the past two years, UK security software distribution has evolved differently from the rest of western Europe in the consumer, SMB and large enterprise segments. A number of factors contributed, including a shift in pricing policies, a move to online channels for consumer sales, and the tendency towards purchases of new licences rather than renewals.

Consumer sales of security products took a heavy hit in the UK as pricing rose nearly 30 per cent.

Licence sales of consumer security software through distribution have been declining for a while, due to the global financial problems as well as the move by vendors towards direct selling to consumers. This is highlighted by the fact that sales collapsed 35 per cent in the top six western European economies (the UK, France, Germany, Spain, Italy and the Netherlands) from Q1 2010 to Q1 2012, although ASPs in euros fell only slightly.

In the UK, price rises of more than 28 per cent in sterling terms contributed, causing unit sales to plummet 62 per cent.

More consumers are now buying online compared with two years ago, so software targeting up to three users is not selling as well through the channel. Consumer spend, meanwhile, remains under pressure, so prices must be kept down - encouraging proliferation of online stores and partner portals among vendors. Kaspersky, one of the leaders in consumer internet security, saw its online sales rise just three per cent over the past two years.

Among SMBs, sales through distribution in both unit and revenue terms have fallen this past two years across western Europe, and there has been a shift towards renewals in the continent. For SMBs, renewals are 16.5 per cent cheaper than buying new licences. Renewals rose 8.2 per cent on the continent, unsurprisingly, but fell 4.3 per cent in the UK.

Today, about 56 per cent of licences bought in western Europe are renewals - a 16-point increase from the first quarter of 2010. Revenue fell further in western Europe, despite the UK experiencing the greater decline in shipments.

Sales of security software to large UK businesses also outperformed western Europe, with more new licences bought and the emergence of authentication. In the UK, enterprise channel sales of new licences expanded 50 per cent, while sales through the rest of western European distribution slid two per cent.

Q1 2010 saw the numbers of new licences sold through the western European channel being about half of the numbers sold via renewals.

In contrast, more recently renewals have accounted for 47 per cent of total sales across western Europe.

About 20 times as much authentication technology was sold in the UK. In western Europe, the volumes only tripled. Authentication technology is now the second-highest revenue generator in the UK security software channel, accounting for 20 per cent of total revenue, predominantly at the expense of security suites. A couple of years ago, this category comprised only one per cent of the UK market.

Clearly, the UK has performed better generally when it comes to sales of security software to large businesses than western Europe as a whole. SMB products, on the other hand, have seen a decline in the market, although the UK is in a slightly better position than its neighbours in revenue terms.

On the consumer side, unless UK prices are driven down, little improvement can be expected - especially with the recent decline of distribution as a channel to retail.

Senthuran Premakumar is an enterprise analyst at Context