Executive Summary: ISG Provider Lens™ Cybersecurity - Solutions and Services - Germany 2023
04 Aug 2023
by Frank Heuer, Gowtham Kumar, Bhuvaneshwari Mohan, Jan Erik Aase
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Current crises and the SME segment are driving the German cybersecurity market
Currently, companies are facing various challenges in terms of cybersecurity. Increased cyberthreats due to the Ukraine war, the upheavals caused by the COVID-19 pandemic, which have been overcome, and the long-term trend of digitization have created vulnerabilities for cyberattacks in Germany, requiring appropriate countermeasures. On the other hand, the weakened economy presents further financial challenges.
As businesses undergo digital transformation, more processes are being shifted to IT. Digital representation of intellectual corporate property is also increasing. Protecting IT and communication systems has become essential for corporate security. The COVID-19 crisis has further heightened the need for IT security, as remote work and external connectivity of employees have increased the susceptibility of IT systems to attack. With remote work likley to continue even after the pandemic, this challenge will persist.
The shortage of skilled workers is driving the demand for external cybersecurity service providers in Germany.
The increased use of cloud resources, hybrid work and the vulnerability it brings to IT systems have emphasized the relevance of the zero-trust approach. The principle of never trust, always verify means, among other things, mutual authentication and continuous network monitoring.
Cybercriminals are developing new, sophisticated and complex methods to bypass companies’ and authorities’ cyber defense systems at shorter intervals than ever. In the past year, there have been notable cyberattacks, including ransomware attacks, causing significant trouble for businesses. Accordingly, cybersecurity measures must be seamlessly up to date. More companies and public authorities are struggling with this, particularly due to the shortage of IT specialists, especially in the cybersecurity market. As a result, IT managers and executives are increasingly turning to external service providers, such as managed security service providers, that employ proactive rather than reactive methods based on AI to safeguard against such threats.
Cybersecurity providers seeking above-average growth in Germany should prioritize the needs of SMEs and effectively communicate with this segment.
In addition to the company’s own protection, legal regulations such as the General Data Protection Regulation (GDPR) in the EU also require companies to implement stronger security measures to prevent cyberattacks. Compliance with these regulations remains a major challenge for midsize companies in particular.
On the other hand, SMEs present an interesting market segment for cybersecurity providers. As they upgrade their less mature IT security systems, as compared to large enterprises, driven by the factors described above, there is an above-average growth in the demand for cybersecurity solutions among SMEs. Having a balanced customer structure for both midsize and large companies is advantageous for providers to leverage the budgets of large accounts. Despite the economic slowdown, the demand for cybersecurity solutions remains unaffected among SMEs, making it an increasingly attractive market segment and the one that needs to be addressed adequately. The services meant for large customers cannot simply be offered to SMEs. Rather providers should tailor their entire go-to-market strategy, including products, prices and communication, to suit the needs of SMEs. Providers must understand that communication and cultural aspects are particularly important to be accepted by SMEs.
Despite the great importance of cybersecurity, IT managers are increasingly struggling with justifying IT security investments to stakeholders, especially the CFOs. Unlike other IT projects, it is not always easy to prove the return on investment or quantify threat risks. However, executives are increasingly aware that cyberattacks can lead to significant financial and reputational damage. Consequently, cybersecurity is gaining importance within companies, and senior management is becoming more involved in cyber risk management.
Furthermore, technical factors alone do not contribute to the vulnerability of IT systems. Careless user behavior, such as falling victim to Trojan and phishing attacks, play a key role in facilitating cyberattacks. Therefore, in addition to updated security equipment, user training and consulting also play an important role.
Looking ahead, there are future technical threats to consider, such as quantumbased attacks that target the encryption of confidential data. Some service providers have already started adapting their consulting services to address this new challenge.
Identity and Access Management (IAM)
In terms of cybersecurity topics, IAM holds significant importance, especially with the increasing digitalization of all areas and the need to protect not only users but also machines and certain areas within companies, such as Industry 4.0.
The growing number of users, devices and services necessitates effective management of digital identities, especially considering the rise in remote work due to the pandemic. Many employees are accessing corporate resources remotely, making regulation and control of access to data and systems even more important.
Data Leakage/Loss Prevention (DLP) and Data Security
DLP solutions have witnessed increasing demand in Germany in the recent past due to various factors affecting data security within organizations. The importance of data, IP and corporate assets has significantly increased, making protection against unwanted data leaks, especially from private end devices used for business purposes, a major challenge for companies.
Extended Threat Detection and Response (XDR)
XDR solutions have gained prominence and traction over the past two years as organizations aim to better understand and contextualize (correlate) information gathered from various security tools deployed in their IT infrastructure. Automation plays a central role in this, and leading providers offer behavioral and contextual analytics modules, as well as open integration with other endpoint and network detection and response products.
Security Service Edge (SSE)
SSE solutions are still in the early stages of maturity and adoption by enterprises. SSE includes solutions that enable enterprises to securely access the cloud, facilitate remote work, secure edge computing and support digital transformation. The increasing number of remote and hybrid workers and the transition to the cloud have created the need for SSE solutions.
Strategic Security Services
Amidst the acute crises arising from the Ukraine war and the effects of the COVID-19 pandemic, companies in Germany are facing several challenges concerning IT security and data protection. The growing threat landscape and resource scarcity create a greater need for orientation.
As cyberattacks become more intense and sophisticated, companies must protect their IT systems from damage. This challenge extends beyond well-known large companies and public authorities to small and midsize companies. However, the shortage of IT specialists further complicates this situation, especially for midsize companies. The midmarket is thus a segment that is growing at an above-average rate and is consequently becoming increasingly attractive.
Technical Security Services
In the face of increasingly sophisticated cyberattacks and a shortage of skilled workers, companies and public authorities in Germany are relying more on external service providers to keep their IT security systems up to date.
Cybercriminals are taking advantage of careless user behavior, and thus incidents of Trojan, phishing and ransomware attacks are becoming more common. Along with having updated security equipment, user training continues to play an important role.
IT security projects are often demanding and multifaceted, so service providers that offer a wide range of technical security services from a single source have an advantage here.
Managed Security Services (SOC)
The increasing frequency and complexity of cyberattacks, along with the challenges posed by the current crises, have created a demand for managed security services in particular. The scarcity of qualified resources and the need for updated specialist knowledge are driving German companies to focus on these services.
Managed security services providers rely on AI and automation to combat cyberattacks, but human expertise remains indispensable.
Both large and midsize customers prefer SOCs located in Germany due to the increasing importance of data protection. End-toend security services, integrated solutions comprising IT and related security solutions, and innovation are crucial for staying ahead of cybercriminals.
Managed security services providers are increasingly using AI and automation to combat cyberthreats, combining machine efficiency with human expertise.
In the future, cybersecurity service providers must equip their customers to defend against quantum-based attacks.
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