Cybersecurity Market in Israel

With around US$ 3 billion of investment put into the Cybersecurity market in 2020, Israel has emerged as a pioneer in cybersecurity, marking a rise of 97 per cent over the previous year. The role of the country in the market is second only to the United States and its impressive growth trend is expected to continue.

Definition / Scope
Market Overview
Market Risks
Market Drivers
Market Restraints
Industry Challenges
Technology Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

In modern society, cybersecurity has become a dominant issue, as both individuals and companies are finding ways to protect their data, computers, and privacy. A whole industry of security-focused startups and SMEs has emerged on the scene in order to remain one step ahead of hackers and cybercriminals.

With around US$ 3 billion of investment put into the market, Israel has emerged as a pioneer in cybersecurity, marking a rise of 47 per cent over the previous year. The role of the country in the market is second only to the United States and its impressive growth trend is expected to continue.

The theory behind Israel’s emergence as a super-power in cybersecurity is straightforward: Israel has long-established expertise in space, given the military’s main cyber and security activities. The most advanced technologies and organizational problems, both defensive and offensive, are trained by many young people early in their careers.

In terms of VC funding, Israel in 2020 witnessed a spike of 97% from 2019 reaching an all-time high of US$ 2.75 Billion in funding in 2020 from around US$ 1.4 Billion in 2019, the number of rounds of funding also reached an all-time high of 109 rounds compared to 71 rounds in the previous year.

This Clearly indicates the growth potential for SMEs and startups in the Cybersecurity Market in the Cyber Nation.

Market Overview

Israel had 802 cyber firms at the end of 2020, of which 436 were active, 213 ceased to operate, and 118 were acquired. Of the newly formed companies in the last decade, between 2015 and 2020, 367 new companies entered the Israeli cyber market pool (with most of them still active).

These new firms, which account for almost 49 percent of the total number of cyber companies, underline the developments in the industry in recent years.

The vertical data protection (with a 15 percent share) represents the expertise that veterans of Israeli military tech units bring to the cyber sector, which is then leveraged for most of the operation in the Israeli cyber region. Cyber intelligence is another standout that also taps information from military service, with 7 percent of the total, a far higher portion than in other countries.

Between 2018 and 2020, capital-raising activity in the area of cyber security increased significantly. During this time, with 264 funding rounds, the total amount of funding was $5.15 billion.

For 2019-2020, the overall revenue of private businesses (start-ups) in the Israeli cyber sector is projected at about $1.2-1.5 billion.

In 2020, the overall revenue of Israel’s public corporations working in the cyber sector was close to $8.5 billion.

The Israeli cyber industry’s projected export operation in 2020 is between $6-$7 billion and takes four categories of companies into account: public companies; Israeli cyber-related companies; international cyber R&D centers; and private companies (start-ups).

Production is projected at $3 billion for Israeli cyber-based businesses that work in related fields and have cyber solutions (and include mainly: Allot, Radware, Verint, Nice, Elbit, Israel Aerospace [Elta], and Rafael).

Israeli operations accounted for 18% of US network security spending, 34.5% of data security spending (including Varonis and Imperva), and 4.3% of identity access management spending (including CyberArk).

Market Risks

The major risk posing as threat to the growth of the Cybersecurity Market in Israel are

Fragmented Market

The Israeli Cybersecurity market is highly fragmented with lots of companies entering into the business ranging from larger established companies to startups. The market has lower barrier for entry as it involves lower investment.

There exist a large number of local players in the market and they offer products to the local markets at a much lower price when compared to the organized international players. The factors leading to the fragmentation of the cybersecurity Market are no economies of scale and strong competition in the market.

Top Market Opportunities

The top opportunities for SMEs and Startups in the Cybersecurity Market in Israel are

New growth verticals New verticals emerging fields among new startups in 2020 included IoT security, security for blockchain and cryptocurrencies, cloud-native security and SDPP (Software Defined Perimeter).

These nascent verticals received far more attention than more “traditional” cyber sectors such as network security, email security and protection of endpoints. IoT received the most investment from all new markets, with funding hitting $229.5M across all phases.

The continuous branching into numerous new sub-domains, including cars, drones and medical devices, is what makes IoT especially fascinating.

Overall funding in Israel were primarily concentrated on IoT Security, Cloud Security and VRM. Notable highlights include cloud protection companies Aqua and GuardiCore, IoT companies Armis (Armis was purchased in early 2020 by Insight Partners for $1.1B), Medigate and Cylus, and Vulcan Cyber, Panorays, Axonius and Cymulate in the VRM market.

This is the second year that IoT has earned the lion’s share of total investments. Its continuing moment in the spotlight can be clarified by its continued creation and expansion into new verticals. Last year, the IoT market was estimated at nearly $190 billion and Statista predicts that 74.55 billion connected devices will be seen worldwide in 2025.

Hotbed of innovation and startups

It is well known that Israel is a hotbed of innovation and start-ups in space, with the cybersecurity industry rising to a massive scale. Entrepreneurs and investors in Israel and abroad have captured the attention of the large foundation of expertise, the increasing awareness of security threats over the past few years and accelerated IT spending on the issue.

Checkmarx’s mega-exit to Hellman & Friedman in 2020 and BrandShield Ltd.’s successful IPO added fuel to the flames, and there has been an explosion of investment activity in the category in recent years.

In the past six years, 229 businesses have been launched, compared to 148 in the previous six years. In these firms, 67 have earned VC funding in the past six years, compared to just 26 in the previous six years, which is an increase of 2.5 times.

Market Drivers

The Key factors driving the growth of the Cybersecurity Market in Israel are

Increase in the frequency and sophistication of cyber attacks

There are increasingly growing instances of major cyber-attacks in Israel and it is touted as a major factor influencing the growth of the cybersecurity market in Israel.

Cyber terrorists target endpoints, networks, data and other IT services, resulting in massive financial losses for individuals, companies and governments.

The primary motive behind cyber criminals includes political competition, financial gain, reputation for harm, international rivalry, and radical interest of religious groups. Many cyber assaults are for financial gain.

In December 2020, a massive hack linked to the Black Shadow group targeted the Israeli insurance company Shirbit with ransomware, demanding almost $1 million in bitcoin.

The hackers published some sensitive personal information after making their demands and threatened to reveal more if they did not receive payment.

High Utilization of Mobile Devices

Similar to PCs, advanced mobile devices are reaching the population on a mass scale, providing access to emails, the internet, navigation

n for the global positioning system (GPS), and many other applications. Protection measures such as firewalls and software, however, are not regularly updated on mobile devices, leaving them vulnerable to cyberattacks.

The global penetration of smartphones in 2019 stood at about 77.2 percent, which is projected to hit about 82 percent by 2025. Moreover, the growing use of mobile devices often contributes to mobile botnets (compromised software), leading to the loss of information or denial of services (DoS). Such factors are expected to boost the cyber security market growth.

Government Initiatives

In launching and maintaining Israel’s booming technology market, the Israeli government has played an important role, acting as a catalyst for Israel’s rapidly increasing cybersecurity industry.

The Government is also playing its part in the growth of the segment by investing significantly and supporting by implementing simulative initiatives for Startups and SMEs in the segment.

For instance, In August, 2018, the Israel government has invested US$ 24 Million over three years as part of an investment in its cybersecurity industry.

The Government has adopted “Cybersecurity First Policy” and promotes Military as a Startup Incubator and accelerator. The supportive initiatives from the Israel Government is promoting the growth of SMEs and Startups In the segment.

Market Restraints

The Primary Factors hindering the growth of the Cybersecurity Market in Israel are

High initial cost of adoption of cybersecurity solution

Companies need to spend about $2.5 million for a small company or start-up to implement cyber protection, which requires a mix of antivirus, firewall, spam filter, data encryption, data recovery, and password management software. Similarly, certain cyber security applications often require the installation of specialized hardware, which further raises the cyber security deployment expense.

To handle coding on a real-time basis, modern cybersecurity solutions often need advanced IT skills. In order to ensure the successful use of the cybersecurity solution, enterprises therefore need to outsource or hire professional workers. This could add more costs to the company.

Use of Pirated and open source cybersecurity solutions

Software piracy refers to software or solutions being illegal to be copied and distributed. Software counterfeiting, due to the availability of open source platforms, has increased over the years.

In making a fake software duplicate, which is a replica of the original software, software piracy helps illegitimate individuals. Software piracy, however, is cybercrime, which involves the unauthorized copying, distributing, sale, or installation of proprietary software and downloading of websites.

There are many forms of software piracy in which soft lifting, software counterfeiting, Original Equipment Manufacturer (OEM) bundling, hard disk loading, and renting. Internet-based piracy of software and solutions is one of the emerging issues in piracy.

Industry Challenges

The major challenges faced by the Players in the Cybersecurity Market in Israel are

Shortage of skilled professionals

The Israeli cybersecurity industry is starving for workers, with the industry in need of 800 new employees a year to sustain its rate of growth. The biggest problem facing the sector is manpower, a new report reveals.

Ninety percent of managers surveyed for a study on the state of the Israeli cybersecurity industry by the IVC Research Center said that the most important problem facing the sector today is a lack of staff, with competition for trained workers coming mainly from international R&D centers operating in Israel.

The industry’s shortage of employees represents a general malaise in the nation’s tech industry, which annually needs some 15,000 qualified workers, primarily software engineers and data scientists. According to a study published in December by Start-Up Nation Central and the Israel Innovation Authority, this shortage is causing local wages to rise and is forcing companies to recruit jobs abroad.

Increasing Global Competition

With growing global competition in the cybersecurity market, Israel is facing a decline in the ecosystem of cyber startups. It is a reality that markets are saturating, power is consolidating, and competition is rising. Without electricity, nothing runs on its own. The same is felt in Israel’s cybersecurity industry, with the gigantic rise in the US cybersecurity market.

In Fintech, Insurtech, the automotive and manufacturing industries, as cyber challenges rise, Israel needs investment and critical mass support to improve its talent and infrastructure. The Global competition are participating in the cyber rush of Israel by acquiring the larger firms, some of the significant M&A in the Israeli cybersecurity market are as in the below table

Acquired Company	Acquired By	Price
Forescout	Advent and Crosspoint Capital Partners	US$ 1.6 Bn
Checkmarx	Hellman and Friedman	US$ 1.15 Bn
armis	Insight Partners and Capital IQ	US$ 1.1 Bn
CYBERX	Microsoft	US$ 165 Mn

Technology Trends

Technology plays a key role in High-tech segments such as Cybersecurity, some of the significant technology trends in the Cybersecurity Market in Israel are

Trend #1: 5G implementation

Data volumes and the number of connected devices and sensors are likely to skyrocket with the bandwidth allowable by 5G technology. Electronic health apps will gather information about the well-being of a user, modern car technology will monitor the movements of a user, and intelligent apps will gather information about how users live and function.

5G technology would mean high standards of protection against breaches and data theft would be needed with so much personal data being collected from us.

Trend #2: The continued rise of AI

Artificial intelligence (AI) advances are introducing machine learning innovations, including cybersecurity, into products across all market segments. For face recognition, natural language processing, threat detection, and many other concepts, deep learning algorithms are being used.

Most cybersecurity solutions are focused on human logic-based detection engines, but it can be virtually impossible to manually keep them up-to-date and across the new threats, technologies and devices. The detection of new threats and responses to them is accelerated by artificial intelligence (AI) and can help block cyber-attacks until they spread through organizations.

However, as the future of AI advances, cybercriminals are also arming them to build more advanced methods of malware attack. This implies that, rather than relying on already established vulnerabilities and attack signatures, organizations must implement advanced heuristic solutions.

Pricing Trends

Cyber security cost factors include:

Size of company
Type of data
Products & Services
Self-Install vs. Professional Install
Professional Audits

Costs of cyber security software & products

Software / Product	Price Range
Firewall	$400 to $6,000
Endpoint detection and response (EDR)	average cost range of $5 – $8 per user per month
Email protection	$3 – $6 per user per month
Two-factor authentication (2FA)	$0 – $10 per user, per month
Hardware Security Key	onetime fee of $30 – $60

Costs of professional cyber security services

Service	Price Range
Vulnerability assessment	$1,500 – $6,000 for a network with 1-3 servers$5,000 – $10,000 for a network with 5-8 servers
Web application assessment	Hourly rates range from $120 to $500 and can take up to 40 hours to complete the assessment
Security architecture review	Hourly rates range from $300 – $1200 and can take up to 10 to 15 hours for SMEs
Security program development	Hourly rates range from $149 to $479 per hour and can take up to 5 to 20 Hours

Regulatory Trends

In addition to the important role played by the IDF, either by R&D grants (given by the Chief Scientist) or investments made by the newly established cyber bureau and the National Cyber Authority, the Israeli government also contributes to local industry.

For Instance, In June 2020, the Board of Governors of the Israel-U.S. Binational Industrial Research and Development (BIRD) Foundation approved $8 million in funding for ten new projects between U.S. and Israeli companies. In addition to the grants from BIRD, the projects will access private sector funding, boosting the total value of all projects to approximately $20 million.

The Israel government also spends around 4.3% of its GDP budget on R&D excluding Defense R&D spending, the second largest country in terms of R&D spending is South Korea which spends around 4% of its GDP which also includes the Defense budget.

Impact of COVID-19

The adoption of cyber security solutions is expected to increase during FY2020-21 owing to the impact of the coronavirus pandemic (COVID-19). This will be largely due to the situation of lockdown in many nations, which has led to the situation of work-from-home, leading to a growing number of cyber-attacks and data breaches.

For example, 450 active WHO email addresses and passwords were leaked online in April 2020, according to a World Health Organization (WHO) report. The growing number of cyberattacks related to COVID-19 would further boost the growth of the cyber security sector.

Market Size and Forecast

In 2020, Israel’s cybersecurity industry accounted for 31 percent of the sector’s global investments, placing the nation second after the US. Exports of cybersecurity items totaled 6.85 billion dollars in 2020, up from 6.5 billion dollars in 2019.

Israel accounted for 8% of the global market share and is valued at US$ 14.7 Billion in 2020 and It is expected to grow at 15.2% to reach a market size of US$ 29.8 Billion in 2025

The cybersecurity market in Israel witnessed a growth of 16% in terms of market revenue and 13% in terms of employment from the previous year in 2020.

Market Size based on Application

The Defense / Government segment leads the Israel Cybersecurity Market and accounted for 54% of the market share and recorded revenues to the tune of US$ 7.9 Billion in 2020 and is continue the growth momentum and is expected to post growth rates of 18% to reach a market size of US$ 18.07 Billion in 2025.

BFSI is the second largest segment in the Israeli Cybersecurity Market and it constitutes market share of 14% and generated revenue of around US$ 2 Billion in 2020 and is poised to grow at 15% to reach a market size of US$ 4 Billion in 2025.

IT and Telecom sector accounts for 10% of the market share and attained market size of US$ 1.47 Billion in 2020 and is projected to grow at 14.5% to reach a market size of US$ 2.89 Billion in 2025.

The Healthcare Application segment holds a significant position in the Israeli Cybersecurity Market and it constitutes market share of 8% and generated revenues to the range of US$ 1.18 Billion in 2020 and is poised to grow at a CAGR of 15.4% to reach a market size of US$ 2.41 Billion in 2025.

Retail, Energy & Utilities, Manufacturing are the other segments that accounted for revenues of US$ 2.08 Billion in 2020.

Market Outlook

The Market Size of the Israeli Cybersecurity Market is valued at US$ 14.7 Billion in 2020 and is poised to witness strong growth of 15.2% to reach a market size of US$ 29.8 Billion in 2025.

The Israeli sector continues to expand even as the global cybersecurity industry experiences a downturn in investment. Companies, even in difficult times, raise significant capital.

As new security fields keep emerging, innovation from Israeli companies is a real bright spot. More and more enterprises, are able to collect follow-on capital and continue to expand their business before exiting, a great sign of maturity for cybersecurity entrepreneurs,

This bodes well for the growth of the cybersecurity market in Israel. Business analysts are positive about the potential of cybersecurity entrepreneurs in Israel to continue innovating globally.

Enterprise customers are driving demand for reliable solutions that can help them meet strict data security and privacy requirements from the government as well as battle sophisticated cyber threats.

Statistics show that the thriving Israeli market will continue to nurture companies that, for many years to come, will transform the global cybersecurity landscape.

Technology Roadmap

The new age technologies such as IoT, Cloud Computing, Drones, AI, Autonomous and Smart Vehicles and driving factors such as increasing smartphone and internet penetration offer a plethora of opportunities for the growth of the Technology sector as a whole but they also come with the vulnerability to cyberattacks, Israel being the hotbed of Innovation and startups will drive the development of new cybersecurity solutions for these technologies, though it might take a few years for the invention of these technologies Israeli technologists will lead the world with their higher Innovation Quotient and tech-savviness.

Competitive Landscape

The cyber security market in Israel is fragmented with the involvement of a large number of market players engaged in intense competition. In order to cater to the increasing demand for advanced security services and boost their brand positioning, major players in the industry are focusing on the launch of new cyber security solutions.

Key Market Developments

In February 2020, Insight Partners acquired Israel based Cybersecurity firm Armis in a deal worth around US$ 1.1 Billion

In 2020, Five Israeli cybersecurity firms – Snyk, SentinalOne, Cato Networks, Forter and BigID reached unicorn status

There were 26 Acquisitions in the SME space of the Israeli Cybersecurity Market and some of the significant Acquisitions are as listed below

Acquired Company	Announced Date	Acquired By
alcide	Jan 31, 2021	RAPID7
POLYRIZE	Oct 26, 2020	VARONIS
Fuzzit	Jun 11, 2020	GitLab
CRONUS	May 4, 2020	ORCHESTRA

Competitive Factors

Despite fragmentation, rising spending on security solutions provides market participants with an opportunity. In addition, to build on their market place, major security vendors are actively engaged in mergers and acquisitions strategies.

On the other hand, emerging and innovative vendors are engaged in product upgrades and alliances are formed to expand their market share. For instance, In April 2020, Check Point Software Technologies Ltd. announced the availability of its series of Quantum Security Gateways for businesses and corporate data centers. The series provides businesses of all sizes with unparalleled security solutions from their branch offices.

Key Market Players

The Key players in the Israeli Cybersecurity Market include

Check Point Software Technologies Ltd.

(www.checkpoint.com) is a leading provider of cyber security solutions to governments and corporate enterprises globally. Its solutions protect customers from 5th generation cyber-attacks with an industry leading catch rate of malware, ransomware and other types of attacks. Check Point offers multilevel security architecture, “Infinity” Total Protection with Gen V advanced threat prevention, which defends enterprises’ cloud, network and mobile device held information.

Check Point provides the most comprehensive and intuitive one point of control security management system. Check Point protects over 100,000 organizations of all sizes.

Sygnia Inc

Sygnia is a cyber security and consulting firm, supplying organisations worldwide with high-end advisory and incident management support. Sygnia works with businesses to develop their cyber resilience proactively and to respond to threats within their networks and overcome them.

It is the trusted IT and security teams’ advisor and cybersecurity service provider, senior management, and boards of top companies worldwide, including Fortune 100 businesses.

Cynet Security

Cynet is an advanced threat detection and response pioneer and leader. By offering a rapidly deployed, robust identification, prevention and automated response framework for advanced threats with near-zero false positives, Cynet simplifies protection by shortening the time from detection to resolution and minimizing harm to an enterprise.

The unique visibility of Cynet’s files, users, network traffic, and endpoints, and continuous monitoring of an environment shows indicators of activity and interaction across the attack chain, providing a full image over time of an attack process.

CyberProof

CyberProof is a security services company that handles the incident detection and response in an intelligent way. SeeMo, a virtual analyst, which automates and speeds up cyber operations by understanding and adapting from endless data sources and reacting to requests through the provision of background and actionable information.

Argus Cyber Security

Argus, the global automotive cyber security pioneer, offers extensive and tested solution suites to secure connected cars and commercial vehicles from cyber attacks. Argus provides advanced security approaches and proven computer networking know-how with a thorough knowledge of automotive best practices and decades of expertise in both cyber security and the automotive industry.

Customers include automakers, their Tier 1 vendors, fleet operators and providers of aftermarket connectivity. Established in 2013, Argus has offices in Michigan, Silicon Valley, Stuttgart and Tokyo, with its headquarters in Tel Aviv, Israel.

VDOO

Vdoo’s Integrated Device Security Platform is the only automated solution that ensures optimal security across the entire product lifecycle. The solution offers all businesses need to protect their linked goods, including security analysis, gap closure, verified compliance, embedded security, and monitoring of operations.

Bynet Semech

An integral part of the Rad-Bynet Group is Bynet Semech. Today, the Bynet Group consists of 7 integration firms, each of which are pioneers in their respective fields. The Group specializes in data exchange, computing and telecommunications, managing complex projects with a high degree of integration requirement.

We offer value-added turnkey solutions to organizations in the defense, manufacturing, utilities, government, healthcare, telecommunications, financial and academic sectors, capitalizing on this specific synergy.

Matrix

With about 9,250 workers worldwide, Matrix is the largest technology services firm in Israel. Matrix has made over 80 mergers and acquisitions since its founding in 2001 and has carried out some of the biggest IT ventures in Israel.

The organization specializes in integrating and developing leading technology, technological solutions and products, delivering infrastructure and consultancy services, IT outsourcing, overseas, training and assimilation to its customers and acts as agents for the world’s leading software suppliers.

Strategic Conclusion

While the total number of new Israeli cybersecurity companies established in 2019 continued its downward trend, a fuller and more positive image of market maturity and promise is painted by the parallel rise in seed funding this year. As entrepreneurs become more experienced and innovation is tailored to the true needs and course of the market, the quality of Israel’s cybersecurity startups is on the rise.

Broadly speaking, Israel remains highly appealing to prospective investors and companies seeking to grow in light of these changes. Indeed, in the cybersecurity sector, the Cyber Nation continues to push innovation and pull in larger and more involved local and foreign investors. This includes an uptick in private equity activity that will likely shake up the current order in the coming years as the trend continues.

With so much innovation, experience and expertise concentrated in the Start Up Nation, there will be little choice but to tap into those who wish to retain their mark and status in the cybersecurity market. In the coming years, the few major cyber players who have yet to put their bets on Israeli-native companies will definitely do so. Time can say what kind of effect these technologies will have on innovation and the evolving world as a whole.

Given Israel’s entrepreneurial interest in making bigger waves in the industry themselves, as well as its growing ability to hone its expertise, customers are likely to benefit the most from what is certain to foster a well-spring of prodigious solutions.

As we move on to a new year of pursuing the most exciting opportunities in the industry, we are bidding farewell to another interesting and critical cybersecurity year and look forward to keeping a close eye on what is to come in the next decade.

References

Appendix

SMEs – Small & Medium Enterprises
IoT – Internet of Things
AI – Artificial Intelligence
OEM – Original Equipment Manufacturer
EDR – Endpoint Detection and Response
2FA – Two-Factor Authentication
R&D – Research & Development