Shaping the Market for Security Vulnerabilities Through Exploit Derivatives

In a previous post "0bay - how realistic is the market for security vulnerabilities?" I gave a brief overview of the current market infomediaries and their position, listed various research I recommend you to go through, and speculated on an auction based market model.


During April, at the CanSecWest Security Conference "Groups argued over merits of flaw bounties" some quotes :

"The only economic model that does not make sense to me is the vendor's," Sutton said. "They get to know about a vulnerabilities ahead of time, but they are unwilling to pay for them." - Michael Sutton



"What I can give people who find vulnerabilities is a small amount of fame. iDefense can give them $10,000." - Darius Wiles



"As a civil rights issue, selling vulnerabilities is just fine. As a keeping-the-customers safe issue, it's junk." - Novell director of software engineering Crispin



"If I come to you and offer to sell you a vulnerability in your product, I am going to be cuffed and arrested," he told the representatives of software makers on the panel." - Matthew Murphy



And the discussion is reasonably pretty hot with a reason. Back in January Microsoft expressed their opinion on the informediaries based market model like :



"One day after iDefense, of Reston, Va., announced the bounty as part of a newly implemented quarterly hacking challenge, a spokesperson for Microsoft, based in Redmond, Wash., said paying for flaws is not the best way to secure software products. "We do not believe that offering compensation for vulnerability information is the best way [researchers] can help protect customers," the spokesperson said in a statement sent to eWEEK. "



and while Microsoft talks about responsible disclosure, that's exactly the type of model I don't really think exist anymore. Peter Mell made a good point that "I don't support this activity. Basically, it enables third parties to unfairly focus attention on a particular vendor or product. It does not help security in the industry," Mell said in an interview with eWEEK." -- but it still offers the opportunity to bring order into the chaos doesn't it?



The WMF vulnerability apparently got purched for $4000 and I among the few scenarios that I mentioned were on vendors purchasing vulnerabilities and requested vulnerabilities, or a reverse model :



"requested vulnerabilities are the worst case scenario I could think of at the moment. Why bother and always get excited about an IE vulnerability, when you know person/company X are running Y AV scanner, use X1 browser as a security through obscurity measure. That's sort of reverse model compared to current one where researchers "push" their findings, what if it turns into a "pull" approach, "I am interested in purchasing vulnerabilities affecting that version of that software", would this become common, and how realistic is it at the bottom line?"



Coming across 0day vulnerabilities for sale, I also came across Rainer Boehme's great research on various market models, among them exploit derivatives. Have you ever though of using exploit derivatives, on the called "futures market"? I think the idea has lots of potential, and he described it as :



"Instead of trading sensitive vulnerability information directly, the market mechanism is build around contracts that pay out a defined sum in case of security events. For instance, consider a contract that pays its owner the sum of 100 EUR on say 30 June 2006 if there exists a remote root exploit against a precisely specified version of ssh on a defined platform."



The OS/Vendor/Product/Version/Deadline type of reverse model that I also mentioned is a good targeted concept if it were used by vendors for instance, and while it has potential to have a better control over the market, the lack of common and trusted body to take the responsibility to target Windows and Apple 50/50 for istance, still makes me think. The best part is how it would motivate researchers at the bottom line -- deadlines result in spontaneous creativity sometimes.

More on the topic of security vulnerabilities and commercializing the market, in a great article by Jennifer Granick (remember Michael Lynn's case?) she said that :



"I'm more concerned that commercialization, while it promotes discovery, will interfere with the publication of vulnerability information. The industry adopted responsible disclosure because almost everyone agrees that members of the public need to know if they are secure, and because there is inherent danger in some people having more information than others. Commercialization throws that out the window. Brokers that disclose bugs to their selected list of subscribers are necessarily withholding important information from the rest of the public. Brokers may eventually issue public advisories, but in the meantime, only the vendor and subscribers know about the problem."



Who should be empowered at the bottom line, the informediaries centralizing the process, or the security researchers/vulnerability diggers starting to seek bids for their reseach efforts?

On the other hand, I think that the current market model suffers from a major weakness and that is the need for achieving faster liquidity if we can start talking about such.


Basically, sellers of vulnerabilities want to get their commissions as soon as possible, which is where the lucrative underground market easily develops. While I am aware of cases where insurers are already purchasing vulnerabilities to hedge risks until tomorrow I guess, anyone would put some effort into obtaining a critical MS vulnerability given a deadline and hefty reward, but who's gonna act as a social planner here? Continue reading →

Spotting valuable investments in the information security market

Back in January I mentioned the possible acqusition of SiteAdvisor in my "Look who's gonna cash for evaluating the maliciousness of the Web?" post and it seems McAfee have realized the potential of this social-networking powered concept on a wide scale, and recently acquired SiteAdvisor -- this was meant to happen one way or another and with risk of being over-enthusiastic I feel I successfully spotted this one.



Next to SiteAdvisor's pros and cons that I commented on, I also provided a resourceful overview of some of the current malware crawling projects out there, to recently find out that WebRoot finally went public with the Phileas spyware crawler, and that Microsoft's Strider Crawler came up with the Typo-Control project -- great idea as a matter of fact. What are some of the current/future trends in the information security industry? Are the recent flood of acquisitions the result of cheaper hardware and the utilization of open-source software, thus cutting costs to the minimum while the idea still makes it to the market?


Have both, entry and exit barriers totally vanished so that anyone could get aspired of becoming a vendor without the brand at the first place? Excluding the big picture, it is amazing how uninformed both, end and corporate users are, yet another lack of incentive for security vendors to reach another level of solutions -- if it ain't broken, don't improve it.



Moreover, what would the effect be of achieving the utopian 100% security on both, the market and the world's economy? On one hand we have "the worst year" of cybercrime, whereas spending and salaries are booming, and they should be as the not knowing how much security is enough, but trying to achieve the most secured state is a driving factor for decades to come.


The bottom line is, the more insecurities, the more security spending, the higher the spending, the higher the growth, and with increasing purchasing power, corporate R&D, and government initiatives you have a fully working economic model -- going to war, or seeing terrorists everywhere is today's driving force for military/intelligence spending compared to the "Reds are everywhere" propaganda from both camps of course, back in the Cold War period. Fighting with inspired bureaucrats is always an issue as well.



The Ansoff's Product/Market Matrix often acts as the de-facto standard for developing business opportunities, that is, of course, if you're not lead by a visionary aim, promote an internal "everyday startup" atmosphere to stimulate creativity, or benchmark against competitors. On the majority of occassions a security vendor is looking for ways to diversify its solutions' portfolio, thus taking advantage of re-introduced product life cycles and new sources for revenues.


While there should be nothing wrong with that given a vendor is actually providing a reliable solution and support with it, I often argue on how marketable propositions centric business model is not good for the long-term competitiveness of the company in question.



It's the judgement and competitors myopia that I'm talking about. In respect to the current information security market trends, or let's pick up the anti virus solutions segment, that means loosing sight of the big picture with the help of the mainstream media -- cross refferenced malware names, "yet another" malware in the wild, or supposed to be Russian hacker selling his soul for E-gold(cut the stereotypes here and go through the majority of recent statistics to see where all that phishing, spam and malware is coming from), is a common weakness of a possible decision-maker looking for acquisitions. Focusing on both, current trends, and current competitions is the myopia that would prevent you from sensing the emerging ones, the ones that would improve your competitiveness at any time of execution of course.



The way we have been witnessing an overal shift towards a services based world economy in comparisson to a goods based one, in the informaiton security market services or solutions will inevitably profiliate in the upcoming future. When was the last time you heart someone saying "I don't need an anti-virus scanner, but an anti-virus solution, what's yours and how is it differentiated from the others I'm aware of"? Un-informed decisions, quick and cheap way to get away with the "security problem", or being totally brainwashed by a vendor's salesforce would result in enormous long-term TCO(total cost of ownership) problems, given someone actually figures a way to make the connection in here.



Some time ago, I came across a great article at CSOOnline.com "2 Vendor Megatrends and What They Mean to You" giving insight on two trends, namely, consolidation of security providers and convergence -- the interception between IT and physical security. And while it's great in respect to covering these current trends, I feel the article hasn't mentioned the 3rd one - Diversification. An excerpt :



"One trend is consolidation. "We're seeing the bigger players buying out many of the smaller companies. And I think the largest of the security firms are looking to provide a full range of enterprise services," says C. Warren Axelrod, director of global information security at Pershing, a Bank of New York Securities Group company. "The larger firms, like Internet Security Systems, Symantec and Computer Associates, are buying in many areas to complement what they have. They're basically vying for control of the security space." Axelrod is dead on, and consolidation is just as rampant among physical security vendors as it is in the IT world."



I feel consolidation is happening mainly because different market segments are constantly getting crowded and mainly because it's very, very hard to get a name in the information security market these days, so instead of run for your own IPO, compete against market players whose minor modification may ruin your entire idea, you'd better get acquired one way or another. @stake is an example of how skilled HR runs away from the acquirer, at least for me counting the HR as the driving force besides the brand.



More from the article :

"The second trend is convergence—the confluence of IT and physical security systems and vendors—which, in some sense, is another form of consolidation, only it's happening across the line that historically divided those two worlds."



Tangible security is often favored by investors as it targets the masses, and the most visible example besides perimeter based defenses are the hardware appliances themselves. These days, there isn't a single anti virus, anti spam or anti spyware solution provider without a hardware appliance, but what's to note is how their OEM agreements are still working and fully applicable, it's all about greed, or let's avoid the cliche and say profit maximization -- whatever the market requires the vendors deliver!



Very in-depth article, while I can argue that vendors are so desperate to "consolidate bids" on a national level, as they usually try to get as big part of the pie as possible. What's else to note is that the higher the market transparency, the more competitive the environment, thus greater competition which is always useful for the final user. In respect to heterogenity and homogenity of security solutions, and all-in-one propositions, the trade-offs are plain simple, cut total TCO by using a single vendor, get your entire infrastructure breached into by an attacker that would sooner or later find a vulnerability in it -- find the balance and try to avoid the myth that complexity results in insecurities, as it's a unique situation every time.



What we're witnessing acquisition-to-solution turn-around periods of several months in response to an emerging market - the IM one, mobile anti-virus scanners seem to be the "next big thing", whereas it would take quite some time for this segment to develop, still you'd better be among the first to respond to the interest and the fact that there are more mobile phones capable of getting infected with a virus, than PCs out there -- 3G, 4G, mobile banking would fuel the growth even more, and these are just among the few issues to keep in mind. In a previous post, I also mentioned on a creative use of security intelligence information in Sophos's Zombie Alert service, and a product-line extensions, namely McAfee's bot killing system. What no one pictured would happen is emerging these days - vulnerabilities turning into IP and the overal commercialization of the security vulnerabilities market, and getting paid for getting hacked is a growing trend as well -- much more's to come for sure.



The secrets to successful acquisitions?

- retain the HR that came with it, and better put something on the table at the first place
- don't try to cannibalize the culture there, Flickr is the perfect example out of the security market
- go beyond the mainstream media sources, and PR releases, use open source competitive intelligence tools in order not to miss an opportunity
- attend as much cons as possible to keep track of who's who and where's the industry heading to
- cost-effectively keep in touch with researchers, and an eye on their blogs, you never know who would be your early warning system for business development ideas



Try to stay on the top of security, not in line with it.



Technorati tags:
Security, Information Security, SiteAdvisor, McAfee, Investing, Investment, Market Trends, Economics Continue reading →

Getting paid for getting hacked

In the middle of February, Time Magazine ran a great article on Cyberinsurance or "Shock Absorbers", and I feel this future trend deserves a couple of comments, from the article :



"As companies grow more dependent on the Internet to conduct business, they have been driving the growing demand for cyber insurance. Written premiums have climbed from $100 million in 2003 to $200 million in 2005, according to Aon Financial Services Group. The need for cyberinsurance has only increased as hacker move away from general mischief to targeted crimes for profit. Insurers offer two basic types of cyber insurance: first-party coverage will help companies pay for recovery after an attack or even to pay the extortion for threatened attacks, while third-party coverage helps pay legal expenses if someone sues after a security breach. Demand for insurance is also driven by laws in over twenty states that require companies to notify consumers if a breach compromises their personal data. However, prevention is still the top priority for most companies, since loss of critical data to competitors would do damage beyond the payout of any policy."



Cyber insurance seems to be an exciting business with a lot of uncertainty compared to other industries with more detailed ROIs, as I feel the information security one is missing a reliable ROSI model. I once blogged about why we cannot measure the real cost of cybercrime, and commented the same issue with the "FBI's 2005 Computer Crime Survey - what's to consider?". Don't get me wrong, these are reliable sources for various market indicators, still the situation is, of course, even worse.


But how do you try to value security at the bottom line?



Bargaining with security, and negotiating its cost is projectable and easy to calculate, but whether security is actually in place or somehow improved, seems to be a second priority -- bad bargaining in the long-term, but marketable one in the short one.



Going back to the article, I hope there aren't any botnet herders reading this, especially the first-party coverage point. To a certain extend, that's a very pointless service, as it fuels the growth of DDoS extortion, as now it's the insurer having to pay for it, meaning there're a lot of revenue streams to be taken by the cybergang. While covering the expenses of extortion attempts is very marketable, it clearly highlights how immature the current state of the concept really is. Something else to consider, is that a lot of companies reasonably take advantage of MSSPs with the idea to forward risk/outsource their security to an experienced provider, and most importantly, budget with their security spending. And while the California's SB 1386 is important factor for growth of the service given the 20 states participating, with the number of stolen databases from both, commercial, educational and military organizations, insurers will start earning a lot of revenues that could have been perhaps spent in security R&D -- which I doubt they would spend them on, would they?



UPDATE:
The post has just appeared at Net-Security.org - "Getting paid for getting hacked", as well as LinuxSecurity.com - "Getting paid for getting hacked"



Related resources :

Cyber-Insurance Revisited
Economics and Security Resource Page
WEIS05 WorkShop on Economics and Information Security - papers and presentations
Valuing Security Products and Patches
The New Economics of Information Security
Safety at a Premium
Cyber Insurance and IT Security Investment Impact on Interdependent Risk
Valuing Security Products and Patches
Network Risks, Exposures and Solutions



Technorati tags :
Security, ROSI, Cyber Insurance, Economics Continue reading →