The co-founder and chief executive of global cyber security giant Fortinet, Ken Xie, has hit out at rival firms such as Cisco and Juniper Networks, for seeking to buy their way to dominance via company acquisitions, saying Fortinet aimed to lead the market through developing its own tech smarts instead.
Mr Xie has been at the forefront of the cyber security industry for almost 30 years, having started his first firm, SIS, while still studying at Stanford University. He then founded NetScreen, which was acquired by Juniper for $US4 billion in 2004, four years after Mr Xie had left to start Fortinet.
Fortinet has since grown to be a Nasdaq stock, valued at about $US14.5 billion.
He told The Australian Financial Review that, despite having made 10 acquisitions since 2008, he was confident his network security company would win out over major rivals, due to a longer-term strategy of developing its own products.
“Companies like Cisco and Juniper Networks depend on acquisitions to grow. But after they acquire some companies, they only grow for a few years and then they aren’t able to grow any further because the functions start falling behind, and they don’t integrate properly with the existing company,” Mr Xie said.
“Internal developments are better. Looking at others in the network security space with more than $1 billion in revenue, most are focused on internal development because acquisitions only last a short time. It takes longer to build this way, but it leads to better returns.”
Fortinet, which generated $US1.5 billion in revenue in 2017, employs about 6000 people – more than half of whom are engineers.
The business provides a range of security solutions, including firewalls, secure web gateways, public cloud security, email security, identity and access management services and security-embedded, software-defined, wide-area network (SD-WAN – which is used by enterprises to connect business networks over multiple locations and large distances).
Mr Xie said its investment priority at the moment was its FortiGate SD-WAN product, which it claims to have invested more in over the past four years than any other competitor. He said the advent of next-generation telecommunications and the Internet of Things meant the kind of defences organisations needed to adopt was changing dramatically.
“There’s a lot of new infrastructure that will build up quickly in 5G from the Internet of Things to mobile and cloud, and that’s increased the tech surface a lot and it’s making cyber security more and more important,” Mr Xie said.
Before starting Fortinet in 2000, Mr Xie had grown up wanting to be a professional volleyball player in his home country of China. Forced to choose between sport and university, he opted (and was heavily encouraged by his parents) to go to Stanford.
“My first company was an accident. I was consulting and helping companies establish internet connections that were secure and I had helped 20-30 companies for free. That gave me an idea to charge a monthly fee … I brought in $US30,000 to $US40,000 every month,” he said.
“But I would not take venture capital money. Later Check Point Security started and took VC money and ramped up very quickly … so I started a better company and changed the strategy.”
Fortinet has operated in Australia since 2006 and Mr Xie said he was confident in ongoing success as the complexity and sophistication of technology evolved at rapid speed.
“Today the threats are from infected devices or ransomware, and internally you’re forced to provide all this security for different devices, services and users,” Mr Xie said.
“We need to invest in areas that may not lead to short-term returns [like quantum computing], but will eventually benefit the whole space and will lead to long-term benefits.”