The Morning Download: Consolidation Squeezing Cybersecurity Startups

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Good morning. There are almost as many startups in the cybersecurity market as there are new forms of malware. That kind of ferment is usually a sign of innovation - something CIOs sorely need in this domain. On the not-so-encouraging front, many of these disruptive little companies are being gobbled up by their larger rivals. Just last week, Versafe Ltd. was acquired by F5 Networks Inc. for an undisclosed amount.

Gartner Inc. analyst Avivah Litan notes in her blog that this is the third recent acquisition of a small security company by a big security firm. “First came RSA’s acquisition of Silvertail for about $350M, then came acquisition of Trusteer for $800M to $1 billion.” Ms. Litan goes on to say that customers may be better off when small innovators grow large on their own. “I haven’t seen strong evidence that the security companies know how to handle these innovators. I’m not sure they will successfully bring their technology to the enterprise security market while enabling it to continue to thrive in the customer/consumer web fraud detection/prevention market,” she writes.

Two schools of thought on cyber regulation. There’s fundamental disagreement between those who argue that cyber regulations create a minimum standard, and those who believe regulations don’t accomplish much beyond check-the-box compliance. The two sides battled onstage at a cybersecurity conference in New York Wednesday. “Regulation builds the muscle for security. It’s not best practice, but it’s necessary practice,” said Sallie Mae Inc. CSO Jerry Archer. John Prisco, president and CEO of cybersecurity software vendor Triumfant Inc., disagreed. “Boards of directors aren’t taking (cybersecurity) seriously, but they sure are compliant,” he said.

Threats are multiplied as companies move workloads to the cloud. But the move to the cloud may happen faster than IT executives can learn how to provide security, Mr. Archer said. “The wave is moving very quickly and my concern is staying in front of that wave. That’s what I see as the problem,” said Mr. Archer, CIO Journal’s Joel Schectman reports.

TECHNOLOGY NEWS

NYSE and Nasdaq mull joining forces to combat glitches. With tech glitches on financial exchanges becoming more common, NYSE Euronext and Nasdaq are pondering a scenario some might have considered unlikely: teaming up to protect one another in the event of breakdowns, the WSJ’s Jacob Bunge reports. NYSE and Nasdaq are discussing a plan with other exchanges in which each company would run a backup for the other’s benchmark stock-pricing data. If one exchange group’s feed went down, traders could turn to its competitor for data while the problem was being fixed. The approach has challenges, however. Currently, NYSE’s and Nasdaq’s data feeds use different methods to communicate with traders and exchanges-essentially speaking different languages. Creating dual backups raises the question of whether communications would need to be standardized, which would take time.

As readers of CIO Journal know, NYSE Euronext CEO Duncan Niederauer hinted at this breakthrough several days ago at an Oracle Corp. conference in San Francisco, where he told Oracle President Mark Hurd that “everyone has a lot of legacy technology” and that once new infrastructure is in place, “a lot should be shared.” Don’t expect the industry to write a blank check for technology upgrades, though. NYSE Euronext COO Lawrence Leibowitz told CIO Journal that “there is a cost benefit analysis … I don’t know if the industry could pay billions of dollars to fix this.”

Samsung goes after enterprise with business apps. Samsung Electronics Co. is leveraging its smartphone dominance with a new strategy that helps corporate customers find apps and third-party developers who have experience developing software for Samsung devices. With tablets and smartphones becoming more popular in the workplace, Samsung’s gain could be Microsoft Corp.’s loss. “This is about Samsung keeping the momentum going and pigeonholing Microsoft in the PC ghetto and not letting them move into the phone and tablet space,” John McCarthy, vice president and principal analyst at Forrester Research, Inc., tells CIO Journal. A range of companies including AMR Corp. ‘s American Airlines, give Samsung tablets to employees.

Big Data hits adolescence. As Big Data enters the mainstream, companies are wrapping it in business concepts such as “governance” and “model management,” ideas usually associated with mature technologies, Guest Columnist Thomas H. Davenport says. That’s necessary, but companies need to go about the process with care, lest they discourage innovation. “Nothing throws cold water on a conceptual fire better than a committee for data and model ownership or stewardship,” he writes. “These things need to happen, but they should be imposed slowly and carefully.”

U.S. Senate expands data privacy investigation. The U.S. Senate expanded its nine-year investigation of data brokers to include 12 websites covering health, personal finance and family issues. The expansion comes after many of the subjects refused to identify the “specific sources of consumer information they obtain,” Sen. Jay Rockefeller (D., W.Va.) said. “The investigation comes as the popularity of free health websites and apps has exploded in recent years,” writes the FT’s Emily Steele. “In exchange for providing the sites and the apps for free, industry executives said that companies often make money by selling adverts and data tied to their use.” The new sites under investigation include Time Inc.’s Health.com, Cond&; Nast ‘s Self.com, Fool.com, Investopedia.com and Babycenter.com.

Data broker giants hacked by ID theft service. A website behind an identity theft service operated a botnet that pulled data directly from internal systems at data brokers LexisNexis Inc., Dun & Bradstreet and Kroll Background America Inc., reports Brian Krebs on his website, Krebs on Security. The website is believed to have served more than 1.02 million unique social security numbers and 3.1 million date of birth records since its inception in early 2012. Fraud experts tell Mr. Krebs that it was the “data that these firms hold about consumer and business habits and practices,” that was most valuable. Mortgage and business lenders often use the legal, financial, employment and business data found on the compromised services for knowledge-based authentication, to establish a potential customer’s identity. “We could well be witnessing the death of knowledge-based authentication, and it’s as it should be,” Gartner fraud analyst Avivah Litan tells Mr. Krebs. “The problem is that right now there are no good alternatives that are as easy to implement. There isn’t a good software-based alternative.”

Scientists build first nanotube computer. Researchers at Stanford University on Wednesday unveiled the first working computer built entirely from carbon nanotube transistors. As electronics developers near the limits of conventional silicon transistors, researchers are exploring many materials, including ultra-pure carbon which are exceptional at conducting electricity and heat, and at absorbing or emitting light. “Of all the candidates that have been considered as a successor to silicon, carbon nanotubes remain the most promising,” Supratik Guha, a director at International Business Machines Corp.’s Thomas J. Watson Research Center, tells the WSJ’s Robert Lee Hotz.

France probes Apple’s contracts with mobile operators. French authorities are investigating the terms of contracts between cellphone suppliers and French phone operators for the sale of devices such as the iPhone. “For operators, handsets have become one of the big expenses,” a person familiar with the matter tells the WSJ’s Sam Schechner. “There is a balance of power that is shifting.” The investigation reflects a worry in France and other European companies worry about the power of a cadre of largely American companies retain over the growing Internet economy there.

Manhattan DA calls for penal law update to combat cybercrime. Calling the penal laws used to combat electronic crime outmoded, a task force led by Manhattan District Attorney Cyrus R. Vance Jr. called on New York State to update its laws to better tackle white-collar crime. “The Internet has become our 21st-century crime scene,” Mr. Vance said at a gathering at New York University. “Serious computer and related crimes are not today treated according to the gravity and breadth of the harm caused.” New York’s penal laws have changed little since 1965, reports the NYT’. Mr. Vance is prosecuting Sergey Aleynikov, a former programmer at Goldman Sachs Group accused of stealing proprietary code from the bank.

Facebook and Twitter too late for China’s Internet. Facebook Inc. and Twitter Inc. face a daunting task in China, if access to their social networks is unblocked in the Shanghai Free Trade Zone, which is due to launch this weekend. Reuters’s Paul Carsten writes that China’s sophisticated social media scene, led by Tencent Holdings, Sina Inc. and Renren Inc., will make it difficult for the two Silicon Valley companies to record the same level of success accomplished elsewhere. “The impact is primarily on people who have a global point of view and need to communicate globally. Most Chinese people are not pining for an alternative to Weibo and WeChat,” David Kirkpatrick, author of “The Facebook Effect,” tells Mr. Carsten.

FAA panel to propose limits on in-flight Internet use. A federal advisory committee is expected to call for expanded use of personal electronics during takeoffs and landings, but key restrictions on voice calls and Web use are bound to remain, the WSJ’s Andy Pasztor and Jack Nicas report. The industry-government panel, which Thursday is expected to decide on specific recommendations to the Federal Aviation Administration, is looking to ease restrictions, but onboard Internet connections likely would remain banned or inoperable on most flights below 10,000 feet for the near future. The committee and the FAA are likely to maintain the current prohibition on the use of cellular connections throughout the flight-whether for voice or data-and they may even require fliers to disable Wi-Fi capability on all types of devices during takeoffs and landings.

Twitter strikes deal with NFL. The NFL has reached a deal with Twitter Inc. to make football highlights and other content available on the social-media service, the latest big partnership aimed at capitalizing on the intersection of tweeting and TV, the WSJ’s Amol Sharma reports. The initiative is part of Twitter’s Amplify revenue-generating program that lets TV content owners distribute programming in users’ Twitter feeds, with short ads embedded. The companies share the ad revenue.

Twitter may already be changing - and not for the better. WSJ technology columnist Farhad Manjoo says Twitter’s impending IPO may force it to change, and not for the better. Investors will want growth, and Twitter will be tempted to give in-and that may already be happening. “The danger in Twitter’s IPO is that it will be pushed to turn into something for everyone-something it isn’t,” Mr. Manjoo writes in his inaugural column for the WSJ.

Fund to let investors bet on price of bitcoins. SecondMarket is expected to begin raising money Thursday for an investment fund that will hold only bitcoins, giving wealthy investors exposure to the virtual currency, the NYT’s Peter Lattman and Nathaniel Popper report. SecondMarket’s venture into bitcoin represents the latest effort to bring the virtual currency into the mainstream. But it is also likely to fuel the debate around the legitimacy and legality of a form of money that exists outside the conventional banking system, and has already attracted scrutiny for being used in illicit transactions.

Robots vs. anesthesiologists. A new system called Sedasys, made by Johnson & Johnson, would automate the sedation of many patients undergoing colonoscopies. That could eliminate a big source of income for anesthesiologists, writes the WSJ’s Jonathan D. Rockoff. J&J hopes the potential savings from using Sedasys will appeal to hospitals and clinics and drive machine sales, which are set to begin early next year. But many anesthesiologists say the machine could endanger some patients because it uses a powerful drug known as propofol that could be used improperly. The dispute could be a harbinger of health-care battles to come. Intensifying efforts to control spending present a commercial opportunity for health-product makers, but the new technologies threaten to disrupt physicians’ livelihoods.

Samsung to launch curved display smartphone. Samsung Electronics Co. plans to introduce a smartphone with a curved display in October. “Curved displays are an early stage in screen evolution which is shifting to bendable or foldable designs,” reports Reuters. The phone will first be available in South Korea.

EVERYTHING ELSE YOU NEED TO KNOW

Ellison’s pay under fire. investors are growing more dissatisfied with the high pay for CEO Larry Ellison ahead of the technology company’s annual meeting next month, the WSJ reports. Some shareholders complain that Mr. Ellison, who founded the software giant and beneficially owns a quarter of the company’s shares, continues to receive tens of millions of dollars of stock options every year, even when Oracle’s performance has been mixed. In a letter sent Wednesday to Bruce R. Chizen, chairman of the Oracle board’s compensation committee, CtW Investment Group said it would vote against the company’s compensation practices and possibly seek to unseat directors on the compensation committee if Oracle doesn’t limit its options awards and bring in a new, independent director to help oversee pay. Mr. Ellison received compensation valued at $76.9 million in the fiscal year that ended in May. Oracle’s stock rose nearly 28% in those 12 months, but it plunged 9% on June 21 after the company reported flat sales for a second straight quarter.

T-Mobile CFO talks consolidation, Sprint deal. T-Mobile US CFO Braxton Carter said he expected more consolidation in the U.S. wireless market and made a case for a deal between his company and bigger rival Sprint. Mr. Carter declined to say whether T-Mobile US and Sprint had talked. “It’s the logical ultimate combination,” he told Reuters on the sidelines of the Goldman Sachs Communacopia investor conference in New York. Mr. Carter noted that the U.S. regulatory environment was “tough” for consolidation as the government already blocked T-Mobile’s proposed sale to in 2011. He said a deal involving the smaller national operators would be good for the industry and described the U.S. market as a “duopoly” because AT&T and larger rival Verizon Wireless are far bigger than T-Mobile and Sprint.

Netflix aims for presence on cable-TV systems. Netflix CFO David Wells said his company wants to attract more customers by adding its Web-based movies and television shows to U.S. cable systems. U.S. cable operators have had an “open offer” to add Netflix for two years, Mr. Wells told Bloomberg at the Goldman conference in New York. The company is still willing to forge partnerships, he said. “We would love to reduce the friction to the end consumer, and to be available via the existing device in the home, which is the set-top box,” Mr. Wells said from the stage.

Tom Loftus contributed to this article.

Hardware vendors bail on Windows RT devices. What do Dell Inc., Lenovo Group Ltd., AsusTek Computer Inc. and Samsung have in common? All have bailed on making machines for Windows RT, writes the Verge’s Tom Warren. “Despite backing Windows RT earlier this year, it appears that the “slower” sales of Dell’s device have led to its cancellation,” he writes. Microsoft Corp., which developed RT as its platform for devices running on power-sipping processors designed by ARM Holdings PLC, recently unveiled a Surface 2 tablet running Windows RT 8.1.

Debt-ceiling battle could eclipse shutdown showdown. House Republicans today are considering a plan that could avert a government shutdown - but it would set the stage for a much bigger battle over the debt ceiling. The strategy would clear the way for the House to approve a simple measure to keep the government open into the new fiscal year, beginning Tuesday, without provisions to defund the Affordable Care Act, the Washington Post’s Lori Montgomery and Juliet Eilperin report. That would shift the battle to the debt ceiling, where conservatives would try to use the threat of default to force the president to accept a one-year delay of the health-care law’s mandates, taxes and benefits. The debt-limit bill would be loaded with conservative priorities, including the approval of the Keystone XL oil pipeline and the abolition of the Consumer Financial Protection Bureau.

Companies drop cheapest health plans. The U.S. arm of Sweden’s plans to discontinue its lowest-cost health plans and steer roughly 55,000 workers to new government-sponsored insurance exchanges for coverage next year, in the latest sign of the fraying ties between employment and health care, writes the WSJ’s Scott Thurm. Securitas is among more than 1,200 employers that offer the kind of bare-bones health plans that must be phased out beginning Jan. 1. Nearly four million people are enrolled in these so-called mini-med plans, which cap benefits to participants, sometimes at as little as $3,000 a year. Other big employers, including Darden Restaurants, Home Depot and Trader Joe’s will stop offering health insurance to part-time workers, and will direct those employees to the state exchanges. Darden, Home Depot and Trader Joe’s previously offered mini-meds to their part-timers.

J.P. Morgan discussing $11 billion settlement. J.P. Morgan is in discussions to settle probes related to mortgage-backed securities for $11 billion, the WSJ reports. The amount being discussed would include $7 billion in cash and $4 billion in relief to consumers. As large as the potential settlement may be, two people familiar with the matter cautioned that even if a deal is reached, it may not resolve one of the biggest dangers for the bank: the potential for criminal charges stemming from the mortgage-backed securities probe.

Source: Wsj