iDefense CEO Talks on Wholesaling Threat Intelligence

Q&A: With the "bad guys getting better" at escalating threats, iDefense CEO John Watters says the company is doing big business by buying vulnerability information from researchers worldwide and reselling it to customers.

Security intelligence company iDefense Inc. makes its money by acting as a kind of wholesaler of information on security vulnerabilities, threats and exploit code.

The Reston, Va., company has stirred controversy in the security community with its practice of buying this information from researchers around the world and reselling it to customers. Senior Editor Dennis Fisher sat down recently with iDefense CEO John Watters to discuss the companys model and what threats and problems the future holds.

Tell me a little about how business has been going in the past six months. I know you have been busy reshaping the company.

Business has been great. We try to help our customers prioritize their work efforts based on whats our expectation, based on our monitoring of sources, whats the most important threat. We try to be as proactive as you can get in terms of threat intelligence.

We try to say, "Hey, we know youve got a hot day, we know the yard hasnt been watered in weeks and its flammable, and—by the way—theres a sparkler over there in the corner thats getting ready to go, and theres a guy driving by with a gas truck at the same time. This could be a big one."

From a business perspective, our average contract is six times what it was in 2002. We have gone through and cleansed our customer base.

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Have you run into anyone who has been able to put together the kind of services that you guys do?

No. To my knowledge, were the only company in the history of this industry ever to make a nickel. We turned cash-positive in the first half of this year. Weve got very good GAAP [Generally Accepted Accounting Principles] visibility.

From an economic perspective, were more than double the size that SecurityFocus was when they were sold [to Symantec Corp.] and they were losing money. Were the only one thats been able to figure out how to have: (a) a very-high-quality global intelligence offering, and (b) a cost-effective way to deliver it to your customers and (c) a way to get economics for it.

We had a landmark win with a member of the U.S. intelligence community that gives us [a lot] of credibility. We dont have a product with a cool GUI interface.

So, you spend your money mainly on the intelligence.

Exactly. What were now doing with this Web service is partnering with technology vendors so we can give them a machine-read XML feed that maps directly to all of their proprietary products. So we sell razor blades. If its never updated, its worthless.

So, over the life cycle of a product, at least half the value of that product is in the updates, the razor blades. Were now in the razor blade business that sells the "intel inside." From a threat landscape, the bad guys are getting better. Last summer, we saw the emergence of a liquid end market for credit card data that allows someone to go monetize 10,000 MasterCard numbers with CVV [Card Verification Value] codes.

Today, you have a wholesale market. Youve got a maturation of this kind of hacker-for-hire thats prevalent in Russia. They can provide the talent to create whatever you need in terms of tools. What will make somebody successful is their ability to gather the data. It really is setting up for a perfect storm [in electronic crimes].

Does a "cash for code" model work? Click here to read more.

In your discussions with government agencies, what are their biggest concerns right now?

The problem with government and the legislative process is, unless you are an absolute brilliant visionary as a governmental CISO [chief information security officer], youre always lagging. Theyre just getting to the point now of vulnerability scanning. The reason why the government is buying one of our products is that its far faster than partnering with the private sector.

The governments playing catch-up, and until they catch up, theyre going to have a difficult time leading the way. From a DOD [the U.S. Department of Defense], true homeland security perspective, I think DOD is way ahead of the game. It is a bit of a Catch-22. It is very difficult to implement any kind of IT strategy quickly in the government.

Especially in DHS [Department of Homeland Security], where theyve tried to tie together all of these agencies and command-and-control structures. From a budget standpoint, they have to try to deploy what they see as the one best solution, and it hasnt worked.

Click here to read about security holes in AOL Instant Messenger that iDefense recently reported.

What kind of threats do you see on the horizon, given the trends of the last few months?

I think, in the balance of this year and probably into next, you will see an absolute explosion in the white-collar-crime area. With the sophistication and all of the tools that have just now gotten in place, I think youre going to see a step function in it. Not just a stepping up but more players getting involved.

Youre going to see more players from different parts of the world getting involved, and theres going to be a run on the bank.

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