Accenture's (ACN) strategic acquisitions in cybersecurity will help drive the strong momentum of its cloud and cybersecurity bets. Accenture's cloud revenue is becoming a big growth driver for the global consulting firm. As it rolls up these capabilities, Accenture's growth factor will be boosted by its improved strengths in growing segments of the cybersecurity space. This makes Accenture an attractive way to bet on the growing cloud security and digital transformation trend.
According to researchers, managed security services must provide remote 24/7 monitoring of, and response to security events. This constitutes the most important component of managed security services-remote threat detection, use case resolution, and reporting.
Additionally, MSSPs must offer administration and management of IT security technologies; they should also deliver security operations center capabilities, incident response services, threat intelligence, and managed detection and response.
Consulting requires a lot of human input. Most consulting gigs are initiated on trust and sealed on a strong conviction between a consulting firm and its clients. For years, consultants have had an edge due to the uniqueness of their data (manual demand-side data aggregation). This was the era before enterprises got better at collecting, storing, migrating, and analyzing data at scale. True to most enterprises, the cost of data storage was expensive to justify, and cutting-edge networking standards like 4G, which accelerated the speed of global IoT connectivity, hadn't been born. This allowed a lot of human-intelligence-driven consulting firms to fly under the radar without being noticed.
The past ten years have ushered in rapid growth in technological innovation. Moore's law continued its yearly gift-giving rite as the speed of computing improved drastically. The 4G networking standard made cloud computing a global reality as data loss (mitigated via backup and recovery solutions), and network service denial were no longer an issue due to the rapid improvements in telecommunication facilities. Also, the cost of storage and cloud solutions crashed and converged. Lastly, machine learning and AI capabilities evolved and solidified at scale. These changes all happened rapidly and sporadically that the biggest beneficiaries were big tech companies who had enough cash to acquire capabilities where needed.
The rise of IBM (IBM), GCP, AWS, Azure, and other big data platforms equipped enterprises with the confidence to take data storage and acquisition seriously. However, consulting firms didn't feel the needle pricking them to wake up until the rise of four big firms. They are Alphabet (GOOGL), Facebook (FB), Salesforce (CRM), and IBM (2.0). These companies all had the size, brand, and reach to acquire enough big data, cloud, and AI capabilities to compete with consulting firms in services that pay hefty fees for access to unique consulting data and insights.
In marketing and advertising, Google and Facebook have more data than traditional consulting and services firms. They deploy data to develop recommendation systems for users to connect better with their friends and family. They also help brands connect with their audience. This nullified the need for human intelligence or consulting gigs across a lot of marketing and ad campaigns. Their ad engines are built to optimize for thousands of data points and signals that it's best to leave them to learn without any human input.
In sales, Salesforce, Zendesk (ZEN), Twilio (TWLO), and other ML-driven marketing and sales solutions made it next to impossible to deploy humans to generate sales and marketing insights as fast as their recommendation, classification, and decision science models can process.
In ride-sharing, flight booking, and hotel booking, the likes of Uber (UBER), Booking (NASDAQ:BKNG), and Airbnb have leveraged data to automate the process of matching users with the services that will generate the utmost satisfaction.
In e-commerce, Amazon (AMZN) and Instagram have thrived on the same big data and decision science trend. Other sectors like healthcare, manufacturing, utilities are witnessing a similar trend.
Technical areas like security look to be cut out of the picture; however, they are not. Security threats are created by humans, and it can be argued that they are best prevented by humans. However, consulting firms are facing a similar battle with cybersecurity consulting gigs. Cloud security platforms like Rapid7 (RPD), FireEye (FEYE), and CrowdStrike (CRWD) have emerged to automate and reduce the need for human intelligence in the cloud space. Unlike other industries, the security industry is still in the infancy of its cloud disruption phase. Most high growth plays have less than a billion in annual revenue, and big security firms are acquiring small startups to stay competitive. While this has informed the rationale behind Broadcom's (NASDAQ:AVGO) acquisition of Symantec's enterprise division, we realize that the security service industry, which mostly consists of system integrators and managed security service providers, will face intense competition from automated threat intelligence systems offered by cloud security companies. These companies are also setting up cybersecurity consulting teams. FireEye has Mandiant, and CrowdStrike recently introduced XElite.
Symantec's Cyber Security Services business will be the latest in a series of acquisitions - including those of Deja vu Security, iDefense, Magellan, Redcore, Arismore and FusionX - that demonstrate Accenture Security's commitment to investing in and innovating advanced threat intelligence and cybersecurity solutions..
Acquiring capabilities in the areas of threat intelligence and monitoring is a game of necessity as MSSPs don't create products that parse data to build threat intelligence systems. This puts them one step behind network, endpoint, and cloud security companies whose platforms are made intelligent off the data generated by their clients at little to no cost. Just like Facebook, Twitter (TWTR), and other user-generated content companies have scaled immensely due to the zero cost of generating content, cloud security companies will benefit immensely from the new trend that is emerging in the security space. Unlike network security companies, they don't even need to make security boxes, which means they get to enjoy superior operating margins.
Security service providers will have to continue to look into M&A to compete on data.
The acquisition of the Symantec services business strengthens Accenture's capabilities in RPFs for security intelligence and management gigs. It also weakens the need for companies to hire internal cybersecurity experts with little to no years of security experience in a field with a shortage of security talents. The incentive to stick with seasoned and experienced players like Accenture to protect mission-critical infrastructure is strengthened.
Just like no fast growth company is hoping to hire machine learning engineers to build an advertising platform to compete with Google or Facebook's SaaS offering due to talent shortage and the huge cost of competing with the data trove of these big tech companies, it becomes next to impossible to compete with big security firms with huge troves of data and threat intelligence after years of analyzing and reporting on the latest security threat vectors.
This is about strengthening its positioning on the organic gap that has been created due to talent shortage and the huge cost of acquiring data. The network operating centers are a good fit for Accenture as it strengthens its capabilities in the cloud security space.
Accenture's strategy of growth by strategic acquisitions and share buyback is important to compete with other big data platforms. As a result, I find the current valuation attractive, given that it won't be looking to create internal products to drive organic growth. The acquisitions are about ensuring Accenture has access and insights into the latest technologies that product and platform owners have. Accenture can easily compete with these platform owners in the areas of actionable insights as the intelligence of experienced humans will always trounce algos in areas where speed and volume aren't expedient. Examples include the SIEM (security information and event management), and incident response segments of the cybersecurity space. Human intelligence is still required to configure alerts and optimize output to drive down false positives/negatives.
Bookings continued to be dominated by high demand for digital, cloud and security related services which we estimate represented more than 65% of our new bookings in the quarter.
I have a bullish rating on Accenture as its man/machine intelligence combo will continue to put it a step ahead where pure ML/AI algos churn out decisions that need some human inputs to be actionable. This will continue to drive its growth factor in the near term.
Sourced from Seeking Alpha- written by Kayode Omotosho