Analyzing the shut down of Lockdown

Lockdown Networks, a network access control (NAC) appliance vendor, shut its doors earlier this week. In just a few days, I've read a number of statements about the meaning of this event. A tech meltdown? The end of the NAC market?

Nope, it's nothing that bold or startling. To me, the ramifications are pretty simple:

• It's hard to succeed when you change horses in the middle of a stream.

When I first became familiar with Lockdown, the company was focused on vulnerability scanning to compete with companies like Foundstone, ISS, and Qualys. When this didn't work, Lockdown reinvented itself as a NAC appliance vendor. Anytime a start-up pulls an about-face like this, it is a sure sign of trouble. There are exceptions like F5 and Ingrian, which successfully went through an extreme makeover, but the vast majority of companies fail.

• When the big guys refer to your core functionality as a "product feature," you are in big trouble.

NAC appliance vendors used to compete with one another. Now they compete with Cisco Systems, Hewlett Packard, Juniper Networks, and Nortel Networks, companies whose NAC features work with their devices, traffic management tools, and administrative consoles. As NAC moves from a tactical implementation to a strategic enterprise initiative, the appliance guys simply can't compete.

• This is a sign of an over-invested industry.

Lord knows why VCs invested in the sixth or seventh NAC appliance vendor a few years ago, but they did. The Lockdown failure follows the fire sale of Caymas Systems' assets to Citrix Systems last year, and others are sure to follow soon. I look across numerous other security niches and see the same thing. There are lots of 3-year-old start-ups with $40 million worth of investments, doing between $8 million to $10 million in revenue. What's the exit strategy for these guys? Seems to me that they either luck out through an acquisition (very few), go through VC extortion, recap and take a bath on shares, or die on the vine. Lockdown suffered the worst fate possible.

Now that I've voiced my opinion on what the demise of Lockdown means, let me be clear on what it doesn't mean. "Out of business" signs at Lockdown don't indicate that the NAC market isn't real--far from it.

Large organizations absolutely want to control who gets access to the network; they just want to centralize these policies and enforce them within the existing network architecture. Networks continue to get smarter, but the same can't always be said for entrepreneurs, investors, and (dare I say) analysts.