2014 Strategy Talk Predictions

By Tony Clark, 2-Dooz Inc. – January 13, 2014

The beginning of the New Year means it’s prediction time.  And, fresh off a successful round of 2013 predictions, this year’s first Strategy Talk article reveals three new prognostications. 

However, before 2014’s predications are presented, a quick review of last year is warranted. The below table contains a restatement of last year’s predictions and the actual results.

New predictions for 2014 cover cyber security, IBM’s Watson supercomputer and software defined networking.

Cyber Security Startup Valuations Expected to Jump

In Raymond Kurzweil’s “The Singularity Is Near,” he presents a case for what he believes are the next (emergent) stages of evolution: hybrid human-technology beings, ultimately leading to 100% semiconductor based humanoids.  Kurtzweil believes that it is only a short matter of time before fragile biologically based humans are surpassed by more robust technology-infused beings.  My take: not so fast—especially in light of the accelerating and unrelenting pace of malware creation.  According to Panda Labs, malware hit an all time high in 2013, as more than 10 million new strands were identified during the first three quarters of the year—surpassing the 2012 calendar year total with 3 months still to go.  In light of the re-emerge of the H1N1 flu virus, can you say “Singularity Pandemic?”  It’s bad enough we have to worry about natural viruses jumping from birds, pigs, and other animals to humans.  If Kurzweil is correct, we’ll also soon have to get flu shots to inoculate us against computer viruses.

Though the Singularity may be near, it thankfully won’t arrive this year.  That, however, isn’t deterring venture capitalist and private equity companies from investing like it is already here. Investors are piling into new cyber security startups, including those employing adaptive techniques modeled after the human immune system to protect today’s networks.  2-Dooz estimates more than $22 million dollars on average has been put to work in each of dozens and dozens of pre-mezzanine level companies as of the end of 2013.  The implications of such large cash infusions are two-fold.  First, all of these companies won’t survive, so expect a wave of consolidation to ensue in 2014.  Moreover, given the magnitude of the investment into the average cyber security startup company, valuations of both the acquired companies and those doing the acquiring are likely to jump.  2-Dooz conservatively estimates that investors may be looking to exit with a minimum of $225 million dollars for each company sold from the current batch of security startups. 

IBM’s Watson Could Disrupt Healthcare

In 1876 during the very first telephone call, which was made to his assistant in the next room, Alexander Graham Bell uttered, “Mr. Watson--come here--I want to see you.”  Three years ago, another now famous Watson competed in and took first prize on Jeopardy!  This Watson, an artificially intelligent supercomputer developed by IBM and capable of answering questions posed in natural language, bested two former human champions to take home a $1 million dollar prize.  IBM’s Watson, which deploys automated reasoning and machine learning among other advanced capabilities, was the first computer to accomplish this feat.  However, since that win, IBM has struggled to capitalize on its new star.

That may all change in 2014.  In spite of getting off to a slow business start, IBM’s Watson Business Unit should continue to target healthcare.  Early Watson applications have focused on cancer treatments.  However, this year, especially in the wake of Obamacare and its emphasis on cost curtailment, I expect that the Watson division will sharpen its focus and gain significant traction vis-à-vis healthcare utilization management, which considers the medical need, appropriateness and efficiency of health care services.  Healthcare utilization management appears to be a natural sweet spot for Watson’s talents.

Insurance companies would likely be the biggest beneficiaries of this strategy and thus could be eager Watson customers.  This could especially be true if the system can find lower cost treatment options that lead to better patient outcomes.  If IBM is smart, they should tie at least part of their compensation to the savings that are realized by the healthcare insurance providers.  Unlike cancer treatments that affect a small number of patients, wringing just a little cost out of procedures that affect hundreds of thousands of patients could have a significant impact on the insurers’ bottom lines and in turn would benefit IBM.

The possibility for a significant healthcare disruption exists, because, the insurance companies’ gains and Watson’s gains could come at the expense of the pharmaceutical companies.  For example, older, still effective drugs and treatments might continue to be favored for longer periods of time, effectively slowing the rate of adoption for newer, more expensive drugs.  Furthermore, the disruption could be even more profound if healthcare insurance companies are able to directly educate patients about the more cost effective and medically effective treatment options.  In this scenario, patients would be armed with this information when they arrive for their doctors’ appointments.  After all, patients also have a vested interested in supporting actions which retard premium growth.

SDN Security Challenges Take Center Stage

Software Defined Networking (SDN) is the latest instantiation of a long trending architectural movement that calls for the separation of network control from the network traffic forwarding function.  As defined by the Open Networking Foundation, SDN enables direct programmability, allowing network managers, automated programs, or both to optimally configure network resources via logically centralized network controllers.  The design goal is a more flexible, dynamic infrastructure, which can be more cost effectively customized to application and user needs.  For example, self aware application programs can request and can dynamically be provided with more network bandwidth, compute capacity, and memory (e.g., caching).

However, accompanying the increased level of responsiveness, which is enabled by the enhanced programmability, is greater level of network vulnerability—presenting new and more highly targeted security challenges.  Consider the case of denial of service attacks.  Today these are generally triggered by an avalanche of simultaneous requests from hundreds or thousands of previously infected computers.  In the case of SDN, theoretically all that is required is to initiate a denial of service attack is to infect the network controller with malware that covertly causes bandwidth to a target server to be greatly reduced. By covertly reducing the amount of available bandwidth to a server, a much smaller number of simultaneous requests (or possibly even a single request) can result in the desired effect.

The previous example illustrates a new category of attacks which are possible in an SDN.  The attacks can be more surgical, more impactful and more devastating.  I expect that this will be the year that existing customers and potential customers will become much more sensitive to SDN security challenges.  In addition to denial of service attacks, vendors will be forced to confront SDN eavesdropping which could yield passwords, sensitive corporate data and network configurations.

Those are my 2014 predications.  As always, I invite and look forward to learning what you think.

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