Fertile Ground for Startups: 10 Sectors of the $207 Billion Cyber-Security Industry Poised to Take Off

As businesses move their data processing to the cloud, cyber-security is becoming an increasingly prevalent and mission-critical problem.

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By Catherine Clifford


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If you are hunting for startup business ideas, you might want to consider sectors of the $207 billion cyber-security industry that are expected to show impressive revenue growth over the next five years.

If the revenue generated in the cyber-security industry were the economy of a country, it would be the 46th-largest economy in the world, just above Algeria and below Portugal, according to a report released this week from Los Angeles-based industry research firm, IBISWorld. And it's growing. For entrepreneurs seeking a foothold to launch a business, that can spell opportunity.

Related: Cyber Security a Growing Issue for Small Business

With the increasing adoption of cloud computing, mobile devices and web-based applications, hackers have more opportunities than ever to infiltrate the network systems of businesses. At the same time, as more sensitive data is moved online, cyber-security is becoming a high-stakes game. In the coming five years, the cyber-security industry is expected to expand by 7.7 percent annually, reaching $285.9 billion in revenue by 2018, according to David Yang, the analyst who wrote the IBIS World report. Here is a list of the top 10 sectors in the industry ranked by the percentage their revenue is expected to grow over the next five years.

1. Online payment processing software developers
Projected annual revenue growth through 2018: 17.2 percent
Revenue expected in 2013: $15.3 billion
Profit margin expected in 2013: 19.9 percent
In addition to online credit-card processing, this sector includes services where consumers link their credit card information to a payment system like PayPal or Google Wallet. Also, it includes emerging technology where your mobile device connects to an in-store payment processor from a distance without any physical contact. Because of minimal labor costs associated with maintaining the software, the 20 percent profit margin is expected to increase.

2. Virtual data rooms
Projected annual revenue growth through 2018: 14.2 percent
Revenue expected in 2013: $728 million
Profit margin expected in 2013: 7.5 percent
Virtual data rooms are locations in the cloud where businesses can securely store and access information about private negotiations, including mergers and acquisitions, real-estate transactions, intellectual property rights and initial public offerings. Of particular note to entrepreneurs, virtual data rooms are an especially attractive sector for investors, according to IBISWorld.

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3. Online insurance brokers
Projected annual revenue growth through 2018: 12.9 percent
Revenue expected in 2013: $19.2 billion
Profit margin expected in 2013: 11 percent
These brokers make a commission from insurance companies when they sell insurance to consumers online. Because these transactions involve highly sensitive personal information, including social security numbers and home addresses, IBISWorld predicts the industry will need to adopt comprehensive practices in the coming five years.

4. IT security consulting
Projected annual revenue growth through 2018: 6.8 percent
Revenue expected in 2013: $5.3 billion
Profit margin expected in 2013: 7.5 percent
One of the greatest security risks to businesses is the employees who work there and have access to sensitive data. IT security consultants work with businesses to put in place monitoring systems for email and network usage. Demand for this expertise is expected to grow in coming years.

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5. Operating systems and productivity software publishing
Projected annual revenue growth through 2018: 6.7 percent
Revenue expected in 2013: $38.6 billion
Profit margin expected in 2013: 34.4 percent
As businesses move their operations to the cloud, the servers they run off of will need to be protected. If there is a recurrence of operating systems vulnerabilities, as there has been with Google's operating system for the Android phones recently, investors may become hesitant to enter this sector, the report says.

6. Identity theft protection services
Projected annual revenue growth through 2018: 4.9 percent
Revenue expected in 2013: $3.8 billion
Profit margin expected in 2013: 8 percent
These services use software and analytics to identify suspicious credit-card activity and use of personal-identification data. Going forward, these companies will need to get even more granular in their tracking of what consumers spend and where they are accessing data online so they can not only identify fraudulent activity, but stop it before it happens.

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7. Financial data service providers
Projected annual revenue growth through 2018: 4.7 percent
Revenue expected in 2013: $6.3 billion
Profit margin expected in 2013: 19.6 percent
Web portals that give customers a snapshot of their stock portfolios or fixed income balance sheets are predicted to grow in popularity in coming years as consumers demand more services available at their fingertips. Intrinsic to the success of these conveniences, however, is protecting the information provided by consumers. If there is a pattern of security breaches, this industry would suffer, and revenue growth would not meet projections, IBISWorld warns.

8. Online mortgage brokers
Projected annual revenue growth through 2018: 4.1 percent
Revenue expected in 2013: $10.1 billion
Profit margin expected in 2013: 4.2 percent
As with online insurance brokers, web-based mortgage brokers also require a significant amount of private data from customers. The industry is expected to need revamped and improved cyber-security protocols.

9. Database, storage and backup software publishing
Projected annual revenue growth through 2018: 3.4 percent
Revenue expected in 2013: $25.6 billion
Profit margin expected in 2013: 21.9 percent
Businesses are expected to continue to demand more data storage and in turn, they will need more sophisticated software to protect that data, particularly for cloud and mobile applications. One risk for entrepreneurs looking into this sector is that due to a lack of industry-wide standards for cyber-security practices, demand for software may fluctuate before it stabilizes, spooking investors, the report says.

Related: 7 Trends in 'Green' Business, Not Just for Tree-Huggers

10. Data processing and hosting service
Projected annual revenue growth through 2018: 2.1 percent
Revenue expected in 2013: $82.2 billion
Profit margin expected in 2013: 12 percent
Data processing services take information that businesses give them, analyze it, and turn it into analytic reports. Hosting companies support web application software for businesses. This sector is already more than twice as large as any other on the list because it is so fundamental to the evolution of business services moving to the cloud.

How much does your business spend protecting its online service? Leave a note below and let us know.

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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