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The US encryption applications market grew by 135% to $152.5m in 1997 and will reach $1.04bn in 2000, claims a new report from research company Frost & Sullivan. Email encryption represented 53% of US encryption applications revenues last year, with public key infrastructure (PKI) software and services representing 23% and secure virtual private network (VPN) hardware and software 24%, Frost & Sullivan estimates. Over the next six years, the overall market will grow by a CAGR of 40% due to increasing use of the internet for business-to-business communications and commerce. Other factors driving the market will include the cost savings inherent in migrating to VPNs and greater numbers of companies transferring large files over IP links. Factors which could hinder growth include lack of multivendor product interoperability, MIS departments’ ignorance of the need for network security and US export restrictions on strong encryption. In the VPN market, the internet protocol security (IPSec) standard is being helped by major projects such as the US automotive network exchange (ANX) extranet trial. However, Frost & Sullivan warns that it is too early to tell whether IPSec will live up to the expectations of the VPN industry in terms of ensuring interoperability between vendors. In 2001, the US encryption applications market will have reached $1.58bn, Frost & Sullivan predicts, with the PKI, email and VPN sectors each accounting for roughly 33% of total revenues. PKI software and services will account for 38% of the $3.34bn US encryption applications market in 2004, compared to 41% for secure VPN technology and 21% for email encryption. In 1997, PKI systems averaged $62,000 for a 100-user installation, Frost & Sullivan estimates. Canadian supplier Entrust Technologies held 70% of the US PKI market in 1997, it says, with the remaining 30% shared by just four vendors. However, many more companies will enter the PKI market over the next few years and existing competitors such as Xcert and VeriSign will eat into Entrust’s market share, the report says. Last year, the US VPN market had 21 participants, but no vendor had more than an 11% share of total revenues. Network equipment suppliers such as Cisco Systems, Nortel and Ascend are expected to enter the VPN market by acquiring existing vendors. Bay Networks, which was recently bought by Nortel, acquired New Oak to gain entry into the VPN market, while Cisco has formed an OEM relationship with VPN vendor Red Creek. In 1997, the US email encryption market had 18 participants, with Network Associates holding the major share of revenues.

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CBR Staff Writer

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