Ken Xie: From Stanford to Fortinet

Encouraged by his Chinese parents, Ken Xie gravitated toward entrepreneurship during his engineering studies at Stanford University. In 1993, he established his first venture, SIS, a software firewall company. Xie then continued his entrepreneurial path by founding NetScreen in 1996 and later Fortinet in 2000. Today, Fortinet is one of the global leaders in the rapidly growing and evolving cybersecurity space with a valuation of approximately $50 billion, and continues to be headed by Xie as its CEO. Let's take a closer look at Ken Xie's entrepreneurial journey.

• Ken Xie's entrepreneurial journey: Inspired by his engineering background at Stanford and his parents' encouragement, he founded his first software firewall company, SIS, in 1993. He later established NetScreen in 1996 and Fortinet in 2000.

• Fortinet's evolution and growth: Fortinet, co-founded by Ken and his brother Michael Xie, launched its first product, FortiGate, in 2002 and went public in 2009.

• Combining cloud and hardware: Faced with competition from companies like CrowdStrike and Palo Alto Networks, Ken Xie emphasizes a balanced approach between cloud and hardware solutions.

Ken Xie is the co-founder and CEO of Fortinet, a leading cybersecurity firm that provides firewalls, cloud security, and other services. Encouraged by his Chinese parents to pursue academia and become a professor, he was sent to Stanford University to study engineering. There, Xie developed a keen interest in entrepreneurship. This led him to found his first company, a software firewall business named SIS, in 1993.

Just a few years later, in 1996, he started another cybersecurity firm, NetScreen. He then founded Fortinet in 2000 along with his brother, which went public on the Nasdaq in 2009 with a valuation of roughly $800 million. As of 2024, Fortinet is recognized as a global leader in the cybersecurity space, with a valuation of approximately $50 billion.

Ken and his brother Michael Xie founded Fortinet with the vision that security should be integral to all computing and networking infrastructure, believing it would become a large market in the future. The company began by addressing core cybersecurity challenges and introduced its first product, FortiGate, in 2002. FortiGate was a physical firewall that quickly became notable for its comprehensive network protection capabilities, combining firewall, VPN, antivirus, intrusion prevention, and web filtering into a single device.

Under Ken’s leadership as CEO and Michael’s expertise as CTO, Fortinet has expanded rapidly from the start. The company has been at the forefront of several technological advancements in cybersecurity, including innovations in SD-WAN and edge computing. Fortinet has also grown through strategic acquisitions that complemented and expanded its product offerings, such as the purchases of Coyote Point and Meru Networks for enhanced network security and wireless technology capabilities.

By the time of its IPO in 2009, Fortinet had already made significant inroads into the cybersecurity market, capturing over 15% of the market share. This initial public offering was highly successful, raising $156 million at an ~800 million valuation, setting the stage for continued growth. Today, Fortinet stands as one of the global leaders in cybersecurity, widely recognized for its comprehensive solutions that serve a diverse range of industries from small businesses to large enterprises and government organizations.

Fortinet offers a range of products designed to protect digital assets. Among these, FortiGate stands out as the company's flagship product. FortiGate is a next-generation firewall (NGFW) that integrates multiple security functions to deliver advanced threat protection and high-speed network performance, catering to organizations of all sizes.

First, it's important to note that FortiGate is a very flexible solution containing both hardware and software, which is a pretty unique offering within the cybersecurity space since many of the leading companies are almost pure plays of cloud services and computing at this point.

FortiGate consolidates firewall, VPN, antivirus, web filtering, and application control into a single platform. This reduces the need for multiple standalone solutions, simplifying network management and reducing costs. Below are the primary value propositions:

• Advanced threat protection: Utilizing Fortinet's proprietary security processing units (SPUs) and FortiOS operating system, FortiGate delivers high performance and low latency, even during deep inspection of encrypted traffic. It provides real-time threat detection and mitigation.

• Scalability and flexibility: FortiGate supports deployment in on-premises, cloud, and hybrid environments, ensuring it can meet the needs of any organization, from small branches to large data centers.

• Cost-effectiveness: By integrating multiple security functions into one appliance, FortiGate lowers hardware costs and operational expenses. Subscription models also provide cost predictability for ongoing security needs.

• Ease of management: The FortiGate management interface, combined with Fortinet’s Security Fabric integration, offers comprehensive visibility and control across the network. Automation and orchestration features streamline security operations.

• Proven performance: FortiGate consistently ranks high in independent security tests, assuring organizations of its effectiveness and reliability.

With competitors like CrowdStrike and Palo Alto Networks gaining market share and earning praise for their cloud services, Ken Xie has recently faced significant challenges in determining Fortinet's strategic focus between cloud and hardware.

Xie recently spoke about this topic at Morgan Stanley’s 2024 tech and media conference, where he emphasized the importance of both cloud and hardware solutions within the cybersecurity landscape. He highlighted that while there is a trend towards cloud-based solutions, hardware remains a critical component, especially in network security.

He noted that Fortinet's unique advantage lies in leveraging ASIC (Application-Specific Integrated Circuit) technology to improve performance, reduce costs, and lower power consumption. This approach has allowed Fortinet to capture over 50% market share in unit shipments and become the #1 in network security revenue.

Overall, Xie believes that combining cloud and hardware solutions, supported by Fortinet's ASIC technology, positions the company well to address both current and future cybersecurity challenges. Recently, he has pivoted more towards cloud services, a strategy he was initially skeptical of.

As of Q1 2024, Fortinet's revenue was product revenue accounting for 30% of its total sales, which is a very large part compared to many of its competitors which are mostly pure cloud at this point. The remaining 70% of the revenue comes from its software and cloud services. The company has achieved a 24% revenue CAGR over the last decade:

Fortinet has achieved a 24% revenue CAGR over the last decade

Fortinet has achieved a 24% revenue CAGR over the last decade

In summing up Ken Xie's journey with Fortinet, it's clear that his strategic vision has been crucial to its success. From its early days, Fortinet was positioned as a leader in integrated cybersecurity solutions, blending hardware and software to protect against evolving threats. Despite the industry's shift towards cloud services, under Ken Xie's leadership, Fortinet has maintained a strong emphasis on hardware, leveraging its ASIC technology to stay competitive. Today, while embracing cloud technologies, Fortinet continues to innovate in hardware, ensuring robust security solutions that address both current and future challenges. This balanced approach defines Ken Xie's enduring impact on the cybersecurity landscape.