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One of the basic philosophies of security is defense in-depth: overlapping systems designed to provide security even if one of them fails. An example is a firewall coupled with an intrusion-detection system (IDS). Defense in-depth provides security, because there's no single point of failure and no assumed single vector for attacks.
It is for this reason that a choice between implementing network security in the middle of the network - in the cloud - or at the endpoints is a false dichotomy. No single security system is a panacea, and it's far better to do both.
This kind of layered security is precisely what we're seeing develop. Traditionally, security was implemented at the endpoints, because that's what the user controlled. An organization had no choice but to put its firewalls, IDSs and anti-virus software inside its network. Today, with the rise of managed security services and other outsourced network services, additional security can be provided inside the cloud.
I'm all in favor of security in the cloud. If we could build a new Internet today from scratch, we would embed a lot of security functionality in the cloud. But even that wouldn't substitute for security at the endpoints. Defense in-depth beats a single point of failure, and security in the cloud is only part of a layered approach.
For example, consider the various network-based e-mail-filtering services available. They do a great job of filtering out spam and viruses, but it would be folly to consider them a substitute for anti-virus security on the desktop. Many e-mails are internal only, never entering the cloud at all. Worse, an attacker might open up a message gateway inside the enterprise's infrastructure. Smart organizations build defense in-depth: e-mail filtering inside the cloud plus anti-virus on the desktop.
The same reasoning applies to network-based firewalls and intrusion-prevention systems (IPS). Security would be vastly improved if the major carriers implemented cloud-based solutions, but they're no substitute for traditional firewalls, IDSs and IPSs.
This should not be an either/or decision. At Counterpane, for example, we offer cloud services and more traditional network and desktop services. The real trick is making everything work together.
Security is about technology, people and processes. Regardless of where your security systems are, they're not going to work unless human experts are paying attention. Real-time monitoring and response is what's most important; where the equipment goes is secondary.
Security is always a trade-off. Budgets are limited and economic considerations regularly trump security concerns. Traditional security products and services are centered on the internal network, because that's the target of attack. Compliance focuses on that for the same reason. Security in the cloud is a good addition, but it's not a replacement for more traditional network and desktop security.