2013 was the worst year yet for cybercrime against consumers and businesses alike. Authorities recorded a 62 percent increase in the number of data breaches from the previous year, resulting in more than 552 million identities exposed.

These statistics come from a report just issued by Equity Trades Portfolio holding Symantec (NSDQ: SYMC). The size and scope of breaches is increasing, putting the trust and reputation of businesses at risk, and increasingly compromising consumers’ personal information — from credit card numbers and medical records to passwords and bank account details.

We’re still figuring out the best ways to protect data in cyberspace. For example, it turns out that the safeguard many websites use to protect sensitive information on the Internet has had a major security flaw for at least two years. Because of a coding error in the widely used OpenSSL system, hackers can potentially steal sensitive data from vulnerable websites.

STI readers are already familiar with Symantec’s virtues. But data storage and analysis is a relatively new sector, with bold entrepreneurs backed by aggressive venture capitalists eager to exploit the next market opportunity. Many of the most exciting ideas are being developed by smaller companies unconstrained by legacy issues. Which of these smaller firms is likely to give the best returns to investors?

A caveat: This market is changing and expanding very rapidly. Apple may be a relative newcomer in the history of American business, but it might as well be Methuselah compared to the smaller firms that are shaking up the data storage sector. So while these companies may not have amassed much of a track record yet, the ones that prevail could provide explosive profits. As always, higher risk and higher return go together.

NICE Systems (NSDQ: NICE) is the leading provider of software systems that enable private companies and other organizations to fight financial crime, and safeguard people and assets. These systems analyze data from multiple sources, including phone calls, mobile apps, emails, chat, social media, video, and transactions. NICE solutions are used by over 25,000 organizations in more than 150 countries, including over 80 of America’s 100 largest companies.

The Israel-based firm has expanded into multiple markets in many different countries. It recently worked with Denver’s regional transit system to integrate a wide variety of older security systems into a unified approach that could be monitored from a single command center. A key requirement was that security officers needed to be able to link to the main system through mobile devices. Of the four companies Denver worked with, NICE came up with the best solution.

NICE’s market cap is just $2.5 billion, but it’s already profitable and is offering a dividend yield of 1.5 percent. Yet its price-earnings ratio is just 15 times forward earnings, much lower than many of its peers. The combination of established earnings and strong growth prospects makes it a standout in this sector.

Another company to keep an eye on is Verint Systems (NSDQ: VRNT). The New York-based firm has one operating division that concentrates on commercial application and another that focuses on security.  

There’s been a lot of political controversy in the last 10 years over the extent to which communications companies must provide communications content and data to national and international law enforcement agencies. Verint is one of the leaders in assisting these private companies with complying with these government mandates.

Verint also assists the agencies themselves in sifting through the enormous amount of communications-related data that is generated in the 21^st century, with an eye toward preventing terrorism, financial fraud and other crimes.

Unlike NICE, Verint is not yet profitable, although it does offer a dividend yield of about 1 percent. The stock trades at about 17 times forward earnings and the share price has risen substantially in the last 12 months.

A third company in this segment is Fireeye Inc. (NSDQ: FEYE).  This company has developed a virtual machine-based security platform that provides real-time threat protection to corporations and governments worldwide against the next generation of cyber-attacks. The idea is to identify and prevent highly sophisticated cyber-attacks that can circumvent traditional signature-based defenses, such as next-generation firewalls, IPS, anti-virus, and gateways.

Fireeye’s concepts are fascinating, but the stock has been on a roller-coaster ride in recent months, and it seems wise to watch this one a little longer before deciding to invest. For the moment, NICE Systems looks like the best choice in the small-cap big-data market.

Buy NICE Systems (NSDQ: NICE) up to $50.

Tom Scarlett is the managing editor of Smart Tech Investor.