Palo Alto clients must pay attention to the Demisto acquisition to combat security threats

The cybersecurity space is a complex yet predictable headline generator for mainstream media. Enterprises are pushing their cybersecurity harder than ever to ensure they aren’t the ones that are caught out—a boon for cybersecurity giants such as Palo Alto Networks, whose recent investment track records security executives must take seriously.

In the latest of a long series of acquisitions, prominent cybersecurity firm Palo Alto Networks is set to purchase information security firm Demisto for $560 million in cash and stock (a big win for Wipro Ventures, which had invested heavily in the firm). The acquisition will aim to strengthen Palo Alto’s offerings for security teams with a platform that provides greater automation to match today’s attacks while reducing manual work.

Israeli firm Demisto was founded in 2015, and it is the first security operations platform to combine security orchestration, incident management, and interactive investigation. In addition, it’s the first learning incident response platform that gets smarter with every analyst’s action. Moreover, Demisto designed the first intelligent security chatbot, DBot, leveraging machine learning to create insights for workflow formation and make security operations more effective.

Demisto has enjoyed growing success since 2017, and it has achieved several decorations in its field. In 2018, it was one of the winners of both the INFOSEC and Cyber Defense Magazine global awards for incident response, two of the company’s several awards that year.

Palo Alto is moving toward subscriptions with aggression; previous acquisitions have shown success!

Exhibit 1 shows Palo Alto’s recent acquisitions, which have pushed the company beyond its safe product space into the new realm of subscriptions. The acquisition of Demisto is the latest and largest in Palo Alto’s $1 billion spending spree, and it may have been encouraged by the success of previous investments. Watch this space!

Exhibit 1: Palo Alto acquisition trail: Demisto bought for $560 million, almost double their previous acquisition!

Source: HFS Research, Palo Alto Networks PR

Palo Alto proves its success, showing increased demand from its customers

Palo Alto has suggested that it is moving toward a subscription model, its fastest growing market. Palo Alto stated in Q1 2019 that its SaaS-based subscription revenue of $231.3 million had increased 37% year over year (YoY). Support revenue of $184.2 million increased 24% YoY. In total, subscription and support revenue of $415.5 million increased 31% YoY and accounted for 63% of total revenue.

Palo Alto stated in Q2 2018 that SaaS-based subscription revenue was $249.7 million, an increase of 36% YoY. Support revenue of $189.9 million increased 21% YoY. In total, subscription and support revenue of $439.6 million increased 29% YoY and accounted for 62% of total revenue.

This represents sequential growth of the company’s subscription sector by $18.4 million, and over a quarter it grew 7.96%. This success can be seen again in Exhibit 2.

Exhibit 2: Palo Alto, Percentage Revenue – The share of Palo Alto’s subscription model has almost doubled

Source: HFS Research, quarterly results

This is a great opportunity for the old guard clients of Demisto and Palo Alto: They must look to advance their standing!

Palo Alto has enhanced its incident response and provided a new specialized service for its clients. Absorbing an already-successful enterprise should fit comfortably into its subscription sector and allow for relatively easy services integration.

However, the real advantage comes for Demisto’s clients. The opportunity to expand their relationship with the enterprise is a better time than most. The Demisto clients are ultimately responsible for the company’s success and should be pursuing the opportunity to seize the favorable services that Palo Alto offers. Demisto now has a larger, more desirable product range that enterprise clients should look to exploit.

Demisto’s client base is highly desirable. Demisto has over 150 customers from a range of backgrounds, including leading companies in the Fortune 500 list.

It’s a good time to get involved: Palo Alto has strengthened its security capabilities

There is certainly an opportunity for new clients to get involved with Palo Alto and Demisto. These enterprises are two movers and shakers in the cyberspace industry. By Palo Alto combining forces with Demisto, it is shoring up its security capabilities. The technology that Demisto offers is unique to the market, and it is a definite arrow in Palo Alto’s already large quiver.

Staff retention is key: Palo Alto must nurture the talent it acquires to secure success

As in the acquisition of any company, it’s important that staff retention is a priority. Palo Alto is not just buying a product; it also wants Demisto’s staff.

Both companies need to heavily consider staff retention during this deal. The staff members drove the Demisto machine to success—losing any of them hampers the acquisition’s value. Ultimately, any acquisition is a risky business, but Palo Alto would do well to woo onboarded talent to weather the initial cultural and organizational adjustments.

The Bottom Line: Another acquisition in its subscription sector demonstrates unyielding drive. It’s time for clients to get in on the action and bolster security.

Palo Alto will strengthen itself with the Demisto acquisition and be able to offer its customers a new and successful service.

It’s a good opportunity for both old and new clients to seize upon the opportunity to pursue a bigger and better relationship with the enterprise, ensuring they reap any rewards that may be on offer. Chief security officers and executives must take advantage of the situation, work with Palo Alto, and make the most of its new and expanding capabilities while the iron is hot. It is in the interest of both parties to integrate.