Shares in several major cybersecurity stocks closed sharply lower on Wednesday after tech titan Microsoft (NASDAQ:MSFT) expanded its product and service offerings in this sector.
Such a move from a Redmond-based tech company was somewhat expected given Microsoft’s increased focus on data security in recent years. However, these actions also represent a competitive threat to established players in this sector, including Palo Alto Networks (NASDAQ:PANW), Zscaler (NASDAQ:ZS), and Cloudflare (NYSE:NET), even if the company’s products are still in the early stage of development.
Palo Alto shares closed 7% lower on Wednesday, while Zscaler and Cloudflare fell 6.6% and 5.5%, respectively. These moves were not that much surprising given that Microsoft’s huge distribution capabilities directly impact the competitive landscape for some of these names.
According to analysts, these three companies are mostly affected given that they are proven cloud network security providers.
“This is potentially the largest and last major cybersecurity market that Microsoft has yet to enter and it is now competing with cloud network security providers, mainly ZS, NET, PANW,” Morgan Stanley analysts led by Hamza Fodderwala wrote in a note.
Jefferies analysts added that the latest push from Microsoft into cybersecurity could have “potential longer term ramifications” to Cloudflare, Palo Alto, and Zscaler, as well as Fortinet (NASDAQ:FTNT) and Check Point Software (NASDAQ:CHKP).
The news also comes as Microsoft recently added GPT4 models to Azure.
Microsoft Expands, Rebrands in a Major Cybersecurity Push
Microsoft announced yesterday that it has launched two new cybersecurity products: Microsoft Entra Internet Access and Microsoft Entra Private Access. The aim behind these products is simple: Help businesses protect their sensitive data.
Microsoft’s decision to expand beyond managing directories and authenticating users comes after the company acquired Miburo, a cyber threat analysis and research specializing company, in 2022. It had previously acquired RiskIQ, a cybersecurity ransomware company.
The acquisition of the latter is especially important in this context. RiskIQ’s strengths are in digital transformation and hybrid work. In essence, RiskIQ’s solutions help customers discover and assess the security of their entire enterprise attack surface.
“We’re thrilled to add RiskIQ’s Attack Surface and Threat Intelligence solutions to the Microsoft Security portfolio, extending and accelerating our impact. Our combined capabilities will enable best-in-class protection, investigations, and response against today’s threats,” said RiskIQ Co-founder and CEO Elias Manousos.
Fast-forward two years, Microsoft has now launched Entra Internet Access with an aim of protecting access to the internet, software as a service (SaaS), and Microsoft 365 apps and resources. The company hopes that the new product will enhance the security and access to Microsoft 365 apps, with a particular focus on speed and productivity.
While Entra Internet Access is an identity-centric Secure Web Gateway, the Entra Private Access is an identity-centric Zero Trust Network Access. It allows access to private apps from any device or network.
Microsoft’s idea is to enhance the overall quality of its cybersecurity offering as both of the new products work with Microsoft Defender for Cloud Apps. Together, these solutions are the pillars of Microsoft’s Security Service Edge (SSE) solution.
“We’ll continue to evolve our SSE solution as an open platform that delivers the flexibility of choice between solutions from Microsoft and our partners. Pricing for Microsoft Entra Internet Access and Microsoft Entra Private Access will be available when those products reach general availability,” Microsoft said in a blog post.
In another business update, Microsoft said it has rebranded Azure Active Directory in Entra ID. This offering was launched last year and initially consisted of Azure AD, Entra Permission Management, and Entra Verified ID. Microsoft then announced new products for this family of apps, including Entra ID Governance and Entra Workload ID.
This family of cybersecurity solutions unifies multi-cloud identity and network access solutions. This is more of a branding/marketing move by Microsoft as it won’t affect any capabilities, configurations, or licenses.
According to IDC’s 2022 report, Microsoft Defender for Endpoint is ranked No.1 in market share (18.9%). Microsoft is followed by CrowdStrike (15.1%), and Trend Micro (5.5%) while the total corporate endpoint security market grew 29.2% year-over-year to $13.1 billion.
“Primary contributors to market growth are organizations’ increasing appetite for modern endpoint security suites that contain a broader set of functionality and services, an increase in their number of protected devices, and Microsoft’s push into additional market segments, notably small businesses and organizations with narrower endpoint security requirements,” it is said in the report.
IDC estimates that Microsoft’s annual revenue doubled from $1.2 billion in 2021 to $2.5 billion in 2022 as far as the global corporate endpoint security market is concerned. As a result, the company’s market share surged from 12.7% in 2021 to 18.9% last year.
The research firm “blames” this strong growth on Microsoft’s push to expand the reach of its Microsoft Defender for Endpoint product portfolio. Another factor is Microsoft’s decision to improve multiplatform parity across Windows, Linux, macOS, Android, and iOS operating systems.
Summary
Microsoft announced new products and services in the cybersecurity sector, directly enhancing the competitive threat to established players, mostly Palo Alto Networks, ZScaler, and Cloudflare. Latest research reports also point towards Microsoft’s continued market share gains in certain cybersecurity sectors.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.
