Cybersecurity Market Consolidation and AI Adoption Insights

Cybersecurity firms must consolidate and innovate to capture market share from smaller competitors and legacy technologies.

### Cybersecurity Consolidation and AI Adoption: Market Insights
* 🔒  Analysts like Jefferies highlight that the cybersecurity industry is **highly fragmented**, with the largest player holding only about **3-4% of the market share**.
* 📊  The company aims to **consolidate customers' portfolios** onto a simplified platform, allowing for **better security and lower operating costs** by **reducing the number of vendors**.
* 📉  They are taking market share from numerous small players and some larger competitors, particularly as businesses **replace legacy technologies with their solutions**.
* 💡  Following a significant outage at CrowdStrike, the company has seen **increased interest and new customers**, as clients seek **more reliable options in cybersecurity**.
* 📈  The concept of **Remaining Performance Obligations (RPO)** is emphasized as a crucial metric, indicating a **strong long-term contracted business** that supports **future revenue**.
* 🤖  Approximately **20% of employees at companies** are experimenting with AI applications, prompting the need for **tools that monitor and secure AI usage** to protect sensitive data.
* 💰  The company has generated **$200 million in revenue** from AI security products, showcasing their **proactive approach** to integrating AI into their offerings.
* 🔍  Reflecting on the AI landscape, the speaker believes that while there may be hype, the **widespread adoption and infrastructure development** will ultimately lead to **significant changes in business operations**.

Was notable as some of the analysts, for example, Jefferies, pointing out that most importantly, you are continuing to take share via consolidation. Who would you take that share from? How do you take it? Well, thank you very much for having me on the show, Carolyn. And that cybersecurity is a very fragmented industry, even despite being the largest player. We're only about 3 to 4% of the market. So the entire industry is full of many, many small players. And part of the opportunity which we have highlighted upon and have been working really hard over the last six years is to try and consolidate our customers' portfolio to a simple platform that allows them to consolidate a lot of the vendors they have and thereby getting them better security and lower cost to operate. And that's kind of what ends up happening for us. We take share from a lot of small players who, to be honest, it's time for the market to

start consolidating anyway here in Speaks platform ization, as you call it, and basically seeing a sequential increase there. But how much dare I say will you taking some market from a rather bigger player as people lost faith in a CrowdStrike, for example, post outage. Well, a lot of our black traumatization. I'm trying to get in with race this year, so let's see if we can get there. But the part of what we're trying to do with platform ization is that we're actually trying to give the customers the ability to consolidate a set of activities to do across their cybersecurity landscape. Now we're seeing share from businesses which have around 50 to 70 years effectively. So legacy technology, which the customers are replacing with us, we're seeing share consolidating from smaller players. We're seeing we're seeing some share from competition. But the outage is a different matter and we can talk about that.

But that's not the primary reason for us getting share in the market. It's just lower cost of operation, basically great security outcomes. Next, You know me, I just want to get the basics. Some specific new customers will one, as a result of what happened with CrowdStrike in the quarter, you specifically signed some deals because of what happened. Look, the CrowdStrike outage, which was very widespread, caused many of our customers to ask liken it not happened, but after and we were very quick to respond because we run it fundamentally differently than the way some of our competitors do. And that gave our customers comfort. Survivor While we were in mid-flight, they were reassured by the fact that we do it differently and it's unlikely to happen to us. So obviously we got business from those customers who were in the midst of an RFP trying to decide whether they should go with us or somebody else. So I think that was helpful.

I think customers are more willing to give us consideration now because they feel like we have a very good product in the market, and they don't have to go only with one vendor in that particular category. So, it's got. NIKKEI ARPA is remaining performance obligations. It's something that we actually discussed in a number of theatres surface. Now, for example, you stated that you prefer that as a measure, and you guys know because you do the time with them. Some of the sell side are not as optimistic that it's a good measure of performance. Why are you sticking with it? Look at the sell side. Adapts to finally what companies tell them and how companies measure the business. What is important for us to execute on our collateralization strategy and make sure we give the market the right metrics to understand our business. And really, there are two things that you should worry about companies. One, what are they doing in the short

term to make sure we are able to pay our bills, make sure we're able to deliver on a regular and consistent basis and a short term. We think the best measure of our business is revenue and spend. Are we getting enough revenue? Are we spending just enough to be able to deliver immense amounts of profitability and free cash flow? And the long term, you're trying to make sure that we have a large contracted book of business so we're not chasing things on the last minute. And the RPO is a very good indicator of the long term contracted business that you have to deliver is going to show up as revenue. So as long as you keep growing that long term business rapidly, your customers, your shareholders should know that there's a lot of business we're going to deliver and service. Our revenues are going to be robust and allowing us to deliver great profitability and free cash flow. It's as simple as that. Within that simplicity of profitability

and revenue. How much can you break out what I and the adoption there is really driving your business for us? Yeah, we're very excited about our capabilities and portfolios. Like we we took it early. We went ahead and went to the drawing board and say, what's going to happen when customers want to use it? I'll tell you right now, it's fair to say almost 20% of almost every company's employees are experimenting with some sort of AI application. And the companies have no idea what these people are using. They have no idea how to control their usage of AI. They have no idea what kind of data is being uploaded to all these applications, which are going to use that data to train themselves to get better. So we have gone out and launched a series of products that allow you to monitor how air is being used to make sure your data does not get out there and train models if you don't want it to.

give you some visibility as to what's happening. At the same time, if you're trying to deploy an application, we have the capability to give you a ring-fence security around your applications to give you any firewall. So, that coupled with the fact that we've infused AI into many of our products, it allowed us to deliver $200 million of our revenue so far in the category of AI security. If you think is an industry first and really gives us comfort that this thing's going to do well for us, it just gives us the bird's-eye perspective though, because the whole market is grappling with the idea of whether the amount of money going into AI in terms of infrastructure is a long-term return that they're going to be getting from. Do you think there's hype within AI adoption or do you see that actually the level of adoption from yours is showing that this is real? Well, Carol, I was an intern, an analyst

in the late nineties. And I remember the hype that we saw with the Internet and, you know, everything went up and to the right very quickly. Look forward 25 years later, everything was real. I think the question is not whether it's real. The question is what's the timing of it and how do you invest in it in a manner that is consistent with the timing of trend? So from our perspective, yes, we expect that there will be widespread usage of AI. We think that will fundamentally change how we all conduct business. The question is what is the timing of it? And the problem is you can go and execute on it if you don't build the infrastructure. So I think, yes, we have to have infrastructure now, whether it's the right amount of infrastructure being built at this point in time or not, I'm not one to comment, but I do believe that there is going to be phenomenal

amount of consumption, deployment of AI, and we're going to be talking here for a long time.

Palo Alto Networks CEO on Forecast, CrowdStrike Outage

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Bloomberg Technology

Consolidating Cybersecurity: A Strategic Approach

The cybersecurity industry is fragmented, with the largest player only holding 3-4% of the market.

The company's strategy involves consolidating customers' portfolios onto a simple platform, offering better security and lower operational costs.

They are gaining market share from small players and businesses with legacy technology, while also benefiting from the recent outage of a competitor, CrowdStrike, which led to new customer sign-ups.

Customer Consideration and Performance Metrics

Customers are now more open to considering the company due to its strong product offering and the availability of multiple vendors.

The company is sticking with remaining performance obligations (RPO) as a key measure, despite mixed opinions from the sell side.

The focus is on short-term revenue and spending for profitability, while the long-term contracted business growth is aimed at delivering consistent revenue and robust profitability.

Driving Business Growth through AI Adoption

Almost 20% of employees in companies are experimenting with AI applications, causing a lack of control and visibility for employers.

The company has launched products to monitor AI usage and provide security for application deployment, resulting in $200 million in revenue from AI security.

The overall market is grappling with the long-term return on investment in AI infrastructure, raising questions about the hype versus real adoption.

AI is expected to have widespread usage, fundamentally changing business operations.

The key challenge is timing and building the necessary infrastructure for its execution.

There will be a significant consumption and deployment of AI in the future, indicating its long-term relevance.