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Text | Shidao, Author | Shidao Venture Capital Group, Editor | Rika

TGIF! This Friday afternoon, same Earth, same Windows, same blue screen!

Wait, these devices have one thing in common – they all have CrowdStrike security software installed, but after the software was updated, it started to fight with Windows!

As a global leader in cybersecurity, Crowdstrike has deployed approximately 50 million PCs, second only to Microsoft.

Normally, more terminals means more data being sent back, and problems can be quickly captured and distributed across the network, allowing other customers to take timely precautions. At this moment, more terminals means... a "huge, big, big, big mess" has been made, which will definitely go down in history.

In addition to the plummeting stock price, Crowdstrike may also face huge compensation...GBU!

In the past two days, in the field of network security, Microsoft's "old rival" Google has also been brewing something big.

According to WSJ, Google's parent company Alphabet plans to spend $23 billion to acquire Israeli cloud security startup Wiz. If successfully completed, the deal will break Google's record for the highest amount of money since its acquisition of Motorola Mobility (US$12.5 billion in 2012).

Why is Wiz worth Google's huge investment? A recent article by Sequoia Capital gave some of the reasons.

Starting from "discussing customer & product problem solving", Sequoia proposed a very concise PMF framework, which includes three different archetypes - Hair on Fire, Hard Fact, and Future Vision.

In the "urgent need" case, Wiz was singled out for praise as a "little red flower" representative.

Sequoia pointed out: If you want to solve the urgent needs of customers, the track you are in must be overcrowded. For example, in an area where residential buildings are concentrated, there are at least three locksmith advertisements posted.

What is the only solution? That is, providing the best solution - the product cannot just be faster or cheaper, but provide a unique customer experience to gain lasting advantage.

So how did Wiz, a latecomer, find a solution and achieve $200 million in sales in three years, breaking the record for the fastest SaaS company to achieve a $10 billion valuation? What growth secrets are worth learning for founders in a crowded field? Let’s start from the beginning of the story.

The latecomer takes the lead, Wiz squeezes out the pioneer with a blitzkrieg

In Israel, there is a legendary 8200 intelligence unit.

Every year, the 8200 unit selects 50-100 outstanding high school graduates and selects the "strongest brains" through a series of rigorous IQ, comprehensive ability tests and interviews.

Wiz's CEO Assaf Rappaport is the top of "The Brain" and even serves as the captain.

After retiring, Rappaport joined the smaller, more elite organization Unit 81; he then worked as a worker at McKinsey for two years.

In 2012, out of his persistence in the security field, Rappaport called on his former comrades Luttwak and Reznik to establish the cloud security company Adallom. In 2014, his comrade Costica, who had saved Rappaport's life during a "dormitory inspection," joined Adallom.

In 2015, Adallom was acquired by Microsoft for $320 million. Afterwards, the four founders lived the life of "Microsoft senior employees". Microsoft CEO Satya Nadella gave Rappaport a sincere instruction: "I make the rules here, and you break them here." What a charming sentence.

Over the past five years, Rappaport has indeed broken many rules. Until he crossed off the last task on the "Microsoft Checklist", a new journey began.

In 2020, Rappaport and his three old comrades left Microsoft and founded Wiz, ready to make a big move.

At the beginning, everyone did not have a clear goal, but tried more than a dozen entrepreneurial ideas, and even tried online payment, but finally returned to the cloud security field.

The reason is simple. Rappaport found in conversations with dozens of chief information security officers (CISOs) that cloud security is still the most worrying issue for these potential customers.

There was also a "favorable condition" at the time - the outbreak of the COVID-19 pandemic pushed companies to migrate their core workloads and data to the cloud. For example, companies that previously had 70% of their business on-premises and 30% on the cloud began to consider moving their entire business to the cloud.

But the cloud security track is already crowded, with established companies such as Palo Alto Networks in the front and startups such as Orca Security in the back.

How to carve out a path? As long as you can provide a unique experience, you can find gold even on a seemingly crowded track.

To use an analogy, the cloud is the house of the enterprise, and the software is the street. You need to open some windows for ventilation, but you also need to prevent bad guys on the street from breaking into the house through the windows. The best practice is to install "monitoring" for the room, which keeps track of which window is not closed properly, which has the biggest hole, and reminds you which window needs to be repaired first.

This “monitoring” is cloud security posture management (CSPM).

Installing CSPM "monitoring" is often the first step for enterprises to establish cloud security infrastructure, especially for enterprises living in "Dabieye" - as long as you host more than 15 virtual machines, you will be very interested in CSPM.

The opportunity happened to be here. At that time, most CSPMs relied on "agents" that needed to be deployed on each server - which meant that the company's IT team had to set up the servers and then distribute cloud accounts to business departments. But in reality, many business departments had already bypassed the IT team and privately moved to the cloud first out of fear of trouble. This is the "dangerous but charming" Shadow IT.

In 2018, the Logicalis Global CIO Survey found that 90% of business lines (LOBs) bypassed IT departments and used cloud services to complete their work. By 2022, Gartner data showed that 41% of employees acquired, modified or created technology that was invisible to IT, and this number is expected to climb to 75% by 2027.

In summary, when Wiz was founded, the "urgent need" for a large number of companies was to migrate their core businesses to the cloud safely, conveniently and quickly.

Finding a CSPM solution that can be deployed smoothly is equivalent to finding the coordinates of a "gold mine".

The solution provided by Wiz is absolutely smooth “agentless” CSPM.

The biggest advantage of its product is speed. Within minutes of a customer handing over AWS or Azure credentials, Wiz can check every connection and path to the outside world. Once connected, Wiz can find vulnerabilities in a 15-minute customer demonstration. Moreover, developers only need to glance at the "risk map" dashboard to know who has urgent issues and directly allocate work time.

At that time, Rappaport and his team engineers were the most unrestrained. They worked on products during the day and sales at night, because night in Israel is day in the United States.

The gift of fate came as promised. Three months later, Wiz's revenue grew from 0 to $2.8 million; 18 months later, Wiz's total revenue reached an astonishing $100 million, setting a new record for the fastest growing software company at the time.

In fact, the pioneer of the "agentless" CSPM solution was not Wiz, but another startup company, Orca Security.

Wiz's sneak attack was successful because the team realized that the customer's problem was "urgent" and adopted a "blitzkrieg" approach to win over the customer.

Meanwhile, Rappaport’s strategy has worked well: Target the biggest customers in the market.

Because big customers would rather pay a high price for a "safe" than live in constant fear, Wiz products are often priced at more than $500,000 and are quoted based on the company's circumstances.

Of course, big customers also agree that the money is well spent. In the fall of 2021, Igor Tsyganskiy, chief technology officer of Bridgewater, signed the largest multi-year contract for Wiz at the time. He said that there are many tools, but only Wiz can deliver return on investment instantly. It is reported that Wiz helped Bridgewater discover multiple risks exposed to a zero-day vulnerability called Log4j within a week, otherwise more than $100 billion in assets might be exposed to hackers.

Thanks to its successful GTM strategy for large enterprises, Wiz now serves 20% of Fortune 500 companies and 30% of Fortune 100 companies.

This year, Wiz has completed a $1 billion financing, with a valuation of $12 billion. This is particularly difficult in 2024, when AI is the only thing that matters.

How Google plays the security card

If the story ended here, Wiz probably wouldn't be willing to be acquired.

After all, Forbes wrote in August last year: "Don't expect Wiz to slow down anytime soon, even as it gears up for an IPO that could come as early as next year. It's scouting for its first acquisitions and is also looking for a chief financial officer."

Rappaport said at the time: It feels weird - I'm doing the exact opposite of what every newspaper and every venture capital firm is telling everyone to do. But as long as there is the right team, funding and product, Wiz will "go for it".

However, does the current situation allow Wiz to continue to charge forward?

Customers may still need it, but what if your product is no longer unique enough?

Just as the fatal flaw of "blitzkrieg" is that it cannot prolong the battle line, Wiz's success is mainly due to its "speed of drawing the sword" and "precise sword skills", but the most fundamental structure is largely a "tribute" to Orca. This means that the most important barrier of the enterprise, that is, "internal strength", is actually not very deep.

What's more, now Palo Alto Networks, Zscaler, Datadog, and Crowdstrike, which is the one that caused the trouble this time, are all involved.

Even in the AI ​​wave, players will not starve. But if the next generation of architecture cannot be developed, Wiz's advantages will only become weaker in the future, and its huge valuation will become bloated.

Therefore, the $23 billion olive branch extended by Google this time is not a bad thing.

How does Google consider this?

Synergy Research Group survey data shows that Amazon's cloud business market share reached 31% in the fourth quarter of 2023, Microsoft's was 24%, and Google's was 11%.

But Google obviously doesn't want to continue to fall behind. The company is investing heavily in cloud computing, and its business is growing rapidly. Last year, Google's cloud business revenue grew 26% and achieved profitability for the first time.

Globally, cybersecurity remains a key area of ​​transactions. Earlier this year, Cisco acquired Splunk for $28 billion. Google's acquisition of Wiz is intended to significantly increase the security capabilities of its own cloud services, enhance its competitiveness in the cloud security market, and attract more corporate customers.

More importantly, Google wants to regain the ground it lost in "AI safety."

In recent years, Microsoft, the "old rival", has had many accidents in cloud security. Amit Yoran, CEO of cybersecurity company Tenable, said: Microsoft's cybersecurity is worse than you think. His company once discovered another vulnerability in Azure that could lead to sensitive data leakage and immediately notified it. But it took Microsoft more than 90 days to fix part of it! ?

It is reasonable to suspect that this efficiency has the same reason as Boeing.

Even in Microsoft's recent incident, the protagonist Crowdstrike also intervened and launched Falcon for Defender overnight to protect Microsoft Defender users.

I wonder if users are more touched now.

Interestingly, in May this year, Google even released a white paper to criticize Microsoft’s security incidents and, at the same time, to promote itself as a safer alternative, and that customers could enjoy discount packages when they moved.

This acquisition, which cost a lot of money, is obviously a continuation of Google's "security strategy". However, despite the willingness of both parties, there are still many challenges. On the one hand, considering the difficulties Google has faced in recent antitrust review, this acquisition is likely to attract special attention from regulators; on the other hand, after four years, the four founders of Wiz will change from "Microsoft employees" to "Google employees", and they will inevitably have to re-adjust.