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Microsoft's reported acquisition of Adallom Inc. could propel the cloud security gateway market to new heights, according to analysts.
Multiple news outlets reported this week that Microsoft agreed to pay $320 million in cash for Adallom, a cloud security startup headquartered in Palo Alto, Calif. Microsoft and Adallom have not commented on the reports or confirmed the deal.
Adallom is what's known as a cloud access security broker (CASB). The company's platform provides a cloud security gateway between enterprise customers and cloud applications and SaaS offerings such as Microsoft Office 365, Google Apps and Salesforce. In addition to secure SaaS access, Adallom's platform also provides policy-based enforcement for compliance and visibility into employee usage of cloud apps.
Pete Lindstrom, research director of security products at market research firm IDC in Framingham, Mass., said the acquisition looks like a good fit for Microsoft, which is putting more focus on its cloud offerings like Office 365. "It's an interesting move by Microsoft," Lindstrom said. "Adallom really only supports about 10 different SaaS offerings, but Office 365 is one of them. And Office 365 protection is something that pretty much everyone is asking about, so this deal makes sense."
While analysts cautioned that the Adallom acquisition has yet to be confirmed, they did say it could have a major effect on the cloud security gateway market as cloud application and SaaS usage continues to grow at the enterprise level.
Rich Mogull, analyst and CEO at Phoenix-based research firm Securosis LLC, said the Adallom deal will impact valuations and likely drive more acquisitions and partnerships with CASBs; during RSA Conference 2015, Adallom formed an alliance with Hewlett-Packard that would package Adallom's cloud security gateway platform with HP's enterprise security products, and fellow CASB Elastica struck a similar partnership with Cisco.
"I do believe we will see more acquisitions," Mogull said. "We will also likely see more partnerships [too]. However, the market is really oversaturated with options right now, so it will be interesting to see how things play out in terms of timing and price."
Lindstrom called the cloud security gateway space a "flash market" that will quickly grow more valuable – and crowded – as time progresses. "There are already other security companies moving into this space," he said. "It's almost impossible not to evolve to this kind of offering because it's imperative to protect cloud resources. Every company of reasonable size using cloud apps will need this functionality."
Even without the Microsoft-Adallom deal, Mogull said the cloud security gateway market has already been validated, thanks to strong enterprise demand for secure SaaS.
"Early on it was clear this served an important need for many organizations," Mogull said, "and over the past three years I’ve watched things evolve from me having to educate clients that the products even existed, to them asking me for the strengths and weaknesses of different vendors. It's been the end users driving this one, not the investors or startups."