Alphabet Wiz Bid Raises Big Questions

Plans by Alphabet (Nasdaq: GOOGL) to acquire cloud cybersecurity startup Wiz for about $23 billion appear to be on track. An announcement could come “soon,” according to the Wall Street Journal, which broke the news July 14. If the deal materializes, it will be the largest undertaken by Google’s parent company in over a decade, and it will mark another major move in the consolidation of the cybersecurity market.

The deal could also expose Alphabet to some tough questions.

First, the basics: It's been just over two months since Wiz scored $1 billion in funding at a $12 billion valuation, bringing its total raised to about $1.9 billion—remarkable given that the company was founded in 2020.

Back in May 2024, CEO and co-founder Assaf Rappaport predicted ongoing cybersecurity M&A: “I’ve said 2024 is the year of consolidation – for Wiz, and the industry at large. The days of sprawling tech stacks are drawing to a close, driven by the same thirst for consolidation that gave rise to the CNAPP [cloud native application protection platform] category.”

Cybersecurity Consolidation Continues

Wiz, which offers an agentless CNAPP that scans cloud environments for vulnerabilities, has contributed its part to the consolidation trend. Over the past year alone, it’s spent an estimated $400 million to buy Rafft and Gem Security, both cloud security startups. Wiz was also reportedly in talks to buy Lacework, which failed to come to terms.

Alphabet/Google, meanwhile, has shored up its own security arsenal. In 2022, it purchased security orchestration, automation, and response (SOAR) vendor Siemplify for a reported $500 million, followed by the purchase of security services provider Mandiant for about $5.3 billion back in March 2022.

The security solutions from these acquisitions have become part of Google Cloud’s Security Command Center (SCC) Enterprise, which will likely become the platform for Alphabet/Google’s security acquisitions, including Wiz, which has been integrated with SCC since 2022.

Enterprises could be ready for further consolidation if that results in unifying cybersecurity products. Users are reportedly frustrated with multiple point products and have “pricing fatigue” associated with juggling them.

Back in May, Palo Alto Networks (Nasdaq: PANW) was the first major cybersecurity vendor to alter its strategy in the name “platformization,” or the consolidation of cyber products using a single solution architecture. Cybersecurity vendor Fortinet (Nasdaq: FTNT) also embraced platform verbiage as part of its planned acquisition of Lacework. This activity indeed indicates that the major cyber companies seek to drive further integration across their portfolios.

Tough Questions About Wiz

Alphabet’s potential plan to buy Wiz has raised eyebrows on several counts. First, there’s the price: The WSJ reported this week that a source close to the deal estimated that $23 billion represents 46X the company’s current $500 million annual recurring revenue.

Notably, Alphabet recently pulled out of a deal to purchase HubSpot (NYSE: HUBS), a customer relationship management company with a $25 billion market capitalization. One of the sticking points of that deal was potential regulatory scrutiny, which could also be a product of a Wiz deal (depending on who’s in charge of the U.S. government). The Wiz pricetag might prove high even for Google.

There’s also the issue of the so-called “Gili Raanan Model.” The successful Israeli VC, who helped fund Wiz, has faced questions from an investigation by Calcalist about the alleged use of loyalty rewards to potential customers of startups funded by his firm, Cyberstarts firm. Wiz is a Cyberstarts company. Its growth since its founding in 2020 has been meteoric: By 2022, Wiz claimed to hit $100 million in annual recurring revenue (ARR) from customers including BMW, Morgan Stanley, Salesforce, Slack, Colgate, and Blackstone, to name a few. For 2023, Wiz claimed to hit $350 million in ARR. And presently, according to the WSJ source cited above, it’s now running at $500 million. Following Calcalist's detailed investigation, one would have to wonder about the influence that Cyberstarts' loyalty rewards program have boosted growth, and whether the technology is truly differentiated in the market.

There’s also the issue of Wiz’s patent fight with Orca Security, which is set to go to trial in December 2025, according to Calcalist. Orca claims Wiz copied its technology after a presentation to Microsoft in 2019 led to the 2020 founding of Wiz by former Microsoft employees.

Of course, patent fights in tech are nothing new, and according to Wiz, Orca’s claims are “baseless.” Still, Google will have to pay to defend Wiz and potentially face questions about its funding and growth—on top of paying a breathtaking premium pricetag. Whether those will balance the advantages of strengthening Google’s cloud security platform will be interesting to see.