Infra Play #71: The case for platformization
Nine months ago, I wrote about Palo Alto Networks and how they centered their business strategy around becoming THE security platform of choice. Let's see where we are today.
Nine months ago, I wrote about Palo Alto Networks and how they centered their business strategy around becoming THE security platform of choice.
This was a big statement to make two years ago when they first started talking about it, and it remains one of the most audacious bets the cybersecurity industry has ever seen.
Today, I’ll revisit their thesis, take a look at the “polished” version in their recent earnings call, and then go through an intimate conversation with Nikesh Arora at the UBS Global Technology and AI conference that happened two weeks ago.
The key takeaway
For tech sales: If you want to sell in cybersecurity, you have to really do your due diligence on the long-term viability of the company you want to work for. There is a fundamental shift in the market today toward platforms that puts a big question mark on whether new startups can have any real chance to scale beyond their first rounds of funding.
For investors: Palo Alto Networks has been on a 3-year journey toward becoming a cybersecurity platform in the fullest meaning of the word. Their stock performance vs. the competition over the same period tells a sufficient story of whether this bet is paying off, with 130% growth in the same period vs. Fortinet (42%) or Cisco (-2%).
The polished version
Source: Palo Alto Networks Q1’25 Earnings Presentation
Nikesh Arora: I had our teams go back and compare the growth in the mentions of the word platform on cybersecurity earnings calls this year versus last year. We found an overall 50% increase amongst our peers, as they say, imitation is the highest form of flattery. As another point of reference in recent research, Gartner sees 75% of security leaders actively pursuing a vendor consolidation strategy, although less than 15% of large enterprise customers have implemented at least any one security platform solution.
Gartner expects that by 2028, 45% of organizations will use fewer than 15 cybersecurity tools in their product portfolio, up from 13% of organizations in 2023. I do want to reiterate the definition of what we want to achieve as a platform, central to stopping threats of the future is a robust AI and automation platformization strategy and data is at the heart of it all.
While I wouldn’t consider Gartner the most reliable source of what customers want or need, the reality is that the platform play is the play right now in cybersecurity. The revenue growth for larger platform players has significantly outpaced the cumulative spend on point solutions, with quota attainment on average in cybersecurity being quite poor. Like all things “average,” that reveals an unequal distribution of outcomes, favoring the platform players.