Google’s parent Alphabet’s much hyped acquisition attempt of a cybersecurity startup came crashing when Wiz turned down their $23 billion offer and confirmed to its staff that they would go it alone. While such moves are quite kosher in the tech industry, it puts a spanner in the search giant’s works that aimed to capture a larger share of the cloud security pie.
We had reported in detail about why Alphabet was chasing Wiz with all its might and ready to cough almost double of what they had ever paid for an acquisition in the past. In case the deal would have come through, Wiz too would have doubled its valuation, which stood at $12 billion when they recently raised a billion dollars from VCs.
Google’s highest acquisition cost stood at $12.5 billion that it paid for Motorola a decade ago, but eventually ended up selling it within two years for a big loss. It is quite obvious that the company wanted a larger share of the cloud security market, currently occupied Amazon Web Services (AWS) and Microsoft Azure.
Acquiring Wiz would have helped Google strengthen its position in cloud computing and cybersecurity and also positioned them as a leader in the overall cybersecurity and cloud computing infrastructure business, given the pace at which consolidation is taking place.
So what made Wiz turn down the offer?
The New York-based company was founded just four years ago by four Israeli military officers who also helmed another cybersecurity company called Adallom and sold it to Microsoft for $320 million. In this case, the premium on offer from Alphabet was substantial but the founders could be thinking there’s more upside.
Company CEO Assaf Prappaport wrote an email to Wiz’s 1200 staff members across the world stating that while the offers were humbling indeed, the exceptional team that the company had made him feel confident of going it alone and refusing the mega bucks. Maybe, their military minds told them clearly that aligning with Google would wipe out their identity.
Per the current shareholding, Wiz is owned by Rappaport, Roy Reznik, Ami Luttwak and Yinon Costica (each holding 9% stake) with the rest owned by venture a clutch of venture backers led by the likes of Sequoia Capital, Index Ventures and Thrive Capital. Rappaport came clean with his entire team about things.
“I know the last week has been intense, with the buzz about a potential acquisition. While we are flattered by offers we have received, we have chosen to continue on our path to building Wiz. Let me cut to the chase: our next milestones are $1 billion in ARR and an IPO,” he said in the email, indicating that Wiz doesn’t think highly of Google and is confident that they can go it alone and achieve greater glory.
“Saying no to such humbling offers is tough, but with our exceptional team, I feel confident in making that choice,” he said while noting that the market validation only reinforced their goals of creating a platform that security and development teams love.
Now where does that leave Alphabet’s dreams?
It is highly unlikely that the company would give up its growth dreams in the cloud and security market, given that there’s enough and more headspace for growth. One option could be to go after some of the lesser players in this line of business and be a part of the expected growth in the industry as Gartner foresees.
This could be a costlier proposition for Alphabet than acquiring a company which could bring the right synergies without actually being part of the ecosystem that they want to grow in and gain additional revenues from. This being the case, it would be anybody’s guess that Google would go after one of Wiz’s competitors.
Once again, we needn’t look far as Gartner Insights lists out a few alternatives to Wiz in this note on cloud-native application protection platforms. They have based this list around competitors who were considered by potential customers of Wiz before making their decision to purchase.
The note also says that while evaluating solutions, potential buyers had compared the competencies in categories around evaluation and contracting, integration and deployment, service and support and specific product capabilities. Of course, many of them are even more established in the market than Wiz is and could cost Alphabet to burn a far more significant hole in their purse for an acquisition.
But then, we cannot make an omelette without breaking an egg. So, let’s just wait patiently to see which is the egg that Alphabet goes after.
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