The largest acquisition in Silicon Valley is likely to happen in 2024.

Recently, according to foreign media reports, Google's parent company is in talks with cyber security start-up Wiz, planning to acquire the latter for about 23 billion US dollars.

If completed, it will be the largest acquisition in history.$Alphabet-A (GOOGL.US)$Wiz is an Israeli-based cloud security company headquartered in New York that is one of the fastest-growing software start-ups ever and provides cloud-based network security solutions in partnership with multiple cloud service providers such as Amazon, Microsoft, and Google.

So why is this four-year-old cyber security start-up worth so much? Why is Google willing to spend billions of dollars to acquire it?

Wiz was founded in 2020 by Assaf Rappaport and his co-founders Ami Luttwak, Yinon Costica and Roy Reznik, who met while serving in the Israel Defense Forces' cyber-intelligence department.

Among them, Wiz CEO Rappaport holds a master's degree in computer science from the Israel Institute of Technology, as well as a bachelor's degree in computer science, physics and mathematics from Hebrew University. He was a captain in the Israel Defense Forces' 8200 intelligence unit and worked as a consultant at McKinsey for two years after completing his mandatory military service.

As the other team members completed their military service, Rappaport and they came out and decided to start a security start-up Adallom. The company was sold to Microsoft for $32 million in just three years.

The team also sold itself. With their high salaries from Microsoft, they became executives in Microsoft's cloud security department and helped build the Azure security stack. In their final years at Microsoft, Rappaport served as the general manager of Microsoft's Israel R&D department for a while to facilitate reunions with friends and family in Israel, and other co-founders held important positions such as CTO in Microsoft's cloud security department.

Until 2020, they left Microsoft and decided to start again, thus came Wiz. They are now worth about $1 billion each, according to Forbes.

Currently, Wiz collaborates with multiple cloud service providers such as Microsoft and Amazon, and its clients include companies such as Oracle, Morgan Stanley, Bridgewater Associates, BMW, Salesforce, Slack, Colgate-Palmolive, Blackstone, and other companies. Wiz has 900 employees in the United States, Europe, Asia and Israel, and plans to add 400 more employees globally in 2024.

The company claims to have signed contracts with about 40% of the Fortune 100 companies and is the fastest company to reach $100 million in annual recurring revenue (ARR) to date. From $1 million ARR in February 2021 to $100 million ARR in July 2022, it took just 18 months. The annual ARR in 2023 is $350 million.

In May of this year, Wiz raised $1 billion in a round of private financing, boosting the valuation of the four-year-old cloud security company to $12 billion.

Since its founding in 2020, Wiz has raised $1.9 billion from investors such as Sequoia Capital, Blackstone, Starbucks founder, French business tycoon Bernard Arnault. The new valuation is 20% higher than the latest round of financing last year, according to Pitchbook data. Wiz is the fastest-growing tech company to reach a $10 billion valuation, faster than Uber and Facebook at the time.

Investors describe Wiz's development speed as a 'rocket ship'. The selling point: cloud-based AI security.

In May of this year, Wiz raised 1 billion US dollars in a private placement, which valued the 4-year-old cloud security company at 12 billion US dollars.

In May of this year, Wiz raised $1 billion in a round of private financing, bringing the valuation of this cloud security company, which has only been in existence for four years, to $12 billion.

According to Pitchbook data, Wiz is the fastest technology company to reach a valuation of $10 billion, faster than Uber, Facebook, and others in their year. Some investors liken Wiz's growth rate to a "rocket ship".

According to Pitchbook data, Wiz is the fastest technology company to reach a valuation of $10 billion, even faster than Uber and Facebook in their early days. Some investors have compared Wiz's growth rate to that of a "rocket ship".

Selling point: Cloud-based AI security.

Wiz's attractiveness in the market is partly due to the fields it targets - cloud security and the use of AI trend.

As more and more organizations adopt cloud computing and store sensitive data in public cloud environments, security configurations are also affected: network and data architecture are more complex, the attack surface is larger, and create opportunities for malicious hackers to find system intrusion paths.

In a competitive market, Wiz's selling point is a "one-stop platform" that provides cloud workload protection (CWPP), cloud security posture management (CSPM), and cloud infrastructure entitlement management (CIEM), among other features. At the same time, Wiz also collaborates with many other startups to establish an ecosystem and provide flexibility.

The company claims that it can extract data from cloud environments such as Amazon AWS, Microsoft Azure, and Google Cloud, and perform security risk scanning on applications, data, and network processes. It carries out information-related analyses across different fields that the company tries to protect, including networks, identities, confidential information, and workloads. It provides users with a range of detailed views to understand the location of these risks and how to fix them.

"Now is the time for security operation to enter the cloud era," said Rappaport, CEO of Wiz. "This is a natural next frontier."

Despite the fact that public cloud services have been launched for many years, cloud security is still in its infancy. People from a16z, a well-known Silicon Valley investment institution, said, "There is nothing that can compete directly with Wiz in the field of cloud security." "It meets the needs of customers."

Furthermore, the trend now is to build security platforms at the intersection of cloud and AI. Some investment institutions believe that AI is "the next wave of security issues." Giants like Microsoft are competing with security giants such as Palo Alto Networks and CrowdStrike to establish cloud security platforms, while the rise of AI brings significant changes to this battle.

Wiz's research shows that there are several types of attacks against generative AI models:

• Data poisoning (attackers influence the model during training or tuning phase);

• Illusion abuse (attackers predict the illusions of the model and register false information in advance);

• Indirect prompt injection (attackers affect the model output, and even make the model execute malicious code);

• Direct prompt injection (threat actors write custom prompts to harm consumers, steal data, or misuse the model), all of which pose risks to AI systems.

One of the selling points of the company is to help enterprises manage and monitor security risks of AI/ML models, to promote the deployment and innovation of AI applications in cloud environments.

In the first half of this year, its research team conducted surveys on several AI-as-a-Service providers, claiming to have found some serious vulnerabilities that may have led to the leakage of millions of private AI models and applications. Some surveys collaborating with AI open-source community Hugging Face.

Wiz stated in the vulnerability report: "Attackers can query customers' private AI models, which may expose proprietary knowledge or sensitive data involved in the model training process. In addition, interception prompts may expose sensitive data, including personal identity information. The ability to modify prompts and respond poses a serious threat to the functionality of AI applications."

In fact, Wiz has intersections with Google.

Last August, Wiz announced its support for Google Cloud's Vertex AI, mainly monitoring and managing the security of AI models and application deployment. A key use case is to protect AI pipelines from data leakage and help prevent attackers from uploading false data to model training data storage.

03 Attack on Microsoft and Google's calculations

So why is Google willing to acquire Wiz for more than $2 billion at a high price?

Some people believe that this price is a huge premium for a startup founded just a few years ago and seems a bit crazy. The amount is almost twice what Google spent on the acquisition of Motorola in 2012 ($12.5 billion), or will become the highest amount Google has ever paid to another company in history.

In fact, this is not the first time that Google has set its sights on the cybersecurity market.

Since 2007, the giant has acquired more than 10 cybersecurity companies. Earlier this year, Google announced an ambitious enterprise security strategy, including two new threat intelligence and security operations products, and plans to use AI technologies such as Gemini to analyze potential malicious code and generate summaries, etc.

It is speculated that Google's executives believe that the acquisition of Wiz can enhance Google's cloud business, which grew 28% in the first quarter of this year to $9.57 billion in revenue. Although Google still lags behind Amazon and Microsoft in the cloud computing market, ranking third, the cloud department has recently achieved profitability for several quarters. Before that, this department had been losing money.

In a conference call with investors, Google CEO Sundar Pichai stated that he expected Google's cloud business and YouTube to achieve annual revenue of over $100 billion by the end of 2024. Last year, the combined revenue of these two departments was $64.59 billion, of which Google Cloud contributed more than half.

Thomas Kurian, head of Google Cloud, is also a driving force behind the Wiz acquisition attempt. If successful, this may help consolidate Google's reputation as a secure cloud platform, enhancing Google Cloud's competitiveness against AWS and Azure.

This seems to be the idea behind Google's acquisitions of security companies Siemplify and Mandiant for $500 million and $5.4 billion respectively in 2022. Google has integrated all of these security companies into Google Cloud.

In early 2022, Google spent $500 million to acquire the Israeli cloud security startup Siemplify, which aimed to help the company enhance its own cloud security project and make Siemplify part of Google Cloud.

The news of Google's acquisition of Siemplify came shortly after the technology giant pledged to invest more than $10 billion over five years to help improve America's cybersecurity.

At that time, a significant background was that U.S. government agencies and energy infrastructure (such as the Colonial Pipeline fuel pipeline) suffered significant cyber attacks, as well as data leaks caused by Microsoft Exchange Server vulnerabilities, etc. In addition, Biden signed an executive order to strengthen cybersecurity and convened a meeting of technology giants such as Apple, Google, Microsoft, and others.

Also in 2022, Google spent $5.4 billion to complete the acquisition of Mandiant and retained its brand name. Mandiant is most famous for revealing the SolarWinds hacking incident, which affected U.S. government agencies including the Department of Homeland Security, State Department, Defense Department, and Commerce Department, as well as Microsoft, Cisco, and some security companies. This means that the attack was not discovered by Microsoft, but was discovered by a much smaller company.

In the statement announcing the acquisition of Mandiant, the then Google Cloud CEO stated that the company's massive computing systems needed "advanced cloud security methods." After buying Mandiant, its attack surface management capabilities entered Google Cloud's product portfolio.

Before Google completed the acquisition, there were rumors that Microsoft was actually considering acquiring Mandiant, but Google took the lead. This also shows the importance of the cybersecurity market.

Now, Google is willing to spend more money to acquire Wiz, which seems to be targeting competitors' successive mistakes. Because Microsoft has been involved in many security incidents in recent years and is facing some doubts and criticisms, almost all parties are "attacking" it.

On July 12th last year, Microsoft disclosed a major attack on its Azure cloud platform, which affected about 25 organizations and resulted in the theft of sensitive emails from U.S. government officials. At the time, a senator also wrote to the U.S. Department of Justice, asking it to investigate Microsoft's "negligent network security practices" responsibility.

Amit Yoran, CEO of cybersecurity company Tenable, directly criticized Microsoft's cybersecurity issues on social media, saying that Microsoft's cybersecurity issues are "worse than you think." He revealed that his company discovered another vulnerability in Microsoft Azure that could lead to the leakage of sensitive data, and after immediately notifying Microsoft, it took "more than 90 days to implement some repairs."

In this security competition, when Google sees opportunities when competitors have problems. When opponents are busy repairing their reputation, Google did something to lure their customers away.

In May of this year, Google released a white paper that extensively describes Microsoft's security incidents and vulnerabilities, kicks a man who is down, emphasizes that its cloud environment is insecure, and then promotes its security strategy, claiming that its various products are "safer" "Alternative choice", and also provides customers with large discounts for migration.

Google's acquisition of Wiz can be said to enhance its own security capabilities to avoid situations similar to those of Microsoft, and it can also be said to seize the trend of cloud security demand in the AI wave and respond to the fierce market competition.

In terms of security business income, Microsoft is a major competitor. In 2023, Microsoft announced that its network security department's annual revenue exceeded $20 billion and its annual growth rate exceeded 30%. Especially in the current most popular cloud native application protection platform (CNAPP) network security market, Microsoft and Wiz are both leading players.

In fact, Microsoft is also constantly acquiring security companies. Since 2014, Microsoft has acquired start-up companies including Aorato, Adallom, Hexadite, and CyberX. In recent years, it has also acquired risk intelligence management company RiskIQ and cloud infrastructure security software company CloudKnox Security.

If you intend to compete with Microsoft, it is not surprising that Google is willing to pay a high price to acquire Wiz for this important and growing business of cloud computing.

According to Wedbush, an American financial institution, Google's acquisition of Wiz will be a "warning shot" and "challenge" to Microsoft and Amazon, showing that Google is making a "major bet" in the field of cybersecurity.

Even if this acquisition is unsuccessful, just the action of negotiating the acquisition of Wiz has already shown Google's sustained investment and strategic determination in cloud computing-the "millennium old third" of cloud computing does not intend to lie down, and they are trying everything to find opportunities to beat Microsoft and Amazon.

Editor/Somer