Palo Alto Networks Making Second SD-WAN Pivot with CloudGenix Acquisition

Palo Alto Networks is shelling out about $420 million in cash to acquire SD-WAN provider CloudGenix in what is likely to be an isolated deal, as cybersecurity M&A otherwise has ground to a halt during the COVID-19 pandemic.

Palo Alto’s Prisma Access secure access service edge (SASE) platform delivers a global cloud network with cloud-delivered security for all users. With the proposed acquisition, Palo Alto said it will integrate CloudGenix‘s cloud-managed SD-WAN products to accelerate the intelligent onboarding of remote branches and retail stores into Prisma Access.

This combination will “extend the breadth” of Prisma Access, addressing network and security transformation requirements, and accelerate the shift from SD-WAN to SASE, according to Palo Alto. The deal is expected to close by July 31.

Palo Alto Networks’ Nikesh Arora

“As the enterprise becomes more distributed, customers want agile solutions that just work, and that applies to both security and networking,” said Nikesh Arora, Palo Alto’s chairman and CEO. “Upon the close of the transaction, the combined platform will provide customers with a complete SASE offering that is best-in-class, easy to deploy, cloud-managed and delivered as a service.”

Palo Alto said it won’t address questions regarding how its partners and those of CloudGenix will be impacted until after the acquisition closes.

Eric Parizo, senior analyst at Omdia, tells us this acquisition represents Palo Alto’s second major strategic pivot on SD-WAN in the past six months. This is yet another acquisition that pulls Palo Alto closer to the Ciscos and Symantecs of the world, “offering a solution set made largely of someone else’s parts,” he said.

“Prisma Access is the vendor’s cloud-delivered network connectivity and security service,” he said. “Hence it’s a natural fit for Prisma Access to have SD-WAN capabilities in order to facilitate the delivery and management of secure connectivity to enterprises, particularly those with branch offices and other distributed deployment scenarios. So in November, Palo Alto announced its own home-grown SD-WAN offering built into its PAN-OS, the software running its physical and virtual firewalls. The goal was for Palo Alto to use its own next-generation firewalls or even third-party devices such as Cisco routers to connect to Prisma Access.”

Omdia’s Eric Parizo

When Palo Alto made that initial announcement last fall, it represented a significant strategic shift as the vendor had been relying on third-party SD-WAN partners, including CloudGenix, for this functionality, Parizo said. But the November announcement made clear it intended to provide SD-WAN features – such as path metrics (latency, jitter, loss), path selection and dynamic path change – all on its own, managed through its Panorama management system, he said.

“It was somewhat surprising at the time that Palo Alto didn’t decide to acquire a pure-play SD-WAN vendor, but Omdia believes Palo Alto likely passed because acquiring one of those vendors would simply be too expensive,” he said. “This acquisition of CloudGenix highlights yet another shift away from those entirely home-grown SD-WAN capabilities in favor of an acquisition and integration of CloudGenix’s technology. Omdia suspects Palo Alto underestimated both the potential addressable market represented by SD-WAN, as well as the time, effort and ultimately cost … of building its own capabilities. Palo Alto has had an ambitious vision for SD-WAN that involved unifying the functionality with cloud-based data loss prevention (DLP), but the reality is it lacked the experience to develop and deploy the core SD-WAN functionality. Doing that on its own wasn’t going to be fast, easy or cheap.”

CloudGenix has about 250 customers, many of which are in the Fortune 1000 and include companies in …

… health care, retail, manufacturing, finance, banking, tech and hospitality. CloudGenix co-founders Kumar Ramachandran, Mani Ramasamy and Venkataraman Anand, have agreed to join Palo Alto.

“CloudGenix’s vision has been to revolutionize branch offices through cloud-delivered autonomous WANs,” Ramachandran said. “With CloudGenix, enterprises gain cloud-scale economics for the branch office with the freedom to use any WAN, any cloud and best-of-breed infrastructure services. We thank our customers for making us an industry leader in enterprise SD-WAN. By joining forces with Palo Alto, we will accelerate our ability to serve customers and partners in their network and security transformation.”

In February, CloudGenix announced the G2 Partner Program, which favors partners that want to shed the “box-pusher” label. The program boasts zero channel conflict, “proactive” investment in market development funds (MDF) and lead generation, and sales and engineering resources.

“Right now we’re seeing the market transition out from the early adopters to the early majority,” Ramachandran said. “Early adopters go out and seek products. Early majority — they expect their partners, candidly, to be technology guides for them. Along with making sure we have a product that meets the requirements of the new market, we’re also making sure that our partner program itself is aligning with the needs of the customer base and what partners need to do to be successful with these new customers.”

Going forward, cybersecurity M&A is likely to stall for the foreseeable future, Parizo said.

“Nearly every business, in North America and around the world, has refocused on meeting its short-term priorities, namely the health and safety of its employees and their ability to keep operating as best they can despite widely restricted travel,” he said. “While there certainly are business opportunities in regard to M&A and otherwise, inhibitors include not only a variety of business disruptions and future uncertainty, but also simply the potential for public backlash that may come by announcing an acquisition or other non-essential activity in a time of crisis. No company wants to risk the consequences of being publicly shamed, particularly on social media. Plus on a macro level, there’s been so much day-to-day volatility in the global markets that even determining the value of an acquisition target is remarkably difficult.”