After being a security partner for SD-WAN vendors, Palo Alto Networks is now a competitor in the SD-WAN sector with its $420 million purchase of CloudGenix. Palo Alto announced the all-cash deal on Tuesday, and it is expected to close in its fiscal fourth quarter once it clears the usual regulatory hurdles.
The deal for CloudGenix is notable on several fronts. Increased security by SD-WAN vendors has been one of the major trends over the past few years, which has generated business for Palo Alto Network's firewall virtual network functions.
CloudGenix was rumored to be on the market last year. The deal with Palo Alto Networks marked what could be more consolidation among the 60-plus vendors in the marketplace.
"This is the classic convergence between SD-WAN and network security," said Lee Doyle, principal analyst at Doyle Research. "This gives Palo Alto an SD-WAN feature as part of its security offering. It gives them one of the leading independent SD-WAN players. It also gives Palo Alto CloudGenix's customer base and leading edge technology to incorporate into their offer."
Palo Alto Networks will integrate CloudGenix's cloud-managed SD-WAN products with its cloud-based Prisma Access security to accelerate the on-boarding of remote branches and retail stores. Palo Alto said the combination would extend the breadth of the Prisma Access SASE platform, address network and security transformation requirements, and accelerate the shift from SD-WAN to SASE. SASE, which was coined by Gartner last year, defines a sub-trend in SD-WAN, which includes integrating SD-WAN with cloud-based security applications.
CloudGenix, which was founded as a software company in 2013, has approximately 250 customers, including some that are Fortune 100 companies. For security, CloudGenix worked with Palo Alto Networks, Symantec and Zscaler. For cloud, it has partnered with Microsoft and Amazon.
CloudGenix announced a $65 million funding round last year to bring its total funding to $100 million. CloudGenix was one of FierceTelecom's top-12 disruptors last year.
Palo Alto Networks is following in the footprints of fellow firewall vendor Fortinet, which has also made a move onto the SD-WAN field. While Fortinet initially made its mark as a security vendor that worked with pure-play SD-WAN companies, several years ago it started offering its own flavor of SD-WAN backed by its security portfolio.
That decision has paid off for Fortinet. In Dell'Oro Group's first SD-WAN market share report earlier this month, it identified Cisco, Silver Peak, Versa Networks, VMware and Fortinet, in that order, as the five leading vendors.
With additional security, SD-WAN has migrated to managed services that are offered by telcos, cable companies and private network SD-WAN players. It remains to be seen if CloudGenix is the first SD-WAN domino to fall as part of overall consolidation among the vendors, but security will still be key going forward.
"Clearly we're seeing the maturation of the SD-WAN market and consolidation is likely to continue," Doyle said. "The security players are one of the prime candidates to be the acquirers."