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The common narrative from analysts and Google spokespeople is that its USD 5.4 Bn purchase of Mandiant is to help Google Cloud “compete at scale” with other major Cloud vendors like AWS and Microsoft; but that statement alone doesn’t hold up. Much of Mandiant’s focus, after divesting the FireEye products for USD 1.2 Bn last year, is premier Cybersecurity services, and this is where most of the announcements focus on. Mandiant helps organizations respond to breaches and provide proactive Cybersecurity services such as identifying and addressing weaknesses in local and Cloud IT solutions. Being Google’s second-largest acquisition ever, this is clearly a major strategic move. But does “scale” explain Google’s complete vision for Mandiant?
Several factors indicate that more considerations than scale alone drove this decision. Adding Mandiant’s USD 480 Mn revenue to Google’s USD 19 Bn Cloud revenue is only a 2% increase, and really doesn’t do much to change the Tech Giant’s scale, relative to AWS. If the goal is purely to grow Google Cloud revenue, it had other acquisition options such as smaller Cloud vendors or deployment Service Providers. Google’s layoff of dozens of Cloud support staff earlier this month1, although small, also runs counter to a pure scale play.
There is also a question about timing to buy Cloud market share or at least to buy it “at any cost.” A valuation of over 13 times the earnings for largely a services company, and a 57% premium over its 10-day average stock price, certainly values Mandiant beyond its market share. The surging interest rates generally discourage such large cash purchases. With the pandemic mostly in our rearview mirror, many Cloud stocks are slumping from their peaks as businesses become more deliberate, rather than desperate, in their move towards Cloud. The Nasdaq Emerging Cloud Index which rode the pandemic Cloud boom to grow an impressive 435% over 6 years, is now down more than 33% from its November 2021 peak! To invest so much in growth for a business line that is losing Google over USD 3 Bn per year, it is clearly looking at a much bigger future!
The balance of this story may be that Google sees a future where Cybersecurity is a considerably more powerful revenue driver than it is today! Google knows that no single Cloud offering can be great at everything, so each of the players has a position. Currently, AWS is the oldest and largest Cloud, Azure is an early innovator of Cloud security, IBM’s strength is in Hybrid Cloud and Managed Services, Oracle’s is databases, and Google has the best API management. Acquiring companies to gain a targeted capability enhancement provides far more strategic leverage and is more defensible than expanding business as usual. Beyond capabilities, Mandiant brings a premier reputation that builds Google’s brand in this space. Google’s previous acquisition map shows a pattern. Siemplify is another Cloud security provider that Google acquired earlier this year for USD 500 Mn to augment its threat management stack. The increasing demand for Cybersecurity experts means that Mandiant’s staff will be an increasingly limited yet valuable human resource.
Cybersecurity experts must defend increasingly valuable data from more cyberattacks, across a wider “surface area” of connected devices. The data shows that more attacks are getting through as global cybercrime grows 15% a year, towards USD 10 Tn by 20252! Most companies know that they are not secure against a cyberattack3, and Cybersecurity is the second-most common IT priority for businesses4. Market disruptions like the national cyberattacks accompanying Russia’s invasion of Ukraine, or COVID causing a 600% spike in some types of cybercrimes, increase our vulnerability across the board5.
Technological leaps like practical Quantum Computing that can defeat today’s encryption, add another dimension to the risk. This vulnerability is unacceptable to businesses that increasingly depend on emerging technologies for core operations like Hyper Intelligent Automation of workflows, AI-driven chatbots for customer support, and Augmented Reality for employee training. When a consumer-facing company has a data breach, it loses the trust of 65%6 of its customers, and 2-5%7 of its customers leave. Hence, businesses are not likely to be any more forgiving of security failures from their Cloud provider either. In fact, trust may become more important than price or functionality to the future of Cloud markets.
If this view of the future is right, Google’s acquisition of Mandiant should prove to be a strong move by the Tech Giant. The market may see trust take a more central role in the branding of Cloud providers, and more clients will require higher security standards like FEDRAMP certification to move forward with deployments. To address expertise gaps, other Cloud providers may also seek to acquire Cybersecurity services companies like Flashpoint, Optiv or SecureWorks. They may also subsidize training to encourage more people to get Cybersecurity certifications just like some already offer for Cloud application developers.
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