CrowdStrike's troubles open new doors for Israeli cyber companies
The American company may not have been a household name in Israel or globally until this weekend's outage, but it is highly regarded in the cyber industry and is a major competitor to many Israeli cyber companies.
While the CrowdStrike offices were working feverishly over the weekend to fix the unprecedented global computer shutdown and drafting letters to customers, employees, and investors, a different scene unfolded at Israeli cyber companies. Publicly, many Israeli firms, both large and small, posted diplomatic messages on LinkedIn to support their customers and offer specific solutions for restoring their computers. Privately, however, many celebrated as the crisis presented a significant opportunity for them.
CrowdStrike may not be a household name in Israel or globally, but it is highly regarded in the cyber industry and is a major competitor to many Israeli cyber companies. CrowdStrike ended its fiscal year 2024 with $3 billion in revenue and $1 billion in cash flow. It had aimed to reach $4 billion in revenue this year, a goal now unlikely to be met. Until the rise of Israeli startup Wiz, CrowdStrike set many records as the fastest growing company in the cyber industry.
For the Israeli cyber sector, CrowdStrike's troubles are an opportunity. CrowdStrike is a major competitor to Palo Alto Networks, and both companies aim to provide comprehensive cyber defense platforms. The specific issue that caused the global Windows computer shutdown is related to their endpoint protection product, an area where they compete with Palo Alto's Cortex products developed in Israel and the SentinelOne platform. CrowdStrike, which started in endpoint protection, now offers a range of products under the "Falcon" brand, including cloud security solutions that compete with Wiz, Orca, Palo Alto's Prisma, and Check Point's CloudGuard. Public companies like Palo Alto and SentinelOne saw their shares rise in contrast to CrowdStrike's falling stock, while private companies such as Orca, Dazz, and Zafran released statements asserting their readiness to provide solutions.
CrowdStrike's collapse comes at a crucial time for the cyber market, which has been experiencing consolidation for about a year. Palo Alto, which has surpassed CrowdStrike in both value and revenue, has been promoting a vision of platformization. This approach appeals to cyber system managers exhausted from managing dozens of different programs, preferring a single, comprehensive solution that is good enough across various areas. CrowdStrike, following this trend, made significant acquisitions, including Israeli startups Bionic and Flow in the past year, for a combined $500 million. However, the current crisis highlights the risks of relying heavily on a single supplier prone to mistakes.
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Friday's drop in CrowdStrike shares reflects investor frustration and the expectation that potential customers will now turn to competitors, strengthening the position of Israeli companies. This situation may renew interest in smaller startups and local procurement in Israel, given how many institutions were affected by the CrowdStrike debacle.
Beyond business competition, CrowdStrike is a key player in the exit strategy for many Israeli cyber startups. With cash reserves of about $4 billion and a desire to expand its solution portfolio, CrowdStrike has become a target for Israeli venture capital funds looking to sell their investments. To signal to investors and customers that it is committed to improving its platform and maintaining business as usual, CrowdStrike may make additional acquisitions soon, with Israeli companies being prime candidates.
Additionally, the weekend's events have implications for the deal between Wiz and Google. Although Wiz does not directly compete with CrowdStrike, the failure highlighted the significant centralization and global dependence on Microsoft. Google's shareholders, initially skeptical about the $23 billion price tag for the Israeli company, now see the potential for Google to challenge Microsoft, provided it has the optimal cyber solution.
