We can now 'fight AI with AI': Zscaler CEO on Avalor deal

Looking to strengthen its cloud cybersecurity services and integrate AI into its toolset, Zscaler (ZS) will be acquiring Israeli startup Avalor in a deal valued at $350 million. Zscaler Chairman and CEO Jay Chaudhry speaks with Yahoo Finance Live about the acquisition deal and the company's plans stemming from it, as well as the growing importance of providing reliable cybersecurity protections to clients.

"AI is becoming more and more scary. Today, you can ask a simple question that says, 'Please, ChatGPT, show me all of my firewalls and VPNs that have vulnerabilities' — in less than 30 seconds, you get a full list," Chaudhry explains "So attacking companies is becoming easier. but we can fight AI with AI by taking all of the data we have, 400 billion logs we have. We use AI predictive and AI generative together to find some of the things that we could not find before."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: Well, a number of software stocks hitting a speed bump in 2024 on tepid guidance, but Zscaler looking to switch up the narrative, as it takes a leap forward in trying to harness the power of AI. The cloud security company ready to enhance its AI capabilities with an acquisition, a company called "Avalor." That was announced yesterday.

And Zscaler CEO Jay Chaudhry is joining us now. Jay, first of all, fantastic to see you. It's been a little while since we had the chance to talk, so it's good to see you.

JAY CHAUDHRY: Thank you, Julie.

JULIE HYMAN: So, let's talk about Avalor here. This is an Israeli startup, and interestingly, as they wrote today, it's not started by security professionals, but rather programming folks who saw an opportunity here. Explain to people what they do here. They have what they call their "data fabric" for security. How should people think about what that is exactly?

JAY CHAUDHRY: Yeah, to really take advantage of data, to really solve security problems with AI, you need to solve the data problem first, and then you need domain expertise, or security. Yes, the founders of Avalor have done companies in the past, where they know how to create data models with large amounts of data.

Once you create models around the data, then we can write cyber applications to do faster, better detection of any of the threats out there, after correlating it, so it's a perfect combination of Zscaler bringing security expertise and over 400-billion-transaction-a-day logs. To do good security, you need the best data. Zscaler has the best data. Avalor has the best data fabric. The two together is a fascinating combination.

JOSH LIPTON: You know, Jay, it's good to see you, and I'm interested, Jay, also, what is it about American cybersecurity companies? They often, Jay, seem to find acquisition targets in Israel. You know, it's not just all. It's, you know, CrowdStrike and Palo Alto. What is going on inside Israel, Jay, as a country that's only nine million people, that American cybersecurity companies often do find targets there?

JAY CHAUDHRY: There's a lot of innovation in cybersecurity in either Silicon Valley or in Israel, and we look for the best new, innovative solutions, and we have found them in Israel. We've done a couple of them in Israel before, but we look for wherever new innovation, new technology comes in to disrupt the legacy technologies.

You know, Zscaler was founded to disrupt the old-school firewalls, VPNs. We've done that extremely well, in the case of the Zero Trust Exchange Platform we built, and now we want to do the same kind of disruption in this area, where we need to handle logs and make sense out of it. So that's why it's a very exciting acquisition for us.

JULIE HYMAN: So, I'm curious, Jay, as you look at what Avalor is going to provide you with, and you combine that with your Zero Trust system, you know, how much are you going to be able to see an increase in the capability of, you know, preventing threats, for example, preventing attacks? I mean, is there a way of quantifying that?

JAY CHAUDHRY: Yeah. So, today, we are an exchange. We are a switchboard for any communication by any user to any application. We do that extremely well. We are the market leaders in the space. Now the logs that get created, because the communication, need to be mined, need to be harnessed offline, and that's what Avalor allows us to do with the data modeling.

We can find incremental threats. It doesn't need to be a large number. If we take it from 96% to 97%, that's a big deal. And then we can feed it back to our inline exchange to offer a closed-loop system that no one else offers. That's why the combination makes it a very exciting and very unique opportunity for us.

JOSH LIPTON: Jay, you know, you recently reported results, and it didn't sound like you were seeing any kind of customer fatigue, like some peers, such as Palo Alto, suggested they were seeing, correct?

JAY CHAUDHRY: That is right.

JOSH LIPTON: Why is that, Jay?

JAY CHAUDHRY: You know, I don't know about them, but I do know that CIOs look for two things. One, cyber is fundamentally very important for not just CISO, CIOs, and the board. Number two, there is some market tightness out there. But if you can go and say, I can not only give you great cyber, but I can also reduce your cost, the deal moves forward.

We are one of the very few security companies that removes a lot of point products, lots of firewalls, VPNs alike, so the business case becomes very good. That's why we aren't seeing any kind of spending fatigue. We are seeing fatigue for ELA as bundles. Some companies like to bundle a lot of products and call it a "platform," but it's nothing more than bundling. It becomes shelfware.

And CIOs want to make sure they're not paying for any shelfware, so there's fatigue on that side. But customers are very focused on buying effective products that do the best cyber protection.

JULIE HYMAN: Forgive me, Jay, what is ELA as a bundle?

JAY CHAUDHRY: Oh, it's an enterprise agreement, where companies say, take my 15 products, I'm gonna give you for the price of 12, so it's a great deal, take it. The customer really only wants eight, so the other seven sit as shelfware.

JULIE HYMAN: Ah, gotcha, and so there's decreasing demand for that. What other changes, if any, either to the good or bad, are you seeing in demand appetite right now?

JAY CHAUDHRY: The cybersecurity threats are at the highest. There's far more concern today than there was six months ago, or 12 months ago. So it's not just on CISO's mind. With SEC asking for special reporting, with SEC suing SolarWinds, SEC suing the CISO, everyone is worried about it, so demand is there.

You need to show the customer that your products are not all legacy product. They are effective in cybersecurity. And they save money. Then the thing happens. There is no lack of interest. There is scrutiny to make sure the solution works well and it gives good ROI.

JOSH LIPTON: Jay, I'll get you out of here on this. Could you put, Jay, AI in perspective for us, both from the attacker side and the defensive side? What are you bringing to the table on that front, Jay?

JAY CHAUDHRY: Sorry, on what front?

JOSH LIPTON: When it comes to AI?

JAY CHAUDHRY: Yeah. So, AI is becoming more and more scary. Today, you can ask a simple question that says, please, ChatGPT, show me all of my firewalls and VPNs that have vulnerabilities. In less than 30 seconds, you get a full list. So, attacking companies is becoming easier.

But we can fight AI with AI. By taking all the data we have, 400 billion logs we have, we use AI predictive and AI generative together to find some of the things that we could not find before. Now, with AI, we can actually predict, potentially, where the attack would happen and when, because I can create an attack graph using, all the data Zscaler has, with some of the technology that Avalor brings to the table.

So we think we are very excited to help our customers. My personal mission is really to, really, overcome all of these growing threats we are seeing out there.

JULIE HYMAN: Jay, great to see you, as always. Thanks for joining us.