Cloud observability software company Dynatrace (DT 5.12%) recently announced it's entering the security industry, but with a twist.
While cloud-native and endpoint security stocks have been all the rage this year due to the pandemic, Dynatrace's new module is aimed at securing applications themselves. In what is a notoriously fast and constantly changing cybersecurity software industry, the groundwork could be getting laid for another shift -- and Dynatrace could be at the forefront of it.
From castle to counterintelligence to self-defense
For a little background, Dynatrace is a cloud software company specializing in cloud infrastructure and application observability. The company uses AI to help automate the monitoring of large organizations' cloud operations, as well as provide a response and fix when problems arise.
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CEO John Van Siclen told me he thinks this automated cloud and application "observability" is where the software analytics industry is headed in the years ahead. He also stated that built-in security within applications themselves will be a growing need. Turns out (not surprisingly) that this type of security was exactly what Dynatrace was working on. The company recently launched its Application Security Module on its platform, taking its expertise in AI observability and combining it with what's called "runtime application self-protection" (RASP).
The problem with modern security protection, as Dynatrace cites from an IDC report, is that some 90% of applications developed by large organizations will be done in the cloud by 2022. The new cloud-first era we live in has had some problems addressed by cloud-native software firms like Zscaler (ZS 5.11%) and the highly acquisitive Palo Alto Networks (PANW 7.65%). And since the cloud has enabled remote work like never before, endpoint security firm CrowdStrike (CRWD 4.99%) has been off to the races this year as businesses scramble to keep employee devices off-limits from nosey invaders.
Possible holes nevertheless remain. If legacy security (for systems operating at an office) was like a castle, then cloud-native and endpoint security is like a counterintelligence agency (security software that operates everywhere a business's dispersed operations are located). If that's true, then RASP is akin to arming the application itself so it can defend against attack.
Invest in a changing world -- before it changes
Does this mean cloud security like Zscaler and CrowdStrike will be the next realm of the cybersecurity world to quickly become outdated -- like firewalls thrown up around an office before them? Probably not. But large enterprises should want to have built-in redundancies across their digital operations. Should the cloud or a user device get compromised, an application that is also able to ward off intrusion is a good thing. And Dynatrace's platform, complete with AI and automation, looks well suited for the task.
Dynatrace isn't alone in picking up on this potential future trend. If RASP sounds familiar, it might be because you heard about internet infrastructure upstart Fastly (FSLY 18.67%) announcing it will be purchasing security vendor Signal Sciences for $775 million. Signal Sciences has a RASP product in its suite of services aimed at modern application security. Dynatrace, for its part, is going the organic route and has developed its RASP product in-house and ready to go for the new year.
What's it to investors? The point is that stocks like Zscaler and CrowdStrike have been attracting loads of attention during the COVID-19 pandemic, but neither is a panacea for present or future cybersecurity needs. The cybersecurity industry favors fast and constant shifts in thinking to stay abreast of those with nefarious intentions, as well as multiple layers of protection. Rather than picking just one or two potential long-term winners, I favor a basket of stocks in this space. If application-level security picks up steam, Dynatrace might need to be one of those stocks as we head into 2021.
