Data Loss Prevention (DLP) , Endpoint Security

Zscaler Taps Generative AI to Measure Risk, Predict Breaches

Zscaler infused generative AI capabilities into its data protection bundles and is introducing AI-powered products that quantify risk and predict breaches, said CEO Jay Chaudhry.

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The San Jose, California cloud security vendor told investors Monday it has enhanced data protection policies for artificial intelligence and machine learning applications and tools to lower the likelihood of data loss from increased customer use of generative AI. Founder and CEO Jay Chaudhry said Zscaler's AI-powered threat protection uses a diffusion model to detect complex exploits and catch sophisticated phishing attacks that evade traditional security controls (see: Zscaler Data Security Platform Takes on Symantec, CASB Tools).

"The reason we're making this an areas of focus is because we have better logs and better data to train AI/ML models," Chaudhry said in a quarterly earnings call. "The starting point of good AI/ML is the data, and we have better data than anybody else."

Chaudhry said Zscaler has created new "Advanced Plus" bundles that incorporate advanced AI techniques into data protection and are priced 20% higher than the company's "Advanced" data protection bundles that don't include AI. Zscaler secures more than 2 billion AI transactions each month for customers, and the company's costlier bundles help customers enforce policies for secure use of AI applications.

Zscaler's Stand-Alone Generative AI Plays

In addition to creating bundles with AI functionality, Zscaler introduced a stand-alone product called Risk 360, which Chaudhry called the industry's first AI-powered risk quantification and mitigation technology. Risk 360 delivers up-to-date information on an organization's risk posture and recommends corrective action to mitigate risks in a timely fashion, taking advantage of the logs and signals Zscaler collects daily.

Zscaler already closed more than 10 Risk 360 deals with an average contract value in excess of $100,000, and more than 100 enterprises are actively evaluating the product today, according to Chaudhry. He said Risk 360 provides CISOs with critical insights around cybersecurity risk, strategy and governance, which is particularly relevant given new SEC regulations requiring greater disclosure of cyber programs.

"The starting point of good AI/ML is the data."
– Jay Chaudhry, founder, chairman and CEO, Zscaler

Chaudhry said the company is also developing a "Breach Predictor" product that will use predictive and generative AI models to anticipate potential breach scenarios and eliminate those risks before they materialize. Early feedback from customers who previewed Breach Predictor indicates the enormous value this technology can deliver, according to Chaudhry.

"While we have achieved tremendous success with user protection solutions, our platform's potential in other categories is just beginning," Chaudhry said.

Mergers and acquisitions represent another avenue for Zscaler to bring in capabilities around data and AI that the company doesn't possess today, the CEO said. The company seeks innovative, disruptive technologies that would help Zscaler get to market sooner in emerging areas and favors products that integrate with the company's platform rather than operating on a stand-alone basis.

"With tighter funding and lots of security companies out there, we're seeing lots of attractive opportunities coming our way," Chaudhry said. "We are looking at a number of innovative technologies and strong development teams."

Zscaler's acquisition strategy has focused on early-stage startups. The company acquired Canonic Security for $16.5 million to thwart supply chain attacks and workflow automation firm ShiftRight for $25.6 million. In contrast, Palo Alto Networks over the past month spent $550 million to buy enterprise browser startup Talon and $295 million to purchase data security posture management startup Dig.

Sales Surge, Losses Lessen

Zscaler's revenue of $496.7 million in the quarter ended Oct. 31 beat Seeking Alpha's sales estimate of $473.4 million. And the company's non-GAAP earnings of $0.67 per share crushed Seeking Alpha's estimate of $0.49 per share.

The company's stock is down $13.15, or 6.85%, to $178.76 per share in after-hours trading Monday, which is the lowest the company's stock has traded since Nov. 13. The Americas accounted for 53% of Zscaler's revenue in the most recent fiscal quarter, while EMEA and APAC generated 32% and 15% of the company's sales, respectively, Chief Financial Officer Remo Canessa said.

For the quarter ending Jan. 31, Zscaler expects non-GAAP net income of $0.57 to $0.58 per share on revenue of between $505 million and $507 million. That's better than analyst projections of non-GAAP net income of $0.52 per share on sales of $497.3 million, according to Seeking Alpha.