Microsoft secure service offering is a 'manageable' threat for Zscaler, Palo Alto: BofA
Michael Vi
Microsoft's (NASDAQ:MSFT) announcement that it is expanding its Entra identity and access management offerings to push into the secure service edge market hit cybersecurity stocks Zscaler (NASDAQ:ZS) and Palo Alto Networks (NASDAQ:PANW) on Wednesday, but investment firm Bank of America said it's a "manageable" threat for the duo.
Analyst Tal Liani said the risks to Zscaler (ZS) and Palo Alto Networks (PANW) are "contained" even as Microsoft's offerings put it squarely in competition with the aforementioned companies. This is due to the fact that Microsoft's (MSFT) solution is centered around Office365 and Azure and though it has the capabilities to support other apps and clouds, it's missing "certain key network security components like Browser Isolation, Advanced Threat Analysis and others, that make this solution currently only suitable for a certain sub-set of applications.
In addition, Liani said Microsoft (MSFT) needs to show it can support multi-cloud environments and provide universal access for all apps and users. 
"We note that classic SSE is not a product, but rather more like a system, with the best analogy being an ERP system, which means that portfolio completeness and wide support for different apps and environments is key, especially for larger enterprises," Liani wrote in an investor note.
Liani added that Microsoft (MSFT) has used its existing services in other markets to dominate the new market, but in the identity access market, Microsoft is mostly packaging via Identity, which only covers certain use cases.
Additionally, Liani said that Microsoft (MSFT) is "strong" in the commercial market, where Zscaler (ZS) and Palo Alto (PANW) go after the large enterprise market and CrowdStrike (CRWD) has already shown the ability to compete with Microsoft in the high-end part of the market.
"[W]e believe both Zscaler and Palo Alto have the same advantage of market segmentation," Liani added. 
Liani also pointed out that Zscaler (ZS) and Palo Alto's (PANW) offerings have qualities that are different than Microsoft's (MSFT), with Zscaler offering a network agnostic offering for "true" Zero Trust security.
Conversely, Palo Alto (PANW) has two differentiators, including a large user base of firewall customers who use multiple products and it has a "comprehensive" SASE solution, complementing its secure service edge offering with SD-WAN, something Microsoft (MSFT) does not have.
Microsoft (MSFT) shares rose 0.8% in pre-market trading on Thursday, while Zscaler (ZS) and Palo Alto Networks (PANW) rose 1.3% and 1.4%, respectively.
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