After Cloudflare Outage, Palo Alto Networks Moves to Acquire Observability Platform for $3.35 Billion

On Tuesday (Nov. 18) morning, a configuration error at Cloudflare knocked major services offline, including ChatGPT, X and Spotify for several hours, the latest reminder of how vulnerable digital infrastructure has become as cloud systems grow more complex. One day later, Palo Alto Networks announced plans to acquire Chronosphere, a platform designed to track system performance for $3.35 billion.

The timing underscores a broader transformation in enterprise technology. Cloudflare’s disruption stemmed from an automatically generated file that went over expected size limits, triggering crashes across the company’s traffic-routing infrastructure. The incident followed an Amazon Web Services outage as reported by PYMNTS in October that disrupted services for several hours, and a separate Microsoft Azure failure days later. Each event exposed the same vulnerability: as companies add more services, more automation, and more distributed components, the systems meant to keep everything running have become harder to monitor.

Observability Emerges as Core Infrastructure Layer

Chronosphere operates in the observability space. Unlike traditional monitoring tools that track whether systems are up or down, observability platforms collect detailed data from applications and infrastructure to help engineers understand why problems occur and where they originate. The company, recognized as a leader in Gartner’s 2025 observability rankings, reported over $160 million in annual recurring revenue as of September.

Observability has gained importance as organizations move applications to cloud environments where services are broken into smaller, interdependent components scattered across multiple locations. When something goes wrong in these distributed systems, pinpointing the source requires correlating data from potentially thousands of processes. Technology research firm Cisco ThousandEyes noted that while the total number of outages has remained consistent, the expanding web of dependencies means each incident now affects more users and services.

Security and Observability Begin to Converge

The Palo Alto Networks acquisition represents a bet that companies will increasingly want unified platforms handling both security monitoring and performance tracking. The cybersecurity company also acquired Israeli firm CyberArk for $25 billion, suggesting that the market for integrated security and infrastructure management is substantial.

Security and observability functions have historically operated in separate silos, but technology executives increasingly see them as interconnected. Organizations using separate tools for each function often respond to incidents with incomplete information, leading to misaligned responses and prolonged downtime.

Data Volume, Automation and AI Expand Requirements

The convergence extends beyond detecting problems to understanding system behavior at scale. Modern cloud environments generate massive volumes of data, logs, performance indicators, and transaction records that must be collected, stored, and analyzed in real time. The platforms emerging in this space apply algorithms to identify patterns, predict potential failures, and reduce the volume of alerts that operations teams must review manually.

As enterprises deploy more artificial intelligence (AI) systems, observability questions are evolving in new directions. AI models and automated agents introduce different monitoring challenges than traditional applications.

Unlike conventional software, where behavior is predictable, AI systems can drift over time as input data changes, requiring continuous validation that model outputs remain accurate and costs remain controlled.

The non-deterministic nature of AI agents means observability data serves both as a troubleshooting tool and as a feedback mechanism to improve agent performance.

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