Rise of Shadow IT Risks in the Age of Freemium SaaS

Shadow IT isn't a new concept, but its landscape is dramatically evolving. The rapid adoption of freemium Software as a Service (SaaS) products and advanced artificial intelligence (AI) tools presents a double-edged sword for businesses.

While these technologies drive productivity and operational efficiencies, they also contribute to the rise of Shadow IT. This phenomenon is becoming an increasingly critical concern for cybersecurity professionals. Alarmingly, about 41% of employees are currently engaging with technology without IT's knowledge, and this figure is projected to rise to 75% by 2027, underscoring the expanding challenge that organizations face in keeping these unauthorized activities in check.

The proliferation of freemium SaaS and the rise of AI means Shadow IT is not just persisting, it's expanding at an exponential rate. This highlights the importance of Managed Security Operations Centers (SOCs) that can provide insights into the unauthorized software and websites employees interact with.

Corey Ayers, Director of Product Management, ArmorPoint

What is Shadow IT?

Shadow IT refers to IT devices, software, and services outside the control and supervision of an organization’s official IT and security protocols. Examples include employees using cloud storage services like Dropbox, communication tools like WhatsApp, or AI tools like ChatGPT without IT’s approval or oversight. The freemium model of SaaS—software offering free with optional paid features—has particularly intensified Shadow IT by lowering the barrier for individual employees to adopt these tools without organizational consent. Additionally, AI technologies accelerate this adoption by enhancing the capabilities of these tools, making them more attractive and easier to deploy discreetly.

The Risks of Shadow IT in the Freemium SaaS Era

Understanding the risks associated with Shadow IT is crucial for businesses to develop strategies that safely incorporate user-driven tech solutions into their broader IT management and security frameworks. There are three main risks to be aware of:

Security Vulnerabilities

The presence of unauthorized applications significantly enlarges the potential for cyber threats. A staggering 76% of small and medium-sized businesses now recognize shadow IT as a moderate to severe cybersecurity threat, according to a 2023 Capterra study. These security gaps often lead to substantial data breaches. In fact, 82% of data breaches in 2023 involved data stored in cloud services, including those introduced by shadow IT. This exposes organizations to massive potential losses, with the average cost of a data breach now at $4.45 million, reflecting a 15% increase over the past three years.

Compliance Issues

Complying with legal standards is crucial, especially for businesses in highly regulated industries like healthcare and finance. But, it becomes an even more complex issue when employees utilize unsanctioned applications, particularly with sensitive data handling that may violate regulations such as GDPR or HIPAA. Additionally, a concerning 31% of workers still have access to SaaS tools from their previous employers, greatly complicating data security and regulatory compliance efforts.

Impact on IT Governance

Shadow IT can disrupt the way technology is managed across a company, leading to inefficiencies and inconsistent practices. When IT teams don't have a full view of all the tools and apps being used, it's tough to keep things secure, manage software licenses, or allocate resources effectively.  In fact, 59% of IT professionals find it challenging to manage SaaS sprawl, and 65% of unsanctioned SaaS applications are adopted without their knowledge or approval. Furthermore, according to a Gartner survey, more than 30% of successful attacks on businesses will target data in shadow IT resources, including unauthorized SaaS apps, which can lead to significant financial losses and damage trust in IT's ability to protect company resources.

Managing Shadow IT with Managed SOC

Managed SOCs play a crucial role in spotting and keeping an eye on Shadow IT activities. These centers use a range of advanced tools to detect unauthorized software and services. For example, they use Network Traffic Analysis to watch for unusual patterns in data movement that might suggest hidden apps are being used. They also employ Cloud Detection tools to scan cloud storage and services for any programs not officially approved by IT. Additionally, Endpoint Detection and Response (EDR) systems and Endpoint Threat Analytics help track and analyze activities on company devices to catch any unsanctioned installations or access to risky websites. These technologies give a complete picture of what’s happening in an organization’s digital space, pinpointing where unapproved software and services are active.

However, it’s important to note that while Managed SOCs can highlight the presence of Shadow IT, it’s not always possible—or wise—to try to stop it completely. Removing it entirely could slow down innovation and frustrate employees, leading to even more secretive use of unapproved apps. The key is to strike a balance. If the rules are too strict, they can kill creativity and productivity, making employees feel restricted. On the other hand, if the rules are too loose, the company could face serious risks like data breaches or legal troubles. Therefore, Managed SOCs need to both track and identify Shadow IT and help inform the development of policies that balance security needs with a good user experience. This approach ensures that security measures are practical and flexible enough to encourage innovation while keeping the company safe.

Additional Strategies for Reduce Shadow IT Risks

To effectively manage the risks associated with Shadow IT, cybersecurity teams should also consider several implementing additional proactive strategies, like:

• Regular security posture assessments and monthly vulnerability scans can help identify unauthorized software. Once detected, cybersecurity teams can promptly assess and mitigate risks.
• Security awareness programs can educate employees about the dangers of Shadow IT. By understanding the risks, employees are less likely to circumvent IT protocols.
• Developing clear IT policies that outline acceptable use and deploying technological solutions that can restrict unauthorized software usage are vital. Solutions like virtual Chief Information Security Officers (vCISO) can provide strategic guidance in managing these issues.

Conclusion

The landscape of IT management is continually evolving, and the rise of Shadow IT and Shadow SaaS presents new challenges that require innovative solutions. By understanding the implications of unauthorized SaaS and AI tools and implementing robust strategies to manage these risks, cybersecurity professionals can safeguard their organizations while still fostering an environment of innovation and growth.

For those looking to enhance their capabilities in this area, explore our Managed SOC services today.

About ArmorPoint

ArmorPoint, LLC is a managed cybersecurity solution that combines the three pillars of a robust cybersecurity program — people, processes, and technology — into a single solution. Designed by cybersecurity experts, ArmorPoint’s cloud-hosted SIEM technology and extended detection and response capabilities enable businesses to implement a highly-effective, scalable cybersecurity program. With customizable pricing available, every ArmorPoint plan offers a dynamic level of managed security services that support the risk management initiatives of all companies, regardless of available budget, talent, or time. ArmorPoint is developed and powered by Trapp Technology, Inc., a Phoenix-based IT managed services provider. To learn more about ArmorPoint, visit armorpoint.com.