The company's commercial cloud revenue grew 88 percent year-on-year for Microsoft in the fourth quarter. This includes its Office 365, Microsoft's suite of business productivity applications such as email, and Azure, its cloud platform.
Security is one of the top concerns for businesses following some high-profile hacking attacks on the likes of Sony Pictures last year andadultery website Ashley Madison last month.
And the likely Adallom acquisition comes as Microsoft continues to diversify its business away from just its Windows operating system and struggling smartphone unit. Having Adallom's solutions would expand Microsoft's range of cybersecurity solutions to businesses as it continues to focus on pushing its products and services to enterprises.
Adallom did not respond to CNBC's request for comment at the time of publication.
Last year, Microsoft bought another Israeli cybersecurity start-up called Aorato which made a product spefically aimed at Microsoft users. The product was aimed at protecting the so-called Active Directory -- a database that authorizes users to access a company's systems.
But unlike Aorato, Adallom's services are not only designed to work with Microsoft's cloud products. Adallom can also secure cloud platforms such as GoogleApps and Salesforce which is highly used by businesses.
Adallom offers services such as the ability to understand how and by who a company's cloud is being used, notify a firm about suspicious activity in its cloud and block cyber threats.
The firm was founded in 2012 by alumni of the Israeli Intelligence Corps. Adallom is headquartered in Palo Alto, California, but has an office in Israel. The employees will not be relocated to Redmond, Washington, a person familiar with the matter said.