What Is Shadow AI?
By Evan Folse, Information Security Analyst, TraceSecurity
Do you ever find yourself asking an AI tool to write emails, summarize meetings, or help with a project at work? Have you ever considered the sensitivity of what you’re typing in? These interactions may seem harmless, but they fall under a growing, overlooked field called Shadow AI, the modern-day version of Shadow IT. Throughout this article, we will explore the world of Shadow AI and what dangers it brings to companies.
What Is Shadow AI?
Shadow AI is the use of Artificial Intelligence in any capacity without your company’s IT department knowing or approving of the action. Shadow AI is a danger to companies and all the data they may possess. According to the 2024 Work Trend Index Annual Report, done by Microsoft and LinkedIn, 75% of workers use AI.
Imagine walking through your office, three out of every four people you see are very likely to be using AI on their work tasks. Microsoft even refers to the usage as BYOAI (Bring your own AI), a somewhat satirical remark about the real looming issue of Shadow AI.
Why Is It a Problem?
One of the main effects of Shadow AI is the leaking of private data. The average cost of a data breach, according to the IBM study (2025 Cost of a Data Breach Report: Navigating the AI rush without sidelining security), is $4.4 million. Shadow AI adds another $670K to that average breach cost.
What data are we referring to? We are referring to PII (Personally Identifiable Information), PHI (Protected Health Information), confidential corporate data, and even government data. Many people are not aware that some of the AI websites you might use are unregulated, unencrypted, and in some cases, malicious. So, even though you are working significantly faster, you could be leaking sensitive data.
Now you might be asking, “Is it still dangerous to input information into platforms like ChatGPT if they are secure and encrypted?” The truth is, yes, it is still dangerous. No platform is truly 100% impenetrable. Even companies such as OpenAI, Google, and X are all in danger of leaks. Any leaking of data could lead to massive consequences ranging from loss of public trust to lawsuits to even government conflicts.
How Can We Fix It?
The easiest way to stop Shadow AI is to stop using AI for questions that violate any compliance. However, for most people today, this is not reasonable, which is why companies such as OpenAI offer private models for companies to purchase. These models can be highly expensive but potentially save businesses millions in lawsuits if a leak were to occur.
Other alternatives could be self-hosted models, but with this comes the need for an employee to keep this model running. Lastly, the final option is heavy governance of your network, such as a filtering system for applications, which, as it sounds, would be extremely time-consuming. The issue is ever-changing, and as time goes on, hopefully, better ways to remediate this issue will be released. So, for the time being, it is extremely important that employees are notified of Shadow AI and what comes with it.
Overall, Shadow AI is an extremely dangerous issue that is plaguing the corporate and government world. The current remediation efforts are expensive and time-consuming. The best course of action is to inform your employees of the cost of Shadow AI and the potential lives that could be affected if your business were to have information leaked.
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