Late Friday, The Wall Street Journal reported that IBM is in potential late-stage talks to acquire cloud cost management and optimization (CCMO) and IT financial management (ITFM)/technology business management (TBM) company Apptio for roughly $5 billion. If the deal closes, the value would be at more than twice Apptio’s previous purchase price of $1.94 billion in 2018 when Vista Equity Partners took the company private. This comes after IBM’s acquisition of Turbonomic in 2021 and managed services company Nordcloud (which also includes a CCMO solution) in 2020.
Consolidation Is Common In The CCMO Market
News of the Apptio acquisition is unsurprising. Consolidation and new startups are a common occurrence in the CCMO market (see figure below). Over the past seven years, the majority of the 25 CCMO acquisitions have been made by Nutanix, Cisco, NetApp, VMware, Flexera, SoftwareOne, Apptio, and IBM — most of which are leaning on FinOps as a major pillar for their company growth strategies. And while the tech economy slowdown has slowed acquisition activity, the FinOps space remains red hot. Companies not previously in the CCMO space are jumping in, such as Datadog, SAIC, Anodot, and SoftwareOne. Everyone is asking about FinOps. Despite covering other topics such as hybrid cloud, industry clouds, and cloud skills, roughly 80% of my conversations are on FinOps.
Acquisitions In The CCMO Space
What About IBM’s Other CCMO Plays?
As noted above, an Apptio acquisition will follow a string of CCMO plays that IBM has made in recent years. In 2020 and 2021, the company acquired hybrid cloud consultancy Nordcloud, which also offers a CCMO solution called Klarity Core, and application resource management and CCMO company Turbonomic. In 2021 and 2022, IBM announced collaborations with Apptio and asset management and CCMO company Flexera.
These acquisitions and partnerships have made for strange bedfellows. All four companies directly compete in the FinOps space — each offering a CCMO product. Still, the relationships aren’t complete one-to-one replacements. Flexera One is bundling with IBM Instana Observability but appears more focused on Flexera’s asset management capabilities. Nordcloud was acquired mainly for its multicloud consultancy practice (certifications and geo-presence in Europe). Turbonomic offers cloud cost management but will drive IBM’s automation and application resource management optimization initiatives. And Apptio brings ITFM/TBM and SaaS management to the mix. All things considered, it’s a powerful collection of capabilities, with even more promising potential looking at the implications for ITFM/TBM and even service management markets.
Apptio brings SaaS management and a powerful ITFM/TBM offering that can, in theory, help organizations make key budgeting decisions against company objectives. The ITFM/TBM space has remained relatively uneventful for a decade, with few players making up the majority of the market. Like the ill-fated configuration management database space, ITFM/TBM suffers from incomplete and outdated information that makes its insights limited. With better documentation and near-time updates, paired with improvements in AI, this reality may be poised to change — and with it, lackluster demand in the enterprise space will grow. Building off of the existing software could help meaningfully advise tech budgets, track and understand the impact of technical/technology debt, and span in enterprise architecture platforms and even IT service management/enterprise service management (assuming it would pair with current contender offering IBM Control Desk). It is this combined potential that is the most interesting part of the acquisition, yet it is less likely to come to pass.
Still, at a very basic level, IBM can leverage Apptio to secure its presence in the FinOps world, where there is significant momentum. Currently, IBM lacks a major audience in the FinOps space. Turbonomic is seen as a Strong Performer in the CCMO market but lacks key capabilities, such as billing and invoicing, to be labeled as a true public cloud-focused cloud cost optimization solution (note: Turbonomic self-identifies as a hybrid cloud cost optimization platform with a focus on app health). Nordcloud’s Klarity Core could be integrated with Turbonomic to fill these gaps, but Klarity lacks the history and presence to be considered a major CCMO player. The acquisition of Apptio and its Cloudability product would shine the spotlight on IBM as one of the dominant players in the CCMO market, as it was a Leader in the Forrester Wave™ evaluation covering CCMO and is one of the most well-known products in FinOps. If IBM plans to integrate Apptio, Turbonomic, and Nordcloud CCMO products, the result could be a formidable solution that provides end-to-end cloud cost management, application resource and asset management, observability, and cloud consultancy services. The combination itself is a huge win, even if IBM doesn’t choose to pursue larger ITSM or ITFM/TBM expansions.
What Are Apptio’s Prospects?
The benefits of this acquisition aren’t completely one-sided. Currently, Apptio has some partnerships (a few GSIs and limited channel presence), but it lacks a major global footprint and fully realized partner ecosystem. Access to the IBM consultancy engine and its major enterprise partnership would be a boon not just for its CCMO solution Cloudability but also its ITFM solution ApptioOne. Under the IBM umbrella, Apptio would have a major audience with IBM customers (both software and services), and even Red Hat’s. And as hybrid cloud is a major growth pillar for IBM, Apptio’s integrated solution of ApptioOne (that looks at traditional on-premises IT financial management) and Cloudability stands well positioned to play a key role in propelling IBM’s future. The big questions will be how IBM rectifies overlaps in its product portfolio and consistency of product commitment if this change stalls customer retention or acquisition. The good news is that both groups are familiar with acquisitions and the change-up it involves, so disruption will likely be minimal for existing customers.
What Are The Competitive Implications?
An integrated Apptio, Turbonomic, and Nordcloud solution should give CCMO players reason to fear. Under IBM, Apptio will be an even more attractive alternative to VMware Aria Cost (previously CloudHealth) customers who are worried about a post-Broadcom acquisition world. Currently, Flexera benefits from its IBM partnership but risks getting marginalized to only an asset management relationship. But as with any company in the face of product consolidation, internal turmoil and defensive actions are very possible. Internal resistance could deter plans for integration or, at the very least, delay it. This is nothing new for IBM, however. It was offering two competing hybrid cloud management solutions as recently as two years ago, between its Cloud Pak for Multicloud Management, now sunsetted, and its Multicloud Management Platform, a vestige from its Gravitant acquisition, which spun off with Kyndryl.
If IBM closes on an Apptio acquisition, it will be well positioned to dominate the FinOps space. If integrated well, a combined Apptio, Turbonomic, and Nordcloud offering could be seen as the enterprise FinOps solution. IBM/Red Hat’s presence and understanding of the enterprise hybrid cloud space along with Apptio’s dominance in the CCMO market could tip the scales to a single killer solution.
For ITFM/TBM, there’s now a new powerful competitor in the mix. What has been a sleepy market will likely see increased action. For IT and enterprise service management products such as ServiceNow, there is a newly charged player to keep tabs on as IBM continues to build out its array of management capabilities.