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IBM (NYSE: IBM) acquires a lot of companies. Many of these acquisitions are small enough that the details are never disclosed. Occasionally, IBM splurges on a major deal meant to drive its hybrid cloud and AI strategies forward. Prior to this week, the last one was the $34 billion acquisition of software company Red Hat.
On Monday, IBM agreed to pay $4.6 billion for FinOps software provider Apptio. FinOps software covers financial and operational IT management and optimization, helping businesses optimize their technology spending, reduce costs, and generally keep tabs on where money is going across their IT organization.
IBM will use cash on hand to pay for the deal, which is expected to close in the second half of 2023. Here's why the acquisition makes a lot of sense.
Lining up with IBM's mission
IBM has been transforming itself for the better part of a decade. Hybrid cloud computing and AI are at the center of that transformation, but ultimately, IBM's mission is to help its clients run their businesses more efficiently.
That could mean providing a hybrid cloud platform for an enterprise looking to shift to a cloud-based infrastructure. It could mean providing guidance and consulting services, helping customers digitally transform their operations. It also could mean selling existing customers a new mainframe system that can process more transactions. IBM is a sprawling company that does a lot of different things, but its ability to deliver full solutions for clients is what's kept it relevant for more than 100 years.
Apptio offers three different products. Cloudability is aimed at helping companies allocate cloud costs and reduce cloud waste. Cloud computing can lead to cost savings, but that's not a guarantee. For a large enterprise using multiple public clouds across many business units and teams, having a clear window into where cloud spending is going is critical.
ApptioOne is a broader tool that helps companies analyze, optimize, and plan IT spending and the value obtained from that spending, while Targetprocess is an enterprise agile planning tool. With these three core products, Apptio has won over 1,800 customers, including 60% of Fortune 100 companies. Approximately $650 billion of technology spending is managed with its software.
Apptio partners with cloud leaders Amazon Web Services, Microsoft Azure, Alphabet's Google Cloud, Oracle, and SAP, all of which compete with IBM in various ways. But this lines up well with IBM's strategy.
IBM is brand agnostic when it comes to finding solutions for customers. The company doesn't insist customers use its own products if they don't make sense for that customer. IBM's vast consulting business, for example, wouldn't be very successful if it only pushed IBM products and services.
New customers and a ton of data
While there's likely a lot of overlap between IBM's customer base and Apptio's customer base, acquiring Apptio allows IBM to cross-sell Apptio products to IBM customers and IBM products to Apptio customers. Cross-selling was one of the big selling points of IBM's acquisition of Red Hat, and the company has a similar opportunity with Apptio.
Beyond gaining new customers, IBM also gains a ton of data. The company plans to feed anonymized IT spend data into its watsonx AI platform. IBM's watsonx platform, which is set to become available to customers in July, will help customers train and deploy AI models while ensuring customer data remains private.
The pitch for Apptio's products should resonate with IBM's enterprise customer base, given the state of the economy. Cloud spending can easily get out of hand. That doesn't matter as much when business is booming, but as companies look for ways to cut costs in a tough economic environment, wasteful cloud spending will likely be on top of their lists.
This is the biggest acquisition IBM has made in years, and it looks like a smart one.
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