IBM aims to reduce cloud costs with $4.6B Apptio acquisition

IBM plans to further control costs across multi-cloud and hybrid-cloud deployments with the $4.6 billion acquisition of Apptio, a cloud optimization and cost management provider.

IBM reported the all-cash deal with Apptio owner Vista Equity Partners on Monday. The transaction is expected to close in the second half of the year.

Apptio has been an IBM partner since 2021, when the companies said they would collaborate to drive adoption of IBM's open technology for hybrid cloud deployments. A critical piece of the plan included IBM's Red Hat OpenShift, an open source container application development platform for multi- and hybrid clouds.

Apptio is important because its financial decision engine calculates the expense of migrating specific applications and workloads. The tool would complement Red Hat OpenShift's ability to run and manage applications in cloud computing environments.

Cloud deployment costs are difficult to manage. Companies, for example, often need help calculating the capacity needed to avoid an outage during peaks in their business.

Companies tend to overcompensate and pay more than required, said Bill Lobig, vice president of IBM product management, in a recent interview.

"I've never met an IT person who was fired for over-provisioning their systems," Lobig said. "I had met some who had a hard time when they went down during an open enrollment period, Black Friday or the holiday season."

Companies sometimes use Apptio software with IBM's Turbonomic Application Resource Management product. Acquired in 2021, Tubonomic keeps costs down by helping IT pros prevent the over-provisioning of cloud resources. In 2020, IBM bought Nordcloud, which includes cloud cost management and optimization (CCMO) technology like Apptio's.

During the past seven years, there have been more than two dozen CCMO acquisitions as companies including Nutanix, Cisco, NetApp, VMware and others bolster their FinOps portfolios -- a key piece of their growth strategies, said Tracy Woo, an analyst at Forrester Research, in a blog post. FinOps refers to a framework for managing operational expenditures, often in connection with the cloud and cloud computing.

"While the tech economy slowdown has slowed acquisition activity, the FinOps space remains red hot," Woo wrote. "Everyone is asking about FinOps."

Integrating Apptio, Turbonomic and Nordcloud would give IBM a combined offering delivering observability, cloud cost management, application resource and asset management, and cloud consultancy services, Woo said.

The breadth of the integrated product would be impressive once completed, but signing up with Apptio now would carry risks, Woo said in an interview. Apptio's current product roadmap could change after IBM completes the acquisition.

Becoming part of IBM would turn Apptio, a midsize company, into a business serving global enterprises. As a result, pricing could increase, and support contracts could be less geared toward smaller companies.

"IBM is used to dealing with large enterprises, so some of the smaller customers that Apptio has might see some deprecated support, or they might see prices increase to an area that is not sustainable for them," Woo said.

Companies considering Apptio should aim at signing multi-year contracts that lock in pricing to delay potential increases, Woo said.

IBM has acquired 30 companies to expand its cloud and AI capabilities since Arvind Krishna became CEO in April 2020. The acquisitions include Turbonomic, application performance monitor Instana, cloud consultancy Nordcloud, public cloud-managed service providers Taos and Neudesic, business automation software vendor myInvenio, and cloud migration specialist Sentaca, according to ChannelE2E.

Apptio adds to the list, which IBM acknowledged already presented a challenge in integrating products and services. "We are on that path to integration," Lobig said.

Antone Gonsalves is networking news director for TechTarget Editorial. He has deep and wide experience in tech journalism. Since the mid-1990s, he has worked for UBM's InformationWeek, TechWeb and Computer Reseller News. He has also written for Ziff Davis' PC Week, IDG's CSOonline and IBTMedia's CruxialCIO, and rounded all of that out by covering startups for Bloomberg News. Have a news tip? Please drop him an email.