Little-known SaaS provider helps CIOs corral IT costs

SAN DIEGO — CIOs have long struggled to connect the dots between the cost and value of IT services they delivered to their business partners. This disconnect is bound to widen as IT implements new digital capabilities for business initiatives. To help CIOs cross the chasm and communicate with their business peers, a startup has pioneered what it calls technology business management (TBM).

Apptio sells a SaaS analytics platform and applications to help CIOs calculate and benchmark IT costs and value. Since launching in 2007, Apptio has racked up 40 percent of the Fortune 100, including FedEx, Cisco and Microsoft. Apptio, which went public this summer, just announced revenues of $40.6 million, up 26 percent from the third quarter of 2015.

At Apptio’s TBM customer conference last week more than 1,200 attendees from over 300 companies representing $600 billion of IT spending gathered to share tips about TBM. Barclays software analyst Raimo Lenschow, who attended the event, wrote in a research note: “On multiple occasions customers mentioned how they felt empowered when it came to having reliable data to backup their arguments.”

[ Related: CIOs turn to cloud-based analytics to manage IT asset costs ]

CIO.com met with Apptio founder and CEO Sunny Gupta to discuss Apptio’s challenges and opportunities to help CIOs become more relevant business partners through TBM.

CIO.com: What is technology business management?

Sunny Gupta: Apptio provides [TBM] software that helps CIOs deliver transparency into the cost and value of technology services, helps them automate planning for technology and helps them benchmark themselves against their peers. It’s important because technology budgets are rising and technology is powering every major business process in the enterprise. CIOs have been putting many technology systems into place but they haven’t been able to manage the business of technology. Apptio offers a data analytics platform approach and we have applications that sit on top of that. That’s how we serve this need in the market.

CIO.com: The C-suite has long treated CIOs as cost center. Meanwhile, CIOs have lacked the wherewithal to quantify IT cost and value, making it difficult to convince the C-suite that their IT investments are valuable. How does Apptio’s technology help them drive that conversation?

Gupta: The majority of CIOs have a high-level view of what their costs are but their view is oriented in the general ledger view of their costs, showing spending on hardware, labor and software. What IT leaders are thinking about is what they’re spending on infrastructure services, applications and business capability, such as order to cash. The CIO talks in technical language and the business is expecting a business outcome language and so it is up to CIOs to bridge that language and discuss the IT operating model, infrastructure services, applications and business capabilities … what is the unit costs of those, what part of the costs are fixed versus variable, what parts are direct or indirect, what are the levers and if the business demand goes up how can they invest in technology.

TBM and Apptio have helped elevate CIOs because they can have a higher level services conversation as well as a conversation around cost and quality of service value. And that makes them more strategically relevant in the boardroom. They’re getting trusted more and more by their business partners because they understand the CIOs are managing their money effectively.

CIO.com: How has Apptio’s software evolved over the past nine years?

Gupta: In 2007, we spent a lot of time with 40-plus CIOs before we wrote a single line of code. That helped us understand the problem was real. Most SaaS companies start serving smaller departments and then grow up to the larger customers. We started that way with our business plan but large customers such as Cisco and some of the big banks started to approach Apptio. So we built a data ingestion platform in the cloud which allowed you to take disparate data from general ledgers, service management systems, change management databases, ticketing feeds, network monitoring systems without requiring any cleansing of the data. And then we built a visual cost modeling engine and a reporting and analytics layer. We built it in an in-memory database engine for fast calculations and scenario planning.

[ Related: How to marry content, business process management ]

Customers began teaching Apptio the use cases they wanted to model, such as end user compute or infrastructure services. Cisco wanted to understand the cost of running Active Directory. Others wanted to understand the cost of their charge-backs for IT services.

In early 2013, smaller customers started to come to Apptio with the same challenges as the big companies, but they didn’t have the resources to invest as much time as the big guys. They wanted standard cost categories, standard services definitions, standard reporting packets and that was the time I felt we needed to transform ourselves. We could continue just serving the Fortune 1000 customers or go for a place where there are tens of thousands of companies. We needed to go through an evolution [downmarket].

CIO.com: Have you ever had a challenge communicating the value of TBM to CIOs? When we described Apptio to CIOs they’ve said: “I already have ERP software.”

Gupta: That is the No. 1 misconception and we have to get into that delta, which starts to open up their minds. It’s the joy of innovating in a new market category. We also have CIOs who don’t want to expose their cost structure and transparency to the business. It’s a matter of courage because this is how the world is moving. The CIOs have to take that next step to be relevant this new economy and many CIOs are doing it. CIOs have to develop the business acumen because their budgets go up as the business trusts that they are managing their money effectively.