Technology

Making IT Pay Off at Apptio

By Patrick Marshall August 20, 2015

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This article originally appeared in the September 2015 issue of Seattle magazine.

Eight years ago, Sachin Sunny Gupta was tasked with selling a company he helped manage. Having had a successful run as a serial entrepreneur, Guptas intention, once the company was sold, was to become a venture capitalist.

But a client he was briefing on the sale posed a challenge that set him on a new path. I was in the office of the CIO of Goldman Sachs with literally two minutes left in the meeting and Im about to walk out and sail into the sunset, Gupta recalls. Thats when the CIO mentioned the problem that was nagging him. Our spending on technology is going through the roof, the CIO complained. We [Goldman Sachs] have put in business systems for other functions sales, HR and financial systems, he said, but there is no business management system for managing technology.

Gupta was hooked. What does a business-management system for the office of the CIO mean? he asked himself. In pursuit of an answer, Gupta talked with executives at dozens of companies both large and small. His search led to him to create a new company in a new field that he calls Technology Business Management, or TBM. His company, Apptio, with 600 employees and clients such as ExxonMobil, Goldman Sachs and American Express, is reportedly preparing to go public at a valuation approaching $1 billion.

Guptas key insight was that tools available for managing business processes were not well suited to managing IT. Applications designed for sales, human resources, manufacturing and other departments are cost-center oriented, focused on tracking the cost of inputs required to deliver the product of the department. Unlike the other departments, however, the functions of IT run across all the departments of an enterprise, and the cost inputs can be more difficult to track.

As an IT leader, I dont run my IT as a cost center, says Gupta. Labor is only one fraction of a component. There are 10 other components that go into delivering an IT product. One, for example, is storage. Storage consists of labor, hardware, software, data center, power and cooling.

The first step in building Apptio in 2007 was to create software that could ingest data from the customers general ledger software regardless of what vendor it was using and combine it with data from the customers IT systems.

Getting their data tends to be the easy piece, says Gupta, though his team spent quite a lot of time writing code to accommodate all the various data formats employed by different vendors. Matching the ledger data with appropriate IT categories can be trickier, both because IT data are spread across departments and because IT is changing so quickly.

Unlike any other function in the enterprise, IT is continuously changing, says Gupta. The average organizations have 200 to 1,000 [software and hardware] products of IT that they manage, and they are continuously adding new products.

While a customers general ledger will include the amount spent on help-desk operations, for example, it doesnt correlate that cost with the purchase and depreciation of a specific set of servers. If those servers incur an undue amount of help-desk costs, the CIO might never be aware of that expense without Apptios software.

When one early customer Starbucks ran its data through Apptio, the company found that it was spending a lot more than necessary on software for employee laptops. We ran some scripts with Microsoft Operations Manager and found what pieces of software were running on the companys laptops and desktops, Gupta recalls. We correlated that with the general ledger to see what was actually paid for the software. We found the laptops were 2.7 times more expensive than desktops.

Whats more, Starbucks had a policy that every employee in the administrative office should have a laptop and a desktop, even though many employees didnt need to work remotely. The policy was soon changed. The real cost of a laptop isnt what you pay Dell or HP, Gupta explains. The fully burdened cost [including software and administrative overhead] is much more. This is what can help save more money within the organization.

Similarly, another of Apptios customers found that 60 percent of the storage it had bought was sitting idle in data centers. The cost of that decision alone was $40 million, Gupta notes. And its not just the storage cost alone. Its the cooling, facility charges, labor. When you cost all of that out, its just pure waste.

As well, unlike other IT financial management tools, Apptio focuses on providing IT staff with strong analytic capabilities. Using Apptio TBM software, an administrator can run what if scenarios to preview the likely impacts of changes. Say you reduce your companys reserved cloud storage by 30 percent and move certain processes to local servers; what impact will it have on costs, as well as on network bandwidth?

Another strategic decision Gupta and his investing partners Andreessen Horowitz Fund, Greylock Partners, Madrona Venture Group, Shasta Ventures and T. Rowe Price made at the beginning was to provide Apptio as a cloud-based service. At that point, some customers had told me they didnt trust the cloud, says Gupta, who added that in the early days of cloud services, many were concerned about security. When I decided to do it in the cloud, everybody was thinking Im crazy.

So Guptas team spent a lot of time working on building security into the service. Some of our early customers were some of the worlds largest banks, which have some of the toughest security standards, he notes. Once we got through the first three or four banks, weve never had a single customer who has turned us down because our software is cloud based. In fact, if youre not buying a cloud-based type of service today and youre trying to do this in house, youre in the stone age. (Gupta adds, however, that Apptio is prepared to install its software in house if customers insist.)

Apptio isnt the only vendor providing IT financial management tools. But, according to market analysts, the firm is the most focused on that segment. They are making sizable investments to create the market, says Robert Naegle, research director at Gartner Inc. They are the most public face that I see in the market.

Naegle believes Apptios specific focus on IT financial management makes the company certainly unique from an IPO perspective. He is not alone in speculating that Apptio, a privately held company, may be on the verge of going public. While Apptio will not comment on its plans and, in fact, Securities and Exchange Commission rules preclude companies from announcing plans with respect to initial public offerings the Wall Street Journal reported in July that Apptio had made agreements with several banks in preparation for such a move.

Indeed, although the company has raised $136 million in venture capital, its rapid growth and its push into new markets would likely benefit from a further infusion of funds that would result from a public issuance of stock. When Apptio secured $45 million in investment capital in May 2013, it revealed plans to open offices in Europe and Asia, growth that has since taken place. In 2014, the company launched operations in Australia.

While Apptio does not disclose its sales figures, a market research report by Gartner estimates 2015 revenue at $100 million. Employment also has grown rapidly: Gupta says the company now has more than 600 employees, up from about 450 18 months ago. Its client list has also grown to more than 250, including more than a third of the Fortune 100, Gupta points out.

Much of apptios surge in hiring has been targeted at expanding the toolset it offers.

Not long after Apptio opened its doors, says Gupta, People started coming to us and saying, Not only do we want to optimize, we want to understand how we compare. Are we best in class?

Apptio responded by developing benchmarking tools so that CIOs could compare internal IT resource utilization to other departments and to other enterprises.

Initially, of course, the company didnt have comparative data, so it licensed a third-party repository that covered 3,300 companies. Guptas team members soon realized, however, that the data they were collecting for customers was much better than the third-party data. So we started giving our customers a choice, and 80 percent of our customers allow us to aggregate their data and anonymize it, says Gupta. So now we supplement the third-party data with some of our customers data, which tends to be more accurate.

Another tool, actually created when the company was young, offers the ability to create a bill of IT, which automates the process of budgeting and forecasting. Since any enterprises IT is rapidly changing and tasked with supporting all of the various departments, Gupta explains, it is fundamentally different from the other departments.

No other part of the enterprise has to adapt at the same pace that IT does, he says.

As a result, Apptio centers its efforts on rapidly adapting its tools to support IT management.

Fifty percent of my development resources Gupta says with great emphasis, are focused on taking business processes and incorporating them into the software.
Thats how you create a new business category.

Making Government More Accountable: Washington state adopts Apptio technology.

Apptio CEO Sunny Gupta says one of the primary markets for expansion is government. An early customer was the state of Washington and, according to Michael DeAngelo, deputy CIO for the state, the program brings special benefits for government users, especially with regard to providing transparency to legislative overseers.

DeAngelo says the state turned to Apptio three years ago when it was dealing with recession and budgets were especially tight. Technology was a large expense, says DeAngelo. We spend roughly $2 billion a year on technology in the state. So its certainly a target for potential savings.

The state had commissioned a Gartner study of IT costs, but according to DeAngelo, the study only offered a snapshot. And state agencies had no effective way of regularly collecting data on IT costs. Agencies were collecting their data in spreadsheets. And while the state provided a project-management tool for the agencies to use, DeAngelo says, It was a square-peg-in-a-round-hole thing. It was basically a way to collect data from the agencies once a year.

With Apptio, he says, The data that we see is not just point in time. It is more real time.

The advantages of the new system are twofold. First, it gives IT staff more information to apply to making decisions. Having more of our decisions be data driven has certainly been a benefit, DeAngelo says. The other major benefit has been in his staffs ability to make its case to the state Legislature.

We can benchmark data now, DeAngelo says. Before, there was a lack of visibility into the cost of technology. Legislators were frustrated with agencies inability to articulate the cost of technology and what made up those costs. Now, we can share that [cost data] with the authorizing environment with some credibility.

The perspective provided by Apptio changes the nature of budget discussions, DeAngelo adds. We shouldnt be looking at ways to cut costs in IT, he points out. We should be looking at how to better leverage IT to cut the costs in government. That sometimes means you drive up the costs in government but youre making better savings overall.

He offers as an example recent proposals to consolidate the states data centers into one larger data center. Intuitively, that makes a lot of sense, says DeAngelo. However, now that we have [Apptio], we can look at where the money is really going.
What his team realized is that while $4 million a year is going to the data centers, $20 million a month is going to applications. So why are we talking about data centers? he asks. We should be talking about how to replace our legacy systems that have a ton of technical debt associated with them.

The Sunny Gupta File: Life of a Serial Entrepreneur

Apptio: Founder and CEO, 2007present
Opsware (acquired by HP in 2007): Executive VP, 2007
iConclude (acquired by Opsware): Cofounder and CEO, 20052007
Mercury Interactive: Senior Director, 20032005
Performant (acquired by Mercury Interactive): VP, 20022003
Rational Software: GM, 19982002
Vigor Technology (acquired by Rational Software): Cofounder and VP, 19961998
IBM: Engineer, 19921994

The following excerpt is from an interview Sunny Gupta gave in 2011 to Greylock Partners, one of Apptios original backers.

Describe your business in 10 words or fewer. Apptio provides the CIO a business management platform to run IT like a business.

What five adjectives would you use to describe yourself? Results-driven, competitive, passionate, focused, rational.
What values are important to you as an entrepreneur? Integrity and honesty. Rather than speak behind someones back, I believe in giving direct feedback.

What motivates you? Winning.

What has surprised you about being an entrepreneur? Entrepreneurship is all consuming and requires a lot of focus. If you are in it for the money, dont do it. The sacrifice required is unprecedented. You need to be sure you are doing this for the right reasons.

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