Quote-to-cash vendor Apttus revealed yesterday that IBM was a corporate investor in its $55 million Series E funding round announced last September. I recently caught up with Apttus CEO Kirk Krappe and he explained some of the background to the deal, telling me:
IBM's very strategically interested in Apttus. There's a whole variety of reasons. They came into the round and had a very significant strategic investment.
IBM's interest boils down to three key elements, according to Krappe. One of them is AI, which features strongly in yesterday's official press statement. As we've previously reported, Apttus uses several AI components in its solution, and IBM sees significant opportunities to include its Watson cognitive computing services in those offerings.
The second is the need to offer IBM's customer base a modern, AI-enhanced cloud solution for what Apttus is calling the middle office — that swathe of decision-making processes that bridge between the customer-facing front-office and the administrative back-office, where it specializes. These functions are especially important in sectors such as financial services and healthcare, where IBM has a longstanding market presence and where Apttus has also developed a significant customer base.
The third and final element is that IBM has already become a user of the Apttus platform internally, with more than five thousand sales people using IBM's own AI-enhanced implementation of Apttus across configure-price-quote, contract lifecycle management and B2B e-commerce. This is particularly significant given that IBM has its own existing on-premise solutions in each of these product categories.
That internal implementation is serving as a trial run for the Apttus solution that IBM will now take to market. For IBM, this is not merely a product offering but also brings substantial professional services business in its wake, enabling intelligent automation of that middle office function, says Krappe:
For [IBM Global Business Services], they own the who's who of healthcare and financial services. And those industries have huge middle office issues. These are the industries that have huge incumbent systems between their front office and their accounting systems that need to be upgraded.
Those are two very strong industries for us, by the way. We have hundreds of customers in both. So we have something that, if they built a huge practice around, could generate huge amounts of service dollars in their incumbent installed base.
The decision to adopt Apttus is especially significant given that IBM already has its own incumbent solutions, including Sterling Commerce for configure-price-quote, Emptoris for contract lifecycle management (although it has already said it will sunset this product and transition customers to SAP Ariba) and WebSphere for e-commerce. But none of these existing products have a cloud-native roadmap, nor the ability to easily consume IBM's AI services, which is part of the strategic appeal of the Apttus platform and its intelligent agent technology known as Max. As Krappe tells it:
What it did strategically was it made them go, 'Well, if we really selected these products because we like them so much, there's this middle office platform that's evolving, hmm ...' They're going, 'We're implementing so we know their product, we can build a practice, we could push this into our installed base and generate a huge amount of sales revenue.'
And our AI Max — it turns out the natural language processing bit, the NLP, is not that difficult to swap out and put a different product in. So we consume Watson too. Of course they're very interested in Max because they're trying to push [IBM's cloud development platform] Bluemix and their own plumbing. We ended up in this interesting situation and they said 'Well, this is strategic for us,' and so they've invested in us.
The September round, which brings Apttus' total venture funding to $329 million, was led by PremjiInvest, the personal investment fund of Wipro chairman Azim Premji. While there's no formal connection between those investments and Wipro's professional services business — in the same way that funding from IBM Ventures is separate from commercial and operational decisions within IBM's businesses — that too has helped open doors, says Krappe, although it hasn't yet led to the same kind of go-to-market relationships that Apttus has built with Accenture and Deloitte.
The September round was primarily to bolster the company's capital reserves as it continues to look at a potential IPO. Apttus has been widely regarded as an imminent IPO candidate for a couple of years now and Krappe won't be drawn on timings or other specifics. But the company recently appointed a new CFO, Terry Schmid, in part because of his experience of taking three companies public, says Krappe:
Through the process we've been running in the last months, there was a realization that what would be ideal [as CFO] would be someone who's taken companies public. I think a lot of us underestimated [what's involved] — certainly me, I've never done that — and the last six months has been a very intense and interesting experience.
In addition to the new CFO there have been some other management changes in the past month, with ex-Hortonworks and Tibco COO Raj Verma taking up that role at Apttus, while former VP Strategy Ben Allen has been appointed CMO. Management in India was also strengthened with Ashish Shah appointed General Manager while former director of engineering at Ariba Technologies Nikesh Jain joined as head of engineering.
One of the interesting backstory elements to the participants in September's funding round is related to Apttus' multi-platform strategy, which saw the originally Salesforce-native vendor initially turn to Microsoft to build its AI capabilities. That Microsoft angle doesn't sit well with the important strategic relationships that both these new investors' associated businesses have with Salesforce. Wipro is the third largest Salesforce systems integrator after its acquisition of Appirio, while IBM followed up on its own acquisition of Salesforce integrator Bluewolf by announcing a strategic alliance with Salesforce on AI last year. That led to IBM CEO Ginni Rometty becoming Salesforce CEO Marc Benioff's newest tech industry BFF in the keynote at November's Dreamforce conference.
For Apttus, being able to take a Watson-based AI capability into Salesforce accounts is going to be a lot more diplomatic than its current Microsoft-fueled offering. So the Watson angle helps Apttus build bridges with the likes of Wipro and other SIs as much as it helps IBM by boosting its Watson revenues.
Getting IBM Global Business Services onside is an important coup for Apttus too. IBM has already begun posting job ads for consultants with Apttus implementation skills, which puts substance behind the PR announcement of a go-to-market push for its new Watson-enhanced, Apttus-on-Salesforce offering. SI support is essential for the complex implementations that large enterprises embark on when they roll out Apttus. Adding IBM to its roster is highly valuable — if it can add Wipro to the list too, the round will have proven doubly significant.
In summary, the funding round isn't just about bolstering capital reserves. It also strengthens the pitch Apttus can make to investors, with a new story around the opportunity for middle office solutions, an expanding roster of heavyweight SI partners, and an underlying platform that's not dependent on either Salesforce or Microsoft but draws on a mix of leading public cloud providers. Whenever the investor roadshow starts, Apttus will be ready with a strong story to tell.
[An earlier version of this story had an incorrect spelling of Ginni Rometty's name.]