New Customers in Tow, Apptio Wants To Help Manage Your Skyrocketing IT Costs

11/10/08Follow @gthuang

Whether you’re a startup or a big company, your IT costs are probably going up these days. And what with all the laptops, desktops, mobile phones, servers, and data centers to keep track of—not to mention e-mail systems, software applications, and tech support—it’s getting harder to predict what those costs are going to be, or even understand where they are coming from. In this tough economic climate, more and more companies are looking for ways to save money, and IT is high on the list.

Which is where Apptio comes in. The one-year-old Bellevue, WA startup broke into the corporate market last summer with a software service for managing IT costs. The software automatically keeps track of how much a sales and marketing software package, say, is costing a company and what its value is. That’s simplifying things, but the idea is to do that kind of analysis over a wide range of applications, hardware, and financial metrics, and let the company know what the different cost scenarios will be if it makes certain IT decisions.

Last week, Apptio announced some new, high-profile customers, including Alaska Airlines, SkyTap, and SumTotal. (The latter two are host service providers that handle things like online training services for corporations.) The company raised $7 million in venture funding last year, and has also signed up Finlay Enterprises, HomeStreet Bank, Motricity, and other well-known buyers, so I wanted to find out what makes it tick.

I spoke with Apptio’s co-founder and CEO, Sunny Gupta, and director of marketing Jeff Day to get the story of where the company came from and where it’s going. Gupta was previously the founder of iConclude, a software firm that was acquired by Opsware and then Hewlett-Packard last year. In early 2007, while he was in the process of selling iConclude, Gupta says, “I had gone on the road talking about the acquisition and spending a lot of time on Wall Street. A couple early customers pulled me aside and said, ‘We’re really struggling with issues around optimizing IT financial management.’”

Gupta didn’t think about it much then, but after the acquisition, he picked up the thread. A team from his previous startup, Mercury Interactive, sought him out and was “looking to innovate,” he says. So they started thinking about corporate IT. They talked with about 30 companies, mainly in financial services, and concluded that “IT spending has gone through the roof in the past 20 years…It’s very strategic to the business,” Gupta says. “In financial services, 25 percent of the budget is IT.” (Gupta says companies worldwide spent $3.1 trillion on IT in 2007.) And while companies have a good high-level sense of the costs, there is little in the way of systematic methods to analyze “the true cost of products and services which IT is delivering to the business,” he says.

When it comes to making decisions like whether to upgrade certain servers or software applications, says Day, most companies rely on Excel spreadsheets once a quarter or even once a year. That takes a lot of time and effort, and it isn’t often enough. So Apptio sells its service to chief information officers, operations managers, and finance groups, to try to make the process more efficient, useful, and strategic. When they talk to potential customers, Gupta says, “Light bulbs start to go off—’I need to do this across my IT.’”

Apptio has some serious backers who have bought into the vision. In October 2007, the startup closed its $7 million funding round from Greylock Partners, Madrona Venture Group, Ignition Partners, and other investors including Marc Andreessen. Since then, Apptio has gone from renting conference rooms in the Bellevue public library to more stylish digs in downtown Bellevue. The company has just under 30 employees. Gupta says it could become profitable in six to 12 months, but the time horizon he’s looking at is about two years, “to build more value in the company.”

Looking ahead, Gupta says, “Every company is trying to buckle down. We are seeing increased pressures on IT costs…We believe as the economy is shaping out—not so good for most companies—this plays well to our core strength, being a strategic partner with these customers. We’ll be well-positioned in the next year.” He adds, “The long-term vision for the company is to become a strategic management tool for CIOs, like what Salesforce.com is for a VP of sales. We’re focused on acquiring customers.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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