CSPs, Enterprise, Mergers and Acquisitions, Content

Google Cloud Acquisition Targets: ServiceNow, Atlassian, Splunk? Pure Speculation

Google Cloud Platform (GCP) certainly is growing, but Amazon Web Services (AWS) and Microsoft Azure have more revenue and are likely growing even faster.

Thomas Kurian, CEO, Google Cloud
Related: Oracle veteran Thomas Kurian succeeded Diane Greene as Google Cloud Platform's leader.

So what should new GCP leader Thomas Kurian do? Pundits speculate that Google parent Alphabet could acquire ServiceNow, Atlassian, Splunk or perhaps Zayo.

Alphabet certainly has the war chest for such deals. The Google parent had more than $100 billion in cash on hand and short-term investments as of September 2018, according to YCharts. And Kurian -- an Oracle veteran -- knows how to acquire, design and/or sell software into enterprise accounts.

At first glance, all the M&A speculation  makes sense. Those first three companies (ServiceNow, Atlassian, Splunk) would give Google Cloud Platform closer ties to corporate IT departments, CIOs and in many cases CISOs. And Zayo would potentially expand Google's data center and network footprint.

But take a closer look at each of those potential buyout targets and you'll see that each potential deal presents Google with potential sales model challenges. Here's a closer look at each potential deal, along with the pros and cons of each business for Google Cloud Platform.

Speculation: Google Cloud Platform Acquiring ServiceNow? Potential Pros and Cons

1. ServiceNow: The fast-growing provider of IT service management (ITSM) software has expanded into HR and cybersecurity use cases.  Subscription revenues reached $627 million in Q3 2018, up 39 percent from the corresponding quarter last year. Roughly 25 deals during the quarter each represented more than $1 million in net new annual contract value, ServiceNow said at the time. In many ways, ServiceNow is disrupting the former CA Technologies, BMC, and other traditional corporate IT management platforms.

ServiceNow’s Tony Beller

But does that mean Google will open its wallet and acquire ServiceNow? I doubt it. ServiceNow's market capitalization as of January 27, 2019 is $34.2 billion, according to Yahoo Finance. Toss in a frothy M&A premium, and the potential buyout price looks overwhelming to me.

Also, ServiceNow doesn't quite fit the "easy to consume" cloud, self-service model that typically fuels Google's businesses. Deploying and properly configuring the ITSM platform can take numerous months, and typically requires lots of IT consulting firms or assistance directly from ServiceNow.

Amid that reality, MSPs and IT consulting firms are buying up ServiceNow deployment partners. Eager buyers include CDWChampion Solutions Group, Coreio and DXC. Bottom line: 2019 could be The Year of ServiceNow Certified Professionals.

Meanwhile, CareWorx Fully Managed is making ServiceNow easier to consume. The company has developed a multi-tenant version of ServiceNow for midmarket IT departments and MSPs. That's exactly what partners and customers need, assuming the approach works as advertised. Google would be wise to study CareWorx's market approach before diving deeper into the ServiceNow market on its own.

Related: All ServiceNow news and analysis on ChannelE2E

Speculation: Google Cloud Platform Acquiring Atlassian? Potential Pros and Cons

2. Atlassian: This is another fast-growing provider of ITSM and team management software.  For its second quarter of fiscal 2019 (ended December 31, 2018), revenues reached $299 million -- up 39 percent from $214.6 million in the corresponding quarter last year. Also, net income was a stellar $45.2 million, compared with a net loss of $64.2 million for the second quarter of fiscal 2018. The figures easily beat Wall Street's expectations.

Atlassian itself has been in M&A mode -- acquiring Trello for project management in 2017 and OpsGenie for incident management in September 2018. But the company hasn't focused much on Atlassian-Google Cloud integration. So I doubt the two companies would jump from a minimal relationship all the way to an M&A deal.

Besides, Atlassian's market capitalization has reached $22.8 billion as of January 27, 2019. Again, that's a big market cap that would deserve a premium in any M&A deal...

Related: All Atlassian news and analysis on ChannelE2E

Speculation: Google Cloud Platform Acquiring Splunk? Potential Pros and Cons

3. Splunk: Here again, Splunk is a fast-growth software company that develops tools for searching, monitoring, and analyzing machine-generated big data. The company's software is increasingly popular for monitoring and investigating business, IT, IoT (Internet of Things) and security data.

Datto CMO Brooke Cunningham

For its third quarter of fiscal 2019 ended October 31, 2018, software revenues rose 49 percent to $325 million, and total revenues jumped 40 percent to $481 million -- though the company continues to lose money while focusing on top-line growth.

Splunk's momentum has attracted 1,600 partners worldwide as of October 2018. The lineup includes global system integrators, distributors, value-added resellers, technology alliance partners, OEMs and managed service providers (MSPs).

Here again, Splunk's momentum has generated a lofty market cap of $18 billion as of January 27, 2019, according to Yahoo Finance. And a reminder, yet again: Google would likely need to pay a lofty premium over and above that market cap to capture Splunk's business.

Related: All Splunk news and analysis on ChannelE2E

Speculation: Google Cloud Platform Acquiring Zayo? Pros and Cons

4. Zayo: The company's stock rose sharply on Friday, January 27. The reason: Both CenturyLink and Google could be looking to acquire Zayo, according to market speculation.

Zayo’s CloudLink solutions provide dedicated, high-performance bandwidth options for largest public cloud providers and other data centers. Also, the company is an early leader in SD-WAN sales, according to Vertical Systems Group.

Zayo has been acquiring assets -- including a Virginia data center around April 2018 and a Colorado data center in September 2017.

Unlike many of the companies mentioned above, Zayo has not been in rapid growth mode. Instead, the company's business has been evolving -- and the company's financial results certainly reflect that evolution.

Zayo's revenue for the three months ended September 30, 2018 was $641.1 million -- essentially flat compared to the corresponding quarter last year. Also, net income slipped to $22.1 million, down about $1.2 million from the corresponding quarter in 2017.

The company's market cap is $6.32 billion as of January 27, 2019, according to Yahoo Finance.

At first glance, acquiring Zayo would not provide the rapid cloud revenue growth that Google craves. But take a closer look, and perhaps there are ways for Google Cloud Platform to gain a greater lift from Zayo -- sort of like a national interstate highway (in this case, GCP) becoming far more valuable when it gains lots of new high-speed onramps (in this case Zayo).

Related: All Zayo news and analysis on ChannelE2E

The Bottom Line

All of the speculation above is exactly that -- speculation. Wall Street analysts are wondering if or how Google can buy its way forward into the cloud market, and thereby close the gap against AWS and Azure (at least in terms of revenues).

But so far, ChannelE2E has not heard any firm, credible reports or rumors about Google actually speaking with any one of these companies about an actual takeover.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.