Splunk today announced it will acquire SignalFx as part of an effort to extend its reach beyond IT operational analytics and into the realm of application performance management (APM).
Valued at approximately $1.05 billion, the deal to acquire an APM platform delivered as a software-as-a-service (SaaS) offering will expand and accelerate Splunk’s overall transition to a recurring revenue model based on cloud services, said Splunk CEO Doug Merritt during a call with industry analysts.
Splunk is currently on pace to generate over $300 million per year from the cloud version of its IT operational analytics platform. Splunk revenues for the second quarter were $517 million, up 33% year over year, with software generating $350 million of that total. However, as Splunk transitions to more of a subscription-based pricing model, the company has some financial management challenges. GAAP operating loss for the company’s second quarter was $87 million. However, non-GAAP operating income was $47 million, even though operating cash flow was negative $129 million. That cash-flow issue is a direct result of the transition away from a perpetual software license model based on the volume of data consumed by the Splunk platform. Overall, Merritt said Splunk is firing on all cylinders and is still on track to have 20,000 customers by the end of its fiscal year.
Merritt said once the deal is approved, sometime in the second half of fiscal 2020, SignalFx will provide a complementary set of services for monitoring legacy monolithic applications as well as cloud-native applications based on containers, Kubernetes and serverless computing frameworks. There are very few customers at this point who have not adopted cloud-native technologies, but for now they remain a small percentage of the overall number of application workloads being managed, he added.
The goal is to provide a suite of services that will enable IT teams to investigate, analyze, monitor and act on data in real-time, said Merritt.
Splunk is already widely employed by internal IT operations teams, many of whom already rely on a complementary APM platform. Splunk clearly expects organizations will prefer to acquire an IT operational analytics platform and an APM service from the same vendor. However, competition between APM platform providers is already fierce. That said, Splunk appears to be counting on increased demand for real-time application monitoring to differentiate SignalFx from rivals.
It’s not clear to what degree Splunk might converge the various services now being provided separately by both companies. It’s also not clear how or whether this deal will accelerate acquisitions of the remaining independent APM platform providers.
In the meantime, Merritt said SignalFx and Splunk’s earlier acquisition of VictorOps, provider of incident management platform based on best DevOps practices, will expand the amount of visibility Splunk has with application development teams.
Ultimately, acquisitions of smaller, DevOps-oriented companies by vendors that today are still more closely identified with legacy ITIL-based IT processes, such as Splunk, are only like to increase. What will be interesting to watch is whether the tools and services being acquired by those companies wind up being the DevOps tail that wags the proverbial ITIL dog.