The recent announcement by Google that they intend to buy Apigee is causing a lot of talk around the API management water cooler. Of course, it’s all speculation until the deal closes and nobody in either company is saying anything beyond what’s in the press releases. Just for fun though, let me use the analogy of boiling a frog to make a few points about what I believe to be a likely set of outcomes from this acquisition.
Step 1: Catch a frog
Google really needed to have API management capabilities to go along with their existing API creation capabilities in NGINX and App Engine, if they are to be perceived as a serious cloud hosting platform vendor. APIs are at the core of modern application architecture and digital transformation initiatives, including microservices and IoT infrastructure. The Apigee buy gives them some credibility in this area and is a classic case of market acceleration through acquisition.
Apigee is an attractive frog for a number of companies and the last credible standalone API management vendor that has yet to be acquired (like Layer7, Vordel, 3Scale, and Mashery). Google had to make their move at this time or run the risk of having someone else snap up Apigee first.
Step 2: Cook the frog—slowly!
The whole point of the story of cooking a frog is that you turn up the heat slowly so that the frog is unaware it is being cooked until it’s too late. In this analogy, the frog is the Apigee customer base. This is the part that gets a little murky, because it’s mostly based on speculation, albeit reasonable speculation that seems to be supported by industry analyst viewpoints. The target close date for the acquisition is the end of this year, which leaves a lot of time for Apigee sales reps to fumble around trying to answer some of the more obvious questions their current customers or prospects will have, such as:
- Apigee currently hosts their SaaS service on AWS. Post-acquisition, this will almost certainly require a switchover to the Google Cloud platform and is a non-trivial effort that will be incredibly disruptive to the Apigee customer base. It will also drain resources that would otherwise be working on the delivery of new product functionality. Oh yeah, and the number of access points outside the US for the Google Cloud Platform (GCP) is far less than AWS. Not so good for international customers.
- Google is not a company that sells or supports on-premise software. It is not at all clear that they will want to make an exception for Apigee and build out the processes and infrastructure required to do so, especially when Apigee has an existing SaaS solution that fits wells with the Google business model. It’ll be interesting to see how Google reconciles this basic disconnect.
- The uncertainty and distraction that occurs during and after an acquisition, coupled with the above points, will seriously impact the ability of Apigee to execute the delivery of new features to their customers. This is the part of the story where our frog gets slowly boiled. Why commit to a multiyear investment with the level of uncertainty that exists?
- If you happen to be one of Apigee’s Telco customers, you are probably not going to like the fact that Apigee is part of Google, which is in the Telco business and one of your competitors.
- Ah, but there are other frogs to boil as well. What about SAP, who has a technology licensing deal with Apigee? The product and technology roadmap could very well go in a different direction when it’s being driven by the more complex and interdependent needs of Google’s cloud hosting platform.
Step 3: Consume the frog
Apigee is an enterprise software company, with a direct salesforce, professional services, support organization, and an overall business model built around the needs of enterprise customers. Google is not an enterprise software company and has none of these things. Does anyone really expect Google to change their fundamental business model just because they acquire Apigee? This is an $80M business in a $75B behemoth (about 1% of revenue).
We can apply a simple sanity check to test this rationale. Google is currently estimated to have 4% market share of the $23B cloud platform hosting market, being a distant 4th place behind Amazon, Azure, and IBM. If the Apigee acquisition can increase Google’s market share by just one percentage point, that translates to about $230M in revenue. Deep integration of Apigee into GCP is clearly a much more highly leveraged and cost effective approach for Google to take to generate incremental revenue, as opposed to trying to grow the sales of API management revenue through a direct sales force.
For that reason, I fully expect Google to focus on GCP integration of Apigee, with their highest product development priorities being those things that improve the user experience for their GCP customers and improve their competitive position of GCP in the cloud hosting market. Actually, I will be surprised if the Apigee direct sale force even exists 12-18 months from now.
So there you have it. This is how you boil a frog. It’s pretty clear that the Apigee acquisition is a good move for Google, and if you’re an Apigee shareholder, you’re going to get your payday. The frog in this story turns out to be the Apigee customer, who is looking more and more like the loser in this sordid tale.
That’s okay, they can always talk to us about Mashery—we don’t boil our frogs.