In mid-December, 8,000 developers met up in Seattle for KubeCon, a conference centered around Kubernetes, a popular open source software tool that was originally developed at Google.
It was there, in the densely-packed confines of the Washington State Convention Center, that an old, familiar rumor start spreading: Google would acquire Atlassian, a popular developer software company with a public market cap of over $20 billion. And it would happen soon.
KubeCon came and went, though, and Google did not acquire Atlassian — or, at least, it hasn’t yet.
But at the root of that gossip lies a kernel of truth which tech M&A insiders across the industry said they expect to see play out over the next months and years: Google Cloud needs to make a game changing acquisition if it wants to move beyond its bronze-medal status in the cloud race in which Amazon Web Services and Microsoft Azure have come out so far ahead.
Greene missed on GitHub and RedHat
The biggest sign that change was ahead at Google Cloud came in mid-November, when CEO Diane Greene announced that she would step down from her role. Thomas Kurian, the longtime president of product at Oracle, joined Google Cloud at the end of November. He’s set to take over fully from Greene this month, though Greene will remain on Alphabet’s board of directors.
Greene is a renowned technologist and product expert, known for founding and running VMware, but her tenure at Google Cloud left enterprise analysts and clients feeling less than satisfied.
Specifically, under Greene, Google Cloud struggled to sell to the type of large enterprise customers that pay the bills at the likes of Amazon Web Services, Microsoft Azure, and Oracle.
Alex J. Zukin, an analyst at PiperJaffray, said in a note to clients that chief information officers and partners see Google Cloud as “fantastic technology,” but think it lacks in “maturity and commitment to enterprise sales, services and support.”
Its biggest competitive edge is in artificial intelligence and machine learning, as well as price, Zukin said.
“With this in mind, we would expect Google to become more acquisitive in order to bolster its enterprise credibility and sales capacity, gain developer mindshare, and potentially expand its hybrid cloud capabilities,” wrote Zukin.
During Greene’s three-year tenure as CEO, Google Cloud made around a dozen small acquisitions and acqui-hires, but nothing that shook up the status quo or revamped its business model.
Greene had her chance to expand Google much deeper into so-called hybrid cloud, a specialized market where Microsoft is seen to dominate, through acquiring Red Hat. However, Google lost out on the opportunity, and IBM would go on to announce its intent to acquire it for $34 billion at the end of October.
In the months before IBM’s mega-deal, Greene formed a close relationship with the Red Hat team, Business Insider reported in December. But she struggled to get the support from her colleagues at Google to actually make an offer, a source said at the time.
Instead, Google asked if Red Hat would explore a commercial partnership and a minority equity investment, which Red Hat declined in favor of the IBM deal.
It was the second time in 2018 that Google lost out to a competitor on a major, game-changing acquisition — Greene also reportedly had her eye on GitHub before Microsoft bought it for $7.5 billion back in June. Though the conversations went on for weeks, Google’s bid didn’t even come close, CNBC reported in June.
Kurian was known for M&A at Oracle
Bankers and M&A insiders told Business Insider that they expect to see Kurian make eye-catching deals to set Google Cloud on a more aggressive path, though they warned that with him so new in the role, it might take some time for that to happen.
One reason for this conviction is that Kurian has a strong track record in M&A. At Oracle, he was known for acquiring dozens of smaller companies and turning them into profitable business units, as was the case with its 2004 acquisition of Collaxa.
He also led Oracle’s bigger strategy-shifting acquisitions like its $10.3 billion PeopleSoft acquisition in 2004, and its $5.5 billion acquisition of Siebel Systems in 2005.
“Thomas Kurian has probably has acquired more companies, for the longest period of time, than almost any executives in the software industry,” said Anshu Sharma, the co-founder and chairman of Clearedin, who worked with Kurian at Oracle from 1996 to 2006.
While Kurian’s strategy of sweeping up $50 million startups worked twenty years ago, Sharma said he believes that the industry has changed too much for this to be possible since startups are more expensive now and can live a lot longer on private capital before getting swept up by a strategic buyer.
With that in mind, Sharma said he thinks it’s much more likely that Kurian will make a handful of big deals in his first 18 months at the company. Ultimately, he said, it will depend how much cash Google gives Kurian to play with.
“If I am running Google Cloud, how many GitHubs can I buy for a reasonable price? I think it’s very clear that you need a lot of M&A to jump start that business to be competitive against Amazon and Microsoft,” Sharma said. “Unlike the old days, you can’t buy 20 companies for $2 billion aggregate. Today you’d need 10 to 15 times more money.”
Insiders bet on Atlassian, ServiceNow
While the rumors at KubeCon have yet to come to fruition, industry analysts are a fan of the idea of a Google/Atlassian tie-up.
Joel Fishbein, an analyst at BTIG, wrote in a note to clients Wednesday that he “wouldn’t be surprised if Atlassian gets taken out by a much larger technology company like Google.”
“Atlassian has increasingly become a crown jewel in the software space, and Thomas Kurian’s recent sign-on to lead Google Cloud could signal that more major changes are coming in 2019,” Fishbein wrote.
Acquiring Atlassian would give Google Cloud an in with developers and fill the void left by its failed GitHub acquisition. But that’s just one strategy that folks in the industry see playing out over the next several months.
PiperJaffray’s Zukin wrote that he thinks ServiceNow and Splunk would both give Google Cloud “enterprise credibility,” and that Atlassian and Slack would give Google Cloud “increase credibility and mindshare with developers.”
Out of those, however, analysts at PiperJaffray predicated that ServiceNow is the most likely acquisition candidate.
“[Google] would be acquiring what is arguably (in our opinion definitively) the best assemblage of talent purely focused on selling to the IT departments of large enterprises and eliminates or significantly reduces what we believe the be the biggest hurdle in Google’s aims at gaining market share in the Public Cloud,” Zukin wrote, adding that he could see Google paying between $40 billion and $50 billion for ServiceNow, which currently has a $34 billion market cap.
To Sharma, the answer for Google lies in applications. He sees a future merger between Google and Twilio, which helps developers add phone and texting features to their apps, as well as Okta, the identity management software that enterprises use to manage passwords.
“If I had to pick one company that he should buy, it’s probably Okta more than anything else,” Sharma said.