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Why IT Services Giant Wipro Is Snapping Up Appirio for $500 Million

October 20, 2016, 4:58 PM UTC
Inside a Wipro Campus As Worldwide Spending on Information Technology Expected To Grow
The Wipro Ltd. logo is displayed on a glass door at the company's campus in Bangalore, India, on Tuesday, Jan. 28, 2014. Worldwide spending on information technology will grow 3.1 percent to $3.8 trillion this year, with IT services set to climb 4.5 percent, researcher Gartner Inc. forecast Jan. 6. Photographer: Vivek Prakash/Bloomberg via Getty Images
Photograph by Vivek Prakash — Bloomberg via Getty Images

Wipro, a Bangalore-based IT services power with global reach, is buying Appirio for $500 million to raise its profile in business software services.

Ten-year old Appirio made its name helping business customers set up and run popular online applications—first from Salesforce and Google, but then from Workday (WDAY), ServiceMax, and other companies. It has approximately 1,250 employees at its Indianapolis headquarters with offices in San Francisco, London, Dublin, and Jaipur.

Appirio claims brand-name customers including Robert Half, Johnson Controls, Coca-Cola (KO), eBay (EBAY), Facebook (FB), and Home Depot (HD).

Appirio and a few startups jumped into the Software-as-a-Service business model early and have reaped the rewards of that move. Software-as-a-Service (SaaS), is tech industry jargon for software that is delivered over the Internet to customers. Before (CRM) pioneered this category, most companies bought software to run in-house on their own hardware. And they had to deal with all the hardware and software upgrades on their own. The new software distribution model removes those headaches, and most business customers are buying much of their software this way.

That also means there is a different sales and support model that legacy systems integration firms—like Wipro and competitors such as Tata, Infosys, and IBM’s services arm, to name a few—need to adopt.

“Traditional systems integrators have experience with SAP, Oracle, and Microsoft practices. That’s a different model,” explains Appirio CEO Chris Barbin. Those software companies are legacy providers that grew up in the older world of on-premises software deployment. As those software makers adjusted to the new distribution model, so did their service partners.

Generalist companies like Wipro need pre-integrated service offerings, says Constellation Research analyst Holger Mueller. “They understand well the value of ‘ready to use’ service assets.” And that is what specialists like Appirio bring to the table.

About half of Wipro’s revenue comes from business applications. The rest flows from business process outsourcing (BPO) and other work. When this deal is done, Wipro’s existing Salesforce and Workday cloud practices will come under the Appirio brand, which Barbin will continue to run. Wipro’s existing Oracle (ORCL), SAP (SAP), and Microsoft (MSFT) service practices will run separately.

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Appirio was heavily involved in helping customers deploy and use Salesforce’s popular sales and marketing software, and Workday’s human resources product, which prompted some followers to speculate if one of those vendors would buy it. But everything was fine on the surface: the Wipro press release included congratulatory remarks on the deal from both Salesforce chief executive Marc Benioff and his WorkDay counterpart Aneel Bhusri.

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Wipro isn’t the only services giant trying to bulk up its business applications expertise. In April, IBM bought BlueWolf Group, one of Salesforce’s largest partners for a reported $200 million. And just over a year ago Accenture (ACN) acquired Cloud Sherpas, another big Salesforce partner reportedly for $350 million.

Note: This story was updated with analyst comment.