Okta, a leader in workforce identity and access management (IAM), recently announced that it has acquired the customer IAM vendor Auth0 for $6.5 billion in an all-stock transaction. This announcement came as a shock to many due to its unusual nature. Okta didn’t just acquire its competitor — it paid a huge sum for it. However, it all makes sense when we try to understand what Okta expects from this acquisition.
Both Okta and Auth0 have been competitors and have certain overlaps in the features they offer with their IAM solutions. So, what’s the catch? Both Okta and Auth0 approach the IAM from two very different perspectives. Okta’s solution is workforce-oriented and targets larger organizations looking to provide their employees secure access to their cloud applications, whereas Auth0 is a customer-oriented IAM solution and targets small to midsized businesses and enterprises.
A sweet deal for Okta
IAM platforms aren’t some trendy tech everyone is crazy about, but they are extremely necessary. Most businesses want to offer their customers a seamless digital experience, and since the pandemic hit, it has become even more important to make these digital/remote experiences flawless and secure. Tools like Auth0 help with this use-case by providing a simple API that can be used to securely login to business websites. Okta, on the other hand, helps employees to securely sign in to their cloud-native business applications. In the last year, Okta has seen significant growth as its stock prices have sky-rocketed due to the ever-increasing demand for security.
Before it acquired Auth0, Okta had a valuation of $35 billion. Okta closed the financial year 2021 with a revenue of $800 Million. The IAM market is rapidly growing, and the pandemic has boosted this growth. Okta is among the top IAM solutions in the market, where it competes with the likes of Ping Identity and Microsoft. This acquisition can be the boost Okta needs to have a bigger market presence. Workforce identity management is a $30 billion market, whereas the customer identity total available market (TAM) is around $25 billion. With this acquisition, Okta has access to a $55 billion market share. So, if we look at it this way, Okta is merely paying a fraction of the TAM that it’s looking to penetrate in the coming months.
A win-win for both Okta and Auth0
This kind of acquisition is not uncommon by any means. Usually, when an up-and-coming tech vendor gets acquired, it’s because they have an edge that the acquiring vendor sees some potential in. However, it’s not often that you see so much overlap between the features both the vendors offer their clients. With this acquisition, Okta wants to dive into the customer identity and access management (CIAM) market. Okta has a top-down approach when it comes to how it approaches sales. This means it cares about big enterprises and not so much about the developers themselves. This is a reason Okta hasn’t been doing well when it comes to smaller businesses. The support for developers is quite slow, and some features require a lot of support communication to be enabled. Auth0 puts the developers first, which is why many smaller organizations and developers prefer it over Okta. With this acquisition, Okta has eliminated a big competitor and can now penetrate this new market and keep making the big bucks by offering Auth0 integrations to its existing user base. Okta expects to grow rapidly when the integration with Auth0 is finally completed.
Auth0 will still be an independent unit inside Okta and keep innovating even faster with the financial boost it will get from this acquisition.
Determining factors of this acquisition’s success
The acquisition was announced on March 3 and will not be finalized till July. In the next couple of months, Okta will have to make strategic decisions to ensure this deal’s success. Okta has been in the game for over a decade, but it hasn’t been able to keep up with the constant innovations in the CIAM sphere. Okta will have to leverage Auth0 to provide new integrations with non-IAM solutions like business intelligence and analytical tools to stay relevant in this rapidly growing and constantly evolving space.
Okta will have to come up with a way of integrating Auth0’s user base into its own to grow its revenue significantly. Auth0 makes a recurring revenue of $200 million from its users. However, most of its users rely on the freemium version offered by the vendor. Okta will have to strategize ways to make these freemium users its revenue-generating customers. Another important factor is the move to on-premise and legacy applications. Okta is built for cloud apps and allows employees to securely access these apps. However, trends have shown that most of the IT workload is still hosted on on-premises infrastructure. Okta will have to rely on Auth0 to invade this space and provide orchestration for CIAM.
Integrating with Auth0 will be challenging for Okta because of the contrasting corporate cultures in both organizations. Okta is a sales-driven organization that caters to big organizations, whereas Auth0 is driven by developers’ bustling community. It’s going to be tricky to maneuver these different outlooks as the acquisition continues. Most of the developers and the management team from Auth0 will stay onboard, and it will be critical for both organizations to meet each other halfway to make the most out of this deal.
Since Auth0 and Okta offer similar services to their clients, they have a lot of overlap in features. This can be confusing for customers looking to purchase a singular solution for their IAM needs. In the coming months, Okta will have to eliminate any overlaps and create a singular solution that caters to both the workforce and customer IAM needs.
What’s next for Okta and Auth0?
Both Okta and Auth0 will have a chance to grow together. However, it is going to be a bumpy ride in the beginning. Both organizations can expect several hiccups as they try to integrate into a single entity. The success of this acquisition solely depends on how well these vendors mesh together. To retain existing Auth0 clients, the transition will have to be seamless. However, if this acquisition holds up well in the next couple of months, both organizations will see an influx of new clients. Separately, Okta and Auth0 work on two very different use-cases that can lead to customers either wanting to choose one of the two or going for a vendor that addresses both of these use cases. The two of them together will become a no-brainer with Okta’s reputation in the market as a leader and Auth0’s developer-first approach to IAM.
Still, there’s a long way to go before the benefits of this move are visible. In the meantime, we can look forward to all the announcements that will be made in the coming months that will shed some light on how Auth0 is integrated into Okta’s solution. The IAM industry is rapidly growing, and this acquisition is a sign of how much potential IAM has in the coming years. Together, Okta and Auth0 will be tough competition, and this announcement is bound to have a ripple effect leading to even more innovation in the IAM space.
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