Okta and Auth0: A $6.5 billion bet that identity will warrant its own cloud

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Okta and Auth0: A $6.5 billion bet that identity will warrant its own cloud

Okta’s $6.5 billion purchase of Auth0 is based on the idea that there will be only a handful of clouds within companies in the years ahead. Identity will be one of those clouds joining functions like collaboration, CRM, infrastructure, HR and communication.

That vision hasn’t played out just yet, but if it does the all-stock transaction that makes Auth0 a unit of Okta will look like a value. Okta estimates that its core workforce identity market is worth $30 billion and Auth0’s customer identity market is $25 billion. With more integration, signals and data, Okta with Auth0 can create new use cases.

On a conference call, Okta CEO Todd McKinnon made the case that Auth0’s developer-first approach to identity rhymes with Twilio’s approach in communications and Stripe in payments. McKinnon said:

We view a world where cloud adoption continues to proliferate and that 5-plus years from now, there will be just a few primary clouds that really matter inside an organization. These clouds might be for collaboration, CRM, infrastructure and ERP, for example. We firmly believe that identity will be one of these primary clouds. Identity is the connected tissue to all of the other primary clouds as it facilitates choice and flexibility while enhancing security and reducing risk in all other technologies.

McKinnon added that Okta wants to be the standard in digital identity and Auth0 can accelerate that plan on many fronts.

Analysts questioned the purchase a good bit on Okta’s fourth quarter earnings conference call. Analysts asked about why run the two companies separate initially as well as the competition. McKinnon said building internal identity systems remained the biggest competitor. However, Gartner’s Magic Quadrant for access management also highlights why Okta bulked up.

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There’s little question that Okta has thrived in the enterprise as it now has more than 10,000 customers, triple the tally from 4 years ago. And those customers are spending more money with Okta amid digital transformation, remote work and zero trust projects. But future growth for Okta required the parts to build out identity as a core cloud on its own. The concept is interesting considering Microsoft is a big rival to Okta but can bundle identity with other applications including Office 365.

So why do the deal now (other than Okta shares make a great currency after a nice run in 2020)? Here are some moving parts.

  • Access management tools are likely to face “cost optimization for IT spending” in 2021, according to Gartner. By acquiring Auth0, Okta creates a larger total addressable market since identity and access management touches everything from security to user experiences and interfaces.
  • Auth0 also gives Okta a way to reach developers and extend its platform. Auth0  has a free plan and then developer versions for the B2C and B2B markets.
  • Okta’s customer base is largely in the US, but Auth0’s revenue is 40% international.
  • Auth0 brings a specialization in customer identity and access management as well as multiple integrations.
  • Okta has expanded into identity and access analytics based on usage patterns. Auth0 will bring new patterns as well as signals to analyze.

Add it up and Okta and Auth0 make a promising pair, but like all mergers there’s what’s in the PowerPoint and then there’s the actual execution. The biggest question surrounding this deal is whether the tech ecosystem ultimately sees identity as an independent cloud.   

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