As Okta announced earnings today after the bell, it revealed that it’s buying cloud identity startup Auth0 for a hefty $6.5 billion. The company had a valuation of $1.92 billion when it raised $120 million led by Salesforce Ventures last July.
With Auth0, Okta gets a cloud identity company that helps developers embed identity management into applications, adding an entirely new dimension to its identity platform. Okta co-founder and CEO Todd McKinnon says the acquisition gives his company broad coverage in the identity space and the acquisition has the power to lift identity to a first-class cloud category along with infrastructure, enterprise software like collaboration and CRM and others.
“There are a few other [primary cloud categories], but one of those has to be identity. And for identity to rise to that status, it has to cover all the use cases. It’s got to be both workforce and customer. So workforce [has been] our [primary] business traditionally, and customer is newer,” McKinnon told me.
The customer piece involves having your customers use Okta/Auth0 on the back end to sign onto your platform, rather using it as just your corporate credentials. Having coverage across both areas is what has McKinnon so excited.
Eugenio Pace, co-founder and CEO Auth0, sees his company together with Okta as powerful combination in the identity management space, and he’s not just hyping the deal when he says that. “Together, we can offer our customers workforce and customer identity solutions with exceptional speed, simplicity, security, reliability and scalability. By joining forces, we will accelerate our customers’ innovation and ability to meet the needs and demands of consumers, businesses and employees everywhere,” Pace said in a statement.
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Pace and co-founder Matias Woloski came from Microsoft where they worked until launching their startup in 2013. As McKinnon points out this is a substantial company with 800 employees. It is expected to reach $200 million in revenue this year.
“So they have this mindset of building a service that is flexible and API-driven and great tools for developers and all the extensibility or customizability, that developers would need. And you can’t do that later, you have to start from the beginning.”
McKinnon says while they share some common customers, there will be net new ones as well and the nature of the two companies coverage areas means that they can sell Auth0 into traditional Okta customers and vice versa. The combined entities could fill in a soup-to-nuts kind of identity offering.
As Pace told TechCrunch’s Zack Whittaker in 2019, it has always been focused on developers:
“We’re not profitable because we’ve chosen to reinvest and continue to sustain the high scale of growth,” he said. “But we are more efficient every day — in the way we acquire customers, the way we service customers, in the way we ship new design capabilities.”
The question is how much this will change under Okta, but Auth0 users can breathe a sigh of relief in that McKinnon says that the company will operate as an independent unit inside of Okta as they look for paths to integration in the coming months. What’s more, McKinnon says he has a relationship with the two founders going back years and it sounds like there is an element of trust there.
Okta had a pretty good quarter too while it was at it, announcing $234.7 million in revenue up 40% year over year, but Wall Street appears to be unhappy with the deal with the stock price down 6.9% in after hours trading.
Auth0 was founded in 2013 and raised more than $300 million along the way. In addition to Salesforce Ventures, other investors included Sapphire Ventures, Bessemer Venture Partners and Meritech Capital Partners.
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