00:00 Host
IBM will buy data streaming platform Confluent for 9.3 billion in a major bet on enterprise software. Now this acquisition builds on a five-year partnership between the two companies. And joining us now is Jay Kps, Confluent co-founder and CEO and Rob Thomas, IBM’s Chief commercial officer and senior vice president of software. Guys, thanks for being here.
00:23 Rob Thomas
Excited to be here.
00:24 Host
Um Rob, I want to start with you because um as you you guys have obviously made a number of large acquisitions over the years. This is on the larger side of them. Um and so how did you decide that now was the right time to look to a company like Confluent and how are you thinking about what it’s going to bring to the operation?
00:47 Rob Thomas
I think we’re at a unique moment in time with everything happening in AI. Our projection is there’s going to be a billion new applications built using generative AI over the next five years. and that needs a data platform to feed it intelligence. And Confluent is without a doubt the leader in real-time data, how you can connect the data, transport data, and then process data. and they have an incredible track record over 40% of the Fortune 500 today. We think this is the perfect time to bring Confluent into IBM and bring it to the whole world.
01:21 Host
Um and for you, Jake, help people understand a little bit what Confluent does because I think for people who are not steeped in the sort of pipes of how generative AI works, they would think, oh, well, isn’t real-time data just like part of it? But it it doesn’t just sort of magically happen. So talk to me about how it happens.
01:55 Jay Kreps
Yeah, yeah, you could think of confluence is kind of like being pipes, you know, it’s ultimately about how does data flow across the different parts of a company, between all the different applications, how can a company kind of act and react to what’s happening in real time. Yeah, it’s a big deal for a lot of these AI applications because they’re fundamentally about bringing context to data together, you know, in real time to be able to feed these models the right information to make good decisions.
02:30 Host
And Jay, why did you guys decide that now is the time to say yes to IBM um and not remain an independent entity?
02:45 Jay Kreps
Well, I IBM has an incredible track record with open source and with uh acquisitions and really accelerating them. and I think it’s done an amazing job of building an open platform uh for hybrid cloud, for applications around security that has taken these acquisitions and built something that really makes sense for customers. And you know, you know, I think to me and and to Rob when we thought about kind of adding, you know, a layer that was open around data and the flow of data across a company, we felt like, hey, that makes a lot of sense. And when we thought about our customers, that’s what they’re looking for and the problem they have to solve as they think about really harnessing this data for the next generation of AI and applications and development they’ll be doing.
03:41 Host
Rob, um talk to me a little bit about the financials behind this. Um I know you say in the statement that um the acquisition’s expected to accelerate IBM’s growth over time. Maybe you could put a a few more numbers around what exactly that growth might look like. And I also should note, Confluent is now um does not make a net profit at this point. So I wonder what that trajectory is going to look like under IBM.
04:17 Rob Thomas
Confluence is a very successful business. So billion dollars of revenue growing 20%. So we’re very positive about the fundamentals of this. And we also said that this will be creative to IBM’s free cash flow in year two. And so we’re going to look for synergies as we do this, but we’re going to continue to invest more into what they’re doing in R&D because they’ve got the leading product, leading platform in the world for real-time data. And then we’ll look for different opportunities for synergy as we go too. But the fundamentals here are very good. And I’ll tell you we’re impressed by how they’ve moved towards a consumption business model as well. So they’re really hitting clients with the way they want to consume technology, which I think is great.
05:22 Host
So, sorry, so just to get a little bit more specific there on that on that profitability piece. Um the growth and the size of the revenue, um at Confluent, Rob, um totally get that. when you bring it under the IBM umbrella, do you switch, you know, how quickly do you switch that on to profitability?
05:41 Rob Thomas
Well we haven’t changed our our model and our guidance. but as I said, we’ll be free cash flow creative in the second year. So we’re going to be aggressive about thinking about how do we optimize the business model of Confluent in IBM, but we we do that right away, just like we did with Hashi Corp, just like we did with Red Hat before that. We’re really focused on how do we get synergy quickly.
06:12 Host
Um Jay, you guys compete with some of the hyperscalers with your business. Um now that you’re going to be owned by IBM, kind of how does the pitch to clients change or does it not change to sort of reassure them now that you’re owned with a company that competes with maybe some of your clients on some fronts?
06:41 Jay Kreps
Yeah, I mean there there’s some products within, you know, the major public clouds that we would compete with, but there’s hundreds that we actually cooperate with. So we we think about the hyper scalers as partners, you know, our platform connects into many of their offerings and would drive the flow of data and consumption out to many of their AI and data services. And so even though, you know, there’s there’s a handful of products that that we would overlap with and compete with by and large, we see it as complementary and I think that continues as part of IBM.
07:19 Host
And Jay, I’m curious as you sort of visualize what Confluent looks like with IBM, like is there a hero product that you envision, you know, having the two companies coming together that you’re going to be able to offer to to customers?
07:46 Jay Kreps
Yeah, yeah, I I I think the vision um, you know, is is very much an extension of what Confluent has helped uh today, which is to really provide a fabric across all the parts of the company, right? the different clouds that they live in, uh data centers, out on the edge where data can flow in real time that connects all the parts of their business that they can act on, that they can bring intelligence and AI to. You know, this is what we enable. I think we’re now able to do this as part of a bigger story for some of the largest customers in the world. Uh and I think that’s a really exciting thing.
08:35 Host
And Rob, finally, um expect any kind of regulatory um issues with the with getting this deal through?
08:45 Rob Thomas
No, we’re very confident. We’ll go through all the process because we want to do things the right way as we always do, but expect that uh as we said this morning, hopefully we’ll close by the middle of 2026 and then we’ll be off and running.
09:03 Host
I see a red hat behind you. I don’t know Confluent, like what what what would signify a Confluent? Oh you got the you got the logo. I see it.
09:14 Jay Kreps
I don’t have a red hat, but there there is a logo back there.
09:16 Host
Yes.