EC Cloud and Enterprise Infrastructure

Amazon CEO Andy Jassy faces enormous challenges amid falling profits and negative numbers • ZebethMedia

By zebethcontrolPosted on November 11, 2022Posted in Adam Selipsky, Amazon, Andy Jassy, AWS, Commerce, EC Cloud and Enterprise Infrastructure, EC Ecommerce and D2C, EC News Analysis, Enterprise, jeff bezosNo Comments

Amazon CEO Andy Jassy is the definition of a company man. In an age when people switch jobs frequently, he has been at Amazon for 25 years, working his way up to president and CEO. But before he reached the corner office, he helped build Amazon Web Services, its cloud arm, into a $60 billion juggernaut. It wasn’t exactly a rise from the mailroom, but Jassy was there as founder Jeff Bezos’ aide-de-camp when they came up with the idea of AWS in the early 2000s at an executive offsite. He helped build it. He nurtured it. He made it into the crown jewel of the company. So when Bezos announced he was stepping down early last year, it didn’t take long for the organization to turn to Jassy, whose hard work at AWS and his deep understanding of company culture seemed to make him the perfect heir apparent. But things haven’t necessarily gone as planned since he took over the leadership role in July 2021. Much of what has happened has been out of his control. Like many chief executives, he inherited the problems left behind by his predecessor. During the pandemic, Amazon became the general store for the world. People stuck in lockdown turned to Amazon for their goods. The company’s revenues mushroomed and its workforce exploded, with the organization adding an astonishing 800,000 workers, mostly in its warehouses (per The Wall Street Journal). The future was bright, but as Jassy took over last year, people were heading out again. Suddenly, everyone wasn’t buying everything online anymore. As we headed into 2022, other macroeconomic factors began to affect commerce — online and brick-and-mortar — as inflation soared and consumers’ buying power began to diminish. Add to that the higher cost of energy and persistent supply chain issues, and Amazon was suddenly facing some challenges that were beginning to have a serious impact on earnings.

As the economy shifts, what’s the best software customer? • ZebethMedia

By zebethcontrolPosted on November 11, 2022Posted in appian, EC Cloud and Enterprise Infrastructure, EC Newsletter, Matt Calkins, Okta, SaaS, SMBs, Startups, The ExchangeNo Comments

It’s a busy time in tech, with billions of dollars of value incinerated in recent days: FTX is at death’s door, while Twitter, recently sold at a price that no longer made sense once the transaction closed, is either slouching toward insolvency or not, depending on how you vet its new owner’s recent comments. But while there are a great many shiny things vying for our attention, the larger (and more boring) world of B2B software is going through a fascinating year. Recall that when COVID-19 first swept the world, there was doubt that tech companies would perform well. Those concerns were misplaced; as it turns out, businesses of all sizes still needed tech solutions to run their operations, meaning that while much of the economy suffered, tech companies picked up extra momentum. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. The market ran a bit too far with the idea last year, pushing valuations into the stratosphere and betting that a great number of smaller tech companies were the next Microsoft when in reality, the number of truly massive winners in a venture context will remain limited. Regardless, valuations have come down and the growth reported by some public tech companies has decelerated. But looking at Q3 results, it’s not too hard to see elements of strength amid warnings from executives that the economy could remain rather wobbly in the coming quarters. Investors are getting stricter with their marks this year, so we’re getting more granular. Today, let’s peek at some recent tech results — with a focus on gross retention — from companies that sell to big and small corporations alike. We’ll also weave in notes from a chat with the CEO of Appian the other week, as well as some new data from GGV about where SMBs intend to spend. This gives us a modestly well-rounded perspective on where the software market — which accounts for much of the larger tech industry itself — is today, and where it may be heading next year.

Okta CEO opens up about Auth0 acquisition, SaaS slump and Lapsus$ attack • ZebethMedia

By zebethcontrolPosted on November 10, 2022Posted in auth0, EC Cloud and Enterprise Infrastructure, Enterprise, identity access management, Okta, Security, todd mckinnonNo Comments

Okta launched a cloud identity product back in 2009 when most people were locked into Microsoft Active Directory, an on-prem incumbent so entrenched that nobody believed that anyone could touch it. It took a little audacity to go after a giant like that, but Okta took a cloud-first approach, a markedly different strategy from Active Directory at the time. The company raised over $230 million before going public in 2017. It reached unicorn status with a $75 million raise on a $1.2 billion valuation back in 2015 when the designation meant a little more than it does these days. With ownership of the workforce side of the market, Okta decided to make another bold move when it acquired Auth0 for $6.5 billion during the stock market bubble that accelerated in 2020. The idea behind the deal was not simply to own an identity tool favored by developers — although that was certainly a big part of it — it was really about owning another large piece of the market, one that could make Okta a one-stop identity shop. “There’s a very deep divide between legacy and modern in this market.” Okta CEO Todd McKinnon Okta wanted to own both the workforce market, the core of its approach to that point, as well as the customer identity market where Auth0 lived. And Okta made a substantial bet for a company of its size to make that happen. Okta isn’t alone in the identity space; competitors include companies large and small like ForgeRock, SAP, IBM, Ping Identity, Salesforce, Microsoft, and Akamai, among others. Like every other SaaS company out there, Okta has had a rough year in the public markets, down over 80% in the past year (although it was up almost 10% in midday trading Thursday). It also had to deal with an attack spearheaded by the group Lapsus$ that happened in January but was reported in March — and the fallout from its response. Despite these headwinds, the company has big long-term goals to own the cloud identity market and believes it can ride out the current temporary macroeconomic conditions and the legacy vendors to get there. We sat down with CEO and co-founder Todd McKinnon recently and asked him about how he is navigating these times — and the lessons he’s learned along the way. Growing Auth0 McKinnon emphasized that he spent 14% of his stock value at the time to acquire Auth0, a number he knows off the top of his head, because he wants his company to own the cloud identity market, and he doesn’t think he could do it without Auth0. “We bought them to change, and we bought them because we needed change to win this customer identity market,” he told ZebethMedia. “Our strategy is that we have to win both the workforce market and the customer identity market. And the only way we’re going to turn identity into one of these most important platforms for every company is we have to [own] both use cases.” He said integrating two companies like this didn’t come without challenges, and he may have moved too quickly to bring the products together.

Startup CEOs sound off on picking cloud providers • ZebethMedia

By zebethcontrolPosted on November 8, 2022Posted in buildbuddy, EC Cloud and Enterprise Infrastructure, EC Enterprise, EC investor survey, egnyte, Enterprise, monte carlo, StartupsNo Comments

Years ago, there was a price war between public clouds. Back in 2014, to pick one example, Amazon’s AWS cut its prices in response to Google’s recently launched competing service. Since those heady days, the cloud infrastructure market has matured and changed. Sure, AWS is still top dog, with Microsoft and Google working to both snag share from the leader (and one another). But the era of seemingly endless price cuts has been overtaken by a different market narrative: While building on public cloud services is inexpensive to start, it can become far less so over time. That Dropbox made the choice to build out its own infra remains an interesting, if isolated, data point. (ZebethMedia’s coverage from the event back in 2017 is worth your time.) We wanted to get a better vibe for what founders and CEOs are thinking about their public cloud choices, and the strengths and weaknesses thereof. So we got a hold of a few companies that we’re tracking, collecting input from BuildBuddy (early-stage, YC backed, delivering a managed service), Monte Carlo (mid-stage, high-growth, data-focused), and Egnyte (late-stage, profitable, a near-IPO company with a cloud storage and productivity focus) to get a broad view. We surveyed the three founders and included their full replies below. But first, a few observations on their answers. Don’t build alone The number of companies that have built on a public cloud and later went solo is slim. Despite Dropbox managing the transition, and later finding gross-margin leverage in the effort, most companies that build on public clouds stay there. And that appears set to remain the case. The two younger companies we surveyed mentioned the required scale to make such a transition economical. Egnyte’s CEO, the leader of a company that has a history of cloud storage — meaning that surely it has the required scale, right? — mentioned some more modest cases where it may use its own hardware instead of public cloud services. But if Egnyte is still content to use public cloud infra, well, we can presume that nearly every startup is going to stay put as well. Mostly (cloud) monogamous Both BuildyBuddy (GCP) and Monte Carlo (AWS) are single-cloud companies. Egnyte has some workloads on clouds that are not its main, but noted that it is somewhat concentrated. As before, we’re seeing similar answers from each company, size to the side. This is why AWS et al. work with startup accelerators; if you get a company aboard your public cloud when it’s young, you have (nearly) a customer for life.

Cloudflare reaches $1B run rate, promises $5B in 5 years. Investors? Not impressed • ZebethMedia

By zebethcontrolPosted on November 6, 2022Posted in cloudflare, earnings, EC Cloud and Enterprise Infrastructure, EnterpriseNo Comments

Cloudflare, the internet infrastructure and security company, reported earnings on Thursday, reaching a significant milestone. With almost $254 million in revenue, the company is on a run rate of over $1 billion for the first time. Revenue, which was up 47% over the previous year, also beat the street’s estimate of $250.6 million. That win was offset by a third-quarter loss of $42.5 million, or 13 cents a share. Still, Cloudflare posted a much smaller loss than in the year-ago quarter when it reported losses of $107.3 million, or 34 cents a share, per MarketWatch. After earnings, Cloudflare co-founder and CEO Matthew Prince announced that the company set a lofty goal to reach $5 billion in revenue organically within five years. “Even as we achieve $1 billion, we have penetrated less than 1% of our identified market for products we already have available today.” “That’s why we’re confident we’re on the path to organically achieve $5 billion in annualized revenue over the next five years,” Prince told analysts in the earnings call. Prince also pointed out how rare it is for a company to reach $1 billion in revenue. “Only 6% of public software companies achieved this milestone, so we’re proud to have crossed it, but nowhere close to finished,” Prince said. Per usual, the markets treated this news with a kick in the teeth, with the company’s stock down as much as 13% overnight Thursday and down over 18.5% by the close on Friday. But how realistic is the $5 billion goal, given its current situation and predicted revenue for 2023?

Is the modern data stack just old wine in a new bottle? • ZebethMedia

By zebethcontrolPosted on November 4, 2022Posted in cloud infrastructure, Column, data observability, data stack, EC Cloud and Enterprise Infrastructure, EC Column, EC Enterprise Applications, Enterprise, StartupsNo Comments

Ashish Kakran Contributor Ashish Kakran, principal at Thomvest Ventures, is a product manager/engineer turned investor who enjoys supporting founders with a balance of technical know-how, customer insights, empathy with challenges and market knowledge. More posts by this contributor Here’s where MLOps is accelerating enterprise AI adoption Remember the cable, phone and internet combo offers that used to land in our mailboxes? These offers were highly optimized for conversion, and the type of offer and the monthly price could vary significantly between two neighboring houses or even between condos in the same building. I know this because I used to be a data engineer and built extract-transform-load (ETL) data pipelines for this type of offer optimization. Part of my job involved unpacking encrypted data feeds, removing rows or columns that had missing data, and mapping the fields to our internal data models. Our statistics team then used the clean, updated data to model the best offer for each household. That was almost a decade ago. If you take that process and run it on steroids for 100x larger datasets today, you’ll get to the scale that midsized and large organizations are dealing with today. Each step of the data analysis process is ripe for disruption. For example, a single video conferencing call can generate logs that require hundreds of storage tables. Cloud has fundamentally changed the way business is done because of the unlimited storage and scalable compute resources you can get at an affordable price. To put it simply, this is the difference between old and modern stacks: Image Credits: Ashish Kakran, Thomvest Ventures Why do data leaders today care about the modern data stack? Self-service analytics Citizen-developers want access to critical business dashboards in real time. They want automatically updating dashboards built on top of their operational and customer data. For example, the product team can use real-time product usage and customer renewal data for decision-making. Cloud makes data truly accessible to everyone, but there is a need for self-service analytics compared to legacy, static, on-demand reports and dashboards.

6 key metrics that can help SaaS startups outlast this downturn • ZebethMedia

By zebethcontrolPosted on November 3, 2022Posted in Column, EC Cloud and Enterprise Infrastructure, EC Column, EC How To, Enterprise, enterprise saas, growth tactics, SaaS management, StartupsNo Comments

Sudheesh Nair Contributor Sudheesh Nair is CEO of ThoughtSpot, a business intelligence company that has built an intuitive Google-like interface for data analytics. Before ThoughtSpot, Sudheesh was president at Nutanix. More posts by this contributor A blueprint for building a great startup founding team With the economy slowing and businesses tightening their belts, the coming months will be make or break for many startups. Business is shifting from a “growth at all costs” mindset to one that is more measured. This means leaders need to know where to conserve cash, where to target spend effectively and which customers are at risk of churn so they can take proactive steps accordingly. SaaS companies are in a better position than most because they have access to the data that can guide these decisions. They inherently know not only that a customer bought a product, but who is using it, how they’re using it and how often. Management teams should pay close attention to this data for signs of changing customer behavior and watch their sales pipeline for clues about where to target spend and where to cut costs. At a high level, leaders need to understand — before it becomes obvious — if the slowdown this year is affecting demand at their company and where that’s happening. The goal is to pick up on warning signs early and course-correct as you go, and those signs are often hidden in the breadcrumbs. Do you know what your customers are thinking? Not all industries are affected equally, so don’t assume your customers will cut spending this year just because the headlines are bleak. When thinking about metrics for SaaS companies, it’s helpful to look at how current customers are using your product so you can identify areas of concern and take action. You should also read the tea leaves in your pipeline to understand where to cut back and where to invest. Every CFO is looking closely at contracts to evaluate areas for cost-cutting. Only those technologies offering real value will survive, so SaaS vendors need to get ahead of this. Traditional customer satisfaction metrics like NPS are a lagging indicator and will not help you respond quickly enough. Instead, look at the following areas to be more proactive: How much are customers using your product? You can measure usage trends with points of access, number of registered users, volume of queries or some other metric depending on your product. The point is, as a SaaS company, you should not have to guess who is using your product, when, why, how much and if that’s changing. Say you have a customer that logs in and uses your product 10 times a day, and that number hasn’t increased over the last year. It’s a sign they are not adding new use cases and creating new value.

Unicorns face 5-1 odds as they wait for public markets to warm • ZebethMedia

By zebethcontrolPosted on November 1, 2022Posted in battery ventures, cloud, EC Cloud and Enterprise Infrastructure, EC Newsletter, EC venture capital, Enterprise, Startups, VentureNo Comments

Earlier today, The Exchange dug into changing investor sentiment regarding growth and profitability. A new report looking at cloud and software companies from Battery Ventures ran the math on how investors are rewarding faster growth from less unprofitable companies — dare we say, profitable companies? — with the data indicating that, at least for now, growth is no longer enough to maximize corporate value. For startups busy stacking new revenue with minimal burn, the situation is good news. For companies that raised while money was cheap — and sitting on huge valuations predicated on yesteryear’s valuations — the news that profitability is in vogue again is far from welcome. Many unicorns are likely now trapped between changing investor preferences and a general compression of the value of software companies. Why? Because many a unicorn was minted during the 2020-2021 era on the back of quick revenue growth more than anything else. And, as revenue multiples stretched to the sky during that time period, a great number of startups reached the $1 billion valuation threshold — or a multiple thereof — on the back of small, if quickly expanding, top line. If revenue multiples have come down, that’s bad news for unicorns. If revenue multiples have come down and growth is losing comparative luster to profits, high-burn unicorns that were once valued more for something else are doubly bound by changing market conditions. Even worse, Battery points out a few difficult facts about just how many unicorns might be able to go public in the coming years compared to how many unicorns there are in the market today. There’s a lining of good news in the data for truly standout startups. But for the bog-standard unicorn, there’s more than just storm clouds on the horizon. Why is the math bad? In the last 10 years, Battery counts 200 software companies that went public. In contrast, the venture firm counts more than 1,000 new unicorns minted over the same time frame. That’s a 5-1 ratio of IPOs to new billion-dollar companies.

Are investors really paying more for profits than growth today? • ZebethMedia

By zebethcontrolPosted on November 1, 2022Posted in battery ventures, cloud, EC Cloud and Enterprise Infrastructure, EC Newsletter, EC venture capital, Enterprise, Startups, The Exchange, VentureNo Comments

What’s better: growing quickly or making lots of money? The answer, in startup terms, is both. But because there is a natural tension between growth (which usually comes with incremental costs, often in advance of new revenues) and profitability (allowing revenue to further extend its coverage of operating costs), most startups lean more on the growth side of the equation. It’s not hard to understand why. Venture investors provide capital that often greatly exceeds a startup’s revenue base, allowing the company to hire and market aggressively — and build, we hasten to add — in hopes of far-larger future scale at the cost of near-term profitability. The tradeoff between growth and profitability is often detailed in the so-called Rule of 40. Indeed, the rubric that combines a growth metric (measured in year-over-year terms) and a profitability result (measured in percent-of-revenue terms) in hopes of the sum meeting or exceeding 40 has generated derivative metrics for companies of a particular age or segment. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Naturally, the Rule of 40 is not something that applies to, say, pre-revenue startups hoping to raise a pre-seed round. It’s a metric that applies to startups that are generating revenues at a sufficient scale to make the numbers reasonable; no one cares if you can meet the Rule of 40 while tripling your revenue from $1 to $3 per year, but if you are expanding your revenues from $1 million to $3 million per year, the rule is likely something you’ll be measured against. Now that venture markets are in retreat and public markets have been revalued, there’s been some push for startups to change their posture, trading some growth now for smaller deficits. A flight to quality, some call it. We’d call it a rebalancing away from quicker growth and staggering losses toward merely rapid growth and less cash burn. Battery Ventures recently dropped a new report (the “State of the OpenCloud 2022”) that includes some fascinating data on the profit/growth conversation. It’s something that we’ve touched on repeatedly here at ZebethMedia as both venture investors and their public-market cognates have shaken up their valuation models.

Rising energy costs are making the cloud more expensive • ZebethMedia

By zebethcontrolPosted on October 31, 2022Posted in cloud, data center, EC Cloud and Enterprise Infrastructure, energy, EnterpriseNo Comments

Since winter, around the start of the war in Ukraine, energy costs have risen drastically — particularly in parts of Europe historically dependent on Russian fuel. That’s impacted data centers, which aren’t directly reliant on resources like natural gas but which often draw on power grids and backup generators that generate a portion of their electricity using fossil fuels. According to a July report from power generation supplier Aggreko, data center operators in the U.K. and Ireland have seen their energy bills increase by as much as 50% over the last three years, with the steepest climbs occurring within the last year. Fifty-eight percent of those in the U.K. said that energy bills have had a “significant impact” on their company’s margins. It seems inevitable that the energy premium data center operators are being forced to pay will be passed along to customers. Indeed, it’s already happening. Way back in November 2021, Manchester-based cloud services provider M247 hiked prices a whopping 161%, blaming “unprecedented times in the European energy markets.” Cloud providers OVHcloud, based in France, and Hetzner, based in Germany, both recently announced that they would raise prices by 10% in the coming months to combat soaring energy costs and inflation. In an earnings report, OVHcloud told investors that it expects “electricity costs in 2023 will account for around a mid-to-high-single digit percentage of its revenue, up from mid-single digit in 2022,” Reuters reported. In a conversation with ZebethMedia, Gartner senior director analyst René Buest noted that the era of constantly falling cloud prices has been over for some time. (Google Cloud, for instance, increased the prices of its core services in March independent of rising energy costs.) But she agreed that rising costs — and the associated inflation — have accelerated the upward cloud pricing trend.