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What's 🔥 in Enterprise IT/VC #197
Understanding data🐶, the importance of entry/insertion point, and why shifting left matters
Developers, Developers, Developers - Q2 earnings from 3 of the leading companies serving devs/dev ops were out this week in Datadog and Twilio, and the prior week in Atlassian. All did not disappoint in terms of growth but expectations were so high, they all took a hit in the stock market- Datadog (📉16.36%), Atlassian (📉3.96%), and Twilio (📉4.41%). Regardless of what public market investors say, I’m still super excited about the future for these and many developer first companies.
Given that, I spent more time this week diving into the earnings transcript from Datadog. As you know, I’m a huge fan of reading and learning from earnings transcripts, and there’s great insight from Olivier Pomel, CEO of Datadog, in terms of the market ahead and opportunity for all things developer related.
First big idea is all around entry/insertion point and distribution. Datadog is traditionally used by DevOps and not developers and they understand that they need to get earlier into a product lifecycle by embedding themselves with developers. This idea of entry and insertion point is so important and also one of the reasons why Microsoft paid $7.5 billion for Github as this is an entry point before choosing a cloud provider and where all of the devs are. This is also why Github paid for NPM as that is an earlier insertion point than Git - you can get developers when they are on their laptop and before they have a need for a version control systems and choose a cloud provider etc. That is also why I’m so excited about one of our stealth investments as well which has over 9k gitstars and growing 😃. Anyway, here is Olivier hammering this point home on the earnings call.
We also acquired Undefined Lab, a provider of observability for dev and test workflows. This will enable Datadog to be injected earlier in the software lifecycle starting before code is even committed to a central repository. And this will equip customers with better tracking of continuous integration and deployment workflows and enable them to identify issues before reaching production.
Yes, so what's very interesting with Undefined is that they focus completely on what happens when developers check their own codes first on their own machine and then to share Naxi ITD process until it ends up being deployed in production. So it's not an area where we've been present before it, we haven't been typically used with developers on coding their machine before they commit anything towards shared. So that's new for us.
All of us to be closer to the developer, closer to the clients in many ways and also allows us to really get extremely high flexibility information for what happens from the time the code is committed to all the way through the release of production.
Second big idea - start narrow with a product, nail it, and become a platform - with a huge existing installed base, Datadog now has the distribution to upsell existing customers and feed them more products - below, Olivier outlines the Datadog product roadmap and aggressive move into adjacent spaces like security, testing, and more.
Next, our platform strategy continues to resonate and win in the market. As of the end of Q2, 68% of customers are using two or more products, which is up from 40% a year ago, we had another quarter in which approximately 75% of new logos landed with two or more products and I would add that over 15% of our customers are now using four or more products, while we had zero last year. We are also very pleased with the uptake of our newest products in a short period of time, with Synthetics, RUM, NPM and Security all released over the last year.
Third - Datadog is a juggnernaut.
We ended the quarter with 1,015 customer with ARR of $100,000 or more, which is an increase of 71% from last year. These customers generate about 75% of our ARR. We have about 12,100 customers, which represent growth of 37% from about 8,800 last year. We also continued to be capital efficient with free cash flow of $19 million. And as in past quarters, our dollar based net retention rate was over 130% as customers increased their usage and adopted on newer products. So we are continuing to deliver high growth at scale.
Finally - July is already pretty robust 😃
Lastly, while we do not want to get into the habit of providing intra-quarter update, I'd like to provide some commentary on what we saw in July. Given the unique macro seconds ended. We saw over the last month, a notable improvement in usage growth relative to Q2, driven by broad-based strength across our customer base.
As always, 🙏🏼for reading and please feel free to share!
👇🏼💯Pure gold - OV Build podcast with Jay Simons, President Atlassian - how to go from $150mm to $1.5 billion in revenue - as I always like to say, founders don’t forget your North 🌠 and it’s clear for Atlassian its the product!
👇🏼💯Sarah nails it with speed and v 1.0 - however, given low barriers to creation in SaaS, while magical is the hook, to get folks to stay on it requires “good enough” on the other features/functionality. What’s clear is this bar is increasing, the bar for 20% of product that covers 80% of feature parity
Another awesome thread from Martin Casado on changing evolution of pre and post sales and what new skills/staffing are needed, esp. for bottoms up or open source companies
When VC money is freely floating and the multiples are at all time highs, it’s no surprise that greed can get the best of some as bad actors start appearing. Here’s the case of HeadSpin (The Information) in the mobile app testing market, last valued at $1.16 billion and forecasted to do $100 million which is only $15mm after an internal audit.
The evolution of the cloud and GCP’s 10 year transformational enterprise deals (Red Monk) - must read as it’s highlighting the top down GCP approach under Kurian (ex-Oracle) and making waves with big wins, particularly in Europe, with Group Renault, Telefonica, Deutsche Bank…
AWS is Products, Azure is Programs, GCP is Platforms – these overarching organising principles shape engineering, staffing and go to market plans. They shape how the companies behave, their responses to customers, partners and competitors, the answer to every question.
New Relic lost its way, getting beaten up by DataDog, and now coming back to its dev first, bottom up roots. Open sourcing agents and changing pricing model. Will it be enough (The New Stack)?
New Relic’s move can be seen as a way to “create customer stickiness,” Clive Longbottom, an analyst for Clive Longbottom and Associates, said. “If New Relic can get others to create modules and integrations using the SDKs, then they extend their reach at little risk to themselves,” Longbottom said. “If they can get a good following, it means that the explosion of new software, such as in the IoT and AI areas can be covered through the open source community, rather than New Relic trying to do everything. Overall, a clever enough move — as long as New Relic successfully monetizes its customer base.”
This is from New Relic’s most recent report in May 2020 but as you can see the annualized dollar based net expansion has taken a huge hit vs. Datadog which last quarter announced 130% dollar based net expansion, consistent with past 11 quarters.
This is a gem from Uber Engineering blog on getting the best of microservices without the overhead and complexity of operating (h/t Gareth Rushgrove, DevOps Weekly)
Power of cloud hosted/SaaS model for Open source projects in Are Cloud Services the Future of Open Source - IMO, yes!
MongoDB Atlas is a prime example. “Customers don’t want to manage and maintain their own database,” explained Ben Wolfson, media relations manager at MongoDB. “Pre Atlas it took us around 10 years to get to $100M in revenue. Since its launch (in 2016), MDB Atlas has become a quarter of a billion-dollar ARR business with over 17,000 customers.”
and here’s why…
But there was also clearly a demand for easier-to-use open source projects. Using most open source projects in a data center is not particularly easy, and involves paying experts quite a bit just to make it work right.
“The biggest thing I see, at companies large and small, is people forget the cost of the staff that’s required to run stuff,” Rosanova said. “People are the most important thing in a company, and they are the most limited asset. The biggest mistake I see people make, especially with the super hot open source technologies or the obscure open source technologies, is that being able to staff that appropriately is expensive.”
Tomasz Tunguz from Redpoint outlines 5 Important Trends in Data, and the One Megatrend Powering Them All - click through for the slides
There is a mega-trend underpinning the changes in data design philosophy and tooling: the rise of the data engineer. Data engineers are the people who move, shape, and transform data from the source to the tools that extract insight. We believe data engineers are the change agents in a decade-long process that will revolutionize data.
Data systems used to be purchased by IT. But in the last 20 years, individual departments started to purchase their own data systems. Each team, using their data systems, develops their proprietary data products: analyses, dashboards, machine learning systems, even new product features.
Great thread on all of the business applications that people hate!
How even old school oil drilling companies like Schlumberger (WSJ) are going remote - every Fortune 500 is a tech company
Olivier Le Peuch, chief executive of Schlumberger, the world’s largest oil-field services company, told investors July 24 that it aims to double the size of its digital business, which includes remote operations, digital inspections in maintenance and manufacturing and other technologies designed to reduce costs. Spokesman Giles Powell called the accelerated uptake “the foundation for a new normal in our industry.”
Schlumberger, which has corporate offices in Paris, Houston, London and The Hague, had drilled 1,250 wells with support from 250 remote engineers in the second quarter. At the same time, it is cutting 21,000 jobs and is shutting down 150 operational sites, engineering and manufacturing facilities and offices globally. Halliburton is closing 100 facilities, and credited a large part of its recent cost cuts to the technological advancements.
LivePerson - Q2 - WOW - One of the OGs of NYC which many don’t discuss -back in 1998 started out as an ASP before SaaS - keeps crushing earnings with market cap at $3.7 billion now with initial vision of live chat on every site with no software installed. Way to go @RobLoCascio
Another monster quarter but stock still down over 4% for week
Easier said than done but food for thought! But this is the essence of building out legendary venture returns which also means having 100% alignment with the founders who want to go really bigSelling winners too early has been a persistent problem for me. No matter how much I tell myself that I am going to learn and let them run - I still begin trimming my winners way too early. Letting winners run is the most common shared trait amongst great investors. Kaizen.