State of the Cloud 2023 with Bessemer Venture Partners
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State of the Cloud 2023 with Bessemer Venture Partners
- 1. UP NEXT: State of the Cloud 2023 with Bessemer Venture Partners Caty Rea VP Bessemer Venture Partners Janelle Teng VP Bessemer Venture Partners Mary D'Onofrio Partner Bessemer Venture Partners
- 2. State of the Cloud 2023 with Bessemer Venture Partners Caty Rea VP Bessemer Venture Partners Janelle Teng VP Bessemer Venture Partners Mary D'Onofrio Partner Bessemer Venture Partners
- 4. -60% -50% -40% -30% -20% -10% 0% Jan 03, 2022 Jul 04, 2022 Dec 30, 2022 The SaaSacre of 2022 -51.3% EMCLOUD -33.8% NASDAQ -19.7% S&P 500 -9.2% Dow Jones Net Change Source: BVP Cloud Index Jan-2022 Jul-2022 Dec-2022
- 5. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2020 2019 2017 2012 2013 2015 2016 2018 2021 2022 10-Yr US Treasury yield Avg EMCLOUD EV/NTM Rev multiple 10.29x (10yr avg, trailing) 13.09x (5yr avg, trailing) 7.48x (5yr avg, 2012-2017) Source: CIQ, FRED 3.9% 5.7x Major headline of the year: hiking interest rates leading to cloud multiple compression 30x 25x 20x 15x 10x 5x 0x 2014
- 6. Software IPOs came to a halt, and M&As slowed Source: J.P. Morgan, Morgan Stanley $0B $50B $100B $150B $200B $250B $300B $350B 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 AGGREGATE VALUE OF SOFTWARE M&AS $0B $4B $8B $12B $16B $20B $24B $28B 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 AGGREGATE VALUE OF SOFTWARE IPOS
- 7. 2023 started off with more light at the end of the tunnel +25.4% EMCLOUD +31.7% NASDAQ +6.5% S&P 500 +16.9% Dow Jones Source: BVP Cloud Index (as of 8.15.23) Net Change Jan-2023 Mar-2023 May-2023 August-2023 -10% 0% 10% 20% 30% 40%
- 8. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2020 2019 2017 2013 2014 2015 2016 2018 2021 2022 10-Yr US Treasury yield Avg EMCLOUD EV/NTM Rev multiple 10.09x (10yr avg, trailing) 12.72x (5yr avg, trailing) 7.47x (5yr avg,2013-2018) 4.25% 6.6x Macro stabilization also led to multiple stabilization 2023YTD Source: CIQ, FRED 30x 25x 20x 15x 10x 5x 0x
- 9. The IPO window is opening in 2023, and M&A trends from 2022 continue Source: J.P. Morgan, Morgan Stanley, Bank of America $0B $4B $8B $12B $16B $20B $24B $28B 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 YTD AGGREGATE VALUE OF SOFTWARE IPOS $0B $50B $100B $150B $200B $250B $300B $350B 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 YTD AGGREGATE VALUE OF SOFTWARE M&AS
- 10. WHAT ARE CLOUD COMPANIES DOING TO REBOUND? Focusing on efficiency.
- 11. EMCLOUD companies have pivoted to focus on profitability 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 EMCLOUD GROWTH VS. FCF MARGIN Revenue Growth LTM FCF Margin Source: EMCLOUD, CapIQ REVENUE GROWTH LTM FCF MARGIN
- 12. Source: BVP Cloud Index (11.30.21) -20% 0% 20% 40% 60% 80% 100% 120% 140% 160% 40.0x 60.0x 10.0x 0.0x 20.0x 30.0x 50.0x 70.0x 1-Factor R² = 0.34 Growth vs. profitability trade-off is top of mind for cloud CEOs, especially after the market paradigm shift Efficiency Score NOV ’21 IN NOV ’21, AT PEAK MARKET EXUBERANCE… the ratio was 6:1 in favor of growth RELATIVE IMPORTANCE OF GROWTH TO PROFITABILITY: 6:1 2-FACTOR REGRESSION Revenue Growth Co-efficient 39.8 FCF Margin Co-efficient 6.3 EV/NTM Rev Multiple
- 13. 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% TODAY RELATIVE IMPORTANCE OF GROWTH TO PROFITABILITY: 2:1 The ratio is closer to ~2:1 in favor of growth TODAY, 2-FACTOR REGRESSION Revenue Growth Co-efficient 14.7 FCF Margin Co-efficient 8.9 Source: BVP Cloud Index (8.15.23) EV/Forward Revenue Growth vs. profitability trade-off is top of mind for cloud CEOs, especially after the market paradigm shift 1-Factor R² =0.35 Efficiency Score
- 14. HOW DOES THIS TRANSLATE TO THE PRIVATE MARKET? Total Valuation $659B Average Multiple 26x ARR Average YoY ARR Growth 55% YoY
- 15. WHEN ARE YOU AIMING FOR CASH- FLOW BREAKEVEN? Majority of Cloud 100 companies will be profitable by the end of 2024 23% 5% 34% 32% 6% Already Cash-Flow Positive By End of 2023 End of 2024 End of 2025 2026+ Even with slowing growth, Cloud 100 companies have adjusted to the public market’s focus on efficiency: 23% Of The Cloud 100 are profitable today 62% Of The Cloud 100 will be cash-flow breakeven by the end of 2024
- 16. Burning meaningfully less in 2023 Burning slightly more, slightly less, or about the same IMPLIED YEAR-OVER-YEAR CHANGE IN BURN IN 2023 Unprofitable Cloud 100 members 7% 36% 58% Derived from Cloud 100 survey results of CY22 and CY23 burn ranges. Excludes cash-flow positive Cloud 100 members. ~60% of unprofitable Cloud 100 companies meaningfully improved burn in 2023 Burning meaningfully more in 2023 Budget priorities have shifted to adapt to the changing macroeconomic landscape
- 17. After years of defying gravity, the average Cloud 100 growth rate fell to 55% in 2023 60% 65% 90% 80% 90% 100% 55% 65% 95% 100% 100% 110% 120% 70% 2017 2018 2019 2020 2021 2022 2023 Average Top Quartile CLOUD 100 GROWTH RATES
- 18. 9x 8x 11x 13x 23x 34x 30x 26x 2016 2017 2018 2019 2020 2021 2022 2023 Average +278% 2016 to 2021 Footnote: Data reflects trailing twelve months from July of each year Cloud 100 multiples continue to reset through 2023; ARR multiples have fallen 21% since the peak in 2021 (21%) 2021 to 2023 CLOUD 100 MULTIPLES
- 19. Top tactics for Cloud startups to drive efficient growth GROSS MARGINS 1. 1. Negotiate with hosting providers 2. Monitor and optimize cloud usage 3. Improve code to unlock performance and cost improvements SALES & MARKETING 2. 1. Review sales attainment, rep-by-rep 2. Review your quotas and sales comp 3. Clearly define focus on ICP G&A 3. 1. Reduce real estate expenses 2. Negotiate and optimize vendor spend 3. Leverage software and automation R&D 4. 1. Drive product roadmap prioritization 2. Drive engineering effectiveness 3. Create a culture that values ingenuity over headcount growth PEOPLE 5. 1. Freeze headcount for a period to understand impact on the business 2. Leverage zero-based budgeting 3. Streamline overlapping projects PRICING & PACKAGING 6. 1. Experiment with raising prices for new and old customers 2. Consider adding volumetric or tiered pricing components 3. Default to annual upfront prepayments Read on Atlas
- 20. GROSS MARGINS: CASE STUDY SendGrid found seven-figure cost savings by refactoring the most “expensive” pieces of their email infrastructure software To do that, they had to balance two objectives: optimizing costs and developing new features. To execute this, the engineering team: Tactic Improve code to unlock performance and cost improvements around cloud hosting 1. Re-wrote a microservice in a more performant language In another case, the team re-wrote and re-optimized the pieces of an old daemon over a multi-year period 2. 1. Cloud-based email marketing platform processing 130B+ emails per month
- 21. Improving gross margins through cloud cost management CLOUD COST MANAGEMENT
- 22. GlossGenius’s initial success was driven by strong organic evangelism among independent stylists who were often owner-operators of their own business. As GlossGenius continued to scale, it layered on new acquisition strategies, such as referral programs and paid channels, and tracked each channel closely. The north star for GlossGenius: Double down on channels that demonstrate best-in-class LTV/CAC of >3x and CAC payback under 8 months 2. Leading SaaS and payments platform for 60K+ beauty and wellness companies SALES AND MARKETING: CASE STUDY Review CAC at a channel- by-channel level to understand which channels are performing best and shift spend accordingly Tactic
- 23. G&A: CASE STUDY During the macroeconomic pull-back, it was important for Capmo to look at rationalizing SaaS usage Capmo realized 33% savings on strategic contracts and 50% faster time to contract approvals by leveraging a third-party vendor called Vertice for two key use cases: 1. 2. Negotiating proactively with vendors Increasing oversight of applications to identify opportunities for optimization 3. Negotiate and optimize SaaS vendor spend Tactic Construction management software used in 40K+ construction projects
- 24. Rightsizing G&A through fighting SaaS sprawl SAAS OPTIMIZATION SERVICES AND SOFTWARE
- 25. Research & Development best practices: LLMs offer efficiency to every internal function Administrative a. Document/email drafting b. Scheduling c. Task management Management a. Decision support b. Improved communication c. Performance analysis Marketing a. Content creation b. Market analysis c. Campaign optimization Sales a. Lead generation b. Collateral creation c. Forecasting Customer Support a. AI chatbots b. Knowledge base upkeep c. Sentiment analysis Software Engineering a. Code generation/review b. Bug analysis c. Documentation HR a. Recruitment assistance b. Onboarding and training c. Policy management Legal a. Document automation b. Legal research c. Compliance assessment
- 26. Four steps to LLM adoption ANALYZE BUILD Self-evaluation: inner workings of your company & product Experimental action Long-term strategy INTERNAL AUDIT: Look inside - identify departments and functions where AI tools can have most impact 1. BUILD A LONG-TERM PLAN: Consider downstream implications for competition and defensibility (what’s your AI “next act”) 4. REEVALUATE THE PRODUCT ROADMAP: Use first principles and an AI- native lens to assess product roadmap 2. TAKE FIRST STEPS: Choose actionable projects and get busy road-testing capabilities 3.
- 27. 55% of The Cloud 100 have announced generative AI products or features in the last 8 months CLOUD 100 COMPANIES USING AI / ML 65% 5% 30% The relevance of AI in cloud cannot be understated, with AI taking center stage in cloud product development Embedded AI in features to enhance core applications AI-Native Do not use AI / ML in their product
- 28. How Cloudinary’s embedded AI strategy boosts productivity for current users and unlocks incremental TAM Increase customer satisfaction and engagement with AI-powered productivity gains 1. TAM expansion by enabling non- technical professionals to make what used to be developer-grade media modifications 2. NDR multiplier through selling additional seats to adjacent functions (e.g., marketing) 3. OUTCOMES: Cloudinary’s new Generative Replace feature uses natural language prompts to detect and replace objects in photos. Cloud solution for managing digital media assets Founded in 2012 2023 Cloud 100 Rank #81 AI case study Embedded AI
- 29. Databricks’s acquisition of MosaicML to further its platform functionality in AI In July 2023, Databricks completed its $1.3B acquisition of MosaicML, a platform enabling enterprises to create, train, and deploy their own generative AI models < Rapid expansion of Databricks’s generative AI product portfolio, supporting launch of Lakehouse AI (platform for accelerating generative AI model production) 1. Creates a cost-effective, unified platform for customers to manage and analyze data at scale, including for proprietary AI models 2. Further strengthens Databricks’s leadership in democratizing data and AI for its 10K+ existing customers and new logos 3. OUTCOMES: Unified platform for data, analytics, and AI Founded in 2013 2023 Cloud 100 Rank #2 AI case study Acquisition
- 30. How DeepL’s AI-native architecture enables the highest quality real-time language translations for businesses and individuals DeepL uses neural machine translation (NMT) and deep learning to power its hyper-localized language translations < High-quality translations that resonate with native speakers by capturing cultural context 1. High degree of accuracy that earns the trust of business users for cross-border contracts and corporate communications 2. OUTCOMES: 3. Ability to expand product suite to adjacent capabilities beyond translation to sell to new teams – e.g., DeepL Write, PDF translations Real-time AI-powered language translation Launched in 2017 2023 Cloud 100 Rank #100 AI case study AI-Native
- 31. PLUGIN ECOSYSTEM FIN, GPT-4 POWERED CUSTOMER SUPPORT BOT GENERATIVE GRAPHIC DESIGN AI adoption increases productivity as well as product innovation among SaaS players
- 32. REWRITE THE PRODUCT ROADMAP ⎻ Predictable, repeatable sequences of workflow within your product PRODUCT WORKFLOWS ⎻ What do users write or speak after using your app? (e.g. emails, reports) ⎻ Is your app part of a larger predictable work sequence - will an integrated product win? CROSS-PRODUCT WORKFLOWS ⎻ Reading/writing within app ⎻ App-specific language YOUR APPLICATION Look at your product from first principles and rebuild your roadmap
- 33. AI innovation is rapidly evolving FULL STACK MODEL + APP APPLICATION LAYER COMPUTE PROVIDERS DEVELOPER TOOLS AND ENABLERS HORIZONTAL FOUNDATION MODELS OPEN SOURCE AND/OR VERTICAL MODELS Consumer AI-native AI-native SaaS Apps Embedded AI
- 34. Get more cloud resources from Bessemer Venture Partners
- 35. State of the Cloud 2023 Key Takeaways 2. YEAR OF EFFICIENCY Through the macroeconomic market reset, public and private cloud companies have pivoted to focus on profitability 4. AI INNOVATION AI adoption increases not only productivity, but also drives product innovation and new avenues for growth among cloud players 1 . REBOUND IN CLOUD 2023 saw more macro stabilization compared to the sharp market pullback seen in 2022, and the IPO window shows early signs of life 3. TACTICS FOR PROFITABLE GROWTH For founders building in cloud, opportunities to drive efficiency are present across every function The future of the cloud economy will be efficient, and will be heavily influenced by AI
- 36. UP NEXT: SaaStr Fan Fav: The Latest 2023 Napkin Reveal with Christoph Janz Christoph Janz Partner Point Nine Capital
Notes de l'éditeur
- Greetings and welcome to our Annual State of the Cloud Presentation It’s been a strange year to say the least When we checked in last April we were reeling from the rapid collapse of SaaS multiples… SaaS businesses themselves were still performing quite well, with more companies than ever crossing the $100M “Centaur” revenue mark But given the massive crash in valuations and tightening of financing it was hard to argue that the State of the Cloud was anything but gloomy. And a year since has certainly brought more bad news for the cloud than we’ve seen in decades: challenged financings and exits with some notable exceptions, macro headwinds, continued meltdowns in crypto and even in core banking pillars that felt unshakeable. But the beginning of 2023, the SaaS world changed with the launch of Chat GPT. ChatGPT shone a spotlight on the power of large language models to change everything - giving SaaS leaders the biggest opportunity we’ve ever seen to deliver jaw dropping products. It’s like we’re living in the cloud multiverse - despite gloomy daily headlines we have a front row seat to the most exciting wave of change ever to hit the cloud landscape…making us as optimistic about the State of the Cloud in 2023 as we’ve ever been. And we that wave is coming fast, so let’s get started. Today we’ll given and industry update on the public and private cloud market with Janelle and Caty, then dive into case studies on how to drive profitable growth, and then finally how AI innovation is changing the SaaS ecosystem for the better. Let’s dive in!
- Thank you Mary! As Mary mentioned, it is no secret that cloud companies took a drubbing in 2022 in a severe market pullback event that we coined the SaaSacre Within the year, the BVP Cloud index slid down over 50% which was a more marked decline compared to other indices.
- A main driver of the pullback was the external shock of hiking interest rates. Within the year, we moved out of a hyper-low interest environment at record breaking speed, leading to multiple compression and a significant amount of macro uncertainty. Within the year, the average forward trading multiple of the BVP Cloud Index reset below the trailing 10-year average as well as pre-pandemic long-term averages. Beyond multiples, macro instability impacted business fundamentals as cloud companies faced many headwinds stemming from recessionary fears, including lengthening sales cycles and tighter customer budgets.
- With such a bleak macro backdrop in place, SaaS IPOs came to a screeching halt, which was a stark contrast to 2021’s IPO frenzy. Similarly, SaaS M&A activity in 2022 also slowed but remained slightly more robust for several reasons: It was a record year for private equity sponsored deals, especially take-privates And on the strategic side, there were several announcements of blockbuster acquisitions including Adobe’s announcement to acquire Figma which marked the highest acquisition multiple offered for a software company of scale. While that acquisition has not yet closed, this example reinforces that best-in-class cloud companies can command a valuation premium even in tough economic times.
- Suffice to say, conditions were gloomy in the cloud world last year, but things seem to be looking up in 2023. Year to date, the BVP Cloud index is already up over 25% since the start of the year!
- As highlighted, a lot of the uncertainty in 2022 stemmed from changing macro conditions, most notably the rapid interest rate hikes in an attempt by the Fed to curb inflation. 2023 saw more macro stabilization including slowing inflation and the CBOE Volatility Index remained healthy this year. As visibility improves around future macro equilibrium, we’ve seen trading multiples for cloud companies normalize in the range of what we’ve seen for pre-pandemic long-term averages.
- Growing clarity around steady-state conditions has helped to assuage the hesitant behavior in the IPO market that we saw in 2022 and there are certainly more signs of life! Just a few weeks ago, marketing automation cloud behemoth Klaviyo announced its S1 filing, which marks the first pure-play SaaS company to re-open the cloud IPO window since 2022’s SaaSacre. We anticipate that many of the best private cloud companies will follow suit. On the M&A side, similar to what we saw in 2022, activity remained robust especially in terms of private equity-sponsored deals. On the strategic side, a recent megadeal was Databricks’ $1.3bn acquisition of MosaicML, a pioneer in large language model operations, highlighting how companies are making big investments into AI.
- At Bessemer, we’ve partnered with the world’s best cloud companies since the inception of the concept of cloud computing. We fundamentally believe that the cloud model, with its recurring revenue nature, low marginal distribution costs, and strong net-dollar retention dynamics, is perhaps one of the most attractive and resilient business models to be invented. So how have cloud companies adapted in the face of one of the toughest years in the history of the cloud economy? Well, with the markets pulling back in 2022, we witnessed a paradigm shift from the age of excess to the age of efficiency for many cloud companies.
- Within the year, we saw many cloud companies shift their focus toward profitability instead of growth which is visualized powerfully by this chart. Today, the 10 highest valued BVP Cloud Index companies (by forward revenue) are driving an average of ~14% FCF margin, which is double the average FCf margin from the Top 10 cohort a year ago.
- Efforts to drive profitability did not go unnoticed by investors. The market responded to this paradigm shift and cloud leaders that took swift action to boost efficient growth were rewarded for their initiative. Let’s contextualize this into a heuristic mapped to public market valuation sentiment: At the height of bull market exuberance in 2021, a ~1% improvement in revenue growth had the same impact on cloud valuations as a ~6% improvement in FCF margin. So revenue growth was more important from a valuation perspective than profitability by a factor of 6. Today, the tide has turned, and this ratio stands at 2:1 in favor of growth, where a ~1% improvement in revenue growth has the same valuation impact as ~2% increase in FCF margin. So we’ve discussed what happened in the public markets. I’ll now pass it over to Mary to walk us through what happened in the private markets.
- Efforts to drive profitability did not go unnoticed by investors. The market responded to this paradigm shift and cloud leaders that took swift action to boost efficient growth were rewarded for their initiative. Let’s contextualize this into a heuristic mapped to public market valuation sentiment: At the height of bull market exuberance in 2021, a ~1% improvement in revenue growth had the same impact on cloud valuations as a ~6% improvement in FCF margin. So revenue growth was more important from a valuation perspective than profitability by a factor of 6. Today, the tide has turned, and this ratio stands at 2:1 in favor of growth, where a ~1% improvement in revenue growth has the same valuation impact as ~2% increase in FCF margin. So we’ve discussed what happened in the public markets. I’ll now pass it over to Mary to walk us through what happened in the private markets.
- As a guide for what we’ve been seeing in the private markets, I’ll highlight a few key trends we’ve observed in this year’s Cloud 100, the definitive list of the top 100 private cloud companies that we at Bessemer Venture Partners, along with our colleagues at Forbes and Salesforce Ventures, compile each year. As Janelle mentioned, 2023 has been such an eventful year to date, and this has been clearly reflected in this year’s Cloud 100 list. First, with macroeconomic uncertainty fueling shrinking budgets, longer sales cycles, and public market multiple compression, 2023 was one of the most challenging years for private cloud companies in recent memory. As such, this was also the first year we’ve seen the total Cloud 100 list value contract, with the total valuation of all companies in the Cloud 100 at $659 billion, down 11% year-over-year. We also saw the average ARR multiple drop to 26x for companies in the Cloud 100, and average ARR growth decline year-over-year to 55%. I’ll dive into some of these trends in the following slides.
- Despite the slowing growth rates, however, we’ve seen the top 100 private cloud companies scale with strong operational efficiency. Almost one quarter of Cloud 100 list honorees are already cash flow positive, and over two-thirds are forecasting to become cash flow breakeven or profitable by year-end 2024.
- When we focus on the cohort of Cloud 100 companies that are unprofitable, ~60% said that they have meaningfully improved burn in 2023. Only 7% said that they’ve chosen to meaningfully increase burn this year. This again supports the overall trend we’ve seen in both private and public cloud companies, with companies focusing on prioritizing profitability over growth in this macroeconomic landscape.
- On the growth front, after years of defying gravity, we’ve seen the average Cloud 100 growth rate decrease to 55%, down from an average of 100% in 2022. The top quartile companies are growing 70% year-over-year, down from an average of 120% in 2022.
- Alongside declining growth, we also saw the average Cloud 100 ARR multiple decrease yet again to 26x, down from 30x in 2022 and 34x at the peak in 2021. The declining ARR multiples do also reflect the public market contraction we’ve witnessed - at the same time, it’s clear to us that Cloud company fundamentals, supported by the improving trends in efficiency, are more important than ever. For founders who are building in the cloud, my colleague Caty will now discuss the key strategies we’ve consolidated on how to drive efficient growth.
- Thank you Janelle and Mary Increased focus on profitable growth > question for founders is how to apply Accumulated tactics from public and private cloud co’s by major P&L bucket COGS, S&M, G&A, R&D, and Pricing and Packing > Incremental profitability For each major area, explore how BVP portco applied a tactic
- Sendgrid case study Gross margin = ceiling for profitability and big impact on valuation Public cloud companies with gross margins <60% structurally find it difficult to drive over 20% of FCF margin Major driver this past year companies have employed to improve GM is optimizing cloud hosting costs Effective strategy that SendGrid took = improve underlying code to unlock performance and cost optimization. Found 7 figure cost savings by refactoring the most ‘expensive’ pieces of their architecture
- Sendgrid did this themselves but whole ecosystem of cloud cost management software has evolved
- GlossGenius S&M case study Avg public SaaS company spends ~30-40% of revenue on S&M = largest bucket of opex and most important to optimize. GlossGenuis = SaaS and payments for beaty and wellness - honed in on S&M efficiency as it grew Initially, organic growth BUT as they scaled, incorporated inorganic channels. Key was tracking each channel against a north star benchmark GlossGenius = sub 8 month CAC Payback and at least 3x LTV / CAC Double down on channels that hit these metrics Cut those that did not.
- Capmo G&A Case Study G&A = smallest bucket but cost center Variety of ways to optimize like rationaizing real estate footprint, increasing internal function automation or negotiating and reducing software spending Capmo = Munich-based construction software company that successfully leveraged this tactic to negotiate 33% off a few key, large software contracts and increase speed to approval by 50%.
- Capmo leveraged Vertice to do this, but companies can negotiate independently or can leverage a growing ecosystem of SaaS optimization services and software like Vertice, Vendr, Tropic and others to fight SaaS sprawl
- Last bucket = R&D Most fraught - overcutting in R&D can lead to short-term wins but degrade competitive advantage over the long-term. Despite challenges, R&D can be optimized by leveraging engineering efficiency benchmarking tools like Jellyfish or Allstacks and driving product roadmap prioritization by force ranking projects by ROI. LLMs = major way to drive efficiency internally Automating content creation in marketing to code generation in engineering to document review in legal
- We encourage companies to conduct an audit to identity where AI tools could have impact internally, as well as evaluating the product roadmap to see where AI could have a major impact external impact Start deploying AI quickly while building a long term plan for competition and defensibility
- The relevance of AI in the cloud can’t be understated – 55% of The Cloud 100 have announced generative AI features in the last 8 months Within the Cloud 100 cohort, 70% of companies are leveraging AI / ML, generative or otherwise, in their products today. 65% are pursuing an embedded AI strategy, where AI is integrated to enhance features within a core flagship application, while 5% are AI native
- Cloudinary, a cloud solution for managing digital media assets, pursued an embedded AI strategy that enabled the company to expand user productivity and TAM The company released new Generative AI features, such as Generative Replace, Generative Fill, and AI-powered image captioning to enhance the capabilities of its Programmable Media image and video APIs. For example, the Generative Replace feature uses natural language prompts to detect and replace objects in photos. If we look at the image on the slide, a user in Cloudinary can use AI to identify and transform the subject’s black sweatshirt to a white designer suit using a simple prompt: “gen_replace:from-shirt;to_designer_suit.” The outcomes of this strategy are: 1) AI-powered productivity gains for users, 2) TAM expansion through enabling non-technical users to also leverage Cloudinary to make previously developer-grade media modifications, and 3) relatedly creating an NDR multiplier by allowing Cloudinary to reach new user personas and functions, such as marketers
- In July, Databricks acquired MosaicML, a platform enabling enterprises to create, train, deploy generative AI models This acquisition furthers Databricks’s platform functionality in AI, leading to 1) rapid expansion of Databricks’s product portfolio, supporting the recent launch of Databricks’s Lakehouse AI platform, 2) creation of a cost-effective, unified solution for customers to manage the data for their own proprietary AI models, and 3) strengthens Databricks’s mission in democratizing access to data and AI for its customer base of 10K+ logos and beyond
- DeepL is a real time AI-powered language translation platform that leverages neural machine translation and deep learning This enables DeepL to develop 1) High quality translations that resonate with native speakers, 2) Translations with a high degree of accuracy that can be used in critical business settings, and 3) Ability to expand product suite to adjacent capabilities such as DeepL Write
- Adopting AI can drive internal efficiency and product innovation among SaaS players
- Rewrite product roadmap AI not only boosts efficiency but also product innovation To incorporate AI into your product, look at product from first principles and rebuild roadmap
- AI innovation is rapidly evolving
- Thank you all for joining us today We are now happy to open the floor to questions
- Despite a turbulent last few years, the cloud economy is showing early signs of a rebound Re-opened IPO window, renewed focus on efficiency and rise of AI in spurring innovation, but also efficiency within the cloud ecosystem