Did ESTC CEO Tout Non-Paying Customer?

Investment Analysis Clubs Saul’s Investing Discussions
1

This has been mentioned a few times in various posts regarding Elastic and interpreted in a somewhat negative context towards Elastic’s freemium offering.

In a somewhat recent earnings call, might have been Q3 2019 or around February 2019, Elastic CEO Shay Banon highlighted a use case of their software.

Well, Seeking Alpha has locked all transcripts past most recent now. Super lame. I can’t seem to find it elsewhere.

So someone can correct me if they know for sure. But I recall it being about an airport in Manchester, UK. Specifically about how they were using Elastic’s new Canvas product to build a customized dash board to view traffic data and security stuff. Canvas provided them a viewing/reporting experience that Kibana(also from the Elastic stack) couldn’t. And they were very happy.

Our analysis goes…But Canvas is provided for free in the Elastic free download. So this “customer” was using a free product and the CEO was touting a non paying customer in an investor conference call, right?

NO.

We didn’t do our homework and instead scratched our heads at this. Here’s the full case study (that I’m 99.9% sure is the matching one).

The relevant quotes:

“After deciding on Elasticsearch as the data storage layer, we needed to determine what data would be ingested and how we would do it. The information was available from a variety of sources. On-premises database systems, files frequently put into AWS S3 Buckets, as well from external API data sources. An example being National Rail data, which we loaded into Elasticsearch using the STOMP (Streaming Text Oriented Messaging Protocol) interfaces…

We started to use Kibana to visualise the data that was available in Elasticsearch hosted in Elastic Cloud, but we couldn’t quite do what we wanted. It felt like a more granular level of control was needed. We came across Canvas by chance, when the Head of BI from Manchester Airport Group and I were at the AWS Summit at London May 2018. We spoke to the folks at the Elastic stand who mentioned Canvas and how they felt it was a better fit for what we wanted to achieve.”

HOSTED IN ELASTIC CLOUD. The data store, Elasticsearch, hosted in Elastic Cloud (on AWS and not to be confused with Amazon Elasticsearch service)). The airport is an Elastic Cloud customer, which ain’t free.

“The dashboards that Crimson Macaw have created for us using Elasticsearch and Canvas have given Stansted Airport a modern real-time display of our data that was previously held in individual systems. This has created a number of efficiencies in our internal processes that would not have been possible before.”

And will be an Elastic customer for good probably. And that’s a good look at what Elastic is. This was while Canvas was still in “preview” status. So probably one of the more important early use cases for the CEO to tout. This is Elastic showcasing a new product that helped land a happy paying customer.

Will they expand use? Tell their airport buddies? Make a presentation at the next AWS or Elastic summit? Will Crimson Macaw use Canvas with their next client to build dashboard applications to meet their needs? Land and expand.

https://www.elastic.co/blog/monitoring-airport-security-oper…

31 Likes
2

Yes, they touted a cool use case that was paying Elastic $0.00. Elastic IR got pummeled about it and stated how many paying customers they have and how fast things are growing. But yeah, their coolest new use case that they thought to promote at the earnings calls was precisely that use case where Elastic was being paid $0.00 and likely would never be paid for it. Will other, larger players pick up the use case and pay for it? Elastic never said.

Tinker

2 Likes
3

Tinker,

The data store for the application the dashboards run on is Elasticsearch. The Elasticsearch is hosted on Elastic Cloud, that’s what I was proving. How much the airport management group pays Elastic is not known as it would depend on the size and number of nodes in use. But they are certainly paying more than $0.00, as the Elastic Cloud is a paid managed hosted service similar to Atlas. Canvas is a tool provided in an update to that managed service. Elastic provides updates to their core with new features all the time. Canvas, mapping, more beats, etc. So does Mongo with ACID, search, etc. These types of updates add to the value, use cases, and stickiness of the platform and provide incentive to choose the service from the real Company, whether it be Mongo or Elastic, rather than a soon to be outdated copycat product from another source.

The consulting company working with the airport made the decision to use Elastic Cloud as the data store for the application they were to build. Due to its ability to ingest data from all of those various disparate sources and then perform search analysis on it. Kibana, the visualization component to the Elastic stack on the Elastic Cloud, was not quite equipped to provide the dashboards to the level of customization they wanted. Thankfully for Elastic, they developed a customization dashboard tool, Canvas, that the company was able to use to provide the desired end product. Had that product not been added to the stack, the project may have moved elsewhere and Elastic would have lost a paying Elastic Cloud customer.

There is nothing negative or unusual about this story. Every software ever made gets updated with new features and more often than not, every new feature does not come at additional cost.

We got the analysis wrong, because we didn’t realize this was a paying Cloud SaaS customer. That’s all.

Darth

21 Likes
4

Elastic (ESTC) CEO Shay Banon on Q3 2019 Results - Earnings Call Transcript https://seekingalpha.com/article/4245060?source=ansh $ESTC

Darth - i have a non-paying account at Seeking Alpha and can always read the full transcriots when using the android mobile app.

Older contributer articles get locked, but not the press release stuff or transcripts.

That is Q3 link and he more or less leads off his prepared remarks with that example.

Nice work going thru the use case…land and expand for sure.

Definitely not a tech/chart wiz but was good to see ESTC start trending poaitively the last few days. Hoping the worst from the lockup pressure is behind them now.

Dreamer

2 Likes
5

Darth,
I appreciate the time you took to write this. Canvas at this time is a free option they released Elastic highlighted not only as a new free product but as a case study that the airport got use out of. This was a big turnoff for me to Elastic. Will have to revisit if Elastic is monetizing canvas because it is very unorthodox for a public company to highlight free products and uses during a con call but if they are indirectly benefiting that changes things. Thank you for digging deeper.

2 Likes
6

I don’t think we got it wrong, IR failed to update us or give us any insight.

1 Like
7

Darth dug deeper so it’s something we all could have done and figured out. I’ve been skeptical of how estc monetizes their product line. They’re just clearly not taking the direct approach MDB is. Both strategies have their merits. One just has more immediate financial results.

4 Likes
8

I see what you’re saying Tinker. We had correct analysis on data that lacked a piece of critical context that IR didn’t provide when asked.

This was something that had many to have understandable put-offness towards Elastic about. My conclusions were the same but it never really bothered me that much I guess, I just assumed that Elastic was telling a story. I only followed up because it was something that bothered many smart people so much we were still talking about it almost 6 months later. Figured I must have missed something. And I did.

Maybe wipe a little bit of smudge off an otherwise pretty shiny reputation for Shay.

Darth

7 Likes