Or you can click on the giant pricing calculator button (for the SaaS) and figure what it might cost.
6 Likes
It is very common for b2b companies to not advertise their price. While companies will always have an idea of what their competitors charge, as soon as you blatantly advertise your rates, you’re setting yourself up to be undercut by $1 by your competitors.
Thus, the “contact us for pricing.” And yes, some will negotiate for better prices depending on their situation.
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Elastic is executing extremely well and they are following a long-term strategy and not really caring about the nay sayers. This is all great and what not.
Like so many growth investments, either you believe management knows what they are doing or you do not.
The MBA’s and numbers people have figured out the revenue and utilization schemes, the product consumption, supply and demand factors, the open source freeby issues, etc., and have sufficiently priced things so as to be the best value in the market and be lucrative at scale for Elastic overtime as cross-selling and customer use of product expansion takes place.
One thing very compelling here is you simply buy one subscription plan and then you can use all the services. Why is this so compelling? There are not additional costs to start using say the APM if you originally bought Elastic for SIEM. So why not use it in lieu of having to pay some third party vendor for the product. It is all in one dashboard.
And yes, Elastic does make more money this way. They get the subscription (that is the same no matter how many different products the customer consumes within the subscription offering) but also the per node and usage intensity fees. The more products a customer uses the more computing usage they have.
On the more negative side this reminds me a lot of a successful, but not nearly as successful as once was thought to be, Akamai. If I even spelled that name right. I have not looked into their specifics in more than 5 years so I have no idea what their pricing model currently is, but it is very likely it is compute intensity usage as well. They have been successful doing this, but I do not recall them becoming world beaters despite this.
So that may be a comparable to examine in regard to this business model to at least get some idea as to pricing power that can be sustained and how competitors may fight back.
Tinker
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Good points 12x and Tinker.
It also gets your sales team engaged on the larger enterprise customers. Some of whom may need to be upsold into training and consulting packages. May need to have help determining the size of the deployment and other needs. Or massaged into landing altogether.
You know, doing sales team stuff.
Darth
https://finance.yahoo.com/news/edited-transcript-akam-earnin…
Here is Akamai’s latest earnings call. Obviously they are not in hyper-growth, something like 7% total growth but their security products are growing at 29% YoY.
In management’s discussion they are talking about amount of traffic over their system so they are clearly billing by traffic. They may also have other licensing or subscription fees, I did not real any further.
Anyways, they have around $3 billion in total revenues, but quite profitable with 78% gross margins and earnings for the quarter of:
Now moving on to profitability. Adjusted EBITDA was $301 million, up $8 million from Q2 levels and up $27 million or 10% from the same period in 2018. Our adjusted EBITDA margin was 42%, consistent with Q2, up 1 point from Q3 2018 and above the high end of our guidance range. Non-GAAP operating income was $208 million, up $4 million from Q2 levels and up $27 million or 15% from the same period last year.
Non-GAAP operating income was $208 million, up $4 million from Q2 levels and up $27 million or 15% from the same period last year. Non-GAAP operating margin came in at 29%, consistent with Q2 levels, up 2 points from Q3 of last year and above our guidance range.
That is a very profitable enterprise, that is now mature, with 7% terminal growth rate, but moving into areas of the “edge” that the CEO mentioned more times than I could count, and security (growing at 29%) YoY.
So not one of the companies we would be interested in anymore. However, in reference to current SaaS companies selling by volume like ESTC is, the terminal multiple the company has been given is quite low despite the high profitability, and the revenues, although $3 billion, are not what one might have expected earlier on. This is possibly because although volumes over their network BOOM (60%+ growth year over year or such this Q) the cost per bit continues to fall at a much faster rate than the growth of traffic leading to pedestrian over all growth relative to the increase in volume.
Does this offer an example or lessons for a company like Elastic that appears to be pursuing a similar sort of strategy?
ON THE OTHER HAND
Cloud titans, unlike Akamai (Akamai is actually a titan itself as it runs its own enormous network to do what it does for its customers), are making BUCK with the same principle of run time fees.
Elastic is more similar to the cloud titans than Akamai, and the cloud titans have found the economics of what they do superior to the economics of what Akamai does.
But a picture of two successful business models, what eventually happened to one very innovative company over 20 years ($14 billion marketcap now, so very disappionting stock returns over the years) vs what the modern runtime business models of the cloud titans (and currently Elastic) have been able to do with superior economics.
Which way will Elastic fall out in the long run?
Tinker
3 Likes
Tinker what you describe with Akamai sounds like they are using the pricing model (traffic) that is similar to Splunk and others. Traffic as in GB/unit of time. That is the model Elastic is trying to disrupt with a data set pricing model. Completely different and never been done as far as I know.
Akamai is a bad comparison unless I’m getting that wrong.
Darth
2 Likes
Thank you for recommending this post to our Best of feature.
Or you can click on the giant pricing calculator button (for the SaaS) and figure what it might cost.
Now this is transparent. Thanks for the link.
Looks like one can get a price quote pretty easily, which lends itself to scalability.
DJ
Cloudflare offers a CDN service, but unlike Akamai, offers it as a fixed cost service regardless of the customer’s data usage. They entered this space as a byproduct of being a web application firewall where all web traffic goes through their servers and the visitor sees the customers website on a cloudflare proxy server.
They created this model because all web application firewall appliances have a fixed cost, so cloudflare did the same for them. The downside is the customer cannot show a real time version of a website and they have issues showing video.
My problem with Elastic entering all these spaces is how they are going to compete with focused companies with more resources to devote into their products. Ie can we ever expect estc to compete effectively with Crowdstrike along with all the other fronts they have such as Datadog and Splunk? Crowdstrike themselves are working to become a platform but leaving it up to the other companies to develop a product that integrates with them.
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I think most people looking at this would say that (more safely) after it shows off the positive results of this move and/or when it becomes clearer if that was a ‘brilliant’ move or not.
Or it could be just another business striving for the sky, fumbling and falling into the forgotten history as many are or will be.
tj