This is a MUST read for anyone already invested or thinking of investing in Fastly:
It literally is Fastly management presenting to analysts what Fastly’s business is going to do. The story presented is so good, it’s probably why FSLY has shot up in the 3 weeks since. You should read every word, but I’ll pick and choose some of the highlights:
CEO Joshua Bixby started out by talking about a “digital transformation” that is occurring. This is organizations “looking to build differentiation.”
fundamentally, we believe that all of the data that is now transiting the Internet will benefit from a performance scale and security front by using an edge cloud. We believe and we see this with our innovative customers that the most innovative customers have a new architecture. And that architecture involves their code at our edges.
Bixby was asked about legacy CDN providers having flat growth. Bixby responded that I think we are growing faster than 30%, coming from 2 main areas:
• TAM is growing. More content going online.
• Fastly sells to a different buyer.
For the TAM: there’s a new architecture for the Internet. It’s Twilio, and it’s Fastly, and it’s Datadog, and it’s Slack for communication. I mean we are part of a user – a serverless and user-based – usage-based model that we’re seeing come out of this very successfully.
For the different buyer: the traditional content delivery network is an IT product. It sells to an IT buyer [that] is becoming subservient to the developer because organizations aren’t buying differentiation. They’re building it, and they’re putting that in the hands of the developer.
He then addresses the VOD market (one that Limelight concentrates on, for instance):
One of the markets that is sort of overshadows, I think, historically or has overshadowed historically is the video-on-demand market. And this is a highly competitive market. This is a market that’s comprised of Akamai and Limelight and Level 3 and High Winds and Verizon edge cast, and this is a market which you characterized by incredible price compression, very low margins. And price is the dominant sort of artifact. And that’s because much of the content that goes over these networks are very difficult to monetize and increasingly difficult to monetize.
Fastly’s not “really” in that side of the market, and so isn’t exposed to that price compression. Bixby points to posts from Dan Rayburn (see my LLNW post for a link for instance) on that competition. Fastly’s in a different side of the video business, a “very high-value” side, which is live streaming and VOD that actually feels like live.
Bixby describes 4 moats:
Fastly is a programmable edge. Enables the developer to bring their code to Fastly’s edges. Example: NY Times. Not just the article content, but the paywall and personalization. Performance and scale and security.
Unique architecture. Fastly has its own SDN (Software Defined Network). It’s a single network, not a hodge-podge of legacy networks strung together. Bixby gives an example of someone who might have had a secure network for HTTPS and one for HCP and they couldn’t send traffic from one network to the other because of security concerns. It’s also far more efficient: Fastly has 2,500-ish servers in our network. Our largest competitor has 270,000 and we are faster and more performant than they are.
Security in Depth. Again, not a hodge-podge of different technologies from multiple acquisitions needing integration, Fastly has built a toolbox for security developers and security practitioners to allow them to see what is happening in real time in the network and react to it in real time. So our reaction times are measured in seconds and milliseconds.
Customer empowerment. We are a usage-based system. We are like the cloud. So tomorrow night, you have inspiration at midnight, you sign up, you’re online, and our product is available in 30 seconds. All of the documentation is online. You have full access to the product. You can start using it. All of our pricing is available publicly. You don’t have to get a massive professional service organization. Bixby points out that their “largest competitor” was generating 8% to 10% of their revenue from professional services (before they stopped breaking that out). As he put it: the anti-cloud methodologies of the competitors, which is you fill in a form. You call a salesperson. You have to go for a steak dinner. You get a team of professional services people… And professional services is required in order to make any major changes to the product offering
On the Cloud Titans. Fastly’s partnerships with the Cloud Titans “speaks to the sophistication of what we’ve built.” And there’s been some recent posts, which we can’t speak publicly about around that we’re really on the crown jewels of some of these organizations.
Fastly enables customers to easily switch between cloud providers, which is important to them as it helps them negotiate better pricing when the cloud providers know they can easily switch. Fastly also enables customers to have a single security perimeter no matter which cloud is being used.
Then Bixby dives into CDN complexity that is a bit obtuse, but worth knowing as it shows Fastly’s differentiation. He gives the example of the Super Bowl or Champions League Soccer. He admits that with so many eyeballs, no one edge network has the capacity today to deliver it and give you redundancy, so what you’re going to do is find 3 or 4 edges. Fastly would be one of those edges, providing ? to ¼ of the traffic.
But, then there’s the middle tier - topographically speaking, not geographically speaking. The mid-tier provides the content to the edges when the edges don’t have a cache it. Fastly has a separate mid-tier product to provide optimization and shielding. all of these edges actually go back to another Fastly product. And that Fastly product, [for] the Super Bowl, would be media Shield. And the reason we do that and the reason organizations do that is because one of the things they really want their core central cloud to do is to be doing the encoding…
…we can offload almost completely that central cloud from doing any of the serving work. … very strategically important to be in that middle tier on these types of events. That’s a very high-value position.
This is something that’s often overlooked with all they hype about “the edge.” Bixby is saying that CDNs aren’t just about the edge, but in providing a complete content delivery services. Customers provide that content to Fastly once, and Fastly takes care of the rest. Even if multiple edge providers are utilized, it still goes through a Fastly mid-tier product.
This is getting long, so I’m going to skip the section on security in order to get to the CFO Adriel Lares’ presentation, which is of interest to more people here:
Usage peaked in late March due to the lockdowns, but April remained elevated compared to pre-lockdown levels. They do expect a more normal situation starting July 1 … onwards and that’s how they built their guidance through Q4.
Lares was asked about Gross Margins. When Fastly went public, their target was 70%+. They are now around 60%. Improvements are expected from scale: buying more bandwidth will result in better unit pricing (40% today, shooting for 70% like their legacy competitors have). So, size matters.
On markets: We’re in about 55 markets around the world. We think we need to be in about 100, excluding China, to cover the world. I think once you get closer to that sort of critical mass, I think we will begin to see additional leverage in …real estate cost.
There will be further investment in security offerings and they have great expectations for Compute@Edge. These are higher leverage products for Fastly since they don’t need an increase in bandwidth capacity, they’re at the edge.
Fastly expects new, higher margin business as they expand with Compute@Edge and to more customers wanting security.
After reading this, I’m even more excited about my investment in FSLY, and so despite the recent run-up, added some more today.