Tinker:
Some of you questions were answered in the referenced webcast.
As a brief summary, here is what they said:
Developers are in need of fast response dependabale databases to maximize true user experience. The legacy relational database (ORCL) not been disrupted since the 1970’s. Yet, many developers are comfortable with the basic functionality of relational despite its ever increasing need for more powerful hardware to address the massive volume of data entered into the relational architecture. Those massive hardware needs can require massive and expensive upgrades every 2-3 years as compared to nonrelational that can be run in chunks and on 100’s of servers.
Thus nonrelational may be less expensive to administer with quicker response times and less need for more massive hardware upgrades.
Modern companies complete most often on basis of technology and the database is the core tool used to innovate. Managing data has always been the biggest challenge for companies and Mongo built the database architecture that it would have wanted as a developer.
They contend that Mongo’s solution is the easiest to use, puts data where data needs to be, has fast response times, and can be run anywhere (on-perm, off prem and cloud)…and is least expense vs relational database maintenance.
Company was founded 10 years ago and the first many years were just designing and engineering the database product.
The business model is different than others with a “freemium” version that anyone can use for free. Potential users can tinker with it and become familiar with it before buying. If the customer likes it, they can convert to the commercial product that has a recurring licensing model. Some 30 million downloads have occurred…10 million in just past year suggesting an acceleration in interest for non-relational DB but also in Mongo itself.
They can determine what features are in freemium vs paid versions and are in total control of IP.
Their next phase post engineering has been building up sales/marketing to bring and expand their product to the market.
Mongo Atlas is a “database as a service” offering and is first turnkey hosted version that is fastest growing element of the company…100% customer growth per year. This is a lower price point, lower end customer using a tweeked version of the “freemium” software then hosted by Mongo. They expect Atlas to morph over time with additional functionality and pricing as traction continues to grow. There will be some accounting issues on earnings report related to how/when they record revenue on monthly vs annual basis.
Hence, Mongo may have a bifurcated revenue model with rapidly growing lower end customers that have lower revenue per customer and then the higher end customer growing revenue per customer through land and expand strategies…sounds somewhat analagous to our many discussions of merchant types with SHOP.
They feel there is a $45 billion TAM and Mongo has a long horizon…perhaps the only modern database software that can be considered general purpose and thus complete for that entire pie.
With so many database companies, they feel they standout from the pack in the following ways:
-
because of the large TAM and need for disruption there was a great deal of venture capital raised to try to fill the need in the market but over the last 2-3 years, Mongo has separated from the pack with revenue growth and scale.
-
Mongo software works better for root intensive workloads but it has adapted to a general purpose database that therefore has more global appeal. The various other companies are more niche players and to satisfy a customers needs in general, Mongo would be the best choice.
-
The ability to have transformed its software into a “general purpose” database, they set themselves apart from others such that 30% of their new business is from legacy realtional databases.
-
Companies often need to “standardize” on a database and Mongo offers that ability and importantly, can stand alongside a legacy database with very familiar command usage between the two such that companies have less difficulty learning how to use both.
Regarding their TAM, they note the nonSQL is around $4-5 Billion. They believe they have solved all technical issues that would have been a previous barrier to choosing a legacy database vs choosing Mongo. Hence, they believe they can now compete for all legacy business…an even larger market as stated above.
The last deterrent was the “multi-document” new 4.0 release coming out over the summer…this was the last barrier to using NoSQL in their opinion and this expands their TAM greatly. What this means is that if a customer were building a new database from scratch, there is no reason not to choose Mongo…effective this summer.
They do note that for those who already have a relational database in place, these companies do not re-assess their databases every year…so there can be a longer sales cycle. What drives a potential customer to a new database migration would be:
- Massive new data volumes that slows computations
- Need to innovate
- Adapting to changing marketplaces - cloud, internet, mobile
Their business typically begins with a “new workload” database…and then over time, many of these customers will migrate over legacy databases to standardize on a single platform. So they also use a land and expand strategy.
There are three main drivers to database growth:
- Systems of engagement - new applications
- Systems of record- Financial or HR
- Systems of intelligence - analytical use
Systems engagement is the most common bucket driving Mongo’s business at this time. This category is the “land” and the other two categories are “expands”…they use the example of Barclays Bank in UK when Mongo became their customer access point through mobile when their legacy systems couldn’t handle the massive volume increases from mobile phone access…ultimately all the customer data ended up on Mongo and not the legacy systems.
The question came up as to what specifically drives a customer to transition away from a legacy to a new database…wish they had gone into more detail on this issue because it seems very important to the more massive TAM. He used vague references to business requirement including not being competitive enough and some regulatory requirements.
They mention that CSCO uses them for their order capture system…some $45 Billion in orders annually…mission critical and they chose Mongo. CSCO had previous downtime issues, rigidity and performance issues…all solved with Mongo.
The question was asked as to whether the 30% of revenue from legacy migrations would be expected in future years. The CFO said that this may fluctuate from quarter to quarter but that the general direction is toward NoSQL databases over time.
He breaks down market into the following:
-
The growth of SQL is expected to be some $18 Billion ove next 4 years and they believe they can attack that market (new databases)
-
Growth of NoSQL databases expected to growth 30% annually to $4 Billion in 4 years
-
Legacy displacements ($45 Billion)
Seems to me that the first two are really the lower hanging fruit…still a massive TAM upwards of $22 Billion ignoring any displacements (longer sales cycle).
Keep in mind that their expected revenue run rate this coming year is only in range of $250 Million so they have a huge runway if the investment thesis is correct.
The question then arose on established and well capitalized competitors:
- Cloud providers
Why wouldn’t a customer use use the incumbant cloud provider database solutions (AWS, MSFT, GOOG) instead of a third party? He argues that this would make one a prisoner to that cloud provider whereas using Mongo, one can migrate to any cloud at any time and thus avoid vendor lock-in or even do hybrid or on-prem functions. He also points out that there are large feature gaps between what cloud providers offer as compared to Mongo. He does acknowledge that lower end customers without complicated database needs will just go with hosting cloud.
An interesting aspect of these cloud competitors is that they have been great Mongo partners in the roll out of Mongo’s Atlas program since it uses any of those three clouds and therefore all three have helped fund its growth. MSFT coincidently uses Mongo for one of its databases.
- Legacy providers
He feels that they are just not seeing the “modern offerings” from the legacy players like ORCL in the general market…perhaps this is because they are potential victims of the innovators dilemma??..self cannibilizing their own business. He seems to dispel that these legacy players will be able to offer modern database solutions that can compete as well as Mongo…that was a bit surprising since the stock market generally seems concerned about the threat of ORCL.
Their business model is a pseudo-open source but they control the licensing and IP. 90% of their revenue is from subscriptions and the other 10% from services.
As they make their move into general purpose database market, these are the reasons for running cash deficit:
- R&D costs - they intend to continually improve the software. For example the multi document announcement a few weeks ago was a 3 year engineering effort.
- sales and marketing expenses - they comment how ORCL sales people outnumber Mongo perhaps 100:1 so they intend to ramp up sales efforts.
So in summary…the bull base is:
-
Mongo is a top ranked modern database software engineered to have faster response times, less downtime, less cost, less hardware centric and versatile in the entire landscape of cloud, hybrid and on-prem locations.
-
Mongo has engineered what may be the “only” modern data base for general purpose and therefore may be able to compete for a TAM estimated at over $65 Billion annually with lower to higher hanging fruit being NoSQL ($4 billion), new SQL ($16 Billion) and legacy displacements ($45 Billion). The latter two categories are really mostly accessible after release 4.0 this summer.
-
They are launching a database as a service model through Atlas that may continue to grow in time with price points and volume
-
There is such massive volume growth in data through the cloud and mobile that relational databases seem to be disadvantaged going forward.
Sorry for the long winded post, but I like to refer back to threads in future as I QI my thought processes when deciding to buy, sell or sit out of stocks…so this thread will be saved for future reference.
In full disclosure, I have no position in Mongo as yet…just kicking tires and raising the hood.
