You may have seen the note yesterday from Wolfe Research, initiating coverage of SNOW with an outperform rating. I normally don’t pay much attention to these analyst reports, but their rationalization highlighted a few strengths of the Snowflake offering that I agree with. These included the ability to generate meaningful FCF over time and new tailwinds from the AWS relationship (source of most of the $1.2B in new hyperscaler partnership bookings over the last year).
The most significant highlight Wolfe uncovered was the potential for the Snowflake Powered By program. Wolfe referenced “multiple VC’s” (they spoke to at least 3) that are funding companies to build native data services on the Snowflake platform. If you aren’t familiar with Powered By (https://www.snowflake.com/partners/poweredbysnowflake/), the program allows companies to harness the Snowflake data processing platform to run their data-centric businesses. Snowflake lists a number of current customer examples, including Aladdin by Blackrock and parts of the Adobe Experience Cloud. There is also an observability company called Observe and a security analytics company called Lacework that run on top of Snowflake. Finally, their promotional video highlights the migration of Twilio’s SendGrid marketing product to run on top of Snowflake. Instacart is also a new customer highlight, building their retailer insight product on top of Snowflake. I wasn’t aware of those two.
Participants in the Powered By program not only get access to the data platform, but Snowflake provides additional support through access to technical resources, architectural design and co-marketing. The benefit to Snowflake, of course, is that these companies generate incremental utilization of their underlying compute and storage engine. Consumption of these resources is how Snowflake generates revenue.
I think this is a smart strategy on Snowflake’s part, rather than trying to launch their own products (like consumer marketing, observability, financial services, etc.) to compete with these companies. These companies benefit from the scale and operational efficiency that Snowflake has already built, presumably realizing faster time to market and less staffing than if they tried to spin up their own infrastructure. This is similar to the Salesforce Platform, which allows partners to build CRM adjacent services on top of Salesforce’s infrastructure.
As part of Powered By, Snowflake has identified 5 target market segments for their offering. You can view the white paper at this link (https://resources.snowflake.com/ebooks/the-product-managers-…). It may require a light registration.
Customer 360: Marketing or sales automation applications that benefit from a complete view of the customer. This view is used to drive targeted customer interactions, like email campaigns. With the move to first party data, these capabilities are becoming critical for all retailers to have. Offerings from Twilio SendGrid and Instacart fall into this segment.
IoT: Consumption of time series data from fleets of smart devices and sensors. Advantage to partners is that ingestion, analysis and storage of large amounts of device data requires enormous compute and storage resources. Additionally, data pipelines can be complicated to set up and integrate with data sources. Snowflake has done most of the heavy lifting here.
Application health and security analytics: This one does what it sounds like, with the target usage being observability and SIEM. I don’t think companies building these solutions will displace Datadog, Splunk, Crowdstrike and other established players, but could focus on sub-segments of these markets (i.e. observability of specific closed systems, like cellular networks, fraud detection or manufacturing lines).
Machine learning and data science: Combined with popular machine learning tools (who are technology partners), Powered By companies could build sophisticated prediction services, like product recommendations, retailer optimization, supply chain, vehicle maintenance schedules, etc. While a company could spin up this infrastructure themselves, by using Powered By, users can take advantage of Snowflake’s data sharing and clean room capabilities to minimize data copying.
Embedded analytics data apps: Customers can deliver rich visualizations and dashboards directly from Snowflake’s data storage and processing engine. I think this segment is less about a stand-alone company building a product offering, and more about highlighting Snowflake’s move up into the application stack. Normally, to deliver a data rich application, the engineering team would provision a separate database and app delivery infrastructure. By reducing query times and increasing concurrency, Snowflake is making a case that these data applications could be run directly on top of Snowflake, eliminating the extra hosting infrastructure and data copying. The Streamlit acquisition further supports this move by offering a development framework for building these data-intensive apps. The difference from standard OLTP databases is that the write load would be minimal for these applications.
At the end of Q4, Snowflake reported 285 companies participating in the Powered By program. As we look forward, utilization of the Powered By program could support the durability of Snowflake’s overall revenue growth. It would accomplish this by creating new revenue streams that are separate from their traditional reliance on data warehouse migrations and powering analytics workloads for enterprise customers.
- Peter Offringa (Disclosure: 17% position in SNOW)