This new information concerns me. This is only one analyst’s opinion, but I would really like to know if there is anything supporting this (I have not been able to find anything so far). If there is any truth to it, I would find this far from ‘reassuring’(!!) but I agree with your take that this would only portend trouble for Fastly.
I would also like some more insight into how Fastly’s usage based model actually works. I won’t pretend to have much technical insight there, and so previously I have avoided tagging on my own experience of a usage based model on to Fastly, because in truth - I just don’t know how much it applies, if at all.
I work in finance for a Telecoms company, my product is essentially IOT connectivity to the company’s network for Enterprise customers. It is one of the highest growth but smallest areas of the business by far, and I pretty much have financial ownership of growing it (c.£50m revenue this year, 10 year business plan £1bn p/a - 20% YoY growth industry benchmark). We have a usage based model. Last year (when I joined the company), we underwent a migration from various legacy platforms into a single Cisco platform. The unforeseen migration impact was a severe ‘optimisation’ of customers’ data usage - because they could now get better visibility into their SIM estate and deactivate non-optimal rate plans. Great for customers, not for us.
We try and manage this through signing customers onto a minimum revenue commitment, in effect mirroring a subscription based model, while maintaining the usage upside. This protects against the downside risk that seems to be starting to show in Fastly’s model. If indeed that is the case.
Now, we are selling SIMs to IOT devices and connectivity, which runs through a single third party platform. Fastly is signing customers up to its own platform - this is fundamentally different. However, I can’t see how a customer optimising its data usage can be anything but problematic for Fastly, like it has been for us.
I was determined not to do anything with Fastly until I understood the WHY behind their usage drop. This theory would explain why TikTok dropped significantly despite being the most downloaded app in the world in August and I think it could spell a world of trouble if Fastly’s other customers’ usage had been impacted the same way in September. I’m not saying high growth with such an optimisation issue won’t happen, just that it would be much harder while your customers are churning usage simultaneously. There may of course be mitigations against this - namely pricing.
The main reason this new information/theory is so concerning to me, is that it would represent a competitive risk to Fastly. I would much prefer the macro-environment being a cause for the usage drop, as they had suggested was the case in Q2. Because this is impermanent.
As for Cloudfare’s superior subscription model, I would agree that it makes revenue much more predictable. However, would Cloudfare too be affected by competitive pricing from such optimisations? Ie - would they be under pressure to negotiate down their subscriptions.
In summary, I’m not quite sure what to make of it. I don’t want to unduly concern anybody, I am simply sharing my own recent experience in hope it might be at all relevant. I would really appreciate if someone could offer any further insight here.