https://fonolo.com/blog/2016/04/twilio-tropo-nexmo-plivo-zan…
Here is an article to get things started. Most articles describe Twilio as the dominant vendor in the field. Note that Twilio developers now number close to 1 million, almost double the reported number in this article.
But I am exhausted and sick, and just playing with another Apple product, so thought i would get this started without too much undue strain.
There is a reason I bought it at the IPO.
Tinker
And here’s an interview Twilio CEO Jeff Lawson did with Jim Cramer on Mad Money yesterday:
http://video.cnbc.com/gallery/?video=3000565278
Matt
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For those who might be interested in Twilio, this article (though dated Back to August) is a great place to start IMO:
http://seekingalpha.com/article/4001944-twilio-catchy-name-m…
A few tidbits of interest for example:
The questions regarding this company are going to be: 1) whether the market will have enough runway to support a company of sufficient size to justify investor interest; and 2) whether the company will be able to maintain its leadership position and continue to charge the premium prices that have allowed its financial model to at least keep profitability within view - although the attainment of non-GAAP profitability is still more than a year away, based on the company’s forecast.
And a few concerns here:
The super-network is one of the significant differentiators and barriers to entry.
One of the leading commentators on this kind of technology is a self-described technology freak who loves writing about the space, for which I am eternally grateful.
At this point, there isn’t all that much in terms of product functionality to choose from between the competitors. The TechGeek says that if a user is trying to economize, they should choose someone other than TWLO. But if money is not a constraint, the expert says to choose Twilio because it is the most popular. Sometimes, when trying to decide on stocks that make sense and those that do not, style and popularity count for more than price and performance, and this may be one of those cases. One of the things about unicorns is that they are supposed to be unique. It would be stretching the definition of the term beyond the breaking point to describe Twilio’s functionality as unique, although whether it has advantages in terms of scalability, features and reliability is hard for this writer to judge.
But my guess is also that the Twilio pricing model is going to be subject to severe pressure and will not be able to stand indefinitely
The premium cost issue has been raised. However, two things (1) Twilio, of all its competitors, is the only network to have never failed even during disasters, and (2) although not as complex as replacing an operating system, you are still writing complicated applications that link to and are made with specific APIs, which creates switching costs that will probably just grow over time.
The premiums we are talking about are pennies, quarter of pennies, that sort of thing.
My concern is that because Twilio largely gets paid per communication, and not through licensing per se, that as we have seen in telecom, that enormous volume growth gets mitigated by volume pricing over time.
This is the primary reason, Ithink, for example, that companies like INFN never really maintain steady growth although they operate in a sustainably long-term growth market with proprietary technology. The technology simply continues to get so efficient that it negates the growth on dollar terms.
I don;t necessarily see TWLO becoming a victim to its “premium” pricing. I am more concerned as to how low premium pricing might become in the future volume wise.
But there is more to this than that, this is just off the top of my head. I will review some more information when I get the chance to follow up on it this weekend.
Tinker
Just a thought. I know nothing of this company.
An even more pronounced metric comes in the form of the short interest. In fact, the bears have been steadily piling against Twilio stock shortly after its IPO. Between June 30 and mid-October of this year, short interest jumped 369%.
http://investorplace.com/2016/11/twilio-stock-twlo-many-thin…
Andy
https://www.twilio.com/blog/2015/04/building-a-salesforce-po…
Disrupting the call center is one of the holy grails of Twitter’s marketplace. It does to VoIP, what VoIP did to the trailer sized equipment of Ma Bell.
This is one future area that this technology will grow into but is barel penetrated at present.
When I look at a company, I necessarily need to do so without being an industry expert, but instead using my talents that involve inference from evidence and life experience. There are things out there, looking at circumstances holistically that enable one to actually get to the truth of the matter, and not just one person’s subjective truth, as politicians, as an example, and practically every corporate CEO, pushes, if they even bother to try to tell you the truth at all.
Twilio is said to have 80% or greater marketshare. They have more developers on their platform than something like the next 5 (or something like that) platforms combined. When you do Google searches researching Twilio you often run into article titles such as “best alternatives to Twilio”. These articles of course do not tell you why you would want an alternative to Twilio, but the fact that they always mention Twilio shows you their market dominance.
Not bad for what some call an undifferentiated product category.
Twilio does not dominate in all aspects of the communication chain. As an example, other companies are better at video communications, for example, or better at some other aspect, but in total, Twilio offers the best product. And although the best product does not always win, it does when all your software developers know how to use Twilio, even if they are also familiar with a competitor, they will always also know how to use Twilio. So Twilio is in every single discussion in regard to use of an API for developing communication software in any app.
I posted much detailed research on the New Paradigm board right around the time Twilio IPOed. I don’t recall all the details at this time, but if you know how to work the search on the Fool, perhaps you can pull it up.
One thing I do recall, is that Twilio has all the markings of a Top Dog,First Mover, in important emerging industry, with sustainable competitive advantage, smart management, smart money backing it, considered overvalued, etc.
The one thing with Twilio is what is it worth. With that in mind, what is MBLY worth? It is all in the future value. At $2.8 billlion minus cash on hand, it is probably worth more than that, albeit, smart money priced it at about half the price last summer…
My concern again is how profits will scale with volume. Cost per bit falls much faster that the volume of bits grow. And Twilio makes money on the number of calls its customers make through its network. Intel, MSFT, ARM, and so many other companies like Oracle, SALES, etc., have been able to use this equation to massive profits, other companies like the INFN’s and global Crossings of the world have had the exact opposite experience living in this equation.
Twilio appears to me to be more of the ilk of a SALES than an INFN in character, but that is my concern.
Other than that, TWLO has the entire pedigree one looks for in a true Rule Breaking market leader.
Tinker
https://getvoip.com/blog/2016/06/01/twilio-alternatives/http…
Two examples as to “alternatives to Twilio.” Plivo seems to be the next best. But not Vonage and Avaya and Cisco have each bought their own API companies. In the hundreds of millions (not billions) of dollars.
This tells me that these big companies could not produce these APIs in house for less than what the acquisitions would cost, nor properly manage the businesses. So this are not just simple code links.
These companies also bought API companies because they are all heavily invested in business communications. They all had to have APIs to supplement their businesses. Vonage is less handware centric, but Avaya and Cisco rely on hardware like Apple does for their businesses. They needed their now API companies to stay competitive in the future.
The first link gives you pricing comparisons. As you can see, Twilio is more expensive than any of its primary competitors. But the marketplace does not seem to care. As you can see, we are talking quarters or 100ths of a penny difference per minute, that sort of thing. These companies are willing to pay $5,000 or more per month just to get priority customer service, so those small differences are not likely to cause huge incentives to switch. Nevertheless, all o Twilio’s competitors must offer discounted rates to earn their own much smaller market share of business.
Technology disruption is presently favoring Twilio with SMS and text messaging as the core products in demand, but that will switch to video at some point. Twilio knows this of course, and they have the most money to be able to acquire the technology or further develop it, but what technology disruption at a time.
If Twilio has to start discounting its rates to maintain business, then there will be business issues, but we seem quite a long ways away from that given how fast the market is growing, and how dominant Twilio is in terms of developer mindshare and product utility (from customer service, to uptime and quality, to documentation, to number of developers trained on the system, to depth of product offering, to R&D, to product evangelism (where Twilio is everywhere developers go, and developers now seek Twilio out at conventions and such).
Tinker
And here’s an interview Twilio CEO Jeff Lawson did with Jim Cramer on Mad Money yesterday:
Twilio is a very interesting company. I appreciate Tinker bringing some information forward for review of which I still need to do.
Apart from any meaningful investing comments, there is one I wanted to make.
I found it interesting in the Cramer video the CEO referenced revenues from his top customers as “just gravy.” To be fair, he was making a point that growth in the customer base of now some 34,000 continues to be rapid and will be in the future presumably showing confidence in their competitive position.
Just found the reference weird to say. It feels like it would somewhat alienate a customer. Maybe he was posturing for upcoming price negotiations? “Go ahead and use someone else or do it in house for all we care! We have plenty of other customers just like you!”
Of course, the above is all conjecture.
Anyway, thanks again to Tinker and others for the info and back to some research.
A.J.
Thanks A.J.
Some more context is needed for the gravy comment. First, TWLO has two types of customers: variable, and contractual. The variable customers have no long-term commitment to the platform, and can quit with no notice.
Of the variable customers, Facebook’s What?(name eludes me now - messaging system that they acquired from Japan) was 17% of their business just 6-12 months ago. So Jim Cramer was correct in not interpreting that statistic as the analyst did. That means that TWLO continues to grow its business rapidly, while its biggest customer, who is a variable (and therefore least dependable type of customer) is now down to a much less catastrophic 7% of revenues, while probably larger in total in regards to gross revenues than they were when they were 17% of the business.
Don’t get me wrong, if Facebook were to stop using Twilio, that would be a material event. Not for the lost revenues, but because it would demonstrate that switching costs were not insurmountable, nor perhaps as great as one might presently presume.
http://realmoney.thestreet.com/articles/08/15/2016/nexmo-acq…
This is a great article that shows how FUD can be created, even though the facts do no bear this out. This is the API company that Vonage purchased. The author talks as if NEXMO is a viable threat to Twilio, and gasp, fear, uncertainty, doubt. But as you read on, Nexmo has about 1/12th the revenues of Twilio. The article, to its credit, does go on to present this perspective, but it does example how dominant Twilio is, and how every other API company is trying to sell itself as to how it can better Twilio.
Vonage here (who I use for my business system. Awesome, $69 per month, down from $550 I use to pay per month with an old fashioned T1 line - to be fair, I also pay another $70 for WiFi now that was included in the $550) was a very large leap in productivity phone service wise. But Vonage stock is in the dumps obviously.
Every investment is speculative. I remember when IBM came out with its own operating system to compete with DOS (don’t know if it was even Windows yet). Yes, the IBM system was superior, but as we now know in retrospect superior was irrelevant, it was the network.
Meanwhile, Apple, with the best product, sat as a small also ran, ran into the dumps by a former soft drink executive, but some how managed to put away $10s of billions of dollars in free cash flow until such time as they could dominate the world again.
So one never knows. IBM scared everyone MSFT related. But none of these competitors are IBM And to also be fair TWLO does not have the switching costs and lock-in that MSFT had. Nevertheless, everyone is still trying to scare us into thinking a better TWLO killer product will be coming.
I don’t believe that will happen until we move to another technological level. It always happens. PCs killed mainframes, broadband killed AOL who was king of dial-up, Google hurt EBAY, internet and mobile killed (but MSFT resurrected itself) Microsoft and created Apple, etc. It takes a new technology paradigm to replace the former dominant player. And it will be here sooner than we think. The key is to watch and make sure Twilio has already gotten there in a dominant fashion or not.
Tinker
Great post Tinker and thanks for the clarification on variable versus contractual customers.
You were right there. The name of the large variable customer you were thinking of is WhatsApp, owned by FB.
Take care,
AJ
Tinker,
I see their shares that are locked up are free in December. Also I see that, although they just became public in june, their growth has been impressive. They are growing users Sequentially and they beat their own guidance last quarter. But, of course, there isn’t a lot of information on this company yet.
Do you have any idea why the stock price has come down to almost their IPO price? You have given some great information to the board.
Andy
The price has come down because the company rushed out a secondary offering on which the company only gets $50 million and insiders (largely the venture capitalists) get over $400 million, and they priced it at $40 a share when the share price was closer to $60 a share, having recently peaked at $70.
The decision was made that the offering price had to be made at a substantial discount to what the them share price was.
No better indicator that the shares were overvalued and the downward stampede ensued as fast as the upward stampede occurred (if not faster).
So the share price volatility is technical, supply, demand, and that sort of thing.
At the current share price the primary concern, once we get past all the technical supply demand issues and start trading on mostly fundamentals is whether or not long term TWLO will become just another telecom commodity provider undifferentiated as Verizon is to Sprint sort of thing, or whether Twilio’s platform will continue Ronne the distinct go to solution w market leading premium and power.
I just read an article regarding the future 5 to 10 years from now when even all our devices are connected and we are a much more Uberized world. Where your refrigerator calls the repairman, or the vending machine calls the supplier needing more product or maintenance.
In that world the machine needs to message a person. Each such device will have an app needing a Twilio like messaging solution. As an example. Enormous volume there, but one might assume volume discounts will be required.
On the other hand call centers will be adapting APIs en Massey and this is a premium product.
ARMH is everywhere. Will TWLO be everywhere, paid a toll for each communication?
Wind River was once suppose to be everywhere with their market leading proprietary embedded software. But open source killed them, so they jumped on the on the open source bandwagon and sold out at good value eventually.
So examples going both ways as I think WIND and ARMH are two excellent analogs.
Tinker
. Will TWLO be everywhere, paid a toll for each communication?
Tinker:
What is the most succinct list of reasons why this should be especially with regards to any barriers to entry or moat?
The article I linked does question their lock on technology other than the data centers and the pricing pressure seems a real concern especially since many of their customers have serious technology prowess and seem more than capable to launching their own product if this became profitable or alternatively, as the article suggests, if Twilio costs became too onerous.
Possibly because even more so than ARMH Twilio is the “nice” Gorilla.
As I said look to ARMH look to WIND. two analogs. Arm did great WIND did not do great. Both were toll takers w proprietary technology. One remained that way the other lost to commoditization.
Cisco bought its own API company for hundreds of millions of dollars instead of in source it, as did Avaya, as did Vonage.
Not something that can just be replicated. Sure, perhaps the wholesalers will commodities the market. Perhaps other factors will as Denny likes to say, make a path determinate market where the runaway market leader, and they got that way for a reason, will continue to provide that value through the power of their network of people and whole product solutions that are created that cause path determination.
Heck, Netscape was toppled rapidly when MSFT began giving it away.
There is real value in standards here, and not having 10 different API vendors complicating your IT. Imagine needing TWLO and CSCO and AVAYA and Broadband and multiple vendors w proprietary solutions in your company? No thank you!!!
There is presently no open source competition, but there is real good reason to standardize.
AVAYA and Cisco are protecting their call center hardware businesses that APIs can disrupt. App developers will be competing directly against these companies in delivering apps. Twilio does not compete against App developers.
Anyway, gotta hit the showers but that is my thought experiment in regard to why this will be a standards based model and not become open source or not be dominated by say Cisco.
Now behemoth AMZN…but they’d be more likely to just buy TWLO. But AMZN is not protecting its legacy hardware cash cows, but is enabling the future. Amazon yes…but they are not in this business now as too small for them to bother just like Shopify’s business was too small to bother with as well.
Actually I am always convincing to myself ;).
Tinker
I agree with you Tinker. It would be most likely Amazon or Google or maybe FB that would take them on, probably buy them. Cisco and Avaya are going to be disrupted in the Enterprise solutions. They cant give up the hardware and disrupt themselves so they will never win the Api war.
Andy
http://finance.yahoo.com/news/edited-transcript-twlo-earning…
I have just started reading the earnings transcript for Twilio. I once use to eat these things up, but I am now far too busy (or just too old and prefer spending my free time drinking beer and watching Sling in my man cave - oh so comfy here) to eat them up anymore.
The only point I am making so far from this transcript, as so much of it is just programmed optimism and PR is to read between the lines of just how enormous these markets are, and how complicated they actually are to implement.
In particular read about the two new products that are in beta this quarter for Twilio, as examples. Lawson talks about a few other enterprise products on the prior page. But developers and vendors just will not be able to use more than one platform in its products. The complexity would be unmanageable. We need the Twilio customer service, we need the Nexum customer service, do we need the Twilio or the Cisco software expert…
These are mission critical in many respects (as an example the Uber and BandB applications are). There could be some mixture of platforms, as long as a clear distinction is made that is easily identifiable. But it would be unmanageable to just pick and choose platforms and mix them all in.
But you get the sense of the immensity of the future here. How this will simply redo nearly our entire communication infrastructure over the next decade or two.
Of course not discussed here, is that Twilio will of course have to deal with disruptions themselves, as things like phone numbers might become less critical, as an example, and that is one of Twilio’s key products.
But it is potentially very exciting, and clearly a Rule Breaking company. they of course don’t all work out, but this one has every pedigree.
But not pushing the stock. Just my interest in the company (long term) and pointing out just the two new beta products as an example of the depth of product offering that Twilio will provide as the focused market leader. This will not be easy for competitors to keep up with and match.
Tinker
Sorry - this post is somewhat tangential to the topic and it’s long.
Great thread, and great posts in particular Tinker.
But I will take issue with one of your comments. It takes a new technology paradigm to replace the former dominant player.
No, it doesn’t. I have more than a little experience in this arena (although admittedly somewhat dated since my retirement in 2010, but certain “management think” patterns change at iceberg rates). As a former Enterprise Architect in a Big Aerospace company, I have been through more than one technology change battle. These are always bloody affairs fraught with high emotion among the tech staff. I’ve actually witnessed long standing friendships dissolve over technology arguments.
Typically, the tech staff falls into three groups whenever a technology change is contemplated: 1) The old guard, meaning whatever the current dominant embedded technology is, we shouldn’t mess with it. There is a powerful argument here. There are always switching costs. Even if the technologies are very similar there’s still training required, in a big company, that can be hundreds of people, maybe more. There is the slow-down in development activities as the staff comes up to speed. There is a mountain of analysis regarding which legacy systems should be converted versus just left alone as nearing end-of-life and not worth the conversion effort, and of course there is a mountain of conversions. I could go on, but you get the idea here.
This group are the torch barriers in the tech staff for the new technology. Typically, these people are part of the brain trust, but a lot of them may be relatively recently hired, so while they generally are very familiar with all the geeky details of both technologies (as they’ve had in depth experience with both), they don’t understand company culture and politics. They can ruffle more than a few feathers of some influential birds. Why these folks seem to uniformly lack tact we can leave for another discussion. Their primary task is to find one or more well placed advocates to champion the new technology.
Then there’s the group who don’t like either technology and strongly feel that if a transition is to be made it should be something other than the alternative under consideration. These folks make noise from the sidelines, but seldom have much influence.
But here’s the deal. Techies don’t usually make purchasing decisions. Techies make arguments pro/con, but not the final decision. Management does.
And management in a company not focused on IT (like aerospace) tends to lack the knowledge to understand the technical arguments anyway. They look at three things: 1) Assurance that the replacing technology will actually do the job. 2) Cost savings (ROI), payback period (hockey-stick), and other financial factors, 3) Long-term viability of the vendor - the last thing an aerospace company wants is to be forced to buy an unrelated IT vendor just to keep them in business. And now, more so than the in the past, I’ll through in security as a fourth factor.
Management can be relied upon to ignore most if not all the fine point arguments being made by the tech staff because they don’t understand them anyway. If they can be convinced that the replacing technology is sound, the financial argument is strong and the vendor is on solid ground (and security concerns are addressed), the financial argument wins every time.
One other thing I’ll throw in is that if the primary product of your company is large tubular vehicles that fly, the management is pretty much hostile to spending money on any technology that does not directly support the core design/build/support mission of the company.
At one time, where I worked management compared the IT budget (cost) to the cost of producing one of their major products. They concluded that IT costs consumed x% of the product - and without further analysis it was a foregone conclusions that it was too much (I asked might it not be enough instead? This question was not warmly received).
All the IT “middleware” (i.e., databases, networks, coding languages, security s/w, configuration and change management s/w, etc.) is considered a necessary but highly resented cost. And if your company builds anything but software as their primary product, the management tends to abhor spending money on intangibles. You can touch a boat or plane or weapon, you can’t touch a database. Except for a very cases, all of IT is considered a “cost center” and the only thing to do about cost is to try to make it smaller. It goes back to the simplified enterprise formula:
P = TR - TC (Profit = Total Revenue - Total Cost)
Just for example, let’s say your an Oracle Shop. And then an argument is made to swap out to SQL Server. OK Battle lines are drawn, don’t forget the third group, probably rooting for open source MySQL. If anyone thinks this is a straight-forward, cold analysis to be won on the technical and financial merits alone you couldn’t be more wrong.
This is the reason I am very reluctant to invest in CyberArc or any security s/w product. And as intriguing as Twilio is, I’m reluctant to put money into it. When it comes to IT, management does not care about who has the best mousetrap, they care about who has a stable company with an adequate mousetrap at the lowest cost - almost always. But, making the case that is persuasive to management is not easy.
Brittlerock,
One thing that makes everyone move is when technology jumps. Just like when communications went from Analog to Digital, it is now going to ethernet. I am not talking about company lans but the whole communications world is moving from TDM to Ethernet. So with that being the case many people will be forced to move to a new technology because all of the old PBX’s and Key systems will no longer be supported. With this being the case Twilio may have a chance to disrupt some of the old guard. I am going to watch the growth of revenue and the number of new customers. As long as those keep growing at large leaps it should be doing good. Customer growth YoY last quarter was 70%, Revenue growth last quarter was 62% YoY. Seems like they are doing something right, at least for now.
Andy
Brittlerock,
When it comes to specific technologies on lets call it the “tactical” level I agree with you. PASCAL is still relevant in many legacy systems as an example. My mother never got rid of her rotary phone stuck to the wall.
However, I am talking about real strategic, paradigmatic changes. Here are some examples:
Whale oil for lanterns put out by electricity. Horse carriages put out by cars. Cars create new paradigm for oil. Control Data and huge servers put out by work stations like that by SUN. SUN put out be Win/Tel (windows and Intel). AOL, king of dial up internet, put out when broadband takes over. Wireless makes ARMH king and weakens Win/Tel.
Currently cloud functions, that are enabled but the wireless and mobility changes, are making operating systems irrelevant, and making something like an iPad capable of replacing even a laptop.
What Twilio and its ilk are doing are trying to disrupt telephony technology by basically moving it to the cloud, and making it a software solution and not a hardware solution. In doing so, it creates undeniable efficiencies and flexibility, and possibilities, that cannot be denied by all except that later adopters.
Whether or not Twilio is the winner here, who knows. Netscape certainly wasn’t the winner when the Internet started disrupting the PC, although Google was when it was thought that Yahoo! should have been the winner (and in fact the Fool actually picked Excite as its Rule Breaker in the field long ago). But regardless as to which company wins, the technology changes and disruptions were inevitable.
I understand the internal debates to change technology. I resisted the cloud for 2 years. I resisted Dropbox for just as long. I stuck with Windows until 2 years ago. I never moved to a Blackberry because I had the TREO. The TREO was the perfect business smart phone. No phone to this date, not even my beloved iPhone still equals the utility as that TREO. I still have it (or my son does). It may be a bit heavier than today’s phones, but it is still ergonomically the finest phone ever made, and the finest phone ever made for responding to email or texts, and the finest phone ever to find and call or email or text someone from my contact list.
Alas, the world went another way, and it became impossible to stick with the TREO.
Twilio is the leading company, but far, in a new technology paradigm shift that is so disruptive on the basis of cost, flexibility, and possibilities it enables, that it will take over. That does not mean Twilio will be the beneficiary of this transformation, anymore than Netscape was in the end, anymore than Yahoo! was (although both companies did well, they just got beat by others and lost their ways).
God, I miss my TREO. But I guess I have to live with my MacBook Pro, iPad Air 2, iPad Mini 4, iPhone 6s, and iPhone SE (took me the full 2 weeks to get rid of my iPhone 5 and I missed it so much I got my former office manager a SE - I took it back from her).
Got my billing done. Seriously. This is unbelievable! No hyperbole. I literally, and this is my second month doing so, can run a business of my size (I’m a small business, but I have multiple bank accounts, have over 1000 clients, 30-50 at a time), have to manage a trust account, bill my clients each month, keep track of receivables, expenses, etc., and this is before even managing the actual things I do as a lawyer, and I can now do it all by myself in one day per month.
And I could have done it using one iPad Air 2 if I wanted to (although a bit less efficiently). The Cloud is utterly disruptive.
That is what I am talking about. The inevitable technology transformations.
Those are fun to follow if nothing else, and I like being the beneficiary of it, ahead of my peers. Increases profits, decreases head aches. What more can you ask for?
Tinker
I see their shares that are locked up are free in December
Could you point me to where you are seeing that? Does it give a specific date in December?
Thanks.