Hey everyone, Mauser’s post about constantly hearing management say we’re in the early stages of the cloud inspired this post.
Quick note… I still plan to post my Feb results, I was up 28.77% at the end of Feb (I’m now up around 20%). I didn’t post yet because I’ve been making a lot of adjustments to my portfolio and we can’t mention companies for at least 2 days after our trades on the boards.
Anyways, on to the cloud. For the last year, I’ve worked at a consulting firm and our biggest partners are Google Cloud, AWS, Microsoft, Salesforce, and Tableau. So most of what we do is related to the cloud.
Every cloud-related project I’ve ever worked on or heard people talking about has really only been a transition for small chunks of the client’s overall infrastructure. In my experience, they don’t overhaul the entire business at once (especially Fortune 500 companies). So in every case I’ve seen, there has been departments/services transitioned to the cloud and some staying on-prem.
This happens for a few reasons…perceived risk or inexperience with the cloud, transition cost (even though it’s cheaper generally once someone is up and running in the cloud, the initial migration is very costly. Companies have to hire consultants, re-allocate current employees who may already be fully loaded with other tasks or not trained on these cloud technologies, hire new employees (developers) with new skills.
But probably the single biggest barrier to these migrations is just the MASSIVE amounts of data and programs that are running on infrastructure that is in some cases 20+ years old. In every case, there’s a long discovery/analysis to even figure out what employees own what applications, what the data dependencies are, what the second and third order effects will be due to the transition, etc.
In many cases, businesses have no idea which programs are still active and which aren’t, or if they know they are still active, many application owners don’t understand the processes or infrastructure their applications are built on, they took ownership of them during a 4 hour transition period from the old app owner who had all the institutional knowledge from the last 20 years, then left the company with a 2-week or one day notice. Yes, this happens ALL THE TIME.
So basically, there is really really really old and out-dated infrastructure, there’s SO MUCH DATA that companies don’t know where to start, these migrations happen in phases and take a long time, a lot of institutional knowledge has left companies over the last 20 years which leaves a gap in understanding of their old infrastructure which makes cloud migrations expensive and time-consuming up front.
BUT, these companies know it’s just a matter of time until their old infrastructure completely breaks, they know security is a concern on these systems (we see the breaches all the time), and they know that over the long-term, it’s cheaper to move to the cloud (or at least have an updated hybrid strategy), and once they do transition, the can innovate SO MUCH FASTER because they don’t have to maintain their own infrastructure.
It’s just a matter of prioritizing the expenses to please shareholders, manage risk, and allow for R&D to continue.
None of this is new information. Most companies talk about this stuff in their earnings releases. I just wanted to share my own perspective on it.
For me personally, the big investing takeaway is to find the most innovative companies with best-in-class products that have a very easy to understand sales pitch and serve a critical component of a business. I really think things like P/S and P/E are almost irrelevant (clearly with the exception of bubbles) because the best software products tend to grow like weeds once a company is exposed to them.
I think many of the companies we talk about on this board do exactly that. Some critical components, in my opinion, are security, communications, data & analytics, HR, Marketing and Agile Project Management (how software is developed).
This is why dollar-based net expansion rate has probably become the most important metric for SaaS companies in my opinion. That number alone tells us everything about the quality of their products, ability to innovate, sales effectiveness, and quality of customers.
- Austin
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