Atlassian: Racing to the Cloud
The company is operating at an insane level right now and it deserves a separate post to fully appreciate it
After reading Atlassian’s FY22 Q2 shareholder letter (Q4 calendar year), here’s what I looked like.
The company’s transition to the cloud is so freaking impressive, we need to dig in more to fully appreciate it using their Q2 transcript and shareholder letter.
“We landed over 10,000 net new customers this quarter, 98% of whom chose Cloud, and made steady progress migrating our on-premises customers.”
Just mind-boggling execution on the sales, self-serve and eng side. I can’t even comprehend the database scaling, multi-tenant architecture, data partitioning craziness that is needed to maintain that level of customer growth. Notice that almost all new customers chose cloud so their focus there is working.
“To give you an idea of the momentum we’ve built, it took 13 years to reach 50,000 customers total. [And they added 50k+ customers YoY]”
Compounding takes time, but when it works, WOW does it work exponentially!
“Cloud Enterprise editions of our products now meet some of the most stringent compliance standards in the world…Stay tuned for more region- and industry-specific security and compliance capabilities in the coming quarters…Centralized platform capabilities like scalable infrastructure and a steady cadence of security enhancements help us attract enterprise customers without upending our unique business model.”
Important to note that while customers flock to Atlassian’s cloud products because of the ease of use and fully managed service, Atlassian itself is doing a ton of engineering on the backend to make these customer wins happen. Data sovereignty is something the major cloud providers increasingly talk about and its affecting everyone else as well.
“Cloud sales from our Channel Partners in Q2 were up 131% year-over-year. Customers add roughly 28,000 apps to their Atlassian products each week. In fact, adoption of our Cloud apps is growing faster than adoption of our Cloud products themselves – a sign of a thriving ecosystem with room to expand. Cloud apps now account for nearly 50% of Atlassian Marketplace listings overall, with over 70% of Jira and Confluence Cloud customers having at least one app installed.”
More mind-boggling stats with over $2B in revenue having been paid out to marketplace apps. But goes to show that once Cloud is adopted, the stickiness for Atlassian products increases exponentially as they get embedded as a core system of record with multiple other apps being added. I personally have been lucky to see the magic of a well constructed marketplace upfront within BigID where the marketplace launched with no apps and is now thriving and meaningfully adding to revenue shortly thereafter. The apps help augment any weaknesses in the core product allowing for even better long term customer retention!
“The ease of adopting a second product in the cloud, our ability to understand what customers are using, and hence, recommend other alternatives for them, either you should get more people in your team on board or you should try this other product, is -- we can just do it a lot faster and easier. But it's a single click in the cloud. Nothing to install. Nothing to try. With free, you can quickly get 10 users started. So, our ability to help customers expand is just much higher in the cloud, and you see that in greater and quicker expansion numbers of customers. We have to have the products to deliver that value, but our ability to help customers and guide them less friction in the cloud is just higher.”
The most succinct explanation you will ever read on why Atlassian is going all in on the cloud with such an org wide focus and urgency. Ease of adoption for customers, analytics for internal product/eng teams and gtm teams, immediate time to value. Also, notice that 10,000 net new customers does not include freemium users. Atlassian’s products have a freemium tier where tons of users can experience the product, have it become embedded in their workflow and then with one click, move to being a paid customer.
Jira Service Management was launched just last fiscal year. Since then, the product already has 35,000+ customers on it (need that mindblown emoji here)! They were able to do this by looking at the IT Service Management space from the ground up, observing the shifts between how developers and IT are now interacting/converging to drive transformation. By doing this, they have been able to effectively position a much quicker time to value and easier to adopt & use product compared to the best of breed in the market currently (ServiceNow).
“The past two years have underscored the importance of scaling efficiently and flexibly. With our “TEAM Anywhere” program, we can offer employees the option to live anywhere within countries where we have a legal entity (hello, Australian Antarctic Territory! ) and work from just about any other location on a temporary basis. We believe this has helped shield Atlassian from the massive employee attrition many other companies are experiencing.”
If you read the shareholder letter, they have a massive section devoted to people management. Atlassian very quickly has adopted remote and flexible options for employees and is working on adding new areas where they can legally employ people. This has resulted in low churn AND hence the ability to ship a new product like JSM from scratch and get it to 35k customers in one fiscal year. People matter and especially in this day and age, flexibility and putting employees first is what will allow for future success.
“We've long believed in having a broad spectrum of opportunities, and that's with Atlassian Ventures, we are trying to make sure that we are investing and partnering in high-quality enterprise as companies that are partners of Atlassian. You've seen us do that in the past with Zoom and Slack and others. More recently, we've partnered with Miro and Snyk and across our markets, as well as a whole host of smaller up-and-coming names.”
Atlassian has been a more recent entrant to the strategic VC world than Salesforce, Cisco, Microsoft, and others. However, they have leveraged their end user adoption and awareness to partner with incredible startups to further help cement their core products as mission critical systems of records that work with best of breed products in any category.
All of that leads to this performance.
Worth mentioning this growth is also hyper efficient with massive and growing free cash flow margins. Meanwhile, JSM is likely still in the “1st inning” of adoption. Truly remarkable the position Atlassian has put themselves into!