Created by Rishabh Srivastava, Founder of Loki.ai
This summary was largely done for my own note-taking, sharing it just in case it adds more value to other people.
I have no affiliation whatsoever with anyone in this note. This is a summary largely taken for my own reference, and may contain errors :)
Context
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Why is it important: Talks about how Cloudflare grew and what it as in the future
Keywords
Cloudflare, Investing, Cybersecurity, Cloud Computing
Summary
- Cloudflare started out as Project Honeypot, which was a spam filtering algorithm and data collection service
- Project Honeypot identified the problem (which servers might be sending spam). But when they surveyed users for how they are solving the problem, they didn't find a good solution. It was all duct tape. They thought they had an opportunity to create a service around it
- Cloudflare started off as a security company, and has now expanded to a performance/speed /computing based company. Everything is based on a base of cybersecurity
- They use their economies of scale to provide a much better experience and performance for everyone at a much lower cost
- Documentation is critical for remote teams and also for users. Write things down early
- Early customer acquisition was mostly through word-of-mouth on the internet. People talking about them on forums and community boards etc. Open-sourcing things and keeping things free helps with this
- Cloudflare runs a global network of servers in 200 cities around the world. They have real capex there
- You can connect to the closest Point of Presence (PoP) and run programs on the server there (Cloudflare Workers)
- There are 3 layers to the enterprise software stack: 1) database layer where the content actually sits, 2) application layer, and 3) the network stack (connecting with the ISPs)
- For their Series C, they took a valuation that was less than half of what they were getting with another investor, because the vision of the investor was more congruent with their own vision (free service, centres in Pakistan etc)
- The network as the server/computer can open up many possibilities. Specially with 5G as more bandwidth is transferred
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Follow up links
Cloudflare S1
We started by building an efficient, scalable network. This network forms the foundation of our platform on which we can rapidly develop and deploy our products for our customers. Together, the development of our network and products create the interconnected flywheels that drive our business and have allowed us to achieve our market position.
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Network Flywheel
We have created a network architecture that is flexible, scalable, and gets more and more efficient as it expands. We designed and built our network to be able to grow capacity quickly and inexpensively; to allow for every server, in every city, to run every Cloudflare service; and to allow us to shift customers and traffic across our network efficiently.
We refer to this architecture as “serverless” because it means we can deploy standard, commodity hardware, and our product developers and customers do not need to worry about the underlying servers. Our software automatically manages the deployment and execution of our product developers’ code and our customers’ code across our network. Because we manage the execution and prioritization of code running across our network, it means that we are both able to optimize the performance of our highest paying customers and also effectively leverage idle capacity across our network.
We have chosen to utilize this idle capacity to create a free tier of service—which has generated substantial global scale for us. In turn, this scale makes us attractive partners for Internet Service Providers (ISPs) globally, which reduces our co-location and bandwidth costs. As our network grows, these dynamics become even more powerful.
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Product Flywheel
We began with the idea of serving the broadest possible market. To do this, we made our products easy to use and affordable and were able to provide our entry level plan for free in part because of the cost advantage of our network. We leverage the resulting customer scale and diversity to continuously make our products better. Our machine learning systems improve our products with every customer’s request, optimizing our security, performance, and reliability globally.
The over 20 million Internet properties (e.g., domains, websites, application programming interfaces, and mobile applications) that use our platform comprise a global sensor network, which functions like an immune system for the Internet—routing around congestion, optimizing for traffic conditions, and using data on cyber attacks against any one of our customers to better protect them all. We leverage these insights to block cyber threats every day, which in the three months ended June 30, 2019 averaged approximately 44 billion per day.
Feedback from our diverse, global customer base helps us expand into new, adjacent product areas. Since our customers’ traffic is already passing through our network, our serverless architecture means we can add products on our platform to solve new network challenges without significantly increasing our incremental costs. This allows us to provide new products at competitive prices and further expand the overall market.
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Market Opportunity
We believe our platform disrupts several large and well-established IT markets. The key markets that are addressed by our platform include VPN, internal and external firewalls, web security, distributed denial of service (DDoS) prevention, intrusion detection and prevention, application delivery controls, content delivery networks, domain name systems, advanced threat prevention (ATP), and wide area network (WAN) technology.
From our analysis based on IDC data, $31.6 billion was spent on those products in 2018, which is expected to grow to $47.1 billion in 2022, representing a compound annual growth rate of 10.5%.
We also are actively developing new products to address adjacent markets including compute, storage, 5G, and Internet of Things (IoT) that are not included in the estimate of our addressable market.
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Why We Win
1. Disruptive Business Model. Our business model is designed for efficiency. Our network and product flywheels create a virtuous cycle that has driven down our unit costs over time while we increase the diversity and quality of our products. We believe that our serverless platform’s flexibility, as well as our aligned interests with our ISP partners, allows us to continue to become more efficient as we expand our network. At the same time, this architecture allows us to add new products and features across our platform without significant additional operating costs.Â
2. Ease of Use. A new customer can sign up in minutes, regardless of its technical ability or budget. The ease of use of our products significantly increases our total addressable market and has also allowed our enterprise customers, which consist of customers that sign up for our Enterprise plan, to simplify and streamline their network operations.
3. Efficient Go-to-Market Model. Our go-to-market strategy is designed to efficiently address the broad market we serve. Our self-serve offering, coupled with our attractive pricing, allows customers to easily adopt our products. We augment our self-serve offering with a highly productive sales force to serve larger customers.
4. Product Innovation and Velocity. We drive product innovation by continuously improving our platform through machine learning and diverse customer feedback. Our systems learn from every request that passes through our network. This allows us to automatically mitigate new attacks, optimize protocols for the best performance, and reroute traffic to avoid network outages. Many of our free customers volunteer to test new features early in the development cycle, which allows us to ensure product excellence before deploying to our paying customers.Â
5. Integrated, Global Offering. Our network spans 193 cities in over 90 countries, and this flexible, serverless platform offers the same set of core features in every city and country. This gives our customers a unified control plane—whether they are running on-premise, with SaaS vendors, in hybrid environments, or solely in the public cloud. Additionally, because we offer an integrated solution, we do not force our customers to choose between safer, faster, or stronger—our solution offers security, performance, and reliability by design.
6. Trust and Neutrality. As businesses move to the cloud, there are increasing concerns over interoperability and avoiding being locked into any one public cloud vendor. We empower customers to overcome these concerns through our independence and neutrality. Moreover, unlike some public cloud providers, our business model aligns with the interests of our customers. We do not sell user data. Nor do we aim to compete with our customers.
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Growth Strategy
- Acquire New Customers: We believe that any person or business that relies on the Internet to deliver products, services, or content can be a Cloudflare customer. We will continue to grow our customer base across all of our service offerings—free, self-serve, and enterprise.
- Expand Our Relationships with Existing Customers:Â Today, approximately 10% of the Fortune 1,000 are paying Cloudflare customers. Additionally, across the broader Internet, approximately 10% of the top one million, 17% of the top 100,000, and 18% of the top 10,000 websites use at least one product on our platform on a paid or free basis. Customers expand their relationships with us by upgrading to premium plans, increasing their usage of our platform, or adding products. Once a customer has adopted one product on our platform, it can easily add additional products with a single click. Over 70% of our enterprise customers already leverage four or more of our products.
- Develop New Products:Â We continue to invest in new product development, and as we onboard more customers and more traffic on our network, our ability to identify promising new avenues for innovation improves.
- Extend Our Serverless Platform Strategy:Â We have opened our serverless platform to outside developers with a product called Cloudflare Workers. This enables our customers to write and deploy their own code in seconds directly onto our global cloud platform and have it run close to their users. We have seen a growing number of customers bring applications to market using Cloudflare Workers. This opens up an entirely new market for us: compute and storage.
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Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:
- We have a history of net losses and may not be able to achieve or sustain profitability in the future.
- We have experienced rapid revenue growth, which may not be indicative of our future performance.
- If we are unable to attract new paying and free customers, our future results of operations could be harmed.
- Our business depends on our ability to retain and upgrade paying customers and, to a lesser extent, convert free customers to paying customers, and any decline in renewals, upgrades, or conversions could adversely affect our future results of operations.
- Problems with our internal systems, networks, or data, including actual or perceived breaches or failures, could cause our network or products to be perceived as insecure, underperforming, or unreliable, our reputation to be damaged, and our financial results to be negatively impacted.
- Activities of our paying and free customers or the content of their websites and other Internet properties could subject us to liability.
- Activities of our paying and free customers or the content of their websites or other Internet properties, as well as our responses to those activities, could cause us to experience adverse political, business, and reputational consequences with customers, employees, suppliers, government entities, and others.
- Although offering a free self-serve plan for certain of our products is an important part of our business strategy, we may not be able to realize all of the expected benefits of this strategy and the costs and other detriments associated with our free plan could outweigh the benefits we receive from our free customers.
- The actual or perceived failure of our products to block malware or prevent a security breach could harm our reputation and adversely impact our business, results of operations, and financial condition.
- If our global network that delivers our products or the core co-location facilities we use to operate our network are damaged or otherwise fail to meet the requirements of our business, our ability to provide access to our platform and products to our customers and maintain the performance of our network could be negatively impacted, which could cause our business, results of operations, and financial condition to suffer.
- If our customers’ or channel partners’ access to our platform and products is interrupted or delayed for any reason, our business could suffer.
- Detrimental changes in, or the termination of, any of our co-location relationships, ISP partnerships, or our other interconnection relationships with ISPs could adversely impact our business, results of operations, and financial condition.
- The dual-class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, and it may depress the trading price of our Class A common stock.
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