What's 🔥 in Enterprise IT/VC #300

What recession? If u can't sell dev tools now, it's not the market as 💰 is there

Jul 30

It was a huge 💪🏼 week for cloud earnings this past week.

New data from Synergy Research Group shows that Q2 enterprise spending on cloud infrastructure services approached the $55 billion mark. Despite turbulence in currency markets and a much strengthened US dollar, that still represents 29% growth from last year. Had exchange rates remained constant over the last year, the growth rate would have been around six percentage points higher. As spending on cloud services continues to rise inexorably…

In other words, the cloud grew 35% YoY in constant currency. If you’re a devtools founder, there is no better sign for what’s ahead than Satya’s comments around Microsoft’s continued growth in cloud, containers, and Kubernetes (Azure Arc).

Organizations in every industry continue to choose our cloud to align their IT investments with demand. We are seeing larger and longer-term commitments and won a record number of $100 million-plus and $1 billion-plus deals this quarter.

More public cloud spend means more new applications being built and deployed leading to more spend on dev tools, orchestration, security and more…which Satya highlights here.

So I think that we'll do fine there. The other one is also people building new applications at a completely new frontier. I mean, there are two numbers that I talked about. One is the triple-digit growth in Cosmos DB and triple-digit growth in container app services.
You take those two things and you say, what are people doing? People are writing applications at a completely different frontier of efficiency, which is cloud-native serverless container-based types of applications. And so to me, that's another way for you to make sure that your IT spend goes a long way in a time like this.

Founders, don’t tell me recession - enterprises are continuing to aggressively build and deploy new cloud-based applications and Microsoft, despite slowing YoY growth in Azure, reiterated its forecast for a strong Q3.

Bill McDermott from ServiceNow summed it up nicely from his earnings call:

“The secular digital transformation tailwinds are blowing stronger than the macro crosswinds.”

If you can’t get users to use and convert to buyers, then I’d say you have bigger problems like taking another look at your value proposition and product. But whatever it is, don’t tell me you can’t sell because it’s a recession whether you technically believe the definition or not 😃. Yes, I know, some of this is large cap growth due to vendor consolidation around an OK product but it’s still on you to build an amazing 🪄 product as the 💰 is there.

I’d also add that it looks like these companies are still quite bullish about the future. as many are continuing to ramp sales and marketing 2-4 quarters in advance. Also notice how many are infrastructure companies. Once again, enterprises building new apps and deploying to the cloud equals more spend for devtools, infra, and cybersecurity to lock it all down.

Masterly Inactive @masterly_in

At a time when many tech companies are laying off or pausing recruitment, these enterprise software firms are hiring sales and marketing force by the hundreds. $NOW - 600+ S&M positions $ZS - 400+ $SNOW - 400+ $VEEV - 300+ ..... They're going for the kill perhaps!

Going back to Bill McDermott, here’s more on the durability of enterprise software growth.

The secular digital transformation tailwinds are blowing stronger than the macro crosswinds. ServiceNow generates an unmatched combination of organic growth and profitability at scale. We believe there is a generational value creation opportunity here on every level of our company. Therefore, we are hiring, expanding and investing for the future.
Growth companies don't get stronger than this one. Before I hand things over to Gina, let me offer some additional color to underscore the state of the business. Enterprise software is an all-weather industry. Some businesses out there are prioritizing enhanced productivity to lower costs.
Others are evolving business models to stimulate growth. All of them know full well that digital technology is the only answer. That's why the demand environment to software is consistent and durable. Market research from IDC and several prestigious institutions on this call, I might add, have all affirmed the stability of technology budgets.

Yes, I’m long term bullish on the future but note there are two headwinds for startups:

According to Bill, “We’re going to see some longer sales cycles” given the uncertainty of the economy.
In times of cost cutting, usually more 💰 goes to large incumbents as spend gets consolidated so startup vendors better have an amazing, not just a good, product to offset the distribution advantages of LargeCo

As always, 🙏🏼 for reading and please share with your friends and colleagues.