Atlassian Corporation (TEAM) Earnings Call Transcript & Summary

Okay. The -- you've also taken -- you've released a bunch of free additions in the cloud. What have you learned from that process of taking some of your offerings, putting them for free on the cloud? What are you -- what -- like how long do you think it takes to get a good enough signal to figure out kind of maybe what direction you need to take the product into or what type of price point over time might make sense as they start recognizing the value?

I would say, in every case, we learn -- it validates the thing I said at the very beginning, which is just the market is big. And so it widens the aperture on people that are considering us for various things that even at a relatively low price point, like if you look at the free offering in cloud, it basically replaced a 10 user for $10, so a $1 a month per user cost. So you could say, "Well, come on, that's virtually free." Like if people aren't willing to spend $1, like certainly, you're accessing those to the market, and you're just not, like there's still people that are like, "I'm just not going to consider it unless it's free." And from there, like we have an opportunity to grow them. Maybe a logical question is like, "Why didn't you do that earlier?" There is -- to do that well, you have to make sure that -- for that particular cohort, you know how to onboard them. You've smoothed out rough edges that maybe those -- the people that aren't willing to pay money, don't have the patience to tolerate. So there's sort of a bunch of product readiness that meets the opportunity to grab those customers, snag them and then grow with them over time. But I would say the macro point is it just -- it opens the aperture on opportunity for us.

Right. So if we were talking about Jira and the collaboration platform that it creates. There's a lot of noise in the collaboration market today, right? So everyone is trying to be a collaboration player. You've got people doing it at the [ Biosync ] and Sherlayer. You've got people doing it like Microsoft Teams or like Slack, for example. How do you envision collaboration? If you were talking to Jay say about -- I'm sorry, if you were talking to Mike or Scott about it, like what would they say in 5 years, what would you guys be saying collaboration for an enterprise would look like, thinking of all of those different constituents?

I think I've only ever been in the enterprise collaboration market. So it's like 25 years now. The company prior to Atlassian that I spent 12 years out with a company called PlumTree that that basically created the market for a thing called SharePoint. But -- so I don't think -- maybe I'm a little jaded, but even in 2020, it doesn't feel any different to me. It feels like the collaboration market has always been sort of see if things that look very similar, and it takes time to understand why are they different and why do they exist and what do they do. And that will probably be true still in 5 years hence. And I think if you want to understand how we differentiate, you take a product like Confluence. What Confluence is, on the surface, if you take a step back, it looks like a thing that you click a button, you get a blank page and you got to write in and you hit save and multiple people get to comment on it and edit it and sort of looks like Google Docs. And --

Like a Wiki.

Word -- yes. But beneath it, the reason that it is chosen by tens of thousands of companies and still is a product that continues to land lots and lots of companies is because underneath it the structure that allows it to be applied to things that are impossible to do or very difficult or cumbersome to do with something like Google Docs or Office or Dropbox Paper or like the other 10 things that kind of all look the same. And so I think like Atlassian's -- one of Atlassian's advantages is it's built these products that actually can access the simplicity use case, but get chosen for the sophistication use case. And that's a really hard thread to weave. And that's where we're trying to win. We're trying to win the thing that you just can't do with the dog's breakfast of other options. And when you go there, like we're a bubble that basically gets to swell inside of a company where we reach more and more and more of the people. Like Confluence is a product that can go wall to wall. And eventually, a company can say, "This is just the way that we're actually going to create and share content internally." And even in that particular case, where a company says, "This is the way we're going to do it," I don't think that precludes people inside of the organization to say, like, "Oh, I want to try this other thing that looks like it's kind of cool and slick and see how that goes." And I think like our challenge -- part of why we spend, invest in R&D and the way that we do is because you constantly have to invent in collaboration because of exactly what you just described. Like every year, there's like a new thing that kind of looks like a new thing. And we work really hard at making sure that our products look like a new thing and operate like a new thing.

So OpsGenie is an acquisition. And I think you guys have done a great job with your acquisitions. And when you haven't seen them kind of work the way you wanted, you've kind of reallocated your capital. So it's like that discipline, I think, is very respected by everybody in this room certainly. But OpsGenie was an acquisition a little over a year ago. And you mentioned on your most recent earnings call that you added over 1,000 customers in the first full year. So can you talk about the changes? So what made you think, "Hey, let's buy this company," right? What were you seeing from your installed base that made you feel like this was a good adjacent opportunity? And then also what have you changed to help drive the new customer expansion, and probably far, far faster than what they could have done on their own?

Yes. So first part of the question, like, what did we see? First of all, like Jira -- we talked about Jira is really central and important hub because of the properties that I described that are in that particular product. And so one of the waves that has propelled Atlassian is just this notion that more companies are investing in technology strategy and technology development and change and digital transformation, that whole thing. And they need products like Jira to basically help manage the people that are involved in that particular change inside of their business. Another wave that we think is really interesting is the proliferation of technology and services inside of companies, means that they've got a lot more stuff to manage. And there's a lot of things that are woven in together that they need to figure out, "Man, if something breaks, is it something I did? Is it something I'm renting? Is it something I built? Is it something I integrated between something I built and rent." It's hard. And so just this notion of every company first becoming a software company and then every company becoming a service management company is driving kind of the very nascent, early, but pretty large market opportunity around modern incident management and the life cycle of what happens to these things that we're running and building and operating. Jira is a core part of that. And so we've been in the incident management market just with Jira as the hub that once you identify an issue, the place that you tell people that they need to fix it and that collaborative loop already exist inside of Atlassian products. And there were a couple pieces that were missing around learning and rostering and kind of connection to systems to let you know that there's a problem. That's what OpsGenie does. And so that's sort of like the opportunity is just significant, and it's an extension of where we're already kind of bedrocked. What we do is naturally take advantage of that bedrock. And so if you've got a system like Jira that basically it can allow you to create this tapestry of different projects, so they are going to run these workflows, a natural thing that we do is we say, "Hey, would you like to create an incident management project?" And from there, like extend OpsGenie to do all the things that OpsGenie does around incident management. And so that kind of -- the integration to the core platform pieces, to identity, to user experience and then to what we think of as cross-flowing, like where I could flow you into other things, we're pretty good at that. And it's like a core part of how we basically expand.

How easy is it for customers too so you could alert them kind of in product if they're in Jira that you've got this capability? How frictionless is it for them to just kind of maybe get an in-app message and then start using the product?

It's completely frictionless.

And can you -- and in terms of trying it for free and then upselling to actually a paid version?

Yes. And the advantage that we have that we've talked about before is -- and again, it can feel intuitive, once you hear it, but if you're not thinking about them, maybe not. If I've got a thousand people that use Jira, like the traditional way to sell you the next thing is to talk to the person about the first thing and try to go in through that angle. If I've got a thousand people that use Jira, I've got a thousand opportunities to basically -- to, in a very friction-free way, turn on that thing. And it could be that any one of those thousand people are the actual right influencer between that thing on more broadly. So that's what we do. And we look for -- we even look for usage patterns like I talked about the relationship between Jira and Confluence. Confluence is -- to Jira is as a place that kind of core documents that are part of the workflow that I described get created and shared. Inside of Jira, if I see somebody attach a Word document or a link to any of the things that you mentioned, I can suggest that there's an easier way that they do that using one of Atlassian products, just for the individual user that did that action. And what I'm just saying to them is like, "Hey, there's a little bit of friction here because you're using different technology that I can help remove for you." And if you like it, then you're into that product #2.

Talk to us about Trello. That's another acquisition that was done a little bit longer ago than OpsGenie, but how does that play into your long-term plans?

In a couple different ways. Like one, Trello is back to the dashboard of different people that -- different types of people who use Atlassian products. Trello is heavily oriented around less technical users. And so it lands gobs and gobs of very nontechnical users. It's incredibly simple to use and very versatile product that is an easy way for less technical users to get started. So it gives us an opportunity to go the other way, where we tend to land more technical users and more technical use cases and expand the less technical. Trello is a way to go the other direction and still reach massive numbers of people. And so I think it just gives us a vantage point inside of businesses to expand in a different direction than we normally do. And it's got a really strong relationship with the other products that I mentioned. And the hard thing -- maybe another hard thing about the collaboration market is like, in many cases -- like, I'll give you an example. Our biggest competitor, in most case, is just Excel, right? Like people are using Excel because it's such a versatile thing. They kind of stretch it across all the stuff that it wasn't really designed to stretch across, but it can be stretched across because of the versatility. We're not necessarily eradicating Excel from inside of businesses. What happens is Excel will shrink down to the places that it's actually built to be usable in. And we'll take the places that it's not. And the relationship between Trello and Jira are kind of the closest proxy. On the surface, they can do similar things. What will happen is, companies or teams will apply Trello to more and more and more sophisticated things that they then actually graduate into Jira, and then they'll use both kind of in concert.

I'm going to -- I have questions on go-to-market next, but I wanted to see if there's any questions from the audience. No?

Stunned silence.

Yes. You're very clear.

No, we got 1, all right. I gilded you into asking a question.

We do. Okay. Sorry, right. Excuse me, just 1 second for the mic, if you don't mind. Right there.

Jay, if you can talk a little bit about your marketplace view of it? I think Jira is a very versatile at days. I think the add-ons bring lot of things to life. If you can talk a little bit about that in your strategy going forward, that would help.

Yes. So we -- if you take a step back, we worked on extensibility basically as kind of a birthright capability inside of the products. And so Jira from the very beginning had the ability for a customer developer or a third-party developer to write this little extension and actually take advantage of a lot of facility in the product to make it be -- to feel like a rich, native part of the product. And so we had this ecosystem of developers, both inside of our customers and outside in the market that were basically building these things. And then we offered a commercial marketplace, largely because customers want a single place to basically search for and buy and be build and they want kind of the -- all the commercials to be simpler for them. That marketplace is pretty big, I think, probably one of the biggest enterprise application marketplaces out there. And it does what you just described. I think if you look, there's thousands of different extensions that build on top of the core platform capability that we work on in all of our products. Like Jira is a core work and workflow management platform. If you want to use that specifically for finance, there's going to be some things that we actually don't need to build, that the ecosystem can build and customers can take advantage of. Maybe I'll give you a simple example. Jira is used like really widely in consulting companies, naturally, because they do lots of projects. And there are a number of different time tracking add-ons. And so we haven't built native time tracking because we haven't needed to. There's all sorts of time tracking things that a consulting company will say, "Well, my consultants need to track all of the things that they're doing for the companies they are consulting for." Jira keeps track of that with an add-on in the ecosystem. And naturally, the ecosystem for us -- the main focus is it increases the stickiness of our products because it just stretches them in lots of different places that they can go with features that we haven't had to build.

Great. I had a couple questions on go-to-market I wanted to get to before time runs out. Over the past few years, you've had 3 different sets of price increases, right? The most recent one being in October of this past year. What are the -- and I know James gets asked about this a lot, but what are some of the key learnings? And how do you factor in kind of when you've done enough value creation to warrant putting a price increase through?

Well, the thing I always like to correct is it is not just --

Not across the board.

Well, it is not just price increases. Like we think of them as, if you look at what we did kind of in the past, we would do pricing and packaging calibration, which every company needs to do at some regular interval. We -- our regular interval was sort of like every 3 years. And so then when we would do the calibration, they tended to be a little bit more dramatic. And what we've moved into was a more regular annual cadence of recalibrating pricing and packaging. Some things are going to go up. Some things are going to go down. Some things are going to stay the same. Some things are going to be new, where we're going to introduce free or premium -- or Access is effectively a product that we charge separately for that does a bunch of security and identity work. And you could say, "Well, I'm going to add that feature and then increase the price," so I'm going to compartmentalize that as another optional thing that people could buy. So anyway, that's 1 correction. I think we're into this rhythm of the customer base and the partner and our partner ecosystem, understanding them while we're making changes where we're synchronizing those changes on a schedule that they're -- they can anticipate. And then in terms of like what we move up or down, I think there's like a ton of -- like we study it constantly. And I think we're just -- the increases that we do on the increase side tend to be really nominal. Like they tend to be small. They were -- 4 years ago, they were big, right, because it was like, "Well, we're making a big adjustment, and then we probably won't make another adjustment for 4 years." And so I think if you -- another way to ask the question is -- which we get asked a lot is, like, what does the customer base tell you when you increase price? Like nobody wants to pay more than they pay, but I think the customer base recognizes that we put a lot -- you continue to put a lot of investment in this product. And you're still anchored on the value scale like in the bottom, like secular, the top of the value scale. Where relative to other things that I pay, I get a heck of a lot more value from you. And I think that's the place that we always want to occupy.

Okay. And then you mentioned the partner community. They've become increasingly important to the company over the last probably 5 years or so. Can you talk about the impact that they can have on the business going forward?

They have a huge impact on the business already. And I think that will continue. We started the partner program about a little over a decade ago. Partners for us are largely consulting and system integration companies that also kind of represent us in market. It's important because of all the things we've talked about. Like there's such a huge surface area that you can move our products across. Some things are just going to be easy to turn them on. Some things are going to require a deeper understanding of what the business is trying to do and either what you're moving from or what you're changing or what you're wrapping around. And so they tend to over-index around the larger enterprise customer segment just because there's more surface area for that particular service delivery work that they can do. They can specialize in areas like IT service management or IT operations management or incident management, and then they can basically take that particular solution area and really kind of go deep in the markets that they serve. I think that just continues to grow, especially as you think about the market opportunity for just the solution areas that we occupy. It's just big. And I think we're always going to work on making the products simple and easy, but also flexible for companies like our solution partners in the ecosystem to kind of wrap around more and more stuff.

Great. I think with that, we're out of time. Thank you so much, Jay. Thanks. Take care.

Thank you, guys. Yes, thanks. Thanks, Heather.