DigitalOcean Holdings, Inc. (DOCN) Earnings Call Transcript & Summary

Good afternoon, and thanks for joining us at the DigitalOcean session at the GS Technology and Communacopia Conference. I'm delighted to have the CEO of DigitalOcean on stage with me. Yancey, thank you so much for your time today.

Thank, Gabriela. Thanks for having us.

Yancey, I believe there was a time in also process, sorry, early on, when you came to DigitalOcean, where your view on how big a company DigitalOcean could be over the long term shifted. So tell us a little bit about what drove that shift and why your view on where DigitalOcean can go over the long term is order of magnitude higher than perhaps what -- would you like to share?

Cool. The -- what I'd say is, as I go out and meet customers, learn more about what was driving the business and looked at some things like at $100 million or $200 million of revenue scale, we were already fully penetrated across the world in terms of in Asia, Europe, Africa, Middle East, North America. We already look like GDP spreads. So it wasn't -- there was -- and what that signaled to me was the universality of human beings around the planet, looking to take an idea on to the Internet and start a business. And so -- and when you think about how many people there are and, you look at the price point of what we represented to get that idea on the Internet, it's massive. And the fact that we had already sort of laid out an efficient go-to-market, we could build upon that. I just saw a business that could get to $1 billion and then keep growing. And we're early in the journey.

There have been so many structural improvements to the business model over the last 3 years. If we think about product mix, some of the work that you and Bill have done on the CapEx side and efficiency side, on the procurement side. When you think about the heavy lifting that still needs to be done structurally, do you feel like you're most of the way there? Or are there a few levers that you're still very focused on pulling?

Yes. I'm spending a lot of time thinking about this because there's something to get to $500 million, which we've just crossed in terms of ARR. And you kind of have to reinvent the business, which we did across 2019 through now. Good news is we're a $600-ish million business growing nicely, free cash flow positive publicly traded, got the VCs out and transformed a lot of the business, but it's early. And the good news is what we're doing now is it sufficient to get it to $1 billion plus. So bad news is we'll have to reinvent again. And that's the fun piece of, in my view, the growth stage of the company is there's no -- there's no boredom. There's opportunity, but you got to change evolve the process, evolve how you're structured, how you execute your metrics, your scorecard, your priorities, they all change. And the good news is we fixed a bunch of things, and we can get leverage off of those to help fund other areas of the business that are opportunity and we got to go find other areas that will help fund future opportunities. So it's just kind of rebirth, the less appropriate thing to say it is eat your children, right? You kind of have to constantly recycle the business to continue to grow into the opportunity. And so we're at an interesting point now where a lot of those questions are on the table. We're building a sales capability, for example. The business got to $400 million, $500 million effectively with no outbound selling motion. It's not going to get to $1 billion, $2 billion without this outbound selling motion. And that's a fundamentally different way the business has to operate. The good news about a self-serve go-to-market motion is low cost. It's low friction. The bad news is you don't sell. You don't get a lot of direct feedback from customers. And there's a certain efficiency to that, and there's a certain inefficiency to that. And the sales sort of closes that gap. But now we've got to teach the organization to sell from processes, geographies matter differently than when people just come from all over the world to their website to sign up. So that's just one example of sort of the change that we have to institute across the business to take it to the next level of scale.

I'll ask 2 questions from a competitive landscape standpoint. The first is when you think about your core TAM with SMBs and developers. How do you think about the longer-term risk that Amazon or Google or one of the big hyperscalers decides to become more aggressive in that segment of the market? I know some of them have tried before with limited success. So how do you think about the barrier to entry structurally from hyperscale is becoming more aggressive?

Yes. I think, one, our TAM is much smaller than the enterprise TAM. You think about the last 60, 70 years of tech all done on-premise. That's all going to the cloud. That's trillions of dollars moving to the cloud. We're a $70 billion a year market. So in highly fragmented and low price point, which is all a lot of what I just said is that complete tangent or 90 degrees perpendicular to a large enterprise business that's focused on managing complexity for a diverse set of global customers, we're about managing simplicity. In the time we've already been talking, we could be up and running coding on our platform. So it's simple. We provide documentation and support which sounds simplistic, but it's -- our whole business is engineered around that workflow, which is not simplistic for our customers. They demand that the product experience stands on itself. They don't have a DevOps team. They don't have IT expertise. And so having a simple, easy, intuitive product that's well documented that we offer support to every customer, also sounds simple. Not everybody in tech does that, they differentiate. You don't spend enough money, you don't get to talk to anybody. You don't get to access to documentation. Will that be a death knell for our customers. And so our whole workflow is engineered around that. And although that's not patentable in terms of the workflow, it's certainly, in my experience, having expertise on each step of the customer workflow is a huge barrier to people trying to recreate that in the marketplace, especially when their existing workflow is at complete [ odds ] to how we function today. And I think you see that when we were at SendGrid, Amazon launched an e-mail service, we were $6 million of revenue. Everyone was like you're going out of business. We sold the company to $200 million of revenue to Twilio. They launched a messaging service when Twilio was less than $100 million of revenue. Twilio is $6 billion of revenue today. They launched Lightsail, which was a cloud infrastructure business targeting SMB when we were crossing $100 million 6 years ago. So we're 6x to scale. And I think what it says is what might be relevant in the strip mall, I don't think is relevant in cloud. And there's a host of other publicly traded companies, some of them presenting here today in this week. We've also faced the same worry from people that hasn't transpired their billions of dollars years later. So I think -- and that just speaks to how big the opportunity is. And I also think it speaks to how different our segment of the market needs to be served.

How do you think about where is the segment of the market bifurcates? And what I mean by that is you were talking earlier about scaling and having a direct sales force for the first time and layering more in advanced functionality. As I understand it, the goal is to keep customers on DigitalOcean longer. So invariably, you're going to have more complex use cases at your high end. So where do you think about -- where that value proposition changes? And when a customer comes too big to make sense for your business model to support.

Well, I think where customers start to think about multi-cloud because we don't see customers. We have customers who are $100-plus million of revenue. We're a 10-year-old business, so they've known who has been with us longer than 10 years. We've had customers build really, really big businesses. Enterprise by the metrics they are enterprise now. They started at $15 a month, but they've grown in scale and added complexity. Our -- when you look at the stack overflow ratings of cloud providers and what the public says about it, we're rated as #4 from a competency capability standpoint. So I don't want people to conflate or mistake that when we say simplicity, that's sort of [ chins ], that's sort of not up to the task. It's very robust, very secure. We've had a lot of feature functionality. It's global in nature. And so we can support a lot of that scale. But what we typically see is companies get in the $1 million, $2 million, $3 million range, they start to look at multi-cloud for host of reasons. Risk management, everybody's cloud goes down and different features that we aren't going to launch based upon their use case, we're going to keep our product set relatively simple because of our core value proposition around simplicity. So I think that's the opportunity when people lift their head up and say, for a host of reasons, we're going to add to our capability. And for us, as we've added managed databases, as we add Kubernetes as we've added our Marketplace, as we've now added serverless as we'll add some new capabilities here in the intermediate near term. It allows us to capture more share of wallet, whereas if you looked at DO 5 years ago, we would have not had that. We were just pure compute and storage and networking. Now that we've added some of these PaaS layers, it allows us to capture more share of their workflow as they evolve. That's driven ARPU growth, that's driven our net dollar retention, that's driven down churn, and that's allowed us to scale into more complex evolution with our customers.

So the other half of the competition question is, how to think about barriers to entry. And specifically, if you think about the CapEx build that has been required to get DigitalOcean to where it exists today, how do you think about a potential new company looking to compete with you and perhaps taking advantage of the way technology has evolved architecturally to not need to spend that CapEx build in order to compete?

Well, I mean, there's good and bad about capital, and I've been in some capital-intensive businesses that make this look like nothing. And the key is that why is somebody going to upfront that money to get into the business. So I think that's always a barrier. And one reason why people might do it here is the market TAM is large. But the thing about capital that I like, and we've really addressed this in fixing the business over the last few years is, you got to be good at it. And when we were going public and it was at 50% of revenue, that's not good. We cut that more than in half, that's enabling us even at this scale to be 10% or so free cash flow margin, and we're going to scale from here. We're getting really good at it. And I think other people looking at that says it's difficult. It's not easy. And it's managing a big portfolio and you got to do it efficiently and be able to provide service, et cetera. So I do think whether it's a barrier or not, I think people look at it and say, it's a big opportunity, but do I have the competency, do I want to front-load that capital and the risk in a business that's largely MRR, right? It's monthly recurring revenue contracts. We don't sign long-term contracts. So I do think that it's a -- whether it's a barrier to entry, it's certainly a pause for serious consideration to entry.

The -- you've talked about this a little bit in terms of simplicity. If we compare your capital efficiency ratios to some of the larger hyperscalers, you're more capital efficient. And so how do you think you're able to do that? One would think that more scale to get more capital efficiency? Curious to hear your thoughts.

Well, I'll just say what we do. We have a very efficient go-to-market and we now have a much more efficient capital. There's still some improvement, but we've made a ton of strides to knock that down as a proportion of revenue. And we have a very narrow product set. We focus on the support, the documentation, and we have a host -- a handful of PaaS capabilities. We have a marketplace and we have the infrastructure as a service. We don't have 4,000 products. At our conference next month, we'll announce a new product or new feature. We're not going to announce 2,000 features like others might do at their fall conferences. And I'm not knocking them. They have much more diverse customers with much more complex needs. So they're innovating, they're both required to innovate for that diversity. Even though we serve a lot of different industry verticals. The Venn diagram overlap of our customer base is even with different use cases or different verticals is pretty dense. So it means that's why we could take our PaaS from 0% to 12%, 13%, 18% if you had in the marketplace, we launched 3 years ago because we can easily define like as a company is just focused on compute, day 1, they start to get lift off on idea in their business. They grow their customer base, they grow their employees. You know where the workflow is going to evolve to in those early years. And they're all pretty similar. And so us innovating those products allows us to have a high hit rate and efficient innovation without us having to spend on a wide smattering of innovation that's being monetized maybe in a segment, but not across the entire universe. So I think our cost structure might be different. And I also think people always assume that those folks price the cost, and I don't think anyone in fact, hopefully, nobody in fact is pricing the cost, you price the value. And the value proposition of moving $100 billion -- $100 million of IT to the cloud where you're not good at it in Amazon or GCP or Azure is much better. Now you save a lot of money. Are you paying the cost? Probably not. And I think that's the relative difference. But I think our cost and capital efficiency is just because we have a very targeted set of capabilities. And that's why we're going to stay focused on our customer base. If we were to try to extend out and add more complexity to the product set, that's going to make it more capital intensive for customer, and that's going to offset the model. And that's why we're very focused on SMB.

The structural improvements that we're talking about, many of those are evident in the metrics that you report on a quarterly basis. If I think about DigitalOcean growth going from 24% in 2Q of '20 to 37% in 3Q '21. How do you think about measuring internally? How much of that is due to structural improvement versus how much may be tied to a [ COVID ] catalyst cycle and entrepreneurship or in some of the key verticals that you plan?

I'd say that did we benefit from -- all of our customers are cloud native. So there's no on-prem to cloud transformation. We definitely benefit from net new business formation because that's the fuel to the long-term growth of the business. We see a near-term benefit, but we sign up tens of thousands of customers on average at $15, $16 a month. That over time, those customers spread and a fraction of them become $100,000 a month customer. So we've given examples of that. We used some case studies in our Investor Day and earnings calls. So that's a long tail -- that sets the table for long-term durable growth because we create this pool of customers who pay us a little bit who are testing, they're learning, there ideating and then they get launched and then they'll launch a business that grows and scales pretty rapidly. And by the numbers, 5, 6 of our total customers, 500-plus thousand are generating 15% of revenue on the platform, far lower than our average ARPU for the total company. And those are -- if you look at those companies in 5 years, some of those are going to move into the $100,000, $120,000 plus customers who are generating 85% plus of our total revenue, who have graduated on the platform. They're using multiple products. They're building a business that's rapidly scaling. And that's the portfolio that we're managing. And so we serve a segment into the market that's half of GDP is SMB, fewer than 500 companies. Most of the humanity doesn't work at Goldman Sachs. They work at a tiny bank in the street corner in a small country, and that's fewer than 500 employees. That's most humanity, most -- half of GDP is SMB. Now that's the good news. That's the segment we're in. The bad news is they don't spend a lot of money individually. So you got to be efficient and how you attract them, you have to be efficient at how you serve them. And we certainly have seen a lot of data over the last year now as people are analyzing COVID, that new business formation just like in '07, '08 and the financial crisis does accelerate when there's a crisis. How much of that is due to a lot of the improvement in the metrics versus us want to take credit as a management team. We could debate that over some beers in that here. But I would be foolish to say it's a little bit from COVID, but we've reengineered a lot of what we do. And frankly, you have to do that to be able to take advantage of tailwinds. Yes, it's unclear, we would have been able to take advantage of tailwinds have we not had some of the change. A great example of that is we had no contract. We used to buy servers by the drink going into COVID. And we cut a long-term contract with our vendors, provided them a lot more insight into the business by quarters, and we got the price cut into half. Now I'm not sure 4 months, 6 months in the pandemic as we learned about supply chain. If we would have still been calling our vendor on Friday to deliver servers on Wednesday, with what's happened over the last 2 years. I don't know where we would be as a business. So I think taking advantage of tailwinds requires you to operate the company better. And I think it's always a combination of both, but we certainly have put a lot of transformation in the business to this point.

I have a nuanced question for you on the timing of business activity versus developer activity. And the reason I ask is, if you think about 2Q '20, we started to see a lot of acceleration in verticals like e-commerce, web agencies, streaming, video, Blockchain. The DigitalOcean business actually accelerated a couple of quarters later. And so we have a working hypothesis that developer activity may actually be a lagging indicator to business activity in any given vertical. Would love to hear your thoughts based on the customer base that you have visibility into?

Yes. I think in this particular case, we came in 7 months before the pandemic. And so we spent those months retransforming the team. A lot of how we do work, restructuring our debt, do it a Series C and hiring a new executive team. And that team started coming online in Q2 of '20 and started executing a different playbook in the second half of 2020. And so I think that just drove a lot of what you just mentioned in terms of the lag. I mean there might be some of that, but I think that's what happened in terms of the progression with us.

So I'll ask a more specific question on what you're seeing today in the macro environment. I think it was around the timing of the Analyst Day that you first started talking a little bit about a slowdown in select geographies. Give us an update on what you're seeing today? And how do you think about the resiliency of your customer base going to a period of weaker macro growth globally?

Yes. So I think what we said in June was weaker Europe, weaker Asia. I think we're seeing weaker Europe and weaker Asia or I shouldn't say, weaker than weaker. I should say it's weak in Europe and weak in Asia as related to what we thought 7, 8, 9 months ago. And we called that out in particular because U.S. a little bit softer than what we expected initially in our plan this year, but not demonstrably what we're seeing in Europe and Asia, obviously, there's been currency issues. You got war, you got a lot of instability with China shutting down, et cetera. So we've definitely seen that impact. And the other factor layered on top of that is we've seen a huge acceleration over the past couple of years on Blockchain. Those customers tend to be concentrated in Europe and Asia, very few in the U.S., some in the U.S., but nowhere near. They tend to be larger. And so we peaked at 5% in Blockchain in Q2. Russia is in that mix, too, which is a headwind in Q2. Blockchain won't be 5% this quarter. It won't be 0 this quarter, but it's certainly going to be off from where it was. And so that's why we call that out. And I think in general, though, I don't know most people think what their revenue is going to be for the year. Our revenue is not going to be what we thought it was from 8 months ago. There's -- we've been hitting the jaw a few times this year. And we're flexing, we're adjusting. You could see that we're managing through that with our margins and free cash flow is still intact. And we'll continue to do that. In fact, we'll continue to be levered towards making sure we deliver on that if we have an uncertain environment. But that's what we called out, and I think that still persists.

One of the beauties of having an SMB model that's efficient is so many of your customers are coming in through self-serve, the vast majority. Very different to an enterprise-focused business model, where you're meeting customers, they're telling you how much they plan to spend for the next 3 quarters. How do you get visibility into the health of your SMB base to be able to make forward planning assumptions. And I know it's something that your team and Chief Strategy team is working very closely on. So we'd love to hear your thoughts.

Yes. I think one of the -- when you're in the enterprise, you could just look at who are the Fortune 1000, who are those CIOs and go call on them? How many salespeople do they need, how may support -- I mean it's just a fixed amount of people who spend lots of money. Our TAM is $100 million small businesses around the world that are digital, [ $30 million to $50 million ] software developers. So -- and they come to us. And so having an efficient go-to-market is really important. They're very resilient. And so we're not tied to any vertical. We're not tied to any geo. We're sort of globally dispersed. We're not tied to any customer. We don't have concentration issues. So the business, although seeing some softness is not outwardly impacted. And in terms of thinking about how to get our hands around the visibility, it's -- the cohort analysis is very predictable. And I remember when I was at SendGrid coming in and had been in the business before that where you signed $10 billion 10-year contracts. And here to hear that every contract was 30 days. I was like, what? How was that a real business? The reality is we all live our lives with cable bills, rent, whatever it is, it's monthly. And so when you look at that in the long arc of history, if you look at the stripes of our cohort, they're very predictable. And so cohort performance is a good leading indicator of future performance, very, very strong. There are other things that we look at month-to-month usage patterns, volumetrics that are relevant. But following the cohort, which tends to be over 80% of our revenue in any given period is a very good -- it tends to look a lot like contractual backlog.

It's interesting because we're now in year 1.5, Year 2 of what would have been the 2020 cohort, I'll ask a follow-up question, which is does the 2020 cohort also mirror the same predictability of your earlier cost?

Yes. All our cohorts grow over time, more recent cohorts grow faster than older cohorts. And that's our first full year cohort as we joined in 2019. So it's like our favorite child. Because -- but there, I would say, per your earlier questions about COVID trends, et cetera, we don't see that in 2020. And that's probably the first real cohort that was able to buy a managed database or managed Kubernetes in fact, where we started to broaden the TAM of our business that have been more durable, higher growth, higher -- larger in size.

One of the lever is that you've been able to pull in the face of more macro incentive pricing. How did you think about the timing of pricing? Why was this the year in which you decided to pull that lever for the first time?

Yes, I would have loved to do it in 2019 about a month after I joined. I had a thesis coming in here that we were mispriced. And then after meeting with customers early in my tenure realized the value gap to price was pretty wide. The problem with that is you don't just wake up and go tell your customers, "Hey, guess what, you've been getting a great deal. Here's the bad news. We're going to raise price, you can't do that. So it took some time. We did some experimentation. We hired a lot of experts, did a lot of analysis. We had to build teams to get our arms around managing it. We did an experiment in the early last year, launching our Premium Droplet allowing customers to pick their own chip, and we charge $6 instead of $5, which is $1 increment. Everyone likes to say it's 20%, but it's $1. And the uptake was pretty significant really quickly. And that was a confirmation that customers do differentiate on value, if you can demonstrate it. And so we spent a lot of time last year doing some analysis and got aligned around pricing, the lower price droplet as well that kind of created a different set of good, better, best an array of -- and launched that in late April or announced it early May, and that went effective in July. But the goal was we have been competing with Linode, Vultr, others at the -- in the SMB end of the market essentially at price parity since we started the business 10 years ago. In that time, we invested so many tens of millions in reliability, in security, in additional feature functionality and adding a PaaS layer and adding a Marketplace, adding and investing in community and yet we were priced to parity. And we had a different philosophy about relative value. And so we acted on it this year.

So it's been a couple of months. What is the feedback that you're getting? Is there anything that you can share with us in terms of magnitude beyond all the pricing that you have on the website that blended impact, anything incremental you can share about how customers are reacting relative to how predicted they would react based on your trials? Would welcome any positive color ?

So I would say, at least on top line, the impact is what we would have expected in general, a little bit better. We modeled in some churn. It's been less. In other words, customers outright leaving has been less. We had modeled in that people would not take -- the go from $5 to $6. They go from $5 down to $4 that has been far less than we expected. And so I think those 2 key parameters sort of neutral or positive. No -- now what's sort of in the face of that is broader weakness. So usage is just down because volumes are down. We've had some weird stuff thrown in like the Blockchain in Q2 or Q3. That's -- so I think there's some things offsetting it, which reflected and we talked a lot about that on our call last month. But in general, this is going to be around for a long time. And so I think the durability of the price and the relative delta that what we've established, I had a customer tell us, it doesn't matter if you double the price, you're a better value than some of these other competitors, direct competitors. And I think that speaks to somebody who's building a business on our platform and what it means to them that the experience, the simplicity, all the things that we've invested in. So I think that was what we wanted to create is clear separation and still a price gap to the larger competitors, which I think we've done. And I think we're pleased. It takes more than 2 months to settle out because people change their behavior and how they do things on the platform. And we're learning a lot about that. And I think we closed a little bit of the value price gap -- value received price gap from our customers. I don't think we've closed it entirely. And so it took us 10 years to take this sort of action. I wouldn't expect the next action to take 10 years. I also don't expect this to be a -- it's a new calendar year, let's raise prices 3%. So it's not going to be that for -- but there's still more value that we're conveying that we're not properly -- have some theories about what the opportunities are, but we'll do a lot of retroing this fall as we get some more data behind us on this. We'll regroup and think about what's next.

There's another way to think about pricing, which is to your point on value, higher-value products being introduced into the DigitalOcean road map over time. For example, what you're doing with PaaS, [ IaaS ]. How do you think about the cadence of richer product mix from here. You mentioned your upcoming user event next month? Any color on the relative growth rates of PaaS, [ IaaS ] and then the broader question on product road map in question.

So we've gone from 0 to teens percent of revenue in 3 years. So the growth rate is still much more robust, much higher in the overall growth rate in our databases, Kubernetes, serverless and our Marketplace. It's growing much faster than the company. So that mix shift, and I think we said at Investor Day, we think over time, it's going to be somewhere in the 30% to 40% area. It's important to note, though, it's not at the detriment of the IaaS business. They kind of bring up a signal that somebody is using databases more or Kubernetes means their business is growing. So they're going to pull-through on compute. So it's not going to be -- we're 90-10, the other way with PaaS over time. It's still going to be mostly, you got to run something on a computer. You got to get it through the Internet. You got to store those applications. So infrastructure as a service, compute network and storage applications are going to be a majority. But we do think that mix will shift over time, and that will reflect our customers' need for greater productivity tools on the software side to allow them to get fuller leverage on the infrastructure they're using to build the business.

How did you arrive at that 30% to 40% target?

I think our understanding of what other bigger players look like is that, I think what we kind of look at full penetration into the customer base over time. Every customer doesn't have databases yet. Every -- and that's probably really relevant to almost every business customer beyond a certain level of scale. Kubernetes and serverless is still extremely early. Our database penetration is really light even though the adoption rates and the growth rates are still healthy. So I just think we look out over the next several years at what those relative trends are, what else we could add. And that's where we're kind of expecting things to settle out in the next few years.

I'd like to ask about M&A, and then we'll open it up to the audience for questions. On the topic of M&A, what I believe is that you're pulling to bring in more richer product mix is [ Cloudways ] and so a 2-part question. One, do you still think it makes sense to think about acquisitions for things like CDN and AI, which I know on top of mind for your product road map? And then two, could you see a scenario where there are more customers in your base that you think actually makes sense similar to Cloudways to bring in-house to expand our portfolio?

I have to be careful. I answer that one, right? I think I'm excited about Cloudways. It -- when you think about SMB, we say SMB and everyone thinks of the same, they're not uniform. And when we see customers who come on to DO -- DigitalOcean and leave typically in that first 90 or 120 days. One of the main reasons is they come and they said, "We like the service but we were looking for a more managed -- this is for do-it-yourselfers. We want to -- we're not doing your softwares. We thought we might be a do-it-yourselfer, we're actually don't want to do it ourself, and we thought that this is more managed. This Cloudways transaction broadens the number of people who are now relevant to us because even though they may be on the Cloudways or some other managed hosting provider, leveraging our infrastructure, we're not in control of that relationship. And Cloudways tries a $5 droplet customer, DO is paying $10 for the managed service. So I think it expands our serviceable market. We talk about the $100 million SMBs. Well, that's in the cloud or in general. They're not all serviceable because they're looking for a different experience than what our core capabilities are. So that expands our capabilities, which we're excited about. So hopefully, we can lower that sort of logo churn in the first 90 days. There's also a multi-cloud, I think, productization. Most of the companies who build and scale on DigitalOcean do-it-yourself source but not all of them. And the top 2 that don't, they go to AWS or GCP, which are on Cloudways. So -- and we've always said this that multi-cloud is part of simplicity. We are not going to provide barriers to our customers, growing their business the way they need to. Our view is we'll add the relevant apps to capture more share of wallet, like we've talked about. But this historical legacy enterprise tech, which has put up all sorts of barriers, so you never even consider a competitor. It's just not the way to operate with a small business, right? They need less friction, not more. And I think that's been a feature, not a bug in our business. And I think that's why people are so loyal because we are about making it easy and simple for them to build their business, not putting friction in the way. Here's an opportunity potentially to productize that, facilitate that and capture value directly for multi-cloud, which we're not necessarily doing today. The other thing I'm really excited about the Cloudways transaction, they're more customer intimate because of the nature of providing a managed service than we are. And so the good news is self-serve, they show up. It's easy. It's 12% of revenue. The bad news is we don't necessarily talk to customers except when they have a support issue. Well, they're talking to customers as a matter, of course, because of the nature of what they're doing. And that's going to just help make more efficient our product prioritization, product road map, and it's going to make us a better organization.

Questions from the audience, please.

Go to market [indiscernible].

So sales and marketing as a percentage of revenue is 12% today which is very efficient. There's not a few people at this conference quoting those numbers. We think that it might go up a little bit, building out inside sales, account reps, et cetera. Building out support, which is integral to the sales motion, some outbound selling partner capability. The trade is you might spend a little bit more, but the average customer comes in thousands of dollars per month versus $15 a month. So it's still got great unit economics in terms of like for those like lifetime value to CAC. In terms of us moving up market, I just can't see it. I mentioned earlier, we have companies who started at $15 a month as a startup and they go to $500,000 a month, where they would be considered enterprise. I mean that's an organic creation, going out and role us getting our CIO list for the top Fortune 1000. I just don't see us doing that. We may pick our spots in terms of business opportunity to migrate, but I don't think is a whole flow. I'd say we got a lot of runway here to $1 billion and beyond. It's not inconceivable, we're doing this in 3, 4, 5 years in the fireside chat, and you asked that question, and maybe that's different. I don't even think it's a different then. It's just such a -- we're so underpenetrated. We were at Cloudways last week and we said, look, we've all made a lot of progress. You have 75,000 customers. We have 620-plus thousand. So 700-plus thousand customers. That's great. So less than 1% of the opportunity. So we've got a lot of runway here. And we've got a lot of differentiated capabilities. And we've made good progress in fixing things. We got more to fix. And so we see a lot of runway just doing what we're doing in a segment that has historically been wholly underserved by technology companies.

Excellent. Let's leave it there. Thank you so much for your time.

Thanks, Gabriela. Thank you.