In non-Wall Street parlance, Snowflake’s recent quarter was a blowout: sales up 83% to $497 million, with revenue now expected to reach $1.9 billion for 2022. It was a much-needed vibe shift for an industry suddenly battered after years of wild growth.
“We certainly hadn't expected this degree of upside,” Mizuho analyst Gregg Moskowitz and others, who were already bullish on the company, wrote about Snowflake’s results.
CEO Frank Slootman quickly got the seal of approval from investors, an audience increasingly skeptical of the prospects for the software industry. As companies like Salesforce and ServiceNow witnessed their share prices plummet after issuing muted sales forecasts for the rest of the year, Snowflake’s grew over 17% following earnings.
Snowflake isn’t alone. Databricks just passed $1 billion in annualized revenue and is aggressively recruiting, and earnings at Confluent and MongoDB surpassed Wall Street’s sales estimates: Both of those companies provided rosy annual forecasts ahead. Even private companies like Cockroach Labs and Canva, which serve as alternatives to Oracle, Adobe and other so-called legacy companies, continue to hire, boost sales and fundraise at an impressive clip.
The results are a signal of the seismic shift underway in the world of business software: the arrival of the new IT stack.
“Our space is everybody’s else tomorrow,” said Dave McJannet, who, as CEO of infrastructure service provider HashiCorp, depends on the adoption of cloud-based tools like Snowflake. “There’s an old world-new world paradigm … and you’re seeing some pretty big companies emerge that will potentially challenge Salesforce for being the biggest employer in San Francisco.”
The divergence is stark. As Snowflake, Databricks and others show no signs of slowing down, Salesforce and Microsoft reduced outlooks and are implementing cost-cutting measures like hiring freezes to bolster profitability. Meanwhile, Oracle is laying off workers.
Economic factors are certainly at play. In the face of a potential recession, some customers are forgoing investments in core applications — like HR systems or CRMs — in favor of data management and analytics. And to point out the obvious: So-called legacy vendors remain significantly larger and, as a result, are not as able to quickly adjust to wild fluctuations in the market.
But it’s a stark change from the course of the last three decades, when a handful of names — Amazon, Salesforce, Microsoft and Oracle, for example — seemed to dominate the discussion within IT departments.
In 2005, if you wanted to buy a database, options were fairly limited. Now, the floodgates have opened. Alongside the likes of Amazon and Microsoft — which recently took over Oracle as the largest database vendor, per Gartner — there’s a plethora of new options that customers are turning to.
For some, it’s a missed opportunity. For example, Adobe gravely underestimated the demand for creative tools among non-professionals, and is now under pressure from upstarts like Figma and Canva. Even Microsoft, a close Adobe partner, is openly embracing Figma.
What Snowflake created was not an easy build by any means. But if Oracle had simply recognized the looming potential of the cloud much earlier, the dynamics now could be starkly different.
And while Salesforce touts its data and analytics capabilities, the foundation of the company is its core vertical applications. Instead, customers seem increasingly more interested in pooling data from various systems into one repository, like Salesloft or Clari, for deeper analysis.
Salesforce “should have done this,” said Guggenheim Securities analyst John DiFucci. The company “let others get to that ‘intelligence layer’ much quicker. And it’s unclear if they’re going to be able to participate in that.”
To put it more bluntly: “They are no longer a growth name,” DiFucci added.
Amid that pivot, Fivetran, which recognized early on the need to help companies move information from those so-called systems of record into Snowflake and Databricks, expects sales momentum to continue unabated despite a broader slowdown in the software market.
“We’ve done the math, and even under pessimistic assumptions, we’ve grown revenue so much that we’ve outrun the decline of the market,” CEO George Fraser told Forbes.
For others, the current struggles are simply a result of the pivot to the cloud. It’s not uncommon for architectural shifts to bring in new market dynamics. The shift away from mainframes, for example, helped Oracle overtake IBM and solidify its former status as the world’s largest database vendor.
In today’s environment, VMware is a prime example. The company, which for 24 years has provided customers a single platform to run multiple applications or operating systems on one server, is now on the defensive in the face of a $61 billion acquisition from Broadcom, a company with a notoriously checkered history with customers.
For some VMware customers hesitant about the new owner, it’s bringing up questions of whether to move existing workloads to the cloud to simply eliminate the need for the company’s signature products.
VMware “is certainly a topic that comes up a lot for the big companies we speak to, who are all none too pleased about” the acquisition, said McJannet, who directly competes with VMware.
Microsoft, Salesforce, Oracle and SAP are all companies that will continue to make money hand over fist, due in no small part to huge existing install bases. Shifts in power in enterprise tech often take years, if not decades, to happen.
But as Salesforce proved with software-as-a-service and AWS proved with the cloud, those generational upheavals remain very possible. And it’s possible the timeline gets accelerated.
As some legacy vendors look to spend billions to acquire other legacy tech, Databricks or Snowflake could use their war chests to double down and acquire other key features of tomorrow’s IT stack, effectively creating the Salesforce for the AI era.
The future is certainly much brighter right now for the new kids on the block. But like the U.S. government proves, don’t count out the boomers. Still, as Slootman once said, “Only the government can print money; the rest of us have to take it from somebody else.” He certainly seems to be doing that.
Update: This story was updated Sept. 2 to clarify Microsoft's relationship with Figma and Adobe.
