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Snowflake’s historic IPO signals surging demand for cloud-based enterprise software

After raising $3.4 billion in the largest IPO ever pulled off by a software company, Snowflake has an impressive foundation to continue building out its data warehousing services for a data-mad world.

Snowflake’s historic IPO signals surging demand for cloud-based enterprise software

Snowflake's appeal stems from its proprietary cloud data warehouse software, which is consumed as a cloud service.

Photo: Snowflake

A few years after it looked like the "Big Data" era might have faded into the background, Snowflake's historic IPO Wednesday indicated otherwise.

Shares in the cloud data warehouse company closed at $253.93, up 3.6% from the opening price of $245 and an enormous 112% jump from the listing price of $120 per share. At a valuation of $69.9 billion, Snowflake instantly became one of the most valuable companies in enterprise technology, and the $3.4 billion it raised in the process makes this the most valuable software IPO in U.S. history.

"It's a vote of confidence," Snowflake CEO Frank Slootman told The Wall Street Journal as the magnitude of interest in the stock became clear. "But clearly as a management group and as an employee base, we have to work very hard to deliver on it."

Snowflake's appeal stems from its proprietary cloud data warehouse software, which is consumed as a cloud service. Data warehouses are specialized types of databases that are optimized to allow frequent, rapid data queries, ideal for near real-time data analysis and for storing enormous amounts of quickly accessible data.

Companies like IBM, Oracle and Teradata sell data warehouse software for companies that manage their own servers, but Snowflake has been a cloud-native breakout success. It built the company on AWS, which operates its own Redshift cloud data warehouse, and has grown steadily on AWS while extending its reach to Microsoft Azure and Google Cloud along the way.

Operating on the cloud means that Snowflake customers can scale up or down as needed without having to add and manage hardware to grow their piles of data. Snowflake has also made it easier for mutual customers of the company to exchange data sets through the service, which is an attractive feature for buyers and suppliers, or close partners.

Snowflake raised a total of $1.4 billion in funding during a series of megarounds from 2016 up until earlier this year. The company was founded by former Oracle engineers Thierry Cruanes and Benoit Dageville and database entrepreneur Marcin Zukowski in 2012. It launched in 2014 with former Microsoft executive Bob Muglia as CEO, and Slootman took over the top spot in 2019.

Other companies have attempted to tackle this problem, with a surge of interest in so-called Big Data companies like Cloudera and Hortonworks built around the open-source Hadoop software around five years ago. Both of those companies eventually went public but were forced to merge after the market clearly signaled that if it was going to rip out older database software, it wanted to rebuild on the cloud.

"We have like 30 years of database that is gradually going to move toward the cloud, it's going to take a long time," Slootman told Protocol in April, forecasting demand for Snowflake's shares Wednesday. "It's not just a quick switch that you throw; some of these transitions take years. And it's not that easy, so it costs money, it takes time and it takes attention."

Of course, that means that the cloud providers — who are also making money off Snowflake's success on their platforms — will have time to improve their own data warehouse services. Snowflake's decision not to open source the code that runs its service could be a potential toehold for vendors that want to capitalize on the broader movement of enterprise software toward open-source alternatives; open-source databases like Redis and MongoDB have led to lucrative business opportunities for companies build around those projects.

Still, investors clearly believe that Snowflake has established a moat around its approach to solving this problem. The company will need to shore up its margins to maintain long-term investor interest, but IPOs are bets on potential, and Snowflake has a lot of potential.

People

Making the economy work for Black entrepreneurs

Funding for Black-owned startups needs to grow. That's just the start.

"There is no quick fix to close the racial wealth and opportunity gaps, but there are many ways companies can help," said Mastercard's Michael Froman.

Photo: DigitalVision/Getty Images

Michael Froman is the vice chairman and president of Strategic Growth for Mastercard.

When Tanya Van Court's daughter shared her 9th birthday wish list — a bike and an investment account — Tanya had a moment of inspiration. She wondered whether helping more kids get excited about saving for goals and learning simple financial principles could help them build a pathway to financial security. With a goal of reaching every kid in America, she founded Goalsetter, a savings and financial literacy app for kids. Last month, Tanya brought in backers including NBA stars Kevin Durant and Chris Paul, raising $3.9 million in seed funding.

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Michael Froman
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If health AI were a patient at a hospital, its chart up to this point wouldn't look too promising.

Its symptoms are long-standing and chronic: a lack of interoperability, a dearth of equitable data sets and a difficult-to-navigate relationship with patient privacy. And the specialists that have taken a crack at treating it — Big Tech, insurance giants, AI and cloud companies — have largely come up short with patient-care tools that have broad utility across the medical field.

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Blockchain, QR codes and your phone: the race to build vaccine passports

Digital verification systems could give people the freedom to work and travel. Here's how they could actually happen.

One day, you might not need to carry that physical passport around, either.

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There will come a time, hopefully in the near future, when you'll feel comfortable getting on a plane again. You might even stop at the lounge at the airport, head to the regional office when you land and maybe even see a concert that evening. This seemingly distant reality will depend upon vaccine rollouts continuing on schedule, an open-sourced digital verification system and, amazingly, the blockchain.

Several countries around the world have begun to prepare for what comes after vaccinations. Swaths of the population will be vaccinated before others, but that hasn't stopped industries decimated by the pandemic from pioneering ways to get some people back to work and play. One of the most promising efforts is the idea of a "vaccine passport," which would allow individuals to show proof that they've been vaccinated against COVID-19 in a way that could be verified by businesses to allow them to travel, work or relax in public without a great fear of spreading the virus.

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Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.

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Everything you need to know about the Coinbase direct listing

Coinbase's IPO valuation could be the largest by a U.S. tech company since Facebook went public.

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Coinbase, the cryptocurrency exchange, filed its S-1 on Feb. 25 to go public via direct listing on Nasdaq. In the lead-up to the IPO, Coinbase shares traded on the Nasdaq Private Markets at $373, yielding a company valuation of over $100 billion, per Axios. If share prices remain at or above these levels, Coinbase's IPO valuation could be the largest by a U.S. tech company since Facebook went public in 2012. The company hasn't yet set a date for its trading debut.

Depending on who you ask, the Coinbase IPO could be the latest symptom of a major financial bubble or a significant milestone in the restructuring of the global financial system. Coinbase's mission is to "create an open financial system to the world." It believes the prevailing system of global finance, with the U.S. dollar serving as the global reserve currency, is outdated and inefficient. This mission pits the interests of Coinbase squarely against many of the world's most powerful nations, making regulation a grave and — if cryptos continue gaining momentum — probable risk.

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Hirsh Chitkara
Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
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