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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.

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