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enterprise| enterpriseauthorTom KrazitNoneAre you keeping up with the latest cloud developments? Get Tom Krazit and Joe Williams' newsletter every Monday and Thursday.d3d5b92349
September 17, 2020
It's almost impossible to understate the complexity of managing a modern cloud infrastructure deployment, even at huge companies with hundreds of expert engineers. Sumo Logic wants to be the alarm system for the cloud, and just raised $326 million to further its monitoring efforts.
After listing at $22 a share Wednesday evening, shares of Sumo Logic opened at $26.64 Thursday during its initial public offering on the Nasdaq. The shares closed at $26.88, valuing the 10-year-old company around $2.6 billion.
"There's a huge tailwind for the general way that we're thinking about things," said Christian Beedgen, co-founder and CTO, in an interview with Protocol on Thursday. As we saw Wednesday with Snowflake and JFrog's well-received IPOs, investors are very attracted to companies attacking modern tech infrastructure problems with software services.
The numbers vary across industries, but according to a report released by Okta earlier this year, customers of its access management service have an average of 88 software applications running various parts of their businesses. The top 10% of its customers are running more than 200 applications across their network, and that is a lot of data and activity to track, measure, and evaluate.
Sumo Logic's services help companies monitor application performance as well as security incidents, and like many other vendors working with vast amounts of data, it uses machine-learning algorithms to tease out insights from that data. The hope is to prevent outages or breaches before they happen, and to give customers a better picture of how their applications are actually working across cloud platforms.
Monitoring, and its newer companion category, observability, are "a means to an end," Beedgen said. "The end is reliability, the end is for your apps to be reliable so your business can run on top of them."
Companies like Splunk rose to prominence providing similar services for on-premises data centers, but almost everyone in the monitoring business has shifted their efforts to the cloud. Last year, Datadog, which provides similar cloud-monitoring services to Sumo Logic, raised $648 million in an IPO, and its stock price has doubled over the last 12 months.
Sumo Logic provides its services across multiple clouds as well as hybrid cloud setups that involve some degree of self-managed servers, but it runs its own operation entirely on AWS. That might seem like a bit of a head-scratcher, especially given AWS' intent to provide similar monitoring services to its clients as part of large package deals designed to woo cloud newbies onto its platform.
But in reality, the relationship is more complicated, Beedgen said. Sumo Logic competes with AWS to some extent, but the two companies are also partners, and as Sumo Logic's customer base grows, that actually generates more revenue for AWS as well.
"Every innovator needs to live in fear of being disrupted," Beedgen said. "If they manage to build a better product than us, then that's on us."
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Tom Krazit
Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
People
Beeper built the universal messaging app the world needed
It's an app for all your social apps. And part of an entirely new way to think about chat.
Beeper is an app for all your messaging apps, including the hard-to-access ones.
Image: Beeper
January 22, 2021
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
January 22, 2021
Eric Migicovsky likes to tinker. And the former CEO of Pebble — he's now a partner at Y Combinator — knows a thing or two about messaging. "You remember on the Pebble," he asked me, "how we had this microphone, and on Android you could reply to all kinds of messages?" Migicovsky liked that feature, and he especially liked that it didn't care which app you used. Android-using Pebble wearers could speak their replies to texts, Messenger chats, almost any notification that popped up.
That kind of universal, non-siloed approach to messaging appealed to Migicovsky, and it didn't really exist anywhere else. "Remember Trillian from back in the day?" he asked, somewhat wistfully. "Or Adium?" They were the gold-standard of universal messaging apps; users could log in to their AIM, MSN, GChat and Yahoo accounts, and chat with everyone in one place.
<p>Migicovsky has spent the last two years building a modern equivalent. It's called Beeper, and it pulls 15 different messaging services — including WhatsApp, Slack, Instagram and iMessage — into a single app. The app launched this week, and will cost $10 a month for anyone who wants to use it. Migicovsky said roughly 40 people have been using the app for the last few months, and that he's come to rely on it completely. "Beeper went down for me a couple of weeks ago, and I had to fix it," he said. "And for the hours I was fixing it, I had to open up Slack, Telegram, Signal, everything. It was like going back to the Stone Ages." </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>To explain how Beeper works, and why Migicovsky thinks it's valuable, you have to understand the protocols. In the early days of online messaging (otherwise known as The Adium Era), many messaging services were based on a protocol called Extensible Messaging and Presence Protocol, or XMPP. When it was designed, XMPP intended to make all kinds of communication on the internet, from text to video to file transfers, into decentralized systems. For a while, it worked: From AIM to Google Talk to the early days of Facebook Chat, some of the biggest messaging services used XMPP. </p><p>A few years later, Google and Facebook — and soon others — decided to stop supporting XMPP. Some argued XMPP was too complicated a protocol and simply didn't work; others said they could develop features more quickly by keeping everything in-house. "Today, group conversations, sharing your day with stickers or emojis and messaging across multiple devices have become second nature to many of us," Google product manager Mayur Kamat <a href="https://web.archive.org/web/20150704141805if_/https://plus.google.com/+MayurKamat/posts/ETBvtp9VYav" rel="noopener noreferrer" target="_blank">wrote in 2015</a> announcing the switch from Google Talk (which supported XMPP) to Hangouts (which didn't). Whatever the reason, messaging apps soon became walled gardens, with everything run — and stored — in one place.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>In the last few years, though, a group of developers has been building a new protocol, one they hope can offer all the openness and decentralization of XMPP but with all the modern features people need now: encryption, voice and video, integrations with other apps and the like. It's called Matrix. "Matrix is our effort to right the balance" after decades of great tech being turned into walled gardens, said Matthew Hodgson, Matrix's technical co-founder. "If you were going to build the holy grail of messaging," the team asked themselves several years ago — a service where anyone can participate, where everything is encrypted, where nothing is locked off from the ecosystem — "what would it look like?" Some of this tech has been built in the past, but always inside a single company or service. They wanted to build it and give it to the internet.</p><p>Ultimately, Hodgson said, Matrix is more than a messaging protocol. "It's a real-time database for any kind of information," he said, from financial tickers to drone flights to VR streams. "Matrix just gives you the building blocks to synchronize it between different deployments." Messaging just happens to be something with which Hodgson and his team have plenty of experience. Not to mention, it's kind of a killer app. Matrix-based messaging can support a whole ecosystem of apps, the way email protocols do. It's all end-to-end encrypted, and it's resilient by virtue of not being housed in a single data center. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>"When Slack goes down for six hours," Hodgson said, "or Signal goes down for 24 hours, people realize, 'hang on, all my eggs are in one basket.'" There are already decentralized, harder-to-kill apps like Slack or Signal running on Matrix, where there's less security risk or possibility of downtime. He added: "The narrative is swinging in our direction." Millions of users use Matrix messaging tools already, he said, including the entire French government, which uses a Slack-like tool called Element that is built by the Matrix team.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTUxMjQ3Mi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTY3MDIzNzU0NX0.NPrsWaIEy9RUG90_cIsyZMFW7foaGyiuP_vHdD2T-Ok/img.png?width=980" id="ce4ab" class="rm-shortcode" data-rm-shortcode-id="37ea800dd363bb5c0c588b2727990131" data-rm-shortcode-name="rebelmouse-image" alt="Beeper chats">
<small class="image-media media-caption" placeholder="Add Photo Caption...">Beeper tries to wrangle lots of messaging apps into one. Eventually, that might not be necessary.</small><small class="image-media media-photo-credit" placeholder="Add Photo Credit...">Image: Beeper</small></p><p>Matrix is key to Beeper, but in a slightly different way. Migicovsky isn't trying to build a brand-new chat service to compete with WhatsApp; he's trying to wrangle all the services people use into a system that feels more open. So he's taking advantage of a Matrix feature called Bridges, which pulls other apps into the Matrix ecosystem. Sometimes this is easy: Migicovsky said IRC and Telegram have great APIs, making it easy to send and read messages from other apps. Most others are a bit hackier, though Migicovsky said it's rarely impossible: "If you can open something in a browser, we can get to it."<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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</div></p><p>One of Beeper's most enticing integrations is with iMessage, which would mean users could access their iMessages on Android or Windows through the Beeper app. This one is stupendously hacky. If a Beeper user has a Mac that's always on and connected to the internet, it's easy; Beeper just connects to the same relay that delivers messages to all your Apple devices, and sends them to Beeper. But if you don't have a Mac that fits the description, there's only one way in. "We wrote an app for jailbroken iPhones that acts as a relay," Migicovsky said. "There's a database on the iPhone called sms.db. And so we just read and write to that." </p><p>But wait, it gets hackier! There's no way to get everyone to jailbreak their iPhones, so Migicovsky found a workaround. "I buy used old cracked-screen iPhones for cheap," he said. "I jailbreak them, and send them to people with the app installed. And they just set it up and leave it somewhere connected to Wi-Fi." There's a box full of semi-busted iPhones, all the way back to the iPhone 4, on his desk right now. The plan works, though it doesn't exactly scale. "We tried a lot of different things," Migicovsky said. "It might not be like this forever." </p><p>There's one part of this setup that Migicovsky actually quite likes. "You control the phone," he said. All the code is open source, and Beeper encrypts all messages; only users have their passwords to access them. But if you really don't want Beeper getting your texts anymore, just unplug that jailbroken iPhone, and you're done.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
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</div></p><p>Migicovsky has lots of ideas for how to improve Beeper as a product, and messaging in general. "No one has really innovated in chat in the last 10 years," he said, before allowing that maybe Slack and Discord get a little credit. But that's it. He's not sure what better looks like, though. He's intrigued by new ways to sort and organize messages, even how threads could look. "I'm really just excited about having this ... not a blank canvas, a malleable canvas," he said.</p><p>The list of places people message seems to get longer every day, and Migicovsky wants Beeper to support them all. "I want to build LinkedIn and Snapchat, and I'm not dating but a lot of people want Tinder messages on this," he said. He's not trying to replace those apps entirely, though. "Discord's amazing," he said, by way of example. "It has cool animations, you have the audio chat that's really good, it's got this social element." For Discord things, people should use Discord. But texting with friends or sharing photos shouldn't be a Discord thing. Or an Instagram thing, or a WhatsApp thing, or a Signal thing, or a Slack thing. It definitely shouldn't be all of those, separately.</p>"It would be wonderful if we didn't have to build what we built," Migicovsky said. "And you could just look me up, like in a phone book or something, and say, 'I want to talk to Eric.'" In the long run, Matrix might help make that possible — already, it appears some of Twitter's decentralization work through Project Bluesky is <a href="https://twitter.com/bluesky/status/1352302821140549632" rel="noopener noreferrer" target="_blank">being done on Matrix</a>, and Hodgson said he's had conversations with a number of big players in the tech world about build a more open and interoperable messaging ecosystem. For now, the best anyone can do is put everything in one place. It's hacky, but it's progress.
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David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
About Protocol | Enterprise
‘It’s not OK’: Elastic takes aim at AWS, at the risk of major collateral damage
Elastic's long-running dispute with AWS entered a new chapter last week with big changes to two of its open-source projects. AWS now plans to take those projects under its wing.
"I don't know why this is surprising to people," Elastic CEO Shay Banon said in an interview with Protocol.
Photo: Michael Nagle/Getty Images
January 22, 2021
Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
January 21, 2021
Fed up with what he sees as unfair competition from AWS, Elastic CEO Shay Banon felt he had no choice but to restrict the way third parties can use two important open-source projects developed by his company. Yet much of enterprise tech thinks he just threw the baby out with the bathwater.
Last Thursday, Elastic published a blog post — curiously titled "Doubling down on open, Part II" — announcing that Elasticsearch and Kibana, two widely used open-source projects in enterprise tech, would no longer be available under the permissive Apache 2.0 license. Instead, all subsequent releases to those projects will only be available under either a controversial new license known as the SSPL, or the Elastic License, both of which were designed to make it difficult for cloud companies to sell managed versions of the open-source projects they're applied to.
<p>Elastic has never tried to hide its disdain for AWS, a feud that dates back to the <a href="https://aws.amazon.com/blogs/aws/new-amazon-elasticsearch-service/" rel="noopener noreferrer" target="_blank">2015 launch of Amazon Elasticsearch Service</a>. The introduction of that AWS service, a managed version of the Elasticsearch open-source project, was arguably the low point in <a href="https://www.geekwire.com/2018/open-source-companies-considering-closed-approach/" rel="noopener noreferrer" target="_blank">the strained history</a> between enterprise tech companies based around open-source projects and AWS.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>It is, <a href="https://mostlycloudy.substack.com/p/for-the-new-york-times-a-swing-and" rel="noopener noreferrer" target="_blank">of course</a>, completely legal for AWS — or any company — to build its own service around any permissively licensed open-source project. In fact, <a href="https://aws.amazon.com/blogs/opensource/stepping-up-for-a-truly-open-source-elasticsearch/" rel="noopener noreferrer" target="_blank">AWS reacted to Elastic's decision Thursday afternoon</a> by announcing plans to <a href="https://opensource.com/article/18/7/forks-vs-distributions" rel="noopener noreferrer" target="_blank">fork</a> the two projects, or to take them in a new AWS-led direction, under the same permissive Apache 2.0 license.</p><p>But a generation of open-source enterprise companies (and their venture capitalist backers) see AWS as an anticompetitive gorilla stomping on their opportunity to monetize innovative software, and Elastic took particular offense to AWS' use of the Elasticsearch trademark.</p><p>"I don't know why this is surprising to people," Banon said in an interview with Protocol. "I'm making a stand here. I'm drawing a line and saying this is not OK."</p><p>However, critics argued Banon's decision paved the way for Amazon to turn its open-source distribution of the Elasticsearch project, the <a href="https://opendistro.github.io/for-elasticsearch/" rel="noopener noreferrer" target="_blank">Open Distro for Elasticsearch</a>, into a proper fork. The move had enormous potential to disappoint contributors to the Elasticsearch and Kibana projects who expected their work would be freely available to the community, only for that promise to be discarded once it was no longer economically comfortable for its corporate backer.</p><p>"Choosing to fork a project is not a decision to be taken lightly, but it can be the right path forward when the needs of a community diverge — as they have here. An important benefit of open-source software is that when something like this happens, developers already have all the rights they need to pick up the work themselves, if they are sufficiently motivated," AWS said in the post announcing its decision.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>After AWS published its decision, Banon issued an additional statement: "<em></em>When we announced the change, we sadly expected this. This what made it so hard. But I am also relieved. Relieved we are free to focus on products vs. battle abuse. Relieved that I can trust our community will see through this misinformation & confusion.<em>"</em><br></p><p>While legal experts believe Banon has a solid trademark case against AWS, the licensing changes clearly did not deter AWS, and they have no effect on companies like Microsoft and Google Cloud, which have signed deals with Elastic.</p><p>"They are aiming to hit Amazon, but what they are doing is throwing a boulder at Amazon floating peacefully in a pond of an ecosystem," said <a href="https://www.vmbrasseur.com/" rel="noopener noreferrer" target="_blank">VM (Vicky) Brasseur</a>, a corporate strategist and former vice president of the <a href="https://opensource.org/" rel="noopener noreferrer" target="_blank">Open Source Initiative</a>. "I don't think it's worth it. They are going to destroy their ecosystem."</p><h3>Quite a stretch</h3><p><a href="https://www.elastic.co/enterprise-search" rel="noopener noreferrer" target="_blank">Elasticsearch</a> is an open-source search engine first released in 2010 by Banon, who would go on to co-found Elastic in 2012. It is often used alongside two other Elastic open-source projects, Logstash and Kibana, to form the "<a href="https://www.elastic.co/what-is/elk-stack" rel="noopener noreferrer" target="_blank">ELK stack</a>," which is well known in enterprise tech circles among companies that want to build search capabilities for their websites while also using those search capabilities to pursue their system logs for events such as errors.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>Customers can buy a managed version of this stack <a href="https://www.elastic.co/pricing/" rel="noopener noreferrer" target="_blank">called Elastic Cloud</a>, which runs on all three major U.S. cloud providers, or manage it themselves on either their own hardware or clouds. But there are also some companies and individual users that are happy to take on the burden of managing <a href="https://github.com/elastic/elasticsearch" rel="noopener noreferrer" target="_blank">the open-source version</a>.</p><p>The new licensing changes, however, mean that companies using this open-source version must now agree that they won't use Elasticsearch and Kibana as part of their own cloud service, and that has raised questions. The changes are directed at big cloud providers, but there are many small and medium businesses that could be using the open-source projects as part of their own software stack in a way that may or may not be infringing on the new licenses, depending on the quality of the lawyers involved in any dispute.</p><p>"If you're using them, please look at how they fit into your software supply chain, look at how this is going to impact your product and your projects. Don't just overlook it and assume it's nothing," Brasseur said.</p><p>Banon said "the vast majority" of Elasticsearch and Kibana users will not be affected by these licensing changes, but he acknowledged there will be valid concerns felt inside the Elasticsearch community.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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</div></p><p>"I'm very worried about [alienating community members]; this is why we didn't make this change lightly," Banon said. "Regardless of how much we try to relax our user base, some people will end up being alienated, and others, which I'm more worried about, might be fed by FUD," the tried-and-true "fear, uncertainty and doubt" campaigns that have been part of enterprise tech marketing for decades.</p><p>Brasseur agreed that the licensing move comes with significant risks to Elastic's goodwill inside its community of contributors.</p><p>"They're now taking these contributions, which were given by external contributors freely and openly with the assumption that their contributions would be freely and openly available, and now they're locking them up behind a non-open license," she said. "It's perfectly fine to do that. But you better be talking to your community up front and telling them how and why, and then I think it's probably wise for you to be then compensating people for the value that they have provided to your company. Otherwise, you're just using them."</p><h3>Off the mark</h3><p>The root cause of the dispute between Elastic and AWS mostly centers on the trademark issue, which prompted <a href="https://searchaws.techtarget.com/news/252471650/AWS-faces-Elasticsearch-lawsuit-for-trademark-infringement" rel="noopener noreferrer" target="_blank">a lawsuit from Elastic in 2019</a> that continues to work its way through the court system.</p><p>The use of that trademark caused a great deal of confusion among Elastic's customers, according to Banon, who believed that the AWS service was the result of collaboration between the two companies when it was really just a repackaging of the open-source Elasticsearch project. <a href="https://twitter.com/Werner/status/649738362086027265?s=20" rel="noopener noreferrer" target="_blank">A tweet from Amazon CTO Werner Vogels</a> calling the new service a "partnership" certainly did not help.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
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</div></p><p>"To modify Elastic's product and call it Amazon Elasticsearch is, in my view, a pretty clear trademark infringement," said Pamela Chestek, <a href="https://chesteklegal.com/" rel="noopener noreferrer" target="_blank">a trademark attorney</a> and former intellectual property attorney at IBM's Red Hat.</p><p>But when <a href="https://www.geekwire.com/2019/elasticsearch-distribution-amazon-web-services-sends-shockwaves-open-source-software/" rel="noopener noreferrer" target="_blank">AWS launched the Open Distro for Elasticsearch in 2019</a>, the trademark dispute also turned into a dispute over code.</p><p>AWS charged that Elastic was co-mingling open-source code with proprietary code, making it hard for users to know if they required a paid subscription or not to use certain features. The Open Distro was pitched as a way to get the benefits of open-source Elasticsearch with the features needed to make it work properly, and it was released under the Apache 2.0 license.</p><p>Elastic denied that it was trying to confuse its users, and alleged that AWS was using third-party code in that distribution that was a copy of its own work.</p><p>"Recently, we found more examples of what we consider to be ethically challenged behavior. We have differentiated with proprietary features, and now we see these feature designs serving as 'inspiration' for Amazon, telling us their behavior continues and is more brazen," <a href="https://www.elastic.co/blog/why-license-change-AWS" rel="noopener noreferrer" target="_blank">Banon said in a blog post Tuesday</a>.</p><h3>License to print money</h3><p>As with all disputes in enterprise software, this one really comes down to money. Elastic doesn't make money when people use the open-source versions of its software, and all things considered, would prefer they pay for the licensed versions.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="6">
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</div></p><p>From the outside it's hard to pinpoint exactly how much money AWS has made from its Elasticsearch services, but it's a non-zero amount: AWS likely recorded more than $12 billion in overall cloud revenue during the fourth quarter of 2020. At the same time, Elastic's own cloud services are growing quite strongly as the world shifts to cloud-based software.</p><p><a href="https://s2.q4cdn.com/265747582/files/doc_financials/2021/q2/Q2-FY21-Earnings-Press-Release.pdf" rel="noopener noreferrer" target="_blank">Elastic revenue rose 43% in its most recent quarter</a>, with SaaS subscription revenue for Elastic Cloud driving much of that growth. Over the course of 2020, Banon wasn't worried enough about the competitive threat from AWS to mention it during the quarterly conversations with the financial community.</p><p>In fact, in answering a question about competition with the cloud providers from a financial analyst during Elastic's December earnings conference, Banon said: "We feel like we're ahead of the pack on all three when it comes to the maturity and the future readiness of our products, and that's reflected, I think, by the usage of it." Elastic's stock has more than doubled in the last 12 months.</p><p>"We're doing well as a business, and I'm not going to sit here and apologize for it," Banon said. "It's not about doing well or not doing well as a business, it's about doing what's right."</p><p>In the aftermath of the licensing changes, however, what's "right" for Elasticsearch users, open-source contributors, and Elastic shareholders takes on different meanings, depending on where you sit.</p><p>"I would have been a lot more sympathetic to Elastic if they said, 'look, these choices we made when we were very young, they aren't working out for us anymore. They aren't working out with our business plan,'" Chestek said. "A lot of people would be unhappy with that, but it would be honest."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="7">
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</div></p><p><strong><em>Update:</em></strong><em> This article was updated at 3:45 p.m. PT to include a statement from Elastic following the release of AWS' blog post.</em></p>
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Tom Krazit ( @tomkrazit) is a senior reporter at Protocol, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire. He served as executive editor of Gigaom and Structure, and most recently produced a leading cloud computing newsletter called Mostly Cloudy.
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Everything you need to know about the Roblox direct listing
The company is expected to go public via direct listing on the New York Stock Exchange in February.
Roblox CEO David Baszucki is taking the company public.
Photo: Ian Tuttle/Getty Images
January 22, 2021
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.
January 21, 2021
Roblox is a video game platform, though it describes itself alternatively as a "metaverse," "human co-experience platform" and "new category of human interaction." It's expected to go public via direct listing on the New York Stock Exchange in February.
In simpler terms, Roblox enables developers to build games within the Roblox virtual world, which looks like a crossover between Minecraft and Lego. Developers publish and distribute their games through Roblox to an audience of some 31.1 million daily active users.
<p>Here's everything you need to know about the company and its direct listing.</p>
What Does Roblox Do?
<p>Many of the core Roblox experiences are free, but the virtual currency, Robux, can be used to customize player avatars, unlock premium games and purchase in-game perks. Roblox makes money by charging users for Robux and through its <a href="https://www.roblox.com/premium/membership" target="_blank" rel="noopener noreferrer">subscription service</a>, Roblox Premium, which offers discounts and access to exclusive content. Developers keep <a href="https://developer.roblox.com/en-us/articles/developer-economics#:~:text=When%20you%20start%20developing%20on,via%20our%20virtual%20currency%20Robux" target="_blank">a portion</a> of the Robux generated through their games, and can cash out through the <a href="https://en.help.roblox.com/hc/en-us/articles/203314100-Developer-Exchange-DevEx-FAQs" target="_blank" rel="noopener noreferrer">Developer Exchange Program</a>. </p><p>An active Roblox developer community means content is always changing. On my homepage, for instance, Roblox gives me the option to play a <a href="https://www.roblox.com/games/4996049426/UPDATE-All-Star-Tower-Defense?refPageId=7098b58b-fcbf-42bd-86a0-fcd00216ed05" target="_blank" rel="noopener noreferrer">tower defense game</a>, <a href="https://www.roblox.com/games/166986752/Plane-Crazy?refPageId=7098b58b-fcbf-42bd-86a0-fcd00216ed05" target="_blank" rel="noopener noreferrer">flight simulator</a>, <a href="https://www.roblox.com/games/364802243/Freeze-Tag-NEW-MAP?refPageId=7098b58b-fcbf-42bd-86a0-fcd00216ed05" target="_blank" rel="noopener noreferrer">freeze tag simulator</a>, a <a href="https://www.roblox.com/games/920587237/Adopt-Me?refPageId=7098b58b-fcbf-42bd-86a0-fcd00216ed05" target="_blank" rel="noopener noreferrer">pet game</a> reminiscent of Nintendogs and a <a href="https://www.roblox.com/games/5596703547/Weight-Lifting-Simulator-5?refPageId=7098b58b-fcbf-42bd-86a0-fcd00216ed05" target="_blank" rel="noopener noreferrer">weight-lifting simulator</a>. Developers have created more than 18 million games/experiences for the Roblox platform, though users <a href="https://venturebeat.com/2019/12/09/robloxs-10-biggest-games-of-all-time-each-with-more-than-a-billion-plays/" target="_blank" rel="noopener noreferrer">tend to gravitate</a> to a much smaller subset of the available content. Flexibility in gameplay is critical to Roblox's long-term value proposition, since it hopes to avoid the boom-and-bust cycle of a typical standalone game. </p><p>If you feel old reading any of the above, it's probably because over half of Roblox users were born after 2006. But what the community lacks in life experience, it makes up for with enthusiasm: Roblox <a href="https://www.sec.gov/Archives/edgar/data/1315098/000119312520298230/d87104ds1.htm#INDEX" target="_blank">users spent a total</a> of 22.2 billion hours on the platform for the nine months ended Sept. 30, 2020, which comes out to 2.6 hours per day for each active user. With children locked out of other social activities during the pandemic, Roblox experienced a massive uptick in usage; total time spent on the platform <a href="https://www.nytimes.com/2020/08/16/technology/roblox-tweens-videogame-coronavirus.html" target="_blank">doubled between February and July 2020</a>.</p>Roblox's Financials
<p>Roblox isn't yet profitable, but it has managed to grow revenue at an impressive clip. According to the company's S-1, Roblox generated $588.7 million in revenue for the nine months ended Sept. 30, 2020, representing a 68% jump from the same period in 2019. Costs grew even faster than revenue, however, so Roblox posted a $205.9 million consolidated net loss in the 2020 period, down from the $46.3 million consolidated net loss in the first nine months of 2019.</p><p>Roblox's highest expense is developer exchange fees, which accounted for roughly 26% of total expenses in the first nine months of 2020. Other significant costs include server fees, consumer safety (Roblox contracts out some 1,700 agents to monitor its platform to uphold community standards), research and development investment and the 30% fee owed to Apple and Google for mobile OS purchases. </p>What Could Go Wrong?
<p>Three themes stand out from Roblox's S-1: loss of user interest, access to distribution channels and user safety.</p> <p><strong>Children's attention is notoriously fickle, </strong>and Roblox is asking investors to bet billions on its ability to remain relevant for years to come. For every Lego or Nintendo that has defined multiple generations of childhoods, there's a Club Penguin, Neopets or Webkinz that quickly went from all the rage to irrelevant.</p><ul><li>"The multitude of other entertainment options, online gaming, and other interactive experiences is high, making it difficult to retain users who are dissatisfied with our platform and seek other entertainment options," Roblox writes. "Moreover, the majority of our users are under the age of 13. This demographic may be less brand loyal and more likely to follow trends, including viral trends, than other demographics."</li><li>Another concern is that Roblox won't be able to sustain its boost in user activity after the pandemic subsides. The company writes: "The COVID-19 pandemic and resulting social distancing, shelter-in-place and similar restrictions led to increased developer and creator and user engagement on our platform relative to our quarterly forecast and historic trends. These increases in user activity are almost certainly not indicative of our financial and operating results in future periods."</li></ul> <p><strong>Roblox's access to distribution channels is contingent </strong>upon external partnerships.</p><ul><li>In December 2020, Roblox <a href="https://www.scmp.com/tech/apps-social/article/3112379/us-gaming-platform-roblox-licensed-release-china-company-plans-go" target="_blank" rel="noopener noreferrer">gained approval</a> to operate in China through a joint venture with Tencent. This could be an enormous revenue opportunity, but it comes with uncertainty given the <a href="https://www.theverge.com/2020/10/23/21531154/judge-denies-trump-administration-ban-wechat-tencent-china" target="_blank" rel="noopener noreferrer">tense relations</a> between the U.S. and China.</li><li>Apple and Google also have significant leverage over Roblox. "For the nine months ended September 30, 2020, 34% of our revenue was attributable to Robux sales through the Apple App Store and 18% of our revenue was attributable to Robux sales through the Google Play Store, and during the same period 68% of our engagement hours on the platform were from users who signed up through the Apple App Store and Google Play Store," the company writes. Roblox raises the possibility that Apple or Google could damage their profitability by changing fee structures or data policies. </li></ul> <p><strong>Roblox needs to uphold high safety standards</strong> since so many children are on the platform; failing to do so would damage their reputation. </p><ul><li>The company writes: "We have faced allegations that our platform has been used by criminal offenders to identify and communicate with children and to possibly entice them to interact off-platform, outside of the restrictions of our chat, content blockers, and other on-platform safety measures. While we devote considerable resources to prevent this from occurring, we are unable to prevent all such interactions from taking place." </li><li>Roblox also brings up the possibility that developers make content that the community considers "illicit, explicit, profane, or otherwise objectionable." The company bans such content, but with millions of experiences available, some could slip through the cracks. </li></ul>Who Gets Rich?
<p>Investors in Roblox saw the company's valuation grow seven times over the past year. In February 2020, Roblox raised $150 million in a series G round that valued it at $4 billion. Then in January 2021, Roblox closed a $520 million series H round that generated an astounding $29.5 billion valuation.</p><p>This valuation may seem absurd to some. Is a children's video game (OK, "platform") worth <a href="https://www.barrons.com/articles/ford-has-a-hidden-asset-just-like-gm-its-stock-could-rise-soon-too-51611159634" target="_blank" rel="noopener noreferrer">nearly as much as Ford</a>? Whether Roblox can justify its valuation in the long run, here's who stands to gain from a stellar IPO, based on shareholder disclosures from the <a href="https://www.sec.gov/Archives/edgar/data/1315098/000119312520298230/d87104ds1.htm#rom87104_3" target="_blank" rel="noopener noreferrer">S-1 filing</a> on Nov. 19, 2020:</p><ul><li>Altos Ventures <a href="https://www.cnbc.com/2020/11/19/roblox-s-1-ipo-filing-released.html#:~:text=Altos%20Ventures%20is%20Roblox's%20largest,and%20Tiger%20Global%20owns%207.3%25." target="_blank" rel="noopener noreferrer">owned</a> 21% of shares.</li><li>Meritech Capital owned 10% of shares. </li><li>Roblox founder, president and CEO David Baszucki owned 12% of outstanding shares.</li><li>Index Ventures owned 9.9% of shares. </li></ul>What People Are Saying
<p><strong>"The S-1 makes plain exactly how big Roblox's ambitions are: It's trying to build an entire new world, with a new economy, a new currency, a new everything, and not just for kids. The company wants to be thought of like a tech giant, not a game developer."</strong> —Protocol's David Pierce <a href="https://www.protocol.com/newsletters/sourcecode/the-metaverse-goes-public-roblox-s1-ipo?rebelltitem=1#rebelltitem1" target="_self">wrote in Source Code</a> after Roblox filed its S-1.</p><p><strong>"Roblox could be to Facebook what Shopify is to Amazon, the non-social media social media firm. Just as hospitals, doctors offices, headquarters, shopping malls, and campuses are being bypassed and shifting hundreds of billions in stakeholder value, Roblox could disrupt the kid attention economy. Roblox is set to go public this month, and will create meaningful shareholder value. Prediction: stock trades up 70% or more on first trade. More important, Roblox could be the first social media firm whose shareholder value isn't designed to extract value from the least powerful stakeholder, kids."</strong> —NYU Professor Scott Galloway in his <a href="https://www.profgalloway.com/roblox-and-the-dispersal-of-creativity" target="_blank">No Mercy / No Malice newsletter</a>.</p>
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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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Poshmark made ecommerce social. Wall Street is on board.
"When we go social, we're not going back," says co-founder Tracy Sun.
Tracy Sun is Poshmark's co-founder and SVP of new markets.
Photo: Poshmark/Ken Jay
January 14, 2021
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.
January 14, 2021
Investors were keen to buy into Poshmark's vision for the future of retail — one that is social, online and secondhand. The company's stock price more than doubled within a few minutes of its Nasdaq debut this morning, rising from $42 to $103.
Poshmark is anything but an overnight success. The California-based company, founded in 2011, has steadily attracted a community of 31.7 million active users to its marketplace for secondhand apparel, accessories, footwear, home and beauty products. In 2019, these users spent an average of 27 minutes per day on the platform, placing it in the same realm as some of the most popular social media services. This is likely why Poshmark points out in its S-1 that it isn't just an ecommerce platform, but a "social marketplace." Users can like, comment, share and follow other buyers and sellers on the platform.
<p>For the first time since its founding, Poshmark <a href="https://www.sec.gov/Archives/edgar/data/1825480/000119312520320132/d66583ds1.htm" rel="noopener noreferrer" target="_blank">turned a profit</a> in its quarter that ended in June, and was again profitable the following quarter. It makes money by charging sellers a fee: 20% for items over $15, and $2.95 for everything else. And though Poshmark markets itself as a <a href="https://blog.poshmark.com/2020/02/26/the-revival-of-iconic-handbags/" rel="noopener noreferrer" target="_blank">trusted source for luxury items</a> (it provides <a href="https://poshmark.com/posh_authenticate" rel="noopener noreferrer" target="_blank">free authentication</a> for items over $500), the average order value in 2019 was just $33.<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>Co-founder and SVP of New Markets Tracy Sun spoke with Protocol soon after Poshmark's market debut. Sun discussed the importance of social commerce, why users are spending so much time on Poshmark, and how the company is investing for long-term growth. </p><p><em>The interview has been edited for clarity and brevity.</em></p><p><strong>As you went through the IPO process, what were some common questions from investors?</strong></p><p>The main questions we get from investors are about our social commerce marketplace and the magic behind it. Here's the thing: A lot of social networks are tacking on commerce, and a lot of commerce companies are tacking on social. Poshmark is different in that we built our business with social and commerce integrated from the very beginning. This means we are at the forefront of social commerce and this puts us in a leadership position. </p><p>Many people are aware that social commerce is a global phenomenon. So they really want to understand, "How does it work? Where is the momentum coming from? And why have we been able to get to where we are today?"</p><p><strong>What's driving customers to spend those 27 minutes each day on Poshmark? Are customers treating it as a social experience, even if they have no immediate intention of buying?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>Shopping, historically, has always been social. Hundreds of years ago, people wanted to talk to one another about the items they were buying. They wanted to know the people they were buying from. That's just inherent in us in shopping.</p><p>With the rise of ecommerce, all of that engagement and vibrancy that human beings have when they connect with one another got stripped out of shopping. What we see online is the photo of the product and price. What Poshmark does is put all of that vibrancy of social community connections back into shopping.</p><p>To your question of what people are doing on the platform: They are talking to one another; they are getting to know who they're buying from and selling to; they're getting inspiration; they're getting recommendations; they're asking questions about color, fit, sizing and everything else we're accustomed to asking in a social environment. And honestly, this is the way people are shopping today. Gen Z and the younger generations refuse to have one-way communication, they want to be involved, talk to their peers and socialize. So we've built this social marketplace in order to help enable that, and, as a result, help our buyers and sellers thrive.</p><p><strong>There's a fairly large gap between your average selling price of $33 and the authentication threshold of $500. How does Poshmark build consumer trust for customers making purchases below $500?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>Buyer and seller trust is extremely important to us. As you mentioned, we offer authentication services on certain items. There are also a lot of investments we're making — on the human, technology and program side — to protect our community.</p><p>We have machine learning in the background that helps strengthen the integrity of our marketplace. We have a community program where we enable anyone on our site to flag any listings that violate our politics, and our politics are very clearly stated on our site. We also have a team of people who are constantly monitoring listings.</p><p><strong>Poshmark experienced a dip at the onset of the pandemic in March, but then performed really well in the subsequent months. How do you plan on retaining that momentum as the pandemic hopefully subsides?</strong></p><p>There are three trends driving momentum in commerce: the shift online, the shift to social, and the shift to resale or secondhand. Over the past year, those trends that were already there have accelerated. Once we go online, we're not going back. When we go social, we're not going back. These trends are here to stay. </p><p>We see ourselves at the intersection of these trends and the leader at this intersection. We are focused on continuing to build long-term growth. So we started with women's products and added men's and kids'. Last year we added home goods, and most recently we launched beauty. We'll continue to add more categories so that our buyers and sellers can transact with more items, [and] international [expansion]. Then the last one is building enterprise-grade tools and services to support those sellers that are looking to move a high volume of inventory. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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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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Affirm CEO Max Levchin: ‘I see an ocean of opportunities’
The fintech startup's stock soared more than 90% in its IPO debut today.
January 13, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
January 13, 2021
It was a blockbuster debut for Affirm. The fintech startup's shares soared more than 90% when it went public on Wednesday.
The day itself began quietly for CEO Max Levchin: He kicked it off with a Zoom call with his kids, made a latte for his wife and joined a group chat with some high school friends, one of whom is recovering from COVID-19. "We were very happy to hear that he's doing well," he told Protocol shortly after his startup began trading on the Nasdaq Global Exchange.
<p>Affirm's stock opened at $90.90 after pricing at $49 a share, before climbing to as high as $96.07 in late trades.</p><p>Levchin took some time off to share his thoughts into what the successful trading debut means and what's next for the fintech startup.</p><p><em>The interview has been edited for clarity and brevity.</em></p><p><strong>Quick thoughts on why the stock is rallying?</strong></p><p>I think the market does what it does. I choose to interpret it as, "People love what we stand for beyond the opportunity for financial gain." We have a story to tell, and our story is special. We built a product that actually improves lives in financial services.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p><strong>What were the common questions you were asked by investors in the IPO process?</strong></p><p>The question I heard a bunch — and I enjoyed answering — was: What makes you different? It's a hot space. There are tons of incumbents and a lot of new players. What do you do that makes you special? One big part of it is how much we attach ourselves to the idea of honest financial products, not just an opportunity for profit. It's really powerful, and that's resonated with millions of consumers and thousands and thousands merchants. That's part of our story and we tell it every time.</p><p>We took the time to build a fully universal solution. We will scale with the merchant up and down, something as enormous and complex as Walmart, and as technologically advanced and sophisticated and demanding as Shopify, and literally thousands of brands that we would have only heard of if we were looking for very specific things. We are built by a lot of engineers who are very technology-first. And that allowed us to do things right.</p><p><strong>Some analysts, while acknowledging your growth, also point to the state of the economy. Given that consumers are still facing a lot of uncertainty given the pandemic and the economic downturn, how do you reflect on those concerns?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>I think they are justified in the sense that the U.S. economy took a giant step back, in many ways, and yet also transformed itself, in some pretty fantastic ways. We saw the massive acceleration of the offline to online movement in commerce. I think the economy is being forced to modernize itself.</p><p><strong>Are there things in the way the economy has changed over the past year since the pandemic began that worry you, that you feel could be a problem?</strong></p><p>Part of what makes us different and special is we work with our consumers and our merchants to evaluate every transaction. So in many ways, I think our products are more important than ever to consumers. Some of them have lost their jobs, some of them are trying to be a little bit smarter about budgeting and affordability. I think these folks really benefited from Affirm. And we take great pride in helping them navigate the uncertainty and complexity around them. From a more macro view, income inequality is something that our society struggles with and is right to be concerned about.</p><p><strong>What are the biggest challenges for you this year, post-IPO?</strong></p><p>We are fundamentally limited by a number of things we can build and ship in per-unit time. I see an ocean of opportunities, and probably prioritizing them, and being focused and not trying to do everything for the exact same time despite the fact that it feels like we can do so much to help, is probably my personal challenge.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p><strong>What was the toughest part of the IPO process for you?</strong> </p><p>The level of effort and intensity that our team brought to bear to make this happen constantly made me feel like I'm just not working hard enough. The sheer amount of work we were able to do in a shorter period of time was something else. That said, we weren't going to cut corners. We were going to do it right. We were going to go out when we were ready and when the market was ready for us.</p>
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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
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January 22, 2021 11:32 EST
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