In non-Wall Street parlance, Snowflake’s recent quarter was a blowout: sales rose 83% to $497 million, with revenue now projected to reach $1.9 billion for 2022. It’s a much-needed vibe shift for an industry suddenly broken after years of wild. growth.
“We certainly didn’t expect the level of the increase,” Mizuho analyst Gregg Moskowitz and others, who are bullish on the company, wrote about Snowflake’s results.
CEO Frank Slootman quickly got the stamp of approval from investors, an audience increasingly skeptical of the prospects for the software industry. While companies like Salesforce and ServiceNow have seen their share prices plummet after issuing muted sales forecasts for the rest of the year, Snowflake’s has grown more than 17% following of earnings.
Snowflake is not alone. Databricks just passed $1 billion in annual revenue and is aggressively recruiting, and earnings at Confluent and MongoDB beat Wall Street sales estimates: Both of those companies gave bright annual forecasts going forward . Even private companies like Cockroach Labs and Canva, which serve as alternatives to Oracle, Adobe and other so-called legacy companies, continue to take off, boosting sales and fundraising at an impressive clip.
The results are a sign of the seismic shift taking place in the business software world: the arrival of the new IT stack.
“Our space is for everyone tomorrow,” said Dave McJannet, who, as CEO of infrastructure services provider HashiCorp, depends on using cloud-based tools like Snowflake. “There’s an old-world-new-world paradigm … and you’re seeing some pretty big companies emerge that could potentially challenge Salesforce for being the largest employer in San Francisco.”
The divergence is stark. With Snowflake, Databricks and others showing no signs of slowing down, Salesforce and Microsoft have scaled back outlooks and are implementing cost-cutting measures like hiring freezes to boost profitability. Meanwhile, Oracle is laying off workers.
Economic factors certainly play a role. In the face of a potential recession, some customers have stopped investing in core applications — such as HR systems or CRM — in favor of data management and analytics. And to point out the obvious: The so-called legacy vendors remain larger and, as a result, are not able to quickly adjust to the wild changes in the market.
But this is a drastic change from the course of the last three decades, when a few names – for example, Amazon, Salesforce, Microsoft and Oracle – seemed to dominate the discussion within IT departments.
In 2005, if you wanted to buy a database, the options were pretty limited. Now, the floodgates have opened. Alongside the likes of Amazon and Microsoft — which recently replaced Oracle as the largest database vendor, according to Gartner — there are plenty of new options that customers are turning to.
For some, it’s a missed opportunity. For example, Adobe grossly underestimated the need for creative tools among non-professionals, and is now under pressure from startups like Figma and Canva. Even Microsoft, a close partner with Adobe, is trying to distance itself from the vendor.
What Snowflake created was not easy to do by any means. But if Oracle had only recognized the threatening potential of the cloud earlier, today’s dynamics might be very different.
And while Salesforce prides itself on its data and analytics capabilities, the company’s foundation is its core vertical applications. Instead, customers seem more interested in consolidating data from different systems into one repository, such as 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’ faster. And it’s not clear if they’ll be able to participate in that”.
To put it more bluntly: “They’re no longer a growth name,” DiFucci added.
Amid that pivot, Fivetran, which early recognized the need to help companies move information from so-called systems of record to Snowflake and Databricks, expects sales momentum to continue despite the broader software market slowdown.
“We’ve done the math, and even under pessimistic assumptions, we’ve grown revenue so much that we’ve outpaced the market’s decline,” CEO George Fraser told Forbes.
For others, the current struggles are simply the result of a pivot to the cloud. It is not uncommon for architectural changes to bring new market dynamics. The move away from mainframes, for example, helped Oracle overtake IBM and solidify its previous 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 with a single platform to run multiple applications or operating systems on a server, is now on the defensive in the face of a $61 billion takeover by Broadcom, a company that has a well-known history with customers.
For some VMware customers who are wary of the new owner, it raises questions about whether existing workloads will be moved to the cloud simply to eliminate the need for the company’s signature products.
VMware “is definitely a topic that comes up a lot for the big companies that we talk to, who are all not very happy with” the acquisition, said McJannet, who competes directly 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 large existing install bases. Power shifts in enterprise tech often take years, if not decades, to happen.
But as Salesforce proved in software-as-a-service and AWS proved in the cloud, those generational upheavals remain possible. And it’s possible to speed up the timeline.
As some legacy vendors look to spend billions to acquire other legacy tech, Databricks or Snowflake can use their war chests to double down and capture other key features of tomorrow’s IT stack, effectively creating Salesforce for the AI era.
The future is certainly brighter now for the new kids on the block. But as the US government has proven, don’t count out the boomers. However, as Slototman once said: “Only the government can print money; the rest of us have to take it from others.” It certainly sounds like he does.