Snowflake, the tech gi­ant from nowhere that’s worth nearly as much as IBM

Tech gi­ant you may never have heard of is now worth nearly as much as IBM, write Margi Mur­phy and Lau­rence Dodds in San Fran­cisco

The Daily Telegraph - Business - - Front Page - Margi Mur­phy and Lau­rence Dodds

You may have never heard of it, but cloud data­base com­pany Snowflake made Wall Street his­tory on Wed­nes­day with the largest ever soft­ware stock market de­but. The Cal­i­for­nia-based vir­tual data ware­hous­ing ser­vice notched up a val­u­a­tion of $70bn (£54bn) on its first day of trad­ing as a bl­iz­zard of buy­ing dou­bled its ini­tial share price and made its co-founder, Benoit Dageville, and chief ex­ec­u­tive, Frank Sloot­man, in­stant bil­lion­aires.

It was a marked de­par­ture from the re­cent trend of dis­ap­point­ing pub­lic de­buts such as that of Uber, whose shares were re­peat­edly writ­ten down be­fore float­ing at a price that has since fallen by as much as half.

“It’s a val­i­da­tion of our ini­tial vi­sion,” says Dageville, a 16-year vet­eran of the data­base gi­ant Or­a­cle who co-founded Snowflake in 2012 and now serves as its chief tech­nol­ogy of­fi­cer. From day one every­one said we were crazy, no way you can do what you want to do … [it’s] very am­bi­tious, of course. But I would say we are just at the be­gin­ning of im­ple­ment­ing that vi­sion.”

In­vestors, clearly, agree. Tech­nol­ogy com­pa­nies have be­come hes­i­tant to go pub­lic, even be­fore Covid-19 caused the econ­omy to wob­ble, due to a sur­plus of pri­vate cap­i­tal.

But back­ing from War­ren Buf­fett, who has fre­quently scoffed at jump­ing in on stock market de­buts, sug­gests Snowflake might be more than just froth. One rea­son may be down to the

‘It doesn’t mat­ter that your data is on Ama­zon or Google or Mi­crosoft Azure. For you it’s a uni­fied Snowflake layer’

type of cus­tomers it at­tracts. Con­sumer soft­ware, such as Uber, Pin­ter­est, Facebook or Twit­ter, is at the beck and call of flighty in­di­vid­u­als who are at­tracted by gim­micky dis­counts. These cus­tomers pose the risk of delet­ing an app with­out much thought, di­min­ish­ing a com­pany’s user growth and rev­enue stream.

Busi­ness cus­tomers, whom Snowflake counts on, spend more and are more loyal, mak­ing busi­nesses who deal with them a more valu­able, long-term prospect.

Snowflake also claims to serve a crit­i­cal need for com­pa­nies look­ing to pool their ever-ex­pand­ing data­bases in vir­tual ware­houses. Mov­ing such data “off premise” into the cloud means less main­te­nance, fewer names on the pay­roll and greater flex­i­bil­ity when it comes to ca­pac­ity and bud­gets.

Rather than build­ing out ar­chi­tec­ture, IT man­agers can sim­ply tap a but­ton to add more cred­its. The risk is that your data is be­ing stored by an­other party and could be sub­ject to out­ages and theft.

This is why many com­pa­nies are tak­ing a hy­brid ap­proach, stor­ing some data in-house while us­ing the big cloud providers for less crit­i­cal data, or spread­ing their trove across mul­ti­ple cloud ser­vices. That means they need a tool to sync data from var­i­ous data­bases to­gether and an­a­lyse it holis­ti­cally, which is where Snowflake comes into action.

“Even if this data is com­pletely siloed and bunkered in many dif­fer­ent sys­tems, all of a sud­den [cus­tomers] can cen­tralise this data and an­a­lyse it and have a re­ally 360 view,” says Dageville.

“I can con­nect my data with my cus­tomers, with my part­ners, with my first party data sets, with [data from] ven­dors … it doesn’t mat­ter that [the data is on] Ama­zon or Google or Mi­crosoft Azure. For you it’s a uni­fied Snowflake layer.”

Snowflake is not the only player in the market. Ri­val data ware­hous­ing ap­pli­ances like Ter­a­data, Netezza and Ex­a­data have loyal cus­tomers – not to men­tion the cloud gi­ants that Dageville namechecks.

Ter­a­data re­ported $1.89bn in rev­enue in 2019, down from $2.1bn for 2018. Con­versely, Snowflake re­ported rev­enues of $96.7m and $264.7m in 2019 and 2020, with a net loss of $178.0m and $348.5m. But Ter­a­data, founded in Cal­i­for­nia in 1979, was trad­ing at a market value of $2.5bn on Wed­nes­day, to Snowflake’s $70bn high.

Dageville shrugs off the ques­tion of whether the price is jus­ti­fied; Snowflake, he says, has the cash it needs to push Snowflake’s tech­nol­ogy for­ward. He adds it will need that money to go up against Ama­zon and its ilk, who are “part­ners” but also ul­ti­mately com­peti­tors – an over­lap that has con­cerned some in­vestors.

While there is cer­tainly room for Snowflake to grab hold of its com­peti­tors’ rev­enue, its back­ers are also bank­ing on the premise that Snowflake will be to en­ter­prise soft­ware tools what Zoom has been to Cisco’s We­bEx: easy to use, af­ford­able and in­cred­i­bly pop­u­lar.

“I am fas­ci­nated [by] sim­plic­ity – [by] mak­ing com­plex sys­tems re­ally easy to use,” says Dageville. “Peo­ple of­ten as­so­ciate com­plex­ity with power. It’s the re­verse, ac­tu­ally: com­plex­ity is a bar­rier to power.”

That didn’t stop Ross Ger­ber, a Tesla bull, co-founder and chief ex­ec­u­tive of wealth man­age­ment firm Ger­ber Kawasaki, tweet­ing: “I guess Tesla is cheap when look­ing at Snowflake.”

Al­though it may not seem as

‘I am fas­ci­nated by sim­plic­ity. Peo­ple of­ten as­so­ciate com­plex­ity with power. It’s the re­verse: com­plex­ity is a bar­rier to power’

world-trans­form­ing as Uber or Airbnb, Snowflake has proven to be a so-called “dis­rupter” of its own mak­ing, of­fer­ing a cheaper, lighter al­ter­na­tive to the data­base prod­ucts of­fered by Or­a­cle or SAP, which have tra­di­tion­ally hogged the market, lock­ing cus­tomers into lengthy main­te­nance con­tracts. The name of one of Snowflake’s com­peti­tors, AWS Red­shift, is a brazen dig at Or­a­cle, which is of­ten re­ferred to as the Big Red.

Plus, Snowflake has an im­pres­sive user base, count­ing some of the biggest names in the world – Sony, Cap­i­tal One – among its 3,117 cus­tomers. As of July, its cus­tomers in­cluded seven of the For­tune 10 and 146 of the For­tune 500, with each con­tribut­ing be­tween 4pc and 26pc of its rev­enues. Adding on a few more names in the com­ing months will de­liver good re­turns.

Known back­ers only added to the sales frenzy, which was paused due to volatil­ity on Wed­nes­day. Berk­shire Hath­away’s War­ren Buf­fett and Marc Be­nioff ’s Sales­force Ven­ture Fund picked up $250m worth of shares apiece at the IPO price. Buf­fett has of­ten scoffed at buy­ing com­pa­nies in their fledg­ling stage. His seal of ap­proval is cer­tain to have given the shares even more of an al­lure.

In fu­ture, Dageville wants to use ar­ti­fi­cial in­tel­li­gence to sort data more deeply and rapidly, as well as cut­ting the time Snowflake takes to in­te­grate new in­for­ma­tion so that it ap­pears in cus­tomers’ sys­tems within “a few sec­onds, po­ten­tially even less than one”.

“It’s only a mile­stone, right?” he says of the suc­cess­ful float. “It’s a mile­stone in our road, and it’s a long road. It looks short; every­one says ‘wow, in eight years you did so much!’ For me, it seems like 20 years or even more.”

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