James Governor's Monkchips

The Developer Experience Multiple

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This month has been quite instructive about how the market perceives value in technology and platforms.

Twilio announced 2020 Revenues were $1.7Bn. Total revenue growth year over year was 65%. On the day of its IPO in 2016 Twilio was worth $2.4bn. Today it’s worth more than $60bn.

Earlier this week Stripe announced it had raised $600m, at a $95bn valuation. It is now an epoch-making company.

Stripe now counts more than 50 category leaders—companies processing each more than $1 billion annually—as customers.

Stripe and Twilio share some characteristics. Both companies are bywords for good Developer Experience. They bridge the Developer Experience Gap with use case specific platforms that engender jobs to be done.

If you ask software developers which companies have the best documentation Stripe is inevitably at the top of the list. Twilio likewise has a great reputation for its docs. What about APIs? Stripe and Twilio’s APIs are a byword for developer productivity. Finally both companies are very philosophical and intentional about what they do.

Twilio CEO and founder Jeff Lawson recently published a book about his philosophy – Ask Your Developer: How to Harness the Power of Software Developers and Win in the 21st Century.

From banking and retail to insurance and finance, every industry is turning digital, and every company needs the best software to win the hearts and minds of customers.

The landscape has shifted from the classic build vs. buy question, to one of build vs. die. Companies have to get this right to survive. But how do they make this transition?

Developers are the creative workforce who can solve major business problems and create hit products for customers — not just grind through rote tasks. Most companies treat developers like digital factory workers without really understanding what software developers are able to contribute.

From Google and Amazon, to one-person online software companies — companies that bring software developers in as partners are winning.

Stripe co-founders Patrick and John Collinson are natural industry leaders, arguing that their success is based on growing markets, creating opportunities for third parties, rather than a zero sum game. On the thought leadership side, not only do they put forward a coherent worldview, but the company casually created a high production value publishing company – Stripe Press.

On March 10th Snyk, a developer-first security company based in London announced it had closed a $300m round, valuing the company at $4.7bn, quadrupling its valuation since the start of 2020. Founder Guy Podjarny created the company based on the belief that with the right developer experience software engineers would naturally build security into the applications and services they build, rather than security being a wholly separate organisational function. Shifting security left is a very big potential market.

March 3rd Okta announced its definitive agreement to acquire Auth0 for $6.5bn, consolidating the identity and access management market. Okta shares dipped on the news given that just July, Auth0 had a valuation of $1.92Bn. And couldn’t Okta do what Auth0 does? But CNBC reports this interesting exchange with Okta CEO Todd McKinnon on Jim Cramer’s Mad Money show:

Okta focuses more on pre-built, pre-configured solutions while Auth0 is more focused on purpose-built app developers, he added.

Auth0 is “a product that’s much more flexible and extensible and does exactly down to the bit and bite what the developer needs to do, and that’s why the two solutions together are so compelling,” McKinnon said.

RedMonk has long argued that developers are the key influencers in platform adoption. In many respects much of this argument is nothing new.

We have VCs and accelerators entirely dedicated to developer-first tooling. See for example Boldstart Ventures, and Heavybit.

Obviously, a multiple is not money. Developer experience is not money. Valuations in the modern technology business are not always based on revenues and tradition price/earnings multiples. Docker blew through $308.7m in multiple funding rounds without ever properly establishing product market fit.

But there is no question that the market is moving towards higher valuations for companies that offer great developer experiences, and with the right business models those companies can generate huge amounts of cash.

Disclosure: Auth0, Docker, Snyk, Twilio, Google and AWS are RedMonk clients, but this is an independent, uncommissioned, piece of research. Stripe and Okta are not currently clients.

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