New Relic's (NEWR) Management Presents At UBS Global Technology Conference (Transcript)

| About: New Relic (NEWR)

New Relic (NYSE:NEWR)

UBS Global Technology Conference Call

November 13, 2017 6:45 PM ET

Executives

Jim Gochee - Chief Product Officer

Jonathan Parker - Investor Relations

Analysts

Unidentified Company Representative

All right. Good afternoon, everyone. Thanks for joining us. I’m excited to have with me on stage New Relic, excited to chat with Jim Gochee today, Chief Product Officer of New Relic; and John Parker, who runs the IR effort at New Relic. So thank you very much for joining me today.

Jim Gochee

Great to be here.

Jonathan Parker

[indiscernible]

Unidentified Analyst

Great. Jim, I actually wanted to start out with you. You have a very unique perspective on software development practices and everything and sort of in that neighborhood just given your tenure in the industry. Maybe in broad strokes just to kind of set the stage from an industry standpoint, what are some of the greatest opportunities today as you think about through the proliferation of programming languages, frameworks and architectures in the notion of DevOps? So it’s a big picture question, but maybe we could just get started there?

Jim Gochee

Yes. Well, it’s a lot easier to build software applications today than it was back when I first started my career. And I think, Amazon and the other cloud vendors have done a lot to make it easier. Also when I started my career, there really wasn’t agile at the time and certainly DevOps wasn’t the thing either. So I think, what’s fantastic to see is, as I’ve sort of witnessed the evolution, it is now like much easier to build software. Companies are moving much faster, and they’re building software that has more value and more impact to the end user.

And so it’s great to see how this industry from a software development perspective has really evolved, and it’s kind of enabled and it’s been one of the underpinnings of this whole digital transformation. The fact that almost every company is becoming a software company who can pivot and that we have enough of a workforce and we have enough leverage in some of these infrastructure pieces to be able to support that, so it’s pretty fun to see that.

Unidentified Analyst

Running the product organization at New Relic, you’re in an interesting seat, because you almost have sort of the hindsight advantage having them a Chief Architect at Wily, just maybe your predecessor company. Maybe you can help juxtapose sort of what you’ve been able to achieve from a product development and engineering perspective? And you’ve been able to have sort of a clean sheet of paper, if you will, kind of looking back prior experience and then being able to start with a new clean sheet of paper at New Relic?

Jim Gochee

Yes, it’s a great question. So Wily was a pretty traditional enterprise software company, the software was built and then deployed on-premise. I don’t think a lot of care and attention was paid to the usability of that software. Lew probably in the early days wanted to do a better job in average. Nevertheless, the software is a little bit difficult to install, a little difficult to use, but that okay, that’s okay, because all enterprise software was like that.

What we also noticed though was, it was very hard for customers to upgrade. It was very hard for them to manage and to operate that software. And so there was a lot of inherent friction in this sort of, from getting to the point where the software was created maybe a new feature to the point where a customer actually had did it rolled out and was using it. There was something – there was like a time lag and then there was this friction in making that hard.

And so what Lew and I got really excited about with New Relic is the – is sort of that subscription business model and we run and host the software ourselves. And that would allow us to sort of shorten that time substantially from when the value was created in the software to where the end user was using it. And that was this clean sheet of paper around thinking about the software. And then, we got like really aspirational. We wanted everybody to use New Relic, whereas maybe only a thousand companies ever had used Wily.

So could we democratize monitoring solution? Could we democratize APM and really get very broad adoption? Well, if you do that, it has to be easy to use, self-service, the product sells itself, all these really interesting elements to it, which Wily never had. And so I think, that’s kind of a playbook that modern enterprise software is running, as it is more consumerized, in other words, it’s easier to use. It’s easier to sign up for it, like there’s not a lot of training. There’s no manuals. And it’s just like a much better happier place, I think, for all of us to be right now.

Unidentified Analyst

And maybe just from a technical standpoint some of the larger on-premise industry incumbents who are trying to pivot towards new reality of installing to the developer and creating a – the virality around the product. As you think about these vendors sort of cloud washing their on-premise capabilities in order to kind of replicate your style and sort of your architecture. How should we think about some of the technical nitty-gritty that you’ve been able to build just from the ground-up having been born software as a service?

Jim Gochee

Yes. So there’s a big question around, are you multi-tenant SaaS? Are you sort of single tenant or hosted? I kind of – I like that term cloud washings. I don’t think I’ve heard that before, it’s a – that’s a great term. It’s basically just putting a spin on something that’s not really there.

I would say, the benefit that we’ve had from starting with pure multi-tenant SaaS and sticking to that has been very powerful. That sort of focus has allowed us to move more quickly, whereas some of our competitors have many different ways that you can deploy or install or use the software and that may seem more customer-friendly in one way. But honestly, it’s a lot harder to implement and to get right. And none of our competitors are really getting it right.

So we’re very happy with our decision to be pure multi-tenant SaaS. We have almost 10 years now of experience running and operating our service in this way and that’s far, far more experience than anyone else in our industry and no one else has a pure SaaS offering. So we think we kind of made the right bets on where the market would be. But 10 years ago to make a bet all in on SaaS was a risky bet, because no one else was doing it. So we were kind of innovative and market leading in our thinking at the time.

Unidentified Analyst

What are some of the security considerations that you think about and think about differently in the multi-tenant cloud world, because ultimately, you are housing some very critical intellectual property from your customers as they develop kind of their next gen app. So how do you think about the security ramifications in your product?

Jim Gochee

Well, it’s a great question. We actually think that you’re more secure using our monitoring service than an on-prem monitoring solution. And here’s why. We built security in from day one knowing that this would be a concern for our customers. And when our customers talk to our and we’ve had a security team from the very early days of the company. And when our customers’ security team talks to the New Relic security team, what they discover is, we protect the monitoring data, as well or better than they would protect internal monitoring solution.

And so, especially like in the world of like multi-cloud and many data centers, your monitoring solution has to sort of be exposed to all these different elements anyways. And most of the vendors for the on-premise monitoring tools never really think about security, because the kind of mental model is well, is behind the firewall. It’s like yes, that kind of goes behind a single firewall, but our network architectures are vastly more complicated now.

And so we really – we have to and we do protect our customers’ data to the same degree or a higher degree than they would protect it themselves. And that’s why so many enterprise companies are doing business with us.

Unidentified Analyst

That makes sense. The product development engine is absolutely humming, so you’ve been to these. Maybe if you can help share some product milestones that you’ve had in the last year and then specifically talking about the server products we can drill into that a little bit. But just some kind of product milestones in the last year and some of the traction and conversations you are having with customers around new features and functionality that they’re really hungry for?

Jim Gochee

Yes. Well, I agree with Lew when he said that the product org is really functioning well. It absolutely is. We’ve put out a lot of new products in the last year. One of the ones that we talked about in earnings call was our infrastructure monitoring product, AKA server monitoring, although it does more than that, that product has really seen strong adoption in the market. And when we created that product, we saw a real opportunity.

So, legacy infrastructure was typically like servers or devices that you purchased and you put into a data center and then you monitor those things. I’d like to say, modern infrastructure is typically infrastructure you provision from a cloud. But there’s no infrastructure, you just provision it from a cloud vendor And then the way the companies use that infrastructure is very different. And that they are more dynamic and how they spin it up or tear it down or swap it around.

And so you can’t really have a sort of a static monitoring solution for infrastructure. You need a much more dynamics solution for modern cloud infrastructure, that was the opportunity that we saw and here we are just about 13 months later from launch, and really seeing a very strong uptick in that product and so our customers love that.

The other announcements that we’ve made recently a couple of key ones that stand out for me, one is around Applied Intelligence. And there is a lot of buzz right now in the industry about artificial intelligence and machine learning. I just had a – I was at a conference a couple of weeks ago, a Summit down, CXO Summit down here, and it’s a hot topic. But we saw that’s about a year ago. And what we saw is that, there’s so much data, there’s so many things to monitor and so much data about those things that humans monitoring the data is not really practical anymore.

So what I would like to say is, we’re building algorithms and having the machines monitor all the data, looking for patterns, looking for potential problems that would lead to an outage or a degradation in service before that actually happens, and this is resonating really well with the customers we sell to. They love this notion. If they could install New Relic and it comes with intelligence built in to just be more proactive and tell them essentially what the algorithms are seeing. And we’ve got a lot of experience in APM and monitoring.

And so we can embed. Some of these algorithms are pretty simple, some are pretty sophisticated. On the simple side, we’ll watch all the servers that we monitor were the infrastructure product. And if we see that the disk space is getting lower and lower and lower and essentially you’re on a trajectory to run out of disk space. We’ll let you know before that happens.

So, for example, if you’re running a database server and you run out of disk space, that usually crashes to database and that’s really hard to recover from. So, we can sort of be looking for things behind the scenes. Also, when we see an outage, we can look across all the data very rapidly and try to give you guidance on what we think is going on, because sometimes and there’s an outage a lot of systems were down and then you have to piece together what’s really happening. And so we can use computers to scan over large sets of data very quickly.

So I think that sort of that trend of intelligence is resonating well with the market, and it’s something that our customers are very happy about. And then the final thing is, there’s sort of a new movement afoot around tracing and distributed tracing, and we joined an open-source consortium called Open Tracing. And it’s really around environments that are highly serviced or micro service environments, where anyone web or request or the request from the mobile device is hitting maybe 50 or 100 back-end services in order to satisfy that request.

Those micro service architectures really benefit from distributor tracing. I mean, while we’ve had some capability in this area, we’re significantly revamping our offering here. And our customer are telling us they really like what they’re seeing coming out of that.

Unidentified Analyst

I want to stay on this topic of artificial intelligence and operationalizing machine learning. How do you deliberate between embedding a lot of these capabilities into the platform and deliberating the goodness and the enriched nature of the platform to the customers versus creating a separate skews around the core platform?

Jim Gochee

Yes, that’s a great question. So we made the decision with our work in AI. We made that decision to build out into the platform itself. And our thinking was this, every one of our products have potential algorithms and have potential intelligence that we can layer in. And so if you buy APM wouldn’t you just want to have intelligence also built into that purchase and the same with our mobile product or the infrastructure product. And because we think of the long game as a company and we just want everybody to be using us.

We’re kind of careful not to over skew and try to prematurely optimize for revenue. And when you’re playing a long game like building this into the foundation and the platform, which just adds more value to what you’ve already purchased, encourages customers to purchase more, to expand more, they love getting more for what they have already paid for it. And so it’s really about long-term relationship as opposed to looking to maximize for short-term gain.

Unidentified Analyst

So some of the predictive value that does transpire from the use of AI and ML in the platform, I think, where things get really interesting is this concept of self-healing. So to your example about the solution sort of monitoring the disk space and you’re running really low. And instead of having it crash, are you in any situation within your customer environments, where you’re actually making the workflow decision around moving the environment to a new database, or how does that self-healing effect play out for you, is that happening today?

Jim Gochee

So, yes. The state-of-the-art of the industry is not yet there, but it’s going to be there before long. And we have more simple things that can be done. So, for example, when an alert fires today or potentially when we detect something happens, we have a way to kind of invoke a set of code that runs, but it’s up to our customers to wire that up right now in a way that makes sense. So we can detect certain conditions, but our customers take the action.

And I don’t think we’re too far away from where that sort of, is it more tightly integrated package. And then in a way, I think, like even just what the cloud is trying to do, it’s trying to remove the toil of operations. So that you can build and run your applications much more effectively. And I also view this like self-healing and auto scaling or auto adapting to the right size.

And all these advancements that will have – that’s – they’re going to comment on a question of this, but a question of when. I see that as yet again like freeing teams up from the toil, we’re still at the point where we’re trying to capture all the data and get the algorithms in place. So it’s a little bit of like walk before you run, but I do think it’s not too much longer before we get to that point. And we like to think we’re well-positioned both in the machine learning and intelligence side, because there’s a multi-tenant SaaS company we have all of our customers data.

So we can run training. We have the best training set in the industry and we can run the algorithms ahead of time. And we can build these things ahead of time and try them out before we make them generally available, right? So we have this capacity to kind of work in the backgrounds and really fine tune things before we release them out to our customer base.

Unidentified Analyst

Jim, the product portfolio has expanded significantly over the last number of years. So you’re in the infrastructure space and the browser monitoring space, you have the tolls in the APM space. Can you sketch out for us this competitive dynamics in sort of each one of those levers and sort of where you really shine and let’s leave aside the advantage with being a multi-tenant SaaS platform just very technically sort of the capabilities and how you compete in kind of each of those pillars and with whom?

Jim Gochee

Yes, I mean, that’s probably a lot – there’s probably a lot to go through, so I’ll just sketch it out. I mean, the origin of the company and sort of the history and the roots were in the applications monitoring space. And so if you think of the stack, you’ve got like at the bottom infrastructure then up one level the application then the end user experience and then the business even. We’ve sort of – we started and we’re – we feel like we’re most dominant at the APM, the application monitoring part, that’s a competitive market.

Wily whose previous company was in that same market, but that’s the market that’s undergoing transformation and shift. And so, if you look at like the Gartner statistics like we’re doing very well. We’re one of the three in the Magic Quadrant. So we have a market leading product. There’s a couple of other that are very strong. But there’s a lot of differentiation between us and the other two products, where we’re much more cloud-oriented and sort of modern application friendly, which is where the puck is going. So we’ve skated to where the puck is going to there. So I feel really good about the competitive situation that we’re in the API market.

I’ll bump up to the end user experience part. We’ve kind of been a market leader there. We have the best really user monitoring solution in the market and one of the only, that’s got any traction. We have significant traction in that part of the market providing teams that what users are experiencing from the browser or from the mobile device via both browser monitoring and mobile – native mobile SDK monitoring.

And then if I think about going down into infrastructure, that’s the newest market that we’ve gone into. And while there’s a lot of legacy vendors in that market, the needs of that market are shifting. They’re shifting more towards the new monitor, my cloud infrastructure, and very few of the legacy products can do that. And so, we’re – there’s relatively few companies included now that that really have a modern infrastructure monitoring product.

And so as infrastructure shifts to the cloud, we are very well-positioned there with our product, and some competition from a couple of private companies and open source. But we feel pretty good about our offering. And then in this real-time business analytics, we launched insights three years ago. And our thesis was this, if your business is your digital application, we’re inside the app, so we’re kind of watching customers and what they’re doing.

And with a little bit of annotation to tell New Relic to collect some extra data, you can start to create like a real-time business monitoring solution on our platform. And so we’ve seen that, and I don’t really see a lot of competition there. Although I think, that’s still early in the market. And by that, I just mean not a lot of companies are monitoring their business in that real-time way, so we keep putting out these case studies and we talk about the companies like Ryanair that are doing this.

And so we think that’s the future. But that market, in terms of what companies are spending today is relatively small, but we see that growing significantly and we see – we’re somewhat uniquely positioned at that part of the market.

Unidentified Analyst

Your product suite interfaces with developers who for better or for worse are kind of on the bleeding edge of adopting new and emerging technologies. Do you have a very interesting vantage point on what new technologies or new frameworks are going to bubble up to the surface? Any sort of observations that you’re kind of seeing within your installed base in terms of new…?

Jim Gochee

Yes. Well we’ve seen just how hard containerization has been. And even within New Relic, we’ve just – it’s been amazing to us how quickly we’ve embraced that and how positive an impact containerization has had. And probably you hear Kubernetes, I talked about, that’s the orchestration framework for containerization, docker gets talked about in this realm. I think, that’s one of the hardest new technologies other than just cloud that is revolutionizing IT operations.

And so we love it, because we love any technology that makes it easier to build and run software, because the more software just built and operated, you need to monitor that software. So we love technologies like containerization and Kubernetes that make that easier. I mean, the other technology that’s pretty buzzy right now is serverless Lambda, which is Lambda is Amazon’s version and Microsoft and Google have their own versions of this.

But I think it’s really compelling to just think about like what if you didn’t have to worry or think about servers at all, but you could still write and deploy code? It’s not a brand-new concept. But these sort of functions as a service is a new spin on it, and that seems to be resonating really well.

And again, for us, like I don’t – we don’t really care how the software gets written. But if more software is written, you want to monitor that software to make sure it’s functioning correctly is inevitably bugs and defects, leaking or used cases that you never predicted, under load kind of work its way in. And so, all these technologies were kind of agnostic to that. We just want to have the best tool to help you keep track of what’s going on.

Unidentified Analyst

Does that change the – does that in anyway change the way you are able to instrument a lot of these new technologies? Does the bar get higher, different, more difficult?

Jim Gochee

Well, it can. And in the case of Lambda, because Amazon kind of hides all the deployment time details from you. Lambda turns out to be pretty hard to instrument. It’s not just us, it’s just not – Amazon hasn’t really opened it up historically. So what Amazon has been doing is, they’ve been kind of adding more like they’ve made it more easy to monitor lately, and so that allows us to actually pick up some of the data.

But this is actually I think impact serverless to a degree. But if you can’t really track what’s going on in the serverless functions, and if you really can’t tell if they’re working correctly, what do you do when they don’t work correctly? What do you do when your serverless architectures breaking down?

So I think, that is an artificial governor on how much people will do with serverless if they can’t really debug it in production. So I think, the debugging capabilities get added or companies limit their use of it. Again either way like the industry sorts it out, we’re there to help as much as we can.

Unidentified Analyst

John, just trying a lot of the product development progress and portfolio expansion into some of the financial objectives, you did report results very recently last week, it’s all a blur. And maybe if you can share some of the key highlights and what you’re seeing in the business that’s really strengthening your confidence as you kind of walk into the second-half of the year?

Jonathan Parker

Yes, it was an exciting quarter for us. I mean, I could probably roll out a hit parade of key metrics for what we accomplished last quarter, but there are a couple, I think, that are certainly notable highlights for us. I think one is, we’ve been making a big push into the enterprise over the last few years.

And as Jim said, really grew up as much more of an SMB centric company, that’s where frankly our reputation had been and we started making a shift about three years ago, putting feet on the street and enterprise and it’s felt over that time over the last few years in particular that we successfully made that transition internally. But I think, from an external perspective, we obviously face a lot of questions. So it was very exciting this last quarter we passed over half of our business now coming from the enterprise based on a quarterly base.

So over 51% of our ARR and that business is still growing very robustly. For us, it’s growing over 50% a year. So I think that was certainly a highlight for us in an area where we’re continuing to focus. We expect 60% to 70% of our business coming from the enterprise over the next four-plus-year as we strive to be a billion dollar company. So that’s particularly exciting and where we’re getting pulled into.

On the product side, Jim talked about infrastructure and insights. Also particularly exciting that over 40% of our business last quarter came from non-APM products. So we’re seeing really good adoption of the overall platform. Infrastructure has only been in the market for roughly a year, but actually contributed over 10% in the bookings in the quarter. We signed our first million-dollar ARR customer in the quarter for infrastructure. Insights was also 10% of new business, so obviously a lot of metrics there.

But I think the really compelling part is, it’s very clear to us that we’ve evolved from being more than just an SMB APM company with a perception wise, it’s truly being an enterprise platform company, and that’s where we continue to see the opportunity in front of us.

Unidentified Analyst

And just on that with respect to kind of your addressable market opportunity and the nitty-gritty opportunity set for you between greenfield opportunities, brownfield opportunities where you’re taking out some Wily shelfware and international, how do you sort of see those add inputs into the business?

Jim Gochee

I mean I can take it and you can add your point of view, if you have, one that differs.

Jonathan Parker

Sure.

Jim Gochee

But historically, it’s been greenfield for us. We were trying to have the best solution for modern applications, where the existing toolset just didn’t work. We really weren’t interested in necessarily rebuilding the old toolsets and the old technologies, because that’s a problem, that’s already been solved in the market. And that doesn’t mean that, we don’t see some replacement business where spend shifts. But really customers bring us in, because they’re thinking of how to monitor the whole new generation of things that they want to do and how they want to build and operate in the cloud. And so that’s really, that’s where we’re seeing most of the new business come from.

Once we’re in a relationship, so we have the customers, we’ve been in a relationship three and four years, these are enterprise companies. They’re looking at it and saying, you know what, we just like to jettison all the old stuff and shift that spend to you. And so I think that that replacement that brownfield opportunity sort of does come around to us eventually, but it’s usually after the relationship has been going for a few years and we keep expanding and expand and expand and expand and then we kind of become a standard – dual standard often.

Now dual standard runs for a while and then they look at it and say, you know what, like we’re getting a lot more value from you guys. Can we get rid of the other guys? And so that’s we’ve done that a few times though.

Unidentified Analyst

Maybe John, how are you setting up sort of the go-to-market mechanisms and sales organization incentives to encourage a lot of these platform sales and engagement staffs around the infrastructure, product and the Insights product exceeding the 10% kind of threshold. So, what’s happening within the sales force, where you’re able to kind of tweak and really push those new product?

Jonathan Parker

It’s interesting actually, because we really don’t have mechanisms in place to preferential treatment into one product over another kind of gravitates in certain direction. I mean I think sales are certainly always attractive to the new product that they have in their bag and they love being able to go to customers to sell that and, that’s great.

But I think really we’re seeing much more of this. Overall, our reps are getting better understanding how to sell the overall platform. Now often the way they are going in and settling APM upfront as the initial kind of sticking the eye problem, where they’re very clear pain point they’re trying to solve and – they’ll out of a piece of the platform on top it. But I do think we’re getting better at selling more of the platform upfronts.

We do thing there’s an opportunity for infrastructure to be a landing spot for customers, does start at a lower price point or can’t be a little bit easier keeps out of there. But we’re also seeing, we’ve had a great deal very recently with a very large airline in the U.S., where they start with mobile and we had another large element that is highly synthetic.

So different companies, there’s just different pain points that they’re experiencing, whether it’s with their legacy providers or specific problems they’re facing. And that’s a great part of the platform that we have a solution that they can start with very easily. And then once you build the relationship, we can spread from there. So I think we’ve gotten very good at understanding those problems.

Unidentified Analyst

With an expanding portfolio and more stuff in the bag for your sales reps to be excited about, it becomes maybe more longer conversations, or maybe potentially elongation of sales cycles. Are you seeing any of that impact as the sales folks kind of sell more of the New Relic products, or – and if you are, how are you trying to manage that? Any sales cycle elongations?

Jonathan Parker

Yes, I don’t think so. I mean that we’ve always had a land and expand model, where we have a very high velocity of the overall model. And we put up a slide at our – I think it was our Analyst Day a year ago, where we said our top 25 customers and the frequency at which they purchased with New Relic and for most of the top 25, they basically had a transaction with us three out of four quarters within a year. And that’s because either we’re expanding into a new division of the company, the underlying application itself is growing or we found an opportunity to bring a new product into the mix.

And so the great thing is, we were able to operate a velocity. We’re constantly expanding our use for the customers. And then we have proof points of success to be able to go into a C level executive and try to move them to understand that’s what the enterprise standard and kind of consolidate demand for a larger more strategic vision. And that type of standardization can take a little bit longer, but we’re willing to kind of build on those proof points of success to get to that and go where we can sort of have a larger – more strategic conversation dialogue.

Unidentified Analyst

Enterprises are obviously dramatically changing the way they’re consuming IT just kind of across the board. And so I’m curious, I know you’ve rolled out some changes in your pricing model some time ago. And so I just want to get a sense of, how that’s – how responsive your customer base has been, especially in comparison to how they’re buying the rest of their IT and then consuming the rest of the IT, as we move to kind of more consumption-based models?

Jim Gochee

Yes. Well, I think that’s at a nutshell people want to pay for what they’re using. And we have a – our model is a little bit of a mix. It’s a little bit more maybe like a reserved instance model, where as you can pay for what you use, you’ll get one set of pricing. If you purchase in quantity for the year, you get a pretty steep discount. And if you move to multi-year, there might be even a bit more discount yet on that.

So while people do want to pay for what they use, there is also like don’t surprise me with what your bill is going to be. And so they kind of want their – have their cake and eat it, too. But realistically, we have to adapt to the way the market wants to buy and then we can set the price points that they buy at. And I think we’re actually on a fairly good sweet spot. They can pay month to month. They can pay in advance for the year, most do, they get the best pricing. And sometimes we have to reevaluate how much they purchased midyear. Sometimes wait for the year to come up and we evaluate with them going forward.

But one of the things that we introduced and this is probably what you’re thinking of as we introduced a cloud version of our pricing model, where the cost of New Relic would scale up or down based on the power of the server that you were running and this was a bit of a new thing for the industry all that kind of reminds me of like CPU pricing back in the Oracle days.

But if you’re using New Relic on a low-powered server, you’re going to pay a lot less for it and if you’re using New Relic on a high-powered server. And we’re the only one to do that. And I think it – that get resonated really well with our customer base, because it made sense to them. And a lot of times their architecture, they’re taking big monolithic systems and breaking them up in the micro services and running them on lower-powered servers.

And so because they re-architect, they don’t necessarily want to pay a lot more for their monitoring tool, right? And so we’ve been able to kind of accommodate some of that through our cloud pricing mechanism.

Unidentified Analyst

John for you. On the earnings call you and Mark you talked about bringing on the gross turn in your SMB base. And I think for a couple of quarters now, you’ve been very constructive around the improving profitability profile of your SMB customers and your SME customers. Can you help sort of walk through with specific steps you’ve taken to be able to kind of achieve those two vectors?

Jonathan Parker

Yes, there’s a couple elements to it. I mean, one is kind of more simple math, which is just as we’ve been focused much more on the enterprise business is obviously much stronger renewal characteristics for enterprise customers. They typically renew $100 base in the low-90. So as the mix has shifted towards enterprise. We’ve obviously seen some nice tailwinds to our overall renewal rates and improving to the mid – to upper 80s. But it also say, we made a lot of investments internally in customer success.

And so that’s both customer success team internally that works closely with our customers to understand pain points proved value quickly. We don’t want to have companies that have six to nine months of the contract, we’re getting a call from the company that says, this isn’t working, right? We want to know make them successful within a month if not less of their purchase, I mean, considering value from the products. We’ve been building pretty aggressively. As you know folks, internally that can go into trading sessions with our customers. They do webinars all sorts of things and that’s really helped out.

On the SMB front, I think, we have a GM for our SMB business now, and he’s very focused on how do we optimize and grow that business efficiently. We’ve been certainly investing more of our incremental resources into the enterprise over the last few years. But the SMB business is important to us. We don’t want to ignore the developers, developer community is very strategic to us for numerous reasons.

So we’ve been exploring new avenues whether it’s through self-serve and our website portal and cloud pricing, ways to lower the barriers and friction points to getting those customers in the door. At the same point, we are also just focused on higher quality SMB customer. So I think, we’ve been more focused with our marketing, demand gen, strategy and where we focus those dollars in number of areas as well to really bring higher caliber of customer that improves the overall customer economics and ultimately, improves our operating margin profile.

Unidentified Analyst

I’m going to jump into some Q&A that’s streaming in from the audience. Actually just on this topic of sales force or your sales force. Did you start up an inside sales force initiative, and if so, why?

Jonathan Parker

So for SMB, we’ve always had an inside sales force. So for the U.S.-based in San Francisco, and in Europe we have an inside sales force based in Dublin. For enterprise, all of our reps are all geography and territory focused for now. We do have a very small team of inside sales which partners with the enterprise sales force on some of the smaller more transactional parts of the business. But it’s not a significant portion of the overall sales headcount for us.

Unidentified Analyst

You did announce more formalized partner program, so this is just taking a step back in your larger go-to-market efforts. You did announce a more formalized partner program. Any sort of proof points or success metrics you can share with respect to that distribution avenue, especially as you kind of move into enterprise leaning more on kind of traditional resellers and systems integrators?

Jim Gochee

Yes. I mean, what I would say is, we primarily look to our partners, and it’s cloud vendors, it’s SIs and integrators for those cloud vendors. There’s also other tooling companies who are – who kind of are in the industry – in the market with us and driving towards ultimate success, but don’t compete with us. And we look at – if we look at that as a way to drive lead flow introductions and mutual success. So we just posted a success story that we worked with a customer who was a Pivotal Cloud Foundry customer and there was West Corporation down in Texas, they’re in Texas, right?

And they had like a task at hand and a challenge to reach that goal and they were finding some headwinds and they brought, Pivotal brought New Relic to help. And so together, we sort of made that customer successful, right? And I think those are the kind of partnerships that are mutually beneficial, but maybe without like a formal agreement, there was no revenue share, for example, in that case, it was just – it was mutually beneficial. That’s where we’re seeing the most impact right now as opposed to like a reseller channel or service provider selling New Relic, that’s not really where we’re seeing success or focused. We’re not really asking our partners to do that for us right now.

Unidentified Analyst

And just on the competitive front, one of your larger competitors was acquired by Cisco earlier this year AppDynamics. Any changes from then with respect to how often seem them in the field, sort of any changes from that regard? And is that changing the way you operate it in anyway?

Jim Gochee

It’s not changing the way we operate. We still continue to see them. They are behaving a little bit differently and what we’ve heard, so we just had to win against them, where the customer shared the AppDynamics roadmap. And what it appears to us is that, so Cisco is sort of pulling the roadmap in a certain direction around network monitoring, which is not a big surprise, but we have seen that. And we’ve also seen a little bit of different behavior, maybe they’re bundling in AppDynamics into a larger deal or even in the case, where they’ve lost the technical win, we’ll just try to give it away for free to the customer.

So there has been a little bit of a change and those things are all very common when a big company comes in and tries to use the go-to-market muscle. But they’re usually not very effective honestly. And so we’ve – we feel we’re in a better competitive position today than we that we’ve ever been in with against AppDynamics.

Unidentified Analyst

I think, we’re all out of time here. And so I just wanted to thank you so much for sharing your perspectives and and insights. Really appreciate you having here.

Jim Gochee

You’re welcome. Yes, it’s just fun. Thanks for having us.

Unidentified Analyst

Of course. Thank you.

Question-and-Answer Session

No formal Q&A Session for this event.

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