In the tech industry, it can sometimes feel like the cloud is old news -- but a fast-growing crop of firms are proof that opportunities in cloud services are just getting started.
One such company is Okta (OKTA) , which sells software for identity management on a subscription basis. Okta's technology helps businesses to integrate the various applications and devices used by their employees and their customers.
CEO Todd McKinnon says Okta's technology is "on the right side of history" amid a rapidly-changing landscape of cloud apps and services used by businesses. A recent customer survey by Okta, for instance, found that large companies are deploying 163 apps on average, with workers commonly using several apps at a time in the workplace, generating demand for an easier way to integrate such services. In its December 2018 earnings report, Okta topped expectations on both earnings per share and revenue, and its stock is up 34% since the beginning of this year.
We caught up with McKinnon at Okta's San Francisco headquarters to talk about where cloud growth is coming from, what customers Okta is targeting next, and more. The interview has been condensed and lightly edited for clarity.
Let's start with the cloud. Just how much growth is yet to come for cloud companies and services?
I think the main thing that people miss is that the trend is very early. People think it's at the peak or that it's run its course, but in terms of public markets and investors, the trend is still very early. If you look at IT spend, it's $1 trillion -- and cloud revenue, if you add up Amazon (AMZN) , Salesforce (CRM) , Workday (WDAY) , is still just $200 billion. That's 20%. That's $800 billion in on-premise services [to be] replaced by cloud, but the trillion is also going to get bigger.
Can you elaborate more on where the cloud growth is coming from? International segments, replacement cycles, or something else?
There is an international component: Technology tends to go from North America out, with some exceptions, but generally it goes from North America out. But I think the bigger deal is that all of this technology took 30 years to install -- that's 30 years to get an operating system created, a bunch of applications created and turned into business applications, and then a bunch of data put in to run a company. These things have long lifespans, and I think there's a mathematical relationship between how long it took to put something in, and how long it takes to change it. And that's on the replacement side. That being said, there's a whole ring of new stuff being built that's not a replacement. A good example is Hertz rental car. They don't have 30 years of a great mobile app or a great website. They know that they'd better have an awesome website and app, and they're not going to buy an on-premise database; they're going to do it all in the cloud. That's how we get from $1 trillion to $1.5 trillion, with all the new stuff being built.
I noted this trend of more and more apps, such as Alphabet's (GOOGL) G Suite and Microsoft (MSFT) and many others, being used concurrently in the workplace. What does this explosion of work apps mean for Okta?
Fundamentally, we're about integration: We make things things work together, whether that's different applications in your Workday, whether that's your phone and your computer with the network you want to log in to, or whether that's making sure that you can use the same identity and security infrastructure for your employees and your customers. So for us, if there was one company that did everything, with one set of engineers that built everything, with a super magical phone and network and security software and wifi routers all together in one package -- if that existed, you wouldn't need Okta. But the reality is, we are the integration layer because no one company does it. And you're not going to buy your phone, computer, wireless access points, security firewalls, back-office systems and productivity apps all from one company. Even the companies that try to do that, by buying up companies and putting it all together -- they aren't even integrated. Oracle (ORCL) has bought all these companies, and those things aren't even all integrated; customers at Oracle have a separate log-on for different Oracle applications. So my point is that to the degree that there are different vendors, technologies and platforms and you're trying to put together your technology, we're critical. I think we're on the right side of history there because that's the trend.
Since Okta builds integration technology that covers both the employee side and the customer side of businesses, has it gotten easier over time to pitch the value of what you do to prospective customers? Do people 'get it' more easily?
For customers, it is much easier because their board or executives are saying: We need a better website, we need a mobile app. It's very visceral for them. And they get a lot of information from their peers. We've been successful enough in customer identity over the past five or six years that their peers reference it out. Government has taken a while, but now it's happening a lot. They had to get their head around it, and they have replacement cycles too. And they have mandates from the federal government to do new things in the cloud.
What are Okta's biggest priorities this year?
The big headline things are: It's to grow; we're a growth company. Customer identity is important, and this concept of helping companies to be more secure -- not just enabling them to have better apps and websites, but helping them to be more secure as well by getting everything in multi-factor, making sure the right people have access to the right things -- that's a big emphasis for us. And we're also focused on making sure that we're successful with the largest organizations in the world. Okta has traditionally started from the mid-market and moved up, and now we're putting a big focus on the largest enterprises in the world. We can add a ton of value to those companies -- we have a lot of them, but we could do much more. We also have a focus on making sure we can provide capabilities in the platform that are only possible because of the number of users we have, and the number of logins and integrations -- a concrete example of that is we're looking at ways to make it super easy for two companies that both have Okta to connect to each other. It's still too hard. Say, TheStreet has Okta and an advertising agency that you want to collaborate with is not using Okta, it's still too hard to link that up from a security perspective. So as we're getting more and more customers, we have the ability to make that super easy. So those are all categories of things that are about connecting the users and the companies and the integrations on Okta together.