A backlog is revenue that has been signed but not yet delivered. A customer commits in a contract to buy a service over several years. The company has not earned that money yet, but it has been promised.
In company accounts this appears as remaining performance obligations: work the company still owes and expects to be paid for.
A Worked Example
The video uses round numbers. A cloud provider signs a five-year contract worth $10 billion. On day one, revenue is zero. The backlog is $10 billion. Each year, $2 billion moves out of the backlog and into revenue.
Revenue is zero on day one and the backlog is $10 billion. The yearly balances are this publication’s subtraction on the video’s numbers.
Why AI Backlogs Are Large
In AI, backlogs have grown very large. Computing capacity is scarce, so customers sign long contracts to be sure of getting it, and providers want those contracts.
What a Backlog Depends On
A backlog is only as good as two things: the customer’s ability to pay, and the provider’s ability to deliver. And if one customer makes up most of the backlog, the risk is concentrated.
The Order of Events
To deliver the backlog, the provider must first build the capacity. The spending comes first. The revenue comes later.
The Business Engineer framework maps where each part of the AI stack sits and who holds the leverage. These pills are short lessons from the same library.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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