C3 AI is a cloud-based Enterprise AI SaaS company. It built a set of proprietary applications (known as the C3 AI suite) that offer its clients the ability to integrate digital transformation applications with fast deployment and no overheads. C3 AI makes money primarily via its subscription services and professional fees.
The framework used to analyze the C3 AI business model
Thomas M. Siebel, Founder, and CEO of C3.ai explained in its letter to investors:
This is my fourth decade in the information technology industry. After completing my graduate work in Computer Science, specifically relational database theory, I was recruited to the then start-up Oracle. The relational database market was nascent when I joined Larry Ellison and Bob Miner at Oracle in 1983. The global market for information technology was $224 billion, and, as I recall, the RDBMS market was less than $20 million. I was satisfied that the fundamental economics of application development and information processing assured the ascendance of RDBMS. That turned out to be a pretty good bet. A decade later, Oracle grew to exceed $1 billion in revenue.
After this transition as the IT market exploded to half a trillion industry, during the 1990s, Thomas M. Siebel pointed out how many business processes had been automated, and yet this wasn’t the case yet for sales and marketing processes, which throughout the IT revolution hat remained almost untouched.
From there Siebel founded the company that brought his name, Siebel Systems.
In 1993, this software company’s focus was to apply IT innovation to improve business processes related to sales, marketing, and customer service.
After six years, Siebel Systems passed $2 billion in revenues, and it got sold by 2006 to Oracle.
What Siebel Systems was after at the time is what would be known as the CRM market, where players like Salesforce, throughout the 2010s, became leaders in the industry, SaaS, that has now become ubiquitous in terms of applications and commercial use cases.
The next bet for Thomas M. Siebel became Elastic Cloud, an evolution of cloud computing, able to adapt to the demand of the customer/user so that a whole infrastructure (IaaS), platform (PaaS), or application (SaaS), could adapt to the need of the company, now able to convert Capex in Opex, with faster deployment, experimentation, and continuous improvements.
Cloud business models are all built on top of cloud computing, a concept that took over around 2006 when former Google CEO Eric Schmit mentioned it. Most cloud-based business models can be classified as IaaS (Infrastructure as a Service), PaaS (Platform as a Service), or SaaS (Software as a Service). While those models are primarily monetized via subscriptions, they are monetized via pay-as-you-go revenue models and hybrid models (subscriptions + pay-as-you-go).
Cloud computing isn’t just important because it changes the operating model for companies benefiting from that, but also because it enables the development of a whole new AI ecosystem, made of companies building applications with AI/ML capabilities.
A sort of new industrial revolution, indeed a “digital industrial revolution” driven by the new machines (algorithms combined with data and servers).
This is the best of Enterprise AI driving digital transformation, which is where C3.ai is positioned.
Mission, vision, and principles
C3.ai’s mission is to accelerate the digital transformation of organizations globally by enabling the deployment of Enterprise AI at scale.
C3.ai’s goal is to establish and maintain a global leadership position in Enterprise AI across all market segments including large enterprises, small and medium businesses, and government entities.
C3.ai is an Enterprise AI SaaS company.
An Enterprise AI business model that works has to offer complex solutions, on-demand, with fast deployment for potential customers, able to be expanded within the organization to cover several use cases.
In this way, the organization leveraging the Enterprise AI SaaS provider will enjoy lower costs, faster experimentation, and the ability to break down the company’s siloes.
C3.ai’s whole infrastructure and what it calls “secret sauce” is a multi-cloud environment, where applications can be quickly deployed on top of cloud platforms such as Microsoft Azure, Amazon AWS, IBM Cloud, and Google Cloud. The core values that drive C3.ai’s mission are:
Drive and Innovation Propelling Growth.
Natural Curiosity to Solve the Impossible.
Professional Integrity Governing All Endeavors.
Collective Intelligence.
TAM: How big is the potential market?
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry.
Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
C3.ai operates at the intersection of Enterprise AI Software, Enterprise Infrastructure Software, Master Data Management, and Enterprise Applications, which according to C3.ai’s financial prospectus form a market worth $174 billion in 2020.
Value proposition, key customers
The core value proposition provided by C3.ai enterprise SaaS is the set of applications built for companies for several use cases.
There are many use cases covered by C3.ai applications, from big data to inventory management or organizational efficiency.
Example of a use case enabled by C3.ai to speed up the volume of trades potentially going through the customer’s platform (Source: C3.ai Prospectus).
Customer profiling
As an Enterprise company, the core focus for C3.ai is the acquisition of larger organizations in various industries, which need to solve complex problems, to digitize their business processes.
Some of those organizations comprise companies operating in oil and gas, power and utilities, aerospace and defense, industrial products, and financial services.
Indeed by July 2020, customers in the financial services, oil and gas, aerospace and defense, manufacturing, and utility industries represented 10%, 29%, 18%, 19%, and 24% of its total revenues, respectively.
It’s important to highlight that C3.ai’s top two customers represented (as of April 2020) over 10% of its total revenues, and by September 2020, C3.ai counted 29 Customers and 59 customers.
Technological model
The whole cloud ecosystem that makes C3.ai SaaS offering possible. From the first IaaS layer, with the largest cloud computing players like AWS, Microsoft, Google Cloud, IBM, and other players like Nvidia and VMware for GPUs and virtualization. The PaaS layer with the set of proprietary applications built by C3.ai, what they call the “C3.ai Suite,” and the SaaS layer, which is the set of applications that C3.ai offers its final customers. This comprises a set of predictive maintenance applications, inventory optimization, energy management, CRM, and more. (Image Source: C3.ai Prospectus).
C3 AI offering moves around two families of software solutions:
The C3 AI Suite, which is its core technology, is a set of application development frameworks and runtime environment to enable rapid design, development, and deploy Enterprise AI applications.
And the C3 AI Applications, built using the C3 AI Suite, those applications comprise many commercial use cases.
C3.ai Model-Driven Architecture As The Technological “Secret Sauce”
C3 AI claims that its core technology (what gives its competitive advantage) is the set of proprietary tools built to develop applications on top of C3 AI. This C3 AI calls model-driven architecture.(Image Source. C3.ai Prospectus).
The C3 AI Suite is a low-code/no-code AI and Internet of Things, or IoT, platform to accelerate software development.
The core premise of this platform is to reduce cost and risk with faster deployment.
Companies using the C3 AI SaaS offering enjoy the use of a flexible platform to meet many needs, which can be used by several stakeholders (data engineers, application developers, data scientists, business analysts, and end-users).
Going forward C3 AI will invest further in the expansion of its AI Suite, to expand its use cases, and therefore acquire more Enterprise Customers.
Inside the core stack of C3 AI Suite, transform data (input on the left side) into insights and actions (output on the right side). As the data gets in, it gets integrated, extended into the C3 AI set of data models, and transposed into a set of applications and intelligence tools.
Some of the C3.ai services comprise:
Data Integration and Management Services (as the company points out “to easily and automatically ingest and aggregate massive volumes of diverse data from numerous internal and external sources and unify the data in a common and extensible data image”).
AI Application Development and Operationalization Services (as the company points out “automated services to explore data, build and train AI models, and operationalize AI models and applications at enterprise scale”).
Operational and Security Services (as the company points out “cohesive core platform services e.g., access control, data encryption, cybersecurity, time-series services, normalization, data privacy, etc.”).
A list of commercial use cases
The whole list of commercial use cases developed by C3 AI over the years, ranges from financial services to manufacturing, aerospace & defense, healthcare, telecom, Oil & Gas, and Utilities.
The core categories of commercial use cases can be broken down into:
Inventory Optimization.
Customer Churn Management.
Production Schedule Optimization.
Predictive Maintenance.
Fraud Detection.
Energy Management.
Smart Lending.
Cash Management.
Distribution, Sales, and Marketing models
The distributionstrategy of C3 AI moves around several geographies, industries, partners, and communities.
As an Enterprise company, C3 AI leverages primarily on a qualified direct salesforce to acquire new customers, and make sure to reach the contract value potential, from those customers as quickly as possible.
Indeed, the average contract value for C3 AI was $12.1 million in 2020 (it’s important to highlight that two customers contribute more than 10% of the company’s revenues, thus the average contract value might be affected by that, and therefore the median value might be much lower).
Both market entry and growthstrategy uses direct sales to penetrate various geographies and industries.
Those sales efforts are coordinated with its marketing partners ranging from companies like AWS, Baker Hughes, FIS, Google, IBM, and Microsoft.
Once the company acquires a new customer it focuses on:
Expanding use cases across similar companies, with a direct sales approach.
Offer the same solutions also in the middle market with telesales and online sales.
Leverage partners and distributors to get more customers in.
Partner Ecosystem
From a distribution standpoint, it’s interesting to notice that C3 AI has leveraged on some industry leaders, to bring them on board as customers, and at the same time using them as distribution partners, referring C3 AI to other key players in the same industry, thus bringing in more customers.
An example of how in 2019, after closing a three-year arrangement with Baker Hughes, as a leading customer, the same company also acted as a reseller of C3 AI solutions, in the oil and gas industry.
Perhaps a client like Baker Hughes brings in between 2020-2022 revenue commitments for hundreds of millions, plus the reseller of C3 AI services to other players.
Brand Awareness
C3 AI brand awareness is built through its Transform annual customer conferences and the book “Digital Transformation” by Thomas Siebel helps with that, as it positions the company as a thought leader in the industry.
Financial Model
Revenue model
The company generated over $156 million in revenues in the fiscal year, ending in April 2020, made of over $135 million in subscriptions and over $21 billion in professional services. Subscriptions accounted for about 86% of total revenue by 2020.
The four primary revenue generators are:
Term subscriptions of the C3 AI Suite, are usually three years in duration.
Term subscriptions of C3 AI Applications, usually three years in duration.
Monthly runtime fees of the C3 AI Applications and customer-developed applications (usage-based upon CPU-hour consumption).
Professional services fees are associated with training and assisting customers.
The C3 AI revenue model is primarily subscription-based. Another small part is also based on consumption, and about 14% is based on professional services.
Cost structure
Subscriptions cost structure
The costs associated with running a subscription consist primarily of the personnel’s cost for support, and hosting costs for the C3 AI Suite.
Indeed by July 2020, the cost of subscription was 21% of the total revenues and 24% of the subscription revenues.
Professional services cost structure
The cost to deliver professional services comprised primarily the personnel involved, and by July 2020 it represented about 5% of total revenues and about 40% of the professional revenues alone.
Marketing and Distribution cost structure
The primary costs related to sales and marketing include advertising, media, marketing, promotional events, brand awareness activities, business development, and corporate partnerships.
Key Business Model Highlights
C3.ai is an Enterprise AI company, whose whole business model is cloud-based. Its primary goal is to help large to medium-sized organizations to implement complex use cases across the organization.
C3.ai secret sauce is its proprietary, model-driven architecture, what the company calls C3 AI Suite. This is a set of development frameworks built on top of the cloud, which are adaptable to offer final customers/users tools for fast deployment of applications within the organization and at the same time a stack of development frameworks to develop new applications.
C3.ai is a SaaS company, making money primarily through its Enterprise subscription plans. Part of the revenues is also attributable to professional services.
The company uses a direct sales approach where large accounts, mostly leaders in their verticals, are approached and brought on board as customers. The company also leverages lower touch sales strategies (like telemarketing and online sales) to expand its reach on the lower Enterprise market segment. At the same time, it uses brand awareness (with its conferences and the “thought leadership” of its founder) and partnerships to expand its customer base.
The primary costs the company runs are associated. To deliver its subscription services and to distribute its service.
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.
