Fastly Business Model Analysis

Fastly follows an enterprise business model, which offers an edge cloud platform. Fastly business model leverages an active community of developers. A good chunk of its revenues got spent on sales and marketing processes as an enterprise business. The company has dozens of field sales representatives and sales managers. For a monthly fee, enterprise customers get access to the platform, account management, and enhanced customer support. In 2021 the company generated over $354 million in revenues, of which over $313 came from 445 enterprise customers.

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Breaking down Fastly value proposition

Fastly follows an enterprise business model, which offers an edge cloud platform. Fastly business model leverages an active community of developers. As an enterprise business, a good chunk of its revenues is spent on sales and marketing processes.

The company has 56 sales representatives and sales managers across the company. For a monthly fee, enterprise customers get access to the platform and also account managers, and enhanced customer support.

Our mission is to fuel the next modern digital experience by providing developers with a programmable and reliable edge cloud platform that they adopt as their own.

The basis of edge cloud computing is in its decentralization and the fact that it brings the data closer to where it’s needed. Why is this critical to understand the Fastly business model? We need to look at how the Fastly edge cloud platform works.

Fastly edge cloud platform: the developer’s edge

We have built a powerful, serverless edge cloud platform, designed from the ground up to be programmable and support agile software development. We process, serve, and secure our customers’ applications as close to their end-users as possible, at the edge of the internet for enhanced performance and protection. We call this platform the Developer’s Edge and we believe it gives our customers a significant competitive advantage whether they are just embarking on their digital transformation journey or natively born into the new digital age.

This is how Fastly explains its edge cloud platform, in its Financial Prospectus.

The edge cloud platform has three core premises:

Developers must be empowered to innovate;
Platforms must innovate ahead of market demands while still being reliable, scalable, and secure; and
Vendors must provide exceptional flexibility and support.

As pointed out in its Financial Prospectus:

As the edge cloud grows in popularity, it threatens to disrupt the basic business model of the central cloud. Central cloud revenue is based on the monetization of units of compute power, storage, and bandwidth. As more data is processed at the edge, less compute power will be needed in the central cloud. Similarly egress costs will be lower, since less traffic will need to transit back and forth from the central cloud to the end-user. Like central cloud spend and other non-discretionary budget lines for businesses with online applications, the edge cloud spend is part of cost of goods sold.

Therefore, the whole paradigm of edge computing allows organizations to build more efficient infrastructure, that can rely less on central cloud services, thus reducing the need to move a higher amount of traffic back and forth.

This allows an organization to get closer to its end-users. It makes it more in control of its data, it works at higher efficiency compared to a centralized system and is more secure.

As this edge cloud platform sits between Fastly’s customers’ applications and their end-users, it allows developers to have a few critical elements to work on:

Full programmability.
Reusable modules.
Real-time visibility and control.
Agile development.
Safety at the edge.

This implies that developers are a key partner of the whole Fastly business model. Which makes it possible for the company to run successfully, only if it keeps involved in its community. That is why Fastly is committing to open-source software adoption.

The open-source model works as a freemium model. Indeed, as developers and organizations are familiar with Fastly open-source operations, this also allows its sales force to close deals more easily.

Fastly is an enterprise business model

Fastly serves a set of customers operating in digital publishing, media, entertainment, technology, travel, and more. The Fastly customer is an enterprise, which usually handles massive amounts of traffic.

And as it also might need to handle peaks of traffic, it needs a Fastly solution to allow a certain degree of stability to its infrastructure.

Among its 2,804 customers in 2021, 445 were enterprise customers (defined as customers with revenue in excess of $100,000 over the previous 12-month period). Those 445 customers, which represented 15% of the total customer base, actually contributed to 88% of the total revenues in 2021.

These customers typically purchase one or more products, for a monthly recurring or one-time fee depending on the kind of products selected.

Within the offering, there are also various levels of account management and enhanced customer support for a monthly fee.

The contract is structured on a 12-monthly basis, with a minimum monthly billing commitment as a retainer.

As a traditional enterprise business, it’s hard to predict the sales cycle. This is by far the most difficult aspect of any enterprise business. As the closing of a deal can vary from several months up to over a year, based on the structure of the deal.

The level of complexity of the organization. The budget involved and whether the Fastly sales force is able to keep its offering interesting for those organizations.

For instance, Fastly’s clients are divided into six primary categories:

Financial.
E-commerce.
Travel.
High tech.
Digital publishing.
Streaming.

For each of those customers, Fastly will deliver a custom solution that allows them to satisfy a specific need. As of December 31, 2018, Fastly had 1,582 customers in more than 60 countries around the world, including 227 enterprise customers.

Among the use cases, for instance, Fastly, back in 2016 helped The New York Times to reduce its costs by handling a massive spike in traffic due to the US elections.

The company usually delivers value such as

rapid,
personalized,
and secure web and mobile experiences

Sales and marketing are such essential elements for an enterprise business like Fastly, that as of 2018, the company employed 56 sales representatives and sales managers! Thus, we can expect this number to have passed the hundred sales representatives in 2021.

Fastly values and culture: scale up with ethical values

Source: Fastly Financial Prospectus

Fastly challenges the assumption that a high-tech, scaling company must give up its ethical principles. And it emphasizes its values as an essential factor for its success. As the company points out “we aspire to improve human lives through our work. We were founded on strong ethical principles, and have intentionally grown values-first, scaling our workforce, services, customer portfolio, and investment partners purposefully.”

The company also added:

We are only as good as the company we keep, and this guides our hiring practices as well as the ethics we are committed to upholding as we scale. We believe that as a result of our values, we have been able to attract great people. We want to serve the very best of the internet. We choose to work with customers that we believe have integrity, are trustworthy, and do not promote violence or hate. Our eight core values define who we are and how we choose to grow, hire, train, work, communicate, make decisions, support each other, and serve our customers.

Even for high-tech companies, accountability, and ethical values have become critical to keep them successful in the marketplace. The Fastly challenge is to stay true to its values as it scales up.

Breaking down Fastly financials

Source: Fastly Financial Prospectus

The cost of revenues or CoGS is the money an organization needs to spend to generate its revenues. A good chunk of Fastly revenues are spent toward:

Fees paid for bandwidth, peering, and colocation
Personnel costs, such as salaries, benefits, bonuses, and stock-based compensation

The anatomy of the Fastly enterprise customer

Another good chunk of Fastly revenues is spent on sales and marketing. This is normal for an enterprise business model, as it needs to employ complex sales and marketing strategies to keep growing.

As of 2021, among the 2804 customers, 445 were enterprise customers. These enterprise customers are those with revenue above $100,000 over the last 12-month period. In 2021, the 445 enterprise customers generated 88% of revenue. In 2018, the 227 enterprise customers made up 84% of revenue. That is why Fastly employs 56 sales representatives and sales managers across the company.

Why the dollar-based net expansion rate matters

Our ability to generate and increase our revenue is dependent upon our ability to

Increase the number of new customers
Increase the usage of the platform
And increase the purchase of additional products by existing customers

This metric is what Fastly defines as dollar-based net expansion (DBNER).

Fastly computed its DBNER by dividing:

Revenue for the 12 months from customers entering a new agreement

The revenue for the 12 months ended in 2017

In 2021 and 2020, Fastly DBNER was s 120.9% and d 143.6%, respectively.

Fastly In Numbers

Fastly Revenue — Fastly generated $505.99 million in revenue in 2023, compared to $432.72 million in 2022, $354.33 million in 2021, and $290.87 million in 2020.

Fastly Net Losses — Fastly is not profitable, as it reported a net loss of $133.08 million in 2023, compared to $190.77 million in 2022, and $222.69 million in 2021.

Fastly $100,000 ARR Customers — Fastly had 532 $100,000 ARR Customers in 2023, which contributed to most of its revenue, compared to 493 in 2022, and 378 in 2021.

Key Highlights

Fastly Business Model:
- Enterprise-focused edge cloud platform.
- Emphasizes community of developers.
- Significant investment in sales and marketing.
Revenue Breakdown:
- Generated over $354 million in 2021.
- Majority from 445 enterprise customers.
Value Proposition:
- Developer-centric edge cloud platform.
- Programmable and reliable for agile development.
- Enhances performance and security.
Edge Cloud Platform:
- Built for developers with full programmability.
- Offers reusable modules and real-time control.
- Agile development and safety at the edge.
Open-Source Adoption:
- Commitment to open-source software.
- Facilitates easier sales closures.
Enterprise Business Model:
- Serves digital publishing, media, tech, etc.
- Enterprise customers contribute majority revenue.
- Custom solutions tailored to specific needs.
Sales and Marketing Focus:
- Employed 56 sales reps and managers in 2018.
- Significant investment in sales and marketing.
Ethical Values and Culture:
- Values-driven approach to scaling.
- Emphasizes integrity and accountability.
Financials:
- Majority of revenues spent on cost of revenues.
- Significant investment in sales and marketing.
Customer Base and Expansion:
- 445 enterprise customers in 2021, generating 88% of revenue.
- Focus on increasing usage and product adoption.
Dollar-Based Net Expansion Rate (DBNER):
- Key metric for revenue growth.
- DBNER of 120.9% in 2021, 143.6% in 2020.

Aspect	Description
Overview	Fastly operates as a content delivery network (CDN) and edge cloud platform that provides fast, secure, and scalable delivery of web content and applications. The company’s business model is built around optimizing the performance and reliability of websites and applications by distributing content closer to end-users, reducing latency, and enhancing the overall user experience.
Content Delivery	Fastly’s core offering is its content delivery services, which accelerate the delivery of web content, videos, images, and applications to end-users. The platform leverages a global network of edge servers strategically positioned in various locations to ensure fast and efficient content distribution.
Edge Computing	Fastly extends its services to include edge computing, allowing developers to run code at the edge servers. This enables the execution of custom logic closer to end-users, reducing the need for round-trip requests to origin servers and enabling real-time, low-latency interactions for dynamic applications.
Security Services	Fastly offers a range of security services, including distributed denial-of-service (DDoS) protection, web application firewall (WAF), and bot mitigation. These services safeguard websites and applications from malicious attacks, ensuring the availability and security of online assets.
Developer-Focused	Fastly is developer-centric, providing a range of tools, APIs, and developer resources to empower users to customize and optimize their content delivery and edge computing workflows. Developers can create custom configurations and implement fine-grained control over their content delivery strategies.
Real-Time Analytics	Fastly provides real-time analytics and insights into content delivery and application performance. This data allows users to monitor traffic, detect anomalies, and make informed decisions to optimize content delivery and user experiences.
Billing Model	Fastly’s billing model is based on usage, where customers pay for the volume of content delivered, the number of requests processed, and other relevant metrics. This usage-based pricing model provides scalability and flexibility for customers, aligning costs with actual usage.
Global Presence	Fastly operates a global network of edge servers distributed across numerous geographic locations. This extensive network ensures content can be delivered quickly to end-users worldwide and reduces the latency associated with serving content from a centralized location.
Challenges and Competition	Fastly faces challenges related to competition in the CDN and edge computing space. Ensuring the reliability and performance of its network infrastructure, responding to evolving security threats, and adapting to changing user and developer needs are ongoing challenges. Differentiating itself in a crowded market is crucial for growth.
Future Growth Strategies	Fastly’s future growth strategies may involve: – Expanding Edge Services: Adding new edge services and capabilities to meet evolving customer demands. – Global Network Expansion: Expanding its network presence to reach more regions and markets. – Security Innovation: Continuously enhancing security services and threat detection capabilities. – Developer Tools: Providing advanced developer tools and resources for customization and optimization.