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.
Breaking down Fastly value proposition
The basis of the 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 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 the 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 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 its community. That is why Fastly is committing to open-source software adoption.
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 Fastly solution to allow a certain degree of stability to its infrastructure.
Among its 1,582 customers in 2018, 227 were enterprise customers.
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 months 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:
- High tech
- Digital publishing
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
- and secure web and mobile experiences
Sales and marketing are such an essential element for an enterprise business like Fastly, that as of 2018, the company employes 56 sales representatives and sales managers!
Fastly values and culture: scale up with ethical values
Source: Fastly Financial Prospectus
Fastly challenges the assumption that a high-tech, a 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. 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
As of 2018, among the 1,582 customers, 227 were enterprise customers. These enterprise customers are those with revenue above $100,000 over the last 12-month period. In 2017, the 170 enterprise customers generated 82% of revenue. In 2018, the 227 enterprise customers made 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
by the revenue for the 12 months ended in 2017
In 2017 and 2018, Fastly DBNER was 147.3% and 132.0%, respectively.
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