[00:05:11] JM: A quote from your recent article, “If you're operating at scale, the cost of cloud can at least double your infrastructure bill.” So I can understand that operating a cloud at scale can double my infrastructure bill relative to running on-prem infrastructure. But I thought that this saved operational expense in exchange. So isn't that just fine? Like don't compensate for my increased capital expenditure with savings and operational expenditures?
[00:05:44] MC: Actually, the numbers are all in. So that's not the case. Forget the on-prem or not on-prem, because that actually wasn't the focus of the analysis. I think we should talk about that probably in just a minute. The analysis says, it turns out that if you reduce your cloud spend by 50%, you get this massive uplift in share price. And for the companies we focused on, which are public software companies, where cloud as a part of COGS, which is very important in this conversation. This can be on the order of billions of dollars. So what can you do with that billions of dollars? And this is all in. This includes operations, R&D. I mean, strictly, you've got higher share price. And that flows through to cash. You've got more cash flow. You've got more access to capital, either by selling shares with equity or taking debt against the new price. And, of course, you could set in growth if you wanted to.
[00:10:41] MC: Yeah. So I think it's really important to also characterize the type of companies that we're talking about, right? And so we're talking about large public SaaS companies. And they're in the core business of offering a SaaS service, right? That's what they are. And these are decabillion dollar companies that already have platform teams with hundreds of people. And so you're absolutely right, that repatriation is hard. But this isn't some startup. I mean, these are very sophisticated companies that are already running very sophisticated operations.
And so at some point, it comes down to economics. And so I think what's very illustrative is what happened when the clouds had this exact moment. So I think that this is actually – I think the article is a bit of a glimpse into the future. And I think what's illustrated is what the actual cloud providers did. ... And so it turns out that once the economics are compelling enough, you have a case to do things that are not core. In the case of the cloud providers, they built switches and servers. In case of the SaaS providers, at some point – I don't know when that point is. At some point, it makes sense to reduce COGS by doing it yourself.
[00:16:00] MC: This is such a great question. I actually think this gets to kind of the heart of all of this stuff, which is, okay – So I think that an analysis like this is really looking ahead five years or so, right? I mean, we're honestly still in early innings for the cloud. So the cloud not only is growing asymptotically, right? If you actually look at the growth curves, I mean, like the second derivative is definitely positive. I mean, it's super linear. But the clouds are getting very good at optimizing themselves as well. Costs for the cloud have dropped a whole bunch. And so that benefits to customers.
And so if you look at it right now, I mean, from a customer standpoint, costs are dropping, growth is going. There're a lot of services there. And so, listen, Datadog is fantastic. And there are a number of optimization companies. I mean, there really are competing with kind of a growing market where the platform's themselves are doing a fantastic job of lowering price, right?
The question happens is, what happens when things mature a bit more? Now what the clouds have been very good is at maintaining 30% margins. And so how do you get those? Well, you get them by, whatever, charging for new services, and maybe having higher prices for small customers. I mean, there's just a lot of room. Or you are more sophisticated than the rest of the industry, because you do do your own servers, or because you do have – Like there's a lot of ways to get to that 30% margin.
[00:20:07] MC: Yeah. No. That's a great question. When it comes down to it, if you’re really being grandiose, which I can't help but – We're talking about like a trillion dollars in value. I mean, in the paper, like we're very conservative with every number that we put out. I mean, it's not hard to say like there's actually a trillion dollars in market cap that's being captured by the big five, right? It's a massive, massive market.
And by the way, if you look at it, what is the combined market cap of like Microsoft, Google, and AWS? It’s about $5 trillion, right? So it's $5 trillion. And so to say that 500 billion to a trillion is going from you know the rest of the industry into them isn't a stretch. I mean, that's 10% to 25%, right? So then there’s a question, it's like, “Okay, is there an opportunity for startups to go after that 500 billion to 1 trillion? I think the answer is, “Absolutely.” Whether this is surfacing cloud metrics, whether this is doing actual cloud optimization itself, whether it's providing pass for repatriation. I mean, I think there're a number of things you can do. There're kind of marketplaces, etc., etc., etc.. And so I definitely think this is investable.
[00:47:32] MC: Oh, okay, great. So our analysis was not about the enterprise. And I don't even know if it applies. It probably doesn't even apply. So our analysis was very, specifically, if you're a software company, if you're a SaaS company, and cloud is a significant portion of your COGS, which is most SaaS companies, here's the impact to you. But it necessarily requires that the cloud be part of your COGS, like it's your product. Your product is a software product, and the cost of goods is cloud. And it requires you to be a public company, because this was like how the public market views your multiples. If you don't have those two things, the analysis is just not relevant at all.