So, a lot of your view on ’25 is going to depend on macro outcomes. Then our opportunity to cross-sell additional products to our over 300,000 existing customers, our ability to upsell the premium and enterprise editions of our product is another significant growth driver. And then with a smaller impact, other drivers like the free-to-pay conversion that we’ve talked about, the price increases that we’ve made, and new high growth products like Compass, Jira Product Discovery, and Loom. And I just point out, we’re in a super dynamic space right now, particularly with AI, and there’s a lot of opportunity to add value with solid execution. So we feel very confident in our ability to deliver healthy revenue growth over a multi-year period in the cloud.
And then obviously server is going to be zero essentially in two weeks when we get to the server end of support. So that’s the color I’d give you for now. We’ll continue to update you over the course of the next six months, but that’s how I would — that’s where our mindset is, and that’s how I think about it directionally.
Operator: Your next question comes from Fatima Boolani from Citi. Please go ahead.
Fatima Boolani: Thank you for taking my questions. I just wanted to shift gears to Jira Service Management. You’re clocking in about 50,000 customers since about three, 3.5 years from launch, about 20% of your base. I was hoping to add some more quantitative color on what the monetization curve looks like, and when should we expect a JSM to become as large or rival the size Jira and Confluence as a revenue contributor to the business?
Mike Cannon-Brookes: Thanks, Fatima. I can take that. Look, we remain incredibly excited about JSM and the service management market broadly, both in terms of IT service management and enterprise service management for all functions within a business. I think we’ve done a really good job at continuing to grow that business alongside our other businesses that we have. It’s always hard when you’re playing catch-up. It’s got about a decade to catch up on Jira Software and the agile & DevOps market. It certainly has the potential to do that and we continue to see it being our fastest growth broad market that we have. It’s also worth noting that for a lot of our customers, our strength is in the combination of the markets. So people who buy Jira Service Management, some of them, as Scott mentioned, are migrating off expensive and legacy tools, and we see increasing numbers of switch outs which is always comforting to see but more importantly they’re buying it because of our connection to developers and connection to the work management market and broader connectivity across their organization.
Increasingly you’re going to see a blending of this as software and technology become the core strategic advantage and operating and delivering on that service alongside that is incredibly important. So I think we are very bullish on the long-term monetization of Jira Service Management and the ITSM and ESM spaces broadly, both because of our competitive positioning, as we’ve seen and demonstrated this quarter and last quarter and the quarter beforehand but also because of our connectivity to the two adjacent markets which is strategically why we’re there in the first place. Scott might have some customer color that he wants out on top of that.
Scott Farquhar: Yeah, look, I just want to remind everyone that ITSM is [indiscernible] It really goes together with our Jira Software, which is development teams and all the other products we’ve got there, work very closely with IT teams and increasingly so every single day and that’s something that only we deliver in this market and we’ve been recognized actually over the last few months by this. We were a leader in Forrester’s ESM Wave where we received the highest possible score for strategy. And as a company that we’ve been doing this for a while now but it wasn’t the thing we started with. It’s really comforting to see that we’re being recognized for the unique things that we only we can provide in the market. And not only is that being recognized by analysts, but key switch-up stories, right?
We have a luxury travel company who’s been a 15-year customer of one of our large competitors in the space who started out, who switched up for JSM and switched away from that legacy vendor. And we see that again and again with large logistics provider who moved 1,400 agents to JSM. So we’ve been strong historically in the SMB space. That’s kind of where we started. We’re increasingly seeing strength in the enterprise space as well, as well as industry analysts are recognizing us.
Operator: Your next question comes from Alex Zukin from Wolfe Research. Please go ahead.
Alex Zukin: Hey guys, thanks for asking the question. I want to maybe shift a little bit towards understanding the unlock in kind of the OpEx and COGS basis post-migration. If we think about elevated COGS activity, salespeople continue to be focused on migration that start to unlock and focus on cloud and cross-sell and up-sell, as well as the incremental R&D costs that you’ve been kind of putting into the entire platform as you’ve been doing this over the last couple of years. What’s the right way to think about that opportunity on kind of the operating margin side in the OpEx portfolio as we go — as we get even into the next few quarters?
Joe Binz: Yeah, thanks Alex. This is Joe. Let me start with sort of our view of H2 on OpEx and then I’ll touch directly on your question around the points of leverage we see from an OpEx and cost management perspective. We’ll see OpEx growth rates accelerate in H2 and this is really driven by two factors. One is the ongoing growth and investments in our core strategic priorities. Those are things like cloud and enterprise and artificial intelligence, ITSM, and the other core markets that we’re in. And the other thing is more mechanical, it’s we’re lapping the benefit we received in H2 last year from the restructuring and lower bonus expenses. You’ve heard me talk about our philosophy overall on OpEx management. We continue to focus on maximizing return on every dollar spent.
We’re focused on making disciplined prioritization and resource allocation calls and driving operational efficiencies as we gain scale. I’d say the other factor to keep in mind that’s over time, not necessarily in the immediate future, is on the other side of the significant multi-year investments in cloud and enterprise capability, we will have the opportunity to reallocate that investment to other areas that will drive long-term growth. And that will be another potential point of leverage for us as we think about it. In terms of gross margin, in general, gross margins will track with the revenue mix. Cloud gross margins structurally obviously have lower gross margins than our licensing business. So as that becomes a bigger mix of our overall revenue, that will put pressure on gross margins blended.
At the same time, the mindset we have on cloud gross margins is to derive consistent year-over-year improvement through the great investments we’re making on the engineering side to optimize cloud infrastructure to improve support. And so again, you’re right, we’re going to make big investments on post sale activity to drive deployment and usage and engagement. And then we’re going to have an opportunity to redeploy that and become more efficient over time. And that will be part of that story. So that’s the general framework on how we’re thinking about both the cloud [cog] (ph) side as well as the OpEx side going forward.
Scott Farquhar: Alex, maybe I can just add a small bit of color from an engineering point of view. Look, philosophically, I think all world-class engineering organizations in any large SaaS or SaaS type company should be working on continuing to optimize engineering costs. As you’re running, as we are, an incredibly large cloud platform that’s now geographically diverse, as you see from all the data residency improvements and other things, there are opportunities to save money effectively by running things more efficiently over time and some of that learning comes from scale, some of that learning comes from deployment, some of that learning comes from new technologies. We certainly have a large investment as a world class, world leading R&D organization in continuing to do the things we did last quarter, cheaper, better, faster and more efficiently.
