Rohan Sivaram: Great question, Sanjit. Yes, when thinking about our 2024 guide, I kind of put it into three buckets. Starting off with, we called out the two large customers that had impact, although customer specific implications, but that will have an impact into Q4 as well as 2024. The second category is around the macro, which, I’d say, a combination of geopolitical exposure to Israel, coupled with the slowdown in the new cases that we’ve been seeing. And the third category is the consumption transformation. And as Jay just called out, any time you go through a transformation like this, there’s going to be this adjustment factor. And we are trying to prudently bake in that impact of that into our guidance. So, taking a step back, these are the three drivers that impacted our guidance.
But when you think about the first half versus second half, we expect like the second half to be better off slightly than the first half, clearly because the consumption transformation will have, I would say, a larger impact in the first half of the year. I mean, I also want to call out, Sanjit, that as we are exiting 2024, there will be a decent amount of tailwinds. First of all, the consumption transformation, which we expect will be behind us and which will reduce the friction between our go-to-market teams as well as how our customers want to buy our products. Second, I mean, we’ll have a decent amount of product tailwind behind us. We’ll have Flink, we’ll have GA about 6 months in and a couple of other unlocks from the data streaming platform perspective, coupled with FedRAMP and AI.
So we feel that exiting 2024, we feel pretty good with where we are and just in general, from a long-term perspective.
Shane Xie: We’ll take our next question from Brad Zelnick with Deutsche. Brad?
Brad Zelnick: Thank you so much, Shane. And it certainly is tough out there. And really appreciate the disclosure and granularity that you’ve given us. I wanted Jay to hone in on the one customer that you said is moving back into their own data center. Because that’s not something we typically hear. We’ve heard about this notion of repatriating cloud workloads, but it’s hard to actually find it. So, any context that you can add as to why on earth that might be happening, why that particular customer wouldn’t have been use Confluent Platform at that point? And any reason to believe that this is the beginning of a trend?
Jay Kreps: Yes, it’s a great question. So yes, like you always hear a little bit about this like move out of the cloud. And by and large, we don’t see it, maybe in the history of the Company, I could say one or two examples where that’s happened. But yes, I don’t think it’s a broad-based trend. It’s definitely motivated by cost. When you think about the kind of pressure on IT budgets, it’s far and away the most significant in the digital native sector. These are companies that, in some cases, are cutting 30% of spend. And so, that means very significant adjustments. In this particular company that is coupled with the strategy of moving stuff out of the cloud into their data centers, and Kafka and Confluent kind of gets dragged along with that. We’re in discussions with them on Confluent Platform, but that kind of overall shift is not something that’s Confluent specific, it’s part of a broader strategy.
Brad Zelnick: And maybe just a follow-up for both yourself and perhaps Rohan. The new enterprise cluster that you’ve announced at Current, sounds like it’s really powerful. How much might this present a headwind to consumption as it seems you’re making customers way more efficient, requiring fewer reserve instances? And is that something that you contemplated in the guide that you’ve given us?
Jay Kreps: Yes. I mean, of course, that and all these other factors are baked into what we’ve given, but we think that’s a tailwind. So when we think about aligning to the consumption transformation, a lot of that is on the go-to-market side, but it’s also about the product. We want people to be able to land with the least amount of friction possible. And then we want to make expansion as easy and automatic as possible. And so, it’s hard to stress how much better it is when we move things from an instance of Kora that’s running dedicated to that customer to something multi-tenant, what happens is the customer experience gets much better because the cluster is just to spend instantly as you need it. There’s no kind of manual invocation you have to make.
And secondly, it’s obviously very positive for Confluent in terms of the efficiency. So, it allows us to do something that’s a better deal for the customer, but really a much better deal for Confluent as well. So, it’s kind of positive on both sides. And our goal in this is to take a lot of this friction out of the system in adoption and expansion, make it as easy as possible to land the first use case and make it as automatic as possible for customers to expand. So yes, we expect it’s a tailwind, even though you may be starting at a lower initial price point.
Shane Xie: We’ll take our next question from Kash Rangan with Goldman follow by Wells Fargo. Kash?
Kash Rangan: It’s always tough to go after Brad Zelnick who asks such good questions, but I’ll try it best. Jay, I think there was a comment made that as you exit this transition, the Company is going to be in a better position. So can you just recap for us how structurally you’re able to prosecute a better TAM more easily because of the switch in your go-to-market model? And secondly, just to post the devil’s advocate, is the cloud platform missing certain things that you have to lower the barrier by giving an alternative to go easy on the consumption? Because I wonder what did this customer, gaming customers saw that that they felt compelled to put it in the data center and not get the benefits of the cloud. Is there something missing on the cloud platform side itself by way of functionality, whatnot this customer might have seen that we might be missing here that you plan to introduce in the functionality set becomes less of a friction point going forward.
Jay Kreps: Yes. Let me address both. The first, I think, is more bigger picture, like, hey, how does this change — does this change the market or our ability to address the market, how and why. So, I’ll start with that big picture question. So like, yes, I think the opportunity in streaming is as big as ever, probably better even than it was a year ago. I mean, if you just talk to customers, the level of excitement in this space, the adoption of stream processing, all of that is really at the forefront of people’s minds. We just had Current, our conference, had a number of customer conversations there. This is something people are absolutely thinking about. In the current environment, all of these forward-looking transformations in our customers, they have to moderate the pace, right?
So whether it’s cloud adoption, the move to real-time streaming, all of this stuff is happening a little slower. But this is absolutely right at the top of their agenda. So, I don’t think any aspect of that changes. And then, yes, exiting ’24 what are kind of the tailwinds? I think Rohan did a good job of speaking to this. So, you want it to be the case that the energy we’re devoting in our go-to-market organization is about finding these use cases, making sure they’re adopting the full part of the product, really consuming all the aspects of the data streaming platform, Flink, the connectors, our Kafka offering, all of it. And you’re doing that as rapidly as possible across the organization. And so, the — what’s important to get right in that is get all the systems pointing in that direction.
