And then that really becomes a driver for growth. What you don’t want is something where you’re very focused on the amount of the commitment and trying to get customers to commit ahead of these projects, that kind of puts them into too much of an analysis paralysis of trying to scope out every new application you’re going to build — how much is it going to consume exactly, commit exactly to that amount, that ends up being effectively wasted time versus just getting them going and getting them to use the product. I think you’ve seen this change in effectively all the PR companies. For those that start with an on-premise offering as we do, they have to introduce it gradually as they have enough cloud revenue to really make it make sense, as we do now, right?
For those who were kind of born with a cloud-only offering, this is perhaps the native thing they started with or perhaps there was some adjustment earlier in the life cycle. So, that’s the change. That’s why we’re doing it. It’s had positive impact for all the peers. We expect it will have that exact same impact for us. And of course, as we prosecute that, we want to make sure we get the impact as soon as possible, right? So, we’ve, I think, prudently baked some impact into the first half of the year that, hey, we think as we kind of change all our systems, there’s some adjustment period involved in that. But yes, as we’re exiting the year, we think that’s absolutely a tailwind. And that combines with and in many ways, accelerates these new product offerings that we’re adding, the connectors, governance, Flink offerings, they’re really coming to maturity throughout the course of that year.
Some of the security unlocks that like the work that we’re doing on FedRAMP, also being able to address other kind of regulated industries. That’s a significant unlock. Those things are really powerful in allowing us to take on more use cases, more completely with less work from customers. And of course, these are mostly line items that customer purchases directly. So allowing us to increase the spend with customers. And then yes, is there something missing that we would make changes like this? I don’t think so. I mean, if you look at peer companies, of course, there’s always more we can do in our product, and we continue to invest and innovate. But this idea of just aligning to consumption, trying to make that as low friction as possible, that’s actually really important for us.
And especially the shift of workloads into multi-tenancy it’s kind of just net positive, even though that entry price can be a little bit lower, the cost to us is so much lower that it’s just disproportionately much better. It’s exactly what you want to have happen. And that takes a lot of the friction out of the conversation. And this is really important in tighter environments where customers have to think not just about the TCO and the payoff, but exactly that transition cost in time and do they have the ability to get from here to there. You want to make that a new brainer. So the customers can just get up and get going. That to us is key when we look at all the open source usage, we want to go scoop that up as quickly as possible.
Rohan Sivaram: And Kash, just to add to what Jay said, the customer we referenced that was not a Confluent specific decision. That was just a broad, I would say, architectural decision that they made, and we happen to be impacted by it. Just wanted to share that color.
Jay Kreps: Yes, yes. In case that’s not clear, like the decision to start moving workloads into your data center is typically something much broader than Confluent itself.
Kash Rangan: Do you have obstacles set for other customers who might be contemplating this nutty kind of thing to make sure that they don’t do it in the future?
Jay Kreps: I just don’t think it’s a — every year, you hear about 1 or 2 companies that do something like this. And every year, the total spend on cloud as a percentage of IT spend goes up. And so I just don’t think it’s a broad-based trend. That one I do think is a specific instance in that customer. If you think about what’s the kind of overall pressure that causes stuff like that, it is this kind of pressure on efficiency and spend, and companies do different things to try and get that. This is what they happen to pursue. So, the right adjustment to us is not something where we advocate for customers not to move back into their data centers. The right adjustment is this consumption transformation, like really line up make it as easy as possible to expand and attach to projects. That’s going to be the thing that really drives us forward kind of broadly across the customer base.
Shane Xie: We’ll take our next question from Michael Turrin with Wells Fargo followed by JPMorgan. Michael?
Michael Turrin: Jay, I want to go back to some of the comments on just the cost side of customer discussions. I appreciate the details you’re breaking out. Is there anything new that you’re seeing from an optimization standpoint that’s impacting the spend profile of existing customers? And you made some reductions to storage costs at Current. So I’m wondering if that’s something that all impacts customer spend and expectations in subsequent periods.
Jay Kreps: Yes. I mean, customers continually optimize their environments. I would say what we’re kind of reacting to more is making sure we get all the new projects, right? So if you think about two forces that are happening in cloud right now, one is more about optimization of existing usage. There’s, of course, some of that in our customers at all times. But the other thing is just how many net new workloads are there. For a production system like ours, I think it’s more about the new workloads than it is about optimization of environments. And so that’s kind of where our focus is. When you think about what we’re doing. It really is this consumption motion is really about making sure you land and attach to everything that’s going on in the organization.
And then, on the storage side, yes, similar to the enterprise clusters, these are efforts that are designed to accelerate consumption, particularly when you think about Flink and stream processing, it becomes important to not just process the data once, but if you change your logic, be able to go back and reprocess it again. So the incentive to want to store data becomes much higher in Confluent and we want to make sure that it doesn’t become cost prohibitive as customers go after that. So in part, we’re trying to set ourselves up for this preview release of Flink that we just did as that becomes GA. We want to have a cost structure that makes sense with the stream processing capabilities. And we think the result is going to be net positive in terms of how much data companies are storing.
Michael Turrin: Okay. That’s helpful. Just a follow-on, if I may, on the go-to-market changes you’re making around consumption. Can you just help characterize how big or natural the change that is from the sales side? And maybe, Rohan, if you have a view on if that impacts visibility into the cloud trends you’d expect going forward, either favorably or less favorably that’s also useful. Thank you.
Jay Kreps: Yes. It is a big change, right? So if you think about how an enterprise software company works, in this traditional model, everything really is organized around booking of commitments. That’s what pipeline is. That’s what the sales motion tracks. That’s the line item in sales force. And you kind of are changing all that, where the thing you’re going after is the use case, the thing that you’re driving is consumption, the definition of pipeline is different. So there’s a big change. Now it’s not like the cloud transition we went through. That was a really big change. This is an adjustment that we’re kind of factoring into the first half of the year. Our desire and the thing we’re working towards is hit that as smoothly as possible.
Like we’re doing this because we think this is absolutely a positive, right? It’s a thing that will allow us to grow faster. But when you make a bunch of changes all at once, you want to factor that in. You want to be prudent about how you do that, and that’s why we’ve made the adjustment. This wasn’t a new plan, like we’re not doing this purely in a reactive way, where we got halfway through the year and we were like, oh, let’s change everything. We had laid out a three-year plan for how we were going to do that. We were in year one. And we were going to do a little bit more next year and then a little bit more the year after. But realistically, when we just looked at what had happened to customer buying behavior, like how are customers behaving with regard to these consumption models and then how are we set up to work with them.
