So that’s number 1. number 2, with respect to the product unlocks, of course, we’ll have Flink which will be in GA, coupled with other unlocks on the DSP side, that’s going to be FedRAMP exiting Q4 ’24, and there’s going to be tailwinds from AI. So overall, we feel that there are a decent amount of tailwinds exiting 2024, which gives us confidence that we’ll get back to a 30%. It’s just timing. We just want to get — don’t want to get into ’25 guidance and specific timing, but that’s a trajectory that we are thinking through.
Brad Sills: And then maybe that leads into my next question here. You mentioned a few potential tailwinds exiting next year. Maybe to you, Jay, the Flink opportunity, FedRAMP, AI, what are you most excited about when you look at the pipeline and some of these initiatives potential to accelerate growth?
Jay Kreps: Yes. I mean, I think probably what’s most exciting, big picture is actually just — if anything, there’s been an acceleration in interest in streaming. I would think about this in stages where this is a market that went from kind of very early nascent kind of evangelical to something that now just increasingly very senior people and organizations believe in and see happening and are trying to adjust to it and figuring out what does this mean for us and how do we take advantage of it? I mean, I think that’s probably the biggest thing overall. In terms of our products, I love them all. That’s why we’re putting all the energy into it. That’s why even in a year of a lot of efficiency, we really made sure that we had sufficient investment to bring together the rest of this data streaming platform, and we just weren’t willing to cut that stuff.
I think probably the biggest thing for us in terms of transformation of what we do is the Flink offering. I mean, that’s what brings these application workloads directly into our platform, what makes it so much easier to build some of these things that actually capitalize on streaming to kind of run the logic of the business. In some sense, that’s the most exciting, but they actually all play together. Without the connectors that get the data, you don’t have the streams to process. Without the innovation in Kora, you don’t have the ability to really handle the streaming data across a big organization. Without the governance stuff, it’s actually just hard to use this and have correct guarantees around data and reason about it. So they all kind of play together to form the platform.
So I think they’re all kind of a powerful part of that story. And I think that story is why people are so excited about this space.
Shane Xie: I’ll take our next question from Jason Ader with William Blair, followed by TD. Cowen. Jason?
Jason Ader: Jay, I know you said you haven’t seen this in the past, but why wouldn’t repatriation be a trend in the digital native space, if you can save 30% on costs? And then, what percentage of your revenue actually comes from digital natives today.
Jay Kreps: Yes. So, I should clarify the comment I made. What I was saying is if you look at the amount of kind of operating margin savings that companies are targeting, it’s often a very large percent. I’m not saying that moving into a data center saves you 30%. I’m just saying, you’re trying to say 3% operating margin improvement, you move some things around in a little small ways. 30%, you’re going to do something big, right? For Confluent, we’ve made really substantial improvements that came out of a combination of growth, structural improvements, optimization of cloud, a whole bunch of things. But it was a bunch of moving parts to make it happen. If you look at other digital native companies, they’re also doing big things. I think for 99.5% of companies moving into your data center going to be a lot more expensive. But that’s up to them to model it out and figure it out. But I’m not saying that you’ll see 30% savings from that. Does that make sense?
Jason Ader: Well, I mean, there’s — I guess, there’s just more examples. I know CrowdStrike moved back on-prem, right? And they save, I think, 2 or 3 points of gross margin. So, it seems like it’s material that some of the digital natives are getting significant savings, maybe not 30%, but significant.
Jay Kreps: Yes. I mean, look, we can speculate either way. I guess, I feel like we hear about this every couple of year really. We heard about the Dropbox doing it. Every year, you hear about some example, companies selling private cloud stuff, put it on the front page of everything to make a big deal to how the cloud is over. That’s not really what we see, like broadly, when we talk to our customer base, including the digital natives, I don’t see a big movement there. I do think you see a lot more optimization of cloud, the usage of public cloud, that’s certainly happening. But I don’t see a big move out as being realistic. I just don’t think it makes sense. But we’ll see for us. We obviously sell across both cloud and on-premise.
So to some extent, we’re like a little bit agnostic. I personally as a technologist, just don’t see it as a likely trend. I did this analysis internally when I worked at LinkedIn. I didn’t think it made any sense. We were using the public cloud. Public cloud has gotten cheaper since that time. So I don’t think it’s likely, but obviously, either way, we’re happy to work with the customers.
Jason Ader: And then what percentage of your revenue — maybe for Rohan, what percentage of revenue comes from digital natives and then what percentage of your revenue comes from Israel?
Rohan Sivaram: Yes. Israel happens to be a top 10 country, Jason, and so that’s baked into the outlook that we shared both for Q4 and 2024. The digital native piece, I think it’s an opportunity for us. I feel that where — we have more opportunity to take share in the digital native. So that’s obviously something that’s ahead of us versus behind us. So although we are seeing a couple of digital native customers that have been impacted by slower than expected use cases, but the bigger opportunity is ahead of us from a digital native perspective.
Jay Kreps: And if that sounds weird, the thing about Confluent is we kind of came back to tech like open source Kafka started in tech. But in terms of our sales, we actually started with more kind of traditional enterprises and as our cloud got to large scale came back to tech. So it’s on one hand, it’s a sector that’s a little turbulent right now. On the other hand, we’re kind of underpenetrated relative to the Kafka usage. And so there’s kind of two countervailing forces. That does make it a little bit of a less predictable area. But like our Rohan said, we actually think there’s a lot of opportunity there.
Shane Xie: Thanks, Jason. We’ll take our last two questions from Derrick Cowen and Raimo with Barclays. Derrick, you go first.
Derrick Wood: Jay, when you go through such big go-to-market and sales comp changes, this is likely to be disruptive from a — kind of from a sales attrition standpoint. Are you able to talk about what — how much proactive change you need to make to the makeup of the sales structure and what that may mean for churn? And then in kind of consumption, go-to-market model, do you feel like you need less sales coverage than in the old go-to-market model?
Jay Kreps: Yes. That’s a great question. So, yes, I don’t think it’s going to be that disruptive because we did start the process this year. So we’re measuring consumption. There’s a portion of compensation that’s already dedicated to it. We’ve kind of taught our team a little bit of this. So, it’s not like we haven’t dipped our toes in the water, and that I think takes a lot of the risk out of it. We kind of know that people can be successful with us. So, that’s kind of what gives us I guess, the confidence to jump in with both feet. I think realistically, if we were trying to do this from a cold start last year, I think it would have been quite disruptive and highly risky. I feel pretty good about what we’re doing. Now, it’s still a big change.
