Ash Kulkarni: Yes. Thanks, Tyler. As you can imagine, these are very difficult decisions. And I’ll reiterate that we really could not be more thankful to our employees, everything that they do, their efforts. The €“ just everything that they put into Elastic and our success. Now having said that, like we had told you even during the Analyst Day we have been very carefully observing the data in the market, why now, because we have always made decisions based on data. And like we told you in September, we had not seen the impact of the macroeconomic environment affect our business other than the FX piece, which we had talked to you about then. But we wanted to be very watchful and that’s what we were doing. And once we started to see the impact, we were very careful about making sure that we understand the nature of that impact.
And like I mentioned, the biggest area where we experienced this is in SMB. And in SMB, it was across the board. It was in all regions. It was across all use cases. And we’ve traditionally had a sales-assisted motion for SMB. And what that means is we would have customers land on monthly cloud and then we would have an SMB sales team that would spend energy in trying to convert those customers into annual contracts. And given the environment, what we have been seeing is really that, that effort that’s being spent on the SMB area is really not giving us commensurate returns. And we are not expecting the SMB environment to change either in the near future. We expect that that’s going to be an area where there will be continued stress in the economy.
On the other hand, we continue to see on the enterprise side, long-term opportunity for us to continue to do well. And so as we’ve taken these actions on the go-to-market side, the majority of it has been centered around SMB. Obviously, when you look at the go-to-market side, it’s more than just the sellers. It’s supporting teams like the SDR teams or the sales development reps, even on the marketing side. One of the big areas of change for us has been to drive more towards digital demand generation, which really works much better in a bottom-up adoption motion. And so that’s been the kind of change that has happened in marketing. On engineering, the overall change has been very limited. And primarily there, the change has been to make sure that we create the focus and rebalance investment towards areas that I’ve talked about as being a very high priority for us and strategically important for us going forward, and that’s all around cloud and serverless.
And the three solution areas continue to remain strong. So it’s been a €“ the changes have been across the board, but they have been very targeted. they have been focused on addressing the areas where we believe that we can drive the greatest growth and profitability and also making sure that we are not investing or finding more efficient ways to address parts of our business that are not showing the returns that we would have hoped for. And specifically, I’d call out SMB
Janesh Moorjani: And Tyler, maybe the one thing I’ll just tack on to that is, as Ash said, we are doing this so that we can invest in the right places to drive growth. And a part of that is to ensure that we continue to invest appropriately in the second half so that we have the right outcomes in the second half, but also prepare ourselves for fiscal €˜24. We want to make sure we’re entering fiscal €˜24 with the right capacity and the ready to go.
Tyler Radke: Thank you.
Operator: The next question will come from Pinjalim Bora with JPMorgan. Please go ahead.
Pinjalim Bora: Hey, thanks for taking the quesiton. Janesh, I just wanted to understand the guidance a little bit more. It seems like it’s going €“ or coming down by about 1 point of growth, constant currency, about 200 points. I think you used the word de-risk for the second half. What makes you confident that the model is derisked at this point?
Janesh Moorjani: Hey, Pinjalim, I’m happy to talk about that. So in terms of the approach that we took on the guidance, to start with, obviously, please that we came in above expectations that we had set for Q2, both on the top and the bottom line. In terms of how we thought about the guidance, a couple of things. One is we first have factored in the current economic climate. We’ve assumed that the recent trends from October will continue for the foreseeable future. We’ve, as Ash mentioned, considered the trends in the segments, both SMB as well as Enterprise. We have considered what we see across the geographies. We have considered the consumption trends that we’ve seen in the business. We’ve looked at it from the standpoint of new and expansion motions as well.
And then we’ve, of course, factored in the impact of all of the changes that we announced today also. So we’ve suitably factored all of these into our outlook. And then in case things happen to get worse out there, we’ve also built in some additional level of protection into our guidance, as we always do, to balance the risks of the unknown. So there is no court change to our guidance philosophy there. We don’t guide excessively conservatively, but we do guide prudently. So we actually feel pretty good about the outlook. And then as I said, November has played out nicely so far. So we feel pretty good about Q3 and the rest of the year.
