Alex Kurtz: All right. Thanks, Nick. Let’s go to the next question.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Oliver Cokenden from JMP Securities. Your line is open.
Pat Walravens: Actually, it’s Pat Walravens. Thank you. Armon, this one, I think it’s for you, which is — I was just looking back in my old MongoDB model. And when they were at roughly $150 million in total revenue, the cloud was 47% of total revenue and growing 61%. You guys have $150 million in quarterly revenue, the cloud is $14 million. So just walk us through what are the sort of two or three key points we need to understand about the difference between a database that’s moving to the cloud and Hashi’s infrastructure solutions.
Armon Dadgar: Pat, yes, thanks for the question. I think what I’d point to is the major difference is, if I think about something like a database like Mongo versus the solutions we have, it’s where they sit in the stack and sort of their level of criticality. And what I mean by that is obviously, database is critical, but typically, it’s bound to the scope of a single application, right? And building a that new app, that app needs to store some data, great [indiscernible] spend up a Mongo database for that. When you think about our solution by virtue of being infrastructure, they span horizontally across usually hundreds, thousands, if not the entire estate, right? And so if you think about something like Vault, you might have hundreds of applications connected into it.
So the criticality is different. And then the — as a result of that, the customer’s willingness to have that outside of their control when something goes potentially wrong is very different. And I think that’s the feedback we consistently get from our customers is, guys, this is Tier 0 software, if I lose Vault, if I lose Console, my data center goes down, right? And so I think that willingness to let a third-party run it where they don’t necessarily have the direct operational control. It’s just a much higher bar. And when you think about what are the vendors these folks really trust, it’s effectively Amazon, Azure or Google right? And even that was a position of trust that took many years for the cloud to get to within these enterprise vendors.
So I think that’s the difference I would point to. The good news is we’re seeing that shift, right? And so I think we’re increasingly seeing our enterprise customers realize they don’t have the operational expertise to operate this the way we do. And so we are starting to see even our largest enterprise customers go down the path of HCP. And so we’re excited about that. Particularly, we see a difference in behavior between our sort of run time products and non-run time. So for non-runtime tools, like Terraform, for example, there’s more willingness. And so I think that’s why next year, we’re looking at really defaulting a land motion to Terraform Cloud because we feel like we’re at that point where customer willingness is their platform capability is there.
Alex Kurtz: All right. Thanks, Pat. Let’s go to the next question, please.
Operator: Thank you. And our next question will come from the line of Fatima Boolani from Citi. Your line is open.
Fatima Boolani: Thank you. Good afternoon. Thank you for taking my questions. Armon, just on that line of discussion around landing more and leading more with cloud, especially in the enterprise I’m wondering as you put your heads together with Navam and Dave, what sort of inflation does that have for how you might have to re-architect your pricing strategy for the enterprise in the same breath driving adoption, but also managing the complexity that might come with partially self-managed and partially consumption-oriented offering. So I guess the question is, you kind of have to blow up your pricing model to drive that behavior in the enterprise? And how would that impact kind of your reported financial metrics? Thank you.
Armon Dadgar: Fatima, yes, no, great question. Obviously, it’s something we spent a lot about time thinking about for the reasons you outlined, we obviously don’t want to be in a position of having to blow up a pricing model. And so the reality is what we looked at really doing for customers is there should effectively be no change to their licensing costs, plus or minus as they’re going from self-managed to cloud. What we don’t want to do is create a tax on them for doing the things we want them to do. We want customers to adopt cloud. We want them to be on the HCP platform because it gives us a bunch more visibility into their usage, we don’t have as much support issues we have to navigate for customers who don’t have the operational skills so we want them fundamentally to be in the cloud.
So we don’t want to tax them for doing that. So as a result, we spent a lot of time making sure the pricing and packaging is consistent to help them navigate through that. So it’s more about making sure that customers have a willingness to adopt cloud and the capabilities are there to meet their enterprise requirements. And we feel good that we’re at that point where customers are certainly signaling that willingness now for Terraform.
Dave McJannet: Fatima, the only point I think I’m just trying to eat your question, to be clear, our cloud pricing is an entitlement-based model, just like our self-management model it. So for us, it’s really not a huge transition contractually, if that makes sense?
Alex Kurtz: Thanks, Fatima. Let’s go to the next question, please.
Operator: Thank you. And our next question will come from the line of Derrick Wood from Cowen. Your line is open.
Derrick Wood: Great. Thanks. This is for Navam, and I wanted to ask about the net revenue retention number. Curious if that’s been all pressure on just the expansion side? Or if you’ve seen any churn. And what I’m wondering is if you’re seeing any customers move from paid to three open source at all. And then what is your average contract like? Because I presume that once you get through the cycle of renewals, the pressure on that expansion cadence would probably get lifted.
Dave McJannet: Derrick, it’s Dave. I’ll answer the first one. As a general rule, people don’t move from our commercial offerings to the open source. There are certainly instances where if someone is under extreme budget pressure, they might do that temporarily, but that is sort of a bit of an anti-pattern you certainly hear about it anecdotally. But given the scale of number of customers we have and the scale of users, it’s not the most common one. But let Navam mention the financial side.
Navam Welihinda: Yes, on the net retention side, Derek, most of the net retention impact quarter-over-quarter comes from the expansion and extension side meaning smaller expansions and extensions. Now there’s some gross retention impact. For example, this quarter, there was an acquisition which caused the churn. But for the most part, the net retention is impacted by the smaller deal sizes on expand extended.
