Shirish Jajodia: Thank you. The next question is for Phong, regarding cloud. So can you please elaborate on the progress of converting software clients to cloud from license? And how is the timing of transition looking overall?
Phong Le: Yes, 2023 is a pretty pivotal year for us. One, our subscription services revenue has now surpassed our product license revenue. And two, our subscription services revenue has surpassed our other services revenue. And so that was a pretty big transition. It’s now the second biggest revenue line item behind product support, which represents the maintenance that on-prem customers pay us. Another data point I’ll give you is, we are near or exceeding the $100 million of ARR in the cloud, which is a pretty major milestone for any software company and a very major milestone for us as we’re transitioning from on-prem to the cloud. That said, we still have less than 25% of our recurring revenue in the cloud. So there’s still a pretty major opportunity, and there are greater than 75% of on-prem revenue that we need to move.
I think 2024 is going to be an acceleration year in terms of moving existing customers to the cloud and getting more new customers to move the cloud. Reasons for that I talked about, one is our partnerships with our hyperscalers including Microsoft, Azure, Amazon, AWS, and Google, GCP. Another reason is the maturity of our technology offering, container-based, microservices-based, and the fact that we’re going to roll out a private cloud offering this year. So a lot of progress, but more opportunity to move to the cloud. And I would say 2024 will be probably the most important year for our transition we’ve seen in the history of the company in terms of moving to the cloud. And we have the entire organization aligned behind it and we have our customers ready to roll.
Shirish Jajodia: Thank you. The next question is also for Phong. How is the initial reception of the AI product, and what do you think this will contribute to product mix or profit margins? I think it’s like a lot of AI products that are actually in the market. First, I’ll remind everyone, we went GA with our AI plus BI product in September. So essentially four months ago, end of September, four months ago. And we were the first in the BI space to have done so. And we have a lot of customers who are starting to kick the tires, play around with it, getting excited about it. And what we’re really doing is trying to understand what are the production use cases that are going to drive further growth in AI plus BI. The exciting side effect, if you will, is because our AI product is build cloud native and therefore only available in the cloud is accelerating our cloud migration even further.
So while the revenue impact of AI directly may not be extremely significant in 2024, it could be, but we’re not positive yet. What will be significant is how it’s driving our customers to migrate to the cloud. And back to the previous question, that’ll show up in our revenues and our transition to subscription services revenue and our increase in cloud ARR. And we’re seeing that happen already. We’re seeing CIOs, CEOs, COOs saying this gives us a real important reason to want to move MicroStrategy in all of our workloads to the cloud.
Shirish Jajodia: Thanks, Tom. The next question is for Andrew, regarding the debt maturity. So how do you plan to address your upcoming 2025 convert maturity? And what are the different ways the company can pursue?
Andrew Kang: Thanks, Shirish. I guess first to note, we still have a good amount of time before that maturity arises in December 2025. We’ve always managed our maturities from a timing perspective that gives us ample time to figure out these types of questions. But that being said, I think we are getting closer and we’re continually evaluating the market opportunities in regards to 2025s. We could of course — they could equitize at the conversion price, that’s clearly one option. I think other options out there exist and potentially being able to refinance those converts, which could allow us to even stand out maturities further. Of course, all that would be based on market conditions. But the point is, I think we’re evaluating everything. And I think it’s something that we’ll keep very close consideration in the coming months.
Shirish Jajodia: Thanks, Andrew. I’ll ask one last question for Michael here, given that we are coming to the end of the time. How important is the SEC acceptance of Spot Bitcoin ETPs in terms of eventual mainstreaming of Bitcoin as a legitimate form of money?
Michael Saylor: Yes, I think it’s tremendously important. I think the approval of the Spot ETPs marked an inflection point in the history of bitcoin and it demarcates the era of retail offshore unregulated crypto adoption versus the era of onshore regulated institutional bitcoin adoption by the mainstream investors and investment community. We can already see these ETPs have been a screaming success as a launch. They’re sucking all the oxygen out of the room, getting all the attention in the ETF industry. They’ve already marched up the leaderboard amongst the top commodity ETFs in the world very rapidly. It’s pretty clear that bitcoin is now on a path to eat gold, to subsume gold’s monetary value and of course it’s a fairly easy trade for someone now to sell their gold ETF and buy a Bitcoin ETF.
It just takes a matter of 30 second phone call. And so the amount of the frequency with which people are comparing bitcoin to gold is dramatically increasing. The frequency of bitcoin in a conversation with a registered financial advisor is going up by orders of magnitude. So this has catalyzed the adoption and the normalization of bitcoin throughout the traditional finance industry. I think the implication is bitcoin will become everybody’s favorite commodity investment because the other investments like gold, silver, basic commodities, natural gas, oil, they have not been terribly successful strategies and bitcoin has an order of magnitude more enthusiasm behind it. So first bitcoin takes over commodities, but then bitcoin spreads throughout the entire traditional finance industry in the US.
And as it’s doing that, it’s entering with legitimacy into the political conversation, the banking conversations, the regulatory conversations into mainstream media. It’s coming onto college campuses and education institutions, and it’s beginning to be talked about much more frequently in technology organizations, startups, and big tech companies. So in general, this is just a massive catalytic event for bitcoin throughout the United States. And that leads to global acceptance and a surge in global interest. We’re already seeing a lot more talk about bitcoin outside of the US, and many other countries take their lead from US regulators. So we already have seen discussions of bitcoin Spot ETFs in Hong Kong, but I think you’ll see any resistance to a similar product in South America, Africa, Europe, Asia is going to decrease dramatically in the aftermath of the SEC approval.
There used to be a little, a structure of bitcoin investors and there were five classes. There were the deniers that thought it was tulip bulbs and it was not legitimate. And then the skeptics, that thought, oh, it’s too good to be true. It’s going to be banned. And then you’ve got the traders that they recognize as an asset and they just trade it for the volatility because it’s fun to trade. And then you’ve got the investors that think, well, maybe it’s something like the next big tech company like an Apple or a Facebook. So I’ll kind of buy it as a store of value in my tech portfolio. And then you’ve got the maximalist, and the maximalist think it’s an instrument of economic empowerment. It’s a way to spread global freedom and sovereignty, and it’s a way to make the world a better place.
And of course, the maximalist we can find on Twitter, but the significance of this SEC approval is that the deniers have been discredited and the skeptics are being silenced. That is to say, if you think it’s not a legitimate asset, well, there’s no way that the SEC would have approved an ATP on fake counterfeit tulip bulbs or something random and ridiculous. So the deniers don’t really have a lot of credibility anymore. And the skeptics, the ones that said, I get it, but it’s too good to be true, and it’s too threatening to the establishment, so it’ll be banned. Well, they typically — they were the ones that thought of as a medium of exchange and a currency and a competition for the dollar. And now they’re beginning to realize that the establishment views this as a store of value, maybe a speculative asset, maybe they’re not going to endorse the asset, but it’s an asset, it’s not a currency substitute.
And as such, no, it’s not going to be banned. If BlackRock can sell it to you, if Fidelity can sell it to you, it’s not being banned. So the deniers are out of the picture. The skeptics are increasingly looking out of touch. And the entire investment community has shifted right toward either being a trader, an investor, or a maximalist. And this is profoundly positive and auspicious for Bitcoin as an asset class. You put these things together and awareness is spreading and support is spreading everywhere in the world. Now you’re probably not going to get fired if you’re working at a bank or a financial institution. And you say, hey, maybe we should look at this and maybe write a piece about it or do some research on it or consider whether we can trade it or custody it or build a product on it.
And that wasn’t really something that was easy to consider two, three, four years ago. In fact, we’ve even shifted the point where now there’s a lot of mainstream and even political lobbying to say revoke, staff accounting bulletin 121 that makes it difficult for banks to custody bitcoin. So there’s a lot of political pressure to normalize the asset, to embrace the asset, to allow companies to do business with this asset. And so I think that this ETP launch really was the beginning of the next stage of growth of the entire bitcoin network. And it was really the catalytic event necessary for institutions everywhere in the world to begin to invest material amounts of capital or material amounts of time or energy, or to risk their brands and their reputations to do business with and support bitcoin.
