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Thoughts on Okta’s Series B Funding – Why Our Investors Participated and How We Pitched Them (Part 2)

Todd McKinnon

Yesterday, I posted about how we pitched our investors for this latest round of funding on our disruption of the IT industry and why our solution is necessary for cloud to work in the enterprise. Today, I’d like to talk more about the larger market opportunity we see and our plans for the new funding.

A Fundamental Shift – In Need of a Foundation

When I talk about disrupting IT, I don’t just mean a slick single-sign-on solution – I mean that cloud is fundamentally changing the needs of IT.  In the cloud, where the numbers of services and devices are exploding, user identity is the foundation on which to build soon-to-be essential solutions. So in addition to our flagship products, there are a lot of other holes our technology fills – maybe even some most people haven’t thought about yet.

Once a company has a robust identity management system (like Okta) – a “source of truth” for identity that is tightly integrated with all services – there are several adjacent services it makes sense to buy from the same vendor.

Take systems management for example.  Today billions of dollars are spent on monitoring and managing low-level infrastructure like disks, CPUs, and networks.  This will change with the cloud.  Systems management is now going to be about how the services are working for people. Are the systems people need up and reliable?  What kind of performance are people seeing? In order to provide this type of system you need deep knowledge and insight into these services.

Okta is here to help with that.

Another example is the broader security market beyond IDM (anti-virus / spam, web filtering, firewalls etc).  Many products today are device based.  In the cloud it’s all about the individual.  Security policies need to follow the person across applications and devices and locations.  Okta has detailed knowledge about people, applications and devices enabling strong and innovative new products in this area.  So yeah, we’ve got that too.

Market Size – A View from the Front Lines

Once you understand that this is a shift impacting the entire IT industry, you can understand what the market opportunity is here – and why it got our investors pretty excited.

Over the next 10 years, cloud computing and the shift in IT will apply to all industries, geographies and company sizes.  Over time, every single one of them is going to need something for cloud based identity and access management, as well as more security and system management products.

So say we take all the companies in the world above 75 employees.  We estimate the percentage of these companies that will adopt cloud-first IT is currently 2% currently, increasing to 40% by 2020. This is our market.

Of course, we go further than that. If you segment these companies into medium size (75 – 1000 employees) and Enterprise (Over 1000) – we estimate that medium-sized companies, for IDM, service management and security, will pay on average $25K per year, increasing to $50K over the next 10 years. And of course, for enterprises, the price point is higher: $100K per year up to $450K in 10 years.

So what is our total addressable market? Ten years out it’s $14 billion. No wonder our investors are so bullish.

Our Strategy

In our investor presentations we talked a lot about our strategy to execute on this huge market opportunity.  I won’t share it here, so as not to not tip off our competitors.  But of course, we think it’s pretty good, and we went through a lot of details around our financial plan and how we would and should spend the new money.

So what are we going to do with the money?

Three things:

  • First, we’re going to assure our customers are wildly successful.  It’s built into our model – if they aren’t successful, they don’t pay their subscriptions!
  • Second, we’re going to accelerate product development.  We have a lot of products in the pipe that we’re pretty excited to bring to market. Obviously this money will help accomplish this.
  • Finally, we’ll ramp sales and marketing.  Many companies are having problems adopting cloud computing. We want to help them.

Raising money can obviously be a lot of work, but it’s also fun to share your vision for a market and how your technology is going to impact it – for the better. Hopefully this gives you a taste of that.