CloudFlare Hints IPO Coud Be Coming, But Not This Year

23 Sep 2015 | Author: | No comments yet »

CloudFlare Hints IPO Coud Be Coming, But Not This Year.

Just this morning, CloudFlare announced a $110 million round led by Fidelity Investments, and on stage today at TechCrunch Disrupt, Michelle Zatlyn, CloudFlare’s head of customer experience, told TechCrunch’s Frederic Lardinois the company definitely won’t be IPOing this year — but she hinted that it’s out there on the horizon.Matthew Prince uses a lot of hand gestures—he holds his palms out to illustrate an overarching concept, or clenches his fists and grins to show excitement.In an interview with Fortune, CloudFlare CEO Matthew Prince said the startup didn’t need the funding, but needed the credibility that comes with being associated with big companies as it eyes a potential IPO. Enterprise customers consider the security of a software product or cloud-based service as seriously as its functionality and performance, even when doing something as simple as managing documents or transferring files.

When a big round is led by a public market investor like Fidelity, it’s like firing off a flare that the IPO moment is coming, but like most companies, CloudFlare wouldn’t commit to an exact trigger moment. So, when a platform such as CloudFlare takes a service as ubiquitous as Web content delivery and infuses it with a full range of security measures, it makes sense when international tech corporations open their checkbooks. Wearing jeans and a plaid shirt, the cofounder and CEO of CloudFlare, an Internet edge service provider (more on what that means later), describes a grand vision of sweeping changes in the Internet infrastructure market, with much of it sliding over to Amazon.

Chiefly specializing in the protection of websites or mobile applications, Cloudflare also manages to help increase speed, reduce load times and optimize for best performance of content. “Once your web site is a part of the CloudFlare community, its web traffic is routed through our intelligent global network. The quickly growing startup now operates in more than 30 countries, and, according to material provided to TechCrunch, processes around 5 percent of the Internet’s traffic. From a spare conference room in cramped offices way south of Market Street in San Francisco, Prince talks about how CloudFlare can put a wrench in Amazon’s plan, thanks in part to $110 million in new funding that includes buy-in from some of technology’s biggest players: Google, Microsoft, mobile chipmaker Qualcomm, and Chinese search-engine company Baidu. (Fidelity Investments lead the round.) It isn’t the money Prince really wants to talk about. “I hate fundraising stories,” he says as an opener. The latest funding round actually closed in December 2014, but the company waited to announce it after it finalized a joint venture with Chinese Internet giant Baidu last week.

The partnership between CloudFlare and Baidu lets both U.S.-based companies and Chinese-based companies use CloudFlare’s website performance service while abiding by Chinese data laws. CloudFlare is working with Baidu on large-scale Chinese Internet security, with Microsoft as a cross-promotion with its Azure cloud to entice enterprises, and with Google on a content delivery network (CDN) between Google Cloud Platform servers and end users. The changes Prince predicts would have huge implications for tech giants like Cisco, Dell, Google, HP, Microsoft, Oracle, and the new eight-million-pound gorilla, Amazon. “People prefer to rent services and use them as they need them, as opposed to having to make a big capital outlay that often doesn’t get used,” says Prince. Although CloudFlare maintains no physical operations in China, it has worked with Baidu to set up technology within Baidu’s facilities that mimic CloudFlare’s services elsewhere, Prince said. The result: CloudFlare-powered websites see a significant improvement in performance and a decrease in spam and other attacks.” However, what makes Cloudflare such a hot commodity these days are the deals, it’s landing.

Arrington at the time, compared the winner to a shiny Ferrari and CloudFlare as “boring muffler stuff.” Today, in honor of that moment, Prince presented Arrington with a golden muffler on stage — and Prince and Zatlyn talked about company’s more recent happenings. The company is refreshingly open about its finances, noting that it has been profitable since 2014, and currently puts up a gross margin of 75 percent. That explains the rise of Amazon Web Services (AWS) for what Prince calls the “store and compute” layer—one of three layers he sketches out on the conference-room whiteboard. CloudFlare’s global CDN works in what the company calls the “network edge,” funneling all traffic—including users, robots, and malicious attackers—through application firewalls, and end-to-end encrypted and Secure Sockets Layer (SSL) certificate-protected routers and servers in order to divert malicious traffic from monitored websites and Web applications. Instead of buying and maintaining their own servers from companies like Dell and HP, businesses are contracting with providers like AWS that rent server capacity on an as-needed basis.

CloudFlare advertises protection against distributed denial-of-service (DDoS), cross-site scripting (XSS), Structured Query Language (SQL) injection, comment spam, excessive bot crawling, and other forms of attack. Next comes the applications layer, says Prince, dominated by Microsoft programs, Oracle databases, and SAP business management software, but transitioning to a huge number of specialty cloud providers such as Adobe and Dropbox, Salesforce for customer relations, and Workday for human resources.

Microsoft may also be very interested in CloudFlare’s ability to process 5% of the world’s Internet request while squashing more than 200 billion cyber attacks monthly. Here Amazon is offering its Amazon Relational Database Service and pushing its brand-new alternative to Oracle and Microsoft databases, called Aurora, as a “data lake,” says Prince, on which new services can sit. That said, the company still needs revenue to bridge the gap between private funding and going public, whenever that should happen. “We are building something big and transforming into something that works. This is where CloudFlare competes by offering rented security and optimization services as alternatives to hardware such as Cisco and Juniper routers and various firewall boxes. Prince backed up one of CloudFlare’s recent infographics with a statement on the secure CDN platform’s potential to supplant on-premises and installed software security solutions with cloud-based security services. “We think the real opportunity is to take the functionality performed in a Cisco, F5, Juniper, Riverbed, or any other firewall you have out there, and provide that,” he said.

Now that a company’s software has moved from its own servers to various cloud providers, says Prince, companies need cloud-based services, rather than hardware, to secure them all. Google helps with collaborating with Baidu, Qualcomm addresses mobile; Baidu answers the company’s China strategy while Microsoft supports its enterprise ambitions.

The company was able to deal with Chinese firewall issues by leaving all of the activity on Baidu’s servers and having no direct operations inside the country. Doing business in China, a massive market for the Web and its larger requirements (the bread and butter of CloudFlare), entails more than entering other locales. With Baidu, Prince sees the logistical partnership as way more important than the monetary investment. “We figured out how to build infrastructure across mainland China,” he says. As Prince pointed out, Chinese companies don’t necessarily want to pass through US-based servers and US companies sometimes feel the same way about China. The Qualcomm partnership, meanwhile, gets CloudFlare a better toehold in the mobile Internet, which Qualcomm predicts will one day handle 1,000 times more traffic than it does today.

Prince said many of those are driven by people inside the company who started by using the free product, then introducing it inside their organizations. CloudFlare became profitable in 2014 and is pouring revenue into expansion (currently opening about one data center location per week) and keeping costs down elsewhere. “You can see how much we spend on our beautiful office spaces,” says Prince, with a chuckle, pointing to the rough brick walls around him. (CloudFlare’s office is moving to a new location soon.) “What’s worked for us so far has been being extremely scrappy,” he says, “and making decisions not based on . . . how do we raise the most money or how do we get the best valuation.” However, this particular inevitability is more a market pitch than a business secured; CloudFlare has competition, and its success will only attract more.

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