Business Breakdowns
· Matt Reustle, Sam Eden
[00:00:00] S0: And are these developers working within corporations where what Cloudflare is building off the shelf needs to be maybe expanded upon and they're incorporating it there? Or is it separate from the enterprise corporate type clients and it's developers that are building some unique product and then selling it themselves to a different audience? [00:00:00] S1: It's currently quite separate. You don't have to use these products together. You can just be a developer building a weekend hobby project and you want to use the Cloudflare serverless functions. That's a totally valid use case. They're working to bring the products together into a more unified experience, but they don't need to be. You can use these Cloudflare developer products on anything really. [00:00:00] S0: The developers, I assume, are then paying Cloudflare some software costs to use that?
· Matt Reustle, Sam Eden
[00:00:00] S0: The developers, I assume, are then paying Cloudflare some software costs to use that? [00:00:00] S1: That's right. So similar to other cloud models, I'd say from the hyperscalers, their developer products follow a usage-based pricing model. So the more you use, the more you pay. But similar to the early products, they have a very generous free tier because they really want to attract that long tail of developers and then bring that into the enterprise, which is what they're doing at the moment. So there's over 3 million developers building using these Cloudflare developer products. A lot of them would be building quite sophisticated functions just within their free tier. To give a sense of how generous this free tier is, I think with their Workers serverless functions, you can query that up to 100,000 times a day. Their storage is 10 gigabytes per month with zero egress fees, which is dramatically cheaper than a lot of the alternative developer products. [00:00:00] S0: Can you just give an example of what a developer might build with the tools, just to give a sense of what a tangible example might be?
· Matt Reustle, Sam Eden
[00:00:00] S0: Can you just give an example of what a developer might build with the tools, just to give a sense of what a tangible example might be? [00:00:00] S1: Cloudflare Workers are best for quick functions that need to be done close to the user. Maybe one quick example would be that if you're loading a website, you might have a quick Workers script that changes the local pricing or changes the local language based on where that web page is loaded. That's done at the edge. So it's faster than querying, say, a central database to generate the page from scratch. The way to conceptually think about these Workers is anytime you can take a task and put it into bite-sized functions, it's good for that just because they spin up so quickly and then turn themselves off. It is a slightly different way of thinking because you're deploying again to the single global network. If you deploy a function to AWS, you might put that on the US East servers, so it lives there. So if you call that function, you have to travel there. Whereas with Cloudflare, if say you're building an app in New Zealand, you deploy a function immediately in London, someone can query that website and that same function is served from that London server at the edge. Everything gets propagated around really quickly, which is just another benefit of this single global network that they've built.
· Matt Reustle
[00:00:00] S0: Yeah, I can speak to that example as someone who tends to find myself on UK or Japan websites. Just the currency switch is always beneficial. Saves me some time from doing the currency conversion. When you think about AI – this is a business that has clearly benefited and took advantage of what the cloud has provided in terms of opportunities, been very thoughtful about that, and evolved naturally into different pieces of an organization and offering more. So two different things riding a wave, but also being operationally thoughtful about how they're going to market. When you think about where they fit into the AI boom, and the potential to be whatever they might be in that world, how do you frame it? And then how does the management team talk about where Cloudflare fits into the AI ecosystem?
· Sam Eden
[00:00:00] S1: I would say they fit kind of all around the AI industry. And there's probably four ways I'll describe this. First way is just the adjacent tailwinds, which you mentioned – as people want to use AI, then they're thinking more about the data strategy. And often you want your AI agents, for example, to read a lot of data and you might want to do that quickly without paying a lot of egress fees. So there's tailwinds in general for Cloudflare's approach for doing that. So that's the first relationship to AI is just adjacent services. The next three are the different sides of AI that they serve. The first is just serving the AI companies themselves. The latest reporting was that 80% of the top AI-native companies, the top AI companies – were Cloudflare customers. So that just shows that this next generation and this next era of businesses still look to Cloudflare first. So if they're providing other services for these AI companies, it positions them well to provide AI services as well. That's one, is just serving the customers themselves. The second direct AI involvement with Cloudflare is inference themselves. They've started to offer inference at the edge through their Workers AI product. It's a slight evolution from their previous strategy, where they still have this single global network, but previously every component – like every piece of that hardware – could provide every service, which is really powerful because it just meant the return on investment on each of those pieces of hardware could be split across all of their products. But now with AI inference, the hardware starts to matter. They had to install GPUs across their servers. They have servers across 330 different cities across the world. This was done really quickly. So Cloudflare is a very long-term strategic company. When they're actually designing their motherboards for all of their chips, they left an empty slot open, because they didn't know what would it be for or what the use case would be, but they needed it just in case something came up. And it turns out AI inference was that something. So they could go to all of their boxes and simply just plug in a GPU, and then AI inference is available across the world at all of these locations. This is serving these LLM models.
· Sam Eden, Matt Reustle
You can quickly query an open-source model for text generation, image generation, voice, or enterprise customers can deploy their own custom LLMs as well. And again, that gets propagated across their single global network. The AI inference from Cloudflare can be done really quickly at the edge. And as I mentioned before, Cloudflare Workers are really quick at spinning up and spinning down. So unlike, say, a hyperscaler, you don't have to pre-book or pre-provision capacity. You only use for what you pay for. If an inference is small and you don't use it for a day, you're not going to pay anything. So it only charges you directly on the AI inference that you use. [00:00:00] S0: It feels like a key layer of infrastructure. So you could see them on all sides of the market. Thinking about how they transitioned, you mentioned they got to a point where their offering was on par and then eventually better than what incumbents and legacy providers were offering. Can you talk about what that looks like? Because I imagine they broke into the enterprise market over time – what that looked like, how they approach it, some of the nuance to what it looks like to have an enterprise contract.