Most of the successful SaaS start-ups rode the success of certain fundamental shifts or trends in the industry. For example:
Zuora: Shift to the subscription economy.
Veeva: Verticalization of services for a particular industry.
Okta: Shift to cloud for all kinds of applications, infrastructure, and tools.
Zendesk: Change in the relationship between customers and businesses that led to a transformation in customer service.
(*Three out of above four are founded by Salesforce Mafia.)
Let’s focus on Okta for this discussion.
The company started in 2009 to help with products to provide Single Sign-On for applications that were on the cloud. Here is how they define their mission.
Okta is the independent provider of identity for the enterprise. Our mission is to enable any organization to use any technology, and we believe identity is the key to making that happen.
It has an estimated revenue of 574M USD for FY20 and has an employee count of over 2000 with offices in the US and Europe.
source: here
Without a cloud, there would have been no Okta
Back in the 2000s, the enterprise infrastructure, applications were on-premise with the domination of Microsoft. The thread binding the technical stack was a free service along with Microsoft stack: Active Directory. (Imagine that as a database of all the username and password).It was easier for customers in two ways:
Any upgrade was straightforward as the entire stack was based on Microsoft. Access management for users could be through a single database. The active directory was the foundation and MS server was sitting on top of it.
All this was behind the company’s firewall. Hence no worry about the security.
However, the advent of cloud brought together following fundamental change:
Budgets got decentralized. Small teams within an organization started using tools based on their requirements. It was no longer a single tool for the entire organization. Hence it could be very well possible that two teams within the same organization may use two different tools for the same use-case.
It obviously meant that tools were no longer Microsoft dominant.
Apps were residing outside the firewalls.
Okta’s value proposition to the customers that wanted to get the benefit of cloud but were still using Microsoft technical stack (Active directory) was simple:
To address the need for managing access and logins to these myriad cloud apps across the organization, Okta will manage the login through a single sign-on that will sit on top of Active Directory.
For customers, it was a straightforward extension of Active Directory and a secure way to access cloud without compromising security.
However, with a further rise of cloud, each layer within the tech stack that Microsoft provided, customers now had an option. Example: A team may use Gmail for email purposes (no Outlook), Slack for messenger, Excel for work, Jira instead of MS Project and so on…
Okta brought in the following value:
Deep pre-built integrations with all these cloud tools ( 6000+ apps as per the latest report.They call it Okta Integration Network)
Independent Identity provider ( as opposed to Azure Directory by Microsoft or Directory part of G Suite.They are neutral and hence will not push any app through Identity platform).
Security: OKTA proposed ZeroTrust, the story is about not trusting any network and making sure the right user gets access to the right technology at the right time.
Network Effect:
Since Okta was built for the cloud, it ensured that it had integrations with the majority of cloud applications. New customers came because of these integrations. Since these customers were using Okta, the new cloud business wanted to ensure that their applications had Okta integration. Hence further integrations. It led to a network effect.
Today it’s a platform, where developers can build integrations on top of Okta. In the recent call, Todd McKinnon, the CEO of Okta, mentioned that one of their financial customers mandated all their internal contracts with new technology should ask for pre-built integration with Okta.
This is a move from a tool to a platform.
Landing onto the customer’s organization:
It’s important that as a company you have multiple use cases (products) that allows you to lend within the organization. With the innovation done in the products in the last few years, there are multiple ways that Okta can lend itself to the organization. So broadly it has two products
Organization workforce (it includes partners, contractors )-Pricing based on per user.
Organization's customer workforce -Pricing based on per activations.
Within each of these categories, there are various solutions that customers can pick from like Multi-factor authentication (based on individual’s context), Universal Directory (extending Active Directory), Advanced Server Access and so on. It allows salespeople to upsell or cross-sell for various use -cases. I believe it will be the main driver for large deals. For the period ending Oct 31,2019, they have more than 1300 customers out of total 7400 who are paying more than 100K USD.
Distribution:
The primary mode of distribution is field sales ( Cost of around 55% of Revenue in FY19 ) and channel partners. As per the earning call, they also get 25% of the revenue from channel partners. With digital transformation being an overarching theme, this is expected to grow further. The channel partners refer to Global System integrator (Accenture, Infosys, etc) who helps drive digital transformation in the organizations. It also refers to other product companies like VMWare and Palo Alto network that are partners of Okta.
Path ahead…
Identity and Access Management (IAM) as a market is evolving at a good pace. According to IDC, the worldwide market for IAM is expected to grow from $6.6 billion in 2018 to $9.0 billion in 2023, representing a CAGR of approximately 6%. There are companies like Ping, JumpCloud, Onelogin, who are taking different approaches to take a share of this market. I think space will only get further intensified in 2020.
Note: You might want to check out the interesting insights from annual Okta’s report on trending apps by businesses.