Snowflake Inc. (NYSE:SNOW) Goldman Sachs Communacopia and Technology Conference September 13, 2022 3:30 PM ET
Company Participants
Frank Slootman – Chairman and Chief Executive Officer
Conference Call Participants
David Solomon – Goldman Sachs
David Solomon
Good afternoon. It’s up there. Great. Good afternoon, everybody, and welcome. I’m David Solomon. I’m pleased to see you all here. I’m pleased to be here with Frank Slootman. So thank you for joining us, Frank. We’ll just dive right into it, so we can give the group as much of you as they can get over 40 minutes.
So let’s just start. We’re coming up on the second anniversary of the pricing of the Snowflake IPO. It’s September 15. Obviously, a significant milestone, hugely fast-growing company. Give us a quick kind of reintroduction to the story and a little bit of your journey with the company as the CEO so far.
Frank Slootman
Snowflake is, at heart, a database company, the two founders were longtime Oracle technologists, and they really set out to completely reimagine database technology for cloud computing. So they sort of had to take a clean sheet of paper and go like, okay, how do you do data management on the cloud computing scale on fabric and architecture.
So they carried really nothing for it. Now in databases, there’s many different things you can do. You can try to be an Oracle or a Microsoft or Teradata. And they decided to concentrate the workload focus of the product on analytics. And the reason was analytics had, by far, the most problems. Transactional databases, we’re doing fine and we’re performing and all of that. It was a well-understood field.
But on the analytical spectrum, we were just not doing well. We had huge pent-up demand. We could barely report yesterday’s news in a timely fashion. So they said, “Look, this is the place to make our mark.” They could have gone transactional, but they didn’t because they perceived the problem to be far greater on the analytical side.
So they came up with a very specific architectural innovations and breakthroughs. For example, the separation of compute from CPU, which really changed the paradigm, the ability to run multiple clusters simultaneously against the same data. That introduced concurrency on a massive scale, individual provisioning of workloads.
Like I could apply a single mode or apply a 1,000 nodes. So I could run it like in two hours or I could write or I could run it in two minutes, right? So all these kinds of things. So when we came out to the scene, we were basically a workload modernization platform, meaning that I take your old Teradata, your old whatever, and I’m going to run it in the cloud, Amazon, Microsoft, Google. And I’m going to run it like a bat out of hell, and that blew people’s doors off in terms of the performance improvement and the economics because we introduced the consumption model. You don’t have to buy anything. You just paid by the machine second. So all the combination of all these things vastly opened up the opportunity for us.
David Solomon
Yes. So to talk a little bit, let’s get a little bit more specific. How do large and successful customers really use the product? And talk – let’s get some specific examples of big business problems and opportunities that specifically you see the product addressing?
Frank Slootman
Yes. So we’ll steer away for a second from workload modernization because that is bread and butter. And it’s reporting yesterday’s news. It is super important. When people come into the morning, they want to see what happened yesterday, are we breaking trend, extremely granular data by the ZIP codes and so on.
But what is becoming possible now is to be able to predict, not just report what happened yesterday, but what is going to happen. And the predictive power of data is really the revolution that we are now in the early innings of. I remember having a conversation with a big health care company CEO not too long ago during COVID, and he is saying, look, I’m sending these health care kits for procedures. I’m sending them to the wrong places every day because COVID is breaking out here, it’s breaking out there.
And so supply chain management was completely upside down. You needed data to be able to drive supply chain management. Anecdotal observation is not going to cut it anymore. And a good observation just reading e-mail, talking to people, watching the news, that is not going to work anymore.
Now inflation, we’ve seen a dislocation with large retailers that they had the wrong products in the wrong stores right now because people are shifting their patterns. In response to that, you need data to be able to run your business. And we see data as being sort of the core currency in terms of really being able to understand and act on what’s going on in the business world as being central. It’s no longer you and I having a conversation. It’s an instant left, instant right now. When you have big dislocations, you need to have a data-driven and a data strategy to be able to know what you’re going to be doing.
David Solomon
Yes. So data science is definitely kind of disruptive force that’s having a big impact on the industry and how people think about things. And you could see obviously how your product allows people to really move in the direction of using that very powerfully. What are some of the other disruptive forces that are growing kind of the TAM broadly of the enterprise software market?
Frank Slootman
Well, probably the single biggest one there is compliance and privacy because it makes data sharing impossible. People are not going to run the custody of the data anymore. I was talking to a CIO at a U.S. state, and we’re talking about data sharing between agencies. And they’re like, we can’t do that because each agency is the owner of their data, and they will not part with it.
So you need to have clean room technologies and techniques, which is what Snowflake does to allow disparate parties or even parties inside enterprises to be able to share data. And they need to do that because the sharing of data allows you to create context, allows you to enrich data. That is really what unlocks that predictive potential that data has. If we cannot bring data together, all that goes away. I mean, the bane of our existence has been the siloing and bunkering of data. And it’s just impossible to unlock that potential. So data sharing is really important, but we can’t do it by violating governance and privacy and compliance. In Europe, GDPR, I mean, you run into that all day long as an issue, so.
David Solomon
And so as this issue continues to grow, do you feel very strongly about how well-positioned you are on a relative basis to deal with this issue, to help people deal with this issue?
Frank Slootman
Yes.
David Solomon
Yes. Do you want to elaborate on that at all?
Frank Slootman
Well, we’re in the right place at the right time. We conceived our platform as a data sharing platform. We viewed ourselves as a data orbit, not a static place where you’re pumping data into. Data is always moving. And you’re the center of your data cloud at Goldman, but you have many, many people that you share data with in financial services because of regulatory and clearance and all the reasons. I mean, banks are pumping data around like crazy every night. That triggers all these exposures, right? So they don’t want to do that.
David Solomon
No, no, we’re pumping data around every night with enormous concern, enormous regulatory oversight, enormous – I mean, it’s a huge, huge challenge. It’s a huge, huge challenge. So take a longer-term vision and step out a little bit, and let’s look 5, 7, 10 years. Talk a little bit about the longer-term vision for where you see the company going, where you see the company kind of expanding its focus over time, how you see the story evolving over the next 5 years to 10 years?
Frank Slootman
We started out by disrupting analytics through something I referred to as a Snowflake 1.0. Then we moved on to collaboration, data collaboration sharing. That was Snowflake 2.0, and that is in absolutely full flow right now, especially in financial industries. There’s so much Snowflake around in the financial services industry that it makes nothing but sense for the next institution to be on Snowflake because everybody else is, right? So you get data gravity, and you get data network effect that gets stronger and stronger the more penetrated you become.
But Snowflake 3.0, and we’ve been working on this and made announcements over the last several years, it’s all about driving cloud application development. There’s going to be a whole new generations of applications coming. It is in full alignment with our business model because we have live data. We have great workload execution.
So what we have to do is to allow data applications to be built on Snowflake, right? So you have to be – we have live data. That is a huge advantage relative to anybody else because you want to build a new app, where do I get the data in order to do that, right? Then you need to have the workload characteristics to be able to do that.
David Solomon
Yes.
Frank Slootman
Cloud application development has not been conquered by anybody yet the way it has been, for example, in the mobile side. Mobile, you have iOS, you have Android. But on the cloud side, that hasn’t been conquered yet. Of course, the public cloud companies themselves would like to conquer that, but here comes Snowflake, we’re across all clouds. We have the workload characteristics, and we have the data.
So Snowflake 3.0 is about conquering application development. And that will power our business model perfectly because we’re a consumption model, we drive workloads, we drive revenue. So that’s the method to our madness.
David Solomon
Is this Unistore? Is it technology to Unistore you’re working to cross laterally? Or can you elaborate on that a little bit?
Frank Slootman
Yes. So Unistore expands our pallet of workload capabilities. As I said earlier, we started out with analytics. Unistore now brings the operational/transactional workload characteristics to the platform. When we talk to software companies that want to build on Snowflake, they’re like, yes, this is all great, but I need to be able to create records, delete records, insert records. That’s – those are transactional workload characteristics and said, we don’t want to hang another engine off to the side that does that. It all needs to be on Snowflake. So we’ve been working on this for years. It’s holy grail in a world of data management to be able to do transactional analytical on a single data object. And it’s very, very significant.
David Solomon
This is really what you’ve been talking about since the IPO in terms of really broadening the company’s position.
Frank Slootman
Yes, yes.
David Solomon
Absolutely. So you touched on this a little bit, but I want you to go a little bit deeper. Data governance and security just is growing in massive importance for any enterprise. I know we spent an enormous amount of time on it. Talk a little bit about how you think this is going to improve over time, how Snowflake is positioned with more examples to really improve some of these issues and really serve your customer base broadly.
Frank Slootman
Yes. So data governance, as we just said, it’s all about making sure that you do not violate compliance and the privacy standards. In the moment you start surrendering custody of the data, you put a lot of things at risk because now you basically give data to other people. What are they going to do with it, right?
So our core message to customers is always, look, view the world in terms of your own data class. It’s one place, one orbit, where all your data, your customer, you – it can all come together, so you don’t have to copy and replicate and transfer data anymore because if you don’t have the premise of your own data cloud as a Goldman, that means you’re still pumping data.
We often use this concept of are you moving the work to the data or are you moving the data to the work? Now historically, we have moved data to the work. That’s why we’re pumping data around. We’re saying, no, data stays put. The work comes to the data. Now in order to do that, of course, you need to have the workload execution capabilities. Otherwise, you’re going to say like, well, it’s very nice, but it’s not working.
So it’s very important for us that we enable these workload characteristics. That’s why we have Unistore and things like that. Otherwise, people like Goldman are going to say, okay, that’s not working. I’m going to go over here. Next thing you know, you’re bringing data over there. And now you’re violating your governance standards, and you’re creating exposures for the bank.
David Solomon
Yes, yes. So I mean, it’s clear in a world like this where there’s so much data being generated, so much more is turning to digital that you’ve got an enormous value proposition. You also therefore I would think you’ve just got a good view on what’s going on in the world from a demand side perspective and activity level.
Do you have any observations in this current environment as to kind of current demand environment? How is what’s going on in the world affecting Snowflake’s customers, the way they use the platform? There’s no question we’re tightening economic conditions. Is there anything you see in all of that?
Frank Slootman
We got discussions about the macro all the time. I’m sure it’s on everybody’s mind here in the room. But the macro is like an elephant. It’s a very big animal. And depending on where you touch it, you get a totally different experience. So you and I might touch the same elephant but have a completely different set of signals that we’re getting from our marketplace, right?
We are not getting those signals. And I always tell people, look, I can turn on CNBC and see what they have to say about the macro, but I only react to what our experience is. We’re touching that part of the world. Our world is good. It’s not euphoric.
David Solomon
Yes.
Frank Slootman
But it’s solid. It’s sober, rational, realistic. People are not stopping. They’re not cowering. They’re not sort of jumping under a rock and waiting for it all to be over. So we feel very solid as far as we can see about the demand situation.
David Solomon
Yes, yes. I mean, it’s interesting. I mean, generally, that’s – I can be talking to a number of CEOs across any spectrum, and it wouldn’t be that different. I mean, we were cautious, but demand has still been pretty good. We haven’t managed to slow down demand that much so far. A lot has gone on in the last couple of years since you went public, public right in the middle of the pandemic. The world’s spinning.
There have been a number of challenges. How have you – how is your view of the company and where you want to take the company, how much of a thing is involved in the last couple of years since the company went public?
Frank Slootman
I – many moons ago, I worked – I was a very young man, obviously.
David Solomon
You’re still a young man, Frank. You’re still a young man.
Frank Slootman
I’m working at it. And I have seen the very beginnings of data analytics, how excruciatingly difficult and painful and how primitive it was. And the reason that I was so inspired, I guess the word I would use, by Snowflake because all of a sudden, I’m like, wow, this is not incremental change. This is like these are step functions that are going to unleash a dynamic in terms of data that is just going to power the entire economy. I mean, it’s very hard for me to overstate the sheer scale of innovation that we believe that is in front of us. And that’s a good reason to get out of bed in the morning, because it’s like a popular TV show. You can’t wait for the next year, for the next season to show up, right.
Because I’ll give you a quick example. I’m always very inspired by what’s going on in healthcare. And in healthcare, the large institutions out there, they’re looking at the world and they say, look, through data, we will be able to predict with a certain percentage of accuracy, what disease is somebody will likely to have, right. So in other words, we can be completely predictive and preventative about healthcare, as opposed to we wait till you get sick and then we’ll [indiscernible]
But then also they know what protocols will work relative to that patient with that particular profile. So it changes the entire economics of the healthcare industry, which were in dire need of as a society. And it will be far more effective. We will prevent disease. So it’s longevity, it’s quality of life. These things are absolutely possible with data, right?
In pharma, we see that it takes for – on average, 12 years to bring a drug to market. Well, the life of a patent is 17. You got five years to monetize that patent. Whatever I can knock a year off of that changes the economics of the industry. So everything is redefined now as a data problem because the technology is now enabling data innovations that it never could. We simply did not have the technology to power it. So that’s exciting.
David Solomon
Yes, super exciting. Health care stuff is super exciting. When people ask me what I’m optimistic about, and one of the things I’m super optimistic about is med tech and the evolution of science and progress and really making significant changes here. Data certainly plays a big part in all that.
Frank Slootman
Ironically, hedge funds, and I’m sure there’s plenty of them around here, they’ve been doing this for a long time. They’ve been driving buy and sell signals out of data and said they were actually way ahead of the rest of the world in terms of using data.
David Solomon
No question. No question. So we touched on the macro environment a little bit. They’re big – you’re running a big company. They are big drivers of the macro environment makes you think about. Is there anything going on in the macro environment that’s changing your approach to product development?
Frank Slootman
Not really. Like I said, I often use sailing analogies because that’s one of my personal passion, but I react to what I see on the water. You got to listen to the weather forecast as well. But fundamentally, we’re powering hard, we’ve hired over 1,000 people this year already.
We’re making sizable acquisitions. We give 10-year guidance. Why? Because we don’t want people to pick the fly shit out of the pepper, so to speak, and you have my opaque views of the quarter. But say, look, is your thesis intact over the long period of time. And those are always the questions that we try and answer.
I cannot run a company on a quarterly basis. There are quarterly aspects to it. Fundamentally, almost everything that we do has a much longer time horizon. When you look at P&Ls, most of the money we spend is not related to the current period, right? And sometimes it’s hard to convey that. This is a good audience to do that with.
David Solomon
Yes, absolutely. Well, I can vouch for the fact that quarter-to-quarter is tough. There’s no question, and the world likes to look at now. You touched on hiring. You touched on people. You said you’ve hired 1,000 people. Is there anything going on in the macro environment that’s affecting the way you’re hiring, affecting the process of hiring, more difficult to hire, easier to hire, the same? What’s going on inside of the whole kind of human capital ecosystem?
Frank Slootman
We do a little bit more prioritization, meaning that I used the term drivetrain. I still hire with the same ferocity, people that are very, very closely associated with the drivetrain of the business. It’s building, supporting, selling products, right? If you’re further removed from that drivetrain, I may push out, because I can sort of live a little bit longer, and it makes me feel better. I don’t make the distinction between essential and non-essential because they’re all essential, but the timing may differ. But we’re definitely on drivetrain positions. We’re hiring them now. And it is actually – there is a little bit more ease – the markets have – they’re not as tight as they were. But for certain – for the top talent in the world, markets are still incredibly tight.
David Solomon
Incredibly tight. Yes, incredibly tight, for sure. For sure. Let’s talk a little bit about competition. You’re cloud-agnostic. Talk a little bit about your relationship with hyperscalers and think a little bit about they’ve got their own competing products. So let’s go in that direction and talk a little bit about that.
Frank Slootman
Yes. It can drive you crazy from one day to the next or all within the same day because these people are partners. We are their customers. We’re very large buyers, and we’re also a competitor. So which version you’re dealing with can literally change in the context of a single conversation. Now that said, we’re all adults. We’ve been able to sort of be mature enough to work through that. And our strongest relationship is definitely with Amazon. It’s also 80% of our of our deployments. And they take a very sort of grown up, look at things and say, look, if it’s a $200 billion, $300 billion business, do we really have to get into each others you know what in order to survive? No, we don’t.
And they say, look, we’re going to survive and thrive with Snowflake, just fine. And so that’s true for Amazon. I look at the other spectrum, we have more challenges with Google, they have more of a – sort of a juvenile kind of a mentality. Like I’m going to have to fight you every step of the way. We don’t really think that’s necessary, but that’s just their reality of it. But in fairness to them, at the technical level, the relationship is totally fine. They’re super responsible and responsive to make sure that our shared customers have the correct experiences. Just when you get to the commercial side, people can’t suppress that reflex to give you a run for your money.
David Solomon
What do you believe sets you apart from Google, from Amazon, from Azure, from Redshift, from Synapse, from BigQuery, what sets you apart in the way you approach all this stuff?
Frank Slootman
Well, first of all, and we’re multi-cloud. And this is really important because you can’t create a data cloud on a single cloud platform. Guess what? Data lives everywhere.
David Solomon
It’s everywhere.
Frank Slootman
Yes. If I can’t bring that together, I’m going to be short changing my data science teams sooner or later, probably sooner, right. So that’s number one. Number two is Snowflake was developed with a clean sheet of paper. There was no legacy technology brought to the cloud. And it’s not true for all the others. They all start as with starting points. That’s easier and quicker and cheaper. But what we did was reimagine and reinvent. And that has – that will have – that will pay dividends forever because you’re not sort of held back by the choices that were made 10, 20, 30 years ago.
David Solomon
Sure, sure. So sticking on competition a little bit. Snowflake and Databricks are often compared together. It sounds like you’re moving a little bit into each other’s markets. Talk a little bit about how differentiated you are and how many players can there ultimately be in your space and what you principally do?
Frank Slootman
Well, I mean, it’s inevitable that companies like Snowflake are going to attract competition and funding of competitive ventures. You’re like, hey, we’re not going to let you have it by yourself. That’s just the nature of capitalism. And we – and by the way, I don’t mind it either, because it actually makes us better. We were just sitting there by ourselves, we get lazy and sloppy over time, because we can. So I like the fact to have competition on a level playing field. I’m totally fine with it. But to answer your question more specifically, Databricks comes from a very different background. They really have inherited the mantle of Hadoop and it was sort of one of the attempts at big data analytics, which we feel glaringly failed because Hadoop is being replaced wholesale all over the place.
But there were armies and armies of people that worked on that platform that are now working on certainly on Databricks and the whole Apache stack of open source technologies. It’s a different approach. Our founders said, look, we don’t think Hadoop is the right approach. We were literally conceived as a reaction to Hadoop. So way too technical, way too demanding, way too complicated. It says, we can simplify this. I mean, our founders where people. They thought Oracle was way too complicated and they came to this. We’re not going to have DBAs anymore, database administration. We’re not going to have them. They’re not going to be needed. The system is going to be self-managing, self-provisioning, it’s going to do all these things. All you got to do is turn like an electrical vehicle. You just turn them on, you put it in drive and you go.
So they really wanted to lower the bar for people to be able to do very, very sophisticated things with the platform that is our approach. Now, are there people in the world that want to have an erector set and roll their own? And it’s like every time you want to go for a drive, you’re going to pick an engine. You’re going to pick a pair of tires, our world is not like that. You throw a workload at it just does it, right? So you don’t go through an extensive engineering efforts to tune and optimize that particular workload. So the different world’s views, I would say, and they’re definitely not the same. The other answer I would give you is that Databricks and Snowflake were partners.
And we are de facto still partners in most enterprises around the world. It’s just that they’re ambitions have evolved. So it certainly sets up a future contest. And that’s fine. Because I think for customers, it’s like, hey, you’ve got choices. And I know at Goldman, you will have people that will like to roll your own mentality, but you also have a lot of people that just want to like businesses, they just want to run things. So that’s sort of my global view of that.
David Solomon
Yes. Yes. I’ll move on to leadership. You’ve had multiple successful stints as CEO, Data Domain, ServiceNow. How has kind of your history, how is running other companies shape the way you think about running this company? What have you learned that’s really helped you be more successful here? Talk a little bit about the journey through multiple companies and what comes along.
Frank Slootman
Yes. I’m a pretty simple animal. At least my wife wouldn’t agree with that. But it’s just, look, I come in and I have a maniacal focus on fulfilling the promise that we’ve been handed. I fight distraction all day long. No is my middle name. Anything that helps me get closer to the mission will embrace. Anything that gets me further removed from the mission. We will reject. It’s a very irritating habit for a lot of people also inside our own company, because people are naturally become unfocused over a period of time. They’re a mile wide and inch deep. They’re always piling all more stuff. I’m the opposite. I’m always prioritizing, reprioritizing, taking things off of people’s plate and really ask that question, if the rest of the year, if I couldn’t do anything else, what would I be doing?
I sometimes sit in other people’s Board meetings, not that much anymore, but I used to. CEO will put up the priorities for the year and there’s like 50 things on the slide. I mean, you might as well not have any priorities at that point, right? So being able to bring extreme focus, resourcing and alignment to the mission and every conversation, every meeting, every moment of the day, acting on that and being sort of preoccupied with that is really what has given us a lot of success as people think that we have a silver bullets or a playbook. I don’t have any of those things. We just have an attitude and a mentality. And it’s hard to accept because Americans, they sort of want to extract the algorithm and apply them, proof, here we go. It’s not that simple. It is simple, but it’s hard to act that way every second of the day, that’s sort of how I would sum it up.
David Solomon
Does operating as a public company is make it harder to do that? Does a public company format make it harder to keep that longer term maniacal focus, get distracted on short-term stuff or it’s…
Frank Slootman
I don’t really feel that encumbered by public markets. Many people know on their own, if you don’t like it, you can go buy IBM. We’ll tell you what we’re doing. We’ll give you a long-term view, we hope, you want to sign on for the journey over a long period of time. Those are the kinds of investors we want. But if you want to get out in 90 days and make a bunch of money, I have nothing to tell you. So…
David Solomon
Well, you’ve got just kind of bringing this around to little bit of a conclusion, you’ve got a 2028 target of $10 billion in product revenue for 2028, which obviously makes you – would make you in the league with the largest kind of enterprise software company. So what are the key trends? What’s – what is driving you to believe at this point you have that confidence that you can execute on this.
Frank Slootman
Well, number one is just a sheer scale of the opportunity. I mean, I’ve had people comment that’s not big enough and there is a case to be made for that. Because when you have a market that’s that big, you better be aiming high or you’re going to be falling short. I find it easier to give long-term guidance than short-term guidance.
David Solomon
Sure. Much easier.
Frank Slootman
Yes. Much easier. So we have a highly differentiated product platform. We have a fantastic organization in my view and a massive market. We think that data strategy and enterprises and institutions, the opportunity that will be afforded them in years to come is extraordinary. And it’s exciting for us to get out of bed and be part of that and these conversations and these opportunities. People just light up, right. It’s not just like, oh, same old, same old. I’m just trying to save a couple of bucks. No, it’s about envisioning things that have never been done before.
David Solomon
Yes. Yes. Well, on a longer term perspective, it’s definitely easier to set these longer term goals and set an infrastructure up to driving towards them. Well, look, Frank, I appreciate your time. Appreciate your perspectives. Thanks for being here and sharing with everybody today. So thank you very much.
Frank Slootman
You bet. Thank you.
David Solomon
Appreciate it.
Frank Slootman
Thank you.
Question-and-Answer Session
Q –
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