July 4, 2024

A Multi-Product Case Study 1

In yesterday's brief, I discussed the value of going multi-product with you and shared a definitive six point framework detailing the value of going multi-product.

Before you continue with this brief, I would invite you to read yesterday's brief on which this one will be based.

Alright, now that we're both on the same page, let's walk through a Crowdstrike example, then, depending on how much room we have left before this becomes the opposite of brief (lengthy?), we will turn to a consideration of Datadog, Monday.com, and Axon, all of whom have executed multi-product platform strategies exceptionally well over the last decade and in recent years. These will likely be saved for future installments of this series.

Crowdstrike's Multi-Product Journey

Crowdstrike was founded in 2012, and its initial product was a cloud-native endpoint security product, which protected "end points," i.e., computers, cell phones, and other devices, in an enterprise network and still does to this day.

In the world of software strategy and investing, this is known as a "wedge" product, which Crowdstrike used to wedge itself into the networks and wallets of thousands of enterprises in the 2010s.

Crowdstrike's Total Customer Count Alongside Peer Customer Counts; Still Lots Of Runway For Growth

Once Crowdstrike hadwedged itself into its customers' wallets, it had achieved a significant milestone for its corporate maturation, but the true tests still lay ahead following this initial success.

In order to become the next defining cloud-native platform, Crowdstrike had to demonstrate that it had the culture to build adjacent and likewise compelling products, which it would then upsell to its existing end point customers over time, thereby expanding LTV/CAC, as we discussed in Going Multi-Product. (And as I've noted, LTV/CAC essentially represents a discounted cash flow model, in which CAC is the initial outlay of capital, and the LTV is the future cash flows produced. So expanding LTV directly expands future cash flows, which directly expand the present value of those cash flows, which pushes up on share price.)

And, over the last half decade or so, Crowdstrike has demonstrated a supreme ability for launching new compelling products and selling them into its existing install base.

It's been so successful, in fact, that each of the lines of business that we will review below could be $10B standalone businesses in the public markets unto themselves!

Let's now review the three most prominent multi-product successes Crowdstrike has had in the last half decade or so, all of which have served to expand its runway for growth, its avenues for go to market, and its corporate durability holistically.

Crowdstrike's Cloud Security Offering Grows Gangbusters

I have often discussed this line of business with you, sharing TAM data on X frequently and within our equity research notes discussing S1 and Crowdstrike.

Datadog recently quantified this TAM as follows:

The Cloud Security TAM According To Datadog

And, of course, this TAM rides on the coattails of the overall cloud computing TAM growth, which still has a long, long runway ahead of it.

"We’ve spent a fair bit of time analyzing what we’re seeing, and I’ve spent a good chunk of time myself looking as well, and we like the fundamentals of what we’re seeing in AWS. The new customer pipeline looks strong. The set of ongoing migrations of workloads to AWS is strong. The product innovation and delivery is rapid and compelling. And people sometimes forget that 90-plus percent of global IT spend is still on-premises. If you believe that equation is going to flip, which we do, it’s going to move to the cloud. And having the cloud infrastructure offering with the broadest functionality by a fair bit, the best securing operational performance and the largest partner ecosystem bodes well for us moving forward."

-Andy Jassy, CEO, Amazon Q1 2023 Earnings Call

Datadog Echoes CEO Jassy's Thinking In The Chart Below

Q1'24 Datadog Investor Presentation

In addition to Crowdstrike's Cloud Security business, which could likely fetch $20B as a standalone company, it has also fielded an Identity Security product, which has grown rapidly.

And, lastly, Crowdstrike's Next-Gen SIEM product has been growing at exceptional rates, and this is a product that competes with the likes of Splunk and Datadog.

Taken together, Crowdstrike's multi-product platform strategy serves the company in a number of ways, and, very notably, it serves to expand the company's runway for growth, an illustration of which Crowdstrike shared with investors in the chart below.

Crowdstrike's View Of Its Runway For Growth (Its Target ARR)

It's tough to argue with the company's target ARR here in light of the rate and scale at which its various products currently grow and operate.

And Crowdstrike has tied all of these offerings into one seamless multi-product platform, which we can see below.

Crowdstrike's Multi-Product Platform

***A multi-product platform enhances a business' "embedding or switching costs moat." When a customer only uses Crowdstrike End Point, the decision to rip and replace Crowdstrike may not be that difficult should a new shiny product show up in the future, but, if that same customer use the entire suite illustrated above, it becomes much harder to "rip and replace" Crowdstrike, which is the essential nature of a switching costs/embedding moat.

To close, in this case study, we can see the concrete path to becoming multi-product, and we can see concretely the value it affords a company, e.g., an expanded runway for growth or expanded avenues to go to market.

In future installments of this series, we will consider other notable multi-product platform examples, such as Datadog, Monday.com, or Axon.

Remember to subscribe for free and stay tuned!


L.A. Stevens has not rated Crowdstrike, Axon, and Datadog.

L.A. Stevens has rated SentinelOne and Monday.com a "buy."

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