Business Breakdowns
· Matt Reustle, Alan Tu
[00:00:00] S0: Yeah, I think those things are very hard to measure, but you certainly can appreciate them sometimes more after the fact. And I certainly just give companies bonus points when they're having fun while doing this execution. There's something that just seems to matter to me. It shows a willingness to enjoy the aspect of business and competition and whatnot. [00:00:00] S1: There's a certain amount of fun, and I don't know if they would use these words, but I feel like irreverence in terms of, I think this ties back to the founding heritage and DNA where it's, "Look, let's have an opinion about where the world is going." I think as an investor, if you go back to the early bets, they would tell you, "These are the three bets that we're making. We're making a bet that cloud will be big, data will be big, open source will be a good way to build a business, or at least build adoption." And here it was, "We think that the Lakehouse will be big, and we think that this is where the world should go. We think that this will help customers, and we are going to bet behind that." It just makes it very clear that if you're betting on Databricks, you're betting on this future state of the world. And I find that sometimes with companies that try to have it all, they say, "Oh, we'll be good here, we'll be good there." But the reality is that that detracts from your ability to execute in a way that Databricks did with something like the Lakehouse.
· Matt Reustle, Alan Tu
[00:00:00] S0: I think things like first principles can get thrown around a lot, but in preparation for this, watching, reading a lot of things that Alan has done in terms of interviews, it checks out in terms of the approach. And there's a certain clarity to the academic world and being born out of that in terms of understanding exactly what you're doing, that focus, having that clarity in terms of why you're going after things, which I think can sometimes get drowned out by some of the other baggage that comes with academia, but putting that aside. [00:00:00] S1: Well, I would also say that, I guess a different way of describing this is that Databricks is helping to lead the industry to where they think the industry should go. They identify where the pain points are, and they come up with a solution that they think makes sense, as opposed to looking at an existing market and just saying, "Okay, well we can do a 'me too' product just for the sake of expanding our TAM." What I've found is one of the underlying things that Databricks does a really good job of is recognizing true value creation as opposed to just monetizing and revenue growth, if that makes sense.
· Alan Tu, Matt Reustle
[00:00:00] S1: Well, I would also say that, I guess a different way of describing this is that Databricks is helping to lead the industry to where they think the industry should go. They identify where the pain points are, and they come up with a solution that they think makes sense, as opposed to looking at an existing market and just saying, "Okay, well we can do a 'me too' product just for the sake of expanding our TAM." What I've found is one of the underlying things that Databricks does a really good job of is recognizing true value creation as opposed to just monetizing and revenue growth, if that makes sense. [00:00:00] S0: It's based on customer challenges, but also having a predictive view in terms of what's going to happen in the future. There's a little Steve Jobs thing about designing for what the customer doesn't necessarily know what they need yet in there, not to draw too hard on analogies. On the point on market expansion, TAMs, all of that, when it comes to both Databricks and Snowflake, both are relatively young businesses. Were they replacing industry incumbents? Was it all new market creation? How would you describe the TAM that exists relative to what it was, whether it's prior to cloud or even within the cloud and using some of the incumbents?
· Alan Tu
[00:00:00] S1: Going back to the starting points of Databricks and Snowflake, Snowflake was really the next-gen cloud version of the data warehouse, which was a market that did exist. In the case of Databricks, it would have been that data lake market, but that had never been as well established for basically lack of good enough technology. There had been a lot of attempts at creating data lake companies. There was a technology that predated Spark called Hadoop, and there were companies that were built on top of Hadoop like Cloudera that went public at one point, but the problem there was just that, simplistically, the technology wasn't good enough. So, to your question of TAM, I think the market technically existed, but there was this period, people forget, in the early 2010s when "big data" was a very sexy topic. And there was a period where companies had the recognition, or at least the inkling, that data was valuable. There was a whole period of a number of years where companies were storing a lot of data, volumes and volumes of data, with this underlying view that, "We should be doing that because big data, why not?" But the reality was that there was, in Gartner's term, a very hard "trough of disillusionment" where it was, "Okay, now we've stored all this data, what are we going to do with it?" And turns out, it's very difficult to get anything out of it. And so, that's what again, going back to Databricks' core value proposition, it was really solving that problem. And that was massively TAM expansionary.
· Matt Reustle, Alan Tu
[00:00:00] S0: Yeah, that makes a lot of sense. And "data being the new oil," I think there's certainly some truth to it, but there's also this massive challenge of understanding that, "This probably has value, but how do we unlock that value and do something with it?" [00:00:00] S1: Exactly. [00:00:00] S0: And that being a problem they solved is quite interesting. I want to get a little granular just in terms of a use case so I truly understand what is going on, to the extent that you can answer this. One of the examples that I saw presented is: I make a credit card transaction. All of this data is flowing through the pipes of my credit card company, maybe my bank. Databricks is involved in that. And if they see I make a transaction with a non-traditional vendor, it's for a very large amount, and it's in a country that I never make transactions with before, I can get a fraud alert. And from my understanding, is that flows through the Databricks pipes to some extent, just in terms of managing all the variables at play that would cause a fraud detection. In that example, how does it work with Databricks actually having the ability to make the decision on the behalf of the credit card company to send me that fraud alert versus them presenting this alert back to the company and coming back to me? It paints an interesting picture of how ingrained they are in terms of with their customers. And I know it's going to differ by use case, but can you talk a little bit about that?
· Alan Tu
[00:00:00] S1: Sure. For any given credit card company, the implementation might be different than another. But to bring your use case to life, it is very accurate to think about that core value proposition that Databricks provides, which is that you can imagine the amount of data that goes into making a decision of whether or not a transaction is worthy of a fraud alert. There's a tremendous amount of input that can go into that. And there's probably never enough; you could always add more data to that analysis. And that hits on the core thing that Databricks provides, which is the pipelines to bring in all that data, process that data because all the different types of data are going to be in different formats, and feed that into a machine learning model that gets fine-tuned by the data scientists and tweaked and will constantly be updated based off of the facts on the ground and the empirical data of also evaluating these models: are they actually accurate after the fact? And then tweaking those models again. All of that is core Databricks value proposition. Now, once Databricks helps a company come to that decision, who is actually sending the fraud alert. Again, there can be different architectures here, but typically, companies will build another application that actually takes the action, and the model output from Databricks will inform that action, is maybe a classic way to think about the architecture.