Business Breakdowns
· Ben Hensman
AI Blocks is the first product that they've launched and it is embedding AI in the columns of the Monday boards that all customers use in really, really simple ways. And in a simple example is if you're ingesting tickets on Monday service or candidate responses in a hiring pipeline, you can use out-of-the-box functions like categorizing that text, extracting, summarizing, translating to quickly triage and move items to the next step of the process. With an automated trigger. You can also dive into the prompting layer, but without too many bells and whistles. It's just a really simple interface where you can create custom columns with natural language, test those, adjust those to eliminate further manual steps, and add a layer of leverage before human intervention. And we've got a taste of how well that's going. So by Q3 last year, they'd seen about 3 million total actions using these AI blocks. That jumped to 10 million in Q4 and then up to 14 million by January. We haven't had any disclosure since, but an incredible growth pace, albeit from a low base, but just shows how straightforward it has been for customers and for partners to adopt this functionality. The second product that they have is AI power-ups. These are sitting on top of each of the core products. A good example within work management is a predictive risk management tool. So I mentioned before McDonald's, they have an overarching dashboard that looks at every area of project and campaign work that they're doing. This predictive risk management tool will sit on top of that and allow managers and operating teams to really quickly understand the health and the risk of all the projects in the organization with deep context, not just into the timelines and whether something's actually running on schedule, but much, much more than that. All of the detail within the boards and surfacing the key issues and the key takeaways. And this has been really helpful for companies like Bloomberg that I mentioned before that have been able to really quickly triage projects across the business. It's been useful on the go-to-market front as well that we were talking about before around top-down selling to executives and really understanding the value that comes from multiple teams driving processes and workflows.
· Ben Hensman
On Monday the 3rd, and I think this is where the greatest potential is and where they will need to run really hard and be competitive, is the AI digital workforce. And that's really just agents, but based on specific functions inside Monday, depending on the use case of the customer. The first of these to launch is Monday Expert that identifies areas of overlap and use cases and different boards. It allows you to use natural language to customize the board, build workflows, automations, and then adjust them purely through a chat interface. And then it can go away and create entirely new use cases for customers and helping with that discoverability and smoothing expansion. What we're going to see in the coming months are sales and service agents that are actually members of your team executing on your behalf to close out a ticket or progress deals through a pipeline in a really trusted way and in a way that you can control. And it's really accessible to customers. So there's clear opportunity there to accelerate all of the factors we've talked about and the flexibility of the platform in solving more problems for customers which can flow through to the financials and success. There's a piece in here about change management and trust which we've written about recently and that's incredibly important, particularly for non-technical customers to really feel that they can trust their use cases for AI. And that's going to be a process to go through. We think Monday is very well placed. Their approach to account management allows them to be very well placed in navigating that. On the risk side, I mentioned the fact that they're a seat-based model today. This means that the value of the product is tied to how many individuals are actually using it as opposed to the specific value. Even though a lot of their pricing and a lot of their pitches to customers are ROI-based. And so there'll be a process to go through over the next five to 10 years depending on how much AI is flowing through the product and how it interfaces with customers. They'll need to move to more of a hybrid model of seats or organization-level pricing and consumption and ROI-based pricing, and that's something that they will have to navigate, as will all existing software players.
· Ben Hensman
One thing that we're excited about is that they're not sitting on a fixed and rigid software model where they are building software to serve an existing and very, very successful business model and product. They're building products on top of a platform of primitives. And Monday Service is a great example of this. It's effectively an AI-native product built with a proactive-first approach to handling internal and external service, rather than an existing service product built in a certain way where they're having to layer in AI in an artificial way. So we're really excited about what that can achieve in terms of cost internally. Monday's always been a very efficient business and a very lean business. I mentioned their approach to development earlier and ensuring that they aren't over-resourcing and getting to feedback really quickly. You see that flow through in other teams. So their starting point is already very efficient and very commercial. But it has been incredible to see the pace that they've executed internally. And their democratization of data over their entire history means that all teams have access to the beating heart of Monday, whatever part of it is relevant to them, whether it's the marketing team, how they interface with external parties, how they interface with other external teams, how customers are using the product. And so their ability to see ROI and test is really enhanced by having that level of data transparency within the organization. So very early days on both the demand side and on how they use it internally. And that's the same for the entire industry. But we think they're making really good progress and we're excited about what's possible.
· Matt Reustle
[00:00:00] S0: Just from the management team, obviously they're making a lot of moves to go along with the wave when you hear them speak. Is AI taking up 50% of the remarks at this point? Or how would you frame it in that regard? In terms of the most extreme, everything is going to be AI-driven versus more prudent and take it one quarter at a time.
· Ben Hensman
[00:00:00] S1: It's an interesting way to frame it. I would frame it slightly differently, which is when Roy and Eran are speaking publicly, especially when they're speaking to customers, they speak very much like their sales teams do, which is talking about solutions and solving customer problems. And so I think where we've seen a lot of success for companies utilizing AI or building products on top of AI is it's still rooted in the customer problem. And I think that's very, very clear for Roy and Eran. It's a real strength of theirs, but at the same time they acknowledge that this will change everything. We haven't had a change in form factor and software for 25 years and AI will potentially enable that to change relatively soon and improve and become far more effective for customers. That's something that we have to lean into and not shy away from, and they're very conscious of that and that flows through to the organization and the way that they use tooling internally, the urgency with which they build product. So that's something that's clearly very front of mind for them and has been in the conversations we've had with them as well. And I think any business that doesn't see how product, customer interactions, customer usage, and internal operations of a company will change over the next five years is going to be really challenged.
· Matt Reustle
[00:00:00] S0: Yeah, it's interesting to hear for such a thematic thing to see how different companies and investor bases are approaching it. I derailed us a bit from the financial discussion. I will have to ask about the gross margin of this business, but because it's a software business, I'm sure it's absolutely outrageous. So if you could just touch quickly on gross margin, operating margin, the beautiful software model is really a miracle from a financial regard. But can you outline a bit about that and any trend lines or dynamics that you think are interesting there?