Business Breakdowns
· Sam Eden, Matt Reustle
You can quickly query an open-source model for text generation, image generation, voice, or enterprise customers can deploy their own custom LLMs as well. And again, that gets propagated across their single global network. The AI inference from Cloudflare can be done really quickly at the edge. And as I mentioned before, Cloudflare Workers are really quick at spinning up and spinning down. So unlike, say, a hyperscaler, you don't have to pre-book or pre-provision capacity. You only use for what you pay for. If an inference is small and you don't use it for a day, you're not going to pay anything. So it only charges you directly on the AI inference that you use. [00:00:00] S0: It feels like a key layer of infrastructure. So you could see them on all sides of the market. Thinking about how they transitioned, you mentioned they got to a point where their offering was on par and then eventually better than what incumbents and legacy providers were offering. Can you talk about what that looks like? Because I imagine they broke into the enterprise market over time – what that looked like, how they approach it, some of the nuance to what it looks like to have an enterprise contract.
· Sam Eden
[00:00:00] S1: This is an ongoing evolution, their go-to-market changes. Three things I'll call out. One is just the general enterprise sales motion. The partner motion, which is really important to understand. And then their Pool of Funds bundling strategy. So the first go-to-market evolution was the enterprise sales. This is just a typical transformation from product-led sales to enterprise sales. And the product capabilities were there, but it's still a new go-to-market muscle. And across all companies, this is never an easy transition. Particularly as you're moving into security as well. It's a new buyer for them. Instead of just an IT administrator that is looking over the website, you're now selling to the whole security office. It could be a multiple-month process. So they had to build this new go-to-market muscle out. So in 2023, they actually saw their rep productivity start to drop, and they had to let go a lot of their sales team. But in 2024, they brought in a new president of revenue, Mark Anderson. He's incredibly experienced. He was formerly president of sales for Palo Alto Networks, CEO of Alteryx. So he has this deep experience with enterprise sales. This transformation – they're hiring a lot more reps. They've switched from hiring majority mid-market reps to now hiring a majority of enterprise reps. And they're still keeping this product-led growth because it's so important to their story. But now they're really increasing their sales-led growth motion. There's still ongoing transformation, but quick quantitative proof that we're starting to see is that the growth of revenue from large customers has started to inflect. It was around 30%, and now it's starting to inflect up to 40% year over year. It's a really impressive transformation.
· Matt Reustle, Sam Eden
[00:00:00] S0: How big of a chunk of the business is it today? [00:00:00] S1: If you look at customers over $100,000 in revenue, they're less than 1.5% of the actual customer base, but they contribute to about 75% of the revenue. It's very important to get this segment right. There's a long runway to that segment as well. They're at a bit over $2 billion of annualized revenue. With that, they have a bit less than 200 customers that are over $1 million. If you compare that to Zscaler, when they were at that same size, that $2 billion run rate, they had almost 500 customers with that $1 million revenue. So it highlights that runway that they have at that very large enterprise end, and the go-to-market transformation is a big part of that. [00:00:00] S0: How much stickiness is there, both from a perspective of keeping customers, but also being able to win share from some of the competition? Are there long-term contracts that are in place? Is there a major friction associated with ripping out old infrastructure and implementing new? Seems like they've been able to gain market share, but how much goes into that and what are some of the unique dynamics there?
· Matt Reustle, Sam Eden
[00:00:00] S0: How much stickiness is there, both from a perspective of keeping customers, but also being able to win share from some of the competition? Are there long-term contracts that are in place? Is there a major friction associated with ripping out old infrastructure and implementing new? Seems like they've been able to gain market share, but how much goes into that and what are some of the unique dynamics there? [00:00:00] S1: It's definitely a sticky product, because if you have all your web and security set up, it would take a lot to migrate from that, and a lot of convincing to do to migrate away from such a powerful network. So there is definitely a stickiness involved. And one way to look at that is their net revenue retention over the years. It's always been above 110%. In the last few years, it has dipped a little to 112%, in the last few quarters. But with a lot of their other efforts, which is the Pool of Funds recent initiative, that's been starting to inflect. And their latest quarter, or Q3 2025, that re-accelerated up to 119%. So going from 112% up to 119% of expansion of existing customers is a significant re-acceleration. And obviously, their product's important, but some of this go-to-market contracting is really important as well. [00:00:00] S0: I want to get to the partner strategy, but you mentioned the Pool of Funds and how that might link to that re-acceleration. Can you describe that?
· Sam Eden
[00:00:00] S1: We've spoken about the three different products – the web security, the corporate security, and then the developer platform. We also spoke that it can be quite separate. What that meant is you could have three different buyers, and you could have a company that were using each of the three different product groups, but not necessarily talking to each other. There was a bit too much friction for what should be a smoother process for working on a single platform. So that's why they introduced Pool of Funds. This is a bundling method. And it's also – as it sounds, it's a pool of funds that large customers can draw down from. What's really important with this is that you can draw it down from any product. So this really encourages experimentation and adoption of some of their newer products. These are multiple year commitments as well. This is their top enterprise customers. And they recently signed a $130 million five-year contract. So these are big contracts. But what it means is if you plan to say, use 80% of these Pool of Funds on say, Act 1, you still have a little capacity and flexibility to experiment and try out a few of these Workers products. You'll see that they work at an enterprise scale. And that just encourages the adoption there. It's still a fairly new initiative – it rolled out in 2024 – but it's already up to low double digits of their total annual contract value. A quick metric to show that this is working is that this puts a lot of focus on RPO, the remaining performance obligations. That's been growing around 40% year over year through 2025. So there's very high growth at this scale. And these Pool of Funds are contributing to that. And I mentioned before that it's starting to accelerate the net revenue retention as well. Obviously, not all from Pool of Funds because it's still new, but it's a contributing factor as well.
· Matt Reustle, Sam Eden
[00:00:00] S0: It's a really interesting strategy. You look at all these different businesses that have complementary products, but oftentimes we glance over that you have different divisions that are buying them, different customers. And what seems complementary gets bogged down in frictions associated with that, and you don't get the synergistic effect that you should. I'm sure it exists elsewhere in terms of this type of approach, pooling funds, but that's quite notable. On the partner strategy, which I skipped over, but you referenced before, what does that buyer base look like? What does that strategy look like? And when did that come into play? [00:00:00] S1: So the channel partner strategy, it's really important for their Act 2, which is their internal security products, because the buyers often go through channel partners. These channel partners, they often have a preferred vendor list. So the relationships with these partners – and these could be consultants, system integrators – if you're not on their preferred vendor list, it makes the sale a lot harder. [00:00:00] S0: Would it be like WordPress might have Cloudflare?