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Obviously this wasn't about revenue! A sane valuation is 2x-10x revenue, so their bet is that this quickly can be turned into something that generates $30m a y

Obviously this wasn't about revenue! A sane valuation is 2x-10x revenue, so their bet is that this quickly can be turned into something that generates $30m a year. You could think about this as incremental to a business with $400mm a year in revenue: are there enough people using Trello that, with a few points of integration, could be convinced to switch to Atlassian products? You'd "only" need to add 10% to your growth for this year to feel like this is worth it. Realistically, this is probably more of a strategic play. Atlassian wants to own the development workflow, and Trello is one of only a couple players in this space that are entrenched enough to be attractive. If you assume the market for dev tools is $100b (think total value of Github's market + Slack's market + StatusPage's + ...), buying a dominant market share in one of ~10 major products for half a billion isn't crazy. As Trello-type tools move from "a good way to interact with the business" to "crucial for all development teams", this may just be a way to keep themselves from dying. Success is merely being a player in this space.

pavlov 10y ago
Some have found the opposite. In the recently published RethinkDB postmortem [1], the founder suggests that the dev tools market is inherently unattractive for startups: "Unfortunately you’re not in the market you think you’re in – you’re in the market your users think you’re in. And our users clearly thought of us as an open-source developer tools company, because that’s what we really were. Which turned out to be very unfortunate, because the open-source developer tools market is one of the worst markets one could possibly end up in. Thousands of people used RethinkDB, often in business contexts, but most were willing to pay less for the lifetime of usage than the price of a single Starbucks coffee (which is to say, they weren’t willing to pay anything at all). "This wasn’t because the product was so good people didn’t need to pay for support, or because developers don’t control budgets, or because of failure of capitalism. The answer is basic microeconomics. Developers love building developer tools, often for free. So while there is massive demand, the supply vastly outstrips it. This drives the number of alternatives up, and the prices down to zero. "To see how this plays out for other companies consider MongoDB (valued at roughly $1.6B with ~700 employees), and Docker (valued at roughly $1B with ~300 employees). Both companies completely dominate in their respective markets. Two very rough rules of thumb for private growth stage technology companies is that valuations are a 10x multiple of annual revenue, and that revenue per employee is around $200K/year. Which means that MongoDB’s annual revenue is around $140-$160M, and Docker’s annual revenue is around $60-$100M. "That looks pretty good, until you look at dominant B2B technology companies in markets that aren’t developer tools. Companies like SalesForce, or Palantir, or Box (which faces stiff competition). All of a sudden MongoDB and Docker start looking tiny." [1] http://www.defstartup.org/2017/01/18/why-rethinkdb-failed.html http://www.defstartup.org/2017/01/18/why-rethinkdb-failed.ht...
- trjordan 10y ago
  I don't actually disagree with that post-mortem. Databases (and similarly, SDKs, widget libraries, and all other sorts of code-only deliverables) are rough to monetize, precisely for the reason that the RethinkDB founders believe. In addition, if you need some capability to build your product, purchasing it always means buying more capability than you need and doing more integration work than you thought you would have to. On the other hand, workflow tools, especially if hosted, do really well and get to charge money. Jira, Github, New Relic, PagerDuty, and if you stretch it far enough, AWS do a rocking business selling to developers, because (imho) they are tied to the business process of delivering a product, not the developer need to build things. The market for selling to developers is huge, because the market for things created by developers is huge and developers are expensive to hire. You can't sell just anything because of the supply problems cited above, and I think Trello's user base is the big story here that RethinkDB didn't have.
  - pavlov 10y ago
    Good points, thanks! It's interesting to consider that PagerDuty is a developer product that can be successfully monetized whereas RethinkDB isn't. This runs counter to developers' own assumptions about what are the "hard" (and therefore presumed valuable) problems. Maybe a rule of thumb: If you can come up with a developer product that solves a need but is not technically interesting for developers themselves to build, you might have a winner.
petercooper 10y ago
I have to wonder if Trello and Slack are really that dependent on developers. I'd assumed the majority of both's businesses would now be the larger business market - it's the way companies of that type seem to be moving lately.
- trjordan 10y ago
  It's a good question. I mostly know it from that context, but a disproportionate number of my acquaintances are developers.

pavlov 10y ago

Some have found the opposite. In the recently published RethinkDB postmortem [1], the founder suggests that the dev tools market is inherently unattractive for startups: "Unfortunately you’re not in the market you think you’re in – you’re in the market your users think you’re in. And our users clearly thought of us as an open-source developer tools company, because that’s what we really were. Which turned out to be very unfortunate, because the open-source developer tools market is one of the worst markets one could possibly end up in. Thousands of people used RethinkDB, often in business contexts, but most were willing to pay less for the lifetime of usage than the price of a single Starbucks coffee (which is to say, they weren’t willing to pay anything at all). "This wasn’t because the product was so good people didn’t need to pay for support, or because developers don’t control budgets, or because of failure of capitalism. The answer is basic microeconomics. Developers love building developer tools, often for free. So while there is massive demand, the supply vastly outstrips it. This drives the number of alternatives up, and the prices down to zero. "To see how this plays out for other companies consider MongoDB (valued at roughly $1.6B with ~700 employees), and Docker (valued at roughly $1B with ~300 employees). Both companies completely dominate in their respective markets. Two very rough rules of thumb for private growth stage technology companies is that valuations are a 10x multiple of annual revenue, and that revenue per employee is around $200K/year. Which means that MongoDB’s annual revenue is around $140-$160M, and Docker’s annual revenue is around $60-$100M. "That looks pretty good, until you look at dominant B2B technology companies in markets that aren’t developer tools. Companies like SalesForce, or Palantir, or Box (which faces stiff competition). All of a sudden MongoDB and Docker start looking tiny." [1] http://www.defstartup.org/2017/01/18/why-rethinkdb-failed.html http://www.defstartup.org/2017/01/18/why-rethinkdb-failed.ht...

trjordan 10y ago
I don't actually disagree with that post-mortem. Databases (and similarly, SDKs, widget libraries, and all other sorts of code-only deliverables) are rough to monetize, precisely for the reason that the RethinkDB founders believe. In addition, if you need some capability to build your product, purchasing it always means buying more capability than you need and doing more integration work than you thought you would have to. On the other hand, workflow tools, especially if hosted, do really well and get to charge money. Jira, Github, New Relic, PagerDuty, and if you stretch it far enough, AWS do a rocking business selling to developers, because (imho) they are tied to the business process of delivering a product, not the developer need to build things. The market for selling to developers is huge, because the market for things created by developers is huge and developers are expensive to hire. You can't sell just anything because of the supply problems cited above, and I think Trello's user base is the big story here that RethinkDB didn't have.
- pavlov 10y ago
  Good points, thanks! It's interesting to consider that PagerDuty is a developer product that can be successfully monetized whereas RethinkDB isn't. This runs counter to developers' own assumptions about what are the "hard" (and therefore presumed valuable) problems. Maybe a rule of thumb: If you can come up with a developer product that solves a need but is not technically interesting for developers themselves to build, you might have a winner.

petercooper 10y ago

I have to wonder if Trello and Slack are really that dependent on developers. I'd assumed the majority of both's businesses would now be the larger business market - it's the way companies of that type seem to be moving lately.

trjordan 10y ago
It's a good question. I mostly know it from that context, but a disproportionate number of my acquaintances are developers.