5 ms·

Love the spin the media is putting on Twilio's earnings call. Uber load balances its traffic across multiple providers. Moving their traffic off Twilio shouldn'

Love the spin the media is putting on Twilio's earnings call. Uber load balances its traffic across multiple providers. Moving their traffic off Twilio shouldn't be seen as a signal that they're distancing themselves from Twilio. Twilio has a model that's hard to predict long-term revenue. This will continue until they figure out how to get more high value companies to sign contracts.

paulsutter 9y ago
So you're saying they're a commodity offering with no customer lock-in?
- josh_carterPDX 9y ago
  They're a SaaS play with no lock-in. Which is great for businesses who want to use Twilio on a small scale then grow strategically. Sucks for Twilio because they want to have as much predictable revenue as possible.
  - ithinkinstereo 9y ago
    I disagree about the no lock-in. Twilio just works. You can set it up and then forget about it, which I think is very appealing to the SMB market. The hassle of moving off Twilio likely outweighs the cost savings. So LTV is prob high and churn pretty low. As long as they can grow accounts, (which they are doing and the pace is accelerating), I think they'll be fine.
    - mooreds 9y ago
      I think they are just like stripe. When you get to a certain volume you start to do the cost benefit analysis of moving off the saas provider. Until then they are the first choice for a large portion of the developer population. After that, it's just a numbers game: will it cost more to redevelop the functionality they provide (either on your own or with another vendor) than you will save over a reasonable timeframe? If the answer is yes, you keep paying twilio, otherwise out migrate. I have no first hand experience on what size makes sense for twilio, but this article gives us an upper bound (a huge one, to be sure).
    - tyingq 9y ago
      I think there is a "no lock in" problem, depending on what their customers are using them for. One of Twilio's upstream providers, bandwidth.com, released their own api, and is undercutting them on pricing: https://www.bandwidth.com/pricing/ https://www.bandwidth.com/pricing/
- user5994461 9y ago
  I'll venture on the aggressive side and say they are even less than a commodity. Communication companies like these are inherently highly competitive. Each one only cover some part of the world (for instance, SMS to USA and canada). When you have a big company operating in multiple continents, like Uber, you MUST have multiple service providers to cover all your customers (and it will also come with costs savings so you really have maximum incentive to diversify). Once you have diversified to 3+ providers, you mastered the abstraction good enough to plug them in and out. The next logical step is to take advantage of that to put providers in a same zone in competition with each other.
  - matt4077 9y ago
    Twilio offers numbers for something like 60 countries, as well as cross-border sms and calls. And the interchangeable nature of their business is pretty much the definition of a commodity.
zzalpha 9y ago
This will continue until they figure out how to get more high value companies to sign contracts. So they can further concentrate their revenues? I'm sorry, no, that's exactly the worst thing they can do. I'll refer you to this piece: https://www.inc.com/magazine/201206/jason-fried/huge-accounts-make-me-nervous-it-takes-a-village.html https://www.inc.com/magazine/201206/jason-fried/huge-account... As mentioned in the TechCrunch article, this is precisely Twilio's problem. Revenue concentration is incredibly dangerous for long-term prospects of any operating business. Twilio needs to broaden their revenue base to stabilize it, not find a few more whales that will dictate their future.
- sologoub 9y ago
  Twilio's concentration problem is different from their volatility problem with these big players if there isn't a long-term contract with minimums in place. The revenue concentration problem is well documented and I don't think we add much to that discussion. The revenue volatility problem is inherent to how short-lived their actual product is - SMS and phone calls are ephemeral, measured in seconds to minutes. As the result, without contracts, the only thing that is stopping the outbound traffic from flip flopping providers are some business rules baked into the implementation. (Inbound traffic has phone number lock-in, which is why we don't change cell providers on a weekly basis.) For Uber, that business logic is pretty straightforward on their largest volume SMS, making multi-vendor flip flop based on rates fairly easy. Long term contracts with guaranteed minimums will absolutely protect Twilio from this volatility. It's not lock-in or concentration, but rather way to have more predictable revenues and manage working capital. In parallel to trying to get long term contracts/guaranteed mins, Twilio should be (and is) diversifying their customer base.
- dkrich 9y ago
  Problem is that it's the whales that make them a $3 billion company. Snag one Uber or Facebook and that's worth about a million small SaaS companies (I actually don't think that's an exaggeration). Yes, if they leave you're in deep trouble, but that's the business they're in. To acquire the number of smaller companies that would account for the number of SMS messages that Whatsapp sends would require so much time I think this stock would trade to zero long before that would ever happen, if it were even possible to do.

paulsutter 9y ago

So you're saying they're a commodity offering with no customer lock-in?

josh_carterPDX 9y ago
They're a SaaS play with no lock-in. Which is great for businesses who want to use Twilio on a small scale then grow strategically. Sucks for Twilio because they want to have as much predictable revenue as possible.
- ithinkinstereo 9y ago
  I disagree about the no lock-in. Twilio just works. You can set it up and then forget about it, which I think is very appealing to the SMB market. The hassle of moving off Twilio likely outweighs the cost savings. So LTV is prob high and churn pretty low. As long as they can grow accounts, (which they are doing and the pace is accelerating), I think they'll be fine.
  - mooreds 9y ago
    I think they are just like stripe. When you get to a certain volume you start to do the cost benefit analysis of moving off the saas provider. Until then they are the first choice for a large portion of the developer population. After that, it's just a numbers game: will it cost more to redevelop the functionality they provide (either on your own or with another vendor) than you will save over a reasonable timeframe? If the answer is yes, you keep paying twilio, otherwise out migrate. I have no first hand experience on what size makes sense for twilio, but this article gives us an upper bound (a huge one, to be sure).
  - tyingq 9y ago
    I think there is a "no lock in" problem, depending on what their customers are using them for. One of Twilio's upstream providers, bandwidth.com, released their own api, and is undercutting them on pricing: https://www.bandwidth.com/pricing/ https://www.bandwidth.com/pricing/
user5994461 9y ago
I'll venture on the aggressive side and say they are even less than a commodity. Communication companies like these are inherently highly competitive. Each one only cover some part of the world (for instance, SMS to USA and canada). When you have a big company operating in multiple continents, like Uber, you MUST have multiple service providers to cover all your customers (and it will also come with costs savings so you really have maximum incentive to diversify). Once you have diversified to 3+ providers, you mastered the abstraction good enough to plug them in and out. The next logical step is to take advantage of that to put providers in a same zone in competition with each other.
- matt4077 9y ago
  Twilio offers numbers for something like 60 countries, as well as cross-border sms and calls. And the interchangeable nature of their business is pretty much the definition of a commodity.

zzalpha 9y ago

This will continue until they figure out how to get more high value companies to sign contracts. So they can further concentrate their revenues? I'm sorry, no, that's exactly the worst thing they can do. I'll refer you to this piece: https://www.inc.com/magazine/201206/jason-fried/huge-accounts-make-me-nervous-it-takes-a-village.html https://www.inc.com/magazine/201206/jason-fried/huge-account... As mentioned in the TechCrunch article, this is precisely Twilio's problem. Revenue concentration is incredibly dangerous for long-term prospects of any operating business. Twilio needs to broaden their revenue base to stabilize it, not find a few more whales that will dictate their future.

sologoub 9y ago
Twilio's concentration problem is different from their volatility problem with these big players if there isn't a long-term contract with minimums in place. The revenue concentration problem is well documented and I don't think we add much to that discussion. The revenue volatility problem is inherent to how short-lived their actual product is - SMS and phone calls are ephemeral, measured in seconds to minutes. As the result, without contracts, the only thing that is stopping the outbound traffic from flip flopping providers are some business rules baked into the implementation. (Inbound traffic has phone number lock-in, which is why we don't change cell providers on a weekly basis.) For Uber, that business logic is pretty straightforward on their largest volume SMS, making multi-vendor flip flop based on rates fairly easy. Long term contracts with guaranteed minimums will absolutely protect Twilio from this volatility. It's not lock-in or concentration, but rather way to have more predictable revenues and manage working capital. In parallel to trying to get long term contracts/guaranteed mins, Twilio should be (and is) diversifying their customer base.
dkrich 9y ago
Problem is that it's the whales that make them a $3 billion company. Snag one Uber or Facebook and that's worth about a million small SaaS companies (I actually don't think that's an exaggeration). Yes, if they leave you're in deep trouble, but that's the business they're in. To acquire the number of smaller companies that would account for the number of SMS messages that Whatsapp sends would require so much time I think this stock would trade to zero long before that would ever happen, if it were even possible to do.