Atlassian – Teamwork makes the dream work (Part 1)

What does Atlassian do?

There is a decent chance that some readers may have used Jira, Confluence or Trello in their workplace. If those terms do not ring a bell, fret not. They are collaborative work management software owned by Atlassian. Atlassian offers software that helps teams to organise, discuss and complete their work more effectively.

Atlassian was founded in Sydney by college friends Mike Cannon Brookes and Scott Farquhar in 2002. They launched their flagship product, Jira 1.0, which was aimed at helping software teams work better together. Today, the software Atlassian offers have been used by reputable organizations such as Visa, Samsung, and even by NASA where EVERY SINGLE LINE OF CODE involved in sending the Curiosity Rover to explore Mars went through Atlassian’s software! In fact, Atlassian reports on their website that 83% of Fortune 500 companies are users of Atlassian’s software.

What are Atlassian’s Product offerings?

As mentioned earlier, Atlassian started out to help software teams work better. While facilitating the collaboration between developer teams and non-developer teams, non-developer teams gained exposure to Atlassian’s product offerings. Subsequently, use cases extended laterally across user type and vertically within organisations.

Through a mixture of acquisition and organic development, Atlassian currently offers the following products either in the form of Software as a Service (SaaS) or deployed locally as Infrastructure as a Service (IaaS). As Atlassian migrates towards the cloud, it aims to predominantly offer their products in a SaaS format. I will touch more on cloud migration in part 2.

  1. Jira Software – targets software team
  2. Jira Core – targets other business teams
  3. Confluence – content creation and sharing
  4. Trello – capturing and adding structure to fluid, fast forming work for teams
  5. Jira Service Desk – help desk for support services
  6. Opsgenie – incident management
  7. Jira Align – enterprise agile planning
  8. Bitbucket – code sharing and management
  9. Atlassian Access – enterprise-grade security and centralized administration

To find out more about individual products, head over to their 20F form or blog

Atlassian builds their product offerings with the intention that they are easy to use, easy to adopt, and versatile across different use cases. Their software can be integrated and is interoperable with a range of other software platforms such as Microsoft, Zoom, Slack, Workday etc…

How does Atlassian make money?

Atlassian has 4 revenue streams. Subscription revenues are increasingly taking up a larger portion of the revenue pie as Atlassian transits over to a cloud-first business.

  1. Subscription revenues – Fees earned from subscription-based agreements that provide customers with the right to use Atlassian’s software in a SaaS format and term IaaS format (on-premises term license agreement). Term IaaS arrangement provides customers with the right to use Atlassian’s software locally for a specified period of time.
    (58% of Atlassian’s total revenue in FY20)
  2. Maintenance revenues – Fees earned from providing customers with upgrades and technical support for perpetual license products. These represent revenues that tend to be less predictable as upgrades and technical support are on an if and when available basis.
    ( 29% of Atlassian’s total revenue in FY20) 
  3. Perpetual license revenues – Fees earned from providing customers the right to use Atlassian’s software in a perpetual IaaS format. Perpetual license revenues are recognized fully once the customer obtains control of the license
    ( 6% of Atlassian’s total revenue in FY20)
  4. Others – This primarily includes fees earned from sale of third-party apps in the Atlassian Marketplace*.

*Atlassian Marketplace – an online marketplace that features thousands of apps created by a growing global network of independent developers and vendors. The Atlassian Marketplace provides customers a wide range of additional capabilities they use to extend or enhance our products, further increasing the value of our platform. Atlassian derives approximately 25% revenue on each add-on sale

Atlassian’s Guiding Policy

Introduced by Richard Rumelt, author of Good Strategy Bad Strategy, a guiding policy is an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

When investing for the long term, it is important to understand the guiding policy of a company as it acts as “guardrails” on what kind of actions need to be taken when faced with future challenges. A company’s guiding policy is effectively equivalent to an individual’s principles – they are what motivates and shapes our decisions intrinsically.

Going through media reports, interviews, SEC filings, investor materials and Atlassian’s YouTube channel, Atlassian’s guiding policy includes building great products, continuous innovation, long-term results, and teamwork. These pillars serve as the guiding principles for Atlassian to deal with challenges and make decisions.

  1. Building Great Products

Atlassian understands that great products and satisfied users drive word of mouth. Therefore, they are relentlessly focused on measuring and improving user satisfaction as one happy user will beget another. Don’t take it from it, just listen to cofounder Mike when he speaks of Atlassian’s business model.  

  1. Continuous Innovation

Great companies get disrupted when they stop innovating. Atlassian’s unyielding endeavour for innovation is exhibited in their R&D focus to enhance existing products and integrate acquired technologies. Innovation is also evident in their distribution strategy where they obtain data-driven insights, and further automate and streamline their approach to customer acquisition.

  1. Long Term Focus

The management has consistently stressed their emphasis on long term results. They explicitly state in their annual report that given the choice between short-term results and building long-term scale, they would choose the latter. They are highly dedicated towards R&D to drive long term sustainability and product leadership.

 Scott Farquahr on Q4 FY20 earnings call:

We want to be good stewards of capital for the long term, and the time horizon we are comfortable making those investment decisions on doesn’t fit necessarily within a late quarter or a late fiscal year-end.”

Atlassian’s focus on the long term has also been exemplified since the beginning where the company has not taken a dime from VCs to fund operations. It has remained intently focused on growing within its means.

  1. Teamwork

In order to develop products that help teams to work better, Atlassian has to preach what they sell! At the heart of Atlassian culture, they value teamwork highly. Dedication to teamwork is seen everywhere from their stock ticker: TEAM, to their unique co-CEO structure. The notion of teamwork within Atlassian is indeed congruent with their mission.

Atlassian Flywheel

Atlassian’s distribution strategy is an integral component of its business model. Its (then unconventional) bottom up user growth approach layered with an expansion of addressable customer wallet share has been largely responsible for Atlassian’s accomplishments. This user growth, wallet share expansion flywheel effect and its high velocity, low friction distribution model is highly symbiotic, creating a dynamic moving target that is difficult for rivals to emulate.

Now, start paying attention!

Atlassian’s Go to Market Strategy

The core of Atlassian’s strategy is to acquire customers as quickly and efficiently as possible. It aims to do so with the following:

  • Build great products that offer high value to users
  • Low pricing and free trials to drive user adoption globally
  • Cultivate an ecosystem to encourage retention
  • Strategically expand product offerings via thoughtful acquisitions / R&D to broaden customer base and wallet share

How Atlassian distributes

Atlassian has done away with the traditional enterprise go-to-market strategy which involves long, high-stakes, and expensive relationship driven sales cycles.

Instead, they adopt a high velocity, low friction word of mouth distribution strategy. Distribution is primarily done online where it is highly automated, and the pricing structure is transparent. This makes it easy for users to sign up.

Once a team within an organization has embraced Atlassian’s products, Atlassian relies on a “land and expand” strategy to scale laterally across use cases and vertically within an organization.

For example, Audi initially used Jira as a simple issue tracker among engineering teams. Fast forward to today, Audi uses Jira to collect thousands of feature requirements. They also leverage on Confluence and marketplace apps for sharing knowledge documentation, department protocols, meeting notes, and policies.

Low pricing, ease of adoption, relentless focus on building great products and building a community of user fanbase through Atlassian Community Events (ACE), drives trial and adoption of Atlassian’s products, fuelling the organic distribution process.

Putting it all together – User Growth, Wallet Share Expansion Flywheel and Distribution

It all begins with Atlassian’s core belief that great product sells itself. Great products get users talking about them, therefore, Atlassian has opted to rely on word-of-mouth and “land and expand” strategy to grow its user base.

Distributing online through a self-service concept also enables customers to sign up with ease (High velocity, low friction distribution). Without an expensive commission-based sales force, lowered customer acquisition costs help to keep pricing affordable, propelling user adoption.

Furthermore, freed up resources can be channelled into R&D activities to develop new features or acquire synergistic software. This unlocks a new wallet share segment within the same customer for a new opportunity, allowing Atlassian to continue to fuel the flywheel momentum of user growth and wallet share expansion.

Flywheel in action

After executing the first growth and wallet share expansion cycle on Jira and Confluence, Atlassian continued to drive this momentum by acquiring Cenqua, which made three developer tools—Fisheye, Crucible, and Clover. The functionalities in those tools such as code review was greatly valuable to developers. It filled the gaps in Atlassian’s product offerings and were a great strategic fit.

Since then, increasing user spend, high R&D investments, low S&M costs, healthy FCF, and inorganic acquisitions of Trello, HipChat, OpsGenie, AgileCraft are signs that Atlassian continues to thrive off the flywheel momentum.

Stay tuned for Part 2 where I will be discussing about Atlassian’s top Priority, the Management as well as Financials!

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