Hello and welcome to Protocol Enterprise! Today: how Cloudflare plans to make good on a promise to quintuple revenue over the next five years, how Kai-Fu Lee got caught in the middle of rising nationalism in both the U.S. and China, and the latest venture capital funding rounds to hit enterprise tech startups.
Cloudflare's inflection point
With the economic environment getting dicier, Cloudflare co-founder and CEO Matthew Prince wants to keep the focus on the longer-term opportunity for his company as it doubles down on fast-growing product areas, such as developer services and zero-trust security .
- Cloudflare hit a $1 billion annual revenue run rate during the last quarter, a milestone that Prince suggested marks the start of the company's next chapter.
- Regardless of the current economic conditions, “we can get to $5 billion of revenue in the next five years with the products that are in-market today," he said during the company’s quarterly call on Thursday.
- Cloudflare is "on track" to pull off that feat, wrote Cowen’s Shaul Eyal in a note to investors. "The company is executing well, in our view, and believes it has penetrated less than 1% of a $115B market for its existing portfolio.”
Crucially, Cloudflare’s projected growth is not dependent on acquisitions or on taking significant share from the cloud hyperscalers such as AWS, Microsoft Azure, and Google Cloud, according to Prince.
- "Our strategy is not to completely recreate every single thing that the hyperscalers do," he said.
- Instead, the company is looking to pick areas where it makes sense to compete in terms of developer services, like on object storage with the Cloudflare R2 service . "The hyperscalers don't have to fail for us to succeed,” Prince said.
- Object storage is a sensible area for Cloudflare, he said, because the company can leverage its global network to offer low-latency storage for applications at a cheaper price than the competition.
- Likewise, on zero-trust security services, Cloudflare can utilize its network to help ensure that only legitimate users are able to access corporate applications and data, according to the company.
Still, shareholders are rarely known for taking the long-term view, and they’ve been more concerned with current economic challenges to Cloudflare’s business.
- Cloudflare's stock price has plunged 22% in the days since the third-quarter report, closing today at $39.03 a share.
- "The slowdown in the economy … is starting to show up on our top-line revenue numbers," Prince acknowledged during the call Thursday.
- Going forward, Cloudflare will continue to focus on using its broad portfolio of products to its advantage, Prince said, with the tried-and-true "land and expand" strategy of getting a foothold into an enterprise with one product and then expanding over time.
- Cloudflare now counts 32% of Fortune 500 enterprises as customers, and "I see a clear path to nearly every Fortune 500 company using us for something in the next five years," he said.
A MESSAGE FROM CAPITAL ONE SOFTWARE
As companies scale in the cloud, they face new data management challenges. Watch our webinar to hear Capital One and Snowflake experts discuss operationalizing data mesh, and learn how Capital One approached scaling its data ecosystem.
Why Kai-Fu Lee’s AI message backfired
Kai-Fu Lee spent decades as a technologist and businessman trying to bind AI businesses in the U.S and China. Now the legendary AI technologist and investor is struggling to keep a grip on both tech power spheres as geopolitical pressure threatens to rip them apart.
Through his work leading AI research in China for U.S. tech giants Microsoft and Google, Lee had years of firsthand experience learning how the countries worked together to advance AI before he launched his venture capital firm Sinovation Ventures in 2009. Since 2013, Sinovation has participated in investment rounds totaling at least $1.06 billion in AI companies around the world, according to data provided by CB Insights we analyzed at Protocol.
When Lee wrote his best-selling 2018 book, “AI Superpowers,” he aimed to share knowledge he’d gleaned about China’s AI advancements with others. But what may have seemed to Lee like a win-win way to share information — while conveniently attracting investment for the Chinese AI startups Sinovation Ventures funded — had the opposite effect.
The book wound up serving red meat for national security hawks and ripe fodder for hyperbolic headlines , fueling extreme reactions from U.S. policymakers, stymying cross-border tech business partnerships, blocking China from powerful chips used to train machine-learning models, and potentially clogging the flow of U.S. dollars toward the very Chinese AI companies Lee bets on.
Lately, Sinovation has found it more difficult to attract U.S. investors . Still, as exclusive data I received from CB Insights to report this story suggests, ongoing investments in two of Lee’s largest AI bets — China’s autonomous vehicle company WeRide and Insilico Medicine — indicate that he has not entirely given up on transcontinental AI deals.
In my profile of Lee , you’ll learn not only what the media got wrong about his book’s message, but about Lee’s fascinating evolution from Carnegie Mellon University computer science Ph.D. to head of Microsoft and Google AI labs in China to influential AI investor — and why the philosophy that has guided him for decades may need to change.
Read the rest of our U.S./China AI series here .
— Kate Kaye ( email | twitter )Financial corner
Alation was valued at $1.7 billion after raising $123 million to build data search catalogs for enterprises.
ColdQuanta raised $110 million to build quantum computers, sensors, and networks.
Apiiro raised $100 million to provide cloud-native application security.
Project44 raised $80 million for its supply chain management software.
— Aisha Counts ( email | twitter )Around the enterprise
You knew this was coming: GitHub was hit with a class-action lawsuit last week over Copilot, its AI-powered code generation tool that uses open-source code to produce its output.
Chinese chip companies are slowing down the clock speeds of their processor designs in order to circumvent new export controls on advanced AI chips, according to the Financial Times .
A MESSAGE FROM CAPITAL ONE SOFTWARE
As companies scale in the cloud, they face new data management challenges. Watch our webinar to hear Capital One and Snowflake experts discuss operationalizing data mesh, and learn how Capital One approached scaling its data ecosystem.
Thanks for reading — see you tomorrow!
Correction: This story was updated to correct when the Copilot lawsuit was filed. This story was updated Nov. 7, 2022.