Jason Lopez: Well, I wonder if you could go a little deeper into this idea that some businesses did not experience this ripple effect of these negative effects that were predicted because of the pandemic.
Todd McElhatton: So I think you absolutely hit it correctly there. I think we went through some phases. So at the very beginning of the lockdown, I think companies in general, everybody had this hunker-down mentality and most people weren't sure what was going to happen. Some of the professional services firms got really nervous and laid off big chunks of their people. And as they've looked back said, wow, that it was really a big mistake because now they're short on people as these implementations of big systems are continuing to go on and people have gone out and found something else. So could we actually operate from home? And I mean we saw millions of people who had been coming to the offices every day. All of a sudden people scattered back to their home offices and basements and living room couch and corners of their kids' room and started to go about their daily Workday. What we found is there are a lot of things that we don't need to be in the office to do. And technology played a huge role in those companies that had more of a technology or enterprise type flavor, we're able to kind of get back to businesses normal. Now I think where we're going to come from there is how do we move that on to the next version? Because I think what we're going to find is we're not going to go back to where we were, but I think we're also going to find what we did in the pandemic. Probably isn't sustainable long term. And we're going to have somewhere in the middle that we meet.
Jason Lopez: And an interesting effect of the pandemic in terms of the kinds of technologies that were rolled out in order for people to work from home is this idea of the offerings from hospitals, for example, in telehealth or universities and public school systems offering remote learning. There were technologies that allowed this before the pandemic, but those were add-ons. Those were things that were for people who absolutely could not come into the clinic or could not come into the classroom. But now going forward, these are going to be standard offerings. This is a changed world we're in now where remote learning, telehealth, these sorts of things, are now going to be standard issue going forward. And I'm wondering how this has affected suddenly the idea of a subscription model, not only for telehealth and for remote learning, but in all aspects of the way people use software.
Todd McElhatton: So I think a couple things, one of the things that you're seeing with subscription models is companies in particular that were selling the product, loved it because they loved the durability of the model. As you know, I gave my, the example of clear is here is a business that was highly dependent upon travel. And when the floor fell out of the travel industry, their business did all right, they actually saw, Hey, this was a great buffer. People were willing to maintain those subscriptions because they believed that they were going to travel again on the consumption side of it on subscriptions. It was helpful for a lot of companies where they were able to say, all of a sudden, maybe I don't have certain needs. There are areas where we're dialing back, where we were using services. And those subs subscriptions gave them the ability to pause. So it gave them that level of flexibility. So it turned out, I think, a win-win for people both on the buy and sell-side.
Jason Lopez: Todd, what would you say to the perception that subscription models lead to vendor lock-in? What are you seeing in subscription businesses right now?
Todd McElhatton: I think what you really see subscription businesses is it's really helping democratize how people consume and use services. And we see some people are paying for a flat monthly rate. We're seeing other people are paying based upon consumption. One of the things that we know, and we have almost 1400 different customers. So we've got some tremendous data. What we know is the companies that are most successful, have a few characteristics. One of the characteristics is they have is not only a flat fee, but they have the ability to allow people to have a fee, but then you have a consumption component of that. So it allows them to modulate based upon their using tend to be more successful than those with just a flat fee. The other thing that we know is that companies that have multiple interactions with their customers or changes to those subscriptions over the year are also more successful. And so you start thinking about those changes. Those may be changes where I want to pause my subscription for some period of time because something's happened to me. I want to upgrade because I want to take advantage of a new service. I see there are services that I'm not using and I want to downgrade. So I think in general, what you see is a subscription business does allow consumers to really tailor how they consume products to what their needs are.
Jason Lopez: Right. And on that tech, we did an interview with one of the leading security people at BAE systems who talked about subscription models in terms of stoking competition in the industry three and you know, being able to seamlessly move to the services and the products that you wanted on the basis of, of subscriptions. Are you sort of saying the same thing here?
Todd McElhatton: I believe I am. And I believe at the end of the day, there's some outlier where something maybe is a monopoly or a near-monopoly, and it's just hard to get off of, but if you've seen the pace of innovation and how things change, if you take a look at the companies that were on the S&P 500 20 years ago, and how many of them are still there, five of the top 10 most valuable companies… some of them weren't even around 25 years ago, and now are the leading companies in the world from value. So I think you've seen with technology a real ability to very quickly innovate and meet customer needs. And you're going to find if you're trying to force somebody to consume something that they don't want to, or it's not upon the terms that the consumer wants, ultimately they're going to go and they're going to find another. So there'll be somebody out there to meet that need.
Jason Lopez: Gotcha. Gotcha. Now let's take it down the rabbit hole, just a, couple of feet deeper. And that is the idea of subscription models disrupting the marketplace. I wonder if you could describe that phenomenon.
Todd McElhatton: So as I start thinking about that, what one of the big changes that you have is now all of a sudden, instead of having as a company purchasing, it really helps you do two things. First of all, you can significantly reduce your CapEx. So instead of having to make these long-term decisions on things that maybe you are committed to for 3, 5, 10 years, you're able to buy those on a consumption basis. So that certainly helps your CapEx model. If you take a look at startup companies out here in Silicon Valley, if you went back 20 years ago, funding requirements for getting companies off the ground were huge, right? You had to build a data center, you had to have all that computer capacity. Now someone just pulls out their credit card and starts charging it with an AWS or a Microsoft Azure.
So that's certainly changed on how companies innovate and how they're able to start, but you also start to see the companies on the buying side are able to modulate what they buy. We talked a little about COVID earlier. So now all of a sudden, maybe I have 20% less employees while I can. A lot of times cut by call us by 20%. If I'm buying on a seat basis, I've seen some studies that 30 to 40% of it budgets are wasted by having people buy things on a subscription or consumption basis. You again can get much better at how you're modulating, what purchases you're making and making sure those are actually aligned to what your needs are. And I think that's been very different from in the past where you've had to make kind of an upfront commitment, and you're stuck with that commitment for a much longer period of time.
Jason Lopez: And of course, with any new thing that's been put out into the marketplace, whether it's a new product or a service, there sometimes can be a little bit of confusion around what's being offered or what it means. And I'm wondering when it comes to subs subscription services, especially for someone leading it an IT shop or something along those lines, what have you seen out there that tells you that the market really understands what's going on with the subscription models that are being offered.
Todd McElhatton: So I think for it leaders, it's certainly caused a big change from a standpoint of, they had typically been very CapEx focused. You would see maybe businesses at the end of the year saying, wow, I've got this huge budget. You know, I don't want to lose my CapEx. And so you have a lot of purchasing done at end of a quarter or end of the business, where that's no longer relevant in a subscription business where it becomes moves from CapEx to OPEX. So you're certainly seeing people have to be more thoughtful on the difference between CapEx planning and OPEX. And I think that's probably been one of the biggest changes that we've seen, but I think one of the positives has happened is you're able to go in and try things. You don't have to jump in and have some of the major commitments that you've had. You can experiment. And as things work out, you can kind of consume more over time. Or if it doesn't work out, you can kind of turn the, stick it off. And so I think that's one of the real advantages that you've seen.
Jason Lopez: And one of the areas that I've heard that subscription models could really have a big effect on is the area of environmental, social and governments, ESG, where are you seeing impacts along those lines?
Todd McElhatton: ESG is absolutely front and center for people. You know, how do we get more efficient use of resources? Think about cars in general. Cars are really underutilized and building cars. There's a lot of waste in that, or a lot of impact on the environment. So if you can sit there instead of having a car with really low utilization, move it up to much higher utilization, that's going to be a huge environmental impact. Think about products that we were shipping out, whether it be CDs or DVDs and all the environmental impact of the shipping, and then what happened when the product didn't get needed. Well, now all of a sudden you're able to stream that. Uh, I think those are all things that are going to be super important to people as we move forward into the future.