Dev

Atlassian softens its cloud-first approach for remaining on-prem customers


Fresh from moving its smaller customers off its server-based products onto and into its cloud, Atlassian has softened its cloud-first approach after recognizing that its larger customers can’t or won’t go there in a hurry – if ever.

The Australian collaborationware concern outlined its ambitions last week in the Shareholder Letter [PDF] it uses as a substitute for remarks made at the start of an earnings call.

“Over the last few years we’ve spoken frequently about migrating customers to cloud as a top company priority,” the letter states, before characterizing the years-long effort as focused on “smaller customers who could make the switch to cloud in a day.”

In the letter, users of Atlassian’s datacenter licenses are characterized as “large enterprises with more complex, integrated instances.”

“As we’ve turned our focus to this next cohort of customers, we’ve shifted our mindset from ‘cloud-first’ to ‘enterprise-first’,” the letter states. “Many of these enterprise customers will move to cloud over a multi-year period, and an increasing number will adopt a hybrid approach of both datacenter and cloud as they shift their teams and users over time.” The letter promises “you’ll hear us speak more about enterprise as a top strategic growth initiative in the years to come, encompassing the datacenter to cloud journey.”

In the short term, the biz is bedding down its new “System of Work” – a strategy to help orgs move from having teams each use their own collaboration environment and instead adopt more interlinked Atlassian tools. Improving the Atlassian Cloud is another priority, as is adding AI (of course) when appropriate.

At a more prosaic level, Atlassian has the challenge of implementing its incoming leadership team. This earnings announcement was the last for co-CEO Scott Farquhar, who will step down from that role and day-to-day involvement with Atlassian. The firm is also on the hunt for a chief revenue officer to replace chief sales officer Kevin Egan, who has decided to leave.

On the Q4 2024 earnings call [PDF], CFO Joseph Binz said Atlassian has begun an “evolution of our high-touch go-to-market motions.”

“We are driving larger, more complex deals that include more products and require more approvals. And in some cases, we’re targeting large complex migrations, and all of that adds up to longer sales cycles than we anticipated.”

Binz offered the complexity of those migrations as one reason the biz missed its forecast of 32 percent revenue growth for its cloud products – albeit by a single point. He also pointed to the timing of big deals, which he said landed too late to be recognized in the quarter.

Overall performance for the quarter, and year, was mixed. Q4 revenue of $1.07 billion was up from $800 million in the same quarter last year. Full year revenue of $3.9 billion was up a billion over last year. Yet the company remained unprofitable.

Allowing large customers to create hybrid rigs was mentioned as one way to help improve matters – CEO Mike Cannon-Brookes pointed to large government customers that can’t go cloudy in a hurry, but can take small steps.

Asked if Atlassian can hit its previous guidance of 20 percent growth for the next three years, Cannon-Brookes observed that his conversations with customers that need a hybrid approach give him confidence the goal is achievable –especially as Atlassian’s own engineering teams are delivering as promised and its products are therefore evolving.

“We’re in one of those adoption phases at the moment as we deal with the enterprise transition, I think, adroitly. And that evolution capability that Atlassian has will continue, as we help those largest customers to go increasingly wall-to-wall across their enterprises. So huge bullishness for me that we’ll hit those numbers that we’ve given out,” the CEO enthused.

Those numbers include Q1 2025 guidance of $1.149 billion to $1.157 billion revenue, with cloud revenue growing 27 percent and datacenter revenue to pop by 35 points. For the full year, revenue was forecast to grow 16 percent, with cloud improving by 23 points and datacenter slowing to a 20 percent improvement.

Investors were not thrilled. Atlassian’s share price tipped past $180 early last week, but ended the week at $143.68, after diving to the low $150s after the earnings announcement. ®



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