Welcome, everyone. Thank you for joining our fiscal 2021 Investor Day and taking the time to join us from a Zoom screen wherever you might be in the world. Before we begin, I'll share our legal disclaimer. Today's session is being webcast and is available for viewing on the Investor Relations section of Atlassian's website. A recording of today's webcast will also be made available on the IR website along with materials from today's session.
Statements made during today's session include forward looking statements. You should not rely upon forward looking statements as predictions of future events, and these statements represent our management's beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect the company's financial results are included in the filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors and our most recent Forms 20F and 6 ks. Here is the agenda of what we're going to cover today and our time together. There will be 3 sections to today's events.
Section 1, where we cover our culture, strategy and our TAMs Section 2, where we walk through our cloud first transformation and how our economics shift in the migration from server and Section 3, where we talk about how we invest in durable growth through our competitive advantages across R and D and our go to market. Now I'll turn it over to Matt.
Thanks, Martin. Across those three sections and the many business topics we'll cover, the one thing that we're main consistent is that we're focused on the long term in everything we do. Given that focus, we stay true to our mission and values across every decision we make, product we launch, the strategy we develop. Next slide. So reflecting our open company no BS value, we've decided to switch up the standard Investor Day format.
Outside of this first 5 minutes, you won't see a single presented slide the rest of the day. Instead, we're presenting Investor Day in a format using our own products, Confluence in particular. The three sections will be presented in 6 pager documents. As you may know, 6 pages were made popular by Amazon and our practice we've adopted it at Atlassian. You might ask why 6 pagers?
We found that it 1, creates more effective presentations by creating a logical written narrative and 2, by pre reading at the beginning of a meeting, everyone's on the same page and can have a richer discussion, especially in this asynchronous world that we're living in today. It's in the same vein of why we use a shareholder letter for our quarterly results each quarter. And why for Investor Day? Well, Atlassian is playing offense on many fronts in fiscal 'twenty one, from server to cloud migration to a brand new free funnel to new cloud additions and by launching new products like Jira Service Management. Across all of these changes, it's important to us that we play as a team with you, our owners, just as we do with our employees, our customers and our Board.
So 6 pages it is. In each section, we'll pre read each document and then open the floor up to Q and A with our founders, Mike and Scott our CFO, James Beer our Chief Revenue Officer, Cameron Deetsch, and what is his first public investor event. We hope that a more collaborative, open and transparent format combined with over an hour of Q and A aligns you with where we're headed. Transparency makes our culture special. Thank you for being a part of it.
Next slide. Before we begin, a few housekeeping items. First, each section contains 3 items. A, a video from our team and customers to kick things off B, time to pre read each document and see Q and A. During the videos, you can minimize the speaker by clicking on the Zoom screen.
2nd, we'll post the links to each pre read in the Zoom chat through a QR code on screen here and on our IR website. And last, during Q and A, we'll take questions through Zoom and Zoom only. We won't be fielding questions through email. The audience will have an opportunity to upvote questions they want asked and you as a question asker will have the chance of submitting anonymously. Also, we'll keep questions contained to each specific section.
So if you ask a question about content we'll cover in a later 6 pager, we'll dismiss it, but please ask it again during the right section. With that, let's get started. To our team, let's roll the first video.
There's never been a more exciting time to be in IT. IT teams are shaping the future of their companies. IT is now responsible for enabling the entire business as it changes. No team is better equipped to enable and disrupt the workforce of the future. Boy, we've come a long way since the days of IT being strictly a back office support function.
I get to see our products through the eyes of our customers and I think of myself as customer 1. I can tell you that our products are at the heart of our most important work. Our tools have never been more important in helping teams get their work done, especially in a remote first world. Atlassian runs on Atlassian. For me, as CIO, it's not just about keeping the lights on or delivering more faster.
It's about doing whatever it takes to promote frictionless teamwork at scale.
And at the heart of this massive opportunity is our belief that teams who build and run software are 1 in the same. Those legacy lines between dev and IT, they're blurring. It's IT teams that have to enable dev teams to be more agile and accelerate software delivery while still controlling costs and managing risk. Yet both sides are challenged by an increasing amount of inefficiency. All of this keeps dev and IT from doing what they do best, which is building and running.
These are problems that extend well beyond code. They are the ones we are uniquely set up to solve in the cloud. Our products, in fact, are a force multiplier and our platform is the only one in the industry that unifies this work across both development and IT organizations. We bring together agile, continuous delivery automation and so much more help dev and IT teams be more efficient, to innovate faster and to deliver higher value to their stakeholders and customers. For Domino's, Atlassian was at the center of their digital transformation, which in turn led to a customer experience transformation.
They used our products to connect and align teams across development, IT, marketing and even data science. They unleashed a string of technology improvements, which you may have experienced from digital orders, voice ordering and recently contactless delivery. This effort catapulted Domino's into an enviable industry leadership position. Our customers are seeing immediate returns from investing in the bridge between dev and IT. At the center of this is Jira.
It represents the single pane of glass that integrates dev, IT dev of workflows between and among dev and IT. We are only at the start of capturing this opportunity and the road ahead is incredibly promising.
What motivates me and my team is the long term opportunity to connect an entire company on the same platform. We brought a whole new way of working as software teams. But from the start, our mission has always been much larger. Every team from marketing to design to legal benefits from quicker feedback loops, better transparency and faster cycles. This is what is transforming every company and this is our cornerstone belief behind our focus on work management for all.
Atlassian is the only work management vendor that has an open platform with products that work better together and also seamlessly with 3rd party tools already used by teams. We're all in on teamwork and are running hard to deliver solutions that help any team in any industry at any scale achieve their vision and then some. For example, an increasing number of global companies like HubSpot, Audi and Nextiva are turning to Confluence to communicate across their organization and allow teams to collaborate without where things stands. But our ambition goes well beyond these examples. It's teams that change humanity and every day Atlassian has put everything we've got into helping those teams fulfill their ambitions and reach their wildest dreams.
Welcome back. Hope you enjoyed the video. We are now going to share a 6 pager document highlighting Atlassian's culture, strategy and opportunity. The link is now available for you in the Zoom chat. Alternatively, you can go straight to the Investor Day section on our IR site to grab the document.
We're going to give you 10 minutes to read through this document, and then we'll come back here for Q and A. Feel free to start dropping your questions in the Zoom Q and A as you go through. All right, see you back here in 10.
Hey, everyone. Welcome back. We'll get started. It looks like we have quite a few questions in the queue, so we'll jump right in. Our team, just so we have the heads up, let's make sure we come off mute and on video so you get to see us instead of our people's.
We'll start with, Ittai, your question. In what way would the next 185,000 customers be different from the first 185,000? Has that compare across user, technology, go to market, etcetera? Scott, do you want to take that one?
Yes. Great question. Thank you. And thanks for coming here today and spending time with us and thanks for accommodating our new format. I hope you found it enjoyable and we'd love feedback on that.
We're really excited about I guess the growth of the business and where we're going and so excited to be here and talk through that. In terms of 185,000 customers, like that's a huge number and larger than kind of almost anyone else we know out there in the SaaS world and if you're getting through the next 185,000, there's 2 ways to think about that. One is that getting large numbers of customers of any size is huge for us, like whether they're free customers using it for 10 users or whether they're using it for 10,000 users, like our aim is to be kind of the dominant player across the entire industry. And for us is a huge benefit of actually having customers even if they don't pay us a large amount of money in the short term because they either grow up to be a large customer, because the company grows or they're a small team inside a large company and they expand out from that, or they are just contribute by building a marketplace apps or add ons or training people in using our products or then move to other companies over time. And so if you look at sort of our product evolution, it started off as very technical inside development teams, really sort of tracking very technical things for developers, but over time, it's actually expanded to track work across the entire sort of software lifecycle, all the way from concept, coming up with an idea, either the product manager or designer, all the way through to launching it.
And now with our ITSM stuff, all the products we have in that space, we now actually handle stuff through running and supporting these products as they're in production. So I guess a long way of answering your question, I don't expect it to be materially different, like, because it's been an evolution for us, like I don't think there'll be some sort of handbrake turn in terms of things that we're doing. Our free offerings have allowed us to get a lot larger number of small customers, so that is really excited by that. The ITSM side of things allows us a whole new market inside organizations and while we're landing quite a few new customers through that, we have such a large installed base of companies who are already using our Jira products for dev, like that's obviously very fertile ground for us to expand out through ITSM. And then of course, you got the work management for all products, which started off around the development team and increasingly are used across the entire organization, whether that's Confluence for an intranet style approach where people track and manage all the knowledge that's going on or it's Trello, which is increasingly just used by all sorts of teams and is, as we I think said in our document, has millions of now.
So, yeah, I don't expect it to change much, but we have a very kind of diverse customer base today and we expect that to continue.
Thanks, Scott. I'm going to ask a similar one kind of moving to Donald TAM specifically. This is from Michael Turn at Wells Fargo. So thanks to the team for hosting. You referenced $24,000,000,000 in addressable opportunity and the ambition to grow beyond $5,000,000,000 in revenue.
Is there anything you can add around the split or maybe how that maps across the 3 key areas, agile software, ITSM, and work management? Scott, you want to kick that one off?
Sorry about that. Sorry. Just I dropped you out for a second.
Oh, yeah. So I'll just reread the question one more time. So this is from Michael Turrin at Wells Fargo. You referenced 24,000,000,000 in addressable opportunity and the ambition to grow beyond 5,000,000,000 in revenue. Is Anything we can add around the split or maybe how that maps across the 3 key areas or 3 key markets that we plan across Agile, ITSM and Work Management?
Yeah, so in our document, I think that we've shared with you, we break it out into sort of technical teams and non technical teams. And so I think you see a $13,000,000,000 $11,000,000,000 split there. And when we talk about breaking in between software and IT, we looked at doing that, but increasingly we find those teams are harder to distinguish between each other. And so and then one of the key advantages that Atlassian has is actually bringing those teams closer together. And so we don't really think about them as 2 separate markets.
We see them growing closer together over time. And just to take a step back, it used to be that software development would, you know, spend months or years building something and they throw it over the wall to IT, who would deploy it and those deploys were infrequent. And so it made sense to have 2 separate teams do that and optimize their particular areas. As you continue to release more frequently, it's very hard to break down those barriers between the 2 different teams. And so anyway, we view that as one TAM and also as a market that only Atlassian can address.
Actually, on that, Van, this is a good question from Aaron Husek. Get that winning by starting with developers, it's a core to Atlassian's culture, but ITSM can be a bit different market with decision makers higher up in an enterprise. How are you adjusting your product and go to market to address a large TAM a bit further from developers? Mike, this might be a good one for you to start with and then have Cameron jump in with a follow-up part on the go to market piece.
Sure. Hi, everyone. Thanks for joining us wherever in the world you are. I hope you're safe and well and appreciate you spending the time with us today, and we'd love feedback on our trying to bring a little Atlassian culture to you with our 6 pager format. As Matt said in the intro, this is pretty much how we run all our board meetings, all our internal meetings nowadays, and we hope it resonates and you get more from the text than you would from slide presentations.
On the question, look, I expect we have a lot of questions on the ITSM market. There are some similar decision makers and some different decision makers. I would say it's worth stepping out a level. Obviously, with Jira Service Desk was our initial foray into the IT market as we got out of software 5, 7 years ago. Can you correct me how long that was?
It's been out for a little while now. And as you've probably seen in the last week or 2, we've taken a major new step with Jira Service Management. Don't be deceived by the name being relatively similar. This is almost a wholly new product. It's a huge step forward for us in the IT market broadly, bringing together some acquisitions in Mineville and Opsgenie pieces as well as obviously all of the innovation internally, connection to software developers, huge connection to development tools and obviously JSD, which was internally developed.
So that's a big shift. Part of that will certainly be sold to software teams and across the spectrum. But increasingly, as Scott mentioned, we're seeing these teams coming together inside organizations. So there will be some different decision makers, I would say, and a lot of decision makers will be exactly the same people who are currently buying our tools. Part of the familiarity with the Atlassian stack and part of the customer reception has been good there, been excellent in terms of the initial responses, obviously, Tony Benoit, is that clear understanding and knowledge of where it's being very resonant with customers.
Cam, maybe you can give us some feedback on the launch itself.
Cameron Deetsch, I'm the CRO at Atlassian. Thank you for having me today. I cover all of our marketing, customer success and support as well as sales teams. So to reiterate what Mike said here related to our strategy and IT service management, last week you might have noticed we launched Jira Service Management which really is our latest evolution of our IT service management offering for customers. And we've seen incredible feedback from customers, analysts, you name it, largely reiterating what our core strategy is that our hypothesis is your development teams and your IT teams aren't separate teams anymore.
They are operating as one organization that needs to work together. In the world where you have an IT team getting tickets in some old system, then turn it around, putting all those tickets in the development system so developers can work on it, taking the output and putting it back in the original ticket system just didn't make sense. And largely we can tie in your entire IT operations and infrastructure work with all the development work, capacity work that's happening today. And to answer your questions related to our go to market, listen the over the last I've been here for 8 years and over the last 8 years, I've seen customers go from running our products in teams or departments to standardizing our products wall to wall. I've had calls with, God, 12 CIOs in the last 2 weeks that are using our products as mission critical applications.
And it doesn't require us to fundamentally change how we've been doing things like they got there because our tools worked and they realized they could work wall to wall. Now they see we can actually tie everything we did in dev to what they're trying to do in their IT operations teams and they're pulling us into those opportunities. Now, of course, as these companies get bigger, you know, we have to up our game as far as how we engage with them in go to market to ensure that all of their enterprise capabilities are answered. And we're very good at answering those as well as that when they need increased deployment services training that we're out there supporting them as well. And we've built those capabilities both in house but also through our over 600 solution partners that also help really execute on delivering these largest enterprise customer base.
Great. Thanks, Cameron. All right. We're going to shift it back to kind of more overall TAMs. We have a couple of questions at the very top of the list around MAU or MAU as we call it internally.
Scott, I'm going to have you start with this first question. This is from Greg Moskovitz at Mizuho and Keith Weiss at Morgan Stanley has a similar question on its heels, but we'll start with Greg's. More than 15,000,000 cloud MAUs is a big number, and I think you've added about 5,000,000 of them over the last 5 quarters. Given the enhanced migration tooling and the increased company focus on cloud, would you be surprised if you would be able to add another 5,000,000 in the year from now?
Yes. So I'll answer sort of broadly speaking like, so in terms of monthly active users, that's something that we look at internally. It's a good sort of relative proxy for how things are going. Obviously, we have all the free users in our system and so we have paid users and free users as well. And obviously the paid users are the ones that drive our revenue and our profit, but monthly active users is a very good proxy for growth over time.
And we disclosed in our last Investor Day about a bit over a year ago that we had about over 10,000,000 monthly active users in the cloud. We've said this Investor Day that we hit 15. So yes, we've grown 5,000,000 give or take over that period of time. And we said that 10,000,000 of those use Trello, 5,000,000 of those and obviously 15,000,000 in total. Now there's a lot of people to use both of those, so you can't sort of do the exact kind of overlap of that, but kind of the math is correct, that's a total in that.
We also have still a huge amount of server customers who aren't accounted in that, right. We said, I think when we went public, we said we had was it $5,000,000 overall like now across the server and Cloud back then. And so we've grown significantly in that 5 year period of time. And so in terms of like growing that, we said 75% of our seats are still in that server world like server not using one of our cloud products. So yes, we hope that the growth will happen, moving many of those customers across to our cloud offering.
Now in terms of the exact timing of that, we would love to be very specific, kind of one of the reasons that we can't be is in customers' hands. And so it's only once you start chatting with them and start building out their plans for migrations that you can get better insight into that. And also there's so many of these customers that are of a size and scale that they self serve, so we don't really have a timetable. They do it whenever they feel like it. And so we're very confident about the migration across like all the COO conversations I've had since we've announced this, I've yet to have someone say that they won't move.
It's all a matter of when they'll move or there's a particular feature or compliance something that we're building out that will help them move. So we feel very confident about moving over the long term. But in terms of saying which quarter it's going to happen, like that's a little more difficult for us to predict over the next year or so.
If I might just add, I think I want to double down on the first part of Scott's question. I think part of this is helping all of you understand how we think. Certainly, from Scott and my perspective, and I believe some of you on Atlassian's perspective, we deeply believe in now. You could almost argue we're religious about now. And the question is why is that?
We want our software to be used. If we want to have an impact in the world, we have to have active users. Selling software is great. If it's not used and it sits on a shelf, even a virtual shelf, it doesn't really matter. So we believe by tracking now internally per product, sliced, diced, moved around every which way we can, that really is the best sort of proxy for actual usage of our products and actual impact.
And if we continue to help the organization understand that much actual growth, long term outcomes for customers, for shareholders, for everybody are better. But we really track now very, very closely because of that connection to actual activity and actual usual value delivered and that's really important to us. It's got lots of squirrely parts, I speak more of the questions and how to think through it. I think the most important part is our philosophy that that's really important, and it shows also our sort of consumer DNA, it connects to our model where activity is what generates sales in our GTM, you'll find it in the next couple of 6 pages, but I think it's a really important philosophical point that we are different to a lot of other enterprise software companies and that we track that 1st and foremost.
Okay, good. So I think we Keith, we got Keith Weiss' question from Morgan Stanley, we kind of had embedded in Scott's answer. There's this question, it's kind of in a similar vein of, Scott, I'm going to throw this one to you. If all your server and data center customers converted to cloud tomorrow, how far would that get us towards our $100,000,000 now goal? Perhaps you could talk a little bit about that and kind of how we see our upside to our user base today.
Yes, we always at the risk of giving out too many numbers that people can put in spreadsheets that conflict with each other or I don't understand. And I was going to say we have monthly active users and we also have paid seats. Now obviously, in our server products, we can know the paid seats because people pay us for them. We don't have as good information around how many people use that on a monthly basis, right? So we have sort of less visibility on that particular metric, but they're roughly correlated with each other and we said that about 75% of our paid seats are still in our server worlds, right, like in terms of paid seats across our entire product world.
And so you can do some rough back of the envelope there to sort of say, right, if we move all those across, we will grow significantly. Now, Trello doesn't have a server instance to sort of do that, so you sort of got to say, well, the during Confluence, paid seats are probably going to perform the bulk of that migration across. And so we feel really good in terms of, and one of the reasons we put so much effort behind migrations and making sure our companies can, our customers can move across seamlessly. We have migration, migration guides, we have automated migration assistance that will migrate data, we have high touch people that were there if people need them. So we're really confident that migrations will get a large number of these users across to the cloud.
And yes, I still feel in terms of that will get us further towards our 100,000,000 BHAG, but we still got a long way to go until we get 100,000,000 monthly active users. And just reminded that our original BHAG was to have 50,000 customers and that took us about a decade to get to, and we announced that around the time we went public. We're now at 180 something 1,000 customers around the world and so we blew through that BHAG. Our current BHAG is to have 100,000,000 active users of our across in our cloud. And so that's the goal for us and it will take us quite a few years to get there, but that's sort of the North Star.
Terrific. Thanks, Scott. So I'm going to ask 3 more questions in this section. One's going to be a joint between 2 questions that are kind of in the same vein. The first one is the top of our list, which is from Robert Magic.
And I'm going to throw this one, Cameron, to you first, and then we can see if anyone else wants to take it from there. I know you don't disclose your percentage of revenue from each product, but if we think big picture, should we expect your product revenue mix to be very different in 5 years given the growth trajectory that some of your products are on like Jira Service Management, obviously, which is very new from that standpoint. Kevin, what would you say in terms of kind of just the relative growth maybe by more market versus specific product?
Yeah. I first want to reiterate that if you look to our TAMs and you look at across all three markets, we have plenty of room to grow across the board. And we get up every day to see how can we acquire as many new customers as possible across all three of those markets. And then are we expanding them accordingly? So by no means are we taking our eye off the ball and our core strength in software development as a category.
That said, you're absolutely right that as we've expanded into broader IT service management use cases and as well into work management for all that we've seen some of those product lines accelerate well beyond the core part of our business. And if you extrapolate that out a few years, then yeah, they will be a larger slice of the overall pie. However, I would say that I think our core software development market, at least when you think into like 5,000,000,000 in revenue timeframe, is still going to be a massive part of our overall revenue of the company. How that changes longer term? Once again, some of those TAMs are just gigantic, but there's no reason for us to lose any focus in our core markets that we're going to market today.
Okay, great. I'm going to combine 2 questions about just kind of the split of technical versus non technical users. Mike, this might be a good one for you to start with. So, this first one is from Walter Pritchard from Citi. Related to technical and non technical users, how do you think about the value of each of the 2 categories in terms of how Atlassian can add value over time?
There might be more non technical users, but it is the value of a technical user, several multiples of a non technical. So, that's one. So, there's one similar veins from Keith Bachman, which is you see that split remaining constant over time? Or do you think that might change given our product roadmap?
Yes, great questions, Walter and Keith. Directionally, I can probably give you some steering, I hope. Firstly, there is a slightly different value to each of the user categories on a per user basis you could think about it. There's also a vast difference if you look at the TAM and various size of market statistics. Obviously, there are far more nontechnical users out there than there are technical users.
So if you say there are 100,000,000 technical users and multiple 100 of millions of nontechnical users, that looks good. Are we gonna get more dollars from a technical user on a per user basis fully extrapolated through depending on equal size companies, etcetera? Probably, yes, we will get more dollars, we have more products, we have more ability, and obviously those, dollars per product tend to be a little bit higher. So that's a probably a fairly accurate view of the world, Walter. One thing that is very important to note is how this all connects to Atlassian's model though.
The technical users be there in software or IT are huge proponents inside a company for what tooling gets used, what collaboration software gets used. And also those are very connected teams, software and IT teams tend to be connected to the marketing team, the finance team, the HR team, etcetera. So their value to us beyond a dollar basis is as, you know, proponents of our software internally. They're generally making these choices they will generally drive our other applications through which is why you see so much for example progress from Jira Software or Jira Service Desk to Confluence generally firstly for a technical use case product requirements documents or a knowledge base alongside Jira Service Management or what what have you. And then as more people start to use Confluence, it spreads further outside of the technical groups.
So you could argue the value of those initial users is even higher than the sort of pure dollar splits that you, that you see there. Hopefully that gives you some, some steering. We don't treat them differently internally. Obviously, we have different groups and different products going after those sets, but we, in the platform and other places collaborate very much across those groups. And lastly, it's worth saying that technical users use a lot of our work management products for non technical use cases, and that's perfectly valid and fine too.
So a lot of, IT teams will use Trello for small scale project management, for just visualizing their work, looking at their team, mapping things out, not strictly a technical use case, a non technical use case in a technical team. That's another advantage we have is at the intersection of those use cases.
Great. Thanks, Mike. So, the blessing and the curse of this format is that we have a ton of amazing questions that we're not going to get to. Some of them apply to the next two sections as well. So I encourage you to certainly jump back into the queue with things that you feel like we can answer along the way.
Also, our last section, we'll have a little bit of extra time for Q and A at the end. The last question we're going to take in this section now is from an anonymous attendee. Scott is going to field this one. Assume you have a friend that is interviewing to work at Atlassian, what is your advice to them that will enable them to be successful in the interview process? And then what is your advice that will enable them to thrive at Atlassian once they're hired?
Great question. I really appreciate investors asking cultural questions around Atlassian because we believe that our culture is a huge advantage for us and increased retention rates and so forth, those things you can put on a spreadsheet, but actually just the kind of the energy and the team that we've built I think is amazing and a huge part of why we all come to work and why we get to build the products we do. There's a lot of things that really rooted in our values that we've had for 15 years now that drive a lot of what we do at Atlassian and I could talk for hours on this, but just to pick out 3 areas, one I would say is working openly, we're a company that is about transparency and effectively working as in teams and those teams share all their information. And if you look at our customers, audit our customers, look to us for how we can help their businesses work more open. So we really after people that are self aware and happy to work open and not hoard knowledge.
2 is people that work for a global optima and people would join Atlassian and say, we don't have any politics at Atlassian, I'm really surprised and I think the absence of politics is really more a statement that people work to the global maximum of Atlassian rather than the optimal for their individual team or department or anything like that, that people work what's good for the entire company and that really stands out when you come work at Atlassian. And the last one is the thinking long term. I don't know whether it's a founder led company or we've just been doing it for such a long time, but the long term approach of our employees, they come in, it's not about what do we do this quarter, we really do think multiple years out and our most successful employees adopt that and live that every day. So we go for ages, but they're 3 pretty tangible
ones. All right, thanks everyone who asked a question. So that closes out section 1. Our next section is about our cloud first transformation. We're focused on unleashing the potential of every team through our cloud products.
Following video is going to highlight how customers use Atlassian products across all teams to stay competitive in this digital transformation. You'll hear from our Chief Revenue Officer, Cameron, and our work futurist, Dom, who will talk about the future of team productivity and collaboration. Our Head of Platform and Enterprise Cloud, Anu, will talk about how we are investing in innovation. You'll also hear from one of our cloud customer champions, PTC, on their journey to the cloud. With that, let's roll to video number 2.
Atlassian was founded on the basic premise that teams drive human advancement and that software powers those teams. And we've always had the mission to unleash your team's potential. And while software is very much deleting the world at a rate we've never experienced before, there's also a complexity surrounding teamwork right now that's never been higher. On top of this, we've just had a rapid shift to remote work. This forced many companies to embrace digital transformation almost overnight.
We've gone from having many offices to the same number of offices as we have people. And we're experiencing some of these challenges firsthand at Atlassian. We found that one day in 2020, we had almost 1,000,000 minutes of virtual meetings. That's a 274% increase from the same day last year. So what does this all mean?
Well, despite being a company that's very fluent in collaboration, these numbers tell me one thing. Team productivity is at risk. Amidst all the uncertainty, we're staying firm in our commitment to help you, our customers, collaborate effectively right now and weather any storm that comes your way.
This year, overnight, we all changed how we worked. Beyond the complexities of working from home, we've had to change how we work with our colleagues, adopting new rituals, routines, and styles. This is the future of work we've been building for, and this future is in the cloud. But why the focus on the cloud? 1st, teams move faster with the cloud.
They can quickly respond to new projects, scale up new teams, systems, and processes, and become more agile in their execution. 2nd, teams are able to innovate at scale and across functions in the cloud, free from silos and repetitive work. We are doubling down on empowering our customers in a cloud first world. Redfin, a long time Atlassian customer, is a great example of this. Every feature of their app, including recent ones in response to the pandemic, is born out of agile, responsive, cross functional collaboration.
This kind of collaboration is only possible in the cloud. And ENGIE, a massive energy company in the unique position of supplying energy while also saving it. Since standardizing on Atlassian, ENGIE has formalized product development and management processes, enhanced security, increased efficiency and visibility for their 170,000 employees. We're also proudly partnering with ENGIE to reduce our own carbon footprint at Atlassian. Our customers are among those driving important future progress.
They're disrupting outdated industries, they're quickly innovating at scale and they're finding new ways to give people what they need.
If I look at cloud 5 years ago and if I look at the lack of functionalities and the fact that it could potentially have been referred to as Jira Lights, If I look to now 2020, cloud is completely different now for Atlassian and I'm very excited to see where cloud will be in 5 years' time because my personal opinion, and this is as a user and nothing to do with being community leader, I believe that cloud in 5 years time will actually be better than any version of the server has been in the last cloud and how Atlassian is going to evolve as a company as well as also react to the global change, not just with the pandemic COVID-nineteen, but just change in general.
Helping our customers deliver value as quickly as possible is why we are well on our way to becoming a $5,000,000,000 company. And to make this happen, we will continue to make massive investments in our cloud platform, product and services. To compare, look at us 3 years ago, our customers struggled with scale, integration and performance of our products. But now, 3 years later, we're providing customers with a modern, intuitive and unified experience. Our Cloud products are the bedrock of companies, big and small.
And our Cloud platform can launch and scale complex offerings. Imagine what's possible in another 3 years. Everything from predictive experiences to seamless pathways between Atlassian and every third party application our customers use. And thanks to AI and machine learning, we'll be shipping truly smart experiences that accelerate teamwork. And every single product will be enterprise grade.
Innovation has always been the lifeblood of Atlassian. And the kind of innovation that happens at the speed and scale our customers need is only possible in the cloud. At a time when there's great talent available around the world, we plan to hire 1,000 plus new Atlacians with the majority in R and D. I'm excited and humbled to be part of making our product vision a reality. And I can think of no better team up to the challenge.
Welcome back. Hope you enjoyed the video. We are now going to share the 6 pager document diving into our cloud first transformation. The link is available for you now in the Zoom chat, and you can also grab it directly from our IR website. We're going to give you 15 minutes to read through this section, and then we'll be back here for Q and A.
Again, in the meantime, feel free to begin dropping your questions in the Zoom Q and A. See you back here in 15 minutes. We have about 5 minutes left. All right, we're back. So before we jump into Q and A, we wanted to give you a special look at the new long form commercial for our newest offering, Jira Service Management.
Get ready for high velocity.
Okay, Jeffrey.
I'm going to be asking you questions and if you could just respond naturally. Okay. Sure.
So your team recently switched over to Jira Service Management, right, for ITSM?
Jeffrey? Jeffrey?
Hey. Oh, yeah. Sorry. Cut.
Let's I'm bad.
No. It's okay.
Let's do another one of those right away.
14, take 3.
Can you ask me a question again? Hi. My name is Jeffrey, and I work in IT operations. There used to be a lot of disconnect between dev and ops.
Oh, hey, Darnik. Hey. What what are you listening to?
Dev and ops have different communication styles. Yeah. Yeah. Styles. Yeah.
Yeah. So it can be hard to get them to pair up and communicate the way they should.
Hi. My name is Jillian, and I work in IT operations.
Cool. Do you like your job?
Yeah.
Things have changed since we started using Jira Service Management. Everyone is coming together.
It's like a higher velocity overall.
What the hell?
You can come in.
Hey. Hey.
Where do you want this?
You, you can put that under my desk.
Okay. Yeah. I'm sorry. What was the what was that?
Oh, no. You know, one thing is I I wasn't really connected with a bunch of the people in my office. Uh-huh. But since we started using Jira Service Management, we, started working closer together, been getting to know each other better, and we all discovered we wanted to start a band, a heavy metal band. So
It's good. I like the the fill. And the second is like, yeah. Yeah.
So I wrote some songs. So we have Blizzard of DevOps. One's called 404 service injected and one's
Dev and Ops sort of
each has its own style.
Which one do you want to start rehearsing?
So there's been some holdouts in regards to Jira Service Management. You know, I don't want to say any names, but it's just
Jillian. They say JSM leads to higher velocity,
Yeah.
It's so much easier for teams to track actions across dev and ops so we can collaborate way better.
What about wet bile?
That's kind of gross.
What goblin stump? Yep.
That one goes on the list.
What about Arsenic Amadeus?
That's okay.
Oh, some of Beethoven something.
Oh, moths are in the jungle.
Is that a TV show?
Yeah. That's a TV show.
Is it? Yeah. It is.
TV show.
Killer 29, Doberman.
I know the dev team was worried that ITSM was going to slow them down, but we're actually really getting into a groove. Oh. Oh. Buddy, you alright
in here?
You want some water?
I'm good. I think I got it.
Come on. You're down, right? I'm not gonna make this into our 1st show. Come on. Come on.
Come on. We gotta go. Okay. Go. Go.
Hi, Jillian.
I was always worried about losing control, you know? But watching the team come together with Juris Service Management is making me, I don't know, is open up to new things.
What's your name?
Oh, we were gonna revisit that. Yes,
we didn't.
I have one.
It's fine. High velocity.
Yeah. Yeah. High velocity.
High velocity.
Yeah. I got high velocity.
All right everyone, welcome back. Hope you enjoyed the High Velocity Commercial. I think what you're going to see in this section, hopefully you've read it on the paper and seen the commercial. We're really excited for moving fully to the cloud. And I think you're going to hear it in a lot of the answers here that we're about to share with you.
Cameron, I'm going to give this first one to you from an anonymous attendee. What is your goal on migration? What KPIs are we tracking to ensure our success?
Yeah. Well, the number one output you'll see from successful migrations to the cloud for our server customer base will be subscription revenue. Like that's the best way to track our overall success as people move from their maintenance contracts with us to our cloud or data center subscriptions. Double clicking into that, this is one place we have extremely well instrumented across our various go to market migrations support teams where we know every server customer that's outstanding out there. We understand and we can track where they're at in their journey for exploring migrations from are they checking out our migration websites?
Have they tried our free cloud trials that we offer to our server customers? Have they downloaded our migration tooling and plug ins. Taking a step beyond that, we also can track how many customers have actually tried an import or an export of data to our cloud, how we engaged our partners for migrations. And then for our enterprise customers, every enterprise customer, if they come looking into the migrations, we fully track those opportunities pipeline from initial interest all the way down to closing that customer and migrating that customer's data to the cloud. The most important metric following the subscription metric is once the customers migrate over, are they happier?
Like, because all for not like there's no reason unless the customer is in a better place at the end. So we do routine surveys post deployment to both administrators as well as end users of our products to ensure that they are better off after they moved. And overwhelmingly, we see an improvement at tick up and overall customer satisfaction once they've migrated. That helps us continue the loop because they're telling other customers, they're helping other customers through and we become more and more efficient through the overall migration process.
That's great.
Just go for it, James.
I can just add on and give a little perspective about what we said about subscription revenue growth rate, both in the current fiscal year and in fiscal 2022. And certainly, I would expect the migration effects, the benefits that we've laid out in the paper to be relatively modest in this 2 year period. We talk about more of the migrations, certainly for the larger companies coming in fiscal 2023, 2024. So taking a step back, on the earnings call, we talked quite extensively about the short term revenue headwinds that are impacting the coming handful or so of quarters. But then also going in the positive direction, we're very pleased with how the economics of the cloud continue to develop, both our ability to move up the additions ladder as more and more of our standard customers choose the benefits of the premium additions.
We continue to work on the other beneficial effects of the cloud economic model, better ability to cross sell and so forth, things we've talked about quite extensively in the past. So you net that altogether and we arrive at our current projection of mid-thirty percent revenue growth in the subscription line for both this year and next year. Now of course, one of the variables here is that it is up to our customers as to when they actually make the migration decision. So always remember that. But that's our current thinking on this topic.
That's great. Thanks, James. This next question, Cameron, I'm going to start with you on this one too. But Mike, I have a feeling you're going to want to follow on. At the top of our question queue, another anonymous one.
It seems tough to understand you stopping service support in 3 years, but also expecting 2 thirds of large customers to migrate post fiscal 'twenty three or fiscal 'twenty four. Can you help us understand that dichotomy? Also since your announcement, any rethink on the 3 year time frame for sunsetting server?
Great. Thank you. So let me answer the second part first of any rethink and the answer there is no. We've I've met with plenty of customers, got plenty of feedback and had direct conversations. The reality is we're giving customers 39 months to make a decision on to move to our cloud or our data center products.
And that is more than enough time for the average enterprise, even the not average enterprise to make a decision and begin migrating. So there's been no rethink on the 3 years. As far as like why is it going to take the bigger customers longer to migrate? The inherent nature of that is bigger customers take longer to make decisions. The migration complexity is much like the complexity of migration honestly corresponds to how big you are.
The bigger you are, the more users you have, the more customizations you have, the more apps you have. And we've also noticed is that, you know, they've probably been using our products for a longer period of time. So on top of the technical capabilities of migration, which I'm more than confident that we'll be able to handle, and then the regulatory and compliance and all the other things where customers need to go through with us, so that they trust us with their data, is the actual change management. Retraining everyone of, you know, what the cloud experience is going to enable for their end users and so on. So that is why we believe just these larger customers are going to take longer to migrate.
I also want to comment that why that 2024 wall of the server becoming maintenance going away and server going away maintenance and support going away is remember, we still have data center out there. And a very large portion of our largest customers are already on data center today. And data center will continue to support for many years, many years to come. And that gives those largest customers a fallback if they're conservative about going to the cloud that they can sit there and they can take their time as far as how long they wish to migrate to cloud. Now across the board for every one of those largest customers, we have plans and are building roadmaps to know that when they are ready to move over, we'll be able to handle them.
Mike?
I mean, I just that was a 100% everything Cameron said. One small thing is a lot of these big customers, the largest of the large, don't move in one day or one moment of time. So we are seeing, for example, very large customers may try out the cloud for a year, they may take a department, a group, a geography, often these customers that have 3 or 4 very large Jira or Confluence servers and in a whole host tens of small ones, they might move 1 or 2 small ones across. So tracking satisfaction of those customers and making sure that they get familiar with our cloud environment over that multi year period is a win for us even if we don't you know that 90% of their usage doesn't move for a couple of years they will start using our cloud and that's good they will see it as better they will see it's connected. They'll see all the advantages of that, which will further encourage, we believe, them to bring that timeframe in, right?
As they say, wow, that group's performing better. It's cheaper for us to run. We get better outcomes. So for the big customers, remember they don't usually have one Jira Software or Confluence or Jira Service Management Server. They have lots, so we can move parts of that as well.
I was on a call with the CIO of a very large tech company, who actually had never moved to data center. They've been using our server unlimited licenses for some time and was talking about the news and he finally said, okay, great. This is actually the kick we need to actually start the cloud transition. You're actually one of only 3 vendors that we currently still use on prem. Everything else we've moved into the cloud.
You know, so let's start that conversation. But for a company that size to say, great, like, what's your timeframe thinking like, hey, we'll start, you know, migrating tomorrow is like, woah, you know, fella, like this is like, we got to go through our legal review, our data privacy review, like all those long lists that those enterprise requires. That's, you know, before they even start talking about moving their data over to our cloud. So but the good part is every single one of the questions that you had are related to that migration story, technically, financially, commercially, you know, we're prepared to answer.
Yeah. If there's one last thing I can add philosophically on this, I hope if you read this 6 pager and zoom out for a second, you can see classic Atlassian sort of urgency and pace to get to the future mixed with pragmatism and customer friendliness here, right? You're really seeing one of the things that's been great in this launch, the number of people saying, I've got these 10 customer questions, we thought about them all in advance, we've got answers to them, we're working on things, we thought through this we had a great you know team to direct this person to etcetera it's been a real whole of company effort very very thoughtful very, very customer friendly, and we've been, I would say, incredibly proud of the entire Atlassian teams managing through this, what is a complex transition for us, for our customers, etcetera, but we're attacking it with the traditional Atlassian philosophies and pragmatism, and I believe we'll do a really, really excellent job.
That's great. Thanks, guys. In the same day, I'm going to pull up a question from Jackie Glynn, which is kind of about enterprise migration specifically. So the question, Cameron, I'm going to have you start with this one. Anyone else please jump in.
As you look at the enterprise side and your expectation that a lot of that happens in the latter half of the transition, what are the critical ingredients you need to put in place for those customers to be successful in migrating? From my own checks, a lot of it is regulatory. How confident are you in your ability to meet those deadlines you put in place for those features? I'm going to add on to that. We get questions a lot about app extensibility as well.
So Cameron, perhaps you can touch on that as well as kind of how we've shared our roadmap publicly to give our customers some visibility into where we're headed.
Yeah. So first, I want to reiterate that about a year ago, Atlassian started a real concerted effort around getting enterprise customers to migrate. We call this our lighthouse program. We brought in a bunch of early customers and to build up these muscles of what is it going to take to get these customers to migrate over? What are the technical capabilities we need to do and build up those processes?
And, you know, to a tee, almost all of those customers have successfully migrated or in the middle of their migration plans. And I personally get on a call with each of them once we've migrated to have the discussion of what can we do better, what was easy, what was, you know, and this helps us improve our customer engagement, our technology and how we're actually just marketing this entire migration story to our customers. But overall, the majority, I'm thinking, hey, these are going to be a massive technical projects with, you know, riddled with challenges. In general, every single one of them is like, hey, this is actually in line or better than what we were expecting through migration. So that gives me confidence so we can handle the migrations.
As far as, you know, the biggest enterprise customers out there that potentially still have challenges, you know, there's I put them in 3 different buckets. 1 is massive scale. There's some customers out there with 200,000 users on a Jira deployment or a Confluence deployment. And we simply need our enterprise product in cloud. It can support that today by staining up lots of cloud instances.
But sometimes these customers want large deployments. My answer on that is, you know, a few years ago, Atlassian's cloud only supported up to 2,000 users in a single instance. Now we commercially support 10,000 and by the end of this fiscal year, well beyond that. So I have full confidence in our R and D teams to handle that technical scale for customers like and perform with performance app or better than what they're seeing in server or data center. The next big bucket is regulatory compliance.
The best part about all this is it's we know exactly how many customers are in those categories. In those industries, we know exactly the requirements that each of them have. And you'll see the big ones for federal government. We have FedRAMP that we've committed to supporting. We've already supported FedRAMP and Trello today, And you see that on our public road map.
So we'll support FedRAMP, and that handles a good portion of the federal government. You have HIPAA for health care. We have a large portion of health care clients, and we also have HIPAA on our road map and FSI for financial services. Now there's a bunch of long tail regulatory compliance things, but the reality is once we do most of the core architectural and product work to support those 3 big regulatory and product work to support those 3 big regulatory areas, it unlocks the long tail of all the different ones for specific industries. And each of those I just mentioned is on our public cloud roadmap.
And customers like they see that, they see the time frame, they go, okay, great. Like, let's start let's start the conversation. Let's start our planning. Those are the big ones. The last piece I'll talk is apps and extensibility.
Right now, the best part here is, especially with this news to the server customer base, if a server app vendor does not have a cloud app yet, I guarantee they're out there trying to build 1. Because like, and so I expect like apps and app availability as a potential blocker to, you know, really be minimized over the next couple of years. But even today, when we meet with customers, we have an app assessment where we sit down and we go through the apps that they're using. And I'd say 9 times out of 10, what they consider critical apps, critical parts of their workflow that they can't live without, there is an app equivalent on the cloud, either that exact app or something that does similar to it, or we've built that capability native into our product like automation. In addition to that, there's a set of other apps where they can decide to live without or we reach out to those app vendors to see what time frame those companies are building an equivalent app.
And that only accelerates those development developers to build equivalent apps in the cloud. So like I said, that's not my near primary concern for me. The coolest part about what's all on top of cloud is with our new cloud app platform or with Forge, there's a whole bunch of new capabilities that we're going to unlock for our app vendors where we're going to take on a lot of the burden of managing, hosting, data security and privacy for these apps, for these vendors. And that will only once again accelerate the innovation that's in our ecosystem that is so critical to our customers.
Again, Kevin smashed it with the answer there. Look, the one thing I would say is, we have done a huge amount already in the last handful of years on scalability, compliance, the marketplace has come a hugely long way. Thank you to everyone in the in the, the broader Atlassian economy for that. And as well as cloud connectivity, the platform, the bridges between our products and just the products themselves. People inevitably say the cloud product is just better at the core, put all the compliance, all the scalability, security, everything to the side, the actual product you're using day to day is a better product.
So we've done a massive amount of work in the last 3 to 5 years to make sure that that is the case. That serves 2 purposes. 1, it makes migrations easier because people know that. 2, is it builds confidence in Atlassian. We obviously, you're probably all well aware, we spend a little bit more than the average bear on R and D and we get great delivery and impact from that.
One of the things that builds is customer confidence. When we talk to customers who say, I'm migrating in 2 years, I'm starting the planning now, I'm doing all these things. They look at the last 3 years of our delivery in the cloud and say, wow, I'm confident that you will hit those things because of what you've shown me in the last 2, 3, 4 years. And and we're really proud of that. I think that's really important.
We're building partnerships with these customers to make sure they understand. They've been very thankful about how open we've been on timings, on management, on the roadmaps as also seeing our delivery of things from obviously premium and cloud enterprise SKUs through all the features that Kevin's talked about that their confidence in our future and our continued delivery if they are in that again for the massive majority of customers they can migrate today, right, so we're talking about this small subset that have needs that we're in progress of continuing to serve. Their confidence level based on our existing delivery is very high and that's a very comforting position for us to be in and helps us build a real partnership with these customers.
That's great. Thanks guys. I think for this next one, Scott, we're going to have you take the question from Michael Turrin and Robert Majic together. So I'll just read them both. First, how should we think about the impacts of pricing, loyalty discounts on mid-thirty subscription revenue growth rate in fiscal 'twenty one, fiscal 'twenty two?
And then the second piece is if the entire server base migrated to the cloud today, as we compare server maintenance to cloud subscription revenue, what level of or percentage of uplift would that drive excluding discounts? The customer examples we provided were helpful, but wanted to have a little more color there.
Great. So, I'll answer that and a few other questions that are there. So firstly, the way that our customers think about it, the way we think about it is the total cost of ownership of running Cloud is significantly lower than what our customers spend today to manage our server products. And there's an example I think in the paper that talks about their admin team of 6 goes down to an admin team of a part timer, that's significantly more expensive than the products that they're buying from Atlassian at the moment, those operational costs. And someone else's question I think was, well, what do those admin people do?
Are they going to be laid off and are they going to contribute to a migration project that ends their jobs, which I thought was a very thoughtful question. But actually those admin people go on to do high value activities for their organization because managing databases and servers and operating system upgrades and all the things that have to go into managing our servers, products is a sort of a cost that we can do much more effectively for our customers and those people can go on to helping manage work better in their organizations and actually using our products or building 3rd party applications. So the total cost of ownership is significantly lower because there's less of that busy work. There's less admin work, you know, doing things because we can configure and integrate things in the cloud a lot easier than people can do behind the firewall. If you want to integrate with 3rd parties because we're both Cloud and products, that's a lot easier than trying to integrate with multiple products behind the firewall where they have to do all the integrations themselves.
And also the total cost of ownership ends up being lower in some cases because we can expand quicker in those companies and that means that the friction is a lot lower for our customers to reach our customers in the Cloud. And that's a benefit for the customers as well as they have to have less admins do proof of concepts and try and sell stuff. So I think our TCO is well earned again over time we share in that. And we've talked about that we have 50% discount. Someone asked about is that when they move or is that on a sort of a calendar year basis and it's on a calendar year basis and so that incentivizes the people to move earlier than moving later and so they step up irrespective of when they choose to migrate.
So we and as part of that, we're also customer friendly, you don't pay for 2 licenses at the same time. Your server annual Cloud license will give you a period of grace to move stuff across where we'll give you 2 licenses. And so effectively, we're kind of sharing that TCO decrease mostly with the customers in the early years and over time, we get to capture a bit more of it, but it's still way less expensive than the cost they have to run today. There were some questions around, well, what happens in that migration? Do you, if it looks like on the headline it's more expensive, are you worried about competitors?
And there's a couple of things. Firstly, our prices are public, so you can go, you know, check all our prices on both sides and people are asking about how to run the spreadsheets and percentage uplifts and stuff like that, all our prices are public on our website, right? So you can go run as detailed a spreadsheet as you'd like. But the reason I'm not worried about competitors, we obviously consider them, but it doesn't keep us up at night is that firstly, the TCO is just so much lower, right? So when people look at their spreadsheets in budget planning cycles, they're actually like, wow, I save money moving to cloud.
And the second one is that we're significantly cheaper than our competitors and that's always been a strategic advantage for us. In many ways that allows us to have lower cost of sales and go to market, our costs to acquire and keep customers because we are a very effectively priced product for what we do and so if moving to another competitor would largely be more expensive. And so anyway, I feel like there's sort of a broad thing on how we're moving to cloud and we just want one last one, while I have the mic is that someone said, well, have we considered doing cloud only features in our products? And I was like, well, there are dozens if not hundreds of cloud only features in our products today that make the cloud experience a way better experience. And so, we're seeing everything from better performance because we run global content delivery networks.
So we can effectively, if you're a global organization, we can make our products faster for your globally distributed staff through to product features like global search and other things where we can improve and iterate them on faster than we have in our behind the firewall product, as well as the integration between them all, integration with third parties. So the list of things that is better in cloud is already enormous, and our customers recognize that in their migrations and one of the reasons why 95% of our new customers today choose the cloud.
Scott, you're going to get credit for answering 5 questions and one there, a new all time record. All right. We're going to move on to cross sell as a topic. I'm going to read, I think, Cameron, you're going to start here in terms of the answers and throw it across the team. I'm going to read Arjun Bhatia from William Blair's question first and then throw in a couple more topics into that.
So the question is, how does your ability to cross sell evolve as your large enterprise server customers move over to the cloud? And how do you think about the progression of the 121 net expansion rate as migrations accelerate? I'll throw in there, there was a couple of questions around Jira Align specifically as part of our cross sell motion. So, Cameron, maybe you could address how we're thinking about Jira Align as part of our cross sell capability going forward?
Yes, let's hit both of those. So first off, how does cross sell get easier once people move to the cloud is basically the question. Let me tell you just broadly and go to market, we spend a ton of time and energy getting new customers in the door, right? Like the new customer number is the number one goal, but the majority of the revenue in our business continues to be driven by expansion of our customers. And that's customers adding more users, upgrading through additions of our products, and of course, adding more products.
In my experience with the server and data center business for such a long time, cross sell, you just got to think of the barriers a customer has to go through on a server deployment to add another product. First off, you know, we'll email, we'll market, we'll do ads, we'll do everything we can to surround a customer with potential new products that they could go use. Then someone, preferably with administration access, needs to go to our website, download those products, install them, get an evaluation or a trial, get that, get inform everyone else that might be interested, get them on the product to go through the trial, go through the purchasing experience, and then integrate that with whatever product they had on prem before. Like the amount of time, energy, and complexity of that is, you know, and how much Atlassian has visibility into those different pieces is very gapped. Right?
Now we are very good at it and very stable, it's one of those things that it's just it's a lot of hard work. With cloud, like the like what is what excites me so much is so much of that just goes away with since all of our products are built on this cloud platform now with share identity, share search, share common navigation. And on top of that, we know relatively usage data. So we know what people are, you know, what what what type of value they're deriving from our products. It's very easy for us to target user experiences or intuitive workflows that bring them into other products.
So for example, we might notice that someone's writing essays on a Jira issue ticket. And we might actually go, you know what? If you're writing, you know, 3,000 words on an issue, maybe you should go to Confluence and link a doc. Those are capabilities that we can expose to an end user. And now that everything's built on the platform and we have these free versions of our product that that end user can kick a free instance off of Confluence without anyone else involved and just start working and using it.
Right? Like, the the simplicity of product expansion just rapidly accelerates. And on top of that, the fact is it's all an infrastructure that we're tracking. So our ability to experiment, test, run data, run cohorts, like we just get so much rich information on how to build richer experiences. And we're not just using the blunt instrument instrument of emails and advertising.
2nd conversation, what about Jira Align? So, Jira Align, which most of you might know, is the product AgileCraft, a company we acquired a year and a half ago. I was happy to be the exec sponsor bringing that product line in, and been very happy with the results today. Jira Line is unique in the Atlassian portfolio in that it is the only product in our portfolio today that we only sell to enterprise customers. We acquired that product for our largest customers because it was built and designed to solve, you know, the largest enterprise customer needs.
Right? It has many of the enterprise capabilities to really what it is is tie all the work that is happening across your business at a large enterprise with tens of thousands of users and align all of that work to your company's strategies, goals and outcomes. And it's exceedingly powerful to do that, but it's one of those that it's a very enterprise product. The good part there is those large enterprise customers that we are bringing Jira line to are the customers that have largely standardized on Atlassian products for their software development tool chains or into their IT operations use cases. Like, they've already well bought in and are an Atlassian company.
And when I meet with CIOs, like, this was the core reason why we brought AgileCraft in was they're like, listen, we know everyone is doing all of their work in Atlassian. Like, all the work is happening in Jira, Confluence, and Bitbucket, but we just simply can't get a view into it that makes sense as an executive. Like, we know everything's all the work's happening there, but how do we know it's the right work? And that's what the Jira Align promise delivers is that we can tie all that work to the business outcome that an executive team can actually see. But that allows us to be exceedingly focused to a small subset of our customers with Jira Align and we've been very successful to date.
Some of the largest banks in the world are deploying us just for that, where they're tying multiple large Jira deployments together via Jira Align to tie to their corporate strategies. We've seen very large success in health care and telecommunications as well, like 3 industries that seem more than right for what something like Jira Align can deliver.
If I could perhaps just jump on to that answer, Cameron, and give a few thoughts around cross sell as well because we very much believe we are early in this opportunity for our coming growth. Just reading ahead, actually, one of the things we'll note in our next paper is that Jira Software and Confluence combined account for around 60% of our revenue. And I think that's a nice illustration of how we have successfully cross sold historically. And indeed, the ecosystem, the marketplace is another example of that. But the other side of that coin, of course, is that the other several or so of our products represent less than a third or so of our total revenue.
So I think there's an illustration there as to the potential for them to continue to expand very nicely through cross sell. 2nd point I'd make is that at our last Analyst Day, we made a few observations that Jira has had around 5,000 customers at that point in time out of a total of about 138,000 customers back then. So this is about 5 quarters ago. That ratio hasn't materially changed up until this point. So I think that again illustrates some interesting opportunity ahead of us.
Similarly, at the last Investor Day, we talked about the time that it was taking to get a customer to the second product on average, and that was around 2 years and indeed around 6 years to get to the 3rd product. And I would say that directionally, again, that hasn't changed in the last handful of quarters or so. So again, I think illustrations of real opportunities ahead. And then I think just to reemphasize, I think the platform work that we've been busy on creates another interesting vector for cross sell and that is around products like JSM that in essence bring a variety of capabilities into the same offering. And then Access is another, I think, very interesting development over the last year, year and a half or so, because again, it cuts across situations where a customer has multiple of our products and gives another lever, another cross sell vector, if you will.
So when you roll all those things together, feel as though there's a lot of opportunity ahead for us to continue to cross sell. And that's not even including this upsell notion as we bring people along the ladder of our cloud additions, free, standard, premium and enterprise.
That's great. So we're running out of time in this section. We're going to combine a couple of questions into one kind of last topic to explore before we move on to the 3rd section. And I think this kind of goes into the category of understanding our growth rate relative to the past growth rate, especially around the subscription business. So I'm just going to read the questions.
One is from Alex Simpson at Jericho, one is from Keith Weiss at Morgan Stanley. And I think we'll have James start here. And then if anyone else wants to follow on to James, certainly go ahead. So first question is, even during the challenging COVID period, you grew cloud ARR 35% without much help from pricing. Why isn't the subscription migration process additive to this growth rate in fiscal 2021 2022, such that subscription revenue growth is faster than the 35% you're expecting?
Similarly, it seems strange that you don't see more of a benefit from migration at all in fiscal 'twenty two. And then kind of in the same vein, Subscription growth has been 44% in the last 12 months. Help us understand what's assumed in the mid-thirty percent growth in terms of churn. So James, why don't you start there and then we'll let anyone else jump in to finish it up after that?
So in terms of the migration effect around the subscription revenue growth rate that we've outlined today, as I really noted a little earlier, we would expect those smaller customers to be the ones who are migrating to a greater degree in the next in the balance of this fiscal year and in the next fiscal year. In fact, we show a graphic that gives you a sense for the shapes of those migration curves. We've broken out the number of small versus medium versus large sized server customers and giving you a feel for that equation as well. So relatively modest migration effects in fiscal 2021 2022. The examples that we laid out in terms of pricing for these different sizes of customers, yes, there are certainly differences across different products, different tiers of user numbers across the products, but we very much feel that those are directionally helpful for you to get a sense.
And as you've seen in the smaller customers, there are going to be circumstances where we would actually have a revenue headwind as someone moves to the Cloud off the server. And the key points to really emphasize here is that we're moving from a tier user tier pricing structure in server over to much more of a per user pricing over on the Cloud side of the business. So it really comes down to, in part anyway, where you sat when you're a server customer within that user tier. So if you had been right up at the bottom or if you're at the bottom of the user tier on the server side of the house, you are paying for that full tier capability. But then, of course, over on the cloud side, you're only paying for the number of users that you're actually having utilize the product.
That's what can really bring the economics down in the short run. We've talked about how our users grow 20% faster on that same product in the cloud. So we're very comfortable that over time, those economics work for us very nicely. But in the short run, there will be more headwinds around the smaller customer end of the market. And then you see nicer benefits from our perspective in the middle size and then larger still for the larger customers, very much commensurate with the value that we're delivering for those different categories of customer.
But nonetheless, because there'll be that smaller mix of customers migrating in the balance of this year and in fiscal 2022, we'd expect relatively modest effects benefiting our subscription revenue line in that period. Now in terms of churn, the impact on the subscription revenue there, Certainly, we as we model out this, expect that there would be some portion of our customers for whom they're not able to move over to the cloud, some of the points that Cameron was making a little earlier, things we're still working on. And for some of those companies, the data center may be just too much of a pricing increase versus where they are behind the firewall on the server side of the house. So yes, we'd expect some of that, but we're very comfortable that net net that all works out very well for us economically. In fact, as we obviously see more and more of our customers migrating over to the cloud, we're very pleased with the reception that they continue to give us.
And so we're very confident that this will work out very well for us over the next few years.
Just one additional comment on the cloud churn side, James, is the what we've been able to do is build a new muscle over the last 6 to 12 months where we can very accurately watching usage data within our cloud customer base qualify whether a customer is potentially at risk for churn. This model was something we've become getting much more mature and much more accurate. So if we see a customer flag into an at risk category because their usage patterns don't look healthy, we can proactively reach out to those customers either with our own support teams or our partners to basically remedy the situation of those customers and get them back to healthy. This is a quintessential Atlassian thing is instead of just throwing a bunch of people at all the customers, make sure that they renew and continue to be successful, We're using data to make sure that where we engage with humans, we're being as efficiently as possible.
And just one small fact in James' answer there was some description of the difference between a server license and then the cloud equivalent license in terms of users. You can see from some of the sample customers and pricing that we've given you in the 6th page that that's why those numbers are different just to tie those 2 threads together. So there's an example of a 50 user server maintenance that moved to a 30 user cloud equivalent. To tie James' point in there, they only had 30 users in the server, but they had a choice of paying for 25 or paying for 50. So they paid for 50, they had 20 empty seats.
You want to think about it. When that customer moved, they had 30 customers in cloud. So that's why when you're running all your models, we've given you a series of examples to show you some of that translation that James just talked about there, just to tie that back to the actual document.
Great. Thanks, guys. Before we move on to the next section, I'm actually just going to step in and answer a couple of questions about cloud metrics, specifically ARR net expansion. So one question was, how often will investors be updated on cloud ARR growth and net expansion? Another one was how those rates trended kind of pre and post COVID?
And do we have longer term targets to consider? So that last one was from Derrick Wood at Cowen. I'll just hit these really quickly. So, in terms of the frequency of updating, I think we're sharing these for the first time today. And it's something that we will probably share again.
But on a relatively kind of infrequent basis or kind of when it seems to make sense from an update. I think the larger direction that we're moving towards is being able to more transparently disclose to you kind of the state and evolution of cloud revenue, cloud revenue growth. That's something that you'll expect to see more from. So, more to come on that front. We're happy to be able to share them today.
I think specifically on how net expansion rates have trended. I think the 121 percent net expansion rate certainly was impacted by COVID. They've trended in the mid-120 range. So, it's been pretty stable for the last 12 months or so. And we've seen a bit of an impact, but already started to see a rebound and that's something we talked about in the Q1 earnings call as well.
So, it's nice to see that momentum, especially inside of the macro environment. Again, we're excited to be able to present those to you today and we'll share updates on them in the future as well. With that, Martin, I'm going to give you the mic and to hand us off into the last section.
All right. So, we're going to jump into our last section, investing in durable competitive advantages, how we're going to scale past $5,000,000,000 in revenue and beyond. We're going to start with a video featuring our Chief Administrative Officer and General Counsel, Erica Fischer and our Head of Sustainability, Jess, who will touch on company culture and why it remains a top priority for us. We'll also hear from our CMO, Robert, who'll talk about how our evolving model has always been customer value focused. With that, let's roll the video.
Here at Atlassian, we operate the business with a long term mindset that is all about adaptability, scalability, and impact. It means that we stand firm in our values, but that we also make trade offs where, frankly, many other companies simply cannot, And that we're smart about how we capture the massive market opportunities that we have as a company. This mindset is rooted in our business model, which is all about propelling more customers into an always on flywheel of high quality products, great marketing and fantastic customer service. Key to its sustained success is the thriving economy growing all around Atlassian. This is the model that we've been improving, adapting and scaling year after year.
And it's one of our more incredible competitive advantages. The people and the products that propel our flywheel are critical to our present and our future. This means that we're going to work with our field partners, our solution partners, find new ways to acquire, engage, and strategically expand with our customers, particularly those enterprise buyers. Now, it also means that we're going to continue to invest in what has always made Atlassian very special, that consumer grade scale and reach that is uniquely Atlassian. While we also do things like launch new initiatives to grow that flywheel.
A good example of this is when we launched our free additions this year. Free dramatically expanded the volume of top of funnel traffic that we get to Atlassian. This is why, when given a choice, at Atlassian, we will always go for long term gain over short term ROI.
We believe that our business can only be as strong as the culture that supports it. Since the very beginning, we've built an open, connected culture that's ready for pretty much anything. And over the last 2 decades, we've faced countless changes and challenges that have allowed us to test the resilience and commitment to that culture. We've been unafraid to make hard calls or take brave steps in the face of these changes. From going public as a company to shutting down products to building the future of work, our values allow us to do it together as a team, even when it would be easier to take a tops down approach.
For years, we've been working as a highly distributed global company, and we've long been experimenting with fully remote teams. Now, today, how you work is becoming just as important as and maybe even more challenging than what you sell or what you build. The whole world is learning this
lesson
We made this decision with a long term mindset because we felt it was the best thing for our business and for our customers. We didn't do it because it's trendy or because it made for a good headline. Rather, we did it because it allows us to create a structure where our teams can remain highly adaptable, scalable, and impactful. As we look ahead, I'm deeply aware of the huge responsibility on our shoulders. Our customers are counting on us to tell them what teamwork should look and feel like now and in the future, and to give them products that help them get there.
Ours is a culture that puts human beings at the center. It's a culture that leads gracefully, and it's a culture that empowers teams to truly shape the world for the better.
Being a company that's built for change, scale and impact means that we have to show up in tangible ways. This is why we're just as committed to sustainability as we are to our products. We think about it as embedding the goal of social and environmental progress in everything that we do. This is what it means to be a company that is truly focused on the long term. To combat global climate change, we started by looking inside our own walls and set an ambitious goal of being 100% powered by renewable energy by 2025.
And you know what, we were able to achieve it in 2020. So our next big goal is to reach net zero emissions by 2,050. And this work is far from done, in part because our sustainability vision goes further than most. We believe you can't fully solve for climate change without addressing the underlying racial, gender and socioeconomic inequalities in the world. Atlassian is for everyone and integrating diversity, equity and inclusion across everything we do will help drive the structural shift needed to unleash the potential of our own teams.
And in true Atlassian fashion, we're being open about our journey, missteps to share the lessons learned with the global business community. For example, our first sustainability report, which was launched the 1st year of having a dedicated sustainability team, demonstrated this real authentic commitment to just being agile in our approach. Look, it was far from perfect, but we were open and honest about our gaps and goals. We're really only at the beginning of our journey to being a good global citizen, while also helping teams all over the world do their best work.
Okay, time for our last 6th pager. This last section focuses on how we invest in durable growth. The link is available for you in the Zoom chat and on our IR site. We're going to give you 20 minutes for this section and then we'll come back once again for Q and A. Feel free to begin dropping your questions in the Zoom Q and A and we'll see you back here in 20 minutes.
We have about 5 minutes left.
Hello, everyone. Welcome back. Moving into our last section here, we have got about 30 minutes for Q and A here. So, it should provide for a nice, rich discussion. I think what we're going to start with is sales and marketing as a topic.
Generally, there's a lot of interest there. We'll move on to R and D kind of post that as a general game plan. So, the first one, Cameron, I'm going to put you on topic for this one, which is you've had great success with your direct sales model with your relatively low sales and marketing spend as a percentage of revenue. At the same time, I imagine the ratio between your customer lifetime value and customer acquisition cost is very wide. Why not invest more in the enterprise sales force or other initiatives which might drive more net adds and generate a higher return on your investment.
There's also a question just about kind of who are these 125 enterprise advocates that we have? That's grown a lot. Can you just provide a little more color on that as well?
Great. So the, like, Cameron's the new CRO, he's going to go huge on enterprise sales, you know, and, first I want to reset everyone here is I've been at Atlassian since 2012. I've held roles in our advocates org, our marketing org, our growth organization, our R and D teams, I even had corp dev for a little while. All along the while, I've continued to be amazed at how Atlassian goes to market. Like the reality is we are the most unique go to market machine in enterprise software.
It's part of the most interesting and exciting part of my job. And that's and I came from more traditional enterprise software companies where, you know, like revenue targets basically drove down to sales attainment, sales capacity, sales quota, and you basically tied your revenue growth in your business to how many reps you could hire next year. That's not how Atlassian operates or has ever operated. We are a much more efficient system than that. And where we bring humans into the sales process, we have an exceedingly high threshold of proof.
You know, we don't do it just to, like, drive sales capacity. We do it so to make sure if we're gonna add a person, a very expensive person, into our funnel, we're gonna make sure it drives revenue off the other side. So, that said, when I started at Atlassian 2012, an unlimited license of JIRA, the most expensive thing you could buy from Atlassian was $8,000 Like now, 8 years later, you know, we are regularly doing multimillion dollar deals. Okay. All, and we've been able to do that and evolve because we've built enterprise teams.
We've had more expensive products, and we've evolved our go to market to be able to do that. But once again, at a very high threshold. The Enterprise Advocate team, as you mentioned, the 125 people, we started that team right when we launched data center. If you remember that, that was about 5 or 6 years ago. Because data center products, those ASPs became high enough where it made sense to actually call customers back and walk them through the pipeline.
But we didn't just apply enterprise advocates to every enterprise customer. We started with a small subset of our customer base, our largest customers. And as we could prove that out and we did cohort analysis, we knew that every rep we added would add a significant portion of revenue to the overall business. And that's essentially scaled that investment. But once again, where I confidently know is that by continuing to keep sales and marketing as a overall lower expenses we have in our business model, allows us to out invest in R and D and out invest our competitors.
And I'm telling you like that is the number one sales pitch we have is that for every dollar you spend with the Atlassian customer, you're going to get the majority more of that dollar in R and D and product back, right? You're not paying and we can say that and that's better than any competitor in the market. It's the number one value prop that I love to use in our go to market model. Specifically for enterprise advocates, what they do today, we run 4 motions. There's a portion of those enterprise advocates that reach out to our largest customers that we've defined, well segmented, and they are in charge of guiding those customers through migrations.
Historically, I was getting our largest server customers to data center. But over the last year, that's transitioned more to getting from a server to cloud experience. Once again, these are customers, many have standardized on Atlassian products wall to wall. Many have technical account managers that they pay for from Atlassian and our enterprise advocates are guiding them through the technical, commercial, financial decisions to migrate to our cloud. In addition to that, we also have dedicated enterprise advocates for specific motions, like Jira Service Management, where we are going to those adjacent departments or buyers through our enterprise customer base and introducing new solutions.
We have a similar workflow for Trello as we take our largest Trello customers who might be on a free plan or a business plan and upgrade them to our enterprise plan. And then of course, Jira Align, which I mentioned earlier. Jira Align is unique in that every single engagement has an enterprise advocate associated with it. Whereas everything else I mentioned there has those customers can purchase self-service, they can purchase through a partner, but we also apply enterprise advocates. So those are our 4 key motions today.
We are continually, you know, whether we're going to invest more, like we will continue to invest as the company grows. Will we grow past that 15%? What I want to say is, listen, any place where we know we can drive revenue through increased go to market investments, whether that's marketing for performance marketing and advertising, or new salespeople or customer success people to reduce churn. You know, we like I have great partnership with the executive team that we absolutely can make those investments. But like I said, we are, that I'm very proud of the machine we built and anything that would change that current investment structure has to have a very, very high threshold of proof.
And we have lots of data and we make sure we do these decisions smart and over an extended period of time.
Just if I That's good. Go for it.
Thanks to that Cameron. It's interesting I think to note the multiples in our paper as to the resources that we've gradually added to go to market over recent years, as Cameron's been talking about, while maintaining that 15% type percent of revenue invested in go to market resources. And the other thing I would really call out is, Miracle, on the last earnings call, we talked about the big deal statistics and how we've been able to drive significant increases in the $1,000,000 plus accounts, 76%, 56% growth in the $500,000 plus accounts. So those have been the fastest growing statistics in terms of size of customer relationship, which I think is a great testament to the work of Cameron and his team.
That's great. Thanks for adding that, James. And actually, one I think that addresses a lot of the sales and marketing questions that came up. There's one which is a little more tactical, but I think important on this point. Cameron, maybe by a little color.
Long term, how should we think about the mix of both direct and indirect revenues across geographies, Americas, APAC and EMEA? To me, this just feels like help us understand better how we use our partner channel and how important they are, especially in migration, especially with larger customers. It's something that we talk about at a high level, but maybe you could provide double click in terms of that importance to our model.
Yes. I absolutely love our solution partners, that they provide scale in everything we do and they provide a lot of that kind of last mile delivery for our customers across all stages of the funnel. So they're serving markets that we don't have presence. They're serving in languages we don't have a presence. They're transacting in currencies that we are not transacting in.
More importantly, they're doing on-site demos, on-site implementations, training services, you name it. Right? They just give us so much scale across everything we do and directly. How I view the solution partners, it's less about geographic. It's more about customer size.
Like we have some, you know, countries where we're probably heavier in partners than otherwise. But when you look broadly across all of our geographies, it's less direct indirect. It's more customer size and where I believe the customers fit in. My belief here is our enterprise customers, especially the ones that are doing large migrations or large wall to wall deployments or doing massive digital transformation on the back of Atlassian are going to require handling. They're going to require technical services, business consulting services and change management.
And that's something that will require services and solution partners to go deliver. So I largely believe with our enterprise customer base, almost every all of our enterprise customers have some relationship with at least 1 or multiple of our solution partners or global system integrators that we have relationships with. And I'll continue to engage there. I also know that customers who do have a partner involved often use more products from us or more successful and have higher renewal rates. So it's nothing but an accelerator for our overall business.
That said, we'll never force customers to go to a partner. Like it's all about customer optionality here. If customers want to do it all themselves and they want to take it all direct and go through the website and have their own internal teams, by all means, we're here to support them. But I do know that these complex customers, like a lot of these complex customers, they simply just, who can we write a check to to go do this work for us as quickly as possible? And we have a great set of solution partners that they can choose from to get the best value and the quickest transition for them.
Let me just add one stat because we've traditionally talked how partners have represented about onethree of our revenue. And we note in today's paper that, that's now up to 37%, of course, on a higher base of revenue. So just an illustration of how partners continue to add to their importance to our go to market activity.
It's a great call out. I'm going to move us on to kind of the next big topic here, which is kind of R and D efficiency, R and D ROI. Cameron, I like how you said that every dollar that we essentially invest in the sales and marketing is also an investment into R and D from the dollars we get back in the business. So I think, let me start, Michael, I'll have you answer this one, which is one of the areas which is less understood is how we spend on R and D, which is extremely high, but quite a lot of our new products over the last 5 years have been acquired. Can we better understand how r and d is being spent?
And if it was on tooling a server to cloud migration, can we expect this to reduce over time? Maybe if I step back, a lot of that question is oriented around how we invested in platform and how will that platform investment continue in the future?
Sure. Look, it's a frequent topic of conversation for the last 5 years. And so I hope you got a lot from the document. We tried to go into a bit more detail and some depth that's easier to do in a textual format about where we spend our R and D dollars. Top of the page, I would say, firstly, we aim to be bigger and better than everybody else.
So bigger doesn't mean we're wasteful. We have an absolutely world class, awesome R and D organization across the world now, and I couldn't be prouder of where we are. Our platform is, I would say, the envy of the SaaS world. I talked to a lot of other SaaS CEOs, we're all good mates and, our engineering platform that we've built underlying our cloud assets and everything else is just, it's just awesome at the moment. It's really, really exciting to see where we've come in the last few years.
Pulled some stats for you because I know you all like numbers. In the last, 24 hours as of 21 minutes ago during the pre read, we've had 5,200 and 17 deployments to our cloud platform including all of the environments. Now given we have 5,300 employees, 5,200 deployments in 24 hours, you know, count half of those roughly in R and D, something like this, it's 2 or 3 per person in 24 hours. 1771 of those deployments have gone to production. So we've made almost 1800 production deployments in the last 24 hours, In fact, we've made 924 total deployments since this Investor Day started.
So if you want a weird indication of how far our cloud platform has come, During the IPO and in the early earnings calls, we used to freeze all deployments going on while investors were talking, while other things are happening, we've just powered through today and we'll continue to do so, so we're in an absolutely awesome, awesome place. That platform broadly is based around why are we investing in it, I hope it's come clear from a few things here and I'll get to some of the question points. Leverage and scale, we have very big goals, we're trying to go after 100,000,000 now, we have a lot of different products in a lot of different markets, we believe that the connectivity of those markets and those products to each other is part of our core strength and unique differentiations, we've built a platform to handle that over the next five to 10 years with huge leverage and huge scale, so you can see that per engineered deployments even in the last two and a half hours is phenomenal and that is customer benefit that we're giving to customers all day and every day that platform is has not been cheap to build and it's continued to be improved as you can see from all of the things we've shipped around new products like Access, their cloud additions in Premium, Enterprise, etcetera, and you'll continue to see us do that.
We talked a little bit in the document around the new product framework and new products coming out. I think part of the question was around, will we see more new products come out and how has that worked and is it going to be more about acquisitions. I would say on the new product side, look, the platform has taken a disproportionate amount to really build out the last few years, which has meant slightly less been invested in building new products, although with access and premium and other things, there's been plenty actually, think, coming out. With our new product framework, etcetera, you'll start to see that shift back. We're pretty excited about some of the things we have in the pipeline coming up in terms of changing our customers' worlds.
Those new products we're building today are all built on top of our cloud platform natively. So it gives us massive, again, leverage and scale advantages, deployment advantages, all of the cross sell and other things we've talked about into new products is really, really exciting. So that's, that's to come at the same time on the, M and a side, which I think was part of the, part of the question. We continue to work really hard at integrating those acquisitions into that platform, both the platform improving to handle more acquisitions and the acquisitions migrating onto the platform. You've seen that in the last few years with Opsgenie increasingly moving onto the platform, Trello over its 4 year journey now, Now access supports Trello, identity is all across Trello.
Trello is increasingly moving into things like the apps which are in other things and things we've given you some color on. So I've probably gone on too long. I hope you can sense my excitement by what we're doing in R and D. And, we're just, we're just world class at
the moment. We we're, we're kicking goals off front center.
So I'm really, really excited about that. And, that will yield great results for our customers and eventually, shareholders, over the next next few years as we continue to improve that and roll out improvements on top of it.
That's great. Thanks, Mike. We get this question a lot, which kind of dovetails with what you were just talking about. So maybe you can start answering here and James can tag on, which is kind of how do we think about R and D efficiency and ROI? How does that relate to kind of our longer term margin trajectory?
So I'm just going to read 2 questions that play off of each other. The first is more focused on R and D. How would you evaluate your return on R and D spend? I've heard other companies who point out the revenue generated versus total R and D spend is actually low versus other top software models. Do you think it's possible or do you even try to measure R and D ROI?
And then the other question is how should we think of your long term operating margin and free cash flow trajectory as we move more and more to the cloud? So, Mike, why don't you start us off there and then we can go to James for more of the kind of specifics on the margin trajectory?
Sure. I would say one of our differences, again, one of the reasons that Cameron's team can operate so efficiently is because of that R and D spend. So you should make sure not to decouple those because some of the R and D spend allows us to operate our marketing and sales groups much more efficiently because of what we've built in, in the platform and in other places. So they're not decoupled, I would say, in that manner. Secondly, when we internally look at our ROI on R and D, it is notoriously very difficult.
It's It's often very hard to draw an exact straight line to $1 generated versus $1 invested. However, we tend to take a very Atlassian, both pragmatic long term view, but also looking at leverage and scale. So again, part of the platform is continually rewriting and scaling pieces of our platform, pulling features for example out of Jira and Confluence into the platform, you see that with automation is a good example, Jira Automation was an acquisition of the marketplace, it traditionally lived in Jira Software, we've now rolled that into the platform so it's increasingly in Jira Service Management, So you can automate a whole lot of your IT operations, obviously, Jira Core for business teams. And now that's rolling into the platform as a broad automation capability that you'll see come to Confluence and Trello and other places across the board. So that is an example of where we can take that ROI and leverage it across the platform, which is our goal again with everything in Atlassian.
We have big goals, 100,000,000 now targeting Fortune 500,000 etcetera. Leverage and scale comes through technology and so we evaluate it on that basis. James you
can probably address more of the financial side.
Yes. In terms of margins, if you think about the operating and free cash flow type margin drivers. As we've spoken about on the recent earnings call, yes, we have some short term revenue headwinds that we think will add over the next 4 or 3 quarters. We've also talked earlier today about how the migration benefits, as illustrated by our pricing examples in the second paper, will be relatively modest in the balance of this year and in fiscal 2022, but then building nicely in the years beyond that. And then layer on top of that, just the overall attractiveness of the cloud economics.
We've talked a lot today about cross sell, upselling through the additions. And we've illustrated that by beginning to talk to you about ARR, net expansion rate and so forth. So we feel very good about the long term opportunity net net. So some challenges in the short run as we get past the next couple of years. We do believe that there's opportunity to drive leverage on the margin side based on these attractive cloud and data center economics.
The other factor that I would just say specific to free cash flow margin, we've talked quite a bit about historically how 3 quarters of our current cloud customers select the monthly subscription. And going back to the rate and pace of migrations, we expect over the next 18 months or so for most of those migrating to be smaller customers. So I think it's quite plausible that that mix of monthly versus annual subscriptions stays directionally about where it is. But arguably, in the subsequent years, fiscal 2023, 2024, when you see more of those larger customers migrating over to the cloud, we would expect more of those would choose the annual cloud subscription. And so that would tend to dissipate that particular current headwind to free cash flow and free cash flow margin.
Now, of course, at the end of the day, customers will decide, but that's how we see things playing out at this point.
That's great. Thanks, James. One other kind of just I think it's a probably shorter answer on an associated question from Jonathan Curtis is just how much of our R and D spending focused on server today? Where will this investment go in the year ahead? Presumably, there is leverage here.
Scott, did you want to take that one?
Yes, I mean as we've said publicly and to our customers, the vast majority of our engineering investments have been onto our cloud products and it's obviously just going to continue to accelerate. We do have investment in our data center products and that will continue and so we don't imagine that there's any short term kind of leverage of mass migrating of engineers from one side to the other that has been a, I guess, a steady change over a period of time that has not really changed that significantly from end of life in our server products, like those who will support our data center products.
Great. I'd like to move us to kind of specific product questions that are that we think of them as benefits and outputs of having our cloud platform. So, I think, 1, this is kind of like free and different additions that we have as well as forge and how we continue to support the 3rd party ecosystem. So, let's start with this one. Scott, I think we'll put you on cue to begin it from Adam Wood.
Can you guys put some context on top of the funnel growth you cited and how that flows into the model over the next several years, specifically, the free additions stat plus the web visitor growth, which looks like reacceleration. Does this sustain customer growth at a higher level in the next several years?
Yeah, so talking that and there's a few other questions around top of the funnel side of things and Cameron can correct me if I get something slightly misheard, but if we go back, there's a couple of things that we've done. 10 years ago or more, we introduced starter licenses, which were $10 versions of our product and that opened the floodgates for customer acquisition. And then in the last really 2 years, we built a cloud platform to a state where we can support free users, right, where our cogs of supporting those users have gone down sufficiently that we can support huge numbers of these free users. And so taking all that in, we've now gone to free products, free versions of almost all of our products. We've had some for quite a long while and Trello and Bitbucket and some we've reintroduced recently.
We're seeing a huge increase in the top of the funnel there. So as we said, sign ups 300%. We're seeing usage significantly up. So people are using those products, continuing on as free users and that's what we Mike talked earlier about monthly active usage, like that's ultimately if people are using our product, either they're going to grow into a paid version or they're going to remain a small company and we're happy to have them as a non paying kind of user of our products unless they use a competitor's product. So that's really good for us.
In terms of like those customers converting to paid, because we've changed our funnel in such a fundamentally different way, like we don't have all of the longitudinal numbers to sort of give great external guidance around what that looks like. In some cases, we're seeing better upgrades, in some cases, we're seeing worse. And in fact, as you'd expect, when you change the entire funnel that you're moving there. And just to show that still we're work in progress, we've just recently introduced free versions when we go from one product to another in a cross sell instance, like so we open the funnel at the very top, but like in cross selling, we were still doing evaluations and we've just changed that. So there's a lot of movement happening there and we're fine tuning and finding better ways to convert those freeing users into paying customers, But we don't have a longitudinal data to sort of give you directionality there beyond that the monthly active users are significantly up what we saw previously.
And if I if
you don't mind, I'll just add 2 quick things to that. First is, once again, in the world of landing new customers is the number one goal for the broader go to market organization. One thing that I've looked at consistently and always have is just organic traffic to our key landing products like Jira Software and Trello and so on. And, you know, whatever we do in the funnel, make it free, remove a form, lower price, raise price, you name it, All that depends of did someone come to the website to begin with? And what is interesting with our products is that organic traffic, like not paid traffic, we're not paying to get more people in the door, but organic traffic, which is people naturally searching for things like Jira Software or being recommended, is continuing to go up year over year at really rapid growth rates.
So like that is, Jason tells you, there's healthy demand from the market for what we're doing. And we don't have to pay for those people to come to our site. Now we still add advertising to that because it can add more performance on the top end, but the overwhelming majority of that traffic is organic. The second part is why free is so important here is what free opened up was that, you know, that traffic to getting people on our products by having any event. And that was the triple is all of a sudden we just got way more people off our website and into our product, getting value much quicker.
And regardless of whether they pay or not, that's more users, more companies using our products, getting value and telling other people about it, which only gets that benefit of more organic traffic. So that alone has this massive accelerant in our go to market model. The last piece with free is, you know, before we did 7 day trials and at 10 users, you had to pay us $10 a month, which was great and like very stable, but we never made a ton of money off those 10 user customers. It was a fraction of our overall revenue. The majority of our revenue always came from the people with way more than 11 users and had multiple products.
So was it something that was an easy trade off? Would we give up that monetization of customers of less than 10 users to get a whole lot more of them in the door. And that will only increase the amount of 11 user and above customers down the road. And on top of that, with the organic growth of people telling other people about our products, whoever they're paying or not, just drives that more and more people to our website. So overall, I've been super bullish around our free program.
And if I could just add also one thought to that from the revenue perspective. Free is one of those short term revenue headwinds that we talked about back on the earnings call 3 or so weeks ago. But we do expect that headwind to moderate in the next year or so. And net net, as Scott and Cameron have been saying, we're very excited about the way in which Free has so significantly expanded the top of the funnel for us.
Yeah. Free has been a real win from a cloud standpoint. The one other topic, I think in a similar vein is the I think us launching our additions. And so I'm going to ask 2 questions. Scott, I think you can start and then maybe Cameron can follow on.
But both are kind of related to additions. Appreciate that free additions have increased cloud top of funnel sign ups. How many of these then convert into paying customers and then where do they convert into in terms of tiers, standard or premium? So that's one. Similarly, our most medium sized customers between 105 100 seats, good candidates for cloud premium?
Great questions. Again, all possible because of the platform we've spent that time investing in over the past few years that Mike talked about. And so we now have many of our products, we have 3 or 4 tiers, we have a free tier, a standard, premium and enterprise. And people choose those ones based on the number of seats they've got or feature gates in each of the different additions. We found that Cloud Premium actually has reasonably high uptick rates across all of our seats, like even sort of the 11 users and 15 users are picking up quite premium.
Obviously, it's a higher ratio at the higher tiers, but actually it's been more spread across the different tiers than perhaps you would expect looking at our website. And so I feel really happy about Premium, like it's exceeding our numbers that we put out internally, so really happy about that. Now Enterprise, we also launched and Enterprise is relatively new and that's still in the very early stages and we are at the stage where we're working with customers 1 on 1 and they're obviously the largest of customers. And so I wouldn't expect enterprise to be as broad based as premium in the very near term. And it's worth reminding that all these investments just come and compound on top of each other.
You've seen those cohort charts that I think we pioneered them in our IPO 5 years ago, they're now sort of SaaS standard. And you look at sort of how these things compound over time. We launched Access 2 years ago and that's been a great growth engine for us and customers really valued it. We've launched Premium about 1 year ago and that's got a great uptick. Enterprise is only launched relatively recently and so just that's why you talk about sort of this compounding over time, we feel really comfortable about kind of the adoption of our customers, but it doesn't happen.
It's not, we don't put it in a sales bag and tell sales people they need to sell it next quarter. If we did that, we'd have to have a much more expensive sales organization and we might only bring those dollars in, you know, a quarter or 2 than what they would naturally do without us having to to spend that effort. And so our model has always been long term focused and compounding growth. Can we do anything?
The biggest is just related to premium adoption. One thing I think that has been pretty exciting over the last year and more importantly over the last 6 months is how much premium adoption we've seen. Now, I think you had a question that was asked of like, well, is it basically customers of this size that we see adopting premium? And that actually hasn't been the case. We've been seeing customers of all sizes upgrading from the standard to premium plans, largely because they're small teams that like the more advanced use cases that and our advanced roadmaps capabilities unlock.
So kind of across the board, we've seen premium adoption customers moving there and staying there at higher rates than we originally expected.
That's great. Okay. I'm going to move us to a kind of slightly different topic, which is acquisitions and M and A. I'm going to combine 2. Keep in mind, we've got about 8 minutes to the top of the hour, and I'm sure everybody across the world wants to move on from their evenings.
So, we'd be happy to answer questions all day, I suspect. The first one is from Keith Weiss at Morgan Stanley. The second one is from Arjun Bhatia, William Blair. I'm going to just kind of ask them both together. Mike, we'll have you take this one first.
So from Keith, write up on the benefits that Atlassian has seen from long term focus of management, well done. Any indications you can give us on the effectiveness of the acquisition strategy to date? What's the yield on that $1,000,000,000 spent? And with 90% of R and D dollars focused on the cloud and the cloud platforms, does this change the M and A strategy going forward? Similarly from Arjun, great to hear the investments you're making organically launching new product.
Should we take this to mean M and A becomes smaller in scale and more infrequent in the future as you focus on new organic solutions? Mike, you want to start there?
It's a lot there
to get in underwrite minutes, man.
Where would
I start? Look, philosophically, we've long believed that not all the innovation is inside the building and not all the innovation can be outside the building. So we try to do both. You've seen that with us talking about the new product framework and some of the things we're building on sort of the platform there, as well as continuing to believe that acquisitions are a weapon that we can use, that we can deploy well to growing the business. The platform at the core is continually being improved to not only build new products on top of, but also to integrate acquisitions with quicker, easier and cheaper.
Every time we do that, we try to not just integrate the acquisition, but improve the platform such that the next acquisition will be cheaper and faster to integrate. Not simple, we're not naive. Acquisitions are very hard. We are very selective, as I think you've seen. Our track record for the $1,000,000,000 spent hopefully speaks for itself.
We constantly look at stats of the average value rate in M and A and wonder what we're doing wrong to not be so far wrong. But we work really hard on it and we try to do a lot there. I don't think I would say changing the M and A strategy, perhaps the missing ingredient in some of those questions, the implication is because of the platform being a central component, are you going to acquire less or any small things or whatever? We continue to look at all sorts of opportunities for acquisition as we do as a part of a broad framework. I would point out we launched Atlassian Ventures in the last quarter and a bit, so we now have an option in between acquiring in terms of investing as well that's worthwhile pointing out there.
The platform being built to manage acquisitions and integrations faster is a key part of that. We're doing that with Minefield as we speak. We've done that more and more with Opsgenie and other things over Trello over the last few years. One potential example that's really interesting to point out there is Jira Service Management. If you think about what's in Jira Service Management, it's a very integrated offering.
It will feel like one product to customers. But part of that came from Opsgenie and part of that came from Mineville and the asset management CMDB capabilities and part of that came from Jira Service Desk, which was an internally developed new product. So, it's a good example of one customer offering across a broad swath of things where you get some pieces from acquisitions and some pieces from internal creative R and D and innovation that are being combined together under the platform, on top of the platform into a singular offering. So, I wouldn't I hope that gives an example of how we think about that platform. It's not purely for building on top of new things.
It has to be able to integrate outside things at relative rapidity. Obviously, when we're looking at acquisitions, we can look at their technology stacks and other things and work out how easy that's going to be. But we need to continue to get better at that with every deal and that's what we aim to do. Matt, did that cover what you wanted me to cover? Was there anything I missed?
No, I think that does it. I'm going to ask us we're going to do 2 more questions. One, I'm just going to kind of throw to whoever wants to answer it, which is the first half of Jackie Glynn's excellent question. We get together for Investor Day, when we've surpassed 5,000,000,000 in revenue, what will be the areas, geos and products that have outsized contributions, in the $3,000,000,000 in revenue growth from today. So, I will throw that to the floor for whoever wants to take that.
I suspect we'll have different dimensions on this answer.
I'll jump in quickly, but look, if you look at geography, we're already pretty highly geographically dispersed, so it's not like there's some new area of the world that we need to go into in order to make this happen. So, I mean, we'll get better at it, but we've been pretty good at it for a long time, so I wouldn't say that. The cloud migration, combination of just our existing customers moving across and are solving more problems for them and the fact that we can then expand them and give them more products and more users and so forth that are faster, right? I think that gets us, that's a pretty big growth rate there over the next couple of years. And then some of the stuff we've already released, like you look at the ITSM stuff, we're doing really all the adjacent stuff around development and workflows, I think can get us through $5,000,000,000 and then the work management for all like is just a huge opportunity as well.
So, I don't say there's like huge change we need to do that, like I think you could look at a lot of stuff we've already talked about and that gets a significant revenue growth, there's not I think some change we need to do in our model or anything like that in order to get there.
Well, I would just add on to that, that I think the TAM information that we laid out in the first paper is just very illustrative of what Scott was just referring to.
Yes, back to where we started. All right. Last question, which is fun, something that we're all passionate about is can you elaborate on your charitable mission And I'll throw in on top of that, how do you think how do we think about impact and Atlassian more broadly? Mike, maybe you can start us off kind of from a sustainability standpoint. Scott, I know that our charitable mission in particular is important and a focus for you.
And then anything else in terms of how we impact customers in a large way that anybody wants to add? Sure.
Look, I think Jess did an awesome job if you watched the video, who runs our CSR team who were, I think, really world class. Again, the pillars of the CSR team, if you've read the sustainability report, almost go from the closeness of Atlassian out to the entire planet with obviously a smaller proportional impact that Atlassian has. We have 100% impact on ourselves and a relatively tiny proportional impact on the whole planet, but obviously it affects way more people if you want to think about 5,000 people at the core and 8,000,000,000 at the outside. Those pillars are around the people that we have in building, the customers and all sorts of aspects around privacy, human rights, everything else that's in our customer sphere through to the communities we exist in and then out to the entire planet and obviously you get to sort of climate sustainability and other things. How does that tie to our long term mission is often a question we get from investors, from the outside world and that's totally valid.
I don't believe you can be a long term thinking company without thinking about sustainability at each aspect of those, right? We think a lot about the sustainability of our staff, especially in this COVID period around the world, that mental health, well-being and sustainability of the pace that our staff are running at all around the world as they work from home, deal with kids that are at home or illnesses close to them, etcetera, that sustainability is very important, obviously, all the way out to the sustainability of the outside when we get to the planet. So we tend to think very holistically. We've made huge strides in the last few years on corporate social responsibility, and I think we're probably pretty good already and continue to invest there looking at our team and broadly conscious of time if anyone else wants to chip in, but that's the way we think about it. It's about being a long term thinking company and a patient company, but also ambitious to make change.
I was going to add on to Mike, but I don't think I could really improve on his answer. I do want to thank a few people today. I'd like to thank the Atlassian team, those who are on the call, you can see the faces and working hard to make sure that the 6 pages got delivered in a great format for you. Appreciate our team trying something new, it seems that we've got really good feedback already via chat and email that you appreciate that. So I just want to thank our team for taking a risk and trying something new.
And of course, for every person here on the call, there is a team of people behind us like making sure that this all happens, looks good and making sure that we all get to do our best in front of you. So I want to thank everyone at Alaskan from behind the scenes and in front of the scenes. And I really want to thank all of you, our investors, you get a choice of where to invest your money every single day. There's plenty of opportunities in the public markets and you choose to invest with Atlassian. We hope to continue to win your trust every single day and hopefully today was an example of how we can continue to do that.
But thank you, many names I've seen here both on the sell side analysts who've covered us for us being public and many of you who've held us since that day, as well as some new names that I'm really appreciative of. So I just want to say thank you for all of that and I hope to get to see you in person next time or on the next video call we can get together. Thanks a lot.