All right. Thank you, everybody, for joining us, both in here and online. We have a great day at content today. So I hope you all find it useful. Before I kick off the program today, I'm going to read this in excruciating detail and then go right to the agenda.
The this is our lineup for today. One procedural thing before I hand the mic over to Jeff. We will take a few questions during the customer panel, but we'd prefer to handle all Q and A at the end when we'll have Mike Renner's in the room and we'll have all the execs up on stage. And with that, let me turn it over to Jeff.
Great. Thank you, Greg. Everybody, great to see many of you again. Great to meet some of you today. Thank you all for coming out and spending your afternoon with Twilio.
I see this as a great opportunity for us to tell you more about Twilio, help you understand what Twilio is all about, what we see as a long term opportunity and what it is that we're trying to accomplish and how it is we're going to get there and take questions, you get a chance to meet the team. So a lot of great information sharing to go on today. Thank you for coming. We started Twilio 9 years ago, almost 10 years ago. And with this basic idea that communications was going to transform because of software, that software was going to fundamentally reconfigure how the world communicates and reconfigure how this industry works.
And we came to that conclusion because of I myself as a software developer had always needed communications. So I am a serial entrepreneur. I had started 3 companies before Twilio and I was one of the first product managers at Amazon Web Services and what I realized was that at each of my previous companies, we were using the power of software to iterate quickly, to constantly listen to our customers and ship new versions of our products and fundamentally build differentiation because of our ability to move fast and understand our customers, right? That's the superpower of software. But also in every single one of those companies, we had needed to communicate, we needed to talk to our customers, have a dialogue with them in order to build a great customer experience.
And every time we needed that, we looked at ourselves and said, well, I'm a software developer, making a phone ring, that's like magical to me. I don't know how to make that happen. And so we turned to the existing communications industry at the time. We said, we have this idea we want to build to how we can engage with our customers. How can we go about doing that?
And every time we got this answer that was very unfulfilling, it was like, oh, yes, like we're going to come in and we're going to bring and integrate all these different esoteric technologies together. And that's going to cost 1,000,000 of dollars and it's going to take years to actually get it in front of your customers. And every time this happened, I remember thinking this is insane. Everything we do in software is measured in sprints, it's measured in weeks, customer feedback, always shipping, yet in communications, things take years and 1,000,000 of dollars before a customer can ever touch a solution or give you feedback and tell you if you're going in the right direction. And that seemed crazy to me, kind of realized that this world of communications is just diametrically opposed to that ethos of software.
And so in 2008, Evan, John and I started Twilio to change this, to migrate communications out of its legacy, which was in hardware and physical networks and migrate it into its future, which is software. And we told you at the roadshow 18 months ago when we went public, we told you the story about how in order to unlock this vision, we had to do a number of new things, right? We talked about how this is a new era of software where the way companies are unlocking software value is actually fundamentally changing, right? It used to be about selling software that ran on a server and selling you licensing it to you on a per server basis, but then came SaaS, where it's about licensing seats to you. But now the new era of software is actually all about platforms and all about giving APIs to developers in order to build the next generation software and this is the new era of software that's emerging, empowering those builders.
We talked to you about a new category of communications that we had to invent in order to unlock this opportunity, that of a cloud communications platform, building APIs to give to developers to allow them to actually build all these ideas and to build this future of communications, which is going to be based in software. And it's about a platform, it's not about an app, right? And then we talk to you about a new model, a new business model that we had to create, right? This fundamentally more efficient developer first go to market where we win the hearts and minds of developers and they bring us into businesses of every shape and size. And now 18 months later, I'm here to say we've obviously keep learning and we learn some more things.
First of all, the new software era, it's absolutely confirmed and it's only growing. When you look at all the platform businesses are getting stronger and stronger every day and the create multiple new categories to fulfill on our mission of building Twilio and fueling the future of communications. And when I talked about a new model, a developer first go to market, it's working great, we're doubling down on it and you're going to hear more about that later. So that's the quick update. Now as I walk through what I wanted to talk about today, there's 3 things I want you to think about.
First of all, this is day 1 of a huge opportunity to reshape communications, which is one of the world's largest markets. This is a developer first approach that we're employing, and it drives both efficiency for how we're growing the company as well as allows us to tap into a very large market, a broad market reach that we're able to touch with this approach. And then the last thing is how our leadership is being driven via software, software differentiation and building trust in the market and trust that our customers. So let's start with the first one. Well, we say this a lot.
In fact, on the day of our IPO, every Toyota on the world wore T shirt that said it's day 1. Day 1 of a large opportunity to reshape communication. See, there is a large shift going on in pretty much every category of technology and every category of IT spending and it's a shift in how software is actually delivered and how value is delivered to customers. See, it's not just about on prem to cloud like the SaaS people will tell you about, but it's also about apps to APIs, applications to platforms because that's how you reconfigure very large markets. In fact, if you look at how cloud platforms are reshaping almost all of the huge markets that are out there, every major category is getting reinvented through software and as building blocks to power the next generation of apps, whether it's Amazon Web Services with Compute and storage, whether it's Google changing how people build maps, Twilio, of course, with communications, right?
New Relic with analytics and Stripe for payments, every one of these categories is getting reshaped with a platform developer first approach. These are the pillars of every app that we use, the key ingredients that go into every app, both mobile apps, web apps, B2B apps, every one of those apps. And cloud platforms are the way to tackle these large opportunities. Now the one difference between Twilio and all of these other markets is actually in size. If you look at global IT spending, dollars 3,500,000,000,000 nearly half of it is communications, 40% of all IT spending worldwide is spent on communications.
So an investment in Twilio is an investment in this idea that software is going to fundamentally reconfigure almost half of every IT dollar spent worldwide because of the power of software. And if you look at how this money is spent today, right, how do companies traditionally spend this huge chunk of their budget? Well, it's in this legacy approach, the one I described earlier that frustrated me before we started Twilio, right? You start off with the network layer, right? And use a vendor like AT and T or Verizon or something like that, right?
And then on top of that, you need to plug in some hardware, right? So you bring in some hardware that's pretty inflexible. And the thing about the network and the hardware is they don't scale very easily, you got to keep adding more whenever you need to do more. They are geographic by nature, right? They sit in a place in the world and the
carriers are all geographically bounded and the box sits in the closet somewhere.
So if you're closet somewhere. So if you're going around the world, you got to recreate all this infrastructure everywhere in the world that you go, right? But then on top of that basic, those fundamentals, right, you want something that does something. So you pile on an application of some variety, right? And you bring in one of the big app vendors, you put that on top and then the app needs to be personalized because it doesn't do what you want, you got to customize the hell out of it, right?
So you bring in all these experts with 1 or more of these certification logos in these various stacks to come and integrate the whole thing together. And you're like, this model just doesn't work. It's fragile, it's slow and it's expensive, right? But you look at it, these are huge market cap companies, right? AT and T, dollars 180,000,000,000 Cisco, dollars 200,000,000,000 Oracle, dollars 200,000,000,000 seems like $200,000,000,000 is the magical number in this world, right?
But the communications part of this world, that value is going to migrate to somewhere because of the power of software. I'd love for it to be Twilio, right? It doesn't matter, right? You can change out the companies for different kinds of stacks, right? You can have different geographic components, even different types of applications inside the enterprise that they're trying to build, whether it's sales, whether it's support, whether it's marketing automation, there's all these different use cases where communications is a part of it, but the model stays the same.
And so how we've thought about this changing is over time, right? This is all going to convert into software. And so what we started doing is taking the bottom layers, the network and the hardware and virtualizing it and moving it into the cloud, right? And taking something that was inflexible and expensive and slow and hard to scale and moving it into something that's virtual, that's in the cloud, that scales elastically on demand, that works everywhere in the world, right? That's what virtualizing that does.
But then you take that application layer, right? And the way we see it, this becomes application platforms that provide the flexibility that customers need that allows them to actually take these applications and deploy them in a way that integrates all the other systems and is very pliable so they can change it exactly how they want because these are customer touching systems, very important that companies are able to customize it to build their brand and build their customer experience the way they want it, right? And then you take those experts, the certified logos of the sort of small workforce of people who are experts in these esoteric technologies, what we do is we democratize that and make it all the developers in the world, 20,000,000 developers in the world who know web and mobile technologies, they should be the ones that companies are turning to in order to build these applications, right? So by doing so, by virtualizing, by componentizing those applications, by democratizing the workforce, this is how we fulfill on our mission, the mission that we came up with to fuel the future of communications. So how do we block and tackle this big idea, this big future of communications we're trying to fuel?
Well, what we did is we came up with a number of years ago this master plan. Here's how we're going to do it. And what we said is step 1 is build a platform because a platform is the way you get exposure to the full breadth of opportunities that exist in a market as large as communications, which has so many different facets to it, right? So you build a platform, you put it in the hands of the world's developers, say, can't wait to see what you build, and we let developers show us what are the most burning problems inside of companies, what are the most valuable things that they need solutions to, what needs to get solved in the world, and developers start building. But that's not enough because after you build a platform, you start to see these big juicy areas, the world's most pressing problems that need to solved in Communications and you move on to step 2, which is go deep and ensure that Twilio and our ecosystem wins, make sure that we take those workloads that are the most important ones and they are migrated onto Twilio's cloud and into our ecosystem.
And that and by doing so, you go deep and you win in the areas that are most important and most valuable and the biggest, juiciest areas of this market. And then you finish with step 3, which is repeat. Build more platforms that expose you to more problem areas, more use cases, more solutions that need to be built and you repeat this whole process. So that's our master plan. That's how we intend to tackle this very large market in the fullness of time.
And so if you think about the history of Twilio and where we started, back in 2008, we launched our very first product, Twilio Programmable Voice, allow developers to make and receive phone calls, but also give them the basic building blocks of how things you can do during that call, like saying text and playing back audio and recording audio, things like that, that started to unlock the key use cases, what's going on in the world of voice that needs to be updated, call centers, call tracking, IVRs, things like that. Then a couple of years later, we launched our 2nd major product, Twilio Programmable SMS, the ability for a developer to send and receive text messages with any phone in the world. And then we started building all the intelligence services that sit on top of that, How do you make sure the deliverability is high and they don't get blocked by carriers and things like that. And so we started building all these intelligence into those products. And so after several years in building out products, we asked ourselves, okay, we've got a great voice product, we have a great SMS product, we're going to keep investing in those and building those.
But what else is the future of communications going to consist of, right? Because these technologies are both existing technologies. Well, we looked at smartphones coming online, we looked at LTE, 4 gs, 5 gs networks coming, we looked at the ubiquity of mobile apps, we said clearly there's going to be more to the future of communications than just voice and SMS. And so we started building out what are the other components that developers need that may constitute this future of communications. What are the other building blocks that developers need to experiment with to figure out how we're going to communicate 10, 15, 20 years from now.
As we started building those out and we started in a few years later, we built out Twilio Programmable Video and brought that to market in 2015, allowing developers to build multiparty real time video into their applications, right? And then we did the same thing with chat, allow developers to build chat into their web and mobile applications with a very modern chat experience. And then we said, okay, well, what else? Well, there's all these social apps out there, things like Facebook Messenger and WeChat and Viber and WhatsApp, and so developers are probably going to want to tap into those. And so we built our channels product.
And then we started incorporating virtual assistants into that because you've got Alexa and Siri and Cortana and all those personal assistants. And this year, we started adding those into the mix because those might be places where developers want to interact with customers, right? And what else? Well, we built Twilio Programmable Fax this year, which believe it or not, there's actually huge workloads for Fax out there in the world. And then we said, okay, well, what else?
Well, AR and VR are starting to come online. Maybe the future of communications will incorporate augmented reality or will take place in virtual reality. So we're going to start offering some building blocks for developers to explore what the use cases of communications might be in AR and VR. And who knows, I'd love it if one day in the future, Twilio had Twilio programmable holograms as another one of these building blocks. Definitely not a forward looking statement there by the way, right?
Whatever the building blocks that developers may need to experiment and build this future communications, right, Twilio is going to be there building those and giving those to the developers of the world, right? That's how we see this opportunity, right? So then we started building out the product wheel, if you will, right? We built out all these capabilities for developers. And after several years of building out all these capabilities, we took a step back and we said, okay, maybe it's time to move to step 2 of our master plan.
What are all the things that developers are building with all of these mediums of communication? And how should we think about where to go next? And when we sat back and looked at it, we saw that all of the world's communications seem to fall into 4 categories. First of all, there's consumer, C2C, consumers chatting with each other, things like Facebook Messenger and Imessage and WhatsApp and WeChat, these types of applications, right? And there's been a lot of obviously activity there.
We've got customers doing amazing things in this category. So okay, well, what else is there? Well, there's also the collaboration market, right? B2B, how do people inside of companies collaborate with each other? And you see things like Slack and Microsoft Teams and Lifesize and Zoom, teleconferencing and all this, and software is making it easier and easier for us to collaborate with each other.
And so this space has been moving really fast and we've got customers doing amazing things in this category. And then you look at the 3rd, machine to machine, IoT, and this is obviously an exciting space, right? If you believe the hype, every grain of sand on the beach is going to have its own IP address one day, right? And you've got 60,000,000,000 devices are going to be connected in just a few years, right? And so we see this world growing immensely.
But the last category was the most interesting to us, B2C, business to consumer, customer engagement, how companies talk to their customers. Well, first of all, we looked at our customer base, we looked at our revenue. The vast, vast majority of Twilio's revenue comes from companies, developers building apps that are trying to engage with their customers better. It's the number one set of use cases. We said, why is that?
Well, why? It's because it's incredibly broken. We feel this all the time as customers, right? Like when we do business with companies, right, we feel like the experience in dealing with that company is kind of broken and disjointed and they don't really know who we are and it takes 5 calls to get anything done, right? We experience this all the time, engaging with companies is broken.
And guess what, it is not getting better, it is getting more broken because of the speed at which all these other technologies are moving, right? By contrast, when you've got a mobile phone and the apps get updated every 2 weeks and you've got Apple launching new products every year and Facebook doing the same and Google with RCS and like all these platforms are moving at lightning speed, companies can't keep up. And so the feeling is that it's getting worse and worse and worse when you try to engage with these companies. When we talk to companies and we said, is this a problem? I talked to the C level executives, I talked to the CEO of a major bank recently.
I was trying to understand what's on your mind? How can I connect Twilio to what's on your mind? And I said, is having a conversation with your customers like strategically important to you? He said, it's one of the top three things that I think about. Why?
Because having a conversation open with my customers is the number one thing that I need to do, I can't get disarmed mediated by social networks and all that sort of stuff. I've got to have a strategy to stay relevant with my customers, one of my top three strategic priorities for this major bank. So interesting, what's preventing you from doing that? Well, let me tell you, right? We thought a few years ago, it was going to be a mobile app and so we invested all these resources in building a mobile app.
And by the time we finished with that mobile app, the world had moved on and now it was about Facebook Messenger and then it was about Siri and then it was about iMessage and then it was about Facebook Messenger and then it was about like Alexa, right, like the world kept moving on, and we just can't keep up. And by the way, it's not just one team who has to deal with this. It's all these different teams. It's my sales team that's trying to engage. It's my marketing teams who are trying to be relevant.
It's my support and my operations teams. All these different functions around the company are all trying to keep up with this pace of technology and it is just not possible. So you take this problem of the speed of technology multiply it by the number of teams that are in the company who all need to answer this problem in order to have a compelling customer engagement story, and it's a totally untenable problem. And so that's why we've decided to double click here for step 2 of our master plan. It's broken, it's getting worse, and we can solve it and customers are already coming to us for it.
That's what the Engagement Cloud is all about. It is an application platform for customer engagement. So the funny thing is customers are organically coming to us with touch points across the entire customer lifecycle, right? Various teams inside of various companies in our customer base have all come to us organically saying, well, I'm trying to build for this part, I'm trying to build for the marketing touch point, I'm trying to build for the sales touch point, I'm trying to build for the support touch point, right? And these are all big markets, sales, marketing, service and support, logistics, operations, these are big markets.
And that's why we're starting to see competitive deals with companies like Cisco and Avaya and Eloqua and Marketo, right, these various solutions that companies have had to stitch together in the past that never quite worked so well together, they're starting to say like all these touch points across the entire customer lifecycle, how do I make it so this thing works? How do I make it so that I've got a single system of engagement for all the ways and all the teams that actually touch my customers? And how do I get rid of this hodgepodge, this stack that barely stays standing, hodgepodge of solutions and how to get something that actually makes sense and is holistic, right, a system of engagement. And what we've seen is that we can take and combine the flexibility that customers love from our APIs and deliver to them to the speed of buying a solution that they like for something that's off the shelf. That's what we consider to be the value proposition of an application platform.
It can give you both flexibility and speed. And so that's what we're investing in with the Engagement Cloud. You're going to learn more about our Engagement Cloud from Pat in a little bit today. We're excited to talk about that. Now you may be asking, okay, great, you're like you build the Engagement Cloud, what comes after that, right?
Well, first of all, Engagement Cloud is a big undertaking. We're going to take down multiple huge markets, that's our goal, right? So we've got a lot of work to do there, obviously, but we do think about the future. You may also be asking yourself, where is Twilio programmable wireless on this chart? I haven't seen that yet.
That was a big deal, right? Absolutely. But I think of that as actually the beginning of our next platform. That's the repeat step. We've started, we've seeded Programmable Wireless as the next platform that over time will show us what are the big problem areas in IoT that needs solving.
What are the big challenges that every company faces? And we're starting at it from the network side that one day may turn into the Twilio IoT Cloud as our next big app platform. But we're not worried about that today. Today, we're driving deep on the Engagement Cloud. And that ultimately is how we're going to fulfill on this mission of fueling the future of communications.
We're riding a huge wave here. The disruption of 1 of the world's largest markets and 40% of all IT spend, the disruption by software of this enormous market. And we're systematically attacking the major workloads and the major use cases in order to fulfill on this opportunity. But if you believe as we do that software is going to fundamentally transform how the world communicates and improve it and make every company better at communicating with their customers and make all of those categories better, then you'd agree with us. It's day 1, day 1 of this huge opportunity.
And Twilio is making the investments to unlock this opportunity, but it's a long play. There's a big market and a big transformation that's going to happen, but we're excited to be making these investments. Now, I want to talk about the second part. How our developer first approach is driving efficiency in our go to market and also giving us broad reach into this very big market. See, we started with this idea, ask your developer.
The developers will be key to this migration. So we want to remove friction, make it easy for developers to get up and running on Twilio, put Twilio in the tool belt of every developer in the world. And it also allows us to efficiently grow our revenue because of that, because developers become our big advocates inside of companies. We now have over 1,900,000 developers on our platform. And those developers adopt Twilio and then they bring us into the companies that they work for to solve the business problems.
And see, one of the things I think that we underestimated when we started this company was just how well this would work in companies of every shape and size. Look at this example. This was a recent win of ours, Morgan Stanley. Morgan Stanley wanted to empower their private wealth managers to be able to talk to their customers in a modern and engaging way, text message, right, wow, mind blown, right, but to do so in a compliant way. Previously, they'd said, sorry, you're not allowed to touch with your clients, it's not compliant, we can't track it.
They wanted to enable this, right? And so they moved to a solution where everyone, I think 16,000 private wealth managers around the world are using an app they built powered by Twilio to now allow them to text with their customers. But here's the amazing thing. The champion of this product was the Chief Digital Officer, Noreen Hassan, and she's going to come out here on our customer panel later and talk to us. But this project got started by the developers.
They prototyped it, they said, we think this is possible, we'll come back to you, they prototyped it, that's what got the ball rolling inside of Morgan Stanley, one of the largest banks in the world, right? And this implementation is just the first step. Noreen is going to share her vision for the full roadmap of what they want to do. But that ball got rolling. The whole thing got started because the developers, they asked their developers and said, what's possible here?
And the developers said, we know. We think we got this, right? Let's build a prototype. That's how it got started. And so we all know that Twilio's model, this API first approach works well in software companies, right?
Your Silicon Valley disruptors, right? We all know that. But it also works well with solution partners, right, ISVs. And those ISVs, those solution partners who build SaaS products on top of Twilio are amazing because they allow us to reach into SMB markets, SME markets or enterprises that don't want to build, they just want to buy, great. We've got a great answer for that part of the market as well via our solution partners.
And then the question that everybody has had, what about the enterprises? Are enterprises really going to build? Well, yes. And here's the thing, enterprises have always been builders because they have these big customization requirements. And they've always invested huge amounts of money, huge amounts of time and Twilio as a platform is ideally suited to help them answer that question to get exactly the customized environment in a complex environment that they operate in to get that solution.
And so between these three, we have had software companies, solution partners reaching into the SMB, SMB audiences as well as the enterprises. Twilio can cover the whole market and Twilio is actually a great solution for all three of these, right? And you see this coming through in some of the analyst reports that are coming out. In fact, DMG, a market analyst around the contact center recently published this report, said contact center infrastructure platforms like Twilio will attract the attention of large enterprise contact center environments that are accustomed to building their own solutions, right? We can allow them to get exactly what they want, the reason why they've historically built, but get that value faster, get that value cheaper and get more customization than they've ever had before.
By the way, I want to point out in the same DMG market research report in the contact center, they pointed out that Twilio is estimated to be the 2nd largest cloud based contact center infrastructure based on the number of customers and the 3rd largest based on seats. Twilio is the 3rd largest cloud contact center and we don't even have a product in this space. That's the power of the Twilio ecosystem, right, and the power of a platform, we haven't even tried and we're the 3rd largest vendor, right? That's the power of this ecosystem and this platform based approach. So the other thing, in addition to opening up the whole market, is this model is efficient.
Why? Because developers do a lot of the heavy lifting for us. They're our champions. They build prototypes and they bring Twilio into companies of every shape and size and then they become our heroes inside of the company. And instead of listening to slide where they listen to their own developers, ask your developer, right?
The developers become our hero and that's why we've got this very efficient revenue acquisition model, only 23% of our revenue spent on sales and marketing to grow at the rate we have. And if you think about why, a lot of this has to do with our usage based model. I showed a chart like this during our roadshow and I explained, here's how customers adopt Twilio, right? Developer might get started. In that 1st month, it might be $1 maybe $3 maybe $5 this is an actual customer revenue history here.
Here. One of our sort of like typical customers, nothing extraordinary. But this is they get started, they build that prototype and they spend a few dollars on Twilio and you know what, that's great. Because once they feel like they've got that prototype dialed in just right, they put it out in front of some of their customers in a beta. When you see the usage start to tick up as they roll it out slowly to more and more of their customer base.
Customers like it, they turn it up all the way, they rolled out to the whole customer base and the revenue grows. That's the first of 3 expansion vectors we have in every single account. As a product goes through the product development lifecycle from prototype to beta to GA global release, it's going to touch more of their end users, it's going to generate more usage and our usage based revenue model means we make more money as they go through that. The second vector of growth is that as our customers are growing their end user basis, they have more people to interact with, drives more usage, drives more revenue to Twilio, right? So we benefit indirectly from the combined sales and marketing expenditure of all of our customers combined.
That's pretty cool. And then the 3rd expansion vector we have in every one of these accounts, once we get the developer on board is, I mean, great. Twilio can be used in all those different life cycle events of the company and by all these different departments inside of the company, what other problems need to be solved. And the developers or the business say, you know what, we need to solve this problem over here, let's do that. And so you see this big spike of growth at the end here, that's the deployment, that's the global deployment of their 2nd biggest use case, right?
And so this product development life cycle coupled with repetition of it, doing it again and again for all the different departments that need it, this is helping to drive our growth very efficiently. I like to say I like to summarize our business model as this, we acquire developers like consumers, but we let them spend like enterprises. But that's kind of what it's about. We win the hearts and minds of developers and then because of that, we win the hearts and minds of businesses and we solve a really juicy strategic problem they have of how do I talk to my customers, right? And even in large deals with major banks, right, I mean, people like this, this is the same dynamic we see playing out in a wide variety of companies.
And guess what, the Engagement Cloud is helping us do it even more. Why? Because we're connecting Twilio's API based approach to the strategy, key strategic things that are important to our customers, customer engagement. You don't just have to believe me, I think is represented in our numbers, right, this is our revenue expansion rate ex Uber for several years And this developer first go to market is showing here, right, remarkably consistent revenue expansion rate, taking out the outliers. And through this period of time, the numbers are getting quite large.
The numbers keep growing, but the expansion rate has been very innovators. Okay. The last thing I want to chat about was our leadership, our leadership position that we built and continue building through software differentiation and between and by building trust in the markets. See, I think there's this interesting dynamic in the cloud, which is that cloud markets tend to develop a dominant leader. If you think about it, right, for CRM, it's Salesforce, for infrastructure, it's Amazon, right, there's a far and away dominant leader, generally speaking, in all these markets.
Why is that? I think it's because of trust, right? With the cloud, what you're doing is you're carving off a part of your business and handing it off to another company and saying, here, I trust that you're going to execute this better than I am, I trust that you're going to execute this better than some other vendor. That's a lot of trust. And so therefore, the dominant player continues to grow in dominance because that's where all the trust ends up residing.
Leadership begets leadership in the cloud. And our approach is software, to invest in software, to build that trust and to build that leadership. See, we're a software company, almost half of our headcount of our company is software developers, R and D organization, company was founded by 3 software developers. And so what we believe in is building features and functionality and capabilities that allow our customers to do amazing things with software and fulfill on their business requirements and to do so with a high degree of trust, right? We call this agility with resiliency, right?
Some companies believe that you can either be agile, always be shipping, right, ship fast and break things or you can be resilient, right, and say, oh, we're going to a lot of enterprise companies will ship 2, maybe 3 times a year, a big update, and that's how they get reliability. But at Twilio, we reject this as a false dichotomy. We believe you can move fast. You can always be shipping, listening to your customers, being agile, and you can do so with reliability, right? You can ship new business value every few days and you can do it with Five9s availability.
That's what we believe and that's what we've been executing on. And Oit and Pat and Christine are going to talk later today about how we fulfill on this premise of shipping, listening to our customers and being able to deliver the value that they need and doing so with Five9's availability and all the compliance things that you can imagine. They're going to go into detail about that. But what I wanted to show you is how I believe this is a virtuous cycle that we've invested in. Some people ask, why
do you invest so much in trust?
Why do you invest so much in reliability? Customers like it, customers start coming to you. And what do those customers do? You get traction, they show you the market, they show you what they need. They give you visibility into what the market is going to look like in the future and they show you what you need to build in order to fulfill on that potential.
The other thing is as customers flock to you, they give you their requirements for security and reliability, and they set a high bar for you because you're the only option. So you've got it, I want to use you, you've got to hit this bar. And so you invest in that. You invest in those capabilities that customers give you visibility into, they you invest in that high bar of quality and reliability and trust that they are setting because they need it or else they can't adopt you and because you invest in that, it gets this flywheel going. So trust that you start investing in as a young company leads you to customers and leads you to build an ecosystem.
That ecosystem paints the picture for you that allows you to drive your product velocity, that give you insights into the model the market is going, they let you see into the future and build faster and better than anyone else and also they require you to build the resilience into your product in order to adopt you because of all that future visibility and resilience you built in that leads to more trust, trust leads you to more customers, the virtuous cycle completes itself. I think that's how the cloud works. And that's why we've invested so much in building out agility and resiliency, delivering software value to our customers at scale with an extreme focus on reliability and resiliency. Leadership begets leadership. That's how you build an ecosystem in the cloud.
And you can listen to me or not listen to me or Oit or Pat or Christine, but we can listen to a leading industry research firm who recently said that Twilio is the leader in Communications Platform as a Service globally, undisputed. We'll provide you a copy of that report. So to summarize, right, this is day 1, huge opportunity, never seen an opportunity like this in my entrepreneurial career to reshape 1 of the world's largest markets with the power of software. Our developer first approach allows us to do it very efficiently, but also cast a very wide net as we tackle this big opportunity. And our leadership is gained via our investments in software, agility, resiliency and building trust with the market that leads to a flywheel of growth and dominance in the market.
Thank you very much. And now, I got actually, I have one more fact to it actually I was going to share before I invite up Christine. Did you know this is a total coincidence that this week is the 25th anniversary, the very first text message ever being sent. I thought that was kind of cool. And I also thought it was kind of cool that we've recently started hitting peaks where every day we're delivering 100,000,000 text messages.
I think that's pretty cool that we're hitting these peaks in the 25th anniversary of the text the first text message we just hit this week. So that's really cool. So with that, let me invite up the Head of Twilio's Super Network, Christine Roberts. Christine?
Thank you. Thanks, Jeff. I'll skim over the legal disclaimer as well. My name is Christine Roberts. I'm the Vice President and General Manager of Twilio's Super Network.
And when I was considering coming to Twilio about 1.5 years ago, I came from a little bit of a telco background. And so a lot of my questions to the executive team and to the engineers I talked with were how are you approaching this differently? Because I've lived in the world of telco, and I know what it looks like. And if we're just going to do that again, then maybe not so much. But what became very clear and very obvious to me very quickly is that Twilio was approaching it completely differently.
You see, they were approaching it from a software first mentality. And they looked at this massive, mass of global telcos all over the world, and there's thousands of providers everywhere. And they said, look, the only way to harness all of this is to harness it with software. And if so, if you combine the power of software with all of that underlying connectivity, that gives us a differentiator. That leads to something very different than what a traditional telco would do to approach this market.
And it's also important that if you think about how developers look at the world, they don't look at the world along the lines of geopolitical lines. They don't they look at the world through the eyes of software, and an application should work in the United States, it should work in Brazil, it should work in Indonesia, it's software, right? And software needs global reach. And we need to extract away the complexities of achieving that global reach. And then I asked about, okay, how are we approaching this, because there's a lot of folks in the market who are looking to put in least viable solutions and lowest cost.
And I said, listen, I believe very strongly that customers are number 1. And it also became obvious to me that, that was a tremendous alignment with how Twilio was approaching this entire world. And all of this creates this amazing, flywheel of greatness that I could not be more thrilled to be a part of. Jeff talked about the master plan and the step one of that master plan is building platform. And luckily for me, I am part of that platform.
The super network is the platform upon which the Programmable Communications Cloud and the Engagement Cloud sit. Their expectations of the super network, they expect us to be able to scale and not scale linearly, but scale for burst, scale for great opportunities that we didn't see coming. They expect the super network to provide global coverage. George and his team say, do we have coverage here? Do we have coverage there?
Can we reach this place? Do we have numbers in this place, right? So they expect the super network to provide that level of global coverage, and our customers and developers expect that as well. They expect the super network to get smarter and to learn and to adapt and to grow. They expect us to allow our developers to write software instantaneously.
And part of that is providing instant provisioning of phone numbers, right? Having phone numbers where developers need it, when they want it, how they want them, and being able to get that when we see we have a phone number available, actually having a phone number available, not we'll get back to you in a couple of weeks. And of course, phone numbers in general are as unique as all of us who own them, for sure. And Jeff has talked a lot, I think a lot of you have seen and heard the analyst calls and heard the road shows. And he talks about why Twilio was born.
And it's that fundamental problem of how difficult it is for developers to reach the world. And so part of the first problem Twilio had to solve was establishing a globally distributed communications network, and we spent the last 9 years building that network out. And in case anybody tells you otherwise, it's really hard work. We've got some amazing teams that have built on my team that have built that level of connectivity. And we're so proud of that level of connectivity and the global connectivity we build in that network of connectivity that we had to come up with an amazing name.
And of course, that is the super network as you know it today. And despite the fact that when I asked Jeff if I was going to be required to wear a cape to work every day and he didn't get it, I think it's incredibly apropos. But what I've learned in this year and a half is that the secret sauce that actually makes the super network unique, because I think a lot of people today are calling their network super. But the secret sauce that's underlying it all is the fact that it's actually a software network. We manage our network with software.
And there's a tremendous amount of complexity associated with all of these carriers and all of this connectivity and all these different connectivity types in all these countries and all of that. And it's impossible to manage on a scalable basis. And to think about the scale that Jeff is talking about, to think about that world and be able to scale, it's impossible to manage that without software. This is a big data problem. And to approach it otherwise, I think, would be not the smartest move.
As I said, I came from a bit of a telco background and I spent a little too much time in a few masters switching offices. And I'm pretty sure at one point or another I was associated with one of the other of these blue boxes, which are represented with hardware. And the lines in between them are copper and fiber and all the things that connect our networks globally. And if you think about a telco approach to solving the world's connectivity, this is kind of the first thing that you do, right? You draw a network diagram and you figure out what underwater cable is you're going to leverage and you do all this kind of stuff.
But if you go back to the fundamental problem that Twilio was trying to solve, the fundamental problem Twilio was trying to solve is how do I use software to make a phone call? That's the underlying problem. And so if you solve that problem first, your approach is completely different. And as such, it's a super network is a network of networks. We have connectivity to lots and lots and lots of carriers, But we virtualize that complexity away from the developers and the enterprises that want to leverage Twilio Software and Twilio APIs.
They don't need to care nor should they have to care about all of those boxes. They just want to be able to make a phone call with software. And that's what we've done with the super network, because we've extracted all that complexity away. But that's just one piece of it because underlying all of that complexity and all those networks is the realities of the world of Telco. And this is one of my favorite charts.
This is a day in the life of, telco networks all over the world. And this is a 3 day, I think the X axis is 3 days, and the stack bar are minutes of outage. Every single one of those colors is a carrier we're connected to that had outage and downtime, every one of them. And you can imagine if our customers were subjected to this variability all day, every day, every week, every month, every year, this is the reality. I was talking to one of my providers in Brazil, I think about 2 weeks ago, and I was trying to understand the postmortem of what went wrong and they said, well, somebody climbed a telephone pole and removed all of the copper wire from that between that pole and the next pole so they could sell it.
Like that happens, that happens maybe not so much in the United States, but in other countries, it actually happens. But that mess is abstracted away by the software that the super network brings. Our customers felt 0 impacts from all of that downtime, from all of those outages, 0 impacts, because our software says, oh, look, there's a problem. Let's put your messages over here. Let's make sure they get delivered.
That's the power of software. And that's the power of how Twilio has approached making the super network incredibly resilient. Almost all of our telco issues at this point, we catch them before our carrier providers do. And what typically happens on a normal day is we say, okay, I see that this traffic was rerouted from here to here, we better let that carrier know there's a problem and we pick up the phone and we call that carrier and say, hey, we've rerouted our traffic, you might want to look into some issues that we're seeing, right? That's our job.
Excuse me?
That's our job. That's not the job of businesses or enterprises or even developers, right? That's my job. That's my team's job. And the way that we're able to do that is we monitor over a 1000000000 data points every single day.
This is how we do it, right? You can imagine, in the old world of knocks, right, where you have lots and lots of people sitting behind terminals and looking at graphs and charts, right? This is the only way to manage a global network. So back when Twilio and I were still dating in SIGNAL 2016, I had the amazing opportunity to listen to Nancy talk about as part of the Dot Oregon issue, talk about her team at Crisis Text Hotline. She manages a team of 20 fourseven counselors and offers a free nationwide text line for people in crisis.
And she stood up on stage and said, look, we can't afford downtime. When these people text, they expect someone at the other end to answer them. They expect someone to be there when they're probably not having a great day, right? This is why businesses build on Twilio. This is why developers build on Twilio, right?
This is the kind of things that developers do on Twilio. This is why trust matters. But connecting calls and messages around the world is just one piece of the puzzle. If that's all I had to do, maybe I get to go home at 4:30 or 5. But instead, another piece of the puzzle that we're responsible for is phone numbers and phone numbers all around the world in order to leverage voice, in order to leverage tax, you start with a phone number, right?
If you've been to our website, first thing we do is say, buy a phone number. Pal likes to say that phone numbers are the planet's most important identity. I'm not sure if I believe that or not, but I do know that our businesses and our developers rely on my team to be able to deliver on that identity for their apps and their businesses worldwide and our customers worldwide. And it's core to the success of their business is having the right phone number for the right application. It's very personal.
It's very local. I don't know if any of you recognize this phone number. This phone number is very personal to our Head of Investor Relations, Greg. And you'll find out it's I don't think it's his home phone number. So but you'll find more about this phone you'll find out more about this phone number in Pat's presentation.
But part of that phone number being personal and part of it being local and part of it being specifically applicable to use case is making sure that developers all over the world have access to this massive breadth and depth of phone numbers that we've collected over the years. And prior to Signal London this year, my team made sure that every single phone number was perfectly curated to be able to fit any possible use case that that number could possibly be forced to handle. And what our developers said to us and what our enterprises said to us is, look, we don't need every number to be perfectly capable of every use case. We need our phone numbers to be perfect for our use case. And so as part of the innovation and the software innovation that goes on within Super Network, we released the global phone numbers catalog, which allows developers, which allows businesses to have access to the broad choice of phone numbers that we've cataloged over the years.
And there's 1,000,000 and 1,000,000. It's use case driven, you can put in your use case and it'll say, hey, we've got the perfect phone number for you, here's some suggestions. It's a powerful search engine, it allows you to keep track of your phone numbers and what attributes they have. And we're incredibly proud of being able to expose the breadth and coverage and amount of phone numbers we've looked at all over the years. But obviously, having phone numbers is important, but having a breadth of phone numbers is really important.
We also announced at Signal London that we have coverage in 100 plus countries. What's really great about this is we don't just say we have numbers in 100 plus countries. We have tested numbers in 100 plus countries. We have provision numbers in 100 plus countries. We have these numbers on demand when a developer needs them.
And if you think about what that allows our developers to do and how it allows them to build out their applications in a global scale, it's pretty awesome. But we don't stop, we don't rest on our laurels. So we're continuing to build out, reach to other countries. As our sales team tells us, as our customers tell us, we'll continue to expand. 100 was a pretty great milestone for the team.
But breadth of coverage isn't enough. I had the interesting opportunity to my daughter is a teenager, and I had the interesting opportunity to get her, her first phone number. You talk about personal, it was very personal like this is going to be her personal phone number for probably a very, very long time. And I picked up the from? In a very strange way, it's a very valid question as it relates to our phone bill because our cell phone numbers, mine and my husband's happened to be Chicago based.
I was in Chicago for 20 plus years when I moved to California. We kept our phone number because it's very personal, right? I'm not going to get rid of all my contacts. People need to contact me, even my mother. Now my mother and my father who happened to live in Michigan have Northwest Indiana phone numbers, which is a weird thing I won't go into.
But my in laws who are also on our phone bill are in Northern Wisconsin, which I think is a massive amount of area covered by one area code. So you can imagine I'm on the phone with a customer service agent and she says where does your daughter want her area code to be and then we said well at this point, she's a California girl, so let's make it a California, let's make it a 415 number, and we got our 415 area code. But imagine that same conversation, if the answer from that customer service rep is, Yep, we're super excited to get your daughter first phone number, does she want a North Dakota number or South Dakota number? I'm like, wait a minute, that doesn't make any sense. Well, that's why depth of coverage matters.
Because while we can relate to North Dakota and South Dakota and the difference between the California number in the United States, you can imagine that a business in Basingstoke, U. K, doesn't want a London City number, right? So Twilio focuses very a lot of energy on making sure that within given countries, we have a depth of numbers to provide across all those different locales. And just as an example, here's the depth of coverage one of our direct competitor provides. You can imagine that that's not a very local or personal service, if those are your only options.
But what makes me incredibly excited to get up every single day and to come to work and to continue to build this amazing network is that, Jeff talked about the flywheel of trust. This is my flywheel. And as we have more connections, we have more data points, we lower our cost and we raise our quality. As we lower our cost and we raise our quality, we get more customers. And as we get more customers, we get more volume.
We get more volume, we get more data points, we get more connectivity, and it just gets better and better and better. And so software intelligence combined with connectivity, it's the only way to manage a network of this size. It's the only way to grow it. It's the only way to scale it and trying to do it any other way is ludicrous. Global reach, whether it's depth, breadth, connectivity, the ability to terminate in any country you need to terminate calls or messages to will never stop being important and will just get better.
And that flywheel of continuous improvement, so it gets me up every day. So with that, I'd be thrilled to turn it over to White Copper, who will talk to you about the Personal Communications Cloud.
Thank you, Christine. Hi. My name is Wight. Important thing, legal disclaimer. Name is Wadd Coker.
I'm the VP of Engineering and General Manager for Voice and Video Business here in Twilio. I'm an engineer as a background. I've spent like 15 years in communications industry. Before Twilio, I spent 8.5 years at Skype. When started scaling Skype.
When Skype was in one small room from like 20 persons to so the growth to up to 2,000 people. I built up the operations department first and then ran the engineering for 7 ish years. I've had the privilege to be part of the Twilio team for the last four and a half years and built up the R and D organization that we have here and really excited to be part of the next wave of growth. Today, I'm going to focus on Programmable Communications Cloud. We've had remarkable growth over the last 9 years, but I believe that we are just starting.
We're going to talk about the opportunity ahead of us. Secondly, I'm going to talk about the world class developer experience that has helped us to build an efficient go to market model. And finally, how those investments into R and D and software have helped us to develop a structural advantage for Twilio in the marketplace. Jeff talked about step number 1 in our master plan, build platforms. Christine just covered how we have taken the complexities of the telecommunications network and really abstracted that with the software APIs.
And Programmable Communications Cloud is the software layer on top of that super network that helps developers to access that network using the tools they know through software APIs, through communication APIs. Programmable Communications Cloud is a general purpose platform that consists of 2 things. 1st, multipurpose building blocks for virtually any use case on the planet, for any communications use case on the planet. And secondly, a software intelligence layer that helping to build advanced use cases and also save developer time for our customers. It's designed to get customers on the platform.
And Jeff already walked us through our history a little bit. We started with the voice primitive in 2008. We added SMS in 2010. And then later, we had IP based primitives and then wireless and even fax, believe it or not. This enables customers to build a wide array of applications on top of the super network.
But communication preferences change, like new channels, new communication applications pop up every day. If I open up my phone, there's like probably 7 or 8 different applications if I need to communicate with people. And that also forces businesses to change how they communicate because they have customers now everywhere. So that's why we added additional channels on top of our underneath our communication primitives. And it's using the same API that customers can communicate now with a variety number of channels, like for example, Facebook Messenger.
And that's important because it enables omnichannel communication. So businesses can now talk to the customers where they are. And secondly, it signals that the Twilio platform is future proof. We keep innovating. We keep adding all the channels so that customers wouldn't have to do new integrations.
So this is possible in the area of software. In the hardware, you will have to buy new boxes and do new integrations with expensive consultants, but we keep getting better every day. Like we do more than estimated this year, more than 30,000 production deployments to our platform. That's sometimes more than 200 deployments per day. Twilio gets better for our customers 200 times a day.
That's pretty powerful. And this platform approach is a great possibility to unlock new markets, unlock it's a great for opportunity creation. Flexible building blocks enable us to build almost literally any communication application on the world. So for example, in contact center, you can build omnichannel contact center experiences like IVRs and wood bots. Or logistics, customers can choose to coordinate the deliveries and they connect the agents to the people who they want those deliveries to get delivered to.
Or e commerce, product managers can use smart notification to increase engagement. It's the flexibility that enables the innovation and unlocks whole new markets. As we have built Twilio Global to be global from day 1, we have the infrastructure in 9 different regions, which enables a local experience. So with one API, with one software, with one application, whatever customers are building, they can build this for all the countries and powered by 100 countries' phone numbers that Christine has provided. That's great.
You can do it all from your keyboard. And developers love it. And speaking of developers, like Jess said, we have 1,900,000 developers on our platform. So how have we achieved this amazing developer acquisition model? It stands on 3 pillars.
The first one, where we have invested more than 9 years now, is self-service business model. You put the sign up page up there, it's low friction, it enables customers to start prototyping as soon as possible. You provision your first phone number, you put the credit card in and you start experimenting. And experimenting is important because experimentation allows innovation. And for innovation, new businesses get born.
You think that actually, that's the super easy everywhere you can do that. But actually making something easy requires hard work beneath that. If you target the global market, you need to deal with localization. In different countries, credit card payments and also force fraud. You need to build machine learning to prevent fraud that's happening.
And we've been listening 9 years into tools and platforms to make sure that we have low friction onboarding experience for customers, and that's super powerful. We acquire customers like consumers. 2nd, our world class developer experience. But it's really designed keeping developers in mind, designing intuitive APIs, providing helpful libraries in all the major software languages, quick starts tutorials, not to just get people started quickly, but also help them to really retain them on a platform. The third thing is our runtime platform.
And I want to dig in a little deeper here. So one of the key metrics that we measure, how much time does it take for a developer when we acquired a consumer to develop that first application? Sometimes it can take months because you have to deal with hosting and infrastructure and service and all this kind of stuff.
And how can we
make this quicker? How can we make sure that the developers are getting their apps to production faster? So that's why we created our service platform, our functions and asset products that enables to reduce the time to production from experimentation from months, sometimes to minutes. This accelerates and helps our funnel conversion. Our investments into monitoring tools and debuggers and that have put really the control in hands of the developers.
Not only it's just better experience for developers, it actually helps us to reduce the support costs. And we built and the third thing, we've built the platform to be enterprise ready. If enterprises consider to have a development platform, then you have a certain set of requirements that are must haves in the platform to be like considered, like single sign on, role based access controls, auditability, the traceability built into the platform. And that's what we have in Twilio runtime platform. So why do customers choose us?
We talk to our customers often for developer evangelist events, for our customer meetings. And one thing that always comes up from our NPS survey results is quality and reliability. Jeff already mentioned that, too. So if we acquire our customers efficiently, need to retain them on the platform too because the platform that doesn't isn't able to guarantee uptime, resiliency and massive scalability, it's really going to affect the customer experience for the applications built on top of that. So what enterprises and what customers need is 59s of reliability.
I just want to put this into perspective a little bit. Look at this chart. 59s reliability means that you can have less than 6 minutes of downtime per year. 6 minutes. That goes by pretty quickly.
Since finance is hard, you cannot achieve this with humans. You need to build R and D invest into R and D, build systems, automated recovery, failover. That's what we have done. Over the course of last almost decade, we invested more than $200,000,000 into R and D, both building products, building security, but also building resiliency into our platform. And this has enabled Twilio to achieve the number one thing that customers want from us and what customers want from their strategic communication platforms.
That's the 5 9s of availability. Second thing that we measure is not just availability, it's a success rate because the API that's up and serving errors isn't really useful. So we also measure all the requests that we have processed, how many of them we process successfully. And I'm happy to report that that's also that metric exceeds 59s. From day 1, Twilio has never had a thing called maintenance window, either planned 1 or unplanned 1, which is surprisingly quite common in the enterprise world.
Even for the big providers, we have 5 lines availability, however, we have a maintenance window of 2 hours. It doesn't fit into my head at least, isn't it? How can you be? Like, if you build a reliable application, if you have something which is life critical, like even the Crisis Text Line and like, oh, I couldn't send you a text or connect your call because I was having a maintenance window, doesn't really fit in that. So what we have done here is that we have really built our systems in a way that there's no maintenance windows ever, Five9s without maintenance windows.
We're also investing in security. ISO 27,002 for Twilio, SOC 2, certification for Authy, and we're working towards GE Power support for our platform in May 2018 to keep our global customers happy. Second thing why customers choose us for is to really to provide the building blocks so that they are able to build their use case that they want. So let's look back at 2008, Programmable Voice. Simple, we have the simplified, able to connect calls, play media.
We put that API out there. We learned how customers use it, what they use it for. And 9 years later, after lots of investments in R and D, we have evolved from supporting a simple use case, just connecting a call or delivering a voice message to something far more powerful. We've learned from thousands and thousands of customers, incorporated feedback into our platform and developed the capabilities they need. We built the most advanced programmable real time communications network.
If somebody wants to replicate that they will have to spend decades of investment into R and D to do that. And it's not just calling connecting phone calls or connecting legacy CP infrastructures anymore. It's about building rich applications using mobile or web technologies. And programmable voice platform today provides capabilities to build almost any imaginary communication workflow on Twilio. And that really unlocks the gives developers the advanced control and unlocks the flexibility of innovation to build really great customer experience.
Let's have
a look at the messaging product, 2010, which is also a relatively simple API. You were able to send messages, you were able to receive messages, this is great for sending 1 or 10 or 100. And once you put it out in the real world, again, you learn how customers use it. And you learn that the customer use cases are different. The workloads of messaging are very different from marketing to phone verification, to ping con delivery, the peer to peer communication, there are different requirements for performance and reliability.
You need to deal with scale, queuing, carrier filtering, finding spam, all those kind of things. So it's not just anymore about sending a simple message what customers need. We have invested into software layer, intelligent software layer that takes 95% of the complexity of developing a global messaging application out of our developers' hats. So now they can focus on really building their applications and leaving Twilio to worry about getting the deliveries done, they're saying compliant and really making sure that it's working. So it's a software layer on top of messaging platform that handles our customers' delivery from like the first message to the billionth so that they wouldn't have to write code.
And talking about scale, the third thing that customers want and they will demand from us is operator interfaces. Because once your customers get a scale, they need to have knobs and dials because developers probably are doing something else already and the operators who have to operate their product and need tooling to do that. And it's not just about making call, just making the phone ring or sending a message. That's why we built the analytics product set to give customer visibility and put operators in control. So messaging product, the voice product and even insights into the super network are now available from our using our Insights product line.
So the operators can now scale their business with confidence. So almost a decade of investment, starting with communications, APIs, then adding channels, listening, learning from our customers, what they want so that they can save time, enable new use cases and operate in production scale. That's why we created the Intelligent Services on top of that as a second pillar of the Programmable Communications Cloud. Today, now we can build almost any use case communications use case on top of Twilio. But communications in the future probably going is going to be a little bit different.
It's good for today, but like tomorrow, we already know machine learning and AI is going to change how we are communicating. Like bots are already in the contact center, like changing the agent productivity numbers. Product managers use machine learning in their applications to decide where to reach out to the what customer and using what channel and what message to use in order to improve conversion or reduce churn. And 20 8 here is in a really interesting position because we have a lot of data flowing for our system. And we can learn from it, apply machine learning on top of that and then give this power to the developers to create even better customer experiences.
And we had taken the 1st step in this field this May when we announced the truly understand product at SIGNAL. It's a natural language understanding product for communications. So it's integrated into the application into the platform. And for example, you can build dynamic IVR instead of pressing like press 1 for sales, press 2 for support. Now you can do it in a way that as customers, like what do you want to do today or how can I help you today?
And you can speak and truly understand, we'll extract the intent out of it, really reducing the load again for developers to build a great experience. So understand as a third pillar to the Programmable Communication Cloud, it's enabling communications of the future. It makes all the programmable communication primitives that we already have better because it's integrated into the platform. And thus, integrating investing into the AI and machine learning is really betting on the future. So 2 year platform isn't just great for building the great or any communication application of today.
It's actually dynamic and strategic platform for our customers so they can better them in the future, too. So to recap. The Programmable Communications Cloud, we believe it's the most advanced platform to build a real time application upon. Our platform is better because we have a fundamentally better underlying network, software network called super network, as Christine talked about. We have the wide breadth of communication primitives that unlock massive opportunity in many, many markets, where world class developer experience that wins the hearts and minds of developers and is powering our efficient go to market model.
We have high platform uptime and massive scalability. So that once we have acquired those customers, we actually can keep them on the platform. And then we have built a software differentiation that positions Twilio as a strategic platform for the future for the customers. And this really fuels the flywheel of growth. The more products we put in front of the customers, more we can learn from them, better products we can build.
And with more than 30,000 deployments per year, we're moving fast and we are accelerating. And this is really a flywheel of growth puts gives truly a structural advantage in the market. With that, thank you very much. I hope you enjoy the first part of the day. And Greg, as I if I'm not mistaken, we are taking a 10 minute break, correct?
10 minute break. Thank you very much.
All right, everyone, if you could grab your coffees and grab a seat, we're going to get going with part 2.
Hey, folks. My name is Patrick. I am a GM of Messaging here at Twilio. And I've been at Twilio now for about 6.5 years. And today I'm going to talk about why I'm super excited for the next 6.5 years, right?
So a few years ago we realized there was a common pattern that we were seeing from all of our customers, right? A common set of applications, communication applications that they were building on top of the platform. Jeff mentioned it earlier. It was this business to customer communications, right, the most broken part of many of our communication experiences. These common patterns that we saw across a vast array of customers, marketing teams at places like Nike and Walmart, they were sending out marketing messages for shoe deals, for sales promos.
We saw security organizations like at places like Box and Netflix that were using our SMS voice offerings to send out pin codes or to enable mobile device verification. We saw organizations like Nordstrom and Morgan Stanley that were building ways for customers to interface with personal shoppers or financial advisors on top of the platform, helping drive sales. We saw Dell and Alaska Airlines enabling better operations through things like flight alerts and shipping notifications. And then we saw companies like ING and Zillow building contact centers on top of the platform. So we kept seeing folks take our broad platform and use it in a variety of different ways.
As Jeff mentioned, having observed all of these different use cases being built on top of the platform, we devised a strategy to go deep and win. We want to expand beyond just communication services and into application services. And then our engagement cloud is how we're going to go about doing that. So for the next 20 minutes, I'm going to talk through a number of things with you all. First, we're going to talk through the massive opportunity that exists in modernizing customer engagement.
Then we're going to talk about how we're going to leverage our existing strength in the programmable communications cloud and our super network that Oit and Christine talked about earlier, but how we're going to increase our value capture and customers' time to value. And finally, we're going to talk about how we're tackling the build versus buy dilemma of customers in these markets today. So first, the engagement opportunity. I want to share some numbers from a study we did a few months ago. We found that 81% of customers reported that it was difficult to communicate with businesses.
When you dig deeper into the numbers, you found 97% of customers would give more business to companies that communicate better with them. And 33% said that in the last few months they'd cancel the service or switch to a competitor based on negative communication experiences. With such an importance placed on communication, why are business to customer communications so broken? Customers think it's critical, but businesses haven't been delivering. Why?
It's because they've had the wrong tools for the job. IT organizations everywhere are like this guy trying to fill up that tire. It's never going to happen. They bought a tool that doesn't match the task they're trying to accomplish, right? And the existing tools, they have really 4 key problems.
First, they tend to be single channel. Starting in channels like email or voice, they aren't designed for mobile customers of today. The second big problem is they tend to actually still exist on premise, still using last generation's delivery technology. 3rd, they're siloed. Whatever engagement problem they solve, they solve it usually only for a single department and it doesn't work across the entire customer journey.
And then finally, they're not flexible. Modern organizations want flexibility to deliver whatever customer experience they want. So looking back the departments that I outlined earlier, there's a lot of vulnerable dollars here for the taking. Let's take digital marketing. You have the likes of Oracle starting from a single channel, email and struggling to adopt many of the mobile channels.
Even though that's where their customers are today. 1,000,000,000 in IT spend, yet customers aren't getting what they want. In the contact center, you have Genesis, Cisco, Avaya, 90% of the wallet share here is still on premise. But there's one other important aspect about this market. They're not just very large markets that are vulnerable, they're also actually connected, right?
If you think about a customer experience, it goes through all these different steps in the lifecycle of a customer. You acquire them on the marketing side, you validate, verify them on the security side, you sell to them, you need to service them and then you need to support them, right? That's why Twilio's approach to this is different. Twilio's approach is omnichannel from the start. You saw from Oi that we've been investing in multiple modalities for many, many different years, voice and messaging.
We have a cloud based service delivery model. Tolu was born in the cloud and so we know how to run cloud services at scale. We've shared some of those numbers. And we're API first because we know that customer engagement is really just part of your customer experience. It's integrated into whatever service or solution you're offering.
And finally, we're flexible, allowing businesses to customize their B2C interactions to their exact specifications, not their vendor's roadmap. So that's a bit of what the opportunity space looks like. Now, let's talk about how we do value capture and get customers successful with our products. First, let's take an example of contact center. So if you look at the modern contact center, there are a few things customers are going to need, right?
The first thing they need is they need it to be omnichannel, right? We communicate with organizations through a variety of different channels today. And with our programmable comms cloud, we have support for every single one of those channels of communication. After you meet the omnichannel needs of a customer, you need to add in support for automation and bots. Studio, which I'm going to show you a little bit later today, helps you build an IVR or a bot, but we also have support for natural language understanding with understand and Notify for system alerts and automations.
Next, you're probably going to need something for your agents, right? That's where our Frame product, which is a UI product that we built, comes in handy. We also have Sync that allows you to synchronize state between the customer and the agent on the other end. The next thing you're going to need is skills based routing. How do you get from the customer problem with a certain product to the agent that has the right expertise or the customer that needs you to speak with a certain language with the agent that supports those languages.
That's why we built TaskRouter, another component in the Twilio offering. And then finally, you'll need things like workforce scheduling and a variety of other needs that enterprises have. And that's why we build a marketplace. We have folks in our marketplace like Teleopti or Verint that enable you to add these capabilities to your Twilio built solution. See, our strategy is to leverage our strength in communication services on the far left and expand into application services over time.
Unique in this market is our low cost of sale that allows us to lead with just a single component, getting customers successful with let's say a chat use case and then allows us to add more and more components over time. As we add those additional components, we're also building new components, increasing the portfolio of offering we have for customers. This component first approach is exactly why ING selected Twilio for their contact center. ING started their contact center rollout actually with chat in the Netherlands. Then they had a problem verifying customers and they needed to see them face to face.
So they rolled out video in Spain. Then they added chat to France and Poland. And now they're doing voice in their contact center in the Netherlands as well with Twilio. And while all of this was happening, another team inside of ING started using Twilio in Australia for notifications. That's the power of our platform based approach.
You can adopt each and every one of these components over time and drives that strong net expansion that Jeff talked about earlier. So let's take another example of how our Engagement Cloud is helping us win business. Let's take account security. This is a space where we have our Authy product. See, Authy tackles the account security market with a packaged offering, directly solving a business problem of account verification and 2 factor authentication.
So why should you care as investors? With products targeted at business owners, you get a sales process that isn't just bottoms up and led by the developer, that's also appealing to business owners in the organization. The result, example like Pinterest. Here's a blog written by their security team. The co authors of this post are one of the security engineers, the person that did the actual implementation and their Head of Security.
They described how they use Twilio's Authy to make this experience happen. The same thing played out with Namecheap, one of the most the world's most popular domain registrars. Our champion here was actually the CEO himself. He actually took to their blog to talk about Authy and their Twilio implementation even before it was even live. If you even look at the quote in the blog here, it's really, really interesting.
So as CEO of Namecheap, I'm going to give you my commitment that we'll deliver 2 factor authentication within 60 days. That was just after a developer in the organization demoed a proof of concept of what they could do with Twilio. That's how confident they were. And as investors, Twilio's engagement cloud isn't just about good NPS and blog posts promoting from our customers, it's something we monetize directly. We priced our Engagement Cloud to be application services in addition to the communications that these products generate.
That lets us capture more of the value that our products are unlocking for our customers, while continuing capture the communication value. Great. So next I want to talk about build versus buy. I've heard from investors that you have a great build option but the large part of the market wants to buy. That's not what we hear from customers.
What we hear from customers is that they want flexibility and they want fast delivery. It's this need for flexibility in every enterprise application service that has led that enterprises have been building for a very, very long time. They use different words than build, but they've always been built. So I'll just talk you through roughly what the current buy options look like. The current buy options usually involve buying some hardware.
Usually that's oversold, plugging it into some other hardware that you got sold that was also oversold. And then you spend 1,000,000 and 1,000,000 of dollars on professional services and consultants to come in and customize the thing that you just bought. This is where the actual build in most enterprise software is happening. And then after you've bought something, done your build and customization, then you need to spend 1,000,000 more, usually in maintenance contracts, just in case you want to make changes to the equipment that you bought later on. This is what the enterprise cycle looks like today.
So enterprise software has always been built. The needs of the modern enterprise are just too complex to do anything other than build. This is why so many dollars are spent on professional services and customization. APIs though are the right packaging for folks that want to build. Rather than packaging something up in a steel box which isn't flexible and expensive, APIs are flexible and easy to adapt to your business' need.
So when we think about this problem of build versus buy, we think about it in terms of customer needs, right? And Twilio uniquely can give customers all of this while we continue to make it better every day. In fact, our latest product here to help organizations maintain flexibility while still allowing them to build is Twilio Studio. Twilio Studio is the visual builder for Twilio. We introduced this back in September at our SIGNAL conference in London.
And with Studio, anyone who can write on a whiteboard can use Studio. You can maintain the same flexibility of our API based approach, but now with the ability for anybody in your organization to use Twilio. Developers can use this to build something faster, but marketers and contact center managers can make changes after the fact. And since it doesn't require code, even though it's allowed, when we roll out new capabilities like speech recognition or natural language understanding, you don't need to wait for development teams for Twilio to be able to bring on these new revenue streams and customers to be able to take advantage of these new features. In fact, we recently used Studio to reprogram our Investor Relations phone number.
So if folks have been to the Investor Relations website on Twilio, you'll see there's a contact us and there's a phone number down on that page. And this phone number is actually today powered by Twilio Studio. So what we're going to do for the next 10 minutes or so is we're going to reprogram our Twilio Investor Relations phone number live in front of everyone through the power of Twilio Studio. So if we switch over to the laptop here, we can take a look at what our current Investor Relations phone number is. So you'll see there's basically 3 boxes here.
You have an incoming message. If you send a message to that phone number, you'll get a reply which just says, thanks for contacting Investor Relations, we'll be in touch shortly. This actually forwards a message to Greg so that Greg knows who has contacted the Investor Relations hotline. The second thing is we call it, it'll say, thanks for calling Twilio Investor Relations. And it's actually going to go ahead and send that call to Greg's cell phone.
So let's just give it a try now so you can see how it works. So pull up the phone and I will dial the Investor Relations hotline.
Thanks for calling Twilio Investor Relations.
So you're seeing this flow, it should and Greg is Greg's phone over in the corner there is ringing. If Greg were to pick that up, he would hear me talking. So let's go ahead and actually make changes to the Investor Relations hotline right now in front of everyone. So the first thing we want to do, we want to actually add 2 new features to the Investor Relations number. So, it's great that we can talk to Greg whenever we want, but we want to be able to press a button and actually get a copy of the latest earnings.
And then the second thing we want to do is be able to press another button and actually be able to listen into the last earnings call. So we're going to program that number to do that right now. So first thing we're going to do is we're going to grab a gather here. And what a gather does is basically listens to for input on the call. It can listen for speech, it can listen for DTMF tones and we're going to go ahead and add that here.
I've already written up this text, you don't need to watch me type it, but I'll just paste it in here. So, all this is going to say is press 1 to talk to the IR team, we are going to make sure that that gets routed directly to Greg. Press 2 to get a copy of the latest earnings release or press 3 to hear our latest earnings call. I'm going to have one setting here which just says, once I get one digit, go ahead and route the call. Great.
So that's first and then we want to do is add a split. So what a split will do is basically allow us to take whatever was pressed on that call and route it in different ways in the application. So I want to go ahead and set the variable here, which will be the digits that were just pressed And I'll go ahead and save that. And now we want to add some transitions. So there's once again, three things that we want this phone number to do.
1, connect to Greg, 2, to allow you to get a copy of the earnings release. And 3, to listen in on the last call. So we'll go ahead and say, press 1. And we want to route that to connect to Greg, we want to do 2, we want to just put a placeholder there, we'll wire it up later, and then 3, and once again, placeholder there, we can wire that up later. Great.
So, there are 2 more things we need to do. So, now if you press 2, we want to make sure that sends you the latest earnings. And so we're going to wire this up and I have a URL of the latest earnings that I will take and paste into here. Great. And one last thing we want to do here is actually let you listen to the last earnings call.
So we will wire in a sayplay. So, I'm going to play a message and this is a URL that we're hosting on the Twilio runtime that has support for that is hosting of the last earnings call. So one last thing we need to do here is wire that up. So now everything should be wired up here. We're going to do one more thing, which is we need to reroute this away from the current welcome greeting that just does the forward into our more complex greeting here.
So let's go ahead and just refresh this and make sure everything loaded. Great. So let's call that number again.
Press 1 to talk to the IR team. Press 2 to get a copy of the latest earnings release. Press 3 to hear our latest earnings call.
So let's press 2 and we should get a text message of the latest earnings release. And there it is. So you can see earnings release comes through, it takes you right to the web page, that was pretty neat. So that's really, really neat. You can do that pretty rapidly, very, very quickly, super flexible.
But Oi talked earlier about the investments we've been making in machine learning and AI. So the next thing we want to do here is we actually want to use Twilio understand, our speech recognition engine and actually allow you to talk to the Twilio Investor Relations phone number and actually do any of these actions as well. So let's go ahead and let's drag on to the canvas here, Twilio understand. I have a model that we built earlier represented by the SID and we want to make sure we take the speech result from that initial gather. Okay.
And then similarly, you need to pull out a split. And this time, we're going to split based on the intents our natural language understanding model has found. This is the model that we trained. So, let's go do it based on our machine learning models intent. Great.
And the names for the intent were Talk to IR, which is what will connect us to Greg. So we're going to wire that up to Greg just like we did when you pressed 1. Now we're going to do the intent of get a copy of the last earnings call. So if our natural language understanding model returns this, we're going to go ahead and send you that message that we sent before. And then finally, if we want to listen to the last earnings call, we will route you to the earnings call.
And that is called say play, There it is. Great. So one more thing to do is we want to make sure that we wire up this gather here. The user said something to our machine learning model. Great.
Let's refresh it, make sure it's been updated and then give it a call. Great. So back in here, called the Twilio IVR hotline.
Press 1 to talk the IR team. Press 2 to get a copy of the latest earnings release. Press 3 to hear our latest earnings call.
Listen to the latest earnings call.
Good afternoon and welcome to Twilio's Q3.
Great. So there you have it. We basically took a live working phone number already running. We turned it into an IVR that was omni channel and then we added machine learning and natural language processing in about 5, maybe it was 10 minutes. We got all the way through that.
So why does that matter to you as investors, right? If you think about this, what would you have needed to have done in the past to have built something like this? Well, first, you would have needed to go get a deal with AT and T or a carrier to get connectivity. You then would have needed to get something from Avaya or Cisco to build the IVR and the phone tree. Then you would need to go find Nuance and train a model and license speech recognition from them.
You need to put all these different things together. It would take a ton of time. It would cost a ton of money. With Twilio, you can do this very, very rapidly and you can do it by each individual component. So you can just add one component here, one component there.
You don't need to have a one size fits all solution to solve the problem, right? That's why we're so excited about our engagement opportunity. The ability to take all these different technologies, package them up as components and let our customers adopt each and every one of them is what makes us so excited about the opportunity in front of us. Cool. Thank you
all.
So next up, George is going to talk to go to market and how we get these products in our customers' hands.
Thanks, Pat. It's great to be here today. My name is George Hu, and I am the Chief Operating Officer of Twilio. Prior to Twilio, I spent 13 years at Salesforce. My last three there, I was their COO.
And I helped grow the company there from $20,000,000 to over $5,000,000,000 one of the reasons I am here at Twilio is because I see the same type of opportunity, a massive market ready to be disrupted, an amazing set of technologies like you just saw from Pat, great visionary leadership team and I am here to help accelerate this company's growth in the future. And one thing that we didn't have at Salesforce and it's really in my opinion the secret sauce of why Twilio is poised for success is the developer momentum, winning the hearts and minds of millions of developers around the world. More and more developers are important to the buying decisions and especially in the area of customer engagement and Cloud, which we will talk about. And this developer momentum allows us at Twilio to invest with tremendous efficiency and productivity in a sales motion to capture the opportunity in our customer base. And I'll talk about how we're investing in that to capture that opportunity.
I'm also going to talk about our competitive advantage. You saw from the demo how compelling our technology is, how differentiated it is. And we're bringing that message every day and winning deals at massive rates over our competitors at rates comparable or higher to the one I saw in my previous life. And then finally, I'm going to talk about really that we're on a long term journey here, a huge, huge opportunity to disrupt the market. But even right now, we're laying Enterprise, a huge opportunity in International as well as with partners and we'll cover all that in the next 10 to 15 minutes or so.
Let's talk about developers. This is really, as I said, the secret sauce of the Twilio formula. 1,900,000 developers coming in passionate about Twilio. And this is not by accident. Twilio, one of the things I think about is that our self-service motion is actually a product.
It's probably our number one product that we've invested to figure out how to attract, onboard and make successful developers so that they go out there and to build projects, get them going and then tell others about it. And we accelerate that motion. We pour fuel in the fire with in person events. This is really something that I came to Twilio actually to learn about because I knew that Twilio had something some secret magic. And it's really about these 250 plus events that we do around the world every year.
We are getting in front of developers where they are, at universities, hackathons, meetups and we are evangelizing the Twilio message and getting the technology in their hands and then we are coming up with innovative ways to train them how to use the technology. At Salesforce, I saw the power of the Trailhead platform. And at Twilio, we have just launched something called Twilio Quest, which is a different type of learning platform optimized for developers. You can see it's fun. It's designed like a game.
And I think this is not only a transformational technology in terms of getting developers to adopt Twilio faster, but I think that TwilioQuest has a similar potential to be a platform for learning for all types of developer technologies. I envision a future where companies like GitHub and Atlassian keep rolling out content on the TwilioQuest platform. All this innovation, everything we do from the evangelism, TwilioQuest, the sign up process results in just tremendous developer enthusiasm. And you can see it here in the NPS, you can see it in the tweets, but I see it on the ground with the customers every day. Every time that I am talking to a CEO, a COO, a Head of a Business Line, CIO, almost every meeting there is a developer in the room with me.
The developer is a champion. I never saw that at Salesforce. Salesforce, the developer is never in the meeting. But at Twilio, the developers are there telling everyone why Twilio is the only choice. And the good news for Twilio is that developers are becoming more and more important.
This statistic when I saw it, I knew it intuitively from being in the sales cycle. But when you see it written out like this, it's really compelling and it really resonates as true to me that today over half the buying cycles for Cloud developers are a key influencer. 22% of the time they are actually the decision maker. And at Salesforce we were really excited when we got line of business involved that we were going to go around IT by going to line of business. We can see here today still for the most part line of business is not involved in these decisions, but developers are.
So I think we have something even more special at Twilio. And how are we capitalizing on it? We are capitalizing it not just by working with developers, but taking that momentum and using it in a highly productive way to reach the business. And when I came in, one of the first things I looked at was what is the productivity of our sales team. And it was honestly incredibly like shocking because I come from what I thought was one of the best sales organization in the world.
And I saw these numbers and they were incredible. $1,500,000 to $2,000,000 of incremental business our reps were bringing in every year annualized for a ramp sales equivalent for us, really incredible. And that allows us to deliver the numbers we are delivering at tremendously efficient sales and marketing investment, 23%, again, a number that's far below what I saw in my previous life, very compelling. And then over time, as we make these customers successful, as we grow, as we cross sell, up sell, as they make their own organic investments in their business, we see this tremendous dollar based net expansion rate, 137%. And it's interesting, when I joined Salesforce early days, I noticed 2 things.
1 was that there were a lot of naysayers about the model. I remember I first time I talked to Gartner, they said, oh, no CIO wants to put their data in the cloud. That's insane. The second thing I noticed was that after we went public that a lot of people just didn't understand our business model. Our stock went up, it went down.
People asked all sorts of crazy questions that showed that they didn't understand our business model. And it's taken me a while actually to understand the Twilio business model. But I'm incredibly impressed. And I think it's just as disruptive. And that's why because of the numbers I'm seeing, we've made the decision to as we've grown our sales and marketing investment, we've decided to especially focus on quota carrying capacity.
When I joined the company, we had a meaningful go to market team, but the vast majority of the resources were not quota carrying. There were folks in other roles like operations and sales engineers and specialists and people that answered the 800 number, but not actually a lot of people out talking to customers and selling the product. So as we've grown, I've focused on most of our incremental resources on that quota carry number. And what's really exciting is that that productivity you saw in the previous slide was from our recent Q3 that this is a number that that productivity has held steady even as we've invested. And we're growing aggressively after all segments of the market.
We think there's an opportunity in every geography, every company size, every industry. The future is limitless for Twilio and we're going after with a very structured approach. Commercial accounts, we're mostly selling over the phone, less than 1,000 employees, very, very productive motion. We're also seeing a very successful motion in the enterprise and this is an area of much greater investment for us than it's probably historically been in the past. We're investing in both segments at the same time.
But again, I'll tell you a story. When I joined Twilio my 2nd week, one of our enterprise reps grabbed me in the elevator and she said she was one of our West reps and she said, George, you need to help me. I'm drowning in opportunities. And Jeff walked by the elevator at that moment and I said, Stevie, get out here right now and repeat to Jeff what you just told me. She goes, Jeff, I'm drowning in opportunities.
And that gave me that plus the numbers gave me the conviction that we can invest to capture this opportunity. I mean, when you have a champion in the account, the developer saying, not only do I love Twilio, but let me show you it's actually working. What Pat demoed for you, that's what our customers are seeing from their developers. The product actually works and you cannot underestimate the power of that. So we're tackling the enterprise segment with a similar motion.
And we have our strategic accounts, which we take special care of. These are our most largest and most highest spending customers, our most important customers and we want to really make sure we focus on them with also a special focus on solution partners. And I think that the Twilio platform, if there was ever a platform that was ready made for solution partners, it's Twilio and we'll talk a little bit more about that. Now on the direct side, what's really interesting to me was that when I before I came here, I Jeff says after developer, before I came I actually asked my developer, I said what do you think of Twilio? And they said we love Twilio and these are developers mostly for around here tech companies and I thought that Twilio was mostly selling to tech companies.
And the good news is that not only is a truly successful with tech companies and digital economy companies, but to my pleasant surprise, we've been closing transactions in every industry and with amazing brands. And you're going to hear from Noreen and Morgan Stanley and healthcare like Blue Cross and Blue Shield and retail like Lululemon and real estate and on and on and on and on. The future as I said is really limitless for this company because just like what I saw at Salesforce, we can sell to every company, because guess what, every company in the world is thinking about how do we engage with our customers in a whole new way. I believe that there, I believe the future was limitless there. And I think that company has continued to prove that there is almost no bounds to the appetite for companies to engage their customers.
And I see that same opportunity at Twilio. But I want to take a second to talk about solution partners. Why are we so successful with solution partners? And I realize this that almost all these companies like the company I came from and all the companies we thought of at the time like Workday, etcetera, and you can see all many of the similar companies on the slide. Most of like ServiceNow, Zendesk, most of these companies almost all of these companies actually were designed from the ground up as systems of record.
A lot of people that started these companies came out of Oracle and PeopleSoft and companies that thought that way. And not very many of them think of thought of themselves or designed by people that think in terms of systems and engagement. And that's what Twilio really is. We I think we have the opportunity to really partner so well because we provide a capability that companies that think like systems of records don't really know how to do. I mean, it's not really intuitive for the co founders of Salesforce to think about how to send a text message or make a voice call.
It wasn't in their consciousness. And we do that. That's how we think. And that's why we are such a great complement for all of these systems of record. And I think that puts us in a very fantastic opportunity position.
Now let's talk a bit about competitive dynamics, because I get asked about this sometimes. And I can honestly say that I've never spoken to a customer that didn't tell me that Twilio was their was not their first choice, was the brand that they want to go with. And you can see in the numbers here that we're winning honestly well over 80% of the deals that we compete in against competitors. And what's exciting to me is the number that's really not on the slide just that in a very, very significant percentage of our transactions, we actually don't even see any competitors, which is kind of surprising to me coming from my old world. And the reason is that because of all these developer sign ups, when the developer sign up, they get going, they get they're successful, they're using the products built.
You're not really at that point looking you're not doing a bake off, you're not doing an RFP, you're not bringing in 4 companies to try and compare prices with this. You're just figuring out, hey, I've started using Twilio, this seems great, what else can I do in the platform? And that is really the heart of the conversations we're having. And they're picking us today because they trust our service, like Christine talked about. They love our omnichannel capabilities.
I honestly think we're years ahead in terms of our breadth of channels and the depth and quality of our channels as Oi talked about. They choose us over companies like Cisco, Genesis and Avaya because of our flexibility. What you just saw Pat do, there's no way you're going to do you'd have to bring an army of Cisco engineers into do what he just did in 30 seconds and the innovation of the Engagement Cloud. And because customer companies generally want a platform that they can get excited about because they have unique requirements and they want a platform that can give them those requirements and they want to believe in a company that's going to innovate in their future. And so many companies I talk to say, I a great customer of ours, Centerfield, one of the first transactions I participated in when I joined Twilio, I was talking to Gary Pack, the CTO and he said, I'm betting on Twilio because I believe in your innovation.
I've seen how you've innovated in the past and that you're the company that I want to bet my future on. And that's really important. Now how do we get started? And what does kind of the progression of a customer look like? Here's a great example.
Here's a great example of a new customer. We're landing a customer for the first time. It's a Fortune 500 medical devices company. They are using us for one of our most popular land or initial products, which is programmable messaging. And why did they pick Twilio?
You would think that they could do this and get this from a lot of companies. A lot of companies say they have an API now in this space. But why did they pick us? They picked us because it's an important case, because they picked it's a use case where they're getting messages from glucose monitoring machines and giving them to caregivers. And certainly not every use case is sensitive, but I can say that the vast majority of our customers I talk to, reliability matters, deliverability matters.
The things that we invest in matter. And that's why we're winning these deals, we're winning them at a premium. And we're selling them a set of products typically in the communications layer to get started. And then over time, we want to start progressing them and evolving them with application services. And that's where we start to get things start to get more fun.
We start to talk about things like contact centers, call centers. Here's a great example of National Debt Relief where I think the linchpin technology for us was one of our application service is TaskRouter, which allowed them to do some very creative skills based routing that they could not do with the legacy on premise technologies. Daniel Tiltman, who I met a few weeks ago in New York, who is their President, their CTO, co founder very much into technology and but also understands the business requirements picked us because not only could he get the wide array of unique requirements he had met, but also because he didn't have to trade off cost and speed to get the flexibility. In fact, he got better cost and better speed. And I hope you got that point from Pat.
That is a really magic triangle. Usually you can get 1 out of the 3 or 2 out of the region. You have something that's inexpensive, fast to deploy or flexible. We deliver all 3. And I think that this is that being able to do something unique with your because of the power of your technology model is something I saw at Salesforce and I'm really excited about seeing it here at Twilio.
But that's even that's not the end game. What's exciting is when a company says we want to go all in with Twilio. And this is our first enterprise agreement that we closed last quarter. And it's a huge transaction for us, involves every one of our products. There's been a customer this company has been a customer of ours since 2009 and they've started on that journey, started with one communications channel, they expanded over time, they started using technologies like TaskRouter.
Now they want what Pat demoed, they want the entire engagement cloud vision, they want to have complete flexibility because they view their contact center as a strategic weapon in how they engage their customers. And they want to have the best and they believe that this is their differentiation in the future. And so we are focused on making every customer like this customer. And that doesn't happen by accident. We have to invest to make sure that that and be smart about making that net expansion rate go up.
And so how do we do that? At a most fundamental level, it starts with talking to your customers, engaging our customers. We preach customer engagement and one of my priorities is engaging our own customers. And today over 90% of our existing revenue is actually touched by a dedicated or designated account team. And that's really critical to get those conversations going.
That's how you get the flywheel to continue. We also use our own data to alert us to potential high value customers that are signing up in the long tail as well as any customers that are using any new technologies, thousands and thousands of alerts a month coming to us that we are working through to make sure that we don't miss any potential signal of a buying opportunity or even a potential issue that we can resolve within our customer base. And then what's also exciting is that our customers are not just using us for simple use cases, one channel use cases, they're buying for multiple product families. 90% plus of our customers today are using products for more than one product family, Really, really exciting. And I think we're just at the beginning.
We're just at the beginning because as I said, I view this over a long period of time. And while I love our developer motion, I think that the future is for Twilio really to be the 1st company that I think effectively brings together both developers as well as line of business and IT together in the conversation. And we are going to start marketing that way. And we have kicked it off with our new Twilio Engage Roadshow. This is just an example of the kind of marketing and kind of programs we're going to be doing in the future, bringing developers and business together, having a broader message around customer engagement, not just a tactical message.
And we did one in New York City. It was this past week was tremendously well received. We're going to be doing one in Melbourne soon. And I expect to replicate this program based on the initial results throughout 2018. And I think that we are just really at the beginning of the potential of making Twilio at the end of the day, just like at Salesforce, we wanted people to think if you're thinking about Siebel, you're thinking about Oracle, if you're thinking about SAP, you need to think about Salesforce.
At Twilio, the way I look at it is, the shorthand I want to plant in the mind of company and every CIO and every decision maker is if you're thinking about doing anything with Cisco, with Genesis, with Avaya, you need to be thinking about Twilio. The Twilio is the heir to those technologies just like Salesforce is the heir to those other legacy companies. And I think that just based on things like that demo you just saw, every customer we can get in front of gets it. And we've just got to do just a better job of just continuing to execute that. And we've got to also lay the foundation for the future.
As I said, as at Salesforce, we grew it all the way well, now during my time, it grew to $5,000,000,000 Obviously, they're far beyond that now and the current management team, Mark and Keith are doing a fantastic job there. And but it takes time to build a great company. I really believe that. But you got to make the best now because things take a long time. And so we're investing in the enterprise.
You've seen that some of the logos. We're building the sales team. We are doing the events, the marketing. We are laying the foundation in international now. We are putting our developers.
We are moving our developer evangelist out into the forefront of where the future our future is. So initially most of our developer evangelists were in the U. S. And we still have a lot of them here, but we're starting to move them in places like Melbourne, for example, that event I talked about. So putting people in the frontier countries, having country managers focused on them.
And then I'm particularly excited about partners. You are going to hear from one of our partners on the customer panel coming up soon. But I think that there is a huge untapped opportunity for Twilio in the SI channel, for example. And when I was at Salesforce, I worked on building the Accenture relationship, the Deloitte relationship. Those took years to build, but the payout was huge.
And all you have to do is if you attended Dreamforce, if you looked at who are the premier sponsors of that event, it's Accenture, it's Lloyd, it's IBM, it's PwC. I mean, they've built that ecosystem and I think we're even more better positioned. We're even better positioned for that channel, because those channels are all about delivering customized solutions to deliver unique business requirements for customers. And Twilio is really tailor made for that. We are fundamentally functionally agnostic, channel agnostic.
We can be used to deliver whatever dream a customer has and do it with a business model that is incredibly attractive for them with our pay as you go model, you can get started and try and grow over time. So very, very compelling. So as you can see, I'm just very enthusiastic about being here. I see a lot of parallels to my previous opportunity. I see the same type of upside.
I think it's a little bit different obviously and different in a good way, different in a good way because we have this developer motion, something that we just never really had it exactly the same way at Salesforce, a huge opportunity through developers. I think develop people talk about software eating the world. I believe that. And I think that developers are going to become more and more important. And a bet on Twilio in my opinion is a bet on the power of developers, the bet on the future of customer engagement, the bet that communications is going to become ever more important in a world where you have bots and artificial intelligence.
And who knows what the future will bring. I think we are positioned for that future better than anyone. I think we have an amazing competitive advantage in terms of our innovation. We are trying to build a world class go to market team to capture that opportunity and I couldn't be prouder to be here. Thank you very much.
All right. We're going to take a 10 or 15 minute break to assemble the customer panel. We're running ahead of schedule, so try to start at about 3 o'clock. Thanks.
All right,
let's get rolling again. Everybody, come on back, take your seats. Thank you for staying here and snacking out there. We are going to close it off now with meeting some customers and then of course what you are all waiting for, hear from the CFO to give you all the juicy bits. But I want to introduce 2 awesome customers who agreed to come and chat with us today and give you their insights into Twilio and why and what they're building on Twilio.
So please welcome Noreen Hassan, the Chief Digital Officer of Morgan Stanley as well as Ryan Nichols, the Head of Zendesk Talk, which is their contact center product, both building on top of Twilio. So let's give it up for them as a thank you. All right, awesome. So first of all, let's start off. Can you just give us the basics like your name, the company, your role, what you did actually I think I just did that.
You did
that, Jeff.
Tell her better than I did it. I
am trying to think how to say my name better than Jeff said my name. I'm Nouri and Hassan. You have
more experience than I do.
This is true. Nouri and Hassan, so Morgan Stanley has 2 major divisions, the banking side, which you all know, and the wealth management side. The wealth management side, we are one of the largest wealth management businesses with 16,000 financial advisors around the country and I am the talk
product
talk product, I work with our customers on how to deliver an omnichannel customer support experience. So how do you offer phone support in the same place that you engage with your customers over all sorts of other channels?
Great. Thank you. So let's start off just at the very beginning of time for each of you, right? How did you discover Twilio? Noreen?
Sure. So, at Morgan Stanley, one of the advantages of having both the banking having the banking side is they organize for us something called Tech Week, where we go where those the rest of us go and meet new potential partners, startups and other vendors. And in 2014, Jeff blew us away in one of the Tech Week partnerships just on the capabilities that Twilio had. Everyone was really impressed with the ease, capabilities and that's how we first heard about Twilio.
Great. What about you, Ryan?
For us, it was developer up, right. So we had a developer and a product manager attend a Twilio event and came back to Zendesk and they'd made their the Zendesk Help Center ring, which we thought was pretty cool, kind of blew everybody away. So we didn't know we could do that and decided to productize it. And over time, as more and more of our customers, thousands of our customers started to adopt this, we started to look at using more and more of Twilio to build a real call center inside of Zendesk.
Awesome. So, walk me through the very beginning, right, so you discovered Twilio and you started to get this spark like here's what's now possible because of Twilio and so your developers started experimenting with these ideas. But what ultimately business problem were you trying to solve that became the impetus for what then turned into the solution that you deployed? Yes.
So, financial services, we have unique a lot of unique regulations. One of them is that we have to record and supervise all communications that we have with clients. With e mail, it means we just store them in massive files and when somebody sues us, we present it, we read everybody's e mails. Text messages provided a problem, how do we record what people are doing on their phone. We had 2 different solutions that we were looking at.
1 was give everybody a corporate phone, lock it down and supervise it. It's a very expensive proposition when you have 16,000 financial advisors to buy that many phones and manage them. And then the other what the benefit that Twilio offered us was put another app on their existing BYO bring your own device. We put mobile iron on it and then with in partnership with Twilio developed this MS phone app where they could have a work number that rings on their personal phone. They could have text messages to their clients that we could record and supervise, because otherwise we were telling financial advisors, you are not allowed to text your clients, which in this day and age just isn't feasible.
Yes, for us, it was really about seeing in our customer base, right, we have 100,000 customers, 80% of them offer phone support as a way it's a very popular support channel. Obviously, it's how people want to engage with the companies they're doing business with. But most of our customers are offering phone support in an old fashioned way. It's a siloed legacy technology. It's not connected to anything else in your business.
And when we wanted to bring that together with other support channels and deliver a more modern customer experience, there is a lot required to do that, right? You have to go get the phone numbers, you have to get the calls into to the right agents, you have to make sure it's a really high quality phone call and everything's tracked in the right spot. And there is a lot to build out in that overall experience that was well outside of our core expertise and that's where we realized we needed to partner in order to build our solution.
And Ryan, you Zendesk has showed these great stats about like why you started in email, why did you go into voice? Well, it's because customer sat and your customers actually demanded it of you. Is there any like stats that I know you've shared those in the past about how customers love voice as a channel?
Yes, I mean it is the most popular support channel. And what we're finding is that as channel preferences change and digital channels increase in popularity, it's on top of not instead of the core phone calls. So, we see the nature of the phone channel changing, right? People are using phone as an escalation channel, they're using phone for those high intensity, high emotional, super high priority moments, I mean, in some ways, it's the moment of truth, right? When you actually have a customer on the line, you're either going to lose them in a sea of hold music while they're waiting to get in touch with the right agent or you're going to make a satisfied customer.
And so delivering a really good experience during that moment is really important to us.
I remember several years ago being really frustrated with a drone I had bought and it was exactly in that scenario, right, I was calling to get support and when I called the agent, I heard the familiar like Toyo client sound and they were a Zendesk customer, which is exactly what you're saying play out, right, it's that moment where you're really frustrated and that's when delivering that superior experiment, that ability to escalate the value of omni channel really becomes present.
Well, when they can an agent can answer the phone call with the, hey, Jeff, you are probably following up in the email you sent us this morning, sorry we haven't gotten back to you yet, right. That's a magical experience when you can deliver it. Absolutely.
So, and Noreen, you had a great story. So, you said a lot you had this problem you wanted to solve, right, of we've got all these private wealth managers who today say, and the client is like, oh, can I just text you? They basically have to say no or be like, yes, don't tell anyone, right? I mean, it's and like as a client of Private Wealth myself, I would say that like, speaking to bankers is something that if you can keep it to as brief a possible interaction is of high value to someone like myself because every small question they do want to schedule an hour long phone call with you. And so text messaging is a very people know what I'm talking about.
The idea that you want to use the right channel that customers prefer can literally make or break the relationship. And so I think that is extremely important. But you had mentioned like you had this idea like, is this even possible? Could we do this, right? And the amount of time it took you to answer that question was actually pretty astounding.
Yes. So, our tech team worked with Twilio and that we did a POC. One of the reasons we selected you as a partner for this, they did a POC in 4 hours.
4 hours.
4 hours to get it up and running. And so we think, I often get asked, why did you guys choose Twilio as your provider? One was you were able to manage through all of the security architecture vendor management and other things that come with serving a globally significant financial institution, but also because it was so easy to use and to integrate, right. If we can do a POC in 4 hours, we can get this thing up and running fast and that was a key factor in our decision.
And how long would it have taken like the other things that you considered? Like did you consider other things? And if so, like what
would be the case? We did. We considered some mobile virtual network operators, other things that just they would have been longer than 4 hours. I don't have the existing stats, but the fact the speed of being able to get your solution up and running, the API based nature of it, it really was like you got the billboard or you had it on the way to SFO, ask your developers. We asked our developers to say which of these do you want and they wanted Twilio.
So, there we go.
What about you, Ryan? What else did Zendesk consider as an alternative here?
Well, at the beginning, nothing, right? It was literally a decision that was, well, this works, so let's run with it. Now, of course, since then, we periodically look at options and evaluate our strategy for communications platform. But boy, I tell you, there are a lot of mornings when I wake up and I'm very glad that I don't have to manage a team to negotiate for additional toll free numbers in Germany or manage mobile things in Italy and we get a whole lot more from Twilio than just phone numbers and minutes, right? So, as we consume more and more of not just the super network, but also your programmable communications cloud, that's when it starts to say there really isn't a way of assembling other services from competitors and it's certainly in a business that we want to be in our own.
And so and as our partnership has deepened, it's really not something that we spend a ton of time thinking about.
What are the most important things do you think your customers value and like how we're jointly bringing this to market?
Well, I think that the global reach is a really important one. I mean Zendesk is a very global company, right. And we need to be able to support the needs of our customers to engage with their customers everywhere. And at first, that was a challenge, right?
It was. I mean, it's actually worth stop me for a second. I remember back in this was 2000, probably 'twelve, 2013, right, very early in the days of our global footprint for our super network when Zendesk, because you were founded in Denmark, I feel like there's always been a very global nature of your customer base, you pulled us way faster than we expected to become a global company in particular phone numbers. And this is one of the interesting things because you naively say like, okay, in the early days you say, okay, well, we have phone numbers in all these countries, great, problem solved, But then you realize, okay, you have the phone numbers, but now the media is actually traversing the Pacific, round trip between your customers in Australia going back to Virginia and back to Australia and introducing 10 seconds of latency, well, that's not going to work, right? And so and then the more you double click on it, you're like, well, the carrier partners
have to have POPs
in the right places and every side of that equation, we have to have all of our media services with POPs in all the right places to be able to service that traffic. And so this naive view that like you just have the phone number and the problem is solved, when we worked on this together in the early days was like we are both out there chartering new territory because if you think about it, the notion of a super network that spans the whole world that allows you in real time to provision a phone there somewhere in the world then call someone somewhere else in the world and have everything just work hadn't really been done before because you would had this geopolitically bounded industry, telecommunications, right, where every country had its own carriers and then companies would essentially put infrastructure in closets in those countries when they opened up in that country, right? And then you kind of did this and it took like years decades actually to build up the global presence and we were trying to do it essentially overnight.
Absolutely. I mean, for when we did that launch, it's like, well, of course, we'll just launch globally and to fast forward from those days, right, to where we are today, where as we approach 100 countries and for the smallest countries, it's amazing. And at this point, it's not something that our developer team needs to think about at all. Like when I just think about the amount of things our team doesn't need to have expertise in, right, it's again, those are the mornings when I wake up and I'm like, boy, I'm glad we don't need to think about this.
And Noreen, were there other considerations that you thought about like when you chose to move forward with us, I mean, you had speed, there is proof of concept in 4 hours, were there other considerations you thought about the global network?
The global network, I mean the fact that you guys did that with them first, so thank you very much. The global network because we're such a global company was another important consideration for us. And then also, I'd say, the power to innovate and push our thinking. We want our we realize that particularly, look, financial services is not at the bleeding edge at the latest and greatest. So we need our partners to continuously bring to us new ideas, push our thinking, innovate, ask questions and say, here is how else you can evolve your offering with our tools and what else is there in the marketplace and that culture and that ability to partner with us was another key factor.
Fantastic. What about now? What are the key things that we're doing for you now that you think are most valuable?
We have a vision. One reason we've been very public, I think, on our digital strategy is we think it is far broader than what the press kind of publicizes digital should be about. And one of the one of our core pillars is we have 16,000 financial advisors. We want to turn these guys into and they are mainly guys these men and women sorry, these men and women into digital marketers, right? We want to like if we can give them the tools that normally somebody in the brand marketing group in headquarters is using to sell soap, if we can give those tools, the communication tools, the data and analytics, the intelligence and put them in the hands of 16,000 people who also have the relationships in their local community, we think it's a really powerful way to grow our business.
And so, we are investing a lot in data and analytics and then but that it just can't be data and analytics to the FAs, we also to make it easy for them to get the messages out to be able to communicate with clients at scale and the way clients want to be communicated with in this day and age, texting, email, video, multimedia and expanding beyond where we are today. So that's where we are looking to partner.
We chatted a little or we chatted, I told you all earlier like we the way we are seeing this organically rise out of our customer base is that there is this full essentially customer lifecycle, right, that often starts with acquiring a customer and then operationally communicate with them, then there's a support, there is marketing, there is sales, there is service, right. There is all these touch points that companies have and it sounds like what you are saying is, you are going to start with 1. We see this very commonly in our customers. We're going to start with 1 of those touch points, which is the most important one, the one that's got the highest priority, we're going to start there. And then after we make that successful, then we're going to start moving on to these other customer touch points.
It sounds like you've started with the sort of one to one use case of how do I connect the wealth manager to their clients
for those
transactional messages. And then that's just saying, well, great, and how do I make them into how do I take the marketing part of that life cycle? And how do I empower them?
And we're doing service as well. So we think of it in the same way, we have a little chart. It's acquisitions, so how do you acquire new customers? How do you then provide them advice, but that can't just be a meeting in a room where you have to go over pieces of paper, it also has to be the day that Brexit happens, a text message that says, don't worry, yes, the market is down blah, but your portfolio is fine, because we diversified it. And then servicing, right, because who wants to call in, you want to do it on your phone, you want to communicate back and forth on your phone and then relationship management in that engagement piece, so we think of it the same way.
And we didn't even collude on that answer.
Yes, I mean, it's just it's something organically we see from so many of our customers that that whole lifecycle comes into play. The other thing I think it's interesting about your business, and I think you've expressed this in the past to me is that like you have not just one client here, right, you've got the end customer whose business you have to earn and keep and satisfy. You also have the wealth managers.
Yes.
And they can go work in other firms.
Yes.
Right. They can take their book of business and move it to a competing firm. And so the firm that provides them with the best tools, the best infrastructure to run their business and also make them successful has also a competitive advantage.
No, that's totally right. And we that's why we have this we want to be the most modern platform out there, the easiest to do business with from both an FA and a client perspective. So, we think partnering with Twilio and other firms like this provide us a competitive advantage in their recruiting wars for financial advisors as well in addition to just the end what we call the end client loyalty and retention.
Awesome. What about you, Ryan?
Well, I think where we are now, it really is about how do you empower a developer team to make the same sort of evolution of going from one channel to that same developer team looking at SMS and that was something we recently we added to our platform, I guess, just over a year ago. And it was a similar sort of transition from, hey, let's start with one channel, let's look at other channels. And then, so we've been using a lot of programmable voice, programmable SMS now. And then looking at some of these higher level services that we want to bake into our offering to free up our development team to work on other tasks. And for example, Twilio Insights has been something that has just been a game changer for our support team, right, to be able to work with a team of call center agents and be able to identify that, well, it's probably that team of agents that you have down and the basement floor with the low quality Wi Fi, that's where you're dropping calls and to be able to change that element of our support experience, it just allows us to use more and more of the Twilio static to enhance what we deliver to our customers.
Yes, I mean, Insights is an interesting product. I actually think some of the early work we did with you really led us to understand the nature of this. But your developers go, you build a solution, you say, great, it's live, you market it, customers start using it and then they start writing into support, probably via Zendesk and they say, hey, this call sounded bad or my agents here dropped a call, what's going on? And then the support team is like, I don't know, like what do I do? How do I deal with this?
And what it ended up with was a bad customer experience for your end users because they couldn't get answers to their questions and so we built our insights products like X-ray vision into what's happening in Twilio's network as well as the end users network that allows your agents to sit there and say, okay, great, I pulled up call, I can see that there was a lot of drop packets at the edge, I can see that there was a lot of latency going to like have you thought about this, have you thought about plugging in with Ethernet, whatever. And even as stupid as this is one that we discovered early on that we didn't know about, that it was some astounding number, it was like 30% of calls where customers would complain that there was no audio. It turned out their headset came unplugged from the computer, right? And like these your agents were sitting there being and I don't know what to tell you. And so part of our Insights product, we actually had anything that detected.
Yes, there's no audio coming in from the microphone, right? And then they would say, oh yes, sorry, right? And it was like it was all of that early work that we did collaborating with you and your team and understanding and sitting down with your support agents that showed us the roadmap to say, yes, you need this insights product in order to actually support these products at global scale like your team is doing.
Well, it turns our agents into superheroes, right? Exactly. It just allows them to just be yes, to have that insight and deliver just the right suggestion that makes the customer
successful. Yes. And it's also like there's all these different folks inside of Zendesk now who rely on Twilio to doing their job.
Yes, not just the developers anymore, right? It's our support team. And actually as we start to look at, I mean, we're going to talk about this a little bit, just how early we are in this overall move of the call center into the cloud and how when we look at the variety of organizations out there and what they're looking for, Some of them love the flip a switch and you're able to offer a call center that's built right into Zendesk. Others want to have the time and the effort and want to build something that's specific to their organization. Most of the market is somewhere in between, right?
And so, this is I think part of our ongoing partnership is figuring out how to serve that in between market together by partnering. I think a lot of opportunity to do that. And so when I look at some of the stuff that you're working on that's in the engagement cloud, I'm so anxious to build that into our products so that we can have our customers bring their own Twilio to Zendesk. I think there is a lot of opportunity to do that.
Yes, we're excited to do that. So, like we've been working together for a number of years now. Ryan, like how have you seen the relationship evolve over time?
Well, it's just that from a great it's a convenient spot to purchase numbers and minutes and offer this service very quickly and easily to, hey, this is a core part of our strategy for delivering a solution for omni channel support 2, how do we partner together to accelerate this really once in a generation shift of this legacy industry into the cloud. And so, I think that that partnership is kind of the next wave of our relationship together going and tackling the market together.
Awesome. Now, Maureen, you answered this a little bit, but I'm curious if you have anything more to say, right? This notion that as far as working together and the nature of the relationship with Twilio, you guys were very public about it, right? You did a press release. This at the C level, I remember I tried to get you to come to Signal, but you said I'm actually presenting to the Board of Directors of Morgan Stanley.
Sorry, I can't be there. I'm like, poor excuse me.
He tried to get me to move the meeting. He actually asked me why I couldn't video into our Board meeting. You did.
I did ask our team how much a private jet would be because I thought it was a good story, although there's no way frugality would have allowed us to actually do that. But what tell me, what was your strategy? You alluded to this, but what was your strategy for being so public about it? Because I do feel like there's a very intentional approach that Morgan Stanley is taking When you talk about your digital disruption that you are driving?
I think the press for those of you that follow financial services has equated digital with robo advice and created this storyline that technology is here to replace the human advisor And we wanted to change the dialogue. We fundamentally believe that we think automated solutions have a role for investors, particularly earlier in their lifecycle when their needs are simple. I think it's a great solution for an underserved market. We rolled out one of our own. But that there is another opportunity out there and that people need human advisors when their needs get more complex, when they have to deal with stock options, trusts, taxes and that there is a big digital opportunity in changing that segment of the market that isn't discussed, that needs to be discussed, that's about you don't have to meet with somebody in person to do everything, you shouldn't have a fax machine, we should leverage data and analytics, we should change communication with clients and we wanted to have that discussion.
So part of our intentionality was, let's shift let's change the topic here and talk about the big opportunity, which is in the core, in the bigger path of the market here.
Here is what I heard, there is an opportunity to sell them Twilio programmable facts.
Oh yes,
that's the next big opportunity with Morgan Stanley.
You should see our branches. There is a rumor going around that the last typewriter might have only left a few years ago. I don't know. But and our we have been engaged, I mean digital is so important to Morgan Stanley that we do I present at either a full board or subcommittee every meeting on our progress and the partnerships and how we're making this forward. So it's a big priority for us.
So thank you.
Absolutely. So sort of last question here for each of you. How are we doing and what can we be doing for you in the future? So, Ryan, start with you.
I'll start with that.
I think one indication of how much our relationship and how much our confidence and our customers' confidence in the Twilio service has improved over the years is how the concept of powered by Twilio is something that we didn't use to say, not mostly because it was just it would be confusing to people, they wouldn't understand it, and that is changing, right. I think that phrase is something that now builds confidence in our customers and that our sales team uses to express to our customers that there is carrier grade infrastructure behind this service and that it's a signal to our customers that we're going to be moving very quickly and changing how they do phone support. And I think that that's as good an indication as any that you guys are doing really well, right? That we literally wouldn't be in the business we're in with call center software, because there's so many areas of it that are just outside of our area of expertise, right? So, I think the partnership is really enabling us to help our customers change how they deliver this channel.
I think that going forward, I love the idea of helping our team as you guys move up the stack, helping our team move up the stack as well and solving more and more interesting challenges that our customers are asking for. Like we want to be spending our time in making voice not a support channel that's offered over there by those agents that have special kit and specially trained in that area, but as a natural, just like a human conversation, right, that might flow from an email that I get from my wife during the day, coordinating plans for dinner to an SMS that I send her as I'm heading to the car to a phone call on, hey, can I pick anything up? Companies can't have those sort of conversations with their customers today and it's the technology that's getting in the way and I think that we can partner together to change that.
Awesome. I know you've also asked for Studio.
I love so Studio for those who don't know is just a beautiful kind of drag and drop IVR builder and it's one of those things, right, that this is my first when can I just put that in my product, right? I want to make that available to all my customers, so that they can be building these incredibly sophisticated IVRs on their own.
That's one of the things that we focus on as a company. Everything that we build, we build with our solution partners in mind, so that you can take this component and then take embed it in your product to make your product better and just sort of rise the whole tide here for all of the cloud based contact centers that are built on Twilio, so that together we're going to go and take this big market that's out there, this 90 plus percent of contact centers that are still legacy on prem, gathering dust in a closet somewhere that we can all go tackle this huge opportunity together. Very cool. What about your NERI now? Like what how are things going and what can we be doing for you in the future?
Things are going well. Our rollout has been very popular with our financial advisors and we've gotten great feedback. What I would say is just keep pushing our thinking, right. Our industry is the noted laggard. And you guys see you work with all these different firms.
And so push our thinking, give us ideas, we're eager for them. We're so heads down in so many things that we're trying to do. Like this IVR one is a great one. Our IVR sucks. So, it's just Pat
can build them for you in about 5 minutes.
There you go, right. So, multimedia video, like bring us new ideas, because we're hungry to absorb them. And but it's hard to take your head up sometimes and see what else is out there.
Great. Well, we'll come by and work with the whole team on that ideation. That's something our team does really well. Very cool. Thank you so much, Ryan, Nourid.
Thank you for sharing with us today. I think we've got time for maybe a couple of questions, not too much. There's a mic out there.
Thank you. Mark Murphy with JPMorgan. So I'm wondering if I could get your views on just how big is the feature gap between Twilio and its competitors and maybe the reliability gap between Twilio and its competitors, if you've ever had a chance to look at that? And secondly, how would you respond to someone who might say that SMS text is really not the future, it is the past and it's going to we're going to be living in a world that is in app and push messaging because I do believe that SMS text is a big part of your push, correct, Narayan?
Yes. So, let me answer that. We are investing in all of them. So, we are investing in in app. But SMS text, particularly for your one to one, right, from our perspective, it's a financial advisor talking to a client, which is a one to one relationship and we are taking that from meeting to phone.
To take that all the way to in app is like right now our penetration of even people who use our mobile app, I mean the numbers are shockingly low. So we're just not even close. So there's a huge market for us just in SMS right now and then we'll go from there.
And mobile apps, I mean, we're 8 or 9 years into this mobile app revolution. I mean, this is not like new.
No, we have a great mobile app, but we have a penetration problem. Yes. Just our client, if you think about both our FA client base, right, we have a 2 step sell. We have the FAs and then we have the clients. And so, that's a long process to get through that.
I also love the user experience. I mean, you have this experience all the time with banks in particular where they send you an email to tell you that you have an email waiting to be read.
Yes.
Right. Like it's so annoying, right. I love the SMS just SMS. I communicate like I would with my friends and my family, not get an email saying click here to read your email. I think it's a great user experience there.
I'm happy to address the question about kind of features as well as quality and reliability. I think that when you look at the whole Twilio stack, I think that it's really when looking at the entire thing where it's impossible to find something that has each of those different elements, right? So, when we look at the breadth of phone numbers and the ability to quickly expand to new geographies with not just SMS, but voice. When you look at the strength of programmable voice and the increased features that are available at that level. And then the stuff on top that is like this insights thing, right?
This is where it's the every time there is a shiny new conversation to be had about, hey, why couldn't we be using this service or that service? It's like, well, can we ask at the end of every call, how much was that call, get an answer and then bill our customers in real time so that they know exactly how much that call cost. Those sort of things are so hard to build. Can you have a customer support rep on our service at the look at a call and tell that the audio plugs aren't plugged in or tell that the network connection is crappy, those are the sort of things that when you look at consuming all of those from one place and not having to assemble all the variety of component services, we just haven't found anything that measures up. In terms of I actually think one of the interesting elements of Insights in particular, and this gets to the quality and reliability thing, so much can happen between the mouth of a customer and the ear of an agent, right?
There is so much technology and so much network in between those things that I think insights has really given us transparency into what exactly do we mean by quality and reliability and helping our customers understand that as well. So, helping our customers understand that, okay, well, here are some things that are really occurring at the carrier level, right? Here are some things that might be happening in Twilio infrastructure. Here are some things that might be happening in Zendesk infrastructure. And here is what's happening in your own network.
And helping our customers understand that has made us realize exactly how strong Twilio's infrastructure is. And it's hard to diagnose these issues or tell exactly where these things happen in the stack. So, I think it's been one of the interesting side effects of us using Insights is realizing how strong Twilio is now.
The other thing, I mean, you asked about sort of resiliency, and Zendesk is unique, I feel like we've talked a lot about the long relationship that Zendesk and Twilio have had and like you were a customer of ours back in 2012, 2013 during some days where our reliability was not very good because we were going through hyper scaling and our sort of V1 naive implementation of these things hit its limits. And those are some tough times for our relationship. I think I took Mikael out to dinner more than once. And what resulted is, you've seen what it's like when it's not resilient, when you don't have that. And then you've seen where we are today and I don't know if there's any commentary you would have about the investments that we've made over the years that you see evaluating your customer base?
So, I think there is the things we've talked about like global low latency and just getting the super network right. But I think what I've been most impressed and actually what we've learned the most from is your operational maturity model. And so it's less the things that you're doing and more how you're doing it, right, and how deeply you've embedded that in the Twilio culture is something that we see every time we're interacting with one of your product managers on a new feature, a new product, we get to see how deeply you've embedded quality and reliability into your culture. And that's something that frankly we've said, how do we do more of that, right, because I think you've really you've done more than anybody in the industry in that regard.
Great. Another question?
Hi. My name is Pat Walravens. I'm from JMP. So, my question for you is, I'm sure you both spend a lot of money on Twilio. So, my question is, how important is price in your selection process?
And then as you as this relationship moves forward, how do you evaluate how much you're spending and whether that's the right amount?
So price is one factor. But honestly, as long as it's not okay, don't tell my sourcing person, I said, as long as it's not out of the
realm of I'm not
outsourcing. It says out of the realm of reasonable, right, there are numbers where it gets to like I can't do that, but within a range, the ease of implementation, the security architecture, the ability to like meet all of our regulatory requirements ends up becoming an equally significant. It's not a price only decision by any means. Now again, there's some people I think in the market that have gotten a little bit ahead of themselves as terms of their value. That Twilio is not one of them, but it's one factor.
We're in an interesting position because as the aspect of our business, which is essentially reselling repackaging and reselling Twilio Minutes. And so, there's a way in which price is a like, Twilio is a lot more about the market price of a toll free minute in Germany than I do, right? And so there is an aspect of which that I rely on Twilio for having and the reason why that partnership is so important is our ability to penetrate the call center market in a particular geography is dependent on Twilio being able to secure and offer us compelling prices. But boy when that ends up as revenue for me, right, when I'm able to resell those minutes and that's one part of our business model. Of course, most of what Zendesk does is agent seats, right, and per agent per month agent seats.
But that's where I think the partnership is important because we can go and look after so recently, right, we took a crack at relaunching talk in Japan, right? And said, all right, we think there is a massive market there, here is what Zendesk is doing more broadly in the Japanese market, how can we go and approach this and if we had this new type of phone number that our Japanese customers are asking for and if we were able to offer that at a compelling price, could we really penetrate this market and that's increasingly how our partnership is working. Okay.
I think
we have time for one more. Who's it
going
to be? Hi, Ryan.
I was just curious if you could comment on any backups that you have to Twilio, if something is not working and how hard it would be to switch, I think that's something a lot of us have struggled with over time on understanding that?
Yes. So on backups, this is a conversation that we have with Jeff and team quite a bit is Twilio is a backup for Twilio, right, where there is so much resiliency built into the Twilio network that there is a lot of failover that's built in there. And so, we do offer the ability for our customers to say, hey, if you want to route call somewhere else, it can kind of bounce off at the edge of the Twilio network and into another system, which if there is a, call it a brown out or some an issue somewhere in the Twilio network that provides our customers with some degree of comfort. Some of our customers take advantage of that, some of them don't. But we don't have a full a second system, right, that we're kind of failing over to.
And so far, I haven't needed it frankly. Part of the reason for that is that we don't need it, but part of it is that, that would be really, really hard to go and do. And again, this I think speaks to how much we benefited from and how much of the Twilio stack we consume where there is no such thing as a generic voice, a programmable voice, right, to embed into an application like ours, right. I mean, there is a lot of I think we would be in a different situation if all we're doing was buying phone numbers in minutes, but we're not, right? I mean, there's a significant portion of our offering, which is pretty tightly intertwined.
And while, hey, look, there's a I love the fact that every time we talk to Jeff about, hey, what should we be doing for our failover strategy, you talk about how you're investing in making Twilio more resilient than ever, so that we would never even need to think about doing that. And I think that's I like those sort of conversations a lot because it would be a pretty garbage when effort for us to do it otherwise.
And it was some of the early conversations that we had with Zendesk around like why we've been very public about our OMM, our operational maturity, I mean a lot of companies maybe would have said that's our secret sauce, we're just going to keep it inside. But we actually wanted to talk about it because we want to build that trust both with you and with your customers and also share our learnings with you because if together Zendesk plus Twilio isn't a reliable solution for the market, then neither of us are going to win, right? And so that's why we believe in sharing this with our customers so that we can all build these great solutions together. But, Noreen?
Yes. No, that's it.
Yes. As far as this question, do you I don't even know the answer. Do you have some backup for us?
I actually don't know the answer to that. Or not off the top of my head, it's not a core it's not one of the core if FA text messaging goes down, it's not the end of our world. So, I would actually have to ask somebody what our business continuity plan is. I don't know.
Great. I think that's all the time we have for questions. Please give a nice thank you to Ryan, Noreen. Thank you for spending time with us.
Thank you, Brian.
And now for the gentlemen you've all been waiting for, allow me to introduce Twilio CFO, Lee Kirkpatrick. Lee?
Thanks, Jeff. So again, my name is Lee Kirkpatrick, Twilio's CFO. My colleagues have introduced themselves and said their tenure at Twilio as a reference point. I introduced myself in terms of how revenue has grown since I've been at Twilio. So I joined Twilio and we're a $3,000,000 quarter and we're now over $100,000,000 So a lot of excitement, a lot of growth.
And from my perspective, it's very exciting to be part of a team working with such a great group of people, powerful business model. And I think we said it several times here today, when I walk into one of George's sales all hands or see the product team working on studio, it is very apparent that we are just still at the very beginning scratching the surface of a huge opportunity. So it's extremely exciting. So in terms of key takeaways, what I want to cover is, this is a company that is growing rapidly at scale. We talked about in our last earnings call, our base revenue ex Uber is growing extremely fast, well over 50% in Q3 and in recent periods.
So we're growing quickly. We have an extremely powerful business model and we talked a lot about that today. In fact, a lot of my thunder has been stalled in terms of some of the previous presentations about some of these great unit economics, our great business model, the developer go to led market. Another key part of that business model, I think Oit covered significantly was we have made $220,000,000 of investment in terms of R and D, that software investment drives differentiation, which leads to great numbers, great unit economics and allows me to put charts up that go up into the right. And last, we have a very attractive long term operating model with target operating margins of 20% plus.
The platform model is a bit different than what you used to seeing in typical SaaS and we'll get into that a bit later. So revenue drivers is a level set, approximately 80% of our revenue is usage based. And when you take this usage based model where you bill by the minute, message or authentication and you charge pennies and sometimes less than pennies for each transaction and you have over 1,000 transactions per second across a customer base of 46,000 customers, you get a chart that looks like this, steady consistent revenue that's growing. This is a snapshot of the software sector of companies over $100,000,000 So, even with Uber, we grew over 41% in the Q3 and that puts us in a really fine company. Across our revenue base, that's becoming increasingly diverse.
So 17% of our revenue was with our top 10 customers. That's improved from 31% over a year ago. Here's a little deeper look at this. So this is our top 100 customer accounts and you can see outside of our first two customers, we have very little concentration risk and it's highly balanced. In fact, if I took this chart from a couple of years ago, same thing, if you took those top two customers, the percentages would be slightly the same.
On an absolute basis, you would just see a rising tide atop across that whole customer group. So the business model, that's kind of been a theme today in terms of our great unit economics and business model. So, first item where you start customer growth. So, we've had rapid customer growth. When I was speaking at the Wright Roadshow, we had 29,000 active customers, we now have 46,000 active customers on the platform.
If we go a little deeper into that, the 46,000 customers in terms of the last quarter grew 35% year over year, so strong growth across the overall customer base and the long tail. If we work our way up in terms of what we look at as our mid market size, customers with 10,000 ARR, dollars 10,000 a year customers, over 3,700 customers, growing 43% year over year. And at the very top, we now have 47 active customer accounts spending over $1,000,000 per year. So that number is up 74% year over year. And if we reflect on this, I mean, this is a testament to what we've been talking about today.
This $220,000,000 investment in terms of R and D, reliability, quality, insights, service features, This is why customers are trusting Twilio to move their workloads over to Twilio and bringing on new workloads on Twilio. So, we're getting customers on the platform rapidly and when we get that revenue on the platform, it stays on the platform. So, our revenue retention rate is in the mid-ninety percent range as a Q3 and has been consistent in that range over the last 2 years. So, we retain the revenue and then we grow the revenue. So, this is a snapshot of our dollar based net expansion rate with Uber, which has caused some ups and downs.
Cleaner look is removing Uber and this is a slide Jeff presented earlier. And I think the key takeaway here, it's been consistent over the period. And if you go back to early 2015, 140% relative to 137%, revenue was a third the size, but we're basically maintaining the same level of expansion rate. Another look of our business is ARPU. So this is our base ARPU ex Uber.
So this number has grown $2,400 since the beginning of 2015. So we're rapidly adding customers and they're spending more on the platform. So combining the previous charts in terms of customer growth and expansion rate, you get cohorts that get larger and grow consistently over certain time periods. So this is annualized revenue growth. We talked a bit also about our expansion rate of revenue acquisition earlier.
Revenue efficiency is a key part of our model. This is a comparison to other high growth companies. Hope Ryan from Zendesk stepped out of the room. Anyway, so we have a very efficient model here and at Twilio, we drive high revenue growth, but we do not require high levels of investment in terms of sales and marketing to deliver that growth. So I'll talk a bit in terms about go a little bit deeper in terms of revenue and gross margins.
And just again, so we're all in the same page here. In terms of our cost of goods sold, we have 3 categories, but the main category for Twilio today is carrier expense, and that's our network expenses, that's 90% of our costs. So, if we go deep in terms of our revenue, we reported in our last earnings 53% non GAAP gross margin. And what I wanted to do is just give you guys a little closer look in terms of what's under the covers of those numbers. So if we take those numbers and pull out our variable customer accounts, Uber and our BeefSend acquisition, and this is a bucket of revenue that's been moving, fluctuating significantly over the last few quarters.
If we pull those numbers out, we're left with 46,000 base customers on the platform that drive the vast majority of our revenue. That gross margin has been 60% and that number has been very consistent at 60% going back to prior to the IPO. So, we do see fluctuation move in the gross margin. When we look at this core group, we've had high consistency at the high rate of 60%. One thing we've talked about, I'm going to get in a bit later on in terms of our long term operating model and gross margin is our target gross margin is 60% to 65%.
When we set that margin and look at that and model this and we talked about this prior to the IPO, one of the factors that made us very confident that we achieved this number is when we were looking at this core base of customers, we already were in that 60% range. So I'm going to talk a bit deeper in terms of gross margin and there will be fluctuations and all that, but we do have a base of business that has remained very stable at the 60% target. So going a little deeper in terms of how we're looking at gross margin, if you saw the road show, listened to our earnings call, had a 1 on 1 with me, you've heard me say many times, we are focused on reach and scale, we're not maximizing gross margin in the near term and in fact, gross margins may fluctuate in the near term. So what does that mean? Reach and scale means we're focused on acquiring customers, bringing them on the platform and making them successful.
Another way for recent scale is revenue growth, and really this we've talked about this as our strategy, the measure of this strategy is, are we executing and driving revenue. Revenue growth is a measure of this strategy. If we go a little bit deeper and think about what is impacting the gross margin, so gross margin is impacted by our products, what our customers are buying, what they are buying and where that usage is taking place. So in the terms of the what, our customer base and our customers and we saw Ryan on stage here, are primarily community cating to their customers through traditional voice channels and traditional SMS channels. That's how they're communicating with their customers.
Accordingly, most of our revenue today is from products that support those through core communications, traditional voice, traditional messaging and there is a corresponding network expense associated with those. So that's our current product line. As we look out into the long term, more of our revenue, we expect to be higher level in terms of what we call application services, which Pat talked about, these are services that do not have a network expense. So we see more revenue coming from application services, higher level business logic and this revenue does not have a corresponding network expense and has a much higher gross margin. And as we have this type of revenue, this high level software revenue, again, it can sit on top of traditional channels like voice PSTN voice and messaging and newer channels like IP messaging or video.
So think of Twilio as our offering is software that sits on top of a channel. If you look at it from an international basis, those channel costs are higher. So, we have a lower gross margin profile. If it's an application service, there's no network expense, channel expense is less, so that's a high profile. So international lower profile, application services higher profile.
And we'll jump deeper into terms of international. So this is a number that we disclose every quarter. 24% of our customers are headquartered outside of the United States, but this doesn't really tell the whole story from a margin standpoint. We have a lot of U. S.
Customers on the platform that are U. S. Based, but they have a lot of uses outside of the U. S. And if we add this up, we see 53% of our revenue is from outside of the U.
S. I'll take a step back here. This is an extremely important value proposition for Twilio where a customer can be in one country and have a global opportunity with minimal development effort. So, if we look at our international revenue mix, it's a bit over 50%. International messaging is growing faster and international revenue in total is growing faster than our overall business.
This number also of 53% was uplifted a bit by our BeatsCent acquisition in terms of Q1. So what does this mean in terms of as we're talking about gross margin? So for our core businesses, if international revenue mix increases, that does decrease our overall gross margin. But as we look at the business, increasing international business is a very good thing, right. We are building the communication solutions for how our customers want to communicate today and that's primarily voice and SMS.
So that's our goal to increase customer scale, customer reach and get our customers successful using Twilio. And then in the long run, we will be rolling out these application services and other products to layer on top of that large platform. So that's the strategy. So jumping over to that in terms of application services and the product. So we've talked about in the past that these products are very software based products, are a small part of Twilio's revenue, but growing rapidly.
So here we can take a snapshot in terms of Q3 2017 and we see $9,000,000 of application service products growing 100% year over year. If we look at the entire how that fits in the entire piece of supply, we see that by application services 9% of total revenue. And from a platform model, this is not something that will change significantly overnight. So as we roll out products, our customers adopt the products, we expect to see a steady increase of that green piece of the pie as we move forward and that's how the platform model works. Another key thing about our overall model is application services pull through core communications revenue.
So, Pat talked about our TaskRouter product, which is a really great tool for customers wanting to build a call center. So the task router generates application service revenue, but also pulls through core communication revenue, whether it's a voice messaging or SMS. So, the majority of our revenue in the near term, right, is coming from these core communication services and then that's in the blue. And as Zoe talked about, 9 years, dollars 200,000,000 plus of R and D investments have differentiated that product through quality, reliability, intelligent services. So we talk a lot about the newest services.
I really want to point out that that blue bucket, this is a great product. We have an edge, we have differentiation and this is a big revenue driver for us. What's a great about this overall model though, we are well positioned to add to the application services on top of that, what Pat talked about. So we are increasing investment in terms of the engagement cloud, application services and we see this as a great opportunity for Twilio going forward. One of the proof points George talked about in terms of his presentation was this ELA agreement that we signed where it was a near $10,000,000 commitment, half of that commitment was the application services software revenue, the other half of the commitment was usage based revenue.
As we bring more and more of those type of agreements onto the platform, we'll see our application services increase. So in terms of long term operating model, and we'll come back to gross margin in a bit there. So I will take a step back. So our operating model is different than your typical SaaS company. We have a lower gross margin profile today because of the network expense components.
Our gross margin profile is lower. We also have a far lower sales and marketing expense as a percentage of revenue. So what we've talked about in terms of far greater sales efficiency, the developer led go to market. So that's far better at that end, those offset. So in terms of gross margin, right, we have a target gross margin of 60% to 65%.
And summarizing our gross margin discussion like where we are today, how we get there going forward, we look at today, pulling out these fluctuating items I talked about earlier, we've had a relatively stable gross margin in recent periods. There's multiple puts and takes on the gross margin, but the 2 biggest drivers are international mix and application service mix. Both of those are growing today and both of those impact margins in different directions. In the long run, the biggest driver is application services as we've modeled our business out and make those investments. As we model and look at the business, for us to achieve our 60%, 65% target margin, which we're very confident with, we are modeling application services revenue at 30% of total revenue.
Further down the P and L, R and D, we will continue to make investments in R and D to keep our product differentiated. The target is 15% to 18% in terms of the target model and as we grow revenue, we expect to see operating leverage on that line item. We've talked a lot today about sales and marketing. As discussed, you know, this model is a far more efficient model in terms of generating revenue than what you typically would see with other high growth companies. And again, as we grow revenue, we expect to see the leverage down to the 16% to 19% of total and same thing with G and A as we scale and grow the business moving that to the 7% to 9% range.
A bit of housekeeping, so 606 update, so after 100 of hours of review with KPMG and $1,000 of expenditure and a long 20 page memo, the impact is nothing.
So we
will go there and then we will wrap it up in terms of a key takeaway. So again, this business is growing rapidly at scale. We have a terrific business model with great unit economics and we have an attractive long term model, albeit it's different in terms of platform, but it's a great model, we're targeting 20% operating margins. Thank you. Your side?
Thank you, Lee. I love Analyst Day where the 606 joke is the one that gets the most response from everybody. Alright, cool. So we are going to wrap up and then we are going to do a Q and A panel with the executive team where you can ask us questions that you have. I think the key thing, right, when I put myself into your shoes, what do you want?
You want to invest in a company that's operating in a large market that has a leadership position and a differentiated product. So here today to show you how we fit into that picture, right? And I believe we check all three of those boxes, right? When you think about our super network, what we've built there is a software overlay over the physical assets of the world, of the world's communications infrastructure that are powering a fundamentally new way for the world to communicate at global scale, right? We don't own the copper wires.
We don't own the fiber optics. You know what, Uber, Lyft, Airbnb, they don't own those things either, right? Lyft doesn't own the cars. Airbnb doesn't own the apartments. But they're using software to put those assets, deploy those assets in the world in a fundamentally more efficient way, connecting supply and demand together, using software to optimize that, to measure who's what's a good apartment, what's a good driver, connect those riders and drivers and renters and hosts, right?
That's sort of a new network business model and that's what we've done for the world's global telecommunications with our super network, right? And we focus a lot on what our customers say they want, breadth of offering. You talk to Mikkel, you talk to Noreen, they've got their customers, they've got their wealth managers, they're all over the world. And they want the coverage to be able to talk to their people wherever they are. And they want depth.
When they say they want a phone number, they want it now, not in 3 weeks. They don't want to pick up the phone call someone. They want an API that returns a phone number in real time. And they want that phone number to work, right? These are things that our software team building the super network is focused relentlessly on now for many, many years.
And it's a flywheel, it's getting better all the time, right. And I think about the programmable communications cloud, right? The key to the Programmable Communications Cloud that Oey talked about is that number 1, strategically it is driving our business model. The fundamental efficiency we get with our developer first approach is driven by the quality of the building blocks, the ability for those building blocks to solve our customers' problems, it does the thing our customers need it to do, and the great experience the developer has when they're getting up and running. The fact we invest so much in documentation, debuggers, our runtime environment, that's what allows developers to come on board, build that prototype in 4 hours and then land Morgan Stanley as a customer, right?
That's really powerful, right? Developers need that sophisticated infrastructure and tooling of our runtime and our debuggers and all that kind of stuff in order to have those success stories. That drives our business model, the fundamentally efficient developer first approach to how we're tackling this big market. But it's also key to unlocking use cases. I talked in the beginning about that the trust flywheel, right?
We've been in this market for almost 10 years now. And so what we put up on day 1 is the voice API would be an embarrassment today, right? Because what we put up back then, we then learned from the world's developers about these use cases, all that stuff I talked about with Ryan and Zendesk, right? We stubbed our toe, I think, on every sharp corner of telecom along the way here, figuring out how to make this thing work at scale globally with low latency, high quality, 5 nines availability, all of this stuff is really hard to do and you get there by putting out a product, listening to customers, having them guide your roadmap and that's what we've been doing for almost 10 years now. And so the mere existence of a voice API is not new, but it's the sophistication of that API and the iteration after iteration after iteration that we've undergone.
In fact, agents conference, the newest flavor of our conference product, we just went to GA I think yesterday, right? And that's the learning that we've done by working with developers and customers to understand the use cases of you would think the idea of just bridging 2 calls together is a simple idea. Turns out it's incredibly nuanced if you want to unlock these workloads of global scale call centers, for example. That's what we've learned along the way. We've built now I think the 3rd or 4th iteration of that product to be able to unlock that.
That's our new agent conference product. So I'm trying to say not all APIs are created equal. And so we've invested so much of our R and D energy. I think we only had this stat, dollars 200,000,000 we've invested in our R and D in order to take that feedback from customers, learn from what they're trying to build and continually plow it back into better and better, more sophisticated APIs, customers have shown us this roadmap. And only by seeing thousands of customers across all these different industries and across all these different use cases do you understand how these APIs are differentiated from each other because we've invested so much in learning from our customers and continually improving these APIs?
And then it's the resiliency. You can't just keep shipping and listening to customers is important and then the resiliency. And Ryan told you, in the early days of Twilio, right, we had Twilio client, I'll admit it, right, we had availability problems with Twilio Client. We learned the really hard way. What happens when you put something out there, customers embed your API into their product and they start scaling wildly all around the world.
We learned the hard way. And we built the resiliency and we developed this OMM, this operational maturity model to make sure we never had those kinds of problems again. And that investment now pays off when you get customers enterprises like Noreen deploying this at global scale for a blank like Morgan Stanley, right? That's what we've learned along the way building that building the PCC and investing in that flywheel of trust that leads you to customers that shows you the roadmap that leads you to more trust and it completes itself. And then Pat talked about the Engagement Club.
And what we are building as part of our first application platform. At the beginning of the day I said, we invented one platform, the programmable communications cloud, but actually we need to invent more. This application platform is a brand new invention that we're bringing to market. It's an innovation. Because today there isn't anything out there that really combines the power and flexibility of building a solution with the ease and speed of buying a solution.
But that's our goal to unlock and Pat showed you Twilio Studio that gives customers just that, the ability to have that complete flexibility, but the ability to get up and running together. And therefore together with our ecosystem of customers building on top of Twilio, we want to go take down these big markets, huge markets that use communications to drive business outcomes, marketing, automation, sales, support and service, logistics, operations, all the buyers, all the consumers of communications inside of companies throughout this complete lifecycle that companies use to communicate. We think those are the markets. Those are the big opportunities that we're going after with the Engagement Cloud across that full lifecycle. We're really excited to undertake that mission as the next step of Twilio's master plan.
Now I know that platform business models are unique. It's not as straightforward as a SaaS company. It's not like downloading software. This is unique. And I completely empathize with all of you trying to figure out Twilio, trying to figure out this brand new business model.
But I know it's not easy. I know it's new and it's fundamentally different than a whole lot of software companies out there. But we think it is an incredibly powerful model to address one of the largest software opportunities on the planet in this huge industry that's not just communications because also all those other ones I mentioned, marketing, sales, operations, support, service. It's pieces of software, it's pieces of hardware, it's pieces of the telecom network is all that munched together into something fundamentally new reconfigured for an era of software. That is what we're going after.
And I get it, it's not linear, doesn't map well to other stuff, it's hard to figure out. I get it, that's why we did today, this event today to try to explain how we're thinking about the opportunity and give you opportunity to ask us questions about that. But here's what we're going to do. This is our vision that we put forward for all of you today. Now what we are going to do is we're going to focus on our customers, we're going to focus on what they need and focus on what they're telling us is important to their business, scalability, global, trust, capabilities to unlock these markets.
And we are going to focus quarter after quarter unlocking more and more of this global opportunity And focusing on what our customers are telling us is the right way to do that, is to focus on those elements of trust, those elements of capabilities, agility with resiliency, and do that every single quarter after quarter, slowly eating away at what we see as an enormous opportunity. And you heard from George, our go to market motion is working incredibly well. We've got a sales team that's engaging with customers, using data, driving the expansion rate, driving engagement with customers and building that understanding with a high degree of confidence that making investments to help us grow this market, to build those conversations with our customers, help them win in this new market is the way to do that. So quarter after quarter, expect for us to slowly eat away at this big opportunity. And that's what we are all here to do for our customers because that's what we see as how we are going to win and how we are going to truly unlock this big opportunity.
Thank you very much. Now I'll invite up the E team and we'll do a Q and A demo. So while we're getting the cherry set up, I think we got mic runners out there. Greg, do you want to pick the lucky winners?
Thank you.
Space ourselves out a little bit, and I'll just crunch down there. Who is our first winner? Yes.
It's Ty Kivorn from Oppenheimer. First of all, thanks for the Investor Day. It was very helpful and informative and great detail. Lee, we will look forward for you to repeat that every quarter. I have a couple of questions.
First for you, George, you've talked about the sales productivity and I'm impressed you are with that. I guess, I'm trying to help me understand how you're trying to fine tune the sales effort to sell more application services, which is clearly something that's going to be helpful not just on the top line, but from a margin as well. Are you building some specifics in the incentive plans in order to drive that type of behavior? Is it too early to do something like that just given the wealth of opportunities that are out there? And the second question is for you, Lee, regarding the gross margin.
Again, thanks for the detail around that. I guess when I look at 2016, your gross margins were about 57% for the year. And when I look at the B SPAN, which closed in February, if I remember correctly, and you marginally moved down a point from March to June, and Uber is only half to a third of what it was at the same point last year. It feels like the impact of international then must have been massive. I mean, 3, 4 points associated just with the international mix on a year over year basis.
So you gave the mix of traffic in international, which was just over 50%. But can you tell us what it was in the same point last year? Did it really double as a percent of mix international on a year over year basis? Is that the right way to think about it? So I'll go first.
Think it's a more pertinent question. But so in terms of international mix that has grown. We are not disclosing the specific increase year over year. So we have seen international mix grow and you are right with the beeps in there. But as I pulled out those numbers, if we look back pulling out those heavily fluctuating items, which is our variable revenue, which is a significant amount of revenue and a lot of that is international, Uber and the Beeps and the number was very stable going back through last year.
Now there are puts and takes in those. So the international mix does have a dampening impact on gross margin and we also saw that application services increase, so that has a positive impact. But pulling out those fluctuating items, it's been very stable over that period.
But is it fair to say that on a year over year basis, it's really the geographical mix that has been the material change in your business from a contribution to the margin headwind?
Well, if you look on a year over year basis, it's those fluctuating items we talked about that would have the impact. George?
Good question. So I would say right now our primary focus as you saw from the slides is coverage. I think the way to sell more application services to sell more Twilio to some more of everything is in coverage and in the investments that we've shown you. So I think that's the primary way we're going to sell more. In terms of incentives and things like that, I would say that I believe in generally keeping things simple versus trying to overcomplicate or over engineer things.
We are seeing the uplift in application services that Lee showed you. So we do think that things are working and trending in the right direction. We'll constantly tweak things as we go along. But I would say the primary emphasis is getting more people talking to customers. I think that's the number one way we're going to sell more application services and then we'll continue to refine it over time, but I don't think that's the primary lever.
Jonathan Curtis. Just quickly, first off, can you commit to giving some of these new metrics that you exposed to us every quarter? Please shake your head yes. And if not, why not? Yes.
So not committing every quarter. So we do have our key metrics that we give on a quarterly basis. And so these are type of metrics, for instance, our progress in application services revenue, we'll give it out periodically in terms of milestones. We have a set of metrics, for instance, that we talk about at Twilio SIGNAL, but these are not necessarily regular metrics.
Okay.
And then We want
you to keep coming to Analyst Day.
And then Application Services, how much did you have to touch to drive that growth in revenue? How much sales engagement was involved there versus natural pull through from the model that we understand today? Maybe you should talk about the ELA or?
I would say it's a mix. I would say that some of it, I mean a lot of the initial number, the pre doubled number is happening because there is I think there is synergy between application services and our communications. They kind of pull each other through. So I think that there is a little bit of that. But definitely, I would say that the sales effort has accelerated that and that there's no way we would have closed that enterprise agreement and that application services component the sales effort.
So I would expect that, that will continue to be contributing to it more and more over time.
Just one more quick question. What is the impact of RCS on the messaging market and your opportunity?
Yes. So with respect to RCS, it's something we've been following for quite some time. There's been a number of announcements out there, single carriers have announced that they're launching RCS. For us, we see RCS as a natural fit in our channels offering. So we have support already for Facebook Messenger and a number of other channels there and we would expect to plug RCS right into that part of our offering.
Okay.
Thank you.
I would say from a customer perspective, I think the Noreen's answer was quite instructive actually and those obviously about RCS is about in app. But most of the customers today SMS for a lot of customers is still a new thing honestly. And so every customer wants a strategic platform where they use all these channels, but the truth of the matter is that for many of them they're not driving material traffic on these new channels today. And I think it's going to be there's quite a good runway for even the products we have, frankly, or the core channels we have.
One question we just have around the application services. Thank you, first off, for kind of breaking out and showing the revenue. I think beyond that, there's a question I think a lot of minds around how much does the application services or these highly differentiated software components that the competitors we've all heard about don't have even. How much of the business are those products touching? And so look, I don't know if there's a specific answer for that, but trying to get a flavor for if you look at that 90% of the revenue that is SMS and voice minutes, how much of that volume is a customer who is either using TaskRouter and that's pulling minutes or using Notify and pulling SMS versus someone who's only engaging at like the kind of super network or programmable layer?
Yes, I'll speak to that. So we haven't disclosed a specific number in terms of how many are using, but we do look at those numbers in terms of customers, the number of services for customers, which number customers are using, for instance, voice intelligence services that Oi talked about. So it's a meaningful and growing amount of customers, but that's not something we're talking about publicly.
Got it. Okay. And then second one for me and pass it off. On if I take a step back on the point around channels and some of these digital channels versus your core SMS voice channel, if I look at that, that was a world that had hundreds of carriers offering effectively the same product that were very hard to engage with, very natural place to put a layer of software over it. If I compare that to some of these digital channels, I realize there's a number of chat apps and there's a number of voice assistant, but they're measured in handfuls, right?
And each one of those products actually has a lot of features that the others don't. So if you want to leverage the full capabilities of Imessage or WhatsApp, it's a different sort of there's value to going direct there that you may not have had going to a carrier. So as you think about sort of the if there is a shift towards these other IP channels away from phone number calls and SMS, what do you think is sort of the value prop of Twilio in that world sort of aggregating those channels versus a developer who says, I want to leverage the best of Facebook Messenger, the best of Imessage?
I'll give you my take on it, right. So it is that proliferation of channels that is creating the complexity for our customers, right, for every business out there that's trying to keep up with that. Now you're right, it's not thousands of these apps that matter, it's going to be a handful, but even a handful of these things, I mean these APIs are constantly changing And for the most part, these companies aren't really focused on the tooling, the developers, you get a little bit of a, hey, we're a big company, like people will adopt our APIs regardless. And so we see an opportunity at 2 layers of the stack. Number 1 is to provide a great experience for developers, right, to do things that developers need in order to be successful as they're adopting these APIs.
Those are things like our debuggers and insights and all that kind of stuff. But the bigger thing that we think about is, and this is why we're investing in the application services and things like the Engagement Cloud, instead of capturing the desire to transit a communication, capture the intent of the customer. What is it they're trying to accomplish? And then we can translate that intent into the capabilities of the underlying channel, right? And so if you capture the intent of what the customer is trying to do, I.
E, the application platform layer, we can then bring any of those channels they want to bear because we know what they're trying to accomplish and effectively employ that channel for them in the most intelligent way and say, okay, well, this service supports cards and this one supports images and this one supports payments and mix and match to fulfill on their intent properly. And that's where we see in the application services, we're in an application platform, the ability to integrate with our customers at that more business intent layer than in the communications transfer layer.
When I was at Salesforce, we had a we acquired a company called Radian6 and they were focused on Twitter as kind of the primary channel. And I can tell you what a nightmare it was to try and even with a company like an application that was really just single threaded to even one channel that it depended on. What a nightmare was to keep that up to date with all the changes in the API or Buddy Media with Facebook. I mean it was it's quite laborious even if like that's your entire business it's very difficult to do. And I think what's working in our favor and I see this when I talk to customers is that they are really seeing just increasing fragmentation right that they can't just focus on like solution partners one thing but like now you're talking I'm talking to customers, I talked to the CEO and the CMO of a major one of the top 5 online or online florist floral flower delivery.
And they are thinking of they're trying to wrestle with like conceptually or there could be like 5, 10, 15 channels depending on what's happening in the world. And so I think fragmentation actually works in our favor because in that world, yes, if I was single threaded to 1 channel, like even that's difficult. But then in a fragmented world, it doesn't make sense for me to do that level of investment to manage all these channels. So I think that more and more they say, oh, if you Twilio, if you can solve that problem for us, then that is very high value for us because we don't want to think about that. So I think how easy it is to spin up one of these communication channels actually works in our favor.
And it's kind of actually inverse oddly enough of the carrier world with some of the dynamics, but there's
our gross margins, a couple of follow ups. Lee, you alluded to some of the pressure from the variable customers and Uber. Is that now largely behind you? Or do you expect there'll be some further downward pressure on that front? And I guess longer term, maybe for Christine or Lee, as you think about the underlying network cost component of it, what are the opportunities on that front?
I know you talked about business mix, but are there ways to cut cost to improve margins?
Sure. So in terms of the first part of your question, we have talked about Uber in terms of calls and we have made adjustments to the pricing to get their pricing commensurate to their volume. So Uber is playing as expected, but generally from a pricing standpoint that's behind us, but so that's in terms of Uber. The variable customers, that category, they are in that category for a reason and we have talked in the past how there has been a shift in terms of international mix and margin impact and mix and that is what we can see pricing mix in terms of what countries are flowing to in terms of usage and revenue and all of that. So that one we don't really talk forward about going forward.
So that's a category both the revenue and the usage within there is volatile.
Yes. And I think the second part of your question was, as obviously, Lee puts up a chart that shows that 90% of the cost of goods sold are sitting in Super Network. So we actually focus on those costs every day. I think we were talking earlier about where we focus and where we put our time. We actually have access to all the rates.
All of those rates are indicative of different kinds of workloads and different kind of payloads. And depending on what the workloads are, we talked a bit about there is a big broad space of messaging and voice being provided today. And there's wholesale, but there's also what Twilio is providing. And so while we have access to those rates and we focus very hard on leveraging the volume that our rates get us and the advantageousness, if that's a word, that, that volume begets. We continue to drive costs down worldwide, but it's a focus, it's an everyday focus for us.
But, yes, it's always a focus. It's something we work out on all the time.
Thanks for taking my questions. Bhavan, so two questions. First, you put up the chart where you had sort of the very large customers upfront and then sort of the long tail that came out. If you look at Application Services, I guess what I'm wondering is, is how correlated are those with the long tail or with the larger customers or the larger customers largely programmable voice and programmable text because that came first? Are you seeing some of the newer customers adopt because of the Yes, without getting into specific numbers, if we look at our customer accounts,
Yes, without getting into specific numbers, if we look at our customer accounts, the customers using application services have a substantially higher ARPU than the ARPU. So I can't speak to that chart, but in general, when they have adopted application services, there is that corresponding software revenue and they are pulling through a more of the programmable communications cloud revenue. So those customers are larger.
Great. And then just maybe one broader one. So as you move to application services, it feels like there's almost a move and I know you're still selling to developers, but a move towards more productized solutions, things I might sell at a higher executive level than a developer. Does that change the sales model? Does that change the go to market model?
Because then I'm sort of selling to the head of a call center because I might get to offer him an almost configurable call center application. I guess as you think about the future not today but down the road as these application service become more productized, does that change the go to market model? Thanks.
So I think that it changes some aspects of it and not others. I think that you will see in terms of the marketing side, you would see us message more to the business decision makers in that world. I think that you want to have a brand position in the mind of the customer. And I know a lot of times we talk about sales, but I think there's a big marketing aspect to that. In terms of the sales motion, I still think that if the kind of innovation of Salesforce was kind of bring line of business into the early part of discussion, I still think that Twilio's innovation to bring the developer in still plays out in that world because of just the nature of what we do, the value prop.
We're going to be naturally aligned more with companies that see value in development, see value in customization. In terms of the nuts and bolts of the type of rep we hire, the sales cycle, I think you'll see some differences, mostly in execution details. So for example, today, I would say many of our sales cycles we don't really actually need to demo even demo the product. But I think in a world where you saw sorry, you saw Pat's demo of Studio, if you're selling something that's like an IVR, you're going to have a very different type of motion. But I don't think it fundamentally changes kind of the nature of kind of the process developer up, value proposition, you may end up pointing to a different business decision maker, but I think a lot of the mechanics are more similar to different.
Hi, thanks. I think in our business, one of the biggest things to avoid is owning any Amazon roadkill or future Amazon roadkill. You saw with the announcement of Pinpoint that people react, don't know really how to react or how to exactly interpret what Amazon's ambitions are in this space. So I was wondering if you could expand upon the nature of that relationship and maybe help us help make the case to us why that won't evolve into more direct competition in the future?
Yes, absolutely. I mean, I'll speak to the longevity of the partnership there and the strength of the partnership, right. We've been working with Amazon since the beginning of Twilio. We have a very strong relationship with the folks there, given that I used to work there. And they were a private investor in Twilio as well.
So while of course that's no guarantee, that's given us a lot of insights into their roadmap, it's allowed us to be at the right points in the conversations that as they were thinking about products to be able to build a partnership wherein we're helping to power their communications offering. Now, if you look at what they've been doing is primarily investing at the sort of SaaS layer with Connect, with Chime, with Pinpoint, and that's very much like our solution partner offerings, right? And so it's like for the contact center, it's like Zendesk or Salesforce, who've also built their contact center offerings on top of Twilio. And that to us represents a very great buy option in the market. Twilio is going to focus on a certain part of the market that wants a tremendous amount of flexibility, but our partners are going to focus on a part of the market that are more focused on buying a solution.
But ultimately, we think that the full market opportunity here is actually migrating to the cloud, into software, all of these legacy systems that for most part are still trapped in old phone closets and the contact center case with Amazon Connect and with Twilio and with Zendesk and Salesforce and all of these software offerings that are part of our ecosystem, we are tackling the 90 plus percent of contact centers that are still sitting in a gas a dust gathering box in a closet somewhere. And that's the opportunity that I think we're all tackling together, and it's a very big market.
Thank you for putting up the revenue retention slide. Lee, could you just remind us what the definition is you're using on that slide? And then I think it was up there quickly, but I think it looked like the number had gone from 94 to 97 and I know it's not a big move, but what is it that's causing the business to get more sticky over time as opposed to
Sure, yes. And so we've had strong consistent revenue retention. So I wouldn't read too much into it in terms of 1% or 2% uptick and we are very happy with that retention. So our definition is we take a look at our active customers in a period and then we look at the active in the quarter, we look at those active customers in the following quarter and how much of that revenues are retained from those active customers. Another way to look at it is, the customers that left the platform, how much revenue do they walk with.
So the people that left the platform walked with 3% of the revenue in our last quarter.
When I looked at bandwidth, their ARPU is almost 20 times as yours. Does that suggest massive upside potential for you to increase ARPU? Or is there anything more structural that will make your ARPU always much lower than theirs? And second part of my question is in your target model, what kind of top line growth can we assume? Because for example, Salesforce will say when they have slow growth, they will get this margin.
Wondering what's the top line growth in your target model when you say you reach 20% operating margin?
Yes. To the first part of your question, I can't really speak to bandwidth. I mean that's a very different model than a Twilio's. In terms of ARPU, we have had significant ARPU growth as we talked about since early 2015 growing up $2,400 So as we release products and bring new customers on the bring customers on board and offer them new offerings, we do see the ARPU grow and it's growing consistency and that's part of the power in terms of the model. We have not given out a specific target revenue growth rate yet for the target model.
Mark Murphy with JPMorgan. George, I had a couple for you. So you mentioned seeing a strong pattern in the enterprise recently. I'm curious what you're aiming to see there in terms of engaging some of the larger SIs, the Accentures, the Deloittes, the Capgemini, those are the more influential SIs that are driving a lot of these digital transformations and the customer engagement modernization efforts. So it would seem like they could drive a lot of pull through for you.
What does it take and when to kind of get them on board a little more forcefully? And as well, I'm wondering what is your longer term target for business mix, if you were to look between kind of hoodies and suits, if you will. I think for Amazon, that's something You have
that slide somewhere, the hoodie suits slide, pull that one up.
You can have a nice visual for that. But I think it's something like sixty-forty for Amazon, right? So that's a business that's at a, what is it, an $18,000,000,000 run rate. What would be your longer term target for that mix for Twilio?
So can you repeat the first part of your question and then I'll get back to the hoodies.
It was on how to get the Accenture's Deloitte and Capgemini's onboard.
All right. Okay, SI. So we're just beginning with SI. This quarter we launched our first ever partner certification programs or certifying partners on the Twilio platform for the first time. Today the truth of the matter is we're mostly doing that with smaller more boutique SI's, the more nimble ones.
That's where we're getting started. That's where we started with Salesforce too. It's not a big surprise. From the time when I started at Salesforce, I think that the Accenture Deloitte relationships or when I started owning the SI partnerships, excuse me, at Salesforce, I think those partnership sizes were roughly closer to the low double digit teen millions. And now I don't know the numbers, but I would be I wouldn't be shocked if there are basically $1,000,000,000 plus practices now.
And it just but it takes a long time to do it. And first of all, you have to have people on it and invest in it. And at Twilio, we haven't invested in it really the GSI is really so far. And we plan to make an investment in that area to get started. And I think the other key is focus.
And one of the things I did at Salesforce was we probably were working with like 7 or 8 or 9 GSIs kind of in parallel. And what I did is I actually had them just refocus back to Accenture and Deloitte and just get going with those 2 and build momentum on 2 and really focus the energy of our business on those 2. So we're going to be looking for a couple of not too many, but if a very focused number of GSIs and we haven't selected them yet and I can't tell you who they are, but focused number of GSIs that want to really build a big practice around this. And I think that with the momentum we're seeing in specific use cases like contact center, I think that that's a very clear lightning rod to kind of get people's heads around what Twilio is and what the opportunity is. So I think that Jeff talked about building platforms and going deep.
And I think in certain use cases we see opportunities to go deep and that's the area we're going to focus with a narrow set of GSIs to get started, build those practices. And once we show success with a couple of them, my experience is the rest will come over time. But that's the playbook.
Richard Davis. So on the application services, just so I'm clear, if that's going to go from 10% to 30%, kind of what is the how should we think about the pricing model, because not all of those components strike me as minutes, resale and stuff like that, they're different are they per seat, per developer, at least notionally how should we think about that?
Yes, I'm happy to take that one. Yes, so the way that we're pricing those engagement products, it's really by the business problem that we're solving for customers. So Authy for example, it's per authentication, right, TaskRouter, it's per task. And really what we're doing is we're mapping to either the individuals in an organization or the parts of work in an organization that we're solving. And so that's how you should be thinking about those.
But yes, Authy is per authentication, per verification, that's the way we price it. And then it pulls through an SMS or voice. And if it's using an IP channel, then we still price per authentication and you just don't have the comms pull
through.
Lee, quick one on clarification on the revenue retention. Did you say quarter to quarter, in other words, Q1 to Q2?
Yes, quarterly year over year.
Okay, good.
That's helpful. Second question is, could you give us some color on what percentage of your revenue is subject to competitive pricing versus not, either because the customer is too small, so they're not going to shop or because you have multiple hooks into that customer in terms of engagement layer application services and therefore it's too hard for them to compare Nexmo or whomever to your service?
Yes, I mean, I'll start off and hand off to George, probably who is closer to that, but really how I look at the business, right, I do look at that revenue retention rate and I look at the expansion rate. So those healthy factors show that we have a differentiated product and our product is doing very well. So that's the level I'm looking at it.
Without going to specific numbers, I can say with confidence, we track this, we do track like we do track this number, But the vast well a significant majority of our customers during the course of the year, we don't enter any type of conversation with them in the nature of what you're talking about, for the reason you talk about, either they're small and or they're using a particularly sticky use case, let's say.
Okay. Brian White, Drexel. Jeff, obviously, Uber had the biggest negative impact on Twilio this year, and I think there's still a concern out there that other customers could go down this path. So if you could just walk us through why Uber is different? And maybe also why they didn't give you more of a heads up before it started to have a pretty significant impact in the near term?
Yes, I mean, I think the first thing to look at Uber is there an outlier in our customer base with the size and scale they got to. If you look at their annualized revenue that they got to in Q4 of last year, it was a pretty close to $60,000,000 ARR customer for us. And that's obviously unique in our customer base. That was by far the biggest customer. That's pretty unique for any software company to have a customer that gets that big, especially for a company of our size.
And so it's a pretty unusual situation. The hard thing to do with a usage based model being what it is, is that that growth is a function of their growth. And when it gets to that size, there is not a great answer, right? If it keeps growing, then you've got a worsening problem. If it stagnates, then the question is, well, why is your biggest customer stagnating?
And if it shrinks, well, we know what happens in that scenario, right? And so what we've focused our energy on is, say, let's manage the Uber account as best we can and let's we have a great relationship with the team. We expect them to continue to be a fantastic customer of ours and we've got great relationships across the company. Let's make sure though that we manage that, make that a sustainable part of our business and focus on the rest of our customers that make up really the core of the customer base, right, the 60 or the 46,000 customers beyond Uber, right? And so that's what we've really focused on as a business.
And I think it's the right move, right? We're building this company from a lot more than just one customer, right? We're building this company for the long term for a huge market opportunity and for almost every company out there who needs communications. And so we've got to manage Uber, absolutely. I do feel we have a great relationship there, but it is a little bit of a lose lose situation once you get to where we were, unfortunately.
But that's how we are thinking about the future of the business, just building the rest of the customer base up, investing the success of our big customer base that we have and focusing on the fullness of this big opportunity.
Pat again, JMP. So Lee, I'll try one more time. Just so your gross margin has gone down 3 quarters in a row, right? The 60% is really helpful. We're pretty far away from the 60 percent now.
Have we bottomed?
Yes, Pat, we are not giving guidance or speaking in terms of forecast, but we will state by it again. So we are focused on the strategy of reach, scale, growing and adding to our customer base and that's what we talked about early on at the IPO, and that's what we are focused on and fluctuations that happen in terms of the gross margin line. I mean, as we discussed today, if we pull out some
of those items, we seem to
be pretty stable. And we are looking at a long term business. When we hit that long term operating margin, we want to make sure we have a very large company to apply that to. So that's what the focus is.
Okay. And
then a more fun question for George. So George, how is working for Jeff different than working for Mark?
Jeff will listen to me once in a while. So I like that. No, I think there are What
George will say is that Mark sometimes buys cars for people.
I don't know about that. But look, I think they're both great CEOs. And it's interesting because I've worked with and sold to a lot of CEOs at Salesforce and here. And it's interesting, I was in one of our last quarterly business review and I texted one of my former colleagues at Salesforce because Jeff was presenting and I said, actually this is like the closest I've seen with the vision, the passion, I was like I feel like I'm having kind of a Mark moment here. And they're very different, but the thing I think that I love is that similar ability to paint a vision of the future and a desire to win and create a great company.
And one of the reasons I'm here, one of the things I learned being at Salesforce is that at some level you can go as far as your technology etcetera, but also at some level you can only go as far as the desire will envision of your leadership. And I wouldn't have come to a company that I didn't feel like the CEO had a will to win and a vision that was huge. And I feel very lucky to be part of the team. So yes, it's great to be here.
Thank you, George. You'll get your car later.
Thanks, Jeff. Remember that next time I mess up.
Last question. There hasn't been enough, has there?
No. So if application services doubled year over year and the rest of business is growing 50% to 60%, that implies that non application services margins has gone down 50 basis points to 100 basis points. Is that international mix, is that noise? And I think we're all asking for the same reason, but if international continues to grow quickly, that means margins will continue to decline. And I think a lot of us are in here for the long term, but at the same time, it causes short term issues with the public markets, which means we have to go back to our constituents and explain what's going on.
So the more clarity we can get on that beforehand the better.
Yes, I mean, I'll start, Jeff might want to jump in too. I mean part of that is us talking about how the platform model and how the platform model works. So this is a model that's driving high revenue growth extremely efficiently and we as a management team, we manage that gross margin line item a hawk, but we are not fixated on that on a quarter to quarterly basis. We are looking at revenue growth, great unit economics and looking to grow the business moving forward. So that's how we're viewing the business.
We also value the bottom line operating margin is extremely important and you have to look at both those in content. So you have to look at the gross margin in the context with sales and marketing mix and how that ties into the overall model. So that's how we're running the business and focused on the business.
Yes, what I'll say is, if you look at the vast, vast majority of our customer base, as Lee shared earlier, right, we have a gross margin that looks like that 60% gross margin with the vast majority of the customer base when you remove some of the noisy elements of the that the platform model does inherit, right? And so the way we look at it, like we're going to invest in growing the business, we're going to focus on the top line, we're going to bring customers on to our platform and they're going to be all around the world. And the question of will application and the application services the customers really depend on, will that revenue grow faster than customers adopt us globally? Can't answer that question, but are they both the right things to be focused on as a company? Yes, I believe they are.
So we can't give you exact visibility. I mean, we don't have exact visibility about when those lines are going to cross in any way. But the way we think about it, does it take the reason why we are comfortable saying like, yes, look at this, this is what we think the appropriate number is for the long term, does it take a huge leap of faith to say, well, the vast majority of the 46,000 customers are already there and then you remove the noise, when is that 46,000 going to keep growing and growing and growing such that the noise becomes a smaller element as that diversification slide that we showed is that we're consistently doing that and diversifying the customer base. So how long does that take? Can't tell you, but it doesn't it's not a huge leap of faith to say that, yes, those numbers are going to keep growing and are going to continue to dwarf the sort of outliers in the platform.
And then the second thing is there is a huge leap of faith to believe that the application services are going to in the fullness of time be 30% of our revenue given that we believe and I assume you all believe the future of communications is software. I don't think that's a huge leap of faith. Can I tell you exactly when it's going to happen? Unfortunately, I can't. But I think those are the dynamics that are at play.
And you can come to your own conclusions about how those lines will play out. But we think that in the fullness of time, clearly software will start to dominate and that clearly the size of our overall customer base that continues to grow, that will start to dwarf the noisy elements of the business. And so we don't think it's a hugely befazed to arrive at that number. I just I'm not I can't tell you when it will happen nor do I want to commit to you when it will happen because we want to do what's right for our first goal, which is driving the top line of the business and getting a foot in the door and building great relationships with customers like we shared with you today.
Yes. And one quick follow-up, are there opportunities like Netflix did with Open Connect or just what you've seen AWS do with effectively shutting out the market with their volume and scale, obviously Google and Microsoft are there, but do you see any tipping points or any other step function opportunities that you can take to help reduce the burden of those network costs?
We continue to work with customers to understand their needs and how they're scaling and how they're growing and Christine and her super network team continue to work with the carriers of the world and build more sophisticated software and more sophisticated algorithms. So yes, this is a continuous process for us as we continue to build out and we do continue talking to customers about what their requirements are and how they what they need from us, so that we can meet those needs. But I would say there's isn't a silver bullet that I would point to, if there was, I'd say, I'd love to point that to that and say that's it and you'll get it in Q4 next year, but there isn't such a thing. It is a continuous process. We are going to build a better and better network and service our customers based on the direction they drive us in and do what's best for our customers.
Thank you. I'll end with a product question. Can I build a cloud PBX today with Twilio APIs? And if not today, when might I be able to do that? Thank you.
That's it. Yes, you can. In fact Okay. Yes, I mean, Aerocall is sort of that. That was one of the logos on our slide today.
It's an Irish company who has built a PBR. French. French, French, sorry, company that's built just that. Fantastic. All right.
Thank you everybody. Really appreciate you spending your day with us. Enjoy the