Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Twilio Q3 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I will now turn the call over to Greg Kleiner, Head of Investor Relations for Twilio. You may begin your conference.
Thank you. Good afternoon, everyone, and welcome to Twilio's Q3 2016 earnings conference call. Joining me today are Jeff Lawson, Twilio's Co Founder and CEO and Lee Kirkpatrick, Twilio's CFO. The primary purpose of today's call is to provide you with information regarding our 2016 Q3 performance in addition to our financial outlook for our 2016 Q4 and full year. Some of our discussion and responses to your questions may contain forward looking statements, including, but not limited to, statements regarding our future performance, including our financial outlook, our market opportunity and market trends, customer adoption of our products, our momentum and our ability to execute on our vision.
These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should any of our assumptions as outlined in our earnings release and the documents referred to in that release prove to be incorrect, actual company results could differ materially from these forward looking statements. A discussion of the risks and uncertainties related to our business is contained in our final prospectus filed with the SEC on October 21, 2016, and our Form 10 Q filed with the SEC on August 9, 2016. And our remarks during today's discussion should be considered to incorporate this information by reference. Forward looking statements represent our beliefs and assumptions only as of the date which such statements are made.
We undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. Our commentary today will contain non GAAP financial measures, including discussions of gross profit, operating expenses, loss from operations, net loss per share and weighted average shares outstanding. Non GAAP financial measures exclude certain amounts which are included in our GAAP financial measures. Accordingly, the following items are available in our earnings release, which we issued a short time ago. The most directly comparable GAAP financial measures, the reconciliations between these GAAP financial measures and our non GAAP financial measures information regarding the reasons why we are presenting non GAAP financial measures as well as the reasons why we present guidance for non GAAP measures of loss from operations and net loss per share, but not the comparable GAAP measures.
The earnings release is available in the Investor Relations page of our website and is part of a Form 8 ks furnished to the SEC. Finally, at times in our prepared remarks or in response to your questions, we may offer incremental metrics to provide greater insights into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one time in nature and we may or may not provide an update in the future on these metrics. I encourage you to visit our Investor Relations website at investors. Twilio.com to access our earnings release, periodic SEC reports, a webcast replay of today's call or to learn more about Twilio.
I'll now turn the call over to Jeff.
Thank you, Greg, and welcome everybody. I'm happy to report that the business produced another quarter of excellent financial results in Q3. The newly endless possibilities enabled by our cloud communications platform continues to drive success for our existing customers and attract new ones. We added a large number of new customer accounts and added some important wins in the enterprise as well. The Q3 saw several other important milestones, including the launch of 2 new software products, our first signal event in London, the 3rd anniversary of twilio.org and entering into an agreement for our second acquisition.
Let me walk through some of these highlights. Our Q3 results came in well ahead of our original guidance and above the levels we previewed as part of our recent follow on offering as well. Lee will discuss the results in more detail, but some of the highlights were base revenue growth of 75% year over year, active customer account growth of 45% year over year and a dollar based net expansion rate of 155%. At a high level, the inputs to our business remain strong and we are executing well against our growth strategy. All told, we added more than 3,000 new active customer accounts in the quarter.
We added some great new logos in the quarter like Morningstar, Allied Barton, The Washington Post and Prudential. I'd also like to spend a moment highlighting a Fortune 100 insurance company that is planning to use our programmable messaging APIs to add an SMS communication channel to their existing contact center. Specifically, their use case involves using SMS messages to follow-up with clients who are on workers' comp plans in order to deflect call volume from their call centers. This is another great example of the growing influence of developers in large organizations as the business leads tap the development team to create these additional customer service options. After surveying the landscape for a vendor that could deliver a two way SMS solution on a global basis, the development team chose us given our ease of use and the resulting speed to market that we were able to provide.
We've talked in the past about the contributions from our solution partners or software ISVs that build solutions on top of our platform. In Q3, one of those partners, ServiceNow, helped us bring in a new Fortune 1,000 customer. This customer will be using our programmable messaging and programmable voice products to power their incident notifications and conference bridges. This is a great example of the power of our solution partners to help us address the buy option preferred by many customers. We also won another call center modernization deal with Integrity Staffing Solutions, one of the largest staffing firms in the United States.
Integrity was looking for ways to improve the overall efficiency and customer experience across their call center footprint. Similar to the ING deal I discussed last quarter, their developers attended SIGNAL to learn more about our platform After understanding what was possible with our flexible yet powerful building block approach, they joined the growing list of companies taking control of their roadmap and modernizing their call centers on top of our platform. In the EMEA region, we signed a new deal with Simply Business, one of the biggest insurance brokers in the UK. Simply Business was evaluating options for how to evolve their call center technology when they discovered what was possible with our platform model. By working closely with their engineering team, we were able to win this deal where they plan to use several of our products to build out a more modern call center.
We saw some notable Authy deals in the quarter as well. We won deals at 2 large public software companies to add 2 factor authentication to portions of their offerings. We also saw a National Professional Sports Association agree to use Authy as part of their global video streaming service. We also continued our track record of market leading innovation in the Q3, announcing 2 new products, the Twilio Enterprise Plan and Voice Insights. Importantly, both offerings are sold as subscription products beyond the scope of our customers' underlying usage.
The Twilio Enterprise plan is an offering aimed at serving the needs of larger, more complex businesses. As we work with the developers of the world to bring our building blocks into their organizations, their projects must often comply with a host of compliance, security and administrative requirements in place at many large organizations. The Twilio Enterprise plan provides features like auditing, single sign on, role based access control and segmented billing to help our customers navigate these important requirements. And it's priced to reflect this value at $15,000 per month or 30% of the customer spend, whichever is higher. As developers pull us into the enterprise more and more, we believe this product will help us drive further success in this category by both accelerating sales cycles and opening up new opportunities.
As an example, the large insurance company I mentioned earlier adopted this product as part of the relationship and it was key in our ability to win that deal. Voice Insights was launched at our inaugural Signal London event in late September. Voice Insights is an analytics offering tailored for our voice over IP product, Twilio Client and priced as a per minute add on to the underlying usage. This product offers our Twilio client customers the ability to monitor the quality of live calls and provide visibility into the metrics of overall call quality, allowing them to troubleshoot and support complex voice applications running in heterogeneous environments. So whether it's an enterprise or a solution provider running a large deployment of Twilio, Voice Insights provides the operational visibility needed to manage these applications globally with confidence.
We have thousands of customers using our Twilio client product. So this presents a great potential upsell for our sales team. Overall, we feel this offering further differentiates our product and empowers our customers to operate their apps at global scale. In addition, we announced our 2nd proposed acquisition, a move aimed at accelerating our programmable video roadmap. In mid September, we signed a definitive agreement to acquire the proprietary technology and team behind the Corrento open source project, the popular WebRTC media server.
The team behind this effort will form the foundation of our new office in Madrid. We expect that deal to close in the Q4. The addition of the Corrento assets to programmable video add an important dimension to our product. To date, we focused our product on the edge or client side of the video product. But now with Corrento, we'll start building our programmable media cloud, bringing cloud APIs to do advanced media processing for use cases like larger scale video conferences, media transcoding, recording and storage and even computer vision and augmented reality.
We also celebrated the 3rd anniversary of twilio.org during this quarter. As a reminder, Twilio joined Pledge 1% last year, committing 1% of Twilio's equity to fuel communications that bring hope, power and freedom. See, we believe that many of society's problems can be alleviated with the right communication at the right time with the right person. From providing emergency medical care through Tracmedix to connecting someone in crisis with a trained counselor via text message through Crisis Text Line, A wide variety of organizations are using Twilio to transform the way they're helping people. Take voter registration as another example.
To many people, the idea of registering the vote conjures up ideas of filling out forms and government offices and waiting in long lines. Instead, trilio.org recently partnered with Fight For the Future to launch Hello Vote, a chatbot that helps you register to vote in 60 seconds through SMS or Facebook Messenger. And it's had a broad impact, having seen mentions in outlets as varied as Fast Company, Glamour, CNN Money and 17 Magazine and by public figures like Bernie Sanders, Ellen DeGeneres and Conan O'Brien. This is a particularly timely example of the ways that nonprofits are using Twilio's technology for social change and we look forward to working with many more organizations in the coming years. I want to mention one other item before I turn the call over to Lee.
Building and maintaining our culture at Twilio is a critical goal as we look to continue scaling our organization going forward. We were recently ranked 1 of the top public cloud companies to work for in an analysis by the company Glassdoor. This is a tremendous accomplishment for our entire team here at Twilio, especially in light of our rapid growth over the last few years. I feel honored to work with such a great group of people. So to wrap up, our focus on customer success has driven yet another quarter of strong results.
Our fundamentals remain strong and we feel great about the business. Since going public, people have often asked me what's changed about my job? And my answer is always the same. I say not much. That's because our priority remains the things that have always mattered customers, products and team.
We are still in the earliest days of our opportunity to revolutionize 1 of the largest industries in the world and to fuel the future of communications through the power of software. And now I'm going to turn it over to Lee to discuss our financial results.
Thank you, Jeff, and good afternoon, everyone. Our financial results in the Q3 showed continued momentum as we saw strong revenue growth, operating leverage and progress across our key metrics. We exceeded the guidance provided on our Q2 earnings call across all fronts. Base revenue for the Q3 of 2016 was $64,100,000 up 75% year over year from the Q3 of 2015. This compares to our original guidance of $58,500,000 to $59,500,000 These results were driven by growth across our new and existing customers as we are adding new customers at a rapid clip and successfully expanding usage across our existing customer base.
Total revenue for the Q3 of 2016 was $71,500,000 up 62% year over year from Q3 of 2015, exceeding our original guidance of $63,000,000 to $65,000,000 Overall, base revenue accounted for 90% of the total revenue in Q3. We continue to see strong growth rates across customers of all sizes. In the quarter, our top 10 customers were 31% of total revenue consistent with recent quarters. Within this top 10, our largest customer, a base customer who uses several of our products for a variety of use cases around the globe, contributed 15% of total revenue in the quarter. WhatsApp came in at 7% of total revenue and customers 3 through 10 contributed 9% of revenue.
We have a range of customers of all sizes as we go further down the list extending out to the long tail. As of September 30, 2016, active customer accounts were 34,457, up from 23,822 as of September 30, 2015. This figure includes 8 variable customer accounts in both the Q3 of 20 162015. Note that we did have 1 variable customer account that signed a contract with a minimum commitment in Q3. As a result, this account and the roughly $100,000 of revenue they produced in Q3 moved into base revenue in the quarter.
Our dollar based net expansion rate was very strong once again in the 3rd quarter coming in at 155%. Our revenue retention rate remains in the mid-ninety percent range as well. New customer additions and expansion within our existing customers continue to be strong, a testament to the disruptive nature of our platform and business model. Before moving on to profit and loss items, I'd like to point out that I'll be discussing non GAAP results going forward. Our GAAP financial results along with the full reconciliation between GAAP and non GAAP results can be found in our earnings release.
Non GAAP gross margins in the Q3 of 2016 were 56% and roughly consistent with the Q3 of 2015. As a reminder, we are currently operating our business to optimize for reach and scale rather than maximizing for gross margin. Gross margin may fluctuate in the near term as we pursue this deliberate strategy to further extend our market leadership. Non GAAP operating expenses in the Q3 of 2016 in total were $43,800,000 or 61 percent of total revenue. This compares to $29,400,000 for the Q3 of 2015 or 66 percent of total revenue.
In addition, worth pointing out the continued efficiency of our model as the robust revenue growth rates in Q3 I mentioned a moment ago were driven by a non GAAP sales and marketing expense 20% of total revenue. This shows the power of our business model for innovators in action. The upside on the top line flow mostly through to the operating line. Non GAAP operating loss was $3,400,000 in the Q3 of 2016 compared to $4,600,000 in the Q3 of 2015 and better than our original guidance of $7,500,000 to $8,500,000 Our non GAAP operating margin improved by approximately 500 basis points year over year from negative 10% to negative 5%. Going forward, we plan to make continued progress toward breakeven and beyond, but it may not be in a linear fashion.
Note that we had 6.76 employees at the end of Q3. Our non GAAP loss per share in the Q3 was $0.04 per share based upon a weighted average share count of 83,900,000 shares. This compares to a non GAAP loss per share of $0.07 per share in the Q3 of 2015 based upon a non GAAP weighted average share count of 71,700,000 shares, which assumes the conversion of preferred stock at the beginning of that quarter. We ended the quarter with $252,000,000 in cash and cash equivalents compared to $261,000,000 at the end of the previous quarter. As you know, we completed our follow on transaction in October, which added roughly $65,000,000 of cash before expenses to our balance sheet in the Q4 from the sale of approximately 1,700,000 shares of stock.
I do want to spend a moment on one component of the follow on transaction and the resulting accounting treatment of an expense we expect to incur in 2017. Within that sale of primary shares were 100,000 shares that we sold on behalf of trilio.org to help fund the efforts that Jeff mentioned earlier. The proceeds of roughly $4,000,000 from that sale will be held in restricted cash until donated to twilio.org in 2017. When these funds are transferred to twilio.org, each of these donations result in an expense in our P and L that we will non GAAP out. Regarding the pending technology purchase that Jeff discussed earlier, the acquisition will not have a material impact on revenue or loss in the near term.
Now let me turn to guidance. We're raising our guidance as follows. For the Q4 ending December 31, 2016, base revenue in the range of $68,000,000 to $69,000,000 total revenue in the range of $72,500,000 to $74,500,000 dollars non GAAP loss from operations of $5,500,000 to $4,500,000 non GAAP net loss per share of $0.06 to $0.05 based on 86,000,000 weighted average shares outstanding. Accordingly, for the full year ending December 31, 2016, we expect base revenue in the range of $238,500,000 to $239,500,000 total revenue in the range of $268,000,000 to $270,000,000 non GAAP loss from operations of $18,000,000 to 17,000,000 dollars non GAAP net loss per share of $0.23 to $0.21 based on 79,000,000 non GAAP weighted average shares outstanding. So to wrap up, we are very pleased with our results once again in the Q3.
The business continues to perform well and we believe that we have a long run rate for future growth ahead of us. I'll now turn the floor over to your questions.
Your first question is from the line of Bhavan Suri from William Blair.
Hey guys, congratulations. Really nice job there across all the metrics. Just wanted to touch really first on sort of the growth and what's driving it. As you look at the revenue drivers this quarter, was it sort of the increased usage or more apps developed or sort of cross selling activity across the various offerings?
As you think about the contribution, it would be great to
sort of get a sense of how you might rank those that drove sort of very healthy bookings and overall growth?
Thanks, Bhavan. This is Jeff. I'll answer your question. So really it's a combination of the three factors of growth that we see in our business, right? With every developer account on our platform, we first see the ability to grow our revenue with those customers based on their building of an app and going from the prototype stage to the beta stage to the global rollout of their product.
Every time they advance in that product development lifecycle, their app interacts with more customers and we see more revenue as a result. That's the first of really 3 expansion vectors in every account. The second vector is when our customers do it again and they build a second use case and solve a second problem that they realize they can solve with communications in their business. We really go through that whole adoption cycle again. And then 3rd is as our customers are simply growing their businesses and adding more customers to their end user customer account, well, that's just more people we can communicate with, that allows us to drive more usage of our platform and drive more revenue.
So if you think about it, we benefit from the collective sales and marketing expenditures of all of our customers put together. So those are the 3 vectors of growth that we see inside of every account, in addition, of course, to bringing new accounts onto our platform. And the growth that you see from us is really a combination of progress we're making across all of these different vectors.
Thanks Jeff. That's helpful color. And one quick follow-up. The enterprise business, you named some enterprise accounts, you've talked about some of these big wins. You guys have invested in the enterprise sales force over the last year, 2 years, and it feels like it's getting
a little more traction. Just some sense of how enterprise sales cycles are going, how the team is performing vis a vis expectations, and
sort of how you think of growing that team? Thanks for taking my questions, guys.
Yes, absolutely. So I would say, we're happy with the continual progress that we're making on the sales side of things. The way I would think about our approach to the enterprise though is probably a little different than many traditional enterprise software companies or even SaaS companies. In that, we have this developer first go to market where the developers of the world, I mean our goal is to have Twilio in the tool belt of every developer in the world. And then when that developer is at work and they see a problem that they can solve with communications, they're going to pull out Twilio and solve that problem.
And that's what we're seeing happen now in the enterprise, right? As developers are becoming a critical part of the strategy of every company and they're investing in software development and software developers, like those developers who look at that enterprises are bringing out Twilio and championing the use of Twilio inside those organizations. Now when you're in a large enterprise, sometimes there is waters to navigate there, whether it's security and compliance or more complex buying organization. And that's where our sales team comes in and to help close that deal. But I will say that they have the benefit of a tailwind really through that process as the developers are championing the use of Twilio throughout that process.
And so we're investing in the sales team to help those customers to be successful on our platform and to get those products. They're getting built by developers to the finish line and launched inside those enterprises. And we're also investing in products to help ease the adoption of Twilio inside of the enterprise. And you see this quarter the launch of the Twilio Enterprise plan, which brings a collection of security and compliance and organizational features that help larger, more complex organizations adopt to Twilio. And that's a net add on top of the usage revenue that we see as this Twilio Enterprise Plan product.
So we're investing in sales and we're investing in product to help drive adoption inside of enterprises. But again, I don't think you're going to see a very large huge expenditure or drastic change in our model because we are still this developer first approach and we're very committed to that approach.
Thanks guys. Thanks for taking my question.
The next question is from Heather Bellini from Goldman Sachs.
Great. Thanks, guys. I was wondering if you could help us think about the ramp in the business across messaging, voice and connectivity. I'm just wondering if you could share with us where you're seeing faster adoption right now? And if you can help share with us the success you're having in cross selling these products into existing accounts?
Yes. Hi Heather, this is Lee. So, we don't break out specifically, but in general, the distribution between our messaging and voice business is roughly equal. We are seeing very strong growth across both businesses. So both businesses are healthy and strong, both in terms of expansion rate and bringing on new customers.
Okay, great. And then one last question. Customer expansion continues to be your net customer expansion continues to be really strong. How do you suggest we think about the range you're thinking about for or the range that you might be comfortable with for calendar 2017? I know you don't guide to it, but it has been a nice bump.
Yes. I mean, it's not something that we guide to, but we do expect to have a very strong and significant expansion rate going forward.
Okay. Thank you.
The next question is from Mark Murphy from JPMorgan.
Yes. Thank you. I'll add my congratulations as well. So Lee, the variable piece of the business, I think, was about 10% of revenue in Q3, and that has been as high as 22% about a year and a half ago. So seems like a very positive development in terms of the mix shift in the predictability and visibility in the model.
I know it's inherently very difficult to forecast that, but at a high level, is it reasonable to think that that mix shift will continue along this trend line or at least continue in this direction beyond Q4?
Yes. First part, yes. So we do focus the business on the base business, which again was 90%, as you pointed out, and we have found that to be consistent and predictable revenue. And no, the variable business by definition, it is not predictable. We don't have high visibility on it.
So we don't really forecast it. We manage the business very conservatively and just take it really as gravy as it comes.
Okay. And then, Jeff, I wanted to ask you on the authentication piece of the business. You mentioned 2 deals in the software industry alone and another transaction that you referenced. How is that business trending in general? And are you able to just give us an update there and perhaps comment on the relative growth rate of that business maybe compared to the base revenue growth?
Yes, absolutely. Good question, Mark. We're really excited about the Authy business. Two factor authentication is as important as ever, if not more, seeing some of the security breaches around the world that have happened even in the last quarter. I think the largest security breach ever happened in this quarter.
So we got announced this quarter. And so, yes, we think 2 factor auth is incredibly important part for every application to protect their users. And we're very happy with the growth of Authy and its adoption by customers. We don't give specific revenue breakouts for Authy, nor do we really talk about the growth rates by product. But Aphi is growing faster than our corporate average.
And of course, that is a subset, a smaller number to begin with. But we feel fantastic about the progress there. We think it's a great product and great product roadmap and feel fantastic about that segment of our business.
And then last one, if I may. And I realize it is very early innings on this, but you spoke a bit about the programmable wireless product. Can you tell us a little about how customers are responding and maybe what types of innovations you're seeing there when customers get their hands on that technology?
Absolutely. And it is early innings, as you say. This product is in developer preview right now. So we're very excited about the progress. It is in the hands of a handful of customers.
We're putting usage on it and we're getting early feedback as they're bringing their products to market. And we're very excited about the progress here. I mean, I think the biggest category that we see so far, the first category of adoption, right, is IoT use cases, which is what we when we announced the product, that's the first area that we talked about, which is you've got devices, they need wireless connectivity, they connect to the Internet and cellular is a fantastic option. But to date, actually doing deals with carriers and things like that has been a challenge for developers. This is the Twilio playbook all over again, allowing developers to very easily light up the connectivity aspects of their devices and bring them to market.
And we are seeing customers do exactly that. And so we're excited by the early traction we see there. And then the second major category of apps that we foresee here is the BYOD set of use cases. So this is really the idea that if you put a Twilio powered fully programmable network into the SIM card slot of a phone, well, you can now program every bit about what happens inside of that carrier mobile core. And the developers can build business logic like I want to record every phone call and log it to my compliance engine or store every text message and put it in the compliance engine for an industry like banking or legal use cases or sales team where you might assign 100 phone numbers to one device so that you have a phone number in every country where that salesperson does business, or being able to route every data packet off of that phone to the internal firewalls and compliance engines of a company.
So really kind of almost starts to boggle the mind when you think about all the things a developer can do when you give them access to a mobile core mobile network. And that's how we built the product and we really can't wait to see what developers build.
Thank you very much.
The next question is from Richard Davis from Canaccord.
Hey, thanks very much. Two quick questions. So when you kind of think about your product roadmap, your product development roadmap, is it logical to think or will this happen really is as you add new features and functionality, whatever they are, will they come at a higher gross margin over time depending on kind of the logic structure and things like that, that they have behind them? And I just have a real quick follow-up after that.
Yes. Hi, Richard. This is Lee. Yes, I mean, we're right now, we're still focusing on reach and scale of our business, driving revenue, driving customers. As we add products, we'll be adding traditional telephony type of products to drive some of the recent scale, but also we'll be adding our high margin IP only products, use case products.
So that product mix in the long run definitely will be higher margin. I think in the medium term, it's hard for me to predict what it's going to be specifically, but in the long run, we will be releasing higher margin products.
Got it. And then real quick, you kind of touched on this a little bit, but just in terms of the selling motion kind of top down through salespeople, bottom up versus developers, is there and I know you don't exactly break out, but it was notionally, is there a way to kind of think how that mix will kind of play out over the next year or 2 directionally wise? Thanks, and that's it.
Fantastic question. I mean, I think what I can speak to is really what we're seeing to date with the sales motion that's already happening, which is really driven by developers that bottoms up approach, that we can help with our sales team and go get the top level support after the grassroots initiative really gets the ball rolling. That's what we are seeing happen and we're happy to support it and get customers on the platform and get them adopted and get them growing with those three vectors of growth that we've seen. But overall, I can't predict what's going to happen in the future other than to say that we see this traction, this sales motion already happening in the enterprise and we're resourcing to make sure that those customers are successful.
Great. Thank you so much.
The next question is from Ittai Kidron from Oppenheimer.
Hi, guys. And again, congrats on a good quarter. Lee, just want to dig in into the variable revenue and following on your comments, I understand you don't have much visibility into you want to be conservative there. But at the midpoint of your guidance, you are looking at more than a 30% quarter over quarter and year over year decline. So I guess my question is, while you don't have visibility, can you tell us if there's any material change from your standpoint with regards to the relationship or the share that you have with variable accounts?
Yes. From an operational perspective, we always model the client in business. We're very conservative because of the lack of predictability. And it's a fundamentally not predictable business for us. So really I have nothing different to say about it going forward.
So it's really business as usual. Again, we like the business because it helps us with reach and scale and improves our super network. And again, we treat it as upside as it comes in.
Okay. And then, Jeff, to you, I mean, clearly, you're expanding the list of features and products out there quite aggressively and it's quite impressive and encouraging. I guess the question is more a question of impact. Of all the things that you're doing, could you kind of highlight maybe 1 or 2 that you feel have the potential to be really material for your model, say, within a year or 2? Or these are all 4, 5 years out before they can really make a material impact on numbers?
How do you think about the impact of these new solutions?
Yes, absolutely. And we continue to make investments both in existing products, making our existing products more powerful, more flexible and also introducing new product lines into the mix. And so we'll continue to keep doing both of those things. As far as which are my favorites, I think I learned not to pick favorite children. But what I let me talk about one that I think is particularly interesting and powerful, which is our Notify product that we launched in Q2.
And one of the interesting things about this product, it's a use case API that is designed to power notifications and so the alerts and notifications use case for our customers. And in particular, it does it in a cross platform way. So it addresses notifications that may occur over SMS, but also over channels like push notifications to a mobile app or things like Facebook Messenger. And we believe that over time as the world of communications is getting more heterogeneous and there's more apps and there's more ways to communicate, the world is getting very complicated for our customers because our customers are saying, great, I want to be able to communicate with my customers wherever they are and every consumer is developing their own consumer preferences about how they're going to interact with companies and which channels they want to use to interact with companies. And so as that world is getting more heterogeneous and more complex for companies to figure out how to talk to their customers, well, we're introducing products like Notify that help solve that problem for our customers.
Make it so, hey, here's one API you can use and Notify will automatically figure out the best channel for every given customer. And that works if you're notifying one customer, saying sending an alert or if you're saying, hey, I want to do a blast to a 1000000 customers. We'll notify, we'll figure out for each individual customer, which is the right medium to use. We think products like this are powerful and really help our customers get to production scale faster than ever before and give them more powerful features
and functionality than they have with the underlying building blocks alone.
So we're very excited about the Thank you. The next question is from Mike Latimore with Thank you.
The next question is from Mike Latimore from Northland Securities.
Yes. Hey, guys. This is Nick Altman on for Mike. Thanks for taking my question. Just a quick one here.
How much traction has the add on marketplace gotten since being introduced this past May? And then if you could, how much revenue is coming from the marketplace? And then if
you could just kind of
outline your expectations for it going forward, that would be great.
Yes, absolutely. For a product that we just launched back in May, it's obviously small, it's just getting started, but we are seeing good early traction. We got a great set of partners in there, Wolfram Alpha, IBM Watson, White Pages Pro. So we feel fantastic about first is the supply add ins that you can pick from and we're adding more as we go, as well as the customer adoption and the ability for them to light up this functionality very easily. It's a really unique offering in the market because there's really nothing like it where you've got all these developers who can supply these great services and all these developers who can buy these services and add them into their apps.
In fact, one I want to point out is really neat one called Nomorobo. This is a developer who built this app to block robocalls. He actually won the FTC challenge with this app he built on top of Twilio. And now it's in our marketplace, so you can actually monetize it with our customer base. It's a great example of a developer doing good and building something that's really valuable for our customer base.
Great. Thank
The next question is from Brandon Nispel from Pacific Crest.
Thanks. This is Brent Bracelin on here. I guess, Jeff, wanted to dig into use cases a little bit more. You mentioned the use case API as one example. But certainly, if you think about the momentum here, what are the top 2 use case categories if you would, where you're seeing kind of driving the bulk of the growth?
And then if you could just weigh a little bit on AI, we're hearing obviously more and more talk of AI. You have the announcement of Sensei out of Adobe last week, obviously Watson, Einstein.
If you
could just provide us a little more color on kind of the your view of AI and adoption with developers would be very helpful. Thank you.
Absolutely. So to answer your first question about use cases, there really are so many use cases for Twilio that we see growth in many different areas as various use cases are getting adopted by customers. I'll point out a couple though. Call centers have been a great area. I think you heard a few enterprise call center stories on the call today already.
We continue to see traction, right, as companies really need to modernize how they touch their customers and how their customers reach them with a plurality of new channels and new mechanisms to do that. We're seeing companies have to really put effort in and modernize their call centers. And when they do, they realize that this modular, more future proof approach of using building blocks is a great way to do it. And again, developers inside of a wide variety of organizations are really pushing that agenda. So we're pleased with that progress, both with our direct enterprise customers and also with our solution partners, part of the market as well.
The another great use case is anonymous communications, right? This is a variety of use cases that about connecting, say, an employee or a contractor of a company with a consumer who's using services. This is like the Uber model, what do you call the driver and you're not revealing your own phone number to that driver and vice versa, the driver is not revealing their phone number to you. This is really neat as the world increasingly becomes a set of connections that are brokered by companies between people doing business, you really need that layer of security between people. And so the anonymous comms use case, which interestingly enough didn't exist 5 years ago.
That whole concept is brand new, but increasingly is becoming a part of many different domains of business. So we're very excited about that. And of course, you've got things like alerts and notifications, just more and more companies are modernizing their workflows and keeping consumers and their customers in the loop when things happen, whether it's an account balance, a trade, login alerts, all sorts of different things that are happening. Alerts and notifications are a powerful set of cases, thus the Notify API I mentioned earlier. And I believe you had a second question?
Just on AI, just state of AI as you think about the news flow certainly picking up around other software companies and embedding AI. I'd love to get your view relative to the developer perspective. What's the appetite to actually start developing and layering in Watson functionality and other AI functionality into kind of the comm stack?
Yes, absolutely. I'll give you sort of two answers to that. First is that we're excited to have a lot of this type of functionality in our new marketplace. So you see Watson is in there, you see WolframAlpha like there are companies who are investing in these sort of AI stacks and we're glad to give our customers options and choices about how they want to go about thinking about these types of applications. That said, I will say, I think this is very early for the technology and fairly, let's just call it, mature in the hype cycle.
And you see a little bit of a mismatch, I think, between maybe some of the marketing and some of the stories that are out there and maybe the reality of what the technology delivers. And I think a lot of technologists, and I'd put myself in this bucket as well, I think there's a lot of opportunity for machine learning and AI to change the way some of the workflows of the world operate and some of those maybe communications workflows. But I also think it's probably a little overhyped to date and it will take a while for those expectations or the reality to catch up with some of the expectations that are out there.
Very helpful. Thank you.
That was our last question. This concludes today's conference call. You may now disconnect.