It's hard to get through a day without using software. Between the mobile phone apps we use, the interactive websites we visit, and the features in our cars that keep us safe, our lives are better because of the work of software developers. But the process for making great software is complicated, and programmers also depend on software to meet ever-rising user expectations. Three companies looking to provide developers with the best possible tools are Twilio (TWLO +2.15%), MongoDB (MDB 3.00%), and Atlassian (TEAM 2.51%).
Let's look at what these software-as-a-service businesses are doing to help software creators and how savvy tech investors can profit.
Twilio: Developers are key influencers
Whether it's an order confirmation email, a "package delivered" text, or the phone call indicating there's a problem with your prescription, software-driven communications have become a part of our daily lives. Twilio's platform gives software developers the ability to create these communication events easily.
Twilio knows that developers are key influencers or primary decision-makers for a company's tech-buying decisions 77% of the time, so it's created an easy way to get them to try out its powerful communications platform.
Image source: Twilio's 2017 analyst day presentation
Curious developers can gain full access to Twilio's entire toolset by simply creating an account on the platform to access a free trial. They can then run the platform through the paces and test its capability in real-world scenarios without spending a dime. Twilio also creates opportunities to interact with software creatives in other ways, including an annual conference, community events, a blog for sharing success stories, and a game-like learning experience called TwilioQuest.
Its focus has paid off. Twilio now has 190,000-plus customers which generated $1.27 billion in trailing-twelve-month revenues, representing a 48% year-over-year growth (without the Sendgrid acquisition). But what's most impressive is that its usage-based revenue is growing due to loyal customers finding more ways to use the platform. This increased customer activity shows the staying power of the platform and has kept its net dollar retention rate between 125% and 150% for the last nine quarters.
MongoDB: A database "built by developers for developers"
MongoDB's annual report states simply that "we built our [database] platform for developers," which leaves no doubt that developers are its most important customer. The value proposition for MongoDB's database product built for the cloud era is to free up programmers from complicated and maintenance-heavy database work so that they can focus on application functionality and the all-important end-user experience.
Image source: Getty Images.
In order to continue to stay connected with developer needs over time, its database-as-a-service product Atlas provides the company with real-time insights into the developer experience. CEO Dev Ittycheria highlighted this in the company's most recent earnings call:
"...with Atlas, we get even higher levels of data and fit and instrumentation on how customers are using our platform. ...that gives us a sense about like are they using it properly, are they -- are running [in]to any issues, have they configured their database correctly, are they seeing any performance degradation etc."
This deep knowledge of its primary users is a competitive advantage that has powered more than 90 million product downloads and attracted 17,000 paying customers. The fact that its top line has more than tripled to $422 million in annual revenues over the last three years is proof that what it's doing is working.
Atlassian: Developers help grow the business
Developers use Atlassian's products to help manage software projects and collaborate with team members. But the company knows its leading software tools, Jira (for team planning and project management), Confluence (for content collaboration), and Trello (for coordinating across a work team), can be used by more than just software development teams.
Atlassian looks to the 23 million software developers across the globe as the entry point to "land" in an organization with a free trial of its cloud-based tools. Once downloaded, the team-oriented aspects of the software make it natural for developers to invite other team members to try the software too. Developers make up a subset of the estimated 100 million-plus technical team members who could be critical team members for the software creation process. These team members are a subset of 800 million knowledge workers that Atlassian is looking to ultimately capture as potential users for its collaboration products.
This "land and expand" approach is working. Its 171,000 customers generated $1.5 billion in trailing-twelve-month revenues from its software products and associated services. Year-over-year topline growth between 36% and 39% over the last six quarters shows that its products are bringing value to teams everywhere.
The takeaway for investors
"Software applications are redefining how organizations across industries engage with their customers, operate their businesses and compete with each other."
-- MongoDB's 10-K filing for its 2020 fiscal year
More and more, companies are turning to software to improve workforce productivity, reduce costs, and enhance customer experience. Software developers are and will continue to be a vital resource for delivering innovative applications. Investors should look at the products that software developers depend on (like the three mentioned above) as a picks-and-shovels play on the digital transformation goldrush. That's not just a fluffy writer's quip; I'm invested. These three stocks make up a meaningful 17% of my portfolio.
