Cloudflare (NET 3.40%) has expanded its edge computing network from just five data centers in 2010 to over 275 today. The company's product portfolio has exploded as well, with even its free plan including a long list of features and functionalities.
Despite the vast improvements to Cloudflare's platform, the company has kept pricing unchanged over the past 12 years. Cloudflare's Pro plan costs $20 per month today, just as it did in 2010, and its Business plan goes for $200 per month, just as it did when that plan was rolled out in 2012.
Speeding up investments
As Cloudflare has expanded its platform and launched new products, the company's total addressable market has soared. The $32 billion market opportunity the company saw in 2018 has expanded to $115 billion today. Going after that opportunity requires cash to build out additional data centers and invest in product development, and Cloudflare's stagnant prices are starting to hold the company back.
Cloudflare announced on Tuesday that it would be boosting its prices for the first time in its history. The Pro plan will soon cost $25 per month, and the Business plan will cost $250 per month. That's a 25% increase across the board. Cloudflare is also rolling out annual plans, which provide some savings for customers willing to pay in advance for the full year.
The core functionality of Cloudflare's platform is protection against attacks and caching content to speed up applications and websites. Both of those are important, and it's unlikely many customers will drop the service over this price increase right away. This move will boost Cloudflare's revenue, but the impact will be limited. More than half of Cloudflare's revenue comes from large customers on Enterprise plans with custom pricing spending at least $100,000 annually.
Cash flow will certainly get a boost, partly from higher monthly prices and partly from some customers choosing annual plans and paying for a year up front. Cloudflare's new annual plans bring pricing down to the same monthly rate as the old pricing, but that jolt of cash flow will give Cloudflare the ability to make investments earlier. "We invest up front in building out our network or developing a new feature, but then only get paid monthly by our customers. That, inherently, is a governor on our pace of innovation," Cloudflare said in the blog post announcing the new pricing.
The free plan will remain unchanged, and Cloudflare will continue to roll out additional features over time to its nonpaying customers. Cloudflare's free plan is an important part of its customer acquisition pipeline, allowing users to try out many of the company's products and get a taste of what Cloudflare can offer.
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So many opportunities
Cloudflare will still be investing in its core products, but the company has the opportunity to become a major player in two big markets: cybersecurity and cloud infrastructure.
Beyond protecting customers' websites and servers from attacks, Cloudflare also offers a suite of Zero Trust services that help customers manage access to resources. Zero Trust is big business -- the global market could potentially grow to $87 billion by 2030. Going after that opportunity means battling traditional cybersecurity companies as well as fast-growing cloud-first companies like Zscaler and Crowdstrike. In order to win, Cloudflare needs to make sure it's keeping up with the competition.
Cloud infrastructure is perhaps an even bigger long-term opportunity. Global spending on infrastructure as a service topped $90 billion in 2021, and that number is even bigger if you factor in platform as a service. Cloudflare is not a traditional infrastructure-as-a-service provider like Amazon Web Services. It doesn't offer virtual servers or a laundry list of products. Instead, the company leverages its edge network to allow customers to run code and store data close to users while handling all infrastructure management in the background.
This solution is not for everyone, but it supports a wide range of workloads and has the potential to steal away a considerable share of the global cloud computing market over time. Simplicity is valuable, and Cloudflare offers that in spades.
Cloudflare's price increases will provide additional fuel for the company as it goes after these opportunities, potentially accelerating its growth rate in the coming years. Cloudflare's annual revenue is still less than $1 billion, so the company is in the very early innings of its growth story.
