In this episode of the Making Markets podcast, host Daniel Newman is joined by Tom Siebel, CEO of C3 AI.
Their conversation focused on:
- An in-depth look at the company’s most recent results
- Exploration of what investors and outsiders may be missing about C3 AI
- How the company is part of a multi-trillion dollar TAM around AI with little direct competition
- Context on the Google Partnership announcement, and why it is likely to match or even realize greater results than the $200 million dollars generated to date via their Microsoft Partnership
You can grab the video of the interview here (and subscribe to our YouTube channel if you’ve not yet done so)
You can also listen below or stream the audio on your favorite podcast platform — and if you’ve not yet subscribed, let’s fix that!
Disclaimer: The Making Markets podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
Daniel Newman: One of the first people behind CRM, four decades of leading tech companies in software, and now the CEO of C3 AI. Tom Siebel, welcome to Making Markets.
Announcer: This is the Making Markets podcast brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies ,bridging the gap between strategy, markets, innovation, and the companies featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, principal analyst and founding partner of Futurum Research, Daniel Newman.
Daniel Newman: Hey everybody. Welcome back to Making Markets. Excited about this episode. I have Tom Siebel, CEO of C3 AI just a day after the company reported what I believe to be a very good quarter, solid growth. We’re going to talk to him about that a little bit here, but Tom, welcome to Making Markets.
Tom Siebel: Good morning and thank you.
Daniel Newman: Excited to have you here. I had a chance to listen to the call. Sounds like things are heading in the right direction, the company is in good shape, it’s got some exciting partnership news, but I won’t spill it. You’re the guest of honor here. Tell me a little bit about some of the highlights you had from yesterday’s earnings call and some of the big events that have been going on over the last quarter.
Tom Siebel: Well, I think that since we’ve gone public last December, the company is very much tracking exactly on track with the plan. I think the year over year revenue growth last quarter was 29%. All the predictions are that it will accelerate from here. C3 AI has become the world’s leading provider of enterprise AI applications which is a huge addressable market. We’re focused on establishing and maintaining a market leadership globally in enterprise AI. We announced yesterday morning before the market opened, a new, very significant strategic business partnership with our new alliance partners at Google Cloud.
Google Cloud has made the decision that they want to position themselves uniquely in the hyperscaler market. And rather than just competing with the others based on CPU seconds, or storage, and maybe they arguably have some more sophisticated technology and they’re all competed by cost, they’ve decided that they want to go after the market by offering turnkey application solutions for manufacturing, for financial services, for telecommunications, travel, transportation, government services, and what have you. And this will give them a unique position where other people are selling CPU seconds and they’re selling turnkey applications that use CPU seconds. And so in that process, we entered into an agreement whereby we will be selling together all of the 40 some C3 AI enterprise applications globally in Asia, in Europe, in north and south America. And so this dramatically increases our distribution capacity and allows them to reposition themselves as a provider of turnkey solutions rather than a provider of speeds and feeds.
Daniel Newman: Yeah, yeah. And I think that’s actually a really important point. One of the things I keep thinking about Tom when I think about AI is there’s a certain part of the market that thinks of AI as maybe somewhat mature, but I still think of it as pretty nascent. We’re talking about a market that still has trillions of dollars in term being created. You guys are really on the front end of what I would consider to be a massive trend around verticalizing AI solutions. Because when you’re looking at companies in oil and gas, and you’re looking at companies in financial markets, you’re looking at organizations in healthcare. And I know you guys have really put your presentation in market to focus on this. AI isn’t just about big GPUs and processing lots of data. It’s about putting all this to use to create valuable insights.
Well, your revenue is at 52 million this year, 29% up and your subscription revenues has jumped up by about the same 30%, 29%. I think what I’m grasping and I have to imagine, when you founded this company, when you were looking at is, it’s not just about these immediate deals which show the validity in the market. It’s about every one of these companies that are in these industries are going to be more and more dependent upon this type of application to be able to deliver the next generation of services to their customers.
Tom Siebel: Yeah. I’ll note that our revenue for the quarter was about 52 million. So we’re operating at close to a quarter billion dollar run rate today. When people look at AI today, I think we’re someplace in the first half of the first inning, maybe the first beta just came up, this is just beginning. And most people look at AI, I think you’re absolutely right, as these shiny little objects that do interesting things like persistence, or platform independent storage, or queuing, or virtualization, or machine learning libraries. Well, all those little tinker toys are nice and you can use them for interesting science experiments but you know what? AI is really about our turnkey enterprise applications that deliver significant social economic benefit.
And whether this be smart grid analytics, whether it be cybersecurity, whether it be production optimization, supply chain optimization, demand forecasting, you can use AI to allow organizations to deliver products that are more tailored to meet the needs of their market at lower cost, lower environmental impact, and this AI looks like it represents, this is done, an entire replacement market for everything we’ve done in enterprise application software, say in the last three decades. So this is a very big market opportunity.
Now you asked me earlier, what might the market be missing about C3? What is unique about C3? If you think about it and you’re a company like Google and you wanted to find a company that had a complete suite of turnkey enterprise applications that aren’t little tinker toys that do storage or persistence or AutoML, but include all that functionality and do digital oil fields or smart grid analytics or AI-based predictive maintenance for aircraft. Really there’s only one doorbell in the world that you could ring and that’s C3 AI. So we are the only company in that business of delivering enterprise applications, of complete set of enterprise applications that are entirely built on AI platforms. So that’s what’s unique as you correctly address this huge addressable market opportunity. And I believe that we’re the largest provider at the market. And if at C3 AI we succeed as we are focused on doing, if we succeed in establishing and maintaining a market leadership position in enterprise AI at global scale, this will be one of the most important information technology companies in the world.
Daniel Newman: And something that drew my attention from the highlights in your earnings Tom was that you’re doing this 250 or 200 to $250 million run rate now for the annual with about a hundred paying customers, I think just a hundred. And there’s two sides of that. Some may look at that and say, “Only a hundred customers.” And the way I look at it I said, “Only a hundred customers!” Think about this because you’re getting some of the biggest names and I’ve got some notes, Shell Oil and Con Edison and these big companies with very unique needs, but there are obviously millions of companies and there are thousands of large enterprises. So the way this scales as you keep adding large customers, it’s not adding tens of thousands with every new customer, you’re adding millions in revenue.
So when people are kind of looking at, what’s the opportunity for C3? As your customer count grows, these customers are seven figures plus each time. That has to be pretty exciting for someone that’s looking at this and saying, “Just how big can this revenue run for C3?” And then you top but you guys are operating it like a 70 plus, 75% margin, that’s very attractive. And to me, I think you saw the market, the market responded somewhat harshly to what I would consider really good results. I think they’re missing that. They’re missing that even every time you add a customer, you’re adding seven figures plus in revenue. And then on top of it, some of these partnerships. But that’s got to be a big deal. You have to see that as, “Hey, we don’t need to close a lot of customers to make really meaningful growth in the business.”
Tom Siebel: Yeah. Our customer count grew pretty substantially in the last year. That being said, these are very high value propositions and a large customer like United States Air Force or Enel which is a utility in Europe or Shell, these companies will have paid us scores of millions of dollars in some cases, and are building hundreds of applications that address every aspect of their business as they digitally transform. Well in the future, everybody is going to do this. So, a lot of people think about AI as little $1000, $2,000 toys and we’re in the business of building very large scale capital goods for aerospace, for gas, for energy, for financial services, travel, transportation, telecommunication, what have you, that allow these organizations to fundamentally digitally transform themselves using AI to be able to serve their customers in the 21st century.
So it is a huge market opportunity. The problems that we address are extraordinarily complex. Obviously, the customer relationships that we have when we’re dealing with that scale are intimate, they’re highly dependent upon us. And we carry a lot of responsibility to make sure that our customers succeed. We’re very fortunate to have really, really powerful market partners in both Microsoft and Google with which we go to market at global scale on top of their hyperscale platforms. I’ve been in the information technology business now for four decades. As you recall, I was one of the very early people at Oracle and helped build the relational database market, and then founded a company called Siebel Systems where we invented the CRM market which today is $60 billion business, it’s growing. That is not Siebel, but CRM has grown to a $60 billion business. And I’ve never seen anything like this in terms of the size, of the addressable opportunity, the growth rate of the market, and the scale of the investments that the large players are making.
Daniel Newman: Yeah. I like the way you put that though. A lot of us are thinking about a toy that we talked to or a phone that gives us some natural language processing. You’re talking about solving very complex issues in highly regulated industries. And of course this will scale out to retail and other industries in the future that aren’t only your healthcare and financial and oil and gas. But what you also suggested that I didn’t point out is not only are these large customers, but every one of these, the number of connected devices, things, the amount of data is going to grow. So kind of the hyperscalers grow through more processing and workload and compute needs, C3 will kind of grow right alongside because as all those things grow, as more data needs to be processed, more insights need to be created.
It’s these existing customers and the recurring revenue from them will become larger. I want to be sensitive of your time. I have one last question. I just want to circle back on here Tom. And that’s about those partnerships. The Microsoft partnership has yielded an impressive outcome, I think it was almost $200 million to date worth of closed business. The Google partnership is in its earliest days, Google seems to be all in on growth. I’ve watched their earnings over the past few quarters, they’re growing the top line, narrowing losses, and making huge investments in growing that business to be more and more competitive with Amazon and AWS along with Microsoft. And they seem to have really leaned in on vertical, taking a vertical approach to the market. Seems like a great marriage. What do you expect for this partnership? Do you think it has the potential to ramp up and become as exciting as what’s happened with Microsoft, maybe bigger? Just love to get a little tape from you on what you see happening with this Google Cloud partnership.
Tom Siebel: Well, I think this is a game changer in accelerating enterprise AI, and it’s a game changer in the competitive dynamics of the hyperscale computing market, where Google is approaching the market from a completely different perspective with their… They have a sales organization on the order of 4,000 people up from about 400 people two years ago so they are growing this business at a very rapid rate. And these are steely-eyed, you’ve got enterprise application people from SAP and other companies, and they want to deliver turnkey applications into banking, into manufacturing, into supply chain and what have you. So this increases our sales and service capacity overnight by a couple orders of magnitude. So I think it’s going to fuel a lot of growth, it’s going to allow us to guarantee the success of a lot of customers. We have the full power, and gravitas, and service capacity of Thomas Kurian and the entire Google Cloud team to assure the success of our customers. This is a game changer, it’s a big deal, and we will be going to market with Google in a huge way in the months and years to come.
Daniel Newman: Yeah. As I see it, a lot of stars are aligning for you Tom and the organization. The market sometimes do what the market do.
Tom Siebel: The market will take care of itself Daniel. As far as I’m concerned, stock market can close for the next five years. C3 AI, we have a billion dollars cash in the bank, we have more than enough capital to operate our business. We’re running as you know roughly a cash-neutral business so we’re not really consuming this capital, but we have the capital that we need to grow the business. And I think that if we do our jobs, we take care of our customers, we continue to gain share, we make sure that every customer succeeds, we continue to form strategic partnerships with companies like FIS, Baker Hughes, Microsoft, and Google, I think that if we turn the lights out of the market in five years, I think all the shareholders will be quite happy.
Daniel Newman: I think if most that are out there, that are looking at companies like C3 can take that type of long view, as one entrepreneur myself to you another entrepreneur, we don’t wake up every day and think, “What’s the value of our company today?” We think, “Let’s execute. Let’s do great work. Let’s build things. And then in the long run, the people that are involved and that are around us should all benefit.” So it sounds to me like you’re in a market with growth, you’re partnering with the right companies, you’re executing both on new customer ads and on revenue and on of course hitting the bottom line numbers. And like I said, as I look at it all Tom, I think you guys are in really good shape, excited to follow the company, definitely hope to bring you back in the future quarter. Keep talking here on Making Markets and keep helping those out there that want to better understand C3, the opportunity, have that opportunity to hear from you and others at your company. So thanks for joining Making Markets Tom.
Tom Siebel: Thank you, Daniel. I really enjoyed the conversation.
Daniel Newman: See you soon.
Announcer: Thank you for tuning in to Making Markets. Enjoy what you heard? Please subscribe to get every episode on your favorite podcast platform. You can also watch us on the web at futurumresearch.com/making markets. Until next time, this is Making Markets, your essential show for market news, analysis, and commentary on today’s most innovative tech companies.