Atlassian adjusts business model in response to the cloud

Atlassian co-founder Scott Farquhar has explained how his tech company, founded in 2002, had to adjust its business model in response to the emergence of the cloud.
Written by Asha Barbaschow, Contributor

When Scott Farquhar and Mike Cannon-Brookes started Atlassian in 2002, the duo set out from day one to not only build a global company, but also one that would outlive them both, Farquhar said at the AWS Summit in Sydney on Wednesday.

Although it might sound like an easy enough brief, Farquhar said it was actually quite difficult, considering Atlassian came up against what has been labelled a major "disrupter" early on in its life.

Atlassian built software to be shipped, but as the concept of the cloud emerged as more than just a passing gimmick, Farquhar said his company had to adapt -- even though it was merely a startup itself.

Currently, about a third of Atlassian's revenue comes from the cloud, and Farquhar expects that in less than 10 years, 90 percent of his customers will be using the cloud themselves.

In response, the company had to adapt its software to be shipped to the cloud.

"The technology was relatively simple, but the team change that happened was very profound," he explained. "We needed to change the way that we developed, shipped, and supported our software in the cloud, and that's a huge change to go through beyond the technology."

Atlassian is in the process of migrating to the public cloud with Amazon Web Services (AWS), and Farquhar said he has already seen three big benefits in doing so.

The first is removing the need to redeploy staff around the world to set up datacentres -- which included setting up everything from air conditioning to racking servers -- and redeploying them to higher-value activities within the company.

Using AWS also allows Atlassian to have datacentres right near its customers, and internally allows the company to take advantage of the services offered by AWS that previously had to be built from within the organisation.

"We believe if you want to build a long-term company, you need to build strong foundations," he said.

"We have a really strong investment in our culture and the way that we work, because if you're going to build something that's going to last 100 years, it really needs strong foundations -- and our culture is our strong foundation."

Growing up in Australia, Farquhar saw some local companies shoot to what seemed like peak dominance; however, he said that watching those before him made him realise it is actually easier to build a big company than it is to build a long-term company.

Pointing to companies like the now-defunct airline Ansett Australia, Farquhar said that when the environment they were playing in changed, they didn't adapt, and as a result they are no longer the large companies they once were.

"It is similar to the dinosaurs," he said. "An asteroid changed the environment the dinosaurs existed in and dominated -- they couldn't adapt to those changing conditions.

"Companies today are optimised for the current environment they live in, and when change happens, as it inevitably does, companies can't adapt."

Over 50 percent of the Fortune 500 companies since 2000 no longer exist, Farquhar explained, which he said was "crazy" given that's close to when he started Atlassian.

"These aren't small companies, these are large companies with tens of thousands of people working for them," he said. "There's only one in eight companies that have been around since the start of the Fortune 500 and are still there today. Seven out of eight companies have failed to adapt to the conditions."

Atlassian undertook the biggest ever float from an Australian company in the United States in December 2015.

Prior to its Nasdaq listing, Atlassian was valued at AU$5.6 billion, but the heavily oversubscribed IPO saw it reach a AU$6.01 billion valuation.

Atlassian's filing with the US Securities Exchange Commission a month prior to its IPO revealed that the company had maintained profitability for the previous 10 years.

Forget embalming or cryogenic freezing, Farquhar believes the key to immortality is building something that will survive longer than its creators.

"We wanted to build something that our generations would come to work for and be customers of," he explained.

According to Farquhar, the asteroid that hit the tech world about 15 years ago was the internet, and while that birthed Atlassian, it also killed off many of the dinosaurs that existed back then.

Farquhar has no intention of letting Atlassian become extinct.

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