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Today, the Internet is the lifeblood of business and the primary vehicle of commerce and communication for people around the world. While it was brilliantly architected to deliver fault tolerance and robust connectivity, it was not designed to deliver the security, millisecond performance, and reliability required for businesses today.
For decades, several vendors have looked to address the core limitations and vulnerabilities of the Internet for businesses that operate online. These vendors built a range of standalone hardware boxes to address the emerging security, performance, and reliability requirements.
And then the cloud happened. In recent years, the technology industry has transitioned from on-premise hardware and software that customers buy to services in the cloud that they rent. Organizations find themselves at different points in this transition to the cloud.
But regardless of where a company falls on this spectrum, they all face a common set of challenges: they exist in a complex, heterogeneous infrastructure environment which exacerbates the fundamental problems of the Internet more than ever, and the on-premise band-aid boxes that they once relied upon to solve these problems were never designed to work in such an environment.
Cloudflare’s mission is to help build a better Internet. To understand how we analyzed the business model of Cloudflare. We understood what does Cloudflare do and how does it work.
What does Cloudflare do? How does Cloudflare work?
Cloudflare, founded in 2009, is a global cloud services provider that delivers a broad range of services to businesses of all sizes and in all geographies—making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing individual network hardware.
Cloudflare has built a global cloud platform that delivers a broad range of network services to businesses of all sizes around the world—making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing and integrating individual network hardware.
Cloudflare delivers a suite of deeply integrated products that serve as a unified control plane for Cloudflare’s customers. Customers can quickly and easily join Cloudflare by using just one of Cloudflare’s products and expand over time by adding most products with a single click. Cloudflare’s integrated suite of products consists of
- solutions for an organization’s external-facing infrastructure (such as websites, apps, and APIs) to deliver security, performance, and reliability,
- solutions to serve an organization’s internal resources (such as internal networks and devices),
- developer-based solutions: By leveraging Cloudflare’s serverless platform, developers can build serverless applications that scale without needing to spend time and effort on infrastructure or operations.
- Consumer offerings for individuals to have a performant and secure Internet experience
Cloudflare provides businesses with a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability across their on-premise, hybrid, cloud, and SaaS applications. Cloudflare started building an efficient, scalable network. It forms the basis of Cloudflare’s platform for deploying products. Together, the development of Cloudflare’s network and products create the interconnected flywheels that drive Cloudflare.
Cloudflare has created a network architecture that is flexible and scalable and gets more and more efficient as it expands. Cloudflare designed and built its network to grow capacity quickly and inexpensively; to allow every server in every city, to run every Cloudflare service; and to shift customers and traffic across Cloudflare’s network efficiently.
Cloudflare refers to this architecture as “serverless” because it means it can deploy standard, commodity hardware, and Cloudflare’s product developers and customers do not need to worry about the underlying servers.
As Cloudflare manages the execution and prioritization of code running across its network, it can optimize the highest-paying customers’ performance and effectively leverage idle capacity across Cloudflare’s network. Cloudflare has chosen to utilize this idle capacity to create a free tier of service—which has generated a substantial global scale for Cloudflare.
This scale makes Cloudflare an attractive partner for Internet Service Providers (ISPs) globally, reducing Cloudflare’s co-location and bandwidth costs. As Cloudflare’s network grows, these dynamics become even more powerful.
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Cloudflare began with the idea of serving the broadest possible market. Cloudflare made its products affordable with its entry-level plan for free, in part because of the cost advantage of Cloudflare’s network.
Cloudflare’s machine learning systems improve Cloudflare’s products with every customer’s request, optimizing Cloudflare’s security, performance, and reliability globally. Cloudflare’s distributed and proprietary network is the core of Cloudflare’s technology and enables it to move data seamlessly from nearly any point on earth in a fast, efficient, and reliable manner.
What is the business model of Cloudflare?
Cloudflare’s business model benefits from Cloudflare’s ability to serve the needs of all customers ranging from individual developers to the largest enterprises, cost-effectively. Cloudflare focuses on the efficient onboarding of new customers and the expansion of its relationships with Cloudflare’s existing customers over time.
Cloudflare’s symbiotic relationship with ISPs and the efficiency of Cloudflare’s serverless network architecture allows it to introduce new products on Cloudflare’s network at low marginal cost.
The business model of Cloudflare generates revenue primarily from sales to Cloudflare’s customers of subscriptions to access Cloudflare’s network and products. Cloudflare made $656 Million in 2021, a 52% increase from 2020. As of 2021, Cloudflare had over 140,000 paying customers across more than 170 countries.
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Pay-as-you-go customers: Cloudflare’s pay-as-you-go product solutions are available in several configurations. Cloudflare offers Pro and Business subscription plans through Cloudflare’s website per registered domain, and it is common for customers to purchase subscriptions to cover multiple Internet properties (e.g., domains, websites, application programming interfaces (APIs), and mobile applications).
- Cloudflare’s Pro plan provides basic functionality to improve applications’ security, performance, and reliability, such as enhanced web application firewalls and image and mobile optimization.
- Cloudflare’s Business plan includes additional functionality often required by larger organizations, including service level agreements of up to 100% uptime, dynamic content acceleration, and enhanced customer support.
Contracted customers: Cloudflare’s contracted customers consist of customers that enter into contracts for Cloudflare’s Enterprise subscription plan. Cloudflare’s agreements with contracted customers are tailored and priced to meet their varying needs and requirements.
Key elements of Cloudflare’s business model include:
Free customer base: Free customers are an important part of Cloudflare’s business. These customers are typically individual developers, early-stage startups, hobbyists, and other users and, like Cloudflare’s pay-as-you-go customers, sign up for Cloudflare’s service through Cloudflare’s website.
Cloudflare’s free customers create scale, serve as efficient brand marketing, and help attract developers, customers, and potential employees. These free customers expose Cloudflare to diverse traffic, threats, and problems, often allowing Cloudflare to see potential security, performance, and reliability issues at the earliest stage.
Significant investment in ongoing product development: Cloudflare enhances the capabilities and functionality of Cloudflare’s global network with new products that are innovative and powerful and can be quickly adopted by Cloudflare’s customers and helps Cloudflare grow a free and paying customer base. That, in turn, provides Cloudflare with greater knowledge and insight into the daily challenges that Internet users face.
Efficient go-to-market model: Cloudflare has built an efficient go-to-market model that enables its business to acquire new customers and expand within the existing customer base rapidly and cost-effectively.
- New customer acquisition: Cloudflare focuses on driving an increased number of customers on Cloudflare’s infrastructure platform. Through Cloudflare’s pay-as-you-go offering, a customer can subscribe to one of Cloudflare’s many plans and begin using Cloudflare’s network within minutes, with minimal technical skill and no professional services, allowing Cloudflare to rapidly acquire a large portion of paying customers and at significantly lower customer acquisition costs.
- Expansion of Cloudflare’s existing customers: Cloudflare’s relationships with customers often start with servicing a portion of their overall network needs and expand over time as they realize the significant value of Cloudflare. Customers can then add additional products as they seek to consolidate onto one infrastructure platform to meet all their security, performance, and reliability network requirements.
Results of Operations
As per Cloudlare’s 2021 annual report,