As is now a tradition for me, here is my annual Acquia retrospective, where I look back at 2014 and share what is on my mind as we start the new year. I take the time to write these retrospectives not only for you dear reader, but also for myself, because I want to keep a record of the changes we've gone through as a company and how my personal thinking is evolving from year to year. But I also write them for you, because you might be able to learn from my experiences or from analyzing the information provided. If you would like to, you can read my previous retrospectives: 2009, 2010, 2011, 2012 and 2013.
For Acquia, 2014 was another incredible year, one where we beat our wildest expectations. We crossed the major milestone of $100 USD million in annual revenue, the majority of which is recurring subscription revenue. It is hard to believe that 2014 was only our sixth full year as a revenue-generating business.
We've seen the most growth from our enterprise customers, but our number of small and medium size customers has grown too. We helped launch and host some incredible sites last year: from weather.com (a top 20 site) to the Emmys. Our efforts in Europe and Asia-Pacific are paying off; our EMEA business grew substantially, and the Australian government decided to switch the entire government to Drupal and the Acquia Platform.
We hired 233 people in 2014 and ended the year with 575 employees. About 25% of our employees work from home. The other 75% work from offices around the world; Burlington MA (US), Portland OR (US), Washington DC (US), Paris (France), Reading (United Kingdom), Ghent (Belgium), Singapore, Delhi (India), Brisbane (Australia) and Sydney (Australia). About 75% of our employees are based in the United States. Despite our fast growth rate in staff, recruiting remains a key challenge; it's hard to hire as fast as we do and maintain the high bar we've set for ourselves in terms of talent and commitment.
We raised venture funding twice in 2014: a $50MM series F round led by New Enterprise Associates (NEA) followed by Amazon investing an undisclosed amount of money in our business. It's not like Tom Erickson and I enjoy raising money, but building and expanding a sales and marketing team is notoriously difficult and requires big investments. At the same time, we're building and supporting the development of multiple products in parallel. Most companies only build one product. We're going after a big dream to become the preferred platform for what has been called the "pivot point of many enterprise tech stacks" -- the technologies that permit organizations to deliver on the promises of exceptional digital customer experiences from an agile, open, resilient platform. We are also competing against behemoths. We can't show up to a gunfight with a knife, so to speak.
Building a digital platform for the enterprise
Digital has changed everything, and more and more organizations need or want to transform into digital-first businesses to stay in step with the preferences of their customers. Furthermore, technology innovations keep occurring at an ever faster and more disruptive pace. No organization is immune to the forces of digital disruption. At Acquia, we help our customers by providing a complete technology platform and the support necessary to support their digital initiatives. The Acquia Platform consists of tools and support for building and managing dynamic digital experiences. It includes Acquia Cloud, which helps developers deliver complex applications at scale, and Acquia Lift, our digital engagement services for bringing greater context to highly personalized experiences. Let me give you an update on each of the major components.
Drupal tools and support
Drupal gives organizations the ability to deliver a unified digital experience that includes mobile delivery, social and commerce. Great inefficiencies exist in most organizations that use a variety of different, disconnected systems to achieve those three essentials. They are tired of having to tie things together; content is important, social is important, commerce is important but connecting all these systems seamlessly and integrating them with preferred applications and legacy systems leads to massive inefficiencies. Companies want to do things well, and more often than not, Drupal allows them to do it better, more nimbly and in a far more integrated framework.
In 2010, we laid out our product vision and predicted more and more organizations would start to standardize on Drupal. Running 20 different content management systems on 20 different technology stacks is both an expensive and unnecessary burden. We've seen more and more large organizations re-platform most of their sites to Drupal and the Acquia Platform. They realize they don't need multiple content management systems for different sites. Great examples are Warner Music and Interscope Records, who have hundreds of sites on Drupal across the organization, resulting in significant cost savings and efficiency improvements. The success of our Acquia Cloud Site Factory solution has been gratifying to witness. According to a research study by Forrester Consulting, which we released late last year, ACSF is delivering a 944% return on investment to its adopters.
After many years of discussion and debate in the Drupal community, we launched the Acquia Certification Program in March 2014. So far, 546 Drupal developers from more than 45 countries have earned certification. The exams focus on real world experience, and the predominant comments we've heard this past year are that the exams are tough but fair. Acquia delivered six times the amount of training in 2014 compared to the previous year, and demand shows no sign of slowing.
Last, but definitely not least, is Drupal 8. We contributed significantly to Drupal 8 and helped it to achieve beta status; of the 513 critical Drupal 8 bugs fixed in 2014, Acquia's Office of the CTO helped fix 282 of them. We also funded work on the Drupal Module Upgrader to automate much of the work required to port modules from Drupal 7 to Drupal 8.
Drupal alone isn't enough for organizations to succeed in this digital-first world. In addition to adopting Drupal, the cloud continues to enable organizations to save time and money on infrastructure management so they can focus on managing websites more efficiently and bringing them to market faster. Acquia customers such as GRAMMY.com have come to depend on the Acquia Cloud to provide them with the kind of rugged, secure scale that ensures when the world's attention is focused on their sites, they will thrive. On a monthly basis, we're now serving more than 33 billion hits, almost 5 billion pageviews, 9 petabytes of data transferred, and logging 13 billion Drupal watchdog log lines. We added many new features to Acquia Cloud in 2014, including log streaming, self-service diagnosis tools, support for teams and permissions, two-factor authentication, new dashboards, improved security with support for Virtual Private Networks (VPNs), an API for Acquia Cloud, and more.
As powerful as the Drupal/Acquia Cloud combination may be, our customers demand far more from their digital properties, focusing more and more on optimizing them to fully deliver the best possible experience to each individual user. Great digital experiences have always been personal; today they have to become contextual, intuitively knowing each user and dynamically responding to each user's personal preference from device to location to history with the organization. After two years of development and the acquisition of TruCentric, we launched Acquia Lift in 2014.
It's surprising how many organizations aren't implementing any form of personalization today. Even the most basic level of user segmentation and targeting allows organizations to better serve their visitors and can translate into significant growth and competitive differentiation. Advanced organizations have a single, well-integrated view of the customer to optimize both the experience and the lifetime value of that customer, in a consistent fashion across all of their digital touchpoints. Personalization not only leads to better business results, customers have come to expect it and if they don't find it, they'll go elsewhere to get it. Acquia Lift enables organizations to leverage data from multiple sources in order to serve people with relevant content and commerce based on intent, locations and interests. I believe that Acquia Lift has tremendous opportunity and that it will grow to be a significant business in and of itself.
While our key areas of investment in 2014 were Acquia Cloud and Acquia Lift, we did a lot more. Our Mollom service blocked more than 7.8 billion spam messages with an error rate of only 0.01%. We continue to invest in commerce; we helped launch the new Puma website leveraging our Demandware connector and continue to invest and focus on the integration of content and commerce. Overall, the design and user experience of our products has improved a lot, but it is still an area for us to work on. Expect us to focus more heavily on user experience in 2015.
The results of all our efforts around the launch of the Acquia Platform have not gone unnoticed. In October, Acquia was identified as a Leader in the 2014 Gartner Magic Quadrant for Web Content Management.
The wind is blowing in the right direction
I'm very optimistic about Acquia's future in 2015. I believe we've steered the company to be positioned at the right place at the right time. As more organizations are shifting to becoming digital-first businesses they want to build digital experiences that are more pervasive, more contextual, more targeted, more integrated, and last but not least, more secure.
The consolidation from many individual point solutions to one platform is gaining momentum, although re-platforming is usually a long process. Organizations want the unified or integrated experience that Drupal has to offer, as well as the flexibility of Open Source. It is still time consuming and challenging to create quality content, and I believe there is plenty of opportunity for us and our partners to help with that going forward.
Without a doubt, organizations want to better understand their customers and use data-driven decisions to drive growth. Data is becoming the new product. The opportunity this creates in commerce is massive.
Cloud computing and Software-as-a-Service (SaaS) continues to be on the rise. Cloud is top of mind and the transition away from on-premise solutions is accelerating even as the arguments around security and privacy issues in the cloud continue to be raised. While there is a certain amount of emotion, and sometimes politics, people are beginning to realize that the cloud is usually more secure and more robust against cyber-attacks than traditional on-premise systems.
The promise of Drupal 8, arguably the most significant advance in the evolution of the Drupal software, has me very excited. It is shaping up to be a great release, and I'm confident it will further secure Drupal's reputation among developers, designers, agencies and site managers as the most flexible, powerful content management solution available.
All of this is not to say 2015 will be easy. This is an incredibly exciting and fast-changing space in the world of technology. Acquia is growing in an incredibly fast-paced, dynamic sector and we realize our mission is to help our customers understand how to think ahead to ever more innovation and change. Simplifying our overall messaging and defining ourselves around the Acquia Platform is a significant first step.
Of course, none of this success would be possible without the support of our customers, partners, the Drupal community, the Acquia team, and our many friends. Thank you for your support in 2014, and I look forward to working with you to find out what 2015 will bring!
Marc Andreessen famously said that software is eating the world. While I certainly agree with Marc that software companies are redefining our economies, I believe that much of that technological shift is being driven by data. So is the value of a business in the data or is it in the software? I believe data is eating the world because the value is increasingly more in the data and not the software. Let's investigate why.
Netflix provides a great example of a data-driven customer-centric company. By introducing streaming video, their software "ate" the traditional DVD business. But Netflix soon realized their future wasn't in the medium of delivery -- it was in the wealth of data generated simply by people using the service. The day-to-day data generated by Netflix viewers provides a crucial ingredient to competing in the marketplace and defining the company's mission: improving the quality of the service.
To that end, Netflix uses passive data -- the information gathered quietly in the background without disrupting users' natural behaviors -- to provide TV and movie recommendations, as well as to optimize the quality of services, such as streaming speed, playback quality, subtitles, or closed captioning. Of course, Netflix subscribers can contribute active feedback to the company, such as movie reviews or feedback on the accuracy of a translation, but the true value of Netflix's user data is in the quiet, zero-effort observation that allows the company to optimize experiences with no friction or disruption to regular user behavior. In fact, the company even hosted several competitions to invent better algorithms for user ratings, with a winning prize of $1M USD.
Within very saturated marketplaces, data is also becoming a key differentiator for some companies. For example, when Google first started, its value was almost entirely centered around the quality of its Pagerank algorithm, or its "software". But Google did not rest on the laurels of having good software, and prioritized data-driven insights as the future of the company. Consider Google Waze, the world's largest community-based traffic and navigation app. Google Waze relies heavily on both active consumer input and passive location-based data, combined with a sophisticated routing algorithm. The routing algorithm alone would not be enough to differentiate Waze from the other navigation systems of the world. Consumers are demanding more accurate maps and real-time traffic information, which could not happen without the use of data.
The future of software
There is another element in the rising importance of data: not only is the sheer amount of consumer data growing, but software is simultaneously becoming much easier to build. Developers can leverage new software programming tools, open source, and internet-based services to build more complex software in less time. As a result, the underlying intrinsic value of software companies is diminishing.
Netflix and Google are still disruptive companies, but no longer primarily because of their software -- it's their ability to use the data their customers produce to extend their engagement with customers. Their actual software is increasingly being commoditized; recommendation engines and navigation software both exist in open source and are no longer trade secrets.
Tomorrow's applications will consume multiple sources of data to create a fine-grained context; they will leverage calendar data, location data, historic clickstream data, social contacts, information from wearables, and much more. All that rich data will be used as the input for predictive analytics and personalization services. Eventually, data-driven experiences will be the norm.
And this basic idea doesn't even begin to cover the advances in machine learning, artificial intelligence, deep learning and beyond -- collectively called "machine intelligence". Looking forward even more, computers will learn to do things themselves from data rather than being programmed by hand. They can learn faster themselves than we'd be able to program them. In a world where software builds itself, computers will only be limited by the data they can or cannot access, not by their algorithms. In such a future, is the value in the software or in the data?
As value shifts from software to the ability to leverage data, companies will have to rethink their businesses, just as Netflix and Google did. In the next decade, data-driven, personalized experiences will continue to accelerate, and development efforts will shift towards using contextual data collected through passive user behaviors.
Companies of the future have a lot on their plates. More than ever, they'll need to adapt to all types and formats of data (closed, open, structured and unstructured); leverage that data to make their product or service better for users; navigate the gray area around privacy concerns; and even reconsider the value of their intellectual property derived from software. They'll have to do all this while providing more contextualized, personalized, and automated experiences. "Data-driven" will spell a win-win situation for both users and businesses alike.
The older I get, the quicker the years seem to fly by. As I begin to reflect on a great 2014, one thing is crystal clear again. People are the most important thing to any organization. Having a great team is more important than having a great idea. A good team will figure out how to make something great happen; they'll pivot, evolve and claw their way to success. I see it every day at Acquia, the Drupal Association or the Drupal community. I'm fortunate to be surrounded by so many great people.
By extension, recruiting is serious business. How do you figure out if someone is a great fit for your organization? Books have been written about finding and attracting the right people, but for me the following quote from Dee Hock, the founder of Visa, sums it up perfectly.
"Hire and promote first on the basis of integrity; second, motivation; third, capacity; fourth, understanding; fifth, knowledge; and last and least, experience. Without integrity, motivation is dangerous; without motivation, capacity is impotent; without capacity, understanding is limited; without understanding, knowledge is meaningless; without knowledge, experience is blind." — Dee Hock, founder of Visa.
Most hiring managers get it wrong and focus primarily on experience. While experience can be important, attitude is much more important. Attitude, not experience, is what creates a strong positive culture and what turns users and customers into raving fans.
Today the Drupal Association announced a new program: the Drupal 8 Accelerate Fund. Drupal 8 Accelerate Fund is a $125,000 USD fund to help solve critical issues and accelerate the release of Drupal 8.
The Drupal Association is guaranteeing the funds and will try to raise more from individual members and organizations within the Drupal community. It is the Drupal 8 branch maintainers — Nathaniel Catchpole, Alex Pott, Angie Byron, and myself — who will decide on how the money is spent. The fund provides for both "top-down" (directed by the Drupal 8 branch maintainers) and "bottom-up" (requested by other community members) style grants. The money will be used on things that positively impact the Drupal 8 release date, such as hiring contributors to fix critical bugs, sponsoring code sprints to fix specific issues, and other community proposals.
Since the restructuring of the Drupal Association, I have encouraged the Drupal Association staff and Board of Directors to grow into our ambitious mission; to unite a global open source community to build and promote Drupal. I've also written and talked about the fact that scaling Open Source communities is really hard. The Drupal 8 Accelerate Fund is an experiment with crowdsourcing as a means to help scale our community which is unique compared to other efforts because it is backed by the official non-profit organization that fosters and supports Drupal.
I feel that the establishment of this fund is an important step towards more sustainable core development. My hope is that if this round of funding is successful that this can grow over time to levels that could make an even more meaningful impact on core, particularly if we complement this with other approaches and steps, such as organization credit on Drupal.org.
This is also an opportunity for Drupal companies to give back to Drupal 8 development. The Drupal Association board is challenging itself to raise $62,500 USD (half of the total amount) to support this program. If you are an organization who can help support this challenge, please let us know. If you're a community member with a great idea on how we might be able to spend this money to help accelerate Drupal 8, you can apply for a grant today.
Business model innovation is usually more powerful than technical innovation; it is more disruptive and harder to copy than technical innovation. And yet, so many companies are focused on technical innovation to compete.
Consider Airbnb. What makes them so successful is not a technical advantage, but a business model advantage that provides them near-zero marginal cost. For a traditional hotel chain to increase its capacity, it needs to build more physical space at significant cost. Instead of shouldering that setup cost, Airbnb can add another room to its inventory at almost no cost by enabling people to share their existing houses. That is a business model innovation. Furthermore, it is extremely difficult for the traditional hotel chain to switch its business model to match Airbnb's.
The same is true in Open Source software. While it is true that Open Source often produces technically superior software, its real power may be its business model innovation: co-creation. Open Source software like Drupal or Linux is a co-created product; thousands of contributors build and enhance Drupal and everyone benefits from that. A large Open Source community produces vastly more software than a proprietary competitor, and shares in the production and go-to-market costs. It disrupts proprietary software companies where the roles of production and consumption are discrete and the production and go-to-market costs are high. While established companies can copy key technical innovations, it is extremely difficult to switch a proprietary business model to an Open Source business model. It affects how they build their software, how they monetize the software, how they sell and market their software, their cost structure, and more. Proprietary software companies will lose against thriving Open Source communities. I don't see how companies like HP, Oracle and SAP could change their business model while living quarter to quarter in the public markets; changing their business model would take many years and could disrupt their revenues.
Take Amazon Web Services (AWS), one of the most disruptive developments in the IT world the past decade. While AWS' offerings are rich and often ahead of the competition, the biggest reason for the company's success is its business model. Amazon not only offers consumption-based pricing ('pay as you consume' vs 'pay as you configure'), it's also comfortable operating a low-margin business. Almost 10 years after AWS launched, at a time that vast amounts of computing are moving into the cloud, HP, Oracle and SAP still don't have competitive cloud businesses. While each of these companies could easily close technical gaps, they have been unable to disrupt their existing business models.
If you're in a startup, innovating on a business model is easier than if you're in a large company. In fact, an innovative business model is the best weapon you have against large incumbents. Technical innovation may give you a 6 to 18 month competitive advantage, but the advantage from business model innovation can be many years. Too many startups focus on building or acquiring innovative or proprietary technology in order to win in the market. While there is usually some technical innovation around the edges, it is business model innovation that makes a successful, long-standing organization -- it tends to be a lot harder to copy than technical innovation.