Confluent, which develops database technologies, launched its IPO this week. The company issued 23 million shares at $36 a piece—above the $29-to-$33 price range—and the price rose 25% on the first day of trading. The market capitalization hit $11.5 billion.
Jay Kreps, Jun Rao, and Neha Narkhede cofounded the company in 2014. Before this, they were software engineers at LinkedIn and had faced the tough challenges of scaling the IT infrastructure. One of the main issues was how to effectively process data in real time.
The cofounders searched for a solution but there was nothing that was viable. For the most part, the database technologies were mostly about storing information efficiently—not handling data in motion.
So the founders developed their own platform, which they called Kafka, and made it open source. From the start, it saw significant adoption.
As of now, Kafka has a developer community of over 60,000 and the software is used by over 70% of the Fortune 500. In other words, the cofounders were ideally positioned to capitalize on this growth with their own startup. “Confluent is part of a new wave of data companies that offer faster, more scalable solutions for the modern digital era,” said Jedidiah Yueh, who is the CEO of Delphix.
An app like Uber or Lyft may seem simple. But the underlying technology is exceedingly complex, as it needs to manage enormous amounts of streaming data to connect customers.
“In such situations, to provide a delightful customer experience, data needs to be analyzed in-motion even before it is saved in databases,” said Ashish Kakran, who is a Principal at Thomvest Ventures. “Such a feat was almost impossible in the past because data would need to be stored before analysis. This is where Confluent’s open-source Kafka stands out as it turns a sequential analysis process into a fluid one. It provides an event streaming platform and a rich set of APIs that developers can use to quickly be productive.”
The reliance on developer communities has been critical. It has allowed for a bottoms-up strategy for adoption. Let’s face it, selling a complex technology like Kafka directly to Chief Information Officers would likely be tough.
“Now as the same hard-to-sell products grow organically within an organization, they become hard-to-replace and their value becomes self-evident to CIOs,” said Kakran. “Companies like Confluent then step in with innovative business models to monetize their offerings and help organizations get the most out of innovative open-source tools.”
The opportunity for Confluent is still in the early stages. Keep in mind that it estimates the market at about $50 billion. That is, the need for real-time data spans many industries. For example, a retailer can use it for accurate inventory tracking so as to make sure customers get what they want when they want it. Or in manufacturing, a company can leverage IoT (Internet-of-Things) data to help with predictive maintenance, which can mean less downtime.
According to Kreps, in his letter to shareholders: “Today the data architecture of a company is as important in the company’s operations as the physical real estate, org chart, or any other blueprint for the business. This is the underpinning of a modern digital customer experience, and the key to harnessing software to drive intelligent, efficient operations. Companies that get this right will be the leaders in their industries in the decades ahead.”