Okta Inc. (OKTA)

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Okta's CEO: Our Neutrality Is a Big Strength When Battling Microsoft
By: TheStreet | December 8, 2020

• During a talk with TheStreet, Okta CEO Todd McKinnon argued his firm's developer ecosystem and neutrality help set its cloud identity/access platform apart.

Demand for tools that allow employees and consumers to log into websites and apps easily and safely is as high as ever right now. And that’s good news for Okta (OKTA).

Okta, along with Microsoft (MSFT), is a top player in the cloud identity and access management software market. Its offerings are broadly split into two categories: Workforce Identity solutions that allow employees to securely log into business apps and cloud services (typically with a single user ID and password), and Customer Identity solutions that allow developers to add user-friendly login functions to their websites and apps.

Shares soared to new highs last week after Okta comfortably beat October quarter estimates and issued strong January quarter guidance. The company reported 42% annual revenue growth, 44% billings growth and a 53% increase in its remaining performance obligation (future revenue currently under contract).

Okta also announced a partnership with Amazon.com (AMZN), through which its offerings will be sold via the AWS Marketplace. And the company disclosed that long-time CFO Bill Losch will be retiring in March and be succeeded by board member Mike Kourey.

Following Okta’s earnings, I had a chance to talk with co-founder and CEO Todd McKinnon. Here’s what he said to say on various topics of interest, slightly edited for clarity.

Which parts of Okta’s business were particularly strong in the October quarter.

McKinnon: “It was pretty broad-based. I think if you look at the business, we talked about the strength in enterprise, so deals [featuring] over $100,000 of ARR (annualized recurring revenue)...[The] other number we put in there is the number of customers over $500,000. So that's enterprise strength.”

“[Okta’s business has] two parts. One is enterprise identity. If you’re at work, you use Okta to login to your e-mail and Zoom [account], and so forth...[The] other part is customer identity...our customers using our login for their websites and mobile apps -- that was really strong as well.”

“Then we also have a product called Advanced Server Access that was strong as well. This is actually server admins logging into their servers. So it's using that core identity platform for another big use case...More people doing cloud, more customers trying to build better websites and mobile apps, and trying to make that all secure, are the three big trends that are driving our business.”


Okta's growth over the last few years. Source: Okta.

Which types of apps and services there has been greater interest in providing secure access to this year.

McKinnon: “The obvious thing is the collaboration stuff. Slack (WORK) and Zoom (ZM) and Microsoft [Teams]...The other thing I'll call out is that...people have known for a long time that they have to have a great website…[For] every industry, if it wasn't clear before, it's dramatically been made more clear with COVID that you have to be online.”

“If you're [selling] a physical product, you can't just deliver your product online, like a media company can. [But] you have to have great customer service, you have to be able to order your product to pick it up, you have to really monitor what's going on, and every one of those experiences involves identity. And that's why people are using us to log into those things and help build those things faster. We're seeing that trend start to accelerate as well.”

What the most popular upsells currently are for Okta’s platform.

McKinnon: “It depends...sometimes people start with our Workforce Identity product and upsell the customer identity product. Or sometimes they start with Customer Identity and then upsell the Workforce Identity product.”

“And then also, this product I mentioned before, Advanced Server Access, that had a good performance, particularly on the upsell side. People are figuring out that, ‘Hey, I use Okta for my employee identity, and now I can use it to login to my servers.’”

Okta’s openness (following the AWS partnership) to partnering with other public cloud platforms.

McKinnon: “Part of our strategy is, we’re independent and neutral of all the major clouds. So the more we can partner with all of them, the better.”

“We announced a partnership with Salesforce [through which] we're the preferred identity provider for their Work.com initiative, which is their whole product suite around getting companies back to work after COVID...We've done a bunch of stuff with VMware. We haven't announced anything huge with Google or Microsoft or Oracle, but we're working with all the major clouds to have strategic announcements.”

“Because customers want choice. There's no such thing as a company that's all Amazon or all Microsoft or all Salesforce. They have all these things, and by the way they have devices from Apple and they have Windows devices and Dell devices and they have networks from Cisco. All the myriad technologies they need to be successful we can connect with all of it. So it's you know it's a big part of our strategy going forward.”


Okta's platform at a glance. Source: Okta.

The strategic value of Okta’s recently-announced solutions for Customer Identity workflows that don’t require coding, and for allowing developers to leverage the user authentication features of mobile devices (including biometrics) to enable secure logins.

McKinnon: “So what we're doing, and this is totally unique to us...we’re delivering a series of platform services that we can build products on top of, and also our customers can build products on top of.”

“Two of the ones you mentioned are really relevant. One is Workflows, which is this visual programming environment where you can point and click and drag and drop, and make basically programs that can do anything the customer needs to do around identity.”

“And then the second one is Devices, which takes Okta and embeds it on every computer. Every computer has got identity. Your iPhone has a Touch ID or Face ID. Your Mac has a login with your ID, your Windows machine has it. So Okta Devices takes Okta and deeply integrates into that identity and connects it to your cloud, and so you get one seamless experience across everything, which is very valuable.”

“And this SDK really lets customers build on top of that capability as well. Let's say you're a developer at a bank, and...when a user logs into the bank's mobile app, you want [the user] to do that just by [using] Apple Face ID. But you also want it to work for Windows Hello on your Windows PC. You can do that with this Devices SDK, which is actually very hard to do across devices if you don't have this capability.”

“So, this is the core of our strategy. To build these platform services. We're going to build products around them, like we announced at Showcase (Okta’s developer conference, held in October). And then also, customers can build products around them through this SDK.”

Whether Okta has seen any changes in its competitive environment this year, and what it considers to be its biggest strengths relative to Microsoft’s Azure Active Directory platform.

McKinnon: “The competitive environment has been the same I think for a while. And it's very positive for us. We have the lead in terms of features and functions, and...we're just independent and neutral.”

“Customers, they know that if they choose Microsoft they're going to be routed towards Microsoft. They want to use Zoom, and they want to use Slack or Salesforce. They don't want to be, like, everything Microsoft. It's not even possible...because Microsoft doesn't have all the apps they want to use, but even the apps that Microsoft does have, they're not always the best, and then they’re not always best for customers. So they want choice.”

“I previously talked about the partnerships. It's key to our strategy...in the future, there are going to be five or six major clouds. There's going to be a cloud around infrastructure...Amazon's gonna win that market likely. There's going to be one around customers, and you know CRM, Salesforce (CRM) looks like the winner. There's definitely gonna be one round collaboration, it looks like Microsoft has a good chance to be that winner.”

“But there's also going to be one around identity, and identity has to be independent of any of those other clouds. Because customers need choice -- to be able to choose those major clouds, but also the thousands of other specific apps for their industry or maybe apps they built themselves, for their customer websites, and so we're going to be the major cloud to stitch all that together.”

Okta’s strengths relative to competitors such as IBM (IBM) and Ping Identity (PING).

McKinnon: “It’s very different. Those two companies are software companies...It's like going back to the ‘90s. They want to sell you software, they want you to kind of manage it, install it yourself. And it's pretty different.”

“Obviously they're in the same space we are, but we don't actually compete with them. Because customers make their own choice: Do they want software, or do they want the modern cloud feature? And we're clearly the latter.”

“It's different than [competing against] Microsoft. I mean, at least Microsoft has a cloud [solution]. It's very tightly coupled with their own platform, so it has a bunch of drawbacks, but at least it's cloud. [Whereas] those companies you mentioned are not even in the modern decade.”

Which features and services represent Okta’s biggest R&D priorities over the next 12-18 months.

McKinnon: “That's a great question. Broadly speaking, integrations are an evergreen priority for us. We are always going to be the most integrated, and the most deeply integrated. That's just our DNA. So we'll continue to invest in that.”

“And also, it's not just us doing that. Now we have this flywheel, where we have the most customers. We have 9,400 customers now. And these are enterprises that demand that all of the vendors selling to them integrate to Okta, so these vendors are actually building integrations now. So we have this flywheel. [Having] the most customers is compelling vendors to integrate to us, [which attracts] more customers, attracts more vendors -- so it's a virtuous cycle.”

“These different markets -- workforce identity, customer identity, advanced server access -- is really part of infrastructure identity. Identity Management, security for everything you'd want to do in your data center. These things are the functional priorities. But the way we're going to attack...that is with these platform services. Things like devices, things like workflow, things like Insights, which is kind of an analytics service. Things like...the other types of services we’ll release, and then on top of those build new products and various products that we'll be announcing.”


The various components of Okta's corporate flywheel. Source: Okta.

Okta’s current traction with SMBs, and whether (with Microsoft pricing Azure Active Directory aggressively on the low end) Okta is open to revamping its SMB sales efforts and partnerships.

McKinnon: “I think it's something we go back and forth on. We have a lot of SMBs, it’s not like we have zero. I think our focus has definitely been on larger enterprises, and I think that's warranted, because...identity problems and the value you can provide with identity increases [with] the more complexity and the more people you have.”

“So that's been our focus. We have thought about ways [to work with] channel partners and managed service providers, and things like that. We've done some of that, but I think we're still open-minded on what we can do to further accelerate that progress.”

How much of Okta’s revenue currently comes from international markets, and why that number could rise over time.

McKinnon: “I think it's like 15% 16% [of revenue], and it's been pretty consistent. But remember, the whole pie is growing too, so it's growing.”

“I think over time, it can be much higher as a percentage of [revenue]. If you look at other at-scale SaaS companies, it's definitely higher [for them] than what it is for us. And we're focused on, over the next couple of years, investing in...making the mix more heavily weighted toward international.”

“The markets are very horizontal. In some markets, the functional requirements are different. Like maybe [if you’re] selling finance software, the accounting is different. Different countries have different industries that require different functionality. We're not like that. We're a platform that appeals everywhere, so I think that it's just investment and focus that is going to lead to a bigger mix of international business.”

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