It's interesting to see this valuation on search as a service, given the leader, Elastic, is in obvious valuation trouble. The market is unimpressed: the Elastic stock hasn't net moved higher since mid January (so most of the time they've been public).
Just take a look at the actual business performance of Elastic.
$271m in sales for the last fiscal year. Negative $101 million operating loss. Pretty bad, although not extremely unusual for SaaS companies in high growth mode. So there must be great growth going on, right? No.
They added a mere $9m in sales last quarter. $89m in sales with a $42m operating loss (whoa). They added an additional $10m in operating loss and gained a mere $9m in sales.
So if they can keep up that rate of growth, they might generously add $45-$50 million in sales this year. Maybe 16%-18% growth for a company bleeding red ink, that isn't particularly large in terms of sales yet (ie they're struggling to generate fast growth at a small'ish scale). And all that needs to support trading for 20 times sales on a business that is a decade old and has never produced a profit.
Either they find a lot of growth soon or in the next market down cycle Elastic is worth 1/3 to 1/2 of what they're trading for now. The same will probably go for their lesser peers. The clock is starting to tick hard on these extreme valuations (hello WeWork, Uber, Lyft).
I think that Elastic is running into a different issue, with AWS (and possibly other cloud providers) making it hard for them to follow the obvious monetization path (hosting).
Algolia, because it doesn't have an open source offering, doesn't have that issue.
Algolia is also a great project that is easy to implement. I have been a paying customer for years. I have used open source Elastic as well, but it takes a lot more work to run and maintain. I don’t want to spend my time dealing with search, I just want it to work with minimal work. The JS client for Algolia makes it trivial to use — not much work “integrating” it as I have experience with ES.
elastic isn’t competing with algolia, imo. elastic is after the enterprise customers who have a mission-critical need for search (rather than a casual need like algolia users)
but I think mission-critical search is a niche technical problem that isn’t applicable to many enterprises.
Elastic is not even after the search market, but the analytics/loggin/reporting sector. Of course, they are after every customer, but one Elastic rep told me that 75% of customers are not using Elasticsearch for traditional search.
Correct. Elastic competes more with Splunk or Sumologic than it does with Algolia or open-source Lucene/Solr. It's nominally a traditional ecommerce/enterprise search engine as well, but it's not terribly good at it.
Then they are in huge trouble because Kibana is hot garbage. Nearly zero of the user experience goodness from Kibana3 has survived the Elastic aqui-hire.
If they plan to compete with Splunk they need do some serious rework of Kibana. Even something relatively new like Humio is must easier to work with than Kibana.
Entire ELK stack was always pretty bad, compared to Splunk or a syslog server and grep, in my opinion.
We tried to buy a support contract from Elastic years back, but the pricing model put all useful levels of support way beyond our reach. Apparently they didn't understand that we had to make our money and didn't have VC funding.
Just take a look at the actual business performance of Elastic.
$271m in sales for the last fiscal year. Negative $101 million operating loss. Pretty bad, although not extremely unusual for SaaS companies in high growth mode. So there must be great growth going on, right? No.
They added a mere $9m in sales last quarter. $89m in sales with a $42m operating loss (whoa). They added an additional $10m in operating loss and gained a mere $9m in sales.
So if they can keep up that rate of growth, they might generously add $45-$50 million in sales this year. Maybe 16%-18% growth for a company bleeding red ink, that isn't particularly large in terms of sales yet (ie they're struggling to generate fast growth at a small'ish scale). And all that needs to support trading for 20 times sales on a business that is a decade old and has never produced a profit.
Either they find a lot of growth soon or in the next market down cycle Elastic is worth 1/3 to 1/2 of what they're trading for now. The same will probably go for their lesser peers. The clock is starting to tick hard on these extreme valuations (hello WeWork, Uber, Lyft).