[disclaimer: comment written by one of cofounders of iomete - a YC-backed startup - active in the same market as Snowflake]
I think Snowflake is (still) expensive because it is a venture-backed enterprise software company and goes through a typical trajectory...
Story goes like this: founders are product-driven and first movers -> find PMF -> need VC funding -> VCs only fund enterprise software ventures with 70%+ gross margins and high retention rates -> product/service gets priced to achieve these metrics -> VCs happy to fund sales & marketing machine needed to obtain sales growth, nobody cares about profitability until after IPO -> startup is everyone’s darling until ~2 years after IPO.
Then: economic crisis hits, customers become more price sensitive, competition intensifies. Plus now management is exposed to quarterly pressure of financial markets to deliver on top-line and margin expectations.
Meanwhile a bunch of startups are building (lower priced) alternatives. Perhaps not as mature or feature-rich as Snowflake, but good enough for 80% of use cases that Snowflake covers.
Therefore the assertion that Snowflake is not optimizing their product sounds a bit crazy to me. It would be optimizing for short-term gain, while jeopardizing its reputation as the leader in the space. Obtaining excessive margins through excessive pricing only works under monopolistic conditions or if they had a truly distinctive product. Both are not the case imo. Also, it's early days. Not exactly sure what Snowflake's market share is, but I bet it is < 5%.. so they haven't locked in everyone yet...
I bet that Snowflake will be forced to compete "also on price" in the next five years because free enterprise is a powerful thing. The title of the article could be “Why Snowflake is (still) expensive but will get more affordable over the next few years”..
I think Snowflake is (still) expensive because it is a venture-backed enterprise software company and goes through a typical trajectory...
Story goes like this: founders are product-driven and first movers -> find PMF -> need VC funding -> VCs only fund enterprise software ventures with 70%+ gross margins and high retention rates -> product/service gets priced to achieve these metrics -> VCs happy to fund sales & marketing machine needed to obtain sales growth, nobody cares about profitability until after IPO -> startup is everyone’s darling until ~2 years after IPO.
Then: economic crisis hits, customers become more price sensitive, competition intensifies. Plus now management is exposed to quarterly pressure of financial markets to deliver on top-line and margin expectations.
Meanwhile a bunch of startups are building (lower priced) alternatives. Perhaps not as mature or feature-rich as Snowflake, but good enough for 80% of use cases that Snowflake covers.
Therefore the assertion that Snowflake is not optimizing their product sounds a bit crazy to me. It would be optimizing for short-term gain, while jeopardizing its reputation as the leader in the space. Obtaining excessive margins through excessive pricing only works under monopolistic conditions or if they had a truly distinctive product. Both are not the case imo. Also, it's early days. Not exactly sure what Snowflake's market share is, but I bet it is < 5%.. so they haven't locked in everyone yet...
I bet that Snowflake will be forced to compete "also on price" in the next five years because free enterprise is a powerful thing. The title of the article could be “Why Snowflake is (still) expensive but will get more affordable over the next few years”..