The advent of the internet has allowed many companies to come forward and provide unique services. More recently, it has also seen an influx of companies offering services related to cloud computing. Due to the increased demand for these services, many companies have adjusted their business model to cover the market. However, very few companies have succeeded in doing so.
Snowflake is a cloud computed-based data warehousing company. The company, headquartered in Bozeman, Montana, provides unique services. Snowflake offers users cloud-based storage and analytics services. Its primary service is allowing users to use its warehouses as cloud storage. Similarly, its business model is known and termed the “data warehouse as a service” model.
Snowflake does not offer cloud computing or similar services. Instead, it provides users with cloud storage, which users can then use according to their preferences. The company runs on Amazon S3, Microsoft Azure, and Google Cloud Platform. Due to its unique business model, it does not attract competition from other cloud computing companies.
The company was founded in July 2012 by three data warehousing experts. They include Benoit Dageville, Theirry Cruanes and Marcin Żukowski. All three of them had previous experience in the field. Similarly, the company stayed in stealth mode until October 2014. It also revealed that it was serving 80 organizations at the time. However, its products were not available to the general public.
In June 2015, the company started offering its services to the public. The company continued its operations and won many awards for its unique services. Similarly, it launched some other products during the time and went through some management changes. In 2020, the company raised $3.4 billion through its IPO and went public. This IPO is the largest software IPO.
How Does Snowflake Work?
Snowflake offers cloud-based storage to clients. Most other providers provide these services with a shared-disk architecture. It means that users usually have to share their storage with other users. While this approach works, it can be problematic to some users. Similarly, users have to share bandwidth and transfer speeds with others.
However, Snowflake does not follow the same architecture. Instead, it uses the shared-nothing model for its business. With this model, users do not have to share their cloud-based storage. They get their own disk storage, CPU, memory, etc. Users can use their storage however they like. Snowflake also employs various layers to provide users with the best services.
Firstly, it involves the storage layer, where the company organizes data into micro partitions. Snowflake also optimizes and compresses this information for the maximum efficiency possible. All user data gets stored in the cloud storage. Through efficiency in this system, the company only charges its users for the storage they use.
The next layer is the compute layer, which allows the company to run queries. Snowflake segregates the query processing layer from the above disk storage. However, it needs information from the storage layer to process. The company also uses a “Virtual Warehouse” system in this layer. This layer forms the middle layer between the overall system.
The last layer is the cloud services layer. Here the company deals with surface-level services. This layer takes care of activities such as security, metadata management, optimization, authentication, etc. All three layers scale independently. Therefore, the company charges for the storage and virtual warehouse services separately.
Overall, Snowflake employs an efficient and optimized system for cloud storage. This system allows the company to be cost-effective and scalable as well. By doing so, it also provides users with the best services at the best rates possible. The company also employs support services to help its customers when needed. The company also partners with other companies to provide these services.
What is the Snowflake Business Model?
Snowflake employs a “warehouse as a service” business model, as mentioned above. Through this model, the company provides users with cloud storage. The company also employs the virtual warehouse system, which allows it to run queries independent of other layers. Its biggest strength also comes from its ability to optimize its operations to serve users better.
Despite its efficient business model, Snowflake attracts a lot of competition. The company competes with big names such as Amazon Redshift, Google BigQuery, Azure Synapse Analytics, etc. Snowflake’s business model is similar to a cloud-based business. However, it does not use a subscription-based business model. Instead, it employs a consumption-based business model. By doing so, it charges users for only the services they use.
Snowflake’s primary value comes from its organization provided to users. The company offers ready-to-use systems that can help users reduce their costs. For the same services, users may have to bear substantial costs if they use them in-house. However, Snowflake takes care of those costs and also offers expertise to users.
How Does Snowflake Make Money?
Snowflake makes money from several sources. The primary source includes cloud storage services. However, the company does not segregate its business into various segments. Therefore, it only operates and reports its revenues without any segregation. Overall, the company generated $148.5 million in the three months ended on 31 October 2020. This revenue increased by $79.3 million from the $69.2 million it generated last year for the same period.
Similarly, Snowflake generated $375.5 million in revenues for the nine months ended on 31 October 2020. This revenue increased by $205.7 million over the $169.8 million the company made last year. Overall, the company increased its revenues for the three months by 119% over the previous year. Similarly, it experienced a growth of 127% in its nine-month period revenues.
The company segregates its revenues into two categories. These include product revenues and professional services and other revenues. A detailed analysis of both of these is as below.
Product revenue
Snowflake recognizes its revenue based on platform consumption, as mentioned above. The product revenue category includes computing, storage, and data transfer resources. These are services that users consume on the platform as a single, integrated offering. The company offers users the ability to consume more than their contracted capacity.
Snowflake deems product revenue category as a crucial indicator of user satisfaction. Therefore, they separate these revenues from others. The other category includes professional services and other revenues that the company offers. However, the product revenue category generated the majority of the company’s revenues.
Overall, the product revenue category generated $148.5 million in the three months ending 31 October 2020. This revenue was an increase of $79 million over the same period last year. Similarly, its revenues from this category were $375.5 million for the nine months ending 31 October 2020. It was an increase of $205.7 million over the same period last year. For both classifications, the company makes over 90% of its revenues from this category.
Professional services and other revenues
Snowflake also provides its users with professional services. These include consulting, on-site technical solution services, and training related to the platform. The company also segregates any other revenues into this category. However, this category only generates less than 10% of the company’s overall revenues.
Snowflake generated $11.2 million in this category for the three months. The revenues from this category last year were $3.8 million. Similarly, for the nine months, its revenues in 2020 were $26.1 million. For 2019, these were $7.3 million. For both classifications, there was a significant increase in revenues from this category over last year.
Conclusion
Snowflake is an online cloud-based storage platform. The company offers optimized and efficient services to its users. Snowflake’s business model is consumption-based and often termed as “warehouse as a service”. The company makes money from two categories. Among these, the product revenue category makes more than 90% of the company’s overall revenues.
