Interview Synopsis

Cloudflare – Competitive Positioning Across CDN, Security & Compute

  • Public Equity
  • TMT
  • North America

Global network facilitator Cloudflare has enjoyed “extremely high” long-term growth, but now the company must adapt as the content delivery network (CDN) segment, its "core backbone", becomes harder to penetrate due to pricing pressures, increased industry competition and macro headwinds. Still, a former divisional leader at the company is very optimistic about the company’s future, as long as its cloud and security segments sustain their growth trajectories.

CDN pricing pressure forces Cloudflare to pivot to other high-margin solutions

“I’d say it’s the tale of two cities with those two businesses [CND and security], one slightly down, the other one aggressively top right. Cloudflare is working really hard to continue that top-rank trajectory,” the expert told Third Bridge Forum. 

As part of this shift, the SMB client segment will likely move out of focus, as these businesses do not typically need complicated cloud and security solutions, we were told. Rather, the mid-market space is where “you’ll start seeing some of that push and pull”. Upmarket is harder to penetrate, they added, due to the complexity of the sale.

Zero Trust is a little more complicated, there’s more config that goes behind that, there’s a different user persona. It’s a little bit different of a sale, and so I think the risk lies in Cloudflare pivoting their sales motion, their enablement, their persona identification, and then just flat out timing of sale.”

However, according to the specialist, Cloudflare innovates “on a product level like no other”. With engineering in its DNA, the expert also described Cloudflare’s CFO as a “balance sheet tactician”, leading a company where “the people side of it I think is some of the magic”.

In terms of the competitive landscape, “you always have the behemoths”, the specialist said, namely GCP and AWS. “Cloudflare is too big now, at least from my perspective, for one of those big ones to buy, but I always think that there’s a risk of GCP… or AWS just doubling down on a couple of these and trying to squeeze out Cloudflare.” Although there are also “a ton of point solutions”, the expert sees no signs of heightened competition from them currently.  

The expert believes Cloudflare’s goal of 130% net revenue retention is achievable as the company continues pushing for 140% internally. The large TAM means there is low risk the company will run out of leads, they said.  

Click here to access the full insights in Third Bridge Forum’s Cloudflare – Competitive Positioning Across CDN, Security & Compute Interview.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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