Ladies and gentlemen, good afternoon, and please welcome to the stage Jackson Ader. Oh, great. Thank you. Me and me alone. Yeah. Thanks, everybody. We are here on the second, third, fourth day of the conference, depending on when you actually got in, but it is the last day of our KeyBanc Technology Leadership Forum. I think it's gone great. The change in location, I think people are excited about. Really happy that everybody has joined us. We are thrilled to have Matthew Prince, best known as a Park City townie. That's right. I appreciate you changing the location just in case. Easiest way to get me to come speak at an event is host it in my hometown. When I emailed you, it makes too much sense. It made too much sense. It's like this should be the KeyBanc TLF presented by Matthew Prince. There was a deer in the road, so instead of it being a five-minute drive, it was six to get here. There was a moose and a baby moose right out here, frolicking in the fountains. You don't know how hard that was to arrange. You're welcome. Thank you. I missed it, by the way. Oh, I know. There's an encore later. Great. Yeah, the encore show. The moose wranglers are out there. Matthew's the Co-founder and CEO of Cloudflare. I don't think we need a ton of introduction, but why don't we just start out with some, let's lay the foundation. I'll say ahead of time, I'm going to put pressure on you and freak my IR team out. You emailed questions ahead of time, and some of them were like the deepest cuts on things. I was like, how did you know that? Matthew, we know each other. First of all, I was an associate on your IPO. Yeah. When I was in a prior life, and so knew the company then, right? You will readily say it's like, I'm a cheap date. You're on podcasts, you're being interviewed, you own a newspaper, you're out there. Yeah. It's, you know, don't give me too much credit here. It's like, you know, all it takes is a few hours of chat. Chat GPT. Of listening. Oh my goodness, you don't know me well enough, right? You know, I'm not on enough podcasts to tell you that I'm anti some of that. I appreciate that though. This will be fun. Either way, we still need to lay some foundation because I think even as a covering analyst and having known the company for so long, I still do a terrible job of explaining what it actually is that Cloudflare does. You started the company, why don't you give it a shot? If I'm at a party and someone asks me what I do and I don't want to talk to them anymore, I say that Cloudflare makes the internet faster and protects it from bad guys. Okay. They say, oh, that's really nice, and then they walk away. If I do want to talk to them more, I say, what we did at Cloudflare was we looked at what the internet became, and it was never supposed to be this. The internet was the sort of academic side project. There was actually another project coming out of DARPA at the same time, which was the highly secure, you know, supposed to be the robust network. Turns out like many of these things, the toy took off, the robust one died, but now we're stuck with all the mistakes that we made, where if you look at the original papers describing how the internet worked, there was often a section on security, and it would say, security is beyond the scope of this paper, right? Or, you know, they would say like, how do we make sure these things are actually going to work together? People didn't really consider that from the beginning. What we think of as sort of the problem space that we're working on at Cloudflare is if you could go back and re-engineer the internet to be how it should have been if we had known what it was going to become from the beginning, what would that look like? That has kind of led us to all of the things that we've delivered at Cloudflare. Okay, one of the things that you say all the time. I know this probably chases people away at parties, but it's a. I thought you were going to say we're a fireworks company, right? I mean, you know, that'll do it. You say a lot that every service runs on every server, right? That's like a big competitive differentiation. It's kind of, you know, the tagline of the technology. How big is this server? I mean, at this point, you've got more products than. It's not that every server runs every service at any given time. It's every server is capable of running any service. We are constantly, at some level, a big piece of what we do is a giant scheduler, where we're moving code or traffic or load to wherever there's capacity across the network. That allows us to then differentiate based on pricing. The reason we can have a free version of our service that doesn't actually impose that much cost on us is there's always somewhere on Earth where there's a computer sitting, one of our servers sitting, not running at its top kind of capacity. That's like the space over the urinals in the bathroom. It's an asset that you didn't think that you could sell, but it turns out that someone once said, well, we could put ads there, and then it became a resource. We've got that excess capacity, so we built the ability to move code around or move load around in order to take advantage of that. That's why the utilization rates of our equipment are so much higher. It's why we can get so much more out of every dollar of CapEx spend than you can if you're one of the hyperscalers, which are fundamentally in a different business. They're in the business of buying a server and then basically selling it back over time for five times what they originally bought it for. We're in the business of running code super efficiently across that. In the case of the hyperscalers, optimization is their client's problem. In the case of us, optimization is our problem. That's what we are doing. To answer your question, servers, I mean, it's a pretty beefy, these servers are pretty beefy. We build them in generations. We actually describe on our, if you're really curious, we describe on our blog in in-depth detail, like why did we, you know, select this particular processor versus this processor? Why do we select, you know, this memory versus this memory? We build them with a number of what are called ODMs, which are, you know, original design manufacturers, the same people that a Dell or a Cisco would use to design these. Companies like Quanta or Hive, largely out of Taiwan, are building servers very much to our spec. We buy because every server can run every service, we buy them in essentially bulk once a year and then depot them around and then can deploy them very quickly as we need more in one particular region or another. Would you not have the capabilities to be able to be so interchangeable on the products that you can actually meter and sell if you didn't start with the foundation of trying to build a better internet, which is like a network, you know, to begin with? Actually, Phil, because I left my notes over here. I'll be right back. I'll just talk to the empty chair. Just think of me like, who's the actor? It was Clint Eastwood, talk to the empty chair. All of a sudden, I don't really look like Clint Eastwood, but here we are. I think that early on, there was a fight. We were at about eight employees, and there was a fight. We were in an office over in a nail salon in Palo Alto, California. Half of the team thought we should have specialized equipment to deal with each of the different functions that we had. They said that's how everybody else does it, we should do it that way. The other half of the team said if we do it the same way as everyone else does, we won't ever have a competitive advantage. We did the harder thing, which was design the software to be able to spread load out and service everything and be much more flexible and malleable. There are places that have made our lives harder. I think over time, it's given us just a huge advantage because it's fundamentally different than how anyone else thinks of a service like this. Okay. It's funny that you characterize, see, this is why it's important to have the notes, because I'm jotting down the follow-up. You characterize yourself as fundamentally different than a hyperscaler. Yeah. I think you mentioned just the other day that, you know, pricing on the hyperscaler side, it's like if we go to a metered or usage-based pricing, good for Cloudflare, bad for them. Some of the bullish Cloudflare investors in the room would say, I think they can be the next hyperscaler. What, like, you know, like, what, how do you respond to that? Why won't you be the next hyperscaler? What is different about that than what you do? I think there's space for both of us. I think we've actually kind of carved out lanes that are different. The way that I like to describe this is companies at some level resemble job functions that are kind of classic job functions. I think if you look at an AWS or a Google or a Microsoft, the fundamental job function that they most closely resemble is that of the DBA, the database administrator. If you look at the KPIs that everybody at those companies look to in terms of success, beyond the financial KPIs, it's how much of a customer's data do we store ourselves? For them, the database is central. Even if you look at AWS diagrams, it's always like the data store, whatever that is, you know, S3 or whatever is the center. That's the center and everything else kind of hangs off of it. They're all about hoarding a customer's data. If any of you've worked with database administrators, they can be a prickly group. They are kind of like the database is central and nothing. They're quirky. There's another quirky job function, also a prickly group, which is the network administrator. That is much closer to what Cloudflare is. The KPI that we think about and that we all measure towards, beyond the financial KPIs, is of our customers, how many of their endpoints are connected to our network? That's what we're trying to maximize for. The Amazons of the world will always build some network services, but they will always be secondary to their storage services. If you think about it, there's a real tension between a network and a database. The database is all put the data in and don't let it leave. The network is all move the data around as much as possible. Cloudflare will build storage services and there are strategic reasons we do that. They will always be secondary to our network services. I think fundamentally we are the network and that is primary for us. As that network, we fundamentally have an advantage and can play well with all of the different hyperscalers because we are able to interconnect them together. If you imagine the future, a future that is bad for Cloudflare is a future where people say we are all in on one hyperscaler, right? We're going to be 100% AWS, nothing else. I have yet to find any company at scale. They might say that. Nobody actually does it. They always have, yeah, but we bought this company and they were using Google Cloud, so we maintained our Google Cloud instance over here. As long as the more multi-cloud the world is, the more the network matters. The more the network matters, the more it's powerful for us. I think we will compete at the margins with the hyperscalers. Fundamentally, I think what's unique about us is we are this network and that is something that you need in addition to any of the hyperscalers you might also use. Aren't the hyperscalers kind of moving in that direction though? There was a big fuss about egress fees a few years ago. I think at the time you said that you were really impressed with the way that Oracle was handling their egress. Like, you know, they're moving away from database, keep it in, charge people a bunch of money for getting it out. I don't see any of them moving away from that in any significant way. Egress fees, there's egresses, the cost of taking data out. No one has actually lowered their egress fees in any meaningful way in the last 10 years because it's their lock-in. It's how they actually keep things in. Part of the reason we built some storage products is it actually was a way for us to kind of neutralize that advantage that the hyperscalers would sometimes try and leverage for us. We don't see, we actually see less competition from the hyperscalers over the last few years rather than more. Okay. Let's go more to kind of some current events. You guys put up your recent quarters, some upside, raise the guidance. If you can kind of like rank order what you think went right for you, you know, and then we'll talk about the durability of those things. I think that the real journey that we've been going through over the last two years is transitioning from a product-led growth company where, when you worked on our IPO, the knock on us was we didn't know how to do enterprise sales. I'd be like, look at all these enterprise customers. Of course, we know how to do enterprise sales. We did not know how to do enterprise sales. Happenstance that, you know. It was, the enterprises would use us because we had great products, but then we would sort of be like, great, you bought that product and we can put your logo on our deck. We never went and actually sold them anything more because we didn't build a relationship with them. They would come to events with us and they would say, if you just spent time understanding our procurement team, we would spend 10 times as much with you. We were like, what's a procurement team? Right. We were. Visa? MasterCard? Yeah. We were naive at that. I think that that's the right path that you take in order to build big, iconic, durable companies because if you start with product, you build great product, and then you, over time, layer in great sales. That's much better than starting with great sales and always be scrambling where you're selling essentially vaporware. We've had great product forever. What we hadn't had is a really sophisticated go-to-market machine. When we brought on Mark Anderson, who is one of the, will be in the Hall of Fames for kind of enterprise sales leaders over time, he's brought in a really great team and we've just up-leveled that team. I think that's what we always said we would see, sort of the upswing in the second half of 2025 came a little bit earlier than we thought. The real standouts have been Asia in APAC. Why APAC first? APAC because it was smallest and it was the easiest for us to make just as big a change as we have. You're seeing that now ripple through EMEA. You're seeing that now ripple through North America. I think that playbook, there's no reason you can't take that playbook and run it around the rest of the world. I think that's what gives us confidence in the back half of the year. Enterprise sales Hall of Fame. Can't wait to take my kids to that. Mark Anderson. Yeah, it's pretty exciting. CJ Desai, also a new addition. I mean, you know, talked about Mark, CJ, I don't know, maybe if I might call it opportunistic, right? You know, to be able to add him to the company. What has been the biggest change that CJ or impact that CJ has made in addition to Mark? You know, I think that Michelle, who's my co-founder, and I have largely divided the business up where all the go-to-market side of the business has been Michelle has owned and support and HR and those things. I have tended to own product engineering, legal, finance. We're not co-CEOs, because she hates being the center of attention, but we kind of operate that way. She, over the last two years, is the unsung hero of Cloudflare, who has really rebuilt that whole org. If I look back at the history of Cloudflare, there's always something broken. There's always something that's a mess. I tend to think of it as like a triangle, each of these things, and the puck sort of slides between those things. After sales, as one point in the triangle, the next thing that came was going to be shipping, which was how do you actually get products out the door? We just needed to mature that organization. I was like, pardon the vernacular, but shit, that's going to be hard work for me to go upgrade that org. One day the phone rings and CJ decides, I want to come work for Cloudflare. I was like, well, that was easy. Michelle's like, come on, seriously? He's just been amazing. I think the places that it's shown up most actually are, he has taken that sort of wisdom of being a product and engineering leader, but then he's the most sales-driven, customer-focused product and engineering leader I've ever met. He cares enormously and has a Rolodex. You walk down the streets in New York with CJ and he's like, hey Bob, he knows everyone. He is trusted in these places because he's gone in and presented a roadmap and delivered on that roadmap when he was at Oracle, when he was at ServiceNow. That was great. I think the other thing with CJ is, CJ's got a chip on his shoulder because what happened to him at ServiceNow, I tend to think was deeply unfair. He's got something to prove. He's like, I took a company from $1 billion to $10 billion. I can do it again. I can do it faster. That's what we're doing at Cloudflare. He's just been great to work with. It made my job super easy. Do he and Mark Anderson work well together? I mean, super well together. Mark was his biggest internal champion when we were thinking about him. I remember kind of thinking, God, if our President of Revenue is suggesting who's going to be our product and engineering leader, obviously we're not going to hire that person. It turned out he was just amazing. This is one of the questions that your team struck from the record. I hope that, you know, I don't offend you here, but. You're not going to offend me. I think this was like maybe 10 or 11 years ago. At the time, Cloudflare was three or four years old, and you said you only had three lines of code left. Yeah. Even at that time, hundreds of thousands of lines of code, you only had three lines of code left. Michelle always operationally focused, like Six Sigma Black Belt, right? Lee was kind of the genius architect, technical genius. You got to think to yourself, now it's like, all right, we've brought Mark, we've brought CJ. What is Matthew, the CEO? What is it that makes you the right CEO for the company for the last 10 years, for the next 10 years? I'm P.T. Barnum, I think at some level. I mean, what am I good at? I'm actually good at. That's what I'm asking you. That was the offensive part. Yeah. I think I'm good at packaging up the amazing work that our teams do and then building that into a story that we can tell the customers, that we can tell the investors, that people can see what that vision is. I think that that's been something that I am surprised. I went to a lot of school. I studied English literature and computer science in college. I went to law school. I went to business school. Of those degrees, the one that has turned out to be the most useful as the CEO of a company is the English literature degree. To be able to communicate and write and align a team as quickly as possible is, I think, you know, super important. What I try and coach our managers and leaders is you might be great at engineering, but if you want to actually be a great manager, you've got to learn to speak and write as clearly as possible. I think that's just a big part of our culture. You look at our blog, you look at those things. I think there's a lot of kind of that that has come from me. I also think, like I was actually a terrible early-stage startup. I was always worried about, you know, I'd be like, well, if we do that, you know, what, you know, legal framework is that going to implicate? Because I, you know, I went to law school and all these things. That matters right now. The fact that I went, like my parents for a long time were like, that was kind of a waste of three years when you went to law school. Today, you know, as we're thinking about some of the things we're doing, and I'm like, that time when I was an antitrust lawyer, that's going to be really useful right now because, you know, there's a lot of the internet that sits behind us and we might have those challenges as we go forward. Yeah. We'll get into your educational background again and its relevance to today. Speaking of storytelling, you've got multiple acts going on, right? Do you mind just kind of telling the story of what we are talking about? Act I, Act II, Act III, and we'll get into Act IV. Sure. At some level, the whole story of Cloudflare is we started out with something that was a pretty simple idea, which was how could you put a firewall in the cloud? The reason we thought that was important was we saw that software was shifting to the cloud. We saw hardware was shifting to the cloud. We thought eventually all the network services were going to shift to the cloud as well. That was the story we told at our IPO. It was really kind of the foundation of what we're doing. Michelle and I, we were in business school together. We saw this and being, you know, plucky business students, we were like, that is a market opportunity. Let's go run after that market opportunity. We were putting the firewall in the cloud. The first problem that we had was in order to make that firewall kind of effective, we needed data. The question was, how do you get data? We knew eventually to be a big business, we had to sell to the big banks and things like that. They weren't going to buy us unless we could actually provide some value to them. We needed data to flow through the system. We were like, if we create a sort of free stripped-down version and make that available, we had no idea how wildly successful that would be. Yeah. As a result of that, all of a sudden we had just a huge series of problems where people were complaining like our performance wasn't fast enough. We had to solve that, and we tried just to get back to performance neutral. We were a little bit better at that. All of a sudden we were making the internet faster. Now we had a new feature we could sell. We had all these hacker kids that would sign up because they liked the free service and then they would try and attack each other. We didn't start out as a DDoS mitigation service, but we needed to do it because we couldn't just fire customers when they got DDoS attacked or it wouldn't work. We had to build that. We didn't want to build DNS. We went out to Ultra and Dyn and said, is there some way we can do this? We had all these free customers and they all wanted to charge based on the number of domains. We had to build that. How did you know how to do that stuff? How did you know it's like, all right, now we're going to. Someone else had done it, so I figured we could do it too. Okay. I mean, we hired, you know, smart engineers. It's, and we just kind of kept building the different bits. Over time, that developed into a series of products that we call Act I. The acts are basically temporal on when we built them. They all come from the same place, which was we had problems to solve. We needed to solve them for ourselves. The Act I products are all what technically would be called Reverse Proxy products. They're how do you protect or accelerate or make available those applications or services that you're exposing to the rest of the world. We build all that. At some point, we're like, gosh, we're becoming a big company. We have all these employees and they're doing things. People try to hack them and infect them and do things. We need something to be able to protect them. We didn't, you know, at first we had like a Cisco-like VPN that we were using, but we were increasingly distributed around the rest of the world. We were like, we should do a cloud-based version of this. Zscaler was around. We called them and we were like, these guys' security isn't very good. They're actually not that fast. People, we demoed it and they didn't perform very well. The Zscaler you're talking about? Yeah, totally. Our team was like, we're not going to use that. We'll just build it ourselves. Next thing you know, we're building, you know, a Zscaler competitor, which turns into, and we built it for ourselves. Customers would be like, wow, that's pretty neat. I mean, I can demo to you on stage how much more effective our version of that is than anyone else. People were like, that's cool. Can we buy that too? That became a whole other class of products, which are Zero Trust, SASE, CASB, DLP, all of those different things. They were all because we needed that. In 2017, we hit a wall. I remember I was actually here in Park City on vacation, and my wife went out to the grocery store. She came back, and she was like, so strange. I went to pay for the groceries, and all the cash registers were down. I was like, yeah, it was my fault. She's like, no, no, there are a lot of things in the world that are your fault, but you don't control the cash registers. I was like, actually, NCR is a customer, and we had a big outage, and it took them all down. The reason we had an outage, that was not the worst story of that day. The worst story of that day was getting a call from a very senior executive at FedEx, who said, how much longer before you're back online? I was like, we're getting back. I'm so sorry. I was like, but FedEx isn't a customer. They're like, yeah, but Garmin is. All of our planes required Garmin to be able to land or take off. Some of them are running low on fuel. Imagine you're an engineer. The reason that we had that outage was we pushed a bad piece of code. We had a pretty brittle system for pushing code, and it didn't work very well. Scaling it was hard. We had a whole team that managed it. We had all these ideas. We had all this stuff to build, but it would back up because we got so scared about pushing new code out. I sat with this guy from a company that we just acquired, named Kenton Varda, with another guy who was our CTO at the time, John Graham-Cumming, at a little Mexican restaurant across from our office. Kenton, on a salsa-stained placemat, sketched out, here's how a developer platform in the future should look. We're like, okay, here's a small team, go build it. He did. He went around in a corner, built it. In 2017, we do it, release it to our team first. The idea was you could sandbox things, you could isolate it to individual customers, you could roll code out in progressive ways, it would auto-scale, had all these security guarantees that were in place, super, super, super fast. Our team fell in love with it. Same story. They then show it to our customers. Our customers are like, how do you guys innovate so fast? I'm like, oh, let's show us your developer platform. They're like, can we buy that? That turned into Act III, right? That's what Workers is today. Customer zero for all of these things always is Cloudflare. We create problems, and then we go and we solve them. That's temporally how these things work. When we are at our best, though, we don't talk about individual features with customers. When we talk in earnings calls about how we're doing these Pool of Funds Deals, what that really is, is a customer saying, I don't exactly know what I'm going to use with Cloudflare, but I am confident I'm going to spend at least $X million with you. Let me just put in place a commitment that I'm going to spend that with you. You give me a rate card. As you add new products, just put them on the rate card and let's go. We're seeing more and more people saying, we want the entire platform. That's really powerful for us. You can see like today we had just announced we've got this new bundling where we're kind of merging together Act I, Act II, Act III into these really coherent bundles. The place that's going to be really powerful for us and where we've struggled is with partners. We internally understand how all the pieces fit together and we can put that together. Now that we've got sort of that understanding, we've been able to model it out. Now we can hand that playbook to partners. You're going to watch the partner side of our business just take off, I think, over time. Okay. In a pool of funds deal, is it incumbent upon the customer or is there somebody internally at Cloudflare that goes to them and says, hey, just so you know, you have access to all of these different things? Maybe try this, maybe try this. Or is it like the customer has to be, they have to be curious, they have to be tinkers, they have to be trial and error? No, we now are getting much more sophisticated at that. We get a weekly report on what customer usage is across their Pool of Funds Deals. The customers are scored on a kind of green, yellow, red in terms of what we expect them to consume. We try to get the consumption to, we try and design the deals in such a way that they burn through the consumption well before the end of the deal and then re-up that. We're constantly in there educating the customers on what they can do with this. Effectively, it's like, I mean, again, we didn't invent this. We're just borrowing what Microsoft invented and taking that. We have the breadth of products that we're one of the few companies that I think has the permission of customers to actually come in and say, you should just buy our platform. Over time, it becomes easier for us to say, okay, let's pull, you know, let's replace Zscaler and pull you into our Zero Trust offering. Let's find ways that you can, you know, kick AWS out of some of your functions, pull that into our Workers offering. Let's make sure that you're protected from denial of service attacks no matter what. That whole bundle is extremely valuable. It's the biggest thing that is driving growth at Cloudflare. Careful now. I mean, as a former antitrust lawyer, you know how that ended for Microsoft in the 1990s, right? I mean. Yeah, I think that's not, I mean, Microsoft with the E3, E5, E7 license. I mean, they have, I think we're going to be there. That is not the place I worry about with antitrust. Can you give us a rough sense of how much of the Cloudflare business comes from Act I, II, III? I can say that Act II will surpass Act I in the next few years. I think Act III around the same time will blow past both of them, and it is growing so much faster than I would have ever expected. Workers and Workers AI, you just recently, I think, sold, was it back-to-back quarters, the record total contract value for those products? Two quarters ago, we announced the first $100 million deal in Cloudflare's history, $130 million, a five-year deal. The deal actually started from an offsite that we did with developers, Senior Developers here in Park City in partnership with the US Ski Team at their facility. We do these all around the world. Someone was a customer, it was a single-digit millions customer, but they knew us. They came, they were on a snowshoeing outing. They were describing this project that they were working on. They were like, that's interesting. Let's go back and see if we can build a prototype of it. They were way down the line thinking they were going to do this with AWS. They thought it was going to take them a year and a half to build. We showed them how they could build a really robust proof of concept over a course of two hours with them and a whole bunch of other Senior Developers watching on as we did this. That deal went from that snowshoe adventure to close in four weeks. The $130 million? $130 million. Got it. Our team was like, how do we do that so fast? Thomas, our CFO, said the way you close a $100 million deal that fast is save the company another $100 million. That's what we did. Got it. That's how powerful Workers is. That was at creative gross margins for us. Okay. Workers AI. Yeah. What is the difference between Workers AI and just your, you know, Vanilla Workers, I guess? It gives you access to a bunch of the primitives and tools that you need in order to do AI systems. The simplest way of saying it is, we've deployed GPUs now across the majority of Cloudflare's network. We give you the ability to access those GPUs and do inference-like tasks through Workers AI in a way that you couldn't do if we just had CPUs. Okay. Is that when you say we just signed some exciting, fast-growing AI-native company to run their, you know, on our network, on Workers AI, is that Inference at the Edge? Yeah. Is that a small language model? Okay. Yeah. It can be, you know, it's increasingly large models. We're doing the work to support, you know, any size model that you can bring to us. We have a whole bunch of the open-source models that are just sitting there waiting to be used. If you also have your own model, you can bring that with you. We're doing the work to also hyper-optimize those things. They're actually, like the hyperscalers have zero interest in optimizing how efficiently the models run because that's not their interest because they are in a different business. They're selling hardware. They want to sell more hardware. We have a ton of interest in figuring that out. I think we actually employ now some of the leading researchers in figuring out, I've got a model, how can I make that run quickly? You know, OpenAI, we're partnered with them. We got their open model ahead of time. Our team looked at it and we're like, we think we can get this to run at least two or three times faster than any of the benchmarks that anyone else has been able to do. That then means that we can either capture more margin from these products or pass that savings onto our customers. The answer is we do, we do both of those things. As the world flips from giant clusters in West Texas to inference possibly at the edge, Cloudflare will be there with a net to catch that? I think that we think that a huge amount of inference is going to happen actually on your device. There's, and we won't do that. Apple is going to run a bunch of it. If you have a driverless car and there's a red ball bouncing through a yard into the street and there's a little girl chasing it, you can't wait for the network connection, even if it's to the edge, to go up and then come back. That has to be done on vehicle. There will always be models that are too big. There will always be models that will be too resource-intensive in one way or another that you can't run them on device. In that case, the next best place to run it is in the network. The only network that allows you to do that today is Cloudflare. That's what we think the opportunity is, that we can be, we think half of the inference will happen on device, but the other half, I think that's the opportunity that we're going after. Okay. Act IV. Yes. Very recent. Yeah. You're getting into the fight, which I like, the mesh point between internet publishers and the AI crawlers, right? Why don't you just explain exactly why Cloudflare is at that mesh point? Okay, Michelle hates it when I give history lessons. She's like, no more history lessons, Matthew. I'm a recovering law professor, so I like history lessons. She's not here, so you get a history lesson. Yes. The internet has never been free. For the last 25 years, the largest patron of the internet was a little company you may have heard of called Google. Google invented an engine, a search engine, that when you type things into it, it gave you a treasure map. You would click on the links in the treasure map, and you would go scour across this web thing. Google built actually all the technology, all the infrastructure to take that traffic and turn it into revenue. They built the whole ad ecosystem in order to do that. They also built a lot of the publisher subscription ecosystem in order to do that. Google is the major patron that has paid for all of the web. It exists. All the internet web exists because of Google. Starting about 10 years ago, the user interface of Google began to change. In the past, you'd type it, it was treasure map. Larry and Sergey used to brag about our job is to get people off of google.com as quickly as possible. About 10 years ago, they introduced something that kept people on a little bit longer, which is the answer box. If you type into Google right now, when did Cloudflare launch? You'll get a little box at the top that says September 27th, 2010. Which is right. How did they get that information? They went out across the treasure map themselves. They gathered that up. They did a bunch of machine learning on it. They distilled to that particular answer, and then they populated it in the box. The minute that they did that, it became three times harder for a content creator to get traffic from Google than it had been previously. It changed. It changed the deal. My analogy is once upon a time, Google was sort of like the content creators are frogs. Google had his pot of water, said, "Frog, you like water? Get in the pot." Frog was like, "I do like water. I'm going to get in the pot." The frog swam around. Google over a period of time slowly turned up the temperature. The frog kind of was like, "Oh, this is a little less comfortable, but I'm still here. You know, thanks Google. There's nowhere else to go. Nowhere else to go. It's the only pot. Walls are pretty high. Yeah. Here we are. That changed dramatically in the last year, where Google, feeling pressure from Perplexity and OpenAI and Anthropic and others, made a dramatic change where I would argue they shifted from being a search engine to being what I'd call an answer engine. The difference between a search engine and an answer engine is a search engine gives you a treasure map. An answer engine gives you the answer, and then there's no incentive to go click on anything that's out there. What that did for everyone across the universe was it made it another three times harder, so nine times harder than it was 10 years ago to get actual traffic. It's getting worse over time. That's the good news for anyone that is still dependent on the sort of business model of the web over the last 25 years. The bad news is at OpenAI, it's 750 times harder. At Anthropic, it's 37,000 times harder to get traffic. As the world shifts from search engines to answer engines, the business model of the web will change. Period. Full stop. It's going to change, I think, into one of three paths, with the first being kind of the bleakest, which is anyone who is creating media that is supported by ads or subscriptions is going to starve to death and die. There are a whole bunch of people that think that's what's going to happen, that journalists will cease to exist. It'll all just be social media posts. There won't actually be anything that's that. I don't think we're going to get there, but there is a real risk that if you are selling just pure media content, it goes away because everyone consumes the derivative. No one consumes the originals. The Black Mirror, slightly less bleak but still freaking bleak version, is we don't go back to the media that we, you know, might fondly remember of the 1980s. We go back to the media of the 1400s, the time in the Medici's, right? It's not that there are five families that employ all the journalists and researchers, except instead of being families, it's five AI companies. Can you imagine OpenAI standing up a version of the Associated Press with bureaus around the world covering what was going on and feeding it back into their engine and doing that? It's not that far a distance from what they were doing with ScaleAI. If that happens, there will be a conservative one. There will be a liberal one. There will be a Chinese one. Europeans will try to create one and fail. They'll use the U.S. liberal one. There will be an Indian one. The Brazilians will pretend to build one, but it will never actually work. That's what's going to happen if we don't find some other path. You can really imagine that knowledge will be created in these individual silos. You will subscribe to AI companies, spending probably thousands of dollars a month to have this assistant that has a personality and is fed by all of the information gathered by this. Knowledge will be siloed. I think that's such a pretty bleak outcome too. Didn't you also think that was going to happen to the internet, though? I didn't think that was my thesis. I thought I wrote my thesis on how search engines over time would become political. It's a miracle they haven't. You can see this even with social media now, where social media is actually starting to be, here's the liberal one, here's the conservative one. The fact that Google has stayed apolitical is a miracle, right? It shouldn't have. There should be a, Robert Thomson, the CEO of News Corp, every time I have dinner with him, I'd be like, why don't you guys launch a search engine? I don't know that that would make the world better. Imagine this could be a great business. Fox News Search, big American bald eagle, American flag, no foreign crap, right? You know, fair and balanced, right? They capture 10% of the U.S. search market overnight. That's a $70 billion company. Don't suggest these things. Don't do that. They didn't for lots of reasons. I think that that's a path. What's the alternative? The alternative is we have to figure out some other market to compensate content creators. We're in a unique position to do that because a huge percentage of the web already sits behind us. In addition to that huge percentage of the web, because we've been thought leaders, every major publisher in the world is migrating to us. That won't turn into big revenue dollars. These are not, they just don't have that much money. Do not get excited about that. My hope is, over time, that we can pay them more than what they were earning from ads. The numbers aren't crazy, right? Here's the way to think about it. The entire kind of independent web, so take Instagram and YouTube and Facebook and those things out. Look at just the New York Times, the Wall Street Journal, all that stuff, the ad-supported independent web, it's $10 billion a year to it. Reddit did a deal with two AI companies, Google and OpenAI. They got $140 million for that deal. Reddit is migrating to us. We know how much traffic they get. Cloudflare has 100,000 times more content behind us than Reddit. You could just simplistically say $140 million times 100,000. That gets you half the GDP of the United States. That's not going to happen, right? Could you get to $10 billion that then flows back to the publishing ecosystem? I think the answer is yes. The story that I find the most encouraging here is the day before Steve Jobs launches iTunes, $0.99 a song, the entire music industry, the market cap of the entire music industry was about $8 billion. Market cap, not revenue, right? $0.99 a song wasn't the business model that won in the end. Over time, it's Spotify. Spotify's $10 a month, and you pay it in, it goes into a big pool. It gets distributed out to music industry folks. Spotify is not the only people paying the musicians now. There's still a record business, although it's small. There's YouTube, there's Tidal, there's Apple Music, all these things. Spotify alone last year sent $10 billion to people who are creating music. They sent more to people creating music in revenue than the entire industry was worth before that happened. I am encouraged that there's actually an opportunity for us to go out and do really interesting stuff and compensate people doing really interesting work. I'm also encouraged by the following thing. I like The New York Times, but the New York Times equivalent deal with Reddit, they got $20 million. Reddit got $140 million a year, right? Reddit got seven times as much, even though it's physically the same amount. The question is why? The answer fundamentally is if you're an AI company, you can do a deal with The New York Times, but The New York Times is effectively the same information as the FT, The Wall Street Journal, The Washington Post. There's no differentiation. Reddit's unique. Imagine if we could actually set up a set of incentives to compensate creators by creating unique content again. Less Me Too stuff, you know, we don't need more BuzzFeeds. That's not good, but it would be great if we had more Reddits. I think that as we think these things through, there's an opportunity. I don't exactly know what it's going to look like, but there's an opportunity to actually reward these creators. We are in a very unique position to play broker because 80% of the AI companies already use us. We know them very well. I am on a hugging basis with Sam Altman. Sam doesn't hug a lot of people, so I feel like that's a step in the right direction. We've got a chance. We can call the senior leaders at Microsoft, at Google, at Apple, and say, listen, at the end of the day, the business model is going to change. One of you is going to step up and be the leader. That person is going to be the patron of the future of the web. If that happens, it can replace what Google has done before. I think we can actually have a healthier web going forward. How do you make money off it, though? If we negotiate the deal, just like if I have an agent, I should get a percentage of that. I think that if it's, I don't know, $10 billion, 30% is a good, you know, take from that. I don't know if that's what it'll be. Technically, by the way, the antitrust problem, that's illegal, almost certainly. Although Spotify did it, although they got sued for antitrust and then, you know, had to figure their way through it. I think there's going to be some way that we can take a percentage of that. Even if we don't, it's the right thing to do. Even if somebody else figures out how to do this, if someone doesn't invent the new business model of the web, the web will die. It will be some version of either the nihilistic journalist starved to death version or the Black Mirror knowledge is in Silos version. I think it's worth us fighting to try and find what that alternative is. Because that was going to be my follow-up. The company Ethos from pretty early on has been to eschew revenue in order to kind of be on the right side of history, right? It's like do the right thing first, like when you turned on encryption. Yeah. You know, for free. That was the thing that people had. Encryption, and we just gave it away. Yeah, how do you square that with this new, you know, I know you're a for-profit business. I'm not saying, hey, give it all away, but, you know, how does this strategy fit with the ethos of the company? I think that if you want to, Michelle and I are not going to be happy at being a $100 billion company, right? We are not going to, we want to be one of the truly iconic technology companies of this century. The way you do that is by delivering way more value than you capture, and being audacious and doing audacious things and looking out at the world and saying, how can we actually dramatically improve it? Every single time we've done that, we did not know exactly how we were going to get paid, but we always got paid. It has always driven our ability to do more. I just really believe we should always be delivering much more value than we capture, but we should capture value. We should make sure that we have margins that support it and that we can do these things. I have no doubt that if we help invent the next business model of the web, we will find some way to make money off of that. The most important thing is how do we really invent the next business model of the web to support all the publishing industry? We were way underpenetrated in publishing. We would call them up and we would be like, hey, we can make you faster and we will save you some money and protect you from hackers. The CEOs would say, I do not care. You are so far down the list of priorities. I am now on, it is like every CEO of every major publisher is blowing up my phone being like, you guys are the only ones fighting for us. Will that turn into an opportunity over time? Absolutely. Exactly what it will look like, I do not know. The business model of the web is going to change. We are in the center of it. I think we are going to capture some value out of that. What did you wear to the Condé Nast meeting? Oh my God. That was the same week as earnings. I like earnings. Earnings is fun. Same. The most stressful meeting by far was with Anna Wintour. Did you wear that? No. My wife was like, it was 100 degrees in New York. It was a Tuesday or Wednesday before earnings. It was 100% humidity, 100 degrees. The only suit that I have is a fall, kind of heavy suit. I'm just going to wear a fancy hoodie and jeans. My wife is like, you are not. This is our only chance to get invited to the Met Gala. I don't want to go to the Met Gala. I wore the heavy suit and sweated like crazy. Anna kind of looked me up and down and just shook her head, but then said, you are the only person who gives me faith that there is going to be a business for creatives like the people that work for me. I think that's, she's like, I will call anyone, by the way, they'll all take my phone call. I will tell them, you have to get on board. The people are like, how are you going to convince Google? How are you going to convince OpenAI? How are you going to convince? We're going to convince them. It's the right thing and we're on the right side of history here. A couple of quick ones before we rehop. You've been critical of founders being too narrow, right? In terms of, you know, minimum viable product and, you know, go after some small niche thing just to get some cash flow. There are some companies in here, private companies, whatever, possible future entrepreneurs. Why do you think that going after the big hairy stuff is right for a founder? It is as hard to build, you know, I don't know, an app to help, I don't know, increase your marketing automation systems by 5% as it is to build Cloudflare. If one works, I mean, you can't really, is it going to matter versus if Cloudflare works, it's going to be a big deal. The other thing is we didn't start out with a mission. We were not a mission-driven company. Michelle and I were business students. We saw a market opportunity. We're like, we can make money doing that. We cannot have to have real jobs. We can impress our parents. That's why we started. The mission came because all of a sudden, all these things signed up for us. I remember the lunch. We were sitting around when an engineer was like, I feel this is the first job I've ever worked at where I feel like I'm helping build a better internet. That phrase just kept coming up and up and up. I remember thinking, we're not going to put out a mission. That's just, that's marketing BS. Then, you know, I don't know, there was some employee I was trying to, and I was like, you know, we're Cloudflare, we're helping build a better internet. That employee was like, yeah, I'll come take the job with you, even though it pays less and doesn't do it as opposed to go to this other big company. I was like, whoa, this stuff's really powerful. Today, even though I started very cynical around it, today, if you talk to anyone at Cloudflare that's working there, the thing that they say, the reason they work there is because of that mission. I talk to other peers who run big companies, but, you know, their mission is like, I'm going to help, you know, marketing teams be slightly more efficient. I'm just like, I don't understand how you do this job without us. We had 1.5 million people apply to work for us last year. We hired 1,000, right? We get the pick of the litter out of that group. The reason that we get that is because people want to, people want to do things that make a difference in the world. When we stand up and say, hey, we're defending creators, we get a flood of some of the most talented engineers in the world and say, thank you. They want to work for places that do that. I think it becomes a very virtuous cycle. Right. Matthew Prince, he said the tab's on him at No Name Saloon tonight. Not No Name. Yeah. Oh no, what's a better recommendation? River Horse is good. Palomino, the bar that we're going to have tomorrow, River Horse is good. We actually just bought that building. Yes, please go there so they can pay their rent. Great. Yeah. We are trying to bring my wife and I... Tough times for you financially these days. My wife and I are trying to bring better, we care about this town a lot. We're trying to bring better things to it. My sort of side projects are bring better restaurants to Main Street because it should have better restaurants. The restaurant food here is sort of mediocre. Build a gondola that starts from Main Street and goes to Alta. 22 minutes. You can do it. I have a call with the Department of the Interior next week, and I think we're going to get it done. Then buy Park City from Vail because honestly, like... My buddy told me that on our run last Saturday. I'm not a skier. I have no clue. He's like, since Vail has bought this thing, it's not... It's really, it's been said. If you do that, then I can do a deal with all six resorts, and we can combine all six of them together where one pass lets you ski from Deer Valley to Park City to Brighton to Solitude to Alta to Snowbird. It would be the actually largest collection of skiing anywhere in the world. It would be pretty, pretty cool. Those are my sort of side hustles, which... All right. We All right. We got to get you to meetings. We got to get these people to meetings. Thank you very much, man. This is great. Thank you.