Companies looking ‘beyond obvious use cases’ for AI will have the advantage: Okta CEO
Okta CEO Todd McKinnon sits down with Yahoo Finance’s Brian Sozzi to discuss the company's model of recurring subscriptions, macroeconomic uncertainty, its short- and long-term growth plans, succeeding in the tech industry amid the banking crisis, AI and ChatGPT, and the outlook for the company.
SEANA SMITH: Okta shares has soared since the start of the year, up more than 20%. It looks like the company's new focus on efficiency is paying off. Brian Sozzi spoke with Okta CEO Todd McKinnon about that strategy shift amid the current macroeconomic environment in terms of uncertainty. Here's what he had to say.
TODD MCKINNON: Well, the first thing is our model of recurring subscription is showing leverage. So you build up a great customer base, you have retention that's very strong, you're able to sell that customer base, new products that you're developing and innovating on. You layer that on with the growth overall, and it's a model that's generating leverage. With the macroeconomic uncertainty we're all dealing with and growth moderating to some degree, you're seeing us invest proportionately less in sales and marketing. And in many cases, that less investment can translate to more profitability.
BRIAN SOZZI: Is it fair to say that Okta is a-- it's a more focused business now?
TODD MCKINNON: We're pretty ambitious in our plans long term. But I think we have taken some near-term investment away from some growth initiatives and poured that back into profitability, which I think is the right thing for this time of macroeconomic uncertainty.
BRIAN SOZZI: Talk to us about that macroeconomic uncertainty. Where do you-- where is it hurting the most? Is it capturing new business?
TODD MCKINNON: I'd say a good part of it is caution and prudence for the future. The actual impact in our business that we've talked about in Q3 and Q4 of last year has largely been in two areas. One has been in our SMB segment, so smaller companies not purchasing as much capabilities as we expected, and then more of a shift toward upselling products to existing customers versus landing new customers. So those are the concrete metrics we've seen in our business.
But really, we're being prudent about what could change going forward. And our outlook for the future, we're guiding to 16 to 70% revenue growth for FY '24, which is the year where now. We're being prudent in that outlook, assuming the macroeconomic condition could get worse before it gets better.
BRIAN SOZZI: Do you think it will get worse just based on the numbers you guys see?
TODD MCKINNON: I think we have to be open to the possibility. But what we know is that these long-term trends that we're helping customers with, being secure, workforce efficiency and digital transformation are going to be powerful long term. So when the economy does-- well, the uncertainty around the economy clears up, we're going to be ready to go.
BRIAN SOZZI: This has been a crazy week or two in markets, in finance, in business. It's giving me flashbacks to 2008, 2009. But I'm not a security expert. In this environment where up feels down, I mean, do you get calls from other executives saying, hey, are we secure in this environment? What type of questions are you getting?
TODD MCKINNON: Well, I think security is one of those evergreen things. Everyone always wants to be secure. It's really a balance between, how do we adapt to the world around us? How do we adopt the right technology? How do we do it more efficiently? How do we create new revenue streams where it's appropriate while at the same time being secure. So it's never just about security alone. It's how can we do all the things we want to do to move our business forward? And how can we do all the crazy things you have to do in the world right now to adapt and evolve in the landscape we're in, and do it all securely?
BRIAN SOZZI: You co-founded this company. You're plugged into the tech scene. You spent your career in the tech industry. It's been a challenging time the past week and a half, especially with fellow folks that have started their own business. Maybe they couldn't get their cash out of Silicon Valley Bank. What is the vibe in your community after an event like this?
TODD MCKINNON: I think the last year in tech has been, I would call it more coming off a high, coming off zero interest rates, coming off growth at all costs, coming off a hiring market that was extremely competitive and challenging. I would say now, it feels more normal, especially compared to what it was a year or two ago. And I think the thing about tech is there's always an innovation. You see what's happening now with AI technology. And there's always a next wave. And it's about building companies for the long term that can both survive, but also adapt, and take advantage of the next wave of innovations as they come about.
BRIAN SOZZI: How will this AI push impact your business?
TODD MCKINNON: I think, well, first of all, thinking you know the answer to that is probably underestimating the potential of AI. So what we're trying to do is have a very open mind. And when you look at what's happening with OpenAI and ChatGPT4 right now, or GPT4, and then ChatGPT taking that into account, it's-- the possibilities are endless. And I think the companies with the most open mind that look beyond the obvious use case are the companies that are going to have the advantage. And that's the approach we're taking.
BRIAN SOZZI: Is this stuff secure? I call it stuff. I'm not even sure what to call it. I'm talking to a computer. And this is writing things for me.
TODD MCKINNON: Well, the security is a journey. And it's-- any time there's innovation, any time there's change, there's an opportunity for the people that are trying to be malicious and trying to hack into things to take advantage of the new cracks and the new crevices. And there's also an opportunity for the industry, and security vendors, to adapt, and plug those holes, and make the entire ecosystem as secure as ever as it evolves. So that's why it's such a healthy to have a vibrant ecosystem of security vendors.
It's why it's frankly dangerous to have security controlled by one large company. You hear about company trying to build monolithic security stacks that provide all security. We think that's dangerous. And that's why one of the things we're doing in security is not only helping companies with secure login, but we're facilitating better integration between everything in the security suite. So your endpoint technology, or your log analysis, or your SOC tool, all can work better together to provide a more secure environment as the inevitable change and onrush of technology happens.
BRIAN SOZZI: I had a rude awakening over the past week as all of this stuff was unfolding, all the banking crisis stuff. Not a lot of folks in my orbit lived through the last crisis. They weren't covering it. And sometimes, they were in elementary school, or they were in high school. You lived through it. You fell through it. You managed through the business. Does this feel like that time? And how have you been leading through this crisis?
TODD MCKINNON: Well, I started Okta in 2009 so right in the echoes of the financial crisis.
BRIAN SOZZI: It was bad.
TODD MCKINNON: And--
BRIAN SOZZI: That was bad.
TODD MCKINNON: You mentioned small companies earlier. Small companies are so incredibly fragile. And oftentimes, they have one bank. And oftentimes, they're just trying to strike out and survive. And it's a game of survival. And in some ways, it feels much different to have the scale, and the breadth, and the size of Okta, and the diversity in terms of employees, and products, and business streams. But it's still one of the inevitables goals of technology is change. And you have to be able to adapt no matter what size company you are.
BRIAN SOZZI: Is it key to overcommunicate in this environment with employees?
TODD MCKINNON: I think that's something that is true all the time. I think if you want to build a culture that is fired up for your mission, and trying to achieve collectively with the company to-- can do better greater than what any one individual can do. You have to have a stream of constant communication and be very clear about where you're going and the-- set the framework for where you're going, but then entrust and empower the team to drive that, the specifics of that, as they see fit.
BRIAN SOZZI: I don't think I've ever asked you this. We've talked a lot in the past. But what made you start Okta right essentially near a financial crisis?
TODD MCKINNON: It wasn't on purpose. It was just a matter of me thinking the time is right in terms of the evolution of cloud technology, and then that really rise into this need for better identity and better security. Because remember, cloud meant more services, more applications, more accessible computers, or more accessible systems. But it also meant that there were new opportunities for people to break in, or people to take advantage of that environment. So we felt it was the perfect time--
BRIAN SOZZI: It must have been really challenging to get a business off the ground when it felt like the world was collapsing.
TODD MCKINNON: I mean, talk about some of the basic things. I remember we were worried about getting health care. And like's happening now, our bank surviving, and being single sourced to one bank. So these things can repeat sometimes.
BRIAN SOZZI: Let's hope we do not get back to those times. Let's just deal with whatever this stuff may be. Okta CEO Todd McKinnon, always great to get some time with you. We appreciate it.
TODD MCKINNON: Thanks for having me, Brian.