Why SolarWinds is pivoting to a subscription-based model

SolarWinds (SWI) reported fourth-quarter earnings, showing $198.14 million in revenue for the quarter, a 5.9% increase year-over-year, while full year revenue was $758.7 million, representing a 5% year-over-year growth.

Sudhakar Ramakrishna, SolarWinds CEO & President, joins Yahoo Finance to discuss the company's performance, its switch to a subscription model, and the company's ongoing battle with the Securities and Exchange Commission (SEC).

Ramakrishna explains: "SolarWinds has always been excellent at monitoring capabilities, networking, databases, applications, and systems. What we have done is unified all of it on to a single entity, which is a SolarWinds platform. We're able to give them [customers] better ways of integrating across all of these. So whereas some of the competition is looking at applications or infrastructure, or database discreetly, we're able to pull together all of these, give them a comprehensive visibility, thereby helping them reduce the time it takes for them to detect issues and solve issues. Thereby improving productivity and reducing cost and overall improving their security as well.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

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- Shares of SolarWinds getting a boost today following a beat on fourth-quarter earnings. The software developer saw total revenue grow 6% year-over-year. For more on the latest results we're joined by Sudhakar Ramakrishna, SolarWinds CEO and president. Thank you so much for being here.

Talk to me about the demand that you are seeing from enterprises right now. I mean, we talk a lot about companies cutting back, right? And that that's one of the reasons that they are seeing gains, but obviously they are still investing in the enterprise as well.

SUDHAKAR RAMAKRISHNA: Yes, first of all, thanks for having me here. We are very fortunate to have a very large customer base globally. In fact, we have more than 300,000 customers all over the world, and they are all looking for how do we reduce their complexity, how do we improve productivity and do it in simple ways.

That's what we deliver for them because every one of them is constrained for resources. And both physical as well as monetary and we solve their problems, and that's where we are seeing the demand from.

- And Sudhakar, top of mind for your investors and financial analysts covering you all on the Street, is the transition you all are making, Sudhakar, to more of this kind of subscription model? Why do you think you all are well positioned for that pivot?

SUDHAKAR RAMAKRISHNA: For us, subscription only is not just a business model transition, it's a value model transition. So every time we go to customers to evolve them to subscription, we are actually giving them more capabilities to help them manage their multi-cloud environments. And that's where we are seeing the lift.

We've made it incredibly easy for them to procure. We've made them extremely compelling from a value proposition standpoint. And we've made it cloud-ready, where they can start with where they are and evolve at the pace at which their business needs dictate. So we are giving them kind of a best of both worlds. And that's what is getting them attracted towards us.

- And Sudhakar, also you're making this interesting push into the observability market. So for example, software that monitors apps, lots of competition there, though. I mean, Splunk, and Datadog, why do you think you're well-positioned to compete and win in that market?

SUDHAKAR RAMAKRISHNA: Yeah, SolarWinds has already always been excellent at monitoring capabilities, networking, databases, applications, and systems. So what we have done is unified all of it onto a single entity, which is a SolarWinds platform. And we're able to give them better ways of integrating across all of these.

So whereas some of the competition is looking at whether it be an application or an infrastructure or database discreetly, we're able to pull together all of these, give them a comprehensive visibility, thereby helping them reduce the time it takes for them to detect issues and solve issues. So thereby improving productivity and reducing cost and overall improving their security as well.

- I want to switch gears, Sudhakar, to talk a little bit about the SEC case that is ongoing with SolarWinds that had to do with what happened before you became CEO, a large hack at the company. And the SEC is basically saying that SolarWinds did not disclose enough and is trying to impose some new rules about disclosure.

Well, you are pushing back against that. But you've also been joined by a number of other companies in that quest. What's wrong with more disclosure? Help people understand the case that you're trying to make here.

SUDHAKAR RAMAKRISHNA: Absolutely. I think the SECs efforts to improve disclosures and levels of disclosure is the right thing to do. However, our stance is that we have always been excellent at disclosing events, as well as being very proactive and transparent.

So in many ways, it seems like the right intent, but the wrong target. In essence, we feel victimized for being the victim of one of the largest in the most sophisticated attacks. And no company is immune to these types of attacks. So even since, though, we've been continuing to improve.

And I think the overall industry is rallying behind us because they all understand no one company is able to address a nation state attack. We all have to work together as a community. And if you put too many restrictions, then it actually precludes us or actually disincentivizes us to come out and share openly and create more asymmetry in this security war.

And so that's the reason why I feel everyone is rallying behind us. We are very confident in our facts, and we are hoping that everyone will see it that way and we'll put this matter behind us and focus even more on our customers and our employees.

- And Sudhakar, I want to get you out of here on this question. You know, obviously, a boom of interest in AI, how much are you fielding questions from your clients, Sudhakar, about AI? And how are you positioning your company to take advantage of that big trend?

SUDHAKAR RAMAKRISHNA: We have been investing in AI-related technologies from 2021. In fact, we call our solution AI powered stack. But more specifically, we use AI to help customers detect issues in their environments much faster and remediate them.

So there's a very practical use of how we leverage AI across our entire portfolio-- be it in observability, or in service management. And so that's been resonating really well with our customers, but I'll say we are in very early stages as an industry in the evolution of it.

- Sudhakar Ramakrishna of SolarWinds, thank you so much for your time today. Appreciate it.

SUDHAKAR RAMAKRISHNA: Thanks again.