During a talk at the 2024 Goldman Sachs Communacopia + Technology Conference, Todd McKinnon, who is the Co-Founder, Chairman, and CEO of Okta, shared some really interesting stuff about the company's plans, new products, and how they're doing in the market. What I've gathered here gives a good overview of where Okta is at now and what they're looking at in the future.
1. R&D Innovation: The Foundation for Growth
McKinnon emphasized the critical role of research and development (R&D) in driving Okta's growth. He highlighted significant progress in R&D velocity and innovation over the past few years, attributing part of this success to the acquisition of Auth0:
"One of the biggest things we did was when we bought Auth0 a few years ago, it actually -- we had a ton of capacity into the company. And so particularly, the team that was working on Okta could really -- instead of having to focus so much on customer identity, they could really double down on privilege and governance in some of the new areas we've recently launched and are having traction with."
This strategic move allowed Okta to expand its product portfolio and focus on new areas such as privileged access management and governance. McKinnon stressed that while R&D is crucial, it's ultimately a means to an end:
"R&D and innovation is incredibly important. And one of the things I'm most proud of over the last few years is the progress and the velocity and innovation we've had at Okta. I think one of our main priorities for this year is reaccelerating growth. And the job is not -- we can't say we have great R&D and not reaccelerate growth. The job of reaccelerating growth is the most important and R&D is an input of that, but we still have to deliver that outcome."
This statement underscores Okta's commitment to translating R&D efforts into tangible business results and accelerated growth.
2. The Integration Advantage: Breadth and Depth
A significant portion of the discussion focused on Okta's integration capabilities, which McKinnon identified as a key competitive differentiator. He explained the company's approach to integration along two dimensions:
- Breadth: The sheer number of applications Okta can integrate with (7,000-8,000).
- Depth: The level of functionality in each integration, going beyond basic single sign-on to include features like user account replication and employee onboarding processes.
McKinnon elaborated on the evolution of Okta's integration strategy:
"In the very early days of Okta, we were the first to market with this concept of -- there were some identity standards out there, this thing called SAML and this thing called WS Federation. And there's various other people -- things people trying to standardize. We were the first company that said we're going to we're going to like guarantee you a customer that we're going to build you a single sign-on system that worked with everything."
This commitment to comprehensive integration has been a cornerstone of Okta's value proposition from the beginning. McKinnon also highlighted how the company has continued to push the boundaries of integration:
"That's not a single sign-on. That's like some kind of continuous session monitoring, plus integration with CrowdStrike and Zscaler and Netskope and Palo Alto Networks. That's a very deep integration."
This level of integration depth allows Okta to offer more sophisticated security features, such as continuous session monitoring and automated security responses based on real-time threat intelligence from multiple sources.
3. Standardization: A Vision for the Future
Interestingly, McKinnon outlined a vision for the future of the identity and security industry that revolves around increased standardization:
"We'd love it, by the way, if this maybe sounds counterintuitive. We love it if all of our competitors and every -- all the Zero Trust people and all the security people had the same idea and wanted to rush to standardize everything. Even if maybe that meant that our identity competitors could do some of the stuff we could do. Maybe in the short term, that wouldn't sound like a good thing for Okta. But I think, for customers, if they knew that it would be standardized, that's going to accelerate the velocity and the purchasing so much are the best -- we have the best products. So that's going to -- the bigger pie is going to make us much more successful."
This forward-thinking approach suggests that Okta is confident in its ability to compete on the quality of its products rather than relying on proprietary integrations. By advocating for industry-wide standardization, Okta aims to simplify the adoption process for customers, potentially expanding the overall market for identity and access management solutions.
4. Navigating Macroeconomic Headwinds
McKinnon addressed the impact of macroeconomic conditions on Okta's business, describing the current environment as a "new normal" rather than temporary headwinds:
"In fact, at some point, we're going to have to start calling it macro -- stop calling it macro headwinds and just call it the new normal. And so I think -- that being said, there are realities in what we're seeing in the business. We think that big deals, particularly if a couple of years ago, they would have taken 2 approvals, now it takes 4, there's extra scrutiny in the purchase. The deals get done. The projects are as big. They are as strategic. It's just a little harder, a little slower."
This insight provides context for Okta's current growth rates and guidance. McKinnon noted that customers are being more cautious in their purchasing decisions, often buying less than they anticipate needing and growing into their licenses over time. This shift in buying behavior has impacted Okta's net retention rates:
"So I think you're seeing in the net retention rate you're seeing where in the past, it was -- there was like a tailwind to that. Now you're seeing that tailwind is gone. And it's like the net retention is kind of more instead of maybe people overbuying, like they're actually buying maybe even a little less than what they need."
However, McKinnon expressed optimism that this trend would normalize over time as cohorts adjust to the new purchasing patterns.
5. Enterprise Market Opportunity
A key focus for Okta's growth strategy is expanding its presence in the large enterprise market. McKinnon emphasized that there's still significant untapped potential in this segment:
"We talk about 40% of the -- we have some kind of footprint in 40% of the Global 2000. But even that 40%, there's a lot of room to expand that -- the usage in terms of number of seats and number of products. So I think of Okta as a company that was successful in mid-enterprise with tons of potential growth and some traction, but tons more potential in a large enterprise."
To capitalize on this opportunity, Okta is focusing on several areas:
- Product Innovation: Developing features specifically tailored to large enterprise needs, such as improved connectivity to on-premise resources and enhanced governance capabilities.
Competitive Displacement: Taking advantage of market shifts, such as price increases from legacy vendors:
"The Broadcom computer associates identity products, they were -- Broadcom was raising the price of them. And the company that I was working with that just catalyzed we're going to -- this thing is an old thing. We instead of paying so much more money, we want to look at modern alternatives."
Cloud Transformation: Leveraging the ongoing cloud migration trends in large enterprises:
"Ironically, some of the largest enterprise had the most IT investment, so they had the most on-premise infrastructure. So there's some of the things with the largest amount of cloud transformation to go. And that just is what it is. And as the technology forces of better cloud infrastructure, AI, how do you run your AI workloads? Do they do that in the cloud infrastructure versus on-prem? A lot of this change and evolution is driving them to modernize and upgrade, and I think that's a positive trend for Okta in the large enterprise."
Security-Focused Value Proposition: Shifting the narrative from IT enablement to immediate security outcomes:
"Traditionally, Okta was thought of as IT enablement. And we can help companies have a great end user experience. Yes, of course, there's a security benefit with multifactor, but it's really kind of convenience, and we can help you get new projects rolled out, and we got to get the SaaS app adopted, it will be better. But now we're, in terms of value prop, immediate helping these companies with security issues, we have a better set of products, and we have to be -- continue to be good at selling that value and positioning the company that way."
6. Go-to-Market Strategy Evolution
To effectively target the large enterprise market, Okta is refining its go-to-market approach. McKinnon outlined several key elements of this strategy:
- Tailored Sales Team: Hiring and developing sales professionals with experience in large enterprise accounts.
- Global Systems Integrator (GSI) Partnerships: Strengthening relationships with GSIs who play a crucial role in large enterprise decision-making and implementation.
- Targeted Marketing: Focusing advertising and marketing efforts on influential buyers within large organizations.
Expanding Beyond IT Buyers: Particularly for Customer Identity solutions, Okta is working to engage with non-IT decision-makers:
"We have to continue to get better and have success selling Customer Identity, not to just the CIO or the CSO, but also to the Digital Officer Marketing, Product Officer, Technical Officer."
Customer References: Cultivating successful large enterprise deployments to serve as powerful references:
"We work really hard to make these accounts that are large enterprise accounts incredibly successful, and then so there'll be advocates for us. A good example of this is FedEx, right? We have 350,000 users of FedEx, and the CSO there is, I work with them frequently and talk to them all the time and where we've really worked hard to prove that -- to make sure that they're incredibly successful with Okta. And that word gets around."
7. AI Integration and Future Innovations
McKinnon highlighted two key areas where Okta is leveraging AI to enhance its offerings:
Governance Analyzer:
"We're working on something called Governance Analyzer with Okta AI. And it's pretty cool. It's basically training the model on the anonymous policy setups and configurations of thousands of Okta customers and generating a suggestion -- suggested setup for a company. So it's like, you have these apps, you have these resources, you have these users. So this is how you should set [ your lock ]. This should be your security policy. This should be how you lock things down. This is what companies do. This is what companies don't do."
This innovative tool leverages machine learning to provide customized governance recommendations based on best practices observed across Okta's customer base.
Identity Threat Protection:
"At the core of Identity Threat Protection, is Okta AI. And it's a little bit of machine learning, a little bit of GenAI algorithms to, really, at the core of what it's trying to do is just trying to figure out what pattern of signals from -- remember, this product has way more signals because I talked about how deeply integrated it is, there's way more signals than we've ever had before."
This AI-powered feature analyzes a wide range of signals from various security layers to detect anomalous activity and potential threats.
These AI initiatives demonstrate Okta's commitment to staying at the forefront of technological innovation in the identity and access management space.
Conclusion: Okta's Path Forward
Okta's presentation at the Goldman Sachs Communacopia + Technology Conference 2024 revealed a company navigating a complex market landscape with a clear strategy for growth. By focusing on R&D innovation, deepening its integration capabilities, expanding its enterprise market presence, and leveraging AI, Okta is positioning itself to capitalize on the evolving needs of organizations in a cloud-first, security-conscious world.
Key points for consideration:
- R&D Investment: Okta's continued focus on innovation, particularly in areas like privileged access and governance, could drive product differentiation and market expansion.
- Integration Advantage: The company's broad and deep integration capabilities remain a significant competitive moat, potentially driving customer stickiness and expansion opportunities.
- Enterprise Market Potential: With only 40% penetration in the Global 2000 and room for expansion within existing accounts, Okta has a substantial growth runway in the large enterprise segment.
- Macroeconomic Adaptation: While current market conditions have impacted buying behavior and growth rates, Okta's strategy to normalize these trends over time will be crucial to watch.
- AI-Driven Innovation: The integration of AI into Okta's product suite, particularly in threat detection and governance, could enhance the company's value proposition and open new revenue streams.
- Standardization Vision: Okta's push for industry-wide standardization could accelerate market adoption but may also intensify competition. The company's ability to differentiate through product quality will be key.
As Okta continues to execute on these strategic initiatives, its ability to translate R&D investments into accelerated growth, expand its enterprise footprint, and maintain its technological edge in an increasingly competitive market will be critical factors to monitor. The company's vision of a more standardized, integrated security ecosystem presents both opportunities and challenges, making Okta an intriguing player to watch in the evolving landscape of identity and access management.
