Atlassian Corporation (NASDAQ:TEAM) Morgan Stanley Technology, Media & Telecom Conference March 7, 2024 12:30 PM ET

Company Participants

Anu Bharadwaj - President

Conference Call Participants

Keith Weiss - Morgan Stanley

Keith Weiss

Good morning. Thank you, everyone for joining us. My name is Keith Weiss. I run the US software research franchise here at Morgan Stanley. And very pleased to have with us, this morning from Atlassian, President, Anu Bharadwaj. Anu, thank you for joining us again at the Morgan Stanley TMT Conference.

Anu Bharadwaj

Thank you so much for having me, Keith.

Keith Weiss

Excellent. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. And I'm sure Atlassian has some very nice disclosures on your IR website as well. Excellent. So let's dig into it.

Question-and-Answer Session

Q - Keith Weiss

So this is your -- I think, your second time here at the TMT conference. You've been President of Atlassian for a full year now. A lot's happening at Atlassian. So, can you maybe walk us through some of like the key strategic milestones that you've seen through Atlassian over the past year? And then we could segue into what you're most excited about heading into 2024?

Anu Bharadwaj

Sure. That's a good question. It's always nice to be back here. So, the last year has been an exciting one and operating in a challenging environment like many of the others in our industry. But I'm really proud of how we've come together and rallied together as a company to focus on the strategic areas that matter the most. Last Q2, we crossed a number of significant milestones. We had our first $1 billion quarter as a company, which was fabulous and Jira Software, cloud and then of itself is now a $1 billion ARR business, which is fabulous to see for someone that's seen it grow from it's very infancy to where it is now.

And we crossed 300,000 customers, which is very unique for an enterprise company because it's very much Atlassian ethos that, we want to serve everybody, not just the Fortune 500. So, that big swath of customers, the 300,000 is a fantastic milestone for us along the way. And we made a strategic acquisition of Loom, which is a fabulous product, very excited about that.

But to zoom out from last quarter, and just think through the entire year, I'm really proud of how much we've been able to accomplish and deliver to our customers across the entire gamut of different customers that we serve. We've moved a record number of customers over to cloud through our migrations. We continue to see the fruit of our investment in enterprise capabilities and enterprise readiness in the platform. So, I can see in our customer conversations where we are leveling up to be strategic partners to our enterprise customers. We are getting more and more bigger accounts on to cloud.

And JSM, in the ITSM space data service management continues to make waves more and more larger customers adopting, JSM recently released virtual agents and which aided [ph] Atlassian intelligence across the platform. So, the first wave of AI capabilities are already out there and we are hard at work on Wave 2. So, across all of the different markets and customer bases, I feel like over the last year, we've been able to deliver substantial value for our customers. And we hear that in customer feedback as well.

Keith Weiss

Got it. A lot of things, I want to dig into right there. You actually just structured the whole conversation really well. But before we go, I just want to talk to sort of like a core principle of Atlassian, the elevator pitch for a lot of investors around Atlassian is that they're the software developer guys, right? Like the Jira is the primary tool for a lot of software developers.

But the story is much broader than that. It's really almost reminds me a little bit about ServiceNow. And ServiceNow first came public is this is a workflow platform that's pointing at ITSM. The guiding principle for Atlassian is about teamwork and about enabling teams to work more effectively around it the first set of teams that you're enabling were developers -- expanding much broadly. Can you talk to us a little bit about like that starting point, the vision and kind of how broad that vision has gotten in terms of where the product portfolio is today?

Anu Bharadwaj

Yeah, definitely. You're right. So, the elevator pitch typically tends to be the first product the company has released. And for us -- I was fascinated when I joined Atlassian 10 years ago, Jira had over half of its users come from non-developers. And that continues to be true today. Well, over half of our use cases of our users come from non-technical teams. And the way, we think about collaboration across Atlassian is that, we are a teamwork platform. This is not about developers, specifically or people who write code. This is really about teams. So in a team, there are developers, of course, but there are also designers, product managers, marketers, IT people, operation people. And really, at Atlassian, we think about how do we build products for all of those teams that interact together.

So, across our 14 different products we have products aimed at different personas. But the most unique part of Atlassian is that the sprawl that we have across all of the software life cycle, starting from when an idea is in inception phase, when people are thinking about what should we actually build to serve our customers. JPD, Confluence, a lot of our products help with that idea and inception phase and then declaring that intent and storing that in a knowledge repository. And from there figuring out how to go from there to creating code and therefore SCIM or Bitbucket tools, Compass, all of those helped with actual people who are writing code, which is one of the stages. And from there how do you deploy that into production? And when you deploy that into production if there is an incident how do you manage it? Invariably, there are going to be incidents of how do you manage that? How do you collect customer feedback and connect it back.

Atlassian's product offerings really are present in all of those stages. So as a result it's a really compelling platform of different products across the board. Now why is it interesting for customers to really think about this as a platform? I just came from an exec CAB, Customer Advisory Board, we had. It was east coast timing, so it was really early morning meeting. And a customer that just said, once we have deployed all of our – the Atlassian products across the board, the productivity increases we are seeing from that has been amazing. So they've cut their onboarding time by 40%. The length of projects was reduced by 25%. And all of those improvements are possible because it's a platform that guides every single stage of software development. It's not just about developers or just about testers.

Over the past couple of years, we've heard increasingly loudly from customers that they want to consolidate on this platform because as the spending environment moves to a more measured spending environment, people want to consolidate their spending with one vendor and they also are concerned about security like the last conversation pointed out.

And with Atlassian they have a trusted vendor that has built enterprise capabilities that has really stayed with them for multiple years and is able to address multiple personas such that they can consolidate on one platform across using all of our tools. And for both technical and non-technical teams. We see this across the board that it's true that productivity increases come then you're able to interact effectively with each other and that's really what we're focused on in Atlassian.

Keith Weiss

Got it. I definitely agree with the assessment of CIOs customers wanting to do more with less. We see it in our CIO survey, where spending intentions are getting a little bit better but still not good. You're still below kind of long-term averages. And the way CIOs are looking to deal with that is consolidate more spending with fewer vendors to get kind of better pricing.

From the investor perspective, I think what's so interesting is Atlassian does have a huge customer base over 300,000 customers. And our perspective and correct me if I'm wrong is it's still relatively limitedly penetrated in terms of that multi sort of multiproduct solutions. There's still a role – if you look at the average price per customer, it's still relatively small and it speaks to a large opportunity. So could you sort of flesh that out a little bit for us? Where are we in terms of that upsell motion into this 300,000-plus customer install base?

Anu Bharadwaj

Yes, certainly. So the Atlassian business model is quite unique in that we do land and expand and then we go upmarket to enterprises. And a lot of it is organic. That's what explains our fabulous productivity ratios across sales and marketing as well. So let's look at it in terms of the three market lenses that we operate in.

In Agile, DevOps, our primary customers are really technical teams that adopt Jira software products, Bitbucket, Compass all of those. And that particular market if you looked at just the developer market, this 30 million developers growing at 9% CAGR and if you convert that into roughly the number of addressable customers, Jira software has about 125,000 customers today around about between 125,000 and 150,000. And the total number of addressable customers just based on technical things, developer teams is about 800,000 customers. So we are really a long way off. We have a lot of headroom in terms of penetration and capturing more time purely in the Agile, DevOps market.

Then there is the Jira Service Management or the ITSM market, which 60% of the use cases we build in Jira Service Management is really outside of IT. So it's very much a similar story as Jira software, where we have a core set of IT workflows but the adjacent workflows are pretty stupendous. And JSM is just starting out. So we have over 50,000 customers but that is one of our fastest-growing businesses and the headroom there to expand, not only in ITSM but across some of the adjacent use cases is phenomenal. So, we are very excited about the progress we can make with JSM and we see more and more customers adopted for outside IT use cases as well.

And all of the last lens around work management -- all of when you look at this -- all of this really constitutes an operating system a system of work so to speak, right? They're non-technical teams and technical teams, IT teams, ops teams, developer teams, marketing teams, they can all interact using a single common connected data model. And generative AI plays a big role in that because AI is only as good as the data that it is pointed to.

And in Atlassian, we're in a unique place where we have the ability to collect data across multiple parts of the life cycle and our open tool chain philosophy allows us to make use of third-party integrations where we are not locking in customers into one particular tool set.

So, we're able to really give customers the option of use what tools you want, but build it on top of a connected data model. So, when we look at the collective TAM across all of those three lens, we're still very early in terms of where we can be.

Keith Weiss

Got it. So, that speaks very broadly to the opportunity right ahead for Atlassian in terms of further penetrating that base both in terms of TAM in the existing installed base. I want to turn to sort of the catalyst for sort of driving that expansion driving more of that platform sale.

And my theory would be and I'll test it with you. The cloud is going to enable a lot better than on-premise solutions. And on-premise solutions particularly with your product-led growth model it was hard to get customers aware of and sort of to push that into an existing customer. Most of the expansion you saw came from seat-based expansion.

With the move to the cloud you better understand what your customers are doing. You see where they are in their workflows and there's just a much more natural sort of place to present the adjacent products and what else you could do with the platform. So, one, do you agree with that? And two, when can we start to see the benefits of that move to the cloud perhaps helping metrics like an NRR metric on a go-forward basis?

Anu Bharadwaj

Yes. In part that thesis is true that in cloud, we have a lot more visibility over what users are doing simply because of the analytics available to us -- product analytics available to us.

In cloud, basically, we have a few more levers that we don't have behind the firewall. One is across upsell of editions. So, we have the premium edition, the enterprise edition, and ELAs that allow us to upsell customers based on the sophistication of their use case.

A second lever that's available to us is around cross-sell which is a lot of our products -- so 20 of our products are really applicable to a single-user person, a single team. And in cloud like you pointed out it is easier to add more products per customer because we're able to see what is it that they're using our products for? And what is it -- what are the use cases where we can be most valuable to them.

And a lot of our innovations in the new product engine Compass, Jira Product, Discovery, Atlassian Intelligence, is all on top of the cloud platform because that's where technologically enables a lot of those innovations. So, the cross-sell and upsell levers are definitely stronger on the cloud.

To answer your question as to how does that overall look like and contribute to the business? Paid suite expansion is one of the biggest levers in the business. And like we talked about in Q2 we continue to see pressure in paid suite expansions especially in the SMB segment but we have seen the rate of deceleration moderate last quarter, but larger enterprises continue to be resilient to that. So, paid suite expansion is the big lever and inside both cloud and behind the firewall that continues to be a big part of the business.

The cross-sell and upsell we are already seeing strong premium enterprise adoption. So, I'm really pleased with where we are on the upsell motion and our ability to land customers in the higher editions of cloud. And customers are clearly seeing the value of Bring-Your-Own-Key encryption, Data Residency across multiple regions, scale, performance.

We've been on the scale journey across our cloud products from 25,000 users to 50,000 users to recently we announced 150,000 user EAP for Confluence. So, we are really able to attract more and more larger enterprises with a greater number of seats and the ability to cross-sell and upsell them and land them in the right additions.

Keith Weiss

Got it. Got it. I want to dig into some of the core investor debates that spring from that answer. And the first one being around the cloud migration and the transition to the cloud.

And investors are still wondering how well that's going, right? And part of I think the issue for investors is it seems like a lot of the server customers are going to data center. Data center is not the cloud. So, I guess the fundamental problem -- fundamental question is like one how is the cloud migration going? And two is it a bad thing if a server customer goes to data center first?

Anu Bharadwaj

Yes. So I let the cloud migration initiative for Atlassian and it's been a multiyear journey. We've been speaking to you folks for multiple years.

Keith Weiss

And they promoted you so it must have gone pretty well.

Anu Bharadwaj

So having written the plan, when I look at the plan, I look at it and think wow, we're exactly where we thought we would be and we're actually doing better on some accounts, right? So I'm really pleased with the rate at which we're bringing record numbers of customers over to cloud. The server end of sale happened this quarter, and we will tell you more about the details of that over Q3.

But just zooming out migrations is in a great place. We are where we thought we would be. Server customers overall churn has actually performed better. So we are losing fewer server customers overall than we thought we would. In terms of server to DC migrations, we knew that a large number of server to DC migrations would happen, and we encourage it, because DC is really a stepping stone to cloud. We've been very open as a company that all of the innovation is focused on cloud.

As a company our R&D is heavily invested in the cloud platform. So we view DC as really a stepping stone for regulated customers for specific customers with specific needs, as the interim point before they move on to cloud. And there are several server customers moving to cloud directly purely from the innovation they see, the user experience we are able to deliver and the constant stage of -- constant slate of unblockers that we've been acting on across the board.

So I would characterize this, as it's a great thing for us as customers move to cloud. It's a great thing for us if customers move to DC, because they remain in the Atlassian ecosystem, we are able to expand them inside of DC and get them on to cloud safely at the right point of time.

Keith Weiss

Got it. So on that existing kind of data center or the expanding data center customer base, two questions. On a go-forward basis, should we expect the same kind of like carrot-and-stick approach that we saw in server going into cloud and data center cloud, meaning for on-premise solutions, you tended to raise prices more aggressively and a lot of the innovation a lot of the good stuff like Atlassian Intelligence and whatnot comes in the cloud versions. And that pulls people into the cloud. Is that same motion? Is that what we should expect in data center over the next couple of years?

Anu Bharadwaj

I would characterize that at a slightly different angle. So what we are trying to do with both data center and cloud is -- we're trying to be very transparent about what to expect on each of the different platforms. And therefore, we put out a public cloud road map saying, hey, here's what's coming out over the coming few quarters, which has been a really great tool in terms of enabling customers to make the right choice.

And on cloud, we continue to make sure that we're able to deliver innovation not just across each of the three markets in the products that exist. But also in terms of across the product platform innovation that we can deliver things like Atlassian Intelligence are possible, because of the underlying data model and infrastructure that is common. So we continue to make innovations in analytics, automation all of that.

So, yes, a large part of innovation will continue to show up on cloud. But pricing is a lever that we've used in a very measured way, and it has been fairly consistent across the years. This year was the first year that you saw DC list price increases, but overall we've been really consistent with why we are doing those pricing changes and how. So the way to think about DC and cloud really is, cloud has a lot of the innovations that are already automatically drawing customers.

For instance, just this week I spoke with a customer that said, oh, we want to get on to the cloud sooner than we had originally planned simply, because a lot of the capabilities that Compass and JPD addresses are problems we're seeing right now. Developer productivity is the thing we're focused on right now and it seems like the right time to really jump on the entire Atlassian platform. So those kinds of innovations continue on cloud. Pricing continues to be a consistent lever.

So we expect more and more people to really choose cloud proactively as well as in a hybrid setting where they're using data center today, and they're migrating workloads to the cloud in a staggered fashion. So there is transparency across cloud and data center in terms of what to expect and when.

Keith Weiss

Got it. Got it. And you talked about the blockers within data center. I was hoping to dig in a little bit there in terms of like what constitutes those blockers? I would say over the past couple of years, you guys have been improving the scalability of cloud improving how many concurrent users it could support and whatnot. Does that still tend to be the blockers? Or are the blockers more on sort of compliance regimes and security controls and more just like enterprise readiness type functionality?

Anu Bharadwaj

Yes. So, I would classify the three areas that we tend to work on in terms of unblocking customers to come to the cloud. One is around performance and scale. Like you mentioned, we've done the 25,000 to 50,000 to 150,000 progress there. So, there often we don't encounter customers saying, oh, I cannot come to the cloud because you don't support scale x, because we've been making continual progress there.

So we work early on with customers we partner with them and say, okay, here is what your data shape looks like. This is the scale we support, so we are able to really help you handhold -- help handhold you through the migration process. So that's an area where we make a lot of progress, and not an area that I would think of as, oh, this is blocking customers today. So, this is a problem we continue to have momentum.

A second area is around data management where there are customers in specific geos and in specific industries and verticals that have data management and compliance policies regulations to comply with. There we've been working on BaFin, on HIPAA, and we've announced Data Residency in different regions across the board. And we continue every quarter to unblock more and more regions.

So, there our approach has really been to work with our partners in each of those geos, in each of those regulated cases to say, what is the compliance that we need to help you achieve in the product and then handhold you to move there? The big thing there I would say is, FedRAMP for our federal customers that is one of the big items that will help unblock more customers across the board.

And the last area is around marketplace integration. So, a lot of our -- especially, large enterprise customers. So, DC to cloud migrations, were about 60% of migrations last quarter and DC has a lot of enterprise customers. So we see the character of unblocking shift more and more to larger customers, and our larger customers build a lot of custom apps on top of our platform.

So there what we have done is, we've invested in a cloud-native developer platform called Forge, which enables enterprise customers to choose with peace of mind applications built on top of Forge because Atlassian then host the infrastructure for these apps.

So, a lot of times the enterprises hesitate to say, oh, third party apps, how do I trust them with privacy and security at the same level that Atlassian provides? So we've released privacy security certifications. We work with our marketplace vendors to certify them to a certain degree.

And then, Forge automatically gives that capability just as we do on our first-party app. So, across those three are the big areas that we see where we continue to do work to move customers.

Keith Weiss

Got it. Got it. And DC to cloud with 60% of migrations that's measured in terms of like the number of subscribers coming over?

Anu Bharadwaj

Overall, in terms of migrations volume DC to cloud were 60%.

Keith Weiss

That's an impressive number. And is it likely -- like with server we had an end of life of maintenance that became sort of a cut-off date that pushed everybody off of server. Is it likely that at some point would you see that same dynamic in data center? Or given the nature of those customers and the fact that they are larger enterprises more slow moving oftentimes that's less likely to happen?

Anu Bharadwaj

How do you mean?

Keith Weiss

Like are we likely to see a data center end of life at some point? Or is this going to be a more long-lived solution you're going to have two sort of platforms?

Anu Bharadwaj

So, we have a number of customers on data center. Data center continues to be a business that's important for Atlassian and we expect that to stay for multiple years. But like I said, it is balanced with the fact that DC to cloud migrations are already accelerating without us having to do anything extraordinary there.

And also, all the innovation that's happening on cloud is a good ad dweller and as a good attraction for customers to come from DC to cloud. So, we will continue to support our customers on data center of course, but they will continue to see that we will build more and more capabilities on cloud which creates a natural migration for data center.

Keith Weiss

Got it. I want to talk about that enterprise motion. Atlassian is getting -- seeing more and more success submarket, also building out more capabilities to better serve those customers upmarket, really from the IPO one of the investor fears was that at some point do these guys have to build out a massive sales force, and their sales and marketing spend is going to look a lot more like ServiceNow than it looks like what you guys look like today? Can you talk to us about one that motion upmarket into the enterprise? What's been driving the success to date?

And two, really sort of answer the second part of the question of what's necessary in terms of distribution what type of investments necessary to support that move into the enterprise?

Anu Bharadwaj

Yeah. Definitely. I think Atlassian is a very unique business model. So, it's really hard to drop parallels to other companies to understand why we make the investments we do. We will continue, with the investment strategy that we have, because we are very much a long-term focused company. So, investing in R&D today is going to yield us results for multiple years coming in the future. There is strong evidence for this. So, you see all of the capabilities, we've built out in terms of enterprise readiness, their Data Residency, scale performance capabilities, I'm talking about. That took us a fair bit of time to build through investment in R&D, and which is how we are really able to bring enterprise customers over.

So we'll continue to make that investment. And as the investment across the cloud migration Crest with servers, et cetera. That investment will continue to put in more longer-term projects, like consolidation on the Atlassian platform, newer innovations like Compass, JPD, Atlas all of those. So, I don't see a fundamental model changing. So, we think about this mostly as evolution, not revolution.

In terms of the go-to-market and customer-facing operations that might have to evolve. Yes. So, for enterprise customers, I think we will continue to make sure that we up-level our customer-facing operations that we are really able to function, as a strategic partner for them. And Mercedes-Benz, which was 30,000 user customers that came over to cloud, we saw that very clearly with them, where we were able to really articulate the value of using Atlassian products into end. And the magic of the Atlassian model is not that we've had to explain to Mercedes, hey, this is what Jira Software does. This is why you should buy this for your entire organization. They've already seen the evidence for this.

So the customer-facing motion is different than what other companies would do. So we'll continue to evolve and learn in terms of what more can we do for our enterprise customers, but we will make sure that we take a long-term approach.

Keith Weiss

And it sounds like the resources that you put in place are less of like a traditional enterprise sales force, and more like a customer enablement, and like a customer helping sort of the customer understand the portfolio and how to best deploy the portfolio?

Anu Bharadwaj

That's right. Yeah. So, customer success enablement. A lot of those really are ways in which we are able to articulate the value of using the platform end-to-end, and how to really have the products that they have already? How do you really deploy them in a manner like Lego blocks, where they fit together, really well and are able to deliver productivity improvements and enhancements.

Keith Weiss

Got it. I want to talk about JSM. It's been a real rocket ship for Atlassian in terms of that product taking off. And I remember, when you guys were first talking about the opportunity, it focused a little bit more tightly on ITSM. And one of the -- like the value sort of props was, or how you talked about it was there's a high-end vendor in the marketplace is doing really well. Then everything underneath it is basically customers have to try to figure it out themselves. Do you still -- it seems like a lot more people have been trying to come into the ITSM market, right? We've heard it from some of the observability vendors, like Datadog trying to come into the market. George, was just talking from CrowdStrike about coming into IT operations management. Is it getting more crowded?

Anu Bharadwaj

So, the fundamentals of what we see in that market has not changed. I would characterize this as our viewpoint on the market is pretty unique. So, it's not one that legacy vendors have on the ITSM market. So, why is it different? Why is it interesting to have JSM instead of other products? Three things, one the time to value is really short. And our customers continually report this. I mean, I hear this week-after-week from customers that say, wow, I deploy JSM, and I was immediately able to see the value.

Virtual agents, which we geared last year, we've deployed that internally ourselves and well over 50% of internal queries get intercepted by virtual agents. So, the productivity gains are pretty immediate and stark to see. So time to value is really fast with JSM. Therefore, we are able to address a lot more customers than other players can.

Second, the angle of developer teams and IT teams using the same product set is unique to Atlassian. So we're able to really connect dev teams and ops teams to form a DevOps motion that is seamless like no other player can that tends to be a big pathway through which customers come in and they can see that it's a natural obvious choice to use JSM, if they're already using JSW. And right now, with JSM we have 50,000 customers so we have a long way to go, even if we thought we would just sell it to the people using our existing products.

And third just in terms of pricing, we've continued to make sure that the price for JSM is orders of magnitude lower than some of the highly priced alternatives in that space. So, what we see in market, there is a lot of customer adoption that happens both for IT workflows and for non-IT workflows and the nature of customers is also going more and more upmarket because, now we have capabilities with the acquisition of AirTrack, we improved asset management and we've been really thoughtful about -- we've made more than half a dozen acquisitions in that space and continued organic investments it's a formidable offering in JSM today which is able to address both small and large customers. So just over the last couple of quarters, we've seen several customers come in and switch out their existing stacks. So we had recently a luxury travel company that had a 15-year deployment of a legacy IT vendor switch out there deployment and replace it with JSM. We see several other cases. There was recently a logistics company which did the same. They basically switched out their legacy vendors citing cost consolidation and cost management. So we're seeing success on both grounds on the small medium businesses, as well as the larger enterprises that we're able to address.

Keith Weiss

It did seem like the acquisition of the asset management capability and integrating that in was a real unlock for that whole JSM solution. We use this as a leverage point to talk about Atlassian intelligence. This is one of the areas that we're seeing applied. But Atlassian Intelligence is a kind of broader perspective on how you guys are going to bring AI and Generative AI into the portfolio. Can you talk to us about maybe from a high level, how you guys are thinking about generative AI and where we're starting to see it pervade in the portfolio?

Anu Bharadwaj

Sure. So, Atlassian Intelligence is our AI product that we released last year, but to zoom out maybe before talking about the product [ph]. What does Generative AI mean for Atlassian? We basically see that for the industry at large, it means that more software gets produced, more people who are able -- who are not able to build applications build software before, it democratize access to a lot of them. So therefore, as the number of people who can create software increases, the amount of software that gets created also increases. This is a great thing for Atlassian, because like I said earlier we address teams that build software which basically means people who are writing code, people who are not writing code, people who are writing designs, writing specs who are deploying this into production, who are collecting feedback from customers all of that. And AI really puts a supercharge on that entire loop. So what happens with the AI is, as more software gets generated, there is need for more collaboration in that space. There is a need for more software management applications which is where Atlassian plays a role. So all up, we see it as a very, very positive trend for us.

Second. AI is as good as the data it operates on and having the trust of 300,000 customers and having accumulated and accrued the data over time. Really that puts us in a unique position for us to be able to allow Atlassian intelligence to unlock insights across a variety of different places, not just in the place that you write code or the place that you're doing IT ticket management, et cetera. So both of those trends, lead us to think that, hey this is a really exciting opportunity for us which is exactly why we have made a lot of investment in AI and you'll continue to see us deliver more innovation there.

So with Atlassian Intelligence, what we've done is we've taken the approach of building it into the platform. So across all of the 14 products that we support across all of the three markets that we serve, you will see Atlassian Intelligence capabilities show up in each of those places. So the features we've already built out, things like summarization changing tonality when you're addressing a customer through a ticket management. How do you summarize, what has happened, the ticket activity that has happened? And how do you prompt the response there? How do you change the tone of that response? And in Confluence, Domino's is customer for Atlassian Intelligence. And recently I was talking to them they were saying, oh man the amount of time savings is phenomenal because instead of reading a five-page PIR document, it gives me the gist of it in five sentences and it's just the unlock of productivity because of frequency of how many times that operation happens is amazing. And we've had over 20,000 customers already use Atlassian intelligence as we released it. So, we are very excited about the opportunity of serving like I said, both small, medium businesses and enterprise customers. This is a trend that I believe is uniformly applicable across customers of all sizes.

Keith Weiss

Got it. And can you talk to us about the monetization strategy behind Atlassian Intelligence?

Anu Bharadwaj

Sure. So, Atlassian business model is very much to serve a large swath of customers. So we optimize for usage and adoption first. And that's exactly the approach that we are taking with Atlassian Intelligence to Atlassian Intelligence, virtual agents, they're all available as part of our premium and enterprise editions today. And I think that's worked really well for us. We've been able to get customer feedback and iterate on top of that feedback to figure out okay, what are the Wave 2 set of capabilities we should be building and releasing?

So in terms of overall monetization, we think including it in editions is the first step. We're going to explore what future steps would look like. Loom AI is a great example of other monetization strategies where the capabilities in Loom AI are pretty phenomenal in terms of how can you take asynchronous video and apply the next level of productivity on top of it? So there's different paths we can take there.

Keith Weiss

Got it. And have you seen any impact as of yet of more customers kind of moving to the higher level additions to get to those Atlassian Intelligence capabilities?

Anu Bharadwaj

So we continue to see more customers come to premium and enterprise overall, but premium and enterprise editions have more than just the AI features in general. Yes. So the upsell for us is working well and I expect that we will continue to invest more in higher priced editions as we go along.

Keith Weiss

I'd love to get your take on one of the bigger investor debates out there right now, when it comes to generative AI, the productivity gains that you see from Generative AI versus seat-based model. right? So you talked about you guys deployed the virtual agents. Internally 50% of the ticket volume is being intercepted by the virtual agents. I don't see you guys putting on a press release that you're increasing price by 50% to sort of account for that and improve productivity. So is there a risk in there for a seat-based model that you're kind of innovating your way out of sort of customers if you will or units at least?

Anu Bharadwaj

Yes. So in terms of productivity improvements. I think one example is seat-based, right? But let's just look at the big picture. The big picture is that we fundamentally look at this as AI being able to augment what your existing people can do, right? So that's exactly the way we use it internally and that's the way we are seeing customers use it at this point of time as well, where AI can make your existing employees, your existing workers a lot more productive than ever before.

I believe that that will continue to be the case for a fair amount of time, where they act as unlocks of productivity for existing teams. Now to link that back to the seat-based model question, I think there is also the aspect of the technology of how you build AI features also incurs a different kind of cost than the other kind of features. So I think the pricing for that there are various options there are consumption-based pricing options, there are seat-based pricing options. So I find it hard to say hey here is the right answer across the board for all of our Atlassian products. But I just want to underline that we will keep our mind open about what is the right monetization strategy while keeping customer needs in mind and making sure that what we are putting out is actually really productive and is helping existing teams.

Keith Weiss

So you start with the product you ensure that it's driving productivity for our customers and there could be flexibility on pricing and consumption models to ensure that you're accruing that value over time?

Anu Bharadwaj

That's right. Yes. Because it's early we are really optimizing for hearing from customers directly about what is it that they're using this for and where they're seeing productivity gains.

Keith Weiss

Excellent. Anu, unfortunately, we're coming to the end of our time and I'll get really screamed out if we take away Sam Altman's time. So thank you so much for joining us today.

Anu Bharadwaj

Thank you, Keith.

Keith Weiss

And I really appreciate you coming to the TMT Conference.