Welcome to the "State of the Atlassian Union" for Q3 2020.

On a quarterly basis, Seibert Media's management team releases both a financial report as well as an assessment, and overview of Atlassian-relevant developments.  We release these updates to Seibert Media's largest and most important customers - which is why you're receiving this.

The elephant in the room: Atlassian is retiring their Server products.

After months of dropping hints, at the end of October, right before their Earnings Call, Atlassian confirmed End of Life for their Server product line.  Sales of new Server products will cease in February of 2021, and maintenance and support for current licenses will end in February of 2024. For many of our customers (and for us), this is a change that shouldn't be taken lightly. But at the end of the day, we finally all have clarity.

In recent years, we regularly asked our contacts at Atlassian what the plans were for Server going ahead.  Atlassian has long focused its internal resources on the development of Cloud products.  Confluence Server and Jira Server haven't received updates, and the release notes weren't really cause for celebration.  Seeing the attention that Cloud was getting made many people envious.

I still remember a presentation from the "Ship it Hackathon" made during the Atlassian Summit back in 2018.  Sherif Mansour, one of Atlassian's longest-serving employees, and now Distinguished Product Manager, had built new tables for Confluence with his team.  They rolled things out like Column Types, Summary Rows & Live Charts!  You can probably hear the excitement at minute 35:20 in the video I shot.  Then they followed up with "...if you came to the Cloud State of the Union this morning..." and that's when the realization hit me: This is Cloud-only, and we're never going to see this for Server." 

(They won the Hackathon, by the way - Sherif is the second from the left)

“SaaS has become the default software-delivery mode.”

However, the uncertainty had come to an end, and I am grateful to Atlassian for that.  And, to be honest, strategically, it was the right decision on Atlassian's part. The future belongs to software developers who offer their applications as Software as a Service (SaaS).  Don't believe that? Then take a look at this white paper from McKinsey

All the relevant software that came out in the last few years is offered as SaaS.  Every relevant venture capital investment that has been made in the tech industry in recent years was made in SaaS.  On-premise, as much as we like it, is on the way out for standard software.

“SaaS has become the default software-delivery mode … When revenues from companies still transitioning to SaaS are counted, the total as-a-service share rises to 75 percent of all enterprise-software revenues, or more than $380 billion.” Vendors that have not yet begun their SaaS transformation must do so now.”

Paul Roche, Senior Partner at McKinsey

By the way, Atlassian wasn't an early adopter of SaaS and remained proponents of on-premise for a long time.  I don't want to dive too deeply into software history, but Marc Benioff founded salesforece.com in 1999 as the first full SaaS company.  That was more than 20 years ago!  

SaaS is not new, and Atlassian has to plunge into this segment if they want to remain a relevant player in tech in 20 years time.

A smooth transition - exactly what the DACH market needs

For the German-speaking market, the announcement to retire Atlassian Server caused a lot of commotion.  Because even though SaaS has become the standard in many parts of the world, DACH still loves on-premise.  Just last year almost 95% of our customers bought the Server product line.  In the first three quarters of this year, many have switched from Server to Data Center - also an on-premise solution.  Cloud customers make up less than 5% of the whole share.

There are customers that we have successfully migrated to Atlassian Cloud.  We're currently working with them to share their success stories with other customers.  But many customers aren't ready for that yet  and with good reason. Huge consideration has to be given to DSGVO compliance and data residency - all thanks to a ruling by the European Court's ruling in July.  These issues are not to be taken lightly when considering the move to Cloud.  

Also, performance was another issue that caused concern, as well as the availability or functional limitations of third-party apps for Cloud.  

Atlassian is aware of these issues and is working hard to iron them out.  This is why they opted to phase-out Server over time, rather than make a sudden cut.

Building long-term customer relationships rather than quick gains

It's crucial that everyone understands that you can't just "turn off" on-premise solutions overnight. Atlassian hasn't forgotten its on-premise customers with this move to the Cloud. Server will still be available for the next three and a half years.  After that, those who really want to continue to rely on an on-premise solution can switch to Data Center and purchase new licenses for them - even after February 2021.  

“We expect our revenue growth rates to slow through the remainder of fiscal 2021 ... . While it is impossible to accurately predict the timing of our server customers’ migrations, we currently expect revenue growth to also be impacted in fiscal 2022 before improving.”

Cameron Deatsch, Chief Revenue Officer at Atlassian

For the upcoming quarter, Atlassian is predicting significantly weaker sales growth and expects the negative trend to continue for one to two years.  As a result, their share price has plummeted - a loss of 15% - which corresponds to over 7 billion US dollars. Nobody can say that Atlassian is not prepared to accept short-term losses in order to take its customers on the "accelerated journey to the cloud." 

What we offer:  Testing your Cloud-readiness, cost analysis and migration

Despite the long phasing-out period, every Atlassian customer should ask themselves when the right time is to migrate over to Cloud. We are here to help you make informed decisions on how to move forward.  There are three steps needed to carry out your switch to the Cloud:

The first step is to determine whether your software will even allow migration to Atlassian Cloud - especially if you have specific use cases.  This could include things like the tools and apps you use, and how you implement them.  Also, technical readiness is another crucial factor to consider.

If the technical requirements have been met, we will now go over the costs with you.  What do you have to pay for Atlassian Cloud?  What are the available discount options?  What are the benefits of licensing through Seibert Media? Once you agree to the terms, we will then carry out the migration on your behalf.  This means we will move your current Server instance securely over to Atlassian's SaaS deployment: Atlassian Cloud.  

For more information, please read about our service packages here and contact us if you aren't already be in contact with your account manager.

I've written about Atlassian cloud almost exclusively until now, but actually, I had a couple of different topics planned for this issue of State of the Atlassian Union.  I wanted to let you know about the new US$50M venture fund Atlassian recently announced.  Also, things like the new sustainable office building that Atlassian wants to build in the heart of Sydney despite Corona, or the deepening of the partnership between Atlassian and Slack.  But the Cloud journey is so important that I think those things can take a back seat for now.

If you want to talk more about Atlassian or give us your feedback - don't hesitate to contact me at smartini@seibert-media.net.

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This content was last updated on 11/30/2020.

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