What GitLab’s $ 11 billion IPO says about in-house software development: Iterate To Innovate
On October 14, GitLab, a 10-year-old coding platform company with just 1,350 employees, went public with a value of $ 11 billion. Just over two weeks later, the stock is up over 50%, giving the company a market cap of $ 17 billion. This valuation is for a company with sales of $ 108.1 million for the six months ended July 31, 2021 and a net loss of $ 69 million.
This is further confirmation that the world today is increasingly software driven. Microsoft acquired competitor GitHub for $ 7.5 billion in 2018, and Prosus acquired Q&A site Stack Overflow for $ 1.8 billion in June 2021. There is a pattern here. As I have already argued, the market for solutions that facilitate this transformation is growing rapidly as all companies now have to act like software companies.
There is a passage in GitLab’s IPO that outlines its view on this trend. “Today every industry, every business and every function within a company is dependent on software. To stay competitive and survive, almost all companies need to digitally transform and become experts in software development and delivery. ”GitLab’s success brings a number of important lessons for CIOs building in-house software capabilities, starting with its integrative approach in software development to a focus on innovation through fast iteration.
The challenge of software development
Developing high quality software on a large scale is difficult – and becomes even more difficult as the timelines, which are getting shorter and shorter in today’s highly competitive environment, keep getting shorter. Many companies find it difficult to meet the urgent demand for custom software, which ultimately limits their competitiveness. A CIO of a large US company recently told me how difficult it is to prioritize a few projects from a long list of worthwhile initiatives due to software development capacity constraints. Unsurprisingly, CIOs value toolkits that not only help their developers be more productive and collaborative, but also enable them to deliver results that drive sales and create new business opportunities.
This is where GitLab and competitors like GitHub and Atlassian come into play.
When the founders of GitLab looked at the state of internal software development, they found that new demands on developers – more projects, faster deployment, continuous updates, etc. software-driven companies. Simplifying this toolset without sacrificing efficiency seemed like a successful strategy.
The company’s core offering, the DevOps platform, is an integrative development environment that brings development, operations, IT, security and business teams together in a single application to achieve the desired business results while reducing software development cycle times. The company describes it as open-core, which is essentially a business model that offers a limited and free open source version of the product (GitLab Community Edition) and a proprietary and paid version (GitLab Enterprise Edition) with additional features. GitLab has been releasing a new version of its software every month for almost a decade, benefiting not only from internal R&D spending, but also from contributions from its user community.
Score a hat trick
In my view, these skills are important for three main reasons. First, as a single application that spans the entire software development lifecycle, it helps accelerate deployment. Second, the platform’s support for cross-functional teams in the software development process is important in order to deliver results that are important to businesses. Third, the rapid pace of product innovation, including open source contributions, signals to customers that the risk of obsolescence, which increases when a customer opts for a single platform, attracts the attention of GitLab’s management team.
A look at the customer base shows the growing importance of in-house software development. The company has 383 customers, each with $ 100,000 or more in annual revenue for the company, and 10 times as many who spend more than $ 5,000 per year, both significantly more than last year.
Goldman Sachs says GitLab was able to “dramatically increase the speed of development” as many teams moved to daily production rather than weekly (or lengthy) builds. At Siemens, the platform has grown from a small team in 2013 to 40,000 users, so developers from around the world can collaborate and share code in minutes.
Iteration to success
The most important lesson from all of this for CIOs, as I see it, is the importance of rapid innovation through iteration. In the dynamic and uncertain times we live in, the ability to innovate quickly is vital and CIOs and application development leaders need to invest in tools that are well suited to their environment.
It is at least as important to experiment and iterate to ensure that solutions are state-of-the-art and involve business partners in the process. Productivity toolkits can help development teams work faster, but CIOs need to design and implement management systems to drive this type of innovation process.
There is another very important lesson. GitLab has been a completely decentralized company from the start, allowing it to hire talent from anywhere, giving it a competitive advantage. As the business world becomes more open to new forms of work organization such as hybrid and remote work, and the demand for software talent continues to grow, CIOs need to consider the viability of these new options.
The success of GitLab’s IPO shows that investors around the world are focusing on building software as a core competency in companies. It’s also another timely reminder that code is a critical asset. To develop valuable software better than competitors, CIOs need to accelerate their investments in in-house software capabilities – talent, tools, and development practices – while drawing on GitLab or other productivity offerings that can enhance their armies of programmers.