Episode 73: Okta Acquires Auth0 & Is Being A CopyCat Good?

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Show Notes

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BIG NEWS: 

About a month ago Okta, a management and authentication company, acquired Auth0 for $6.5 billion. Why did they do it? Mike believes from a pure strategy perspective, this acquisition gives Okta the ability to stop out competition and is a way for them to move down market. Why would they do that? Mike says because enterprise has big, long, complex sales, and they can get customer lock-in. So ultimately, it’s just to be anti-competitive from Mike’s viewpoint. 

So as a listener, why would you care about this? 

There’s only so many authentication apps that you can go to and many of them are using Auth0. When that vendor gets a bigger bill, there’s a possibility that they’re going to charge more for their services to account for it. This is where Mike and Doug start to disagree because Doug doesn’t believe that’s what causes price increases. Companies charge more because they can, not because costs are increasing. 

For Mike being in the SaaS world, he sees how costs increase, but that doesn’t mean that they’re going to translate to the customer. To everyone listening, it’s less about the cost that is going to be an impact for you and more about the lack of innovation. That’s a secondary issue that will affect you as a user. As costs increase, that will force companies to allocate resources elsewhere which puts an impact on innovation and growth. The fact that Okta acquired Auth0 means that they now have the upper hand with what gets built out and thought about which could be drastically different from how Auth0 was thinking about their customers and adjusting for them. That’s the secondary impact that we all need to be thinking about more.

Can you master both SMB and enterprise?

No because it’s hard to put your full attention on both. When companies switch from SMB to enterprise, you can feel the shift. There’s less support, and support can become more complicated because the company is focusing on enterprise customers. If you’re an Auth0 customer, your question should be - are you an Okta afterthought? Are your needs being taken care of? When you start selling to enterprise, you start to see a lot of disruption and shift of focus. 

All things considered, consolidation is going to increase. For every 2 companies that combine, 3 new ones come in to the MarTech industry. The rate of consolidation is increasing and there are downstream effects. Why should you be paying attention to this acquisition? Some of it is because we don’t know why. This hasn’t happened before in the growth history of SaaS. The smartest people will tell you that you should be paying attention to the 2nd and 3rd degree effects of these things rather than the 1st because those other effects are going to have more of an impact on you and your business. 

QUESTION: 

Question of the episode: Social platforms like Twitter & LinkedIn have announced that they are building out a feature similar to Clubhouse. Is it a smart idea for them to do so? Is there a lesson that businesses can take away from apps copying features? 

Mike starts this section off by saying he has no clue what clubhouse is so it’s hard for him to answer the first part of the question. In terms of copying, there is a tremendous amount of copying going on in every aspect of every business. His fear is that it causes little innovation, but for some companies it makes sense. 

What’s the lesson? 

From Mike’s perspective you have to ask if it’s core to your business and is it addressing a significant problem?

Doug goes into a story about when he used to work at a rental car place called Alamo. They were big because they did free miles. Hertz came in and eventually after being in the industry for a while did all free miles too. And they were smart to do so. 

Mike asks - would you say copying 1. Slows down innovation but 2. Commoditized the market? Doug believes copying commodities which isn’t good, bad or neutral. It just is. 

LinkedIn is trying to offer similar features because every social platform is trying to fight for time and attention. It’s almost by definition that social platforms need to commoditize. That’s why Facebook has won in a sense because everyone is there. 

What small and mid-sized companies can learn from this is to be careful on what you base your positioning on. What is the real cost to someone to copy it and how easy is it for someone to copy it? Things are going to get copied, and copying from a tactical standpoint is a neutralizing tactic. People look at copying and think that it has to be as good as what they’re copying. It doesn’t matter if you do it 10x better because when you neutralize something it becomes just a box that people check off. You have to think about where you are going to build your company to be different so that you can make that aspect stronger, and you have to think about where you can neutralize so that when someone’s boss asks if your company can do all these things, the answer is yes. If it’s core to your business you shouldn’t copy. If it isn’t core, copy it. It’s okay to copy. Copying is a tactic. You’re going to copy and be copied. You need to ask yourself where you are going to be different and stay focused on that.

TAKEAWAYS:

Mike - Learn from, but play your own game. 

Doug - In the US, for the next week or so the weather is supposed to be pretty good. Take some time to go soak in the sun. This year is going to be crazy, so make sure you are rested and ready for it.