Notorious PLG 10.19.21 (Special Edition)
Weekly update email on the most important product-led growth ("PLG") companies
Last week, GitLab (GTLB) went public. As of an hour ago, GitLab is trading at $110 per share, implying a $16B market cap. GitLab is a DevOps platform used by teams to deliver software faster with better security and collaboration. GitLab is the first fully remote company (remote manifesto) to go public and has over 1,500 employees across 65 countries. GitLab works with 100K+ organizations and customers around the globe. Per GitLab’s S-1, GitLab has $196M of LTM revenue growing at 74% y/y with 88% LTM gross margins. This implies a ~80x EV / LTM revenue multiple making GitLab one of the most expensive software businesses in the world. Given my interest in PLG, this writeup is intended to focus on GitLab’s PLG philosophy and execution rather than its financial profile.
I believe there are at least four defining characteristics of great PLG companies:
Focus on end user: for PLG companies, the end user is the buyer. The buying criteria is often how this product will help the user do her job better rather than an economic decision made by an executive.
Self-service adoption: a user can get started with the product without having to talk to a sales rep. In most cases, the user can purchase the product with a credit card rather than having to go through finance or procurement.
Immediate product value: the product delivers a magical experience out of the box. The product delivers value before capturing value often through a free trial or freemium pricing model.
Transparent pricing: users can clearly understand pricing without talking to a sales rep. Predictable pricing reduces adoption and expansion friction.
Let’s walk through each of these for GitLab and assess:
Focus on end user: GitLab prioritizes the end user rather than an executive. GitLab does so by delivering value in a single player mode with time tracking and version control and then allows the developer to loop in colleagues and collaborators for project management and coordination. As GitLab has scaled over the years, the company has layered in sales to help GitLab expand revenue, but the product continues to prioritize the end user and focus on organic, bottom’s up growth.
Self-service adoption: GitLab makes it easy to get up and running without having to talk to a gatekeeper. Directly on the homepage, a user can either watch a demo, sign up for free or login to an existing account. A user does have the option of talking to an expert (aka a sales rep) directly from the homepage as well. This is an easy way for GitLab to qualify a potential customer as an SQL (sales-qualified lead).
Immediate product value: After a ~1min setup process, users can immediately submit a merge request, start issue tracking and import code. Rather than force users through a tutorial which can frustrate more advanced users, GitLab nudges users to learn how to use GitLab via setting up a workspace, planning and executing and deploying - all of which are guided experiences that users can do on their own time and at their own pace. This is a thoughtful way to onboard users as more advanced users don’t have to suffer through a tutorial and novice users can learn on their own speed. There is a learning curve to adopt GitLab which in turn makes it stickier over time.
Transparent pricing: GitLab has made its pricing transparent and uses a per seat pricing model. Thus, as more employees use GitLab, teams have a clear sense how pricing scales. GitLab has a freemium model (as opposed to a free trial model) which is what I recommend using when a business has network effects. GitLab certainly has network effects as the platform gets better and delivers more value as more users adopt it as the standard for DevOps. However, it is worth noting that GitLab does in fact utilize a free trial model selectively. When a new users signs up for the Free version, they get hit with an offer for a 30 day free trial of the Ultimate version (see screenshots below) and then revert back to Free, if they ultimately decide not to pay $99 per user per month. I think this is subtle and clever mix of the freemium and free trial models to let new users experience the power of the top tier product, but without the threat of being kicked off the platform if they don’t want to pay. GitLab prices at a premium to its main competitor GitHub (acquired by Microsoft for $7.5B in 2018) and this is consistent with the CEO’s philosophy on pricing: “Most beginning entrepreneurs don’t charge enough for their product. We were no different. You could say we lost a lot of money... I think the general advice that says price your product high enough so you're really uncomfortable about it is probably about right.”
I would love to hear your thoughts on GitLab’s PLG strategy and execution. Please reach out to me @zacharydewitt on Twitter or zach@wing.vc.
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