How does Twilio have a 100+% Net Expansion Rate YoY?
How does Twilio have a 100+% Net Expansion Rate YoY?
In 2020, Twilio saw a 50% increase in messaging revenue and a 70% increase in the number of messaging customers. The company also reported a 46% increase in revenue. What happened that year?
Twilio is a cloud communications platform that provides a variety of communication services to businesses, enabling them to integrate various communication functions like voice calls, text messaging, and video calls into their applications. At its core, Twilio offers a set of APIs (Application Programming Interfaces) that developers can use to build these communication features into their software, without the need to build backend infrastructure and interfaces from scratch.
Twilio has enabled businesses to integrate various communication functionalities into their applications with ease. However, what set Twilio apart was its adoption of usage-based billing from the start!
The decision to transition to a usage-based billing model was a response to the growing demand for scalable and flexible communication solutions. Regardless of their size, businesses sought the ability to adapt their communication capabilities in real-time, scaling up during peak periods and scaling down when necessary, without the constraints of flat-rate pricing.
And guess what? Usage-based pricing rewarded Twilio with exponential growth throughout the years! Here are Twilio’s earnings from the fourth quarter!
Fourth Quarter Revenue of $1.08 billion, up 5% reported and 8% organic year-over-year
Full Year Revenue of $4.15 billion, up 9% reported and 10% organic year-over-year
Source: Twilio
How did Twilio succeed with Usage-Based Pricing?
According to Chee Chew, Chief Product Officer at Twilio, "With subscription-based pricing, there's a mismatch between usage and what customers pay...We wanted to create a pricing model that aligns with usage."
In 2020, Twilio introduced usage-based billing for its messaging APIs to align pricing with customer value. After the shift, Twilio saw a 50% increase in messaging revenue and a 70% increase in the number of messaging customers. The company also reported a 46% increase in revenue.
Startups found this model advantageous, providing access to communication tools without significant initial expenses. It allowed these entities to compete with larger corporations, supporting innovation and growth across sectors.
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Larger organizations too benefited from the scalability provided by Twilio's pricing based on usage. They could expand their communication infrastructure in line with their growth, ensuring they were not paying for unused capacity. This scalability meant that Twilio could serve a range of industries and applications, from e-commerce to emergency services, where communication needs can differ.
The impact of this strategic pricing model was evident in Twilio's financial performance and market presence. And guess what? Twilio’s organic revenue growth in Q1, FY24 is 5-6%.
The company saw a notable increase in adoption rates, customer retention, and overall satisfaction. The flexibility of usage-based billing encouraged businesses to experiment with new communication features and integrate them more deeply into their workflows, driving higher usage and, consequently, higher revenues for Twilio.
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