By Daniel Newman
The companies certainly didn’t disappoint coming out the gate, especially if you were an early investor, as DoorDash and Airbnb soared 85% and 112%, respectively, on their opening day of trading. Pundits and analysts were left befuddled, and the prices of each have slipped in the meantime.
An initial public offering that was overlooked during that time was C3.ai /zigman2/quotes/222990672/composite AI -6.71% . Shares of the Redwood City, Calif., company sit well over double the set price.
C3.ai is the more interesting company that debuted last week. Its work over the past decade to democratize artificial intelligence (AI) for enterprise has real promise, and there is evidence through its early partnerships and customer success that it could lead to significant and stable growth. The company is led by CEO Tom Siebel, who had the same position at Siebel Systems, which was purchased by Oracle /zigman2/quotes/202180826/composite ORCL +0.93% in 2006. The 68-year-old billionaire founded the company in 2009.
Artificial Intelligence is a popular buzz word that has infiltrated many of our lives through everything from Siri on our Apple /zigman2/quotes/202934861/composite AAPL -3.48% iPhones to powerful recommender engines that help us find products and services on Amazon /zigman2/quotes/210331248/composite AMZN -3.24% . The consumer applications have created greater awareness to AI for many of us, but there is a bigger AI opportunity brewing in business-to-business (B2B) enterprise applications. AI to help banks better understand customer churn, identify fraud and deploy predictive revenue models. To help oil and gas companies predict maintenance requirements to proactively identify failures before they happen. And to help health-care providers improve health outcomes, reduce care costs and improve patient experience.
C3.ai’s offerings are designed to democratize at scale all of those scenarios and others in aerospace and defense, telecommunications, retail, utilities and more. The C3.ai AI Suite, which is the company’s core technology, is designed to sharply reduce the time to value in using AI in the enterprise. It functions as a software as a service (SaaS) application, and while it has deep partnership integration with Microsoft /zigman2/quotes/207732364/composite MSFT -2.37% and Adobe /zigman2/quotes/200389143/composite ADBE -3.66% , it can be flexibly deployed on Amazon’s AWS, IBM /zigman2/quotes/203856914/composite IBM -0.60% Cloud, Google /zigman2/quotes/205453964/composite GOOG -3.05% Cloud and/or on-premise.
The outcome of its significant R&D investment is a powerful enterprise AI footprint that delivers more than 1.1 billion predictions a day using more than 4.8 million machine-learning models that the company has in production. Moreover, according to C3.ai, these predictions and models touch more than 50 million businesses on a daily basis.
Beyond technology partners, C3.ai has also been able to apply its model-driven architecture to win a diverse group of marquis customers across a vast set of industries, with an average deal size in 2020 at over $12.1 million. This includes Royal Dutch Shell /zigman2/quotes/205095589/composite RDS.A -0.35% , Astra Zeneca /zigman2/quotes/200304487/composite AZN -0.53% , Baker Hughes /zigman2/quotes/205323712/composite BKR -1.67% , Raytheon Technologies /zigman2/quotes/203237915/composite RTX -5.02% and the U.S. Air Force. Customer expansion yielded a healthy 71% year-over-year growth rate for C3.ai in its fiscal 2020 totaling $157 million, and an average growth rate over the past three fiscal years of 69%.
Perhaps what is more exciting is the market potential for C3.ai as the proliferation of AI continues to accelerate. According to the company’s S1 filling, it estimates its total addressable market (TAM) at $174 billion this year, growing to $271 billion by 2024. Specifically, the company sees itself participating in the $44 billion enterprise AI software market, the $63 billion enterprise infrastructure software market and the $93 billion enterprise application market.
Those markets are converging rapidly with AI capabilities being a critical connector. Many companies will be seeking tools and technologies that can shorten the difficult process of managing vast data repositories, software tools and infrastructure complexities. C3.ai’s architecture is designed to streamline this process and considerably shorten the enterprise challenge of applying AI to solve complex business problems.
Of course, the road for C3.ai will have its share of challenges. Large enterprise software and infrastructure providers like SAP /zigman2/quotes/207905606/composite SAP -2.27% , Salesforce /zigman2/quotes/200515854/composite CRM -3.90% and Oracle /zigman2/quotes/202180826/composite ORCL +0.93% , to name a few, are all working diligently to apply greater AI capabilities to exponential data to deliver next-generation insights for enterprise customers. This massive market opportunity isn’t a secret, by any means. However, with the flexible architecture of C3.ai, there is also an argument that many enterprise software platforms, much like Adobe and Microsoft already have, could see C3.ai as complementary and as a vehicle to speed customer adoption of industry-specific AI capabilities.
What perhaps was most evident to me, after watching last week’s IPO frenzy, is it didn’t take a sophisticated AI model to see the potential of C3.ai.
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advising, and/or consulting to Microsoft, Amazon, IBM, SAP, Oracle, and dozens of companies in the tech and digital industries. Neither he nor his firm holds any equity positions with any companies cited. Follow him on Twitter @danielnewmanUV .