Now that the great Y Combinator rush is behind us, we’re returning to a topic many of you really seem to care about: no-code and low-code apps and their development.
We’ve explored the theme a few times recently, once from a venture-capital perspective, and another time building from a chat with the CEO of Claris, an Apple subsidiary and an early proponent of low-code work.
Today we’re adding notes from a call with Appian CEO Matt Calkins that took place yesterday shortly after the company released its most recent earnings report.
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Appian is built on low-code development. Having gone public back in 2017, it is the first low-code IPO we can think of. With its Q2 results reported on August 6, we wanted to dig a bit more into what Calkins is seeing in today’s market so we can better understand what is driving demand for low- and no-code development, specifically, and demand for business apps more generally in 2020.
As you can imagine, COVID-19 and the accelerating digital transformation are going to come up in our notes. But, first, let’s take a look at Appian’s quarter quickly before digging into how its low-code-focused CEO sees the world.
Results, expectations
Appian had a pretty good Q2. The company reported $66.8 million in revenue for the three-month period, ahead of market expectations that it would report around $61 million, though collected analyst estimates varied. The low-code platform also beat on per-share profit, reporting a $0.12 per-share loss after adjustments. Analysts had expected a far worse $0.25 per-share deficit.
The period was better than expected, certainly, but it was not a quarter that showed sharp year-over-year growth. There’s a reason for that: Appian is currently shedding professional services revenue (lower-margin, human-powered stuff) for subscription incomes (higher-margin, software-powered stuff). So, as it exchanges one type of revenue for another with total subscription revenue rising a little over 12% in Q2 2020 compared to the year-ago quarter, and professional services revenue falling around 10%, the company’s growth will be slow but the resulting revenue mix improvement is material.
Most importantly, inside of its larger subscription result for the quarter ($41.4 million) were its cloud subscription revenues, worth $29.6 million for the quarter and up 30% compared to the year-ago period. Summing, the company’s least lucrative revenues are falling as its most lucrative accelerate at the fastest clip of any of its cohorts. That’s what you’d want to see if you are an Appian bull.
Shares in the technology company are up around 45% this year. With that, we can get started.
The future of low-code apps
Calkins said he thought 2020 would kick off a big decade for his company and the space in which it operates even before the pandemic. Why? Because, he told TechCrunch, the demand for apps is proving to be “exponential,” while the growth of developer talent is far more linear.
Inside that disconnect lies a bullish argument for no- and low-code apps to fill the void; if there aren’t enough developers to build what’s needed, perhaps teams and companies will try out something new to bridge their needs and their current resources?
Calkins talks about the subject using the term “low-code,” and not “no-code,” something we asked about. He said the line between low- and no-code is “fuzzy.” We agree. Appian, he said, allows users to build apps without any code at all, so you and I could brand it a no-code service as much as it is a low-code platform. But the CEO said that if one uses “no-code,” perhaps folks will think that the apps being built are simple, or simplistic. He prefers “low-code” as it may reinforce the idea that the resulting applications built are serious.
Inside Calkins’ hypothesis that 2020 was starting a big decade for low-code apps is the belief that business apps are in high and rising demand. What’s driving the boom? COVID-19, though as a trend accelerator more than a trend progenitor. So, like many companies seeing an accelerating digital transformation, what Appian’s CEO thought before the pandemic may be now happening a little more quickly.
Regardless, I asked Calkins what is driving the need for more business apps and he rattled off a few things, including that workers are expecting more automation in current times. In the pre-software era, he said, work was often done out of habit, say using pencil and paper. But since software came along and automation (via RPA, for example, a fast-growing category as we can see through the lens of UIPath’s expansion), people are expecting more and more tasks to be automated. Low-code apps can jump in with RPA and bits of AI to carve off huge amounts of work from human eyes and hands.
Calkins also gave an example of a company trying to get back to work post-COVID, but lacking the capabilities to build an application from scratch. With a low-code app they might be able to flag health data, turn employee badges on and off, and so forth.
So is Appian seeing a COVID-19 tailwind? That final example makes it seem like the answer should be yes. The CEO hedged a bit as many executives have when asked this particular question, as no one wants to appear to celebrate a business success while so many are suffering. Still, Calkins said Appian fits neatly into the concept that during the pandemic companies need to be super agile, quickly responding to client demands and employee expectations.
In the Appian view, those requirements will often be met with apps in time, apps that are built using low-code tech.
I’m not entirely as sold as low-code fans on how many business apps the world is going to see. I asked the CEO about how the market will get companies from their current perspective, namely that building apps is expensive and hard, to the mindset of “let’s build lots of business apps on our own.” Calkins pointed out many IT departments are backlogged with both technical debt and new requests, implying that as demands go up they will have to be met in other ways.
“The word is not totally out” regarding low-code development, he added. There we agree. What will be fascinating to see is whether the Cambrian explosion of low-code business apps that Appian expects comes to pass, and when. And if we’ll even notice it. Given that so many of the apps that are being discussed in the abstract will sit inside of companies, and not in places where we can see them.
But circling back to earnings, if Appian’s revenue growth accelerates in gross-dollar or percentage terms, we’ll know that something is afoot. So, more in a quarter after Appian dishes up its Q3 results.