No. of Recommendations: 5
The link to Salesforce was very instructive. Salesforce’s largest VC investment is Docusign. Salesforce’s next two largest investments in order are Dropbox and Twilio. Nice top 3! Their #5 choice has disappointed, but who knows maybe it will turn around.

This also explains what appears to be an abnormally friendly and familiar relationship between Docusign and Salesforce. Reading the earnings conference notes of the conference prior to the last one the CEO was talking with how working closely with Salesforce it became apparent to them, with Salesforce’s help, that Docusign could move up the stack more than was originally envisioned. DocuSign and Salesforce are so close that an eventual buyout appears likely (albeit, one would wonder why, given how close they work together anyways and how wound up they are in each other).

In regard to the AI company that bought for $60 million. That turned out to be disappointing. There are no real plans as to what to do with it. Docusign is not planning on entering the marketing analytical market with the product. It appears it is more of a purchase in order to acquire AI capabilities. Docusign had none at all. Now one of the top officers from the company is the VP of engineering at Docusign.

Thus Docusign wanted to gain capabilities, any capabilities, to get a start in AI and not be disrupted by something out of the blue. Same reason they got into blockchain even though the blockchain business is presently minuscule.

Finally, the Systems of Agreement, yes, it is as nascent as we discussed. Docusign CEO stated exactly what I stated, they have 600 customers with their small sales force, imagine how many customers we can get with out large sales force. Docusign’s CEO admits however that although they are the largest player by far in eSignatures, that they are not one of the largest players in the SoA market.

As for Adobe competition. I am making some inferences here, and part of this comes from the admission that Docusign moving to the SoA market is moving into a market that will have larger and probably greater competition vs. their competitive positioning in the eSignature markets.

Adobe only markets its eSignature produce to larger enterprises. Adobe has their own SoA products. The large enterprise SoA market is the most lucrative market. Therefore, it seems reasonable that this is where Adobe is pushing their products. Therefore, Adobe really cares less if their total marketshare if 15% or 20% in eSignatures. What they care about is that they dominate the most lucrative segment of the market.

Thus, with all the talk about Adobe as a competitor, one need not worry about them so much in eSignatures. Where one must worry about them is competing for the most lucrative enterprise contracts in eSignature plus SoA.

As to the marketshare in that market, it may be helpful to look back at the Forrest report on it. It does sound to me like it is a market that is rapidly changing and that players like Adobe may be targeting against legacy incumbents who are probably tryin got defend their turf.

Thus the AI acquisition is not really that material. The SoA market brings Docusign into a market that is more competitive than they are use to given their dominance in their core market. And the relationship with Salesforce is like kissing cousins.

So whatever that is worth.

Tinker
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Tinker:

Where do you see that Adobe has a robust SOA?

These were the companies that Forrester ranked for CLM:

BTW, here were the other CLM companies that Forestor ranked high:

In our 30-criteria evaluation of contract lifecycle management (CLM) providers for all contracts, we identified the 13 most significant ones — Agiloft, Apttus, CLM Matrix, Cobblestone, Concord, Conga, Exari, Exigent, Icertis, Legal Suite, Oracle, SpringCM, and Symfact — and researched, analyzed, and scored them. This report shows how each provider measures up and helps CIOs make the right choice.


Apttus was number one followed by Icertis, SpringCM and Exari.

No mention of Adobe.

Regarding the relationship with CRM, yes, their CEO has also owned shares and they have a close relationship. Here are the other insiders:

https://www.nasdaq.com/symbol/docu/ownership-summary
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Duma,

I believe my inference came from Docusign's CEO himself discussing how the competitive environment will be different (more difficult as there are larger competitors than they are - and Adobe was mentioned with their enterprise software). I will have to do some more digging, perhaps tonight. I Wass multi-tasking at the time.

They key take away for me was that Docusign wold be a new and smaller player in the SoA market and the competitive nature of the market would be different than the lack of competition in the eSignature market that Docusign dominates.

There also may be an article that went into more detail regarding the SpringCM acquisition and discussed Adobe in context. But no, I have not found any specific information about Adobe's SoA product, if any. I do note that Adobe is not in the Forester report, but neither is Docusign, so I do not know if the is material at this point in time.

Salesforces' close relationship with Docusign seems to be closer (and better coordinated and more synergistic) than VMWare's relationship with Pivotal. That says a lot given that Salesforce does not own Docusign unlike Dell owning both VMWare and Pivotal.

I think the key here is, as you mentioned, you just have to let things play out. Either Docusign is going to continue to build value in the firm or it is not, and like a typical investment value is built overtime, year by year, not necessarily overnight.

Tinker
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And let’s look again at “moat” since there is a great deal of angst about this issue and all these “substitution threats” that for some reason.....havent substituted as yet.

Why????

Here may be 2 reasons:

2. Moat
Capitalism is brutally competitive, which is why it's incredibly important for businesses to build a durable competitive advantage in order to protect its profits from current and future invaders.

I think that DocuSign currently has two competitive advantages in place:

High switching costs: DocuSign offers its client more than 300 prebuilt integrations with a number of highly popular applications that are made by tech giants such as Microsoft, Oracle, Salesforce, and more. The company's focus on seamless integration with other leading products makes its own software very sticky. This is one reason why the company boasts a dollar-based net retention rate of 115%, which means that its clients not only stick around from year to year but also spend more on the platform over time.

Brand: In 2016, Forrester Research published a report stating that "DocuSign is the strongest brand and market share leader: the company name is becoming a verb." This high level of brand identity should allow DocuSign to stand out in the marketplace.


High switching costs, seamless integration with gorillas, brand identity to the point of being a “verb”.....”did you Docusign that contract?”.

Just a bit more for consideration.

https://www.fool.com/investing/2018/11/14/is-docusign-inc-a-...
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Tinker:

Yes, DOCU is listed in that Forester report.....as SpringCM....a DOCU company. The fact that Forrester knew they were bought by DOCU was believed to be a huge strategic and visionary move to “modern” SOA.

BTW, we always talk about leadership and hwo that coorelates with company success....in your case, you ar every specific about wanting founders to lead.

But let’s look at leadership for DOCU:

https://www.barrons.com/articles/highest-rated-ceo-list-look...

America's most-admired chief executives are well represented by the tech industry (26 out of 100) but not by women (only eight).

Career site Glassdoor's list of the top-100 CEOs, as voted by employees anonymously, is topped by Eric Yuan of Zoom Video Communications. Three other tech CEOs--Daniel Springer of DocuSign (DOCU), Jeff Weiner of Microsoft (MSFT) unit LinkedIn, and Marc Benioff of Salesforce.com (CRM)--landed in the top 10.


Dan Springer is Top 10 CEO’s.....among quite an admirable list indeed.

Founder smounder.....DOCU has some serious heavyweight at its helm and backed by another heavyweight in Marc Benioff ;)
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Are they using AI to further Systems of Agreement?

Example: using AI to read customer documents and import data into a system.
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No. Docusign uses no AI in any of their products. They do intend to put AI somehow into their products but the Appian purchase was made not to buy a commercial product but to buy the expertise to get a foot hold in AI, and the Appian software code.

They have no intention to commercialize this code as a new product, but they clearly want to add it to their existing products, but nothing specific is mentioned in regard as to how or why. That is something they are working on.

Tinker
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That’s how I’d guess. There are companies out there using AI to read PDF files and extract the required data off it that’s actionable and put it into the database.


Examples: customer sends a purchase order for widgets. The AI trained system reads the P.O. and puts the order into the system.

Customer sends a request for pricing on widgets and the ai puts the quote into the system.

Customer sends a backlog report and the ai automatically provides them delivery schedules.

I think they are just going to make their system of acknowledgement more powerful.

To think of DocuSign as some esignature company catering to real estate brokers who could just as easily switch to HelloSign or whoever else is not the right way to think of it. The more I learn about them the more that becomes clear.
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Of course, all of these examples are of what is known as Supply Chain Integration, and there have been many technologies for implementing such integration, notable EDI, which has the advantage of being system neutral and bidirectional. What a pain to train the AI to recognize a thousand different vendors' or customers' documents and then send them back a paper-formatted document which they need to parse to integrate with their systems. Versus a common agreed interchange format for electronic documents in both directions.
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Did a quick look (while multi-tasking again) on Adobe enterprise. It appears to me that Adobe's product is limited to PDFs, sending and tracking status of delivery and signature, and finishing the contract signature process. There appears to be little in regard to the entire SoA chain. There is mention of using Adobe to also link with your CRM, which I assume will auto-fill the contracts, or purchase orders, or government forms, and the like. It works on multiple devices, but the product seems to begin and end with auto-fill contract form, deliver contract form, track when customer opens it, track when signed, and that appears to be it.

Here are two links. Adobe is clearly focusing directly on the government market.

https://www.adobe.com/industries/government.html
https://acrobat.adobe.com/us/en/use-cases/sales.html

This last one is Adobe enterprise for sales. Short video gives a quick gist of what it does. Clearly is an SoA system. May not be the full SoA as it appears to stop at getting the contract done and not thereafter following up on post contract signing issues and thus is far from an entire SoA software.

I can see Docusign easily bettering what Adobe is offering as they present on these two websites.


Tinker
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Just a bit more for consideration.

https://www.fool.com/investing/2018/11/14/is-docusign-inc-a-...



That article was from mid November, a bit early to buy the stock. Early January was a better time as the stock looked like it was going to break out of the trading range. I bought on January 11.

Denny Schlesinger
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Tamhas, EDi is very basic compared to what companies are working on now. AI should be able to read and import data on a not predefined format.

Rather than sending a P.O. where price is in row a colum 23 every time the AI can find the price on its own.

EDi is also cumbersome to set up for each and every customer. And has been around for a while. The next step is ai.
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Understand that I am not advocating EDI as the solution. It *was* the solution for supply chain integration in years past and I have done a ton of it so I am well aware of the quirks. But, the idea of depending on every company to have AI to read some arbitrarily formatted document from another company in the supply chain seems nuts.

Perhaps there is a role for a company to become the switchboard for all of this where each company presents their inbound and outbound documents for conversion to some standard format and this is converted to whatever the partner wants as input ... although one still would hardly want a reformatted document ... something electronic, interpreted, and standardized. One hardly wants every company to have to develop these interfaces themselves or it is going to proceed at a snail's pace.
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Adobe has many irons in the fire. It’s like saying intel could wipe out ARM because they both make processors. Or now Xilinx because they bought alters.


Not investing based on perceived competitors is not a good policy.


I’m tired of hearing about adobe. Anyone who buys Tesla stock when ford has the infrastructure to put an electric motor on their assembly lines instead of an ic engine is not being consistent when all they bring up is adobe when it comes to Docusign
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https://www.capterra.com/contract-management-software/?utf8=...

Here is a list with ratings of too many contract management software programs to count. SpringCM has 55 reviews in the list, so is 8th in the list. I did not see any Adobe listed there. Lots of smaller players. Spring got excellent reviews, but then again so did everyone else.

What seems to be key for Docusign in particular is its intimate connection with Salesforce and so many other pieces of software + Docusign just has a far larger customer base, larger sales team, and more money than any of the competitors, not to mention the brand cache.

Tinker
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I found this to be ironic from an otherwise stellar (4.5 anyways) review of the SpringCM product:

Cons: Template and label management with docusign should be easer.

History and status from Docusign do not alway work, we have contract that get signed but never update in Spring CM. The systems should have a shelf auditing process between them.


The company has about $15-$20 million in sales. They say they have 600 customers. That works out to $30k per customer on average.

According to the review site that I linked to, and the worthless SpringCM video they have on their page (I thought they would demonstrate their product. They don't. They just have a few people rave about it) they charge $39 per month/per person.

That is less than I pay, per month, per person, for my legal practice management software. That is a not a large price point. Doing the math, they have ~64 users per customer to get to the $30k average. The median would of course be much different but we do not have information for that.

****************

Lets say they can do the same, but move it out heroically to 10,000 customers! That equates to $300 million!...errrr ;( is more like it. I mean $300 million is not chicken feed but at a multiple of 5 it is worth $1.5 billion, at a multiple of 10 it is worth $3 billion. Now of course if they can grow it to 50,000 or 100,000 customers using the same density of users at the same price point then you have something huge.

The math however is difficult here. Going from 600 to 10,000, in this much more competitive market, is a feat in and of itself. I do not know how they are going to price the product, or if the advertised $39 per month, per person, is for a basic product without customization or something, but that is the math.

At a 10 multiple, and they grow it to 10,000 companies, with at least 64 users per company, you are getting less than 50% of the current market cap of the company. This product is producing no great upside potential.
*********************

At 50,000 companies with the same use density and price point you get $1.5 billion. Now that would be huge!!!! :)) me smiley then! I can see that adding $7.5 to $15 billion to the current market cap then.

*********************

I know that Mongo is growing customers at greater than 60% each quarter, but of course much smaller numbers. Docusign is growing customers at 28% or so a year.

I guess, in the end, there is only so much calculating one can do. As we have seen many times, "don't ever tell me the odds," or the discounted cash flow.

There clearly is potential there for real upside, but the potential requires some real large penetration numbers in selling. There may also be different enterprise price points that was not listed on the site, and Docusign may add functionality that makes the product worth more.

I mean, in a very competitive market, as a solo, if I am paying $50/ a month, per person, I do not see why this product is only at $39 per month. A price increase has to be forthcoming as well.

But as Duma states and links to, the management team at Docusign appears to be creme da la creme. That is what you invest in in the end.

But no harm in further digging.

In comparison, as I ran back of the envelope numbers, Mongo gets just a bit more than $30k per customer (of course many customers are brand new and will significantly up their spend, so the real number at maturity is probably $40 or $45k per customer and growing) but that is in the ballpark of what Docusign can do. Particularly if they raise the price to $50 per month, per user (if they can).

Fascinating of course, good to look under the hood, but in the end INVEST IN DOCUSIGN FOR THREE REASONS: (1) A POWERFUL BRAND, (2) VERY LARGE AND LOYAL USER BASE, AND (3) MANAGEMENT TEAM. The closeness with Salesforce is helpful as well. With Zscaler, any company that moves to Office 365 is likely to consider moving to Zscaler. With Docusign, any company that uses Salesforce as its CRM is likely to consider Docusign first.

Tinker
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Thanks Tinker:

One aspect of DOCU that I would like to get more color on is the “switching costs” that were referenced earlier in this thread:

High switching costs: DocuSign offers its client more than 300 prebuilt integrations with a number of highly popular applications that are made by tech giants such as Microsoft, Oracle, Salesforce, and more. The company's focus on seamless integration with other leading products makes its own software very sticky.

Those integrations with very popular applications from tech giants would seem to be a bit of lock in. How difficult is it to prebuild 300 of these popular imntegratios?

That would seem important as to the moat issue that we have been constantly told doesn’t exist for DOCU.

If this is no easy feat.....I would argue.....it is a moat.....one that only the best capitalized esignaturing companies could replicate. And this is before considering the additional lock-in that WILL OCCUR with modern SOA.

But perhaps these 300 popular integrations with tech giants explains why DOCU has 70% of the market.....something that no one has yet explained.....if no moat were to exist.
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I know that Mongo is growing customers at greater than 60% each quarter, but of course much smaller numbers. Docusign is growing customers at 28% or so a year.

DocuSign could grow Spring CM - SoA - customers at a much higher rate than eSign customers. They have the camel's nose in the tent in thousands of them. The beauty of the Spring CM acquisition is that it is a pin in the bowling alley, SoA is a natural extension of eSign and SoA does not cannibalize eSign.

Denny Schlesinger
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But perhaps these 300 popular integrations with tech giants explains why DOCU has 70% of the market.....something that no one has yet explained.....if no moat were to exist.

First mover advantage? If it works why switch? I doubt any discount a competitor might offer is material in the client's budget.

Maybe this moat thing is as exaggerated as notices of Mark Twain's death or just misunderstood. A moat can be as simple as a brand name, the result of market "positioning." Just because there is a competing product out there does not mean defection in droves. Lack of Gorilla power reduces relative market share but 70% is what we can expect from Gorilla power. What are we missing?

Denny Schlesinger
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What do you think Denny....would 300 “seamless” integrations with “popular” tech giants software be easy to replicate?
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Adobe only markets its eSignature produce to larger enterprises. Adobe has their own SoA products.

I get the impression but not sure, that Adobe doesn’t push this as a stand alone product to sell. But if you are using Abobe web designer or service for your site and want to build in those function you can use their product. It may be more likely if you are a large Adobe client for your Web and e-commerce that you can use their electronic signature as well, since it probably naturally fits. But not sure if they get traction as a simple stand alone offering to use this. But I may be wrong, I only heard of it before due to a previous project I was one where it was being considered as a solution, but then a lot of the site was developed on the Abobe platform
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Hello sign integrations:

https://www.hellosign.com/integrations

Not sure how seamless.....but they seem to have some of the major players...though not 300.
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Wholly crap.....compare hellosign integrations with DOCU:

https://www.docusign.com/partners/solution-showcase

That is quite impressive and rather huge difference compared to hellosign.

There probably is something to these integrations....at least on the business end.
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What do you think Denny....would 300 “seamless” integrations with “popular” tech giants software be easy to replicate?

Not likely, depends on the tech giants' software's APIs. I doubt all 300 are easy. When we lunched our Mac software we published the code required to integrate with it. Not all software does it but with RESTful APIs it's a lot more common.

A RESTful API is an application program interface (API) that uses HTTP requests to GET, PUT, POST and DELETE data.

https://searchmicroservices.techtarget.com/definition/RESTfu...

DocuSign is cloud based, right?

Denny Schlesinger
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Bert has a recap of his interview with DOCU IR to his subscribers today that will be on SA in a few days.

It tells us the same thing Tinker has found regarding the key customers - the enterprise customers. While last Q saw an influx of customers from the real estate vertical, this is small potatoes. What isn't small potatoes is last quarter's growth of large customers defined with an ACV of $300k. Those users grew 57% last quarter. DocuSign has become imbedded in their operations with a whole host of features above and beyond e-sign. The actual number of large users is still just 285 which suggests they have a long ways to go/grow in this segment.

Read it when it comes out. Bert seems to be impressed with their prospects.

Take care,
A.J.
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Not likely, depends on the tech giants' software's APIs. I doubt all 300 are easy.


In DocuSign's Prospectus, they said they spent $300 million making the software and API so far. I don't see this as an easy feat to catch up to DOCU.

Compare this to HelloSign, who has 55,000 customers, and "didn't need the $16 million investment" they received (or so they say), because they are cash flow positive.
https://techcrunch.com/2017/06/12/1502316/

According to HelloSign: “The API is really our primary focus,” said Bouck. She said they want to be “the Twilio or Stripe of eSignature.”

This is why I don't understand why people are so concerned in investing in companies generating losses. You have one company that took hundreds of millions in funding, and is currently the industry leader, and another one that "doesn't need $16 million because they are cash flow positive" and has a fraction of the customers, but are trying to do exactly what DOCU has done.
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The article I linked to about the HelloSign funding was 2 years old. So two years ago they had 55,000 customers. Their website today says they have 75,000 customers.

In what it took 2 years to increase HelloSign's customer base 20,000, DOCU increased it's customer base 25,000 last quarter alone.
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Too much overthinking, follow the leader, until disrupted.

That you spent "$300 million making the software and API so far" is irrelevant.

That "The API is really our primary focus" is irrelevant.

What the markets (Main St. & Wall St.) buy is what's relevant.

Denny Schlesinger
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55,000 -> 75,000 in 2 years is 17% growth rate. Not bad.

There is no reason HelloSign can't be small and profitable. How does that impact investing in DocuSign?

Denny Schlesinger
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Denny, The question was how easy it would be to create all the APIs that DocuSign has and it was pointed out that HelloSign also had APIs, so I compared the two companies. HelloSign is one of Docusign's biggest competitors.
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HelloSign is one of Docusign's biggest competitors.

Reminds me of a Stalin anecdote. He was going to invade Poland or something. Someone said...

"The Vatican is not going to like it."

"How many divisions does The Vatican have?"

"The Vatican has no divisions."

"Invade Poland!"

How big is HelloSign if DocuSign has a 70% market share?

Denny Schlesinger
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What do you think Denny....would 300 “seamless” integrations with “popular” tech giants software be easy to replicate?

There are products like Data Direct Cloud which exactly to provide those kinds of pre-built integrations.
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This discussion on the integration has been very helpful IMO....the main argument to dismiss DOCU has always been..."no moat".

That appears to be incorrect......not over analyzing this IMO, that was a very important discussion and easily verifiable from their web sites.
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So, SpringCM has 600 customers and get rev of $30k/customer/year for a total rev of $20M/y

Docu has 450,000 customers and they derive about $1400/customer. How does Docu define a customer?

From their earnings
As of October 31, 2018 , we had over 450,000 customers, including over 50,000 enterprise and
commercial customers, as compared to over 350,000 customers and over 35,000 enterprise and commercial customers as of October 31, 2017 . We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract to access our platform. We define enterprise customers as companies generally included in the Global 2000. We generally define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and small-to-medium sized businesses ("SMBs"), which are companies with between 10 and 249 employees, in each case excluding any enterprise customers. VSBs include companies with fewer than 10 employees. We refer to total customers as all enterprises, commercial businesses and VSBs.


If Docu is wildly successful how many of its current customers can start using the SpringCM SOA? Given that the per customer revenue ratio is about 20X my guess is Docu can get about 1/20th of its total customer base to start using SOA which comes to 20,000 customers which is about 40% of its enterprise and commercial customers. This can yield additional rev of about $600M/y or a doubling of its current revenue.

The key is for Docu to continue to grow their enterprise and commercial customers. This has grown 43% in the last Q yoy. Very nice.
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Just noticed this: https://seekingalpha.com/news/3426269-dropbox-scoops-hellosi...

Dropbox is acquiring Hellosign. Don't know what that will mean competition-wise to DOCU but maybe something to be aware of?
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I think that becomes a quite formidable challenger. It might increase the likelihood of Microsoft or Box or Amazon looking to buy out Docu.
A
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What is telling to me is that like Salesforce and Microsoft Dropbox spent $200 million instead of building in-house. Not so simple to replicate.

A lot of competition in the SoA market however. ESignature appears to be the core element, like a designer faucet to build your house around, to the SoA market and it seems everyone wants a cut of it.

Sure, the same everyone probably want their cut of the HCI market as well...but not much of a piece remaining to be taken there it seems. SoA and it’s related areas are still up for grabs and DocuSign has acquired a very good core to makes its claim. Best of breed eSignature and best of breed software. A lot to like there. Still, category killer in eSignatures, TBD in vertical areas, but that is what great brands do. They start at their core and branch it out.

That is what we expect Zscaler to do, Nutanix to do, and we expect the same f DocuSign.

Let’s see it play out. Heck back July 2020. Wonder how Nvidia will be doing by then? Perhaps I’ll upgrade to a VR UHD visor w Turing. Be happy to just be alive and blessing if prosperous.

In the end that is what we are investing in. I’m quite happy for now but commercials are too long. Steaming TV largely destroys the TiVo convention of skipping commercials so must preoccupy self w something. Why not DocuSign comments.

Tinker
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https://techcrunch.com/2019/01/28/dropbox-snares-hellosign-f...


Dropbox bought hellosign for the workflow capabilities. Hellosign says they will get more resources with Dropbox (this coming from a ceo who said they did not need money to begin with).


HelloSign is working on a replacement for the pdf.

http://www.spokesman.com/stories/2019/jan/28/dropbox-to-acqu...

According to this article hellosign has 80k customers. So DocuSign has 5x the customers. But trades at 36x the price hellosign was acquired at.

Either they sold out for way too low or they don’t get nearly the quality customers and rev/customer DocuSign does.

So what I think is happening is these esignature companies are morphing from esignature to document management and that is where their value is.

Not sure what else there is to say about this. I rolled the dice and will see what happens in a few quarters.
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What is telling to me is that like Salesforce and Microsoft Dropbox spent $200 million instead of building in-house. Not so simple to replicate.

Simple enough but time consuming. Once you have a model to copy or a product to reverse engineer, the hard part, imagining it, is done. What's left is sweating the code. Time really is worth a lot of money, why reinvent the wheel?

Denny Schlesinger
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