[music]

>> Cloudflare is riding the artificial

intelligence tailwind as generative AI

drives a shift in business for that

cloud company. Yahoo Finance's Gator

Baiter Brian Sozzi sat down with

Cloudflare's CEO Matthew Prince at Can

Lions to learn more about the growth

ahead.

>> Cloudflare is is firing on all

cylinders. It's just been amazing to see

that as we've built up what is one of

the world's largest networks that more

and more companies are trusting us to

provide their network security to make

sure that they're fast online. But I

think the thing that's been kind of the

real unlock for us and the reason why

we're here in Can is the internet's

business model is changing. Um Google

defined the business model of the

internet for the last 28 years and um

the business model of the next 28 years

is going to be different and I am here

talking to brands, talking to

advertisers, talking to uh companies

about what that future business model is

going to look like and I think

Cloudflare is going to play a role in in

defining what it is.

>> I'm glad you mentioned that because I

was listening to I think it was an

investor day for you all uh in earlier

June and you told me what you said at

the time on the investor call or analyst

day, whatever it is. Um the internet

will be different over the next 10

years. What or how will the internet be

defined over the next decade?

>> You know, I think the internet's had

platform shifts before. Uh we went from

a browser to social to mobile.

AI is a platform shift. The way that

consumers are consuming information is

through that AI interface and that's the

way that they're consuming information

today, it's the way that they're going

to

uh do commerce going forward and the

adoption rate has been just amazing. A

third of the world's population is

already using generative AI tools in

just 3 and 1/2 years. Um that to give

you some sense, that's twice the

adoption rate that we saw with mobile,

which was the last fastest growing

technology that's out there. And so as

these things become the the place where

we consume information, what that means

is if you're a platform, if you're Yahoo

Finance or or or the New York Times or

or anyone else,

fewer eyeballs are getting back to you.

And so the old internet business model

of showing advertising or selling

subscriptions isn't going to work in

this new world where information is

consumed in the AI platforms themselves.

Um your agents don't click on ads. And

so that's going to require us to find

some other way to make sure that content

creators like yourself and and others

continue to get compensated for what is

critical content that they're creating.

>> What is the way? What is the way towards

survival?

>> You know, I

I I I don't know that I know exactly the

answer. But I But I have a feeling it's

a couple of things. So first, um for the

first time in history, 2 months ago,

automated traffic, bot traffic, agent

traffic online passed human traffic. And

if it continues to accelerate at the

rate that we're seeing, in 5 years it

will be a thousand times more automated

traffic online than there is human

traffic online. In other words, humans

will be a rounding error on the internet

uh effectively. What that means is

there's going to be a whole bunch of

additional infrastructure, which is

needed in order to build that up, in

order to support it. And someone's going

to have to pay for that. And so I think

that there's going to be some version,

which the internet consumed from the

very beginning, of if an agent is

accessing a page, there's going to be

some kind of micro payment that goes

back. But to give you some sense,

Cloudflare, um we process about half a

billion internet requests per second

all all day long. We think between 1 and

10% of that will be appropriate for some

sort of microtransaction, which means

that we have to build a little financial

system that can do tiny little

transactions at day one, 10 million

transactions per second, to scale very

in a really reasonable time to 100

million transactions per second. To give

you a sense, Visa, the largest payments

network in the world, does about 18,000

transactions per second. So there's a

lot of really cool technology that we

have to build in order to support this

future. But I think micro payments, I

think having a marketplace for content,

making sure that you get to choose who

gets access to that content, and then

maybe, you know, an ads platform but

directed at agents rather than being

directed at humans. These are all things

that we're here at Can talking about

that our team is working on and thinking

about, and they're going to be necessary

if we're going to have a an a internet

in the future that is able to support

the agentic traffic that we're seeing.

>> It was a couple months ago. I'm sitting

at my desk this early morning, and the

news crossed of your

RIF, reduction in force. And I sat back,

and I'm like, all right, I'm not going

to send Matt an email because it's a

tough day, and I get it. Don't want to

be that guy. But I I'm like, this

company is doing really well.

>> Yeah.

>> Why would you need

to let go of 20%? Like that is That's a

That's a large number for a company

doing very well. And where did you Where

did these people come from?

>> Yeah, so so So, first of all, incredibly

emotional day. A lot of amazing people

who who we parted ways with. Um and and

and again, it's not fashionable right

now to say this, but it really was

driven by AI. And what we found was

we are

If you you go back to old Peter Drucker

books, like on like, you know,

>> Nightmares of college. Thank you for

doing that. I was having a good time

here, you know.

>> Yeah, sorry. Um but, you know, he talked

about there are sort of three different

functions within any organization. There

are people that build products,

there are people that sell products, and

that's where really kind of the business

drives value is in in building and

selling products. But then there's a

whole bunch of other people inside of an

organization that actually just measure

things all the time. The auditors, the

finance people, you know, a bunch of the

the marketing team, all the operations

roles that are there. And what we've

found over the course of the last couple

years is that a lot of these tools are

able to better measure

than humans were before. So, I'll give

you an example. Um we have an internal

audit function just like any public

company does. Yeah, we have a hundred

plus risk factor areas, and every

quarter we would pick sort of six in

order to audit, and and we would go

through that process.

That was constrained because it required

people in order to do it. We've now

moved to we're moving to a world where

we can take all of those different risk

areas and audit them continuously all

the time. And we can only do that

because we have built these tools. The

other thing is powerful is the number of

direct reports that can work for a

manager scales significantly more as you

have more tools to do that. So a lot of

again, great middle managers on our team

who are going to be amazing senior

managers at a startup or or another

organization. A lot of them we were just

like we need to flatten the

organization. We need to go from six

direct reports per per manager to up to

12. That's better for everyone. We found

that this has made us more productive.

We found that it's it's it's it's just

accelerating our ability to deliver

products. And we are hiring like crazy

builders and sellers, but we're using

the machines in order to do much more of

the measuring.

>> middle managers under pressure, those

jobs will get re-purposed. But

>> But yeah, they'll they'll they'll move

again, these are amazing people. They're

yeah, I mean and and and I think that

the thing is when I talk to peers

everyone says, yeah, I'm going to do

that. I'm we're going to have to do the

same thing. But they're like, I'm going

to do it when everyone else does it. And

honestly, I think that that's that's

poor leadership because in 6 to 12

months when we're going to see more of

these layoffs, it's going to be much

harder for these those people laid off

at that time to get a job. It'd be

better for the CEOs. They can hide

behind everyone else and just say,

listen, I'm a sheep in the flock and

everyone's doing it, so I'm doing it,

too. I think once we realized it was

something we had to do. We made the

decision it was the kindest thing that

we could do for the team was to do as

early as possible. And we've worked

really hard to make sure that those

people then get placed with great roles

cuz they're great people.

>> I'm thinking, you know,

a lot of these middle managers, they can

get through it. But like what happens to

these small businesses up and down this

boardwalk who don't have the capital to

invest in AI? To me, they're going to

get absolutely pummeled. Like what is

their next 5 years look like?

>> You know, last year when I was at

Cannes, I talked about how the future

media was really at risk. We really

needed to reinvent um the business

model. What I'm optimistic about is over

the last year we've actually kind of got

some good ideas and some traction and

and we're seeing the big media companies

like Condé Nast and and People Ink are

doing these really good deals that are

creating new revenue streams for them.

And I'm I'm proud of the fact that we've

helped catalyze some of that. This year

what I'm talking about is how dangerous

to small businesses AI is going to be.

Think about it this way. In the future

your agent is going to be where you do

more commerce. And if you think about

why why do you do business with a small

business today? Usually it's because

it's it's time efficient, it's

convenient for you. So you might stop by

the local bodega when you're, you know,

in New York. Or because you have some

emotional attachment to that place. Your

agent doesn't care about any of those

things. It's going to literally just

say, "Hey, I'm going to find the best

deal for the best product wherever it is

in the world. And if I have to search

through thousands of web pages, I can do

that in a second."

>> It's like a killer. It's just like

absolutely cutting through the internet.

>> And so what I am deeply worried about is

in that world, like I think the big

brands are fine cuz they have an

established relationship with consumers.

They have a reputation which is online.

But how does a new entrant, how does

someone who is says, "Hey, I'm just

hanging my shingle up for the first

time." How do they get the reputation?

How do they have a brand which actually

stands out? And if we don't create a way

for that to happen, if we don't have new

entrants that get into the marketplace,

then we're going to see massive

consolidation over time. And that's bad

for everyone. We want to have anyone be

able to survive. And so I'm spending a

lot of time meeting with, you know, the

leaders at at Visa, American Express,

Shopify, Salesforce saying like, "We've

got to do something in order to make

sure that every small business has the

tools in order to succeed."

>> is kind of is there there are no small

businesses.

>> That's right. And and we're again I was

I was meeting with the the um the guy

who used to run uh PayPal up until

recently and he ran small businesses at

Intuit and he said, "I worry that in the

future there are five companies left.

One that holds the real estate, uh one

that holds the money, one that builds

things, one that ships things, and an AI

company. Now, that's not what's going to

happen, but I do think that AI, given

its natural kind of tendencies, is this

massive consolidating force. And so,

what we're playing for is not a world

where there's, you know, two to five AI

companies. We should have 500,000 AI

companies. Not a world where there's,

you know, a very small number of media

content creators and publishers where

it's consolidated massively, but where

everyone can actually they have a good

idea, if they have a story to tell, can

reach a global audience. And not a world

where we have a few mega like

corporations, but one where anyone with

a small business, wherever you are in

the world, can do what the internet only

originally empowered them to do. We

can't lose that, and that's the world

that we're playing for.

>> Matthew, good to see you. You mildly

scared the hell out of me, but we're

going to we're going to leave it there.

We continue this conversation in Davos,

hopefully. All right, good to see you.