As it prepares to abandon its on-prem server products, Atlassian is content. Users? Not so much

Massive price rises are coming for smaller holdouts, and Australian vendor knows its bottom line could hurt

In October 2020, Atlassian announced that it would end support for its server products on February 15, 2024. With that deadline now less than five months away, the Australian developer is content it's done the right thing by customers – yet has warned investors the move is a risk to revenue.

Atlassian offers its wares in three forms. The company's preferred form is from the cloud, in conventional software-as-a-service style that sees Atlassian manage software and infrastructure. Users can also buy datacenter licenses that renew annually and require users to manage the software and hardware to run it on. Until 2021, Atlassian offered "Server" products under a perpetual license, again with a requirement to provide and manage hardware. Support and upgrades for server licenses were available, for a fee.

In 2020 Atlassian decided it wanted to be a cloud company. It argued that doing so would deliver a better experience for customers, and flagged deprecation of its server products.

By trying to serve both audiences we did neither well

"Our first products were servers," Atlassian chief revenue officer Cameron Deatsch told The Register. "This was how every software product worked before the internet."

But around 13 years ago Atlassian started to sell cloudy software, and according to Deatsch "realized early on that SaaS is the future of enterprise software, broadly."

The Australian vendor kept its SaaS and server products at parity, but didn't find that easy.

"By trying to serve both audiences we did neither well," Deatsch admitted.

In 2016, Atlassian therefore split the code base for its SaaS and server products – a transition that Deatsch conceded other software companies had done years earlier. While Atlassian believed its future lay in the cloud and SaaS, the server products were kept alive.

"The biggest reason we did it is we were not fully capable of handling all our server customers in our cloud at that time," Deatsch told The Register. Privacy, data sovereignty, and the challenge of nailing privacy and regulations like the US Health Insurance Portability and Accountability Act (HIPAA) also meant Atlassian wasn't confident it could deliver for all customers.

But by 2020 it was ready to go all-in on SaaS – for most customers.

"Even with three years to prepare for these changes, we understand that not every customer will be ready to make the switch from our server products to our cloud products. And, some of you have business requirements that might prevent you from ever operating in the cloud," wrote co-founder and co-CEO Scott Farquhar.

Atlassian therefore persisted with its datacenter licenses, to ensure it continued to offer an on-prem option.

But the vendor didn't change the licensing tiers for datacenter licenses, which start with a band that covers between one and 500 users – at a flat price, regardless of how many people actually use the software.

Owners of server licenses looking for an on-prem migration path therefore faced the prospect of paying for 500 seats – which costs at least a five figure sum each year – even if they have many fewer users.

Deatsch told The Register that decision was made because Atlassian focussed on the needs of larger users as it continued development of the datacenter products.

Atlassian also felt that larger users might have technical reasons that prevented them from adopting its SaaS, but that smaller customers probably did not. Deatsch added that orgs with around 200 users will find it's cheaper to adopt its cloud ofering instead of datacenter licenses – likely even more so after total cost of ownership calculations.

Yet Atlassian happily offered server licences for up to 10, 25, 50, 100, 250, or 500 users.

Some customers who can't or won't adopt Atlassian's SaaS aren't happy because the datacenter licenses mean they face price rises. Several spoke to us on the condition we not identify them, as they are in ongoing negotiations with Atlassian.

Users who are caught in that trap tell The Register that repeated requests for flexibility have gone unanswered, and that Atlassian knows some customers face an impossible choice – but the vendor isn't budging.

"I think there are lots of small users at under 500 seats who don't know what to do," said Thomas Murphy, a senior director analyst at Gartner. Murphy cited other vendors' migration plans that offer extended support, especially for custom apps. He's unsure why Atlassian chose not to do so.

Another source of concern is that Atlassian's development plans are now very much cloud first – as typified by last week's acquisition of asynchronous video outfit Loom, which customers were and told will only be integrated with cloud products. Holders of datacenter licenses won't get the apparently revolutionary new embedded video features.

Some Atlassian users who contacted The Register told us they've started, and paused, migrations away from server products because the process was not easy.

Atlassian's Deatsch told The Register migration rates have exceeded the vendor's forecasts.

"We thought enterprises would be slow, but they were fast," he said. "Many got cloud mandates from their CIOs."

His goal for the next five months is to ensure that every remaining server customer "knows their options and understands incentives like migration tools, discounts, and extended trials."

Revenue risk

But Atlassian is also bracing for the impact of customers who decide to stop paying for server support.

In the company's most recent letter to investors, co-CEOs Farquhar and Mike Cannon-Brookes named "two significant factors which may impact our revenue results in FY24."

One was macroeconomic uncertainties. The other was "customer purchasing and migration decisions related to the end-of-support for our server offering," which the pair warned will "drive quarter-to-quarter variability in our cloud and datacenter revenue growth rates depending on when and how our server customers ultimately choose to migrate: direct to cloud, direct to datacenter, or to some combination of cloud and datacenter.”

The co-CEOs admitted "some portion of our Server customers will not migrate in FY24." Or perhaps they'll just quit Atlassian altogether.

Deatsch declined to share the number of server users yet to migrate, but said Atlassian is certain its decision to go cloud-first was correct.

"It was a massive strategic bet, but at every step along the way we confirm it is the right call," he said. ®

Bootnote: If you're yet to migrate your Atlassian server and aren't happy with your options, contact the author here.

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