April 6, 2021
Auth0 Was Destined to Fail. What Happened?
Okta surprised a lot of people with the news that they were acquiring Auth0 for $6.5B. Why was Auth0 so successful and why did almost everyone miss their rise?
#1: “They’re not in Silicon Valley”
Everyone is quick to throw shade on tech companies located outside the US. “I don’t know about you,” people said, “but I’ve never heard of a successful software startup emerging from Argentina”. With so many engineers located outside the US, it seemed logical to question whether Auth0 had the pedigree to succeed in this space.
Through 2020 and the pandemic shutdown, we’ve learned a simple truth about distributed workforces: location doesn’t really matter. Auth0 believes in the culture it has built and continues to grow through remote-centric-hiring.
#2: “The cloud is not a safe space for authentication”
Storing usernames and passwords is one of the most critical things a company can do, and it seemed counterintuitive that people would let some other company manage such a critical function. Especially If they proposed to put that data in the cloud.
It turns out this concern was not warranted. Okta had already proved you could do it for employee identity. Auth0 proved the concept with solid customer experience, revenues, and investor confidence.
#3: “DIY will kill them”
Auth0 set itself up in competition against both free and in-house solutions. Authentication is a product that all the big cloud computing vendors have and give away for free — so, people asked, why should companies pay for it? And if they are paying, why not keep the cost in-house?
In the end, that instinct meant that everybody had a “good enough” solution, but nobody had a delightful experience. It turns out that a purpose-built API provides exactly what companies are looking for, and they have the data to prove it: $11.7M total benefit to users, with 548% ROI and payback in under 6 months.
#4: “Okta will kill them”
Auth0 had the three big cloud computing companies as its competitors, and Okta was a clear leader in identity management. They had claimed their stake in the market, they were funded by the best companies, they were on track to go public, and then they successfully IPO-ed.
What people missed is that Okta is sold to CIOs, while Auth0 is sold to CTOs, and those two people are fundamentally different. The fact that your CIO bought single sign-on from Okta, at, say, a company like Walgreens, has no impact on the guy who’s building the mobile app for Walgreens. He doesn’t care. He’s going to go buy a single sign-on widget that he loves. It’s a developer purchase versus an IT purchase, and the developer is driving change in this space.
#5: “Open source will kill them”
Auth0 started out as open source, and they have open source competitors. Turns out, you can still build massive companies that start as open source but then offer paid cloud offerings. Elastic and MongoDB successfully did it, and so could Auth0. And it did.
#6: “Niche market will kill them”
Auth0 was perceived widely as a niche product for DIY app developers. With likes of Ping, Okta, Salesforce, and Microsoft offering very comprehensive solutions. It turns out this has been a persistent mistake investors and observers have made. They also said this about Zendesk, HubSpot, and even Stripe. It’s best to dominate a clear, narrow market and then expand from there.
A New Architecture
Skyflow was built on the belief that there is a new class of problems in identity, security, and privacy that are best solved by developers, with a platform built by and for developers. This is the new API-first, developer-first architecture. And in this new environment, Auth0 was a leader and its acquisition by Okta was a safe bet.