What had been cloud or bust for Atlassian has become a more moderate message, as Data Center holdouts remain and the company works to further FedRAMP compliance for its cloud.
Atlassian, which has made no secret of its long-term expectation that all its customers would eventually move to the cloud versions of its products, touted customer cloud conversions at the U.S. edition of its Team conference in May and sent a strong message that customers that hadn't yet moved to Atlassian cloud should start planning for the move. But in a letter to shareholders and an earnings call presentation in August, the company revealed a shift in mindset.
"Many of these enterprise customers will move to Cloud over a multi-year period, and an increasing number will adopt a hybrid approach of both Data Center and Cloud as they shift their teams and users over time," the shareholder letter read. "As a result, you'll hear us speak more about enterprise as a top strategic growth initiative in the years to come, encompassing the Data Center to Cloud journey."
This week at its Team '24 Europe conference, Atlassian unveiled cloud-based product connections to Data Center versions of its tools, which have been scarce in recent years. This week's product updates included a Data Center connector for Atlassian's newly generally available Rovo AI product, and a preview of a coming feature called portfolio insights.
Slated to become available in 2025, portfolio insights will provide a centralized view of all Atlassian products under management by customers, including both Data Center and Cloud versions.
"Portfolio insights is a tool that provides a 360-degree view of the organization's tool stack, surfacing all Atlassian Cloud, Data Center, and third-party tools into a single dashboard view," according to a company spokesperson this week. "It also offers tailored recommendations to drive a more efficient and optimized tooling ecosystem so that organizations can maintain the health of their data as they scale and evolve."
Data Center holdouts linger, but for how long?
One Data Center edition user said the Rovo AI connector is unlikely to appeal to leadership concerned with security, as Atlassian's AI services sometimes send data to third parties such as OpenAI, according to a company FAQ.
"After [the Team '24 Europe] Founder's Keynote, I really want to be on cloud … they are building great ecosystem of connected tools," said Marcin Lis, a senior Atlassian engineer at an EU entertainment company, in an online interview this week. "But if we ever go with [an LLM] we will train one in-house."
Lis said his company is in limbo for now, watching the development of both Data Center and Cloud tools. Atlassian hasn't let go of the idea that most Data Center customers will eventually move but has to take a slower approach with them, Lis said.
"Customers which are still on the Data Center [versions] are large or very large instances, which means too much money to abandon or scare away such customers, because then they could choose competition instead of the [Atlassian] cloud," he said. "We invest too much time in our solutions to just drop it and start from scratch, [but] even Cloud with [customizations] like ScriptRunner is not for us at this moment."
There will always be some Data Center holdouts, said Charles Betz, an analyst at Forrester Research – the question will be how many and how much revenue for which they account.
"Will it be enough for Atlassian to sustain those products?" Betz said.
To another Atlassian user, the answer already appears to be yes.
"It seems like there are enough of them" to warrant continued investment in Data Center editions, said Andy Rosequist, vice president of engineering at Sector Alarm Group, based in Oslo. "I suspect that for those big customers, the move to Atlassian cloud is just as complex as the move to a competing platform. So they need to not drive them away."
If ultimately, GenAI is the cat's pajamas and you can't do business without it, that will be a forcing factor to get people off of on-prem [tools], but GenAI ain't there yet.
Charles BetzAnalyst, Forrester Research
But Betz said it's too soon to tell, and the answer will ultimately depend on macroeconomic factors currently in flux, from uncertainty about ongoing wars and climate change to whether generative AI lives up to its promise.
"If ultimately, GenAI is the cat's pajamas and you can't do business without it, that will be a forcing factor to get people off of on-prem [tools]," he said. "But GenAI ain't there yet. It just ain't."
For now, like Lis, Rosequist also questioned whether a connection to the cloud-based Rovo AI service would make a significant difference for Data Center holdouts.
"I am a bit surprised that any customer not already in the cloud would be interested in sending their data to the cloud AI platform without migrating the rest of the data, but I suppose it's a pragmatic choice," he said.
The wave of AI hype might also have had a paralyzing effect on Atlassian customers so far, said Andy Thurai, an analyst at Constellation Research.
"While some of the AI vendors and hyperscalers are ahead of others, the users are torn between keeping the data and AI push to their primary cloud or having localized and multi-cloud variations," he said. "Given [that] new dimension in enterprise IT strategy, a lot of enterprises choose to wait a bit longer than go all in on the Atlassian cloud version."
Among the slowdowns Atlassian has encountered in pushing its largest and most security-sensitive customers into its cloud services is its lack of Federal Risk and Authorization Management Program (FedRAMP) Moderate certification, which remains a work in progress. FedRAMP Moderate is the second-highest impact level for cloud service offerings under the program, and accounts for the majority of CSOs that receive FedRAMP authorization, according to FedRAMP.gov.
Atlassian reached "In Process" status with FedRAMP Moderate for a new Atlassian Government Cloud in July, the last step before full authority to operate under the Moderate baseline on the FedRAMP marketplace. It also plans to seek FedRAMP High status as well as US DoD Impact Level 5 (IL5) compliance, according to a July blog post. Atlassian is also working on bring-your-own-key encryption support for cloud services and support for up to 150,000 users on a single site for Confluence Cloud to satisfy Data Center customer requirements, according to a company spokesperson this week.
In the meantime, Atlassian has begun to offer certain high-scale, highly sensitive customers hybrid enterprise license agreements, according to Mike Cannon-Brookes, co-founder, CEO and director, in comments during the company's August earnings call.
Atlassian officials did not say this week whether FedRAMP Moderate compliance has taken longer than expected. The company was touting secure cloud services for government as long ago as 2020; its shift to a cloud-first company has been ongoing since 2019, and included the announcement of end-of-life for on-premises Server editions of its products and price hikes for Data Center editions in October 2020.
"Aggressive pricing, discounts and enablement, combined with fewer features in the on-prem versions, made a lot of customers look at [Atlassian] cloud seriously," Thurai said. "However, the FedRAMP certification delay … some of their customers considering cloud repatriation [and] existing data center investments … which are fully under their control, also made them hesitate."
Atlassian isn't alone among enterprise IT vendors that have encountered slow progress with a push to replace on-premises tools with newer cloud services. Microsoft, SAP and Oracle have all had to guide customers through thorny cloud migrations in the last year, with varying degrees of success. Under Broadcom, VMware has officially shifted its strategy away from public cloud toward enterprise private cloud support, as reports of enterprise cloud repatriation among at least a vocal minority of users persist.
"All the easy-to-migrate workloads were migrated to cloud, [along with] the workloads that really needed dynamic capacity on demand," Betz said. "You've got a real complex set of economic factors converging here … that's going to lead people to not want to make big changes."
Beth Pariseau, senior news writer for TechTarget Editorial, is an award-winning veteran of IT journalism covering DevOps. Have a tip? Email her or reach out @PariseauTT.
