Here’s how AI could help Cloudflare win new customers

Cloudflare (NET -2.44%) already has a dominant presence on the internet. About 18% of all websites have Cloudflare acting as an intermediary, speeding up requests and providing protection against malicious traffic. The company offers these basic services for free, with more advanced services available as part of its subscription plans.

While Cloudflare already captures an enormous share of global internet traffic, the advent of artificial intelligence could push that share even further. Website owners face a new problem: bots controlled by AI companies are scraping their content for AI training purposes. Some major online publications have entered into deals for access. News Corpfor example, it is paid up to $250 million over five years in an OpenAI deal. For smaller online publications, such direct offers may be unaffordable.

Cloudflare wants to help websites make money from AI

On Monday, Cloudflare announced two new initiatives that could help attract new customers. First, AI Audit is a new tool available to all Cloudflare users that details which AI bots are accessing which content on a given website. Cloudflare uses information that bots often include in their requests, as well as things like IP addresses and behaviors to classify and identify which AI company is accessing a particular website.

The AI ​​Audit tool helps online publishers determine how much of a problem AI bots really are. Cloudflare allows users to cut off access for AI bots, giving publishers time to determine the right strategy. Access can be granted for certain types of bots or blocked entirely. Alternatively, deals could be made directly with AI companies for access.

For online publishers who may not have the ability or resources to close individual AI access deals, Cloudflare has another option in the works. The company plans to launch a new feature that allows website owners using Cloudflare to set a price for sections of their site and charge AI companies for access. Cloudflare plans to handle the details of website owners, making the process of monetizing their sites very simple.

This feature is set to enter beta, although no timetable has been given. Cloudflare plans to start inviting users to participate in the beta based on how long they’ve been using the company’s platform.

An incredible retention tool

Cloudflare already has a strong case for potential customers: the company’s platform can accelerate and protect websites for free. With this new AI monetization tool, the presentation has become much more powerful. Now Cloudflare users can open a new revenue stream for their websites with the click of a button.

It’s not hard to see how this new feature could be a powerful magnet to attract website owners who have avoided Cloudflare until now. It also gives existing users a good reason to stay, as monetization goes out the window if they switch platforms.

While Cloudflare hasn’t announced pricing for this new feature, I wouldn’t be surprised if Cloudflare doesn’t take a discount. By offering this service for free, Cloudflare can attract new customers with sizable websites and sell them on subscription plans and advanced features. Cloudflare generates about two-thirds of its revenue from customers who spend at least $100,000 annually. This new feature looks like a great way to increase the number of large customers with large IT budgets.

With so many websites running through its platform, Cloudflare has leverage as it aims to make AI companies pay for access. Once this happens, other websites looking for new revenue streams will be attracted to the platform. This is a great example of the network effects enjoyed by Cloudflare.

Cloudflare stock is definitely expensive. The company is valued at nearly $30 billion, is not profitable, and is expected to generate about $1.66 billion in revenue this year. While the valuation makes Cloudflare’s stock risky, the company’s ability to leverage its platform to deliver new services is unmatched.