Cloudflare(NYSE: NET) already has a dominant presence on the internet. Around 18% of all websites have Cloudflare acting as a middleman, speeding up requests and providing protection from malicious traffic. The company provides 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 emergence of artificial intelligence could push that share even higher. Website owners face a new problem: Bots controlled by AI companies are scraping their content for AI training purposes. Some large online publications have struck deals for access. News Corp, for example, is reportedly getting paid as much as $250 million over five years in a deal with OpenAI. For smaller online publications, such direct deals may be out of reach.
Cloudflare wants to help websites make money from AI
On Monday, Cloudflare announced two new initiatives that could help draw in new customers. First, AI Audit is a new tool available to all Cloudflare users that breaks down which AI bots are accessing what content on a particular 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 enables its users to pause access for AI bots, giving publishers time to determine the right strategy. Access could be granted for specific types of bots or blocked entirely. Alternatively, deals could be struck directly with AI companies for access.
For online publishers that may not have the ability or resources to strike 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 intends to handle the details for website owners, making the process of monetizing their sites dead simple.
This feature is set to enter beta, although no timetable was given. Cloudflare plans to begin 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 pitch for prospective customers: The company's platform can speed up and protect websites for free. With this new AI monetization tool, that pitch just got much stronger. 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 for attracting website owners who have avoided Cloudflare thus far. It also gives existing users a good reason to stick around, as that monetization goes out the window if they switch platforms.
While Cloudflare didn't announce pricing for this new feature, I wouldn't be surprised if Cloudflare doesn't take a cut. By providing 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 spending at least $100,000 annually. This new feature looks like a great way to boost the number of large customers with big IT budgets.
By having so many websites running through its platform, Cloudflare has leverage as it aims to make AI companies pay for access. Once that happens, other websites looking for new revenue streams will be drawn to the platform. This is a great example of the network effects that Cloudflare enjoys.
Cloudflare stock is certainly expensive. The company is valued at nearly $30 billion, isn't profitable, and is expected to generate revenue of about $1.66 billion this year. While the valuation makes Cloudflare stock risky, the company's ability to leverage its platform to provide new services is second to none.
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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cloudflare. The Motley Fool has a disclosure policy.
