Buried deep in Ouster's Q1 2024 earnings call transcript [1] lies a clue. Not a bombshell announcement, not a boastful CEO prediction, but a quiet shift that could signal a major turning point for the digital lidar company. It's a change so subtle that most analysts seem to have missed it entirely. But for those paying close attention, it's a potential gold mine.

Ouster, you see, isn't just about selling cutting-edge lidar sensors anymore. They're quietly transforming into a full-fledged autonomy solutions provider, weaving together hardware and software in a way that could redefine their market position – and their revenue potential.

The clue? It's the increasing emphasis on **subscription-based software**. Angus Pacala, Ouster's CEO, mentions almost casually that they're planning to release new subscription-based software tools later this year. These tools, designed to enhance ease of installation and provide deeper analytics for their Ouster Gemini and Blue City platforms, represent a crucial shift in Ouster's business model.

Why is this so significant? Because recurring revenue from software subscriptions offers a level of predictability and stickiness that hardware sales alone simply can't match. It transforms Ouster from a one-time vendor into a long-term partner, deeply embedded in their customers' operations.

And the timing couldn't be better. As Jensen Huang, CEO of NVIDIA, boldly declared last week, "Everything that moves in the future will be robotic." This sweeping statement underscores the rapidly growing demand for autonomous solutions across a vast array of industries. Ouster, already positioned as a leading provider of lidar "eyes" for these robotic systems, is now adding a powerful new dimension with their software offerings.

Imagine a future where Ouster's software isn't just a handy add-on, but the brains behind vast networks of autonomous vehicles, warehouse robots, and smart infrastructure installations. That's the vision that's starting to take shape, and the potential revenue implications are staggering.

Consider the numbers. Ouster closed a multi-million dollar deal in Q1 to deploy lidar hardware and the Ouster Gemini software platform at 130 logistics sites for a single global logistics company. That's just 5% of that customer's global footprint. If Ouster manages to expand to the remaining 95%, that single customer could represent tens of millions in additional revenue, much of it recurring. Now, multiply that by the hundreds of other global logistics companies out there, each grappling with the need for increased efficiency and automation in their sprawling distribution networks.

Then there's the security market, a $32 billion behemoth ripe for disruption. Ouster Gemini, with its advanced lidar-powered perception capabilities, offers a compelling alternative to traditional camera-based systems, especially in challenging environments where privacy concerns are paramount.

These are just two examples of the immense potential that Ouster's software play unlocks. As they continue to refine their offerings and expand into new markets, the revenue contribution from this segment could become the dominant force driving Ouster's growth.

While it's still early days, the company's Q1 performance offers encouraging signs. Their non-GAAP gross margin hit a record 36%, indicating strong pricing power and operational efficiency. They also managed to significantly reduce their cash burn rate over the past year, demonstrating a commitment to financial discipline as they invest in future growth.

Projected Software Revenue Growth

The following chart displays a hypothetical projection of Ouster's software revenue as a percentage of total revenue, illustrating its potential impact.

Here's a hypothesis to consider: Ouster's software revenue, while currently undisclosed, could account for as much as 10% of their total revenue by the end of 2024. Given the high margins and recurring nature of this revenue stream, even a relatively small contribution could have a significant impact on Ouster's overall profitability. By 2025, as the software business gains momentum, it could represent 20% or even 30% of their total revenue, propelling them firmly towards profitability and establishing them as a dominant force in the burgeoning autonomy ecosystem.

Ouster's story is no longer just about lidar. It's about a company strategically positioning itself at the intersection of hardware and software, riding the wave of automation that's transforming the world around us. And that subtle shift towards subscription-based software could be the key that unlocks their true potential.

"Fun Fact: Ouster's lidar sensors have been used to map the Titanic shipwreck, providing unprecedented 3D images of the iconic vessel."