Well worth reading/listening to this insightful interview of DDOG CEO answering questions about moat, pricing, how their security offering is completely different from CRWD, future growth etc. Many of these interviews are blah, this one is good. My takeaways are very positive.
Thanks for this link. Adding to what was said at JPMorgan, Peter Offringa at softwarestackinvestimg,com just publish his recent take on Q1. Related to a couple of topics on this JPMorgan podcast, here are some of my notes.
Since most point offerings look the same, vendors are judged based on the number of feature solutions they support, with the broadest offering generally winning. This development has favored the larger vendors, with the R&D budget or balance sheet to support adding all features through internal development or acquisition.
Going forward, I expect this to persist. The leading vendors will continue to expand their offerings to check more of the boxes in a CTO/CIO observability checklist. Given that most observability solutions have some set up cost (agent installation, data collection, operator training, alert configuration, etc.), reduction of providers is more efficient where features are similar. Also, it simplifies issue investigation by reducing the number of monitoring systems to check. Toggling between multiple monitoring tools is not efficient for DevSecOps personnel. These trends further support the hegemony of the largest vendors and creates a formidable barrier of entry for new entrants (hard to win market share with just a couple of point solutions). If nothing else, feature inclusion provides customers with future optionality. In the 2010’s, engineering teams (mine included) accepted the idea of having a separate vendor for logs (Splunk, Elastic), APM (New Relic, Dynatrace) and infrastructure (Datadog, open source). Now, it is reasonable and more efficient to expect one vendor to address all of these.
Regauardimg Pricing model when going up against competitors that have been marketing their lower cost:
Back to Peter O
I think this pricing model will be sustainable for Datadog, primarily due to the value that observability provides. A CTO/CIO expects to spend some percentage (usually 5-10%) of their overall IT budget on observability.
The total amount of revenue provides a sense for scale (it’s easier to grow quickly on smaller numbers). Let’s take a look at the most recent quarter for the public providers.
Company Total Revenue Annual Growth Other Indicator
DDOG $199M 51%
ESTC $157M 39%
DT $197M 31%
SUMO $54M 22%
NEWR $173M 8%
SPLK $745M -6% ARR up 41%
Comparison of Observability Leaders, Sorted by Revenue Growth
I believe Datadog taking the lead in Gross Revenue is new. Also I noted Datadog’s marked increase in position in Gardner’s Leader Quadrant for APM last month. I believe these are also significant indicator of Moat/Pricing power and significantly separate Datadog from their competitors.
I really liked what Olivier Palmer said in your linked Podcast about what differentiates Datadog from Crowdstrike; but, he did say Datadog is going after Cloud workload posture…which is a confusing turn of phase for me. I don’t really understand how the two go together?
Long 16% Datadog