Here are my notes from the interview with Data Dog (DDOG) CFO, David Obstler from the William Blair Growth Stock Conference that concluded a moment ago.
06/07/2023 1:20 PM Central Time
David Obstler, CFO
A Customers value everything linked and having a single platform. Clients land with more than one product and then continues upward to 80% product adoption.
Q AI Ops, now that you’ve got a broad category of offerings. Who do you help customers with this?
A Have always had various degrees of AI. Trying to help their DEVOPS become more efficient with the DDOG platform.
Q Generative AI. How are you thinking about the magnitude of data and workloads that could be used to help customers via DDOG?
A Been able to train models to help customers. More workloads for DDOG to monitor. This is complementary to DDOG customers. Always been a good fit with machine learning and AI customers. One of the customers who is helping customers w/ DDOG is an unnamed company and was unnamed in their recent earnings announcement.
There will be other things that DDOG can do to use AI to help customers.
Q DDOG is helpful w/ complex infrastructures. Generative AI makes it more complex. Are you starting to have customers say they want to go to the cloud earlier because of this?
A To be honest, the software world doesn’t know how this will be monetized. It’s a little too early to give examples, but they’ll let everyone know as soon as we know.
Q DDOG is great, but there are other players. How do you compete and make sure you’re the number one winner?
A Main way DDOG has won is investment in product. R&D is an outlier relative to their competitors. Can be installed in a very frictionless way and that is key to their go to market. The next part is that clients are speaking that they need a tightly integrated package that can be deployed ubiquitously. Developing more and more functionality is key. The next thing is that they’ve been value raising in lieu of price raising. Constantly staying ahead of the game in terms of development of technology.
Q Revenue went down due to optimizations and macro. How did it impact DDOG?
A In the middle there was a bubble. Also had a capital markets that put a value of growth and profitability. Once the fed started raising interest rates it started squeezing things out. Gross retention has stayed in the upper 90%’s. New workloads have gone up. Clients are optimizing consumption. Don’t know when optimization is going to be over. When all their customers are done with all of their cost management. They have said that optimization will likely run its course the rest of this year.
Q What does a typical optimization look like and how long it lasts?
A Optimizations going on internally at DDOG and with their customers. Clients are at different times emphasizing different speeds and intensities. When AWS and Azure optimizes, DDOG will be a part of that.
Optimization provides an opportunity to cross sell with shift left and other offerings.
Q As we head into a tougher budget environment. What are early results w/ consolidation?
A Cloud native…the platform has been one of the winning propositions. There are other products and installed basis, champions and contracts. Finding steady consolidation away from competitors and to DDOG because they can increase the efficiency and overall cost.
Q Shift left and DDOG Security offerings.
A DDOG is not doing endpoint, email, etc. They’re doing cloud security, security posture mgt., application management. They have approx. 20% (5,000) of their customers using DDOG’s security offering. Still not fully functioned, and still building out their security.
Q Who in security are you competing with?
A PaloAlto through Christmas suite and WIZ ORG (?), but mostly greenfield. How will clients buy DDOG for security if they want a complete security suite? DDOG is willing to invest.
Q How don’t DDOG customers get satisfied with your security offering?
A Competitive advantage could be building out the AB Sec and they’re not quite there yet re: parity.
Q R&D is close to 30% of revenue. What are new products for which you’re excited?
A Launched and still building out cloud cost management. Good early traction and it’s still early.
Shift left, ITSM are opportunities to build out TAM.
Q Go to Market/sales/upselling
A The way the product is created and is easy to download with no intervention allows them to use their product very quickly. Clients are selling for us and it doesn’t have to be selling with go to market group every time a client buys.
Q In addition to R&D, how has DDOG invested in themselves/the company?
A Invested substantially w/ sales, account engineering, technical acct. mgt, etc.
Outside, it’s GSI’s technical resources, significant investments and will see more of this in the future.
Q How are you thinking about addressing Data Dog in an uncertain macro?
A How to make handling the data more efficient. They’ve always priced not on ingestion, rather allowing clients to see where they’re spending their dollars so they can do it in the best way possible.
Q What makes you most excited about DDOG and staying with the company.
A This is my 5th software company. You can manage, but you have to have product/market fit and TAM to be successful. It excites me that we invest in the product. My partners are really good and really smart and unbelievably good visionaries and executers.