Where is the next Datadog?
The puzzling case of a missing big data startup.
There are two seemingly universal truths you tend to hear from developers of complex products that need monitoring: Datadog is the far and away the best observability solution; and Datadog is really expensive.
But despite the seemingly obvious hole for a “Datadog, but cheaper,” startup, no clear candidate has emerged that appears poised to fully supplant Datadog—nor does one seem on the immediate horizon. The investor sentiment from some I talk to can basically be summed up as a “we’re looking for one too.”
I’ve spent the last few weeks talking to sources and industry experts to understand why that’s the case when there’s such a common complaint among enterprises and developers I speak with about the cost. And the reality is that there isn’t one really good answer—other than that companies just begrudgingly pay the bills because the platform is really good.
To be sure, there are a number of startups going after parts of Datadog in some fashion or another. The startups that come up the most often in conversations with investors and experts are Chronosphere and Grafana (and Honeycomb, though mostly about distributed systems). The former comes in a “some-of-Datadog-but-cheaper” context, and the latter is usually noted because of its visualizations and its work with the open source framework Prometheus. But most of the experts talk to don’t consider them to be potential wholesale competitors for Datadog, though they might be able to pick off parts of its business.
Instead, experts I talk to point to the immense moat Datadog has created over time with its platform expansion. After starting with monitoring, Datadog has picked up its pace of product launches to encompass functions adjacent to standard monitoring, such as logs, serverless monitoring, and additional functionality on top of its application management tooling.
This kind of classic customer pain point—something important is way too expensive—naturally lends itself to an obvious competitor or opportunity for a startup. But rather than pointing at any one specific startup or two that are obvious candidates to replace Datadog, it instead ends up more of a question: where is the “Datadog killer”?
The rise of observability
Observability broadly refers to the ability to trace and understand the behavior of certain functions within an app. In a consumer context, it could be why part of an app is suddenly crashing. For enterprises, it could be why some cloud clusters are suddenly spiking in usage. The function has become such an important part of the modern operational stack that it created a whole publicly-traded company—Datadog—to build tools around observability.
Founded in 2010, Datadog went public in September 2019, hitting a $10.9 billion market cap. Today, its market cap is a little short of $42 billion, and Datadog has said as of September last year it had about 3,130 customers with an annual recurring revenue of $100,000 or more (up 20% year-over-year). It generated $547.5 million in revenue in the third quarter last year.
That kind of business is naturally an enviable one and has led to a slew of additional startups looking to play in the observability space. Chronosphere, backed by Lux Capital, Addition, GV, and others, launched in 2019 and was valued at $1.6 billion in September last year.