Industry analyst Gartner just released their 2022 Magic Quadrant for Application Performance Monitoring and Observability. These reports are important because they are consumed by enterprise IT decision makers as an input to technology purchase decisions. They provide a directionally useful measure of a provider’s position in a product market and how its offering relates to competitors.
If you aren’t familiar with the format, Gartner rates providers in a technology segment along two criteria – ability to execute and completeness of vision. The former measures the go-to-market motion, including items like sales execution, pricing, financial position, marketing effectiveness and customer experience. Completeness of vision is forward facing, measuring product strategy, business model, innovation and marketing communications. Each provider is assigned a score for each criteria. These are then graphed in a two-dimensional grid with four quadrants. The most desirable quadrant is of course furthest up and to the right, called the Leaders Quadrant.
Beyond assessing a provider’s absolute position on the grid, I also find it illustrative to compare their current position with that from the prior year. Movement down or to the left represents a loss of market share or product innovation. Over time, legacy players tend to migrate to the lower left quadrant, charitably called “niche players”.
Gartner defines the APM and Observability market segment as “software that enables the observation and analysis of application health, performance and user experience. The targeted roles are IT operations, site reliability engineers, cloud and platform ops, application developers, and product owners.” Interestingly, Gartner expanded the title of this year’s report to include the word “observability”. The context here is that observability adds meaning and explanation to monitoring data. It also implies that leading tools employ AI-augmented analytics to quickly identify or even predict issues, based on the underlying telemetry signals collected. Leading providers have incorporated this “intelligence” into their toolset.
In terms of the results, Datadog was assigned to the Leaders Quadrant for the second year in a row. Further, they were scored highest on the Ability to Execute and second highest in Completeness of Vision, just behind Dynatrace. While one might infer that Datadog is lagging Dynatrace, the important consideration is the relative velocity of Datadog’s move from year to year. Datadog has been rapidly ascending the diagonal line up and to the right over the last two years. In 2020, Datadog wasn’t even in the Leaders Quadrant, just making it into Visionaries. In 2021, they crossed into the lower corner of the Leaders Quadrant. Now, they are tied with Dynatrace for furthest up and to the right. Over the same timeframe, Dynatrace has largely remained in the same position.
Other competitors aren’t even close. New Relic has remained in a distant third, maintaining the same relative position for 3 years in a row. Splunk and Elastic remained in the Visionary segment, with some movement up and right. IBM ascended into the lower end of the Leaders quadrant after the acquisition of Instana. One company to watch is Honeycomb, who landed in the Leaders quadrant for inaugural entry. Legacy solutions faded as we would expect including Broadcom, Oracle and Cisco AppDynamics.
I plotted Datadog’s trajectory over the last two years using the green line, with small dots representing their absolute position in 2020 and 2021. Datadog’s gains in position were the largest of any vendor. I think this reflects Datadog’s strong product development motion, in which they launch new product offerings and flesh them out quickly. We should keep in mind that Datadog introduced their APM offering in 2017, after only offering infrastructure monitoring for their first 5 years. Competitors have had an APM solution in market for much longer.
The Gartner report highlighted several strengths in Datadog’s offering. They commended the broad platform approach, with a unified and integrated experience. Gartner also called out Datadog’s AI-enhanced analytics solution. Watchdog provides proactive alerts and automated root cause analysis. Finally, they noted Datadog’s strength in funnel analysis through real user monitoring (RUM). This allows operators to understand complex user behavior across product journeys, identifying churn and drop-off rates.
In terms of room for improvement, Gartner noted that some clients expressed frustration in pricing terms and limited discounting. They also pointed out that Datadog’s deployment model is only SaaS based and is not available as a download for customers to run themselves.
All in all, I thought the Gartner report underscored Datadog’s continued product innovation. Their competitive position improves every year, demonstrating the outcome of Datadog’s efficient investing in R&D. As we consider the report for next year, I expect Datadog to move even further ahead of competitive offerings.
NOTE: This article does not represent investment advice and is solely the author’s opinion for managing his own investment portfolio. Readers are expected to perform their own due diligence before making investment decisions. Please see the Disclaimer for more detail.
Hi Peter,
I’ve been reading you posts for years and I have come to rely on your expertise to a large extent. I am in your debt.
I understand that you’re accepting sponsorship for SSI. I am not in a position to provide sponsorship, except on an individual level. Your analysis over the years has been so important to my investing that I am fearful of your discontinuation of it. Now that you’re posting more than once a month, I’d almost feel better if you had some way of my paying you monthly for it.
I said the same thing to Muji a few times before he initiated a premium service, for which I pay him gladly. I’m not saying you should charge $60/month. I’m not suggesting you do anything different. I am saying I totally appreciate your analysis.
Thank you, thank you, thank you.
Jason
Jason – thanks so much for the feedback. I am looking for ways to monetize the blog content as you have noticed, primarily as a way to offset the costs of the service and to devote more time to it. I don’t think I will create a subscription service with a paywall, but am considering some other means of providing support on a voluntary basis. Perhaps a tip jar. The sponsorships help as well, particularly as traffic grows. Anyway, I appreciate your support regardless.
Thanks for the update. I heard there are so many SaaS products there are now SaaS products to manage SaaS products. A search confirms there are products to manage SaaS products, but I don’t know if they’re SaaS themselves. Is software to manage SaaS likely to be a growth area, and would that reduce the incentive for a business to use fewer SaaS vendors?
Interesting question, but not really something I have thought about. I think there will always be a need for the enterprise applications that SaaS provides. Whether humans are interfacing with them or ultimately machines, I don’t know. But, for my thesis to invest in the software infrastructure companies that power the underlying software applications, they would see demand in either scenario.
Hi Peter,
Thanks for consistently great analysis. Question on RUM: is this similar to product analytics platforms like Amplitude, Pendo, and Mixpanel? Wondering about the size of the opportunity there for Datadog.
Hi – RUM stands for real user monitoring. It traditionally has been used to measure the performance of an application from various points on the Internet to provide feedback to application developers. However, it could easily be extended to add analytics for product performance analysis similar to the products that you referenced.