Here are my high level thoughts on the Observability Market and the vendors in it.

  1. The “SaaS Apocalypse” does not apply to the Observability and Cyber Security markets and vendors. In fact AI will expand the TAM, expand the problem set, and help the vendors differentiate their products and add value to them. Examples:
    1. As customers add LLM functionality to their applications, they need LLM monitoring which expands the TAM for Observability
    2. As customers put Agents into production, they will need Agent monitoring (a new and different problem), and which expands the TAM and the value for Observability
    3. As customers use Vibe Coding they become more efficient at software development, which will increase the number of applications in production, which expands the TAM for Observability
    4. Vibe Coding also increases the TAM for Observability because it puts applications into production, which no human completely understands (which means that they have to be monitored).
    5. The fact that customers are choosing to run open source AI models on their own infrastructure highlights an important point – customers want to retain control of their business data. Observability vendors have access to this proprietary customer data (for monitoring purposes), which highlights their moat against disruption.
    6. AI can be used by the vendors to automate the problem detection, root cause and fix verification processes which will dramatically expand the value of Observability solutions
    7. Please see “Observability and the SaaS Apocalypse” for more details.
  2. As time progresses, we should continue to see improved growth rates and improved margins on the part of the major Observability vendors (Datadog and Dynatrace) as a result of TAM and value expansion.
  3. The current scare (AI will kill us all) will get resolved in the same way as previous scares (common sense will prevail). Managing and controlling AI will become a major new growth opportunity for the Observability and Cybersecurity vendors.
  4. 80% of the Observability Market is using open source and home grown tooling, and the new parts of the market (LLM monitoring, Agent Monitoring, etc.) are almost completely unpenetrated.
  5. Datadog and Dynatrace have different (from each other) products and go to market machines. Both companies can continue to grow by focusing upon the 80% unpenetrated part of the market and the growing parts of the market. This is far from a zero sum game which means that neither company is going to focus upon killing the other.
  6. The Observability Market is not consolidating. Evidence of this is the increasing number of startups targeting the space including Cribl, Lightrun, Causely, Dash0, GroundCover, Odigos, Last9 and Braintrust.

In conclusion, the Observability (and Cyber Security) markets will remain vibrant and rapidly growing for the foreseeable future. In fact, AI is the gift that keeps on giving to the Observability vendors.