 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Application Performance Management, aka APM, you know it's been around since the days of the mainframe. Now, as systems architectures became more complex, the technology evolved to accommodate client server, web tier architectures, mobile, and now of course cloud-based systems. A spate of vendors have emerged to solve the sticky problems associated with ensuring consistent and predictable user experiences. The market has grown, I mean, it's decent size, it's about $5 billion globally. It's growing at a consistent 10% cagger. It's got a variety of established companies and new entrants that are attacking this space. Hi everyone, welcome to this week's Wikibon Cube Insights powered by ETR, my name is Dave Vellante and today we welcome back ETR's Eric Bradley, who is the chief engagement strategist at Activity, which is the holding company of our data partner, ETR. Eric, my friend, great to see you. Thanks so much for coming on and spending some time with us. I always enjoy it, Dave, great to see you too and I'm just glad I got some fresh material for you. Well, as always, you have fresh data. Now, Eric just recently hosted an ETR Venn session and on this particular topic, APM. Now, Vans are an open round table. They're exclusively available to ETR's clients and what we do is we sometimes come on theCUBE and we summarize those sessions in our breaking analysis. Now, Eric, let's start with a summary slide here. Guys, if you could bring that up, I just want to make a couple of points. So as I said, Eric, I mean, this started back in the system 390 days. Now, distributed systems and cloud, of course, create a lot more complexity. You got data that's really fragmented. You got user data, you got application data, you have infrastructure data and it gets complicated. You got guys in lab coats having to come in and diagnose this stuff, a lot of tribal knowledge. What are you seeing in the space? Well, yeah, to start back, it was funny when the panel I hosted, one of the guys even brought up Tivoli, how long ago that was, right? Then, of course, you have the solar winds and you had people like that trying to just kind of monitor your network You know, what we've heard a lot about now is infrastructure has really become code-based. So when that happens, you really start wondering to yourself, the lines are blurring between infrastructure and application, because at the end of the day, what you're really monitoring is code. So it has gotten incredibly complex. You have on-prem, you have hybrid, you have multi-cloud approach. So it has gotten extremely complex and there's also now a third wave of next-gen vendors getting involved in the mix as well. As you're aware, New Relic and Datadog, obviously Splunk has been in logging and monitoring for a long time. You also had some of the traditional players throw their hat in the ring through acquisition. AppDynamics gobbled up by Cisco and obviously Splunk trying to continue to reinvent themselves a little bit by Signal FX. So it is a very crowded, complex space. It is a complicated problem, but it's also a problem that needs to be solved. We were looking, you said in your intro about, it's only about a $5 billion at market right now, but there's been a lot of data out there from industry analysts saying that that's gonna grow quite handsomely over the next five years and it could get up to 13, 14, 15 billion. And when I asked my panel about that, I had one gentleman say without a doubt, they see the next 10 years that spending in this space will continue. And when you pry and ask why, they simply state, the digital transformation is not going to stop. It's marching forward whether anyone likes it or not. And as it does, monitoring is going to be critical. It's only going to increase and increase and increase. So right now, to your point, it's a small market, but it's a growing market and there's a lot of entrance in there. And their whole goal is to reduce this complexity that you're talking about. Now, one of the things we heard from the panel, guys, if you bring up that same slide again, the third point on that slide was closely tied to digital transformation. You heard a number of individuals say, look, your digital business is critical and it's all about monitoring your applications and your data and your infrastructure. And we heard a lot that they wanted a single pane of glass and you made a number of points about the market. What are your thoughts on both the digital transformation, maybe the COVID acceleration of that mandate and that notion of a single pane of glass? Is that aspirational or is it in your view something that is actually technically feasible? Not only is it technically feasible, it has to happen. It's going to be demanded by the large enterprise. They can't continue to monitor hundreds and hundreds of applications. They need something that not only can give them observability through their entire stack, but they need to be able to view it in one way. There's enough fatigue in monitoring and logging and actually goes even further than one pane of glass. They're demanding that these systems can now actually employ machine learning algorithms to be proactive. It's not enough to just say, okay, I observed this. You have to let me know that this may happen in the future and what to do about it. So not only is it feasible, it's something that is being demanded by the end user market and the players that survive are the ones that already have that in their roadmap. Now, as we always like to do in these sessions, we're going to bring up some ETR data and we like to position the companies. So what we do is we're going to bring up some of the pure players, pure play companies and you can see them on this slide, but Eric, when we talk about companies in this space, they're well over a dozen. It's just, again, for reference, Cisco with AppD, you mentioned that before, Dynatrace is one of the leaders, New Relic has been around for a while and is doing well, Splunk, Datadog. Now, of course, and we're not showing them here, AWS, Microsoft and Google, because they just sort of, they pollute the chart. But so I want to start with the guys that are on this view and maybe talk about a few. Elastic came up a lot. Certainly AppD came up a little. Dynatrace was obviously mentioned, especially in large organizations. A lot of conversations about New Relic. So let's go through them. Where do you want to start here? Yeah, there's a lot to go through and we did spend the majority of the panel talking about the individual players, the differences between them and also what we thought their longer term prospects were. But we'll go through each one. I think maybe to start with, let's go back in time a little bit, right? Cisco is a wonderful acquirer. They do a great job at M&A. A lot of companies will acquire something and let it die on the vine. Cisco has proven recently that they are reinventing themselves as a full platform play, whether that be through their networking reach or whether it be through the security. And AppDynamics is one of those that actually gives you a little bit of both with being able to monitor. It is a great play for people that are already involved with Cisco. Now, I don't think you're going to see too many people that are non-Sysco customers run out and buy it. There you're going to see some of them, maybe the pure plays or what one of my guests called the third wave of vendors. And that third wave is really about a data dog and a new relic. Let's talk about data dog first. Yeah, let's bring that back up guys, if you would. Now, let me just, sorry to interrupt you, Eric, but so I should have mentioned the vertical axis here is net score. That's the ETR primary metric. And that's an indication of spending velocity, the higher the better. And then the horizontal axis is market share. Now we're showing the July data. The October data is in the field. Once ETR releases that to its clients, then we'll share that with you. But the first thing that jumps out at me is other than elastic, Eric, I mean, I'm not blown away by the spending momentum in this space, but let's talk about that and then some of your thoughts on the specific vendors. Yeah, you know, I'll go back because you asked a little bit about the digital transformation. I don't think I answered it fully. So to your comment about maybe not being impressed with the spend, I think this is one where the spend is going to come kind of as a laggard because you're not going to rush out and go buy the software to monitor until you've built out what needs to be monitored. So as we're seeing this increase in the digital transformation, and I think you and I had a conversation in the past, but when COVID first hit and I did a series of panels, we had one person say that this virus is going to increase digital transformation by five to 10 years. That was an amazing statement. Basically, if you were on the fence, if you weren't already heading down to digital transformation, you needed to play catch up quickly. So now that you are doing that, right? Now that you're moving from on-prem to a multi-cloud or a hybrid cloud environment, you have to get observability. You have to get monitoring into it. So now these players start to play catch up and this is where you're gonna see the proof of concepts and you're gonna see people trying to decide which direction they're going to take their company. Now back to the actual vendors. I believe that there is some differentiation, right? So we'll just take, for instance, Splunk. Splunk is obviously probably the biggest boy on the block when it comes to just straight up logging and monitoring. They've leveraged that big boy position to really add some costs, kind of intimidate their customers. They've been compared in the past of the type of things that Oracle used to do from their cost perspective and that's opened up some new competition. Datadog is one of those. According to my panel, Datadog has viewed more for logging and monitoring than it is truly full end-to-end observability throughout your entire network and application system. So that is one of the areas that's there. Now to stay on those two names for a quick second, Splunk obviously has some holes in what they're trying to offer. They went out and tried to buy Signal FX to fill one of those holes. Now according to my panel again, did a great job filling that hole. Problem is if you have a boat with three holes you can't put your fingers everywhere. So they think, hey listen, Splunk's great. They're gonna keep the company they have and I know that we can talk a little bit more about valuations in the equity side later but I think it's very clear that their sales and revenue are trending flat to down whereas some of these other names still have great acceleration in their sales. So Splunk and Datadog both are really facing pressure from Elastic or generally this open source. I was struck by the panel and how much emphasis they, how much complaining they did about Splunk pricing. Generally I feel like, hey, if your price is too high as your is the biggest objection that's actually not a bad thing for a company but the way they kept hitting on it and said, hey, we're actively looking for alternatives and Datadog was one of those and given the momentum that Datadog has, I don't think that that's necessarily a positive but Splunk has a lot of loyal customers but to your point, if you go back to the slide Elastic came up very, very strong and they are head and shoulders from a spending momentum above the rest of the crowd here. Right, and so you're right. If the only problem with a vendor or a technology is cost, usually you live with it because that means it's giving you what you need. So, okay, it's expensive but it's also the best in breed and that's where Splunk has been for a very long time and I think they're resting on their laurels knowing that. Enter Elastic and you say to these guys, the panel I asked them, well, okay, you can make Elastic work but is it truly a viable alternative from a technology standpoint? And the answer to that was not only is it viable it's half the price. So if you could bring something in that can do the job the same and it's half the cost it's really difficult not to at least try. And I had one of the other gentlemen who was a data dog customer said, listen, we love data dog, we were a huge customer and then I started getting enormous bills and I just switched over to open source. I switched to Elastic, I switched to Kibana, I switched to Kafka and I can do this search myself. Now the difference is not every enterprise has the human skill set to do so. And I'm not saying Splunk's gonna turn around and disappear tomorrow, not even close because there is a difference in spending that money with the vendor or spending that money developing the human skill set to use open source. But the bigger backdrop here is there are more alternatives than there used to be there's more competition and the space is getting very crowded. Yeah, comment on open source and the open source free like a puppy but the thing about that, and you had one of the panelists was a very senior consultant that exclusively worked with very large companies. He told a story about one of the company's years ago that he came in to solve a problem. The problem was they had 70% availability and they had no visibility on their infrastructure and really no great, no good money. They got them up to whatever, five nines or two, three nines or wherever they got them to but dramatic improvement. And so he said, look it, I work with companies with billions of dollars three billion dollar IT budgets. They don't rely on open source for this stuff. They're happy to spend but there's a huge market particularly in the mid-size where we heard that New Relic plays in a big way that might be more receptive to open source. Couple of great points there Dave, honestly I'm gonna jump over to the use case that was given by that person who was in a healthcare role. And essentially the part I didn't write into my summary was that his CEO was two days away from shutting down the entire business because he was so frustrated that he had no observability and Dynatrace was the one that was able to step in and fix that. And this gentleman did say that the majority of the companies that he does work with which are all in the Fortune 100 Dynatrace has a stranglehold in that spot. So that's really interesting to note. Now on the flip side when pushed a little bit more later in the panel he said, Dynatrace is sort of resting on its laurels from a product roadmap standpoint and that's going to open up the possibility of a New Relic getting in. Transition to New Relic as you mentioned on their small to medium sized business they recently launched a new pricing strategy which is basically a free version to get you involved and kind of get their hooks into you and see if you can work it out. And basically what they're trying to do there I think is make up for their lack of marketing as you saw the panel that we spoke about said New Relic's technology is fantastic. They have the ability to provide a single pane of glass which is the holy grail in this space and they have the ability to provide machine learning and proactive type of ability which again are the two things that all of the end users are asking for. The problem is that most people might not be aware of it because New Relic doesn't have as flashy a marketing department. They don't have the dollars as much as the others to go out there and compete with Splunk and Dynatrace and Cisco. But from a roadmap perspective it was almost unanimous that our panel agreed New Relic is by far one of the leaders from a functionality standpoint. Yeah, if you guys bring that slide up one more time the XY. I mean, I look at where New Relic is and I'm like, wow, I'm surprised. I mean this company, I mean they were the hot company for a while and I think still have the capability. You're talking about the technology. NRDB, New Relic database is like, it kicks ass. In fact, you know, Eric, somebody brought up in the panel that they thought that Snowflake could compete in this market because essentially Snowflake's the positioning is this data cloud. But you know, here's New Relic. They have a purpose built database specifically for monitoring and APM. So you would think that with that technology they could really make some moves. And then I just want to bring in two other companies to the mix here. Honeycomb, who I think even their founder and former CEO now CTO, she coined the term, I believe, observability. And there's another company that is run by Jeremy Burton. Company's called Observe. Okay, so they're playing off of that. And it's funded by the Silicon Valley mafia. So that's going to be an interesting one to watch. They're coming out, well, they're out of stealth but they're doing a launch on October 7th. So I think those are two companies that could disrupt this space. And I would expect to see, you know, as you said it's a latent momentum in net score from a data set standpoint because people are trying to plug the holes because of COVID, you know, security work from home that pivot and now it really onto digital transformation. And that's where APM really comes in. It really does. And again, it comes back to that comment someone made a long time ago that everything's becoming code as software eats the world and everything becomes code. You need the ability to kind of monitor that code. Enter Honeycomb. And as you know, we have two different studies at ETR. One of them is for emerging technology. Honeycomb is in our emerging technology study. That's more of a private, you know, series B to series E round stage. Whereas our main study is for companies that are, you know, pre IPO or already public. But Honeycomb is a little bit different in my opinion that they're focused very much so on the developers or the software engineers. They're a very microservices oriented type of product. Whereas, you know, some of the other ones may have started as an infrastructure monitoring and that kind of worked their way backward into application. But Honeycomb certainly needs to be observed. And it's funny when you talk about that. The one thing I think is, oh great, more players. The crowded space gets even more crowded. And I think we'll, you know, kind of foreshadowing something you and I will be speaking about in a little bit. But there's a lot of players in this space and there's a lot of other possible, you know, interest in there. You mentioned Snowflake. It actually wasn't brought up from our panelists. It was a question that came from one of my clients that said, hey, I'm curious, can Snowflake play in this space? And the panel thought about it for a second and said there's absolutely no reason why they can. They most certainly can. And we all know the cash they have. So I mean, the easiest way to play in that would maybe be to buy some of the technology, integrate it in and yeah, they have that portability. And if I can real quickly, they just, one of the things that came out that was so important about this, and we haven't spoken about the vendors, is the public cloud. The public cloud offers this. They offer monitoring. They'll give it to you for free. If I'm gonna run Kubernetes in Google, I'm gonna get the monitoring for free, which is super nice, right? But if I have an enterprise that has multi-cloud or hybrid cloud and I'm working outside that public cloud silo, it doesn't work. This is the exact conversation you and I had about Snowflake. AWS Redshift's fantastic, but it doesn't work outside of AWS. So if every one of our enterprises continues on the digital transformation, they need portability. They have to be able to go across any architecture structure. And that's why these independent providers are really starting to gain steam when you would think they could never compete with a public cloud. Yeah, I mean, that's a great point. And we've talked about this in the context of Snowflake, that who are you gonna trust with your multi-cloud strategy? Are you gonna trust AWS? Are you gonna trust Google? Yeah, okay, they got Anthos, but we kind of know why they're taking that posture. Microsoft, look, I'm probably gonna partner with somebody who can, maybe I have a relationship with them, with my own prem, and that is really sort of agnostic to the various clouds. So I'm glad you brought that up. And you know, the point you're making about Honeycomb is a good one. And I'll add that, again, it gets more complex with microservices and containers. That's spinning them up, spinning them down. Sometimes these, first of all, these microservices sometimes aren't that micro, and second of all, you know, you're sometimes talking about hundreds of thousands of containers. So it's a really increasingly complex environment. All right. Yeah, we didn't even touch on serverless. We'll do that some other day. Oh, yeah, I mean, absolutely, 100%, right? So now let's take a look at some of the valuations, guys, if you bring that up for me. So I put this little chart together and it's always instructive. Now I'd like to, simple guy, Eric. So I'd like to, so you see the company, I take a trailing 12 month revenue and then the market cap as of 9.25. And then just a simple revenue multiple, just to get a sense, you know, it's not a hardcore valuation model, but it's interesting. And there usually is a correlation to the growth rate. I just pulled that off the latest quarterly growth rate. I mean, look at Datadog. I mean, that's like snowflake pre-IPO valuations. I mean, really right around there with smaller revenue, smaller growth rate, snowflake's up in the whatever, 120% range. But while eye-popping, you know, the same valuation as Splunk. I mean, that's just amazing. What do you make of this data? Well, you know, I was an equity analyst for almost 15 years on the Wall Street side. So my first caveat is a trailing revenue to the multiple is not always the same because people are looking at what the forward expected revenue will be. But I actually do see the correlation here. And when you brought this up, my eyes popped open. I do not understand why Datadog has a 27 billion market cap on a trailing 350 million in revenue. I just don't know if their forward looking growth really warrants that. And at the same time, then you look at a Splunk, right? I mean, they have, you know, two and a half billion in revenue, but their growth rates down. And truthfully, when I say a negative 5% growth rate, I don't know why you warrant a 12% sales either. I would argue that there's quite a few names on here that could be in for a reckoning. ETR actually, as far back as a year ago, caught this in our data and said, hey, there's some inflection points here. And I think investors need to pay attention to them. And since we came out with the July report, a lot of these names we're talking about despite insane valuations in the equity markets are flat to down. And, you know, I do think that, hey, if they stay stagnant and their technology is ripe, but it's a crowded space, I think we're really leading to the point where as one of my panelists said, this industry is ripe for consolidation. These players are not all going to be here in 12 months. It's that simple. Yeah, and by the way, thank you for mentioning that as a former equity analyst. You're right, they're trailing 12 months. It's kind of the rear of your rear. But I'll tell you two reasons why I do that. I put the growth rate in there so you can pick your own growth rate and your own forward revenue. The other is it's really easy for me to get TTM off a Yahoo as opposed to- Right, exactly. So that's a truth to be told. But guys, bring that back up one more time because I want to make a point about New Relic. I mean, I think they are potentially ripe for an M&A because they got great technology. Now, remember, Elliot management is in there. And when Elliot's is in there, stuff's going to happen. They're going to start cleaning house. They're going to really create changes. They don't just get in in a big way and sit back and watch. They are extremely active. And New Relic, leader in this space, great technology, great heritage. So either they got to clean up and get that valuation back up, maybe as you pointed out, a little bit better marketing posture, et cetera, or they get taken out. Yeah, and let's think about the two things that coincide, right? You have one of the world's best activist funds getting involved in Elliot management. And as you said, they don't get involved to just sort of watch or observe as we're talking about here today. They are very active in trying to get some sort of, you know, corporate action done. And at the same time, all of a sudden, New Relic comes out with a new pricing model. They're trying to create a moat around the small to medium business, right? They're trying to grow their footprint. Now, the great thing about getting involved in small to medium businesses, it starts off for free, but you grow with them. So I don't think those two are, you know, a coincidence. Let me just put it that way. I think that they're coming in, they're trying to entrench themselves in a new market and set themselves up for future growth. And I truly believe that based on the product roadmap and the feedback we were getting from the end users in my panel, New Relic has the ability to look across all architecture. It has the ability to provide a single pane of glass and it has the ability to incorporate machine learning for proactive response. Their roadmap is fantastic. They have an active manager inside as an investor. I don't think they're going to be around for much, much longer. And obviously that you look around and you wonder who the acquires will be. And it might be one of the major cloud players. Yeah, that would be interesting. It gives them a play in a multi-cloud world. And you know, either they're going to just use that for their own advantage or they'll actually see that as an opportunity to be interested in your watch. Anything we didn't cover that you want to touch on or give us your final thoughts, please, Eric. You know, I would also just sort of mention a little bit about Splunk. This is a company that has a tremendous amount of revenue, a tremendous install customer base. But many, many times we've seen it before and Oracle's the greatest example. They kind of forget about their customers and they don't treat them properly. And I can't tell you how many people I have mentioned to me said, hey, when this all went down in the viral pandemic and I went to Splunk and I asked for a little bit of pricing flexibility. I asked for this, I asked for that. And they just wouldn't give it to me. And I wrote an article once called Sizzos Never Forget, similar to an elephant. And when they come out the other side, they're going to find a way to replace them. And today I also wrote an article, it was our 200th interview and I entitled it The Splunk Funk. And basically it's about all the alternatives that are now out there. Not just open source, but other vendors, even the vulnerability management players like a rapid seven, like a tenable are getting into this space now. Ford in it, which one guy called Ford to everything is a company that's really expanding. So I would just really kind of caution some of those vendors out there that don't rest on your laurels. Don't take your customers for granted because sooner or later they're going to be in a position to bite you back. Well, I'll say this about Splunk. I've been following the company since the early part of last decade and I've done a lot of cube interviews at their shows. They do have a passionate, passionate customer base. They got the experts that run around with that crazy hat. And so, and I've seen Splunk killers emerge for the last decade. And so, but I think your point is right. I mean, they've, you know the Signal FX acquisition was something that, you know there was a hole to fill and it gets them into a subscription base model. They're going through that transition now but I think they have some real gravity with their customer base. So, all right, let me summarize. For years, the application monitoring and management has really relied on alerts, logs, traces, you know and even what I call tribal knowledge. In that world of pre-distributed systems, that was fine. Like I said, a trace could tell you what was going on but things have gotten much, much more complicated architecturally with cloud and mobile and they're really changing fast now. Eric mentioned serverless. We talked about containers. So, you know today it's much harder to understand the customer experience because it's difficult to get a full picture of the data. And what I mean by that is that the user data the application data, the infrastructure data that are all fragmented and the Holy Grail solution really takes all this disparate data it ingests it, it transforms it, connects the dots if you will across clouds on-prem and it shapes it, brings in machine intelligence really creating an organic systems view that can proactively tell you that there's a problem coming and finally the absolute nirvana is doing this in a way that non-technical people are going to be able to understand the true user experience. You know, in theory this is going to allow organizations to remediate in one-tenth of time with much, much lower cost and that's going to be critical in this world of digital transformation. So, thank you Eric. Really appreciate you coming on today. Always enjoy it, Dave. It's always great talking to you and hopefully we'll do it again soon. All right, I can't wait. And thank you everybody for watching this episode of the Cube Insights powered by ETR. Remember, these episodes are all available on podcasts. We publish weekly on wikibon.com and siliconangle.com so you got to check that out. And don't forget, go to ETR.plus for all the survey action. But appreciate it if you kindly comment on my LinkedIn post or tweet me at dvolonte or email at david.volonte at siliconangle.com. This is Dave Vellante. Thanks so much to Eric Bradley. Be well and we'll see you next time.