Datadog – Cloud Monitoring as a Service Portfolio &

Competitive Considerations – 2 November 2020

Disclaimer

The information, material and content contained in this transcript (“Content”) is for information purposes only and
does not constitute advice of any type or a trade recommendation and should not form the basis of any investment
decision. This transcript has been edited by Third Bridge for ease of reading. Third Bridge Group Limited and its
affiliates (together “Third Bridge”) make no representation and accept no liability for the Content or for any errors,
omissions or inaccuracies in respect of it. The views of the specialist expressed in the Content are those of the
specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge. Third Bridge reserves all
copyright, intellectual and other property rights in the Content. Any modification, reformatting, copying, displaying,
distributing, transmitting, publishing, licensing, creating derivative works from, transferring or selling any Content is
strictly prohibited.

Specialist: Josh Richardson (JR)

Title: Former Enterprise Sales Executive at Datadog Inc
Moderator: Scott Kessler (SK), Third Bridge Sector Analyst

Agenda:

1. Datadog (NASDAQ: DDOG) and its solutions

2. Industry overview and competitive landscape, highlighting major APM (application performance
monitoring) participants, including AppDynamics (NASDAQ: CSCO), Dynatrace (NYSE: DT), New
Relic (NASDAQ: NEWR) and Splunk (NASDAQ: SPLK)
3. Growth strategy and coronavirus impacts
4. 2021 outlook

Contents
Q: How would you characterise Datadog and the problems it helps customers with? The company claims to
be a monitoring and analytics platform for developers, IT operations, teams and business users in the cloud
age, and it offers an application monitoring platform as well as a set of solutions. 3

Q: Can you expand on the three pillars of observability – metrics, logs and traces? I believe Datadog is
involved with all three, but where do you think its offerings are most aligned with the pillars? 4

Q: You seem to be saying that Datadog’s metrics solutions are infrastructure-orientated. Is its logs element
APM [application performance monitoring or application performance management]-orientated? Where
would you say its traces-based solutions focus? 4

Q: Does Datadog align its revenue with the pillars? If so, how does its revenue split across each? 5

Q: Datadog started with its infrastructure and monitoring solution in 2012 before releasing its APM offering,
which only contributes a small percentage of revenue, while its log management contribution is significant.
Is there a reason log management has gained more traction than APM in less time? Is it because many
companies have legacy offerings, meaning a shift to Datadog’s cloud platform makes sense? 5
Q: Datadog’s unified platform can access and understand data and context types across companies and their
operations, and the broader network. Additionally, customers seem willing to adopt what they perceive as an
inferior, free-standing product when it’s part of a larger platform, where value can be added over time. Are
there themes or trends that could help companies develop, test and deploy applications more effectively? To
what extent is there a perception and trust that the seemingly inferior APM solution improves because
Datadog has committed to investing and innovating there? 7

Q: Which players are most significant in the competitive landscape? Is Splunk the leader? Datadog
participates in multiple markets – infrastructure, APM, log management and cloud monitoring – and there
are various competitors in each. You’ve mentioned some competitors and Splunk seems to be in many areas.8

Q: Which players have retained or taken the most market share? Datadog has been taking share from Splunk
in log management. Has it also been taking APM share? What are your thoughts on Dynatrace, which has
been thought of as a leader, while Datadog’s enterprise orientation seems more nimble? 8

Q: Observe, a recent start-up, seems focused on the SaaS observability categories, so overlaps with Datadog.
Do you know anything about Observe and the competitive threat it might pose to Datadog? 9

Q: Datadog’s pricing seems to be a competitive advantage. It provides a unified solution, is attempting to

gain share and its revenue growth has been strong. How does its pricing compare to competitors? Is it
generally considered a lower-priced option than enterprise-focused participants, such as Splunk or
Dynatrace? 10

Q: Datadog seems to have successfully won and expanded new logos, which many SaaS companies call a
land-and-expand growth strategy. What are the key elements of that approach? What enables Datadog to
gain footholds and expand across companies? 11

Q: Datadog’s marketing efforts have been successful, which its five-year product, revenue and market
capitalisation growth seems to support. Would you say this is an area of strength? How does its marketing
approach differ to other companies? 11

Q: Does event cancellation or virtualisation negatively impact Datadog, at least temporarily, because it so
focused on this approach? How might that work going forward? 12

Q: Do you think there are gaps in Datadog’s product suite, features, functionalities or international
penetration? Would you expect any of these to be focus areas? I believe the international contribution is
relatively small in its overall revenue mix. 12

Q: Can you discuss the management team and culture you experienced when you worked at Datadog? What
are your thoughts on Datadog CEO Olivier Pomel’s approach to the company, its markets and execution? To
what extent does the company’s culture impact its success? 13

Q: What is your outlook for Datadog? What do you think is its biggest opportunity and risk? 13
Datadog – Cloud Monitoring as a Service Portfolio &
Competitive Considerations

Transcription begins at 00:04:56 of the recorded material

SK: Hi, everyone. Welcome to Third Bridge Forums Interview, entitled Datadog – Cloud Monitoring as a
Service Portfolio & Competitive Considerations. I’m Scott Kessler. I’ll be facilitating today’s Interview with
Josh Richardson, former Enterprise Sales Executive at Datadog.

Josh, before we start today’s Interview, please state I agree or I disagree to the following statement: You
understand the definition of material non-public information and agree not to disclose any such information,
or any other information that is confidential during this Interview.

JR: I agree.

SK: Super. Thanks a lot, Josh. Can you begin by introducing yourself with a summary of your background?

JR: Good to be with you. I’ve been working in enterprise sales for almost 10 years now, predominantly in the
monitoring and analytics space, starting off with a company called Quest Software, who were acquired by Dell.
Then I went to AppDynamics. I was the fourth team member in the Asia Pacific region for AppDynamics, prior
to their acquisition by Cisco. I then moved to a company called Sumo Logic, who provide cloud-native log
analytics. Worked with them also in the Asia Pacific region, a number of large existing clients and new logo
acquisitions. Some notable ones in the region being Macquarie Bank and News Corp that I worked on. Then I
was the first business hire with Datadog in the Asia Pacific region. Again, looking after large enterprise. With
Datadog, it was 5,000 employees or more, was what they considered to be an enterprise prospect or customer,
so working with all of their largest clients in the Asia Pacific region, until fairly recently, where I moved on
around six months ago. I am now located in Manhattan, working with a company called Harness, who provide
a CICD automation platform.

[00:07:18]

Q: How would you characterise Datadog and the problems it helps customers with? The company claims to be
a monitoring and analytics platform for developers, IT operations, teams and business users in the cloud age,
and it offers an application monitoring platform as well as a set of solutions.

JR: If I was to characterise it as succinctly as I could, it would be a unified observability service. By that, they
are going after multiple use cases and covering multiple disciplines within the broader category of monitoring
analytics. We’ve seen observability emerge as kind of a buzzword. By that, I mean providing visibility into
multiple pillars. I think it was originally coined by Google in their SRE handbook. Essentially, what it means is
combining a number of different data fits and adding context or metadata to manage the performance and
manage the ability to continuously improve a system, based on its purpose or business outcomes. When I talk
about a unified observability service, that comprises of the ability to measure a user experience, generally on a
browser or some kind of application front-end. It includes the ability to run synthetic tests. It includes the
ability to trace application code and measure the performance of code execution over time. It includes any
time series metrics.

The common example is an infrastructure metric, or a numerical value over time, like a CPU utilisation
percentage over time. Then, also, logs and so they have a software platform that is a SaaS platform. It is cloud
native, so it’s built in the cloud and has a lot of integration with more modern application platforms and

Private and confidential 3

ecosystems, in order to provide these teams that are more commonly now building and running and securing
these applications in smaller, cross-functional teams, provide them with visibility into the performance of
their given service that they care about.

[00:10:32]

Q: Can you expand on the three pillars of observability – metrics, logs and traces? I believe Datadog is
involved with all three, but where do you think its offerings are most aligned with the pillars?

JR: The three pillars of observability, they consist of logs, which are text-based records of something
happening, with a timestamp and a date, usually. There is application performance monitoring or application
tracing, which means the ability to monitor code execution over time and plug in dynamically to an application
and watch how that application is performing on a code level. Then there’s the metrics, which, as I said, is the
time series value and numerical time series value, and often metadata applied, so you have certain kinds of
tags to context. We’ve seen a lot of companies and addressable markets emerged purely focused on one of the
three pillars. You see Splunk is a really good example, where they emerged with a huge data analytics platform
focused on the logs, which is the text- based records of something happening. Splunk, they were unique in that
they were the first to pioneer the ability to extract insight from masses of log data that, traditionally, is pretty
unwieldy due to its size and sheer volume, and variety of different bits of information. They provided a
platform that allowed their customers to extract signal, whether it’s a security signal, maybe a user performing
some suspicious activity, or external threats and malicious traffic on the network, things like that.

We saw companies like Splunk emerge. We saw companies focused on APM emerge like AppDynamics and
New Relic. They focused on APM and were very successful and forged quite a large market. You see
AppDynamics and Dynatrace and New Relic are still leading that space. Then companies like Sumo Logic or
ScienceLogic, Nagios providing metrics, analytics and metrics-monitoring solutions. Typically, they will be
focused on infrastructure and monitoring because that’s where metrics, traditionally, for IT operations are
most useful and helpful, but in more recent years, almost all of these companies are doing is, first of all, they
have some sort of go-to-market that positions them as being able to provide some level of visibility across all
three pillars. Then, the leading companies, and I would consider Datadog to be one of these leading
companies, are effective in terms of their product execution and they’re able to not only provide solutions to
provide their customers with visibility into each of the three pillars, but they’re also able to provide context
and correlation across all three, making the three effective together and reducing often what becomes pretty
operationally burdensome, when customers are consuming all three using different tools.

[00:14:39]

Q: You seem to be saying that Datadog’s metrics solutions are infrastructure-orientated. Is its logs element
APM [application performance monitoring or application performance management]-orientated? Where
would you say its traces-based solutions focus?

JR: Logs can be anything. You can monitor an application’s performance using logs, because an app will
produce logs about response times or error rates, for instance. Metrics can be anything. It can be any time
series value. I used the example of infrastructure metrics, but it could be something like revenue at a point in
time. You could monitor revenue at any given point in time. Then the application monitoring, like I said, you
can use logs and metrics for application monitoring, but the APM specifically involves monitoring at the code
level. Generally, or if you use a Gartner definition, APM tools, they actually will dynamically instrument the
application code and then they measure latency and they measure each stage in the application performing a
task. They look at the code itself and then they can provide diagnostics if there’s any unusual behaviour in the
code. It’s confusing, in that all three pillars of observability, they can provide insight into the performance of a
system. Sometimes there’s overlapping capabilities. You can monitor an application using logs alone, although
there are different reasons why you would use a log vs an APM tool vs a metric, depending on the system and
depending on the use case and the business outcomes. I hope that’s made it a little bit clearer, but there’s also

Private and confidential 4

a little bit of complexity in the use case and where the definition of each pillar converges.

[00:17:06]

Q: Does Datadog align its revenue with the pillars? If so, how does its revenue split across each?

JR: Certainly, Datadog is very focused on revenue aligned with each pillar. They have multiple products and
they’re all priced slightly differently. They’re all consumption-based subscription revenue models. Certainly
they do focus on the percentage of revenue coming from each different product. With Datadog specifically,
their longer-standing solution is the infrastructure-monitoring solution and the platform, which provides
insight into those time series metrics that we were talking about. That would be the lion’s share of their
revenue, over 50%. Probably something in the realm of 70%, at this point in time. Then the second largest,
surprisingly, is actually their log analytics solution. I believe that’s probably, two things, would be because the
addressable market is more mature and larger when it comes to log analytics, so they’ve been able to very
successfully and rapidly take some of that market from more legacy competitors like Splunk. Then coming in
third, if you wanted me to put a percentage on that one, I’d probably say something like 20 or 25%. Then the
remainder would be application performance monitoring and associated services.

SK: Is it fair to say that APM contributes 5-10% of Datadog’s revenue mix?

JR: Yes. That would have been the case when I left around six months ago. I know they have invested
significantly in the product and may have gained market traction. They often will disclose revenue, and
revenue associated with new products on their earnings calls. That might be a place to get a more accurate
update, although at the time of leaving, that would have been correct. APM would have been the least of the
three.

[00:19:50]

Q: Datadog started with its infrastructure and monitoring solution in 2012 before releasing its APM offering,
which only contributes a small percentage of revenue, while its log management contribution is significant. Is
there a reason log management has gained more traction than APM in less time? Is it because many
companies have legacy offerings, meaning a shift to Datadog’s cloud platform makes sense?

JR: Yes, I think it was twofold. It was the addressable market. I think that Splunk pioneered quite a large
demand for log analytics services globally. They had a pretty good revenge engine and sales execution was
good for many years. They were a very valuable company. They were able to pivot to a number of different use
cases. There’s infrastructure monitoring, but then also what actually is the majority of Splunk’s revenue is
security analytics, which is their primary use case now with most of their enterprise customers, so that market
was large. Then there are some challenges with Splunk and their more on-prem-focused solutions for
organisations that are modernising, which is almost every company these days, moving to cloud infrastructure
and modernising their digital solutions. That’s one cause, I would say, just the market opportunity was there
and it was ripe for disruption. The only other real alternative in that space are companies like Sumo Logic or
open source solutions, like Elasticsearch and Kibana. The opportunity was there and it was less crowded.

Then, the product execution, I would say, was strong. They made a strategic acquisition of a small company
based in France that provided a log analytics solution. Datadog acquired that company at its early stages and
were able to integrate their solution into the Datadog platform. They were able to come up with a solution that
addressed a lot of the use cases that were desirable for customers that were undergoing that cloud
transformation and digital transformation. Therefore, they’re able to grab some of that market share from
Splunk. Just to summarise, it was the fact that there was a mature use case and market opportunity,
addressable market that Splunk had been involved in pioneering, that was ripe for disruption because of the
market shift going on, with the move to cloud and modern applications. Then, the Datadog product execution
through acquisition was very strong and they were able to successfully integrate an acquired solution, and then

Private and confidential 5

their market execution was strong as well. They saw strong uptake from their existing customers, so cross
selling and upselling was a focus and they did that really well.

SK: To confirm, do you think Datadog is gaining share from Splunk in the log analytics category?

JR: Yes.

SK: Was the France-based company that Datadog acquired called Focusmatic?

JR: No, I think it was Logmatic. Logmatic.io.

SK: Datadog’s Logmatic acquisition occurred about three years ago, for context.

[00:24:55]

Q: Datadog does many things, as we have discussed. How important do you think it is that the company
provides all of its offerings within a single cloud-native platform? How important do you think each element of
the platform is to Datadog’s success and competitive positioning?

JR: I think that the strategy, the product strategy and the go-to-market of a unified platform that has a
number of solutions that address all of these different requirements and use cases for a number of different
use cases, even going outside of traditional IT operations and AppDev and monitoring analytics to things like
security, I think that’s absolutely essentially and core to Datadog’s product strategy. I think it’s one of the main
reasons they’ve had such success. It’s one of the reasons that they’ve had such significant growth YoY, with
really strong product execution. The way that they’ve grown the engineering organisation and their ability to
deliver new products to market, and mature products, has been second to none, in terms of what I’ve seen
throughout my career. There are a few reasons I can go into a little bit more about why I think that is, if you’d
like. Certainly, in terms of their go-to-market and the reason that I saw such growth and uptake with
customers is that vision of providing a unified monitoring tool and having as much as possible in one place.
The reason for that, the reason customers value that is because, typically, when they’re looking to run a system
that generates revenue or, for some other reason, is business critical for productivity or other reasons, that
particular system, they need to understand how it’s working, in order to really quickly detect and diagnose any
problems, because if a system is down and not working, that’s revenue critical or critical to business
operations. Then they’re losing money and that’s often a very serious thing that the business needs to detect
and diagnose very quickly.

If you look at Gartner’s analysis, most enterprise companies have 12-plus different monitoring tools and they
don’t really provide context. They’re not aware of one another. They look at different types of data. They’re not
very well-integrated, so one of the main things for businesses, in terms of their ability to detect and diagnose
problems across critical systems, is that they’ve got too many different tools giving them lots of different
signals, and often it becomes noise and it means that it can actually take them a much longer time to even
detect or diagnose a problem. Then, they also get issues with false positives and all sorts of things. The unified
platform is central to Datadog’s product, but also its go-to-market and vision and roadmap. Then, the value is,
I think the market has demonstrated the value of that and how customers respond to that with some of the
growth they’ve experienced. I can talk a bit more about this if it makes sense, but customers are actually
willing to compromise in terms of depth in a particular solution area. Like APM, for instance, and logs is
another good example. If they’re willing to compromise in terms of deep enterprise functionality, because the
trade-off of having everything in one place actually provides enough value for them to justify slightly less
maturity in the product or functionality.

Private and confidential 6

[00:29:48]

Q: Datadog’s unified platform can access and understand data and context types across companies and their
operations, and the broader network. Additionally, customers seem willing to adopt what they perceive as an
inferior, free-standing product when it’s part of a larger platform, where value can be added over time. Are
there themes or trends that could help companies develop, test and deploy applications more effectively? To
what extent is there a perception and trust that the seemingly inferior APM solution improves because
Datadog has committed to investing and innovating there?

JR: That was very well restated, I think. I think specific to Datadog, they have some context-giving capabilities
that are unique and really what I see as being very key, pivotal differentiators for them in their ability to
effectively enable customers to harness all these different kinds of data and information for identification and
resolution of incidents across their technology systems. There are a few things that enable Datadog and
uniquely position them to be effective when it comes to bringing all of this together. The first, like you
suggested, is their cloud-native architecture and the fact that it’s a multi-tenanted platform. I think one of the
reasons they’ve been able to move so quickly and bring new products to market and innovate so quickly is
because they have a very modern cloud-native application architecture. They run across multiple cloud
platforms. AWS, to begin with, but then they were able to deploy their solution to Google Cloud Platform in
Europe, which is a pretty difficult technical feat in and of itself. I know that they’re working on Microsoft
Azure now and making the platform extensible, so it can run on any cloud and scale dynamically.

They have a microservices architecture, which means that the larger application itself is broken down into
smaller pieces and it means that smaller, cross-functional teams can specifically work on smaller chunks and it
allows them to move more quickly in terms of their time to market. Then, the way that the team is structured
is such that, first of all, there’s a big investment in engineering. Even now, as a public company, greater than
50% of revenue is still invested in R&D. Most of their employees are engineers, they’ve got very strong
engineering and product culture. They also had some interesting hiring, and the two founders are French and
they had certain agreements with universities in France, where there was a concession or government rebate
for new hires, technical hires out of French universities. They have a big office in Paris. Things like that, and
their ability to recruit engineers and the strong engineering culture is a big factor. The second is the platform
itself. Right from the very beginning, the strategy from the CEO and the CCO was to build, they call it the sales
force of monitoring. They wanted to provide a cloud-native service that became ubiquitous for monitoring and
monitoring use cases. Right from the very beginning, they had this platform vision in mind.

The real core component that is unique to Datadog is their ability to add metadata to any piece of information.
They refer to that as tagging. What that means is anything that you’re collecting and analysing using the
service, whether it’s a user experience on a browser or whether it’s an application trace, or whether it’s a log, or
whether it’s a metric, you can actually enrich that with tags. Not only that, Datadog will do a lot of that
automatically. By being system aware and knowing that it’s coming from, say, AWS EC2 [Elastic Compute
Cloud] instance or a Java application, or a particular kind of browser front end, then they’re able to
dynamically apply this metadata. What that means is, as a customer, you have a common information model
where you can just use those tags, or even apply your own tags, to immediately provide context across these
different kinds of data. That’s really the real key differentiator that Datadog have, that no other competitor has
really been able to execute on too well. Not only do they have a platform that allows customers to adjust and
analyse a bunch of different kinds of data, but they can also enrich it with tags and then they’re able to
interrogate it, using those tags, to get context across multiple different kinds of data. I remember when we
were doing demos. The money shot, so to speak, was where we showed the customer the ability to combine
user experience with an application trace with showing database performance with the infrastructure
performance, and then the associated logs, all in one single screen. That’s where customers derive the most
value, is because that means, when they’re monitoring a system, it means that they’re able to reduce their time
to identify and time to resolve, which tend to be the two key metrics when you’re looking at ROI, in an
investment in something like that. Having everything together just means that they’re able to get superior
mean time to identify and mean time to resolve.

The third thing I think that is important is the integration ecosystem. Datadog have always been very friendly
and invested significantly in plugging in to a lot of the systems that their customers are interested in
monitoring. Like AWS, other cloud platforms, common application frameworks, other SaaS products and

Private and confidential 7

anything in the DevOps too chain, Datadog built and supported a very large ecosystem of integrations that
customers could use to plug in very quickly and get immediate out-of-the-box dashboards and visibility into a
particular system. Rather than the customer having to build the monitoring themselves and know specifically
what kind of metrics were important for that system, Datadog provided that out of the box and supported it.
Then that also gave them the ability to enrich different types of information for different systems with those
metadata tags in a dynamic way, which showed a good time to value, yes.

[00:38:25]

Q: Which players are most significant in the competitive landscape? Is Splunk the leader? Datadog
participates in multiple markets – infrastructure, APM, log management and cloud monitoring – and there
are various competitors in each. You’ve mentioned some competitors and Splunk seems to be in many areas.

JR: Yes. That would be number one, although that wasn’t always the case. I think, in earlier days, they would
have competed more with companies like New Relic. I think that would have been, early on, probably the
primary competitor, but then, as they released log analytics and that became more and more competitive,
then, yes, I think Splunk is now probably the major competitor. Although, they still compete with all of those
other monitoring companies that we’ve mentioned. Just to list a few, definitely Splunk. I think they still
certainly compete with companies like New Relic. There are other cloud-native monitoring companies like
Sumo Logic out there, that do logs specifically but have also pivoted to metrics and observability. things like
Kubernetes and AWS and other cloud platforms. Then there are companies like AppDynamics and Dynatrace,
who are more mature enterprise APM solutions but are starting to compete with more and more. There are
other smaller log companies, like Logz.io and other ones that they compete with a little bit, but those ones that
I’ve mentioned are probably the main ones.

[00:41:06]

Q: Which players have retained or taken the most market share? Datadog has been taking share from Splunk
in log management. Has it also been taking APM share? What are your thoughts on Dynatrace, which has been
thought of as a leader, while Datadog’s enterprise orientation seems more nimble?

JR: Yes, I think in terms of the most formidable competitors, but also where the most market opportunities
exists, would be Splunk, AppDynamics and Dynatrace. I think probably more Dynatrace now. AppDynamics,
through acquisition, are becoming less competitive for a number of other reasons. If we talk about Splunk and
Dynatrace, I think, with regards to Splunk, they’re a long way ahead in terms of enterprise maturity and just
stickiness and being embedded in large organisations. They have a large spend, often, given their revenue
model. They also have very entrenched implementations with multiple use cases, and entire teams that have
very specific subject matter expertise and multiple use cases that have been built up over time, specifically
around security. Splunk provide a SIEM solution, stands for security information and events management,
which is basically security monitoring. SIEM solutions generally comprise of a log component, being able to
analyse large amounts of logs at scale for any sort of anomalous security events. Then also some sort of a
network component, where they’re able to inspect network traffic and identify any anomalies in terms of
network traffic. Then, there are also things like file integrity, monitoring.

As I said earlier, more than 50% of Splunk’s revenue is from that security use case. Datadog just are nowhere
near the point where they’re competitive from a functional standpoint, competing with Splunk as a security or
a SIEM solution. They have started to invest in that. It was right around the time when I left that that product
became generally available. I’m not sure how quickly they’ve been able to innovate and develop and mature
that offering, although that is the biggest chunk that I’d say Splunk probably remains very competitive,
because just the maturity of the platform and just how entrenched it is in some of these organisations. Then,
there’s also an element of the maturity of the organisations themselves, with customers and prospective
customers. A big factor in terms of an organisation’s ability to adopt and get value from Datadog is their cloud
maturity and their disposition from a security standpoint, as to how ready they are to adopt cloud services and

Private and confidential 8

maybe build the applications and run applications outside of their own private networks. Many large
enterprise companies, they’re just simply not able to send any sort of material application or user information
outside of their secured network perimeter.

The world is moving in another direction, and slowly that will change, but we’re seeing the largest companies,
who also happen to have the highest technology spend, like banks, very large enterprise, telcos and utilities,
where we’re seeing a higher focus on security and requirement for security, they have less appetite to send
things like security log data outside of their secured networks. Datadog, by nature of the architecture of their
solution, they require these companies to send that data to Datadog’s externally-hosted service, which a lot of
these companies see as being a security threat. I think that’s probably the main challenge for Datadog.
Certainly, there’s a big market opportunity, and it’s the fastest growing market, which is the cloud-native
security piece, which is what they are going after initially with their product strategy, but at some point, if they
want to compete with Splunk, they’re going to have to go after that more serious enterprise security piece. I
had heard rumours of Datadog, for certain large customers, looking at deploying Datadog within the customer
environment, which is no small technical feat, and very costly and lots of logistical challenges there. I know
that that was something that was being looked at for large customers like PayPal, but I’m not sure if that was
ever really executed and ever eventuated into a workable solution. That’s the logging piece and what I see as
being the main challenge, but also opportunity in the log market.

When it comes to APM, I think this one is more specific to just the technical nature of the challenge. I think
this is probably where Datadog has the most short-term, mid-term opportunity to grow their revenue.
Dynatrace have been able to pretty effectively pivot and continue to remain strong in the enterprise space, in
terms of what they offer, because they have the best, from a technical standpoint, the most sophisticated
solution to instrument and analyse the performance of application code. It’s a relatively technical and difficult
challenge. What I would say is that Dynatrace have a solution that is a really good fit for applications of the era
that Dynatrace was built and consumed. You look at applications that are less modern, where they’re either
more monolithic in nature, they don’t change as frequently. They might release an update every month or
quarter, rather than modern applications, which are often updated daily or even more frequently than that.
Dynatrace tends to be a really good fit for large enterprise organisations to have these huge legacy applications
that are still extremely business critical and, in fact, more business critical than the modern applications. The
modern apps tend to just be websites and mobile apps, whereas these large enterprise customers, who are
what I would probably say are like flagship customers for Dynatrace, they tend to have these applications that
are the most business-critical applications. They are revenue critical and operational critical, but they’re legacy
in nature. They don’t change as frequently. Dynatrace still have a solution that’s probably more competitive for
monitoring those applications, because they have the most mature agents to instrument and analyse these
applications, whereas Datadog, their APM, at least the last time I looked at it, which would have been within 3-
6 months, it just wasn’t as mature in terms of its ability to dynamically recognise an application framework
and then dynamically instrument that application to provide visibility and diagnostics into code execution.

I think the reason Dynatrace have the edge there is because there are so many different application
frameworks out there that just, over time, Dynatrace have been able to slowly build up support for all of these
different kinds of frameworks, some of which are complicated and require quite a significant investment in
R&D and require a good footprint of an investment from a customer to develop and mature. I think, in the
short term, that’s just a technical challenge and I think Datadog has proven to be pretty capable of addressing
those sorts of technical challenges, but when I left, they still weren’t really competitive with something like
Dynatrace for those more traditional enterprise applications that tend to be the biggest and the most lucrative,
in terms of investment from prospective customers.

[00:50:14]

Q: Observe, a recent start-up, seems focused on the SaaS observability categories, so overlaps with Datadog.
Do you know anything about Observe and the competitive threat it might pose to Datadog?

JR: Yes, certainly I think that they’re obviously going after that market. From everything I’ve seen in terms of
their positioning, they are competing directly with Datadog and I imagine they’ll be aiming to take market

Private and confidential 9

share from Datadog. I know it’s a Sutter-Hill-backed venture. Sutter Hill famously backed Snowflake and,
more recently, they got companies like Lacework. We’ve seen this next generation of companies that actually
leveraged Snowflake on the back end, Lacework being one of them, to provide differentiated solutions and new
solutions to old problems in a way that’s more simple and scalable and cost-effective for customers. Observe,
from what I understand, is taking advantage of that Snowflake back end, that modern back end that allows
them to scale rapidly and much more cost-effectively, to provide a solution to what’s really a big data problem.
Observability being one of those things where it’s really all about the ability to aggregate and analyse and
extract signal from a very large and diverse amount of machine data, logs and metrics and all these other
things that we’ve discussed.

Certainly, I think that’s the premise of what they’re looking to do. I’m not sure if they’ll really be any serious
competition in the next year to three years. They’ll probably focus on small to medium-sized businesses.
They’ll probably be focusing on very technical cloud-native organisations with very mature requirements, then
they’ll start to grow the product and mature and expand into different use cases and things like that. In terms
of an actual product, I haven’t really seen what they have to offer or how competitive it is yet. Certainly, it’ll be
interesting. I know Lacework, if we look at that as a parallel, they’re a bit further down the road. They’ve
certainly grown rapidly and shown themselves to be competitive, but they are focusing specifically on just the
cloud market. They’re focusing on cloud-native security, like AWS and other cloud platforms, providing
security. That is very specific to companies with big investments and footprints with those services.

[00:53:37]

Q: Datadog’s pricing seems to be a competitive advantage. It provides a unified solution, is attempting to gain
share and its revenue growth has been strong. How does its pricing compare to competitors? Is it generally
considered a lower-priced option than enterprise-focused participants, such as Splunk or Dynatrace?

JR: I think they’re probably in the middle. We would often position it with customers as medium in terms of
the price point, comparatively with other solutions on the market. Compared with solutions like
AppDynamics, Dynatrace and Splunk, Datadog certainly represents a lot more value for money in terms of
ROI. It’s not as aggressively priced. I would say this is also somewhat due to the different pricing strategies,
and I’ll talk a little bit more about that, but then it’s also seen as being a little bit more higher-priced than the
smaller competitors. It’d be about equivalent to New Relic in terms of pricing and where it sits in the market.
Then other solutions out there, like the small logging companies that I mentioned, Sumo Logic and Logz.io
etc, there’s also a lot of open source monitoring tools out there, so it’d be seen as paying a premium over open
source alternatives or smaller competitors. That’s one thing in terms of where it sits in the competitive
landscape with the pricing. The second thing that’s probably worth talking about is just the pricing strategy.
With AppDynamics and Dynatrace and Splunk, it’s a very traditional enterprise pricing strategy, where the list
price is extremely high and then volume discounts are available as organisations scale. Often quite high and
significant volume discounts, between 50 and 90%, sometimes even more, depending on the size of the
customer, off list price.

Datadog have kind of a different strategy. They have built-in volume discounts that are not publicly advertised
but in their go-to-market they are available for use by sales teams without approvals. They price in such a way
that it is very competitive at small scale. There’s not such aggressive volume discounting as organisations scale
up. That being said, as organisations do scale up, the discounts available aren’t as aggressive. Often, large
organisations can end up spending tens of millions for larger customers per annum, because Datadog tend not
to discount as aggressively. I think that works well in terms of their ability to acquire new customers and
smaller customers. I think that’s why they have so many, over 10,000 paying customers, compared to some of
their competitors, which is generally a fair bit less than that. Then I think it’s an efficient model because
they’re also able to hold value, and their strategy in terms of discounting means that they’re able to hold a
premium price point, even with larger customers at higher scale.

The second part is they have multiple products. they have different products with different pricing and the
pricing is all consumption-based. They’re pretty effective at creating a user experience that’s such that all of
the products are available and you can just start using log analytics. You can start using synthetics. You can

Private and confidential 10

start using browser tests. Oftentimes, customers won’t know that they’re consuming an additional service that
has an additional fee attached to that. They’ll just get a bill at the end of the month and then it may be a bit of a
surprise. Datadog are pretty good at billing customers based on consumption and they’re able to monitor and
measure what customers are consuming at a very granular level. Probably the closest billing model that I’ve
seen in the market is something like an AWS, where customers have freedom to just go ahead and use
whatever they want, but they end up getting a bill at the end of the month for whatever they’ve used. That can
become an issue for certain customers, but it certainly has meant that Datadog have maintained strong
revenue and a strong growth, as customers just adopt the solution and use more and more of it.

[00:59:04]

Q: Datadog seems to have successfully won and expanded new logos, which many SaaS companies call a land-
and-expand growth strategy. What are the key elements of that approach? What enables Datadog to gain
footholds and expand across companies?

JR: I think we’ve spoken enough around the different products and use cases available, and the fact that they
do the pick-up and use, and the pricing makes it appealing for small companies, but then also, larger
companies scale and they’re able to continue to grow the revenue that way. One thing we haven’t touched on
yet is their structure of their sales organisation. Datadog, from the beginning, was very much developer-
targeted. All of the marketing was developer-focused and a lot of the business was in-bound and self service.
Sales was an investment they made later. They always had Customer Success, although Customer Success
organisation was not as driven by revenue as the other. They weren’t paid commission, they were just
responsible for renewals and they had certain targets for revenue, but it wasn’t a commissioned or quota-
based role. They were a bit later to the game with sales. I think they only hired a CRO and started building out
a sales org at around USD 150m in revenue, which is pretty unusual. I think it’s also a testament to how strong
the product was, or is.

The sales organisation, the commercial sales, up to 5,000 employees, they are responsible for landing new
customers. Then, as soon as they land a new customer, they have three months to cross-sell or upsell the
account and then it immediately transfers over to Customer Success. Some of the largest deals in the company
history have been done by Customer Success, which means they haven’t had to pay commission on those
deals, they’ve been run by a Customer Success team. Then, the enterprise sales org is very much incentivised
to go after large, new logo business across that enterprise, like Fortune 500 market segments, so anything over
5,000 employees. That’s been effective because enterprise reps, they only get a small number of accounts to go
after and they’re responsible for breaking in and landing those accounts, but then they also have ownership of
that account for the life of the account, so they’re able to grow it. If you look at the S-1 and the IPO, one of the
reasons that all of the analyst comments were that they had a very efficient sales model was just because lot of
their largest accounts are run by Customer Success and they don’t pay commission on some of their largest
deals. They get a good return on their investment in sales because they’re able to use that as an engine to
generate new logos, but then, at the top end of the market, expand accounts strategically, but then, at the mid-
market level, they then funnel them into Customer Success. They have got a good Customer Success engine
that stills end up growing the accounts, because the product is so strong.

[01:02:47]

Q: Datadog’s marketing efforts have been successful, which its five-year product, revenue and market
capitalisation growth seems to support. Would you say this is an area of strength? How does its marketing
approach differ to other companies?

JR: Absolutely. Marketing is huge. I think two things they do a little bit differently. One they just do really
well, which is develop advocacy. Probably having a strong open source ecosystem, their agents are open
source, they’ve done a really good job of being very open source friendly and very developer friendly, while still
retaining a strong value proposition and commercial solution. Secondly is events. They spend more on events

Private and confidential 11

than any other company that I’ve seen before, any other software company. They are the number one spend
with AWS at their annual global user conference. Datadog spend more than any other vendor at that
conference. They have the most floor space at that conference, second only to Amazon, at the Vegas re:Invent
summit. That is core to their marketing strategy. It’s always been a big part of their marketing strategy, is
spending big on these events. They spend, just for that global AWS summit, for instance, it’s a multi-million
dollar spend on that particular event. It’s a very well-oiled machine in terms of gathering leads and executing
on those leads through marketing. Then, that AWS summit is an example, but then they invest heavily in
similar events globally and they do tons of event marketing. Those two things, I would say, would be the focus
for the marketing team.

[01:04:53]

Q: Does event cancellation or virtualisation negatively impact Datadog, at least temporarily, because it so
focused on this approach? How might that work going forward?

JR: I think, potentially, yes. It is potentially something that might impact the especially new logo acquisition,
because it’s been a source of leads generation. A significant source, historically, throughout the entire
company history. I’ve also heard, if you listen to one of their recent earnings calls, they talk about the fact that,
“Maybe we need to rethink our strategy,” because they spent so much money on these events. The marketing
budget, a significant portion of that was events. They had all this additional budget. The CFO suggested maybe
spend more intelligently and pivot to certain less expensive demand-generation activities that they’re seeing
good results from. They’re alerted to the fact that just the cash that it freed up has counterbalanced any impact
they’ve seen in terms of demand generation, so we’ll see how that plays out.

[01:06:17]

Q: Do you think there are gaps in Datadog’s product suite, features, functionalities or international
penetration? Would you expect any of these to be focus areas? I believe the international contribution is
relatively small in its overall revenue mix.

JR: I think, typically, you would want EMEA to be almost 50% of your revenue, or at least on par with North
America. That was never the case. I think Asia Pacific was firing on all cylinders. They were strong, at least for
Asia Pacific, in terms of their representation in annual revenues, but EMEA was never really coming close to
North America, which I think it really needs to and should. I think that they’re struggling hiring, and
recruiting and retaining talent in EMEA. I think that’s definitely an opportunity and something that they need
to focus on. Then, in terms of acquisitions, they are pretty conservative around acquisitions and they’re so big
now. Typically, they prefer to acquire much smaller companies, more for talent than anything. We’ve seen
them make a few acquisitions, but they haven’t really made any significant acquisitions, which is really
interesting. They’ve been approached a lot for acquisition. I’ve heard rumours. The Cisco one was public. Prior
to the IPO, they were offered a significant offer there from Cisco, and there have been rumours of other ones,
with larger companies wanting to acquire them.

I don’t really see any gaps from a product standpoint, in terms of their ability to execute. I don’t think they
necessarily have any glaring gaps. If I was to call out one, I would say that it’s their ability to deploy on prem. I
think that’s probably the biggest gap that’s costing them the most in terms of market opportunity. If they’re
able to figure out some way to provide an on prem solution that didn’t diminish the value of the product, then
that would be really beneficial, but that’s not really something they can acquire. Then, also, the strategy of
expanding globally, I think EMEA should be a focus, and they need to make sure that they focus on execution.
Sales execution, specifically, in EMEA, if they’re going to be successful in the next 3-5 years.

Private and confidential 12

[01:08:51]

Q: Can you discuss the management team and culture you experienced when you worked at Datadog? What
are your thoughts on Datadog CEO Olivier Pomel’s approach to the company, its markets and execution? To
what extent does the company’s culture impact its success?

JR: I think their ability to attract and recruit and retain engineers has been super effective. I think that their
sales and go-to-market strategy has been what’s been different in terms of their ability to build a world class
customer success organisation and, really self service go-to-market, where organisations could become
customers with very low touch from sales. They didn’t really have traditional enterprise sales people until
much later in the game, when they were penetrating some of those larger accounts. I think the way that they’re
segmenting and creating separation of responsibilities internally with the sales teams and Customer Success,
and the way that that works, has been different and very effective. Very, very unique and effective. It has
meant though that there’s been a bit of churn in the sales organisation and it’s challenging for salespeople
especially, and so I think that’ll pose a bit of a challenge for them in the long run, to recruit and retain world-
class sales talent as they scale and they want to go after larger accounts, and do bigger deals. That’s going to be
something that they need to focus on, really making sales a first-class citizen in the organisation, which is
probably something that they lack maturity in.

I would say that the CFO is world class in terms of the way that he executed on that IPO and the roadshow,
and the investors are able to attract his excellence, in terms of what he brought to the table. Then, the only
other thing I would say that will be a challenge for them moving through scale as a public company is the
decision making was always very centralised. Approvals for even things like discounts, even small discounts
for customers, often had to go right to the C-level. Even above the CRO for certain discounts thresholds, and
it’s really the same across the business for all decision making, so purchases, recruiting and offers for
candidates. All these things, there are very few executives that really have a lion’s share of decision-making
authority. I think one challenge for Olivier and his team will be delegating that authority in a way that remains
efficient, and also forming succession plans as certain executives start to move on or transition into public life
in a public company.

[01:12:09]

Q: What is your outlook for Datadog? What do you think is its biggest opportunity and risk?

JR: I think that they will continue to go from strength to strength. I think they’ll remain a market leader, and
that will be represented in their results for the next 5-10 years. I think they really will execute and achieve their
vision of becoming the cloud monitoring standard. I think that’s well within reach for them at this stage. I
think that’s probably their biggest opportunity and strength, is just that product, and the strategy and the
roadmap that they’ve got, if they continue to build that and mature and develop these products. I think from a
product standpoint, security and tackling security and how they do that is going to be a critical capability. I
don’t doubt that they have everything that they need to execute on that, but that’s going to be important in
terms of their strategy. Second to that, I think the first generation of their APM solutions was not technically
mature enough to really be competitive with the likes of Dynatrace and AppDynamics. I know that they’ve
invested in some new people and some new capabilities now, so that’s going to be really important for them as
well, to compete from a product standpoint.

Risks and challenges, they’re dependent on cloud and digital transformation and the growth continuing along
its trajectory that it has. I think that, like a lot of tech stocks, they are pretty overvalued if you look at the
revenue vs what their valuation is. It’s a huge, huge multiplier. I think it’s buoyed by economic and political
factors, and other things going on in the world. I definitely think that, in the short term, that will be a big risk.
Then, yes, I think there are no other real risks that I would call out that are obvious, other than their ability to
scale as a public company and scale the decision making across the organisation, and grow from 2,000 or
3,000 employees to 5,000-10,000, and their ability to navigate those challenges like security and customers
who are probably going to start to want on prem, if they want to tackle that market.

Private and confidential 13

[01:14:51]

SK: I think we’re going to end it there. That was great, Josh. Thanks very much. Let me say thank you so
much, Josh, for your input and your insights. A really interesting and insightful conversation, and thank you,
clients, for joining Third Bridge Forum’s Interview today. Goodbye, everyone, and take care.

Transcript ends at 01:15:36 of recorded material.

Private and confidential 14