Thanks for your patience. The elevator was a little bit of a sardine in a can situation, but we've made it. Day one of Citi's Global Tech Conference. I'm Fatima Boolani. I jointly head up the software research team here, and I'm very, very excited to host the CFO of Datadog, David Obstler. Thank you so much for being here.
Thanks for having us. Appreciate it.
So we're gonna jump right into the discussion. Datadog has had a tremendous and significant amount of product expansion and innovation just in the past year, but certainly when I look over the arc of time since the IPO. I think a great place to start for all of us would be if you can give us an update on the platform expansion-
Mm-hmm
in this timeframe, and where you currently stand in terms of your product suite and-
Mm-hmm
just the prospective markets that you're now touching versus two, three, five years ago.
Yeah, the majority of the growth has been in expanding the observability platform. Started with Infrastructure, and we've given, over time, some information on the effectiveness of this expansion. A few quarters ago, we said that the Infrastructure product had passed $1 billion, and both APM and Logs were over $500 million. We essentially have had a very good cycle of adoption of those products, as we've developed those products. We further gave information last time that the next products that had passed $100 million, which were the digital experience products, which were RUM and Synthetics, are further evidence. I think a bit, a couple quarters ago, we talked about how products that we've invented in the last three or four years, I believe, have gone over $200 million.
You're right. We have been innovating in the platform, in the observability platform. Now, why? Because our clients wanna see as many data points and have as much automation of the workflow and analysis of problems as they can get. Problems can be everywhere, so they've had a strong desire to adopt the platform, and Datadog has been relentlessly innovating. In addition to the core observability, we've shift left to look at software creation before it goes into production. We've also developed Security Suite to, again, have security signals. We have recently talked about service management, which means handling more of the workflows within the platform, whether it be on-call cases, et cetera. So these are some of the areas that we've expanded into.
They are aimed at the same DevOps audience, and the feedback and what we do is it comes from them, that they want additional functionality in our platform. Yeah.
A lot of great pillar-based threads that I'm definitely gonna wanna pull on and go into more detail, but before we do that, you know, the last, I would say, twelve to eighteen months have been very much a roller coaster for investors-
Mm-hmm
... who have gotten much more acclimated to the whole notion and concept of consumption-
Mm-hmm
... and usage-based modalities-
Mm-hmm
... of deploying and consuming enterprise software.
Yeah.
Right?
Mm-hmm.
So that's been relatively new, and-
Yeah
... we've, like I said, been on a roller coaster of sorts, as it relates to how organization ra-
Mm
... organizations ramped, and then maybe rationalized-
Mm-hmm
... in periods of maybe economic volatility.
Yeah
... and uncertainty, et cetera, and I know you had very close and front seat to that.
Mm-hmm.
Can you take us through, you know, the arc of the usage growth trends you've observed over time across different customers?
Mm-hmm.
Maybe products-
Yeah
... maybe verticals, if that's a very specific angle-
Yeah
... that, you know, kinda changes the narrative, and where has that culminated in, where are we today as it relates to normalized consumption patterns in the aggregate-
Yeah
... for the business?
Yeah, good question. So, a couple things. One is, we sell on a consumption model with commitments. So essentially, it's not pure, you know, we don't get any revenues if you don't use it. You commit to it, and then you get credits and use it along the way. And, we tend to sell, I would say, not in terms of what the usage might be two or three years out, but what the usage is at that moment. So in terms of a couple things that some of our competitors or other companies have faced is we haven't had the issue of shelfware or pretty much, you know, unused. But what happened was, in the COVID period, we had a rapid expansion of businesses, cloud-native businesses, and consumption.
We also had a capital markets that was encouraging companies to spend and emphasize growth at not profitability. So particularly in cloud natives, we had, I would say, overspending, and whereas normally there would be optimization all the time, there was culminating, I think, peaking in the second quarter of last year, the rationalization of that overconsumption from the post-Covid period. If you look at the time series, the most intense part of that was in the second and third quarter of last year. What we said, it was across the customer base, but mainly focused in large, significantly ramped cloud natives. Those were the ones that first optimized. Because it's not a seat model and because it, you can modulate this quickly, we probably saw that sooner than other software companies.
But we also saw the recovery of that potentially sooner, because if you look at the time series, once they did optimize, by the third, fourth quarter of last year, we saw that cohort stabilize and start to grow again. And that's where we are today. We've seen essentially, resumption of more normal activities, growth of those cohorts that were weighing on our top-line growth, but not at the same level as they had in the bubble. Further information across the customer base, for a while, it was fairly pro rata in enterprise, mid-market, and SMB, and it was more, correlated with, cloud-native and ramp of spend, and that lasted in that period of optimization.
But what we said in the last call is that we saw enterprise break out to have a higher net retention, meaning there was less optimization or more return to normal growth in enterprise, which, for us, are companies with more than 5,000 employees. Whereas SMB had stayed stable, still growing, you know, unlike some of what other people have said, but not growing at the same rate, and we also said it may be too little. That may not be enough quarters, but sort of we wanted to update everybody on a divergence in that trend of net retention between enterprise and SMB. Enterprise has been... Traditional industry has been behind, probably didn't overspend as much, and is acting more normal in the time series, since the optimization trend.
David, I wanted to go on a little bit of a tangent-
Yeah
... specifically from the vertical lens.
Mm-hmm.
You know, some of the discussions and certainly conversations I've had is, hey, the generative AI cohort-
Mm-hmm
... has been a very exciting,
Mm-hmm
... area for you in terms-
Mm-hmm
... of, you know, I think you've quantified it.
Yeah.
About 4% of your ARR-
Right
... is coming from, you know, from, I guess, from a B2B perspective, these Generative AI companies-
Yes
... that are using the entire Datadog footprint-
Mm-hmm
... to monitor their own environments, right?
Yeah.
So I think there's maybe a degree of debate happening as to, hey, some of what you saw with the cloud-native in terms of how hot and heavy they got-
Mm-hmm
... with the spend and having to rationalize, you know, is there potential for that situation to transpire with kind of the generative AI?
Mm.
Because it's so new-
Yeah
... it's so embryonic, it's growing so quickly. So how would you maybe debunk some of those considerations or concerns, or rather, you know, can you draw any parallels-
Mm-hmm
... between the behaviors of the two, such that, you know, eight quarters from now, we're not potentially talking about-
Yeah
... "Hey, generative AI companies are now in a rationalization mode?
Yeah, I mean, we have many sectors, and this one we've said is 4%. So, certainly they're ramping quite, quite rapidly. There is a lot of usage. You could well have an optimization, but we've had optimizations in end markets that have been a lot larger than this.
Mm-hmm.
In this cycle, or even, let's say, at the beginning of COVID, we had in hospitality and airlines and things like that. So yes, there could be, but secondly, it's not that large a part of our business.
Understood.
Yep.
You know, zooming out, your exposure to more of the VC-backed companies-
Mm
... who are naturally
Mm-hmm
... more cloud-native.
Yeah.
How should we internalize that in terms of aggregate exposure? And, you know, from what I'm gathering from your observations and what you're seeing in customer behavior, we're definitely past sort of the open-ended period of, you know, ramping spending-
Mm-hmm
... and ratcheting it back. So maybe there is a degree of stabilization in even the way the cloud natives are spending.
Exactly.
But how would you articulate, you know, is that a correct observation in that, hey, cloud natives are just better at managing ...
Yeah
... their own businesses now? And, you know, to the extent, you know, some of that risk doesn't creep back in-
Yeah
... because you do have exposure to-
Great question
... cloud-native.
So we've been, you know, pretty much a third enterprise, traditional enterprise. It's a little more than that. It might be around 40% mid-market, and then SMB, where it has a high intensity of cloud natives, venture-backed cloud natives. So we've been highly diversified and increasingly diversified. You know, everything from companies like plumbing supply companies you would never expect to have a digital presence, but have warehouses and have to distribute, so that would be traditional industry, all the way to what you read about in cloud natives. And yes, I do think that when you look at the cloud native sector and the SMB, what you see is they are growing, but they're spending in a more responsible way. That shouldn't surprise anybody.
The whole capital markets and availability of capital in that period was encouraging spending growth without looking at profitability or maybe even exits. So yes, we do see that behavior, but, our SMB, which happens to be probably more like, because, you, in order to have a cloud presence and have, you know, hosting and all, you're not a fifty-person mom and pop. So I think this is probably more towards the mid-market. It has, like we said, been solid but hasn't, you know, accelerated to the degree that the enterprise has. So yeah, I think that's spending patterns, and it's probably very healthy long-term for those companies.
I appreciate that color. Thank you.
Yeah.
Let's go back to kind of the product footprint-
Mm
... and how the platform is being deployed and scaled.
Yeah
within your customers. So I wanna start with what is your largest, most dominant, kind of most mature
Yeah
Solution area, which is infrastructure monitoring, right?
Mm-hmm.
That's your claim to fame. Billion-dollar plus-
Mm
- ARR footprint. What observations can you share to give investors the confidence that, "Hey, this is still a growth engine for us-
Mm-hmm
- even though it's our biggest? And why there is still significant runway for the infrastructure monitoring, set-
Mm
of solutions to, you know, continue to have very strong growth?
Yeah, it's this is the part that's most correlated to cloud workloads, and to cloud workloads of modern applications. The percentage of workloads that are in the cloud are still, I don't know if it's 20, 30, but still pretty small. There are many entities like enterprises that are very early in their journey. The hyperscalers and Datadog and infrastructure have experienced long-term and sustainable growth for many, many years, and we think we're still early in the transformation of applications into the cloud. In addition, we could have accelerants like AI, where you have to re-platform. You can't leave the old applications. So all of these drivers in the technology base are helpful to the re-platforming of modern applications, and that's what Datadog does.
So, you know, we think we're still very early in the long-term and very, very, sustainable trend of putting applications into the cloud, modern applications.
You all have a very close relationship, and, you know, Oli feels very strongly about, you know, all the work you're doing around OpenTelemetry, right?
Mm-hmm. Yeah.
So the whole concept of just make it-
Yeah
Easier for enterprises to-
Mm-hmm
... you know, firehose and ingest-
Definitely
- More data.
Mm-hmm.
So you just, you see more, you know more-
Mm-hmm
... you can do more, right? I think functionally-
Yeah
That's the thesis.
Yeah.
Right? So when you think about OpenTelemetry, how do you kinda navigate some of what might be less monetization opportunity for you? 'Cause you are democratizing the ability-
Mm-hmm
... to gather more data. I mean, how do you kinda straddle that, openness to being open to OpenTelemetry-
Yeah
... but also-
Good question
... you know, you're, you've got commercial software-
Yeah
- intellectual property.
Yeah.
How do you navigate that?
To be the platform that you do DevOps on, and you standardize your workflow, is a really, really important birthright. Essentially, in order to do that, you have to be open to getting everything in, and we really don't care. Once data is in there, there are so many ways we can monetize it, and there's so. It becomes easier and easier. That's what we've been doing building the platform. It's part of a strategy, which again, back to Oli and his philosophy, has been really successful of being the ubiquitous platform that everybody can use, and if you do that, you have to be open to get data in from everywhere.
We found that opens so many vectors of growth because once you get the data in there, you can do so many things on it, so that's the strategy.
I wanna move to the APM side of the house.
Yeah.
Still, you know, a relatively new product area-
Mm-hmm
for you. I think introduced maybe three years ago, in earnest, four years ago, in earnest?
Probably five, five years ago. Five or six years, but probably it took us a couple years of build to get up to product parity and beyond.
A lot of interesting things happening-
Yes
... on the Application Performance Monitoring side. Very natural, kind of, you know-
Yeah
... the swim-
Mm-hmm
... was very natural-
Yeah
... for you. I wanna tackle this with a number of different angles, right? So first and foremost, you know, the consolidation generally-
Right
... we've seen in the observability arena.
Mm-hmm.
As a general matter, how has some of that shake-up in the market structure impacted your business and/or the types of conversations-
Mm-hmm
... you're having with customers, in terms of what type of more visible opportunity-
Mm-hmm
... that brings for you from a wallet share perspective?
Definitely, definitely. There are the clients have evidenced wanting to have everything in a platform. We didn't have APM. Over 50% of our deals over $1 million involve consolidation, and a lot of the consolidation involves APM and logs. So it's a huge opportunity. We're not that penetrated, you know, in APM, so we've how we reacted to this, we've gotten better about of value selling, selling the platform, organizing and understanding when's the right time to consolidate. At the same time, we've benefited from a benign or weakening competitor set and as we have out-invested, I think our R&D is more than everybody else combined, we have been able to, as you said, it's a smooth track, and it is, and we've been able to consolidate this. So that's been a significant vector.
Not only APM, but all the things that hang off of it in applications. We announced on our last call that we had both RUM and synthetics. This is digital experience, or how the application works out to the mobile device, for the website, that those passed $100 million. So there are many more things that hang off of this that we've been able to bolt on as we've consolidated this APM business onto our platform.
So two-parter on this.
Yeah.
You know, in the heat of the pandemic, I think APM and logs tended to see the most upward elasticity, right, in terms of usage, and that's probably been where you've seen-
Probably infra and logs.
Infra and logs.
For two different reasons. One, logs can be. You don't have to instrument. You can start, you can just run more logs, so it's about the settings. And infra because there wasn't as disciplined a hygiene of managing hosts. So I would say those are the ones that APM was a little more cushioned on that, in that area.
Okay. That-
Yeah
... that's very helpful.
Yeah.
So outside of just more rational buying behavior-
Yeah
... what have you done institutionally, or the go-to-market organization-
Mm-hmm
... has done institutionally to just, be mindful of-
Mm
... not being caught off guard in terms of erratic customer-
Mm-hmm
... spending behaviors, right? You clearly have-
Definitely
... learned through the pandemic.
Yeah.
You have a lot more data points, so-
Yeah
... what have you done intrinsically to just have more visibility that the-
Yep
... higher elasticity in infra and logs, some of that-
Yeah
... you can try to have more under your control, so it's not as erratic?
Definitely. We try to increase transparency by instrumenting the platform so clients can see their usage patterns. We have a couple different departments, including customer success and solutions engineering, the technical account management, that are available for customers to help them regulate this. If they've done something that is not, you know, intentional or they didn't think through it, we basically say: "We're not gonna charge you for a spike." This has been going on for some time, but even more important this: "Let's work together to get this, you know, calibrated." We've, in selling, we've become more flexible in our drawdowns and commits, so essentially, you can use all the different products. There's different SKUs, and we have technical. We have both a paid and a not paid service.
It depends on the intensity on helping you use the platform in the right way. I think this has been very important, and the evidence being that our gross retention has stayed very stable and very strong throughout this, and part of it is because of this way of dealing with clients.
So you brought up gross retention-
Yeah
... so I have to bring up Net Retention.
Yeah.
Just from a net-
Yeah
... retention rate standpoint, a number of different vectors here-
Mm
... that contribute to the outcome or-
Mm-hmm
... the output of that-
Yeah
... KPI. You know, you were punching very much above your weight class.
Yeah.
You're still kind of upper watermark for all of enterprise software on Net Retention rate levels in the aggregate-
Yeah
... but we are below the historical high watermark-
Yeah
... right?
Mm-hmm.
Can you talk to some of the key drivers that can really fuel a re-expansion and an improvement here? And what is the balance that you're trying to strike between increasing usage of existing-
Mm-hmm
... products, flagship products, that everybody knows and loves you for, but also driving more multi-product-
Mm-hmm. Definitely
... capabilities?
Yeah. So about 25%-30% of our net retention, this would be the growth of a customer in one year, so this doesn't talk about the ramping of new products, comes from new products. And so, what we do is we essentially try to educate the customer on the platform. That's in customer success, enterprise selling, so that they know products are there. There's also marketing efforts and product marketing efforts around those products. There are metrics that we provide that are all pretty much up in terms of the multi-product adoption, and we have incentives in a number of departments on their compensation and their plans that are based on cross-selling. So all of that is, you know, part of a package in trying to get more adoption. Now, why is that important?
The more the client's using pieces of the platform, the stickier they are, the more they're standardizing, the more they're gonna stay with us, and the more it's gonna grow over time. So it's all part of the strategy of how to deal with clients at Datadog.
You know, part and parcel to this is, your engagement with customers more and more on a multi-year basis-
Yeah. Mm-hmm
... right? You know, we can see that in, you know, some of the-
Yes
... backlog metrics you disclose.
Mm.
I know you don't manage the business to that, but, you know, as you think about deriving this type of multi-product-
Mm
... behavior, as you derive incentives-
Mm-hmm
... to push those outcomes, you know, the observed trend of customers doing more multi-year-
Mm-hmm
... deals, how is the go-to-market organization evolving, maturing-
Mm-hmm
... to kinda those types of engagements? And, you know, relatedly, how is the philosophy around ELA?
Mm-hmm
Bundling type conversations?
Yeah.
How are those evolving? Because I know historically-
Yeah
You've taken a very firm stance that, "Hey, we don't wanna just offer a buffet. We actually wanna see what customers-
Right
are using, so we can extract value and understand where we wanna invest.
Yeah
... I get that ethos, but large companies are large companies. They're used to-
Yeah
doing business in a certain way. So how are you combating?
Yeah
some of those demands from larger enterprises?
Well, I mentioned that we, for larger enterprises, we generally sell on credits or commitments. It tends to be flexible within that, in that they can use the parts of the platform. We do believe in the transparency, so they can see what parts of the platform they're using, so we have maintained, you know, a SKU-based strategy. So those are things that we think are valuable and allow the client to calibrate their use. We've been on a journey over the last several years, but it continues in selling, combining bottoms-up selling with selling higher and higher up in the organization, and navigating vendor management, to try to identify what the use cases are in projects and the other vendors that are in there.
Try to work with the client to get to a long-term, like a commitment that they will themselves trade off between flexibility on the short term and long term. I know I manage vendor management, and I know that if I am gonna stick with a vendor, I know I'm not replacing them. I can. There's a lot of flexibility in a multi-year deal. I can always buy along the way, and many do, but it helps to manage the price point. We do it in a disciplined way. The unit pricing hasn't really gone down, but we try to balance this out, and it's worked for clients in that they are able to both commit and have more transparency in the amount of usage with us, and we get them on a longer-term commitment.
So it's been a win-win, largely pulled by clients.
On this-
Mm
... trend around upsizing, you know, transactions-
Mm-hmm
-and deals-
Yeah
-we're seeing a lot of momentum there. You know, can you frame for us, you know, a vanilla infrastructure monitoring customer-
Mm-hmm
when they do, you know, their eyes light up, and they see the value from APM
Mm-hmm
and then, you know, you move-
Yeah
upon further, see the value from Synthetics. Can you talk a little bit about, quantitatively, how that influences the scope of the initial commit? And then-
Mm-hmm
... you know, these are maybe some of your more established areas.
Mm-hmm.
How does the conversation change even more when you talk about security?
Yeah
... when you talk about cloud service management? So, you know, anything around-
Yeah
uplift or contractual size or commit size improvements as more and more goodies get added
Yeah
to the commit?
We're still land and expand.
Mm-hmm.
We still often don't take the full, you know, bucket upfront. I think 80% of our customers land with two or more.
Mm-hmm.
So generally, the motion is you land with infrastructure and either logs or APM. We then identify, you know, the most obvious ones you're talking about. There are other things that tend to get bolted on really, really pretty easily. I think we talked about the digital experience, Synthetics, RUM, database, lots of different sources. So all of that, as I would say, continued to be fairly frictionless. Of course, we educate them, we illuminate them, we put it out there, and I would say that, you know, that all is within the observability suite. It could well be that service management, we're talking about it, which is really how workflow gets done in the platform-
Mm-hmm
... or on call, where you're able to manage cases and paging and all. It's too early, but that may also be frictionless as part of the platform. And then when you go to security, you have a less traditional use case. We're selling to DevSecOps, which is still emerging as a use case. The more progressive cloud natives are doing it, but you also have a different buying center in a CISO. So that's proven to be a little bit more of a challenge.
What we've told everybody is, as we're building out the product suite and getting to product parity, we will look at the pace of DevSecOps development and see if we're gonna be able to do what we did in DevOps, which is attach and be a winner, potentially alongside the more traditional security companies, or we have to adjust our go-to-market, and we haven't been at that point yet, but we may have to adjust our go-to-market or our marketing to address this other use case. It really will depend on how this gets bought, whether it gets used essentially but bought centrally, whether it gets adopted ground up, or whether it really gets used centrally, and that's still an evolution, which is different than what's happened in DevOps so far.
Where are you performing from a security standpoint relative to your initial expectations? You know, I think there's still some-
Yeah
... tinkering going on with-
Yeah, sure
-the portfolio-
Yeah
from both a product and go-to-market standpoint. You just alluded to that. so-
Yeah
... where is it performing?
Yeah, it's a good question.
Current levels-
Yeah
... and where do you want it to be?
Yeah. We, we basically, in terms of the number of customers that use it, which I think we said is over six thousand, that meets our expectation, et cetera. But I think what has been harder is the use cases and the, you know, price point. So I think what we're, what we are still doing is building out the functionality. This happened in APM, too, where it took us a number of years. So we think there's, you know, a very large opportunity. I mean, we have even though we have six thousand customers and quite a bit of revenues, we haven't said, you know, what that number is, but it's a good business. But we think it has so much more potential.
So I think that it's for the reasons of the build-out, not having the security team there, making some acqui-hires, and then the buying patterns. Perhaps it's been slower than the other products-
Mm-hmm.
But it's also evidence to some of the things that we've seen in things like APM. Yeah.
What are the types of... I don't know if ARPU is the right way-
Mm-hmm
... to think about the DevSecOps opportunity.
Yeah.
You know, I think, not too long ago, you decided to institute more bundles-
Right.
Right?
Yes.
That's been one approach to kind of really galvanize-
Exactly
... the momentum in DevSecOps. You know, any feedback on what the reception from customers have been to this? You know, because the persona is adjacent, but not exactly-
Exactly
... the person that you're selling the
Exactly
... core portfolio to. So any lessons that you've learned in the data points you've been building-
Yeah
... via the sale of DevSecOps bundles?
Yeah. It's working in that the bundling, exactly right. We went to a bundle because we felt that in this-
What's the bundle for us who are uninitiated?
You have an infrastructure and an app bundle, and it basically means you're buying the APM plus the app security, or you're buying the infrastructure plus cloud security or, you know, host security. So given what you said, we are sort of thinking that this could lower the barriers to adoption-
Yeah
... to this adjacent group, and it's working. It's too soon, but it's growing quite rapidly. We're having, you know, hundreds of customers adopt it, which is good, but we're still, you know, only up. I guess we're two quarters in, two or three quarters in, so you know, we think it works. We think we've learned a little bit about how to lower the friction in going to market, and you know, we're optimistic here.
You know, you're pursuing all of these growth objectives, multi-vector-
Mm-hmm
... multi-product-
Yeah
... kind of tweaking, jiggering the go-to-market as you go along, specifically in these areas, and, you know, cloud service management-
Yeah
... you talked about a really ripe opportunity to monetize workflows-
Yeah
... for organizations that are already captive in Datadog, right?
Right.
Just from a financial model perspective, it doesn't seem like you've missed a beat on, you know, delivering incremental profitability-
Mm
... while still pursuing these-
Yeah
... growth objectives, right? So what's the sauce here? I mean, why are the unit economics-
Mm-hmm
... so high? And, I mean, the other angle I want to ask you about is-
Yeah
... you said this earlier, you do have your sales folks and your sales organization-
Mm-hmm
... that are moving upstream-
Yeah
... selling to enterprises. Those are harder to sell to.
Mm-hmm.
There's longer sales cycles, and yet, there has not been a significantly deleterious impact.
Mm-hmm
... on your margins. So what's the secret?
I think the secret gets back to the product and the architecture. The fact that it is efficient to add functionality because it's all based on a common data architecture. And so, unlike other companies which have struggled to get everything together, we've been pretty efficient. And because of the way it's architected, and we talked about frictionless adoption, it's a very efficient way to sell, which has helped us manage the sales price point. So I think it all goes back to that, and then it's a decision with that type of efficiency, how do we reinvest, where do we reinvest back in, in order to have the economic model that we've shown?
And so far, there's been that's been efficient enough, and the economies there have been to reinvest and still improve margins. And, I think we've been making many of the types of investments that you're alluding to: enterprise salespeople, sales engineers, channel, that, and still fitting that in the model and being a leader in R&D. So I think it all goes back to the fact that it's a mousetrap that is efficient in terms of the ability to add on to it and have clients adopt it.
Is there anything you can share with us on each incremental product, 50%, 60%, 70% of it drops to the bottom line? Again, you know, maybe trying to quantify a little bit of that efficiency of just the core product architecture that allows that-
Yeah
... frictionless adoption. So any sort of quantitative finer points you can-
Yeah, I think if you see the gross margins, which, as we've been adding products, have been stable to up-
Right
... that's not possible unless you are engineering gross margins for incremental products that are near where the overall is. So it again goes back to the engineering of the platform. Now, I think we've been helping this because we've been good engineers, when you think about Flex Logs or how we're re-engineering the platform all the time. Half of the investment in R&D is platform investment, and so we're re-engineering the architecture of the platform to relentlessly make this the case. It isn't that products, they haven't had been like this or this. We can engineer and price a product to have a gross margin that's similar to our company gross margin.
... David, I wanna end the conversation on how you're thinking about the journey to $5 billion in ARR-
Mm-hmm
-in revenue from here. You know, what's the force ranking of the things that you're focusing on to get you to that and to those-
Yeah
revenue levels? And how does M&A-
Yep
factor into that strategy?
Good point. I think Oli has said that we feel we can get to $5 billion or beyond with the growth trends and our product suite in observability, and we have optionality above that in shift left, in security. I think we've talked about business analytics, so there are other things. So essentially, we feel that the growth factors back to only 20% or 30% of applications in the cloud can do that. Now, M&A, for us, largely has at the very center when we have a product roadmap, and our limitation has been the getting enough engineers in and getting them going on it. So we've been looking for engineering teams that can accelerate the product roadmap.
So far, it's been pretty much you look at this box, you say, "Here's a good group of engineers. They seem to have the way of thinking that we can integrate in," and so that's been the core. Now, we are open, as we've talked to, to looking at M&A that might be larger, but the bar gets higher because we're a platform company. The people have to wanna stay, and we are pretty disciplined on price in acquisitions. So, we're willing to look at things, but the core of what we're looking at is that acqui-hire or the technology, and I think we said on the earnings call that we're not looking today at anything that's material.
David, I wanna thank you for a fantastic discussion.
Thank you.
You covered a lot of ground. I appreciate-
We did
... all the insights, so-
Thanks a lot.
It flies when you're having fun.
Yeah. Thanks a lot.
Thank you.
Thanks for inviting us. Thank you, everybody.