Investors Banking On Observability Boom

Despite an overall spending slowdown in the tech sector after a sluggish 2023, one area of tech is showing serious signs of life: Observability software that allows IT teams to measure, monitor and analyze an app or system, is gaining steam as tech leaders look to cut downtime costs and secure their data pipelines.

In the past few weeks, observability-focused companies -- including Observe, Acceldata, and Pantomath -- have secured millions in funding as investors hope to cash in on what 650 Group forecasts to be a $2 billion observability market by 2027 (compared to $278 million in 2022). One driver of investors’ sudden interest may be Cisco’s plan to purchase observability giant Splunk for an estimated $28 billion.

“I’m surprised that it took this long to catch on,” says Chris DePuy, founder and technology analyst at 650 Group. “I think Cisco is sort of forcing consolidation in the market.”

Investors Taking Notice

Pantomath on Monday announced raising $14 million in Series A funding to bolster its observability platform and workforce. Observability platform Observe raised $50 million earlier this month, and startup Acceldata added $10 million to its total $100 million venture capital haul. These fundraising efforts fly in the face of a venture capital market that has been shrinking since the first quarter of 2022. For the first three quarters of 2023, global venture capital funding was down 42% from the same period a year earlier.

Related:How Observability Can Help Manage Complex IT Networks

But it might be the shrinking market and cost-cutting in the tech world that’s making observability tools such an attractive proposition. According to a 2023 white paper from Cribl, companies adopting an observability data strategy will save 30% on cloud costs compared to competitors.

“Data reliability is a major issue for enterprise businesses and startups alike,” Paul Bessire, CDO at Coterie Insurance, said in a statement regarding Pantomath’s most recent fundraising effort. “Most successful businesses derive their advantages through data, making healthy data pipelines critical for success.”

The 650 Group’s report says the observability market crew more than 100% in 2021. Cloud and subscription-based software offerings will makeup the majority of revenue during the forecast period, the company says. “Deep observability continues to add additional value-add features like decryption, application filtering, application metadata and deduplication. Over the forecast years, this will help drive networking automation and AI-based networks,” Alan Weckel, 650 Group technology analyst, said in a statement.

Related:Cisco Will Buy Splunk for $28B in Huge AI Cybersecurity Play

CIOs, CDOs Need to Assess Adoption Risk

With many players emerging in the observability market, competition will make early adoption of new platforms attractive for cost-conscious CIOs. “I think the big risk here is that you adopt an observability platform and then because that company gets acquired by a larger player, you can get stranded between platforms,” DePuy says. “Maybe your systems won’t be compatible. So, you’ll need to look at potential ways to handle getting forced into a new ecosystem.”