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Opinion: NewRelic is now free for all, but can it stop Datadog?

In August 2020, NewRelic (NEWR) did a huge clean-up on its pricing. The previous was primarily a contract determined by the number of hosts and their runtime (example, but thankfully they didn't equate containers as hosts), and bundled with a support package. 

New pricing no longer looks at hosts but # of users and GB of ingestion, which make up its subscription + usage (also referred to as "Pay as You Go"). Designated support package is only available for the highest tier.

NewRelic however doesn't (or hasn't yet started to) report these 3 revenue sources (subscription, Pay as You Go, support) separately.

The following sums up my understanding of its implications:

  • Stopping the churn. Retaining as many users as possible on its free tier, as they lose appetite immediately when there's a commitment. Atlassian (TEAM) is now using a similar strategy -- "free for small teams".
  • Incurring short-term drop in ARR, as they expected too. Also makes it a slightly less reliable component of revenue forecasts. Their goal is to help these users to increase usage.
  • Increased CAC. The market size for APM is about $10B and growing >12% per year. The market also overlaps with NPM (network performance monitoring), CWS (cloud workload security) , SIEM (security information & event management), etc., which IaaS players are interested in as well. Supply increases, costs go up, prices go down.
You can view NewRelic's FY21 Q2 report that explains more about this change and its revenue components from its SEC filing. NewRelic closed FY21 in Mar 2021 with a 11% growth in its revenue and it now makes about $700M/yr, which has been caught up by Datadog ($764M), a decade-old player that has extended its offering beyond APM and distributed tracing to CWS. Datadog is growing at a rate >60% in its recent reporting and is charging towards $1B revenue. 


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I'm a technologist who loves discovering and investing in great companies. I am still trying to figure out the best way to share my portfolio openly, it is currently below $1M.  This blog focuses on my hypotheses and decision-making process. I'll come back to update this entry to tell more stories about myself.
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