Chronosphere disrupting DDOG?

Yesterday, Chronosphere, the cloud native observability platform, raised an additional $115m Series C at a $1.6bn valuation. Last quarter, the company tripled ARR, with over 145% NRR, and is one of the fastest growing SaaS companies globally.

This could be a problem for Datadog.

Chronosphere is built by Former Uber engineers who experienced the chaos of managing data as Uber moved to a cloud native stack.

When Uber moved to cloud native, they saw exponential data growth on the metric side. The reason is, say you're running 1,000 VMs, and now you've moved to cloud native. You’ve been able to consolidate, so now you're running 800 VM. Now you're running 10,000 containers on top of those VMs, and you're collecting metrics from 10,000 different individual resources, whereas before, you were only collecting metrics from 1,000. When they made that shift, they were hitting above a billion metrics a second, as an application, and they needed a way to have something scalable.

Chronosophere’s pitch is to reduce the cloud monitoring bill of cloud-native companies:

As an example, our average customer can reduce metrics that are incoming by over half, and we bill based on persisted metrics, which is very different than the rest of the industry. The rest of the industry bills are based on incoming metrics. If you want to control your bill, you have to set up a pipeline in front of your metric system that weeds out data but causes lags. Many companies are going in this direction, but they've all been struggling to go in this direction. They're doing that because their vendors, New Relic, Datadog, and Dynatrace, all bill on an incoming metric system.

This interview with a Chronosphere sales team member explores how the observability landscape is changing, the role of Prometheus, and risks to Datadog.

Addlife’s History and Future M&A Opportunities

This interview with the Former CEO of Addtech Life Sciences, which is now a segment of the publicly-listed Addlife, is an interesting exploration of serial M&A in the medical sciences and diagnostics space.

It hits on one of our big questions we explored last year of comparing serial M&A in VMS vs niche industrial businesses i.e. CSU vs HLMA or JDG.

One takeaway is that programmatically acquiring companies at scale in medtech is more difficult as it requires a deeper strategic understanding of the technology and end markets. It’s not simply buying on financials as our recent interview with the SDI Group CEO explained. Addlife's prior management made strategic acquisitions to get access to great suppliers.

The BioNordika acquisition was very strategic because they had Lonza who is a supplier, Cell Signaling Technology which was very strategic and R&D Systems. Those strategic partners were important to get into the group. We never acquired a company because of their financial performance; it was based more on their portfolio. We asked which were the strategic companies we needed to broaden our portfolio and have a much better position, and if Cell Signaling Technology was one of them, BioNordika represent them in the Nordics so let's try to acquire them. - Former CEO Addtech Life Sciences

However, when great managers with technical knowledge and an eye for technology leave the business, it’s far more difficult to consistently add value via M&A.

This led us to think: if Mark Leonard left CSU today, what would be the impact? Given how far M&A is delegated down the organisation, it would likely operate as usual. Maybe the larger opportunities would be a higher risk without Leonard's experience on the exec team. The same can't be said of companies like AddLife that rely more so on great strategic capital allocators.

One a positive note, a B2B distributor like AddLife is a critical cog in the wheel for large OEM’s. And the lack of critical mass in small Nordic countries make it uneconomic for large suppliers to disintermediate AddLife.

That came up in the due diligence when we listed AddLife, and Håkan Roos was very concerned because we could list the company then lose half the turnover. I had a good relationship with the CEO of Radiometer and the people from Danaher. We knew it would be difficult for them because it takes several years to get established and they couldn't take it from Denmark. We assessed a low risk for Radiometer to establish themselves. That remains the case today because if they have 45% margin and choose to do the business themselves, the cost of sales would be higher than that because they don't have the critical mass. - Former CEO Addtech Life Sciences

The interview is a good primer on medtech M&A, what adds value, and human capital risks to scaling acquisitions.

Pinterest Positioning, Attribution & IDFA

Pinterest has been the subject of many changes over the past 12 months. In this interview, a former PINS executive explains why the company struggled to scale:

The biggest complaint with Pinterest was scaling as opposed to performance...Once a CPA conversion-based campaign hit the performance goal but did not scale, we could attribute it to people who would most likely convert, but we weren't able to reach more of them. The restriction there was frequency of usage and customer cohorts not converting.

The flow is also disconnected between PINS user activity and conversion:

"People are on Pinterest actively deciding what to buy and what suits them. Daily active usage platforms are not generating demand; they intercept the demand Pinterest created. It's more likely that someone will visit Instagram between discovering something on Pinterest and buying it, than they are to go back to Pinterest and that be their last touch point. For a larger ticket item, like a sofa, you're not going to buy your sofa until you need to move, so it makes no sense for an advertiser to give a sofa a seven day look back window, but they often had to because they couldn't run an ads business and wait 60 or 90 days for conversions to happen. We were at a disadvantage in that regard."

But PINS still has 445m MAU’s. Plus the user experience is unique and advertisers remain interested in diversifying from GOOG & FB. Elliot Management and Bill Ready clearly think there is something here!

Zoetis Animal Health: Pricing, Generics & Livestock Producers

Interesting comment from a Former Zoetis Director on the company's scale and portfolio breadth:

"When I was with the American Angus Association, we partnered with Neogen, a major competitor of Zoetis, to create our own new genetic test. It was owned by the association and was superior to the test Zoetis had in place, and cost half the price. When we announced it, Zoetis had 80% market share with our members, and I thought, in a year, they would be lucky to have 20%, but it only fell 50% because of those strategic account relationship agreements they had in place. Even though they knew the other product was better, they realized Zoetis had been charging them twice as much because Zoetis dropped the price to match the new product. It didn't matter because they knew if they walked away and reduced their volume, it would also affect the price on all the other products."

The power of the bundle somewhat protects Zoetis' pricing power across the portfolio as a whole even if specific products may lose volume to generics. This is mainly due to the power of Zoetis' loyalty scheme:

To qualify for their Leaders’ Edge program requires a level of income or amount of cattle and I cannot remember exactly how they do it. I'm sure that's grown slightly since I was there, but that powerful program drives loyalty and prevents competitors from making inroads. I used to run it and should have realized how powerful it was. It was reinforced so when we went in with that new product, they took share but not like they should have.

Hagerty Marketplace: The Inner Workings of Collector Car Auctions

Hagerty intends to leverage its data to launch a successful marketplace for collector cars. As a Director of HGTY competitor explains in this interview, just having an online marketplace in this niche is not the recipe for success:

"So, it's imperative to start with live auctions. Many like myself will go to an auction and fall in love 10 times walking down one aisle. I will go for one car I'm hell-bent on buying, and I’ll see another that I like and want, and I may end up going home with two cars. That's one thing that the online component does not give you. Many people will shy away from the online piece because they, like myself, believe in buying visually and being able to inspect a car. I will never, ever again, buy a car sight unseen. I don't care if it's Bring a Trailer."

While consumers are getting used to purchasing cars online, collector cars are a different beast. The emotional aspect of collector items likely requires Hagerty to make significant investments in live auctions alongside an online offering.

LiveChat Software: A Partner Perspective

In this interview, a LiveChat Partner explains the value LiveChat brings him and his SMB customers:

"In terms of measuring the quality of LiveChat’s partner program, I look at how easy is it to create new accounts? What is the revenue share percentage breakdown? Do they give us a marketplace to publish our website on and add value added services? Of all the partner programs out there, I’d say they are right up there as one of the top available. "

DSG: TestEquity, Gexpro, & Lawson

Distribution Solutions Group (DSG) was formed through the strategic combination of Lawson Products, a leader in MRO distribution of c-parts, Gexpro Services, a leading global supply chain services provider to manufacturing customers, and TestEquity, a leader in electronic test & measurement solutions.

Could this be a mini-FAST or Grainger? A Former SVP at TestEquity certainly approves of the management team:

On the VMI side between Lawson and Gexpro, I can see some of that. The one thing that appeals to me about that group is that it's really two people. Brian King is an incredibly smart guy. I’m really pro him, and he’ll figure it out and do good things with that business. I also know Cesar from my Grainger days, he’s a phenomenal leader too. I can't speak to what's going on there, but those two guys are good leaders, so I have to think they're going to bring the right people and decision makers in and build something cool.