May 11, 2023
We’re letting our yearly commitment to Datadog, a performance and monitoring tool, expire at the end of this month. Not because we don’t like the service. It’s actually really nice! But because the $88,000/year it was going to cost us to continue is just ridiculous. And it’s emblematic of a larger issue: Enterprise SaaS pricing is getting silly.
But as silly as I thought our bill was going to be, there’s a Datadog customer paying $65 million for their services!! This came up on their most recent earnings call. It’s apparently a crypto company who “optimized” their bill by committing to this ludicrous spend:
At the risk of invoking a tired cliche, this kind of outlay for a performance and monitoring service sounds like a 0% interest rate phenomenon. There’s just no universe I can imagine where that’s a reasonable commitment. One that couldn’t be more than adequately replaced by open-source alternatives. Even if you needed a fair bit of in-house development on top for tailoring.
But I tend to think this way about a lot of enterprisey SaaS software. Like spending $15/month per seat on Salesforce’s Slack in a company of 2,000 people comes out at over three hundred grand per year. Just for a chat tool!
Now add $30/month per seat for something like Asana. Then $20/month for Dropbox. And just between those three tools, you’re up to $65/month per seat at the top levels, or a million and a half in yearly costs for that company of 2,000. Yikes.
It’s surprising to me that there isn’t more pressure yet to cut costs at companies paying such princely sums for their SaaS software. But I think it’s coming. It feels like we’re in a service bubble waiting to pop. Someone is going to look at those margins and see an opportunity.
That’s also a key reason we’re sticking to our pitch with Basecamp. The most anyone can pay us is $299/month. That’s just unlimited users, all the features, all everything. Yeah, sure, are we giving up on the potential to land some whales? Probably. But I can’t in good conscience sell software at prices where I’d never pay.
We’re due a correction here.
About David Heinemeier Hansson