Welcome to the Protocol Power Index, a ranking of the most powerful companies by tech industry subsector, as well as the companies best positioned to challenge them. This time: observability platforms .

Observability platforms help companies identify application performance issues, address them and proactively stop them from happening. The market is growing fast and still up for grabs: Observability competitors have raced to the public markets in recent years, garnering valuations in the tens of billions as they look to bolster their positioning.

Observability as a concept is an evolution of monitoring, as the growing complexity of enterprise networks has demanded more comprehensive (and faster) tools to right the ship when incidents do occur. Over time, the subsets of monitoring — of application performance, real users, network performance, end-user experience and so on — have been drawn closer together under the umbrella of observability. Some older companies have backed into the space in the last few years, while newer companies like Honeycomb — and then others after it — have built solutions from the ground up. Either way, if monitoring tools of the past allowed executives to answer the questions they specifically asked, observability tools allow companies to answer any version of that question down the line via more contextual data and a greater number of network touchpoints.

But which companies have the lead right now? Which ones are challenging the sector's dominance? And how do the dominant public cloud vendors fit in? We've ranked the market for you.

Ranking	Company	Score
1	Splunk	62.0
2	Datadog	52.48
3	Sumo Logic	47.88
4	Elastic	45.99
5	Dynatrace	44.05
6	New Relic	44.0
7	Micro Focus	42.48
8	SolarWinds	36.27
9	Honeycomb	27.95
10	Logz.io	21.15

Explore the Data

The Protocol Power Index is designed to view power through a holistic lens that reflects how modern tech companies amass and exercise their strength. To do so, the Power Index takes into account 30 metrics across five categories — Economics, Leadership, Innovation, People and Politics & Policy — and synthesizes them into a single Power Score. Read our full methodology statement here .

What happens next?

Three forces stand to shape the companies operating in the observability software space in the coming years: big cloud bundling, security vulnerabilities and enterprise cost-cutting.

Momentum Ranking	Company	Score
1	Honeycomb ↑	71.76
2	Datadog	55.0
3	Sumo Logic	50.0
4	Splunk	46.0
5	Elastic	44.0
6	Dynatrace	42.0
7	Logz.io ↑	29.41
8	New Relic	29.0
9	Micro Focus	22.0
10	SolarWinds	18.0

The threat of dominant public cloud providers looms large. Microsoft , Amazon and Google have ready-made monitoring and observability platforms available for use through their cloud services. Their dominant market positions could limit the opportunity for incumbents that specialize in this space.

• The public cloud providers haven't made growing their share of the observability market a huge priority, but there's always the possibility that they ramp up customer acquisition efforts as the revenue opportunity grows.
• The cloud players could bundle their observability platforms with other already-popular services. This would make it difficult for standalone observability platforms to effectively compete. It would also make it harder for those companies to attract new customers. For instance, less tech-savvy companies tend to want solutions, which could steer them toward a plug-and-play service offered by a public cloud provider.

Security is a big issue on two levels. Observability platforms need access to critical, sensitive software systems, making them vulnerable to security issues — both real and perceived.

• Perception issues can arise for the entire observability industry, harming companies through no fault of their own. For instance, the high-profile SolarWinds hack tainted the perception not only of SolarWinds, but the entire monitoring industry. Observability and monitoring are closely linked, and both require access to a company's network to function properly.
• The perception issues created by security breaches can limit adoption, particularly by larger, older companies that tend to be late in the software-adoption cycle.
• Perceived security issues could push clients to more established names, regardless of whether those companies have better security practices. Public cloud vendors could therefore benefit from a perception of security risk within the broader observability market.

And observability budgets are easily cut. Because the software is often seen as nice-to-have rather than need-to-have, the sector may be more vulnerable to IT budget cuts during an economic downturn than other parts of the industry.

• Global enterprise software spend has grown fairly steadily over the years, but that doesn't mean the industry is immune to disruptions. For instance, at the start of the coronavirus pandemic, Gartner projected that global IT spending would decline by 8% in 2020 due to economic disruptions. This didn't turn out to be the case, but it nevertheless shows that the industry has the potential to suffer from broader economic shocks.
• Cash-strapped enterprises might also be more inclined to opt for observability software as part of a larger software bundle from a big cloud player. Large enterprises often agree to certain thresholds of spend per year with these cloud providers, and part of that could be allocated toward an observability service at a discounted rate. This pricing dynamic could steer enterprises toward the offerings of big cloud providers, even over a potential best-of-breed offering from a standalone provider. It would also reduce operational complexity, as the enterprise in question wouldn't need to manage as many concurrent software licenses.

Methodology

To rank the competitors, we've developed a formula that encapsulates 30 criteria. Those criteria span five groupings that factor into power: Economics, Leadership, People, Innovation & Politics and Policy. We then developed two systems for weighting the criteria — one for measuring power and the other for measuring momentum — such that companies can be scored on a 0–100 scale. Read our full methodology here .