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Amazing how a relatively niche product like this can have such a huge valuation. Shows how big the market is.

chimeracoder 8y ago
> Amazing how a relatively niche product like this can have such a huge valuation. Shows how big the market is. Is PagerDuty exactly "niche"? The core product - providing a third-party system that handles the mechanics of paging people during a production issue - is something that virtually all software companies could use, in theory. It's hard to think of a SaaS company that's less niche than Pagerduty (again, focusing on the market size of the core product, not the actual market penetration or the current state of the product).
- samstave 8y ago
  The service may seem niche, but the NEED for the service is universal. I love pagerduty. (the company, being point, on-call... a bit less)
- vonmoltke 8y ago
  > The core product - providing a third-party system that handles the mechanics of paging people during a production issue - is something that virtually all software companies could use, in theory. I think "virtually" is a bit strong. There are still a lot of software companies that build software that doesn't rely on company-controlled production systems. Also, in practice companies that have large-scale production systems tend to have dedicated 24-hour human monitoring. Thus, I do think PD is hitting a niche within a niche: small-medium sized companies that rely on always-up servers.
zjaffee 8y ago
It's because they can charge a huge amount for their service, where there is relatively low costs of operations compared to other enterprise products. It's amazing how they are able to charge as much as a product like slack.
brightball 8y ago
Don’t take for granted that their biggest competitor was just purchased by Atlassian as well.
- moritzplassnig 8y ago
  And Splunk bought VictorOps, the third company in that market
justboxing 8y ago
> Shows how big the market is... I think the huge valuation has more to do with how absurd startup valuations really are[1], and less to do with showing how big the market for a niche product is. [1] Behind the gloss of absurdly high startup valuations https://42floors.com/blog/startups/absurdly-high-valuations https://42floors.com/blog/startups/absurdly-high-valuations Discussed here => https://news.ycombinator.com/item?id=6874838 https://news.ycombinator.com/item?id=6874838
- moritzplassnig 8y ago
  10-13x ARR isn't absurdly high at all
  - zaroth 8y ago
    It depends entirely on your growth rate. In my experience, a lifestyle business growing 20% YoY with 5% churn and 10% operating margin will sell for around 2.5-3x ARR.
    - spullara 8y ago
      20% YoY is very low relative to most of these large SaaS startups that you see on here. The S-1 for Elastic had it at 75% YoY or so. Most of these companies also have absurdly high negative revenue churn. Gross margins approach 75% which become net margins when they stop growing so fast. See the 40% SaaS rule. https://saasholic.com/the-rule-of-40-for-saas-and-subscription-business-4bc2d7bcd868 https://saasholic.com/the-rule-of-40-for-saas-and-subscripti...
      - zaroth 8y ago
        Exactly! Every time you double your growth rate it also approximately doubles the Price / Revenue ratio. 20% growth will yield a 2-3x ratio. 40% growth 4-6x, and by 80% growth you’re looking at a valuation of 8-12x ARR.
- askafriend 8y ago
donavanm 8y ago
Youre looking at the wrong market. Pagerduty is working “bottom up” in to the IT support game. The trending and business reporting tools are leading indicators of this. Im genuinely curious how long until they have pro services & billable hours. See ServiceNow as an example, $1.9B revenue & $30B market cap.
- perlgeek 8y ago
  Uhm, ServiceNow seems to be in a nearly entirely different game than PagerDuty. ServiceNow is a pretty generic business process and service management solution, with modules for ERP, software development, HR planning etc. And maybe also a module for alerting and incident management. I haven't used PagerDuty, but it seems it's a pretty focused and specialized application. Is there any indication that PagerDuty is trying to be the generic business workflow modeling software that ServiceNow is?
  - donavanm 8y ago
    Agree servicenow is bigger than just incident & problem management. But they are very big in that area, as a subset of ITSM. As mentioned upthread I definitely see Pager Dutys move away from alerts & messaging as preliminary steps. A lot of their investments in the last few years are around business metrics, process, and visibility. Theyre explicitely talking about problem management, outside the traditional event engagemnt actions folks in here are focusing on. And if youre doing both problem & event management how long until billable hours come in to “reach the enterprise.” And then its a (shorter) jump to generalized ITSM. So no, I dont think pager duty is going after hr & payroll functions. But the value/market theyre after is much more than just event engagement.

> Amazing how a relatively niche product like this can have such a huge valuation. Shows how big the market is. Is PagerDuty exactly "niche"? The core product - providing a third-party system that handles the mechanics of paging people during a production issue - is something that virtually all software companies could use, in theory. It's hard to think of a SaaS company that's less niche than Pagerduty (again, focusing on the market size of the core product, not the actual market penetration or the current state of the product).

samstave 8y ago
The service may seem niche, but the NEED for the service is universal. I love pagerduty. (the company, being point, on-call... a bit less)
vonmoltke 8y ago
> The core product - providing a third-party system that handles the mechanics of paging people during a production issue - is something that virtually all software companies could use, in theory. I think "virtually" is a bit strong. There are still a lot of software companies that build software that doesn't rely on company-controlled production systems. Also, in practice companies that have large-scale production systems tend to have dedicated 24-hour human monitoring. Thus, I do think PD is hitting a niche within a niche: small-medium sized companies that rely on always-up servers.

zjaffee 8y ago

It's because they can charge a huge amount for their service, where there is relatively low costs of operations compared to other enterprise products. It's amazing how they are able to charge as much as a product like slack.

brightball 8y ago

Don’t take for granted that their biggest competitor was just purchased by Atlassian as well.

moritzplassnig 8y ago
And Splunk bought VictorOps, the third company in that market

justboxing 8y ago

> Shows how big the market is... I think the huge valuation has more to do with how absurd startup valuations really are[1], and less to do with showing how big the market for a niche product is. [1] Behind the gloss of absurdly high startup valuations https://42floors.com/blog/startups/absurdly-high-valuations https://42floors.com/blog/startups/absurdly-high-valuations Discussed here => https://news.ycombinator.com/item?id=6874838 https://news.ycombinator.com/item?id=6874838

moritzplassnig 8y ago
10-13x ARR isn't absurdly high at all
- zaroth 8y ago
  It depends entirely on your growth rate. In my experience, a lifestyle business growing 20% YoY with 5% churn and 10% operating margin will sell for around 2.5-3x ARR.
  - spullara 8y ago
    20% YoY is very low relative to most of these large SaaS startups that you see on here. The S-1 for Elastic had it at 75% YoY or so. Most of these companies also have absurdly high negative revenue churn. Gross margins approach 75% which become net margins when they stop growing so fast. See the 40% SaaS rule. https://saasholic.com/the-rule-of-40-for-saas-and-subscription-business-4bc2d7bcd868 https://saasholic.com/the-rule-of-40-for-saas-and-subscripti...
    - zaroth 8y ago
      Exactly! Every time you double your growth rate it also approximately doubles the Price / Revenue ratio. 20% growth will yield a 2-3x ratio. 40% growth 4-6x, and by 80% growth you’re looking at a valuation of 8-12x ARR.
askafriend 8y ago

donavanm 8y ago

Youre looking at the wrong market. Pagerduty is working “bottom up” in to the IT support game. The trending and business reporting tools are leading indicators of this. Im genuinely curious how long until they have pro services & billable hours. See ServiceNow as an example, $1.9B revenue & $30B market cap.

perlgeek 8y ago
Uhm, ServiceNow seems to be in a nearly entirely different game than PagerDuty. ServiceNow is a pretty generic business process and service management solution, with modules for ERP, software development, HR planning etc. And maybe also a module for alerting and incident management. I haven't used PagerDuty, but it seems it's a pretty focused and specialized application. Is there any indication that PagerDuty is trying to be the generic business workflow modeling software that ServiceNow is?
- donavanm 8y ago
  Agree servicenow is bigger than just incident & problem management. But they are very big in that area, as a subset of ITSM. As mentioned upthread I definitely see Pager Dutys move away from alerts & messaging as preliminary steps. A lot of their investments in the last few years are around business metrics, process, and visibility. Theyre explicitely talking about problem management, outside the traditional event engagemnt actions folks in here are focusing on. And if youre doing both problem & event management how long until billable hours come in to “reach the enterprise.” And then its a (shorter) jump to generalized ITSM. So no, I dont think pager duty is going after hr & payroll functions. But the value/market theyre after is much more than just event engagement.