Estd 4.22.2023
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In this summary of the "Episode 1: Building Product for Total Cost of Ownership" podcast, I had the incredible opportunity to sit down with Ariel Assaraf, CEO of Coralogix.
Coralogix is a technology company specializing in log analytics and observability solutions. Founded in 2014, Coralogix helps organizations gain insights from their log data by offering a comprehensive platform that includes real-time monitoring, machine learning-based anomaly detection, and integration with various tools and services.
In this podcast we discuss not just pricing strategy for yet another SaaS product, but we discussed how Ariel leveraged the pricing and marketing dynamics in a specific market to build an economically differentiated product at Coralogix.
"Data is growing exponentially. It's simple: data grows faster than revenue. Doesn't matter how much your company will grow; data will outpace that," says Ariel Assaraf, CEO of Coralogix, highlighting a critical issue in the observability sector. Traditional pricing models in this space have struggled because these models create a sort of fake NRR, as spend increases alongside the ballooning of data.
Ariel explains the paradox many companies face: "For observability and security, the more data you have, the less you know. The more you pay, the more inferior your performance gets." This challenge is compounded by the expensive and often sluggish processes of storing and indexing vast amounts of data.
Diving deeper into the issue, Ariel states, "In an environment dominated by traditional storage and indexing methods, businesses find themselves trapped in a cycle of escalating costs without corresponding gains in insights or operational efficiencies. As data volumes grow, systems become increasingly sluggish, turning what should be a competitive advantage, data, into a cumbersome liability."
To combat these inefficiencies, Ariel shares Coralogix's innovative approach: "We had to rethink our strategy from the ground up. Instead of sticking to conventional data management practices, we prioritized innovative solutions emphasizing data analysis over data storage. This shift cuts down our storage costs and boosts our ability to derive meaningful insights quickly and efficiently."
Initially, Coralogix attempted to create intelligence on top of existing products. However, Ariel and his team quickly realized that integrating into existing systems and adding value in a cost-effective way for customers presented considerable challenges.
Recognizing these obstacles, Coralogix significantly pivoted at the end of 2017. Ariel describes this period as a fresh start: "We had to essentially restart the company from scratch, beginning of 2018 with a small team and a clear focus." This new direction wasn't just about survival but about rethinking how to deliver value in the observability space, a sector dominated by established players and complex data challenges.
"We restarted our journey in early 2018 with five people, no customers, and no revenue," Ariel recounts. This moment was critical, it marked a pivot that would redefine the company's trajectory.
"One of the key learnings from our initial years was the power of the pricing page on your website. It's one of the most powerful messaging pages," Ariel explains. In the highly competitive observability market, where differentiation is challenging due to technical parity among competitors, Coralogix opted to innovate through its pricing strategy.
When Coralogix first launched, the initial pricing strategy was a one-size-fits-all model. Ariel and his team realized that traditional pricing models did not cater effectively to the varying needs of their customers, nor did they reflect the actual value delivered."In a landscape where traditional storage and indexing methods dominate, businesses find themselves trapped in a cycle of escalating costs without proportional gains in insights or operational efficiencies. As data volumes grow, the systems become increasingly sluggish, transforming what should be a competitive advantage, data, into a cumbersome liability.
To address this, Coralogix introduced a flexible pricing model aligned more closely with customer usage and the value they derived from the service. "We moved away from a one-size-fits-all approach, recognizing that each customer's needs are unique. By aligning our pricing with the specific value customers gain from our platform, we enhanced customer satisfaction and positioned ourselves distinctively against our competitors."
"This flexibility became a game-changer in our growth trajectory, significantly boosting our customer acquisition and retention rates," Ariel reflects on the impact of their innovative pricing.
The company’s current pricing model reflects the company's continuous evolution and commitment to meeting customer needs through flexible, transparent pricing. The model features a unit-based pricing structure, where customers pay per gigabyte (GB) of data ingested, with costs varying based on the type of data and its use case:
This approach allows customers to choose any combination of these categories, ensuring they only pay for the data they use, tailored to their specific requirements. This pricing model maximizes data ROI by acting as flexible currency, eliminating the need to commit to a fixed amount of any data type, thereby ensuring cost control by preventing overages or underutilization.
Ariel explains, "Our goal with the current pricing model is to provide maximum flexibility and value to our customers. By allowing them to mix and match logs, metrics, and traces across our data pipelines, we ensure consistent pricing regardless of how their needs shift." This model supports a broad spectrum of customer needs, from startups with minimal data requirements to large enterprises with extensive data needs.
Coralogix's strategy revolved around "analyze before index," a methodology allowing significant cost reductions and efficiency improvements. "We used to rely on the index for storage, but today, we analyze about 70% of the data that goes through Coralogix without storing it anywhere," Ariel notes. By analyzing data before storing it, Coralogix significantly reduced storage costs while enhancing data processing speed and relevance.
Ariel explains, "We realized that traditional data storage methods were unsustainable. We needed to handle massive loads of data without incurring prohibitive costs." The traditional approach of indexing all incoming data increased storage expenses and slowed down data retrieval and processing times, impacting overall system performance.
"We had to rethink our strategy from the ground up. Instead of sticking to conventional data management practices, we prioritized innovative solutions emphasizing data analysis over data storage," Ariel explains.
To implement this, Coralogix implemented a multi-faceted product strategy:
By analyzing data before deciding on its storage, Coralogix cut down on unnecessary storage costs and improved its data processing workflows' overall efficiency and speed.
A critical aspect of Ariel's strategy was aligning technology development with pricing goals. "We thought, let's handle massive loads of data and offer a new pricing model that others didn't in the past," Ariel states.
Ariel's leadership extended beyond strategy to operational excellence. He discusses the integral role of collaboration between the go-to-market team, the CTO, and himself in rapidly iterating based on market feedback. "The main stakeholders were the go-to-market team, the CTO, and myself. We spent an average of 10 hours a day together, constantly refining our product and pricing based on market responses," Ariel shares. This tight integration allowed Coralogix to stay agile, responding quickly to market changes and customer needs.
Ariel explains how this collaborative approach facilitated rapid iteration and innovation. "We had a constant feedback loop. The go-to-market team would bring in market responses, and together with the CTO, we would brainstorm and implement changes swiftly. This process ensured we aligned with customer needs and market demands."
By fostering a culture of continuous improvement, Coralogix maintained its competitive edge and drove growth. "Our ability to iterate quickly and efficiently was a major factor in our success. It allowed us to adapt to changes and meet the evolving needs of our customers," Ariel highlights.
One significant innovation was moving data processing to the customer's storage, reducing costs and improving efficiency. "When you use the customer's storage, you stop becoming a cloud reseller. I don't need that markup, and everyone enjoys the cost savings," Ariel explains. This strategy allowed Coralogix to offer competitive pricing while maintaining high margins.
Ariel emphasizes the importance of this approach, "We wanted to ensure that our pricing model was not only competitive but also fair. By leveraging customers' storage, we could reduce costs and pass those savings on to them." This method improved customer satisfaction and helped Coralogix stand out in a crowded market. It demonstrated Coralogix's commitment to providing value while maintaining operational efficiency and cost-effectiveness.
Coralogix's ability to dynamically adjust to market changes is a cornerstone of its strategy. "We track how customers move data between different use cases and adjust our pricing accordingly," says Ariel, highlighting the company's responsive strategy. This flexibility ensures that Coralogix remains competitive regardless of market conditions.
Ariel explains, "We needed to create a system that could adapt to market fluctuations. By closely monitoring customer data usage patterns, we could adjust our pricing and offerings to better meet their needs." This approach allowed Coralogix to stay ahead of the competition and provide value to their customers.
Results, Market Impact, and Future Outlook
The results of Coralogix's innovations were striking. "We actually decreased our price per unit per gigabyte by 70% while increasing margins, almost doubling them," Ariel notes. These impressive results underscored the effectiveness of Coralogix's strategy in balancing cost efficiency with high performance.
"We understand that the market is constantly evolving, and so must we," Ariel explains. "Our goal is to stay ahead of the curve by continuously innovating and adapting our strategies to meet the changing needs of our customers." This proactive approach involves reacting to market shifts and anticipating them, allowing Coralogix to remain a leader in delivering value-driven solutions.
By integrating these insights, Coralogix demonstrates how a relentless focus on improvement and alignment with market demands can lead to sustainable success. Ariel's vision and leadership continue to guide the company towards new heights, ensuring that Coralogix not only meets but exceeds its customers' expectations.