Rethinking the Observability Market: My $12B Estimate for 2024

This week, I came across a study by Markets and Markets that estimated the observability market at $2.4 billion. My immediate reaction? That number felt far too low. However, I couldn’t find any solid market studies or alternative numbers to validate my instinct. So, I decided to create my own market estimate.

After analyzing the data thoroughly, my analysis suggests that the observability market will be worth closer to $12 billion in 2024 and growing at approximately 20% annually.

Here are my statistics and calculations:

Here’s a breakdown of how I arrived at this estimate and numbers.

Identifying Relevant Market Players

To begin, I compiled a list of 28 companies that I believe represent the majority of the observability market.

Gartner’s Magic Quadrant for Observability was my starting point, with MQ leaders alone likely accounting for 60% of the market.
I added companies outside the quadrant but relevant to the market, such as Google and Coralogix.
I included emerging players like Dash0, who may not be significant revenue contributors today but have future growth potential.
Companies like JenniferSoft (a key player in Asia) were left out due to insufficient market size data.

Categorizing Companies and Calculating Revenues

I grouped the companies into five categories to estimate their contributions:

1. Public Companies with Observability as a Core Product

For companies like Datadog, I used revenue figures from their latest public filings.
If they offer other solutions (e.g., Datadog’s security products), I applied a discount, like 5% off Datadog’s revenue
For companies like Elastic, where observability is one of three main product lines, I allocated ⅓ of their revenue to observability

2. Public Companies Where Observability is Not Core

Think of Amazon (AWS CloudWatch) or Microsoft. While their overall revenue is public, isolating the observability component is challenging. The revenue in my list is just the estimate for the observability products.
For instance, I estimate AWS CloudWatch contributes $1.6 billion, a conservative figure that’s less than 2% of AWS’s $100 billion revenue.
This category introduces the biggest margin of error, which I estimate could skew the market size by ±20%.

3. Companies That Were Public but Are Now Private

For companies like Splunk, New Relic, or Sumo Logic, I relied on their 2023 10-Q filings.

4. Private Companies with Revenue Indicators

For example, Grafana Labs announced $250M ARR earlier this year. I used that number as a baseline, though it’s likely higher today.

5. Private Companies Without Public Data

For companies like Honeycomb or Chronosphere, I used my industry knowledge to estimate revenues conservatively. While these estimates could be off, I believe they are within a reasonable range and won’t drastically impact the final market size even if I am 50-100% off (which is absolutely possible).

Cross-checking with a Top-Down Approach

To validate my bottom-up calculation, I applied a top-down method:

Observability spend is often estimated at 15-20% of cloud infrastructure costs (source).
The global cloud infrastructure market is projected to reach $261 billion in 2024.
By that logic, the observability market could be $40-$50 billion.

So, why is this 4x larger than my $12 billion estimate?

The answer lies in market penetration:

Not every application or infrastructure is fully observed or monitored.
Many organizations still rely on home-grown or open-source solutions (e.g., Prometheus) that generate no direct revenue and are excluded from my analysis.

This highlights the massive growth potential: Observability isn’t just growing because the market is expanding, but also because a significant portion of the infrastructure remains untapped.

Final Thoughts

My analysis suggests that the observability market is already a $12 billion opportunity in 2024, growing at a healthy clip of 20% annually. At the same time, the larger $40-$50 billion potential underlines how much room there is for further growth and innovation.

I’d love to hear your thoughts: