Disclaimer: The information I am sharing is based on my personal experience and may differ from the experiences of others.
In many of my past roles, whether as a new team member or as a consultant, I wasn't actively involved in the negotiating process of acquiring or renewing monitoring or observability tools. However, in recent years, I've been actively involved in the process, such as Request for Information (RFI), Request for Proposal (RFP), and Request for Quote (RFQ).
For those unfamiliar with these processes, they can be complex and challenging due to various factors. Understanding these factors is crucial for navigating the license renewal process or acquiring a new observability tool for your organisation.
Varied Pricing Models - Observability vendors offer different pricing models that can include per-host, per-container, per-metric, per-active service, per-GB of data ingested, and per-user, among others. This wide range of pricing models can make it challenging to compare prices among vendors and determine the right tool that fits your requirements and budget. Compared to other types of tools I have used, observability tools have the most diverse pricing models. I have previously written a post that outlines which vendor uses which pricing model.
Unpredictable Data Volume - The volume of observability data can significantly vary based on application usage, traffic patterns, and external factors like an organisation's maturity stage. Startups and growing organisations with acquisitions and mergers may experience unpredictable data volume growth. This variability makes it challenging to estimate costs when negotiating pricing.
Hidden Costs and Overage Fees - Some vendors may have hidden costs, such as data retention fees, add-on charges for advanced features, or overage fees for exceeding usage limits. These hidden costs can inflate the overall cost of observability, complicating accurate cost forecasting. This was another point I covered in my previous post.
Lack of Transparency - Pricing structures can be complex and opaque, making it difficult to understand what you are paying for and how usage translates into costs. This lack of transparency can lead to confusion and frustration, especially when unexpected charges arise. In recent times, I have observed that vendors are taking steps to make the pricing structures more transparent.
Contractual Complexity - This challenge is not unique to observability tools but applies to other types of services as well. Contracts can be comprehensive and intricate, including different pricing terms, usage limitations, and service-level agreements. It is essential to fully grasp these contractual terms to avoid any unexpected situations and ensure that your organisation's expectations are met. For example, some organisations may have data residency limitations, which can create licensing difficulties. If your organisation has legal and risk teams, it is advisable to have them review the contract.
Education - Different teams (for example sourcing) involved in the process may be familiar with pricing models such as per-user or per-host licensing, as these are some of the most common pricing models used in the industry. However, observability tools often employ alternative pricing models or, in some cases, a combination of different pricing models. This necessitates team training on the diverse pricing structures of observability tools. Moreover, the complexity of observability tool pricing further complicates the education process for the teams. For example Per-GB pricing for ingested data may be based on the number of spans, events, and traces ingested. It is important to educate teams on what these terms mean so they are better equipped for future and also can help you negotiate a positive outcome.
Below are some of the tips you can consider when trying to address some of these challenges, whether you are renewing a tool or acquiring.
Requirements - It is important to clearly define your observability needs and the features required to address them based on the type of process you are undertaking. For instance, the level of detail you will need to communicate with the vendor will differ in an RFI process compared to an RFQ or RFP process.
Request Detailed Pricing Breakdowns - Seek detailed pricing breakdowns from vendors, clearly outlining all costs, including base fees, add-on features, data retention fees, overage fees, and any other applicable charges. And ask as many questions as you can to make sure the pricing breakdown makes sense.
Negotiate Flexible Terms - Explore negotiating flexible pricing terms that better align with your organisation's usage patterns and growth projections. This could involve tiered pricing plans, volume discounts, or adjustments based on usage. For example you may have a tiered pricing based on the amount of data you ingest. For the initial 100GB, the rate is set at $100 per GB, while for the subsequent 100GB to 200GB range, the pricing adjusts to $90 per GB.
Evaluate Open-Source Alternatives - Consider looking into open-source observability tools as an alternative. Although they may require more effort to set up and maintain, they can help you save on licensing costs. However, keep in mind that operational costs may increase. It is essential to exercise caution when exploring this option. This could be a viable choice for startups not in a position early on to invest in licensing costs for an observability tool.
Regularly Review Usage and Costs - Monitor your observability tools' usage and associated costs closely. Identify areas to optimise usage and reduce costs by adjusting data retention settings, avoiding unnecessary data transmission, modifying default signal settings, or renegotiating contract terms if usage patterns change significantly. Partner with a vendor who understands your business and is responsive to changes impacting costs.
Pricing Model - Wherever applicable, I advise to maintain a consistent pricing model across your organisation. For instance, if you are using the same tool, it is better to have a uniform pricing model for all departments instead of having different pricing models for different departments. This approach can help avoid complexities during contract renegotiation, as you won't have to deal with multiple pricing models.
Cloud Provider Observability Solution - Consider leveraging the observability solution offered by your cloud provider (i.e. AWS, Azure, Google). Many organisations benefit from volume discounts through enterprise agreements, which can significantly reduce costs. Additionally, most cloud providers utilise pay-as-you-go pricing, ensuring you only pay for the resources you utilise.
Hopefully this post has given you things that you need to consider and steps you can take when acquiring or renewing an observability tool.
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