Snowflake’s $1B Observe Talks Highlight Observability Cost Challenge

Snowflake is reportedly in talks to acquire application monitoring and observability startup Observe Inc. for around $1 billion, a move that underscores both the strategic importance—and unresolved economics—of data-intensive observability platforms. Observe was incubated by Sutter Hill Ventures, the same powerhouse investor behind Snowflake itself, creating a tight strategic lineage between the two companies.

Observe was architected to run natively on Snowflake, positioning Snowflake not just as a data warehouse but as the backbone for large-scale observability workloads. The model mirrors how Lacework built its cloud security analytics on Snowflake. In theory, this approach offers massive scalability, unified analytics, and simplified data management. In practice, it raises persistent questions around cost efficiency.

According to reports, Observe raised roughly $478 million in funding and was valued at about $850 million in its last round, with estimated revenues of around $55 million by the end of 2024. While respectable growth, these numbers also highlight the capital intensity of observability businesses—especially those dependent on Snowflake’s consumption-based pricing. Snowflake is widely regarded as expensive for high-volume logs, metrics, and traces, precisely the data types that observability platforms ingest at scale.

History offers cautionary signals. Sumo Logic, despite deep optimization using Cassandra clusters, struggled to make cloud-native SIEM economics work sustainably and was ultimately acquired at a muted outcome. The lesson is clear: observability and security analytics are not just software problems, but data-cost problems.

For Snowflake, acquiring Observe could be a defensive and offensive move—defensive in protecting a key Snowflake-native workload from drifting to cheaper data platforms, and offensive in positioning Snowflake as a first-class observability backbone. However, unless Snowflake fundamentally rethinks pricing or offers vertically integrated optimizations, the same cost pressures that challenged standalone vendors may persist inside a larger platform.

The talks reflect ambition—but also a broader industry tension between data scale, performance, and sustainable margins.