Organizations have broadly deployed business applications and related IT infrastructure to automate processes and improve sales, marketing, customer support, human resources, product development, engineering, finance, and operations performance. As more business processes involving employees, customers, partners, suppliers, and other constituents are transacted through software and web-based applications, the amount of digital information produced by these applications and the hardware devices that run them has grown substantially.
As organizations have become highly reliant on their technology assets, they require end-to-end visibility, analytics, and real-time intelligence across all of their applications, services, and IT infrastructure to achieve required service levels, manage costs, mitigate security risks, demonstrate and maintain compliance and gain new insights to drive better business decisions.
While computing environments have always generated machine data, many organizations still need to recognize the value of this data or have encountered challenges extracting value from it. As a result, diverse, heterogeneous machine data is largely ignored and restricted to ad hoc use when troubleshooting IT failures or errors.
Splunk is on a mission to make machine data accessible, usable, and valuable to everyone in an organization. Splunk enables organizations to gain real-time operational intelligence by harnessing the value of their machine data. In this strategy story, we analyzed the business model of Splunk and understood what does Splunk do and how does it work.
What does Splunk do? How does Splunk work?
Splunk, founded in 2003, is an American software company that produces software for searching, monitoring, and analyzing machine-generated data via a Web-style interface. Its software helps capture, index, and correlate real-time data in a searchable repository, from which it can generate graphs, reports, alerts, dashboards, and visualizations.
Splunk uses machine data for identifying data patterns, providing metrics, diagnosing problems, and providing intelligence for business operations. Splunk is a horizontal technology for application management, security, compliance, and business and web analytics.
Splunk provides an innovative software platform that enables organizations to gain real-time operational intelligence by harnessing the value of their data. Splunk’s software collects and indexes data at a massive scale, regardless of format or source, and enables users to quickly and easily search, correlate, analyze, monitor, and report on this data, all in real time.
Splunk’s software addresses the risks, challenges, and opportunities organizations face with increasingly large and diverse data sets, commonly referred to as big data, and is specifically tailored for machine-generated data. Machine data is produced by nearly every software application and electronic device in an organization and contains a definitive, time-stamped record of various activities, such as transactions, customer and user activities, and security threats.
Splunk’s software is designed to help users in various roles, including IT and business professionals, quickly analyze their machine data and realize real-time visibility into and intelligence about their organization’s operations. This operational intelligence enables organizations to improve service levels, reduce costs, mitigate security risks, demonstrate and maintain compliance and gain new insights to drive better business decisions.
The core of Splunk’s software is a proprietary machine data engine comprised of collection, indexing, search, and data management capabilities. Splunk’s software can collect and index terabytes of information daily, irrespective of format or source.
Splunk’s machine data engine uses Splunk’s innovative data architecture that enables dynamic schema creation on the fly, allowing users to run queries on data without understanding the data structure before collecting and indexing.
Splunk’s machine data fabric for data collection and indexing delivers speed and scalability when processing massive amounts of machine data. Splunk’s software leverages improvements in the cost and performance of commodity computing. It can be deployed in various computing environments, from a single laptop to large globally distributed data centers.
The business model of Splunk revolves around cloud services, product licenses, and Maintenance. Let’s understand how.
What is the business model of Splunk?
Value Proposition
Real-time operational intelligence and visibility: Splunk’s software enables users to identify problems, get answers, and gain new business insights and intelligence from machine data significantly faster than traditional application management, IT operations management, security and compliance, and business intelligence tools.
Compelling return on investment and lower total cost of ownership: Splunk’s software enables customers to improve their customer service levels and systems availability, reduce operational costs, improve security and compliance, and increase business insights.
Fast time to value: While some enterprises leverage Splunk’s professional services team to deploy Splunk’s software in large, highly complex IT environments, most users simply download and install the software, typically in a matter of hours, to connect to the relevant machine data sources and begin realizing operational intelligence.
Highly scalable and flexible data engine: Splunk’s machine data engine, machine data fabric, and broad technology stack are built to be highly flexible and scalable, allowing Splunk’s customers to index terabytes of data daily and search petabytes of historical data. Splunk’s software can operate in a single data center or globally across multiple data centers inside and outside an organization, all from a single user interface. This architecture also allows for the flexible deployment of additional commodity hardware as needed.
Splunk Product Portfolio
The Splunk offerings are a mix of cloud services offerings and on-premise licensed software offerings (“license offerings”) that customers and partners deploy in their own environments. Splunk’s portfolio comprises three categories of offerings:
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The Splunk Platform: A broad set of configurable and extensible capabilities that can acquire, manage, and analyze data and deliver insights from virtually any technology source.
The Splunk platform anchors the Splunk portfolio of offerings, an extensible real-time data platform comprising collection, streaming, indexing, search, reporting, analysis, machine learning, alerting, monitoring, and data management capabilities.
Splunk Solutions: Application offerings that leverage the Splunk platform to provide deep, pre-built capabilities for Security and Observability.
- Splunk Security Solutions: Splunk Security solutions help cybersecurity teams streamline the security operations workflow, accelerate threat detection and response, enhance threat visibility, and scale resources to increase analyst productivity through machine learning and automation.
- Splunk Observability Solutions: Splunk Observability solutions include Splunk IT Service Intelligence, Splunk On-Call, Splunk Infrastructure Monitoring, Splunk Application Performance Monitoring (“APM”), and Splunk Synthetic Monitoring.
Customer and Partner Solutions: Content built by Splunk’s field organization, partners, and customers that configures and extends the Splunk platform and Splunk Solutions, accelerating customer time-to-value for a broad range of use cases.
This range of Customer and Partner solutions includes pre-built data inputs, workflows, searches, reports, alerts, custom dashboards, flexible UI components, custom data visualizations, and integration actions and methods.
Sales & Marketing Strategy of Splunk
Splunk’s sales and marketing organizations work together closely to expand market awareness, generate a sales pipeline, and cultivate customer relationships to drive revenue growth and enablement for adoption and customer success.
Sales Strategy: Splunk sells its offerings directly through field sales, inside sales, and indirectly through different routes to market with a community of partners. These partners include leading global service integrators, managed services partners, and resellers.
Splunk gathers prospects through a broad range of marketing campaigns, programs, and events. In addition to acquiring new customers, Splunk’s sales teams are responsible for securing renewals of existing contracts and increasing the adoption of Splunk’s offerings by existing customers.
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Marketing Strategy: Splunk focuses its marketing efforts on generating opportunities for Splunk’s sales force and partners, increasing awareness of the Splunk brand, driving viral adoption, and communicating product advantages and business benefits. Splunk markets its offerings as a targeted solution for specific use cases and as an enterprise solution for a broad range of data and use cases.
Splunk engages with existing and potential customers to provide community-based education and awareness and to promote expanded use of Splunk’s cloud services and license offerings within these customers. Splunk engages business press, technology press, industry analysts, and influential voices to create awareness for Splunk in Splunk’s target markets.
Revenue Model
Splunk made $2.67 billion in FY22. The Splunk business model has three revenue streams: Cloud services to use hosted software over the contract period without taking possession of the software. License revenues reflect the revenues recognized from sales of licenses to new customers and additional licenses to existing customers. Maintenance and services revenues are from maintenance agreements, professional services, and training.
Splunk typically bases its cloud services annual subscription fees on the volume of data indexed per day, including a fixed amount of data storage or purchased infrastructure and data storage Splunk’s customers require to support the underlying workload. An increasing number of customers are shifting to workload-based pricing.
Splunk’s revenue mix has shifted from sales of licenses to the delivery of cloud services. Splunk’s transition to a predominantly cloud services delivery model has impacted Splunk’s operating margins and revenue. As per Splunk’s 2022 annual report,
