PagerDuty, Inc. (PD): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at PagerDuty, Inc. right now, and honestly, the competitive landscape is showing some real stress points as of late 2025. We've got intense rivalry from well-funded players like Datadog, which is reflected in the company's valuation trading at just a 2.6x EV/Revenue multiple compared to the peer average of 28.8x. Plus, customer bargaining power is creeping up; Dollar-Based Net Retention is sitting at 100% in Q3 FY2026 as enterprises rightsize their seat licenses, even as revenue growth was only 5% year-over-year to $125 million. Before you make any moves, you need to see how the high switching costs with cloud suppliers and the moderate threat from new AI-centric entrants balance out against these immediate pressures-so dive into the full five forces breakdown below to see the complete picture.

PagerDuty, Inc. (PD) - Porter's Five Forces: Bargaining power of suppliers

You're analyzing PagerDuty, Inc.'s supplier landscape as of late 2025. The power held by key vendors directly impacts PagerDuty's cost structure and operational flexibility. Honestly, for a cloud-native platform like PagerDuty, the suppliers aren't just component vendors; they are the foundational infrastructure and increasingly, the intelligence layer.

Power is high due to reliance on a few major cloud providers like Amazon Web Services

PagerDuty, Inc. generates revenue primarily from cloud-hosted software subscriptions, meaning its operations are fundamentally tethered to major cloud infrastructure providers. The relationship with Amazon Web Services (AWS) is particularly strategic, evidenced by the renewal of their strategic collaboration agreement (SCA) in May 2025, a partnership that has spanned over a decade. This collaboration currently serves over 6,000 joint customers as of the second quarter of fiscal year 2026.

This deep integration suggests that AWS holds significant leverage. PagerDuty's gross margin, which was reported at 83% in fiscal year 2025, is explicitly noted to fluctuate based on the timing and amount of investments made to expand capacity with these third-party cloud infrastructure providers. When a company of PagerDuty's scale-with $497 million in Annual Recurring Revenue (ARR) as of October 31, 2025-is so intertwined with one provider for core hosting, that provider's pricing and service terms carry substantial weight.

High switching costs exist for moving core infrastructure off a primary cloud platform

The deep integration required to run the PagerDuty Operations Cloud creates high barriers to switching away from a primary infrastructure supplier. The platform's architecture is designed to leverage specific, advanced services from its partners. For instance, PagerDuty Advance capabilities were integrated with Amazon Q Business and Amazon Bedrock in 2024. Decoupling these deeply embedded, high-value features would require significant engineering effort and time, which translates directly into high financial and operational switching costs. If onboarding for a new platform takes 14+ days, churn risk rises-imagine the internal engineering time required to migrate core cloud infrastructure.

Specialized communication providers (Twilio) for SMS/voice notifications hold some leverage

Beyond the core cloud, specialized communication services are essential for PagerDuty's primary function: alerting. PagerDuty maintains over 350+ integrations, but the providers handling critical SMS and voice notifications possess leverage due to their specialized nature and the embedded nature of their APIs. For example, a competitor's user noted that switching SMS integration could require close to $3,000 in development time. The pricing models of these specialized suppliers, such as Twilio, are usage-based, meaning PagerDuty's volume directly translates to spend, giving the supplier leverage through per-unit pricing.

Here is a look at the cost structure for some of these specialized services, which PagerDuty must manage:

Dependence on third-party AI models (e.g., Open AI, L.L.C.) adds a new supplier layer

The push into generative AI has introduced a new, powerful layer of suppliers. PagerDuty is embedding generative AI across its Operations Cloud, including through its PagerDuty Advance offering. This reliance on underlying Large Language Models (LLMs) from external providers-whether directly or via partners like AWS Bedrock-grants those foundational model developers significant power. The cost of these AI add-ons is substantial relative to the base subscription, forcing PagerDuty to absorb or pass on these supplier costs to its 34,000+ total customers.

The financial commitment to these AI features highlights the supplier's leverage:

• PagerDuty Advance is listed as an essential add-on, costing $415/month or $699/month depending on the specific bundle or feature set.
• The PagerDuty Advance offering itself is cited at a price point of $4,980.
• For a 25-user Business plan, adding AIOps and PagerDuty Advance can increase the annual cost from a base of $12,300 to over $28,000 before other add-ons.

This new dependency means that PagerDuty's ability to innovate and maintain feature parity is now partially dictated by the pricing and availability of these cutting-edge AI model suppliers.

PagerDuty, Inc. (PD) - Porter's Five Forces: Bargaining power of customers

You're looking at the customer side of the equation for PagerDuty, Inc. (PD), and honestly, the power held by buyers is definitely tilting from moderate toward high, particularly when you look at the biggest names on their client roster. When customers are large enterprises-and PagerDuty, Inc. serves nearly half of the Fortune 500 and approximately two-thirds of the Fortune 100-they have leverage, so they use it.

We see this pressure reflected directly in the retention metrics. The Dollar-Based Net Retention (DBNR) rate was reported at 100% as of October 31, 2025, for Q3 FY2026. That is a dip, coming down from 102% in the preceding Q2 period. Here's the quick math: DBNR at 100% means that the revenue retained from existing customers exactly equals the revenue lost from churn and contraction. It's a flat line, not the expansion you want to see.

The primary driver behind this stagnation is clear: customers are rightsizing seat licenses due to budget caution. This is directly translating into dollar-value contractions within the existing base. While the total paid customer base did tick up year-over-year by 2% to reach 15,398 total paid customers in Q3 FY2026, the growth in dollar value from those customers is stalling.

The bargaining power of these large customers is amplified because they have alternatives they can pivot to, especially as they look to align spending with measurable outcomes. PagerDuty, Inc. is actively managing this by transitioning its model, but the customer negotiation leverage remains high.

Here is a snapshot of the key customer metrics showing this dynamic:

Enterprise customers are using this environment to negotiate better terms, pushing PagerDuty, Inc. toward new commercial arrangements. This is why the company is advancing its shift away from the traditional seat-based model.

• Customers are negotiating multiyear platform usage models.
• Seat license compression is cited as a primary headwind to ARR expansion.
• Alternatives like Opsgenie (Atlassian) and BigPanda offer feature parity or better pricing for certain use cases.
• The pressure forces PagerDuty, Inc. to focus on operational efficiency to maintain margins.

If onboarding takes 14+ days, churn risk rises, but here the issue is more about contract structure than initial setup friction.

Finance: draft 13-week cash view by Friday.

PagerDuty, Inc. (PD) - Porter's Five Forces: Competitive rivalry

The competitive rivalry facing PagerDuty, Inc. (PD) is defintely high, driven by the presence of numerous, well-funded rivals in the digital operations management space. You see this pressure reflected directly in the market's valuation of the company.

Here's the quick math on valuation disparity:

• PagerDuty, Inc. (PD) trades at an Enterprise Value to Revenue (EV/Revenue) multiple of 2.6x.
• This represents a stark discount compared to the peer average EV/Revenue multiple of 28.8x.
• This significant gap signals that the market perceives a higher risk associated with PagerDuty, Inc.'s future growth execution relative to its competitors.

To combat this, PagerDuty is aggressively pushing its product innovation, particularly in the realm of artificial intelligence. The company is competing by rolling out its new AI agent suite and expanding its AIOps capabilities. This Fall '25 release included several agents:

• PagerDuty Scribe Agent (Generally available)
• PagerDuty Shift Agent (Generally available)
• PagerDuty Insights Agent (Projected General Availability in Q4 2025)
• PagerDuty SRE Agent (Projected General Availability in Q4 2025)

Still, the pricing environment remains a major headwind. Competitors are actively offering lower-cost entry points, which forces PagerDuty, Inc. to compete on price, even as it transitions its own pricing model. For instance, AlertOps is cited as offering plans that start as low as $5 per user per month for a Standard tier, alongside a $0.00 per month Starter Pack (for a maximum of 5 users).

This competitive intensity is visible in the top-line financial results. PagerDuty, Inc.'s Q3 FY2026 revenue growth was modest, coming in at 5% year-over-year, reaching $125 million. This slowing growth rate, coupled with a Dollar-Based Net Retention Rate (DBNR) of 100% as of October 31, 2025, down from 107% the prior year, shows that expansion within the existing customer base is flat, which is a direct consequence of budget caution and competitive pressures.

Here is a comparison of some key operational and valuation metrics as of late 2025:

The company's Annual Recurring Revenue (ARR) grew 3% year-over-year to $497 million as of October 31, 2025, while the number of customers with ARR over $100 thousand grew 5% to 867. Finance: draft 13-week cash view by Friday.

PagerDuty, Inc. (PD) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for PagerDuty, Inc. remains a significant pressure point, as the market for digital operations management is increasingly being absorbed by broader platform plays and specialized, lower-cost entrants. You need to watch how these substitutes chip away at market share and pricing power.

High threat from adjacent platforms expanding their feature sets.

The competitive landscape shows that platforms with a wider scope are integrating incident response capabilities, which directly substitutes for PagerDuty Operations Cloud's core offering. For instance, in the AIOps category as of October 2025, Dynatrace holds a mindshare of 20.8%, while PagerDuty Operations Cloud sits at 2.0%, though PagerDuty's mindshare grew from 0.8% the prior year. Dynatrace is rated 4.5 while PagerDuty is rated 5.0 on SoftwareSuggest. This integration trend is happening across the board, as the global Incident Management Software (IMS) market is projected to reach $3.19B by 2033, with over 60% of solutions being cloud-based.

Large ITSM players (Jira Service Management, Freshservice) and APM tools (Dynatrace) integrate incident response.

Large IT Service Management (ITSM) vendors present a strong substitution threat by bundling incident response features. Jira Service Management, for example, commands an estimated market share of 37.78% in the ITSM market as of 2025, with over 16,730 companies using it. Freshservice, which competes in the ITSM space, is focused on moving upmarket, with ITSM projected to represent 60% of its total annual recurring revenue in the next three years, up from 44% today. This bundling strategy means that for many organizations, a dedicated PagerDuty, Inc. purchase becomes redundant if their primary ITSM platform already covers on-call and alerting needs.

The pressure from APM tools like Dynatrace is evident in user perception; in the AIOps category, Dynatrace is ranked #2 with an average rating of 8.7, compared to PagerDuty, Inc. at #12 with an 8.4 rating.

Internal development of custom, in-house incident response tools is a viable option for large tech firms.

While specific adoption rates for in-house tools are not publicly quantified as a direct substitute metric, the high cost of incidents suggests a strong incentive for large firms to build proprietary solutions. PagerDuty, Inc. reported that customer-facing incidents increased by 43% over the past year, with each incident costing nearly $800 thousand to address. Furthermore, the global average cost of a data breach in 2024 was $4.88 million. For large technology companies, which remained primary targets for threats in 2024, the investment in custom tooling to tightly integrate with their unique environments can sometimes outweigh the subscription costs of a third-party platform.

Cheaper, specialized alternatives like Squadcast offer core incident management at a lower price point.

The lower end of the market features specialized tools offering core functionality at a lower cost basis, directly challenging PagerDuty, Inc.'s pricing structure. PagerDuty, Inc.'s Starter plan begins at $9.00 per user/month. In contrast, specialized alternatives show clear pricing advantages:

For teams prioritizing cost-effectiveness, these alternatives provide a compelling value proposition. For example, Squadcast offers a Free tier for up to 5 users.

PagerDuty, Inc.'s own financial performance shows a recent slowdown in growth; its Q2 Fiscal 2026 revenue was $123.4 million, a 6.4% year-over-year increase, and Annual Recurring Revenue (ARR) grew 5% year-over-year to $499 million as of July 31, 2025. This slower growth rate, compared to the broader Incident Response Services market's projected 18.77% CAGR through 2030, highlights the intensity of substitution pressure.

Finance: draft 13-week cash view by Friday.

PagerDuty, Inc. (PD) - Porter's Five Forces: Threat of new entrants

Threat is moderate; high barriers exist for enterprise-grade scale.

Significant capital is required to develop a platform with established enterprise features and security protocols. PagerDuty's platform boasts an ecosystem of over 700+ platform integrations, with over 370 Verified integrations meeting current standards.

New AI-centric entrants can lower the barrier for basic tools, but lack the established customer base and trust that PagerDuty has built.

PagerDuty's existing base includes nearly half of the Fortune 500, creating a strong moat. Specifically, PagerDuty serves nearly half of the Fortune 500 and approximately two-thirds of the Fortune 100 as of the third quarter of fiscal 2026.

The complexity of building a high-performance, scalable AIOps platform is a defintely high barrier.

Here's the quick math on the scale PagerDuty operates at, which new entrants must match:

The barrier to entry is further evidenced by the required investment to maintain this breadth of connectivity and enterprise trust.

• Customers with ARR over $100 thousand grew by 5% year-over-year to 867.
• Total paid customers grew to 15,398, a 2% annual increase.
• The company holds $548 million in cash, cash equivalents, and investments.
• New customer acquisition year-to-date added 284 net new customers.

If onboarding takes 14+ days for a new platform to integrate with a customer's existing toolchain, churn risk rises.