Enterprise Communications

Why Cisco Is Spending Billions on AppDynamics

By Paula Bernier, Executive Editor, TMC  |  May 05, 2017

Business processes and communications are increasingly moving to applications. As applications proliferate, so do management challenges related to them.

That has given rise to a new product category called application performance monitoring and management. And AppDynamics, Dynatrace, and New Relic are the APM (News - Alert) market leaders.

Earlier this year AppDynamics was readying to go public. But before the APM leader could move forward with its IPO, Cisco (News - Alert) jumped in with a $3.7 billion offer for the company. That was about double the valuation of AppDynamics. So, Cisco expects to close on the deal in the third quarter of fiscal year 2017.

AppDynamics is expected to help Cisco provide end-to-end visibility and intelligence from the network through to the application.

"Applications have become the lifeblood of a company's success. Keeping those apps running and performing well has never been more important,” said Rowan Trollope, senior vice president and general manager of Cisco's Internet of Things and Applications Business Group, in announcing the deal. “Unfortunately, that job has only gotten harder, as IT departments and developers struggle with a tangled web of disconnected, complex data that's hard to understand.”

San Francisco-based AppDynamics has about 2,000 customers. That includes Directv, ExactTarget, NASDAQ, Progressive, TESCO, and UBS.

“AppDynamics has enjoyed one of the highest, if not the highest, revenue growth rates in the market,” according to Gartner. “The technology is consistently identified by its customers as being among the easiest to use and enjoys a relatively rapid time to value.”

The company and its fellow marketplace leaders Dynatrace and New Relic are just three of several businesses in the APM space. Others include BMC, CA (News - Alert) Technologies, HPE, IBM, and Riverbed (which announced plans to buy APM company Aternity in July of last year), which Gartner placed in the challengers category of its APM Magic Quadrant. Correlsense, Microsoft, and Oracle (News - Alert) are considered niche players. And Gartner defines Nastel Technologies as the APM market’s sole visionary. (NetScout also has a solution that delivers both APM and network performance management.)

AppDynamics in September of 2015 saw a change of top leadership in an effort to help the company drive growth and profitability. That happened when former Adobe (News - Alert) guy David Wadhwani took over as CEO for co-founder Jyoti Bansal.

Following Cisco’s acquisition of AppDynamics, Wadhwani will continue to lead the effort, which will become a business unit within Cisco's IoT and Applications business.

“Cisco’s acquisition strategy is indicative of changes sweeping the enterprise as more and more companies become reliant on applications and data,” commented Michael Segal, area vice president of strategic marketing at NETSCOUT. “This shift is fueling a rapid period of digital transformation.”

Segal added that nearly every aspect of business operations, from production to supply chain management and customer interaction, now relies on software. And, as such, he notes, “business success is now intrinsically linked to the performance of applications, cloud computing, data centers and other digital assets.”

Edited by Alicia Young