ICT-News Dach

Cisco Snaps Up AppDynamics for IoT- and Data-driven Growth

Bruce Guptill, Ron Exler Research Alerts

What is Happening?

Early this week, Cisco Systems announced its intent to acquire application performance management software provider AppDynamics, which was within 48 hours of an initial public offering in the U.S. While the deal is clearly part of Cisco’s continuing efforts to build recurring revenue streams in software and services, it is also an indicator of the inextricably intertwined nature of Digital Business, the Internet of Things (IoT), hybrid business IT management, and the value of business data in all of the above.

AppDynamics describes itself as a "performance management and IT operations analytics company." The company reports close to 2,000 paying customers, including Cisco itself. Cisco announced that it will spend $3.7 billion on the deal, or about $26 per share - almost double the $1.9 billion valuation awarded by investment bankers in AppDynamics’ November 2015 financing round. The deal is a mixture of cash and equity, and is expected to close in April 2017.

AppDynamics will become part of Cisco's Internet of Things and Applications Unit, along with Cisco's last large acquisition, Jasper. AppDynamics CEO David Wadhwani is expected to remain in that role after the deal is completed. Wadhwani will report to Cisco IoT and apps head Rowan Trollope, who said of the deal, "The combination of Cisco and AppDynamics will allow us to provide end-to-end visibility, and intelligence, from the network through to the application."

Why Is It Happening?

The AppDynamics deal is another element in Cisco’s long journey away from its traditional network switching business toward a focus on a recurring-revenue business software sales and delivery model. Cisco has been transforming into a business selling subscriptions to a variety of software and services, including collaboration software and cyber-security services.

AppDynamics specifically fits Cisco’s approach due to the convergent nature of networked business devices, including those in the IoT, and the increasing variety of software and data that run them, run on them, and get generated by them. While AppDynamics’ best-known role is monitoring software performance in distributed environments (e.g., enterprise hybrid Cloud environments), it is also a tool for monitoring, gathering, and reporting performance data within an across all types of devices and platforms, enabling massive streams of real-time business system and operational data from practically all aspects of any business. AppDynamics CEO Wadhwani stated in an analyst briefing after the announcement that “We gain trillions of metrics from our customers every month.” Combining this capability with Cisco’s networking and storage capabilities, and especially its network and storage management capabilities, will position Cisco as a hub of enterprise business and IT performance data.

This set of capabilities is potentially exceptionally valuable in the emergent, fast-growing enterprise Digital Business reality. In a business world that relies on back-office “systems of intelligence and insight” coupled with market-facing systems of engagement, the company that operates with the best real-time data is the company most likely to succeed in any market. And given that Cisco’s announced plans for AppDynamics include providing “more performance insights in the context of our customers’ own business,” the company is positioning itself well to business buyers. 

Cisco plans to pair AppDynamics’ capabilities with those of machine-to-machine software provider Jasper Technologies, which Cisco acquired in 2016 for $1.4 billion. Jasper’s software is typically used by large enterprises to efficiently manage the wireless connections of thousands of Internet-connected machines and devices, from PCs to phones to RFID tags to machine tooling sensors. Interestingly, like AppDynamics, Jasper was also a “unicorn startup” planning an IPO before Cisco stepped in and acquired it.


Cisco has been working with AppDynamics for about two years, both as a customer and as a technology and go-to-market partner, so the two firms are quite familiar with each other’s inner business workings. As a result, we do not foresee any massive obstacles in integrating AppDynamics into Cisco business, and it is a near-ideal fit within the company’s IoT and Applications business unit. Much of the acquisition’s expected future value relies on the IoT, yet the complexity of architectures and diversity of devices and sensors could be challenging for the insertion, operation, update, and security of AppDynamics’ agents.

We do believe it will be more than a year before Cisco is able to tightly integrate AppDynamics’ functionality into one or more business software and system performance platform offerings. The IoT and Applications unit itself is relatively young, and most of the technologies and offerings within it have been marketed and sold together, they also have grown up separately. We do expect platform-based, hybrid Cloud-plus-on-premises offerings targeting specific industries (e.g., process manufacturing) and specific processes within enterprise business organizations (e.g., Finance, IT). ISG clients will see our assessments of these offerings if and as they develop.

The deal has also helped shine light on the application performance management marketplace. Wall Street analysts have suggested that the current market for applications performance management software is around $4 billion annually, and expanding rapidly due to the increasingly diverse and hybridized nature of business, devices, and applications software. After the deal announcement, AppDynamics publicly-traded competitor New Relic’s shares were trading at a level suggesting a market cap of $1.96 billion. And traditional, Master Brand IT providers are in the mix as well, including BMC, CA, IBM, and Micro Focus. In fact, Oppenheimer analyst Ittai Kidron this week suggested New Relic as a possible acquisition target by IBM or another legacy business software/services provider.

We see this space as a natural opportunity for IT technology and services providers, especially those managing (or seeking to manage) increasingly complex, IoT-driven IT environments for enterprise clients, and for the business services providers addressing those enterprises. The challenges of monitoring and managing highly-distributed application function, performance, and data are going to expand exponentially in a very short time. Meanwhile, the data from these apps, devices, and associated operations (including transactions) will rapidly increase in volume and in value as well. One core challenge will be understanding what data is present, what is needed, and the resulting value of the data – e.g., its effect on business outcomes. We therefore expect to see increasing interest in master data management (MDM) providers and solutions/services by enterprises, and by potential IT provider partners.

The AppDynamics acquisition also helps point out the both the volatile nature of technology provider valuation, and the relative perceived market values of hardware versus software in this digital-first/Cloud-first business environment. Earlier this month, HPE acquired Simplivity, which makes what it calls “hyper-converged” server-storage-networking hardware. Simplivity’s key benefit is its relatively easy, rapid reconfiguration of critical hardware as business needs change in this increasingly complex and shifting environment. Simplivity was valued by investment banks in 2016 at $3.9 billion; HPE paid $650 million for the company on January 17, 2017.