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Cisco is shaking up the application performance management, or APM, sector with its $3.7 billion AppDynamics acquisition.
Given that research firm IDC is forecasting aggregate revenue for the entire APM market of $3.9 billion in 2017, Cisco's bid of $3.7 billion makes a strong statement about its own immediate needs and its conclusion that APM is becoming increasingly important in a world of cloud-based applications.
In a published statement, Rowan Trollope, senior vice president and general manager of Cisco's internet of things and applications business group, said the job of keeping applications running efficiently has become more difficult, as IT departments and developers work to integrate silos of data that are disconnected from each other. The intent of the AppDynamics acquisition is to provide Cisco customers with end-to-end visibility and intelligence spanning both networks and applications.
The AppDynamics acquisition speaks volumes about the lucrative APM market and significant untapped demand, according to Cameron Haight, a group vice president with Gartner's IT systems, security and risk research group. Penetration is relatively low, because not all apps are covered by monitoring services, and that is likely to generate growth even within existing Cisco accounts, he said. "This speaks to the opportunity that there will be some interesting plays being made by other firms taking advantage of uncertainty in the APM marketplace."
Though it does offer performance tools, Cisco lacks brand recognition as a broad-based application infrastructure management company, according to Mary Johnston Turner, a research vice president for IDC's enterprise systems management software group. "It is one of Cisco's better-kept secrets that it has a fairly broad management software portfolio and has tried a couple of different approaches to market outside of its core network arena, where it has had strong success selling to its base."
Cloud applications, DevOps and modern cloud-based IT architectures are driving the APM sector, making it imperative to have visibility into both the applications and the infrastructure, Turner said. "The AppDynamics acquisition is significant for Cisco; it provides immediate brand reputation and extends its franchise, allowing it to speak legitimately to large enterprises about how to transition their complete management environments to support this modern architecture."
Support for developers
Mary Johnston Turnerresearch vice president, IDC
The APM segment directly targets application developers in their quest to maximize app performance by zeroing in on code anomalies. APM vendors are "going down the stack" beyond the app and related transactions to detect where an anomaly occurs, something that traditional tools could not do, Haight said. "AppDynamics, along with [competitors] New Relic and Dynatrace, observe data on the server [and] in the network."
These mechanisms can view individual transactions to narrow down and eventually identify the offending underlying source code. Through end-user monitoring, it's possible to see when abandonment occurs and identify the end-user data associated with a specific method call. With APM tools, it becomes possible to "collect the data and attach more business insight to it," Haight said.
The combination of the DevOps movement and the race to migrate to the cloud is driving growth in the APM segment at a rate more than double that of traditional management software, according to Turner. Within that segment, AppDynamics held a 4.7% share in 2015, yet grew by more than 80% in the 2014 to 2015 span, she said. A separate study published by MarketsAndMarkets expects the global APM market to reach $4.98 billion by 2019.
The timing of the AppDynamics acquisition announcement comes less than a month after AppDynamics both filed for an initial public offering and was named a leader in Gartner's 2016 Magic Quadrant for application performance monitoring suites for a fifth consecutive year.
The deal is slated to close in Cisco's third quarter of fiscal year 2017. AppDynamics CEO David Wadhwani is expected continue leading the company as a business unit within Cisco's IoT and applications business group.
Senior technology editor Valerie Silverthorne contributed to this article.
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