Analyze This! Cisco Spends $3.7B To Buy AppDynamics

Cisco’s intent to acquire AppDynamics – officially announced on Wednesday Jan 25 2017 – is quite a surprise. Then again, it isn’t. 

It’s a surprise because AppDynamics was one day away from its IPO, giving nary a hint of courting a suitor.  That would be an awfully expensive and troublesome camouflage.  And if it was camo, it was amazingly airtight in this notoriously leaky information age.  (As I write this, several press outlets report the deal went from idea to agreement in three days.)  

It’s not a surprise because: 

·        AppDynamics’ APM competitors have been rapidly broadening their monitoring to yield better analytics with fewer blind spots.  Cisco gives AppDynamics an exceptionally clear view of network performance and AppDynamics gives Cisco a clear view of application performance.  APM solutions must continue to expand their data ingestion to provide optimum value.   

·        Cisco's strategy is to grow from being a networking vendor to an enabler of their customers’ digital business, originally stated by ex-CEO John Chambers.  Current CEO Chuck Robbins shifted this strategy into high gear. Robbins made it clear that Cisco must become a software powerhouse with a focus on applications. Acquiring AppDynamics is a big step out of Cisco’s legacy image, delivering more of what Cisco’s customer want from a digital business enabler: help tame my technology and make it agile – not just networks and security … all of it.  

This won’t dramatically change the APM market.  For several years, APM vendors have been headed toward broadest-possible monitoring to yield better insight from analytics to drive agility and automation. The remaining vendors may move a little faster to broaden, maybe even team up, and they’ll surely be more alert for other big fish on the prowl. Cisco with AppDynamics becomes just one more megavendor competitor with an APM solution, joining BMC Software, CA Technologies, HP Enterprise, IBM, and Microsoft.  Starting immediately, the remaining APM vendors will pounce on the uncertainty this creates, likely winning some business from AppDynamics, at least until the acquisition completes and the positioning becomes clear.

AppDynamics and Cisco have a bumpy road ahead, but one with a promising future – if it can get there fast enough.  Positioning and integrating people, process, products, and technology is never easy.  As HP cofounder David Packard said, “more companies die of indigestion than starvation.”  AppDynamics’ monitoring of infrastructure, applications, and user experience complements Cisco’s access to “wire data” from the network. Both are essential for complete analytics that tames technology to benefit the business.  There’s really only one contentious point, and that’s analytics.  Cisco will have to position its Tetration analytics engine viably with AppDynamics’ “App iQ” analytics platform.  Longer-term (and it mustn’t be very long), Cisco will need to show integration that reduces work for infrastructure & operations staff and delivers value throughout the enterprise. 

Of course, Cisco will continue to pursue its strategic makeover through development and acquisition; and it will join the race among APM vendors to keep up with (or ahead of) ever-expanding technology complexity.

As for me, I have another vendor to cover now.  Welcome to the party, Cisco.    

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