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This syndicated post originally appeared at Network World Zeus Kerravala.

Cisco must have seen something interesting
in AppDynamics to offer $3.7 billion for it

Cisco made some big news earlier this week with the launch of its new Spark Board at its Collaboration Event. Not to be content with one piece of big news, on the same day Cisco announced it had entered an agreement to acquire AppDynamics on the eve of its initial public offering (IPO). The $3.7 billion that Cisco paid was a hefty premium over the $2.0 billion figure put on the IPO.

With all the acquisitions Cisco has made, it’s fair to say the company is well experienced in this area. So, it must have seen something interesting in AppDynamics to plunk down that much money for a company that did about $150 million in revenue in the first nine months of 2016. Most of Cisco’s massive war chest is overseas, which is why many of its big price tag purchases have been for companies headquartered outside the U.S., making this even more intriguing.

AppDynamics is one of many application performance management (APM) vendors in a market that is highly fragmented with a number of legacy solutions, as well as new entrants all trying to solve the challenge of ensuring applications perform optimally. While application performance has always been important, digitization has raised the stakes because poorly performing applications mean less productive workers, unhappy customers and lost revenue.

Understanding application behavior can be quite challenging, as they are dependent on the network, users’ endpoints, security tools and infrastructure. And they are increasingly being extended to cloud services such as Amazon Web Services and Microsoft Azure. Cisco understands the network and network-based security better than anyone, but it has very little visibility “up the stack.” AppDynamics looks at the rest of the stack and provides intelligence down to the level of transactions between application components. Businesses can use the product to hone in quickly on a problem and services that are being used.

In a machine learning-driven world, he who has the most data wins, and Cisco now has data at every layer and at every point.

A good way to think of the complimentary nature of AppDynamics and Cisco is that Cisco interprets user experience through the lens of the network in a “bottom-up” way, while AppDynamics looks at user experience from the “top down.” Together, the two make a powerful combination that should help Cisco achieve the following:

  • End-to-end visibility of the IT infrastructure, including cloud, device, security, network, compute and application infrastructure. Cisco can now monitor every layer of the application stack.
  • Correlation of information across the different domains to better understand application performance and infrastructure dependencies to quickly identify problems.
  • Analytics through the application of machine learning to understand why things are not working optimally and to predict when problems will occur, enabling IT to be more proactive.
  • Automated remediation by tying into Cisco’s software-defined networking (SDN) solution, eventually leading to an autonomic, self-healing network.

In addition, Cisco can use the data to bolster its security products, including Umbrella (formerly Open DNS) and SourceFire. Both of those products rely on data for its forensics capabilities, and AppDynamics creates massive amounts of it. The converse is true, as well, as the information from the Cisco security products can be passed back to AppDynamics to improve its accuracy. In a machine learning-driven world, he who has the most data wins, and Cisco now has data at every layer and at every point.

The price it paid for AppDynamics may seem high, but I’ve always felt that if an acquisition is a good one and moves a company into new markets, then no price is really too high. For example, if Cisco had paid ten times what it did for Selsius, which moved it into VoIP, it would still be considered a great move. For years, Cisco has been working to improve its business relevancy and in this digital world, AppDynamics will certainly help with that.

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Zeus Kerravala

Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his clients in the current business climate and long term strategic advice.
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