On Jan. 24, I attended a Cisco Spark event in San Francisco. The day started with a keynote by Rowan Trollope, senior vice president and general manager of Cisco Collaboration. He also ended the day at event receptions. However, my afternoon meeting with Rowan was abruptly canceled with little explanation.
As it happens, Rowan had to skip out during his own event to spend $3.7 billion to acquire AppDynamics. Although the news broke before the day’s end, nothing was mentioned at the Cisco Spark event, which was laser-focused on its new Spark Board.
What you need to know about Cisco's acquisition of AppDynamics
Cisco’s acquisition of AppDynamics is a strategic and bold move for several reasons. Here’s my list of the top five things to know about it.
1. What’s a dynamic app?
AppDynamics provides application performance information. The category isn’t new, but it was left behind when apps became distributed. AppDynamics provides end-to-end visibility across distributed applications. Customers include airlines, banks and Cisco itself. It works with private and public cloud services from the likes of Amazon, IBM and Google. It positions Cisco as the digital authority regarding networks, infrastructure, IoT devices and now applications. AppDynamics cracked the code—it recently reported 50 percent growth, and 75 percent of its revenues are subscription-based.
2. Diverted IPO
Cisco reached its agreement with AppDynamics while the AppDynamics team was en route to New York for its planned IPO. The public offering valued the company at about $2 billion. Cisco paid 18 times AppDynamics’ revenues over the past 12 months. After integration, Cisco will dramatically boost AppDynamics’ go to market with its direct sales force and ecosystem of partners.
3. Cisco’s Facebook moment
In 2013, Facebook attempted to acquire Snapchat for a whopping $3 billion. Though the offer was largely considered high, Snapchat rejected it. Snapchat’s upcoming IPO has the company valued around $25 billion. Facebook instead acquired WhatsApp for $19 billion and Instagram for $1 billion. Both offers seemed high at the time, but now they are generally regarded as smart moves. The confusion lies in understanding the difference between a company’s value and its price. AppDynamics is a leader in an emerging sector. Cisco picks up a leadership position in an emerging sector along with its team of A players.
4. See Rowan run
Rowan Trollope joined Cisco in 2012 after 20-plus years at Symantec. It’s been an impressive ride. He has reversed a sales slide, launched several new products and, most important, introduced Spark. Spark has become the unit’s most strategic solution. The acquisitions of Tropo, Acano, Synata and Heroik Labs are to further bolster Spark. Rowan’s title expanded to include IoT in early 2016, after Cisco spent $1.4 billion on Jasper. The new AppDynamics division will also report to Rowan as senior vice president and general manager of collaboration, IoT and applications. All told, Rowan’s organization will include five of Cisco’s past nine acquisitions.
5. Change is good
The word change has multiple meanings. At $3.7 billion, the AppDynamics acquisition was chump change to Cisco, costing about 5 percent of its cash on hand. But more important, the buy is part of a bigger, strategic change. The company’s virtual monopoly on networking hardware is under pressure. On top of product lifecycle pressure, the IT world is moving toward recurring service models that are powered by software. Spark itself, Jasper and now AppDynamics fall into this model.
Many unanswered questions remain. For example, are there potential synergies between Jasper and AppDynamics? Both provide management information, but Jasper is more device centric and AppDynamics is more experience centric. Also, Spark is both an application with endpoints and a platform with APIs.
Because the acquisition hasn’t closed, neither company has very much to say, but it’s a safe bet that Cisco is ready to make some more noise in the near future.
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