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Cisco Acquires AppDynamics

Jan 24th, 2017 – The world of web infrastructure received a late Christmas present thanks to today’s announcement that Cisco has agreed to acquire AppDynamics for $3.7B.  The valuation of AppDynamics was about to peak as the company was apparently all set to go public later this week,  The good news is that infrastructure software companies will use the $3.7B to set their own valuations.  The bad news is that Cisco may have made a huge mistake if it thinks that it can justify this acquisition as being “revenue neutral.”  The questions as to how Cisco plans to sell the AppDynamics’ family are not as easy as it seems.  First of all is the fact that Cisco is good at selling physical things like servers and routers but not very good at selling software.  Next, developers don’t like paying for anything that resembles a development tool.  Developers have huge egos and think they can build their own tools on their own. And finally why didn’t Cisco just be a typical customer and/or a business partner rather than buying the company?  It’s all about opportunity costs – what else could Cisco have done with $3.7B.  Cisco has done a great favor for software infrastructure companies by validating the market and setting a huge valuation for companies in this space.