AppDynamics has just raised $50m and New Relic has just raised $80m, both in preparation for going public. The legacy APM vendors are about to have a really serious problem. These funding rounds prove that some of the smartest investors in the world now believe that virtualization, cloud computing, new languages, and dynamic run time environments combine to create both a brand new set of requirements for a relevant management stack and the opportunity for a brand new set of vendors to be both the platforms for that management stack and the foundations of that new management stack.
The Rebirth of the Developer-Focused APM Industry
If IBM, BMC, CA, and HP all have enterprise-capable APM solutions focused on Java and .NET applications, why are top-tier venture capitalists investing this kind of money in brand new developer-focused APM solutions? The answer is that there are a combination of market dynamics and target markets at work:
- Every business process can be either automated or enhanced with software. Software is indeed “eating the world”. This means that more new software which automates or manages more important tasks is being put into production every day at an increasing rate. All of this new software needs to be managed for application service quality. The sheer number of new applications being built means that APM solutions need to be priced and delivered in a manner that allows for their widespread use. Legacy APM vendors have made their products so difficult and expensive to procure and maintain, that their products are not appropriate for widespread use, opening a huge market opportunity for vendors like New Relic and AppDynamics.
- These new applications are being built quickly (with Agile Development), enhanced frequently (often weekly), deployed quickly (with automation tools like Puppet Labs), and therefore need to be managed with tools that are easily deployed and that automatically adapt as the applications change. This ability to deploy inexpensively and quickly and to automatically adapt to change alone creates a new set of requirements that legacy APM vendors cannot meet.
- These applications are now being deployed across scaled out hardware in the data center, distributed across multiple data centers, and distributed across both internal data center and public clouds. APM solutions need to work in these highly scaled out and distributed deployment scenarios. Again, this requirement is met by the new vendors like AppDynamics and New Relic and is not being met by the traditional legacy APM vendors.
The Future of the Management Software Industry
So where is this going to lead? The answer is that a new set of vendors who meet the new market requirements and who employ the new “easy to try and easy to buy” model of selling software are going to rise to lead the APM industry. This will occur across two fronts, one being the developer-focused APM industry, the other being the operations-focused APM industry. A complete comparison of these two industries and the vendors in them is in this post, “Virtualizing Business Critical Applications – Managing Applications Performance“.
What is critical here is that both AppDynamics and New Relic have now made the decision, and have had that decision supported by their investors, to become independent publicly traded entities instead of getting acquired by a traditional large systems management vendor. That means that by the end of 2014 there will likely be two more management software vendors, New Relic and AppDynamics, joining Splunk (IPO in 2012) and SolarWinds (IPO in 2009) in the ranks of publicly traded management software vendors. Each of these four companies will have the currency (their stock) to do their own acquisitions and build out their own suite of management offerings. 2014 will come to be seen as the year that was the beginning of the end for the legacy systems management vendors who became blind dinosaurs – still walking, but unaware of the asteroid that was going to kill them.
By raising respectively $50 and $80M AppDynamics and New Relic have positioned themselves to go public sometime in the next two years. They will join Splunk and Solarwinds as brand new management software companies built from the group up to meet the new requirements for management of virtualized and cloud-based data centers.