Cisco’s recent $3.7 billion purchase of AppDynamics could be a foundational move for the company and the application performance monitoring (APM) market as a whole, especially if Cisco is serious about entering the APM space.

“I think [the deal] brings Cisco an important building block into the APM space,” says Steve Shalita, vice president at Pluribus and a former APM strategy advisor. “It’s widely recognized that you have to be able to manage and tune what you are deploying, and [AppDynamics] brings that foundation for an application business and the backend of IoT.”

It will be interesting to see how the networking giant will implement AppDynamics’ technology — whether it will lie in Tetration or be used as a fundamental piece to build an application management business. In the near future, it will most likely be a supportive technology for Cisco, Shalita explains.

“The AppDynamics acquisition was cleaner compared to the others in the field,” he says. “Cisco was looking for a play that was accretive and helping their drive into software.”

Cisco justified the acquisition by saying its current analytics and monitoring capabilities, including the Tetration product line, need a boost. "You need to instrument and get insight. Our customers need to get insight ... all the way down to the code," said Rowan Trollope, vice president of Cisco’s IoT and Applications unit, at the time. "That is where AppDynamics is leading the market."

There’s a wave of APM companies focused on cloud computing that AppDynamics competes against, namely Dynatrace, New Relic, SolarWinds, and Riverbed.

However, Shalita believes that AppDynamics being a pure-play APM company gave it a better shot in Cisco’s eyes. “While Dynatrace has more market share [than all of these companies], there’s more about what AppDynamics is doing that gives them more strength, and the other guys are probably too small to make a difference for Cisco in terms of helping it scale,” he says.

There still seems to be something missing about Cisco's pursuit of AppDynamics. These other mid-level vendors, while not all pure-play APM companies, would have have been cheaper candidates for similar technology.

Not to mention, “Cisco doesn’t even have a play in this space at all, and if you’re going to build a management base, wouldn’t you build it from the network management side, where all of their expertise lies?” Shalita explains. “While it helps the company’s drive into software, it’s not a foundational software move seeing it’s a networking company, and that’s why it’s a controversial deal.”

Bigger legacy players like IBM, HP, CA Technologies, and BMC would have made better candidates for a deal like this because they are established in this space and have declining application management businesses. IDC estimates that the share of the APM market held by the traditional “Big 4” systems management software players declined to approximately 35.5 percent in 2015 from 42.5 percent in 2013.

In the near future, customers might worry about how Cisco will integrate this technology, and could prevent some of those on-the-fence customers from picking AppDynamics. Also, AppDynamics’ buying audience isn't the same as Cisco's typical audience, Shalita says.

“There are pluses, and there’s risk,” he says. “This is a new frontier for Cisco to travel down to build a strong portfolio of application performance, but they risk falling into a hole.”

This deal could set the stage for acquisitions among smaller APM and network performance monitoring (NPM) companies like AppNeta, Nastel, Correlsense, Datadog, and Quest (recently spun out from Dell).

“It’s the smaller guys that become hotter targets while New Relic and Dynatrace are already established and will probably ride the wave they’re on,” Shalita says.

There seems to be a gap between APM companies and NPM companies, and that needs to close for either market to truly reach its potential, Shalita says.

“There are few people that have even come close to doing that, and part of the drive will be seeing the APM companies expanding on that,” Shalita says. “There are other companies that are trying to do this, so clearly there must be something interesting in the APM space, but in the true sense of the market playing out, it has to be about converging the two.”