Industry Insights: 2015 Gartner APM “Suites” Magic Quadrant

The 2015 edition of the Gartner Magic Quadrant for APM published this week. There were several interesting changes, the first being that the name of the research has been changed. The research is now titled “APM Suites” versus simply APM. The second big change is the lead author; the research is now being led by Cameron Haight, a 15-year veteran at Gartner. Having worked with Cameron for many years, I was glad when he took over to lead the APM research. He’s a progressive thinker at Gartner, having pioneered the DevOps research in 2010, and then going on to kick off Gartner’s Web-Scale research in 2012. Most of what he was writing about and taking client calls on were very progressive topics that were on the cusp of normality. DevOps has reached normality, and hence is positioned on the peak of expectations in the Gartner Hype Cycle. With all of Cameron’s progressive thinking, I was quite surprised to see the APM research have such weightings applied to legacy technologies and business models.

Most APM Tools Are Poorly Integrated “Suites”

Gartner identifies that most of the vendors, especially the legacy vendors, have broad suites of tools, which are poorly integrated. Gartner pointed out in the survey results earlier this year that APM tools are not as widely adopted due to lack of integration, which is the second most cited barrier after price. The fact that Gartner has adjusted the name of the research explains some of the changes in the model that affect relative positioning of legacy vendors. Gartner is saying that suites are okay here, even though they present a major barrier to those implementing and managing these tools.

The Legacy Lives On

While legacy software vendors exist within IT operations management, there is clearly momentum towards newer technology providers. Why is this shift occurring? Digital transformation is not an option. It’s a requirement to remain in business. In order for these companies to transform, Gartner recommends implementing a bimodal strategy; the net result is that model 1 manages legacy systems, while model 2 is the fast-moving group. Becoming innovative is not an option, Gartner states in “How to Achieve Enterprise Agility With a Bimodal Capability”:  “At the heart of the digital transformation and bimodal is the need for enterprises to become more creative, to break out of the business as usual and, in particular, to establish a stronger capability in technology-led business innovation.” The result of this is that legacy ITOM vendors existing in mode 1 teams will collect maintenance revenue, but fail to grow, while mode 2 is where growth and innovation is occurring.

Favoring Legacy Software Revenue Models

Once again, in Gartner’s own words, software is transitioning to new consumption models. “As subscription-based alternatives and particularly software as a service (SaaS) are being adopted by organizations, a more predictable revenue pattern will emerge”. Modern software companies have shifted to subscription-based revenue models. What this means is that for subscription businesses, revenue comes during the lifetime of the customer, versus being paid up front as it is for perpetual businesses. Revenue is a lagging indicator for SaaS businesses, whereas bookings is an accurate measure. Gartner is using 2014 calendar-year revenues, which favors these perpetual businesses. The reason why Gartner is using this data is because revenue is reported by every public company; hence it’s easier to obtain for many vendors, but it also favors these legacy models. Every business is slowly transitioning to subscriptions, but many legacy providers cannot make this jump. For example, based on IDC data for systems management vendors, Dynatrace’s SaaS revenue declined 3.3 percent in 2014, as they continue to sell primarily perpetual software along with the other legacy vendors.

When analyzing the IT Operations Management market, the fastest growing companies in the space, and the most relevant to their respective markets, include AppDynamics, New Relic, Splunk, and ServiceNow. These businesses are almost entirely subscription revenue model, while the legacy vendors are primarily perpetual software models. This shows that ITOM has a massive legacy of companies that cannot transform and have failed to transition.

Private Equity

Private equity has been extremely active in the ITOM space, especially in monitoring. Thoma Bravo now has acquired seven public companies in this space. I was fortunate enough to sit in on Gary Spivak’s financial sessions at the Gartner Data Center, Infrastructure & Operations Management Conference in December 2015. In Gary’s session and research note titled, “How to Re-evaluate Strategic Vendors Acquired by Private Equity,” he mentions the reason PE firms acquire these companies. “The company has a lack of revenue growth, accompanied by strong cash generation.” Clearly, these companies have large installed bases generating maintenance revenue. Additionally these leveraged buyouts require a large portion of financing or debt to execute, and with today’s low interest rates they can pay off the debt they accrue. As Gary states, “The company’s cash flows are sufficient to make interest payments on existing and new additional debt (commonly referred to as a debt burden), and still sustain business operations (to an extent).” With each of these acquisitions there have been immediate layoffs, reductions in sales forces, and typically a reduction in R&D. This translates to profits for the private equity firms, but these goals do not align with what end users expect. In this same research, Gary indicates that privatization of companies like BMC amassed a large amount of debt owed by the company; BMC moved from $1.8b to $6b in debt. When Dell went private, the debt swelled from $9b to $18b in order to fund the transaction. During privatization, Compuware raised an additional $2b of debt to fund the transaction. This debt or obligation is the responsibility of the company, not the private equity firm.

Growth

When analyzing the growth of these vendors, the picture for many is quite bleak. In a previous blog post I analyzed Gartner’s own market data numbers, and many companies included in this research who were scored with high marks in execution are failing to grow at the rate of the market expansion. This means that new business is not going to legacy players, it’s going to the new breed of company solving today’s new problems. The health of these businesses are in question, yet they are being rated as viable, well-executing companies.

No Visionaries

I was quite surprised that no vendors fell in the visionary quadrant. There are two ways to describe this:

  1. It’s very hard to build a fully capable APM tool, so most vendors do not want to compete with market leaders in this space.
  2. The market is mature, meaning there are fewer scrappy startups as there once were just a few short years ago.

Clearly the problem has not been solved. By most expert estimates, fewer than 10 percent of enterprise applications have APM tools in place, meaning there is a lot of work to be done to solve application problems. None of the challengers can build a compelling vision for how to solve these issues in a unique way?

One can hope this model evolves with progressive thinking to meet the demands of today’s digital businesses as they try to remain relevant in a time of disruption. In Gartner’s own words, “CEOs should assume that business model change will be forced by new digital entrants or an adjacent competitor within the next two years.”

(2015 CEO Survey: Committing to Digital, Mark Raskino ) digital transformation is not an option but an imperative for CEOs today, and this imperative is only addressed by innovative companies.

Some thoughts on the 2013 Gartner Magic Quadrant for APM

As you may know, this week Gartner published its 2013 Magic Quadrant for Application Performance Monitoring (APM). Here at AppDynamics we’re thrilled to be positioned as a Leader for the second year running. Our position this year is further up and to the right than last year, a fact that we think reflects the phenomenal growth of our company in the last year and the increasingly widespread adoption of our product in the enterprise. But that’s not why we’re celebrating at AppDynamics today. Today, we’re toasting what we believe is the death of the dinosaurs.

The Gartner Magic Quadrant

In case you’re not familiar with Gartner’s Magic Quadrant, here’s a quick introduction: Every year, Gartner’s APM analysts conduct extensive research of every vendor that meets their qualifications, including hundreds of customer interviews. At the end of their research, they position each vendor on two axes, Completeness of Vision and Ability to Execute, and then place them accordingly on a Quadrant. Those who demonstrate market understanding on both axes are placed in the top right Leaders quadrant, where AppDynamics has appeared in both years we were able to participate. This report is widely used and trusted by APM buyers because it incorporates not only the analysts’ expertise, which along with the evaluation criteria, also factors in feedback from the hundreds of APM users that they interviewed over the course of the year. Because the positions of the vendors on the quadrant reflects the experience of real APM users, the Quadrant is an excellent way to visualize the marketplace, and when taken year-over-year we believe it exposes industry trends and changes that are otherwise difficult to picture. Which brings us to the reason we’re celebrating: We believe this year’s Gartner Magic Quadrant, when compared with its predecessors, marks the end of an era for the legacy software vendors in the space, and the beginning of an era for the newer players like AppDynamics.

Three Years of Change

If you look at the last three years of the Gartner Magic Quadrant for APM (which you can on Gartner’s website) you’ll notice some pretty dramatic changes. Some dots have disappeared entirely as Gartner tightens its definition of APM in accordance with the needs of today’s buyers. More importantly, others have simply fallen away from the Leaders quadrant and into Challengers, Visionaries and even Niche Players. Here are our insights on what we believe accounts for this shift, and how AppDynamics has escaped this downward pull. Legacy APM software has been on the decline for some time – after all, the software they’re toting has been obsolete for years. Today’s APM buyer doesn’t want the complex, expensive software that these companies are shilling. So that’s why we’re celebrating at AppDynamics today. It’s not just because an analyst recognized our ability to execute and completeness of vision, or because we’ve grown 165% in the last year. It’s because we believe we’re seeing big changes ahead in the APM world—a world that will no longer tolerate hard-to-use software that’s ill-suited for today’s complex, distributed application environments. It’s great to see the market take a stand and vote for quality. And it’s great to be able to say “farewell” to the dinosaurs.

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Gartner positions AppDynamics as a Leader in 2012 APM Magic Quadrant

Application Performance Monitoring (APM) has been my life and world for almost a decade. I used APM as a developer, sold it as a sales engineer, built it as a product manager and now I’m evangelizing it as a superhero. In that time, I’ve seen APM evolve from being a pure JavaEE monitoring tool in 2002 that a few developers might use, to a full blown IT monitoring platform in 2012 that aligns development, operations and the business.

Today, the APM market has advanced tenfold, with the help from analysts like Gartner, who research APM, and literally take hundreds of inquiry calls a year from buyers. As industry and technology trends evolve like SOA, Agile, web 2.0, cloud computing, devops and big data, so do the market requirements for APM.  For APM to deliver the promised benefits, it must enable users to monitor and manage modern applications. If modern buyers commonly require X, Y and Z from APM, then APM vendors must offer X, Y and Z to be considered relevant in the market, and so they’re recognized by analyst research and reports such as the Gartner Magic Quadrant.

For example, let’s take a look at the inclusion criteria from 2012 for a vendor to be included in the Gartner Application Performance Monitoring Magic Quadrant (and if you’d like to get a complimentary copy, be our guest):

  • The vendor’s APM product must include all five dimensions of APM, including application runtime; application architecture discovery and modeling; deep-dive monitoring of one or more key application component types (e.g., database, application server); user-defined transaction profiling; and analytics applied to metric aggregation, trending and pattern discovery techniques.
  • The APM product must provide compiled Java or .NET code instrumentation in a production environment.
  • The vendor should have at least 50 customers that use its APM products actively in a production environment.
  • The APM offering must include part of or the entire solution as a service. This includes managed service provider hosting, regardless of other commercial arrangements, or SaaS delivery through its own distribution channels.
  • Total revenue (including new licenses, updates, maintenance, subscriptions, SaaS, hosting and technical support) must have exceeded $5 million in 2011.
  • Customer references must be located in at least three of the following geographic locations: North America, South America, EMEA, the Asia/Pacific region and/or Japan.
  • The vendor references must monitor more than 200 production application server instances in a production environment.

Raising the APM bar:

The rational for Gartner’s 2012 APM MQ inclusion criteria is available here. A vendor must provide a broad set of APM functionality, supporting all five dimensions of APM rather than just a few.

Other inclusion criteria I liked from above was that APM vendors must provide a compiled Java or .NET code instrumentation in a production environment, the offering must include part or the entire solution as-a-service, and that vendor references must now monitor over 200 application server instances in a production environment. These items pretty much hit the sweet spots of AppDynamics, in that we monitor some of the largest production Java and .NET applications in the world, and we offer  all 5 dimensions of APM in a single product, which can be deployed both as on-premise or via SaaS. Our largest Java deployment is over 6,000 nodes and our largest .NET deployment is now over 5,000 nodes – this is how easy our APM solution is to deploy and scale.

The adoption of public cloud, combined with the facts that APM buyers are looking to simplify their APM purchases, implementations and maintenance means that AppDynamics is well positioned to capitalize on these opportunities.

Love or Hate the Gartner Magic Quadrant, every vendor wants to be part of it, because everyone wants to be known as a leader in their field. To do this, vendors must meet or exceed Gartner’s inclusion criteria as well as their very detailed requirements matrix, which puts pressure on each vendor to constantly innovate, execute and demonstrate a compelling vision.

AppDynamics named a Leader in 2012:

What I’ve witnessed at AppDynamics since I joined back in 2011 has been nothing short of amazing. We’ve kicked a lot of ass in the last year and have had a lot of fun doing it. You could say AppDynamics being positioned as a leader in the 2012 MQ was perhaps the recognition we deserved for breaking the rules of traditional APM. We believe our MQ position represents a clear testament of our technology, tremendous customer success and disruption in the marketplace. We’re enormously proud and privileged at AppDynamics to be recognized as a leader, but we know our job isn’t done yet. We want to make APM easy to deploy, easy to use and affordable for everyone. We do this and they’ll be more organizations in the world leveraging the benefits of APM than ever before, which translates to faster applications for everyone. Not a bad thing at all.

You can sign up for a free 30-day trial of AppDynamics Pro right here, and see for yourself why we’ve become a leader in just two years.

App Man.

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose

Gartner’s APM Magic Quadrant: Application Mapping and Transaction Profiling Explained

Gartner recently released their latest magic quadrant for Application Performance Monitoring (APM) and in this report mentioned five key dimensions, two of which were Application Mapping and Transaction Profiling. These two dimensions are critical for users to identify performance bottlenecks in distributed applications, whose architecture design is typically based around SOA or Cloud concepts.

The point we’d like to emphasize in this post is this: To quickly find bottlenecks in distributed or SOA architectures, these two dimensions must be visible simultaneously to the user (troubleshooter).  Ok, get ready, we’re going to say something very “unvendor” – these two dimensions should actually be “features” and not separate “products”.   The only two APM products that combine these views in a single product today are AppDynamics and dynaTrace.

Unfortunately, the rest of the APM solutions don’t work that way. Most of the APM vendors who claimed to support these two dimensions for the MQ require customers to buy two or more distinct products – one of them usually a re-branded CMDB tool. The downside is that it is nowhere near as efficient, especially if the troubleshooter has to log into 2-3 different products and has to try to stitch together this view in their own mind.

Gartner publishes 2011 Magic Quadrant for Application Performance Monitoring

On Tuesday, Gartner announced this year’s Magic Quadrant for Application Performance Monitoring (APM).   I’ll make a few observations from reading the MQ and then suggest 3 additional criteria that APM buyers should consider to make informed buying decisions.

APM demand is strongThe research report started with an analysis of the APM market growth at 15% year-over-year and $2 billion in total market spend.  These facts reflect what we see every day – the market for APM is very strong and benefits from the high growth in web-driven commerce.  Web apps just can’t be slow.

One key APM growth driver is that modern applications have become more difficult to monitor – with more moving parts and a higher rate of change. Gartner summarizes this nicely in their market overview:

“Unfortunately, at just the moment when executives have become keen about imposing an application-centric view of the world on IT operations, applications have become far more difficult to monitor; in general, architectures have become more modular, redundant, distributed and dynamic, often laying down the particular twists and turns that a code execution path could take at the latest possible moment.”