AppDynamics Nears IPO, Taking on CA With App-Tracking Software

AppDynamics Inc. founder Jyoti Bansal left CA Inc. (CA) five years ago to develop competitive software for businesses to monitor their applications. Now his startup is approaching $100 million in annual revenue and is setting the stage for an initial public offering.

Bansal, 35, built AppDynamics for the age of cloud and mobile computing, catering to companies that are developing data-intensive apps. Customers like travel site Expedia Inc. (EXPE) and cable provider Cablevision Systems Corp. are paying AppDynamics more than $1 million a year for software to rapidly spot glitches on servers and databases, according to Bansal.

AppDynamics, founded in 2008, is vying for a bigger slice of the information technology operations and management software market, which Gartner Inc. says increased 4.8 percent to $18 billion last year. Traditional suppliers to the monitoring market like CA, Compuware Corp. and BMC Software Inc. aren’t built for the cloud, Bansal said in an interview.

“The market is primarily dominated by the dinosaur vendors,” said Bansal, whose company has raised $86.5 million from investors including Greylock Partners and Kleiner Perkins Caufield & Byers. “Most of these companies are really struggling, and the market share is rapidly getting taken over by companies like us.”

Revenue at AppDynamics surged 165 percent in the first half of this year from the same period in 2012, and the company will be generating $100 million in annual sales by mid-2014, Bansal said.

Finding Glitches

AppDynamics’s software allows businesses to track the performance of their apps and websites and quickly respond when a site crashes or if customers in a particular region are experiencing slow connection speeds.

While 270 of the company’s 300 employees are in the San Francisco headquarters, AppDynamics is bolstering its international business to reach more customers in Europe and Asia. The company said today that it acquired Nodetime, a startup in Germany whose software helps businesses track mobile apps.

AppDynamics isn’t the only emerging company chasing the incumbents. Bansal’s former boss, Lew Cirne, is CEO of New Relic Inc., which started the same year as AppDynamics. Cirne previously founded Wily Technology Inc., where Bansal worked until the company was bought by CA in 2006.

New Relic, another provider of application-monitoring software, got its start going after small and mid-sized businesses and is now increasingly winning big deals, said Chris Cook, operating chief of the San Francisco-based company. Sales surged 130 percent in the first half of 2013, and customers include Best Buy Co. and Walt Disney Co., he said.

“Enterprise has been the fastest growing part of our business,” Cook said.

Market Shift

According to Gartner, International Business Machines Corp., CA, BMC and Hewlett-Packard Co. (HPQ) accounted for almost half of the IT operations software market last year. Yet all four “surrendered market share in 2012, while a new generation of ITOM vendors grew significantly faster than the market,” the researcher wrote, in a May 21 report.

In addition to competing with CA, Bansal is being forced to contend with a lawsuit from his previous employer. CA, based in Islandia, New York, filed a patent infringement suit against AppDynamics in April, claiming that Bansal was developing products related to three IT patents. In November, CA sued New Relic, asserting that it had infringed patents obtained through the acquisition of Wily.

Bansal said that while the suit will cost the company a few million dollars in legal fees, he is confident that AppDynamics will win and hasn’t infringed anything.

‘Fear Factor’

“CA’s intention is primarily to use lawsuits as a fear factor in the market,” Bansal said. “It’s unfortunate that CA has come to that instead of innovating and competing head to head.”

Jennifer Hallahan, a spokeswoman for CA, said the case is going forward and that AppDynamics’s software “clearly infringes the Wily patents.” The company “will take all steps necessary to ensure that our intellectual property is protected,” Hallahan said in a statement.

AppDynamics hasn’t decided when it will go public, though Bansal said the company is in the process of hiring a chief financial officer and will be big enough for an IPO next year. He puts AppDynamics in the same category as business technology companies Splunk Inc. (SPLK), ServiceNow Inc. and Palo Alto Networks Inc., which all went public last year after taking market share from more established vendors.

“Every business is moving to the cloud,” Bansal said.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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