How does AppDynamics make money?

AppDynamics makes most of its money selling subscriptions for its app performance monitoring

After a pretty rough 2015, 2016 was the beginning of a turnaround for tech companies looking to go public, at least in the second half of the year. So far, 2017 has been even better, with some very well known startups, including Blue Apron, Snap, Cloudera, Mulesoft, Okta, and Yext.

One name that should have been on that list is app monitoring service AppDynamics. The company filed to go public in December of 2016, and was all set to start trading in January, even raising the price range on its IPO. Then, literally a day before its debut, itwas announced that it had been acquired by Cisco for $3.7 billion.

What makes AppDynamics worth such a hefty price? The company helps companies monitor their critical applications, allowing IT operators and development teams to ensure that their applications are performing correctly, and when there are problems, it can help find root cause quickly. 

Essentially, AppDynamics runs diagnostics in online customer traffic to pinpoint where problems are building up or occurring so that they can be addressed before any major shutdown is necessary.

Its customers include eHarmony, Hallmark, Expedia, The Container Store, Overstock.com, Nasdaq, Kraft, Roku, Care.com and Glassdoor.

Before its acquisition, the company had been growing fast, with revenues for the fiscal year ending at the end of January 2015 growing 247 percent to $81.9 million, up from $23.6 million in 2014. Revenues grew another 84 percent to $150.6 million in 2016. For the first nine months of 2016, the company brought in $158.4 million.

The bulk of the company's revenue comes from its subscription, which break down to three sources: time-based on-premises license agreements bundled with maintenance and support; SaaS subscriptions where the license agreement is bundled with maintenance and support as well as hosting services; and software maintenance and support agreements associated with perpetual licenses.

AppDynamics sells two subscription plans: Pro and Peak.

Pro enables end-to-end monitoring of the business transactions within applications, allows clients to rack real customer journeys on both mobile apps and web with front-end to backend correlation. Customers can also test and diagnose application health with synthetic users, and visualize database and server performance in context of business transactions.

For the Peak plan, customers have to request a quote. It includes activation of Business iQ for deep, real-time business awareness. It also provides business metric context to application performance, gives deeper diagnostics with business transaction and log correlation and analyzes user journeys and conversions with performance context.

In the first nine months of 2016, AppDynamics saw $110 million of its revenue, or 69 percent, come from its subscription stream. That was an 82 percent increase from the same period the year before. 

AppDynamics also makes money through license revenue, which is generated through the sale of on-premises perpetual software license agreements.

License revenue in the first nine months 2016 was $32. million, a decrease of 6 percent, compared to the nine months of 2015.

Finally, it makes money from "professional services and other revenue," which is comprised of fees from consulting services related to the implementation and configuration of its applications which do not involve significant production, modification or customization of software.

The amount of revenue from professional services and other revenue grew 113 percent to $15.7 million in the first nine months of last year.

AppDynamics had raised $314.5 million in revenue from investors that included Battery Ventures, ClearBridge Investments, Sands Capital, Greylock Partners,Lightspeed Venture Partners, Kleiner Perkins Caufield & Byers and Institutional Venture Partners.

(Image source: appdynamics.com)