On July 6th, Compuware announced that it acquired dynaTrace Software for $256 million in cash. dynaTrace provides solutions for tracing and capturing application transactions, code level application diagnostics and real-user experience monitoring (RUM). This company has particular strengths in monitoring Java applications and its products are used in both pre-production and production.

Analyzing drivers behind this acquisition uncovers some of the larger trends in the APM market and brings to light new requirements for creating competitive advantages in this space.

Compuware's position prior to the acquisition

Prior to the acquisition, Compuware's APM portfolio consisted of the Vantage product line and Gomez products acquired in October of 2009. The Gomez acquisition enabled Compuware to offer arguably the broadest range of application performance management capabilities in the market. These capabilities include both synthetic and real user monitoring, monitoring from both inside and outside of the corporate firewall, network, database, server and application component monitoring, as well as monitoring last mile, cloud and mobile performance. Additionally, Compuware had an aggressive agenda for integrating Gomez and Vantage products and the company was able to follow through on this plan and allow their customers to leverage the capabilities of both of these technologies in an integrated way.

It looks like Compuware was in good shape when competing in the APM market prior to this acquisition. So why did they feel like they needed to spend $256 million on purchasing a company with $26 million in TTM in revenues?

Completeness vs. effectiveness of APM product portfolios

Competitive positioning of many APM vendors have been largely focused on the completeness of their product portfolios and making sure that they have all of the major boxes checked. User experience management, transaction monitoring, monitoring application components or parts of the delivery infrastructure are just some of the areas that vendors are looking to cover when trying to position themselves as complete APM solutions. However, the fact that Compuware had user experience monitoring, transaction and Java monitoring boxes checked and still decided to spend more than half a billion dollars on acquiring Gomez and dynaTrace, user experience monitoring and transaction tracing providers, is proof that gaining true competitive advantage in the APM market is becoming a more complex task.

Preliminary findings of TRAC's APM survey show that end-user organizations are evaluating APM solutions predominantly based on effectiveness in their specific use cases and specific pain points that they are trying to address. Even though organizations see the value in managing multiple aspects of application performance management through an integrated solution, what matters to them more than the completeness of APM portfolios are capabilities that vendors are providing within each of these segments. Also, solutions that are focusing on varied individual segments of APM are based on different underlining technologies and approaches for collecting the data, which in many cases determines their effectiveness in different usage scenarios. Based on that, user experience monitoring solutions can be segmented into 2-3 separate sub-markets and the same goes for transaction monitoring products. The dynaTrace acquisition enables Compuware to add strong capabilities in the areas of the APM that the company was not focusing on, such as pre-production monitoring. More importantly, the acquisition allows Compuware to strengthen its offerings in areas that were included in the company's pre-acquisition portfolio, such as transaction tracing, deep dive monitoring and RUM. Even though the acquisition expands the array of capabilities that will allow the company to be more effective in a broader range of APM use cases, the real story of the acquisition, from a technology perspective, is that it allows Compuware to gain new strengths across different functional segments of APM.

The best way to describe the APM vendor landscape is as a set of different micro landscapes that are being defined by the types of applications and technology environments that organizations are looking to manage or blind spots that they are trying to close. The acquisition enables Compuware to significantly increase the number of usage scenarios where their solutions are able to effectively address application performance challenges.

Impact on competitors

This move can impact other APM vendors both short and long term. Short term, it can be expected that many vendors will try to take advantage of the fact that Compuware just acquired a technology that significantly overlaps with their Vantage technology and go after current Vantage customers. The same day the acquisition was made public, Compuware announced that their Vantage Analyzer product is being replaced and, due to end-user concerns about the support that Compuware will be providing for Vantage products going forward, this strategy could result in new customer wins for some vendors.

Long term, this acquisition could have a more significant impact on the APM market and cause additional consolidation and, more importantly, a shift in how requirements for effective application performance management markets are defined. Some of the other traditional leaders in the APM market that have all of the major boxes checked when it comes to completeness of their product portfolios may also find that they need to take a good look into each of these boxes and see if their capabilities are really well aligned with the key requirements for managing today's complex application environments. Those vendors that come to the same conclusion as Compuware did, after evaluating their portfolios, will be facing a "build or buy" quandary which, given how fast the requirements of this market are changing and what technology backgrounds their solutions are, should not be a tough dilemma. The real question is: How many of the vendors who are left in this market can be good acquisition targets? Even though new vendors are constantly entering this market, the list of acquisition targets that can help create true competitive advantages across a broad range of deployment scenarios is still fairly short.

TRAC's article from October, 2010, "BI Becoming the Key Enabler for IT Performance Management" talked about how the complexity of managing IT performance is driving the need for new analytics and reporting capabilities for IT management solutions. These capabilities are especially important when it comes to monitoring network and application performance – a deeper and wider view of the application infrastructure is vital as companies add more complex and dynamic IT services. Many organizations that use several APM solutions at the same time report that they still do not have enough visibility into application performance and, as a result, struggle with troubleshooting and repairing performance issues. The relevance of application performance data largely depends on how well they fit an organization's particular use case and thus the metrics collected "out of the box" by APM solutions may not fit the problems that they are trying to solve.

ExtraHop Networks recently announced version 3.5 of their Application Delivery Assurance system, a key part of which is a technology called Application Inspection Triggers. This capability allows organizations to define metrics to be captured at network speeds through the use of scripts that are customized to solve a particular problem. These metrics can be uniquely tailored to meet the specific needs of each organization or IT department with custom alerts and reports suited to the metrics being collected. The granularity of the collection process can be as fine as required to isolate problems, even down to collecting information about individual users, files or program statements.

What makes this announcement even more interesting is the core technology that ExtraHop uses to monitor network and application performance. ExtraHop's solutions are an interesting combination of capabilities for both network and application performance monitoring – the company provides appliances for passive monitoring of network traffic, but is different than traditional network visibility tools as it provides increased visibility into application performance, as well as the ability to monitor the impact of different infrastructure elements, such as storage or database, on application performance. The depth of information that ExtraHop's appliances capture and the fact that this information is captured in real-time make Application Inspection Triggers even more effective because of the flexibility of the metrics that organization are able to capture.

From an industry standpoint, there is no shortage of vendors that monitor application performance, but the real question is what capabilities really make the difference between seeing wider and deeper into the application infrastructure and having the ability to solve performance problems. In addition to ExtraHop, other vendors are realizing that what really makes the difference in performance management is how the data that is collected is being processed and presented to IT decision makers. A good example of a company that understands the value of making data relevant is SL Corporation, whose RTView product enables organizations to get more out of the data collected by their APM tools by aggregating it and providing an additional level of analysis and reporting. Another example is Prelert, who provides a solution that leverages data collected by other APM tools and applies a self-learning technology to improve the ability to troubleshoot and repair application performance issues.

The well-controlled and monitored application infrastructure that existed ten years ago has been replaced by a dynamic and sometimes unpredictable mixture of local servers, virtualized applications and the cloud. In order to be able to effectively manage these types of environments, organizations need to be able to do more than just monitor packets, servers or application components and ensure that performance data that is being delivered to IT staff is truly relevant. One of the key value propositions of business intelligence - the ability to deliver the right information to the right people at the right time -- is becoming a key differentiator for APM vendors and ExtraHop's recent announcement is a significant step in that direction.

On April 4th, 2011, SmartBear Software enhanced its traditional focus on application testing and QA by acquiring AlertSite, a developer of application web performance monitoring and management tools. SmartBear's products emphasize the importance of managing the entire application lifecycle from code review to application profiling and automated testing for QA. By way of contrast, AlertSite is focused on synthetic monitoring and testing of web site performance. The product lines of both companies are complementary and together form a suite of applications that monitor and manage applications from inception to deployment and actual use.

This is a good move for SmartBear for several reasons. To begin, both companies have sizeable communities of users: SmartBear has a development and QA community of more than 100,000 users, while AlertSite's DejaClick has had more than 250,000 downloads, providing an opportunity to cross-sell and up-sell across both communities. While AlertSite's approach for monitoring Web performance has been resonating well with their customers, the company lacked resources to truly challenge companies that have been leaders in this space such as Gomez and Keynote Systems. Through this acquisition, AlertSite gains additional marketing muscle and research and development resources.

However, when you take a closer look into the product portfolios and strategies of these vendors, it becomes apparent that some of the key dynamics in the application management market are influencing this acquisition.

 --  The concept of a lifecycle of application performance management has been present in the market for some time and has been accepted mostly by vendors who provide solutions for application testing in pre-production. Vendors are becoming increasingly aware of the importance of providing solutions which identify how the lifecycle of application management affects both end-user experience and business goals.

This acquisition gives SmartBear opportunities that go well beyond extending their current community and creating new channels for AlertSite's products. SmartBear now has an opportunity to capitalize on market trends that call for a more user-centric approach throughout the entire lifecycle of application management. Taking advantage of these trends will require tighter integration with AlertSite's product portfolio, as well as building product capabilities that enhance their appeal to companies that are adopting a DevOps methodology.

Web performance has become critical to conducting business – nothing discourages customers or potential customers faster than poor website performance. However, TRAC's recent research shows that issues with the quality of end-user experience for websites occur 10 times more frequently than website outages. For that reason, organizations report losing twice as much revenue due to issues with end-user experience as they do for issues with site availability, proof that end-user experience should be at the core of application performance management initiatives. Including user experience in the entire lifecycle of application management should lead to better customer retention and increased revenue.

On October 22, Riverbed acquired CACE Technologies, a network monitoring vendor. CACE provides solutions for network traffic capture and analysis and it is also a sponsor of Wireshark project, an open-source network monitoring tool that is being deployed by millions of end-users. CACE's products will become a part of Riverbed's Cascade business unit and Riverbed stated that Wireshark will remain a free tool.

This acquisition can impact Riverbed's market position in three key areas.

1) WAN Optimization

Riverbed has been experiencing a lot of success in the WAN optimization market and many of their competitors find it difficult to compete with data reduction and the acceleration capabilities of Riverbed's Steelhead technology. Even though WAN acceleration techniques alone are enabling organizations to improve application performance over the WAN, due to complexity of WAN traffic, organizations are increasingly looking for WAN optimization solutions that couple acceleration techniques with capabilities for visibility into WAN performance.

Riverbed responded to this trend by acquiring a network visibility vendor, Mazu Networks, in January of 2009. Even though the Mazu acquisition allowed Riverbed to add advanced network monitoring capabilities to its portfolio, it didn't significantly impact Riverbed's position in the WAN optimization market, as Mazu products were provided as a separate product offering from Riverbed's WAN optimization gear through the Cascade business unit. Riverbed did take several steps to tighten integration with Cascade solutions, but it hasn't provided both acceleration and visibility capabilities on a single platform, which is the approach that vendors, such as Exinda, Expand Networks, Ipanema Technologies and Silver Peak, have being using to create competitive advantages.

The acquisition allows Riverbed to enhance visibility capabilities of their WAN optimization solution by integrating CACE Pilot with their Steelhead appliances. CACE Pilot is a solution for analyzing network performance and using it to process data that is being collected by Steelhead appliances will enable Riverbed to provide WAN acceleration and visibility capabilities through the same platform.

- Aryaka Networks Launches a Cloud Solution for Application Delivery to Remote Sites -

Today, Aryaka Networks came out of stealth mode and announced its cloud solution for WAN optimization. The solution is based on a number of globally distributed points of presence for WAN optimization that sit on large carrier networks around the world. Aryaka allows organizations to deploy WAN optimization capabilities by using a SaaS platform and set up WAN optimization techniques in only a few clicks, without having to deploy any additional hardware.

The biggest area of change in the WAN optimization market over the last three years has been the delivery method of these solutions. The majority of announcements that have been made by WAN optimization vendors were centered around turning their hardware solutions into virtual appliances or enabling their products to better support managed WAN optimization services. This trend has been driven by the end-users’ request to simplify the management of WAN optimization solutions, reduce the total cost of ownership, support different network topologies and make these products more appealing for organizations that are deploying virtualization and cloud computing services. Aryaka’s solution takes this a step further and provides an innovative approach for addressing some of the key concerns that end-user organizations have about deploying WAN optimization solutions.

The trend of moving WAN optimization hardware out of the branch has been resonating with end-user organizations and a majority of WAN optimization vendors have been doing a good job of trying to adjust to it. However, Aryaka is not only taking WAN optimization solutions completely out of the branch, but also moving them outside of corporate firewalls, providing an almost CDN-like infrastructure for delivering these capabilities (which should not come as a surprise if you know that the founder of Aryaka was also a founder of Speedera Networks, a CDN company that was acquired by Akamai in 2005).

Today, Keynote Systems and dynaTrace announced a strategic partnership that would allow end-users to leverage these two solutions in an integrated fashion. This is the second strategic partnership that Keynote has created in this space over the last two months, as they formed a similar type of relationship with OPNET Technologies that was announced on July 22. These partnerships might be confusing to some, as it might seem that these three companies are essentially doing the same thing: to monitor the performance of business-critical applications. However, while Keynote is specializing in monitoring the quality of end-user experience and performance testing for Web applications from the outside of the corporate firewall, OPNET and dynaTrace provide solutions for monitoring application performance across enterprise infrastructure inside of the firewall.

The general perception of solutions for end-user experience monitoring, such as the one that Keynote is providing, is that they are very effective in identifying when business users are experiencing problems with application performance, but they are not as effective in drilling down into parts of the application delivery chain to isolate and resolve the root cause of the problem. On the other hand, tools for monitoring the performance of internal infrastructure, such as OPNET or dynaTrace, are able to monitor the transaction flow of applications across the network and into the data center, and provide a deeper dive into how applications are performing, what is causing performance problems and how they can be prevented and resolved. TRAC’s recent report “10 Things to Consider When Evaluating End-User Monitoring Solutions” revealed that the ability to integrate tools for monitoring the quality of end-user experience with tools for monitoring enterprise infrastructure is one of the key aspects of having full visibility into application performance. With that said, there is a clear value that end-user organizations can experience when products that include robust capabilities for application performance management (such as OPNET and dynaTrace) get integrated with one of the leading solutions for end-user experience monitoring from outside of the firewall (Keynote).

However, in order to evaluate a true significance of these partnerships, they should be analyzed in the context of some of the key dynamics in this market.