By Adam Lashinsky
April 12, 2017

Cisco’s recent agreement to buy the software company AppDynamics for $3.7 billion was a head-scratcher at two levels. First, Cisco (csco) is a hardware company. Its sales force is adept at pushing gear, not selling digital subscriptions. Second, AppDynamics, a decade-old startup with 2016 revenues approaching $230 million, was hours away from going public as part of a newly rejuvenated IPO market. Selling out to a customer hadn’t been in the cards.

The deal closed recently, and I met with AppDynamics CEO David Wadhwani Tuesday. It isn’t that difficult to understand why Wadhwani agreed to sell. Sixteen times revenue is a rich valuation. AppDynamics competitor New Relic, for example, is worth $2 billion, or a little over eight times its last four quarters of sales. As well, Cisco agreed to abandon its customary practice of integrating its acquisitions and instead allow AppDynamics to continue to run as a standalone business.

AppDynamics sits in the heart of today’s buzzword-frenzied trends, including data science and machine learning. Its software monitors a business customer’s software performance to identify potential problems. A dip in retail sales or a glut of passengers exiting a plane might identify addressable problems in real time. “We watch every line of code in the enterprise and make sure it’s performing the way it should be,” says Wadhwani. “Too often companies only recognize there’s a problem when customers tell them.”

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The company’s wares are part of an exciting and also alarming trend: If its software works as well as it should, machines do the analysis previously done by people. “Why are people analyzing anything?” Wadhwani asks. “Shouldn’t all these experiences be defined by the machine analyzing things”

Good, but troubling, question.

As it happens, one group of humans was disappointed by the sale to Cisco, but not in the way you might think. A handful of AppDynamics engineers had bought brand-new suits in preparation for ringing the Nasdaq bell when the company went public, reports Wadhwani. Cisco arranged for them to do it anyway. Everyone is happy. Until a machine eliminates their analytical jobs, that is.

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