2012 was a profitable year for AppDynamics, a company that offers insights into application performance. The company experienced a 300 percent growth, 500 customers up from 250 the year before, and now has offices in the UK, France and Germany. Borrowing a phrase from Marc Andreessen, AppDynamics stands as a testimony that software truly is ‘eating up the world.’

A small group of investors, led by Institutional Venture Partners (IVP), have seen the potential of AppDynamics and have financed the Series D round of funding. The company has now raised $86 million and plans to do an IPO.

Today, businesses of all varieties are using software to run their operations and this is fundamentally changing entire markets. Companies that are taking this approach are already winning. The costs of running Internet applications continue to plummet down from $150,000 a month about 10 years ago to about $1,500 a month today, thanks to such cloud services like AWS. With lower startup costs and a vastly expanding market for online services, we have seen a proliferation of apps from virtually every industry vertical.

The result of this proliferation has been the challenge to manage all these apps. Services like AppDynamics and New Relic are now part of the application performance market that is now worth $2 billion and expected to be worth $4-$5 billion in the next few years. Despite these relatively new market entrants, the market landscape is still dominated by legacy vendors like IBM (News - Alert) and Compuware, whose software stacks were 10 years ago, not to mention their complex software licensing that take months to close.

New software ideas from new Silicon Valley-style startups are playing a significant role in the software revolution that is coming. It has even been proposed that over the next 10 years, the battle between incumbents and software-powered insurgents will be epic. This software-based transformation is no doubt responsible for the thriving application performance industry.

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