In APMdigest's exclusive interview, Gabriel Lowy, Founder of Tech-Tonics, looks at Application Performance Management (APM) from the investor's perspective.

APM: We regularly hear about new investments in vendors of APM and related technologies. Is this trend gaining momentum?

GL: It is a trend that has had momentum for a few years. New investments have gone to both established companies that have been part of industry consolidation as well as to start-ups.

Larger vendors have been snapping up start-ups in recently years to get newer technologies that were lacking in their portfolios. Private equity has also been quite active in the space. They have taken out public companies such as BMC, Compuware and Riverbed that they believed were underperforming relative to market trends and their intrinsic value. Meanwhile, start-ups with innovative solutions and go-to-market strategies continue to get VC funding. Eventually, they will IPO like New Relic did, or sell out to a larger buyer. And so the cycle goes.

APM: Is APM a good industry for investment opportunities?

GL: APM is a good industry for investment opportunities, but only the right ones. As enterprises become increasingly software-defined and seek to get better returns on their data assets with advanced analytics, more are recognizing that these are not attainable without exceptional user experience. The better the employee user experience is, the more engaged they are with customers, lifting their productivity. In turn, the better the customer user experience is, the more engaged they are with the company. Both are critical to satisfaction and loyalty and to achieving corporate ROI and risk management objectives.

But investments in point solutions have diminished value because the trend in the space is toward consolidating the number of point solutions into a higher-level, more strategic and holistic approach. We've proposed this in our PADS Framework for performance management and user experience.

APM: What should an investor look for in an APM vendor?

GL: Well-managed companies with a strategy and product portfolio that aligns with industry trends that has a paper trail of solid execution. It's that simple. But it's not easy to do it consistently. Features and benefits only have value in the eyes of the customer. Those vendors that can demonstrate success at application performance and user experience from DevOps to production will drive growth by helping the customer achieve their business and financial objectives. Vendors must give customers flexibility in how they consume the solution and ease of use and deployment to reduce TCO and show a rapid payback on investment. That's the so-called value proposition. That's what attracts investment.

APM: What is the long-term financial outlook for APM as an industry?

GL: I believe APM has a favorable long-term outlook for the fundamental reasons I referred to earlier. User experience drives financial performance and higher market valuations. A study we did of S&P 500 companies last year validated this. Those with a strategic approach outperformed their peer groups. And they have fewer tools deployed than the double-digits that exist in many companies. That sprawls makes companies skeptical and often causes more headaches that resolves them. As yet, not enough companies have taken a strategic approach. I expect that will change as companies realize that APM, next to database, is the most strategic software they can invest in.

APM: Do you have any other tips for investors looking at APM vendors?

GL: Do your due diligence. Recognize what the key drivers are for the APM space. Talk to customers and understand use cases. What are the most important applications issues that customers face? Separate the sizzle from the steak in terms of claims versus deliverables. How satisfied are the vendor's customers? What are their complaints? Supplement this with independent industry research. APM is a space with a bright future. But as with any investment, you've got to stick to facts and fundamentals.

ABOUT Gabriel Lowy

Gabriel Lowy is the founder of TechTonics. During the past 17 years, he has been consistently recognized as a leading technology analyst, including Forbes.com Best Analysts in America and The Wall Street Journal Best of the Street. He has published over 1,000 reports and articles on different sectors of the technology industry, including market studies, forecasts and competitor analyses. Lowy is a trusted adviser to senior managements, including CEOs, CMOs, CFOs and CIOs. He is an active blogger on subjects intersecting strategy, technology and finance, and is a featured contributor to APMdigest.

Lowy has held senior technology research analyst positions with several Wall Street firms, including Mizuho Securities USA, Noble Financial Group, Inc., Collins Stewart LLC, Credit Lyonnais Securities USA and Oppenheimer & Co. He began his career at Andersen Consulting. Lowy holds an MBA in Strategy and a BS in Marketing from New York University's Stern School of Business.