Digital Disruption Drives Innovation For Thoma Bravo-Owned Dynatrace
In many contexts, the phrase digital disruption is nothing but management consulting doublespeak, but for digital performance management vendor Dynatrace, it is both a customer challenge as well as a driver of the company’s own innovation.
Dynatrace is the application performance management (APM) leader, with revenues of $425 million and over 7,500 customers worldwide – only now they refer to their product category as digital performance management, as digital is transforming the APM landscape.
At last week’s PERFORM 2015 conference, Dynatrace executives laid out the digital disruptions many of their customers are struggling with.
The common theme is exploding complexity as diverse technology trends drive change in enterprises, including the fragmentation of mobile device technologies, the rise of microservices, the growth of application programming interfaces (APIs) and the explosion of digital touchpoints, from smartphones to the Internet of Things.
On top of all these trends is the fact that every enterprise is now hosting hundreds of separate web sites and customer-facing applications, each of which includes a multitude of third-party plugins. “The technology story can be esoteric at times,” explains John Van Siclen, CEO of Dynatrace, “but the value proposition can be transformational.”
How customers interact with big companies is also undergoing a dramatic shift, as they are moving to self-service models, including hotels, banks, airlines, as well as how enterprises serve their own employees. The burning question for Dynatrace: “How do people actually manage these things?” according to Van Siclen.
After Thoma Bravo bought the company last year, taking it private and splitting it off from mainframe tools vendor Compuware, Dynatrace was able to double-down on the product innovation it felt was necessary to compete in this environment of digital disruption – even though such innovation would itself be disruptive to Dynatrace’s established business model. In other words, Dynatrace faced the classic Innovator’s Dilemma.
In the years since Clayton Christiansen’s book, the Innovator’s Dilemma is now a familiar challenge: incumbent companies with established customers are loathe to invest in innovations that might disrupt existing revenue streams – thus eventually ceding leadership to more nimble challengers.
To avoid this fate, Dynatrace has been investing time and resources into Ruxit, a cutting-edge performance monitoring tool. Yet while the Ruxit product itself is unquestionably innovative, so too is Dynatrace’s business strategy.
To free the Ruxit division to innovate in a disruptive market environment, Dynatrace executives spun off the effort, giving it the resources and leadership it needed, but without the traditional management constraints of traditional product development efforts.
The Ruxit team organized around its novel product plan, but also innovated its go-to-market and sales strategies. Now that it’s in the marketplace, Ruxit competes with hot new players on the block likeNew Relic and AppDynamics.
For online bar review course provider BARBRI, Ruxit offered the capabilities New Relic lacked, even though Ruxit was still in beta at the time BARBRI started using it.
“We needed a single dashboard. We wanted to keep it up all the time, with the ability to drill down to the root of a problem,” according to Mark Kaplan, Director of IT at BARBRI. “The issues with New Relic from the management perspective were getting the data we needed. It also had a high learning curve.”
BARBRI’s management challenge would sound familiar to any IT manager facing challenges with legacy technology. “We inherited an old monolithic stack with no documentation,” Kaplan explains.
They had a performance bottleneck that months of troubleshooting hadn’t solved. “It was slow, but ‘nothing was wrong with anything’,” adds Greg Birdwell, Infrastructure Architect at BARBRI. “We got Ruxit, which immediately found a network problem on an Oracle host. A network card was dropping 20% of its packets.”
BARBRI was particularly impressed with Ruxit’s SmartScape technology, which automatically discovers a company’s entire network. “With Ruxit, the whole topology was laid out and visible,” Kaplan says.
Overcoming the Innovator’s Dilemma
The challenge Dynatrace faces now is that Ruxit’s slick user interface and integrated architecture make Dynatrace’s mature products look rather stodgy and old-fashioned in comparison. Dynatrace’s established customer base may now be disappointed that their current Dynatrace’s products aren’t as slick as Ruxit.
If simply spinning off Ruxit as a separate product were the goal of Dynatrace’s strategy, then perhaps this would be an issue – but there’s more to this story.
Now that Ruxit has reached a level of maturity, Dynatrace will be gradually incorporating Ruxit’s innovations into its core product line, a process they call “unification, not migration,” according to Bernd Greifeneder, who serves as CTO of Dynatrace as well as CTO of Ruxit. “The unification is seamless and totally non-disruptive.”
While the strategy has its risks, this plan to ‘Ruxitize’ the core Dynatrace product line is perhaps the most effective way out of the Innovator’s Dilemma. If it’s successful, Dynatrace will have navigated its own digital transformation, changing not only its products but its business model as well, as it moves increasingly to a cloud-based, next-generation product line.
There is an interesting irony at this point in the story, as Dynatrace’s stated objective is to help its customers deal with digital disruption – and Dynatrace is actually providing a real-world example to its customers how to successfully navigate such transformation via its own Ruxit strategy.
“Digital disruption is not just for the unicorns,” Van Siclen quips. Only time will tell whether Dynatrace’s risky Ruxit strategy will pay off, but so far, Dynatrace’s customers are happy with its progress.