The move will see Cisco looking for new business outside its core networking business. Cisco has been trying to shift its strategy to stay ahead of technology developments, such as the rise of cloud computing.
Cisco’s announcement comes a week after HPE said it would buy cloud startup SimpliVity for $650 million.
Rob Salvagno, Cisco’s vice president of corporate development, said in an interview that the acquisition fits Cisco’s long-term direction and its transition toward software.
AppDynamics makes software that manages and analyses applications and it has about 2,000 paying customers, including NASDAQ, Nike and its new owner, Cisco.
Cisco wrote its cheque the day before the San Franciso-based firm was planning to price its long-planned IPO.
It is Cisco’s largest acquisition since it bought security company Sourcefire for $2.7 billion in 2013.