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Application Engineering is not product development. You can assume that you will join a glorified TCS/Infosys/Wipro or a Banking IT firm where very few are interested in Tech.
For those who are from Product companies, joining as Application engineer will be worst decision. You will feel as if you are punishing yourself everyday.
You will not learn any marketable skills.
Compensation is good. But if you are kicked out some day, there will be very few options left.
Also, at the time of recruitment, recruiters will tell you that you can move from Application Engineering to Software Engineering. But that is very difficult.
None of the Software Engineering Managers show interest in Application Engineers. Application Engineers are given a chance only in exceptional situations, where either the Software Engineering team is struggling very hard to get resources, or if the Application Engineer has solid background from good Product company. Even when they get a chance, it’s very difficult for conversion to happen. Conversion usually comes with lowering of levels (L5 to L4, L4 to L3).
Unfortunately, there are a number of Application Engineers who joined Google, without knowing what they are getting into. Google recruiters do an extremely bad job when it comes to explaining the role.
For those who are coming from Service based companies/consultancies, Application Engineering is probably a good place.