The document discusses opportunities in the growing cloud computing market. It finds the market size is around $109 billion and growing. Successful software-as-a-service companies have narrow product footprints, attractive pricing, and leverage scalable infrastructure like Amazon Web Services. Virtualization allows customization while reducing costs and enabling infrastructure scaling. The document evaluates areas like CRM, ERP, and analytics software as existing investment opportunities being moved to cloud-based, software-as-a-service models.

1. Cloud Computing: Sector Overview and Potential Investment
Opportunities
Author: Casey Simmons
April 21, 2011

2. Agenda
• Conclusions
• Cloud Computing Market Overview
 Market Opportunity
 Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
2

3. Conclusions
• Keys to Successful SAAS Offering
• Narrow footprint, attractive price point, sold through inside salesforce, then grow into
large enterprise sales
• Infrastructure (“Internal”) Software
• Storage requirements continue to rise dramatically
• Server/Virtualization creates highly scalable infrastructure
• High BTE due to necessary scale for IAAS
• Relationship starts in smaller department functions
• Eventually centralized purchaser, fewer number of customers, larger customer
footprint
• User-facing (“External”) Applications
• Large scale
• Most apps today are new version of legacy application
• Need ease of use, configurability, low maintenance 3

4. Agenda
• Conclusions
• Cloud Computing Market Overview
 Market Opportunity
 Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
4

5. Cloud Market Opportunity ~ $109 Billion
5
Source: BofA Merrill Lynch Research

6. Agenda
• Conclusions
• Cloud Computing Market Overview
 Market Opportunity
 Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
6

7. Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
7

8. Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
8

9. Consumer Foreshadows Enterprise
What drives your internet behavior?
What drives your smartphone decision?
• Applications
• Carrier
• Price
• Ease of Use
• Functionality
9
Source: Goldman Sachs Research Estimates, Synovate 2007

10. Winning SAAS Business Characteristics
• Target Large Enterprises
• Smaller version HP Openview or IBM Tivoli
• Converting customers to spokespersons
• Product Design Process
• Controlled process to build to produce but uncontrolled to
sell/market
• Build pool of ready users
• Keep testing quickly and frequently
• Manage global functionality
• Consistent Product Releases
10
Source: Goldman Sachs Research Estimates, Synovate 2007

11. Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
11

12. Cloud Landscape
12
Source: BofA Merrill Lynch Research

13. Developer Ecosystems of Choice
IT Web
Social Networking Infrastructure
Suite
Application/Device
Force.com Partnerships: Pay Only for
No upfront
Google & expense or long-
Agnostic
Facebook
Consumption EC2 term contract
Service Cloud
SimpleDB
AppExchange
S3
Chatter
SQS
VisualForce
Reliable & Scalability
Content Create business Secure Without Capex
Management app on-demand
13
Source: BofA Merrill Lynch Research

14. Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
14

15. Areas of Existing SAAS Investment
• B2B/Inter-company applications: E2Open, Quadrem, Agentrics, SPS Commerce, Management Dynamics
• System Integration: Astadia, Bluewolf, Appirio
• Website Analytics: Omniture (Adobe)
• CRM: Salesforce, Eloqua, Right90
 Right90: Increased revenue 240% in 2008 (1)
 Eloqua: Increased revenue 75% in 2008 (1)
• ERP: Netsuite, Workday
 Client/Server: Infor, Consona, Epicor, and Activant
• Demand Analytics: DemandTec
• Talent Management: Ultimate Software, SilkRoad, Authoria, Kenexa
15
(1) Source: Deutsche Bank Research

16. Investment Thesis
 Product Footprint/Price Point/Web-marketing tactics
 Startups Benefit from Scalable Infrastructure: Salesforce & Amazon
 Corporate IT Outsourcing More
 Virtualization
16

17. Client Server with Virtualization vs. Multi-Tenancy
Shifts Customization at Metadata layer to reduce application management
and infrastructure costs while enabling architecture scaling
17
Source: Deutsche Bank Research

18. Next Steps to Find Investment Opportunities
 Evaluate major enterprise applications
 Large Installed Base
 High maintenance expenses
 Find/Build SAAS team that knows legacy space
18

19. Appendix
19