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Harvard innovation lab :       Michael J Skok :           Startup Secrets :   Business Model
 Hi
Hi    Harvard innovation lab
         #innovationlab              @mjskok                     #startupsecrets    www.mjskok.com




                           START UP
                                 Case in point: Demandware


                           SECRETS
                             An insider‟s guide to unfair competitive advantage
                            SaaS enabled CORE, Levers & Multipliers




                    Disruptive Business Models to build Value




                                           MICHAEL J SKOK
                                         North Bridge Venture Partners

                                          twitter: @mjskok mjskok.com
                                                                                                     1
Harvard innovation lab :   Michael J Skok :   Startup Secrets :   Business Model
Hi                                                                      www.mjskok.com
         #innovationlab          @mjskok            #startupsecrets




        For context and more information:

     and as part of the overall Business Model session
     http://www.mjskok.com/resources/business-model

Demandware is presented as an example of a company
 that leveraged it‟s SaaS technology disruption with a
     fundamentally different business model to it‟s
competitors, creating partners out of it‟s customers with
               a shared success model.
                                                                                         2
Harvard innovation lab :         Michael J Skok :                     Startup Secrets :                 Business Model
Hi                                                                                                           www.mjskok.com
        #innovationlab                @mjskok                               #startupsecrets




     Disrupting Software…
                  1990+                                                                    2010+
             •    Installed by IT                                                    Web based
             •    Customized                                                         Self service
             •    Infrequent upgrades                                               On demand, SaaS
             •    Proprietary                                                       Open Source
             •    License                                                            Subscription

                                                                        Subscription
                                                   SaaS
                                On demand

                    Self service                           Extende                   Extende
                                                               d             Up-sell     d    Re-Trial
                                                   Up-sell
     …a fundamentally disruptive & more valuable
             Open
            source
                                                           Lifecycl
                                                               e
                                                                                     Lifecycl
                                                                                         e
        Web        business model      short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)

                                                                                                                              3
Commerce Innovation. Not Infrastructure.
Forward-Looking Statements
This presentation includes forward-looking statements. Demandware, Inc. (“Demandware” or the “Company”) has based these forward-looking statements largely on its current
expectations and projections about future events and financial trends affecting its business. Forward-looking statements should not be read as guarantees of future
performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements
are based on information available at the date of this presentation and management‟s good faith belief as of such date with respect to future events, and are subject to risks
and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors
that could cause such differences include, but are not limited to:
• the Company‟s ability to attract new clients to enter into subscriptions for its solution;
• the Company‟s ability to service those clients effectively and induce them to renew and upgrade their deployments of the Company‟s solution;
• the Company‟s ability to expand its sales organization to address effectively the new industries, geographies and types of organizations the Company intends to target;
• the Company‟s ability to accurately forecast revenue and appropriately plan its expenses;
• continued acceptance of SaaS as an effective method for delivering software solutions;
• the Company‟s ability to protect and defend its intellectual property;
• costs associated with defending intellectual property infringement and other claims;
• events in the markets for the Company‟s solution and alternatives to the Company‟s solution, as well as in the United States and global markets generally;
• changes in the competitive environment in the Company‟s industry and the markets in which the Company operates; and
• other factors discussed under “Risk Factors ” and “Management‟s Discussion and Analysis of Financial Condition and Results of Operations” in periodic filings with the
     Securities and Exchange Commission (the “SEC”).
In addition, in this presentation, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “potential” and similar expressions, as they
relate to the Company, business and management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the future events and
circumstances discussed in this presentation may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements.
Forward-looking statements speak only as of the date of this presentation. You should not put undue reliance on any forward-looking statement. The Company assumes no
obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting future performance or results, except
to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates
with respect to those or other forward-looking statements.




                                                                                                                           Copyright 2012 Demandware, Inc. – CONFIDENTIAL           |      5
Demandware Is at the Confluence of
Three Significant Markets

 Global eCommerce                                                                                                   Global SaaS

                       16%                                                                                                        18%
                      CAGR                                                                                                       CAGR
                    (‘10 – ’15)                                                                                                 (‘10 – ’15)

                                       $317 Billion                                         $10 Billion




                                                                       $12 Trillion


Data Reflects 2010
                                                                     Global Retail
Source: Gartner (Global SaaS Market) and Euromonitor (Global Retail and Global eCommerce)

                                                                                                Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   6
Global Retail Market Shifting from Offline to Online
                                                eCommerce
                                       An Essential Requirement for
                                         Retailers / Brands Today

  Consumers                      Buying                                   Selling                  Retailers / Brands
Connected, In Control                              Across                                               Deliver Exceptional
    Always On,                              Multiple Touchpoints                                        Online Experience
 Always Consuming

                        2004
                                                    Laptop/Desktop

                                                                                                             Need for
                                                                                                           Easy Design,
           Current                                                                                        Implementation
                            QR Enabled                                                                  and Management of
                             Print Ads Kiosk    Mobile    Tablet     Call Center   Social Media
                                                                                                         eCommerce Sites
                                                                                   NFC Geolocation
   Future                                                                             Services

                                                                                              Clienteling
                    Ad                         Digital
                                 Content                           mPOS
                 Networks                       TV
                                Web Sites                             Customer-Enabled Check
                                                                        Out on Smart Phone

            Embedded in Content Experience                           Embedded in Store Commerce
                                                                                   Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   7
Demandware Delivers The Best of Both Worlds

Build and Run Internally              Outsource / ASP

     The Pros:                              The Pros:
        Control                                 Less Hassle
        Customization        The Best of        No Infrastructure


 ✗The Cons:                             ✗The Cons:
                              Both Worlds

        Costly                                  Inflexible
        IT-Constrained                          No Merchant Control of
        Performance/Security                     Merchandising
        Responsibility                          Limited Customization
        Slow Pace of Innovation



              A Unique and Better Approach to eCommerce

                                                Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   8
Demandware – Business Model Elements

   CORE value ?

   Multipliers ?    Multipliers:
                     • Increase revenue
                     • Increase reach
   Levers ?                                                         Levers:
                     • Increase
                       coverage                                      • Reduce time
                                                                     • Reduce costs
                                                                     • Reduce
                                                                       resources

                                    Multipliers




                                                            Levers
                                                  CORE



                                                    Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   9
The Demandware CORE:
SaaS enabled Commerce Innovation


 Initial “Table Stakes”       Today‟s Differentiators

                                    Merchant
    Reliable and Proven             Empowerment
                                                        Provides Full Control
            99.98%
      Platform Availability
                                    Ease of             Open Development Environment;


             +
            Fully
                                    Development


                                    Cutting Edge
                                                        Flexible, Extensible


                                                        Access to Steady Stream of New,
                                                        Innovative Functionality as Soon as it
                                                        Becomes Available
        Customizable
                                                        Simplifies Complex eCommerce
                                    Easy                Functionality


                                    Fast                Time-to-Market Only 6 Months


                                    No Infrastructure   SaaS Solution



                         Significant Barriers to Entry
                                                        Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   10
Demandware business model
– simplified summary of value creation & capture…




   Create: Development plus LINK partnerships
    – Traditional R&D with leverage from LINK partners for whole
      product


   Deliver: SaaS
    – On Demand Commerce Innovation NOT Infrastructure


   Harness: % of GMV payment               Highly
    – Shared success
                                           Disruptive


                                                Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   11
Demandware LINK - Multiplier AND Lever


                                                        LINK Technology
                                                            Partners
                                                •    Extensive library of pre-
                                                    built integrations between
                                                        leading third-party
                                     ®
                                                         technologies and
          LINK Technology Partners
                                                    Demandware Commerce

                                                           Benefits to
                                                        Retailers / Brands
                                           •    Accelerated Revenue Growth
                                           •        Rapid Access to Applications
                                                    •   Reduced Implementation
                                                                Costs
                                            •       Early Visibility into Emerging
                                                           Technologies




12                                       Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   12
Demandware: LINK program




   MULTIPLIER
    – Creates whole product – fulfilling value proposition
    – Extends whole product to broader solution


   LEVER
    – Reduces cost of integration
    – Reduces time to deploy




                                                                               13
                                           Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   13
Harvard innovation lab :       Michael J Skok :                     Startup Secrets :   Business Model
Hi                                                                                            www.mjskok.com
         #innovationlab              @mjskok                              #startupsecrets




     Demandware LINK impact:
     • Win / Win for customer and vendor
         – Improves Gain/Pain with integration and whole product
         – Improves = LCV/CARC with higher value and longer lifecycle

                                            Multipliers




                                                                 Levers


                                 Up-sell                  CORE              Re-Trial




                                                                                                               14
Leading Brands Choose Our Model


                                                             517


                                                           445

                                                       402

                                                     361

                                               321

                                                       Websites
                                         253
                                        237
                                     215              Customers
                             175
                          143
                                                               137
                         123                                124
                      104                             101110
                   95                            91
            60
              70                 69 75 78
         50                53 60
39 39 43          38 40 46
16 17 19 23 28 32



    „08         „09            „10             „11               „12




                                                                       Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   15
Net Result: On-Demand is in Demand!



                                                         Sept. 30, 2012
                                                                 $18.4M
                                                               52% CAGR

                                                                    137

 Sept. 30, 2009                                                     517

     $5.8M                                                        $468K

       38                                                          79%

       95

     $290K

      78%


                                      Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   16
Revenue Growth Momentum

Annual Revenue Growth                             Nine-Month Revenue Growth
$ in Millions                                     $ in Millions
                                    $56.5                                                      $53.1
                              64%                                           46%

                                    $9.3                                                        $8.1

                                                           $37.9

                      $36.7         $47.2
                79%
                                                            $7.0
                                                                                               $45.1
                      $8.0

     $21.4
                                                           $30.9
                      $28.7
     $5.3


     $16.1




      2009             2010         2011               9 Months 2011                      9 Months 2012

                                       Services     Subscription


                                                                   Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   17
Target Business Model



                         2010   Q4 2010   2011         Q4 2011                 Target

   Revenue               100%    100%     100%           100%                  100%


   Cost of Revenue       40%     36%      35%             28%                   30%


   Gross Margin          60%     64%      65%             72%                   70%


   R&D                   17%     14%      20%             15%                   12%


   Sales and Marketing   30%     27%      35%             30%                   25%


   G&A                   11%      9%      11%             11%                    8%

   Operating Income
                         3%      15%      (1)%            16%                   25%
   (Loss)




                                                 Copyright 2012 Demandware, Inc. – CONFIDENTIAL   |   18
Harvard innovation lab :   Michael J Skok :   Startup Secrets :   Business Model
Hi                                                                      www.mjskok.com
         #innovationlab          @mjskok            #startupsecrets




     For more information:
     See the full resource on Business Models at
     http://www.mjskok.com/resources/business-model




                                                                                         19
Harvard innovation lab :       Michael J Skok :           Startup Secrets :   Business Model
 Hi
Hi    Harvard innovation lab
         #innovationlab              @mjskok                     #startupsecrets    www.mjskok.com




                           START UP
                                 Case in point: Demandware


                           SECRETS
                             An insider‟s guide to unfair competitive advantage
                            SaaS enabled CORE, Levers & Multipliers




                    Disruptive Business Models to build Value




                                           MICHAEL J SKOK
                                         North Bridge Venture Partners

                                          twitter: @mjskok mjskok.com
                                                                                                     20

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Game Changing Business Models - Case - Demandware - leveraging SaaS to create a model for innovation and shared success with customers

  • 1. Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi Hi Harvard innovation lab #innovationlab @mjskok #startupsecrets www.mjskok.com START UP Case in point: Demandware SECRETS An insider‟s guide to unfair competitive advantage SaaS enabled CORE, Levers & Multipliers Disruptive Business Models to build Value MICHAEL J SKOK North Bridge Venture Partners twitter: @mjskok mjskok.com 1
  • 2. Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets For context and more information: and as part of the overall Business Model session http://www.mjskok.com/resources/business-model Demandware is presented as an example of a company that leveraged it‟s SaaS technology disruption with a fundamentally different business model to it‟s competitors, creating partners out of it‟s customers with a shared success model. 2
  • 3. Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Disrupting Software… 1990+ 2010+ • Installed by IT  Web based • Customized  Self service • Infrequent upgrades  On demand, SaaS • Proprietary  Open Source • License  Subscription Subscription SaaS On demand Self service Extende Extende d Up-sell d Re-Trial Up-sell …a fundamentally disruptive & more valuable Open source Lifecycl e Lifecycl e Web business model short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV) 3
  • 4. Commerce Innovation. Not Infrastructure.
  • 5. Forward-Looking Statements This presentation includes forward-looking statements. Demandware, Inc. (“Demandware” or the “Company”) has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting its business. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the date of this presentation and management‟s good faith belief as of such date with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: • the Company‟s ability to attract new clients to enter into subscriptions for its solution; • the Company‟s ability to service those clients effectively and induce them to renew and upgrade their deployments of the Company‟s solution; • the Company‟s ability to expand its sales organization to address effectively the new industries, geographies and types of organizations the Company intends to target; • the Company‟s ability to accurately forecast revenue and appropriately plan its expenses; • continued acceptance of SaaS as an effective method for delivering software solutions; • the Company‟s ability to protect and defend its intellectual property; • costs associated with defending intellectual property infringement and other claims; • events in the markets for the Company‟s solution and alternatives to the Company‟s solution, as well as in the United States and global markets generally; • changes in the competitive environment in the Company‟s industry and the markets in which the Company operates; and • other factors discussed under “Risk Factors ” and “Management‟s Discussion and Analysis of Financial Condition and Results of Operations” in periodic filings with the Securities and Exchange Commission (the “SEC”). In addition, in this presentation, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “potential” and similar expressions, as they relate to the Company, business and management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the future events and circumstances discussed in this presentation may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. Forward-looking statements speak only as of the date of this presentation. You should not put undue reliance on any forward-looking statement. The Company assumes no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting future performance or results, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 5
  • 6. Demandware Is at the Confluence of Three Significant Markets Global eCommerce Global SaaS 16% 18% CAGR CAGR (‘10 – ’15) (‘10 – ’15) $317 Billion $10 Billion $12 Trillion Data Reflects 2010 Global Retail Source: Gartner (Global SaaS Market) and Euromonitor (Global Retail and Global eCommerce) Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 6
  • 7. Global Retail Market Shifting from Offline to Online eCommerce An Essential Requirement for Retailers / Brands Today Consumers Buying Selling Retailers / Brands Connected, In Control Across Deliver Exceptional Always On, Multiple Touchpoints Online Experience Always Consuming 2004 Laptop/Desktop Need for Easy Design, Current Implementation QR Enabled and Management of Print Ads Kiosk Mobile Tablet Call Center Social Media eCommerce Sites NFC Geolocation Future Services Clienteling Ad Digital Content mPOS Networks TV Web Sites Customer-Enabled Check Out on Smart Phone Embedded in Content Experience Embedded in Store Commerce Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 7
  • 8. Demandware Delivers The Best of Both Worlds Build and Run Internally Outsource / ASP The Pros: The Pros:  Control  Less Hassle  Customization The Best of  No Infrastructure ✗The Cons: ✗The Cons: Both Worlds  Costly  Inflexible  IT-Constrained  No Merchant Control of  Performance/Security Merchandising  Responsibility  Limited Customization  Slow Pace of Innovation A Unique and Better Approach to eCommerce Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 8
  • 9. Demandware – Business Model Elements  CORE value ?  Multipliers ? Multipliers: • Increase revenue • Increase reach  Levers ? Levers: • Increase coverage • Reduce time • Reduce costs • Reduce resources Multipliers Levers CORE Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 9
  • 10. The Demandware CORE: SaaS enabled Commerce Innovation Initial “Table Stakes” Today‟s Differentiators Merchant Reliable and Proven Empowerment Provides Full Control 99.98% Platform Availability Ease of Open Development Environment; + Fully Development Cutting Edge Flexible, Extensible Access to Steady Stream of New, Innovative Functionality as Soon as it Becomes Available Customizable Simplifies Complex eCommerce Easy Functionality Fast Time-to-Market Only 6 Months No Infrastructure SaaS Solution Significant Barriers to Entry Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 10
  • 11. Demandware business model – simplified summary of value creation & capture…  Create: Development plus LINK partnerships – Traditional R&D with leverage from LINK partners for whole product  Deliver: SaaS – On Demand Commerce Innovation NOT Infrastructure  Harness: % of GMV payment Highly – Shared success Disruptive Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 11
  • 12. Demandware LINK - Multiplier AND Lever LINK Technology Partners • Extensive library of pre- built integrations between leading third-party ® technologies and LINK Technology Partners Demandware Commerce Benefits to Retailers / Brands • Accelerated Revenue Growth • Rapid Access to Applications • Reduced Implementation Costs • Early Visibility into Emerging Technologies 12 Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 12
  • 13. Demandware: LINK program  MULTIPLIER – Creates whole product – fulfilling value proposition – Extends whole product to broader solution  LEVER – Reduces cost of integration – Reduces time to deploy 13 Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 13
  • 14. Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Demandware LINK impact: • Win / Win for customer and vendor – Improves Gain/Pain with integration and whole product – Improves = LCV/CARC with higher value and longer lifecycle Multipliers Levers Up-sell CORE Re-Trial 14
  • 15. Leading Brands Choose Our Model 517 445 402 361 321 Websites 253 237 215 Customers 175 143 137 123 124 104 101110 95 91 60 70 69 75 78 50 53 60 39 39 43 38 40 46 16 17 19 23 28 32 „08 „09 „10 „11 „12 Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 15
  • 16. Net Result: On-Demand is in Demand! Sept. 30, 2012 $18.4M 52% CAGR 137 Sept. 30, 2009 517 $5.8M $468K 38 79% 95 $290K 78% Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 16
  • 17. Revenue Growth Momentum Annual Revenue Growth Nine-Month Revenue Growth $ in Millions $ in Millions $56.5 $53.1 64% 46% $9.3 $8.1 $37.9 $36.7 $47.2 79% $7.0 $45.1 $8.0 $21.4 $30.9 $28.7 $5.3 $16.1 2009 2010 2011 9 Months 2011 9 Months 2012 Services Subscription Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 17
  • 18. Target Business Model 2010 Q4 2010 2011 Q4 2011 Target Revenue 100% 100% 100% 100% 100% Cost of Revenue 40% 36% 35% 28% 30% Gross Margin 60% 64% 65% 72% 70% R&D 17% 14% 20% 15% 12% Sales and Marketing 30% 27% 35% 30% 25% G&A 11% 9% 11% 11% 8% Operating Income 3% 15% (1)% 16% 25% (Loss) Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 18
  • 19. Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets For more information: See the full resource on Business Models at http://www.mjskok.com/resources/business-model 19
  • 20. Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi Hi Harvard innovation lab #innovationlab @mjskok #startupsecrets www.mjskok.com START UP Case in point: Demandware SECRETS An insider‟s guide to unfair competitive advantage SaaS enabled CORE, Levers & Multipliers Disruptive Business Models to build Value MICHAEL J SKOK North Bridge Venture Partners twitter: @mjskok mjskok.com 20