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Westport, CT Phone: 203-454-3900

SaaS and the Third Wave Key findings from Saugatuck’s 2008 SaaS research agenda Bill McNee Founder and CEO bill.mcnee@saugatech.com May 20, 2008 Omni Shoreham Hotel, Washington, D.C. Westport, CT Phone: 203-454-3900. Key Takeaways.

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Westport, CT Phone: 203-454-3900

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  1. SaaS and the Third WaveKey findings from Saugatuck’s 2008 SaaS research agendaBill McNeeFounder and CEObill.mcnee@saugatech.comMay 20, 2008Omni Shoreham Hotel, Washington, D.C. Westport, CT Phone: 203-454-3900

  2. Key Takeaways SaaS adoption / penetration continues to grow in enterprises of all sizes Although collaboration and CRM continue to lead the SaaS charge, “core” systems of record (e.g., finance, HR) and BI / CPM are growing quickly as well. Acceptance of SaaS for mission-critical business processes – not only with SMB customers, but Large Enterprises. SaaS goes international, especially in key geographies European SaaS adoption on the brink of exploding, lead by local innovation and strong demand in the UK, Benelux and the Nordic countries – which appear to be following a similar trajectory to the US (albeit with a 12 mo lag). Adoption in Germany and France, as well as in much of the Asia/Pac region are projected to experience a similar adoption scenario (particularly in the SMB space), but with a 18-24 month lag to US curve. Key SaaS markets in Asia/Pac include Australia, India and China – and secondarily Singapore, Hong Kong and Korea. SaaS customer satisfaction is surprisingly strong Especially around SaaS Wave I requirements such as solution functionality, response time, availability and pricing. Satisfaction around SaaS Wave II and III requirements – especially around support for customized, personalized workflows, integration with on-premise data and process, and greater inter-company collaboration is much lower. SaaS becomes more fully integrated with on-premise architectures The focus of SaaS shifts from cost-effective delivery of stand-alone application services (Wave I), to integrated business solutions enabled by web services APIs and ESBs (Wave II), to workflow- and collaboration-enabled business transformation (Wave III), leading to measured, monitored and managed business processes (Wave IV). SaaS Platforms proliferate – and embrace user development / runtimes Robust SaaS-based software development platforms and run-time environments emerge with a diverse set of supporting service offerings emerge that are viable alternatives to traditional on-premise development. ISVs migrate en masse to SaaS But transitions prove difficult for most, primarily due to need for substantial cultural (not technical) transformation. SaaS merger & acquisition will accelerate Through 2010 M&A is fueled by ISVs gobbling up smaller venture-backed SaaS providers (as a important culture-change driver), as well as by mid size -to-large pure-play SaaS vendors seeking to solidify key solution areas franchises. Chart: 2

  3. SaaS Evolution Evolution of Software-as-a-Service SaaS 1.0 SaaS 2.0 High Wave I: 2001-2006 Cost-effective Software Delivery • Wave II: 2005-2010 • Integrated • Business Solutions Wave III: 2008-2014 Workflow-enabled Business Transformation • Ubiquitous Adoption • Optimized Bus. Ecosystems • IT-targeted Ecosystems • SaaS Development Platforms • Inter-enterprise Collaboration • IT Utility / SaaS Infrastructure • Customized, Personalized Workflow • Focus on Bus. Transformation • Mainstream Adoption • Integrated w/ Bus. Portfolio • SaaS Integration Platforms • Business Marketplaces and SaaS ecosystems • Customization Capability • Focus on Integration • Early Adoption • Stand-alone Apps • Multi-tenancy • Limited Configurability • Focus on TCO / rapid deployment Adoption SaaS Tipping- Point Low 2014 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Saugatuck Technology Page: 3

  4. SaaS Adoption By 2012, 70 percent or more of businesses with greater than 100 employees will have deployed at least one SaaS application. By 2010, SaaS becomes interwoven into the fabric of enterprise architecture, as buyers become increasingly comfortable with acquiring SaaS solutions as part of their broader business services portfolio. Worldwide SaaS Adoption: 2007-2009 Source: Saugatuck Technology, SaaS Survey Research 2008 (n=418) Chart: 4

  5. SaaS Buyer Motivation Through 2010, SaaS buyers will continue to seek lower costs, rapid implementation cycles and simplified software management when considering SaaS solutions. By 2010, “Access to next-generation functionality” will be among the top three buyer motivations for acquiring SaaS. Table Stakes Today Tomorrow’s Battleground Source: Saugatuck Technology, SaaS Survey Research 2008 (n=420) Page: 5

  6. SaaS Solution Demand Through 2010 Although Collaboration and CRM continue to lead adoption worldwide through YE2010 – demand for traditional “core” systems of record and BI / analytic tools (both stand-alone & embedded into other solutions) experience explosive growth. While SaaS markets continue to remain highly fragmented, three-to-four dominant (best-of-breed) Enterprise SaaS Solution Providers emerge in most major business process areas by 2012; pre-integrated suites grow in importance, but remain concentrated in SME segments. Source: Saugatuck Technology, SaaS Survey Research 2008 (n=418) Chart: 6

  7. Infrastructure and Personal Productivity Demand Through 2010 Although traditional on demand IT infrastructure capabilities (e.g., Backup/Recovery, Storage & Server Capacity) lead customer demand through YE2010, on demand data warehousing, IT security and performance / problem management as well as complementary managed services become high-priority user investments 2010-12. Aggregation of on demand IT infrastructure services combined with the continued growth of cloud-based infrastructure leads to five-to-six dominant cloud-based platform providers by 2013. Source: Saugatuck Technology, SaaS Survey Research 2008 (n=418) Chart: 7

  8. SaaS Satisfaction – My company is satisfied with… Despite an accelerating competitive landscape (fueled by massive VC investment and ISVs attempting to transition their business models), customer churn will remain low for SaaS segment leaders through 2013 – who will continue to achieve greater than 85 percent customer renewal rates and better than 100 percent on an annualized contract value renewal basis. My company is satisfied with the overall experience of using SaaS solution (s): Strongly Agree 34.3% Agree 50.0% Neither Agree nor Disagree 13.0% Disagree / Strongly Disagree 2.8% Wave I 84% Important SaaS Wave II and Wave III Customer Requirements Source: Saugatuck Technology, SaaS Survey Research 2008 (n=420) Chart: 8

  9. SaaS and Core Mission-Critical Business Processes Between 2009 and 2012, at least 40 percent of mid-to-large enterprises will seriously evaluate SaaS-based “core” financial systems of record, as well as broader operational requirements (e.g., order management, procurement, ERP, HR). Of these, approximately a third will choose a new next-gen SaaS solution provider, a third will migrate to newer SOA and SaaS-based versions from their existing software vendor and a third will postpone making a decision. Beyond 2012, between only 20 percent and 40 percent of business software will be sold and managed under traditional perpetual software licensing schemes. • Potential catalysts that would drive mid-to-largeenterprises to migrate to SaaS-based “core” • financial systems of record • Dramatically lower costs • Simplification of the upgrade / release management process • Advances in SaaS application customization capabilities to support personalized workflows • Easier access to next-gen technology and architectural advances Broader SaaS Adoption Curve High “Upper-Mid”-to-large Enterprise Adoption of “Core” Financials And ERP SME Adoption of “Core” Financials And ERP SaaS “Tipping-Point” (General Market) Early Mainstream Adoption Early Adoption Mainstream Adoption Low 2014 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Saugatuck Technology Chart: 9

  10. SaaS Platforms Evolve SAAS APPLICATION HOSTED APPLICATION LICENSED APPLICATION OPEN SOURCE APPLICATION BUSINESS SERVICES Business and Application Services Development Tools Platform APIs Data Base Management System . . . . . . . . . . . . . . . . INTEGRATION SERVICES Integration Services Security / SSO INTEGRATION LAYER Directory Enterprise Service Bus Adaptors Audit Web Services Management Configuration Management Integration Layer Provisioning Monitoring/ Diagnostics ADMINISTRATIVESERVICES UpgradeManagement Billing/ Reporting Administrative Services HOSTING PLATFORM / SERVER POOL / NETWORK Multi-site Redundancy, Replication Services, Back-up/Recovery Hosting Services While four or five fully-integrated and dominant SaaS Platform stacks emerge by 2009 – 50 percent or more of deployed SaaS Platform capability will be based on complementary partnerships that combine layers to provide the full stack. By 2009, appliances will become a significant form factor for deploying on-demand IT infrastructure and SaaS solutions, including integration with on-premise applications. SaaS Platform Stack Source: Saugatuck Technology Chart: 10

  11. Platform-as-a-Service (PaaS) Landscape and Trajectory By 2010 robust SaaS platforms continue to evolve, going beyond providing critically important integration, application sharing, delivery and mgmt. services to include cloud-based development and runtime capabilities (and that are viable alternatives to on-premise application development and data center services). SaaS Enablement Cloud Development On-Demand Infra-structure PaaS Saugatuck Insight: While the term “Platform as a Service” (PaaS) is used loosely to describe both “SaaS enablement” and “cloud development” – more comprehensively, it is most powerful at the intersection of the two, and over time will broaden to include On-demand Infrastructure Services as well. Chart: 11

  12. Enterprise Ready? – Key Vendor and User Requirements The jump from stand-alone Wave I SaaS deployments to more fully integrated, process-oriented and functionally rich Wave II and Wave III SaaS environment will demand a fresh and comprehensive look at enterprise IT architecture and management. Vendors: • Responsiveness to Support Requests • Security and Privacy Concerns • Data Access and Analysis • Personalization Capabilities • Customization Capabilities • Integration Capabilities • Workflow Capabilities • Build Active User Community • Users: • Align Management and IT Expectations • Develop Consistent Practices • Proactively Manage Contracts and SLAs • Create SaaS Architecture • Work with SaaS Providers • Participate in User Community Source: Saugatuck Technology Chart: 12

  13. Who Business and IT Users Think Will Be The Next “Master Brands” Please identify the top three vendors you believe are best positioned to become a leading SaaS “Master Brand”? Other • Traditional Bus. Apps ISVs • Frequently • Mentioned: • Oracle • Microsoft • SAP 8% Don’t Know / Not Sure / Too Early To Tell • Less Frequent - • But Mentioned: • Adobe • Sage • Intuit 24% 29% 17% 22% • SaaS Application and Infrastructure Providers • Frequently • Mentioned: • Salesforce • Google • Cisco / Webex • Amazon • Netsuite • Traditional IT Infrastructure • Frequently • Mentioned: • IBM • Microsoft • Cisco • EMC • HP • Less Frequent - • But Mentioned: • RightNow • SuccessFactor • Workday • OpSource • SugarCRM • MySQL • Zoho • Qualys • Omniture • Less Frequent - • But Mentioned: • CA • Citrix • Unisys Source: Saugatuck Technology, SaaS Survey Research 2008 (n=420)

  14. Beyond Software as a Service 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 The focus of SaaS shifts over time from cost-effective delivery of stand-alone application services (Wave I), to integrated business solutions enabled by web services APIs and ESBs (Wave II), to workflow- and collaboration-enabled business transformation (Wave III), leading to measured, monitored and managed business processes (Wave IV). By 2013, at least 20 percent of enterprise IT workloads – that historically would have operated on-premise – will be run in the cloud, providing significantly enhanced functionality, lower costs, fewer staff, and reduced carbon footprint. Beyond Software-as-a-Service: Cloud Computing High SaaS 1.0 SaaS 2.0 Cloud Computing Wave III: 2008-2013 Workflow-Enabled Business Transformation Wave IV: 2011-2016 Measured, Monitored, Managed Business Processes Wave I: 2001-2006 Cost-Effective Software Delivery Wave II: 2005-2010 Integrated Business Solutions • Post-SaaS Adoption • End-to-End Business Processes • Integrated w/ Services Anywhere • Intelligent Hubs Linking Platforms • Mobile Device- and Sensor-Controllable • SLAs for Composite Service Offerings • Dynamically Scalable Infrastructure • Focus on Optimal Business Process • Ubiquitous SaaS Adoption • Optimized Business Ecosystems • IT-Targeted Ecosystems • SaaS Development Platforms • Inter-enterprise Collaboration • IT Utility / SaaS Infrastructure • Customized, Personalized Workflow • Focus on Business Transformation Adoption • Mainstream SaaS Adoption • Integrated w/ Business • SaaS Integration Platforms • Business Marketplaces and SaaS Ecosystems • Customization Capability • Focus on Integration • Early SaaS Adoption • Stand-alone Apps • Multi-tenancy • Limited Configurability • Focus on TCO / rapid deployment Low Source: Saugatuck Technology Chart: 14

  15. Thank You! Bill McNee 1-203-454-3900 x223 bill.mcnee@saugatech.com Strategic Advisor for IT Leaders Are you getting the best research, insight, and advice on disruptive IT? Register to receive Saugatuck’s complimentary Research Alerts, and browse our comprehensive Research Library on topics such as SaaS, Open Source, Web 2.0, SOA and Utility Computing (among other). To Register:http://research.saugatech.com/cgi-bin/order/signup3.pl To Browse the Library:http://www.saugatech.com/researchbytopic.htm To Learn About Saugatuck’s CRS Subscription Research Service: http://www.saugatech.com/crs.htm

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