Eversheds 'Spotlight on the Cloud' headline results presentation and key speaker commentary. Eversheds held its Cloud Computing survey (in conjunction with The Lawyer) launch event in London on Tuesday 8 March. Headline results were presented by Charlotte Walker-Osborn, Global Head of Technology, Media and Telecoms and Paula Barrett, Global Head of Privacy and Information Law. Industry speakers included Alastair McAulay, Director of Disruptive IT, PA Consulting Group and Olivier Wolf, TMT Sector Head, EY Transaction Advisory Services.

1. Spotlight on the cloud
Highlighting industry trends
8th March 2016

2. Agenda
Time Agenda Speaker
16:00 – 16:30 Registration and champagne reception
16.30 – 16:35 Welcome Charlotte Walker-Osborn, Global
Head of Technology, Media and
Telecoms
16:35 – 17:15 Headline results Charlotte Walker-Osborn and
Paula Barrett, Global Head of
Privacy and Information Law
17:15 – 17:35 Insights and commentary Olivier Wolf, TMT Sector Head, EY
Transaction Advisory Services
17:35 – 17:55 Insights and commentary Alastair McAulay, Director of
Disruptive IT, PA Consulting
17:55 – 18:00 Closing remarks Charlotte Walker-Osborn
18:00 – 19:00 Drinks and canapés

3. Headline Results
Charlotte Walker-Osborn, Global Head of Technology, Media &
Telecoms
Paula Barrett, Global Head of Privacy & Information Law

4. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
−The Survey and report were conducted and written in
collaboration with The Lawyer Research Service, a division
of The Lawyer
−The survey was undertaken in December 2015 and
January 2016
−It was completed by 350 cloud providers, purchasers and
industry advisors worldwide
− Responses from purchasers were gathered from a cross-
section of sectors
About the research
Highlighting Industry Trends
Spotlight on the Cloud

5. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
− Infrastructure as a Service
− Platform as a Service
− Software as a Service
“as a”
A common understanding
Cloud

6. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
− 77% of enterprises utilised cloud by the end of 2014
− 89% of enterprises are predicted to use some form of
cloud by the end of 2016
(Vodafone’s Cloud Barometer 2015)
− Cloud market worth US$56.6 billion in 2014
− Approximately 10 times the market size in 2008
(Bessemer Venture Partners)
Clouds are on the rise

7. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Spend on cloud is on the rise
Cloud spend is significantly
increasing…
77% of surveyed purchasers
expect their spend to increase
during the next 18 months
Only 1% forecast a decrease
in spend

8. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
What is driving the increase in adoption?
What are the main benefits your business offers to
customers adopting its cloud services? (Providers)
Scalability
Increased delivery agility to support its business
New capabilities/increased ability to innovate
Lower cost
More flexible cost
Allows the internal IT department to focus on significant business
challenges/strategic projects
Improved service levels

9. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Overall
Sector analysis

10. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
0% 10% 20% 30% 40%
Financial services
Professional services (excl.
financial services)
TMT
From which industries are you experiencing
greatest demand for cloud services? (European
cloud providers - top three sectors only)
Europe v US (top 3)
Sector analysis
0% 5% 10% 15% 20% 25% 30% 35%
Financial services
Pharmaceuticals and
biotechnology
TMT
From which industries are you experiencing
greatest demand for cloud services? (US cloud
providers - top three sectors only)

11. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
What types of cloud are being adopted?

12. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Public, Private or Hybrid?

13. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Public, Private or Hybrid?

14. Negotiating cloud contracts…
… still not a done deal

15. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Where did it all go wrong?
Contracting without tears?

16. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Why do Purchasers Walk Away?
• Over 30% of purchaser respondents stated concern over where data is
hosted and/or accessed from, or lack of information about that, triggered
them walking away
• Top 3 issues for walk away cited as data related from purchasers

17. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
−A bigger obstacle in practice than many might like to
believe
−No longer an esoteric technical issue
−Changing legal and political dynamic
−Data Residency
• Post Snowden era – access to data by third party governments
• Russia
• Expansion of privacy laws around the World containing location controls
−Post Safe Harbor transfer environment
• further scrutiny on surveillance
• transfer mechanisms to protection personal data under review
• continued uncertainty particularly harmful for cloud deals
• new “privacy shield” proposals under consideration
Times have changed and transparency is vital
Data and Location

18. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
−The joint second most common reasons for cloud deals breaking
down for purchasers: concerns over inadequate breach reporting
−Growth in mandatory breach reporting rules globally
−High profile breaches hitting the headlines
−Increasingly stringent reporting requirements
• New EU GDPR requirements
−Practical issues on reporting for providers
−Wording on reporting merits close scrutiny by both customer
and provider
−Under new EU rules, both customer and provider will gain direct
responsibilities for security
• Issues in relation to assessing what is adequate protection
• Likely to see more specific statements on security and reporting
• Driving greater due diligence on this aspect earlier in the deal
Clear, documented commitments on both required
Data Security & Breach Reporting

19. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Where did it all go wrong
Contracting for cloud without tears?

20. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
−50% of those surveyed said they walked away from a deal
because of the Data Protection terms
−Evidencing how real this has become as a barrier to deals
concluding
−Growth in some providers seeking to differentiate and
gain market share on their “privacy friendly” contracting
approach
−Changes in data protection legislation with drive further
contracting changes
−Under new EU rules, both customer and provider will gain
direct responsibilities
• No longer a “customer” only issue
• Providers will need to address to protect their own compliance
risk and liability
An Increasing Imperative to Get This Right for Deal Closure
Contracting on Data and Security

21. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Customer perspectives
Data Security Requirements
Customers want increasing detailed commitment on security and
testing

22. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Stronger commitments emerging from providers
Data Security Requirements

23. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Contracting terms which caused the purchaser to
walk away

24. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Mismatched expectations?

25. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
−similar issues high on list
−pricing notably higher than for
customer
−security cited as lower, but will that
change?
Differing perspectives? Mismatched expectations?
What do Providers think are the reasons?

26. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Some thoughts around
M&A in the cloud

27. Conclusions

28. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
−A surprisingly large number of cloud sales deals break
down at the contract negotiation stage
− Customers and vendors have differing views as to why
agreement can not be reached
−Eversheds’ view is that more engagement around difficult
issues at the outset would lessen these figures
significantly and save time and money on both sides
Conclusions

29. Olivier Wolf
TMT Sector Head, EY Transaction Advisory Services

30. Confidential
Olivier Wolf
March 2016
Spotlight on the Cloud
EY Perspectives – Eversheds Conference

31. 1Confidential – all rights reserved– Ernst & Young 2016
► Olivier Wolf, TMT Sector Head, Transaction Advisory Services
► A leading advisor to the cloud computing and managed
hosting industry in Europe
– Transactions – commercial due diligence
– Strategic advice
► Today:
– Key trends
– Outlook for suppliers over the next five years
Introduction
1 1

32. 2Confidential – all rights reserved– Ernst & Young 2016
Agenda
2 2
► Defining the Cloud
► Market Trends
► Future Outlook for Suppliers

33. 3Confidential – all rights reserved– Ernst & Young 2016
Our definition
► An IT product is defined as Cloud based on the way a
customer buys and consumes it
► Cloud relates to IT hardware (IaaS), platforms
(PaaS) and software (SaaS) products
► aaS (as a Service) is synonymous with outsourced
cloud and has the following primary characteristics
► Rented access, not owned
► Opex not capex spend
► On-demand and highly flexible buying
► Access through network or internet
Definitions of the cloud are still confused

34. 4Confidential – all rights reserved– Ernst & Young 2016
Agenda
4 4
► Defining the Cloud
► Market Trends
► Future Outlook for Suppliers

35. 5Confidential – all rights reserved– Ernst & Young 2016
Key tailwinds
Impact on
market value
2015 -2020
Migration
from on-
premise
Migration
from
colocation
New tech
start ups
/digital
natives
Growing
data and
content
volumes
Data
sovereignty
Price
Number of users Usage Price
Cloud / IaaS market drivers
1 2 3

36. 6Confidential – all rights reserved– Ernst & Young 2016
Platform as a Service
(PaaS)
Software as a Service
(SaaS)
Applications
Data
Runtime
Middleware
O/S
Virtualisation
Servers
Storage
Networking
Applications
Data
Runtime
Middleware
O/S
Virtualisation
Servers
Storage
Networking
Applications
Data
Runtime
Middleware
O/S
Virtualisation
Servers
Storage
Networking
Applications
Data
Runtime
Middleware
O/S
Virtualisation
Servers
Storage
Networking
Applications
Data
Runtime
Middleware
O/S
Virtualisation
Servers
Storage
Networking
Facility Facility FacilityFacilityFacility
Hardwarelayer
Infrastructure
Managed /owned by user
Managed/owned by vendor/combination
of vendors
Managed/owned by vendor or user
Third-party hosting
(including cloud / IaaS)
In-house or
owned DC
Colocation
Number of users
Migration
IT is increasingly being hosted on third party infrastructure
1

37. 7Confidential – all rights reserved– Ernst & Young 2016
Off-premise
infrastructure
market
€38bn
Colocation
66%
3rd party
hosting
34%
€962bn
IT
Infrastructure
market
12%
Total IT spend
Other IT spend
88%
Off-premise
32%
In House
68%
€117bn
IT Infrastructure
market
The IT infrastructure
market is worth c.€117bn
65-70% of IT infrastructure
spend is still in-house
Outsourced IT infrastructure is
comprised of three primary models.
IaaS accounts for c.30% of this
Market size by segment, 2015 (€bn)
…although it is still a small part of the total IT infrastructure market
Number of users 1

38. 8Confidential – all rights reserved– Ernst & Young 2016
Growth of data and content volume – Example drivers
Source: Oracle, Gartner, IDC, EY research
M2M traffic per month, TB per month
2014
500
0
2019
1,000
201720162015 2018
1,500
40
20172016
60
80
20152014
103% CAGR
0
10
20
30
40
50
2008 2010 2012 2014 2016 2018 2020
42% CAGR
30% CAGR
Global data in Zettabytes
Global mobile app revenues, US$bn
15
20
25
30
35
40
45
50
55
2012 2013 2014 2015 2016 2017
Global consumer internet video,
Exabytes per month
29% CAGR
2012 2013 2014 2015 2016 2017
60
40
22% CAGR
Online gaming IP traffic, Petabytes per month
2013 2014 2015 2016 2017 2018
1.5
1.0
2.0
2.5
3.0
31% CAGR
Cloud based global Intelligence Market
size, US$bn
The need for infrastructure is clear and will continue to grow
2Usage

39. 9Confidential – all rights reserved– Ernst & Young 2016
Data sovereignty and low latency are the key reasons cited for key
players’ expanding their DC footprint into Europe
Announcements of DC openings and incentive for key players
Player
# of new DCs
publicly announced
for Europe
New locations
2016/17
►IE x3
►ES x2
►UK x1
6
2016
►UK x2
►DE x1
►IE x1
4
2016 ►n/a0
2016 ►n/a
Incentive
►Serve customers locally
►Meet demand for data sovereignty
►Ability to bid for government
contracts
►Meet demand for data sovereignty
0
Timeline
2Usage
4
4
3
9
Existing
DCs in
Europe

40. 10Confidential – all rights reserved– Ernst & Young 2016
-20%
Our analysis suggests real like-for-like prices declines for cloud are
starting to slow down
Average price per Gigabyte RAM (index)
3Price
78
100
76
79
100
60
65
Oct-13
70
50
Jul-13
80
100
90
Jan-15 Apr-15Jan-14 Apr-14 Jul-14 Oct-14
105
Jul-15
75
85
95
-3%
SAMPLE
Dedicated IaaS
Public IaaS

41. 11Confidential – all rights reserved– Ernst & Young 2016
There are two fundamental types of cloud infrastructure, both
relevant for different needs
Benefits of the different types of cloud infrastructure
Best for buyer need Good for buyer need Reasonable for buyer need Less suitable for buyer need
Dedicated IaaS Public IaaS
Automated physical servers with
private network best used for
essential workloads and low
latency requirements
Virtual servers on shared
infrastructure with public network,
best used for on demand and highly
scalable requirements
Security
Performance
Cost effectiveness
Scalability / flexibility
Hardware customisation
1
2
3
4
5
Continuity6
Key performance
criteria
Data residency7

42. 12Confidential – all rights reserved– Ernst & Young 2016
The market is forecast to grow by 40% p.a.
VPS +29%40% CAGR
Public Cloud +45%
54
20202019
42
2018
32
2017
23
2016
16
2015
11
Dedicated Servers +21%
Dedicated Cloud +47%
Global cloud market forecast (€bn)

43. 13Confidential – all rights reserved– Ernst & Young 2016
Agenda
13 13
► Defining the Cloud
► Market Trends
► Future Outlook for Suppliers

44. 14Confidential – all rights reserved– Ernst & Young 2016
The level of service offered on top of the infrastructure is a key
differentiator for suppliers
Supply-side positioning
High
Level of
Service
No infra.
Ownership
Infra-oriented
players
Infrastructure
focus
Infrastructure pure players:
► Business model: focused on core
infrastructure delivery (dedicated / virtual
servers) at lower costs
► Key success factor: operational efficiency
A
Low
A
B
C
Infra. Pure players
Service-led infra.
owners
Cloud builders /
integrators
Service-led infrastructure owners
► Business model: focused on the delivery of
premium value-added services on top of
core infrastructure
► Key success factor: Upsell capability /
engineers
B
Value-added Resellers
► Business model: Infrastructure resellers
bundled with managed services
► Key success factor: TBD
C
Dedicated Public

45. 15Confidential – all rights reserved– Ernst & Young 2016
Cloud-Builders are particularly attractive to SMBs and small
enterprises
Cloud builder
Infrastructure run and managed by one supplier
Customer applications
Infrastructure
Illustrative
Third-party pure plays

46. 16Confidential – all rights reserved– Ernst & Young 2016
Key messages
Cloud Infrastructure giants
rolling out internationally
Cloud-builders consolidating
local markets
Traditional players shifting
business model
► Large players building
capacity
► Local presence popular
given sovereignty issues
► High-quality products at
competitive pricing key
► Partnerships with cloud-
builders essential
► Service-led cloud solutions
using third party
infrastructure
► Infrastructure agnostic
► Dis-intermediation of service
and owned IT
► Popular with mid-large
companies
► Partnerships with cloud
infrastructure giants key
► Traditional colocation
companies shifting to new
models
► Telecom players starting to
exit
► Shift towards cloud-builders

47. 17Confidential – all rights reserved– Ernst & Young 2016
Thank you

48. 18Confidential – all rights reserved– Ernst & Young 2016
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49. Alastair McAulay
Director of Disruptive IT, PA Consulting

50. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Contact details
Charlotte Walker-Osborn
Global Head of Technology, Media and Telecoms and Technology Sector Head
T: +44 121 232 1220
M: +44 779 907 5756
charlottewalker-osborn@eversheds.com
Paula Barrett
Global Head of Privacy and Information
T: +44 777 575 7958
M: +44 20 7919 4634
paulabarrett@eversheds.com
Olivier Wolf
Partner and TMT Sector Head, EY Transaction Advisory Services
T: +44 20 7980 9169
M: +44 771 0027 621
owolf@uk.ey.com
Alastair McAulay
Director of Disruptive IT, PA Consulting
T: +44 20 7730 9000
M: +44 772 5062 687
alastairmcaulay@paconsulting.com

51. Eversheds LLP | 09/03/2016 |Eversheds LLP | 09/03/2016 |
Final Questions?

52. eversheds.com
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