Some of the pros and cons of Software as a Service, from the perspective of the supplier, the buyer, the investor, and the Intellectual Property questions involved

1. Communications as a Service JUST - 24 September 2009 ©Joren De Wachter

2. CaaS – what will we talk about What? Why? How? WIIFM? Who owns what? © Joren De Wachter

3. What is CaaS? Outsourcing model for enterprise communications (VOIP, instant messaging, collaboriation and video-conference applications) The client buys the service, not the technology Pay-as-you-go principle © Joren De Wachter

4. CaaS = SaaS ? SaaS: Salesforce.com (CRM) Google: Gmail, Google docs, … LinkedIn (peer2peer), NetSuite (accounting, ecommerce, CRM), Eloqua (marketing), Perimeter (eSecurity), Broadsoft (VoIP), Ariba (Spend management solutions) Accounting, web analytics, web content management, … © Joren De Wachter

5. Why C/SaaS? Gartner: in 2011 35% of all software purchased is under SaaS model World annual turnover reported by public companies in 07: $750m McKinsey: in 09, 10% of all enterprise software will be SaaS Market valuation: up to 5x revenue Salesforce.com annual revenue currrently grows 80% y/y © Joren De Wachter

6. How does SaaS work? Characteristics: Access through network (the internet) Application is managed centrally by provider (both functionality and data) No on-sitelocalinstallment Web-based technology: scalable, multi-tenant, configurable Easily customised (in theory) © Joren De Wachter

7. Business model SaaS Typically subscription user based pay-per-use: Predictable Budget management Comparewithclassical software business model (licence and support/maintenance) : difference in cost of ownership (TCO) © Joren De Wachter

8. Example TCO –5 years © Joren De Wachter

9. The Buyer’s perspective Pro (business): Lower implementation cost Continuous application of patches and updates Always the latest version Automatic back-up data Lower maintenance cost Outsourcing of risks on infrastructure and implementation Less down-time Predictable costPay as you use Lower cost of ownership (typically around 30%) Scalability “Try before you buy” sometimes offered © Joren De Wachter

10. The Buyer’s perspective (cont) Pro (legal & IP): Standard terms, quickly, no cost No IP risk of software on-site © Joren De Wachter

11. The Buyer’s perspective Risks (business): Dependency (“vendor lock-in”) Reliability of the application Vendor’s financial and operational continuity Limited integration, compatibility or standardisation with buyer’s IT platform Limitedpotential of customisation of basicfunctionality SaaS is more business focused, less IT/technologyfocused (issue for IT procurement, not business owner) © Joren De Wachter

12. The Buyer’s perspective Risks (legal & IP): Vendor’sstandardterms Data protection/data back-up Security Risk management Intellectual Property – how to protect IP rights used through the application What happens if supplier goes under or is acquired? No orverylimitedliability/recovery. No or very limited remedies in case of bad performance Evidence © Joren De Wachter

13. The Provider’s perspective Pro (business): Cost of R&D: only one development, but multiple use Cost of Support: only one version supported Projectablerevenuestreams No“on-site” support at customer’s site Internalimplementation, verylimited issues aroundintegration, back-office, etc… Focus on smaller upgrades “Sticky” applicationfor the customer Obviouscross-sale marketing potential © Joren De Wachter

14. The Provider’s perspective Pro (legal & IP): One contract, standardrisk-management No discussion on IP rights Lowerlegalexposure Duration of contract undercontrol (yearlyupfrontpayment) © Joren De Wachter

15. The Provider’s perspective Risks (business): Cash-flow (investment upfront) Salesapproach: farming, nothunting Hosting? A lot of implications Securitycost High Service level expectations Cost of Back-up service ClientswillrequestSLA’s, KPI’s and penalties Audit – transparency No implementation revenu (services) Upfront high sales and marketing cost, lowercostforincrementalgrowth More customerfocused, less product focused © Joren De Wachter

16. The Provider’s perspective Risks (legal & IP): Potentialliabilitymuchlargerthananticipated IP rights: risk of breach of third party rights Data protection/ data security – use of the service by the customer (cf. ISP – “notice and take down”) Full protectionnot compatible withbusiness model © Joren De Wachter

17. The Investor’s perspective Pro: Projectablerevenue Highervaluation (up to 5x revenue) Low marginalcost of newcustomers Lowergeneral“cost of sale” Better cost management R&D © Joren De Wachter

18. The Investor’s perspective Risks During transition to SaaS model (walk through the desert): Preferred timing: on major release/new functionality Use of new pricing model (appels/oranges) – if you keep upfront license, use premium Determine contract duration(service level vs. Flexibility) Operating margin willsufferduringtransition Sales culture : focus on MRR (Monthly recurring revenue) – bookings become irrelevant Direct sales most important channel (partners/alliances?) Sales cultuur: adapt bonus system & structure – important! Transfer as many customers as quickly as possible New services/cross-sales: analyse, benchmarking, business intelligence, etc… Start-up : Cash-flow Business model © Joren De Wachter

19. Conclusion: WIIFM Pro: Cost benefit, shared between customer and provider Business focused instead of IT focused Investor valuation Risks: Business-critical applications High-end innovative niche products Cost of transition Legal risk management Intellectual Property example: Salesforce.com © Joren De Wachter

20. Conclusion: IP issues Data protection, data retention, data liability Ownership vs. Right to use? Extent of use/license? Trade secrets? Copyright? Patents? Security? SaaS less appropriate for IP sensitive matters © Joren De Wachter

21. Questions? © Joren De Wachter

22. Thank You Joren.dewachter@jorendewachter.com +32 476 43 20 47 ©Joren De Wachter