This document discusses the realities and opportunities of software as a service (SaaS) and cloud computing. It notes that while SaaS is an understood concept, cloud computing is still newer and murkier. It highlights how SaaS has created billions in market value for winners like Salesforce.com. It also discusses how the cloud is shifting IT infrastructure away from on-premise data centers and towards virtualized third-party providers, which has implications for both customers and equipment vendors. The document advocates investing to win in specific niches within SaaS and cloud computing.

1. Software as a Service & Cloud Computing:The Reality & The OpportunityRory O’Driscoll, Managing DirectorScale Venture Partners

2. SaaS: An Understood ConceptAverage Worldwide Search & News TrafficSaaSSource: Google Trends.

3. Cloud Computing: Newer and MurkyAverage Worldwide Search & News TrafficSaaSCloud ComputingSource: Google Trends.

4. Lady GagaAverage Worldwide Search & News TrafficSaaSCloud ComputingLady GagaSource: Google Trends.

5. Start with the Person Who Has the MoneyConsumerBusiness“Connie Consumer”“Bill the Business Buyer”“Ivan the IT Guy”Annual Software Spend$20B$50B$70BSource: IDC.

6. ApplicationInfrastructureConsumer Apps & Infrastructure:Running on a PC

7. Business Apps & Infrastructure in the 1990s:Running in a Data CenterApplicationInfrastructure“Bill” Business Buyer“Ivan” IT Guy

8. Business Apps & Infrastructure Today:Running in the CloudSaaSCloud“Bill” Business Buyer“Ivan” IT Guy

9. Basic InternetClient/ServerPCMinisMainframesI.T. Has Re-Invented Itself Before 1990s2000s1960s1980s1970s

10. Application Software Architecture Model:Before & After SaaSClient ServerSaaSCompany ACompany AVendorDatacenterSWSWHWHWCompany BBill buys it.Ivan makes it run.Bill buys it.Ivan never knows.

11. Application Software Business Model:Before & After SaaSClient ServerSaaS!?SOFTWARE“Try Before You Buy”Plan A: $100 / mo.Plan B: $199 / mo.PURCHASE$$1,000,000BillSales GuyBillhttp://Sales / marketing 50% of all expenses

12. Small number of big deals

13. Deals close last day of quarter

14. Arduous implementation

15. Sales / marketing 50% of all expenses

16. Large number of smalldeals

17. Business model  high quality SW

18. Steady, predictable businessSaaS: The Wisdom of a DecadeA model. Nota market.Leverage the architecture.GAAP: Unflattering to annuity business. Compounders not rocket ships.Play to win.

19. 2010 Market Cap$40bn In Value Generated by SaaS WinnersSalesforce.com$17.5BRightNowTechnologiesConstantContactTaleo Corp.AthenahealthLogMeinZendeskDealerTrackHoldingsVocusKenexaOmnitureNetSuiteSPSCommerceDemandTecConvioRealPageSuccessFactorsPostiniFrontbridgeScanSafeZantazPaycycleExactTargetConcurTechnologiesWebExResponsysEloquaIndeca<$1B$1-5B$5B+Source: Public financials, Capital IQ, industry research.

20. SaaS: Where from Here?Land of a thousand niches.Surprised by upside.Consumer sets the tone.Technology drives the potential.

21. Architecture Evolving To Cloud Based I.T.IT Before the Cloud IT in the CloudVendorVendorsSWHWHWSWSWSWSWSWHWSWCloud Services VendorHWCompany ADatacenterCompany ACompany BIvan buys software + hardware.Ivan makes it work.Ivan buys a service.Vendor makes it work.

22. Virtualization Enables the CloudTraditional ArchitectureVirtual Architecture1 Company / ServerMany Companies / ServerVirtualization allows multiple companies to share infrastructure

23. Where Is the Cloud World Now?“”Will companiesreally adopt it?“”Where is cloudmost valuable??“”What does this meanto equipment vendors? Some panic?“”What level of cloudservice do people want?─ PAS, SaaS, IAS

24. 11mm PDFs Created in One Day4 TB Data100 Nodes11 Million PDFs100 instancesx 24 hoursx $0.10 / Hr= $240

25. 5000 Servers Commissioned in 3 DaysAnimoto Scales to Meet Demand for Photo PresentationsAmazon EC2 easily scaledto handle additional trafficPeak of 5000 instancesNumberof EC2InstancesLaunch of Facebook modificationSteady state of ~40 instances

26. Will People Really Adopt It?

27. Why Equipment Vendors Should Be NervousI.T. Before the Cloud I.T. in the CloudVendorVendorsVendorVendorHWSWSWHWSWSWSWSWHWHWCloud Services VendorSWCompany ADatacenterCompany ACompany BCustomer concentration

28. Winners: SaaS and CloudSaaSSalesforce.com$20BRightNowTechnologiesConstantContactDealerTrackHoldingsTaleoAthenhealthNetSuiteOmnitureLogMein$40bncreatedSPSCommerceVocusKenexaDemandTecConcurTechnologiesRealPageSuccessFactorsWebExConvio, Inc.PostiniFrontbridgeScanSafeZantazPaycycleExactTargetResponsysEloquaIndecaZendeskCloudVMWare, Inc.$40BHerokuRightscaleGo GridClouderaData DomainIsilon$50bncreatedEucalyptusSystemRackspace HoldingsCloudkickNimsoftEngine Yard3PAR<$1B$1-5B$5B+Source: Public financials, Capital IQ, industry research.

29. Clouds on the Horizon“”Clouds are a large pool of easily usable and accessible virtualized resources (such as hardware, development platforms and/or services). These resources can be dynamically reconfigured to adjust to a variable load (scale), allowing also for an optimum resource utilization. This pool of resources is typically exploited by a pay-per-use model in which guarantees are offered by the Infrastructure provider by means of customized SLAs.— Vaquero, Rodero-Merino, Caceres, Linder“”… outsourced, pay-as-you-go, SaaS, on-demand, somewhere in the Internet, etc.… using the internet to allow people to access technology enabled services.Those services must be massively scalable.“”“”We've redefined cloud computing to include everything that we already do. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?— Larry Ellison

30. Near Free Computing10 Amazon Web Services Price Cuts in 18 MonthsSpot InstancesDec. 13, 2009EC2 PriceReducedOct. 26, 2010Lower S3 and EU WindowsDec. 2, 2009CloudFront Price ReductionJune 7, 2010Lower ReserveInstance PriceAug. 19, 2009CombinedBandwidthMar. 25, 2010High MemoryPrice ReducedSept. 1, 2010Free Tier and Increased SQS LimitsJune 30, 2010Reserve InstancesMar. 12, 2009Data TransferFeb. 1, 2010March 2009January 2010September 2010Source: AWS announced price cuts.

31. Cheap Energy (1900s) Cheap Computing (2000s)Free consumer services.Start ups abound; IT not a barrier.Connecting services in the cloud.Your stuff is in the cloud.

32. The Pain of GAAP + a Sales RepOne New Rep = $200K Loss in Year One;$700K Profit by Year Five