Why invest in SaaS and Cloud

1

• Why invest in SaaS and Cloud
• A VC Perspective
• Erez Ofer
• Greylock Partners
• June 1st 2009

2
You know a specific hype is everywhere when ..

• Even the government talks about it .

Optimizing Common Services and Solutions/ Cloud-Co
mputing PlatformThe Federal technology environmen
t requires a fundamental reexamination of
investments in technology infrastructure.
The Infrastructure Modernization Program will be
taking on new challenges and responsibilities.
Pilot projects will be implemented to offer an
opportunity to utilize more fully and broadly
departmental and agency architectures to identify
enterprise-wide common services and
solutions, with a new emphasis on
cloud-computing.
3
Why is this Big ?

• Technologies finally coming together to enable
  utility computing
• Standardized hardware / VMs
• Network throughput / Always On
• Understanding of utility computing Compute
  Model
• SaaS
• As pioneered at large datacenters at Google,
  Yahoo, Amazon, eBay and the likes
• A lot of hype . but a huge potential
• Think back to other big shifts in IT / Software

4
Why is this Big ?

• Technologies finally coming together to enable
  utility computing
• Standardized hardware / VMs
• Network throughput / Always On
• Understanding of utility computing Compute
  Model
• SaaS
• As pioneered at large datacenters at Google,
  Yahoo, Amazon, eBay and the likes
• A lot of hype . but a huge potential
• Think back to other big shifts in IT / Software
• Potential for major change ? Investors take
  notice

5
Basically -

• Enterprises of all sizes can deliver/consume IT
  services in a more affordable and efficient way
• Said differently Spending on IT could be
  matched to business needs. Spending can be
  adjusted over time
• Enterprises will do so by paying for the
  following as needed
• Applications/Software
• Platforms
• Infrastructure

6
Opportunities in SaaS

• Started in CRM and HCM and spreading
• Notable companies Salesforce.com, Webex,
  Blackbaud, Kenexa, SuccessFactors, Taleo,
  RightNow, Omniture
• Large horizontal opportunities present largest
  potential. e.g. ERP
• Niche plays might be just that
• Interesting opportunities
• Vertical applications (Industry specific), if
  they are large
• SaaS for IT organizations

7
SaaS Startups Keep in Mind

• Size of Market and opportunity
• Market and customer dynamics
• Financing
• Public SaaS companies (Wachovia report, May
  2008), money raised -
• Mean                               43.5M
• Median                            39.5M
• Go-To-Market , Marketing expenses, Viral spread,
  Automation / Self Service
• Annual contract value vs. Contract acquisition
  cost

8
Opportunities in Cloud

• Trends
• On demand services
• Platform as a service
• Infrastructure as a Service
• What are main opportunities ?
• Additional services that are not provided today
• Facilitating Infrastructure as a Service

9
Availability / Management

• What Apps / Data are out there ?
• Control
• SLAs
• Availability . Managing external clouds
  (multiple) Internal clouds
• Apps / Data movement
• Consistency . Databases on the cloud, anyone?
• Avoiding Lock-In
• Governance

10
Security / Confidentiality

• When providing infrastructure or platform
• What Apps / Data are out there
• Privacy
• Access
• Integration with in house systems
• Loss of Control

11
With Scale Come Issues

• Scalability of cloud infrastructures
• Data Transfer penalty and dealing with it
• Getting consistent Performance / SLA
• Quick Elasticity
• Using the right building blocks ?

12
Cloud Keep in Mind

• Areas of opportunity
• E.g. Base hardware services hard to do given
  scale
• Market and customer dynamics
• Financing
• Service charged over time
• Go-To-Market , Marketing expenses, Automation /
  Self Service
• Annual contract value vs. Contract acquisition
  cost

13
Bottom line

• Peak Hype
• Many signs that transition is real
• SaaS here to stay
• Platform as a service Infrastructure as a
  service ramping up
• Still lots to do , The IT industry never changes
  over night

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GREYLOCK

• US Fund, Since 1965
• Greylock Israel Dedicated fund , 200M
• All Tech areas, All stages (Mostly early)
• Some portfolio relevant to discussion today -
  RightNow, SuccessFactors, Workday, Metiis
• Others Precise S/W, Aeroscout, Imperva,
  Redband, Zend, DataDomain, DoubleClick, ISS, Red
  Hat, Wily, Digg, LinkedIn, Facebook

15

• Thank you
• eofer_at_greylock.com