Cloud Computing Update

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3 Νοε 2013 (πριν από 3 χρόνια και 9 μήνες)

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222 W. Adams St.

Chicago, IL 60606

www.williamblair.com

Equity Research Department


Laura Lederman

312
-
364
-
8223

llederman@williamblair.com

Summer
2009


Cloud Computing Update



Bhavan Suri

312
-
364
-
5341

bsuri@williamblair.com


Southern Capitol Ventures


Entrepreneurs’ Breakfast

Laura Lederman

(312) 364
-
8223

2

Cloud Computing


What Is New


Fundamentally

changing

the

way

technology

is

developed,

delivered,

and

consumed
,

affecting

the

future

of

hardware,

software,

and

services

companies,

as

well

as

corporate

and

consumer

users

of

technology
.


This

update

addresses
:


Global

economic

environment

and

its

impact

on

cloud

computing


Cloud

acceptance


Public

sector

(government)

clouds


Public

and

private

clouds


Data

as

a

service


Market

size


Potential

decelerating

factors


Winners

and

losers


(please hold questions until the end)

Laura Lederman

(312) 364
-
8223

3

Cloud Computing Market

Source: William Blair & Company, L.L.C.
SaaS Application Vendors
Athenahealth, Concur, Constant
Contact, DealerTrack, NetSuite,
Omniture, salesforce.com, Ultimate
Software, Vocus
Corporate Users
Consumer
Infrastructure
Vendors
Amazon, Google, IBM,
Sun, Rackspace,
Terremark, XCalibre
Platform Providers
salesforce.com, NetSuite,
Amazon, Google, Cisco
SaaS Application Vendors
Google, Microsoft, Yahoo, Intuit,
Facebook, LinkedIn, MySpace, Zoho
Infrastructure
Vendors
Carbonite, Mozy
Platform Providers
Google, Microsoft, Yahoo,
Facebook, MySpace
Enabling
Vendors
VMware, Citrix, Microsoft,
Akamai, Egenera
Laura Lederman

(312) 364
-
8223

4

Vendor And Investor Benefits


Better business model


which translates into a better investment.


Larger total available market/democratization of technology


technology
vendors can expand their total available market, as they are selling existing products in
a new way.


Companies (e.g., salesforce) have doubled or tripled their total available market by offering a
platform, which can serve small, midsize, and large organizations and even consumers.


Cost


IaaS, PaaS, and SaaS vendors all make better and more efficient use of
hardware and software.


More strategic value


the more products and services offered, the stickier the
relationship. Also these companies provide more value to customers as the offerings
combine hardware, software, and services.


Longer corporate life




cloud computing software vendors should lead longer
corporate lives than traditional software companies.

Laura Lederman

(312) 364
-
8223

5

Impact of Global Recession on Cloud Computing


When economic growth slows, so does IT spending.

With fewer dollars to
spend, almost all technologies experience a slowdown in adoption.


SaaS vendors have seen lengthening sales cycles, lower renewal rates (dollar and
upsell), smaller deal sizes, and lower add on sales and some have experienced
shrinking durations.


The newer areas of the cloud, such as IaaS and PaaS, are likely to be adopted less
readily as companies stay with what is proven and working to run their businesses.

Laura Lederman

(312) 364
-
8223

6

Update On The Acceptance Of Cloud Computing


Cloud computing has become a popular topic

and has garnered interest from customers,
developers, and investors.



InformationWeek

calls it a “megatrend” and there is the proliferation of large cloud forums and high
attendance at cloud
-
specific conferences.


Almost every hardware and software vendor has announced a cloud strategy.


End
-
user communities have adopted different layers of the cloud to different degrees
.


We see
SaaS

adoption across the entire range of organizations
, from very large companies (e.g.,
AT&T) to very small organizations.


Demonstrated by the high renewal rate of many
SaaS

vendors (90%
-
plus at large enterprises). If companies using
SaaS

were not satisfied, we would have expected renewal rates to be much lower.


While historically used for less mission critical functions (e.g., CRM),
SaaS

is becoming more
mission critical.
The real test will be adoption of
SaaS

for the most mission
-
critical applications (e.g.,
Workday, Inc).


We have also seen that companies typically try one
SaaS

service and then adopt more over time as they
become comfortable/familiar with the model.


Over time, we believe financial, supply chain, and manufacturing applications will likely be run outside the
firewall; after all, many companies have outsourced their entire IT operations to IBM or Hewlett
-
Packard/EDS.

Laura Lederman

(312) 364
-
8223

7

Update On The Acceptance Of Cloud Computing Continued


Initially corporate IT departments fought SaaS adoption, viewing it as a threat.


Today, many IT managers have become comfortable with SaaS.



Because clouds free up capital resources to fund other projects and allow IT staff to shift from
systems/hardware management to more strategic/critical activities.


Demonstrated by salesforce’s platform deals with Avon, Dell, and Japan Post. SaaS is typically
adopted by end
-
users without IT support but PaaS needs IT backing as technical resources are
required to develop and run applications on the platform.


IaaS and PaaS are still in the very early stages of adoption.


Used by startups primarily for developing/deploying their on
-
demand applications.


Most large vendors that use IaaS/PaaS are using it for small test/development environments or
to access processing/storage when internal resources are at capacity (known as cloud bursting).


The PaaS adoption in salesforce's base is strongest in existing customers, which learned to like
the platform while using salesforce apps and decided to develop more broadly on it.


PaaS is likely to be much more strategic than IaaS, which is likely to become a commodity
-
like
service and have lower margins


IaaS vendors may find it hard to differentiate themselves.


In the future, we envision organizations being able to dynamically pull IaaS computing resources
from public clouds to support internal systems at peak usage.

Laura Lederman

(312) 364
-
8223

8

Public (Government) Sector Clouds


Cloud computing is also being adopted by federal, state, and local governments.


In mid
-
May, the General Services Administration (GSA) put out a RFP for IaaS offerings.


The new federal CIO has a history of supporting cloud computing in government
-

he
deployed Google Apps to all Washington D.C. city employees.


The Census Bureau already uses salesforce to manage more than 100,000 relationships.


However, not all parts of the federal government can take advantage of the cloud.


E.g., Department of Defense is not likely to give sensitive information to third
-
parties.


For these more sensitive organizations, private clouds can allow them to receive
much of the benefit.


Defense Department has set up a private internal storage and software cloud.


Department of Veterans Affairs has a small internal cloud to warn hospitals of infectious
outbreaks.

Laura Lederman

(312) 364
-
8223

9

Private and Public Clouds


Private clouds are on
-
demand computing environments built by organizations for their
own internal use. In contrast, public clouds (e.g., Amazon,
salesforce
, and Google) can be
used by any company or individual who pays for the use of those resources.


Several
vendors (e.g., Dell, Hewlett
-
Packard, and IBM) are helping customers set up these
internal or private clouds.


Private clouds offer customers a number of benefits:


Increased efficiency, easier and more flexible management, and better resource utilization of
existing systems.


IT departments can use their own security measures and provide higher levels of customization.


Computing resources can be deployed to any application on an as
-
needed basis.


The cost savings associated with public and private clouds very based on the size of an
organization and the scale of its IT resources.


For small organizations, it is fairly clear that the cost of running and managing systems
internally is higher than the price of using public cloud
-
based services.


Large
organizations that have negotiated significant hardware/software discounts and have
virtualized systems (reducing IT staff and hardware), might make private clouds more
economically viable.

Laura Lederman

(312) 364
-
8223

10

Data as A Service (
DaaS
)


A new layer of the cloud where companies are selling data.


Jigsaw out of San Mateo has this model.


Vocus

has a
DaaS

component.


Concur also sells some of its summarized data.


Data sold as a subscription or per piece basis.

Laura Lederman

(312) 364
-
8223

11

Market Size


IDC

estimates

cloud

services

spend

will

grow

threefold

by

2012
,

reaching

$
42

billion
.



By

2012
,

IDC

expects

the

cloud

to

account

for

9
%

of

total

technology

spending
.



Business

applications

(or

SaaS)

will

be

the

primary

driver

for

adoption,

followed

by

PaaS

(which

includes

infrastructure

software,

and

application

development

and

deployment

technologies),

followed

by

IaaS

(server

and

storage)
.



We

peg

the

served

market

at

roughly

$
12

billion

(SaaS

is

$
9

billion)

in

2008

and

expect

it

to

grow

to

almost

$
32

billion

by

2012

a

29
%

CAGR
.


Sources: AMR, Gartner, IDC, and William Blair & Company, L.L.C.
Corporate Cloud Computing, Total Served Market Segmented by SaaS, PaaS, and IaaS
Platform as a Service
Infrastructure as a Service
(Utility Computing)
Software
as a Service
Higher value add,
higher margin
Lower value add,
lower margin
Growing at roughly 20%
$21 billion by 2012
Growing at over 70%
$9 billion by 2012
Growing at almost 30%
$2 billion by 2012
Laura Lederman

(312) 364
-
8223

12

Drivers To The Cloud


Reduced Costs


cloud computing offers a low cost of entry. The initial expenses
associated with using cloud services are typically far less than buying or internally
purchasing and developing systems.


Frustration With the Status Quo/IT


we increasingly hear from business users
about the lack of satisfaction with their internal IT department. Companies, business
units, and users can more quickly get their functionality by turning to the cloud.


More
-
Predictable Costs


clients typically pay usage or subscription fees and do not
need to worry as much about escalating implementation/customization costs, which
are expensed as period costs instead of capital ones.


Velocity and Flexibility


since excess compute power/storage/services can be
pulled from the cloud, companies do not need to spend time ordering/installing
hardware and software. Also, developers can more rapidly and cost effectively PaaS
lets bring software to their companies or the market.


Increasing Complexity


growth in IT systems and the resulting complexity of
managing these systems is another important driver for the adoption of cloud services.
By using on
-
demand services, much of the systems and infrastructure management (via
IaaS and PaaS) and application management (with SaaS) challenges are greatly reduced.

Laura Lederman

(312) 364
-
8223

13

Drivers To The Cloud Continued


Easy Being Green


cloud computing vendors can offload server work, allowing
companies to lower their energy consumption. Furthermore, cloud companies that
leverage a multitenant environment consume less power and energy.


Facilitates New Business Formation


on
-
demand infrastructure/development
environment (
IaaS

and
PaaS
) enables small software developers and individuals to create
new applications without investing in hardware and distribution.


Allows Corporate IT to Become More Strategic


by offering corporate IT
departments an existing infrastructure on which to build applications, cloud computing
reduces the time to scope, procure, develop, test, deploy, and support internal
apps
.


Availability/Uptime


given that Amazon, Google, and
salesforce

have been running
massive, highly available compute environments for years, we believe that cloud
computing should have less downtime than software and hardware run internally.


Security


service providers are also able to afford better and more comprehensive
security measures than all but the largest, most sophisticated corporations.


Changing of the Guard


as younger people transition to more senior roles within
corporate IT, we expect companies to become more familiar and comfortable in the cloud.

Laura Lederman

(312) 364
-
8223

14

Potential Decelerating Factors and User Risks


Security


although cloud vendors invest heavily in security, any major breach would
likely result in negative publicity and impairment of reputation.


Outages


affects a greater number of users. However, cloud markets have been
relatively resilient in terms of downtime. Salesforce is none the worse for its outages
several years ago, and Amazon’s adoption has also not been affected by its outages.


Vendor Viability Concerns


it is unclear who will dominate the cloud. Companies that
choose a vendor that goes out of business may find switching to be difficult.


Loss of Control


outsourcing introduces the risk of a loss of control as hardware,
software, and data all reside at an external vendor.


Market Consolidation



acquisition of a cloud provider by a larger more diversified
vendor could negatively affecting the future of that platform. E.g., we have seen less of
WebEx’s platform since its acquisition by Cisco.


No Standards


there are no comprehensive standards that are particularly important for
application development platforms.


Laura Lederman

(312) 364
-
8223

15

Winners of Cloud Computing Continued

Specific
PaaS

Vendors



Salesforce



early to capitalize on the market, category
-
leading
SaaS

offering, excellent
execution,
AppExchange
, and 1.5 million subscriber base.


Most complete
PaaS

product: hardware, database, middleware, testing, workflow, security, and UI.


ISVs have commented on the maturity, quality, and richness of the development and testing tools.


Amazon



early to capitalize, open platform, over 500,000 third parties, and partnerships with
Sun, Red Hat, Citrix, IBM, Oracle.


Amazon appears to be providing an open infrastructure offering and allowing third parties to distribute
their own products through the Amazon cloud
, similar strategy as its traditional
Web store business.


Google (consumer and corporate)



brand, consumer usage,
SaaS

offerings, and partnership
with
salesforce
.


Integration of on
-
demand personal productivity tools and a development platform is a positive for its
PaaS

offering.


More than 500,000 organizations have signed up for Google Apps, and companies such as Abbott and
Deloitte are testing Gmail for their corporate e
-
mail
systems.


Microsoft stands the most to lose, but is late to the game
.


Early reviews on Azure are quite positive.

Laura Lederman

(312) 364
-
8223

16

Winners of Cloud Computing, Continued

Scale
-
Out Software Enablers



Oracle’s database



architected to support massively large databases and is used by
the majority of multitenant SaaS and PaaS companies.


In contrast, Microsoft SQL Server cannot scale to meet the needs of PaaS/SaaS providers.


Acquisition of Sun gives Oracle its own cloud and also products (e.g., Solaris and My SQL
(database) as a service) that are offered on Amazon.

Hardware Vendors


IBM


early provider of IaaS now expanding to PaaS. Also offering applications on
Amazon and building private clouds for corporations.

Storage Providers


EMC



developing storage cloud offerings for businesses and individuals.


3PAR



partnered with SAVVIS (a hosting and IaaS provider).

Laura Lederman

(312) 364
-
8223

17

Winners of Cloud Computing, Continued

Virtualization Vendors


VMware


leading provider of virtualization solutions (key component in delivering
services via the cloud; SaaS, PaaS, and IaaS).


Citrix



leading provider of open source virtualization, allowing for more
customization by IaaS providers; e.g., Amazon’s and Google’s clouds run on Xen.


Today, most of the SaaS companies we know have not virtualized their environments.

Web Application Delivery Enablers


Akamai


accelerates performance of Web sites and should benefit from more
applications using Internet access.


Networking vendors (e.g., Cisco, Citrix, Foundry, and F5)



vendors that
provide switches that accelerate Web applications should also benefit.

Laura Lederman

(312) 364
-
8223

18

Vendors at Risk


Slow to evolve


software, hardware, and services companies that stay in old models
are likely to lose market share. Examples include:


Software providers built on older code

are likely to have difficulty replicating
functionality on the on
-
demand model, resulting in market share losses (e.g., SAP and
Oracle’s application business).


Companies that provide technical staff

(e.g., database administrators to corporate IT
departments) and
managed services providers

may have their businesses impaired by the
cloud (e.g., ACS and EDS).


Hardware category


hardware vendors, as a whole, are likely to be negatively
affected by cloud computing, which better uses computing resources (e.g., Dell and
HP).


Cloud vendors will continue to buy hardware, albeit at a slower rate than if corporations
were building out the infrastructure individually.


Laura Lederman

(312) 364
-
8223

19

Summary
-

Far Reaching Impact


Cloud computing is a fundamental paradigm shift in technology.


This is not a one or two year trend, but an evolutionary trend that will
last 20 to 30 years. We are ten years into it.


Cloud computing will affect every hardware, software, and IT services
company as well as corporate and consumer users of technology.


Laura Lederman

(312) 364
-
8223

20

Near Term: Some Stability Has Occurred; IT Spending to Improve Slowly

Recent Data Points


Although the business environment remains tough, SAP’s management said it has
witnessed some stability. The company’s pipeline has started to improve (fill with deals)
in all regions. So while management expects a difficult environment for the rest of the
year, it is cautiously optimistic that the worst is behind it and that it will experience some
improvement in 2010.


Microsoft’s management said that the company is beginning to some stability in some of
its core markets. For example, Windows and Server units increased sequentially, albeit at
a much lower year
-
over
-
year level. It expects the operating environment to remain weak
for the balance of the calendar year.


IT research provider Gartner does not expect a budget flush in the fourth quarter of
2009; it believes IT spending will slowly improve over time.


Forrester, another independent IT research provider, estimates that global IT spending
(in local currencies) will decline 4.5% in 2009 and then grow in 2010.


Laura Lederman

(312) 364
-
8223

21

Software and IT Services Valuations


Long
-
term view


from a historical perspective, today’s valuations levels are
inexpensive. Once the economy stabilizes and improves, valuation levels should rise. At
that point, investors will be more willing to pay for growth.







Historically, software has sold for 5x revenue. It currently is selling at just over 3.5x sales.


Short
-
term view



SaaS

in general appears overextended given recent performance by
the group and the current state of the economy.


Calendar 2008
P/Rev
P/E
EV/FCF
SaaS group median
5.1x
52.1x
35.1x
Software grp. median
5.1x
19.1x
19.0x
Calendar 2009
P/Rev
P/E
EV/FCF
SaaS group median
3.6x
40.7x
32.3x
Software grp. median
3.7x
16.0x
13.7x
Jun-08
Current
Laura Lederman

(312) 364
-
8223

22

Market Consolidation

Recent and Expected Activity


Oracle announced its intentions to buy Sun.


The company needs to continue buying to augment growth.


BEA acquisition has now been
anniversaried
.


Oracle has become a very good acquirer.



We expect further industry consolidation given the weakened balance sheets by many
companies.


Those in dire need for cash will look to be acquired now.


Those with a strong balance sheet will wait to be purchased until valuations go up
from today’s relatively low levels.


Laura Lederman

(312) 364
-
8223

23

Disclosures



William Blair & Company, L.L.C.


Please contact us at (800) 621
-
0687 or consult http://www.williamblair.com/pages/eqresearch_coverage.asp for all disclosures.



Current Rating Distribution

(as of
7/31/2009
)

Coverage Universe Percent Inv. Banking Relationships* Percent



Outperform (Buy)

59


Outperform (Buy)

2

Market Perform (Hold)

40


Market Perform (Hold)

1

Underperform (Sell)

1


Underperform (Sell)

0


*Per
centage of companies in each rating category that are investment banking clients, defined as companies for which William Blai
r
has received compensation for investment banking services within the past 12 months.


Laura Lederman

attests that 1) all of the v
iews expressed in this research report accurately reflect his/her personal views about any and
all of the securities and companies covered by this report, and 2) no part of his/her compensation was, is, or will be relate
d, directly or
indirectly, to the sp
ecific recommendations or views expressed by him/her in this report.


Stock Rating:

William Blair & Company, L.L.C. uses a three
-
point system to rate stocks. Individual ratings reflect the expected
performance of the stock relative to the broader market o
ver the next 12 months. The assessment of expected performance is a
function of near
-
term company fundamentals, industry outlook, confidence in earnings estimates, valuation, and other factors.
Outperform (O)


stock expected to outperform the broader ma
rket over the next 12 months; Market Perform (M)


stock expected to
perform approximately in line with the broader market over the next 12 months; Underperform (U)


stock expected to underperform the
broader market over the next 12 months; Not Rated (NR)



the stock is currently not rated.


Company Profile:
The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature
tend to be more volatile than the overall stock market. Company profile is a fundamenta
l assessment, over a longer
-
term horizon, of
the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and

strength of
franchise (management strength and track record, market leadership, disti
nctive capabilities); 2) financial profile (earnings growth
rate/consistency, cash flow generation, return on investment, balance sheet, accounting); 3) other factors such as sector or
industry
conditions, economic environment, confidence in long
-
term grow
th prospects, etc. Established Growth (E)


Fundamental risk is lower
relative to the broader William Blair universe; Core Growth (C)


Fundamental risk is approximately in line with the broader William Blair
universe; Aggressive Growth (A)


Fundamental
risk is higher relative to the broader William Blair universe.


The ratings and company profile assessments reflect the opinion of the individual analyst and are subject to change at any ti
me.


The compensation of the research analyst is based on a variety

of factors, including performance of his or her stock recommendations;
contributions to all of the firm’s departments, including asset management, corporate finance, institutional sales, and retai
l brokerage;
firm profitability; and competitive factors.


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STATEMENTS HEREIN HAVE BEEN TAKEN FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT SUCH STATEMENTS ARE
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TRADEMARKS OF WILLIAM BLAIR & COMPANY, L.L.C. Copyright

2009
, William Blair & Company, L.L.C.