Software Trends Update

November 13, 2007Kris Tuttle, Director of Research

Dennis Byron, Senior Analyst

Agenda• Web 20 performance update and changes• Key technology themes• A closer look at SaaS, Open Source and SOA• Impact on major software suppliers• Stock commentary• Q & A

Research 2.0 Introduction

• Initiated new coverage in April of 2005.• Added first employee July of 2006.• Expanded operations May-August 2007.• Exceeded 400 subscription clients in Sept.• Adding advisory services November 2007.• Several new coverage categories in beta.

Experience Bias

Software Stocks (SoundView)Business (IBM, NYU)

Artificial Intelligence (Carnegie-Mellon and IBM)

Micro-computing (Pre-80’s and IBM)

Software (Carnegie-Mellon and IBM)Equity Sales and Finance (S.G. Warburg)

Research (Research 2.0)

Private Investor/Advisor (Good Data Corporation, Rathpeacon Management LLC, alfabetmeta-modeling AG, Cape Clear Software, Azure Ventures)

Web 20 Performance

Web 20 Update• New Changes

– Added Cisco and Trimble• WebEx and Navteq acquired

– Added Citrix and Research in Motion• WebSense and SanDisk removed

• More groups coming:– Existing: Cloud, SaaS, BI, Binding Problem– New: BioIT, ResourceTech

Web 20 Outlook• Google and Apple won’t own the world.

– Lack of feature/function and support.– Most mashups today are only prototyping.

• Microsoft better positioned than most think.– 99% of existing commercial base won’t move.– More integration and refreshed product pipeline.

• Virtualization marks a change in architecture.– VMware leads now but like Veritas, BEA, Sybase.– Less appreciated may be Citrix, Equinix, Akamai.– Still-private players like PlateSpin fill important gaps.– Large players like IBM, Microsoft and Oracle have deep

resources and product plans.

Investors and “killer applications”• History:

– mainframes, personal computers, mini-computers, networking– relational database, BI 1.0– 32-bit Windows– IT services

• Almost:– object-oriented programming (Rational, IONA, Nextstep)– EAI, Y2K– Application servers (BEA), Web 1.0 (Netscape, Yahoo)

• Today:– Disruptive technologies and forces have contributed to a

recognition that “cloud computing” is the right model.

Cloud Software Architecture• Bind and be bound - discoverable, arbitrary• Call or be called - no hierarchy• Transparency - clear functions and methods• Context aware - maximum advantage• Sub-second response time - adoption

Underlying infrastructure changes often require newarchitectures and pave the way for new tools, servicesand content.

New Opportunities• Cloud Computing

– Virtualization– Binding Problem– Data/BI– Open Source– Hosted Services/Content Delivery– Processing/Network Convergence

• Enterprise Software Trends– Software as a Service (SaaS)– Service-oriented Architecture (SOA)– Open Source Software (OSS)

Looking at SaaS, OSS and SOA.

• Trends as a construction metaphor:– SaaS: one way to sell the building– OSS: one type of construction supply– SOA: one form of blueprint

• Not interdependent but highly interrelated.• Also related to other trends like virtualization.

SOA, SaaS and OSS revenue forecasts

Other Maintenance

OSS Subscriptions

New Perpetual-License-

based Business

Perpetual License

Upgrades/ Add-ons

SaaS (includingrentals, monetizationInto advertising)

10% of license revenue flow to have OSS software built in

Software Fundamentals Still Matter

• Functionality• Value proposition vis-à-vis SOA, OSS and

SaaS• Audience (IT, departmental, C-level)• Channel• What will disrupt them?

– Current market structure– Leaders, shares

• Positioning vs. each other, Amazon, etc.

How the majors interrelate

Can “own” consumermarket

Still one-trick pony butdamn great trickGoogle

Acquisition highly likelyunless nixed by EU

Spread too thinSAP

Think of Intel, Cisco,Adobe

Likely to settle in a atechnology providerOracle

Doesn’t compareNo longer a technologyplayIBM

Can “own” business marketvalue > sum of partsMicrosoft

L-T ImplicationAnalysisSupplier

Reactions to SOA

Not relevant to L-T strategyNot a message buttechnically savvyGoogle

1000 third-party services =a new game

Needs a much betterchannel strategySAP

With DB, could be leadingSOA enabler

New guy will drive Fusionto servicesOracle

Doesn’t compareKey software group storynot aimed at ITIBM

Not relevant to L-T strategyNot a message buttechnically savvyMicrosoft

L-T ImplicationAnalysisSupplier

Reactions to OSS

Looking to be the pure playand market leader

Have a clear objectivesince 11/7/2007Red Hat

Not relevant to strategyAn effective PR messagevs. MicrosoftGoogle

Not relevant to strategyNibbling around theedgesSAP

Will embrace when theyhave to

Nibbling around theedgesOracle

…doesn’t compare againstthe others.

Already an OSS leaderbut…IBM

…muting the choir’svolume

Joined the choir…Microsoft

L-T ImplicationAnalysisSupplier

Reactions to SaaS

To be acquired or to?Hard to get beyond CRMSalesforce

Everything and nothing(KT)

Revenue?Google

If successful, SAP could bean acquiror

Only way to meet user-count objectivesSAP

Doesn’t matter (except forNetSuite?)

Struggling and distractedOracle

Doesn’t compareNot relevant to strategyIBM

Move to business servicesTied to channel rebuildingMicrosoft

L-T ImplicationAnalysisSupplier

Conclusions

• Infrastructure retooling and new applications will continue to bea major growth area in technology.– Cloud Computing architectures.– SaaS, OSS and SOA are elements.– Enterprise needs addressed slowly.

• Some names are underappreciated.– Microsoft: Far better positioned than investors realize.– Akamai: Unique content distribution ability, price fears aside.– Citrix: has virtualization angle like VMW without the valuation.– EMC: Storage is crticial. Along with S/W portfolio will get acquired.– Brocade: While servers get consolidated SAN usage accelerates.

Resources & Questions

Kris Tuttle (kris@research2zero.com)Dennis Byron (dennis.byron@resarch2zero.com)

www.research2zero.comwww.research2zero.com/blog