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Equity Research

Technology, Media, and Communications | Software as a Service

April 4, 2017 (prices as of March 31) Bhavan Suri +1 312 364 5341
Industry Report (17-030) bsuri@williamblair.com

David Griffin +1 312 364 8505


Software as a Service †‰”‹ˆϐ‹̷™‹ŽŽ‹ƒ„Žƒ‹”Ǥ…‘

An Update on Cloud Computing; Mostly Sunny in the Cloud Sarah Shizas +1 312 364 5486
sshizas@williamblair.com
The technology team at William Blair has followed the on-demand software in-
dustry since its infancy in the late 1990s. We publish thematic pieces periodically
on advances in cloud computing, encompassing all components of the on-demand
computing movement—including software as a service (SaaS), platform as a service
(PaaS), and infrastructure as a service (IaaS). This year, we provide an update on the
…‘–‹—‡†ƒ†‘’–‹‘‘ˆ–Š‡…Ž‘—†ƒ•‘”‰ƒ‹œƒ–‹‘•‹…”‡ƒ•‹‰Ž›ϐ‹†–Š‡„‡‡ϐ‹–•‘ˆ
innovation, agility, and lower total cost of ownership. Even so, there remain hurdles
’”‡˜‡–‹‰–Š‡‘˜‡–‘…Ž‘—†Ǣ•’‡…‹ϐ‹…ƒŽŽ›ǡŽƒ”‰‡”‡–‡”’”‹•‡•ƒ”‡•–‹ŽŽ…‘…‡”‡†
about security and privacy issues, especially when it comes to mission-critical
•›•–‡•ȋ‡Ǥ‰Ǥǡϐ‹ƒ…‹ƒŽǡ•—’’Ž›…Šƒ‹ȌȄƒ‹•…‘…‡’–‹‘™‡™‹ŽŽ‡š’Žƒ‹‹†‡–ƒ‹Ž
later. In addition, we cover the most recent trends we are seeing in cloud computing,
‹…Ž—†‹‰—’†ƒ–‡•‹…—•–‘‡””‡Žƒ–‹‘•Š‹’ƒƒ‰‡‡–ǡ•’‡…‹ϐ‹…ƒŽŽ›‘—”–Š‡•‹•–Šƒ–
the roles of sales and marketing and customer service are converging; the grow-
ing adoption of mission-critical software applications in the cloud (i.e., enterprise
resource planning, supply chain management, and communications); and recent
trends in business intelligence and analytics.

In this year’s update, we take a deeper look at non-GAAP adjustments (e.g., stock-
based compensation), and we focus on the technology stack and why we believe
SaaS players will win out in the long run. We also touch on the M&A activity this
’ƒ•–›‡ƒ”ƒ†–Š‡‹…”‡ƒ•‹‰—„‡”‘ˆƒƒƒ…“—‹•‹–‹‘•„›’”‹˜ƒ–‡‡“—‹–›ϐ‹”•Ǥ
ƒ††‹–‹‘ǡ™‡ˆ‘…—•‘Š‘™˜‡†‘”•ƒ›–”ƒ†‡ƒ”‰‹‡š’ƒ•‹‘ˆ‘””‡˜‡—‡
growth and how valuations have trended in the past year. We also incorporate our
–Š‘—‰Š–•‘–Š‡ƒ”‡–‘’’‘”–—‹–›ƒ•™‡ŽŽƒ•˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…ƒ’’Ž‹…ƒ–‹‘•
and their ability to generate higher margins. Lastly, we provide an overview of the
SaaS business model, including accounting, key metrics, and our evaluation process
for SaaS companies. Similar to past reports, we highlight several private SaaS com-
panies that we recommend keeping an eye on. A list of the public SaaS companies
in our coverage is below.

6DD6&RYHUDJH
Company 7LFNHU Rating 0DUNHW&DS 0 
AppFolio, Inc. APPF Outperform 915.4
Atlassian Corporation Plc TEAM Outperform 7,026.4
BlackLine, Inc. BL Outperform 1,526.2
HubSpot, Inc. HUBS Outperform 2,159.9
Ooma, Inc. OOMA Outperform 182.1
RingCentral, Inc. RNG Outperform 2,155.9
salesforce.com, inc. CRM Outperform 58,667.1
Twilio Inc. TWLO Outperform 2,974.2
Upland Software, Inc. UPLD Outperform 280.2
Veeva Systems Inc. VEEV Outperform 7,560.5
Zendesk, Inc. ZEN Outperform 2,729.0
Source: William Blair Estimates

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William Blair

Recent Cloud Trends


CRM Trends – Convergence of Sales-and-Marketing and Customer Service
Customer relationship management (CRM) remains at the forefront of cloud applications and a main
priority for C-suite management teams. According to Gartner, “SaaS-based or cloud-based deploy-
ments have reached more than 50% of CRM spend in 2015.” Customer relationship management
consists of customer service and support (39% market share in 2015), sales (23%), marketing
(22%), and digital commerce (16%). Sales applications in the cloud have been around since the
1990s and now represent a rather mature sector of the CRM market—particularly sales automa-
tion tools. Salesforce.com continues to dominate this part of the market. Still, there continues to
be innovation with salesforce enablement, which provides content, training, and analytics to sales
”‡’•–‘‹…”‡ƒ•‡•ƒŽ‡•’”‘†—…–‹˜‹–›ǤŠ‡ƒ”‡–‹‰•—„•‡‰‡–‘ˆ‹•ƒŽ•‘‡š’‡”‹‡…‹‰•Ž‘™‡”
growth as it matures, but is sustained by strong growth for lead management applications—an area
Marketo and HubSpot play in; both have delivered more than 40% subscription growth over the
past few years. Digital commerce, which provides an online marketplace for digital customers and
grew slightly higher than the overall CRM market in 2015, is being fostered by growing online sales
ƒ…–‹˜‹–›ƒ†‹…”‡ƒ•‹‰†‡ƒ†ˆ‘”ƒ‘”‡’‡”•‘ƒŽ‹œ‡†‡š’‡”‹‡…‡Ȅ‹„‘–Šʹƒ†ʹƒ”‡–•Ǥ
Lastly, customer service and support, which is the largest subsegment of the CRM market and grew
roughly 12% in 2015, is an area that we believe has substantial opportunity given the increasing
‹˜‡•–‡–•‹…—•–‘‡”•‡”˜‹…‡ˆ”‘‘”‰ƒ‹œƒ–‹‘•”‡ƒŽ‹œ‹‰–Š‡˜ƒŽ—‡ƒ†„‡‡ϐ‹–•ȋ‹Ǥ‡Ǥǡƒ…“—‹”‹‰
new customers or strong customer retention rates) from providing improved customer support.

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&500DUNHW

12,000.0

10,000.0

8,000.0
In millions

6,000.0

4,000.0

2,000.0

0.0
2013 2014 2015

customer service and support sales marketing digital commerce platforms

Source: Gartner - Market Share Analysis: Customer Relationship Management Software, Worldwide, 2015

Š‹Ž‡ƒ—–‘ƒ–‹‘‘ˆ…—•–‘‡”Ǧƒ…“—‹•‹–‹‘‡–Š‘†•Šƒ•Ž‘‰„‡‡ƒ†”‡ƒ‹•ƒ•‹‰‹ϐ‹…ƒ–ƒ†
transformative undertaking for organizations, retention of those customers is becoming even more
‹’‘”–ƒ–Ǥ—•–‘‡”•‡”˜‹…‡‹•‘Ž‘‰‡”…‘•‹†‡”‡†ƒ„ƒ…Ǧ‘ˆϐ‹…‡ˆ—…–‹‘ǡƒ†…‘’ƒ‹‡•ƒ”‡‘™
competing on customer service to acquire new customers (via word of mouth, social media, etc.).
Growing trends in mobile, social media, advanced analytics, and the Internet of Things (IoT) are
…”‡ƒ–‹‰‘’’‘”–—‹–‹‡•ˆ‘”„—•‹‡••‡•–‘‹’”‘˜‡–Š‡…—•–‘‡”‡š’‡”‹‡…‡ƒ†–Š‡”‡ˆ‘”‡‹’”‘˜‡
”‡–‡–‹‘ǡ’”‘ϐ‹–ƒ„‹Ž‹–›ǡƒ†‰”‘™–ŠǤ‡„‡Ž‹‡˜‡–Š‡‰”‘™–Š‹…Ž‘—†Ǧ„ƒ•‡†…—•–‘‡”•‡”˜‹…‡’”‘˜‹†‡”•
ƒŽ‘‡†‡‘•–”ƒ–‡•–Š‡ϐŽ‘™‘ˆ†‘ŽŽƒ”•‹–‘–Š‹•ƒ”‡–Ǥ‡†‡•ǡ™Š‹…Š’”‘˜‹†‡•…—•–‘‡”•‡”˜‹…‡
ƒ†•—’’‘”–•‘ˆ–™ƒ”‡ǡ‰”‡™‘˜‡”͸ͲΨ‹ʹͲͳͷƒ†‹•‡š’‡…–‡†–‘”‡ƒ…Š̈́ͳ„‹ŽŽ‹‘‹–‘–ƒŽ”‡˜‡—‡
„›ʹͲʹͲǤ —”–Š‡”ǡ•ƒŽ‡•ˆ‘”…‡Ǥ…‘ǯ••‡”˜‹…‡…Ž‘—†ȋ‘’‡”ƒ–‹‰ƒ–ƒ̈́ʹǤ͵„‹ŽŽ‹‘”‡˜‡—‡”—Ǧ”ƒ–‡Ȍ‹•
‡š’‡…–‡†–‘‰”‘™ƒŽ‘•–͵ͲΨ‹ϐ‹•…ƒŽʹͲͳ͹ƒ†‹•‘‡‘ˆ‹–•ˆƒ•–‡•–Ǧ‰”‘™‹‰…Ž‘—†‘ˆˆ‡”‹‰•Ǥ‡ƒŽ•‘
suspect that Freshdesk, a private customer service software provider, is growing over 100% and has

2 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

ƒ„‘—–ͶͲǡͲͲͲ…—•–‘‡”•Ǥ ƒ††‹–‹‘ǡ–Š‡”‡‹•ƒ‡™•‡–‘ˆ…—•–‘‡”‡š’‡”‹‡…‡ƒƒ‰‡‡–’”‘˜‹†-
ers, including Lithium Technologies, Inc. and Sprinklr, whose offerings focus directly on managing
social media interactions. Sprinklr, a private social media management platform, focuses largely
‘–Š‡•‘…‹ƒŽ‡š’‡”‹‡…‡ƒ†’”‘˜‹†‡•ƒ‹–‡‰”ƒ–‡†ƒ†…‘ŽŽƒ„‘”ƒ–‹˜‡•‡–‘ˆ•‘…‹ƒŽ…ƒ’ƒ„‹Ž‹–‹‡•ˆ‘”
enterprises. Sprinklr has already captured key logos such as Nike, Verizon, McDonald’s, P&G, Forbes,
–ƒ”™‘‘†ǡƒ†‹…”‘•‘ˆ–Ȅ‡ƒ„Ž‹‰–Š‡•‡Žƒ”‰‡…‘’ƒ‹‡•–‘‡ˆϐ‹…‹‡–Ž›ƒƒ‰‡–Š‡‹”—Ž–‹’Ž‡•‘…‹ƒŽ
media sites (engagement, publishing/posts, responses, etc.). We believe the use of Sprinklr by such
Š‹‰ŠǦ’”‘ϐ‹Ž‡ƒ‡•‹ŽŽ—•–”ƒ–‡•Œ—•–Š‘™‹’‘”–ƒ–‹–‹•„‡…‘‹‰–‘’”‘–‡…–ƒ…‘’ƒ›ǯ•”‡’—–ƒ–‹‘Ǥ

With the emergence of social media sites such as Facebook, Twitter, and Yelp, customers can now
’—„Ž‹…Ž›…‘’Žƒ‹ƒ„‘—–ƒ„ƒ†‡š’‡”‹‡…‡Ǥ–Š‡‘–Š‡”Šƒ†ǡ’‡‘’Ž‡…ƒƒŽ•‘’”‘‘–‡ƒ„—•‹‡••
™‹–Šƒ’‘•‹–‹˜‡…—•–‘‡”‡š’‡”‹‡…‡ǡ™Š‹…Š…ƒƒ…–ƒ•ƒƒ”‡–‹‰–‘‘Žˆ‘”‡™—•‡”•ƒ†”‡•—Ž–‹
potential incremental revenue. As a result, we believe the notion of customer service is changing
ˆ”‘ƒ„ƒ…Ǧ‘ˆϐ‹…‡ˆ—…–‹‘–‘‘”‡…Ž‹‡–Ǧ‡‰ƒ‰‹‰ǡƒ†™‡„‡Ž‹‡˜‡‘•–ˆ‘”™ƒ”†ǦŽ‘‘‹‰‡š‡…—-
tives hold this view as well.

Many companies are beginning to replace legacy, on-premise customer service software with more
ƒ‰‹Ž‡ǡ ‹–‡‰”ƒ–‡† …Ž‘—† •‘Ž—–‹‘• –Šƒ– ƒ”‡ …‡–‡”‡† ‘ –Š‡ …—•–‘‡” ‡š’‡”‹‡…‡Ǥ Š‡ ‹ŽŽ‡‹ƒŽ
‰‡‡”ƒ–‹‘‹•ƒ†”‹˜‹‰ˆ‘”…‡„‡Š‹†–Š‡•‡…Šƒ‰‡•‹…—•–‘‡”•‡”˜‹…‡Ǥ ‘”‡šƒ’Ž‡ǡ‡š’‡…–ƒ–‹‘•
and preferences for millennials (born 1977 to 1995) are much different than prior generations and
include more mobile and social technology. Also, the overall tolerance for waiting on the phone for
an agent or having to repeat information is dwindling quickly. And while these preferences may
be different, organizations must still serve all generations and effectively cater to each generation
through multiple communication channels including phone, email, social media, and messaging.
˜‡”ƒŽŽǡ‘Ž‹‡…—•–‘‡”•‡”˜‹…‡‹•–Š‡‘•–’”‡ˆ‡””‡†–›’‡‘ˆ…—•–‘‡”•‡”˜‹…‡ǡƒ†™‹–Š–Š‡‰”‘™-
ing popularity of self-service, many companies are investing in advanced analytics to improve ticket
†‡ϐŽ‡…–‹‘”ƒ–‡•˜‹ƒ•‡ŽˆǦ•‡”˜‹…‡…Šƒ‡Ž••—…Šƒ• ’ƒ‰‡•ƒ†‹–‡”ƒ…–‹˜‡˜‘‹…‡”‡•’‘•‡Ǥ

As customer service becomes an increasingly important aspect to businesses and agents begin
using more proactive approaches and various communication channels, the lines between what is
considered customer service and sales-and-marketing are beginning to blur. What once was a tool
for customer retention and loyalty is now a marketing strategy to acquire additional customers.
Further, tools used to proactively reach out to customers to provide service are now being used for
sales-and-marketing purposes. This is in large part because of data collected via customer interac-
–‹‘•ǡ™Š‹…Š‹•‡š–”‡‡Ž›˜ƒŽ—ƒ„Ž‡ƒ†…ƒƒŽŽ‘™•ƒŽ‡•”‡’•–‘”‡ƒ…Š‘—––‘–Š‡”‹‰Š–…—•–‘‡”ǡƒ–
the right time, through the right communication channel—creating the most ideal opportunity to
•‡ŽŽ–‘ƒ’ƒ”–‹…—Žƒ”…—•–‘‡”Ǥ–‡†‡•ǡͷͲΨ‘ˆ…Šƒ–—•‡Ǧ…ƒ•‡•ƒ”‡•ƒŽ‡•Ǧ‘”‹‡–‡†Ȅ†‡‘•–”ƒ–‹‰
–Š‡—•‡‘ˆ…—•–‘‡”•‡”˜‹…‡–‘‘Ž•ˆ‘”•ƒŽ‡•ƒ…–‹˜‹–‹‡•Ǥ‘–Š‡”‡šƒ’Ž‡–Šƒ–‹ŽŽ—•–”ƒ–‡•–Š‹•…‘˜‡”-
‰‡…‡‹•’‡”•‘ƒŽ‹œ‡†ƒ†˜‡”–‹•‡‡–•‘”’—•Š‘–‹ϐ‹…ƒ–‹‘•ǡ™Š‹…Š…ƒ„‡…”‡ƒ–‡†—•‹‰†ƒ–ƒƒ†
algorithms to recommend items a customer is likely to purchase given previous purchasing habits
or interactions with customer service agents.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 3
William Blair

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Source: Buzinga

We believe organizations are beginning to realize the value in breaking down silos between different
†‡’ƒ”–‡–•ȋ‡Ǥ‰Ǥǡ…—•–‘‡”•‡”˜‹…‡ǡ•ƒŽ‡•ǡƒ”‡–‹‰Ȍ–‘ƒŽŽ‘™ƒ‡š…Šƒ‰‡‘ˆ‹ˆ‘”ƒ–‹‘ƒ…”‘••
the entire company. Having a shared pool of information allows different departments to work more
‡ˆϐ‹…‹‡–Ž›ƒ…”‘••–Š‡‘”‰ƒ‹œƒ–‹‘ǡ—Ž–‹ƒ–‡Ž›’”‘˜‹†‹‰ƒ‘”‡•‡ƒŽ‡••‹–‡”ƒ…–‹‘™‹–Š–Š‡…—•-
tomer. This integrated approach is often seen in the way companies are communicating with their
…—•–‘‡”•Ǣ‘”‰ƒ‹œƒ–‹‘•ƒ”‡„‡‰‹‹‰–‘—•‡–Š‡‹”†ƒ–ƒ–‘’”‘˜‹†‡”‡ƒŽǦ–‹‡‡„‡††‡†ǡ…‘–‡š–—ƒŽ
‹–‡”ƒ…–‹‘•Ǥ”‘˜‹†‹‰…‘–‡š–—ƒŽ…‘—‹…ƒ–‹‘•ƒ–‹˜‡Ž›™‹–Š‹–Š‡†‡˜‹…‡–Šƒ–ƒ’‡”•‘‹•—•‹‰
is a powerful tool and enables companies to differentiate against competitors. This software has the
ability to know where the end-user is in a process and interact with that user via the device and/
‘”…‘—‹…ƒ–‹‘•…Šƒ‡ŽŠ‡‹•—•‹‰Ǥ ‘”‡šƒ’Ž‡ǡƒ›…‘’ƒ‹‡•‘™‘ˆˆ‡”–Š‡‘’’‘”–—‹–›
to chat with customer service agents if they have a question while online shopping—allowing cus-
tomers to access customer support directly and immediately within the website they are shopping
‘ǡ™Š‹…Š‹••‹‰‹ϐ‹…ƒ–Ž›‘”‡…‘˜‡‹‡––ŠƒŠƒ˜‹‰–‘…Ž‹…‘ƒŽ‹–Šƒ–™‹ŽŽ–”ƒ•’‘”–›‘—–‘
a separate customer service web page.

Further, data analytics can be used to provide incremental information to the customer service agent
about that customer, such as the name of the customer, account number, previous customer service
interactions, what web pages the customer was visiting before reaching out to the agent etc., all of
™Š‹…Š…ƒ„‡—•‡†–‘’”‘˜‹†‡ƒ‘”‡’‡”•‘ƒŽ‹œ‡†…—•–‘‡”‡š’‡”‹‡…‡ǤŠ‹•†ƒ–ƒƒŽ•‘ƒŽŽ‡˜‹ƒ–‡•
unnecessary and time-consuming authentication requirements (e.g., having to restate the user’s
name, issue, account number) that typically need to be repeated through more traditional methods
and reduces friction between the customer and the agent.

‡„‡Ž‹‡˜‡–Š‹••Š‹ˆ––‘™ƒ”†…‘–‡š–—ƒŽ…‘—‹…ƒ–‹‘•™‹ŽŽ…‘–‹—‡ƒ•’‡‘’Ž‡„‡…‘‡ƒ……—•–‘‡†
–‘–Š‡‡ƒ•‡ƒ†…‘˜‡‹‡…‡‘ˆ–Š‡‹Ǧƒ’’ƒ†’‡”•‘ƒŽ‹œ‡†‡š’‡”‹‡…‡ǡ™Š‹…Š™‡„‡Ž‹‡˜‡‹•‡˜‘Ž˜‹‰
into a requirement rather than a desire. Also, while the transaction appears seamless to the user,
–Š‡–‡…Š‘Ž‘‰›”‡“—‹”‡†–‘–”ƒ•’‘”–“—ƒŽ‹–›ǡ…‘–‡š–—ƒŽ…‘—‹…ƒ–‹‘•ƒ–•…ƒŽ‡‹•”ƒ–Š‡”†‹ˆϐ‹…—Ž–Ǥ
Twilio, a cloud communications platform, is a leader in its space because of its superior quality and
”‡Ž‹ƒ„‹Ž‹–›”‡Žƒ–‹˜‡–‘‘–Š‡”’Žƒ–ˆ‘”’Žƒ›‡”•‹–Š‡ƒ”‡–ǡ’”‹ƒ”‹Ž›„‡…ƒ—•‡‘ˆ‹–•‡š–‡•‹˜‡…ƒ””‹‡”
connections and its proprietary network software, which optimizes the communications running
on its platform. Most other platform communications players in the industry are small, with less
–Šƒ̈́ͳͲ‹ŽŽ‹‘‹–‘–ƒŽ”‡˜‡—‡Ǥ

4 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

B2B Commerce

A large, growing market. Electronic commerce (e-commerce) has been around for some time now.
Amazon.com and eBay popularized the concept of e-commerce in the consumer world starting
in the 1990s. The business-to-consumer (B2C) e-commerce market—which in the United States,

‡”ƒ›ǡƒ†ƒƒ†ƒ•–‹ŽŽƒ……‘—–‡†ˆ‘”‘Ž›ƒ„‘—–ͻΨ‘ˆ”‡–ƒ‹Ž•ƒŽ‡•‹ʹͲͳͷȋ‡š…Ž—†‹‰ƒ—–‘‘-
tive and fuel)—continues to evolve as vendors replace brick-and-mortar storefronts with online
storefronts; global e-commerce spending is projected to grow at a compound annual rate of about
ʹͲΨ‘˜‡”–Š‡‡š–ˆ‘—”›‡ƒ”•Ǥ•ƒ”‡•—Ž–‘ˆ–Š‡‡ƒ”Ž›’‘•‹–‹‘‹‰„›ƒœ‘Ǥ…‘ƒ†‡ƒ›ƒ†
the popularity of B2C e-commerce platforms, a multitude of SaaS-based commerce platforms (e.g.,
Demandware, Shopify, Magento, and WebSphere) emerged that enabled retailers and brand owners
to design, implement, and manage their e-commerce sites. The B2C e-commerce market generated
•ƒŽ‡•‘ˆ̈́͵ͶͳǤ͹„‹ŽŽ‹‘‹ʹͲͳͷ‹–Š‡‹–‡†–ƒ–‡•Ǥ …‘–”ƒ•–ǡ–Š‡ʹ‡Ǧ…‘‡”…‡ƒ”‡–ǡ™Š‹…Š
has focused on the concepts from the B2C market to address business needs, was forecast to be over
–™‹…‡–Š‡•‹œ‡‘ˆ–Š‡ʹƒ”‡–ǡ™‹–Š’”‘Œ‡…–‡†•ƒŽ‡•‘ˆ̈́͹ͺͲ„‹ŽŽ‹‘‹ʹͲͳͷ‹–Š‡‹–‡†–ƒ–‡•Ǥ
Still, despite the much larger volume of sales transacted over B2B networks and strong projected
growth, there are fewer SaaS-based B2B e-commerce platforms available today.

˜‡”–Š‡’ƒ•–†‡…ƒ†‡ǡ—‡”‘—••‘ˆ–™ƒ”‡ƒ”‡–•Ȅˆ”‘•ƒŽ‡•ˆ‘”…‡ƒ—–‘ƒ–‹‘–‘Š—ƒ”‡•‘—”…‡
management to call centers to enterprise resource planning (ERP)—have transitioned from behind
–Š‡ϐ‹”‡™ƒŽŽ–‘–Š‡…Ž‘—†ǤŠ‡„‡‡ϐ‹–•–‘–Š‹•†‡Ž‹˜‡”›‘†‡Žƒ”‡—‡”‘—•ǡƒ†‹ƒ›™ƒ›•ƒ”‡–
agnostic. Nearly all application categories, in our view, stand to gain from the fundamental advantages
that SaaS offers: a lack of hardware (servers, storage, networking) and IT resource requirements,
accelerated deployment times, automatic updates, and remote access from any internet-connected
†‡˜‹…‡Ǥ‘‡ƒ”‡–•ǡŠ‘™‡˜‡”ǡƒ”‡’‡”Šƒ’•’‘•‹–‹‘‡†–‘„‡‡ϐ‹–‘”‡–Šƒ‘–Š‡”•ˆ”‘–Š‡…Ž‘—†
delivery model—e-commerce is one such market. In our opinion, within the B2B e-commerce mar-
‡–•’‡…‹ϐ‹…ƒŽŽ›ǡ–Š‡ƒ„‹Ž‹–›–‘”‡†—…‡…—•–‘‡”•—’’‘”–…‘•–•ȋ‡•’‡…‹ƒŽŽ›ƒ‘‰•ƒŽŽ‡”…—•–‘‡”•Ȍǡ
streamline ordering processes, and increase the average value per order are all reasons why we
believe an increasing number of companies will gravitate toward cloud-based e-commerce providers.

([KLELW
%&DQG%%(FRPPHUFH6SHQG3URMHFWLRQV
(Dollars in millions)
1200

1000

800

600

400

200

0
2015 2016 2017 2018 2019 2020

B2C Market B2B Market

Sources: U.S. Census Bureau, Forrester, and William Blair estimates

Š‡‹…”‡ƒ•‹‰‹š•Š‹ˆ––‘‘Ž‹‡ƒ†–Š‡…‘–‹—‡†‰”‘™–Š‹–Š‡‘˜‡”ƒŽŽʹƒ”‡–•Š‘—Ž††”‹˜‡
considerable growth in both the near and long term. Forrester projects the B2B e-commerce market
–‘‰”‘™–‘‘˜‡”̈́ͳǤͳ–”‹ŽŽ‹‘„›ʹͲʹͲȄƒ
‘ˆͺΨ‘˜‡”–Š‡‡š–ϐ‹˜‡›‡ƒ”•Ȅ™‹–Š‹–Š‡‹–‡†

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 5
William Blair

States alone, which still represents only 12.1% penetration of total B2B sales. Frost & Sullivan’s
’”‘Œ‡…–‹‘•ƒ”‡‘”‡ƒ‰‰”‡••‹˜‡Ǣ‹–‡š’‡…–•–Š‡ǤǤʹ‡Ǧ…‘‡”…‡ƒ”‡––‘ƒ’’”‘ƒ…Š̈́ͳǤͻ–”‹Ž-
lion in 2020, a CAGR of 19%.

How do B2C and B2B differ? Š‹Ž‡–Š‡‹†‡ƒ‘ˆ‡Ǧ…‘‡”…‡‹•”‡Žƒ–‹˜‡Ž›•‹’Ž‡Ȅ–Š‡‡š…Šƒ‰‡‘ˆ


goods via online channels—the B2C and B2B e-commerce ecosystems and sales processes are mark-
edly different. B2C is a rather simple buying and selling process. Going to Amazon and researching
which book, television, or household item to buy is relatively easy, and consumers can often even
go to brick-and-mortar stores beforehand to get a hands-on demo of what they will eventually buy
‘ƒœ‘Ǥ ƒ††‹–‹‘ǡ•Š‹’’‹‰–‡”•ƒ”‡•–ƒ†ƒ”†ǡ„‡‹––Š”‘—‰Š–Š‡ǡ ‡†šǡǡ‘”‘–Š‡”
ƒ–‹‘ƒŽ’”‘˜‹†‡”•ǡ™‹–ŠŽƒš”‡–—”’‘Ž‹…‹‡•Ǥ–Š‡‘–Š‡”Šƒ†ǡʹ‹•ƒ‘”‡…‘’Ž‡š’”‘…‡••ǡ
with stricter regulation, variable prices and volumes of products being purchased, non-standard
•Š‹’’‹‰–‡”•ǡƒ†ǡ‹‰‡‡”ƒŽǡ’”‘†—…–•–Šƒ–ƒ”‡‘–ƒ••–ƒ†ƒ”†ƒ†ƒ”‡‘”‡†‹ˆϐ‹…—Ž––‘—†‡”-
stand. As a result, B2B e-commerce platforms cannot get away with the same level of simplicity as
ʹ’Žƒ–ˆ‘”•ǡƒ†ƒ”‡‘”‡‹••‹‘Ǧ…”‹–‹…ƒŽ•‹…‡…—•–‘‡”•‡‡†–‘‘™‡šƒ…–Ž›™Šƒ––Š‡›ƒ”‡
purchasing beforehand.

Unlike the B2C market, where e-commerce providers are replacing brick-and-mortar stores, B2B
e-commerce providers are replacing antiquated systems. These antiquated solutions typically
‹…Ž—†‡† ˆ”ƒ‰‡–‡† •›•–‡•ǡ ƒ Žƒ”‰‡ ‹˜‡•–‡– ‹ •–ƒˆϐ‹‰ ƒ† …—•–‘‡” •‡”˜‹…‡ ”‡’• ȋ™Š‹…Š
required the entering of orders by employees into the ERP system) that lack automation, limited
ϐŽ‡š‹„‹Ž‹–›‹•‡ŽŽ‹‰ƒ˜ƒ”‹‡–›‘ˆ—‹–•ƒ†“—ƒ–‹–‹‡•ǡƒ†ƒŽƒ…‘ˆ‹–‡‰”ƒ–‹‘™‹–Š–Š‡†‹‰‹–ƒŽƒ”-
keting footprint – limiting the personalized marketing and customer service campaigns as well as
–Š‡ƒ„‹Ž‹–›–‘—’•‡ŽŽƒ†…”‘••Ǧ•‡ŽŽ‹–‘–Š‡‡š‹•–‹‰…—•–‘‡”„ƒ•‡Ǥ ‘—”‘’‹‹‘ǡ–Š‡•Š‹ˆ––‘™ƒ”†
mobile-friendly, integrated, lower-cost, and scalable solutions should continue in both the near
and long term as companies look to build digital storefronts to increase sales quickly while cutting
costs. Like Amazon.com in the traditional B2C e-commerce market, larger marketplace providers
have emerged in the B2B market as well, such as Alibaba. Alibaba’s international commerce mar-
‡–’Žƒ…‡Ȅ‹–•™Š‘Ž‡•ƒŽ‡ʹ’Žƒ–ˆ‘”Ȅ‰‡‡”ƒ–‡†̈́ͺͶͳ‹ŽŽ‹‘‹•ƒŽ‡•‹ϐ‹•…ƒŽʹͲͳ͸Ǥ ‘™‡˜‡”ǡ‹–
is not disclosed what percentage of this revenue is generated from the United States or any other
countries. Amazon also has Amazon Business, which focuses on B2B e-commerce, but we believe
–Š‹•‹•ƒ•ƒŽŽ’ƒ”–‘ˆ–Š‡…‘’ƒ›ǯ•Žƒ”‰‡”ʹ‘’‡”ƒ–‹‘ǤŠ‡”‡ˆ‘”‡ǡ™‡‡š’‡…–ƒ›†‹ˆˆ‡”‡–
vendors to be successful in the B2B e-commerce space.

Government Cloud Adoption Progresses


Signs of accelerating public cloud adoption are evident among government entities at the local, state,
ƒ†ˆ‡†‡”ƒŽŽ‡˜‡Ž•ǤŠ‹Ž‡‰‘˜‡”‡–…Ž‘—†ƒ†‘’–‹‘Šƒ•‘–‡…‡••ƒ”‹Ž›‡–‡š’‡…–ƒ–‹‘•–‘†ƒ–‡ǡ
™‡„‡Ž‹‡˜‡‰‘˜‡”‡–ƒ‰‡…‹‡•Šƒ˜‡ƒ†‡’”‘‰”‡••™‹–ŠŽ‡•••‡•‹–‹˜‡™‘”ϐŽ‘™•ȋ‡Ǥ‰Ǥǡ‡ƒ‹Žǡ™‡„
Š‘•–‹‰Ȍ‹–Š‡…Ž‘—†ǡƒ†ƒ”‡‘™”‡ƒ…Š‹‰ƒ‹ϐŽ‡…–‹‘’‘‹––‘„‡‰‹”‡’Žƒ…‹‰‹••‹‘Ǧ…”‹–‹…ƒŽ
legacy systems with the cloud. According to a July 2016 report, “Gartner projects governments
‰Ž‘„ƒŽŽ›™‹ŽŽ•’‡†‘˜‡”̈́Ͷʹ͹„‹ŽŽ‹‘‹ʹͲͳ͸ƒ†̈́Ͷ͹ͷ„‹ŽŽ‹‘‹ʹͲʹͲǤdz

ƒ›‰‘˜‡”‡–•ƒ”‡•–‹ŽŽ—•‹‰‹…—„‡–ǡŽ‡‰ƒ…›•›•–‡•–Šƒ–ƒ”‡†‹ˆϐ‹…—Ž––‘•ƒ–‹•ˆ›‹…”‡ƒ•‹‰
†‹‰‹–ƒŽ‡š’‡…–ƒ–‹‘•ˆ”‘…‹–‹œ‡•ƒ†‡’Ž‘›‡‡•ȋ‹Ǥ‡Ǥǡ‹…Ž—†‹‰‘”‡–”ƒ•’ƒ”‡…›ƒ„‘—–‡‡”‰›Ȁ
water consumption, application/loan status, and medical records). We also believe there are a
•‹‰‹ϐ‹…ƒ–—„‡”‘ˆ†—’Ž‹…ƒ–‹˜‡ •›•–‡•ǡƒ‹‰‰‘˜‡”‡–’”‘…‡••‡•…‘’Ž‡šƒ†–‹‡…‘-
suming to get things accomplished. Further, with many government agencies under tight budgetary
…‘•–”ƒ‹–•ǡ—’†ƒ–‡†…Ž‘—†–‡…Š‘Ž‘‰›ƒ›”‡†—…‡…‘•–•ƒ†‹’”‘˜‡‘’‡”ƒ–‹‰‡ˆϐ‹…‹‡…‹‡•ȋ‡Ǥ‰Ǥǡ
data center consolidation, decreased hardware costs, shared services).

6 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

([KLELW
Cloud Benefits
&ORXG6HUYLFHV
Benefits
IaaS/PaaS SaaS
Flexibility in an on-demand model x 9
Scalability or elasticity to accommodate changing demands x 9

Shifting to an operating expenditure-only model and eliminating the need for periodic
x x
capital expenditure infusions to remain technically current and out of "technical debt"

Availability or redundancy that didn't exist or was prohibitively expensive to achieve reliably x 9
Superior built-in security than what had been historically in place on-premises x x
Improved and quantifiable services levels x 9
Geographic diversity (proximity to users/customers) x 9
Rapid access to cutting-edge technology and innovation 9 x
Better end-user experiences 9 x
Cost savings/cost avoidance 9 9
*9 = may deliver; x = will deliver

Source: Gartner: Get Ready for the Inflection Point in U.S. Federal Government Cloud Adoption; January 2016

ƒ› •‘ˆ‰‘˜‡”‡–‡–‹–‹‡•ƒ”‡ƒ†‘’–‹‰…Ž‘—†Ǧϐ‹”•–’‘Ž‹…‹‡•ǡ‡•’‡…‹ƒŽŽ›ƒˆ–‡”–Š‡ǤǤˆ‡†‡”ƒŽ
‰‘˜‡”‡–ƒ†ƒ–‡†ƒ…Ž‘—†Ǧϐ‹”•–’‘Ž‹…›‹ʹͲͳͲȄ”‡“—‹”‹‰…Ž‘—†•‘Ž—–‹‘•–‘„‡…‘•‹†‡”‡†ϐ‹”•–
for new IT investments/projects. With the maturity of the cloud and decreasing concerns over data
security risks, government agencies are beginning to move more applications containing sensitive
‹ˆ‘”ƒ–‹‘–‘–Š‡…Ž‘—†Ǥ‡”‡ƒ•‘•‡…—”‹–›‹•„‡…‘‹‰Ž‡••‘ˆƒ…‘…‡”‹•–Š‡”‡ƒŽ‹œƒ–‹‘–Šƒ–
cloud vendors devote far greater resources toward a robust security system than an individual
organization would invest.

Further, most cloud vendors that service government customers have adopted mandatory compli-
ance measures, such as FISMA, FIPS, and FedRAMP accreditations. In addition, some entities do
not want to be in the business of managing mass amounts of data, and cloud options often result
‹…‘•–•ƒ˜‹‰•ȋƒ†‹…”‡ƒ•‡†‡ˆϐ‹…‹‡…‹‡•Ȍǡƒ‹‰…Ž‘—†•‘Ž—–‹‘•‘”‡ƒ––”ƒ…–‹˜‡ǡ‡•’‡…‹ƒŽŽ›ˆ‘”
budget-constrained economies. We believe the increasing number of successful cloud adoption
cases will have a domino effect for other government entities, at the local, state, and federal level.

Growing Adoption of Mission-Critical Cloud Applications


There is growing adoption of more mission-critical applications in the cloud. Although CRM re-
ƒ‹•–Š‡Š‹‰Š‡•–Ǧ—•‡†ƒƒƒ’’Ž‹…ƒ–‹‘ȋƒ••Š‘™‹‡šŠ‹„‹–ͷȌǡ™‡ƒ”‡•‡‡‹‰–”ƒ…–‹‘™‹–Š‘”‡
mission-critical applications, such as ERP, supply chain management, and communications—all
of which are mostly dominated by on-premises software because of the reluctance to trust such
mission-critical systems to the cloud, which is reliant on the vendor’s services (including uptime and
security) and is typically less customized than on-premises offerings. A service outage could cause
such mission-critical functionality to be out of commission or a data breach risks losing important
ƒ†…‘ϐ‹†‡–‹ƒŽ‹ˆ‘”ƒ–‹‘ǡ™Š‹…Š…‘—Ž†Œ‡‘’ƒ”†‹œ‡ƒ…‘’ƒ›ǯ•„—•‹‡••Ǥ–‹ŽŽǡ–Š‡ƒ†˜ƒ–ƒ‰‡•‘ˆ
the cloud for these particular systems are becoming more apparent and gradually more accepted,
particularly in more developed countries, where internet connection is not an issue.

The main advantages of the cloud are lower up-front costs, no hardware/infrastructure costs and
ƒƒ‰‡‡–ǡ‘”‡ˆ”‡“—‡–—’†ƒ–‡•ǡƒ†“—‹…‡”‹’Ž‡‡–ƒ–‹‘’”‘…‡••‡•Ǥ‡•’‹–‡–Š‡„‡‡ϐ‹–•ǡ
transitions to the cloud for these solutions has been slow since the process involved with switching
•—…Š…‘”‡ˆ—…–‹‘ƒŽ‹–›‹•ƒ”‡Žƒ–‹˜‡Ž›†‹ˆϐ‹…—Ž–ƒ†Ž‘‰–ƒ•ƒ•…‘’ƒ‹‡•–‡†–‘‘˜‡…‡”–ƒ‹†‹˜‹-
sions over to the cloud at different times and could result in disruptions in critical systems during

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 7
William Blair

the transition period. Therefore, the timing of the transition will be important, and our sense is that
most companies will delay this type of decision because it will likely cause business disruptions
ƒ†…ƒ„‡ƒ†‹ˆϐ‹…—Ž–’”‘…‡••Ǥ

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0RVW&RPPRQ6DD6$SSOLFDWLRQ'HSOR\PHQWVLQDQG

60% 54%
47%
50% 41%
40% 36%
32% 31%
27% 28% 24% 25%
30% 23% 22% 21% 22%
17% 20%
20% 16% 16% 15%
7%
10%
0%

2014 2017

Source: Gartner - Survey Analysis: Buyers Reveal Cloud Application Adoption Plans Through 2017

We believe small and midsize businesses are more inclined to adopt the cloud, even for mission-
critical software solutions, because they usually do not have as large of a budget as larger enter-
prises—making cloud offerings (whose cost is usually more palatable given it is in smaller increments
spread out over a longer time frame) more attractive. While some companies may believe that
…Ž‘—†‘ˆˆ‡”‹‰•’”‘˜‹†‡Ž‡••…—•–‘‹œƒ–‹‘ǡ™‡™‘—Ž†ƒ”‰—‡–Šƒ–ƒƒǦ„ƒ•‡†˜‡†‘”•„‡‡ϐ‹–ˆ”‘
the amount of data being passing through their database— allowing the vendor to act on common
’”‘„Ž‡••‡‡‘‹–•’Žƒ–ˆ‘”ƒ†‹’”‘˜‡–Š‡‡ˆϐ‹…‹‡…›‘ˆ‹–•’Žƒ–ˆ‘”ˆ‘”‹–•‡–‹”‡…—•–‘‡”„ƒ•‡Ǥ
We also believe most SaaS companies are receptive to working with customers to make changes.

In our opinion, one of the biggest advantages is the agility cloud solutions offer to companies in
‹†—•–”‹‡•–Šƒ–ƒ”‡‡š’‡”‹‡…‹‰…‘–‹—‹‰”‡‰—Žƒ–‘”›‘”…‘’Ž‹ƒ…‡…Šƒ‰‡•Ǥ ‘”‡šƒ’Ž‡ǡ–Š‡”‡
ƒ”‡ƒ›…Šƒ‰‡•‘……—””‹‰‹–Š‡ƒ—ˆƒ…–—”‹‰ǡŠ‡ƒŽ–Š…ƒ”‡ǡƒ†ϐ‹ƒ…‹ƒŽ•‡”˜‹…‡•‹†—•–”‹‡•ǤŠ‡
cloud allows companies to respond to changes within their sector quickly, in turn keeping them
up-to-date and competitive. Further, many cloud applications cater to mobile functionality, allowing
organizations to access critical business information quickly through multiple mobile devices. For
‡šƒ’Ž‡ǡǡ™Š‹…Š‘ˆˆ‡”•„‘–Š‘Ǧ’”‡‹•‡•ƒ†ƒƒǦ„ƒ•‡†•‘Ž—–‹‘•ˆ‘”–Š‡ƒ—ˆƒ…–—”-
ing industry, recently launched a new user interface for its cloud customers, which enables key
’‡”•‘‡Ž–‘ƒ……‡••”‡ƒŽǦ–‹‡ϐ‹ƒ…‹ƒŽ‘”‘’‡”ƒ–‹‘ƒŽ‡–”‹…•†‹”‡…–Ž›–Š”‘—‰Š‘„‹Ž‡†‡˜‹…‡•Ǥ‡
„‡Ž‹‡˜‡–Š‹•–›’‡‘ˆƒ‰‹Ž‹–›ƒ†ϐŽ‡š‹„‹Ž‹–›‹•Šƒ”†–‘”‡’Ž‹…ƒ–‡„›‘Ǧ’”‡‹•‡•’Žƒ›‡”•Ǥ‡Š‹‰ŠŽ‹‰Š–
ƒˆ‡™•’‡…‹ϐ‹…ƒ”‡ƒ•‹™Š‹…Š™‡•‡‡‰”‘™‹‰…Ž‘—†ƒ†‘’–‹‘„‡Ž‘™Ǥ

Enterprise resource planning (ERP).Š‡–‘’ϐ‹˜‡’Žƒ›‡”•Ȅ„›–‘–ƒŽ•‘ˆ–™ƒ”‡”‡˜‡—‡Ȅƒ”‡


ǡ”ƒ…Ž‡ǡƒ‰‡ǡ ˆ‘”ǡƒ†‹…”‘•‘ˆ–ǤŠ‡•‡’Žƒ›‡”•Šƒ˜‡†‘‹ƒ–‡†ˆ‘”–Š‡Žƒ•–ϐ‹˜‡›‡ƒ”•ǡ
while cloud vendors such as Workday, Ultimate Software, and NetSuite are gaining traction, as shown
‹‡šŠ‹„‹–͸ǤŠ‹Ž‡–Š‡Ž‡ƒ†‹‰˜‡†‘”•’”‘˜‹†‡„”‘ƒ†•—’’‘”–ˆ‘”˜ƒ”‹‘—•‹†—•–”‹‡•ǡ•ƒŽŽ‡”
˜‡†‘”•–‡†–‘ˆ‘…—•‘•’‡…‹ϐ‹…˜‡”–‹…ƒŽ•ƒ†’”‘˜‹†‡–ƒ”‰‡–‡†•‘Ž—–‹‘•Ǥ

We believe pure-play cloud players will continue to disrupt traditional on-premises vendors for
•‘Ž—–‹‘•ǡ‡•’‡…‹ƒŽŽ›‹–Š‡ϐ‹ƒ…‹ƒŽ•ƒ†Š—ƒ…ƒ’‹–ƒŽƒƒ‰‡‡–•—„•‡‰‡–•Ǥ‘”†ƒ›ǡ
™Š‹…Š’”‘˜‹†‡•…Ž‘—†Ǧ„ƒ•‡†ϐ‹ƒ…‹ƒŽƒƒ‰‡‡–ƒ†Š—ƒ…ƒ’‹–ƒŽƒƒ‰‡‡–•‘ˆ–™ƒ”‡ǡŠƒ•

8 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

made the most headway—increasing its rank from No. 44 in 2010 to No. 6 in 2015. We believe
there will continue to be M&A activity in the market as more traditional, larger players seek to add
faster-growing, cloud-based ERP businesses.

—”•‡•‡‹•–Šƒ–…Ž‘—†ƒ†‘’–‹‘‹•‹…”‡ƒ•‹‰‹–Š‡ƒ—ˆƒ…–—”‹‰ƒ†‘’‡”ƒ–‹‘••‡‰‡–ǡƒŽ„‡‹–
at a slower pace. We suspect organizations requiring highly customized solutions will likely remain
on-premises, while organizations with more commodity-like processes will be more inclined to move
to the cloud. In addition, given the weak manufacturing backdrop, we believe many manufacturing
companies would prefer to continue paying maintenance on older software versions instead of
•Š‹ˆ–‹‰–‘–Š‡…Ž‘—†ǡ™Š‹…Š–‡†•–‘„‡‘”‡‡š’‡•‹˜‡–Šƒƒ‹–‡ƒ…‡’ƒ›‡–•ƒ––Š‡‘—–•‡–Ǥ

([KLELW
(536RIWZDUH0DUNHW6KDUH
 

SAP
SAP
23%
25%
Other Vendors
Other Vendors 37%
42%
Oracle
Oracle 

NetSuite Infor Sage
Infor
2% 6% 6%
NetSuite 5% Sage IBM, 2%
6% Microsoft
Ultimate 1% Microsoft
Ultimate 5%
Software 5%
Kronos Workday
1% Software
3% 3%
IBM, 1% Kronos, 2% Workday, 0% 2%

7RS9HQGURV
5DQN   5-year
5DQN 5DQN 0RYHPHQW Vendor 5HYHQXH 5HYHQXH 5HYHQXH
1 1 0 SAP $5,373 $6,029 2%
2 2 0 Oracle $2,602 $3,073 3%
3 3 0 Sage $1,265 $1,661 6%
4 4 0 Infor $1,053 $1,529 8%
5 5 0 Microsoft $946 $1,306 7%
6 44 Ç38 Workday $37 $929 91%
7 6 È1 Kronos $503 $778 9%
8 19 Ç11 Ultimate Software $172 $516 25%
9 17 Ç8 IBM $195 $497 21%
10 26 Ç16 NetSuite $108 $488 35%
Source: Gartner: Market Snapshot: ERP Software, Worldwide, 2016

Supply chain management. Demand for supply chain management (e.g., supply chain planning, sup-
’Ž›…Šƒ‹‡š‡…—–‹‘ǡƒ†’”‘…—”‡‡–Ȍ”‡ƒ‹••–”‘‰‰‹˜‡–Š‡…‘–‹—‡†‡‡†–‘Š‡Ž’„—•‹‡••‡•
‹’”‘˜‡…—•–‘‡”•ƒ–‹•ˆƒ…–‹‘ƒ†‘’‡”ƒ–‹‘ƒŽ‡ˆϐ‹…‹‡…‹‡•˜‹ƒ•—’’Ž›…Šƒ‹ƒƒ‰‡‡–ƒ’’Ž‹…ƒ-
tions. As companies mature, they become increasingly focused on ways to grow and transform their
business in areas that we believe will funnel investments in supply chain management, especially
ƒ•„—•‹‡••’”‘…‡••‡•ƒ†•—’’Ž‹‡””‡Žƒ–‹‘•Š‹’•„‡…‘‡‹…”‡ƒ•‹‰Ž›‘”‡…‘’Ž‡šƒ††‹ˆϐ‹…—Ž–
to manage. For this reason, an integrated system is crucial and must coordinate with all aspects of
the business to share information and collaborate both up and down the entire supply chain.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 9
William Blair

—”–Š‡”ǡ–Š‡”‡‹••‹‰‹ϐ‹…ƒ–†‡ƒ†ˆ‘”‘”‡‘†‡”’”‘…‡••‹’”‘˜‡‡–•ƒ†˜‹•‹„‹Ž‹–›‹–‘–Š‡
entire supply chain process—making supply chain management applications critical for more ma-
–—”‡…‘’ƒ‹‡•ǤŽ‡š›•–‡•ǡ™Š‹…Š’”‘˜‹†‡•…Ž‘—†Ǧ„ƒ•‡†•‘ˆ–™ƒ”‡ǡƒ…“—‹”‡†‡ƒ†ƒ•–‡”
‹—‰—•–Ȅ‡š–‡†‹‰–Š‡…‘’ƒ›ǯ••‘Ž—–‹‘–‘•—’’Ž›…Šƒ‹’Žƒ‹‰…ƒ’ƒ„‹Ž‹–‹‡•ƒ†…”‡ƒ–‹‰ƒ
…‘’Ž‡–‡•—‹–‡ˆ‘”ƒ—ˆƒ…–—”‹‰…—•–‘‡”•ǤŽ‡š…ƒ‘™‘ˆˆ‡”ƒ—ˆƒ…–—”‡”•ƒˆ—ŽŽ”ƒ‰‡‘ˆˆ—…-
–‹‘ƒŽ‹–›•’ƒ‹‰’Žƒ‹‰ǡ‡š‡…—–‹‘ǡƒ††‡Ž‹˜‡”›Ǥ ƒ††‹–‹‘ǡŽ‡š’”‘˜‹†‡•‘„‹Ž‡…ƒ’ƒ„‹Ž‹–‹‡•
as part of its core offering, whereas most other cloud vendors typically treat it as an add-on offering
or more traditional on-premise vendors offer limited mobile capabilities.

We are witnessing an uptick in use of and demand for advanced analytics (e.g., predictive and pre-
scriptive analytical tools) for planning purposes and optimizing inventory streams. As an increas-
ing amount of data is collected about a company’s supply chain operations, the data can be used to
‹‹‹œ‡‹‡ˆϐ‹…‹‡…‹‡•ƒ†‘’–‹‹œ‡’”‘…‡••‡•Ǥ‘–‘Ž›†‘™‡˜‹‡™–Š‡‘˜‡”ƒŽŽ‹†—•–”›†›ƒ‹…•
ˆƒ˜‘”ƒ„Ž›ǡ„—–…Ž‘—†ƒ†‘’–‹‘–”‡†•ƒ”‡ƒ––”ƒ…–‹˜‡ƒ•™‡ŽŽǤ ‘”‡šƒ’Ž‡ǡ
ƒ”–‡”ˆ‘”‡…ƒ•–•Dz…Ž‘—†Ǧ
based technologies will dominate 60% of new supply chain management (SCM) application spend by
2020 as businesses replace heavily customized and technically obsolete supply chain applications.”
The industry is ripe for replacement with many legacy, outdated systems still being used today. We
view these trends as tailwinds for SaaS-based vendors in the space, including SPS Commerce, Inc.,
The Descartes Systems Group Inc., and Amber Road.

Communications. Communications applications are also gaining traction in the cloud. The commu-
nications market is broad, encompassing telephony, messaging, web-conferencing and integrated
…‘ŽŽƒ„‘”ƒ–‹‘–‘‘Ž•ǡƒ†˜‹†‡‘Ǥ˜‡”ƒŽŽǡ™‡„‡Ž‹‡˜‡‡ƒ…Š•‡‰‡–™‹ŽŽ„‡‡ϐ‹–ˆ”‘–Š‡…‘–‹—‹‰
shift away from premises-based systems, with telephony, messaging, and conferencing leading the
way. Replacement cycles for on-premises telephony systems, which we estimate are roughly eight
years, are stimulating transitions to the cloud. Further, replacement cycles often decrease in healthier
economies, which will accelerate the transition to the cloud in regions such as North America.

Ž‘—†Ǧ„ƒ•‡†–‡Ž‡’Š‘›•›•–‡•ƒ”‡•‹‰‹ϐ‹…ƒ–Ž›Ž‡••‡š’‡•‹˜‡–Šƒ‘Ǧ’”‡‹•‡•‘ˆˆ‡”‹‰•ƒ††‘
not have maintenance requirements. While cloud adoption has been more prevalent in the SMB
market, it is gradually gaining acceptance in the enterprise market. The main pure cloud players in
–Š‡—‹ϐ‹‡†…‘—‹…ƒ–‹‘••’ƒ…‡‹…Ž—†‡‹‰‡–”ƒŽǡͺšͺǡƒ† —œ‡ǤŠ‡‰”‘™‹‰ƒ……‡’–ƒ…‡ƒ†
size of the market have only been reinforced by the move to hosted solutions from many traditional
on-premises players such as Cisco and Avaya.

Use of messaging applications is also growing, mainly because of a younger, mobile-centric end-user
population. While group messaging or chat sessions have been used as internal communication tools
in enterprises for some time, companies are beginning to use messaging apps and bots to facilitate
‡š–‡”ƒŽ …‘—‹…ƒ–‹‘• ™‹–Š …—•–‘‡”•Ǥ ƒ› ‘”‰ƒ‹œƒ–‹‘• ƒ”‡ ’ƒ”–‡”‹‰ ™‹–Š ‡••ƒ‰‹‰
apps such as Facebook Messenger, Kik, WhatsApp, and WeChat, enabling one-on-one messaging
via everyday social applications.

In our opinion, messaging is a more personal form of communication because it typically provides
‹†‡–‹–›ǡ†ƒ–ƒǡƒ†…‘–‡š–ƒ„‘—––Š‡—•‡”ǤŽ•‘ǡ…Šƒ–Ǧ„ƒ•‡†„‘–•ǡ™Š‹…Šƒ”‡ƒ„Ž‡–‘”—ƒ—–‘ƒ–‡†
…‘—‹…ƒ–‹‘–ƒ••ȋ‡Ǥ‰Ǥǡ•‡†‹‰ƒ‹Ǧƒ’’–‡š–‡••ƒ‰‡ƒ„‘—–‡™•—’†ƒ–‡•Ȍǡƒ”‡‹…”‡ƒ•‹‰Ž›
being used to provide a more frictionless interaction with customers and do not require the user
–‘‡š‹––Š‡ƒ’’Ž‹…ƒ–‹‘ǤŠ‹Ž‡™‡„‡Ž‹‡˜‡–Šƒ––Š‡—•‡‘ˆ„‘–•™‹ŽŽ…‘–‹—‡ǡ™‡„‡Ž‹‡˜‡–Š‡”‡™‹ŽŽ
ƒŽ™ƒ›•„‡ƒ‡‡†ˆ‘”Š—ƒ‹–‡”ƒ…–‹‘Ǣ–Š‡”‡ˆ‘”‡ǡ™‡†‘‘–„‡Ž‹‡˜‡–Š‡”‡‹•ƒ•‹‰‹ϐ‹…ƒ––Š”‡ƒ–‘ˆ
bots taking over entirely. In our opinion, companies are at an advantage by offering multiple forms
of communication because preferences vary across different user groups.

10 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

According to Frost & Sullivan, web-conferencing software and services are forecast to grow at a
ϐ‹˜‡Ǧ›‡ƒ”…‘’‘—†ƒ—ƒŽ”ƒ–‡‘ˆͺǤͶΨ–‘̈́͵Ǥ͸„‹ŽŽ‹‘‹ʹͲʹͲǤ•‡”•ƒ”‡†‡ƒ†‹‰…‘•‘Ž‹†ƒ–‡†ǡ
single offerings including web and video conferencing capabilities at lower prices. Team collaboration
tools are disrupting older business models, and the cloud provides a quicker pace of innovation than
most incumbent solutions. Newer players in this space such as Slack and HipChat are increasing the
competition, while more-established players are also bringing their own form of cloud, collabora-
–‹‘•‘Ž—–‹‘••—…Šƒ•‹…”‘•‘ˆ–ˆϐ‹…‡͵͸ͷǤ–‹ŽŽǡ…‘’‡–‹–‹‘‹–Š‡ƒ”‡–‹•‹–‡•‡ƒ†’”‹…‹‰
pressure is lowering ASPs for these types of products. Most of the price points for these solutions
ƒ”‡†‡…”‡ƒ•‹‰ǡ‘”…‘ŽŽƒ„‘”ƒ–‹‘ƒ••‡–•–Šƒ–Šƒ˜‡„‡‡ƒ…“—‹”‡†ƒ”‡„‡‹‰„—†Ž‡†‹–‘‡š‹•–‹‰
offerings at no cost (e.g., there is no direct monetization of these solutions). However, we believe
‘•–…‘—‹…ƒ–‹‘…‘’ƒ‹‡•™‹ŽŽ„‡‡ϐ‹–ˆ”‘‹…Ž—†‹‰‹–‡‰”ƒ–‡†…‘ŽŽƒ„‘”ƒ–‹‘•‘Ž—–‹‘•‹
their subscription packages, providing a more robust and well-rounded product set for customers.

Analytics in the Cloud


‘‡‘ˆ–Š‡‘•–…‘’Ž‡šƒ†…—•–‘ƒ’’Ž‹…ƒ–‹‘•ƒ”‡ƒ”‘—†ƒ†˜ƒ…‡†ƒƒŽ›–‹…•ǡ„‡…ƒ—•‡‡˜‡”›
large enterprise has different source systems, metrics, and drivers on which management runs the
…‘’ƒ›Ǥ
‹˜‡–Š‡…—•–‘ƒ–—”‡‘ˆ–Š‡•‡•›•–‡•ƒ†–Š‡…‘’Ž‡š‹–›‘ˆ‰‡––‹‰–Š‡”‹‰Š–†ƒ–ƒǡ–Š‡
shift to cloud-based analytics has been quite slow. Still, over the past 12 months, we have witnessed
strong acceleration in adoption of cloud-based business intelligence (BI) solutions. We attribute
the shift to increased departmental usage by sales, marketing, and human resources organizations
–Šƒ–Šƒ˜‡‰‡‡”ƒŽŽ›„‡‡–Š‡ϐ‹”•–‘˜‡”•‹–Š‡•Š‹ˆ––‘’—„Ž‹……Ž‘—†ȋŽƒ”‰‡Ž›„‡…ƒ—•‡‘ˆ–Š‡•—……‡••
of salesforce.com, in our view). These departments often have relatively urgent goals and project
–‹‡ˆ”ƒ‡•ǡƒ•™‡ŽŽƒ•‘–ƒ„Ž‡„—†‰‡–…‘•–”ƒ‹–•ǡƒ†–Š‡”‡ˆ‘”‡•–ƒ†–‘„‡‡ϐ‹–ˆ”‘–Š‡‡ƒ•‡
‘ˆ‹’Ž‡‡–ƒ–‹‘ƒ†Ž‘™‡”—’Ǧˆ”‘–…‘•–•–”—…–—”‡‘ˆˆ‡”‡†„›…Ž‘—†•‘Ž—–‹‘•Ǥ˜‡”–Š‡Ž‘‰‡”
–‡”ǡ™‡‡š’‡…–…Ž‘—†ƒ†‘’–‹‘–‘ƒ……‡Ž‡”ƒ–‡ˆ—”–Š‡”ƒ•‘”‡‹••‹‘Ǧ…”‹–‹…ƒŽ•›•–‡•‹‰”ƒ–‡–‘
the cloud, given our belief that the analytics layer will ultimately be deployed where the majority
of enterprise data resides. Further, the standardization around data integration, RESTful APIs, XML
standards, and web services means that integration is less complicated, and the advent of databases
ȋ‡•’‡…‹ƒŽŽ›‘Ȍƒ†ƒƒŽ›–‹…•–Šƒ–…ƒƒ—–‘ƒ–‹…ƒŽŽ›…‘‡…––‘ƒ—…Š„”‘ƒ†‡”˜ƒ”‹‡–›‹•ǡ‘ˆ
course, also driving interest in cloud analytics.

([KLELW
Cloud BI SaaS Spending
4,000.0

3,500.0 3,680.8
3,000.0
2,897.5
2,500.0
Millions

2,000.0 2,223.1

1,500.0 1,674.5
1,000.0 1,216.2
905.0
500.0 715.2

0.0
2014 2015 2016 2017 2018 2019 2020

Source: Gartner

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 11
William Blair

In our past cloud reports (e.g., our April 23, 2012, report titled The Cloud Moves On), we have focused
on SaaS companies providing analytics and benchmarking capabilities around the data that they
have stored in their multitenant environments. We are now witnessing a much broader approach,
which we segment into several key buckets:

Ȉ Cloud or SaaS Vendors Providing More Sophisticated Analytics Around the Data They Hold
for Their Customers. Š‹•’Š‡‘‡‘‹•‘”‡‘ˆƒ‡š’ƒ•‹‘‘ˆ‘—”ƒˆ‘”‡‡–‹‘‡†–Š‡•‹•
that SaaS companies can provide their customers with access to analytics on their own data
ƒ†‘ˆˆ‡”„‡…Šƒ”‹ˆ‘”ƒ–‹‘Ǥ ‘”‡šƒ’Ž‡ǡ‘…—”…‘—Ž†—•‡‡š’‡•‡†ƒ–ƒ–‘Š‡Ž’…‘-
panies understand where they were spending by providing a view into aggregate growth in
–”ƒ˜‡Žƒ†‡š’‡•‡…‘•–•ƒ†‡˜‡—‹“—‡‹†‹˜‹†—ƒŽ‡š’‡•‡˜ƒ”‹ƒ…‡•Ǥ‘…—”…‘—Ž†ƒŽ•‘‘ˆˆ‡”
a benchmark that would allow companies to understand their rates (e.g., hotel costs) versus
•‹‹Žƒ” ’‡‡”•Ǥ • ƒ‘–Š‡” ‡šƒ’Ž‡ǡ Ž‡‡–ƒ–‹…• …”‡ƒ–‡† ƒ ƒƒŽ›–‹…ƒŽ ‘ˆˆ‡”‹‰ –Šƒ– ’”‘˜‹†‡•
more than just fuel and hours worked reporting to its customers; it also uses the data to help
customers optimize their routes and improve productivity. We believe that all SaaS companies
—Ž–‹ƒ–‡Ž›™‹ŽŽ‡š’ƒ†‘‘ˆˆ‡”‹‰…—•–‘‡”•‡Šƒ…‡†”‡’‘”–‹‰ƒ†‘”‡‡–‡”’”‹•‡ƒƒŽ›–‹-
cal functionality on their core processes. Some of these companies partner with and embed
–Š‹”†Ǧ’ƒ”–›ƒƒŽ›–‹…ƒŽ‘ˆˆ‡”‹‰•ȋ‡Ǥ‰Ǥǡ‡†‡•‡„‡†•–‡…Š‘Ž‘‰›ˆ”‘
‘‘†ƒ–ƒ–‘’”‘˜‹†‡
dashboarding and analytical capabilities for its customers). In these instances, the vendors do
not allow integration of third-party data, and any further analysis is likely done by downloading
the data into a private data warehouse or analytical environment.

Ȉ SaaS Vendors Building Broader Stacks That Provide Converged Architecture. A more recent
’Š‡‘‡‘Šƒ•„‡‡ˆ‘”ƒƒ˜‡†‘”•ȋ•’‡…‹ϐ‹…ƒŽŽ›•ƒŽ‡•ˆ‘”…‡Ǥ…‘ƒ†‘”†ƒ›Ȍ–‘•–ƒ”–‘ˆ-
ˆ‡”‹‰”‘„—•–ƒƒŽ›–‹…•ƒ”‘—†–Š‡‹””‡•’‡…–‹˜‡…Ž‘—†•ƒ†‡ƒ„Ž‹‰‹–‡‰”ƒ–‹‘‘ˆ‡š–‡”ƒŽ†ƒ–ƒ
(data outside their cloud applications) into these analytical environments, through a combina-
tion of direct-connect and third-party ETL technologies like Informatica. In effect what these
˜‡†‘”•Šƒ˜‡†‘‡‹•…”‡ƒ–‡†ƒŠ›’‡”Ǧ…‘˜‡”‰‡†ƒ”…Š‹–‡…–—”‡–Šƒ–‹…Ž—†‡•ƒȋ‡š–”ƒ…–ǡ
transform, load) environment, a data warehouse to hold the data, a master data management
layer, and a reporting and visualization layer for end-users to access the data. While these
offerings are nascent and the vendor relationships somewhat untested, and will likely need
some price adjustment, we believe that salesforce.com’s Wave offering is gaining traction faster
than we originally anticipated (partly because of multicloud bundling and integration); there
are some large, named customers (e.g., Barclays, General Electric, Tyco, Verizon) and others
including a global media company and a global manufacturing enterprise that have bought
the product. While most are using Wave for analytics around the sales, service, and marketing
data stored in salesforce’s cloud, we have heard of a number of companies loading their own
internal data up to the cloud to be integrated with the sales data and analyzing the integrated
information using Wave.

Given the nascence of the offering, we remind investors that the database does not replace
a large-scale data warehouse like Teradata—and certainly the reporting and visualization is
‘–‘’ƒ”™‹–Šƒ„Ž‡ƒ—Ȅ„—–™‡‡š’‡…–•ƒŽ‡•ˆ‘”…‡–‘…‘–‹—‡‹˜‡•–‹‰‹„—‹Ž†‹‰‘—–‹–•
ƒƒŽ›–‹…•…Ž‘—†ȋ‹–•”‡…‡–ƒ…“—‹•‹–‹‘‘ˆ‡›‘†‘”‡‹•ƒ‰‘‘†‡šƒ’Ž‡Ȍƒ†„‡Ž‹‡˜‡–Šƒ–‹–
™‹ŽŽ’”‘˜‹†‡ƒ‹…‡’‹ŽŽƒ”ˆ‘”‰”‘™–Š‘˜‡”–Š‡‡š–ͷ–‘ͳͲ›‡ƒ”•ǤŠ‡•‡˜‡†‘”•ǡ‘˜‡”–‹‡ǡ™‹ŽŽ
marginalize the ETL and database vendors, in our view, as they will co-opt much of the value
‹–‘–Š‡‹”…Ž‘—†‘ˆˆ‡”‹‰•Ǥ
‹˜‡–Š‡Š‡ƒ˜›…—•–‘‹œƒ–‹‘ƒ†…‘’Ž‡š‹–›‘ˆ‡–‡”’”‹•‡†ƒ–ƒ
warehouse environments, we do not believe that this shift will happen in the near term, but
rather will be a long-term evolution as enterprises become more comfortable with moving
portions of their data to the cloud. The continued adoption of mission-critical cloud systems
will accelerate this dynamic.

12 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

‡†‹ˆˆ‡”‡–‹ƒ–‡†’Žƒ›‡”‹–Š‹••‡‰‡–‹•‘‘Ǥ—”…‘˜‡”•ƒ–‹‘•™‹–Š•‘‡‘ˆ–Š‡…‘’ƒ›ǯ•
very large customers (global manufacturing and global industrial companies) suggest that Domo
may be the sole player in the converged stack that is not tied to one application. The company
has the unique ability to bring in data from more than 300 data sources, leveraging a robust
connector framework, and is focused on adding self-service, automation, and “best practice”
content through the platform to give more power to the business user and relieve the burden
‘ ‹’”‘˜‹†‹‰•‡ŽˆǦ•‡”˜‹…‡ …ƒ’ƒ„‹Ž‹–‹‡•Ǥ‡›‘†–Š‡…‘‡…–‹‘ǡ‡š–”ƒ…–‹‘ǡ’”‡’ƒ”ƒ–‹‘ǡ
reporting, and visualization layers of its converged stack, Domo has integrated collaboration
and optimization layers into its platform, delivering a complete business management solution
as opposed to just an analytics tool. We suspect that the company could, over time, take share
ˆ”‘˜‡†‘”•Ž‹‡ ˆ‘”ƒ–‹…ƒǡ”ƒ…Ž‡ǡ ǡƒ†‡”ƒ†ƒ–ƒƒ†–Š‡ˆ”‘–Ǧ‡†‡–‡”’”‹•‡ ’Žƒ›‡”•ǡ
•—…Šƒ•ǯ•—•‹‡••„Œ‡…–•‘”‹…”‘–”ƒ–‡‰›Ǥ‡˜‹‡™‘‘ƒ•–Š‡…‘˜‡”‰‡†’—”‡Ǧ’Žƒ›‹
the space given its sole focus on providing a holistic business management platform.

Ȉ Pure-Play Cloud Analytics Vendors. ‡†‡ϐ‹‡–Š‡•‡’Žƒ›‡”•ƒ•…‘’ƒ‹‡•–Šƒ–‘ˆˆ‡”ƒ”ƒ‰‡


‘ˆ’”‘†—…–•ˆ”‘•‹’Ž‡˜‹•—ƒŽ‹œƒ–‹‘–‘‘”‡‡–‡”’”‹•‡Ǧ–›’‡ ‹–Š‡…Ž‘—†Ǥ˜‡”–Š‡’ƒ•–
12 months, we have witnessed strong acceleration in adoption of cloud-based BI tools. For
‡šƒ’Ž‡ǡƒ„Ž‡ƒ—ǯ•…Ž‘—†Ǧ„ƒ•‡†‘ˆˆ‡”‹‰ǡƒ„Ž‡ƒ—Ž‹‡ǡƒ…Š‹‡˜‡†‘”‡–ŠƒͳͲͲΨ‰”‘™–Š‹
its most recent quarter. We attribute this to an increase in re-platforming activity onto cloud
infrastructure-as-a-service offerings like Amazon Web Services (AWS), Microsoft Azure, and
Google Cloud Platform. In addition, we believe the growing preference for subscription-based
Ž‹…‡•‹‰‘†‡Ž•–Šƒ–‘”‡…Ž‘•‡Ž›ƒ–…Š‡š’‡•‡•–‘”‡˜‡—‡”ƒ–Š‡”–ŠƒŽƒ”‰‡—’Ǧˆ”‘–…ƒ’‹–ƒŽ
‡š’‡†‹–—”‡–”ƒ•ƒ…–‹‘•Šƒ•„‡‡ƒ‘–Š‡”‡›†”‹˜‡”‘ˆƒ†‘’–‹‘Ǥ
‹˜‡–Š‡…‘–‹—‡†•Š‹ˆ–
‘ˆ‹ˆ”ƒ•–”—…–—”‡ƒ†ƒ’’Ž‹…ƒ–‹‘•–‘–Š‡…Ž‘—†ǡ™‡‡š’‡…–Š‡ƒŽ–Š›ƒ†‘’–‹‘‘ˆ…Ž‘—†Ǧ„ƒ•‡† 
•‘Ž—–‹‘•–‘…‘–‹—‡ˆ‘”–Š‡‡š–•‡˜‡”ƒŽ›‡ƒ”•Ǥ

In many cases, cloud-based BI offerings can be pointed at any data source (e.g., Tableau) with-
out co-opting the master data management or data warehouse components. In other cases,
companies such as Birst are targeting the enterprise and, we suspect, shooting to replace the
companywide reporting and BI capabilities of vendors such as MicroStrategy. While many of
these companies will likely stay away from creating a converged stack (i.e., they will not pro-
vide ETL and enterprise data warehouse functionality), we believe they will encroach on the
data preparation markets. These vendors, in our view, are the most likely to be acquired by the
legacy vendors that offer immature cloud offerings.

Ȉ Data Warehousing Vendors. This segment has been dominated largely by Amazon’s RedShift
‘ˆˆ‡”‹‰Ǥ ‘™‡˜‡”ǡ–Š‡Ž‡ƒ†‹‰‘Ǧ’”‡‹•‡•†ƒ–ƒ™ƒ”‡Š‘—•‹‰˜‡†‘”•ǡ•—…Šƒ•‡”ƒ†ƒ–ƒǡ”ƒ…Ž‡ǡ
SAP, and IBM, have recently introduced cloud-based offerings. In our view, following its recent
…Šƒ‰‡ǡ‡”ƒ†ƒ–ƒŠƒ•„‡‡–Š‡‘•–ƒ‰‰”‡••‹˜‡‹–”ƒ•‹–‹‘‹‰‹–•ˆ—ŽŽ…ƒ’ƒ„‹Ž‹–‹‡•ǡƒ†
‹–”‘†—…‹‰‡™˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…ƒ’’Ž‹…ƒ–‹‘•ǡ–‘–Š‡…Ž‘—†Ǥ
‘‘‰Ž‡ǯ•‹‰ƒ„Ž‡‘ˆˆ‡”‹‰ƒŽ•‘
allows for an on-demand data warehousing environment, but the ease-of-use and structured
nature of RedShift (a massively parallel columnar database architecture) are partly responsible
ˆ‘” ‹–• †”ƒƒ–‹… ‰”‘™–ŠǤ  ‘—” ˜‹‡™ǡ •‹‹Žƒ” –‘ ‘—” ‡š’‡…–ƒ–‹‘• ˆ‘” ˆ”‘–Ǧ‡†   •‘Ž—–‹‘•ǡ
enterprise data warehousing will continue to transition to the cloud as more applications and
infrastructure components are deployed using this model.

Ȉ Corporate Performance Management Applications. There has also been solid traction in the
…‘”’‘”ƒ–‡’‡”ˆ‘”ƒ…‡•’ƒ…‡ǡ•’‡…‹ϐ‹…ƒŽŽ›”‡Žƒ–‡†–‘ƒ’’Ž‹…ƒ–‹‘•–ƒ”‰‡–‡†ƒ–ϐ‹ƒ…‹ƒŽ’Žƒ‹‰
and analysis (FP&A) processes such as budgeting, planning, and forecasting. SaaS players such
as Anaplan, Adaptive Planning, and Host Analytics are gaining traction at the enterprise, replac-
‹‰ ›’‡”‹‘ǡ‘‰‘•Ȁ’’Ž‹šǡƒ†ǯ•‘ˆˆ‡”‹‰Ǥƒ›‘ˆ–Š‡•‡˜‡†‘”•ƒ”‡„”‘ƒ†‡‹‰–Š‡‹”
•‘Ž—–‹‘•–‘’”‘˜‹†‡‘”‡”‡’‘”–‹‰ƒ† …ƒ’ƒ„‹Ž‹–‹‡•Ǥ‡…Š‘Ž‘‰‹‡••—…Šƒ•”ƒ…Ž‡ǯ• ›’‡”‹‘
and Essbase still require numerous IT resources and consultants for hierarchy management and

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 13
William Blair

multiple charts of accounts—activities that should be much simpler and automated. Further,
consolidation in Essbase can take multiple hours in some cases, versus a matter of seconds or
minutes in technologies such as Anaplan.

Ȉ •‡Ǧƒ•‡Ǧ’‡…‹ϔ‹…†˜ƒ…‡†ƒŽ›–‹…ƒŽ’’Ž‹…ƒ–‹‘•ǤWe continue to believe that predictive


and prescriptive analytics will be the leading applications of the future. The use of machine
learning and cheap computing to provide massive amounts of processing power to help predict
and prescribe activities for business users based on factual correlations and patterns will lead
to improved economic outcomes, in our view. We have started to witness the growth of appli-
…ƒ–‹‘•–Šƒ–ƒ”‡‹‹–‹ƒŽŽ›–ƒ”‰‡–‡†ƒ–˜‡”›•’‡…‹ϐ‹…—•‡•Ǧ…ƒ•‡•Ǥ ‘”‡šƒ’Ž‡ǡ •‹†‡•ƒŽ‡•†‡Ž‹˜‡”•
predictive lead scoring and patented prescriptive lead sorting within its self-learning platform,
which has been shown to lift revenue by as much as 30% in only 30 days post-production. While
–Š‡…‘’ƒ›™‹ŽŽŽ‹‡Ž›‡š’ƒ†–‘–ƒ”‰‡–ƒ—…Š„”‘ƒ†‡””ƒ‰‡‘ˆƒ’’Ž‹…ƒ–‹‘•ǡ–Š‡•‡‹‹–‹ƒŽ
ƒ’’Ž‹…ƒ–‹‘••–ƒ”–‘ˆˆƒ•‘”‡—•‡Ǧ…ƒ•‡•’‡…‹ϐ‹…Ǥ

The Network Effect


In our opinion, companies with a large network base are at a competitive advantage and hold sig-
‹ϐ‹…ƒ–˜ƒŽ—‡„‡…ƒ—•‡‡–™‘”•…”‡ƒ–‡ƒDzŽ‘…Ǧ‹dz‡ˆˆ‡…–™Š‡”‡–Š‡•‘ˆ–™ƒ”‡‹•‡š–”‡‡Ž›Dz•–‹…›dz
and continually attracts additional users (either directly or indirectly through adjacencies sur-
”‘—†‹‰…‘”‡—•‡”•ȌǤ…‡ƒ…‘’ƒ›Šƒ•ƒ‡•–ƒ„Ž‹•Š‡†‡–™‘”ǡ†‡˜‡Ž‘’‡”•–‡†–‘–ƒ”‰‡––Šƒ–
‘”‰ƒ‹œƒ–‹‘–‘ƒ‡‘”‡ƒ’’Ž‹…ƒ–‹‘•ˆ‘”‹–Ȅ‡š’ƒ†‹‰–Š‡‡–™‘”‡˜‡ˆ—”–Š‡”Ǥ…‡ƒ…‘’ƒ›
establishes a large enough network and is integrated with multiple other applications, it becomes
harder to displace and creates a barrier for other competitors to enter the market. As the foothold
gradually gets bigger, the software eventually becomes the standard in the industry and, at times,
Šƒ•–Š‡ƒ„‹Ž‹–›–‘‹ϐŽ—‡…‡…‡”–ƒ‹ƒ•’‡…–•‘ˆ–Šƒ–‹†—•–”›Ȅ™Š‹…Š™‡„‡Ž‹‡˜‡Š‘Ž†••‹‰‹ϐ‹…ƒ–
value. We have seen this network effect play out quite well for other businesses such as Coupa, SPS
‘‡”…‡ǡƒ†Ž‡šǤˆ–‡–‹‡•ǡ™‡•‡‡–Š‡‡–™‘”‡ˆˆ‡…––ƒ‡Š‘Ž†‹•’‡…‹ϐ‹…˜‡”–‹…ƒŽ•ǡƒ•–Š‡•‡
companies have the potential to penetrate an industry quickly and take a majority of the market
•Šƒ”‡Ǥ ‘”‡šƒ’Ž‡ǡ‡š–—”ƒ†‹†–Š‹•‹–Š‡…‘•–”—…–‹‘‹†—•–”›™‹–Š‹–•Žƒ”‰‡†ƒ–ƒ„ƒ•‡‘ˆ‰‡‡”ƒŽ
contractors and subcontractors.

The Social Cloud and Internet of Things


Cloud software is increasingly becoming more social and will become a critical way for companies
–‘ …‘ŽŽ‡…– ƒ† ƒƒ‰‡ †ƒ–ƒǤ ‹–Š –Š‡ ϐŽ‡š‹„‹Ž‹–› ‘ˆ –Š‡ …Ž‘—†ǡ —’‰”ƒ†‡• ƒ† ƒ†ƒ’–ƒ–‹‘• –‘ …—”-
rent social trends are much easier, quicker, and less costly than traditional on-premises software.
ƒ…‡„‘‘Šƒ•’ƒ”–‡”‡†™‹–Š‡†‡•–‘’”‘˜‹†‡ƒ„—•‹‡••‡••ƒ‰‹‰…Šƒ‡Ž–Š”‘—‰Š ƒ…‡„‘‘
Messenger—opening another social media channel in support of customer service. Companies are
now using Twitter as a means to contact and answer customer questions and complaints. Many
•ƒŽŽƒ†‹†•‹œ‡„—•‹‡••‡•—•‡•‘…‹ƒŽ‡†‹ƒƒ•ƒŽ‡••‡š’‡•‹˜‡™ƒ›–‘ƒ”‡––Š‡‹”„—•‹‡••Ǥ
With the millennial generation being a larger part of today’s end-users, software is being catered
to their preferences, which typically include mobile and omnichannel capabilities.

The Internet of Things (IoT) is beginning to make its way into more organizations that are seeking
–‘”‡†—…‡…‘•–•‘”‹’”‘˜‡‡ˆϐ‹…‹‡…›Ǥ……‘”†‹‰–‘
ƒ”–‡”ǡ‘˜‡”ʹͲ„‹ŽŽ‹‘…‘‡…–‡†–Š‹‰•™‹ŽŽ„‡
in use by 2020; however, we believe it is still early days and will take time for companies to realize
–Š‡ˆ—ŽŽ‡…‘‘‹…„‡‡ϐ‹–•ƒ••‘…‹ƒ–‡†™‹–Š ‘Ǥ ‘”‡šƒ’Ž‡ǡ–Š”‘—‰Š–Š‡—•‡‘ˆ•‡•‘”•ƒ††ƒ–ƒǡ
ƒ—ˆƒ…–—”‹‰…‘’ƒ‹‡•™‹ŽŽ„‡ƒ„Ž‡–‘•‡–‘–‹ϐ‹…ƒ–‹‘•ˆ‘”–Š‹‰••—…Šƒ•‹˜‡–‘”›‰‡––‹‰Ž‘™ǡ
or that a user made an incorrect ordering input, or a machine is on the verge of breaking—all of
™Š‹…Š™‘—Ž†‹’”‘˜‡’”‘…‡••‡ˆϐ‹…‹‡…‹‡•ƒ†•ƒ˜‡‘‡›ǡ…”‡ƒ–‹‰ƒ…‘’‡–‹–‹˜‡ƒ†˜ƒ–ƒ‰‡Ǥ™‹Ž‹‘
just recently partnered with T-Mobile for a new product called programmable wireless, which is
particularly useful for IoT use-cases because it allows users to connect wirelessly and gather data
via SIM cards—enabling companies to build communication applications using that data. We also
believe that the evolution of IoT holds much potential in CRM. Gartner estimates that by 2018, 5%

14 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

of customer service cases will be initiated by internet-connected devices (up from 0.02% in 2014).
As this connected network grows, we believe there will be increased investment in IoT, spanning
more use-cases.

Non-GAAP Adjustments
The reporting of non-GAAP results has become commonplace among public software companies over
the last decade, and has drawn the attention of investors over the last year as regulators have issued
new interpretations of the rules and regulations for non-GAAP measures in public disclosures and
ϐ‹Ž‹‰•ǤŠ‡•—……‹…––ƒ‡ƒ™ƒ›•ˆ”‘–Š‡•‡‹–‡”’”‡–ƒ–‹‘•„›–Š‡ǤǤ‡…—”‹–‹‡•ƒ†š…Šƒ‰‡‘-
‹••‹‘ȋȌƒ”‡–Šƒ–
”‡•—Ž–•—•–„‡”‡’‘”–‡†ϐ‹”•–ȋ„‡ˆ‘”‡‘Ǧ
”‡•—Ž–•ƒ”‡”‡’‘”–‡†Ȍǡ
certain adjustments made to non-GAAP measures that may be misleading must be removed, and
…‘’ƒ‹‡••Š‘—Ž†‡š’‡…–ƒ††‹–‹‘ƒŽ•…”—–‹›ˆ”‘–Š‡‹–Š‡ˆ‘”‘ˆ‡™”‡‰—Žƒ–‹‘•ƒ†
Ž‡––‡”•Ȁ…‘‡–•–‘•’‡…‹ϐ‹……‘’ƒ‹‡•ǤŠ‹Ž‡–Š‡”‡™‡”‡‘ƒ†Œ—•–‡–•”‡Žƒ–‡†–‘–Š‡”‡’‘”–‹‰
‘ˆ•–‘……‘’‡•ƒ–‹‘‡š’‡•‡ǡ™Š‹…Š‹•–Š‡ƒ‹‘Ǧ
ƒ†Œ—•–‡–ˆ‘”•‘ˆ–™ƒ”‡…‘’ƒ‹‡•ǡ
we believe that the reporting of non-GAAP metrics will continue to draw the attention of both in-
vestors and the SEC in the future.

In the following section, we discuss the accounting for these non-GAAP adjustments, the impact
that non-GAAP adjustments have had on software company earnings, and how reported operating
metrics and valuations appear when not accounting for non-GAAP adjustments.

A Quick Primer on Stock-Based Compensation


Non-GAAP adjustments—largely stock-based compensation and amortization of intangibles —are
‡š’‡•‡•–Šƒ–ƒ”‡”‡“—‹”‡†„›
ȋ‰‡‡”ƒŽŽ›ƒ……‡’–‡†ƒ……‘—–‹‰’”‹…‹’Ž‡•Ȍ–‘„‡”‡…‘”†‡†‘
ƒ…‘’ƒ›ǯ•‹…‘‡•–ƒ–‡‡–Ǥ ‘™‡˜‡”ǡ–Š‡•‡‡š’‡•‡•ƒ”‡‘ˆ–‡‡š…Ž—†‡†ˆ”‘‘Ǧ
”‡-
sults, thus increasing a company’s operating income, net income, and earnings per share. So what
is stock-based compensation and amortization of intangible assets? Stock-based compensation, as
the name depicts, is the compensation paid by a company to its employees in stock, rather than in
salaries or cash bonuses. Based on our industry conversations, employees can receive 25% to 50%
of their total compensation in stock. These are generally net new shares that are granted and vest
over a certain amount of time (i.e., over two to four years)—providing employees with a form of
noncash-based compensation as they sell the shares, but also diluting the company’s share count
ƒ†˜ƒŽ—ƒ–‹‘ƒ•‡ƒ…Š•Šƒ”‡‹•‡š‡”…‹•‡†Ǥ‘ˆ‘”‡šƒ’Ž‡ǡ†—”‹‰ƒ‰‹˜‡“—ƒ”–‡”ǡƒ’”‘†—…–†‡˜‡Ž‘’-
ment or sales employee may receive 50% of his or her compensation in salary/payroll, 25% in a
…ƒ•Š„‘—•ǡƒ†ʹͷΨ‹•–‘…ȋ‡Ǥ‰ǤǡͷͲ•Šƒ”‡•‘ˆ•–‘…–Šƒ–˜‡•–‘˜‡”–Š‡‡š–ˆ‘—”›‡ƒ”•ȌǤ

How Has Stock-Based Compensation Trended?


˜‡”–Š‡Žƒ•–ϐ‹˜‡…‘’Ž‡–‡†ϐ‹•…ƒŽ›‡ƒ”•ǡ–Š‡…‘’ƒ‹‡•‹‘—”ƒƒ‰”‘—’Šƒ˜‡•‡‡–Š‡‹”Ž‡˜‡Ž‘ˆ
stock-based compensation as a percentage of revenue increase from 6% to 11%, on average. To put
this into perspective, we compare this to the stock-based compensation as a percentage of revenue
ˆ”‘‘—”‰”‘—’‘ˆ‡•–ƒ„Ž‹•Š‡†•‘ˆ–™ƒ”‡˜‡†‘”•ǡ™Š‹…ŠŠƒ•”‡ƒ‹‡†ϐŽƒ–ƒ–ͶΨ‘˜‡”–Š‡Žƒ•–ϐ‹˜‡
›‡ƒ”•ǡ‘ƒ˜‡”ƒ‰‡ȋ•‡‡‡šŠ‹„‹–ͺȌǤ‡‘–‡–Šƒ––Š‡ƒƒ‰”‘—’Šƒ•‡šŠ‹„‹–‡†ƒ—…ŠŠ‹‰Š‡”‰”‘™–Š
”ƒ–‡‘˜‡”–Š‡Žƒ•–ϐ‹˜‡›‡ƒ”•ǡ™‹–Š”‡˜‡—‡‹…”‡ƒ•‹‰ƒ–ƒͶͲΨ…‘’‘—†ƒ—ƒŽ”ƒ–‡‘˜‡”–Š‡Žƒ•–
ϐ‹˜‡›‡ƒ”•ǡ…‘’ƒ”‡†™‹–Š–Š‡‡•–ƒ„Ž‹•Š‡†•‘ˆ–™ƒ”‡‰”‘—’ƒ–‘Ž›ͶΨ‘˜‡”–Š‡•ƒ‡’‡”‹‘†Ǥ

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 15
William Blair

([KLELW
$YHUDJH6WRFN%DVHG&RPSHQVDWLRQDVD3HUFHQWDJHRI5HYHQXH
FY-5 to FY-1

0.12

0.1

0.08 SaaS Group

0.06
Established Software Group
0.04

0.02

0
FY-5 FY-4 FY-3 FY-2 FY-1
Sources: FactSet and company filings

‡ƒŽ•‘Ž‘‘ƒ–‘—”—‹˜‡”•‡‘ˆƒƒ…‘’ƒ‹‡•‘˜‡”–Š‡Žƒ•––Š”‡‡…‘’Ž‡–‡†ϐ‹•…ƒŽ›‡ƒ”•‘ƒ
individual basis to see how stock-based compensation as percentage of revenue has trended. While
some companies have consistently decreased their level of stock-based compensation relative to
”‡˜‡—‡ȋ‡Ǥ‰Ǥǡ•ƒŽ‡•ˆ‘”…‡Ǥ…‘ƒ†…‹—‡•–Ȍǡ–Š‡˜ƒ•–ƒŒ‘”‹–›‘ˆƒƒ…‘’ƒ‹‡•Šƒ˜‡•‡‡–Š‡‹”
stock-based compensation as a percentage of revenue increase.

([KLELW
6WRFN%DVHG&RPSHQVDWLRQDVD3HUFHQWDJHRI5HYHQXH
SaaS Group
FY-3 to FY-1
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
ZEN
APPF

ECOM
CSOD

DSGX
CVT

PAYC
PCTY

SPSC

VEEV
DWRE

HUBS
MKTO

N
OPWR

TWLO
ALRM
TEAM

MDSO
MIXT

NOW
FLTX

SQI
MB

RNG
CRM

ULTI

WDAY
TXTR

FY-3 FY-2 FY-1

Sources: FactSet and company filings

‡ƒŽ•‘‡˜ƒŽ—ƒ–‡–Š‡•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘ƒ•ƒ’‡”…‡–ƒ‰‡‘ˆˆ”‡‡…ƒ•ŠϐŽ‘™•‹…‡ƒ›ƒƒ
…‘’ƒ‹‡•ƒ”‡„‡‰‹‹‰–‘‰‡‡”ƒ–‡ƒ•‹‰‹ϐ‹…ƒ–ƒ‘—–ȋ‡Ǥ‰Ǥǡ‰”‡ƒ–‡”–ŠƒͳͷΨˆ”‡‡…ƒ•ŠϐŽ‘™
›‹‡Ž†Ȍ‘ˆˆ”‡‡…ƒ•ŠϐŽ‘™Ǥ‡Ž‘‘„ƒ…ƒ–‘Ž›–Š‡Žƒ•––Š”‡‡…‘’Ž‡–‡†ϐ‹•…ƒŽ›‡ƒ”•‰‹˜‡–Šƒ––Š‡
ƒŒ‘”‹–›‘ˆƒƒ…‘’ƒ‹‡•Šƒ˜‡‘”‡”‡…‡–Ž›„‡‰—–‘‰‡‡”ƒ–‡ƒ•‹‰‹ϐ‹…ƒ–ƒ‘—–‘ˆˆ”‡‡…ƒ•Š
ϐŽ‘™ǡƒ†™‡’‘‹–‘—––Šƒ––Š‡”‡ƒ”‡‘ƒ‘—–•‹‡šŠ‹„‹–ͳͲˆ‘”…‡”–ƒ‹…‘’ƒ‹‡•–Šƒ–‰‡‡”ƒ–‡
‡‰ƒ–‹˜‡ˆ”‡‡…ƒ•ŠϐŽ‘™Ǥ

16 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

([KLELW
6WRFN%DVHG&RPSHQVDWLRQDVD3HUFHQWDJHRI)UHH&DVK)ORZ
SaaS Group
FY-3 to FY-1
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
DSGX

ZEN
APPF

CSOD
CVT

PAYC
PCTY

SPSC

VEEV
DWRE

HUBS
MKTO

TWLO
MIXT

OPWR

NOW
ALRM
TEAM

FLTX

SQI
MB

RNG
CRM

ULTI

WDAY
TXTR
FY-3 FY-2 FY-1

Sources: FactSet and company filings

Operating and Valuation Metrics After Adjusting for Stock-Based Compensation


Now that we have looked at the stock-based compensation as a percentage of revenue and free cash
ϐŽ‘™ǡ™‡†‹˜‡‹–‘™Šƒ–‘’‡”ƒ–‹‰ƒ†ˆ”‡‡…ƒ•ŠϐŽ‘™™‘—Ž†Ž‹‡ƒˆ–‡”ƒ†Œ—•–‹‰ˆ‘”•–‘…Ǧ„ƒ•‡†…‘-
’‡•ƒ–‹‘Ǥ ‡šŠ‹„‹–ͳͳǡ™‡ƒƒŽ›œ‡–Š‡ƒ˜‡”ƒ‰‡ƒ†‡†‹ƒ‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™ƒ†ˆ”‡‡…ƒ•ŠϐŽ‘™
margins in two different scenarios—1) as reported and in compliance with GAAP where stock-based
…‘’‡•ƒ–‹‘‹•ƒ††‡†„ƒ…ƒ•ƒ‘…ƒ•Š‡š’‡•‡ƒ†ʹȌ‡š…Ž—†‹‰–Š‡ƒ††„ƒ…‘ˆ•–‘…Ǧ„ƒ•‡†
…‘’‡•ƒ–‹‘–‘‘’‡”ƒ–‹‰ƒ†ˆ”‡‡…ƒ•ŠϐŽ‘™Ȅƒ†™‡Ž‘‘ƒ––Š‡’‡”…‡–ƒ‰‡Ǧ’‘‹–†‹ˆˆ‡”‡…‡‹
ƒ”‰‹•„‡–™‡‡–Š‡–™‘ƒ’’”‘ƒ…Š‡•Ǥ –Š‡Žƒ•–…‘’Ž‡–‡†ϐ‹•…ƒŽ›‡ƒ”ǡ–Š‡‡†‹ƒ‘’‡”ƒ–‹‰ƒ†
ˆ”‡‡…ƒ•Šƒ”‰‹•™‡”‡ͻǤͷΨƒ†ͶǤ͹Ψǡ”‡•’‡…–‹˜‡Ž›ǡƒ†ͳǤͷΨƒ†Ǧ͵ǤͻΨƒˆ–‡”‡š…Ž—†‹‰–Š‡ƒ††„ƒ…
‘ˆ•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘ǡ”‡•—Ž–‹‰‹ƒ†‹ˆˆ‡”‡…‡–‘‘’‡”ƒ–‹‰ƒ†ˆ”‡‡…ƒ•ŠϐŽ‘™ƒ”‰‹•‘ˆ
7.9 percentage points and 8.6 percentage points.

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6DD6*URXS2&)DQG)&)0DUJLQV:LWKDQG:LWKRXW6%&
FY-3 to FY-1

2SHUDWLQJ&DVK)ORZ0DUJLQ )UHH&DVK)ORZ0DUJLQ

Including6%&DVDQ$GGEDFNWR&DVK
)< )< )< )< )< )<
Average 4.4% 5.1% 8.7% -2.5% -2.4% 1.7%
Median 8.3% 7.4% 9.5% 2.9% 0.9% 4.7%

Excluding6%&DVDQ$GGEDFNWR&DVK
)< )< )< )< )< )<
Average -1.3% -3.3% -0.4% -6.9% -9.4% -6.3%
Median 2.5% -1.8% 1.5% -2.4% -4.6% -3.9%

Difference

Average -5.7% -8.4% -9.1% -4.4% -7.0% -8.0%


Median -5.8% -9.2% -7.9% -5.3% -5.6% -8.6%

Sources: FactSet and company filings

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 17
William Blair


‹˜‡–Šƒ–ƒ›‘ˆ–Š‡…‘’ƒ‹‡•‹‘—”ƒƒ‰”‘—’†‘‘–‰‡‡”ƒ–‡ƒ•‹‰‹ϐ‹…ƒ–ƒ‘—–‘ˆ‘’‡”ƒ–-
‹‰‘”ˆ”‡‡…ƒ•ŠϐŽ‘™ǡ™‡…‘†—…–‡†ƒ‘”‡‹Ǧ†‡’–ŠƒƒŽ›•‹•‹…Ž—†‹‰‘Ž›–Š‘•‡…‘’ƒ‹‡•‹‘—”
ƒƒ‰”‘—’–Šƒ–Šƒ˜‡‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™ƒ”‰‹•‘˜‡”ͳͲΨ‹ Ǧͳȋ•‡‡‡šŠ‹„‹–ͳʹȌǤŠ‹•‰”‘—’
Šƒ†ƒƒ˜‡”ƒ‰‡‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™ƒ”‰‹‘ˆʹͳΨ‹ Ǧͳƒ†ƒ‡†‹ƒƒ”‰‹‘ˆͳͻΨǢ‡š…Ž—†‹‰
–Š‡ƒ††„ƒ…‘ˆ•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘–‘…ƒ•ŠϐŽ‘™ǡ–Š‡ƒ˜‡”ƒ‰‡ƒ†‡†‹ƒ‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™
margin both decreased to 11%—a 10-percentage-point decline in the average and an 8-percentage-
point decline in the median. The group witnessed a similar percentage-point decline to its average
ƒ†‡†‹ƒˆ”‡‡…ƒ•ŠϐŽ‘™ƒ”‰‹•‹ Ǧͳƒ•™‡ŽŽȋͳͲǦ’‡”…‡–ƒ‰‡Ǧ’‘‹–†‡…Ž‹‡‹–Š‡ƒ˜‡”ƒ‰‡ƒ†
7-percentage-point decline in the median).

([KLELW
6DD6&RPSDQLHV:LWK!2&)0DUJLQVLQ)<
&RPSDULQJ2&)DQG)&)0DUJLQV:KLOH,QFOXGLQJDQG([FOXGLQJ6%&
FY-3 to FY-1

,QFOXGLQJ6%&DVDGGEDFN ([FOXGLQJ6%&DVDGGEDFN
2&)0DUJLQ )&)0DUJLQ 2&)0DUJLQ )&)0DUJLQ 2&)'LIIHUHQFH )&)'LIIHUHQFH
7LFNHU )< )< )< )< )< )< )< )< )< )< )< )< )< )< )< )< )< )<
ALRM 8% 9% 13% 6% 5% 8% 8% 7% 11% 6% 3% 6% -1% -2% -2% -1% -2% -2%
ATHN 16% 20% 18% 9% 10% 8% 9% 12% 11% 2% 2% 1% -7% -7% -7% -7% -7% -7%
TEAM 35% 31% 28% 31% 21% 21% 30% 18% 12% 26% 8% 4% -5% -13% -17% -5% -13% -17%
CSOD 9% 13% 13% 5% 8% 8% -2% 0% 0% -7% -4% -4% -11% -13% -13% -11% -13% -13%
CVT 20% 20% 14% 10% 7% 10% 16% 17% 8% 5% 4% 4% -4% -3% -6% -4% -3% -6%
DSGX 28% 29% 29% 27% 27% 27% 26% 28% 28% 25% 26% 26% -2% -1% -1% -2% -1% -1%
FLTX 24% 31% 32% 3% 13% 18% 19% 25% 24% -1% 8% 9% -4% -6% -9% -4% -6% -9%
IL 18% 10% 11% 15% 6% 7% 14% 6% 7% 11% 2% 2% -4% -4% -4% -4% -4% -4%
LOGM 18% 33% 32% 11% 30% 26% 6% 22% 22% 0% 19% 17% -12% -11% -10% -12% -11% -10%
N 15% 13% 14% 10% 9% 6% -3% -4% -1% -8% -9% -8% -18% -17% -15% -18% -17% -15%
PAYC 22% 15% 19% 6% 5% 12% 22% 14% 18% 6% 5% 10% 0% 0% -1% 0% 0% -1%
PCTY 7% 7% 14% 0% 1% 7% 2% -1% 7% -4% -7% 0% -5% -9% -8% -5% -9% -8%
NOW 19% 20% 31% 6% 12% 23% 4% -2% 6% -9% -10% -3% -15% -23% -26% -15% -23% -26%
SQI 20% 17% 17% 13% 8% 9% 12% 11% 12% 5% 1% 3% -8% -6% -5% -8% -6% -5%
RP 18% 17% 20% 10% 8% 13% 10% 8% 12% 2% -1% 5% -8% -9% -8% -8% -9% -8%
CRM 22% 22% 24% 14% 16% 14% 9% 11% 15% 2% 6% 5% -12% -11% -9% -12% -11% -9%
TXTR -33% 3% 23% -38% -10% 8% -69% -10% 7% -74% -23% -8% -36% -13% -16% -36% -13% -16%
ULTI 18% 16% 18% 11% 8% 10% 10% 7% 5% 3% -1% -4% -8% -9% -13% -8% -9% -13%
VEEV 20% 22% 20% 19% 13% 14% 17% 17% 14% 16% 9% 8% -3% -5% -6% -3% -5% -6%
WDAY 10% 13% 22% -3% 0% 11% -3% -7% 1% -16% -20% -11% -13% -20% -22% -13% -20% -22%

Mean                  
Median                  
Sources: FactSet and company filings

‡šŠ‹„‹–ͳ͵ǡŽ‘‘‹‰ƒ––Š‹••ƒ‡ƒƒ‰”‘—’–Šƒ–Šƒ˜‡‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™ƒ”‰‹•‘˜‡”ͳͲΨ‹
Ǧͳǡ™‡ƒƒŽ›œ‡–Š‡•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘ƒ•ƒ’‡”…‡–ƒ‰‡‘ˆ”‡˜‡—‡ǡ‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™ǡ
ƒ†ˆ”‡‡…ƒ•ŠϐŽ‘™–‘•‡‡Š‘™–Š‡”‡Žƒ–‹˜‡Ž‡˜‡Ž‘ˆ•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘…‘’ƒ”‡•ƒ‘‰‘—”
—‹˜‡”•‡‘ˆ…ƒ•ŠǦϐŽ‘™Ǧ’‘•‹–‹˜‡…‘’ƒ‹‡•ǤŠ‹•‰”‘—’Šƒ†ƒƒ˜‡”ƒ‰‡•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘ƒ•
ƒ’‡”…‡–ƒ‰‡‘ˆ‘’‡”ƒ–‹‰…ƒ•ŠϐŽ‘™‘ˆͶͻΨ‹ Ǧͳƒ†ƒ‡†‹ƒ’‡”…‡–ƒ‰‡‘ˆ͵ͻΨǤ–‘…Ǧ„ƒ•‡†
…‘’‡•ƒ–‹‘™ƒ•ǡ‘ƒ˜‡”ƒ‰‡ǡͺͻΨ‘ˆˆ”‡‡…ƒ•ŠϐŽ‘™ǡ™‹–Šƒ‡†‹ƒ‘ˆ͸ͷΨǤ

18 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

([KLELW
6DD6&RPSDQLHV:LWK!2&)0DUJLQVLQ)<
$QDO\]LQJ6%&DVDRI5(92&)DQG)&)
FY-3 to FY-1

2&) )&) SBC 6%&RI5(9 6%&RI2&) 6%&RI)&)


7LFNHU )< )< )< )< )< )< )< )< )< )< )< )< )< )< )< )< )< )<
ALRM 11 16 27 8 9 17 1 3 3 1% 2% 2% 8% 21% 12% 10% 37% 20%
ATHN 93 149 164 55 73 77 43 56 64 7% 7% 7% 46% 37% 39% 77% 76% 84%
TEAM 75 98 130 67 66 95 11 42 75 5% 13% 17% 15% 42% 58% 17% 63% 79%
CSOD 17 33 44 9 22 28 21 34 43 11% 13% 13% 120% 102% 98% 240% 153% 153%
CVT 22 28 27 11 10 19 5 4 12 4% 3% 6% 21% 15% 43% 44% 46% 63%
DSGX 43 49 54 40 47 50 3 2 2 2% 1% 1% 6% 3% 3% 6% 3% 3%
FLTX 42 72 92 6 31 50 7 13 25 4% 6% 9% 18% 18% 27% 135% 43% 49%
IL 42 26 31 35 16 18 8 10 12 4% 4% 4% 20% 40% 38% 24% 65% 64%
LOGM 30 74 86 19 67 72 20 25 26 12% 11% 10% 66% 33% 31% 103% 37% 37%
N 62 75 100 40 49 47 74 96 109 18% 17% 15% 118% 129% 109% 185% 198% 232%
PAYC 24 22 43 7 8 26 0 1 3 0% 0% 1% 0% 3% 7% 0% 9% 11%
PCTY 7 11 33 1 2 17 5 13 18 5% 9% 8% 68% 119% 53% na na 104%
NOW 82 139 315 26 85 228 66 154 258 15% 23% 26% 80% 111% 82% 248% 183% 113%
SQI 18 17 18 11 8 9 7 6 6 8% 6% 5% 38% 36% 32% 60% 81% 62%
RP 69 70 96 36 33 63 30 37 38 8% 9% 8% 43% 53% 40% 82% 113% 61%
CRM 875 1,174 1,613 576 883 903 503 565 594 12% 11% 9% 57% 48% 37% 87% 64% 66%
TXTR -12 2 20 -14 -6 7 13 8 14 36% 13% 16% na na 69% na na 201%
ULTI 74 81 111 44 42 60 33 46 82 8% 9% 13% 44% 57% 74% 75% 109% 137%
VEEV 42 68 80 40 41 59 7 14 24 3% 5% 6% 17% 21% 30% 17% 35% 41%
WDAY 46 102 259 -14 -2 125 62 156 250 13% 20% 22% 134% 153% 97% na na 200%

Mean  115                
Median  69                
Sources: FactSet and company filings

So What Does This Mean for Valuations?


We show a theoretical idea of what valuations, on an enterprise-value-to-revenue basis, would look
Ž‹‡™Š‡”‡˜‡—‡‹•‘”ƒŽ‹œ‡†ˆ‘”•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘Ǥ ‡šŠ‹„‹–ͳͶǡ™‡ϐ‹”•–Ž‘‘ƒ––Š‡
normal revenue estimates for calendar 2016 and 2017 (column 2) and the normal enterprise-value-
to-revenue valuations (column 3). We then adjust for stock-based compensation (column 4) by taking
the stock-based compensation as a percentage of revenue from FY-1 (column 1) and assuming this
percentage stays constant while applying it to the normal calendar 2016 and calendar 2017 revenue
estimates (column 2), to arrive at adjusted calendar 2016 and 2017 revenue that does not include
stock-based compensation (column 5), and thus the adjusted enterprise-value-to-revenue valua-
–‹‘•ȋ…‘Ž—͸ȌǤ••Š‘™‹‡šŠ‹„‹–ͳͶǡ–Š‡ƒ˜‡”ƒ‰‡ʹͲͳ͹‡–‡”’”‹•‡Ǧ˜ƒŽ—‡Ǧ–‘Ǧ”‡˜‡—‡˜ƒŽ—ƒ–‹‘
increases from 4.7 times to 5.2 times and the median valuation increases from 4.3 times to 4.5 times.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 19
William Blair

([KLELW
(95HYHQXH%HIRUHDQG$IWHU6%&$GGEDFN
(dollars in millions)
1    5 6
Normal Adjusted
6%&RIUHYHQXH EV 5HYHQXH EV/REV SBC Adjustment 5HYHQXH EV/REV
7LFNHU )< )< )<          
APPF 1% 2% 1% 614 104 136 5.9x 4.5x 1 2 103 134 6.0x 4.6x
ALRM 1% 2% 2% 1,068 245 291 4.4x 3.7x 4 5 241 287 4.4x 3.7x
AMBR 19% 4% 10% 246 74 84 3.3x 2.9x 7 8 67 76 3.7x 3.2x
ATHN 7% 7% 7% 5,004 1,104 1,318 4.5x 3.8x 77 91 1,027 1,226 4.9x 4.1x
TEAM 5% 13% 17% 6,201 529 685 11.7x 9.1x 87 113 441 572 14.1x 10.8x
BV 9% 7% 7% 360 203 213 1.8x 1.7x 15 16 188 197 1.9x 1.8x
BNFT 1% 4% 6% 1,149 235 293 4.9x 3.9x 13 17 222 277 5.2x 4.1x
ECOM 3% 9% 12% 249 113 129 2.2x 1.9x 13 15 100 114 2.5x 2.2x
CSOD 11% 13% 13% 2,429 426 522 5.7x 4.7x 54 66 372 456 6.5x 5.3x
CVT 4% 3% 6% 1,165 233 282 5.0x 4.1x 15 18 219 264 5.3x 4.4x
DSGX 2% 1% 1% 1,530 202 223 7.6x 6.9x 2 2 200 221 7.6x 6.9x
FLTX 4% 6% 9% 2,215 344 407 6.4x 5.4x 30 35 314 372 7.1x 6.0x
HGN-TSE 1% 1% 1% 127 73 82 1.7x 1.5x 1 1 72 81 1.8x 1.6x
HUBS 4% 14% 12% 1,784 264 346 6.7x 5.2x 31 40 234 305 7.6x 5.8x
IL 4% 4% 4% 588 299 328 2.0x 1.8x 13 14 287 314 2.1x 1.9x
JIVE 24% 18% 10% 223 201 196 1.1x 1.1x 21 20 180 176 1.2x 1.3x
LPSN 7% 6% 5% 397 223 237 1.8x 1.7x 11 12 212 225 1.9x 1.8x
LOGM 12% 11% 10% 2,230 334 383 6.7x 5.8x 33 37 301 346 7.4x 6.5x
MRIN 7% 9% 14% 59 102 104 0.6x 0.6x 15 15 87 89 0.7x 0.7x
MB 1% 2% 8% 606 138 177 4.4x 3.4x 11 15 127 162 4.8x 3.7x
MIXT 0% 1% 0% 113 105 114 1.1x 1.0x 0 0 105 114 1.1x 1.0x
OOMA 0% 1% 5% 107 104 123 1.0x 0.9x 5 6 99 117 1.1x 0.9x
PAYC 0% 0% 1% 2,805 327 422 8.6x 6.7x 4 6 322 416 8.7x 6.7x
PCTY 5% 9% 8% 2,050 265 336 7.7x 6.1x 20 26 244 311 8.4x 6.6x
NOW 15% 23% 26% 12,375 1,377 1,786 9.0x 6.9x 353 458 1,024 1,328 12.1x 9.3x
RP 8% 9% 8% 1,935 570 654 3.4x 3.0x 46 53 524 600 3.7x 3.2x
RNG 5% 7% 7% 1,626 374 463 4.4x 3.5x 28 34 346 428 4.7x 3.8x
CRM 12% 11% 9% 51,579 8,176 9,929 6.3x 5.2x 728 884 7,448 9,045 6.9x 5.7x
SHOP 3% 4% 4% 5,840 367 527 15.9x 11.1x 14 20 353 507 16.5x 11.5x
SPSC 4% 4% 4% 1,033 193 229 5.3x 4.5x 8 9 185 220 5.6x 4.7x
TNGO 6% 7% 9% 295 244 na 1.2x na 21 na 223 na 1.3x na
TWLO 4% 4% 5% 4,460 256 330 17.4x 13.5x 14 18 242 312 18.4x 14.3x
ULTI 8% 9% 13% 6,082 780 954 7.8x 6.4x 104 127 676 826 9.0x 7.4x
UPLD 1% 2% 4% 182 73 77 2.5x 2.4x 3 3 70 74 2.6x 2.5x
VEEV 3% 5% 6% 5,445 516 629 10.6x 8.7x 31 37 485 591 11.2x 9.2x
WDAY 13% 20% 22% 15,899 1,524 1,997 10.4x 8.0x 328 429 1,196 1,568 13.3x 10.1x
ZEN 7% 25% 25% 2,645 310 413 8.5x 6.4x 78 104 232 309 11.4x 8.6x
$YHUDJH    [ [ [ [
Median    [ [ [ [
Sources: FactSet and company filings

‡ƒŽ•‘•Š‘™ƒ–Š‡‘”‡–‹…ƒŽ‹†‡ƒ‘ˆ™Šƒ–˜ƒŽ—ƒ–‹‘•ǡ‘ƒ‡–‡”’”‹•‡Ǧ˜ƒŽ—‡Ǧ–‘Ǧˆ”‡‡Ǧ…ƒ•ŠǦϐŽ‘™„ƒ•‹•ǡ
™‘—Ž†Ž‘‘Ž‹‡™Š‡ˆ”‡‡…ƒ•ŠϐŽ‘™‹•‘”ƒŽ‹œ‡†ˆ‘”•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘Ǥ ‡šŠ‹„‹–ͳͷǡ
we follow a similar process as with our enterprise-value-to-revenue calculation above to arrive at
‘”ƒŽ‹œ‡†ˆ”‡‡…ƒ•ŠϐŽ‘™ƒ†ƒ†Œ—•–‡†ˆ”‡‡…ƒ•ŠϐŽ‘™‡•–‹ƒ–‡•ƒ†˜ƒŽ—ƒ–‹‘•Ǥ••Š‘™‹‡šŠ‹„‹–
ͳͷǡ–Š‡ƒ˜‡”ƒ‰‡ʹͲͳ͹‡–‡”’”‹•‡Ǧ˜ƒŽ—‡Ǧ–‘Ǧˆ”‡‡Ǧ…ƒ•ŠǦϐŽ‘™˜ƒŽ—ƒ–‹‘‹…”‡ƒ•‡•ˆ”‘ͶͶǤͺ–‹‡•–‘ͷͲǤͳ
–‹‡•ƒ†–Š‡‡†‹ƒ˜ƒŽ—ƒ–‹‘‹…”‡ƒ•‡•ˆ”‘ͶͳǤͷ–‹‡•–‘ͶͶǤͺ–‹‡•Ǥ‡‘–‡–Šƒ–‹–Š‹•‡šƒ’Ž‡ǡ
the adjusted valuation average and median values may be deceiving given that a large amount of
companies that had valuation multiples based on the normal estimates no longer have a valuation
—Ž–‹’Ž‡ƒ•–Š‡•–‘…Ǧ„ƒ•‡†…‘’‡•ƒ–‹‘ƒ†Œ—•–‡–‡‹–Š‡”‡Ž‹‹ƒ–‡†–Š‡ˆ”‡‡Ǧ…ƒ•ŠǦϐŽ‘™‡•–‹ƒ–‡
or made the multiple greater than 300, which we do not include.

20 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

([KLELW
(9)&)%HIRUHDQG$IWHU6%&$GGEDFN
(dollars in millions)
1    5 6
Normal Adjusted
6%&RIUHYHQXH EV )UHH&DVK)ORZ (9)&) SBC Adjustment )UHH&DVK)ORZ (9)&)
7LFNHU )< )< )<          
ALRM 1% 2% 2% 1,068 16 26 67.5x 41.5x 4 5 12 21 89.8x 50.7x
ATHN 7% 7% 7% 5,004 48 101 104.6x 49.4x 77 91 -29 10 NM NM
TEAM 5% 13% 17% 6,201 123 174 50.5x 35.6x 87 113 36 61 174.1x 101.4x
CSOD 11% 13% 13% 2,429 27 52 90.6x 46.6x 54 66 -27 -14 NM NM
CVT 4% 3% 6% 1,165 26 18 44.8x 63.1x 15 18 11 1 102.4x NM
DSGX 2% 1% 1% 1,530 47 53 32.5x 28.6x 2 2 45 52 33.8x 29.7x
FLTX 4% 6% 9% 2,215 66 84 33.5x 26.2x 30 35 37 49 60.6x 44.8x
LOGM 12% 11% 10% 2,230 85 101 26.2x 22.1x 33 37 53 64 42.4x 35.0x
N 18% 17% 15% 8,630 92 125 93.8x 69.0x 142 180 -50 -55 NM NM
PAYC 0% 0% 1% 2,805 44 71 63.3x 39.8x 4 6 40 65 70.2x 43.2x
PCTY 5% 9% 8% 2,050 13 21 154.8x 99.4x 20 26 -7 -5 NM NM
NOW 15% 23% 26% 12,375 329 432 37.6x 28.7x 353 458 -24 -26 NM NM
RP 8% 9% 8% 1,935 56 108 34.8x 17.9x 46 53 9 55 NM 35.4x
CRM 12% 11% 9% 51,579 1,603 1,990 32.2x 25.9x 728 884 875 1,106 58.9x 46.7x
ULTI 8% 9% 13% 6,082 67 101 90.9x 60.4x 104 127 -37 -26 NM NM
VEEV 3% 5% 6% 5,445 113 123 48.0x 44.3x 31 37 83 86 65.7x 63.6x
WDAY 13% 20% 22% 15,899 143 251 111.1x 63.4x 328 429 -185 -179 NM NM
$YHUDJH    [ [ [ [
Median    [ [ [ [
Sources: FactSet and company filings

Platform Companies
Š‡…‘…‡’–‘ˆ’Žƒ–ˆ‘”•™‹–Š‹–Š‡–‡…Š‘Ž‘‰›‹†—•–”›‹•‘–‡™Ǥ‹…”‘•‘ˆ–…”‡ƒ–‡†‘‡‘ˆ–Š‡ϐ‹”•–
pure-play technology platforms by signing its agreement with IBM in 1980 that allowed Microsoft
–‘•‡ŽŽ‹–•‘’‡”ƒ–‹‰•›•–‡ǡǡ–‘‘–Š‡”…‘’ƒ‹‡•ǡ‡ƒ„Ž‹‰ƒŽŽ–›’‡•‘ˆ–Š‹”†Ǧ’ƒ”–›ƒ’’Ž‹…ƒ–‹‘•
ƒ†•‘ˆ–™ƒ”‡–‘”—‘–‘’‘ˆ–Š‡‘’‡”ƒ–‹‰•›•–‡‹–•‡ŽˆǤŠƒ•‹’ƒ”––‘‹…”‘•‘ˆ–ǯ•ϐ‹”•–Ǧ‘˜‡”
advantage in the operating system space and its platform approach, the company is worth almost
̈́ͶͲͲ„‹ŽŽ‹‘–‘†ƒ›ǤŠ‘•–‘ˆ‘–Š‡”’Žƒ–ˆ‘”•Šƒ˜‡ƒŽ•‘™‹–‡••‡†•–”‘‰•—……‡••‹‰ƒ‹‹‰ƒ”‡–
share. Retail platforms like eBay and Amazon have been around for more than two decades, and the
largest retailer in the world, Amazon, has little to no inventory on hand. Social network platforms
like Facebook, LinkedIn, Twitter, Snapchat, and Instagram all began to gain relevance over the last
decade, and the largest social media platform in the world, Facebook, is the most popular media
and news provider in the world yet creates no content itself.

˜‡”–Š‡Žƒ•–†‡…ƒ†‡ǡƒŠ‘•–‘ˆ’ƒ›‡–’Žƒ–ˆ‘”•ȋ‡Ǥ‰Ǥǡ‡‘ǡ“—ƒ”‡Ȍǡ‹˜‡•–‡–’Žƒ–ˆ‘”•ȋ‡Ǥ‰Ǥǡ
LendingClub, Prosper), communication platforms (WhatsApp, Skype), real estate platforms (e.g.,
‹ŽŽ‘™ǡ”—Ž‹ƒȌǡƒ†•Šƒ”‹‰’Žƒ–ˆ‘”•ȋ‡Ǥ‰Ǥǡ„‡”ǡ‹”„„ȌŠƒ˜‡ƒŽŽ—•‡†•‘ˆ–™ƒ”‡–‘–ƒ‡ƒ‹…”‡ƒ•-
‹‰ƒ‘—–‘ˆƒ”‡–•Šƒ”‡ǡ™‹–Š„‡”‘™–Š‡Žƒ”‰‡•––ƒš‹…‘’ƒ›‹–Š‡™‘”Ž†™‹–Š‘—–‘™‹‰
any tangible vehicles and Airbnb now the largest accommodation provider in the world without
‘™‹‰ƒ›”‡ƒŽ‡•–ƒ–‡ǤŽŽ‘ˆ–Š‡•‡’Žƒ–ˆ‘”•Šƒ˜‡…”‡ƒ–‡†ƒ‡š…Šƒ‰‡‡…‘•›•–‡™Š‡”‡—•‡”•
can communicate and transact, and third-party systems can also connect into the ecosystem—al-
Ž‘™‹‰–Š‡•‡’Žƒ–ˆ‘”•–‘ƒ––ƒ‹•‹‰‹ϐ‹…ƒ–•…ƒŽ‡ƒ†˜ƒ–ƒ‰‡™Š‹Ž‡ˆ‘…—•‹‰Ž‹––Ž‡‡ˆˆ‘”–‘•‡ŽŽ‹‰
actual products. This has enabled these companies to achieve greater market share, faster growth,
and strong operating margins.

ƒ˜‹†‘ˆϐ‹‡ƒ†‹…Šƒ‡Ž—•—ƒ‘ǡ‹–Š‡‹”„‘‘Strategy Rules: Five Timeless Lessons from Bill


Gates, Andy Grove, and Steve Jobs, argue that the goal should be to create industry platforms rather
–Šƒ•–ƒ†ǦƒŽ‘‡’”‘†—…–•ǡƒ†’”‘˜‡–Š‹•‹ƒ—„‡”‘ˆ…ƒ•‡•–—†‹‡•Ǥ‡•—…Š…ƒ•‡•–—†›ˆ”‘–Š‹•
„‘‘–Šƒ–™‡–ƒ‡ƒ†‡‡’‡”†‹˜‡‹–‘‹•’’Ž‡ǡ …ǤȄ‘™ƒ…‘’ƒ›™‘”–Š‘”‡–Šƒ̈́͸ͲͲ„‹ŽŽ‹‘Ǥ

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 21
William Blair

Until about 2003, Apple was a fairly stagnant company with slow growth and negative operating
margins, but in 2003 and 2004, this began to change and Apple saw its growth greatly accelerate and
‹–•‘’‡”ƒ–‹‰ƒ”‰‹’”‘ϐ‹Ž‡‹’”‘˜‡†”ƒƒ–‹…ƒŽŽ›ȋ•‡‡‡šŠ‹„‹–•ͳ͸ƒ†ͳ͹ȌǤ‘™Šƒ–‡šƒ…–Ž›…Šƒ‰‡†ǫ

([KLELW
$SSOH¶V5HYHQXHDQG5HYHQXH*URZWK
WR
(dollars in millions)

250 90%
80%
What changed in 2003?
200 70%
60%
150
50%
40%
100
30%

50 20%
10%
0 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Revenue Revenue Growth

Sources: FactSet and company filings

([KLELW
Apple’s Operating Margin
WR

0.4
0.35
0.3
0.25
What changed in 2003?
0.2
0.15
0.1
0.05
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-0.05
-0.1
Sources: FactSet and company filings

If you guessed that the iPod or iTunes was created in 2003, then you are two years too late (iPod
and iTunes were created in 2001), and if you guessed it was because of the iPhone, then you are
three years too early (the iPhone was created in 2007). So what did happen in 2003 that saw Apple
increase its revenue growth from midsingle digits to 33% in 2004, 68% in 2005, and 39% in 2006
and saw Apple’s operating margins increase from breakeven to almost 15% over the same period?
The answer: Apple created a platform by creating an ecosystem around the iPod and iTunes.

Before 2003, Apple had been following a product strategy by trying to win as many customers by
Šƒ˜‹‰–Š‡„‡•–’”‘†—…–ǢŠ‘™‡˜‡”ǡ–Š‹•‘Ž›ƒŽŽ‘™‡†–Š‡…‘’ƒ›–‘‡š’ƒ†–‘ƒ…‡”–ƒ‹Ž‡˜‡Žƒ†
alienated it from the majority of users who were on other platforms and products. While Steve Jobs

22 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

had a penchant for creating innovative and simple-to-use products, it took the nudging of Apple’s
‡š‡…—–‹˜‡–‡ƒ–‘‘’‡–Š‡…‘’ƒ›ǯ•’”‘†—…–•–‘‘–Š‡”‘’‡”ƒ–‹‰•›•–‡•Ǥ—–Š‘”•ƒ˜‹†‘ˆϐ‹‡
and Michael Cusumano believe that this is what really marked the change in Apple from a strug-
gling product company to a platform company with great products that could now bridge out to
the broader base of users across the world, leading to the company’s outsized growth and strong
scale advantages and, ultimately, rapid improvement in operating margins. The company repli-
cated this platform approach when releasing the iPhone and iPad—creating an online app store
–Šƒ–ƒŽŽ‘™‡†–Š‹”†Ǧ’ƒ”–›…‘’ƒ‹‡•–‘†‡˜‡Ž‘’–Š‡‹”‘™ƒ’’Ž‹…ƒ–‹‘•‘–‘’‘ˆ–Š‡‹‘’‡”ƒ–‹‰
•›•–‡Ȅ™Š‹…Š‡ƒ„Ž‡†–Š‡…‘’ƒ›–‘ƒ––ƒ‹†‘‹ƒ–ƒ”‡–•Šƒ”‡™Š‹Ž‡…‘–‹—‹‰–‘‡š’‡”‹-
ence scale advantages.

Emerging Platforms
Platform providers continue to evolve in the software industry. As it relates to our coverage list, two
key PaaS trends continue to emerge: 1) in the infrastructure space, with providers such as Amazon
Web Services (AWS), Microsoft Azure, and Google Cloud Platform, and 2) in the application develop-
ment space, with providers such as salesforce’s Force.com platform and the Atlassian Marketplace.

Amazon Web Services


AWS, which started as a simple storage service 10 years ago, now offers more than 70 services for
compute, storage, databases, analytics, mobile, IoT, and enterprise applications. It is already bigger
than Amazon.com was at 10 years old and is growing at a faster rate. While we will not get into the
details of the IaaS marketplace in this piece of the report, we take a deeper look at the success of
ƒœ‘ǯ••‡…‘†’Žƒ–ˆ‘”ȋ–Š‡ϐ‹”•–„‡‹‰‹–•”‡–ƒ‹Ž’Žƒ–ˆ‘”ƒœ‘Ǥ…‘Ȍǡǡƒ†–Š‡‰”‘™–Š
ƒ†•…ƒŽ‡ƒ†˜ƒ–ƒ‰‡•–Šƒ–‹–Šƒ•™‹–‡••‡†Ǥ˜‡”–Š‡Žƒ•––™‘›‡ƒ”•ȋˆ‘”™Š‡†ƒ–ƒ‹•ƒ˜ƒ‹Žƒ„Ž‡Ȍǡ
sales have increased at an average of 60%, and just over 66% over the last 12 months, despite ap-
’”‘ƒ…Š‹‰ƒ”—Ǧ”ƒ–‡‘˜‡”̈́ͳͳǤͷ„‹ŽŽ‹‘ǤŽ‘‰•‹†‡–Š‹•”‘„—•–‰”‘™–Šǡǯ•‘’‡”ƒ–‹‰ƒ”‰‹Šƒ•
also improved from 7.7% in second quarter 2014 to 29.9% in second quarter 2016. We note that
AWS operating income contributes over 40% of Amazon’s total operating income, although AWS
represents less than 10% of the company’s consolidated revenue. In our opinion, these data points
represent a key strength in the platform approach—the ability to deliver accelerating growth while
improving operating margins—and one that is increasingly present in the company’s pure-software
’Žƒ–ˆ‘”ȋȌƒ•‘’’‘•‡†–‘‹–•‡š…Šƒ‰‡”‡–ƒ‹Ž’Žƒ–ˆ‘”ȋƒœ‘Ǥ…‘ȌǤ

([KLELW
$PD]RQ5HYHQXH*URZWKDQG2SHUDWLQJ0DUJLQV– AWS and Non-AWS
(dollars in millions)

4 4 4 4  1Q15 4 4 4  1Q16 4
AWS
Net Sales            
Y/Y growth 69.0% 43.0% 43.0% 47.0% 49.4% 49.1% 81.5% 78.4% 69.4% 69.7% 63.9% 58.2%
Segment operating income $245 $77 $98 $240 $660 $265 $391 $521 $687 $1,864 $716 $863
Margin 23.3% 7.7% 8.4% 16.9% 14.2% 16.9% 21.4% 25.0% 28.6% 23.7% 27.9% 29.9%
%age of total operating income 37.5% 36.4% 52.5% 39.3% 41.2% 43.1% 40.9%

Non-AWS
Net Sales            
Y/Y growth 21.0% 22.2% 19.3% 13.4% 18.2% 13.2% 16.5% 19.9% 19.5% 17.5% 25.6% 28.8%
Operating income $257 $327 ($234) $798 $1,148 $441 $684 $472 $1,063 $2,660 $944 $1,245
Margin 1.4% 1.8% -1.2% 2.9% 1.4% 2.1% 3.2% 2.0% 3.2% 2.7% 3.6% 4.5%
Sources: Company filings

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 23
William Blair

‡‡š’‡…–‘–Š‡”’Žƒ›‡”•ǡ•—…Šƒ•‹…”‘•‘ˆ–œ—”‡ƒ†
‘‘‰Ž‡Ž‘—†Žƒ–ˆ‘”ǡ–‘”‡ƒ‹…‘’‡–‹–‹˜‡
in the space. Despite this competition, we believe Amazon should continue to witness very high
win rates given its greater scale, geographic footprint, and industry mindshare. In our opinion, this
‹†—•–”›‹•”‹’‡ˆ‘””‡’Žƒ…‡‡–ƒ•…‘’ƒ‹‡•Ž‘‘–‘Ž‘™‡”–Š‡‹”…ƒ’‹–ƒŽ‡š’‡†‹–—”‡•ƒ†–Š‡‹”–‘–ƒŽ
cost of ownership associated with data centers and servers and increase their compute workloads.

Salesforce.com – Force.com

How does Force.com differ from AWS? AWS is about the infrastructure layer (e.g., provisioning, servers,
storage, compute, analytics), and Force.com is about the front-end-facing application development
ƒ††‡’Ž‘›‡–ȋ‡Ǥ‰Ǥǡ‘„‹Ž‡ǡ•‘…‹ƒŽǡ„—•‹‡••‹’ƒ…–ǡϐ‹ƒ…‹ƒŽ•Ȁ”‡•—Ž–•ǡƒƒŽ›–‹…•Ȁ˜‹•—ƒŽ‹œƒ–‹‘ȌǤ
Within AWS, which provides IaaS, a company can choose its own operating system (e.g., Windows,
‹—šȌǡ†ƒ–ƒ„ƒ•‡ȋ”ƒ…Ž‡ǡ‘‰‘ǡ›ǡ‡”˜‡”Ȍǡ –‘‘Ž•ȋƒ„Ž‡ƒ—ǡŽ‹ǡ‹…”‘•‘ˆ–ǡ”ƒ…Ž‡ǡ
SAP, Cognos), and middleware. It is up to the company to provision everything together, allowing
‰”‡ƒ–‡”ϐŽ‡š‹„‹Ž‹–›„—–ƒŽ•‘‘”‡…‘’Ž‡š‹–›Ǥ ‘”…‡Ǥ…‘ǡ™Š‹…Š’”‘˜‹†‡•ƒƒ’’Ž‹…ƒ–‹‘†‡˜‡Ž‘’‡–
’Žƒ–ˆ‘”ǡŠƒ•’”‡…‘ϐ‹‰—”‡†‘ˆˆ‡”‹‰•–Šƒ–ƒ”‡ƒŽ”‡ƒ†›„—‹Ž–‹ȋ‡Ǥ‰Ǥǡ†ƒ–ƒ„ƒ•‡ǡ ǡ‘’‡”ƒ–‹‰•›•–‡ǡ
‹††Ž‡™ƒ”‡Ȍ–Šƒ––Š‡…‘’ƒ›…ƒ’”‘‰”ƒ—•‹‰‡‹–Š‡”’‡š‘”‹•—ƒŽˆ‘”…‡ǡ”‡‘˜‹‰—…Š‘ˆ
–Š‡…‘’Ž‡š‹–›™Š‹Ž‡ˆ‘”‰‘‹‰•‘‡ϐŽ‡š‹„‹Ž‹–›Ǥ ‘—”‘’‹‹‘ǡ’”‘•’‡…–‹˜‡…—•–‘‡”•ƒ”‡‰‡‡”ƒŽŽ›
not deciding between an infrastructure provider and an application development provider. Rather,
we view salesforce’s Force.com platform as a PaaS that sits on top of Amazon’s IaaS, and abstract
away all of the infrastructure (e.g., databases, BI tools, identity/search, operating systems) that
a company would need to run an application, allowing developers to focus solely on building the
application and without having to focus any attention on the infrastructure that sits underneath it.
Therefore, we do not view them as competitive with each other.

The Force.com application development platform is the largest cloud ecosystem in the world where
independent software vendors (ISVs) can build and deploy cloud-based applications. Salesforce.
com’s platform business, which represents nearly 20% of total revenue, is its fast-growing cloud,
™‹–Š•ƒŽ‡•‹…”‡ƒ•‹‰ƒ–ƒ„‘—–Ͷ͵Ψ‘˜‡”–Š‡Žƒ•–ͳʹ‘–Š•ȋ•‡‡‡šŠ‹„‹–ͳͻȌǤ

([KLELW
6DOHVIRUFHFRP3URGXFW6XEVFULSWLRQ5HYHQXHDQG*URZWK
(dollars in millions)
3URGXFW5HYHQXH
1Q16 4 4 4  4 4

Sales Cloud 630 671 689 709 2,699 725 755


Service Cloud 408 445 470 495 1,818 540 575
ET Marketing Cloud 143 158 169 184 654 185 202
Platform and Other 224 247 269 295 1,035 326 353
7RWDO 1,405 1,521 1,596 1,683 6,206 1,775 1,886
<2<,QFUHDVH
Sales Cloud 9.3% 10.0% 10.2% 12.3% 10.5% 14.9% 12.5%
Service Cloud 38.3% 39.7% 38.3% 34.9% 37.7% 32.5% 29.2%
ET Marketing Cloud 29.0% 29.0% 28.5% 31.1% 29.4% 29.1% 28.2%
Platform and Other 35.8% 36.3% 39.9% 43.0% 39.0% 45.5% 43.0%
Total 22.5% 23.4% 23.9% 25.2% 23.8% 26.3% 24.0%

Sources: Company filings

Why would companies want to build on Force.com? We believe the PaaS market for application de-
velopment will continue to witness a healthy amount of growth as new SaaS vendors emerge and
companies look to quickly achieve scale. Veeva is a perfect case study of the power of using the
Force.com platform. Veeva achieved a non-GAAP operating margin of 6.7% in 2010 when generating

24 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

”‡˜‡—‡‘ˆ̈́ͳ͵Ǥʹ‹ŽŽ‹‘ǡ™Š‹…Š‹•‹•–ƒ”…‘–”ƒ•––‘ƒ›‘ˆ–Š‡ƒƒ…‘’ƒ‹‡•‹‘—”—‹˜‡”•‡
–‘†ƒ›–Šƒ–ƒ”‡‰‡‡”ƒ–‹‰‘”‡–Šƒ̈́͵ͲͲ‹ŽŽ‹‘‹–‘–ƒŽ•ƒŽ‡•™Š‹Ž‡•–‹ŽŽˆƒ‹Ž‹‰–‘‰‡‡”ƒ–‡’‘•‹–‹˜‡
‘’‡”ƒ–‹‰ƒ”‰‹•Ǥ —”–Š‡”ǡ‘˜‡”–Š‡Žƒ•––Š”‡‡ϐ‹•…ƒŽ›‡ƒ”•ȋˆ”‘ʹͲͳ͵–‘ʹͲͳ͸Ȍǡ‡‡˜ƒŠƒ•‰”‘™
its revenue at a compound annual rate of 47% while maintaining its non-GAAP operating margin
close to 25%. While some of this is due to the company’s vertical focus that drives operating lever-
ƒ‰‡ǡ™‡„‡Ž‹‡˜‡ƒŽƒ”‰‡’ƒ”–‘ˆ‡‡˜ƒǯ•ƒ„‹Ž‹–›–‘”‡ƒ…Š’”‘ϐ‹–ƒ„‹Ž‹–›ƒ†•…ƒŽ‡•‘“—‹…Ž›™ƒ•†—‡–‘
its decision to be built on the Force.com platform.

‡šŠ‹„‹–ʹͲǡ™‡…‘’ƒ”‡‡‡˜ƒǯ•”‡˜‡—‡ǡ”‡˜‡—‡‰”‘™–Šǡƒ†ƒ†Œ—•–‡†‘’‡”ƒ–‹‰‹…‘‡ƒ”-
‰‹•‘˜‡”–Š‡Žƒ•–•‡˜‡›‡ƒ”•ȋˆ‘”™Š‡†ƒ–ƒ™ƒ•ϐ‹”•–ƒ˜ƒ‹Žƒ„Ž‡Ȍ–‘ƒ˜ƒ”‹‡–›‘ˆ‘–Š‡”ƒƒ˜‡†‘”•ǡ
‹…Ž—†‹‰‡†‡•ǡ‘…—”ǡ Ž‡‡–ƒ–‹…•ǡ‡š–—”ƒǡ —„’‘–ǡƒ†‹‰‡–”ƒŽǤ‡‘–‡–Šƒ––Š‡ϐ‹•…ƒŽ
›‡ƒ”•ˆ‘”–Š‡•‡…‘’ƒ‹‡•†‘‘–ƒ–…Š—’‡šƒ…–Ž›™‹–Š‡‡˜ƒǢ”ƒ–Š‡”ǡ™‡Œ—•–ƒŽ‹‰‡†–Š‡•‡‘–Š‡”
vendors’ operating results based on how closely the annual-year revenue matched with Veeva
ȋ‡Ǥ‰Ǥǡ‡†‡•ǯ•̈́͵ͺǤʹ‹ŽŽ‹‘‹”‡˜‡—‡ƒ…–—ƒŽŽ›‘……—””‡†‹ϐ‹•…ƒŽʹͲͳʹǡ„—–™‡ƒ”‡…‘’ƒ”‹‰‹–
–‘‡‡˜ƒǯ•ϐ‹•…ƒŽʹͲͳͳ”‡•—Ž–•„‡…ƒ—•‡–Šƒ–‹•–Š‡›‡ƒ”–Šƒ–‹–ƒ–…Š‡†—’‘•–…Ž‘•‡Ž›™‹–Š‡‡˜ƒǯ•
revenue). Using this comparison, it is clear that Veeva was able to achieve scale the fastest based
on comparable revenue run-rates, and also while demonstrating the fastest growth.

([KLELW
9HHYD5HYHQXH*URZWKDQG(%,70DUJLQV&RPSDUHG:LWK2WKHU6DD69HQGRUV
(dollars in millions)
9HHYD
      
Revenue $13,229 $29,129 $61,262 $129,548 $210,151 $313,222 $409,221
Growth 120% 110% 111% 62% 49% 31%
EBIT Margins 7% 17% 11% 24% 22% 28% 26%
=HQGHVN
Revenue $38,228 $72,045 $127,049 $208,768
Growth 88% 76% 64%
EBIT Margins -38% -24% -25% -12%
Concur
Revenue $56,550 $71,832 $97,146 $129,107 $215,491 $247,596 $292,936
Growth 27% 35% 33% 67% 15% 18%
EBIT Margins 5% 9% 15% 17% 19% 23% 23%
)OHHWPDWLFV
Revenue $46,057 $64,690 $92,317 $127,451 $177,350 $231,581
Growth 40% 43% 38% 39% 31%
EBIT Margins 9% 5% 15% 19% 24% 22%
7H[WXUD
Revenue $12,864 $23,964 $40,766 $62,968 $86,729
Growth 86% 70% 54% 38%
EBIT Margins -80% -58% -45% -14% 7%
+XE6SRW
Revenue $15,387 $28,553 $51,604 $77,634 $115,877 $181,944
Growth 86% 81% 50% 49% 57%
EBIT Margins -80% -69% -31% -40% -27% -14%
RingCentral
Revenue $50,222 $78,877 $114,526 $160,505 $219,887
Growth 57% 45% 40% 37%
EBIT Margins -15% -16% -26% -19% -14%
Sources: Company filings

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 25
William Blair

Twilio’s Communication-Focused Platform Drives Outsized Growth While Delivering Strong


Margin Expansion
–Š‡” ƒ’’Ž‹…ƒ–‹‘Ǧˆ‘…—•‡† ’Žƒ–ˆ‘”• Šƒ˜‡ ƒŽ•‘ ‡‡”‰‡† ‹ •’‡…‹ϐ‹… ƒ”‡ƒ• ‘ˆ ‡š’‡”–‹•‡Ǥ ™‹Ž‹‘
has attacked the cloud communication market, enabling developers to build, scale, and operate
real-time communications solutions within software applications. While Twilio does not actually
provide the front-end-facing application, the company creates building blocks for developers to
create custom communications solutions (e.g., voice, messaging, video, authentication capabilities).
Given its platform approach, the company already has more than 28,000 customer accounts and
‘˜‡”ͳ‹ŽŽ‹‘†‡˜‡Ž‘’‡”ƒ……‘—–•”‡‰‹•–‡”‡†‘‹–•’Žƒ–ˆ‘”ǡƒ†™‡‡š’‡…–™‹Ž‹‘™‹ŽŽ…‘–‹—‡
–‘ ‡š’ƒ† ™‹–Š‘—– ‡ƒ‹‰ˆ—Ž ‹…”‡‡–ƒŽ •ƒŽ‡•Ǧƒ†Ǧƒ”‡–‹‰ ‹˜‡•–‡– ȋƒ‹ –‘ ‘”…‡Ǥ…‘
and Amazon). The company has delivered average revenue growth of 82% over the last two years
while improving its non-GAAP operating margin by over 25 percentage points over the same period
despite delivering rapid growth. As previously mentioned, Amazon’s AWS infrastructure platform
also delivered strong growth (greater than 60%) while also delivering over 22 percentage points
‘ˆ‘Ǧ
‘’‡”ƒ–‹‰ƒ”‰‹‡š’ƒ•‹‘Ǥ†™Š‹Ž‡•ƒŽ‡•ˆ‘”…‡Ǥ…‘†‘‡•‘–„”‡ƒ‘—–‘’‡”ƒ–‹‰
margins by business segment (e.g., Sales Cloud, Service Cloud, Marketing Cloud, Force.com Platform,
ƒ†–Š‡”Ȍǡ™‡‡•–‹ƒ–‡–Šƒ––Š‡…‘’ƒ›ǯ• ‘”…‡Ǥ…‘’Žƒ–ˆ‘”‹•‰‡‡”ƒ–‹‰‘’‡”ƒ–‹‰ƒ”‰‹•‘ˆ
roughly 20%—the highest of any of its business segments—and still has room for additional margin
‹’”‘˜‡‡–‰‹˜‡–Š‡Ž‹‹–‡†•‡ŽŽ‹‰‡š’‡•‡ƒ••‘…‹ƒ–‡†™‹–Š†”‹˜‹‰‡™…—•–‘‡”ƒ…“—‹•‹–‹‘
ƒ†‡š’ƒ•‹‘™‹–Š‹‡š‹•–‹‰…—•–‘‡”ƒ……‘—–•ǡƒ†ƒŽ•‘–Š‡ƒ„‹Ž‹–›–‘”‡ƒŽ‹œ‡•…ƒŽ‡ƒ†˜ƒ–ƒ‰‡•
from R&D investments made to the platform.

([KLELW
7ZLOLRDQG$:6*URZWKDQG0DUJLQ([SDQVLRQ
(dollars in millions)

7ZLOLR
  
Revenue $50 $89 $167
Growth 78% 88%
Margin Expansion +14.0 bp +11.8 bp

Amazon AWS
  
Revenue $3,108 $4,644 $7,880
Growth 49% 70%
Margin Expansion NA +9.4 bp

Source: Company filings

Third-Party Marketplaces
SaaS vendors, such as salesforce.com and Atlassian, have also built and hosted online marketplaces
–Šƒ–‘ˆˆ‡”ƒ††Ǧ‘•ƒ†‡š–‡•‹‘•ˆ”‘–Š‹”†Ǧ’ƒ”–›˜‡†‘”•ƒ††‡˜‡Ž‘’‡”•Ǥ ‘”‡šƒ’Ž‡ǡ–Žƒ••‹ƒ
has developed the Atlassian Marketplace, which has over 2,000 add-ons from a variety of third-party
software vendors; customers can purchase these as add-ons to their original deployment of Atlas-
•‹ƒǯ••‘ˆ–™ƒ”‡Ǥ–Žƒ••‹ƒ…‘ŽŽ‡…–•ʹͷΨ‘ˆƒŽŽƒ”‡–’Žƒ…‡•ƒŽ‡•ǡƒ†Šƒ•…‘ŽŽ‡…–‡†ƒ–‘–ƒŽ‘ˆ̈́ͳͷͲ
million in revenue over the last four years. In our opinion, marketplaces like this help improve the
company’s overall feature set and the “stickiness” among the customer base as customer uptake
increases and new add-ons help more and more customers receive functionality that the company
could not develop on its own.

26 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

Moving Up the Stack


On-Premises vs. SaaS
Traditional on-premises software is installed and operated on servers located on the premises
‘ˆ–Š‡‘”‰ƒ‹œƒ–‹‘ —•‹‰–Š‡•‘ˆ–™ƒ”‡Ǥ – ”‡“—‹”‡••‹‰‹ϐ‹…ƒ– —’Ǧˆ”‘– …ƒ’‹–ƒŽ ‡š’‡†‹–—”‡•ƒ†
ongoing maintenance and upgrade costs. The customer is responsible for the overall management
of the software, including availability, security, and performance. Further, engineering and profes-
sional services costs are needed to support multiple, legacy versions of the software. The cost of
‘Ǧ’”‡‹•‡••‘ˆ–™ƒ”‡‹•—…Š‘”‡–Šƒ…Ž‘—†Ǧ„ƒ•‡†•‘ˆ–™ƒ”‡„‡…ƒ—•‡‘ˆ–Š‡‡š’‡•‡•ƒ••‘…‹ƒ–‡†
with the hardware, licenses, IT staff, and implementation process.

Moving away from the traditional model, there are three main types of cloud computing: infra-
structure as a service, platform as a service, and software as a service. They differ in terms of what
services are offered. Infrastructure as a service, or IaaS, basically offers the infrastructure stack up
–‘–Š‡˜‹”–—ƒŽ‹œƒ–‹‘Žƒ›‡”ȋ…‘’—–ƒ–‹‘ǡ†ƒ–ƒ•–‘”ƒ‰‡ǡϐ‹”‡™ƒŽŽǡƒ†Ž‘ƒ†„ƒŽƒ…‡”Ȍƒ†”‡“—‹”‡•ƒ
ˆƒ‹”ƒ‘—–‘ˆƒƒ‰‡‡–Ǥšƒ’Ž‡•‘ˆ ƒƒƒ”‡ƒœ‘‡„‡”˜‹…‡•ƒ†ƒ…•’ƒ…‡Ǥ•‡”•‘ˆ
IaaS are responsible for managing the applications, data, runtime, middleware, and operating sys-
tems. Platform as a service, or PaaS, allows developers to create and deploy applications, but does
‘–”‡“—‹”‡–Š‡‹•–ƒŽŽƒ–‹‘‘ˆ˜‹”–—ƒŽƒ…Š‹‡•‘”’ƒ–…Šƒƒ‰‡‡–Ǥšƒ’Ž‡•‹…Ž—†‡‹…”‘•‘ˆ–
Windows Azure, salesforce.com’s Force.com, and Twilio Inc. Users of PaaS are typically developers.
Software as a service, or SaaS, provides the entire infrastructure stack including the application
residing on top. SaaS is accessed by end-users directly through the web and alleviates the overall
software and hardware maintenance for customers.

([KLELW
0RYLQJ8SWKH6WDFN
7UDGLWLRQDO0RGHO IaaS PaaS SaaS

Applications Applications Applications Applications

Data Data Data Data

Increasing Management By Vendor


Runtime Runtime Runtime Runtime

0LGGOHZDUH 0LGGOHZDUH 0LGGOHZDUH 0LGGOHZDUH

Operating System Operating System Operating System Operating System

Virtualization Virtualization Virtualization Virtualization

6HUYHUs 6HUYHUs 6HUYHUs 6HUYHUs

Storage Storage Storage Storage

1HWZRUN 1HWZRUN 1HWZRUN 1HWZRUN

Increasing Potential Operating Margin

Source: William Blair

‘˜‹‰—’–Š‡•–ƒ……‘””‡Žƒ–‡•–‘‹…”‡ƒ•‹‰˜‡†‘”ƒƒ‰‡‡–ǡƒ••Š‘™‹‡šŠ‹„‹–ʹʹǤ•‡”•‘ˆ
SaaS are essentially outsourcing a particular segment of their business to the vendor, whereas users
of on-premises software must dedicate resources to manage their own software and hardware. This

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 27
William Blair

…ƒ…ƒ—•‡†‹ˆϐ‹…—Ž–Ž›™Š‡ƒ…‘’ƒ›™ƒ–•–‘†‡’Ž‘›ƒƒ’’Ž‹…ƒ–‹‘–Šƒ–‹•‘–…‘’ƒ–‹„Ž‡™‹–ŠƒŽŽ
Žƒ›‡”•‘ˆ‹–••–ƒ…Ǥ ‘”‡šƒ’Ž‡ǡ‹ˆƒ…‘’ƒ›™ƒ•”—‹‰‘ƒ‹…”‘•‘ˆ–‘’‡”ƒ–‹‰•›•–‡„—–ƒ
”ƒ…Ž‡†ƒ–ƒ„ƒ•‡ǡ‹–…‘—Ž†„‡…ŠƒŽŽ‡‰‹‰ˆ‘”–Š‡ †‡’ƒ”–‡––‘‹–‡‰”ƒ–‡ƒƒ’’Ž‹…ƒ–‹‘ƒ…”‘••ƒŽŽ
of these layers. In the SaaS model, the end-user is indifferent to what operating system or database
the vendor is using; the end-user simply wants access to the application.

Multitenancy vs. Single Tenancy


Multitenancy means one instance of software will serve multiple users; we refer to this as “one to
many.” This architecture is designed to take advantage of economies of scale because each user is
designated a portion of the server and therefore leverages shared resources. As a result, cloud pro-
˜‹†‡”•…ƒƒŽŽ‘…ƒ–‡‡š…‡•••‡”˜‡”…ƒ’ƒ…‹–›ƒ…”‘••ƒŽŽ—•‡”•ǡƒŽŽ‘™‹‰‹†‹˜‹†—ƒŽ…‘’ƒ‹‡•–‘‡ƒ•‹Ž›
scale up or down usage as needed. In a hosted model (single tenancy), the architecture is designed
to support one particular company (e.g., the company has its own separate database)—making it
easier to customize the software or eventually transition to a self-hosted solution, but it does not
„‡‡ϐ‹–ˆ”‘•Šƒ”‡†”‡•‘—”…‡•ȋ‹Ǥ‡Ǥǡ–Š‡…‘’ƒ›’ƒ›•ˆ‘”‹–•‘™”‡•‘—”…‡•ƒ†—•–’ƒ›ˆ‘”‹-
cremental capacity needs). Further, software updates to those using multitenancy are rolled out to
every user as opposed to a single tenancy, which is not linked to the shared database. Consequently,
multitenancy supports a faster rate of innovation.

Who Will Win?


In our opinion, SaaS vendors are best positioned in the software industry for long-term investors
for several reasons. First, commoditization tends to occur when lower-priced competitors can
enter the market, and most of the lower part of the technology stack has become commoditized
(e.g., storage, servers, and network layers)—making hardware companies unattractive from an in-
vestment standpoint. Second, SaaS vendors provide value through their applications, which reside
on top of the underlying infrastructure. This acts as a compressor to the growth of infrastructure
’Žƒ›‡”••—…Šƒ•‹…”‘•‘ˆ–ǡ”ƒ…Ž‡ǡƒ†‡† ƒ–„‡…ƒ—•‡–Š‡…Ž‘—†‹Š‡”‡–Ž›’”‘˜‹†‡•ƒ‘”‡‡ˆ-
ϐ‹…‹‡–—†‡”Ž›‹‰‹ˆ”ƒ•–”—…–—”‡ȄƒŽŽ‡˜‹ƒ–‹‰–Š‡‡‡†ˆ‘”…—•–‘‡”•–‘’—”…Šƒ•‡–Š‡—†‡”Ž›‹‰
‹ˆ”ƒ•–”—…–—”‡–Š‡•‡Ž˜‡•Ǥ ‘”‡šƒ’Ž‡ǡ•ƒŽ‡•ˆ‘”…‡Ǥ…‘Šƒ•”‘—‰ŠŽ›ͳͷͲǡͲͲͲ…—•–‘‡”•ƒ†—•‡•
Red Hat’s operating system. The 150,000 customers of salesforce.com did not need to purchase
Red Hat’s operating system outright. Therefore, the shift to cloud ultimately acts as a compressor
on infrastructure players’ growth.

Third, we believe SaaS vendors have the most potential to succeed given the decreasing desire to
manage parts or the entire infrastructure stack. We are seeing a shift in purchasing decisions being
made by line-of-business personnel as opposed to IT staff. The line-of-business is starting to demand
‘”‡ƒ‰‹Ž‡ǡϐŽ‡š‹„Ž‡ǡƒ†’‡”•‘ƒŽ‹œ‡†•‘ˆ–™ƒ”‡ǡ™Š‹…Š…‘–”ƒ•–•™‹–Š–Š‡–›’‹…ƒŽ‡–‡”’”‹•‡™‹†‡ 
implementation—making best-of-breed SaaS applications with interoperability capabilities quite
attractive. Lastly, we believe pure cloud companies will win out over hosted solutions because the
—Ž–‹–‡ƒ–ƒ”…Š‹–‡…–—”‡ƒŽŽ‘™•…Ž‘—†…‘’ƒ‹‡•–‘ƒ…Š‹‡˜‡Š‹‰Š‡”…‘•–‡ˆϐ‹…‹‡…‹‡•ȋ†—‡–‘•Šƒ”‡†
”‡•‘—”…‡•ȌǤ ”‘ƒ‰”‘••ƒ”‰‹•–ƒ†’‘‹–ǡ…Ž‘—†ƒ”‰‹•™‹ŽŽ„‡Š‹‰Š‡”„‡…ƒ—•‡‹–‹•‘”‡‡ˆϐ‹-
cient for the company to support all of its customers on one instance instead of managing multiple
instances. Also, the rate of innovation is slower for hosted solutions, as mentioned above.

28 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

A Long Runway Ahead for Cloud Infrastructure-as-a-Service (IaaS)


Despite healthy uptake of solutions at all layers of the public cloud stack over the past nine years,
our research suggests that the market is still quite early in the growth phase of its lifecycle. Gartner
‡•–‹ƒ–‡•–Šƒ–‰Ž‘„ƒŽ ‡š’‡†‹–—”‡•ȋ‡š…Ž—†‹‰…‘—‹…ƒ–‹‘•‡”˜‹…‡•Ȍ™‡”‡ƒ„‘—–̈́ʹ–”‹ŽŽ‹‘
‹ʹͲͳͷǡ‘ˆ™Š‹…Š’—„Ž‹……Ž‘—†”‡’”‡•‡–‡†̈́ͳ͹͸„‹ŽŽ‹‘ǤŠ‹•‹’Ž‹‡•–Šƒ–’—„Ž‹……Ž‘—†Šƒ•”‡ƒ…Š‡†
only 8% penetration. A recent Gartner survey found that organizations allocated an average of
22% of their total IT budgets to public cloud services in 2015. Another survey of businesses in the
Eastern European market found that only 4% of IT budgets were allocated to public cloud. Given
–Š‡’”‡˜‹‘—•Ž›‘—–Ž‹‡†„‡‡ϐ‹–•‘ˆ–Š‡…Ž‘—†‘†‡Žǡ™‡†‘‘–„‡Ž‹‡˜‡‹–‹•—”‡ƒ•‘ƒ„Ž‡–‘ƒ••—‡
that public cloud could capture a much larger portion of IT spending over the longer term.

([KLELW
3XEOLF&ORXG6KDUHRI7RWDO,70DUNHW([FO&RPPXQLFDWLRQ6HUYLFHV

2500 0.09
0.08
2000 0.07
0.06
(billions)

1500
0.05
2021 2129 2039
2000 0.04
1000
0.03
500 0.02
0.01
0 111.1 129.6 154.6455468 175.9996229 0
2012 2013 2014 2015

Public Cloud Spend All Other IT Spend Public Cloud Share

Sources: Gartner and William Blair research

Multiple Catalysts Driving Acceleration


Š‡‹‰”ƒ–‹‘–‘–Š‡’—„Ž‹……Ž‘—†Šƒ•–ƒ‡Ž‘‰‡”–Šƒ‘•–‡š’‡…–‡†ǡ„—–™‡„‡Ž‹‡˜‡–Š‡ ƒƒ•‡‰-
‡–ƒ›„‡ƒ–ƒ‹ϐŽ‡…–‹‘’‘‹–Ǥ—””‡•‡ƒ”…Š‹†‹…ƒ–‡•–Šƒ––Š‡…‘ϐŽ—‡…‡‘ˆ–Š”‡‡‡›–”‡†•
is driving accelerated adoption.

1. Enterprises appear to be turning the corner on security concerns. Security concerns have
been the single most powerful headwind to cloud adoption since the advent of the technology.
˜‡”–Š‡’ƒ•––™‘›‡ƒ”•ǡŠ‘™‡˜‡”ǡ‘•–’—„Ž‹……Ž‘—†’”‘˜‹†‡”•Šƒ˜‡ƒ†‡‰”‡ƒ–’”‘‰”‡••‹
securing their offerings, and our recent industry conversations suggest that this has not gone
—”‡…‘‰‹œ‡†„›‡–‡”’”‹•‡•Ǥ‡Šƒ˜‡‘–‹…‡†ƒ•‹‰‹ϐ‹…ƒ–…Šƒ‰‡‹–‘‡†—”‹‰‘—””‡…‡–
ϐ‹‡Ž†‹“—‹”‹‡•ǡŠ‹‰ŠŽ‹‰Š–‡†„›‘”‡‘”‰ƒ‹œƒ–‹‘•ƒ…‘™Ž‡†‰‹‰–Šƒ––Š‡…‘•‹†‡”ƒ„Ž‡•…ƒŽ‡
and investments of the main vendors (i.e., Amazon, Microsoft, and Google) are likely to have
translated to better security capabilities than any enterprise could have developed in house.
While we would not go so far as to argue that security is no longer a widely held concern, we
believe the change in sentiment may be broad enough to support incremental acceleration of
the market.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 29
William Blair

([KLELW
(QWHUSULVH&HQWUDO,75DWLQJ&ORXG6HFXULW\DV6LJQILFDQW&KDOOHQJH

  

0.37
0.41
0.47

Source: RightScale 2016 State of the Cloud Report

2. SMB adoption likely to accelerate. Despite the high rate of cloud adoption worldwide, SMBs
have been slower to adopt cloud services than large enterprises. We believe this dynamic can
be attributed to the fact that smaller organizations often lack the requisite skills to make the
transition and provide continuing support. In addition, the channel partners that work with
smaller organizations tend to have a limited skill set themselves and consequently stick to the
products and deployment models for which they have achieved competency. In this case, we
believe most have promoted the private cloud model in the past because it was where they had
the most comfort. However, our recent industry conversations suggest that the rapid innovation
cadence of cloud vendors and broader availability of skills in the market have precipitated an
accelerated evolution from private cloud to public cloud preferences. This can also be seen in
–Š‡”‡•—Ž–•‘ˆ”‡…‡–‹†—•–”›•—”˜‡›•ȋ•‡‡‡šŠ‹„‹–ʹͷȌ–Šƒ–Šƒ˜‡‹†‡–‹ϐ‹‡†•ƒŽŽ‡”„—•‹‡••‡•
ƒ•Šƒ˜‹‰–Š‡Š‹‰Š‡•–ƒ†‘’–‹‘’Žƒ•‘˜‡”–Š‡‡š–ͳʹǦʹͶ‘–Š•Ǥ•‹…”‡ƒ•‹‰Ž›ϐ‹‡”…‡…‘-
petition in the public cloud IaaS space drives the pace of innovation up and prices down, we
see the potential for these incentives to catalyze even higher SMB adoption rates.

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&XUUHQWDQG([SHFWHG&ORXG$GRSWLRQE\&RPSDQ\6L]H

5,000 or more employees 0.64 0.29 0.07

1,000 to 4,999 employees 0.63 0.3 0.07

500 to 999 employees 0.6 0.35 0.04

100 to 499 employees 0.47 0.44 0.08

0% 20% 40% 60% 80% 100%


Currently uses cloud services Plans to deploy in the next 12 months
Plans to deploy within 12 to 24 months

Source: Gartner

3. Prices will continue to decline. Although share leader AWS slowed the pace of price cuts in
2015, the company’s publicly stated commitment to gradually reducing prices as it achieves
greater scale and considerably more aggressive competition from Microsoft and Google sug-
gest that it will be years before the market reaches the bottom of the curve. AWS started 2016
by announcing price decreases for a handful of its services, and Microsoft quickly followed

30 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

•—‹–Ǥ‡‡š’‡…–ƒ‰‰”‡••‹˜‡’”‹…‹‰–ƒ…–‹…•ˆ”‘ƒœ‘ǡ‹…”‘•‘ˆ–ǡƒ†
‘‘‰Ž‡ƒ–Ž‡ƒ•––Š”‘—‰Š
2018, which should support healthy increases in demand by lowering the barrier to adoption
for cost-sensitive organizations.

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12

10

6
11
9
4
7
3 5 5 5 5
2
1
0
2008 2009 2010 2011 2012 2013 2014 2015 2016

Sources: Company filings and William Blair research

–Š‡„ƒ•‹•‘ˆ–Š‡’”‡…‡†‹‰ˆƒ…–‘”•ǡ™‡‡š’‡…––Š‡’—„Ž‹……Ž‘—† ƒƒƒ”‡––‘‰”‘™ƒ–ƒ͵ͳΨ
…‘’‘—†ƒ—ƒŽ”ƒ–‡–Š”‘—‰ŠʹͲʹͲǡ”‡ƒ…Š‹‰̈́͸ʹ„‹ŽŽ‹‘Ǥ

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70 40%

60 35%
0DUNHWVL]H ELOOLRQV

30%
50
25% FKDQJH
40
20%
30 62
50 15%
20 39 10%
30
10 22 5%
12 16
9
0 0%
2013 2014 2015 2016 2017 2018 2019 2020
Source: Gartner

Expect Cloud IaaS to Be a Winners-Take-Most Market


Despite the attractive market opportunity and growth, public cloud IaaS is dominated by a few
key global providers. In our view, the structural characteristics of the industry—most notably the
–”‡‡†‘—•…ƒ’‹–ƒŽ”‡“—‹”‡‡–•ǡ•‹‰‹ϐ‹…ƒ–‡…‘‘‹‡•‘ˆ•…ƒŽ‡ƒ˜ƒ‹Žƒ„Ž‡–‘Ž‡ƒ†‹‰˜‡†‘”•ǡƒ†
importance of mindshare/referenceability—suggest that this is unlikely to change. Faced with these
•‹‰‹ϐ‹…ƒ–„ƒ””‹‡”•ǡ†—”‹‰ʹͲͳͷ™‡™‹–‡••‡†–Š‡„‡‰‹‹‰•‘ˆƒ•–”ƒ–‡‰›’‹˜‘–„›•‡˜‡”ƒŽ ƒƒ
providers away from direct competition with AWS. This has typically included reducing or refocus-
‹‰†‡˜‡Ž‘’‡–‡ˆˆ‘”–•‘’‘–‡–‹ƒŽƒŽ–‡”ƒ–‹˜‡•ȋ‡Ǥ‰Ǥǡ’‡–ƒ…Ȍǡ•Š‹ˆ–‹‰–‘ƒ…‘Ǧ‘’‡–‹–‹‘‘†‡Ž
™Š‡”‡„›’”‘†—…–•ƒ”‡‘†‹ϐ‹‡†–‘™‘”™‹–Šǡ‘”‡š‹–‹‰’—„Ž‹…‘ˆˆ‡”‹‰•‹ˆƒ˜‘”‘ˆ’”‹˜ƒ–‡™‹–Š
the intent to add value through offerings such as managed services. Given the recent commitment
„›‹…”‘•‘ˆ–ƒ†
‘‘‰Ž‡–‘…‘’‡–‡ƒ‰‰”‡••‹˜‡Ž›‹–Š‡•’ƒ…‡ǡ™‡‡š’‡…––Š‹•–”‡†–‘ƒ……‡Ž‡”ƒ–‡‹

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 31
William Blair

2016 and 2017, which will inevitably lead to further concentration of workloads. We believe the
public cloud IaaS market share picture (including compute, storage, and print) could end up look-
‹‰•‘‡–Š‹‰Ž‹‡‡šŠ‹„‹–ʹͺǤ

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2% 3% 2% 3% 5%
100%  7% 9%
 
11%
21% 23% 
80%  
31%
35%
38%
60% 40%
41%
41%
40% 77% 74%
63%
54%
20% 46%
39% 33% 28%
0%
2013 2014 2015 2016 2017 2018 2019 2020

Others Amazon Web Services


Microsoft Azure Google Cloud Platform

Sources: Company filings and William Blair research

Cloud M&A Market


Cloud M&A activity has gained steam lately, but there has been a higher level of participation from
’”‹˜ƒ–‡ ‡“—‹–› ȋȌ ϐ‹”• •ƒ–…Š‹‰ —’ Š‹‰ŠǦ‰”‘™–Š ƒƒ ƒ‡•ǡ ™Š‹…Š …‘–”ƒ†‹…–• –›’‹…ƒŽ 
‹˜‡•–‡–„‡Šƒ˜‹‘”Ǥ –Š‡’ƒ•–ǡϐ‹”•Šƒ˜‡„‡‡ˆ‘…—•‡†‘Ž‘™Ǧ‰”‘™–ŠǡŽƒ–‡Ǧ•–ƒ‰‡•‘ˆ–™ƒ”‡
„—•‹‡••‡•ǢŠ‘™‡˜‡”ǡ–Š‡ƒ…“—‹•‹–‹‘•‘ˆ…‹—‡•–„›……‡ŽǦƒ†ƒ”‡–‘ƒ†˜‡–„›‹•–ƒ
“—‹–›ƒ”–‡”•‘ˆˆ‡”‡˜‹†‡…‡–Šƒ–ϐ‹”•ƒ”‡–ƒ”‰‡–‹‰›‘—‰‡”ǡŠ‹‰ŠǦ‰”‘™–Šƒƒ„—•‹‡••‡•Ǥ

Most of the SaaS acquisitions completed this past year maintain attractive business models, but some
Šƒ˜‡•‹’Ž›ˆƒŽŽ‡‘—–‘ˆˆƒ˜‘”™‹–Š‹˜‡•–‘”•ȋ‡Ǥ‰Ǥǡƒ”‡–‘ȌǤŠ‹Ž‡–”ƒ†‹–‹‘ƒŽǡ…ƒ•ŠǦϐŽ—•Š•‘ˆ–™ƒ”‡
˜‡†‘”••—…Šƒ•”ƒ…Ž‡ƒ†”‡ƒ‹”‡ƒ†›–‘•—’’Ž‡‡–•–ƒ‰ƒ–…‘”‡‰”‘™–Šǡ„”‘ƒ†‡–Š‡‹”
…Ž‘—†‘ˆˆ‡”‹‰•ǡ‡–‡”‡™’”‘†—…–•‡‰‡–•ǡƒ†‡š’ƒ†‹–‘‰‡‘‰”ƒ’Š‹…ƒŽ–‡””‹–‘”‹‡•ǡ™‡„‡Ž‹‡˜‡
–Š‡”‡‹•‹…”‡ƒ•‹‰’”‡••—”‡ˆ”‘ϐ‹”•–Šƒ–ƒ”‡“—‹…‡”–‘ƒ‡ƒ‘ˆˆ‡”Ǥ ƒ††‹–‹‘ǡ™‡ƒ”‡•‡‡‹‰
ƒ—’–‹…‹ƒ…“—‹•‹–‹‘•‘ˆ‹…Š‡’Žƒ›‡”•ǡ•—…Šƒ•–Š‡ƒ…“—‹•‹–‹‘•‘ˆ’‘™‡”ƒ†‡š–—”ƒ„›”ƒ…Ž‡Ǥ

‡‡š’‡…–…‘–‹—‡†…‘•‘Ž‹†ƒ–‹‘‹–Š‡ƒƒŽƒ†•…ƒ’‡ǡˆ”‘„‘–Š‘Ǧ’”‡‹•‡•˜‡†‘”•–Šƒ–ƒ”‡
Ž‘•‹‰ƒ”‡–•Šƒ”‡–‘‘Ǧ†‡ƒ†…‘’‡–‹–‹‘ȋ‹Ǥ‡Ǥǡ”ƒ…Ž‡ǯ•’—”…Šƒ•‡‘ˆ‡–—‹–‡Ȍƒ†…‘•‘Ž‹†ƒ-
–‹‘‹–Š‡’—”‡Ǧ’Žƒ›ƒƒ•’ƒ…‡ȋ‹Ǥ‡Ǥǡ•ƒŽ‡•ˆ‘”…‡Ǥ…‘ǯ•ƒ…“—‹•‹–‹‘‘ˆ‡ƒ†™ƒ”‡ƒ†—‹’ȌǤ‡
believe the dip in valuations earlier in the year triggered some consolidation, and although valuations
have bounced back, we believe the M&A activity will continue, as evidenced by the span of recent
acquisitions in the past few months, which still paid healthy premiums, in our opinion, as shown
‹‡šŠ‹„‹–ʹͻǤŠ‡ ƒ”‡–Šƒ†ƒ”‘—‰Š•–ƒ”––‘–Š‡›‡ƒ”‰‹˜‡–Š‡•‡ŽŽǦ‘ˆˆ‹•‘ˆ–™ƒ”‡ƒ‡•ǡ„—–
™‡„‡Ž‹‡˜‡™‹Ž‹‘ǯ••—……‡••ˆ—Ž ‹ —‡Š‡Ž’‡†‹…Ǧ•–ƒ”–‹–‡”‡•–ˆ”‘‘–Š‡”’”‹˜ƒ–‡‘Ǧ†‡ƒ†
vendors looking to access the public markets.

32 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

([KLELW
&ORXG0 $$FWLYLW\

Premium 7DNH2XW
3XUFKDVH 5HYHQXH *URZWK
Acquiree Acquirer Date to Prior 5HYHQXH
Price 0 Rate
Close Multiple
Fleetmatics Verizon 8/1/16 $2.4 billion 40% 5.9x 407 18%
NetSuite Oracle 7/28/16 $9.3 billion 19% 7.6x 1,222 27%
LinkedIn Microsoft 6/13/16 $26.2 billion 47% 5.8x 4,505 20%
Demandware Salesforce 6/1/16 $2.8 billion 56% 7.5x 371 26%
SciQuest Accel-KKR 5/31/16 $509 million 34% 4.2x 121 10%
Marketo Vista Equity Partners 5/31/16 $1.79 billion 64% 5.3x 335 23%
inContact NICE Systems 5/18/16 $940 million 55% 3.6x 264 19%
Opower Oracle 5/2/16 $532 million 30% 3.3x 161 8%
Textura Oracle 4/28/16 $663 million 31% 6.2x 107 23%
Cvent Vista Equity Partners 4/18/16 $1.65 billion 69% 7.1x 233 24%
Concur SAP 9/18/14 $8.3 billion 20% 8.7x 860 24%
Responsys Oracle 12/20/13 $1.5 billion NA 6.1x 245 21%
ExactTarget Salesforce 6/4/13 $2.5 billion 50% 5.5x 458 21%
Eloqua Oracle 12/20/12 $810 million 31% 7.1x 114 22%
Ariba SAP 5/22/12 $4.3 billion 20% 7.8x 550 24%
Taleo Oracle 2/9/12 $1.9 billion 18% 5.0x 379 18%
SuccessFactors SAP 12/3/11 $3.4 billion 52% 8.1x 418 24%
RightNow Oracle 10/24/11 $1.5 billion 20% 5.6x 269 19%
$YHUDJH ELOOLRQ  [  

Source: William Blair & Company, L.L.C.

Notable On-Premises Vendor Acquisitions

Oracle/Textura. ’”‹Žǡ”ƒ…Ž‡ƒ…“—‹”‡†‡š–—”ƒ‹ƒƒŽŽǦ…ƒ•Š†‡ƒŽˆ‘”̈́ʹ͸ǤͲͲ’‡”•Šƒ”‡ǡƒ͵ͳΨ
’”‡‹—–‘–Š‡’”‹‘”†ƒ›ǯ•…Ž‘•‹‰’”‹…‡ǤŠ‡̈́͸͸͵‹ŽŽ‹‘†‡ƒŽȋ‡–‘ˆ…ƒ•Šƒ…“—‹”‡†Ȍ‹’Ž‹‡•ƒ
–ƒ‡Ǧ‘—–—Ž–‹’Ž‡‘ˆ͸Ǥʹ–‹‡•‘—”ʹͲͳ͸”‡˜‡—‡‡•–‹ƒ–‡ǤŠ‡ƒ…“—‹•‹–‹‘ƒ‡••‡•‡‰‹˜‡”ƒ-
cle’s roots in the construction industry, having acquired Primavera, a provider of project portfolio
management software, in 2008, ™Š‹…Š ‡š’ƒ†‡† ”ƒ…Ž‡ǯ• project management capabilities and
established it more deeply in the engineering and construction industry at the time. In addition to
Primavera’s reach in the construction v‡”–‹…ƒŽǡƒ•‘Ž‹†ƒ‘—–‘ˆ‰‡‡”ƒŽ…‘–”ƒ…–‘”•—•‡”ƒ…Ž‡ǯ•
„‹ŽŽ‹‰•›•–‡–‘ƒƒ‰‡–Š‡‹”…‘•–”—…–‹‘’”‘Œ‡…–•Ǥ•ƒ”‡•—Ž–ǡ™‡„‡Ž‹‡˜‡”ƒ…Ž‡ǯ•ˆƒ‹Ž‹ƒ”‹–›™‹–Š
…‘–”ƒ…–‘”•™‹ŽŽƒŽŽ‘™‹––‘…”‘••Ǧ•‡ŽŽ‹–••‘Ž—–‹‘•‹–‘‡š–—”ƒǯ•…—•–‘‡”„ƒ•‡ǡƒ†˜‹…‡˜‡”•ƒǤ‡
also believe this acquisition bodes well for some of the private players in the space, such as Procore
ƒ†‡Ǧ—‹Ž†‡”ǡ™Š‹…Šƒ”‡”‡’Žƒ…‹‰ƒ›ƒ—ƒŽ’”‘…‡••‡•ȋ‡Ǥ‰Ǥǡ’‡…‹Žƒ†’ƒ’‡”ǡš…‡ŽȌƒ†‹•‘‡
cases replacing legacy software providers (e.g. Primavera), and also illustrates the sizable market
opportunity in automating the manual processes in the construction industry.

Oracle/Opower. ‘–Ž‘‰ƒˆ–‡”ƒ…“—‹”‹‰‡š–—”ƒǡ”ƒ…Ž‡•‘—‰Š–ƒ‘–Š‡”˜‡”–‹…ƒŽ’Žƒ›‡”ǡ’‘™‡”ǡ
™Š‹…Š’”‘˜‹†‡•‡‡”‰›Ǧ‡ˆϐ‹…‹‡…›ƒ†…—•–‘‡”‡‰ƒ‰‡‡–•‘Ž—–‹‘•–‘–Š‡—–‹Ž‹–‹‡•‹†—•–”›ǤŠ‡
–”ƒ•ƒ…–‹‘ǡ˜ƒŽ—‡†ƒ–̈́ͷ͵ʹ‹ŽŽ‹‘‡–‘ˆ…ƒ•Šǡ™ƒ•ƒ͵ͲΨ’”‡‹—ƒ†”‘—‰ŠŽ›͵ǤͲ–‹‡•‘—”ʹͲͳ͹
”‡˜‡—‡‡•–‹ƒ–‡ǤŽ–Š‘—‰Š–Š‡ƒ…“—‹•‹–‹‘’”‹…‡™ƒ•„‡Ž‘™™Šƒ–™‡™‘—Ž†Šƒ˜‡‡š’‡…–‡†’‘™‡”
–‘ƒ‰”‡‡–‘„‡•‘Ž†ˆ‘”ǡ–Š‡‘ˆˆ‡”Ž‹‡Ž›”‡ϐŽ‡…–‡†•‘‡‘ˆ–Š‡…ŠƒŽŽ‡‰‡•–Šƒ–’‘™‡”ƒ–‹…‹’ƒ–‡†ˆƒ…-
‹‰‘˜‡”–Š‡‡š––™‘›‡ƒ”•Ǥ

Microsoft/LinkedIn.‹…”‘•‘ˆ–ǯ•̈́ʹ͸Ǥʹ„‹ŽŽ‹‘’—”…Šƒ•‡‘ˆ‹‡† ‹ —‡‹•–Š‡Žƒ”‰‡•–ƒ…“—‹•‹–‹‘


in its history. The deal represented a premium of roughly 47% over the prior trading day’s close,
„—–™ƒ••–‹ŽŽ™‡ŽŽ„‡Ž‘™‹–•ͷʹǦ™‡‡Š‹‰Š‘ˆ̈́ʹͷͺǤ͵ͻǤƒ›“—‡•–‹‘‡†–Š‡ϐ‹–‘ˆ‹‡† ǡ™Š‹…Š‹•
in a mature market with a small number of paying subscribers, but we believe Microsoft is look-
ing to add to its B2B solution and is interested in capitalizing on LinkedIn’s user base of over 400
‹ŽŽ‹‘Ǥ‹‡† ǯ•ƒƒ„—•‹‡••‘†‡Ž•Š‘—Ž†Š‡Ž’‹…”‘•‘ˆ–‡š’ƒ†‹–‘–Š‡•‡”˜‹…‡•„—•‹‡••ǡ

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 33
William Blair

™Š‹…Š‹–‡–‡”‡†‹ʹͲͳʹ–Š”‘—‰Š–Š‡̈́ͳǤʹ„‹ŽŽ‹‘ƒ…“—‹•‹–‹‘‘ˆƒ‡”Ǥ‹…”‘•‘ˆ–™‹ŽŽƒŽ•‘Ž‹‡Ž›
–”›–‘•‡ŽŽ‹–•’”‘†—…–•‹–‘‹‡† ǯ•‡š–‡•‹˜‡•‘…‹ƒŽ‡–™‘”ǡ’ƒ”–‹…—Žƒ”Ž›‹–•…‘ŽŽƒ„‘”ƒ–‹‘ƒ†
communication products.

Oracle/NetSuite.  —Ž›ǡ”ƒ…Ž‡ƒ‘—…‡†‹–•ƒ…“—‹•‹–‹‘‘ˆ‡–—‹–‡ǡƒ’‹‘‡‡”‹–Š‡ƒƒ‹†—•–”›
ˆ‘…—•‡†‘Ȁƒ……‘—–‹‰ǡǡƒ†‡Ǧ…‘‡”…‡•‘ˆ–™ƒ”‡ǡˆ‘”̈́ͻǤ͵„‹ŽŽ‹‘ǡ‘”̈́ͳͲͻǤͲͲ’‡”•Šƒ”‡
in an all-cash deal, representing about 7.6 times 2017 revenue. The purchase price represented a
19% premium to the previous closing price, but a 44% premium over its July 11 closing price, which
was before NetSuite’s take-out rumors began. Rumors had been circling for months, in large part
„‡…ƒ—•‡‘ˆ”ƒ…Ž‡ƒ””›ŽŽ‹•‘ǯ•Žƒ”‰‡•–ƒ‡‹‡–—‹–‡Ǥ‡˜‹‡™–Š‹•ƒ…“—‹•‹–‹‘ƒ•ƒ…Žƒ••‹…
–ƒ‡Ǧ‘—–‘ˆƒ…Ž‘—†…‘’ƒ›„›ƒŽ‡‰ƒ…›‘Ǧ’”‡‹•‡•’Žƒ›‡”„‡…ƒ—•‡”ƒ…Ž‡‹•‡••‡–‹ƒŽŽ›„—›‹‰
market share.

Notable Cloud Vendor Acquisitions

Salesforce/Quip. —‰—•–ǡ•ƒŽ‡•ˆ‘”…‡ƒ…“—‹”‡†—‹’ǡƒ’”‘˜‹†‡”‘ˆ…‘ŽŽƒ„‘”ƒ–‹‘•‘Ž—–‹‘•–‘Š‡Ž’
make teams more productive. We believe the acquisition bolsters the company’s entrance into the
fast-growing team productivity and collaboration space. We believe this acquisition is a positive for
–Š‡…‘’ƒ›ƒ•‹–‹–”‘†—…‡•‡š‹•–‹‰•ƒŽ‡•ˆ‘”…‡—•‡”•–‘–Š‡ƒ„‹Ž‹–›–‘—•‡…‘–‡š–—ƒŽ…‘ŽŽƒ„‘”ƒ–‹‘
(e.g., embedding communication and collaboration tools with the documents at the application
level) and also provides the company with an established document sharing collaboration tool that
Šƒ•‘˜‡”ͳ‹ŽŽ‹‘—•‡”•ƒ†–Š‘—•ƒ†•‘ˆ–‡ƒ•Ǥ‡ƒŽ•‘„‡Ž‹‡˜‡–Šƒ–—‹’™‹ŽŽ‡ƒ„Ž‡•ƒŽ‡•ˆ‘”…‡–‘
‹…”‡ƒ•‡–Š‡…‘–‡š–ƒ†…‘—‹…ƒ–‹‘™‹–Š‹‹–••ƒŽ‡•ǡƒ”‡–‹‰ǡƒ†•‡”˜‹…‡…Ž‘—†•Ǥ‡–Š‹
–Š‹••Š‘—Ž†‡ƒ„Ž‡—•‡”•–‘ƒ˜‹‰ƒ–‡™‹–Š‹–Š‡™‘”ϐŽ‘™•ˆ‘”‡ƒ…Š…Ž‘—†ƒ†…‘ŽŽƒ„‘”ƒ–‡ƒ…”‘••
various objects within the salesforce.com system (e.g., prospect information, marketing document,
presentation, PDF) that can then be shared across those various functions to provide a seamless
customer interaction.

Salesforce/Demandware. In June, salesforce acquired Demandware, a provider of e-commerce


solutions that enable retailers and branded consumer product manufacturers to design, custom-
‹œ‡ǡƒ†ƒƒ‰‡–Š‡‹”™‡„•–‘”‡ˆ”‘–•ǤŠ‡ƒ…“—‹•‹–‹‘˜ƒŽ—‡†‡ƒ†™ƒ”‡ƒ–̈́ʹǤͺ„‹ŽŽ‹‘‡–‘ˆ
ƒ…“—‹”‡† …ƒ•Šǡ ‘” ̈́͹ͷǤͲͲ ’‡” •Šƒ”‡Ǥ Š‡ ƒ…“—‹•‹–‹‘ Š‡Ž’• •ƒŽ‡•ˆ‘”…‡ ‡š’ƒ† ‹–‘ –Š‡ Žƒ”‰‡ ƒ†
growing e-commerce space—an area that many salesforce customers have been asking about for a
while. Salesforce has enhanced its business-to-consumer presence over the last few years (via the
Marketing Cloud and Service Cloud), so we view this acquisition as a move in the right direction
and suspect that ultimately the commerce cloud will fall under the Marketing Cloud.

Notable Private Equity Acquisitions

Vista Equity Partners/Cvent. ‹•–ƒ“—‹–›ƒ”–‡”•ǡƒϐ‹”ˆ‘…—•‡†‘•‘ˆ–™ƒ”‡ƒ†–‡…Š‘Ž‘‰›


„—•‹‡••‡•ǡƒ…“—‹”‡†˜‡–‹ƒƒŽŽǦ…ƒ•Š†‡ƒŽˆ‘”̈́͵͸ǤͲͲ’‡”•Šƒ”‡ǡƒ͸ͻΨ’”‡‹—‘˜‡”–Š‡’”‹‘”
–”ƒ†‹‰†ƒ›ǯ•…Ž‘•‹‰’”‹…‡‘ˆ̈́ʹͳǤ͵ͲȄ˜ƒŽ—‹‰˜‡–ƒ–̈́ͳǤ͸ͷ„‹ŽŽ‹‘ǡ‘”͸Ǥ͹–‹‡•‘—”ʹͲͳ͸”‡˜‡—‡
estimate. Cvent is a leading cloud-based enterprise event management company. We are not clear
what management’s motivation was for selling the company; however, we believe Cvent’s aggressive
growth plans may not have been well received by public investors, making going private a more at-
tractive option. With the close of the deal, Vista would control two of the leading enterprise players
in the events and meeting technology market: Lanyon (which includes Starcite) and Cvent. These
two companies represent a small fraction of the market opportunity, however, and we believe the
much larger competitor is manual processes/custom solutions.

Vista Equity Partners/Marketo. In May, Vista Equity Partners announced the acquisition of Mar-
‡–‘ǡƒƒ”‡–‹‰ƒ—–‘ƒ–‹‘•‘ˆ–™ƒ”‡…‘’ƒ›ǡ‹ƒ̈́ͳǤ͹ͻ„‹ŽŽ‹‘ƒŽŽǦ…ƒ•Š†‡ƒŽǤŠƒ”‡Š‘Ž†‡”•™‹ŽŽ
”‡…‡‹˜‡̈́͵ͷǤʹͷ’‡”•Šƒ”‡Ȅƒ͸ͶΨ’”‡‹—–‘–Š‡’”‹‘”…Ž‘•‹‰’”‹…‡ǤŠ‡’”‹…‡–ƒ‰‹•‹„‡–™‡‡

34 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

™Šƒ–”ƒ…Ž‡’ƒ‹†ˆ‘”‡•’‘•›•‹ʹͲͳ͵ȋ̈́ͳǤͷ„‹ŽŽ‹‘Ȍƒ†•ƒŽ‡•ˆ‘”…‡ǯ•ƒ…“—‹•‹–‹‘‘ˆšƒ…–ƒ”‰‡–
ȋ̈́ʹǤͷ „‹ŽŽ‹‘Ȍ ƒŽ•‘ ‹ ʹͲͳ͵Ȅ„‘–Š ƒ”‡ ƒ”‡–‹‰ ’Žƒ–ˆ‘”•Ǥ Š‡ ƒ…“—‹•‹–‹‘ …ƒ‡ ‘– Ž‘‰ ƒˆ–‡”
‹•–ƒǯ•ƒ…“—‹•‹–‹‘‘ˆ˜‡–‹’”‹Žƒ†•Š‘™•–Š‡”ƒ’‹†’ƒ…‡ƒ–™Š‹…Š’”‹˜ƒ–‡‡“—‹–›ϐ‹”•ƒ”‡
acquiring fast-growth SaaS companies. Marketo went public in 2013, but there was speculation
that it was shopping around for a buyer; many thought it would be Microsoft, IBM, or SAP, which
we believe might have made more sense because of its attempt to land larger enterprise customers.

‹˜‡ƒ”‡–‘ǯ•Š‹‰Š‰”‘™–Š”ƒ–‡ȋͶͲΨ•—„•…”‹’–‹‘‰”‘™–Š‹ʹͲͳͷȌƒ†Š‹‰Š…ƒ•Š„—”ǡ™‡ϐ‹†
‹–•ƒ…“—‹•‹–‹‘„›ƒϐ‹”“—‹–‡——•—ƒŽǡ‡•’‡…‹ƒŽŽ›‰‹˜‡‹–•Š‹‰Š”‡˜‡—‡—Ž–‹’Ž‡…‘—’Ž‡†™‹–Š
…‘•–Ǧ…—––‹‰–Šƒ–‹•–›’‹…ƒŽŽ›‡š’‡…–‡†ƒˆ–‡”„‡‹‰ƒ…“—‹”‡†„›ƒ’”‹˜ƒ–‡‡“—‹–›ϐ‹”Ǥ

Accel-KKR/SciQuest. ––Š‡‡†‘ˆƒ›ǡ……‡ŽǦƒ…“—‹”‡†…‹—‡•–ˆ‘”̈́ͳ͹Ǥ͹ͷ’‡”•Šƒ”‡ǡƒ͵ͶΨ
’”‡‹—–‘–Š‡’”‹‘”–”ƒ†‹‰†ƒ›ǯ•…Ž‘•‡ƒ†ƒ–‘–ƒŽ‡“—‹–›˜ƒŽ—‡‘ˆ̈́ͷͲͻ‹ŽŽ‹‘Ǥ……‡ŽǦŠƒ•ƒ
15-year history of investing in midmarket software and technology-enabled services companies.
…‹—‡•–Œ‘‹•‹–•’‘”–ˆ‘Ž‹‘‘ˆ‘–Š‡”•‘ˆ–™ƒ”‡…‘’ƒ‹‡•ǡ‹…Ž—†‹‰ƒ–ƒ’‹’‡ǡ –‡‰”‹Šƒ‹ǡƒ›‡–—•ǡ
ƒ†‹Ž†‡šǤ‡…‘–‹—‡–‘„‡Ž‹‡˜‡–Š‡”‡‹•ƒ˜‘‹†‹–Š‡ƒ”‡–ˆ‘”ƒ‹†‹”‡…–’”‘…—”‡‡–•‘Ž—-
–‹‘ˆ‘”‘Ǧ…—•–‘‡”•ǡ™Š‹…Š•Š‘—Ž†„‡‡ϐ‹–…‹—‡•–Ǥ–‹ŽŽǡ‘—’ƒŠƒ•„‡‡ƒ‹‰’”‘‰”‡••
ϐ‹ŽŽ‹‰–Š‹•˜‘‹†ƒ•™‡ŽŽǡ™Š‹…Šƒ›’”‡•‡–•‘‡…ŠƒŽŽ‡‰‡•–‘…‹—‡•–Ǥ

Valuations in the Cloud


ƒŽ—ƒ–‹‘•‘ˆƒƒ…‘’ƒ‹‡•…‘–”ƒ…–‡†“—‹–‡ƒ„‹–‹–Š‡„‡‰‹‹‰‘ˆʹͲͳ͸ƒ•‹˜‡•–‘”•™‡”‡ϐŽ‡‡-
‹‰Š‹‰Š‡”Ǧ—Ž–‹’Ž‡ƒ‡•‹ˆƒ˜‘”‘ˆ‘”‡’”‘ϐ‹–ƒ„Ž‡…‘’ƒ‹‡•ǢŠ‘™‡˜‡”ǡ˜ƒŽ—ƒ–‹‘•Šƒ˜‡•‹…‡
”‡„‘—†‡†ǤšŠ‹„‹–͵Ͳ†‡‘•–”ƒ–‡•–Š‡†‡…Ž‹‡‹˜ƒŽ—ƒ–‹‘•ȋ‘ƒ‡–‡”’”‹•‡Ǧ˜ƒŽ—‡Ǧ–‘Ǧ”‡˜‡—‡
basis) of our SaaS coverage list during February compared with the end of 2015 and 2016. Despite
the drop in valuations, performance remained solid throughout the year; most of our covered SaaS
‡–‹–‹‡•–‘’’‡†…‘•‡•—•‡š’‡…–ƒ–‹‘•‡ƒ…Š“—ƒ”–‡”Ǥ

([KLELW
Cloud Valuations
(QWHUSULVHWR5HYHQXH0XOWLSOHV
  
TEAM 8.0x 6.8x 9.3x
RNG 4.4x 3.4x 5.2x
CRM 6.1x 5.3x 6.9x
HUBS 7.6x 5.4x 9.7x
VEEV 7.2x 6.0x 7.7x
ZEN 7.2x 4.6x 9.6x
APPF 5.2x 3.8x 3.9x
OOMA 0.6x 0.5x 0.2x
UPLD 1.5x 1.3x 1.6x
ALRM 2.9x 3.2x 1.3x
Mean 5.1x [ 5.5x
Source: FactSet

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 35
William Blair


”ƒ†—ƒŽŽ›—‹Ž†‹‰”‘ϐ‹–ƒ„‹Ž‹–›
‘‡ƒƒ˜‡†‘”•ƒ”‡•–‹ŽŽ”‡Žƒ–‹˜‡Ž››‘—‰ƒ†–Š—•Šƒ˜‡Ž‘™‡”ƒ”‰‹’”‘ϐ‹Ž‡•–Šƒ‘Ž†‡”ǡ‘”‡
established software companies. SaaS players typically defer revenue recognition, resulting in lower
near-term operating leverage compared with traditional license vendors that recognize the full amount
‘ˆ”‡˜‡—‡—’ˆ”‘–Ǥ˜‡”–‹‡ǡŠ‘™‡˜‡”ǡƒ•ƒƒƒ„—•‹‡•••…ƒŽ‡•ƒ†‹…”‡ƒ•‡••—„•…”‹’–‹‘”‡˜‡—‡ǡ
’”‘ϐ‹–••Š‘—Ž†ˆ‘ŽŽ‘™ƒ•™‡ŽŽǤ
‹˜‡–Š‡†‹ˆϐ‹…—Ž–›‘ˆ”ƒ’‹†Ž›’‡‡–”ƒ–‹‰ƒƒ”‡–ǡ™‡„‡Ž‹‡˜‡–Šƒ–ƒƒ
˜‡†‘”•™‹–Šƒ˜‡”–‹…ƒŽˆ‘…—•Ž‹‡‡‡˜ƒƒ”‡‘”‡Ž‹‡Ž›–‘‰‡‡”ƒ–‡Š‹‰Š‡”…ƒ•ŠϐŽ‘™ƒ†’”‘ϐ‹–ƒ„‹Ž‹–›
because these vendors have not only the ability to disrupt, but also tremendous value in their vertical-
•’‡…‹ϐ‹…‡š’‡”–‹•‡ƒ†…ƒ’‡‡–”ƒ–‡‘”‡‘ˆ–Š‡ƒ††”‡••ƒ„Ž‡ƒ”‡–“—‹…‡”ǤšŠ‹„‹–͵ͳ†‡‘•–”ƒ–‡•
–Š‡‰”ƒ†—ƒŽ’”‘‰”‡••‹‘–‘™ƒ”†‘Ǧ
Ȁ‘Ǧ ’”‘ϐ‹–ƒ„‹Ž‹–›‘ˆ‘—”ƒƒǦ„ƒ•‡†…‘˜‡”ƒ‰‡Ž‹•–Ǥ
Š‹Ž‡‘•–…‘’ƒ‹‡••–ƒ”–‘—–—’”‘ϐ‹–ƒ„Ž‡ǡ–Š‡…ƒ†‡…‡‹•‹’”‘˜‹‰‡ƒ…Š›‡ƒ”Ǥ

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Adjusted Operating Margin

Company      ([SDQVLRQ EDVLVSRLQWV


CARB -13.9% -2.9% 0.6% 3.5% 8.1% 2,200
RNG -26.0% -18.9% -13.5% -2.4% 2.0% 2,800
CRM 11.7% 9.4% 10.4% 12.4% 13.2% 150
VEEV NA 22.2% 27.1% 27.1% 28.7% 650
ZEN -38.0% -23.6% -24.5% -11.8% -6.8% 3,115
APPF NA -27.7% -16.1% -18.7% -3.9% 2,382
OOMA NA -2.7% -5.2% -9.5% -3.4% -70
TEAM NA 18.4% 18.0% 16.7% 16.8% -156
UPLD -7.7% -6.5% -5.6% -1.3% 13.6% 2,130
ALRM 18.9% 19.1% 14.5% 13.6% 15.9% -300
HUBS -31.6% -39.7% -27.4% -13.8% -4.4% 2,720
$YHUDJH      
Median      
Sources: Company filings

ƒŽƒ…‡‘ˆ”‘ϐ‹–•ƒ†‡˜‡—‡
”‘™–Š
ƒƒ˜‡†‘”•Šƒ˜‡Žƒ”‰‡Ž›„‡‡…”‹–‹…‹œ‡†ƒ†’‡ƒŽ‹œ‡†ˆ‘”‘–•Š‘™‹‰ƒ”‰‹‡š’ƒ•‹‘‘”’”‘ˆ-
itability at a quicker pace. Most SaaS companies are heavily investing in sales-and-marketing and
research-and-development (R&D) to drive accelerated growth in the future rather than incremental
’”‘ϐ‹–•–‘†ƒ›ǤŠ‹•’Š‡‘‡‘‹•”‡’”‡•‡–‡†‹‡šŠ‹„‹–͵ʹǡ™Š‹…Š…‘’ƒ”‡••‡˜‡”ƒŽˆƒ•–Ǧ‰”‘™‹‰
SaaS vendors with slow-growing, higher-margin players. The deltas between the two groups are
most apparent in revenue growth and operating margin.

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$FWXDO2SHUDWLQJ0HWULFV
Delta Between
CRM ZEN :'$< NOW $33) $YHUDJH 25&/ 06)7 CA &7;6 $YHUDJH Averages
5HYHQXH*URZWK 25% 64% 49% 47% 57% 48% -2% 3% -6% 4% 0% 49%
Gross Margin 77% 71% 70% 73% 55% 69% 80% 65% 85% 81% 78% 9%

6 0RI5HYHQXH 43% 47% 33% 39% 35% 39% 20% 17% 25% 35% 24% 15%
5 'RI5HYHQXH 12% 20% 30% 15% 13% 18% 14% 13% 14% 16% 14% 4%

Operating Margin 12% -12% -1% 10% -19% -2% 44% 30% 38% 26% 35% 37%

)UHH&DVK)ORZ0DUJLQ 20% -11% 10% 23% -24% 4% 34% 25% 24% 27% 28% 24%

Sources: Company filings

36 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

‘—”‘’‹‹‘ǡ•Š‘™‹‰ƒ’ƒ–Š–‘’”‘ϐ‹–ƒ„‹Ž‹–›‹•‹’‘”–ƒ–ǡ„—–™‡„‡Ž‹‡˜‡…‘–‹—‡†‹˜‡•–‡–‹
•ƒŽ‡•Ǧƒ†Ǧƒ”‡–‹‰ƒ†Ƭ‹•’”—†‡––‘…ƒ’–—”‡ƒ”‡–•Šƒ”‡ƒ–ƒ”ƒ’‹†’ƒ…‡Ȅ–Š‡‘•–†‹ˆϐ‹…—Ž–
aspect in the software industry, in our opinion. The reality is, if companies do not garner market
•Šƒ”‡“—‹…Ž›ǡƒ‘–Š‡”…‘’‡–‹–‘”™‹ŽŽǤŠ‹Ž‡–Š‡’”‘ϐ‹–ƒ„‹Ž‹–›„”‡ƒ‹‰’‘‹–™‹ŽŽ†‡’‡†‘‡ƒ…Š
company, we believe that high growth insinuates there is still a large market to be penetrated and
’”‘ϐ‹–ƒ„‹Ž‹–›™‹ŽŽŽ‹‡Ž›Žƒ‰ˆ‘”•‘‡–‹‡ƒ•…‘’ƒ‹‡•…‘–‹—‡–‘‹˜‡•–‹•ƒŽ‡•Ǧƒ†Ǧƒ”‡–‹‰–‘
capture that market share. This is why we believe high sales-and-marketing spending can be justi-
ϐ‹‡†ƒ†•—•–ƒ‹‡†ǡ„—–•Š‘—Ž†„‡…‘’Ž‡‡–‡†™‹–Šƒ•‘Ž‹†„—•‹‡••‘†‡Žƒ†ƒ’ƒ–Š–‘’”‘ϐ‹–-
ability. Not surprisingly, companies with higher revenue growth tend to sell for higher multiples, a
”‡Žƒ–‹‘•Š‹’†‡’‹…–‡†‹‡šŠ‹„‹– 33.

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40.0% 10.0x
5HYHQXH*URZWK(VWLPDWH

35.0% 9.0x
8.0x
30.0%
7.0x

(95HY
25.0% 6.0x
20.0% 5.0x
15.0% 4.0x
3.0x
10.0%
2.0x
5.0% 1.0x
0.0% 0.0x

Revenue Growth Estimates (2017) EV/Revenue

Source: William Blair estimates

Vertical Players Have the Edge


……‘”†‹‰–‘
ƒ”–‡”ǡ–Š‡ƒ”‡–ˆ‘”˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…•‘ˆ–™ƒ”‡‹…”‡ƒ•‡†͸ǤͷΨǡ–‘̈́ͳʹʹ„‹ŽŽ‹‘ǡ‹
2015. North America and Western Europe continue to dominate the market with over 75% market
•Šƒ”‡ǡ„—–•‹ƒǦƒ…‹ϐ‹…‹•‹…”‡ƒ•‹‰Ž›‰ƒ‹‹‰ƒ”‡–•Šƒ”‡Ǥ‡‘ˆ–Š‡ƒ‹†”‹˜‡”•‘ˆ‰”‘™–Š‹
–Š‹• ƒ”‡– ‹• ‹…”‡ƒ•‡† †‡ƒ† ˆ‘” ‘„‹Ž‡ ƒ’’Ž‹…ƒ–‹‘•Ǥ ‡ „‡Ž‹‡˜‡ ˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹… •‘ˆ–™ƒ”‡
will gain momentum as industries such as banking, insurance, and healthcare increase their IT
spending due to higher regulation and a continued shift toward digital channels. In particular, the
Š‡ƒŽ–Š…ƒ”‡•‡…–‘”‹•‡š’‡…–‡†–‘‹…”‡ƒ•‡‹–• •’‡†‹‰ƒ–ƒ͵Ǥ͵Ψ…‘’‘—†ƒ—ƒŽ”ƒ–‡–Š”‘—‰Š
2020, primarily driven by transitions to electronic health records and investments in revenue cycle
ƒƒ‰‡‡–ȋ
ƒ”–‡”ȌǤ–Š‡”•‡…–‘”•–Šƒ–”‡“—‹”‡Š‡ƒ˜‹Ž›…—•–‘‹œ‡†•‘Ž—–‹‘•ƒ††”‹˜‡—…Š‘ˆ
–Š‡‹˜‡•–‡–‹˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…•‘ˆ–™ƒ”‡‹…Ž—†‡ƒ—ˆƒ…–—”‹‰ƒ†‰‘˜‡”‡–Ǥ

‡„‡Ž‹‡˜‡–Šƒ–˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…ƒƒ˜‡†‘”•Šƒ˜‡ƒƒ†˜ƒ–ƒ‰‡‘˜‡”Š‘”‹œ‘–ƒŽ•‘ˆ–™ƒ”‡˜‡†‘”•
ȋ‡Ǥ‰Ǥǡǡǡǡ‹ˆ”ƒ•–”—…–—”‡•‘ˆ–™ƒ”‡ȌǤŠ‹Ž‡–Š‡•ˆ‘”˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…•‘ˆ–™ƒ”‡ƒ›„‡
smaller, these vendors can penetrate their markets quicker and gain scale, which can result in higher
‘’‡”ƒ–‹‰ƒ”‰‹•–ŠƒŠ‘”‹œ‘–ƒŽ’Žƒ›‡”•–Šƒ––ƒ‡Ž‘‰‡”–‘•…ƒŽ‡ȋ•Š‘™‹‡šŠ‹„‹–͵ͶȌǤ ƒ††‹-
tion, vertical markets tend to require heavy customization yet have to deal with constantly changing
regulatory and compliance environments—making vertical cloud applications an appealing solution
ˆ‘”–Š‡•‡ƒ”‡–••‹…‡–Š‡›…ƒƒ†ƒ’––‘…Šƒ‰‡•‘”‡“—‹…Ž›–Šƒ‹ϐŽ‡š‹„Ž‡ƒ†‘”‡‡š’‡•‹˜‡
Ž‡‰ƒ…›•›•–‡•Ǥ —”–Š‡”ǡƒƒ˜‡†‘”•–Šƒ–…ƒ‘ˆˆ‡”’”‡…‘ϐ‹‰—”‡†•‘Ž—–‹‘•ˆ‘”‹…Š‡ƒ”‡–•’”‘˜‹†‡
•‹‰‹ϐ‹…ƒ–˜ƒŽ—‡ƒ†–›’‹…ƒŽŽ›Šƒ˜‡ƒ‡ˆϐ‹…‹‡–‰‘Ǧ–‘Ǧƒ”‡–•–”ƒ–‡‰›•‹…‡–Š‡‹”–ƒ”‰‡–ƒ—†‹‡…‡‹•

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 37
William Blair

™‡ŽŽ†‡ϐ‹‡†Ǥƒ•–Ž›ǡ–Š‡ƒ‘—–‘ˆ†ƒ–ƒ„‡‹‰…‘ŽŽ‡…–‡†‹–Š‡•‡’ƒ”–‹…—Žƒ”ƒ”‡–•‹•‡š–”‡‡Ž›˜ƒŽ—-
able and can result in additional products created and sold into an already established customer base,
™Š‹…Šˆƒ…‹Ž‹–ƒ–‡•ƒ”‰‹‡š’ƒ•‹‘ǤŽ•‘ǡ…—•–‘‡”•—•—ƒŽŽ›Šƒ˜‡•‹‰‹ϐ‹…ƒ–‹ϐŽ—‡…‡‘˜‡”–Š‡’”‘†—…–
”‘ƒ†ƒ’ˆ‘”–Š‡•‡•‘Ž—–‹‘••‹…‡–Š‡›ƒ”‡–Š‡‹†—•–”›‡š’‡”–•ǡ”‡•—Ž–‹‰‹‹…”‡ƒ•‡†•–‹…‹‡••Ǥ

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60%
AZPN
50%
$GMXVWHG(%,7'$0DUJLQ

40% )/7;
'6*;
VEEV
30%
SQI $7+1 CRM
NOW
20%
SPSC
N :'$<
10% CSODRNG
ZEN
0.72
0%
0% 10% 20% 30% 40% +8%6 50% 60%
-10%
5HYHQXH*URZWK

Sources: William Blair estimates and FactSet

Opportunity in the Small-Business Market


From our research of the opportunity in the small-business market, we came away with one central
…‘…Ž—•‹‘ǣ•ƒŽŽ„—•‹‡••‹•„‹‰„—•‹‡••ǤƒŽŽ„—•‹‡••‡•ǡ†‡ϐ‹‡†„›–Š‡ǤǤ‡•—•—”‡ƒ—ƒ•
those with fewer than 500 employees, constituted roughly 45% of the entire U.S. economy (private
nonfarm gross domestic product [GDP]) in 2010, the latest date for which data was available. This
”‡’”‡•‡–•ƒŽƒ”‰‡’‘”–‹‘‘ˆ‡…‘‘‹…ƒ…–‹˜‹–›ǡƒ†•ƒŽŽ„—•‹‡••‡•ǯ
‰”‡™ˆ”‘̈́͵Ǥ͸–”‹ŽŽ‹‘
‹ͳͻͻͺ–‘‘˜‡”̈́ͷǤʹ–”‹ŽŽ‹‘‹ʹͲͳͲǤ

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(dollars in trillions)
5.5 0.51
5.1825.217 5.21
0.5
5.08
4.948
5 0.49
4.698
0.48
4.522
4.5 0.47
4.19 4.14 4.23
4.069 0.46
4 3.836 0.45

3.578 0.44
3.5 0.43
0.42
3 0.41

Small-Business GDP % of total GDP

Sources: Bureau of Labor Statistics, U.S. Census Bureau

38 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

Based on our analysis of the most up-to-date U.S. Census data and the U.S. Small Business Associa-
–‹‘ǡ–Š‡”‡ƒ”‡”‘—‰ŠŽ›ͷǤ͹‹ŽŽ‹‘ϐ‹”•‹–Š‡‹–‡†–ƒ–‡•™‹–Šˆ‡™‡”–ŠƒͶͻͻ‡’Ž‘›‡‡•ǡ™‹–Š
–Š‡Žƒ”‰‡•–…‘…‡–”ƒ–‹‘‘ˆϐ‹”•‹–Š‡‘‡Ǧ–‘ˆ‘—”Ǧ‡’Ž‘›‡‡…ƒ–‡‰‘”›Ǥ‡’ƒ”ƒ–‡Ž›ǡ–Š‡”‡ƒ”‡ƒŽ•‘
ʹ͵‹ŽŽ‹‘‘Ǧ‡’Ž‘›‡”„—•‹‡••‡•Ž‘…ƒ–‡†‹–Š‡‹–‡†–ƒ–‡•ǤŠ‡ǤǤ‡•—•—”‡ƒ—†‡ϐ‹‡•ƒ
‘Ǧ‡’Ž‘›‡”„—•‹‡••ƒ•‘‡–Šƒ–Šƒ•‘’ƒ‹†‡’Ž‘›‡‡•ǡŠƒ•ƒ—ƒŽ„—•‹‡••”‡…‡‹’–•‘ˆ̈́ͳǡͲͲͲ
‘”‘”‡ǡƒ†‹••—„Œ‡…––‘ˆ‡†‡”ƒŽ‹…‘‡–ƒš‡•ǤŠ‹Ž‡™‡”‡ƒ‹•‘‡™Šƒ–…‘•‡”˜ƒ–‹˜‡‘–Š‡ƒ…-
tual software vendor business opportunity in the non-employer market, we point out that a healthy
number of attendees at the small-business-heavy customer conferences that we have attended over
–Š‡Žƒ•–ˆ‡™‘–Š•™‡”‡Dz•‘Ž‘’”‡‡—‡”•dzȋ‹Ǥ‡Ǥǡ‘Ǧ‡’Ž‘›‡”ϐ‹”•Ȍǡ•‘™‡„‡Ž‹‡˜‡–Šƒ–‡˜‡•‘Ž‘’”‡-
neuers have an appetite for CRM, ERP,HCM, marketing, and supply chain software solutions that are
now easily consumable and purchasable via a monthly subscription contract. In total, there are 28.7
million small businesses, which compares with the roughly 18,200 “enterprises” in the United States
with more than 500 employees—representing the large opportunity in the small-business market.

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Non-
1HZ Steady )LJXUH *URZWK Midsize
Stage employer
Employer Operation Business Company Business
)LUPV

Employees 1 1-4 5-9 10-19 20-99 100-499

Sales $50K-100K $100-300K $300K-1M $1-3M $3-10M $10-250M

LQ86 23M 3.5M 993K 594K 494K 83K

Sources: U.S. Census Bureau and William Blair estimates

From a dollars perspective, Gartner estimated via a 2014 study that North American small businesses
”‡…‘”†‡†”‘—‰ŠŽ›̈́͵Ͷͷ„‹ŽŽ‹‘‹–‘–ƒŽ •’‡†‹‰‹ʹͲͳͶǡƒ†’”‘Œ‡…–‡†–Š‹•ϐ‹‰—”‡–‘‹…”‡ƒ•‡–‘
̈́Ͷͳʹ„‹ŽŽ‹‘„›ʹͲͳͺǤ‡‡•–‹ƒ–‡–Šƒ–•‘ˆ–™ƒ”‡…‘•–‹–—–‡•”‘—‰ŠŽ›ʹͲΨ‘ˆ–‘–ƒŽ •’‡†‹‰ƒˆ–‡”
ƒ……‘—–‹‰ ˆ‘” Šƒ”†™ƒ”‡ǡ  •‡”˜‹…‡•ǡ ƒ† –‡Ž‡…‘—‹…ƒ–‹‘•Ǧ”‡Žƒ–‡† ‡š’‡•‡•Ȅ”‡’”‡•‡–‹‰
‘˜‡”̈́ͺʹ„‹ŽŽ‹‘‘ˆ•’‡†‹‰‘•‘ˆ–™ƒ”‡‹ʹͲͳͺ„ƒ•‡†‘
ƒ”–‡”ǯ•’”‘Œ‡…–‹‘Ǥ‡ƒ””‹˜‡ƒ–
20% spending on software based on Gartner’s breakout of roughly 16% of an SMB’s total IT budget
spent on hardware, 28% spent on IT services, 37% spent on telecommunications, and 20% spent
‘•‘ˆ–™ƒ”‡Ǥ˜‡”–Š‡Ž‘‰–‡”ǡ™‡‡š’‡…–…Ž‘—†„—•‹‡••‘†‡Ž•ǡ™Š‹…Š‘ˆ–‡”‡’Žƒ…‡–Š‡‡‡†ˆ‘”
hardware and in-house IT, to continue to prevail over legacy on-premise vendors. As this transition
from on-premise to cloud continues to take place, we believe that software will inevitably become
ƒŽƒ”‰‡”’‹‡…‡‘ˆ–‘–ƒŽ „—†‰‡–•ȋ‡Ǥ‰ǤǡͶͲΨǦͷͲΨȌǡ‡š’ƒ†‹‰–Š‡ƒ”‡–‘’’‘”–—‹–›Ǥ ƒ††‹–‹‘ǡ
vendors such as RingCentral, which offer a mobile-centric and largely hardware-free communica-
tions platform, should replace the large piece of IT budgets currently allocated for on-premises
hardware (e.g., servers) and desk phones for their telecommunications systems, presenting another
large opportunity for software vendors attacking the SMB space.

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(dollars in millions)
      5-year CAGR
Total IT Spend $333,680 $345,134 $360,400 $376,597 $393,247 $412,183 
Growth 3% 4% 4% 4% 5%
6RXUFH*DUWQHU)RUHFDVW$QDO\VLV6PDOODQG0LGVL]H%XVLQHVV([WHUQDO,76SHQGLQJ:RUOGZLGH48SGDWH

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 39
William Blair

‡„‡Ž‹‡˜‡–Šƒ–Ǧˆ‘…—•‡†˜‡†‘”•…ƒ†”‹˜‡•‹‰‹ϐ‹…ƒ–‘’‡”ƒ–‹‰Ž‡˜‡”ƒ‰‡‘˜‡”–Š‡Ž‘‰–‡”Ǥ
These companies’ easy-to-use functionality, rich feature-set, and generally lower price points increase
the stickiness of their software solutions, which has allowed these SMB-focused vendors to achieve
dollar retention rates between 95% and 100% over the past three years; we also note that these
retention rates have improved each year over the past three years, on average. Comparatively, we
analyzed the retention rates for our universe of SMB-focused SaaS companies, and compared these
”‡–‡–‹‘”ƒ–‡•™‹–Š–Š‡‘˜‡”ƒŽŽƒƒ‰”‘—’ȋ‡š…Ž—†‹‰–Š‡Ǧˆ‘…—•‡†ƒƒ˜‡†‘”•ȌǤ‡ƒƒŽ›œ‡†
only those companies in our universe for which information was available, and found that SMB SaaS
companies, on average, achieve similar retention rates as the remaining SaaS group. We believe this
‹••‹‰‹ϐ‹…ƒ–•‹…‡•‘‡‹˜‡•–‘”•‰‡‡”ƒŽŽ›ƒ••—‡–Šƒ–Ǧˆ‘…—•‡†•‘ˆ–™ƒ”‡˜‡†‘”•Dz—•–dzŠƒ˜‡
higher logo churn and lower dollar retention rates. In our opinion, these technologies end up being
mission-critical to SMBs’ daily operations, which is why we have seen such high retention rates for
the SMB-focused group. In addition, based on our over 1,540 conversations with small-business
owners, once a customer has chosen a particular technology, there are very few incentives to switch
as long as the vendor continues to deliver a valuable service. In contrast to most investors’ concerns
about SMBs switching due to lower pricing, our survey suggests that most SMBs would not switch
ˆ‘”ƒʹͲΨǦ͵ͲΨ†‹•…‘—–ǡ„‡…ƒ—•‡‘ˆ–”ƒ‹‹‰…‘•–•ǡ…‘ˆ‘”–™‹–Š–Š‡‡š‹•–‹‰˜‡†‘”ǡƒ†‹–‡‰”ƒ-
tion into core business processes.

‘”‡šƒ’Ž‡ǡ ˆ—•‹‘•‘ˆ–ǯ•ƒ†ƒ”‡–‹‰ƒ—–‘ƒ–‹‘•‘ˆ–™ƒ”‡†”‹˜‡•–Š‡‰”‘™–Š‘ˆƒ›
•ǡƒ†‹•‘–‡ƒ•›–‘–—”‘ˆˆ™‹–Š‘—–Šƒ˜‹‰ƒ•‹‰‹ϐ‹…ƒ–‹’ƒ…–‘‹–•…—•–‘‡”•ǯ„—•‹‡••Ǥ†
on top of providing the sales-and-marketing engine, Infusionsoft has introduced an e-commerce
and payments platform that is now the system of record that drives the actual sales and transac-
tions for many SMBs, greatly improving the stickiness of its solutions. RingCentral’s cloud-based
Šƒ•ƒŽ•‘„‡…‘‡–Š‡‹••‹‘Ǧ…”‹–‹…ƒŽ…‘—‹…ƒ–‹‘•’Žƒ–ˆ‘”–Šƒ–•—’’‘”–•˜‘‹…‡ǡ–‡š–ǡƒ†
ˆƒš…‘—‹…ƒ–‹‘ˆ‘”•ǡƒ†‹•…”—…‹ƒŽ–‘•„‡…ƒ—•‡‘–Šƒ˜‹‰ƒ’Š‘‡•›•–‡ǡˆ‘”‡˜‡
ƒ†ƒ›ǡ™‘—Ž†ƒ‡‹–Šƒ”†ˆ‘”ƒ›„—•‹‡••–‘ˆ—…–‹‘Ǥ–Š‡”˜‡†‘”•‘‘—”…‘˜‡”ƒ‰‡Ž‹•–ǡ•—…Šƒ•
‡†‡•ǡŠƒ˜‡ƒŽ•‘”‡Ž‡ƒ•‡†‡™ˆ—…–‹‘ƒŽ‹–›ȋ‡Ǥ‰Ǥǡ†˜ƒ…‡†‘‹…‡Ȍ‘˜‡”–‹‡–Šƒ–‡”‹…Š‡•–Š‡
ˆ—…–‹‘ƒŽ‹–›ȋƒ††‹‰–Š‡ƒ„‹Ž‹–›–‘–”ƒ•ˆ‡”…ƒŽŽ•–‘ƒ•’‡…‹ϐ‹…ƒ‰‡–‘”†‡’ƒ”–‡–ǡ”‡Žƒ›‹‰‹ˆ‘”ƒ-
tion to a caller, or providing information about the caller to the agent), which we believe improves
–Š‡•–‹…‹‡••‘ˆ‹–••‘Ž—–‹‘•Ǥ ‡šŠ‹„‹–͵ͺǡ™‡’”‘˜‹†‡‘—”ƒƒŽ›•‹•‘ˆ–Š‡”‡–‡–‹‘”ƒ–‡•ˆ”‘ʹͲͳʹ
to 2015 for the SMB-focused SaaS and overall SaaS groups.

SMB-focused software vendors also primarily use inbound sales strategies (and teams) to generate
–Š‡ƒŒ‘”‹–›‘ˆ–Š‡‹”Ž‡ƒ†•ƒ†•ƒŽ‡•ǡƒ•–ƒ”…‘–”ƒ•––‘–Š‡–›’‹…ƒŽ‡’Ž‘›‡‡ǦŠ‡ƒ˜›ϐ‹‡Ž†Ǧ„ƒ•‡†•ƒŽ‡•
team among software vendors focusing on the enterprise market. The easy-to-use and easy-to-
consume nature of these SMB-focused companies’ software, combined with their largely automated
•ƒŽ‡•’”‘…‡••ǡŠ‡Ž’•ƒ……‡Ž‡”ƒ–‡™‹†‡•’”‡ƒ†ƒ†‘’–‹‘™‹–Š„‘–Š‡™ƒ†‡š‹•–‹‰…—•–‘‡”•ƒ–ƒŽ‘™‡”
customer-acquisition cost than we typically witness with SaaS- and software-based companies that
are focused further upmarket. This has largely been driven by the much shorter sales cycles that SMB-
ˆ‘…—•‡†˜‡†‘”•‡š’‡”‹‡…‡Ǥ‡„‡Ž‹‡˜‡–Šƒ–˜‡†‘”•ˆ‘…—•‡†‘–Š‡•’ƒ…‡ƒ”‡ƒ„Ž‡–‘“—‹…Ž›
•‡ŽŽ‹–‘‡™…—•–‘‡”ƒ……‘—–•ǡ™‹–Šƒ˜‡”ƒ‰‡•ƒŽ‡•…›…Ž‡•„‡–™‡‡Ͳƒ†ͷͲ†ƒ›•ǡ•‹‰‹ϐ‹…ƒ–Ž›
ˆƒ•–‡”–Šƒ–Š‡ƒ˜‡”ƒ‰‡•‹šǦ–‘‹‡Ǧ‘–Š•ƒŽ‡•…›…Ž‡••‡‡™‹–Š‡–‡”’”‹•‡Ǧˆ‘…—•‡†…‘’ƒ‹‡•Ǥ

40 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

([KLELW
Retention Rates

SMB SaaS Group


Company 7LFNHU Retention Retention Retention Retention
   
133% dollar retention -
AppFolio, Inc. APPF property mgmt.; 100% - ~115% dollar retention rate
Legal
Fleetmatics Group Ltd. FLTX 92.5% customer retention 92.7% customer retention 91.5% customer retention
82.4% subscription rev. 82.9% subscription rev. 92.7% subscription rev. 99.2% subscription rev.
HubSpot, Inc. HUBS
retention retention retention retention
MINDBODY MB 103% dollar retention rate 109% dollar retention rate 116% dollar retention rate
91% annual rev. retention 91% annual rev. retention 91% annual rev. retention 91% annual rev. retention
Paycom Software, Inc. PAYC
rate rate rate rate
99% monthly dollar >99% monthly dollar >99% monthly dollar
RingCentral, Inc. RNG
subscription retention rate subscription retention rate subscription retention rate
>120% dollar based
Zendesk, Inc. ZEN 123% dollar based retention
retention
Mean - Revenue Retention 94.2% 103.1% 105.0%
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SaaS Group
Company 7LFNHU Retention Retention Retention Retention
   
102% subscription rev. 102% subscription rev. 100% subscription rev. 98% subscription rev.
Amber Road, Inc. AMBR
retention retention retention retention
Atlassian TEAM >110% rev. retention >110% rev. retention
Bazaarvoice, Inc. BV 88% customer retention 77% customer retention 87% customer retention 94% customer retention
>95% software services rev. >95% software services rev. >95% software services rev. >95% software services rev.
Benefitfocus, Inc. BNFT
retention retention retention retention
>100% subscription rev. >100% subscription rev. >100% subscription rev. >100% subscription rev.
ChannelAdvisor Corp. ECOM
retention retention retention retention
Cornerstone
CSOD 94.3% dollar retention rate 94.6% dollar retention rate 93.7% dollar retention rate 95.4% dollar retention rate
OnDemand, Inc.
>100% subscription
97% subscription retention; 97% subscription retention; >95% subscription retention;
retention - Event Cloud;
Cvent, Inc. CVT 115% marketing solutions 107% marketing solutions >100% marketing solutions
>105% subscription
retention retention retention
retention - Hospitality Cloud
The Descartes Systems
DSGX 95% recurring rev. retention 95% recurring rev. retention 95% recurring rev. retention 95% recurring rev. retention
Group, Inc.
>100% subscription rev. >100% subscription rev.
>100% subscription rev. >100% subscription rev.
Demandware, Inc. DWRE
retention retention retention retention
>100% dollar retention >100% dollar retention >100% dollar retention
Halogen Software, Inc. HGN-TSE
>90% customer retention
90% customer retention
>110% dollar retention >110% dollar retention>110% dollar retention >100% dollar retention
Jive Software, Inc. JIVE (customers spending (customers spending (customers spending (customers spending
>$50K) >$50K) >$50K) >$50K)
91% customer renewal
LivePerson, Inc. LPSN (enterprise/midmarket); Mid-90% dollar retention
0.7% attrition for SMB
Medidata Solutions, Inc. MDSO 98% rev. retention 98% rev. retention >99% rev. retention >99% rev. retention
100% subscription rev. 100% subscription rev. 109% subscription rev. 107% subscription rev.
Marketo, Inc. MKTO
retention retention retention retention
Retained >90% of customer Retained >95% of customer
Opower, Inc. OPWR
base on rev. weighted basis base on rev. weighted basis
91% annual rev. retention 91% annual rev. retention 91% annual rev. retention 91% annual rev. retention
Paycom Software, Inc. PAYC
rate rate rate rate
>92% annual rev. retention >92% annual rev. retention >92% annual rev. retention >92% annual rev. retention
Paylocity Holding Corp. PCTY
rate rate rate rate
106% subscription rev. 100% subscription rev. 96% subscription rev. 98% subscription rev.
SciQuest, Inc. SQI
retention retention retention retention
97% renewal rate excluding 96% renewal rate excluding 97% renewal rate excluding 98% renewal rate excluding
ServiceNow, Inc. NOW
up-sells up-sells up-sells up-sells
Rally Software 127% subscription renewal 116% subscription renewal 113% subscription renewal
RALY NA
Development Corp. rate rate rate
salesforce.com, inc. CRM ~86% dollar retention ~90% dollar retention ~92% dollar retention ~92% dollar retention
>90% rev. retention >90% rev. retention >90% rev. retention >90% rev. retention
Tangoe, Inc. TNGO (recurring technology and (recurring technology and (recurring technology and (recurring technology and
services rev.) services rev.) services rev.) services rev.)
The Ultimate Software >96% recurring rev. >96% recurring rev. >96% recurring rev. >97% recurring rev.
ULTI
Group, Inc. customer retention rate customer retention rate customer retention rate customer retention rate
90% annual net dollar 96% annual net dollar
Upland Software, Inc. UPLD NA
retention rate retention rate
187% subscription rev.
Veeva Systems, Inc. VEEV 166% total rev. retention 138% total rev. retention 125% total rev. retention
retention
Mean - Revenue Retention 104% 101% 101% 99%
0HGLDQ5HYHQXH5HWHQWLRQ    
Source: Company Filings

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 41
William Blair

SaaS Accounting Model


Subscription revenue is recognized ratably over the life of a contract (which can be multiple years)
™Š‹Ž‡ ‡š’‡•‡• ƒ••‘…‹ƒ–‡† ™‹–Š „‘‘‹‰ ”‡˜‡—‡ ȋ‡Ǥ‰Ǥǡ •ƒŽƒ”‹‡•ǡ „‡‡ϐ‹–•ǡ ‹’Ž‡‡–ƒ–‹‘ …‘•–•ǡ
ƒ†ƒ”‡–‹‰‡š’‡•‡•Ȍƒ”‡”‡…‘‰‹œ‡†ƒ•‹…—””‡†ƒ†Žƒ”‰‡Ž›—’ˆ”‘–Ǥ™‘‡š’‡•‡•–Šƒ–ƒ”‡
not recognized up front are sales commissions, which are typically deferred and amortized ratably
over the life of a contract, and hardware costs necessary to host a vendor’s cloud, which are typi-
cally capitalized and depreciated over their estimated useful life. In addition, many SaaS vendors
capitalize internally developed software costs; however, capitalized software costs remain a small
percentage of R&D spending; of the 12 SaaS vendors we cover, 10 capitalize software and averaged
roughly 13% of total R&D spending in 2015.

Š‡ˆƒ•–‡”ƒƒƒ…‘’ƒ›‰”‘™•ǡ–Š‡Ž‡•••Š‘”–Ǧ–‡”’”‘ϐ‹–‹–™‹ŽŽŽ‹‡Ž›†‡Ž‹˜‡”Ǥ‘˜‡”•‡Ž›ǡ•Ž‘™Ǧ
‰”‘™–Š•‘ˆ–™ƒ”‡…‘’ƒ‹‡•…ƒ—•—ƒŽŽ›†‡Ž‹˜‡”‘”‡’”‘ϐ‹–ƒ„‹Ž‹–›‹ˆƒƒ‰‡‡–‹•ˆ‘…—•‡†‘†‘-
‹‰•‘Ǥ ‘”‡šƒ’Ž‡ǡ‰”‘™–Š‘ˆ‹–”‹š›•–‡•ǯ…‘”‡’”‘†—…–•Ȅ‡’’ƒ†‡‡•–‘’ȄŠƒ•„‡‡
slowing over the past few years. With midsingle-digit growth (roughly 4% in 2015), the company
™ƒ•ƒ„Ž‡–‘†‡Ž‹˜‡”‘”‡–Šƒ͵ͲͲ„ƒ•‹•’‘‹–•‘ˆ‘’‡”ƒ–‹‰ƒ”‰‹‡š’ƒ•‹‘ƒ†ƒʹ͹Ψˆ”‡‡…ƒ•Š
ϐŽ‘™ƒ”‰‹‹ʹͲͳͷǤ‘–Š‡”‡šƒ’Ž‡‹•‹…”‘–”ƒ–‡‰›ǡ™Š‘•‡‰”‘™–Šƒ…–—ƒŽŽ›†‡…Ž‹‡†‹ʹͲͳͷ„—–
was able to improve its operating margin from 3% in 2014 to 29% in 2015 and generate a 26% free
…ƒ•ŠϐŽ‘™ƒ”‰‹†—”‹‰–Š‡›‡ƒ”Ǥ–Š‹”†‡šƒ’Ž‡‹•”…‹‰Š–ǡ™Š‹…Š†‡Ž‹˜‡”‡†ƒ‘’‡”ƒ–‹‰ƒ”‰‹
of -1% in 2008, 9% in 2009, and 11% in 2010 before being acquired by Hewlett Packard Enterprise
(HPE). ArcSight’s management demonstrated that it could increase margins rather quickly without
necessarily affecting its growth, which decelerated to only 33% in 2010 from 34% in 2009.

We believe this concept can be applied to most other software companies as well. While we are not
†‹•…‘—–‹‰–Š‡‹’‘”–ƒ…‡‘ˆ’”‘ϐ‹–ƒ„‹Ž‹–›ƒ†…ƒ•ŠϐŽ‘™ǡ™‡”‡‹†‹˜‡•–‘”•–Šƒ––Š‡•‡‡Ž‡‡–•
of software companies can be controlled to a certain degree, and when growth slows, the focus can
–Š‡„‡•Š‹ˆ–‡†–‘™ƒ”†‰‡‡”ƒ–‹‰Š‹‰Š‡”‘’‡”ƒ–‹‰ƒ”‰‹•ƒ†…ƒ•ŠϐŽ‘™Ǥ…‡…‘’ƒ‹‡•”‡ƒ…Š
scale and are embedded in the business processes of large companies, replacement becomes quite
†‹ˆϐ‹…—Ž–ƒ†’”‘˜‹†‡•ƒ”‡Žƒ–‹˜‡Ž›•–ƒ„Ž‡”‡˜‡—‡•–”‡ƒǡƒ†ƒƒ‰‡‡–…ƒ…—–„ƒ…‘•ƒŽ‡•Ǧ
ƒ†Ǧƒ”‡–‹‰ƒ†Ƭ‡š’‡•‡•–‘†‡Ž‹˜‡”ƒ”‰‹‡š’ƒ•‹‘ǤŠ‹•‹˜‡”•‡”‡Žƒ–‹‘•Š‹’„‡–™‡‡
”‡˜‡—‡‰”‘™–Šƒ†‘’‡”ƒ–‹‰ƒ”‰‹•‹••Š‘™‹‡šŠ‹„‹–͵ͻǤ

([KLELW
5HYHQXH*URZWKYV$GMXVWHG2SHUDWLQJ0DUJLQ

60.0%
ZEN
HUBS
50.0%
5HYHQXH*URZWK 

APPF
40.0% TEAM
VEEV
RNG
30.0% CRM ALRM
OOMA
20.0%

UPLD
10.0%

0.0%
-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0%
$GMXVWHG(%,70DUJLQ 

Sources: FactSet

42 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

Achieving Long-Term Operating Margin Targets


Most long-term operating margin targets for SaaS companies are about 20%-plus. The software
„—•‹‡••‘†‡ŽŽ‡†•‹–•‡Žˆ–‘ƒ…Š‹‡˜‹‰ƒ”‰‹‡š’ƒ•‹‘‘…‡‰”‘™–Š•Ž‘™•ǡ›‡––Š‡”‡ƒ”‡ƒˆ‡™
key items that we believe are important to achieve these long-term target operating margins.

Scale and market sizeȂŠ‡‘•–‹’‘”–ƒ–›‡–‘•–†‹ˆϐ‹…—Ž–’ƒ”–ǡ‹‘—”‘’‹‹‘ǡ‹•‰ƒ”‡”‹‰


market share. For a vendor to scale, it usually requires a large total available market (TAM) and
strong competitive position in that market. Scale is one of the main contributors to high margins at
ƒ†”ƒ…Ž‡ǡ™‹–Šƒ͵ͲǤͷؐ‘Ǧ ‘’‡”ƒ–‹‰ƒ”‰‹ƒ†ͶͷǤͷؐ‘Ǧ
‘’‡”ƒ–‹‰ƒ”‰‹ǡ
respectively. Vendors in horizontal markets tend to have larger TAMs than companies operating in
niche markets; however, we believe vertical players have the ability to capture a larger portion of
their markets.

Customer retentionȂ –‹•‘”‡‡š’‡•‹˜‡–‘ƒ…“—‹”‡‡™…—•–‘‡”•–Šƒ‹–‹•–‘”‡–ƒ‹‡š‹•–‹‰


ones given implementation costs, sales commissions, and marketing dollars needed to attract new
Ž‘‰‘•Ǥ…‡ƒ…—•–‘‡”‹•ƒ…“—‹”‡†ǡ‹…”‡‡–ƒŽ”‡˜‡—‡ˆ”‘–Šƒ–…—•–‘‡”–”‹…Ž‡•†‘™–‘–Š‡
bottom line over time. As a result, lower churn rates indicate higher customer retention and in-
…”‡ƒ•‡†’”‘ϐ‹–ƒ„‹Ž‹–›Ǥ

Revenue mixȂ‘‡ƒƒ…‘’ƒ‹‡•™‹ŽŽŠƒ˜‡ƒ‹š‘ˆ„‘–Š•—„•…”‹’–‹‘ƒ†•‡”˜‹…‡•”‡˜‡—‡Ǥ
—„•…”‹’–‹‘”‡˜‡—‡Š‘Ž†•ƒŠ‹‰Š‡”‰”‘••ƒ”‰‹’”‘ϐ‹Ž‡–Šƒ•‡”˜‹…‡•”‡˜‡—‡ǢŠ‹‰Š‡”•—„•…”‹’–‹‘
revenue will correlate to higher gross margins and overall operating margins. Many companies are
transitioning to offer both cloud and on-premises solutions. Gross margin is typically higher in the
traditional software model (because they do not have to host the core applications and revenue
is recognized as incurred as opposed to ratably over time), but subscription gross margin should
improve as the company scales this business (SaaS gross margins at scale are roughly 75% to 80%).
Transitions from on-premises to cloud may take time and may lead to heightened volatility on a
quarterly basis (especially if license revenue is declining as a result of the shift) and will likely have
a negative impact on total revenue growth and operating margin during the transitional period.
However, we remind investors that the subscription model lends itself to increased visibility into
the business, given the recurring nature of subscription revenue, as well as more stable revenue
streams compared with lumpier, less predictable license revenue. Subscription revenue also allevi-
ates some price wars because of less pressure on sales representatives to meet quarter-end quotas,
™Š‹…Š–›’‹…ƒŽŽ›”‡•—Ž–•‹•‹‰‹ϐ‹…ƒ–’”‹…‡†‹•…‘—–‹‰Ǥ

Infrastructure Ȃ Š‡ ‡ˆϐ‹…‹‡…› ‘ˆ –Š‡ —†‡”Ž›‹‰ ƒ”…Š‹–‡…–—”‡Ȅ—Ž–‹–‡ƒ…› ˜‡”•—• •‹‰Ž‡ ‹-
•–ƒ…‡ȄŽ‡ƒ†•–‘Š‹‰Š‡”’”‘ϐ‹–•ǡƒ•–Š‡”‡‹•‰”‡ƒ–‡”•Šƒ”‹‰‘ˆ”‡•‘—”…‡•ǤŠ‡„‡‡ϐ‹–•‘ˆƒ–”—‡—Ž-
titenant model are that it is “one-to-many,” meaning that one, shared server is providing services
to many users. Margins improve as the number of users grows because there are few incremental
costs to service additional users.

Ability to up-sell and cross-sellȂ’Ǧ•‡ŽŽ‹‰ƒ†…”‘••Ǧ•‡ŽŽ‹‰–‘ƒ…‘’ƒ›ǯ•‡š‹•–‹‰…—•–‘‡”


„ƒ•‡–‡†•–‘„‡‘”‡’”‘ϐ‹–ƒ„Ž‡„‡…ƒ—•‡…‘‹••‹‘•’ƒ‹†–‘•ƒŽ‡•”‡’”‡•‡–ƒ–‹˜‡•–‡†•–‘„‡
lower than for acquiring new customers. We particularly believe that vertical SaaS players have an
advantage here because once a vendor has penetrated its target market with a particular solution
ȋ‡Ǥ‰Ǥǡ˜‡”–‹…ƒŽǦ•’‡…‹ϐ‹…•‘Ž—–‹‘Ȍǡ–Š‡˜‡†‘”…ƒ…‘–‹—ƒŽŽ›•‡ŽŽ‹–‘–Šƒ–‹•–ƒŽŽ‡†„ƒ•‡ǡ™Š‹…Š‹•…‘•–
effective and the incremental revenue drops to the bottom line.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 43
William Blair

Cloud Adoption Continues


The cloud is gradually becoming less of a buzz word and more ubiquitous as companies are in-
…”‡ƒ•‹‰Ž›…‘ˆ‘”–ƒ„Ž‡™‹–Š–Š‡‘˜‡”ƒŽŽ‹†‡ƒ‘ˆ–Š‡…Ž‘—†ƒ†‹–•„‡‡ϐ‹–•ǡ’”‹ƒ”‹Ž›Ž‘™‡”‹‹–‹ƒŽ
cost, increased agility, and faster pace of innovation. In addition, companies (especially larger en-
–‡”’”‹•‡•Ȍƒ”‡Ž‘‘‹‰–‘”‡†—…‡–Š‡…‘’Ž‡š‹–›ƒ†‡š’‡•‡‘ˆ‘™‹‰ƒ†‘’‡”ƒ–‹‰ƒ–”ƒ†‹–‹‘ƒŽ
on-premises IT solution, which is also driving higher demand for cloud offerings. Gartner predicts
–Šƒ––”ƒ†‹–‹‘ƒŽ‘Ǧ’”‡‹•‡••‘ˆ–™ƒ”‡†‡’Ž‘›‡–•ƒ”‡‡š’‡…–‡†–‘†‡…Ž‹‡ˆ”‘͵ͶΨ–‘†ƒ›–‘ͳͺΨ
by 2017—providing ample cloud replacement opportunities throughout that time frame.

According to Gartner, the overall cloud computing market (consisting of IaaS, PaaS, SaaS, and BPaaS)
‹•‡š’‡…–‡†–‘…‘–‹—‡‰”‘™‹‰‹…‡Ž›‘˜‡”–Š‡‡š–ˆ‡™›‡ƒ”•Ǥ••Š‘™‹‡šŠ‹„‹–ͶͲǡ–Š‡‘˜‡”ƒŽŽ
’—„Ž‹……Ž‘—†ƒ”‡–‹•‡š’‡…–‡†–‘‰”‘™ƒ–ƒ…‘’‘—†ƒ—ƒŽ”ƒ–‡‘ˆͳͺΨˆ”‘ʹͲͳͶ–‘ʹͲͳͺǤ
This compares with the overall enterprise software market, which Gartner estimates will grow at
a compound annual rate of only 4% over the same time. In addition, SaaS and BPaaS continue to
make up the majority of cloud spending representing 34% and 44% of total cloud spending in 2015,
respectively. However, IaaS, representing 18% of cloud spending in 2015, is growing the fastest, at
a compound annual rate of 29% from 2014 to 2018, because more enterprises are moving their
infrastructure to the cloud.

([KLELW
3XEOLF&ORXG)RUHFDVW

180
160
140
Billions of Dollars

120 54
49
100
45
80
41 56
60 37 47
39
40 32 7
27 6
20 5
3 4 29 36
13 17 23
0
2014 2015 2016 2017 2018

IaaS PaaS SaaS BPaas

Source: Gartner - Cloud Service Providers Must Understand Deployment, Adoption and Buyer Complexity
to Leverage Cloud Revenue Opportunities

We believe this growing acceptance of the cloud demonstrates the increased maturity of the cloud
ƒ”‡–ƒ†ƒ…Ž‡ƒ”•Š‹ˆ––‘™ƒ”†…Ž‘—†Ǧϐ‹”•–•–”ƒ–‡‰‹‡•Ǥƒƒ‰‡‡––‡ƒ•ƒ”‡‘™–ƒ”‰‡–‹‰–Š‡
cloud for more than just reducing IT costs. The “always available” mentality, increased innovation,
and mobile possibilities make cloud-based applications ideal for leadership teams interested in
†‹‰‹–ƒŽ–”ƒ•ˆ‘”ƒ–‹‘Ǥ —”–Š‡”ǡ™‡•—•’‡…––Šƒ–ƒƒ‰‡‡––‡ƒ•ƒ”‡ϐ‹†‹‰–Š‡˜ƒŽ—‡‹–Š‡
ability to focus more of their time on their actual business instead of IT functions—a concept that
is often highlighted by our industry conversations. We attended the Enterprise Connect Conference
ȋˆ‘…—•‡†‘–Š‡—‹ϐ‹‡†…‘—‹…ƒ–‹‘ƒ†…‘ŽŽƒ„‘”ƒ–‹‘•‡…–‘”Ȍ–Š‹•›‡ƒ”ƒ†•’‘‡™‹–Š•‡˜‡”ƒŽ
people moving to the cloud because they indicated they were not a phone company and did not
want to worry about or devote resources to that aspect of their business; they simply wanted to
leverage a cloud-based phone system to focus their efforts on what really matters, which is driving

44 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

–Š‡‹”…‘”‡…‘’‡–‡…‹‡•Ǥ˜‡”ƒŽŽǡ–Š‡…Ž‘—†‹•’”‘˜‹†‹‰—…Š‘”‡–Šƒ…‘•–•ƒ˜‹‰•Ǣ‹–‹•…”‡ƒ–‹‰
strategic advantages over competitors simply through the intrinsic nature of its structure, which
ˆ—‡Ž•‹‘˜ƒ–‹‘ǡƒ‰‹Ž‹–›ǡƒ†‡ˆϐ‹…‹‡…›Ǥ

([KLELW
Gartner –6SHQGLQJRQ3XEOLF&ORXG6DD6

60
51

Percentage of Respondents
50

40
29
30

20 17

10

0
Currently have 50%+ Will have 50%+ Will never have 50%
application spending application spending application spending
on public cloud SaaS on public cloud SaaS on public cloud SaaS

Source: Gartner - Cloud Service Providers Must Understand Deployment, Adoption and
Buyer Complexity to Leverage Cloud Revenue Opportunities

([KLELW
6DD68VH&DVHV–0RYLQJWR0RUH0LVVLRQ&ULWLFDO$SSOLFDWLRQV

50
44
45 42
40 37
RI5HVSRQGHQWV

34
35
29
30
25
20
15
10
5 2
0
Don't Know/NA
Workloads
Mission-Critical

Low-Value
Development/

Proof of Concept
Test Activities

Production
Workloads

Workloads

8VH&DVH

Source: Gartner - Survey Analysis: Buyers Reveal Cloud Application Adoption Plans Through 2017

While a complete transformation to the cloud may not be happening at this point, we are seeing
broader acceptance of more mission-critical cloud offerings such as CRM, payroll, and ERP, as detailed
ƒ„‘˜‡Ǥ—”•‡•‡‹•–Š‡ƒ–—”ƒŽ’”‘‰”‡••‹‘‘ˆ…Ž‘—†ƒ†‘’–‹‘™‹ŽŽϐ‹”•–•–ƒ”–‘—–™‹–Šƒ’’Ž‹…ƒ–‹‘•ǡ
then storage, and eventually databases. We suspect that once companies adopt the cloud, they are
Ž‹‡Ž›–‘—•‡‹–ˆ‘”‘”‡–ŠƒŒ—•–‘‡’—”’‘•‡Ǣƒ••Š‘™‹‡šŠ‹„‹–Ͷ͵ǡ…‘’ƒ‹‡•ƒ”‡—•‹‰ƒƒ˜-
‡”ƒ‰‡‘ˆ•‹š…Ž‘—†•ȋ„‘–Š’—„Ž‹…ƒ†’”‹˜ƒ–‡ȌǤ•ƒ”‡•—Ž–ǡ™‡„‡Ž‹‡˜‡ƒŠ›„”‹†•‘Ž—–‹‘”‡ƒ‹•–Š‡
’”‡ˆ‡””‡† ƒ”…Š‹–‡…–—”‡ˆ‘”Žƒ”‰‡”‡–‡”’”‹•‡••‹…‡–Š‡›ƒ”‡ϐ‹†‹‰‹–…”‹–‹…ƒŽǡ‹•‘‡”‡•’‡…–•ǡ–‘
move to the cloud to remain competitive, but are not comfortable moving their entire infrastructure

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 45
William Blair

yet (for reasons we detail later). Hybrid solutions can offer lower costs, increased agility, and man-
agement relief (in terms of IT staff), but their use creates a much more complicated business model
ȋ‹Ǥ‡Ǥǡ•ƒŽ‡•‹…‡–‹˜‡…‘ϐŽ‹…–•ȌǤ ‘—”‘’‹‹‘ǡ–Š‡Š›„”‹†„—•‹‡••‘†‡Ž™‹ŽŽŽ‹‡Ž›–ƒ‡Š‘Ž†ˆ‘”
–Š‡‡š–†‡…ƒ†‡ƒ•…‘’ƒ‹‡•‰”ƒ†—ƒŽŽ›–”ƒ•‹–‹‘–‘–Š‡…Ž‘—†ǡ„—–ƒ’—”‡Ǧ…Ž‘—†‹ˆ”ƒ•–”—…–—”‡‹•
imminent as more mission-critical cloud applications are gaining general acceptance.

([KLELW
$YHUDJH3XEOLFDQG3ULYDWH&ORXG8VH
1XPEHURI&ORXGV8VHG 3XEOLF&ORXGV 3ULYDWH&ORXGV 7RWDO
Applications 1.5 1.7 3.2
Experimenting 1.5 1.3 2.8
7RWDO   6
Source: RightScale 2016 State of the Cloud Report

However, there remain a few barriers that are slowing the transition to the cloud or even hindering
‹–…‘’Ž‡–‡Ž›Ǥ’‡…‹ϐ‹…ƒŽŽ›ǡ–Š‡•‡„ƒ””‹‡”•‹…Ž—†‡•‡…—”‹–›ƒ†…‘’Ž‹ƒ…‡…‘…‡”•ƒ†‡–™‘”
connectivity issues.

Security and Compliance Concerns


We believe the concerns about security and compliance reside more within enterprise-level organiza-
tions as well as certain sectors that deal with high regulation or sensitive data (e.g., healthcare and
ϐ‹ƒ…‹ƒŽ•‡”˜‹…‡•ȌǤ ‘™‡˜‡”ǡ™‡’‘‹–‘—––Šƒ––Š‡ˆ‡†‡”ƒŽ‰‘˜‡”‡–Šƒ•„‡‡‰”ƒ†—ƒŽŽ›ƒ†‘’–‹‰
cloud applications for some time now; according to Gartner, U.S. federal cloud spending will more
–Šƒ†‘—„Ž‡‘˜‡”–Š‡‡š–ˆ‘—”›‡ƒ”•Ǥ–‹ŽŽǡ™‡„‡Ž‹‡˜‡–Š‡…Ž‘—†‹•…—””‡–Ž›‘”‡ƒ’’‡ƒŽ‹‰–‘–Š‡
ƒ”‡–ȋ™Š‹…Š—•—ƒŽŽ›Šƒ••ƒŽŽ‡”‹–‡”ƒŽ ”‡•‘—”…‡•Ȍ„‡…ƒ—•‡‹–‹•Ž‡••‡š’‡•‹˜‡™‹–Š
“—‹…‡”†‡’Ž‘›‡–•–Šƒ‘Ǧ’”‡‹•‡••‘Ž—–‹‘•ǡ™Š‹…Š–›’‹…ƒŽŽ›–ƒ‡•‹‰‹ϐ‹…ƒ––‹‡ƒ†‘‡›
to implement.

We believe it is imperative for SaaS providers to invest more in security than an individual company
to avoid security vulnerabilities and prevent reputational risks involved with a security breach (i.e., a
security breach for a cloud provider would affect all users and would risk losing all if its customers).
As a result, we believe most SaaS vendors spend more on security than individual companies and
…ƒ„‡‡ϐ‹–ˆ”‘‡…‘‘‹‡•‘ˆ•…ƒŽ‡ȋƒ†’”‘˜‹†‡…‘•–ƒ–•‡…—”‹–›‘‹–‘”‹‰Ȍ˜‡”•—•‘Ǧ’”‡‹•‡•
software, which has to invest more resources to enhance its security. Also, we believe there is more
risk of an “inside job” to an on-premises solution because it is easier for internal personnel to ac-
cess on-premises data. With a cloud offering, the data is managed at a different location from the
business. While we understand that companies may be reluctant to give up control over their data,
a lack of control does not necessarily translate into lack of security. In addition, cloud vendors offer
fast, thorough protection from threats that would be more challenging to manage on an in-house
system through quicker, more up-to-date security patches that can be applied to all customers si-
multaneously. Therefore, in the event of a security breach, a cloud provider has the ability to address
it quicker and limit the amount of damage. For these reasons, we argue that the cloud is actually
more secure than most in-house systems.

—”–Š‡”ǡ…Ž‘—†˜‡†‘”•ƒ”‡‹…”‡ƒ•‹‰–Š‡‹”…‡”–‹ϐ‹…ƒ–‹‘•–‘ƒ††”‡••…‡”–ƒ‹…‘’Ž‹ƒ…‡”‡“—‹”‡-
ments (e.g., HIPAA, FedRAMP, PCI, NIST, FISMA), which should also reduce concerns about industry-
•’‡…‹ϐ‹…”‡‰—Žƒ–‹‘•ƒ†…‘’Ž‹ƒ…‡”‡“—‹”‡‡–•Ǥ–Š‡”•‡…—”‹–›…‘…‡”•‹…Ž—†‡”‡†—†ƒ…›ƒ†
business continuity. While outages may occur, cloud providers typically have built-in redundancy
in their infrastructure, with all of the SaaS vendors in our coverage having some form of backup.
While lack of security remains a common misconception, we believe this only further emphasizes
the large market opportunity to replace on-premises solutions, especially for larger enterprises.

46 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

Performance and Network Connectivity Issues


Another concern is for organizations with operations in emerging markets where the connectivity
in those regions may be an issue and thus over-the-top cloud solutions may not be viable. Different
types of applications in the cloud will have various tolerance levels for network latency—typically
depending on how critical the application is and makes service-level agreements so important.
‹‰‡–”ƒŽǯ•…Ž‘—†Ǧ„ƒ•‡†’Š‘‡•›•–‡ǡˆ‘”‡šƒ’Ž‡ǡ™‹ŽŽŠƒ˜‡Š‹‰Š‡”—’–‹‡ƒ†’‡”ˆ‘”ƒ…‡
requirements than a CRM system, which is less critical to the overall business operations. Still, given
the availability and proven reliability of dedicated network connections such as Amazon’s Direct
Connect and Microsoft Azure, which offer increased bandwidth and latency, we believe this issue
will diminish over time.

Important Metrics
There are a number of commonly used metrics to help evaluate SaaS companies. We highlight a few
‡›‡–”‹…•ƒ†‡š’Žƒ‹–Š‡‹”‹’‘”–ƒ…‡Ǥ‡„‡Ž‹‡˜‡–Š‡‘•–—•‡ˆ—Ž‡–”‹…•ƒ”‡ˆ‘”™ƒ”†Ž‘‘‹‰ǡ
because while management’s guidance on revenue and earnings is helpful, the income statement
essentially provides only historical information. To get a sense for a company’s current state or how
it will perform in the future, we recommend using these key metrics:

Billings. Billings are calculated by adding the sequential change in deferred revenue to subscrip-
tion revenue. They offer a relatively easy way to get a sense of the current tone of business as the
‹…”‡ƒ•‡‹†‡ˆ‡””‡†”‡˜‡—‡™‹ŽŽ‡˜‡–—ƒŽŽ›ϐŽ‘™‘–‘–Š‡‹…‘‡•–ƒ–‡‡–ǤŽ•‘ǡ–Š‡‹ˆ‘”ƒ–‹‘
–‘…ƒŽ…—Žƒ–‡„‹ŽŽ‹‰•‹•‡ƒ•‹Ž›ƒ……‡••‹„Ž‡‹–Š‡”‡“—‹”‡†ϐ‹ƒ…‹ƒŽ†‹•…Ž‘•—”‡•Ǥ ‘™‡˜‡”ǡ–Š‡…ƒŽ…—Žƒ-
tion of billings does not take into account bill duration, invoice timing, and foreign currency, and
therefore can be misleading at times.

Bookings. Bookings measure the value of all business signed in a given period—both billed and
unbilled. The metric is calculated using both on- and off-balance-sheet numbers; unfortunately, not
all companies disclose bookings or provide off-balance-sheet information.

Current backlog. This calculation takes into account both invoiced and non-invoiced (on- and off-
„ƒŽƒ…‡Ǧ•Š‡‡–Ȍ„‘‘‹‰•–Šƒ–™‹ŽŽ„‡…‘˜‡”–‡†‹–‘”‡˜‡—‡™‹–Š‹–Š‡‡š–ͳʹ‘–Š•Ǥ—””‡–
backlog is helpful because it is the forward-looking value of how much revenue a company will
”‡…‘‰‹œ‡‹–Š‡‡š–ͳʹ‘–Š•Ǥ‡ƒŽ•‘’”‡ˆ‡”–Š‹•…ƒŽ…—Žƒ–‹‘„‡…ƒ—•‡‹–†‘‡•‘–‹…Ž—†‡•‡”˜‹…‡•
”‡˜‡—‡ƒ†”‡‘˜‡•–Š‡‹’ƒ…–‘ˆ„‘–Š…‘–”ƒ…–ƒ†„‹ŽŽ†—”ƒ–‹‘ȋ‡š’Žƒ‹‡†‡š–ȌǤ

Bill duration. Bill duration measures the timing of invoices. Most vendors offer monthly, quarterly,
‘”ƒ—ƒŽ‹˜‘‹…‹‰–‡”•Ǥ‹ŽŽ†—”ƒ–‹‘Š‡Ž’•‹˜‡•–‘”•’—––Š‡„‹ŽŽ‹‰•‡–”‹…‹–‘…‘–‡š–Ǥ ‘”
‡šƒ’Ž‡ǡ„‹ŽŽ‹‰•ˆ‘”…‘’ƒ‹‡•–Šƒ–Šƒ˜‡ƒƒŒ‘”‹–›‘ˆ–Š‡‹”…—•–‘‡”•‘‘–ŠŽ›‹˜‘‹…‡•ƒ”‡
less meaningful than a company that invoices annually, because the sequential change in deferred
revenue will be more substantial for annual invoices. Changes in bill duration are also important
to understand and can be used to adjust billings; if duration for comparable periods is provided,
‹˜‡•–‘”•…ƒ‘”ƒŽ‹œ‡ˆ‘”–Š‡…Šƒ‰‡‹„‹ŽŽŽ‡‰–ŠǤ ‘”‡šƒ’Ž‡ǡ‡‡˜ƒǯ••–‘…™ƒ•…‘–‹—ƒŽŽ›
’—–—†‡”’”‡••—”‡Žƒ•–›‡ƒ”ƒˆ–‡”Ž‘™‡”Ǧ–ŠƒǦ‡š’‡…–‡†„‹ŽŽ‹‰•‰”‘™–Š‰—‹†ƒ…‡ˆ‘”–™‘“—ƒ”–‡”•
in a row, which investors took as a sign of a slowdown in business, but was actually due to several
larger customers shifting their billing dates and coterminous renewal contracts. As a result, the
company provided a normalized billings metric to try to give a more accurate sense of its business.

Off-balance-sheet deferred revenue. ˆˆǦ„ƒŽƒ…‡Ǧ•Š‡‡– †‡ˆ‡””‡† ”‡˜‡—‡ ™‹ŽŽ ’”‘˜‹†‡ ƒ ‘”‡


complete view of the amount a vendor has contracted (when combined with on-balance-sheet
†‡ˆ‡””‡†”‡˜‡—‡ȌǤ‰ƒ‹ǡ™‹–Š‘—–…‘–”ƒ…–†—”ƒ–‹‘ǡ‹–‹•†‹ˆϐ‹…—Ž––‘†‡–‡”‹‡Š‘™”‡˜‡—‡ϐŽ‘™•
onto the income statement in the out-years.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 47
William Blair

Annualized contract value (ACV). This calculation represents the one-year value of contracted revenue.

Monthly recurring revenue (MRR) and annual recurring revenue (ARR). MRR provides a com-
pany’s revenue run-rate at any point in time. ARR is simply the MRR annualized and is essentially
–Š‡•ƒ‡ƒ•‡š…‡’––Šƒ–‹–†‘‡•‘–‹…Ž—†‡•‡”˜‹…‡•”‡˜‡—‡Ǥ‡–‡™‹•–Š‡•—‘ˆ‡™
ȋˆ”‘‡™…—•–‘‡”•Ȍǡ‡š’ƒ•‹‘ȋˆ”‘‡š‹•–‹‰…—•–‘‡”•–Šƒ–Šƒ˜‡‹…”‡ƒ•‡†
–Š‡‹”•—„•…”‹’–‹‘Ȍǡƒ†…Š—”‡†Ȁ…‘–”ƒ…–‡†ȋˆ”‘‡š‹•–‹‰…—•–‘‡”•–Šƒ–Šƒ˜‡†‡…”‡ƒ•‡†
or canceled their subscription; this number will be negative).

Churn. Churn represents a vendor’s ability to maintain its customer base and how much the company
must grow to cover lost accounts. Churn affects operating margins and a vendor’s ability to scale
„‡…ƒ—•‡‹–‹•‘”‡…‘•–Ž›–‘ƒ…“—‹”‡‡™…—•–‘‡”•–Šƒ‹–‹•–‘•…ƒŽ‡™‹–Š‡š‹•–‹‰…—•–‘‡”•Ǥ‘•–
vendors provide either a dollar-based churn percentage or a customer-based churn amount. We
view dollar-based churn as a more reliable metric because customer attrition is largely dependent
on customer size. Most vendors with an enterprise customer base typically have lower churn than
vendors that target the SMB market, because larger organizations tend to stay in business longer
–Šƒ•ƒŽŽ„—•‹‡••‡•ƒ†–›’‹…ƒŽŽ›Šƒ˜‡‘”‡…‘’Ž‡šƒ†‹–‡‰”ƒ–‡†•›•–‡•–Šƒ–ƒ‡•‘ˆ–™ƒ”‡
•–‹…‹‡”Ǥ—”•‡•‡‹•–Šƒ––Š‡„‹‰‰‡•–”‡ƒ•‘ˆ‘”Š‹‰Š‡”…Š—”‹–Š‡•‡‰‡–‹••‹’Ž›…‘-
panies going out of business.

Organic revenue growth. Relevant for more acquisitive companies, organic revenue growth is rev-
‡—‡‰‡‡”ƒ–‡†‹–‡”ƒŽŽ›ȋ‡š…Ž—†‹‰ƒ…“—‹•‹–‹‘‰”‘™–ŠȌǤŠ‹•‡–”‹…‹•‹’‘”–ƒ––‘—†‡”•–ƒ†‹‰
how much a company relies on acquisitions for growth—a strategy that may be considered more
”‹•› ™‹–Š Ž‡•• ˜‹•‹„‹Ž‹–›Ǥ ‘” ‡šƒ’Ž‡ǡ ’Žƒ† ‘ˆ–™ƒ”‡ ƒ‹–ƒ‹• ƒ „—›Ǧƒ†Ǧ„—‹Ž† •–”ƒ–‡‰› ƒ†
provides annual acquisition revenue targets. Most vendors consider acquired growth as organic
after the business has been owned for more than a year.

Average selling price (ASP). ASPs are widely used in the industry, but should be considered in
conjunction with how big a company’s customers are (i.e., a vendor’s ASP may span a wide range if
its customer base ranges from SMBs to large enterprises). In this case, it may make sense to break out
ASPs for each customer segment. If a majority of customers are similar in size, however, the trend of
ASPs should be more meaningful. Decreasing ASPs may be indicative of increased pricing pressure.

Customer-acquisition cost (CAC). CAC is the sales-and-marketing dollars spent to book a new
customer. This metric can be calculated a number of ways depending on the amount of information
ƒ˜ƒ‹Žƒ„Ž‡Ǥ‡™ƒ›–Šƒ–‹•…‘‘Ž›—•‡†‹•†‹˜‹†‹‰–Š‡ƒ„•‘Ž—–‡•ƒŽ‡Ǧƒ†Ǧƒ”‡–‹‰•’‡†‹‰ˆ‘”
a given period by the gross number of customers added during the same period. In general, the
Ž‘™‡”–Š‡ǡ–Š‡‘”‡‡ˆϐ‹…‹‡–ƒ…‘’ƒ›‹•ƒ–ƒ…“—‹”‹‰‡™…—•–‘‡”•Ǥ

Lifetime value (LTV). LTV is the amount of net income derived from the average customer. Revenue
generated from an average customer over its life is typically calculated by multiplying a company’s
ARPU by the average life of a customer before churning (commonly calculated as the inverse of the
…Š—””ƒ–‡ȌǤ
”‘••’”‘ϐ‹–‹•†‡”‹˜‡†„›—Ž–‹’Ž›‹‰–Š‹•ƒ˜‡”ƒ‰‡”‡˜‡—‡„›–Š‡˜‡†‘”ǯ•‰”‘••ƒ”‰‹Ǥ
Then, we recommend investors subtract acquisition costs (sales and marketing) and R&D and G&A
‡š’‡•‡•ˆ”‘‰”‘••’”‘ϐ‹––‘ƒ””‹˜‡ƒ–…—•–‘‡”Ǥ‘‡ƒƒ…‘’ƒ‹‡•ǡ•—…Šƒ•‹‰‡–”ƒŽǡ†‘
not include R&D and G&A costs in their LTV calculation, because these costs are not associated with
acquiring a new customer. Going one step further, many investors look at LTV/CAC; in our opinion,
an LTV/CAC ratio above 3 times is usually considered acceptable for SaaS vendors. We highlight
the importance of the accuracy of churn for this calculation. Companies that have better retention
rates (or lower churn) will likely have a better customer LTV.

Deferred commissions. Deferred commissions are payments to sales representatives and can be viewed
ƒ•ƒ’”‘š›ˆ‘”‡™„‘‘‹‰••‹…‡•ƒŽ‡•”‡’”‡•‡–ƒ–‹˜‡•ƒ”‡—•—ƒŽŽ›‘–…‘’‡•ƒ–‡†ˆ‘””‡‡™ƒŽ†‡ƒŽ•Ǥ

48 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

Contract duration. Contract duration helps shine a light on how bookings translate into revenue.
Generally, the longer the contract duration, the better visibility there is. Still, longer-term contracts
are typically larger and therefore often get some sort of discount applied. Also, while longer-term
contracts are preferred, they are not technically irrevocable.

Product breakout. While revenue may not always be broken out by product, we believe it is im-
’‘”–ƒ––‘‰‡–ƒ•‡•‡ˆ‘”Š‘™…‘…‡–”ƒ–‡†ƒ…‘’ƒ›ǯ•”‡˜‡—‡‹•‹‡ƒ…Š’”‘†—…–Ǥ ‘”‡šƒ’Ž‡ǡ
Veeva breaks out how much of its revenue is non-CRM (e.g., Vault and Data), which is helpful to
understand the growth of those individual revenue streams and their contribution to total revenue.

Number of subscribers. The number of subscribers (or seats) is helpful to understand how much
ƒ…‘’ƒ›‹•‡š’ƒ†‹‰Ǥ‘ƒ†‹•…Ž‘•‡•–Š‡—„‡”‘ˆ…‘”‡—•‡”•‘‹–••‘ˆ–™ƒ”‡ǡ™Š‹…Š’”‘˜‹†‡•
a sense of new customer adoption and how much of growth is coming from an increased user base
ƒ†‡š’ƒ•‹‘ˆ”‘‡š‹•–‹‰…—•–‘‡”•Ǥ

Average revenue per unit (ARPU). This calculation can be done by dividing total revenue by the
average number of customers. ARPU typically increases with increased subscribers or upgrading
•—„•…”‹’–‹‘ ’Žƒ•Ǥ Š‹•‡–”‹… ‹• ‘ˆ–‡ Š‡Ž’ˆ—Ž –‘ ‰ƒ—‰‡ –Š‡ ‡ˆˆ‡…–‹˜‡‡•• ‘ˆ ƒ Žƒ†Ǧƒ†Ǧ‡š’ƒ†
•–”ƒ–‡‰›Ǥ‡†‡•’”‘˜‹†‡•ƒ˜‡”ƒ‰‡”‡˜‡—‡’‡”’ƒ‹†…—•–‘‡”ƒ……‘—–ȋ™Š‹…Š…ƒŠƒ˜‡—Ž–‹’Ž‡
users in each account) and has been growing its average revenue per customer account nicely over
the past few years as it now offers subscription plans with the option to pay for add-on offerings—
raising the price ceiling for its larger customers.

Average products used. The average number of products/modules used provides a measure of
’‡‡–”ƒ–‹‘™‹–Š‹–Š‡‡š‹•–‹‰…—•–‘‡”„ƒ•‡Ǥ ‘”‡šƒ’Ž‡ǡ‘”‡–Šƒͻ͹Ψ•ƒŽ‡•ˆ‘”…‡Ǥ…‘ǯ•–‘’
100 customers are using more than one cloud, and 75% of its customers are using three or more
clouds, up from 45% three years ago.

Uptime. Uptime measures the amount of time software is running and available. Service-level
agreements will often include uptime requirements.

Evaluating Companies
There are several key factors that we typically look for when evaluating SaaS companies for long-
term investments. We analyze companies from both a quantitative and qualitative perspective. The
following helps build out our investment thesis:

Total available market (TAM). To no surprise, a company with a larger TAM provides a better
long-term investment. The risk to those with a smaller TAM is that it can be penetrated at a quicker
’ƒ…‡ǡ”‡•—Ž–‹‰‹ƒ•Ž‘™†‘™‹‰”‘™–ŠȄƒ…ƒ•‡‹™Š‹…Šƒ˜‡†‘”™‘—Ž†Ž‹‡Ž›Šƒ˜‡–‘‡š’ƒ†
into a different market to continue growing. TAM calculations can be subjective, but there are a few
‡–Š‘†•–Šƒ–™‡ϐ‹†‘•–‡ˆˆ‡…–‹˜‡Ǥ„‘––‘Ǧ—’ƒ’’”‘ƒ…Š‹•‘—”‘•–’”‡ˆ‡””‡†‡–Š‘†ƒ†‹•
calculated by multiplying the total potential users by the ASP. For companies with a large range of
customers, the number of potential customers should be categorized by each group and multiplied
„›–Š‡…‘””‡•’‘†‹‰ˆ‘”–Šƒ–•’‡…‹ϐ‹……—•–‘‡”•‡‰‡–Ǥ —”–Š‡”ǡ‘–ƒŽŽ…‘’ƒ‹‡•–Šƒ–…ƒ
buy the product will do so. As a result, we often take a discount to our estimated TAM to provide
a more realistic picture of the potential market size, because not all customers may be obtainable
ȋˆ‘” ˜‘Ž—–ƒ”› ƒ†Ȁ‘” ‹˜‘Ž—–ƒ”› ”‡ƒ•‘•ȌǤ ‘’ƒ‹‡• –Šƒ– …ƒ ‡š’ƒ† ‹–‘ ‡™ ƒ”‡–• …ƒ
‰”‘™–Š‡‹”ˆ—”–Š‡”Ǥ•‡š’‡…–‡†ǡ–Š‹•‹•”ƒ–Š‡”—’”‡†‹…–ƒ„Ž‡ǡƒ†–Š‡”‡ˆ‘”‡ƒ›‹˜‡•–‘”•
†‘‘–ˆƒ…–‘”–Š‹•‹–‘˜ƒŽ—ƒ–‹‘•Ǥ‡™ƒ›ˆ‘”ƒƒ˜‡†‘”•–‘‡š’ƒ†–Š‡‹”‹•–‘‘ˆˆ‡”ƒƒƒ
solution, which allows vendors to sell the infrastructure layers of their application. Salesforce did
this with Force.com.

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Market penetration. The level of penetration by market players will determine how much oppor-
–—‹–›”‡ƒ‹•‹ƒƒ”‡–Ǥ‡™‹ŽŽ‘ˆ–‡…ƒ–‡‰‘”‹œ‡–Š‡ƒ”‡–‹–‘”‡’Žƒ…‡‡–ƒ†‰”‡‡ϐ‹‡Ž†
opportunities because the cloud will typically either replace an on-premises solution or disrupt an
‡š‹•–‹‰ǡ‘”‡„ƒ•‹…•‘Ž—–‹‘ǤŠ—•ǡ™Š‡–”›‹‰–‘—†‡”•–ƒ†’‡‡–”ƒ–‹‘‹–Š‡…Ž‘—†ƒ”‡–ǡ‹–
is important to consider what percentage of the market has already moved to the cloud versus what
remains untapped from legacy on-premises systems. In addition, we believe vertical SaaS players
have a better chance of capturing a majority of their market share. Point solutions, once generally
accepted by top players in a niche industry, tend to cause the entire industry to adopt that solution
(the network effect). While horizontal SaaS vendors may capture 15% to 20% of a market at most,
™‡„‡Ž‹‡˜‡˜‡”–‹…ƒŽ’Žƒ›‡”•Šƒ˜‡–Š‡‘’’‘”–—‹–›–‘…ƒ’–—”‡–Š‡‡–‹”‡ƒ”‡–Ǥ ‘”‡šƒ’Ž‡ǡ‡‡˜ƒ
has captured over 50% of the core CRM market in the life sciences industry and is growing further
from traction with its Vault offering.

Competitive moat. A company’s position in the market and how differentiated it is from other
players is crucial. The wider the competitive moat, the better. Companies can differentiate them-
selves through enhanced features and functionality, brand recognition, and/or partner and channel
”‡Žƒ–‹‘•Š‹’•Ǥ ‘—”‘’‹‹‘ǡ‘•–ƒ”‡–•…ƒ•—’’‘”–‘Ž›ƒŽ‹‹–‡†—„‡”‘ˆ˜‡†‘”•Ǥ˜‡”
time, clear leaders emerge, and the rest of the players are either sold or become marginalized. Given
the rapid pace of change in the technology landscape and the increasing number of regulatory and
compliance requirements, we believe cloud vendors have an inherent advantage over on-premises
software vendors to adapt to these changes quicker. Lastly, commoditized markets evolve when
products/services become undifferentiated and reduce a market’s attractiveness; most commod-
itized markets therefore compete on price alone.

Management. In our opinion, a quality management team must have an all-around strong bench
that shows integrity, collaboration, and credibility. Not surprisingly, integrity must be evident to
trust a management team. Collaboration is also key—one person cannot effectively control every
process in an organization and good leaders delegate responsibilities. Credibility is demonstrated by
providing a clear strategy for the business and delivering results that are relatively close to guidance
‘”’”‘˜‹†‹‰ƒ†‡“—ƒ–‡‡š’Žƒƒ–‹‘•ˆ‘”ƒ›ƒ–‡”‹ƒŽ†‡˜‹ƒ–‹‘•Ǥ‡—†‡”•–ƒ†–Šƒ–—‡š’‡…–‡†
•‹–—ƒ–‹‘•ƒ›ƒ”‹•‡ǡ„—–‘˜‡”ƒŽŽ™‡‡š’‡…–ƒƒ‰‡‡––‡ƒ•–‘’”‘˜‹†‡‡‘—‰Š˜‹•‹„‹Ž‹–›‹–‘–Š‡‹”
business, especially given the nature of the SaaS business model. A common problem we see is with
management teams of companies that are transitioning to the cloud from on-premises and do not
articulate the plan or strategy effectively with investors, which can cause misunderstandings and
—•—ƒŽŽ›”‡•—Ž–•‹’”‡••—”‡‘–Š‡•–‘…™Š‡”‡•—Ž–•†‘‘–‡‡–‡š’‡…–ƒ–‹‘•Ǥ˜‡”ƒŽŽǡ‹…”‡ƒ•‡†
transparency typically correlates to higher-quality management. Management teams that hold our
Š‹‰Š‡•–”‡‰ƒ”†Šƒ˜‡˜‹•‹‘ƒ”›Ž‡ƒ†‡”•™Š‘•—””‘—†–Š‡•‡Ž˜‡•™‹–Š‘–Š‡”•–”‘‰‡š‡…—–‹˜‡‡-
bers. Given the constantly changing dynamics of the technology sector, a visionary leader who can
˜‹•—ƒŽ‹œ‡–Š‡ˆ—–—”‡‹•‡š–”‡‡Ž›˜ƒŽ—ƒ„Ž‡Ǥ ‘—”‘’‹‹‘ǡ‡šƒ’Ž‡•‘ˆ˜‹•‹‘ƒ”›Ž‡ƒ†‡”•ƒ”‡ƒ”…
‡‹‘ˆˆǡƒ”—…‡”„‡”‰ǡƒ†‹‡Ž˜ƒ‡Ǥ

Ecosystem. Companies with a larger ecosystem of system integrators, resellers, or other indirect
channel partners tend to perform better since their partners are able to resell, recommend, or install
their applications—building a larger customer base faster than perhaps the company would have
†‘‡‘‹–•‘™ǤŠ‡—•‡‘ˆ’ƒ”–‡”•…ƒ‘ˆ–‡‡Šƒ…‡ƒ…‘’ƒ›ǯ•ƒ”‰‹’”‘ϐ‹Ž‡•‹…‡‹–†‘‡•
‘–…ƒ””›–Š‡•ƒŽ‡•Ǧƒ†Ǧƒ”‡–‹‰‡š’‡•‡•ƒ••‘…‹ƒ–‡†™‹–Š•‡ŽŽ‹‰‹–†‹”‡…–Ž›ǤŠ‡—•‡‘ˆ •‹•
ƒ‘–Š‡”™ƒ›ˆ‘”…‘’ƒ‹‡•–‘‡š’ƒ†–Š‡‹”’”‡•‡…‡ƒ†‹–‡‰”ƒ–‡™‹–Š‘–Š‡”ƒ’’Ž‹…ƒ–‹‘•Ǥ

Valuation. ƒŽ—‹‰ …Ž‘—† …‘’ƒ‹‡• ‹• †‹ˆϐ‹…—Ž– ‰‹˜‡ –Š‡‹” „—•‹‡•• ‘†‡Ž ‘ˆ †‡ˆ‡””‡† ”‡˜‡—‡
ƒ†‰‡‡”ƒŽŽ›Ž‘™–‘‡‰ƒ–‹˜‡’”‘ϐ‹–•ȋ†—‡–‘Žƒ‰‰‹‰”‡˜‡—‡”‡…‘‰‹–‹‘ȌǤ•ƒ”‡•—Ž–ǡƒ›‹‘—”
SaaS coverage list are valued on an enterprise-value-to-revenue basis. While we understand that
’”‹…‡Ǧ–‘Ǧ‡ƒ”‹‰•ƒ†‡–‡”’”‹•‡Ǧ˜ƒŽ—‡Ǧ–‘Ǧˆ”‡‡Ǧ…ƒ•ŠǦϐŽ‘™ƒ”‡—…Š‘”‡‡ƒ‹‰ˆ—Ž—Ž–‹’Ž‡•ǡ™‡
believe most investors are paying for growth in these SaaS-based businesses and therefore will use

50 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
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‡–‡”’”‹•‡Ǧ˜ƒŽ—‡Ǧ–‘Ǧ”‡˜‡—‡—–‹Ž–Š‡…‘’ƒ›•Š‘™•’”‘ϐ‹–•‘”…ƒ•ŠϐŽ‘™Ǥ‡–›’‹…ƒŽŽ›…‘’ƒ”‡ƒ
company’s multiple to our group average (the group will likely be of similar growth rates, industry
sector, business model, etc.), and we will ascertain whether the company’s discount or premium
—Ž–‹’Ž‡–‘–Š‡‰”‘—’‡†‹ƒ‹•Œ—•–‹ϐ‹‡†Ȅ–Š”‘—‰Š‡‹–Š‡”“—ƒ–‹–ƒ–‹˜‡‘”“—ƒŽ‹–ƒ–‹˜‡…Šƒ”ƒ…–‡”‹•–‹…•Ǥ

Appendix A: Private Vendor View


Acquia
www.acquia.com

Acquia is a SaaS-based provider of enterprise products, services, and technical support for open-
•‘—”…‡™‡„…‘–‡–ƒƒ‰‡‡–’Žƒ–ˆ‘”Ǥ”‰ƒ‹œƒ–‹‘•—•‡…“—‹ƒǯ•’Žƒ–ˆ‘”–‘„—‹Ž†ǡ†‡Ž‹˜‡”ǡ
ƒ†‘’–‹‹œ‡†‹‰‹–ƒŽ‡š’‡”‹‡…‡•Ǥ‡„‡Ž‹‡˜‡–Šƒ––Š‡‹†‡ƒ‘ˆ’”‘˜‹†‹‰’‡”•‘ƒŽ‹œ‡†ǡ…‘–‡š–—ƒŽ‹œ‡†ǡ
and real-time customer engagement at the opportune moment is in great demand and growing.
The company has more than 3,500 customers globally and over 3.8 million concurrent cloud hits.
Investors include Amazon, Accolade Partners, Goldman Sachs, North Bridge Venture Partners, and
Tenaya Capital.

Adaptive Insights
www.adaptiveinsights.com

Adaptive Insights is a leading provider of cloud-based corporate performance management (CPM)


•‘Ž—–‹‘•ǤŠ”‘—‰Š‹–•‡š–Ǧ‰‡‡”ƒ–‹‘ƒƒ’Žƒ–ˆ‘”ǡ–Š‡…‘’ƒ›‘ˆˆ‡”•…ƒ’ƒ„‹Ž‹–‹‡•ˆ‘”„—†‰‡–‹‰ǡ
forecasting, reporting, consolidation, dashboards, and BI that empower business leaders with insights
that drive competitive advantage. We believe Adaptive’s strategy of delivering a comprehensive
‡š–Ǧ‰‡‡”ƒ–‹‘’Žƒ–ˆ‘”™‹–Š’‘Ž‹•Š‡†’”‡„—‹Ž–ƒ’’Ž‹…ƒ–‹‘•‹•†‹•”—’–‹‰Ž‡‰ƒ…›˜‡†‘”•–Šƒ–
‘ˆˆ‡”—’•…ƒŽ‡•’”‡ƒ†•Š‡‡–•‘”‘˜‡”Ž›…‘’Ž‡š–‘‘Ž•ǡ•—…Šƒ• ›’‡”‹‘ȋ”ƒ…Ž‡Ȍƒ†‘‰‘•ȋ ȌǤ

Alteryx
™™™ǤƒŽ–‡”›šǤ…‘

Ž–‡”›š‹•ƒ•‡ŽˆǦ•‡”˜‹…‡†ƒ–ƒƒƒŽ›–‹…•’Žƒ–ˆ‘”ǤŠ‡…‘’ƒ›Šƒ•‘˜‡”ͳǡͲͲͲ…—•–‘‡”•ǡʹͲͲǡͲͲͲ
users, and a 95%-plus renewal rate. The company’s self-service offering brings more advanced
ƒƒŽ›–‹…•–‘–Š‡Šƒ†•‘ˆŽ‹‡Ǧ‘ˆǦ„—•‹‡••—•‡”•ǤŽ–‡”›š‡ƒ„Ž‡•—•‡”•–‘‰ƒ–Š‡”ȋˆ”‘†ƒ–ƒ™ƒ”‡-
houses, cloud applications, and spreadsheets), analyze, deploy, and share data at scale quickly. The
company has been funded by Iconiq Capital, Insight Venture Partners, Meritech Capital, Sapphire
Ventures, Thomson Reuters, and Toba Capital.

Anaplan
www.anaplan.com

‹–Š‘˜‡”͸ͲͲ…—•–‘‡”•ǡƒ’Žƒ‹•ƒ’Žƒ‹‰’Žƒ–ˆ‘”ˆ‘”ϐ‹ƒ…‹ƒŽǡ•ƒŽ‡•ǡƒ†‘’‡”ƒ–‹‘ƒŽˆ—…-
–‹‘•Ǥ –•’Žƒ–ˆ‘”•—’’‘”–•ϐ‹ƒ…‹ƒŽ’Žƒ‹‰ƒ†ˆ‘”‡…ƒ•–‹‰ǡ’Žƒ‹‰ˆ‘”•ƒŽ‡•ǡ…ƒ’‹–ƒŽ‡š’‡-
ditures, operations, workforce, marketing, and supply and demand. Its platform provides a single
modeling environment for an organization with the ability to work on large models at high speed.
—•–‘‡”•‘ˆƒ’Žƒ‹…Ž—†‡‹–‡†‹”Ž‹‡•ǡ™ƒ”‡ǡƬ
ǡ
 ‡ƒŽ–Š…ƒ”‡ǡƒ„Ž‡ƒ—ǡƒ†Ǥ
The company has been funded by Shasta Ventures, Granite Ventures, Meritech, salesforce.com, DFJ
Growth, and Premji Invest.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 51
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Appdynamics
www.appdynamics.com

Appdynamics provides application intelligence, which is real-time access to aspects of a business


and operational performance. The company’s real-time operational insights into application per-
ˆ‘”ƒ…‡Š‡Ž’‹’”‘˜‡–Š‡—•‡”‡š’‡”‹‡…‡Ǥ’’†›ƒ‹…•‘ˆˆ‡”•ˆ”‡‡–”‹ƒŽ•ǡƒ†’”‹…‹‰‹•̈́͵ǡ͸ͲͲ
’‡”—‹–’‡”›‡ƒ”ˆ‘”ͳ–‘ͳͲ—‹–•ƒ†̈́͵ǡ͵ͲͲ’‡”—‹–’‡”›‡ƒ”ˆ‘”ͳͳ–‘ʹͷ—‹–•ǤŠ‡…‘’ƒ›‹•
ˆ—†‡†„›
”‡›Ž‘…ƒ”–‡”•ǡ‹‰Š–•’‡‡†‡–—”‡ƒ”–‡”•ǡŽ‡‹‡”‡”‹•ƒ—ϐ‹‡Ž†Ƭ›‡”•ǡ •–‹-
tutional Venture Partners, Battery Ventures, ClearBridge Investments, and Sands Capital Ventures.

Blackline Software
www.blackline.com

Žƒ…Ž‹‡‘ˆˆ‡”•‡–‡”’”‹•‡•‘ˆ–™ƒ”‡–‘ƒ—–‘ƒ–‡ƒ†…‘–”‘Žƒ……‘—–‹‰ƒ†ϐ‹ƒ…‹ƒŽ’”‘…‡••‡•ȋ‡Ǥ‰Ǥǡ
ϐ‹ƒ…‹ƒŽ…Ž‘•‡ƒƒ‰‡‡–ƒ†”‡…‘…‹Ž‹ƒ–‹‘ƒƒ‰‡‡–ȌǤ –••‘ˆ–™ƒ”‡’”‘˜‹†‡•‘‡ƒ—–‘ƒ–‡†
•‘Ž—–‹‘ˆ‘”—Ž–‹’Ž‡‘Ǧ’”‡‹•‡••›•–‡•–Šƒ–”‡“—‹”‡•‹‰‹ϐ‹…ƒ–ƒ—ƒŽǡ‡””‘”Ǧ’”‘‡‹’—–ˆ”‘
ƒ……‘—–ƒ–•–Šƒ–‘•–‘”‰ƒ‹œƒ–‹‘•ƒ”‡…—””‡–Ž›—•‹‰ǤŽƒ…Ž‹‡ϐ‹ŽŽ•–Š‡‰ƒ’‘ˆ–”ƒ†‹–‹‘ƒŽ
software providers and focuses more on the processes, controls, and connections between dispa-
”ƒ–‡ϐ‹ƒ…‹ƒŽ•›•–‡•Ǥ …‘‹“ƒ’‹–ƒŽǡ‹Ž˜‡”ƒ‡ƒ”–‡”•ǡƒ†‹Ž˜‡”ƒ‡—‡”—Šƒ˜‡‹˜‡•–‡†
in Blackline.

BlueJeans
bluejeans.com

BlueJeans provides cloud-based video conferencing service, enabling collaboration among colleagues,
…—•–‘‡”•ǡ’ƒ”–‡”•ǡƒ†•—’’Ž‹‡”•ǤŠ‡…‘’ƒ›ǯ•„ƒ•‡•—„•…”‹’–‹‘’Žƒǡ”‘ǡ‹•’”‹…‡†ƒ–̈́ͻǤͻͷ
per host per month and includes basic functionality such as HD video and screen sharing, computer
and dial-in audio, basic cloud recording, and email support. The company’s interoperability allows
…—•–‘‡”•–‘‹…‘”’‘”ƒ–‡˜‹†‡‘‹–‘‡š‹•–‹‰™‘”ϐŽ‘™•ƒ†‹–‡‰”ƒ–‡ƒ…”‘••†‹ˆˆ‡”‡–’Žƒ–ˆ‘”•Ǥ

Cherwell
www.cherwell.com

Cherwell specializes in IT service management and IT platform products. Its platform enables IT
–‡ƒ•–‘”ƒ’‹†Ž›„—‹Ž†ǡ…‘ϐ‹‰—”‡ǡ‘”‡”‰‡‡™ •‡”˜‹…‡ƒƒ‰‡‡–‘”„—•‹‡••ˆ—…–‹‘ƒŽ‹–›
using a codeless architecture. Customer applications can be designed and built on top of the platform
–‘ƒ—–‘ƒ–‡™‘”ϐŽ‘™•‹…Ž—†‹‰‡’Ž‘›‡‡‘„‘ƒ”†‹‰ǡ™‘”’Žƒ…‡ƒƒ‰‡‡–ǡŽ‘ƒ’”‘…‡••‡•ǡ
and organizational compliance. Cherwell’s main products include IT service management, IT asset
management, business technology platform (allowing companies to build custom business processes
ƒ†™‘”ϐŽ‘™•Ȍǡƒ†’’•‘Ž—–‹‘•ȋ’”‘˜‹†‹‰ƒ††‹–‹‘ƒŽ’”‡Ǧ„—‹Ž–…ƒ’ƒ„‹Ž‹–‹‡•ǡ‹–‡‰”ƒ–‹‘•ǡ‡–…ǤȌǡ
and the company offers both license and subscription-based pricing options.

Clarabridge
www.clarabridge.com

Žƒ”ƒ„”‹†‰‡‹•ƒ…—•–‘‡”‡š’‡”‹‡…‡’Žƒ–ˆ‘”Ǥ –•’Žƒ–ˆ‘”ƒ—–‘ƒ–‹…ƒŽŽ›…‘ŽŽ‡…–•ǡ…ƒ–‡‰‘”‹œ‡•ǡƒ†
”‡’‘”–•†ƒ–ƒȋˆ”‘•‘—”…‡••—…Šƒ••‘…‹ƒŽ‡†‹ƒǡ’Š‘‡…ƒŽŽ•ǡ‡ƒ‹Ž•ǡ…Šƒ–•ǡƒ†•—”˜‡›•Ȍ„›—•‹‰–‡š–
ƒƒŽ›–‹…•ƒ†•‡–‹‡–Ǥ‘‡‘ˆ‹–•…—•–‘‡”•ƒ”‡ƒœ‘ǡƒŽƒ”–ǡ”„‹–œǡ‡ƒ›ǡƒ†Ǧ‘„‹Ž‡Ǥ
The company uses natural language processing and machine learning technology to analyze cus-
–‘‡”ˆ‡‡†„ƒ…ǡŠ‡Ž’‹‰‘”‰ƒ‹œƒ–‹‘•‹’”‘˜‡–Š‡…—•–‘‡”‡š’‡”‹‡…‡ǤŠ‡…‘’ƒ›Šƒ•„‡‡
funded by Boulder Ventures, Grotech Ventures, Harbert Growth Partners, and Intersouth Partners.

52 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
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Cloudera
www.cloudera.com

Cloudera is a data platform that is built on Hadoop-based software, an open-source framework used
to store, process, and analyze data. Cloudera Enterprise includes CDH, a Cloudera manager, and
–‡…Š‹…ƒŽ•—’’‘”–ȋƒ—ƒŽ•—„•…”‹’–‹‘•ƒ˜ƒ‹Žƒ„Ž‡ȌǤŽ‘—†‡”ƒš’”‡••‹…Ž—†‡• ƒ–‘…Šƒ”‰‡ǡ
„—–†‘‡•‘–‹…Ž—†‡ƒƒƒ‰‡”‘”•—’’‘”–ǤŠ‡…‘’ƒ›ǯ•”‡˜‡—‡‹•ƒ‹š‘ˆ•—„•…”‹’–‹‘ȋ͹ͲΨ
to 75%), professional services (15% to 20%), and training (5% to 10%). The company has raised
̈́͸͹Ͳ‹ŽŽ‹‘–‘†ƒ–‡ˆ”‘‹˜‡•–‘”•ǡ‹…Ž—†‹‰ –‡Žǡ……‡Žƒ”–‡”•ǡ
”‡›Ž‘…ƒ”–‡”•ǡ‡”‹–‡…Š
Capital Partners, MSD Capital, and T. Rowe Price.

ConnectWise
www.connectwise.com

ConnectWise is a business management platform for small to midsize technology companies, inte-
grating customers’ operational functions such as process automation, help desk, customer service,
sales, marketing, project management, and analytics. The company also offers consulting, support,
and training services to supplement its offerings. The company has over 100,000 users (across 5,000
‘”‰ƒ‹œƒ–‹‘•Ȍ•‡‡‹‰–‘‹…”‡ƒ•‡‘’‡”ƒ–‹‘ƒŽ‡ˆϐ‹…‹‡…‹‡•ƒ†’”‘ϐ‹–ƒ„‹Ž‹–›Ǥ

DataStax
™™™Ǥ†ƒ–ƒ•–ƒšǤ…‘

‹–Š‘˜‡”ͷͲͲ…—•–‘‡”•ǡƒ–ƒ–ƒš‹•ƒ†ƒ–ƒƒƒ‰‡‡–’Žƒ–ˆ‘”„—‹Ž–‘’ƒ…Š‡ƒ••ƒ†”ƒǡ
ƒ‘’‡Ǧ•‘—”…‡†‹•–”‹„—–‡††ƒ–ƒ„ƒ•‡ƒƒ‰‡‡–•›•–‡Ǥ –•ƒ–ƒ–ƒš–‡”’”‹•‡•‘Ž—–‹‘‹•ƒ
‘’‡”ƒ–‹‘ƒŽ†ƒ–ƒ„ƒ•‡ˆ‘”…Ž‘—†ƒ’’Ž‹…ƒ–‹‘•Ȅ’”‘˜‹†‹‰‹†‡š‹‰ǡ•‡ƒ”…ŠǡƒƒŽ›–‹…•ǡƒ†‰”ƒ’Š‹‰
ˆ—…–‹‘ƒŽ‹–›Ǥ‘‡‘ˆ‹–•…—•–‘‡”•ƒ”‡‡–ϐŽ‹šǡƒ”‰‡–ǡƒ’‹–ƒŽ‡ǡ‹…”‘•‘ˆ–ǡ ǡƒ†‘›Ǥƒ–ƒ–ƒš
‘ˆˆ‡”•–Š”‡‡•—„•…”‹’–‹‘’Žƒ•ǡ™Š‹…Šƒ”‡„ƒ•‹…ǡ•–ƒ†ƒ”†ǡƒ†ƒšǤŠ‡…‘’ƒ›Šƒ•”ƒ‹•‡†̈́ͳͻͲ
million in equity; investors include Lightspeed Venture Partners, Crosslink Capital, and Meritech
Capital Partners.

DocuSign
www.docusign.com

DocuSign enables users to electronically sign, send, and manage documents. The company’s main
products are digital transaction management and e-signature. DocuSign has more than 85 million
—•‡”•ǤŠ‡…‘’ƒ›Šƒ•ˆ‘—”•—„•…”‹’–‹‘’ƒ…ƒ‰‡•‹…Ž—†‹‰’‡”•‘ƒŽȋ̈́ͳͲ’‡”‘–ŠȌǡ•–ƒ†ƒ”†
ȋ̈́ʹͷ’‡”‘–ŠȌǡ„—•‹‡••ȋ̈́ͶͲ’‡”‘–ŠȌǡƒ†„—•‹‡••’”‡‹—ȋ̈́ͳ͵ͷ’‡”‘–ŠȌǤ‘…—‹‰
has been funded by many investors, including Bessemer Ventures, Accel Partners, Google Ventures,
and Ignition Partners.

Domo
www.domo.com

Domo provides a self-service business cloud platform, allowing companies to analyze real-time data
across their entire business. The company focuses on BI and visualization through its interactive
†ƒ•Š„‘ƒ”†•–Šƒ–ƒ”‡…ƒ–‡”‡†–‘•‡‹‘”ǦŽ‡˜‡Ž‡š‡…—–‹˜‡•ƒ†–Š‡Ž‹‡Ǧ‘ˆǦ„—•‹‡••—•‡”•ȋ‘ˆˆ‡”‹‰”‡ƒŽǦ
time dashboards with data associated with multiple business divisions and performance metrics).
‹–Šƒ‘†‡”—•‡”‹–‡”ˆƒ…‡ǡ‘‘ǯ•’Žƒ–ˆ‘”Ž‡˜‡”ƒ‰‡•ƒ‡š–‡•‹˜‡•‡–‘ˆ†ƒ–ƒ…‘‡…–‘”•ƒ†
prebuilt content to deploy custom dashboards incorporating social and mobile capabilities. Domo
Šƒ•‘˜‡”̈́ͶͷͲ‹ŽŽ‹‘‹ˆ—†‹‰ˆ”‘‹˜‡•–‘”••—…Šƒ•‡…Šƒ”ǡ ‹†‡Ž‹–› ˜‡•–‡–•ǡ
”‡›Ž‘…
Partners, Founders Fund, TPG, and GGV Capital.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 53
William Blair

Dropbox, Inc.
™™™Ǥ†”‘’„‘šǤ…‘

”‘’„‘š‘ˆˆ‡”•…Ž‘—†•–‘”ƒ‰‡ǡϐ‹Ž‡•›…Š”‘‹œƒ–‹‘ǡ’‡”•‘ƒŽ…Ž‘—†ǡƒ†…Ž‹‡–•‘ˆ–™ƒ”‡ǤŠ‡…‘’ƒ›ǯ•
”‘’„‘š”‘•—„•…”‹’–‹‘‹•̈́ͻǤͻͻ’‡”‘–Šƒ†ƒŽŽ‘™••–‘”ƒ‰‡‘ˆ’Š‘–‘•ǡ˜‹†‡‘•ǡ†‘…—‡–•ǡƒ†
‘–Š‡”ϐ‹Ž‡•ˆ‘”‹†‹˜‹†—ƒŽ•Ǥ˜‡”ͳͷͲǡͲͲͲ„—•‹‡••‡•ƒ”‡—•‹‰”‘’„‘š—•‹‡••ǡƒ•‡…—”‡ϐ‹Ž‡•Šƒ”-
‹‰ƒ†•–‘”ƒ‰‡•‘Ž—–‹‘•ˆ‘”„—•‹‡••‡•ǡ’”‹…‡†ƒ–̈́ͳͷ’‡”‘–ŠǤ”‘’„‘š–‡”’”‹•‡‘ˆˆ‡”•ƒŽŽ‘ˆ
–Š‡ˆ‡ƒ–—”‡•‘ˆ”‘’„‘š—•‹‡••’Ž—•‹…”‡ƒ•‡†‹–‡‰”ƒ–‹‘…ƒ’ƒ„‹Ž‹–‹‡•ƒ†•—’’‘”–ǡ–”ƒ‹‹‰ˆ‘”
end-users, and mobile capabilities.

Evernote
www.evernote.com

Evernote is an information management application used to take, organize, and archive notes
ȋ‡Ǥ‰Ǥǡ–‡š–ǡ™‡„’ƒ‰‡•ǡ’‹…–—”‡•ǡ˜‘‹…‡‡‘•ȌǤ˜‡”‘–‡Šƒ•‘˜‡”ͳͲͲ‹ŽŽ‹‘—•‡”•ǡ‘ˆˆ‡”‹‰’”‘Œ‡…–
collaboration, scheduling, and task management functions with a suite. With more organizations
promoting bring-your-own-device and bring-your-own-app policies, Evernote helps knowledge
workers create, capture, and share information among team members. Evernote has raised more
–Šƒ̈́ʹͲͲ‹ŽŽ‹‘‹ˆ—†‹‰ˆ”‘—Ž–‹’Ž‡‹˜‡•–‘”•‹…Ž—†‹‰ ƒ”„‘”ƒ…‹ϐ‹…ƒ’‹–ƒŽǡ‘”–•…Šƒ
Investments, L.P., Meritech Capital Partners, Morgenthaler Ventures, and Sequoia Capital.

FinancialForce
™™™Ǥϐ‹ƒ…‹ƒŽˆ‘”…‡Ǥ…‘

‹ƒ…‹ƒŽ ‘”…‡ǡ„—‹Ž–‘–Š‡•ƒŽ‡•ˆ‘”…‡’Žƒ–ˆ‘”ǡ‹•ƒ…Ž‘—†Ǧ„ƒ•‡†˜‡†‘”ǡ’”‘˜‹†‹‰ϐ‹ƒ…‹ƒŽ
management, professional services automation, and human capital management offerings. Its
functionality includes general ledger, AR/AP, billing, revenue management, spend management,
‹˜‡–‘”›ƒƒ‰‡‡–ǡƒ†ϐ‹š‡†ƒ••‡–•Ǥ‡…ƒ—•‡‹–‹•„—‹Ž–‡–‹”‡Ž›‘•ƒŽ‡•ˆ‘”…‡ǡ—•‡”•…ƒ‡ƒ•-
‹Ž›•Šƒ”‡‹ˆ‘”ƒ–‹‘Ȁ™‘”ϐŽ‘™•ƒ…”‘••†‹ˆˆ‡”‡–†‡’ƒ”–‡–•ǡƒ†•›…Š”‘‹œƒ–‹‘‘ˆϐ‹ƒ…‹ƒŽ
transactions is done seamlessly. Its investors include Advent International, Technology Crossover
Ventures, Salesforce Ventures, and Unit4.

GoodData
www.gooddata.com

GoodData is a BI platform, delivering real-time analytics on sales, marketing, social, and customer
service functions. The company offers both public and private cloud through Amazon AWS and
ƒ…•’ƒ…‡Ǥ –••‘ˆ–™ƒ”‡…ƒ„‡‡„‡††‡†™‹–Š‹‡™‘”‡š‹•–‹‰™‘”ϐŽ‘™•ǡƒ†…—•–‘‡”•…ƒ
create custom analytics/reporting. Investors of GoodData include Andreessen Horowitz, Eight Roads
‡–—”‡•ǡ
‡‡”ƒŽƒ–ƒŽ›•–ƒ”–‡”•ǡ‡š–‘”Ž†ƒ’‹–ƒŽǡƒ†‹†…”‡•–ƒ”–‡”•Ǥ

ICIMS
www.icims.com

ICIMS is a talent management platform, helping companies recruit, onboard, and maintain talented
workers. ICIMS serves multiple verticals and also provides workforce planning, CRM, applicant
tracking, employee data management, performance management, employee surveys, succession
’Žƒ‹‰ǡƒ†‘ˆˆǦ„‘ƒ”†‹‰•‘Ž—–‹‘•ǤŠ‡…‘’ƒ›‹•‘’‡”ƒ–‹‰ƒ–ƒ̈́ͳͲͲ‹ŽŽ‹‘”‡…—””‹‰”‡˜‡—‡
run-rate with over 3,000 customers. Susquehanna Growth Equity has invested in ICIMS.

54 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

InsideSales
www.insidesales.com

InsideSales offers sales acceleration solutions, including communications, sales motivation tech-
niques, predictive analytics, and data visualization. The company’s subscription plans include Com-
—‹…ƒ–‡ˆ‘”̈́ͻͷ’‡”—•‡”’‡”‘–ŠǡŽ‡˜ƒ–‡ˆ‘”̈́ͳͻͷ’‡”—•‡”’‡”‘–Šǡƒ†……‡Ž‡”ƒ–‡ˆ‘”̈́ʹͻͷ
’‡”—•‡”’‡”‘–ŠǤ •‹†‡ƒŽ‡•ƒŽ•‘‘ˆˆ‡”•‹•‹‘ˆ‘”̈́ʹͷ’‡”—•‡”’‡”‘–Šǡ™Š‹…Š‹•ƒ•–ƒ†ǦƒŽ‘‡
‡†‹–‹‘ˆ‘””‡ƒŽǦ–‹‡‘–‹ϐ‹…ƒ–‹‘•ȋ‡ƒ‹Ž‘’‡•ǡŽ‹…Ž‹…•ǡ™‡„–”ƒ…‹‰ǡ‡ƒ‹Žˆ‘”™ƒ”†•ǡƒ†ƒ–-
–ƒ…Š‡––”ƒ…‹‰ȌǢ  ‘”‡…ƒ•–”‘ˆ‡••‹‘ƒŽˆ‘”̈́͹Ͳ’‡”—•‡”’‡”‘–Šǡ™Š‹…Š‹•ˆ‘”•ƒŽ‡•–‡ƒ•Ǣ
ƒ† ‘”‡…ƒ•––‡”’”‹•‡ˆ‘”̈́ͻͲ’‡”—•‡”’‡”‘–Šˆ‘”‡–‡”’”‹•‡•ƒŽ‡•–‡ƒ•Ǥ

InsideView
www.insideview.com

InsideView targets midsize to large organizations with its marketing intelligence and analytics so-
lution. Its software allows sales and marketing teams to aggregate and analyze information about
…‡”–ƒ‹ƒ”‡–•ƒ†‹•—•‡†„›‘˜‡”ͶͷͲǡͲͲͲ—•‡”•Ǥ –ƒŽ•‘Š‡Ž’••ƒŽ‡•”‡’”‡•‡–ƒ–‹˜‡•ϐ‹†’”‘•’‡…–•
„›Ž‡˜‡”ƒ‰‹‰‹–•†ƒ–ƒ„ƒ•‡‘ˆ…‘–ƒ…–•ƒ†ϐ‹Ž–‡”‹‰‹–ƒ……‘”†‹‰–‘…—•–‘ƒ––”‹„—–‡•Ǥ ˜‡•–‘”•‘ˆ
InsideView include Emergence Capital Partners, Foundation Capital, Greenhouse Capital Partners,
Rembrandt Venture Partners, and Split Rock Partners.

Lithium Technologies
www.lithium.com

Lithium Technologies is a social management platform, helping enterprises engage, connect, and un-
derstand their customers and community. The company offers stand-alone packages for online com-
munities, social media management, and social response capabilities and provides a platform solution
and support offerings. The company has been funded by Emergence Capital Partners, Shasta Ventures,
Benchmark Capital, New Enterprise Associates, Passport Capital, and Wellington Management.

LogRhythm
logrhythm.com

LogRhythm provides log management, security information, and event management solutions—
enabling organizations to detect and automatically respond to cyber threats as well as comply with
regulatory requirements. Its products include security intelligence platform, network monitoring
and forensics, and endpoint monitoring. It also provides security and compliance solutions such as
–Š”‡ƒ–ƒƒ‰‡‡–ǡ…›„‡”…”‹‡†‡–‡…–‹‘ǡϐ‹Ž‡‹–‡‰”‹–›‘‹–‘”‹‰ǡ ǡ ǡ
ǡƒ†Ǥ
The company has received funding from Access Venture Partners, Adams Street Partners, Grotech
Ventures, High Country Venture, Piper Jaffray, Riverwood Capital, and Siemens.

MapR
www.mapr.com

MapR is a big-data platform, leveraging Hadoop and Spark, to provide real-time analytics for produc-
tion use-cases (e.g., quick response for fraud detection, petabyte analysis for threat detection, and
operational and analytics processing). More than 90% of revenue is cloud subscription revenue, and
its MapR Converged Data Platform is run on clusters of commodity services and available in two
editions: MapR Converged Community Edition, which is free with community forum support for
unlimited production use, and MapR Converged Enterprise Edition, which is commercially supported
and includes MapR Platform Services for high availability and disaster recovery. The company has
”ƒ‹•‡†‘˜‡”̈́ͳͻͶ‹ŽŽ‹‘‹ˆ—†‹‰ˆ”‘‹˜‡•–‘”•‹…Ž—†‹‰
‘‘‰Ž‡ƒ’‹–ƒŽǡ‹‰Š–•’‡‡†‡–—”‡
ƒ”–‡”•ǡƒ›ϐ‹‡Ž† —†ǡǡ—ƒŽ…‘‡–—”‡•ǡƒ†‡†’‘‹–‡–—”‡•Ǥ

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 55
William Blair

MarkLogic
www.marklogic.com

ƒ”‘‰‹…‹•ƒ‡–‡”’”‹•‡‘†ƒ–ƒ„ƒ•‡ǡ™Š‹…Š…ƒƒƒ‰‡ƒ˜ƒ”‹‡–›‘ˆ†‘…—‡–•ƒ††ƒ–ƒǡ
including data in XML format. The company offers a free Developer license, which allows developers
to integrate data and build MarkLogic-based applications (up to 1 TB of data), and its subscription-
„ƒ•‡†••‡–‹ƒŽ–‡”’”‹•‡Ž‹…‡•‡‡†‹–‹‘ǡ™Š‹…Š•–ƒ”–•ƒ–̈́ͳͺǡͲͲͲ’‡”›‡ƒ”ƒ†‹…Ž—†‡•ƒ•…ƒŽƒ„Ž‡
version of MarkLogic for enterprise customers. It also has cloud pricing options made for deploy-
ments on AWS, Azure, and Google Cloud. Investors of MarkLogic include Arrowpoint Partners,
Northgate Capital, Sequoia Capital, Tenaya Capital, and Wellington Management.

Metaswitch
www.metaswitch.com

Metaswitch is a leading network software provider serving more than 1,000 network operators and
suppliers globally. The company offers consumer and business communication solutions, network
interconnectivity, and network protocol stacks. Metaswitch also provides support services. The
company has been funded by Francisco Partners and Sequoia Capital.

MuleSoft
www.mulesoft.com

The company’s Anypoint Platform connects customers’ network of apps, data, and devices with
API-led connectivity. Its platform provides development tools to design APIs, create integration
ϐŽ‘™•ǡƒ†„—‹Ž†…‘‡…–‘”•ǤŠ‡…‘’ƒ›‘ˆˆ‡”•„ƒ•‡ƒ†’Žƒ–‹—’ƒ…ƒ‰‡•™‹–Š†‹ˆˆ‡”‡–Ž‡˜‡Ž•
of support and functionality (pricing not disclosed). Investors of MuleSoft include Bay Partners, Ad-
age Capital Management, Lightspeed Venture partners, Meritech, Sands Capital, Sapphire Ventures,
and Brookside Capital.

Nintex
™™™Ǥ‹–‡šǤ…‘

‹–‡š‹•ƒ™‘”ϐŽ‘™ƒ—–‘ƒ–‹‘ƒ††‘…—‡–‰‡‡”ƒ–‹‘’Žƒ–ˆ‘”ǡŠ‡Ž’‹‰…‘’ƒ‹‡•‹’”‘˜‡
ƒ†•–”‡ƒŽ‹‡„—•‹‡••’”‘…‡••‡•Ǥ‹–Š‹–‡‰”ƒ–‹‘…ƒ’ƒ„‹Ž‹–‹‡•™‹–Šˆϐ‹…‡͵͸ͷǡ•ƒŽ‡•ˆ‘”…‡ǡƒ†
Šƒ”‡‘‹–ǡ–Š‡…‘’ƒ›ƒ—–‘ƒ–‡•™‘”ϐŽ‘™•ƒ†ˆ‘”•ƒ•™‡ŽŽƒ•‰‡‡”ƒ–‡•‡…‡••ƒ”›†‘…—-
‡–•Ǣ–Š‡…‘’ƒ›‘ˆˆ‡”•„‘–Š•—„•…”‹’–‹‘ƒ†’‡”’‡–—ƒŽ’”‹…‹‰‘’–‹‘•Ǥ‹–‡šŠƒ•‘˜‡”͸ǡͲͲͲ
customers along with over 1,000 partners. The company has been funded by TA Associates and
Updata Partners.

Octo Telematics
www.octotelematics.com

…–‘‡Ž‡ƒ–‹…•‹•ƒ‹•—”ƒ…‡–‡Ž‡ƒ–‹…••‡”˜‹…‡’”‘˜‹†‡”ǡ†‡Ž‹˜‡”‹‰ƒ’‘”–ˆ‘Ž‹‘‘ˆ•‘ˆ–™ƒ”‡ǡ†ƒ–ƒ
analytics, actuarial capabilities, hardware, and connected user devices to help insurance companies
price risk more accurately, provide connected user features/services, and reduce processing claim
…‘•–•Ǥ –•’Žƒ–ˆ‘”ƒƒŽ›œ‡•–Š‡„‡Šƒ˜‹‘”ƒŽǡ…‘–‡š–—ƒŽǡƒ††”‹˜‹‰†ƒ–ƒ‘ˆ‹†‹˜‹†—ƒŽ’‘Ž‹…›Š‘Ž†-
‡”•ƒ‰ƒ‹•–•‹‹Žƒ”†”‹˜‹‰’”‘ϐ‹Ž‡•‹‹–•†ƒ–ƒ„ƒ•‡–‘’”‘˜‹†‡ƒ……—”ƒ–‡”‹•’”‡†‹…–‹‘•Ǥ —”–Š‡”ǡ‹–•
’”‘’”‹‡–ƒ”›ƒŽ‰‘”‹–Š•‡ƒ„Ž‡…”ƒ•Š‘–‹ϐ‹…ƒ–‹‘•Ǥ

56 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

ON24
www.on24.com

‹–Š‘˜‡”ͳǡͲͲͲ…—•–‘‡”•ǡʹͶ’”‘˜‹†‡•™‡„…ƒ•–‹‰ǡŽ‡ƒ†‰‡‡”ƒ–‹‘ǡƒ†˜‹”–—ƒŽ‡˜‡–•‘Ž—-
–‹‘•Ǥ ʹͶƒŽŽ‘™• …—•–‘‡”• –‘ …”‡ƒ–‡ …—•–‘‹œ‡†™‡„‹ƒ”•ǡ ‡‰ƒ‰‡‡– –‘‘Ž•ǡ ˜‹†‡‘…‘–‡–ǡ
and analytics dashboards. The company also offers a virtual environment platform for interactive
–”ƒ‹‹‰•‡••‹‘•Ǥ ˜‡•–‘”•‘ˆʹͶ‹…Ž—†‡ƒƒƒƒ”–‡”•ǡ
‘ʹ‡–ǡ
‘Ž†ƒƒ…Š•ǡ
”‡‡Š‘—•‡
Investment Fund, Merrill Lynch, and U.S. Venture Partners.

Planview
www.planview.com

Žƒ˜‹‡™ ‹• ƒ ’”‘˜‹†‡” ‘ˆ ’”‘Œ‡…– ƒ† ”‡•‘—”…‡ ƒƒ‰‡‡– •‘ˆ–™ƒ”‡Ǥ Š‡ …‘’ƒ›ǯ• ϐŽƒ‰•Š‹’
product, Planview Enterprise, is an end-to-end portfolio management application, enabling users
–‘…”‡ƒ–‡ƒ’Žƒǡ‘’–‹‹œ‡…ƒ’ƒ…‹–›ǡƒ†ƒƒ‰‡–Š‡ϐ‹ƒ…‹ƒŽ•‘ˆ’‘”–ˆ‘Ž‹‘™‘”ǤŠ‡…‘’ƒ›ƒŽ•‘
‘ˆˆ‡”•”‘—šǡ™Š‹…Š‹•ƒ…ƒ’ƒ„‹Ž‹–›ƒ†–‡…Š‘Ž‘‰›ƒƒ‰‡‡–•‘Ž—–‹‘ȋ’”‘˜‹†‡•˜‹•‹„‹Ž‹–›‹–‘
applications/technologies through business capability mapping), and Projectplace, a project col-
Žƒ„‘”ƒ–‹‘•‘Ž—–‹‘ȋ–‘’Žƒƒ†–”ƒ…’”‘Œ‡…–‡š‡…—–‹‘ȌǤŠ‡…‘’ƒ›Šƒ•”‡…‡‹˜‡†ˆ—†‹‰ˆ”‘
Insight Venture Partners.

Plex Systems
™™™Ǥ’Ž‡šǤ…‘

Ž‡š‹•ƒ…Ž‘—†Ǧ„ƒ•‡†•‘Ž—–‹‘ˆ‘”–Š‡ƒ—ˆƒ…–—”‹‰‹†—•–”›Ǥ –••‘ˆ–™ƒ”‡•—’’‘”–•’”‘†—…-
tion, inventory, shipping, supply chain management, quality, accounting, sales, and human resource
functions. The company offers three subscription packages: starter, core, and advanced (pricing not
†‹•…Ž‘•‡†ȌǤ –Šƒ•‘˜‡”ͳǡͲͲͲƒ—ˆƒ…–—”‹‰ˆƒ…‹Ž‹–‹‡•‘‹–•’Žƒ–ˆ‘”ǡ™‹–ŠƒͻͷΨ”‡–‡–‹‘”ƒ–‡ǤŽ‡š
services several manufacturing sectors, including aerospace and defense, high tech and electronics,
automotive, industrial manufacturing, food and beverage, and precision metalforming. The company
Šƒ•”ƒ‹•‡†‘”‡–Šƒ̈́ͺͷ‹ŽŽ‹‘‹ˆ—†‹‰„›……‡Žƒ”–‡”•ǡ’ƒšƒ”–‡”•ǡƒ†Ǥ‘™‡”‹…‡Ǥ

Pluralsight
www.pluralsight.com

Pluralsight offers online educational and training courses for software developers, IT administra-
tors, and other professionals. The company has over 5,000 courses available and offers business
•—„•…”‹’–‹‘’Žƒ•ˆ‘”̈́Ͷͻͻ’‡”—•‡”’‡”›‡ƒ”ˆ‘”ʹ–‘ͳͲ—•‡”•ǡ̈́Ͷ͹ͷ’‡”—•‡”’‡”›‡ƒ”ˆ‘”ͳͳ–‘
ͷͲ—•‡”•ǡ̈́ͶͷͲ’‡”—•‡”’‡”›‡ƒ”ˆ‘”ͷͳ–‘ͳͲͲ—•‡”•ǡ̈́ͶͲͲ’‡”—•‡”’‡”›‡ƒ”ˆ‘”ͳͲͳ–‘ʹͷͲ—•‡”•ǡ
̈́͵͹ͷ’‡”—•‡”’‡”›‡ƒ”ˆ‘”ʹͷͳ–‘ͷͲͲ—•‡”•ǡƒ†̈́͵ͷͲ’‡”—•‡”’‡”›‡ƒ”ˆ‘”ͷͲͳ–‘ͳǡͲͲͲ—•‡”•Ǥ
Š‡…‘’ƒ›Šƒ•”ƒ‹•‡†‘˜‡”̈́ͳ͸Ͳ‹ŽŽ‹‘ˆ”‘ ‡Ž‹…‹•‡–—”‡•ǡ
……‡Ž‡”ƒ–‹‘ǡ …‘‹“ƒ’‹–ƒŽǡ
Insight Venture Partners, and Sorenson Capital.

Procore
www.procore.com

Procore provides construction management software, enabling participants in the construction


‹†—•–”›–‘…‘ŽŽƒ„‘”ƒ–‡‘’”‘Œ‡…–•ȋ‡Ǥ‰Ǥǡ‹†—•–”‹ƒŽ’Žƒ–•ǡ‘ˆϐ‹…‡„—‹Ž†‹‰•ǡƒ’ƒ”–‡–…‘’Ž‡š‡•ǡ
university facilities, and retail centers) and share access to documents, planning systems, and data.
Its software features include meeting minutes, drawing markups, and document storage with mobil-
ity capabilities. Procore has been funded by Bessemer Venture Partners.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 57
William Blair

Ring
”‹‰Ǥ…šȀ‡

Ring is a free open-source communication application. The company utilizes distributed multime-
dia communication software to create its own secure network over the internet and can distribute
directory functions, authentication, and encryption across connected systems. It is available on
‹—šǡƒ…ǡ‹†‘™•ǡ‹ǡƒ††”‘‹†Ǥ

Spredfast
www.spredfast.com

Spredfast is a social marketing platform. The company partners with major social networks in-
cluding Facebook, Instagram, LinkedIn, Pinterest, and Twitter to help companies connect with and
acquire new customers. Its products provide tools to monitor social media accounts and use the
interactions for marketing activities. The company has been funded by several investors, including
—•–‹‡–—”‡•ǡ –‡”‡•–ƒ”–‡”•ǡ‡ƒ††‰‡ƒ’‹–ƒŽǡ’‡‹‡™ǡ‹˜‡”™‘‘†ƒ’‹–ƒŽǡƒ†‹Ž˜‡”
Lake Waterman.

Sprinklr
www.sprinklr.com/

’”‹Ž”‹•ƒ…—•–‘‡”‡š’‡”‹‡…‡’Žƒ–ˆ‘”ǡ’”‘˜‹†‹‰•‘…‹ƒŽ‡†‹ƒƒ”‡–‹‰ǡ•‘…‹ƒŽƒ†˜‡”–‹•‹‰ǡ
content management, collaboration, advocacy, and social media monitoring. Its platform provides
‡†Ǧ–‘Ǧ‡†•‘…‹ƒŽˆ—…–‹‘ƒŽ‹–›–‘‡ƒ„Ž‡…—•–‘‡”•–‘ƒƒ‰‡–Š‡‘˜‡”ƒŽŽ…‘•—‡”‡š’‡”‹‡…‡Ǥ
Š‡…‘’ƒ›Šƒ•”ƒ‹•‡†‘˜‡”̈́ʹͲͲ‹ŽŽ‹‘„›ƒ––‡”›‡–—”‡•ǡ ˜‡•–‡–•ǡ …‘‹“ƒ’‹–ƒŽǡ
Intel Capital, Temasek Holdings, and Wellington Management.

Sumo Logic
www.sumologic.com

Sumo Logic is a log management and analytics company, providing customers with real-time ana-
Ž›–‹…•˜‹ƒ„‹‰†ƒ–ƒǤ”‹…‹‰ˆ‘”‹–•’”‘ˆ‡••‹‘ƒŽ•—„•…”‹’–‹‘’Žƒ‹•̈́ͻͲ’‡”‘–Šˆ‘”ͳ
’‡”†ƒ›Ǣ
’”‹…‹‰ˆ‘”‹–•‡–‡”’”‹•‡•—„•…”‹’–‹‘’Žƒ‹•̈́ͳͷͲ’‡”‘–Šˆ‘”ͳ
’‡”†ƒ›ǤŠ‡…‘’ƒ›ƒŽ•‘
‘ˆˆ‡”•̈́ͳͷ‡š–”ƒ’‡”‘–Šˆ‘”‘”‡‡–”‹…•ǤŠ‡…‘’ƒ›‹•„ƒ…‡†„›……‡Žƒ”–‡”•ǡ
”‡›Ž‘…
Partners, and Sutter Hill Ventures.

Workfront
www.workfront.com

Workfront is a cloud-based enterprise work and project management solution, allowing companies
to prioritize, route, manage, and report on work projects. Its solution provides visibility into the
entire work lifecycle with the ability to track the amount of time projects take and if they are on
„—†‰‡–Ǥ‘”ˆ”‘–…ƒ„‡…—•–‘‹œ‡†–‘ϐ‹–•’‡…‹ϐ‹…„—•‹‡••‡‡†•ƒ†‹•ƒ’’Ž‹…ƒ„Ž‡ˆ‘”•ƒŽŽ–‘
large marketing, IT, and services companies. The company has been funded by Atlas Peak Capital,
Greenspring Associates, and Sorenson Capital.

58 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

IMPORTANT DISCLOSURES
This report is available in electronic form to registered users via R*Docs™ at www.rdocs.com or
www.williamblair.com.

Please contact us at +1 800 621 0687 or consult williamblair.com/Research-and-Insights/Equity-


‡•‡ƒ”…ŠȀ‘˜‡”ƒ‰‡Ǥƒ•’šˆ‘”‹ˆ‘”ƒ–‹‘”‡Žƒ–‡†–‘‘—”‡“—‹–›”‡•‡ƒ”…Š…‘˜‡”ƒ‰‡Ǥ

Šƒ˜ƒ—”‹ƒ––‡•–•–Šƒ–ͳȌƒŽŽ‘ˆ–Š‡˜‹‡™•‡š’”‡••‡†‹–Š‹•”‡•‡ƒ”…Š”‡’‘”–ƒ……—”ƒ–‡Ž›”‡ϐŽ‡…–Š‹•
personal views about any and all of the securities and companies covered by this report, and 2) no
’ƒ”–‘ˆŠ‹•…‘’‡•ƒ–‹‘™ƒ•ǡ‹•ǡ‘”™‹ŽŽ„‡”‡Žƒ–‡†ǡ†‹”‡…–Ž›‘”‹†‹”‡…–Ž›ǡ–‘–Š‡•’‡…‹ϐ‹…”‡…‘‡-
†ƒ–‹‘•‘”˜‹‡™•‡š’”‡••‡†„›Š‹‹–Š‹•”‡’‘”–Ǥ‡•‡‡–‘—’†ƒ–‡‘—””‡•‡ƒ”…Šƒ•ƒ’’”‘’”‹ƒ–‡Ǥ
–Š‡”–Šƒ…‡”–ƒ‹’‡”‹‘†‹…ƒŽ‹†—•–”›”‡’‘”–•ǡ–Š‡ƒŒ‘”‹–›‘ˆ”‡’‘”–•ƒ”‡’—„Ž‹•Š‡†ƒ–‹””‡‰—Žƒ”
intervals as deemed appropriate by the research analyst.

 ǣ ̈́ʹͲǡ͸͸͵Ǥʹʹ
ƬͷͲͲǣ ̈́ʹǡ͵͸ʹǤ͹ʹ
ǣ ̈́ͷǡͻͳͳǤ͹Ͷ

The prices of the common stock of other public companies mentioned in this report follow:

ͺšͺǡ …ȋ—–’‡”ˆ‘”Ȍ  ̈́ͳͷǤʹͷ


Ž’Šƒ„‡–ǡ …ǤȋƒǤǤƒ
‘‘‰Ž‡Ȍȋ—–’‡”ˆ‘”Ȍ ̈́ͺͶ͹ǤͺͲ
ƒœ‘Ǥ…‘ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́ͺͺ͸ǤͷͶ
„‡”‘ƒ†ǡ …Ǥ  ̈́͹Ǥ͹ʹ
‹•…‘›•–‡•ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́͵͵ǤͺͲ
‹–”‹š›•–‡•ǡ …Ǥȋƒ”‡–‡”ˆ‘”Ȍ ̈́ͺ͵Ǥ͵ͻ
Š‡‡•…ƒ”–‡•›•–‡•
”‘—’ …Ǥȋ—–’‡”ˆ‘”Ȍ ̈́ʹʹǤͻͲ
‡ƒ› …Ǥ  ̈́͵͵Ǥͷ͹
ƒ…‡„‘‘ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́ͳͶʹǤͲͷ

‡‡”ƒŽŽ‡…–”‹…‘’ƒ›ȋ—–’‡”ˆ‘”Ȍ ̈́ʹͻǤͺͲ
‡™Ž‡––ƒ…ƒ”†–‡”’”‹•‡‘’ƒ› ̈́ͳ͹Ǥ͹͹
–‡”ƒ–‹‘ƒŽ—•‹‡••ƒ…Š‹‡•‘”’‘”ƒ–‹‘ ̈́ͳ͹ͶǤͳͶ
‹…”‘•‘ˆ–‘”’‘”ƒ–‹‘ȋ—–’‡”ˆ‘”Ȍ ̈́͸ͷǤͺ͸
‹…”‘–”ƒ–‡‰› …‘”’‘”ƒ–‡†  ̈́ͳͺ͹ǤͺͲ
‡–ˆŽ‹šǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́ͳͶ͹Ǥͺͳ
”ƒ…Ž‡‘”’‘”ƒ–‹‘ȋƒ”‡–‡”ˆ‘”Ȍ ̈́ͶͶǤ͸ͳ
‡† ƒ–ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́ͺ͸ǤͷͲ
ȋƒ”‡–‡”ˆ‘”Ȍ  ̈́ͻͺǤͳ͹
Š‘’‹ˆ› …Ǥ  ̈́͸ͺǤͲͻ
‘‡”…‡ǡ …Ǥȋƒ”‡–‡”ˆ‘”Ȍ ̈́ͷͺǤͶͻ
ƒ„Ž‡ƒ—‘ˆ–™ƒ”‡ǡ …Ǥȋƒ”‡–‡”ˆ‘”Ȍ ̈́ͶͻǤͷͷ
Ǧ‘„‹Ž‡ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́͸ͶǤͷͻ
‡”ƒ†ƒ–ƒ‘”’‘”ƒ–‹‘ȋƒ”‡–‡”ˆ‘”Ȍ ̈́͵ͳǤͳʹ
™‹––‡”ǡ …Ǥ  ̈́ͳͶǤͻͷ
Š‡Ž–‹ƒ–‡‘ˆ–™ƒ”‡
”‘—’ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ ̈́ͳͻͷǤʹͳ
‡”‹œ‘…‘—‹…ƒ–‹‘• …Ǥȋƒ”‡–‡”ˆ‘”Ȍ ̈́ͶͺǤ͹ͷ
™ƒ”‡ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́ͻʹǤͳͶ
‘”†ƒ›ǡ …Ǥȋ—–’‡”ˆ‘”Ȍ  ̈́ͺ͵Ǥʹͺ
‡Ž’ …Ǥȋƒ”‡–‡”ˆ‘”Ȍ  ̈́͵ʹǤ͹ͷ

Additional information is available upon request.

Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 59
William Blair

Current Ratings Distribution (as of 3/31/17)


Coverage Universe Percent Inv. Banking Relationships* Percent
—–’‡”ˆ‘”ȋ—›Ȍ  ͷͻΨ  —–’‡”ˆ‘”ȋ—›Ȍ  ͳͲΨ
Market Perform (Hold) 35% Market Perform (Hold) 3%
Underperform (Sell) 1% Underperform (Sell) 0%

ȗ‡”…‡–ƒ‰‡‘ˆ…‘’ƒ‹‡•‹‡ƒ…Š”ƒ–‹‰…ƒ–‡‰‘”›–Šƒ–ƒ”‡‹˜‡•–‡–„ƒ‹‰…Ž‹‡–•ǡ†‡ϐ‹‡†ƒ•
companies for which William Blair has received compensation for investment banking services
within the past 12 months.

The compensation of the research analyst is based on a variety of factors, including the quality and ac-
…—”ƒ…›‘ˆ”‡•‡ƒ”…Šǡ…Ž‹‡–ˆ‡‡†„ƒ…ǡ…‘–”‹„—–‹‘•–‘‘–Š‡”ϐ‹”†‡’ƒ”–‡–•ǡ…‘’‡–‹–‹˜‡ˆƒ…–‘”•ǡƒ†
ϐ‹”’”‘ϐ‹–ƒ„‹Ž‹–›Ǥ

OTHER IMPORTANT DISCLOSURES


Stock ratings and valuation methodologies: William Blair & Company, L.L.C. uses a three-point system
–‘”ƒ–‡•–‘…•Ǥ †‹˜‹†—ƒŽ”ƒ–‹‰•”‡ϐŽ‡…––Š‡‡š’‡…–‡†’‡”ˆ‘”ƒ…‡‘ˆ–Š‡•–‘…”‡Žƒ–‹˜‡–‘–Š‡„”‘ƒ†‡”
ƒ”‡–ȋ‰‡‡”ƒŽŽ›–Š‡ƬͷͲͲǡ—Ž‡••‘–Š‡”™‹•‡‹†‹…ƒ–‡†Ȍ‘˜‡”–Š‡‡š–ͳʹ‘–Š•ǤŠ‡ƒ••‡••‡–
‘ˆ‡š’‡…–‡†’‡”ˆ‘”ƒ…‡‹•ƒˆ—…–‹‘‘ˆ‡ƒ”Ǧǡ‹–‡”‡†‹ƒ–‡Ǧǡƒ†Ž‘‰Ǧ–‡”…‘’ƒ›ˆ—†ƒ‡–ƒŽ•ǡ
‹†—•–”›‘—–Ž‘‘ǡ…‘ϐ‹†‡…‡‹‡ƒ”‹‰•‡•–‹ƒ–‡•ǡ˜ƒŽ—ƒ–‹‘ȋƒ†‘—”˜ƒŽ—ƒ–‹‘‡–Š‘†‘Ž‘‰›Ȍǡƒ†‘–Š‡”
ˆƒ…–‘”•Ǥ—–’‡”ˆ‘”ȋȌȂ•–‘…‡š’‡…–‡†–‘‘—–’‡”ˆ‘”–Š‡„”‘ƒ†‡”ƒ”‡–‘˜‡”–Š‡‡š–ͳʹ‘–Š•Ǣ
ƒ”‡–‡”ˆ‘”ȋȌȂ•–‘…‡š’‡…–‡†–‘’‡”ˆ‘”ƒ’’”‘š‹ƒ–‡Ž›‹Ž‹‡™‹–Š–Š‡„”‘ƒ†‡”ƒ”‡–‘˜‡”–Š‡
‡š–ͳʹ‘–Š•Ǣ†‡”’‡”ˆ‘”ȋȌȂ•–‘…‡š’‡…–‡†–‘—†‡”’‡”ˆ‘”–Š‡„”‘ƒ†‡”ƒ”‡–‘˜‡”–Š‡‡š–
12 months; not rated (NR) – the stock is not currently rated. The valuation methodologies include (but
are not limited to) price-to-earnings multiple (P/E), relative P/E (compared with the relevant market),
P/E-to-growth-rate (PEG) ratio, market capitalization/revenue multiple, enterprise value/EBITDA ratio,
†‹•…‘—–‡†…ƒ•ŠϐŽ‘™ǡƒ†‘–Š‡”•Ǥ–‘…”ƒ–‹‰•ƒ†˜ƒŽ—ƒ–‹‘‡–Š‘†‘Ž‘‰‹‡••Š‘—Ž†‘–„‡—•‡†‘””‡Ž‹‡†
upon as investment advice. Past performance is not necessarily a guide to future performance.

Š‡”ƒ–‹‰•ƒ†˜ƒŽ—ƒ–‹‘‡–Š‘†‘Ž‘‰‹‡•”‡ϐŽ‡…––Š‡‘’‹‹‘‘ˆ–Š‡‹†‹˜‹†—ƒŽƒƒŽ›•–ƒ†ƒ”‡•—„Œ‡…––‘
change at any time.

—”•ƒŽ‡•’‡‘’Ž‡ǡ–”ƒ†‡”•ǡƒ†‘–Š‡”’”‘ˆ‡••‹‘ƒŽ•ƒ›’”‘˜‹†‡‘”ƒŽ‘”™”‹––‡ƒ”‡–…‘‡–ƒ”›ǡ
short-term trade ideas, or trading strategies—to our clients, prospective clients, and our trading
†‡••Ȅ–Šƒ–ƒ”‡…‘–”ƒ”›–‘‘’‹‹‘•‡š’”‡••‡†‹–Š‹•”‡•‡ƒ”…Š”‡’‘”–Ǥ‡”–ƒ‹‘—–•–ƒ†‹‰”‡•‡ƒ”…Š
”‡’‘”–•ƒ›…‘–ƒ‹†‹•…—••‹‘•‘”‹˜‡•–‡–‘’‹‹‘•”‡Žƒ–‹‰–‘•‡…—”‹–‹‡•ǡϐ‹ƒ…‹ƒŽ‹•–”—‡–•
and/or issuers that are no longer current. Always refer to the most recent report on a company or
‹••—‡”Ǥ—”ƒ••‡–ƒƒ‰‡‡–ƒ†–”ƒ†‹‰†‡••ƒ›ƒ‡‹˜‡•–‡–†‡…‹•‹‘•–Šƒ–ƒ”‡‹…‘•‹•-
–‡–™‹–Š”‡…‘‡†ƒ–‹‘•‘”˜‹‡™•‡š’”‡••‡†‹–Š‹•”‡’‘”–Ǥ‡™‹ŽŽˆ”‘–‹‡–‘–‹‡Šƒ˜‡Ž‘‰
‘”•Š‘”–’‘•‹–‹‘•‹ǡƒ…–ƒ•’”‹…‹’ƒŽ‹ǡƒ†„—›‘”•‡ŽŽ–Š‡•‡…—”‹–‹‡•”‡ˆ‡””‡†–‘‹–Š‹•”‡’‘”–Ǥ—”
research is disseminated primarily electronically, and in some instances in printed form. Research
is simultaneously available to all clients. This research report is for our clients only. No part of this
material may be copied or duplicated in any form by any means or redistributed without the prior
written consent of William Blair & Company, L.L.C.

Š‹•‹•‘–‹ƒ›•‡•‡ƒ‘ˆˆ‡”‘”•‘Ž‹…‹–ƒ–‹‘ˆ‘”–Š‡’—”…Šƒ•‡‘”•ƒŽ‡‘ˆƒ•‡…—”‹–›‘”ϐ‹ƒ…‹ƒŽ‹•–”—‡–Ǥ
The factual statements herein have been take from sources we believe to be reliable, but such statements
ƒ”‡ƒ†‡™‹–Š‘—–ƒ›”‡’”‡•‡–ƒ–‹‘ƒ•–‘ƒ……—”ƒ…›‘”…‘’Ž‡–‡‡••‘”‘–Š‡”™‹•‡ǡ‡š…‡’–™‹–Š”‡•’‡…––‘
ƒ›†‹•…Ž‘•—”‡•”‡Žƒ–‹˜‡–‘‹ŽŽ‹ƒŽƒ‹”‘”‹–•”‡•‡ƒ”…ŠƒƒŽ›•–•Ǥ’‹‹‘•‡š’”‡••‡†ƒ”‡‘—”‘™—Ž‡••
‘–Š‡”™‹•‡•–ƒ–‡†ƒ†ƒ”‡•—„Œ‡…––‘…Šƒ‰‡™‹–Š‘—–‘–‹…‡Ǥ”‹…‡••Š‘™ƒ”‡ƒ’’”‘š‹ƒ–‡Ǥ

60 Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ
William Blair

This material is distributed in the United Kingdom and the European Economic Area (EEA) by William
Blair International, Ltd., authorized and regulated by the Financial Conduct Authority (FCA), and is only
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‡”˜‹…‡•ƒ†ƒ”‡–•…–‘ˆʹͲͲͲȋ ‹ƒ…‹ƒŽ”‘‘–‹‘Ȍ”†‡”ʹͲͲͷȋƒŽŽ•—…Š’‡”•‘•„‡‹‰”‡ˆ‡””‡†–‘
as “relevant persons”).

“William Blair” and “R*Docs” are registered trademarks of William Blair & Company, L.L.C. Copyright
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Šƒ˜ƒ—”‹ԙΪͳ͵ͳʹ͵͸Ͷͷ͵Ͷͳ 61
Equity Research Directory
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”‘—’ ‡ƒ†Ȃ ‡ƒŽ–Š…ƒ”‡
Lifestyle and Leisure Brands, Restaurants Medical Technology
Jon Andersen, CFA, Partner౨+1 312 364 8697 Ryan Daniels, CFA, Partner౨+1 312 364 8418
Consumer Products Healthcare Technology, Healthcare Services

Dylan Carden౨+1 312 801 7857 Margaret Kaczor, CFA౨+1 312 364 8608
Apparel and Accessories Medical Technology

Ryan Domyancic, CFA౨+1 312 364 5412 John Kreger, Partner౨+1 312 364 8597
E-commerce, Food Retail Distribution, Outsourcing, Pharmacy Beneϔit Management

Daniel Hoϐkin౨+1 312 364 8965 Kaila Krum౨+1 312 364 5169
Hardlines, Specialty Retail Medical Technology
Tim Lugo, Partner౨+1 415 248 2870
FINANCIAL SERVICES AND TECHNOLOGY Therapeutics
Adam Klauber, CFA, Partner౨+1 312 364 8232 Amanda Murphy, CFA౨+1 312 364 8951
‘Ǧ
”‘—’ ‡ƒ†Ȃ ‹ƒ…‹ƒŽ‡”˜‹…‡•ƒ†‡…Š‘Ž‘‰› Diagnostic Services, Life Sciences
Financial Analytic Service Providers, Insurance Brokers,
Property & Casualty Insurance John Sonnier, Partner౨+1 312 364 8224
Biotechnology
Robert Napoli, Partner౨+1 312 364 8496
‘Ǧ
”‘—’ ‡ƒ†Ȃ ‹ƒ…‹ƒŽ‡”˜‹…‡•ƒ†‡…Š‘Ž‘‰› Brian Weinstein, CFA, Partner౨+1 312 364 8170
Business Development Companies, Financial Technology, Specialty Diagnostic Products, Medical Technology
Finance
Y. Katherine Xu, Ph.D., Partner౨+1 212 237 2758
Chris Shutler, CFA౨+1 312 364 8197 Biotechnology
Asset Management, Financial Technology
TECHNOLOGY, MEDIA, AND COMMUNICATIONS
GLOBAL INDUSTRIAL INFRASTRUCTURE Jason Ader, CFA, Partner౨+1 617 235 7519
Nick Heymann౨+1 212 237 2740 ‘Ǧ
”‘—’ ‡ƒ†Ȃ‡…Š‘Ž‘‰›ǡ‡†‹ƒǡƒ†‘—‹…ƒ–‹‘•
‘Ǧ
”‘—’ ‡ƒ†Ȃ
Ž‘„ƒŽ †—•–”‹ƒŽ ˆ”ƒ•–”—…–—”‡ Enterprise and Cloud Infrastructure
Multi-industry
Bhavan Suri, Partner౨+1 312 364 5341
Larry De Maria, CFA౨+1 212 237 2753 ‘Ǧ
”‘—’ ‡ƒ†Ȃ‡…Š‘Ž‘‰›ǡ‡†‹ƒǡƒ†‘—‹…ƒ–‹‘•
‘Ǧ
”‘—’ ‡ƒ†Ȃ
Ž‘„ƒŽ †—•–”‹ƒŽ ˆ”ƒ•–”—…–—”‡ IT Services, Software, Software as a Service
Capital Goods
Jim Breen, CFA౨+1 617 235 7513
Brian Drab, CFA, Partner౨+1 312 364 8280 Internet Infrastructure and Communication Services
Filtration and Water Management, Industrial Technology
Anil Doradla౨+1 312 364 8016
Ryan Merkel, CFA౨+1 312 364 8603 IT Services, Technical Software, Semiconductors and Wireless
Commercial Services, Industrial Distribution
Justin Furby, CFA౨+1 312 364 8201
Tim Mulrooney౨+1 312 364 8123 Software as a Service
Commercial Services
Jonathan Ho౨+1 312 364 8276
Cybersecurity, Security Technology
GLOBAL SERVICES
Brandon Dobell, Partner౨+1 312 364 8773 Dmitry Netis౨+1 212 237 2714

”‘—’ ‡ƒ†Ȃ
Ž‘„ƒŽ‡”˜‹…‡• Uniϔied Communications and Communications Equipment
Energy Services, Information Services, Marketing Services, Matthew Pfau, CFA౨+1 312 364 8694
Real Estate Services and Technology, Education Services and Technology Software as a Service
Timothy McHugh, CFA, Partner౨+1 312 364 8229 Ralph Schackart III, CFA, Partner౨+1 312 364 8753
Consulting, HR Technology, Information Services, Stafϔing Digital Media, Internet

EDITORIAL AND SUPERVISORY ANALYSTS


Steve Goldsmith, Head Editor and SA౨+1 312 364 8540
Beth Pekol Porto, Editor and SA౨+1 312 364 8924
Kelsey Swanekamp, Editor and SA౨+1 312 364 8174
Lisa Zurcher, Editor and SA౨+44 20 7868 4549

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