Cloud Splosion

I N V E S T M E N T R E S E A R C H
CLOUD- SPLOSI ON:

A Software Industry Reference Guide
Consisting Entirely of Proprietary Research

A P R I L 2 0 1 4

Mark Murphy
Senior Research Analyst
Enterprise Software
415 616 1705
mark.r.murphy@pjc.com
Pinjalim Bora
Research Analyst
Enterprise Software
415 616 1703
pinjalim.x.bora@pjc.com

Matt Coss
Research Analyst
Enterprise Software
415 616 1706
matthew.j.coss@pjc.com

Piper Jaffray does and seeks to do business
with companies coveredin its research reports.
As a result, investors should be aware that the
firm may have a conflict of interest that could
affect the objectivity of this report. Investors
should consider this report as only a single
factor in making their investment decisions.
This report should be read in conjunction with
important disclosure information, including
an attestation under Regulation Analyst
certification, found at the end of this report or
at the following site: http://
www.piperjaffray.com/researchdisclosures.

Mark Murphy
Senior Analyst
Enterprise Software
415 616 1705

Pinjalim Bora
Research Analyst
Enterprise Software
415 616 1703

Matthew Coss
Research Analyst
Enterprise Software
415 616 1706

C L OUD- S P L OS I ON

A Software Industry Reference Guide Consisting Entirely of
Proprietary Research

Cloud Compendium. This 1,000-page report is designed to infuse your brain with a
deep understanding of the software industrys sudden Cloud-driven evolution into a
landscape of Dinosaurs and Innovators. Through a proprietary lens straight from the
mouths of the resellers and end-users, you can learn why companies including
salesforce.com, Workday, VMware, ServiceNow, Box, Cornerstone OnDemand,
Microsoft, Amazon, Splunk and Tableau have risen to the top of our rankings in the
last two-plus years and how industry feedback has evolved in the last eight quarters.

100% Proprietary. This entire report is 100% proprietary across every single
element. We did not copy-and-paste third party content to fill the pages. No charts in
this report are sourced from IDC, Gartner or Forrester. All content in this report
flows from our vast network of more than 1,000 industry contacts who contribute to
our research: CIOs, CTOs, IT Directors, System Integrators, Resellers, Consultants,
Outsourcers, HR Managers, Chief Marketing Officers, Database Administrators,
Architects, Data Scientists, System Administrators, and of course the end-user
customers of the Cloud/software vendors. All of the Surveys and Deep-Dive
Interviews were conducted by Piper Jaffray; we did not use third-party survey firms
for any content herein.

Uncensored, Unfiltered, Unabridged. We present both sides of each argument
including bullish and bearish views from partners, resellers and customers. We do not
exclude inconvenient viewpoints. It is not just our opinion, but rather, a crowd-
sourced view from a broad sample of industry experts, spanning well beyond the
borders of our formal coverage list.

Fresh Content and Content From the Last Two Years. We present our most recent,
never-before-published work and our flow of proprietary work from the last two
years. Our most recent work is exemplified by our latest CIO Survey including our
deepest look at the impact of Amazon AWS on the software landscape and refreshed
view of large-enterprise Cloud Computing plans for 2014 and our full, proprietary
survey of 68 Workday customers.

Searchability: The PDF version of this report provides the ability to search within a
single document for topics of interest both within and beyond our coverage list. For
example, OpenStack is mentioned nearly 100 times in this report; Amazon is
mentioned >100 times; Mobility is mentioned >150 times; Big Data is mentioned
>200 times; Hadoop is mentioned >225 times; Marketing is mentioned >325 times;
and Cloud is mentioned >3,000 times.

Risks: Economic fluctuations, historically high SaaS valuations, competition, geographic
variances, vertical concentration.
I N V E S T M E N T R E S E A R C H April 2014
Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst
certification, found on pages 1067 - 1070 of this report or at the following site: http://www.piperjaffray.com/researchdisclosures

TABLE OF CONTENTS

CIO Surveys and Sector Commentary .......................................................................... 3-265
Bazaarvoice, Inc. (BV) ............................................................................................. 267-310
Concur Technologies, Inc. (CNQR) ........................................................................ 311-313
salesforce.com (CRM) ............................................................................................ 314-468
Cornerstone OnDemand, Inc. (CSOD) .................................................................... 469-515
Informatica Corp. (INFA) ....................................................................................... 516-598
Kenexa (KNXA) ..................................................................................................... 599-614
Model N, Inc. (MODN) .......................................................................................... 615-634
NetSuite, Inc. (N) .................................................................................................... 635-673
Oracle Corporation (ORCL) ................................................................................... 674-788
Rally Software Development Corp. (RALY) ............................................................ 789-808
Red Hat, Inc. (RHT) ............................................................................................... 809-864
InContact, Inc. (SAAS) ............................................................................................ 865-893
TIBCO Software, Inc. (TIBX) ................................................................................. 894-931
Ultimate Software Group, Inc. (ULTI) ..................................................................... 932-951
VMware, Inc. (VMW) ........................................................................................... 952-1021
Workday, Inc. (WDAY) ...................................................................................... 1022-1066
Important Research Disclosures ........................................................................... 1068-1070

Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

C I O S UR V E Y , 4 Q: 2 0 1 3

Legacy Vendor Pain is Cloud Vendor Gain

We surveyed 150 CIOs of large and mid-sized organizations responsible for over $91B in
annual IT spending to compile a forward-looking analysis of 2014 software spending,
winning and losing software vendors, and a snapshot of attitudes toward emerging
technology like big data and Amazon Web Services. Our survey filters through hype
surrounding threats to established database vendors, examines cloud adoption plans and
shows which server OS is taking share. Bottom line: IT spending is expected to increase
among the largest organizations in 2014, a change from our prior five surveys, and a
potential precursor to an opening spigot of IT spending.

Its Raining Money on IT Vendors in 2014. The largest IT budgets are finally ramping
into 2014, confirming hopes that capital spending will re-engage. For the first time since
we've conducted our CIO survey, budgets of the largest organizations, those with IT
budgets >$250M, have improved noticeably (+3.8% for 2014), versus +0.9% one year
ago and +2.0% two years ago. Because these large budgets account for 95% of all IT
dollars covered by this survey, it is a meaningful metric by which to judge the health of
broad IT spending.

Top software Vendors Continue Their Reign. In the Oscar Awards for best software
vendors, CIOs named VMware, salesforce.com, ServiceNow and Workday (in that
order) as the vendors that impress them most with their technology, vision and value
add. The order shuffled slightly from the prior year, but reinforces our belief that cloud
and cloud infrastructure providers remain among the best innovators and thought
leaders in software.

You use Amazon to Buy Books, CIOs use Amazon as an IT Infrastructure. We asked
CIOs in this survey to tell us their plans for Amazon Web Services (AWS), and if their
use of AWS will displace other technologies. Surprisingly, one-third of CIOs were either
already using AWS in some capacity (19%), might use it in the future (12%) or are
exploring its use (3%). Vendors most frequently displaced by AWS are IBM and HP.

Cloud Computing Adoption Evolves Uninterrupted. Amazingly, 45% of CIOs are just
starting to look into Cloud Computing, up from 40% last year, suggesting an expanding
early-stage market with multi-year high growth potential. 10% of CIOs carry an anti-
cloud attitude, flat as compared to last year.

Risks: Economic fluctuations, competition, geographic variances, vertical concentration

I N V E S T M E N T R E S E A R C H April 2014
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Piper Jaffray Investment Research Cloud-Splosion: A Software Industry Reference Guide | 3
April 2014

I T SPENDI NG I NTENTI ONS AND TRENDS FOR 2014

We surveyed 150 CIOs of large and mid-sized organization responsible for more than
$91B in annual IT spending to provide a unique and proprietary window into spending
patterns for large multinational firms.

The largest IT budgets are finally ramping into 2014, confirming hopes that capital
spending will re-engage. For the first time since we've conducted our CIO survey,
budgets of the largest organizations, those with IT budgets >$250M, have improved
noticeably (+3.8% for 2014), versus +0.9% one year ago and +2.0% two years ago.
Because these large budgets account for 95% of all IT dollars covered by this survey, it
is a meaningful metric by which to judge the health of broad IT spending.

Our CIO survey work has been highly predictive in the past; one year ago we called out
the very lackluster IT spending plans for very large organizations, and a very
disappointing first half ensued for the largest traditional IT vendors. In our midyear
survey we noted a very subtle uptick. For our current survey, IT budgets greater than
$50M (n=60) are set to grow 3.7% in 2014 - up from 2.8% in our survey one year ago.
For IT budgets greater than $250M (n=36), budgets are set to grow 3.8% in 2014, up
from 0.9% in our survey one year ago. To be clear, in a very good year or a recovery
year, we think IT budget growth would reach a level closer to mid/high single digits.
We are still a long way off from that level of exuberance, but strong progress has
finally been made in our year-end CIO survey.

IT Spending Aggressiveness remains highly consistent, if not slightly better than, prior
surveys.

Exhibit 1
I T BUDGET OUTLOOK, FI LTERED BY BUDGET SI ZE

Q4:11 Q2:12 Q4:12 Q2:13 Q4:13
All Respondents +3.1% +2.6% +4.0% +3.1% +4.2%
Sample Size 109 105 135 141 150
IT Budgets >$50M +3.0% +1.2% +2.8% +2.3% +3.7%
Sample Size 38 42 52 56 60
IT Budgets >$250M +2.0% +1.4% +0.9% +1.5% +3.8%
Sample Size 21 27 30 36 36
IT Spending
Aggressiveness (1-10) 6.1 6.1 6.3 6.2 6.4
Source: Piper Jaffray Research
Key Takeaways from
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4 | Cloud-Splosion: A Software Industry Reference Guide Piper Jaffray Investment Research
April 2014

TOP SHARE GAI NERS AND LOSERS FOR 2014

We asked 150 CIOs to consider 18 key software vendors and quantify their expected
spending trend for each vendor in 2014. The percentage of CIOs already using these
software vendors, or market penetration, is measured by the x-axis. Therefore,
companies to the right are highly penetrated, and companies to the left are much less
penetrated. Growth should be considered along with penetration: Workday (WDAY)
enjoys low penetration and the strongest spending growth, while VMware (VMW) and
Microsoft (MSFT) are deeply penetrated.

Vendors with the strongest feedback (i.e., best mix of installed base spending increases
and runway for penetration) include Workday (WDAY), ServiceNow (NOW), and
salesforce.com (CRM). The weakest spending plans for 2014 include TIBCO (TIBX),
Infor, and CA.

Consistent with our prior surveys, the strongest spending increases are being directed
to Cloud and Cloud infrastructure providers, underscoring the long-term attractiveness
of high-quality investments in this space
Exhibit 2
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH VS. MARKET PENETRATI ON

Workday
VMware
salesforce.com ServiceNow
Microsoft
Nuance Oracle
Citrix
SAP
Concur
RedHat
Informatica
Symantec
NetSuite
IBMSoftware
Tibco
Infor
CATechnologies
3.0%
2.0%
1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
P
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MarketPenetration
WINNERS
LOSERS
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The chart above compares the projected installed base spending growth from our
latest survey (December 2013) to our survey from June 2013.

Vendors with the strongest planned installed base spending include Workday
(WDAY), VMware (VMW), salesforce.com (CRM), and ServiceNow (NOW). The
weakest spending plans include TIBCO (TIBX), Infor, and CA.

Our latest survey results, as it relates to projected installed base spending growth, are
consistent with our survey from six months and one year ago, in that spending is being
disproportionately directed at cloud computing providers.
Exhibit 3
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH COMPARI SON ( 201 4 VS. 201 3 )

2.6%
1.9%
1.1%
0.8%
0.7%
0.4%
0.2%
0.2%
0.5%
1.2%
1.4%
1.4%
1.9%
2.9%
3.2%
3.3%
3.4%
3.6%
1.4%
0.7%
0.0%
0.8%
0.8%
0.2%
1.8%
1.4%
0.1%
0.8%
1.6%
1.4%
0.7%
1.9%
5.0%
3.1%
3.4%
4.0% 3.0% 2.0% 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
CATechnologies
Infor
Tibco
IBMSoftware
NetSuite
Symantec
Informatica
RedHat
Concur
SAP
Citrix
Oracle
Nuance
Microsoft
ServiceNow
salesforce.com
VMware
Workday
Projected2H13InstalledbaseSpendingGrowth(June2013) Projected2014InstalledbaseSpendingGrowth(Dec2013)

Key Takeaways from
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This table provides our summary of the notable differences in the data between our
December 2013 survey and our June 2013 survey.

Workday (WDAY) is the least-penetrated vendor whose share is expected increase,
and the opportunity for growth appears more impressive given its installed base
spending is expected to increase the most.

VMware (VMW) is expected to see a 3.4% increase in its installed based spending
growth, an improvement from June. VMware is highly penetrated, however.

salesforce.com (CRM) installed base spending growth has improved in each of our last
two surveys, although less noticeably in our most recent survey.

Conversely TIBCO (TIBX), Infor, and CA performed poorly.

Overall, we believe the underlying message from the data is that SaaS, cloud and cloud
infrastructure companies with exposure to key growth vectors are positioned to benefit
from an increase in CIO mindshare and grow as a percentage of IT budgets.

Exhibit 4
OBSERVATI ONS ON CHANGES FROM J UNE 201 3 CI O SURVEY

Vednors
Market
Penetrati on
Proj ected
Instal l ed
Base
Spendi ng
Growth Obervati ons on Chagnes Si nce June 2013 CIO Survey
Workday 14% 3.6% Slight improvement from +3.4% six months ago
VMware 96% 3.4% Slight improvement from +3.1% six months ago
sal esforce.com 46% 3.3% Slight improvement from +3.1% six months ago
Servi ceNow 26% 3.2% Down from +5.0% six months ago, but still robust
Mi crosoft 99% 2.9% Noti ceabl e i mprovement from +1.9% si x months ago
Nuance 21% 1.9% Noti ceabl e i mprovement from +0.7% si x months ago
Oracl e 80% 1.4% Consistent with +1.4% six months ago
Ci tri x 81% 1.4% Slight downtick from +1.6% six months ago
SAP 47% 1.2% Improvement from +0.8% six months ago
Concur 33% 0.5% Slight improvement from +0.1% six months ago
Red Hat 52% 0.2% Down from +1.4% six months ago.
Informati ca 21% -0.2% Noti ceabl e i mprovement from -1.8% si x months ago
Symantec 69% -0.4% Downtick from +0.2% six months ago
NetSui te 14% -0.7% Down from from +0.8% six months ago
IBM Software 66% -0.8% Down from +0.8% si x months ago
Ti bco 9% -1.1% Down from 0.0% si x months ago
Infor 14% -1.9% Down from -0.7% si x months ago
CA Technol ogi es 38% -2.6% Down from -1.4% si x months ago
Key Takeaways from
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The chart above provides a rapid way to visually determine the direction of spending
by CIOs on each of the vendors we asked the CIOs to evaluate.

However the data is dissected, the message is clear IT spending is being

Exhibit 5
DI RECTI ONAL SPENDI NG PLANS PER VENDOR ( SAMPLE SI ZE OF I NSTALLED BASE I S
DI FFERENT FOR EACH VENDOR)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Infor
CATechnologies
NetSuite
Tibco
Concur
IBMSoftware
Symantec
Informatica
RedHat
SAP
Oracle
Nuance
Citrix
Workday
salesforce.com
Microsoft
ServiceNow
VMware
IncreaseSpending MaintainSpending ReduceSpending

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The chart above shows the raw data and methodology behind determining market
penetration and projected installed base spending growth. Note that market
penetration, and thus the installed-base sample size, varies widely from vendor to
vendor.

Exhibit 6
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH ( RAW DATA)

Vendors
We Do Not
/ Wi l l Not
Use Thi s
Vendor
REDUCE
Spendi ng
By >10%
REDUCE
Spendi ng
By 0-10%
MAINTAIN
Consi stent
Spendi ng
INCREASE
Spendi ng by
0-10%
INCREASE
Spendi ng by
>10%
Market
Penetrati on
Instal l ed
Base (# of
respondents)
Proj ected
Instal l ed
Base
Spendi ng
Growth
Workday 86% 0% 0% 8% 4% 2% 14.0% 21 3.6%
VMware 4% 2% 3% 41% 37% 13% 96.0% 144 3.4%
sal esforce.com 54% 1% 1% 24% 13% 7% 46.0% 69 3.3%
Servi ceNow 74% 1% 1% 11% 10% 3% 26.0% 39 3.2%
Mi crosoft 1% 3% 5% 48% 31% 13% 99.3% 149 2.9%
Nuance 79% 1% 1% 13% 5% 2% 21.3% 32 1.9%
Oracl e 20% 5% 5% 46% 15% 9% 80.0% 120 1.4%
Ci tri x 19% 5% 5% 41% 25% 5% 80.7% 121 1.4%
SAP 53% 3% 3% 28% 9% 5% 47.3% 71 1.2%
Concur 67% 1% 4% 23% 3% 2% 33.3% 50 0.5%
Red Hat 48% 2% 5% 33% 11% 1% 52.0% 78 0.2%
Informati ca 79% 3% 3% 11% 2% 3% 20.7% 31 -0.2%
Symantec 31% 5% 6% 47% 11% 1% 69.3% 104 -0.4%
NetSui te 86% 1% 1% 9% 1% 1% 14.0% 21 -0.7%
IBM Software 34% 5% 9% 41% 11% 1% 66.0% 99 -0.8%
Ti bco 91% 1% 1% 6% 1% 0% 9.3% 14 -1.1%
Infor 86% 2% 1% 10% 1% 0% 14.0% 21 -1.9%
CA Technol ogi es 62% 5% 8% 21% 4% 0% 38.0% 57 -2.6%

Key Takeaways from
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AMAZON WEB SERVI CES

In this section of our CIO survey we attempted to decipher IT spending intentions on IaaS
provider Amazon, through its Amazon Web Services (AWS) offering. We dont believe
another source yet provides this level of granularity regarding CIO plans for AWS.

We asked CIOs, In a few brief sentences, please answer the following: Is your
organization increasingly using Amazon Web Services (AWS) and if so, which legacy
vendors will lose share of your organization's IT budget as you deploy incremental
workloads onto Amazon AWS?

More than one-third of CIOs were already using AWS in some capacity (19%), might
use it in the future (12%) or are exploring its use (3%).

Exhibit 7
CI O PLANS FOR AMAZON WEB SERVI CES

63%
19%
12%
3%
3%
0% 10% 20% 30% 40% 50% 60% 70%
No/NotusingAWSandhavenoplans
Yes
NotusingAWSbutmightuseinthefuture
CurrentlyexploringAWS
NoAnswers
Inafewbriefsentences,pleaseanswerthefollowing:Isyourorganizationincreasinglyusing
AmazonWebServices(AWS)andifso,whichlegacyvendorswillloseshareofyour
organization'sITbudgetasyoudeployincrementalworkloadsontoAmazonAWS?
Source: Piper Jaffray CIO Survey, December 2013
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This chart looks at the vendors potentially most vulnerable to share losses if an
organization chooses to use AWS. It is not surprising that IBM and HP are the vendors
most vulnerable to shares losses. Both of these vendors performed poorly in another
area of our CIO survey that asked CIOs which mega-vendor would be most critical to
the future of their organization.

The chart represents the frequency of vendor mentions when we asked CIOs which
legacy vendors will lose share of your organization's IT budget as you deploy
incremental workloads onto Amazon AWS? For example, nine CIOs mentioned that
IBM would lose share to AWS, and 9/150 = 6%.

Exhibit 8
CI O PLANS FOR AMAZON WEB SERVI CES

6%
5%
4%
4%
2%
1%
1%
1%
1%
1%
1%
1%
1%
0% 1% 2% 3% 4% 5% 6% 7%
IBM
HP
Dell
Oracle
Microsoft
Cisco
VMware
CA
CSC
EMC
InfoUSA
Rackspace
Savvis
LegacyVendorsExpectedtoloseshareofITBudgettoAmazonAWS

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The next six pages contain the detailed response from CIOs about their plans concerning
AWS.

Exhibit 9
NOT USI NG AWS AND HAVE NO PLANS TO DO SO ( N=95 )

We do not use Amazon WS
No we are not using AWS
We have not seriously considered AWS. Not sure it is a good fit for us.
Not yet
We are not using AWS.
No, we are not using Amazon Web Services at all right now.
No, we are not using AWS.
No
No
Have not looked at AWS for services. More focused on complete cloud service offerings.
We are not using AWS
Not using amazon web services
No since we plan to outsource the entire infrastructure to a single vendor vs. engage companies like AWS for piece parts
of it.
We do not use Amazon Web Services.
Not using AWS
No, they do not meet our security needs and the Fed cloud is too expensive.
At this point we are not using AWS and do not currently have any plans to move in this direction.
No we are not pursuing due to security and data protection compliance
We are not using Amazon Web services (AWS)
No
Not using AWS or any other cloud development/jhosting.
Not using AWS.
No, we are hesitant to move to a prominent cloud vendor for security reasons. The cloud services we use are vetted for
PCI-DSS and HIPAA compliance.
We are not using AWS, and don't have any plans to.
Not using AWS
Do not use today or plan to use in the future
We do not use AWS
Not currently using AWS for services.
No
We are not using, and do not plan to use AWS.

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Exhibit 10
NOT USI NG AWS AND HAVE NO PLANS TO DO SO, CONTI NUED

No at this time
We are using AWS for new initiatives around big data. infoUSA will be losing a share of our IT budget.
No, we are not using AWS
We are not currently using Amazon AWS service.
Not really
No. Since being company of [redacted], we always stick to either private cloud or captive solutions.
We are not using Amazon
No
No
Our organization has not reviewed nor has plans for using Amazon Web Services.
We are not using AWS. We have deployed several external web services for our business partners; but we host them
internally rather than AWS. We are not sold on the economics of AWS yet.
We do not utilize Amazon Web Services today. There are no plans for this in the current forecast.
No we are not
Not actively using AWS today.
We do not use AWS currently
Does not apply.
We are not increasing the use of AWS. If we were to move more to public services, IBM and Oracle would most likely
lose share.
No.
We are not reviewing Amazon's Web Service at this time.
We do not use.
No, we are a government (military) hospital so we don't plan on using amazon web services
No
No. We have not thought about AWS yet
Not yet
Not using them at all.
We do not use Amazon
We are not increasing our Amazon Web Services use.
We do not use Amazon Web Services
No we are not looking to use AWS from Amazon.
We are looking at Amazon for DNS services, but are not currently using AWS for any of our solutions.
Not used today
Not using
We do not use Amazon Web Services.
We are not increasingly using AWS

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Exhibit 11
NOT USI NG AWS AND HAVE NO PLANS TO DO SO, CONTI NUED

We are not currently using AWS.
We do not. We house all data locally. We are not comfortable putting medical information in the cloud.
No plans for Amazon web services
No. We are not planning to use Amazon AWS in the near future.
We are not. Again privacy and cyber threats.
Not using AWS at this time.
No.
We are not using AWS. At this point in time, we can provide the same service at a more economical cost.
We've dipped out toes in the water on one very small application that uses AWS...however, its more likely we will move
that in-house than to incrementally deploy.
We are not using Amazon web services - we need an "in-Canada" solution
No
We do not use AWS and have no plans to do so.
We are not using Amazon Web Services and don't have plans to.
No, not using AWS. We tried but their lack of flexibility on contractual language caused us to use competitors of AWS.
N/A
No, not at this time. Continuing to evaluate these types of services.
A vendor that we use for online budgeting tools for our members uses AWS for their product. We rely on them to a
certain extent, but we are unlikely to push anything to AWS in the near future.
No
We are not currently using AWS to replace any legacy vendors at this time. We do utilize some AWS services for
development and testing of certain solutions
No, plan to deploy our own cloud based platform.
N/A
No. We are yet to explore AWS
No plans to use Amazon
We do not use.
No
We will not be using Amazon Web Services.
We currently do not use AWS.
Have not, as yet, used AWS.

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Exhibit 12
YES, WE ARE USI NG AWS ( N=29)

Yes, increasing using Amazon Web Services. IBM & CA will lose share of its usage for the organization
AWS is used by our companies and will continue to be used for surge and non-sensitive business applications.
We are only using AWS in a small way. Going forward AWS will replace many of the in-house Oracle Unix systems in
use.
Yes but for new product development so no loss in current legacy vendor share.
Yes! IBM, Cisco and Dell
Yes. We are putting more collaborative project to the Amazon Cloud
We are looking to potentially expand AWS for our web services and potentially interconnectivity of health information
exchanges.
We have migrated our hosted Internet web sites from GoDaddy to Amazon in the last few years. We are extremely
pleased with Amazon and we will look to use Amazon first for any service which our company can move to the cloud.
IBM will lose to Amazon, Rackspace and Google
We are increasing our AWS foot-hold. Internal servers and storage will lose out.
Yes for Amazon AWS, lost will be internal support in our datacenters.
Yes, we are utilizing AWS more and more for our primary web site and micro-sites. Rackspace would potentially lose
business from us, although they have been an excellent vendor and have similar offerings.
Yes we are seeing more usage on AWS. Legacy vendors loosing share here would be IBM, Oracle, Dell.
Our use of AWS will remain the same.
Yes, AWS will host one of our new applications in 2014. Windows in our private cloud will lose share as a result.
Very sparingly for client related activities
Yes, but for new services.
Yes, Oracle, IBM
We are considering AWS for some of our servers -- vendors that would lose share would include HP and Cisco
We are using AWS for some internal operations related to service of our products by our dealers. We dont anticipate
moving away from other vendors, rather we will move services from internally manage to AWS.
We are increasing our use of Amazon web services, but mostly for new initiatives. This is taking the place of purchases
that would have gone to HP primarily, though also some IBM and Dell.
AWS is used to supplement Verizon's Cloud-based solutions offered to our customers. The following orgs will lose their
share as we rely more on AWS: Savvis, Dell
Yes, as a replacement for infrastructure and storage. In-house capability will shift to AWS.
We're heavily invested in AWS and plan to remain so.
Yes-we currently use AWS for R&D work. Usage is growing at a decent pace. HP is losing share
Yes, we are employing AWS in conjunction with our VMWare-based private cloud for bursty, resource intensive
processing needs such as image rendering.
Yes, increasing using Amazon Web Services. IBM & CA will lose share of its usage for the organization

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Exhibit 13
WE ARE NOT USI NG AWS BUT MI GHT I N THE FUTURE ( N=1 8)

We are looking to migrate some services to AWS, particularly on-premises web servers that are primarily used globally
rather than internally.
We have not used AWS yet. We would look at using it for corporate services. So it would displace some Microsoft and HP
share of the budget. We are interested.
We are not currently using this service from Amazon, however, as we get more systems into cloud models and
technologies, we hope this will provide greater ability to leverage other cloud providers such as Amazon.
We are not currently using these services, however in the future we will consider where appropriate. I do not think any
vendor will lose a share of the budget as some core components will always stay in house. Hardware will not be
eliminated although loads on the VMware platform will be alleviated.
We do not use Amazon today but plan to in 2014.
We are not currently using Amazon Web Services (AWS), however we have commissioned a small team for 2014 that will
be looking into the potential to leverage Amazon's offerings. In particular, we're looking at these in relation to
ecommerce and big data.
We are not using it yet but are keeping an eye on it and test it (inside IT)
We have not used AWS, but may in the future.
We are learning about this now.
We are not currently using AWS, but it is likely they will be adopted in the next fiscal year. IBM and Oracle will lose
more of the budget as we make that transition.
Not currently but we are taking a wait and see approach to follow larger intelligence community leaders into this trade
space. If we can truly leverage commercial cloud services such as AWS, HP will be the big loser for us over time as they
provide our SAN technology.
We are currently not using AWS. However, we do plan to experiment with their service offerings in the future and
compare them to other players in the market. Eventually our spend will shift away from traditional server hardware
providers - HP, Dell.
We are exploring this as a viable option for future expansion.
We have not used AWS, but will explore in 2014 as we develop our DR Plan.
No, we are not using AWS but this may be an option in the future.
I don't believe we are using them yet, but have looked into it.
We are not using AWS but should be investigating. At this time healthcare regulatory changes are our primary focus.
We do not use Amazon Web services, but is part of the current evaluation.

Exhibit 14
WE ARE EXPLORI NG AWS ( N=4)

We have a pilot with AWS. EMC and CSC will lose share.
We are testing with AWS, but no decision to move that direction yet. If we did, IBM/HP would lose share.
Piloting today could take share from Microsoft, Oracle.
Currently exploring AWS.

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STANDOUT SOFTWARE VENDORS

We asked each CIO to name two or three standout small or mid-sized software vendors
that are impressing them with their technology, vision, and value-add to their
organizations.

We asked each CIO to name two or three standout small or mid-sized software vendors
that are impressing them with their technology, vision, and value-add to their
organizations. Rather than providing a predetermined list of companies, the question
was open-ended, so that CIOs could mention any vendor that came to mind. In total,
354 vendors were mentioned: 42 vendors received multiple mentions, and 211 others
received a single mention. In particular, nine companies scored particularly high marks
Exhibit 15
CI O SURVEY ( 4Q 201 3) STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS
( MENTI ONED BY TWO OR MORE RESPONDENTS)

8.7%
6.7%
6.0%
5.3%
4.0%
3.3%
3.3%
3.3%
3.3%
2.7%
2.7%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
VMware
salesforce.com
ServiceNow
Workday
Oracle(PeopleSoft,RightNow)
Amazon
Box,Inc.
Citrix
Tableau
Dell(Boomi,AppAssure)
IBM(MaaS360)
Accellos
Airwatch
MobileIron
Nuance
Rackspace
Splunk
Veeam
Apptio
BeyondTrust
Broala
Cisco
CloudVolumes
EMC
GFI
GnetGroup
Good
JDA
Juniper
LogRythm
Mendix
Microsoft
MicroStrategy
Mimecast
Nasuni
Nexenta
Okta
PerceptiveSoftware
ProgressSoftware
Sitecore
Tekla
WhiteHatSecurity
Pleasename2or3standoutSMALLorMIDsizedSOFTWAREVENDORSthatareimpressingyouwiththeirtechnology,vision,andvalueaddto
yourorganization.
Key Takeaways from
the Chart Above
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April 2014
in the "Software Oscars": VMware, salesforce.com, ServiceNow, Workday, Oracle,
Amazon, Box, Citrix, and Tableau.

VMware, as the number one standout vendor, repeated this feat for the third time.
Some shuffling of the other top vendors took place, with salesforce.com at #2,
ServiceNow at #3 and Workday at #4. This compares to last year's survey which saw
VMware in the top spot, followed by ServiceNow, Workday, AirWatch (acquired by
VMware after this survey question was published), and salesforce.com. We believe
cloud and cloud infrastructure providers remain among the best innovators and
thought leaders in software.

The results offer a proprietary, real-time window into the winds of change which we
believe are transforming the tech industry into a landscape of innovators and
dinosaurs. 1) The Cloud boom is evident in mentions for CRM, NOW, WDAY,
AMZN, RALY, ServiceMax, SugarCRM, Xactly, ZenDesk, ULTI, RHT and others. 2)
Big Data prioritization is visible in mentions for DATA, SPLK, MSTR, INFA, QLIK,
MongoDB and Hadoop. 3) Mobility becomes tangible via mentions for Good,
AirWatch, MobileIron, Mendix etc. 4) Security modernization is revealed by mentions
for LogRhythm, Broala, BeyondTrust, Okta, ThreatMetrix, and AlienVault; 5) Next-
Gen Storage is represented by mentions for EMC, Box, Dropbox, Nasuni, Nexenta and
others.
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Exhibit 16
STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS ( MENTI ONED BY TWO OR MORE
RESPONDENTS)

Company
#of
Mentions
%ofCIOswho
Mentioned
Description
VMware 13 8.7% LeaderinVirtualizationandcloudinfrastructure
salesforce.com 10 6.7% LeaderinCustomerRelationshipManagement(SaaS)
ServiceNow 9 6.0% ITServicemanagement(SaaS)company
Workday 8 5.3% HRInformationSystem&ERP(SaaS)company
Oracle(PeopleSoft,RightNow) 6 4.0% Adatabaseandapplicationscompany
Amazon 5 3.3% World'sLargesteCommerceRetailer,AWS
Box,Inc. 5 3.3% OnlinefilesharingandCloudcontentmanagementservicevendor
Citrix 5 3.3% Desktopandservervirtualizationcompany
Tableau 5 3.3% Awardwinningbusinessintelligencesoftware
Dell(Boomi,AppAssure) 4 2.7% Acomputertechnologycompany
IBM(MaaS360) 4 2.7% Acomputertechnologyandconsultingcompany
Accellos 3 2.0% Leadingsupplychainexecutionsoftwarecompany
Airwatch
3 2.0%
MobilitySolutions(MobileDeviceManagement,MobileApplication
Management,MobileContentManagement)vendor
MobileIron
3 2.0%
Leaderinsecurityandmanagementformobileapps,documents,and
devices
Nuance 3 2.0% Speechrecognitionandimagingapplicationscompany
Rackspace 3 2.0% IThostingprovider
Splunk 3 2.0% Operationalintelligencesoftwarevendor
Veeam 3 2.0% Virtualinfrastructuremanagementanddataprotectioncompany
Apptio 2 1.3% Technologybusinessmanagement(SaaS)company
BeyondTrust 2 1.3% Identityandvulnerabilitymanagementsolutions
Broala 2 1.3% Powerfulnetworkanalysisplatform
Cisco 2 1.3% Worldwideleaderinnetworkingsolutions
CloudVolumes 2 1.3% Managementsolutionsforonandoffpremiseapplications
EMC 2 1.3% Leaderinstoragesolutions
GFI 2 1.3%
ITsoftwareandhostedsecurityservices
GnetGroup 2 1.3% ProjectbasedBI
Good 2 1.3% Enterprisemobilityplatform
JDA 2 1.3% Supplychainmanagement,merchandisingandpricingsolutions
Juniper 2 1.3% Networkingequipmentprovider
LogRythm 2 1.3% Securityinformationandeventmanagement(SIEM)ITplatform
Mendix 2 1.3% Platformforbuildinganddeliveringmobileandwebapps
Microsoft 2 1.3% World'slargestsoftwarecompany
MicroStrategy 2 1.3% ABusinessIntelligence(BI)softwarevendor
Mimecast 2 1.3% Unifiedemailmanagement(SaaS)
Nasuni 2 1.3% StorageInfrastructureasaService(IaaS)
Nexenta 2 1.3% Softwaredefinedstoragecompany
Okta 2 1.3% Identitymanagement
PerceptiveSoftware 2 1.3% Enterprisecontentandbusinessprocessmanagement
ProgressSoftware
2 1.3%
Simplifiesthedevelopment,deploymentandmanagementofbusiness
applications
Sitecore 2 1.3% Customerexperiencemanagementplatform
Tekla
2 1.3%
Producesinformationmodelingsoftwareforconstruction,energyand
infrastructureindustries.
WhiteHatSecurity 2 1.3% Websitesecurity

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Exhibit 17
CI O SURVEY ( 4Q 201 2) STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS
( MENTI ONED BY TWO OR MORE RESPONDENTS)

7.4%
5.9%
5.9%
4.4%
3.7%
3.0%
3.0%
3.0%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
VMware
ServiceNow
Workday
AirWatch
salesforce.com
Box/Box.com
Nuance
Symantec
Aruba
Dell
Epic
QlikView
SHI
Splunk
Veeam
Adobe
Amazon
Apple
CA
Citrix
Geodesic
ICC
Jive
LogRhythm
MicroStrategy
RuckusWireless
SocialText
SuSE
Tableau
Zenprise
Pleasename2or3standoutSMALLorMIDsizedSOFTWAREVENDORSthatareimpressingyouwiththeir
technology,vision,andvalueaddtoyourorganization.

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Exhibit 18
STANDOUT SOFTWARE VENDORS RECEI VI NG A SI NGLE MENTI ON

1010data
32Soft
3Par
4RSystems
Accountix
Acellion
Actimize
Actsoft
Aditi
AdvizeX
Akamai
AlienVault
Allscripts
AmCheck
AppDynamics
Apple
Arcadia
Argo
Aruba
Networks
Aryaka
Ascent
AssetWorks
Atlassian
AtomicLearning
AtTask
Avatier
Axosoft
Bally
Technologies
Bit9
BlackBerry
Blackboard
BlueBeam
Software
Bluescape
BMC
BottomLine
CareTechnology
Certify
Certona
Cideon
ClarionDoor
CMIC
Cognizant
Compliance
Assist
Compuware
Darktrace
DataVox
Dropbox
Druva
Earthlink
eBaoTech
Edico
eGain
Ektron
Elumen
EmCentrix
Epic
EPIC
Information
Solutions
Epicor
Ericsson
Esri
eVerge
Exagrid
Systems
ExitCare
FeithSystems
FireEye
Fiserv
FormVerse
Geezeo
GlobalSCAPE
GodelTech
Google
Hadoop
HCL
HealthCatalyst
Health
Outcome
Sciences
Heliocentric
Hybris
IdentityFinder
iFactor
Imprivata
Infologix
Informatica
Information
Builders
Infosys
Insight
Software
Insight
Technologies
Integration
Partners
Interactive
Intelligence
Intershop
Intuit
IonicSecurity
JeffNet
Jive
JJKeller
Kendo
Lawson
Liaison
LIDP
Liferay
LogFire
LogMeIn
Lumenta
M*Modal
Metalogix
Metier
Mindtree
Mirabel
Technologies
Mitel
MongoDB
Moogsoft
MortgageFlex
MuleSoft
NCR
Nearbuy
Solutions
NetDocuments
NewRelic
Newegg.com
Newforma
NexGen
Storage
Nicus
NimbleStorage
Nintex
Norse
NWN
Openbravo
OpTier
Optimizely
Palantir
PaloAlto
Networks
Panaya
Paragon
PeopleNet
Pipeline
Software
PivotLink
PlexOnline
Plixer
PointAlliance
Poll
Everywhere
Posidex
Software
Protel
PTC
QAD
QlikTech
RallySoftware
RedHat
RedCloud
Replicon
RFEXCEL
Riverbed
RiverMeadow
Rudder
Salient
SAP
SAS
Savant
Seapine
Software
Secunia
SeeUnity
ServiceMax
Siemens
SiSense
Skelta
SkyFoundry
Skyhigh
Networks
SnapLogic
SnapWorks
Socrata
Softchoice
SoftwareAG
SolsticeMobile
Spigit
Sqrrl
SugarCRM
SugarSync
TechSmith
ThinkWise
ThreatMetrix
TIBCO
TigerDirect
Tix.com
TOA
TRACSYSTEMS
Tribal
Tricension
Tripwire
Triumfant
Troux
Ultimate
Software
Unidesk
Unit4
Upland
Usablenet
Varonis
VCE
Veracode
Vericode
Verint
VerionONE
Vidyo
VML
VMTurbo
Wescom
Resources
Group
WhatsUpGold
Wiley
Wolfram
Research
Xactly
Zebra
ZenDesk
Zerto
Ziften
Zirmed

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CLOUD ADOPTI ON PLANS

We asked 150 CIOs to describe how their organization's Cloud Computing approach will
evolve during 2014. We also posed this question a year ago. Amazingly, 45% of CIOs are
just starting to look into Cloud Computing up from 40% last year, suggesting an expanding
early-stage market with multi-year high growth potential. 10% of CIOs carry an anti-cloud
attitude, flat as compared to last year. For 2014, several shifts are emerging: 1) increasingly,
companies are referring to a "Cloud First" approach to IT services; 2) CIOs mention more
cloud replacement of legacy apps; 3) aggressiveness and intensity of Cloud efforts are on the
upswing; and 4) companies refer to a higher number of private cloud initiatives as
compared to last year. We believe the eight pages of proprietary feedback in this document
clearly depict the rapid evolution of cloud computing as a secure, reliable, cost-effective IT
delivery platform. See the next seven pages for detailed responses.

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Exhibit 19
DETAI LED COMMENTS: DEVELOPI NG A CLOUD COMPUTI NG STRATEGY / PI LOT PHASE
(68 Responses = 45% of Total)

We will explore what are the new options and new opportunities to reduce spend and increase value for money
through Cloud Computing.
We are currently selecting a managed hosting provider so that we can move parts of our datacenter into the "cloud".
We are getting closer to making our decision. We are also going with Office365 [and] Kronos Cloud based service.
We are looking for other opportunities to move more stuff into the cloud. Price will dictate our pace.
We plan to add Cloud services as an approved vendor selection with a few named Cloud providers vetted, contracted
and offered to our BU's as certified global providers.
Actively evaluating cloud solutions for Enterprise Applications, Storage, and VDI/MDM solutions.
We are continually looking for opportunities to move from on-premise, legacy systems and take advantage of cloud
resources. In 2014, we will be looking at a number of applications including Applicant Tracking, E-mail, and client
backup.
Working to cloud-enable legacy applications as well as move standard services like email to the cloud.
Move to the cloud aggressively.
We are moving to a strategy of always considering Cloud computing for any new initiative and must articulate why a
cloud solution will not work in lieu of a non-cloud solution.
2014 will be about maintaining existing and planning for replacement of legacy applications. Maybe a little movement
to cloud but more likely to see momentum in the 2015/2016 time frame.
We are looking at the cloud but have not committed to going that way as of yet.
We will start embracing Cloud Computing more in 2014. A number of solutions are now being offered in Cloud and
we are looking to evaluate them more in 2014.
We will be implementing some components of our core systems in a cloud environment. As we complete each phase
and evaluate the performance and compliance capabilities we will be expanding the use of cloud services into some of
the commodity platforms.
Several pilot projects with an initiative to move to Office 365, initially for email perhaps the Office suite, TBD.
Slowly, there is still a concern about security.
We are moving our collaborative projects into the cloud.
Cloud computing services are expanding to include integration components. Each opportunity for new solutions
includes evaluation of SaaS offerings. Focus is to push services to cloud for low value services.
Two pilots underway. Expect to implement significant Cloud strategy in 2014.
We are considering use of the cloud and taking it slowly. Only test areas will be developed and used in 2014.
Otherwise, use of the cloud outside the firm's firewalls is very limited.
We will complete implementation of Office 365, outsource most infrastructure services and increase the use of cloud
web, video and audio conferencing.
We will continue evaluating external cloud solutions while maintaining internal cloud solutions (i.e. no growth on
internal anticipated).
Currently we do very little cloud computing. In 2014 we will be looking at the security and privacy concerns
surrounding this area. We plan to make small incremental advances into the world of Cloud Computing once we
better understand the risks.
We are driving most storage and customer facing applications to the cloud.
Will try to shift non critical services to public cloud to start with. In course of time others will be tried on private
cloud. Based on the performance feedback, critical applications also will be hosted in private cloud ultimately.
Cautious, only non-critical apps and typically utilizing encryption.

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Exhibit 20
DETAI LED COMMENTS: DEVELOPI NG A CLOUD COMPUTI NG STRATEGY / PI LOT PHASE,
CONT D.

It is currently part of our strategic plan and has been written in to the 2014 plan to move more towards cloud
computing.
Testing cloud applications in preparation for mainstreaming.
We will continue to explore cloud computing options in two areas: (1) collaboration with customers, vendors &
subcontractors, and (2) enterprise storage.
We expect to move to the cloud more aggressively than planned in 2014. We will look to move our corporate email to
the cloud as well as explore cloud-based ecommerce solutions/hosting. Any new business initiatives will also be
reviewed for possible cloud-based solutions versus in-house or home grown.
Cloud Computing initiative is a major one for 2014. All services will be moving to Cloud in 2014 for us.
Proposing office 365 to the organization as well as web site to azure.
We are planning to move more non-core systems into the cloud (e.g. mail, expense software etc.).
Because we are required to secure HIPAA, we will review our approach very carefully and only employ Cloud services
where it makes sense and can provide the security our organization will require.
We have no plans to implement any cloud services in 2014. However, we are open to cloud computing if we have a
need to move in that direction.
We are developing a private cloud architecture to support our client. We anticipate the design and the equipment to be
put toward in 2014 and the services to be available 2015.
We will be very carefully and sturdily exploring CLOUD to ensure business benefit at large. We will be phasing this to
ensure journey stable.
Exploring the DB level with Oracle 12C, pluggable DBs and elastic cloud for application level. DBaaS, using the
Multi-tenant architecture to reduce the TCO & increase the ROI. Management of infra, DB & other software
reduction by consolidating them on private cloud.
Deploy private and public cloud. Move critical services to public cloud
We will be using cloud based provider for email archival / storage.
Only select departments are being targeted for using cloud computing services, primarily to support data exchange and
data warehouse operations.
Still reviewing cloud solutions, but we have already implemented a few storage-based solutions.
Moderate cloud computing spend in 2014. Focus will be on SaaS over PaaS or IaaS. Cloud applications will not
involve sensitive data.
Cloud computing is being tested as a point solution for certain departments, but not widely planned for the entire
organization.
We are taking a very strong look at migrating to Microsoft Office 365 as we true-up our Enterprise Subscription
Agreement with Microsoft in 2014.
Still working on plan towards gradual transition to cloud platform in 2014.
Will start to implement private cloud capabilities as well as look at selective opportunities for public cloud
implementations. Many public cloud implementations will be in relation to application service capabilities that we
intend to utilize as opposed to hosting internally developed applications on the public cloud.
Backup replication & some colocation/relocation & MS Exchange hosting
Will be enabling several cloud applications.

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Exhibit 21
CONT D.

Over 2014 we will continue to review our options of moving mission critical servers/services to the cloud to, at first,
provide potential cold-standby systems, hot standby systems, and then full systems. We will have to grapple with
the security (both perceived and actual) of our systems and data being outside our physical control.
We have developed a "Cloud First" and "Mobile First" approach to IT services. Accordingly, we have identified
three cloud platforms to provide the majority of our business services going forward.
We did several pilots in 2013 that were successful. We will continue to expand those uses and initiative a few new
ones. We may add a few additional SaaS applications as well. Wide-scale movement to the cloud is still 2+ years
away.
We are still actively investigating how the cloud services providers are adapting their environments to the needs of
healthcare companies. As they certify their compliance with HIPAA, HITECH, and other healthcare requirements,
we will look to implement shortly thereafter for some components of our portals.
We will leverage more cloud resources in order to decommission legacy infrastructure. This will reduce costs while
increasing the availability, capacity, and bandwidth.
We will only invest in public cloud offerings that yield same or lower cost than premise solutions.
After identifying additional use cases for using the cloud, will plan to expand our knowledge and expertise by
performing pilot projects in new areas. We will utilize different tools and different providers to better understand
which toolset, platform, etc. works best for our environment - both today and tomorrow. We will continue to
virtualize heavily.
Opportunistic approach. Go to the cloud where it makes sense.
We continue to look for ways to leverage cloud services as a cost savings. Currently moving some of our email to
the cloud. Beginning to work more with could-based CRM tools.
We are exploring the options for expansion into the cloud within the regulatory envelope we are required to operate
inside.
Will be using FEDRAMP certified cloud providers as well as internal Department enterprise cloud services.
We are assessing cloud solutions for each key system. In 2014 we will move Service Management to the cloud, begin
Azure development in the cloud, and consider moving email and document management to the cloud.
Will explore in 2014.
We will continue to evaluate cloud based applications, infrastructure, and other offerings as rapid deploy, scalable
enterprise solutions.
As we're a healthcare organization, our adoption of cloud technology will be largely dependent on company's
interest in supporting a cloud model.
Will definitely move test, dev. and some limited applications to the cloud.
The new "preference" is cloud hosted solutions. These should be considered as having an advantage over onsite
hosted. The idea is - if enough moves to the cloud, we may start to see the savings in support costs.
Currently, exploring cloud options for commodity services such as Messaging, Computing & Storage. A
comprehensive approach is yet to evolve.
Reviewing options.
Expanded use of cloud storage, and pilot of cloud processing.
Slowly adopting the cloud, but still have concerns about network impacts.

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Exhibit 22
DETAI LED COMMENTS: ALREADY EMBRACI NG CLOUD

We will offer more core services using web-based software that we deploy from our private cloud. We will continue
to use some cloud computing software hosted by third parties for non-core activities, or those that do not directly
touch our customers.
We use SaaS for ERP, NaaS for network. We continue to push for cloud options to reduce costs and expand
capability. This is critical to us.
We will continue to expand our Cloud presence securely.
We will continue to adopt cloud services where it makes either economic sense or provides a better service level than
can be delivered through on premise solutions
We are already using cloud CAAS and Salesforce and more applications and dev. /test environments will be moving
to Cloud during 2014. Our innovation projects will be using cloud very actively.
Hybrid Cloud that we currently utilize will remain in place. We continue to evaluate cloud offers for SharePoint &
Exchange.
We will expand it.
We are doing a fair amount in the cloud today and will continue with everything we currently have in the cloud.
While I don't see a significant increase in cloud computing in 2014, we will be evaluating the movement of our
datacenter to the cloud for consideration in 2015.
We are starting to move our data to cloud storage, as well pursuing VDI. Big part of our R&D will develop Cloud
Apps for our customers.
We continue to move applications to the cloud and hope to have email and our phone system in the cloud in 2014.
We are setting up a private cloud and discontinuing our legacy client server storage. All documents within our
organization will be moved to the private cloud which is integrated with our Oracle based ERP system.
We have several SAAS applications running in the cloud and plan to explore options to locate near line storage
requirements there in 2014.
We are pushing as fast as possible to move applications to the cloud. As fast as our resource can test, etc....
We are actively embracing cloud solutions and will continue in 2014. Salesforce, Pivotlink are more corporate and
global: Sugarsync and Evernote more user based tools.
Will continue to grow using cloud and SaaS solutions.
We continue to implement cloud-based solutions such as HR and payroll systems.
Our Parent Company will provide cloud services.
Move from public cloud to a private cloud hosted in our DCs.
Our newer projects and applications are cloud based whenever possible.
We will be looking for more opportunities to use the cloud for big data endeavors.
We will be assessing opportunities to extend our current cloud presence. This will include determining if additional
applications should be migrated to the cloud, as well as whether we should alter our mix of cloud-based vendors.
We are seeing an ever increasing role of cloud computing both in our internal IT plans as well as plans of our
customers. Cloud storage, cloud computing etc. are all trending upwards. We are seeing all our new projects having
a cloud focus, in terms of deployment, research and other activities. There is an ongoing debate on alternatives to
AWS, such as private clouds or hybrid clouds. We also see Microsoft as a strong alternative, especially as it related
to email, and office products through office365 cloud offerings.
We have created a separate entity to focus on cloud computing as a service.
We already have a private cloud. We are implementing three new purchased applications that will be public cloud
based in 2014.

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Exhibit 23
DETAI LED COMMENTS: ALREADY EMBRACI NG CLOUD, CONT D.

Providing cloud computing services for group companies and dealers in PVT cloud set-up.
Remain and enhance our private cloud. Minimal public cloud.
Cloud computing is used as another tool in our tool box to support our business lines. Top uses will be taxation,
transportation, EDI and procurement.
Continuing to build a private cloud environment for my enterprise and sister institutions.
We have an active-active internal cloud that we will be morphing into a hybrid cloud for DR and commodity
technologies.
We are moving our hosted email to the Google Cloud. We are still on the fence if this is the best part to go.
We have moved a considerable amount to the cloud already. We will continue to move other services to private cloud
services as well as creating our internal enterprise cloud.
We have already joined a private cloud for our email, and there are plans to join another one for a SharePoint
solution; no plans to implement our own private or public cloud except for a VDI implementation we plan on
implementing this calendar year.
We are already into cloud computing space from SaaS and IaaS perspective. In 2014, it will move into PaaS.
Will continue to move workloads to the cloud.
Just really as SAAS. No other cloud initiatives.
Already using private cloud as an organization together with some third party cloud apps. We will be investigating
further utilization of cloud technology as appropriate during 2014.
We are moving more recovery systems to the cloud. More backup and storage. Offsite data storage is a big expense.
The use of the Cloud will increase in 2014 in an attempt to minimize the need to purchase additional infrastructure.
Currently we are utilizing some cloud services such as WebEx. We will continue to look at the Cloud for these type of
services, but that will be the limit in 2014.
We are aggressively driving a Cloud Computing Approach across multiple LOBs. Verizon also offers several Cloud
Computing Solutions to our customers. The Portfolio of cloud-based solutions is definitely on the rise for 2014.
Cloud or SaaS technology is at the cornerstone of our computing approach to enabling the organization. Technology
is no longer about the plastic boxes but about business enablement thru technology services.
We have virtualized more than 85% of our infrastructure to enable agile and rapid expansion of service delivery when
required. 2014 will concentrate on remaining virtualization opportunities.
Will continue to drive applications to cloud services wherever possible.
We are planning how to implement a cloud-based disaster recovery/business continuity at a third party data center.
We have virtualized all of our environments and are ready to implement cloud. Separately, we are offering cloud-
based storage to our customers as a reseller/channel partner.
Will use JDA Cloud Service for Workforce management, new contract for their services. Continue the use of ADP for
payroll.
Continue to develop private cloud and looking at a possible hybrid but still very closed. As a bank public cloud
continues to give us heart burn. Also we do not trust the vendors with our info.
We continue to push as much as we can to the cloud. This includes SaaS applications as well as infrastructure where
it makes sense.

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Exhibit 24
DETAI LED COMMENTS: ALREADY EMBRACI NG CLOUD, CONT D.

Taking IT Config, Change, Release, Asset Mgmt. to Cloud.
We are creating our Own Cloud Platform using Virtual Technology. (VMWare)
We are a heavy user of "private cloud" technologies and are integrating "public cloud" resources into our
infrastructure as well.
More SaaS applications acquired and virtualizations deployed.
Implementing one cloud solution. Evaluating prospective vendors, considering Office 365. Need "in-Canada"
solution, which reduces field of prospects.
We are in the process of migrating our ERP system to a managed services arrangement. More focus has been placed
on Private rather than Public cloud. We plan to continue moving in this direction as the industry matures and we
have experience.
We will continue to expand our use of cloud based systems and technology for point solutions to business
opportunities.
We'll continue to monitor public cloud services, but won't plan to move more services and data into the cloud until
security/privacy concerns are better addressed around liability assumption by 3rd parties and accountability.
Much of what we do already exists in a cloud environment. We will continue to evaluate how we can move more of
our critical information and infrastructure to the cloud to rely less on in-house staffing and equipment.
We are aggressively adopting cloud computing services (ex: CAAS, Salesforce.com, PAAS, and infrastructure as a
service)
We will expand our use of cloud computing.
We are currently moving any possible software to SaaS/Cloud, including our email and storage. We will continue to
do so where it makes best sense from both a financial and strategic viewpoint. Our goal is to maximize service while
minimizing costs and the cloud is one way to do that.
We will continue to migrate certain aspects of our application and capacity infrastructure in a variety of cloud
models. From private, to hybrid to pure public as we continue to rationalize our portfolio.
We are currently using a private cloud and do not expect any significant changes in 2014.
Expect to deliver internally developed cloud based payment processing solutions in 2014.
ON-Going.....
Not for mission critical applications.
We are using Cloud Computing aggressively today and will expand further in 2014.
No changes. We are only using Cloud for low risk applications
Currently use cloud capabilities for warehousing applications. Investigating increased penetration for other
applications.

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Exhibit 25
DETAI LED COMMENTS: ANTI - CLOUD VI EWPOI NT / NO NEAR- TERM ADOPTI ON PLANS

We will reduce the initial plans we had to move to the cloud; and consider on individual application-by-application
basis. Where previously we had a full cloud strategy that was not proving its business case.
We view cloud computing as just another application offering. It is simply running in a non-company data center.
We don't do anything with Cloud computing beyond our email SPAM solution. We try to avoid using cloud solutions
for anything because it requires Internet bandwidth to utilize. Internet bandwidth is a premium for us, and priority
sales traffic to our website for business purposes.
Not using cloud computing.
No plans to move any apps to the cloud in 2014.
There will be no change.
Not sure. Cloud computing is still a new and untrusted domain for our execs. We are slowly being pushed into SAS
offerings by our vendors so this may evolve over the next year or two.
Very little evolution until we have a major change in our corporate office location.
Due to the nature of our information and the legal requirements for Privacy and to meet HIPAA requirements very
little Cloud Computing will happen, the risk of having protected information not under our control is too great.
We will not expand cloud significantly.
Our first focus is on addressing security concerns and balancing security (encryption, primarily) with performance.
I hope it doesn't. We are finding that the application providers hold the data hostage in their systems if the business
relationship concludes. No matter what is written in the contracts. It is cheaper and more efficient to not engage in
cloud computing for the scenarios I am faced with.
In 2014 we don't expect much change from 2013...we will continue to monitor the situation, but have enough scale
and no peak periods to warrant using a cloud at this time. After 2014, we may investigate cloud computing for
development and testing purposes (dip our toe in the water).
Limited Cloud computing the coming fiscal year.
We plan on not using any Cloud computing in the next 12 months.

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SERVER OPERATI NG SYSTEMS SHARE GAI NS

We asked 150 CIOs to indicate whether each of the four major Server operating
systems (Linux, Windows, UNIX, Mainframe) would Gain, Lose or Maintain share of
their organization's Server environment in 2014. We present the results on a "Net-
Gainer" basis - meaning if 55% of CIOs indicate a certain OS will gain share of their
server environment, and 45% indicate it will lose share, that would equate to a "Net-
Gainer" score of +10%.

On this basis, we find Linux leading the pack at +24%, Windows next at +23%,
UNIX next at -22%, and Mainframe last at -56%. This compares to the expectations
for 2013 as per our 4Q:2012 survey with +33% for Linux, +15% for Windows, -31%
for UNIX and -46% for Mainframe in 4Q:2012.

Exhibit 26
SERVER OPERATI NG SYSTEM WI NNERS VS LOSERS ( NET- GAI NER BASI S)

Key Takeaways from
the Chart Above
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This table shows the actual responses by each operating system and the figures we use
to derive each Net-Gainer score.

Exhibit 27
SERVER OPERATI NG SYSTEMS NET- GAI NER, 4Q: 201 3( RAW DATA)

Gaining
Neither Gaining
Nor Losing
Losing Net-Gai ner
Linux 35.3% 53.3% 11.3% 24.0%
Windows 31.3% 60.0% 8.7% 22.7%
UNIX 6.0% 66.0% 28.0% -22.0%
Mainframe 0.7% 42.7% 56.7% -56.0%

Key Takeaways from
the Table Above
Exhibit 28
SERVER OPERATI NG SYSTEM WI NNERS VS. LOSERS ( NET- GAI NER BASI S, I T BUDGETS >
$25 0M)

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In our last five CIO surveys, the data have oscillated (sometimes Windows edges out Linux,
sometimes vice-versa), but Linux has repeatedly edged out Windows amongst the largest IT
budgets (those in excess of $250M annually). Examining only organizations with large IT
budgets (>$250M in IT spending), spending intentions are even stronger for Linux at
+31%, Windows at +17%, UNIX at -19%, Mainframe at -58%.

This table shows the actual responses by each operating system and the figures we use
to derive each Net-Gainer score.

Key Takeaways from
the Chart Above
Exhibit 29
SERVER OPERATI NG SYSTEMS NET- GAI NER, 4Q: 201 3 ( RAW DATA)
Filetered by Organizations with > $250M in IT Spend
Gaining
Neither Gaining
Nor Losing
Losing Net-Gai ner
Linux 41.7% 47.2% 11.1% 30.6%
Windows 25.0% 66.7% 8.3% 16.7%
UNIX 8.3% 63.9% 27.8% -19.4%
Mainframe 0.0% 41.7% 58.3% -58.3%

Key Takeaways from
the Table Above
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BI G DATA

We asked each CIO to name two or three vendors that they will rely on for their "Big
Data" initiatives. Rather than providing a predetermined list of companies, the
question was open-ended, so that CIOs could mention any vendor that came to mind.
In total, 73 vendors were mentioned: 27 vendors received multiple mentions, and 46
others received a single mention. For our 2Q13 survey, 67 vendors were mentioned: 22
vendors received multiple mentions, and 45 others received a single mention. The
feedback provides a proprietary real-time window into Big Data reality while stripping
Exhibit 30
CRI TI CAL VENDORS FOR BI G DATA PROJ ECTS, 4Q1 3 ( VENDORS WI TH MULTI PLE
MENTI ONS)

29%
27%
22%
21%
7%
5%
5%
4%
4%
4%
4%
3%
3%
3%
3%
3%
3%
2%
2%
1%
1%
1%
1%
1%
1%
1%
1%
11%
0% 5% 10% 15% 20% 25% 30%
Oracle(Exadata)
Microsoft
SAP(HANA)/BO
IBM/Cognos/Netezza/SPSS
EMC
HP
Splunk
Hadoop
Informatica
Tableau
Teradata
Amazon(AWS)
Dell
Accenture
Cisco
Google
VMware
MicroStrategy
Proprietary/inhouse
1010Data
Epic
Fiserv
Hortonworks
NetApp
QlikTech
salesforce.com
TCS
Nobigdataprojects
Whatarethetop2or3vendorsyourorganizationwillrelyonforits"BigData"initiatives?
(PleaseremembertomentionanySMALLorMIDSIZEDsoftwarevendorsthatmayapply)

Key Takeaways from
the Chart Above
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out much of the Big Data hype - and due to our focus on Large-enterprise CIOs (150
CIOs who control $91B in IT spending), the survey results show where the real money
will be spent.

We interpret Oracle's No. 1 position, mentioned by 29% of CIOs, as evidence that
near-term threats from big data technology and vendors have been overstated.
Although technology like Hadoop was mentioned by 4% of CIOs, and vendors like
Splunk and Tableau were mentioned by 5% and 4% of CIOs, respectively, Oracle still
has more than double the combined CIO mentions across all three. This speaks to the
strength of Oracle's database platform and its engineered systems including Exadata
and Exalytics. While we believe Oracle faces real competitive challenges in its
applications business, the CIO feedback reveals Oracle is very secure in its database
business, and not just for old-school OLTP purposes but also for complex, modern,
high-scale big data challenges.

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Exhibit 31
VENDORS RECEI VI NG A SI NGLE MENTI ON, 4Q1 3

Adobe
Atlas Medical Software
Avanade
BigSQL
Blackboard
Bluestar
Broadleaf
Cloudera
DataStage
Ellucian
Hadapt
HCL
Hyland
Infosys
JD Edwards
JDA
Juniper
Leisure Trends
Liferay
Meditech
Merkle
Mirantis
MySQL
Newforma
Nimble Storage
Palantir
PivotLink
Plex
QAD
Rackspace
Red Hat
Redwood Analytics
Riversand
Salient
SiSense
Six3 Systems
SugarSync
SumoLogic
Supermicro
Thomson Elite
Trimble Navigation
VCE
Veeam
Verint
Wescom Resources Group
Workday
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Exhibit 32
CRI TI CAL VENDORS FOR BI G DATA PROJ ECTS, 2Q1 3 ( VENDORS WI TH MULTI PLE
MENTI ONS)

25%
20%
18%
16%
8%
6%
5%
4%
4%
4%
3%
3%
2%
2%
2%
2%
1%
1%
1%
1%
1%
1%
19%
0% 5% 10% 15% 20% 25%
IBM/Cognos/SPSS
Oracle
Microsoft(Azure,SQLServer,Office365)
SAP(HANA)/Sybase/BO
EMC
Teradata/Aster
Hadoop
MongoDB
HP/Autonomy
SAS
Amazon(AWS)
Dell
Google
Informatica
QlikTech
salesforce.com
CDW
Cloudera
NetApp
Rackspace
Splunk
Tableau
Nobigdataprojects
Whatarethetop2or3vendorsyourorganizationwillrelyonforits"BigData"initiatives?
(PleaseremembertomentionanySMALLorMIDSIZEDsoftwarevendorsthatmayapply)
N = 141
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Exhibit 33
VENDORS RECEI VI NG A SI NGLE MENTI ON, 2Q1 3

ACL
Advisen Data Feeds
AT&T
Avande
Blackboard
BMC
Cisco
Concur
CSAIL
Datameer
Datastax
dbMotion
Deltek
Doondas
Ellucain
Epic
EquiLogix
Fiserv
Greenplum
Health Catalyst
Hortonworks
Humedica
Insight
Intel
IST Host
Leisure Trends
MAIA
Market Intelligence
Microstrategy
Nimble
Pearson eCollege
Perceptive Software
Phytel
PivotLink
Palantir
Platforma
PwC
Six3 Systems
SkyFoundry
Socrata
Symantec
Telus
Think Smart
Verint
VMware
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Both IBM and Teradata are again among the worst share-losers in terms of their
degradation from our midyear 2013 CIO survey to our year-end 2013 CIO survey. 25%
of CIOs mentioned IBM in our midyear survey and this dropped to 21% in the current
survey. Likewise, 6% of CIOs mentioned Teradata in our midyear survey and this
dropped to 4% in our year-end survey. This kind of drop-off was unusual as Oracle
surged 9 points from 20% to 29%, Microsoft leaped 8 points to 27%, Splunk
Exhibit 34
CHANGE SUMMARY, 2Q1 3 TO 4Q1 3

Vendor 2Q13 4Q13 Delta
Oracle(Exadata) 20% 29% 9%
Microsoft 18% 27% 8%
SAP(HANA)/BO 16% 22% 6%
Splunk 1% 5% 3%
Accenture 0% 3% 3%
Tableau 1% 4% 3%
Proprietary/inhouse 0% 2% 2%
Cisco 1% 3% 2%
VMware 1% 3% 2%
Informatica 2% 4% 2%
1010Data 0% 1% 1%
TCS 0% 1% 1%
MicroStrategy 1% 2% 1%
HP 4% 5% 1%
Epic 1% 1% 1%
Fiserv 1% 1% 1%
Hortonworks 1% 1% 1%
Google 2% 3% 1%
Amazon(AWS) 3% 3% 0%
Dell 3% 3% 0%
NetApp 1% 1% 0%
EMC 8% 7% 0%
QlikTech 2% 1% 1%
salesforce.com 2% 1% 1%
Hadoop 5% 4% 1%
Teradata 6% 4% 2%
IBM/Cognos/Netezza/SPSS 25% 21% 4%
Nobigdataprojects 19% 11% 8%

Percentages may not add up due to rounding
Key Takeaways from
the Table Above
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skyrocketed from 1% to 5%, Tableau ballooned from 1% to 4%, and Informatica
doubled from 2% to 4%. Investors should consider whether the technology world is
once again bifurcating itself into a landscape of innovators and dinosaurs as the
volume, velocity and variety of data shift into overdrive

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MOST CRI TI CAL MEGA VENDORS

Exhibit 35 shows Microsoft as the clear leader, followed by Oracle. The material
falloff for Microsoft is difficult to explain because Microsoft spending intentions
remain very solid/improving. However, Microsoft selections for Most Critical
Mega Vendor also surged unexpectedly in our Q4:13 CIO survey, from 33% to
45%, and has now simply returned to a more-normal level.

HP continues to languish near the bottom of the traditional enterprise IT vendors,
and although shares have appreciated recently, they have not seen the same up-
and-to-the-right movements as Microsoft, Oracle or SAP over the last two years.

Apple continues to maintain its place near the bottom, but this is not surprising
given Apples focus on consumer. A movement to mid- to high-single digits would
be a dramatic move for Apple.
Exhibit 35
CRI TI CAL I T MEGA VENDOR

3%
4%
5%
7%
12%
15%
19%
35%
3%
3%
6%
7%
10%
11%
16%
45%
0% 10% 20% 30% 40% 50%
Apple
HewlettPackard
EMC
IBM
Cisco
SAP
Oracle
Microsoft
WhichITMegaVendorWillBeMostCriticalandIndispensabletoyour
Organization'sITEnvironmentintheFuture?
2013 2014
Source: Piper Jaffray CIO Survey, December 2012 and December 2013
Key Takeaways from
the Charts Above
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This chart shows that vendors with large IT budgets (>$50M) see Microsoft as
their most critical mega vendor, followed by SAP, then Oracle.

The next six pages contain detailed responses why each CIO chose their particular vendor.
Exhibit 36
YEAR- OVER- YEAR CHANGE

Vendor
2013
Share
2014
Share
Y/Y
Change
SAP 11% 15% 4%
Oracle 16% 19% 4%
Cisco 10% 12% 2%
HewlettPackard 3% 4% 1%
Apple 3% 3% 0%
IBM 7% 7% 0%
EMC 6% 5% 1%

Exhibit 37
CRI TI CAL I T MEGA VENDOR, FI LTERED FOR BUDGETS >$5 0M

28%
25%
18%
12%
8%
5%
3%
0%
0% 5% 10% 15% 20% 25% 30%
Microsoft
SAP
Oracle
Cisco
IBM
HewlettPackard
EMC
Apple
WhichITMegaVendorWillBeMostCriticalandIndispensabletoyour
Organization'sITEnvironmentintheFuture?(FILTEREDforITBudgest
>$50M)
Key Takeaways from
the Charts Above
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DETAI LED COMMENTS FROM SURVEY RESPONDENTS

Exhibit 38
MI CROSOFT SHOPS ( 5 3 RESPONSES = 35 % OF TOTAL)

Provide support of all major applications in use.
MS is embedded and removing will be very difficult.
We have invested heavily in SQL Server based systems.
All applications we are currently running use this platform.
Major cloud initiative.
We are moving to VMware servers and will purchase more MS products.
Our 50-100K desktops use Windows.
Huge Office 365 project.
All desktop, laptop and server operating systems are Microsoft.
Most our technology environment is built on the Microsoft platform and is critical to our success. Oracle, Cisco, HP and
EMC are also very critical but since I had to pick one, I think it is Microsoft.
Pushing to cloud with Azure.
Developing in .NET and migrating to MS/360.
Use majority of infrastructure as Microsoft.
Its the industry standard.
Reliance on Microsoft-based applications for critical business functions.
For email, office and cloud storage.
Business Partner.
Integrated in many applications.
Overall server landscape and center of core infra.
Server, desktop and remote access infrastructure along with software products.
Foundation.
PC and server is Microsoft.
Our applications are based on Microsoft.
Enhanced collaboration and remote worker capabilities.
We are a Microsoft campus.
We are primarily a Microsoft server and desktop environment.
Shaping the end user front end usage and software as a service.
Is our main infrastructure and operating system provider.
We depend on the MS development stack.
The majority of our workstations are Windows boxes.
Still the foundation of most individual's work.
MS is the core of our development environment and portals.
Prefer not to say.
Microsoft's product set is broad and well entrenched. There is additional value in their products that we will continue to
deploy in the future.
We are a Microsoft shop.

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Exhibit 39
MI CROSOFT SHOPS, CONTI NUED ( 5 3 RESPONSES = 35 % OF TOTAL)

More in-house web deployed systems.
We're a MS shop.
We currently use the Microsoft suite of applications on both server and workstation platforms. Our infrastructure is built
on Microsoft.
MS is our primary network and we are expanding our relationship.
Our ERP provider QAD was not listed.
Windows OS and Office.
SharePoint and integration with Office, Yammer.
Stability and security of O/S and document systems is key, interested in their move to cloud and mobile.
More employees moving to a mobile platform and Apple is the clear leader.
Still the base of most of our solutions.
Use of their business productivity software.
All of our current applications run on MS software. The development of the products continues to be based on MS and is
unlikely to change in the near future.
Migration to Windows 7 and Email transformation.
We have standardized on their software for office applications as well as a their software for development.
Microsoft provides a complete solution for IT infrastructure.
World runs on Windows.
Our applications are being developed in .NET.

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Exhibit 40
ORACLE SHOPS ( 29 RESPONSES = 1 9% OF TOTAL)

Their focus on logistics functionality.
Moving to a new core system with Oracle COTS products.
We have our ERP on Oracle.
Growth.
Future functionality and upgrade paths include Oracle products.
Mission critical ERP/MES implemented on Oracle's e-Business Suite.
Our database is on Oracle.
New ERP initiative.
It is our ERP system.
Oracle is at the heart of our integrated ERP system, imaging, and document workflow solutions.
They currently provide our back office ERP solution with their E-Business Suite of products.
We are running ERP and PLM systems on Oracle, full steam ahead.
Mobility in the hospital.
Financial applications.
We rely upon their ERP and database software.
Since all our critical business apps are on engineered systems & 70% of all our DBs on Oracle.
Business Intelligence.
ERP.
ERP suite of software and Database provider.
We standardize many of our databases with Oracle and really like their Identity management solution.
Runs all our global core applications platform, the replacement cost is too large, with little value.
Their products, services and partnership.
Our core systems run on Oracle.
ERP is based on Oracle DB.
Our electronic medical record uses this database.
Oracle is the basis for our ERP - PeopleSoft. They permeate everything we do.
Oracle is critical to our external technology delivery solutions for servicing our global customer base.
Significant investment in place and expect more in the Exadata/Exalytics space.
Moving all business operations to Oracle EBS.

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Exhibit 41
SAP SHOPS ( 23 RESPONSES = 1 5 % OF TOTAL)

We are an SAP shop and they just bought Hybris which we are implementing.
Large investment which we plan to leverage further.
Both are integrated into our operations and further deployments are consistent with each others strategies.
Cloud Transition.
Used for majority of functions we do, including time keeping, property management, and financial tracking.
We are committed to SAP's ERP platform as the basis for all of our business processes.
Core ERP.
Future core ERP.
It is our core ERP.
Wedded for reasonable future.
Relevancy in market.
Standardizing on SAP globally across 24 business units.
Harmonized ERP landscape.
Our core ERP.
Large investment in this technology and will be used as the primary solution for software replacement initiatives.
SaaS ERP solution provider.
Scale of scope.
Consolidating multiple ERP systems from acquisitions will be key.
Large investment in SAP others are expendable.
SAP is our gold standard for our compliant GMP operations.
Focusing on consolidating ERP solutions across the globe with SAP.
They are the backbone to our environment.

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Exhibit 42
CI SCO SHOPS ( 1 8 RESPONSES = 1 2% OF TOTAL)

Cisco is the lifeblood of our network. For a research laboratory, their reliability and ability to grow with our needs is
critical.
Internet connectivity.
It is the core of my network.
WAN and Remote access.
Our network is critical to the reliability and availability of the healthcare system.
The network is critical to all efforts.
We are upgrading our NW Architecture to support PCI-DSS compliance and will be using their products to provide
virtual separate nodes for security.
All network services provided by Cisco hardware.
Disaster recovery/ and Voice.
Convergence - moving to Cisco for Networking, Servers and Phones.
Foundation for our network and internal cloud.
Proven reliability and performance for our infrastructure.
Connectivity across platforms.
The network has become the most important piece in our environment...and the need for ubiquitous access to our
systems, along with the continued integration to mobile.
Cisco is our network and communications company. Without either, we're dead in the water.
Converged infrastructure capabilities.
We use Hyperion, and intend to use other software for business value add.
Undergoing a contact center transformation project.

Exhibit 43
I BM SHOPS ( 1 0 RESPONSES = 7% OF TOTAL)

We are moving our full data centers to IBM, a reverse from HP.
Preferred Strategic Partner.
Core to our ERP global IT plans.
Key servers and OS AIX.
It is our corporate backbone for the past 30 years.
Strong relationship and huge spending with them.
Strong partnership both on hardware (iSeries platform) and services (implementing Fusion Middleware). Also looking at
IBM for a potential JD Edwards EnterpriseOne implementation.
Large Customer Service implementation being delivered in 2014.
Continue to have largest installed footprint inside company.
Key partner for CPI initiatives.

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Exhibit 44
EMC SHOPS ( 7 RESPONSES = 5 % OF TOTAL)

Increasing demands on storage and disaster recovery.
Just purchased vBlock technology.
Data centres are fully virtualised and so a reliable storage vendor is essential.
We utilize their VM tools exclusively.
VMWare.
Between EMC and their VMWare subsidiary, our infrastructure is almost wholly dependent.

Exhibit 45
HP SHOPS ( 6 RESPONSES = 4% OF TOTAL)

Key projects underway with HP.
Major partner in hardware refresh / upgrade.
HP hardware for private cloud build out.
We have signed an enterprise data center infrastructure agreement with HP.
Entered into enterprise data center management contract with HP.
They are our current Infrastructure and Application outsource partner.

Exhibit 46
APPLE SHOPS ( 4 RESPONSES = 3% OF TOTAL)

Mobility adoption in sales areas.
We're beginning to deploy iOS apps that are key to both our products and our internal IT.
Much of our mobile strategy is based on iOS devices.
Continued evolution of mobile devices.

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SURVEY DI FFERENTI ATI ON AND BACKGROUND AND
LI MI TATI ONS

This survey was conducted primarily in December 2013.

We believe our survey is unique due to its scale and its focus on larger organizations. Input
from 150 CIOs distributed across 20 industry sectors is included. Dozens of very large
household names participated in the survey, responsible for at least $91B in annual IT
spending, or $607M on average (exhibit below). In our experience, many CIO surveys focus
on smaller firms, because small-company CIOs are easier to reach. However, an IT budget
of $1B moves the needle 100x more than an IT budget of $10M, and thus large company
input is required to predict aggregate IT spending.

We surveyed 150 CIOs with an emphasis on large and mid-sized organizations. The CIOs
surveyed control at least $91B in annual IT spend, spanning at least 20 industry sectors. We
believe the survey is useful due to its scale and focus on larger organizations, but we note at
least one limitation: 1) the survey is more weighted toward North American organizations,
with roughly 11% of respondents outside the Americas.

Our CIO Surveys
Differentiation
Survey Background
and Limitations
Exhibit 47
SI ZE OF I T BUDGET

2.7%
4.7%
13.3%
9.3%
30.0%
16.0%
12.7%
2.7%
4.0%
2.0%
2.7%
0% 5% 10% 15% 20% 25% 30% 35%
<$100K
$100Kto$1million
$1to$5million
$5to$10million
$10to$50million
$50to$250million
$250millionto$1Billion
$1Billionto$2Billion
>$8Billion
Whatisthesizeofyourorganization'sAnnualITBudget,inUS
Dollars?
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Exhibit 48
GEOGRAPHI C LOCATI ON

89.3%
4.7%
6.0%
0% 20% 40% 60% 80% 100%
Americas
Europe/MiddleEast/Africa
AsiaPacific
Wheredoesyourorganizationreside?
Exhibit 49
I NDUSTRY SECTORS

11%
9%
9%
8%
8%
7%
7%
7%
7%
6%
5%
3%
3%
3%
1%
1%
1%
1%
1%
1%
1%
0% 2% 4% 6% 8% 10% 12%
HealthSciences/HealthCare
FinancialServices
Retail
PublicSector/Government
Other
Insurance
HighTechnology
IndustrialManufacturing
EducationandResearch
TravelandTransportation
RealEstate,Engineeringand/orConstruction
Automotive
AerospaceandDefense
MediaandEntertainment
OilandGas
ProfessionalServices
Utilities
ConsumerGoods
Communications
Chemicals
NaturalResources
InwhatIndustrySectordoesyourorganizationoperate?
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LI MI TATI ONS


of $1B moves the needle 100x more than an IT budget of $10M, and thus large company
input is required to predict aggregate IT spending.

believe the survey is useful due to its scale and focus on larger organizations, but we note at
least one limitation: 1) the survey is more weighted toward North American organizations,
with roughly 11% of respondents outside the Americas.

Our CIO Surveys
Differentiation
Survey Background
and Limitations
Exhibit 47
SI ZE OF I T BUDGET

2.7%
4.7%
13.3%
9.3%
30.0%
16.0%
12.7%
2.7%
4.0%
2.0%
2.7%
0% 5% 10% 15% 20% 25% 30% 35%
<$100K
$100Kto$1million
$1to$5million
$5to$10million
$10to$50million
$50to$250million
$250millionto$1Billion
>$8Billion
Whatisthesizeofyourorganization'sAnnualITBudget,inUS
Dollars?
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Exhibit 48

89.3%
4.7%
6.0%
0% 20% 40% 60% 80% 100%
Americas
Europe/MiddleEast/Africa
AsiaPacific
Wheredoesyourorganizationreside?
Exhibit 49
I NDUSTRY SECTORS

11%
9%
9%
8%
8%
7%
7%
7%
7%
6%
5%
3%
3%
3%
1%
1%
1%
1%
1%
1%
1%
0% 2% 4% 6% 8% 10% 12%
HealthSciences/HealthCare
FinancialServices
Retail
PublicSector/Government
Other
Insurance
HighTechnology
IndustrialManufacturing
EducationandResearch
TravelandTransportation
RealEstate,Engineeringand/orConstruction
Automotive
AerospaceandDefense
MediaandEntertainment
OilandGas
ProfessionalServices
Utilities
ConsumerGoods
Communications
Chemicals
NaturalResources
InwhatIndustrySectordoesyourorganizationoperate?
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Oc t o b e r 1 0 , 2 0 1 3
Enterprise Software
Revised: HR Tech Conference Positive for CSOD, WDAY
Mark R. Murphy
Sr. Research Analyst, Piper Jaffray & Co.
415 616-1705, mark.r.murphy@pjc.com
Pinjalim Bora
Research Analyst, Piper Jaffray & Co.
415 616-1703, pinjalim.x.bora@pjc.com
Matthew J. Coss
415 616-1706, matthew.j.coss@pjc.com
Related Companies: Share Price:
CSOD 46.12
WDAY 77.42
RI SKS
Economic fluctuations, competition,
technological change.
CONCLUSI ON
We attended the HR Technology conference in Las Vegas this week. Key Takeaways:
1) Workday stole the show in many regards, with a large-scale HR survey suggesting
WDAY adoption could skyrocket from 5% today to 12% in twelve months -
an unparalleled velocity across the survey results unveiled by HR consulting firm
CedarCrestone; 2) post our meetings with Cornerstone Ondemand management and
other industry contacts, we walk away confident that CSOD will solidly hold its
glidepath as it is closing larger deals and sees no slowdown in global demand according
to partners/resellers; 3) Consistent with our prior commentary, we believe Ultimate
Software and SAP/SuccessFactors continue to position themselves for share gains, while
the monstrous installed bases of ADP and Ceridian seem to be gradually attriting.
Note: Comment about ADP and Ceridian installed bases has been corrected
Workday Steals the Show. In our view, the profile and aura of Workday in the human
resources industry continues to bloom. First, the Workday session packed roughly 400
people into the room, compared to 30-50 attendees in many of the other sessions.
Second, the company finagled an onstage performance for its in-house rock band,
"Wrokday" in front of a 7,000-person audience; laugh if you want, but it was a PR coup
in front of an audience for which the largest chunk was comprised of companies with
>25,000 employees. Third, industry consultants told us that "for companies looking
to transform their HR or make a real platform change, it's really primarily Workday
that they're looking at" and "companies are accepting whatever Workday develops...
the more products they develop, companies are just going to adopt it."; and 4) as
mentioned above, HR consulting firm CedarCrestone unveiled for the first time its
2013-2014 HR Systems survey of 1,266 HR professionals, suggesting WDAY adoption
could skyrocket from 5% today to 12% in twelve months. Finally, we met with
Workday founder Dave Duffield during the conference, and while it is not clear that
we and others can justify the current valuation premium in WDAY shares (currently
26.5 EV/FTM Revs), we do think WDAY's Payroll attach rate has surged to roughly
80% for new clients, and the company feels very good about where it stands with its
Financials applications, particularly for services firms.
Cornerstone Closing Larger Deals. We met with several of CSOD's partner firms as
well as CEO Adam Miller and CFO Perry Wallack during the conference. While all of
our discussions were high-level and longer term in nature, we walk away confident that
CSOD will hold onto its strong glidepath (consistent with our forecast) and we think
it will remain one of the fastest-growing SaaS providers for quite some time. Services
partners see CSOD throwing off a solid wake of services backlog.It is clear that the
company is closing larger transactions. CSOD did 120 demos at its booth, roughly
double from a year ago. It is actively and successfully selling its new Recruiting product
today. Partners don't think Cornerstone has seen any slowdown in global demand, and
don't think the company's enviable growth trajectory should slow materially (say, for
example, to 30% against normal comps) anytime soon, provided that it continues to
execute and is able to show some traction with its Recruiting products and in certain
targeted geographies, which seem like good bets.*** CONTINUED On Page 2***
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Oc t o b e r 1 0 , 2 0 1 3
Cornerstone Closing Larger Deals.
(Contd.)
While we acknowledge Q3 as a uniquely difficult billings comparison (against 78% growth
a year ago) and investors can easily sense recent de-risking in the ultra-high-multiple
SaaS stocks in the face of the US government shutdown and potential default, we thinks
Cornerstone is executing well and will remain one of the fastest-growing SaaS vendors.
Cloud Casting a Shadow Over
Traditional HR Software
The imprint of the Cloud on the HR software market becomes more powerful by the day.
For instance, the survey data unveiled by CedarCrestone showed that Licensed On-Premise
technologies are being used by 52% of respondents today, and shockingly will plummet to
38% in 12 months. Meanwhile, Subscription-based SaaS adoption will skyrocket from 20%
today to 33% in 12 months. Why? The SaaS deployment model takes 1/3rd as much HR and
IT staff to support it, and SaaS HRMS deployments take 8.4 months versus 14.6 months
for Licensed On Premise deployments. Note that these findings are directionally consistent
with our survey of 125 HRIS managers conducted in March 2012, which showed that 59% of
organizations would consider using Cloud/SaaS technologies in the next few years and that
Workday's market share would roughly quintuple from 3.2% to 17.6% in a three to five year
period.
Rating, PT & Risks
Workday (WDAY): Neutral with a $68PT (19x EV/CY14E revenue of $678.5M + net cash
of $836.8M and 201.2M s/o). Risks include Outages, security breaches, competition and
economic fluctuations.
Cornerstone OnDemand (CSOD): Overweight with a $57PT (13.5x EV/2014E revenue of

$242.1M + $75.1m in Net Cash and 59.1M s/o). Risks include Outages, security breaches,
competition and economic fluctuations
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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

C I O S UR V E Y , MI D- Y E A R 2 0 1 3

Pinpointing Public Cloud Trajectory and Impact to Legacy
Infrastructure

We surveyed 141 CIOs of large and mid-sized organizations responsible for over $111
billion in annual IT spending to compile a clear view of the software landscape, and
winning and losing vendors for 2013. We believe our survey merits critical consideration
due to its scale and focus on larger organizations. Bottom line: Workloads in the cloud are
expected to grow at a 44% CAGR for the next five years, while on-premise workloads are
expected to grow at only 8.9% over the same period. This means that the mix of
workloads in the cloud is expected to grow from 9.7% today to 30.2%, and names that
benefit most from this shift are likely to offer the best sustainable growth trajectories.

Key Takeaways
Public Cloud Trajectory, Impact to Legacy Infrastructure: CIOs provide detailed
examples of applications they have migrated from on-premise to the Cloud, which
vendors won and lost, and the resultant ROI of Cloud adoption. Key Points: 1) today,
9.7% of all workloads are being run out of public clouds; 2) this mix will more than
triple to 30.2% in five years; 3) the feedback foreshadows 44.0% annual growth in
Cloud workloads versus only 8.9% for on-premise workloads; and 4) assuming annual
pricing deflation of 5-10%, this means Cloud revenue could grow in the mid-30s and on-
premise revenue could stagnate at flattish to GDP-level growth rates.

IBM/Teradata Being Replaced By Hadoop/ORCL/AMZN: We believe IBM and
Teradata will be replaced with Hadoop, Oracle, and Amazon Web Services in large
enterprises. While the database industry maintains a "Big 3" appearance consisting of
Oracle, Microsoft and IBM, we believe the data suggests IBM could get knocked out of
the ring as Hadoop, Amazon, and SAP HANA strengthen their grip. Finally, Oracle held
steady overall and actually strengthened its #1 position within large enterprise accounts.

salesforce.com Repeats as #1 Cloud MVP: We asked CIOs to name the SaaS/Cloud
Computing vendors that are impressing them with their technology, vision, and value-
add. Salesforce.com retained its No. 1 ranking, mentioned by 31% of CIOs, followed by
Microsoft at No. 2, Amazon.com at No. 3 and Google at No. 4. When evaluating y/y
changes in CIO mindshare, positive standouts include VMware (+7 points) and
Workday (+4 points), and negative standouts include Google (-11 points but still ranked
in the top 4), IBM (-6 points), HP (-4 points) and ADP (-4 points).

Risks: Economic fluctuations, competition, geographic variances, vertical concentration.

October 2013
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We surveyed 141 CIOs of large and mid-sized organizations responsible for more than
$111 Billion in annual IT spending and asked them to quantify their 2013 spending
plans.

As of mid-year 2013, budgets are now set at +3.1% this year, a downtick from +4.0%
six months prior, but the largest IT budgets actually showed modest strengthening,
which we think foreshadows a somewhat stable tone for second-half spending;

Once again our survey data has bifurcated, but this time in a manner that, arguably,
foreshadows a decent or more predictable pattern for 2H spending: aggregate IT
budget plans for 2013 moderated from +4.0% to +3.1%, but IT budgets >$250M in
size firmed up slightly from +0.9% to +1.5%. While certainly not a momentous move
and not off to the races, this marks a subtle directional improvement for the largest IT
organizations which comprise a large majority of the total IT budget dollars
represented in our survey. Note that the U.S. government shutdown in October could
create a subsequent headwind on spending.

IT Spending Aggressiveness remains highly consistent with prior surveys.

Exhibit 1
I T BUDGET OUTLOOK, FI LTERED BY BUDGET SI ZE

Q4:11 Q2:12 Q4:12 Q2:13
All Respondents +3.1% +2.6% +4.0% +3.1%
Sample Size 109 105 135 141
IT Budgets >$50M +3.0% +1.2% +2.8% +2.3%
Sample Size 38 42 52 56
IT Budgets >$250M +2.0% +1.4% +0.9% +1.5%
Sample Size 21 27 30 36
IT Spending
Aggressiveness (1-10) 6.1 6.1 6.3 6.2

Key Takeaways from
the Chart Above
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We asked 141 CIOs to consider 18 key software vendors and quantify their expected
spending trend for each vendor in 2013. The percentage of CIOs already using these
penetrated. Growth should be considered along with penetration: Workday (WDAY)
enjoys low penetration and the strongest spending growth, while VMware (VMW) and
Microsoft (MSFT) are deeply penetrated.

Vendors with the strongest feedback (i.e., best mix of installed base spending increases
and runway for penetration) include ServiceNow (NOW), Workday (WDAY), and
salesforce.com (CRM). The weakest spending plans for 2013 include Informatica
(INFA), CA, and Infor.

Consistent with our prior surveys, the strongest spending increases are being directed
to Cloud and Cloud infrastructure providers, underscoring the long-term attractiveness
of high-quality investments in this space.

Exhibit 2
PROJ ECTED I NSTALLE D BASE SPENDI NG VS. MARKET PENETRATI ON

ServiceNow
Workday
salesforce.com VMware
Microsoft
Citrix
Oracle
Red Hat
NetSuite
SAP
IBM Software
Nuance
Symantec
Concur
Tibco
Infor
CA Technologies
Informatica
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
P
r
o
j
e
c
t
e
d
I
n
s
t
a
l
l
e
d

B
a
s
e

S
p
e
n
d
i
n
g

G
r
o
w
t
h
Market Penetration

Key Takeaways from
the Chart Above
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The chart above compares the projected installed base spending growth from our
latest survey (June 2013) to our survey from December 2012.

Vendors with the strongest planned installed base spending include ServiceNow
(NOW), Workday (WDAY), salesforce.com (CRM) and VMware (VMW). The
weakest spending plans include Informatica (INFA), CA and Infor.

Our latest survey results, as it relates to projected installed base spending growth, are
consistent with our survey from six months and one year ago, in that spending is being

Exhibit 3
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH ( DEC 201 2 VS J UNE 201 3 )

-1.8%
-1.4%
-0.7%
0.0%
0.1%
0.2%
0.7%
0.8%
0.8%
0.8%
1.4%
1.4%
1.6%
1.9%
3.1%
3.1%
3.4%
5.0%
0.3%
-1.7%
-2.0%
-0.3%
-0.1%
-1.3%
0.9%
-0.9%
1.8%
-0.8%
0.4%
1.0%
0.9%
2.1%
3.7%
4.7%
2.9%
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Informatica
CA Technologies
Infor
Tibco
Concur
Symantec
Nuance
IBM Software
SAP
NetSuite
Red Hat
Oracle
Citrix
Microsoft
VMware
salesforce.com
Workday
ServiceNow
Projected 2013 Installed base Spending Growth (Dec 2012) Projected 2H 2013 Installed base Spending Growth (June 2013)

Key Takeaways from
the Chart Above
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This table provides our summary of the notable differences in the data between our
June 2013 survey and our December 2012 survey.

ServiceNow (NOW) is noteworthy in that it is lightly penetrated into only 18% of
organizations we surveyed and showed a strong improvement in installed-base
spending plans, from +2.9% six months ago to +5.0% today.

Despite a small downtick, Workday (WDAY) still ranks among the best, with 11%
penetration and +3.4% installed-base spending plans.

salesforce.com (CRM) grabbed our attention: while it is not overly penetrated at 50%,
it shows the third-strongest installed-base spending plans at +3.1%, a noticeable
improvement from +1.7% six months ago.

Conversely Infor, CA, and Informatica (INFA) performed poorly.

Overall, we believe the underlying message from the data is that SaaS, cloud and cloud
infrastructure companies with exposure to key growth vectors are positioned to benefit
from an increase in CIO mindshare and grow as a percentage of IT budgets.

Exhibit 4
OBSERVATI ONS ON CHANGES FROM DEC 201 2 CI O SURVEY

Vendors
Market
Penetration
Projected
Installed
Base
Spending
Growth Observations on Changes Since Dec 2012 CIO Survey
ServiceNow 18.4% 5.0% Strong improvement from +2.9% six months ago
Workday 11.3% 3.4% Downtick from +4.7% six months ago, but still one of the best
salesforce.com 49.6% 3.1% Noticeable improvement from +1.7% six months ago
VMware 92.2% 3.1% Very minor downtick from +3.7% six months ago, but still robust
Microsoft 99.3% 1.9% Very minor downtick from +2.1% six months ago, but still robust
Citrix 81.6% 1.6% Uptick from +0.9% six months ago
Oracle 83.0% 1.4% Minor uptick from +1.0% six months ago
Red Hat 50.4% 1.4% Improvement from +0.4% six months ago
NetSuite 12.8% 0.8% Improvement from -0.8% six months ago
SAP 44.7% 0.8% Degradation from +1.8% six months ago
IBM Software 65.2% 0.8% Improvement from -0.9% six months ago
Nuance 16.3% 0.7% Consistent with +0.7% six months ago
Symantec 70.2% 0.2% Stabilized from -1.3% six months ago
Concur 31.2% 0.1% Fairly consistent with -0.1% six months ago
Tibco 9.2% 0.0% Fairly consistent with -0.3% six months ago
Infor 15.6% -0.7% Improvement from -2% six months ago, but still a laggard
CA Technologies 36.2% -1.4% Remains weak, consistent with -1.7% six months ago
Informatica 23.4% -1.8% Noticeable degradation from +0.3% six months ago

Key Takeaways from
the Chart Above
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The chart above provides a rapid way to visually determine the direction of spending
by CIOs on each of the vendors we asked the CIOs to evaluate.

However the data is dissected, the message is clear IT spending is being

Exhibit 5
DI RECTI ONAL SPENDI NG PLANS PER VENDOR

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
NetSuite
Informatica
CA Technologies
Tibco
Concur
Infor
Symantec
Nuance
Red Hat
IBM Software
SAP
Citrix
Oracle
Workday
salesforce.com
Microsoft
VMware
ServiceNow
Increase Spending Maintain Spending Reduce Spending

Key Takeaways from
the Chart Above
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The chart above shows the raw data and methodology behind determining market
penetration and projected installed base spending growth. Note that market
penetration, and thus the installed-base sample size, varies widely from vendor to
vendor.
Exhibit 6
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH

Vendors
We Do Not
/ Will Not
Use This
Vendor
Response
REDUCE
Spending
By >10%
REDUCE
Spending
By 0-10%
MAINTAIN
Consistent
Spending
INCREASE
Spending by
0-10%
INCREASE
Spending by
>10%
Market
Penetration
Installed
Base (# of
Respondent)
Projected
Installed
Base
Spending
Growth
ServiceNow 82% 0% 0% 9% 6% 4% 18% 26 5%
Workday 89% 0% 0% 6% 4% 1% 11% 16 3%
salesforce.com 50% 2% 2% 23% 14% 9% 50% 70 3%
VMware 8% 2% 4% 39% 38% 10% 92% 130 3%
Microsoft 1% 6% 7% 37% 41% 8% 99% 140 2%
Citrix 18% 4% 2% 48% 22% 6% 82% 115 2%
Oracle 17% 3% 10% 41% 23% 6% 83% 117 1%
Red Hat 50% 2% 1% 33% 9% 4% 50% 71 1%
NetSuite 87% 1% 0% 11% 0% 1% 13% 18 1%
SAP 55% 4% 1% 25% 13% 2% 45% 63 1%
IBM Software 35% 4% 5% 37% 17% 3% 65% 92 1%
Nuance 84% 1% 1% 10% 4% 1% 16% 23 1%
Symantec 30% 4% 6% 43% 17% 1% 70% 99 0%
Concur 69% 1% 2% 23% 5% 0% 31% 44 0%
Tibco 91% 0% 1% 6% 1% 0% 9% 13 0%
Infor 84% 2% 1% 9% 3% 1% 16% 22 -1%
CA Technologies 64% 4% 4% 23% 5% 0% 36% 51 -1%
Informatica 77% 3% 4% 13% 2% 1% 23% 33 -2%

Key Takeaways from
the Chart Above
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WORKLOADS I N THE CLOUD

A critical element of our CIO survey is the discovery of CIO intentions related to workload
growth, the pace at which workloads will move to the public cloud, and the resulting mix
shift in workloads running on-premise and in the public cloud. The following charts display
the magnitude of the movement of workloads to the public cloud from on-premise
company data centers.

Based on the responses of 141 CIOs, the current share of workloads running in the
public cloud is 9.7% and is expected to surge to 30.2% in five years. We also asked
CIOs at what annual rate their TOTAL volume of workloads (both cloud and on-
premise) will grow in the next five years, and on average they foresee 14.7% annual
growth. Triangulating off these three data points, we see a 44% CAGR for public
cloud workloads.

On-premise workloads are expected to decline from 90.3% of total workloads to
69.8% of workloads over the same period, representing an 8.9% CAGR when
factoring in 14.7% annual growth in TOTAL workloads.

Exhibit 7
MI X SHI FT OF ON- PREMI SE AND PUBLI C CLOUD WORKLOADS
9.7%
13.8%
17.9%
22.0%
26.1%
30.2%
90.3%
86.2%
82.1%
78.0%
73.9%
69.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Today In 1 Year In 2 Years In 3 Years In 4 Years In 5 Years
% Public Cloud Workloads % On-Premise Workloads

Key Takeaways from
the Chart Above
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Exhibit 8
SI NGLE COMPANY REPRESENTATI ON SHARE SHI FT OF ON- PREMI SE
AND PUBLI C CLOUD WORKLOADS
Assuming 100 Total Workloads Today

10
16
23
33
45
60
90
99
108
118
128
139
0
20
40
60
80
100
120
140
160
180
200
Cloud Workloads On-Premise Workloads

Exhibit 9
PUBLI C CLOUD WORKLOAD GROWTH
Illustration for a company with 100 Total Workloads Today

10
16
23
33
45
60
0
10
20
30
40
50
60
70
Cloud Workloads

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The chart above and on the previous page show the projected growth of workloads for
a company that has 100 workloads (public cloud + on-premise) today.

If a company has 100 workloads today, 10 workloads are in the public cloud, and in
five years that same company will have 199 workloads (public cloud + on-premise), 60
of which will be in the public cloud.

The 44% CAGR for workloads in the public cloud is nearly five times the CAGR of
on-premise workloads.

Obviously, the typical company has vastly more than 100 workloads; we use this
number to illustrate the architectural shift in simple terms.

Exhibit 10
ON- PREMI SE WORKLOAD GROWTH
Illustration for a company with 100 Total Workloads Today
90
99
108
118
128
139
0
20
40
60
80
100
120
140
160
On-Premise Workloads

Key Takeaways from
the Chart Above
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WORKLOADS I N THE CLOUD, RAW RESPONSE
DI STRI BUTI ON

We asked 141 CIOs to estimate the percentage of their current workloads in public clouds,
what percentage of their workloads would move to the public cloud in the next five years,
and how fast their TOTAL workloads (both cloud and on-premise) would grow during the
next five years.

The chart above clearly shows the mix of workloads in public clouds remains in its
early stage. On a blended basis, 9.7% of workloads are currently in public clouds. We
believe this shows the tremendous runway and threat public clouds pose to on premise
data center vendors.
Exhibit 11
WORKLOADS I N THE CLOUD
0.0%
0.0%
0.0%
0.0%
1.4%
0.0%
5.0%
9.2%
12.8%
22.7%
48.9%
0% 10% 20% 30% 40% 50% 60%
90-100%
80-90%
70-80%
60-70%
50-60%
40-50%
30-40%
20-30%
10-20%
5-10%
0-5%
Please estimate what percent of your organization's workloads
are CURRENTLY being run out of a PUBLIC CLOUD (e.g.,
salesforce.com, Amazon, Google, Workday, etc.)?

Key Takeaways from
the Chart Above
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Exhibit 12
WORKLOADS I N THE CLOUD, 5 YEARS FROM NOW
0.7%
0.7%
2.8%
2.8%
12.8%
12.8%
11.3%
21.3%
11.3%
11.3%
12.1%
0% 5% 10% 15% 20% 25%
90-100%
80-90%
70-80%
60-70%
50-60%
40-50%
30-40%
20-30%
10-20%
5-10%
0-5%
FIVE YEARS FROM NOW, please estimate what percent of your
organization's workloads will be running out of a PUBLIC
CLOUD (e.g., salesforce.com, Amazon, Google, Workday, etc.)?

Exhibit 13
WORKLOAD GROWTH RATE, NEXT 5 YEARS
1.4%
0.7%
2.8%
19.9%
29.8%
29.1%
12.8%
2.8%
0.7%
0.0%
0.0%
0% 5% 10% 15% 20% 25% 30% 35%
Grow >80% Annually
Grow 50-80% Annually
Grow 5-10% Annually
Grow 0-5% Annually
Remain the Same
Decline 0-5% Annually
Decline 5-10% Annually
Decline >10% Annually
At what ANNUAL RATE do you expect your organization's TOTAL
VOLUME OF WORKLOADS to grow in the NEXT 5 YEARS?

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The chart in Exhibit 12 shows that in five years CIOs expect to have 30.2% of their
workloads running in the public cloud.

The chart in Exhibit 13 shows TOTAL workload growth, with a 14.7% annual
workload growth rate over the next five years.

One of the determining factors of industry revenue in conjunction with workload
growth is a price deflator. With no decline in pricing, one could expect industry
revenue to grow consistently with workload growth, but we anticipate that the cost of
one workload will decline at some undetermined rate each year. Prices tend to drop
over time in technology markets, whether its the price paid for a gigabyte of storage,
or for a 60 LCD screen, or the price Amazon charges for a dedicated EC2 instance.

We have established that TOTAL workloads will grow at 14.7% for five years, but
the on-premise portion will shrink, resulting in only 8.9% annual growth for on-
premise workloads. As we overlay an assumed range of price deflation, we see that
REVENUE growth for the on-premise segment should be absolutely minimal.
Key Takeaways from
the Charts Above
Exhibit 14
WORKLOAD GROWTH AND PRI CE DECLI NES OVER 5 YEARS

0.0 6% 7% 8% 9% 10% 11% 12%
-10% -4% -3% -2% -1% 0% 1% 2%
-9% -3% -2% -1% 0% 1% 2% 3%
-8% -2% -1% 0% 1% 2% 3% 4%
-7% -1% 0% 1% 2% 3% 4% 5%
-6% 0% 1% 2% 3% 4% 5% 6%
-5% 1% 2% 3% 4% 5% 6% 7%
-4% 2% 3% 4% 5% 6% 7% 8%
A
n
n
u
a
l

P
r
i
c
e

D
e
c
l
i
n
e
Annual On-Premise Workload Growth

Key Takeaways from
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WHI CH VENDORS ARE THREATENED BY THE CLOUD?

We posed the following question to 141 CIOs:

We are trying to understand the impact of what we call "Cloud Deflation" - the idea that
your IT cost might actually DECREASE as you move an on-premise application /
infrastructure to the Cloud. Please provide a detailed example of an application which your
organization has moved from on-premise to a Public Cloud (e.g., salesforce.com, Amazon,
Google, Workday, etc.). Please think through the impact to the underlying infrastructure
(e.g., database & middleware software, server hardware, PCs, storage, networking/routing
gear, etc.) provided by legacy incumbent on-premise IT vendors. 1) What
application/infrastructure did you move from on-premise to the Cloud, and to which Cloud
vendor did you move it? 2) Please name specific vendors/products which have been
eliminated/reduced by this process, and 3) Please try to quantify by how much your
aggregate cost increased or decreased by moving from on-premise to a Public Cloud
provider.

The chart above shows the public cloud vendors mentioned most frequently as
REPLACING on-premise vendors.
Exhibit 15
CLOUD WI NNERS
1%
1%
1%
1%
3%
4%
6%
6%
9%
15%
21%
0% 5% 10% 15% 20% 25%
Ariba
Workday
Oracle (Taleo)
Concur
SAP (SuccessFactors/ ByDesign)
Cisco (WebEx)
Google (Enterprise Email)
ServiceNow
Amazon Web Services
Microsoft (Office 365, Azure)
Salesforce.com
CIOs have moved on-premise applications / infrastructure to the
following Cloud vendors

Key Takeaways from
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The chart above shows vendors mentioned most frequently as BEING REPLACED
due to the movement of workloads into public clouds.

The following exhibit (Exhibit 17) shows summarized responses of which applications or
areas of infrastructure were moved to the cloud, which vendor or vendors is replacing on-
premise vendors, which vendors are being replacing, and additional detailed commentary.
Exhibit 16
CLOUD LOSERS
1%
1%
3%
3%
3%
3%
4%
6%
13%
16%
0% 5% 10% 15% 20%
Sage
CA
VMware
SAP
EMC
BMC
HP
Oracle (Siebel, Financials)
Microsoft (Exchange)
In-house
Please name specific vendors/products which have been
eliminated/reduced by this process

Key Takeaways from
the Chart Above
Summarized
Responses
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Exhibit 17
SUMMARI ZED RESPONSES

Whatappl i cati on/ i nfrastructure
di dyoumovefromon-premi se
totheCl oud,
Towhi chCl oudvendordi d
youmovei t?
Pl easenamespeci fi c
vendors/ productswhi chhave
beenel i mi nated/ reducedby
thi sprocess.
Pl easetrytoquanti fybyhowmuchyouraggregatecosti ncreasedor
decreasedbymovi ngfromon-premi setoaPubl i cCl oudprovi der.
Activeinternalhostedcloud Cisco(cloud) EMCstorageandVMware
Wearereducingourservercountfrom5000to500andcentralizingserversfrom
outlyingdatacenters.Weareclosingseveraldatacentersaswemoveserversto
ourcentraldatacenter.Weexpecta25%decreasebyachievinga10:1virtualization
ratio.
ITServicemanagementsolution
ITRP(ITServiceManagement
solutionrunonAmazonAWS)
BMCServiceDeskExpress
Theneteffectwasthatwemaintainedthespendbutdramaticallyimprovedtheuser
experiencethroughbetterUIdesignandfasterperformanceandenhancedthe
functionalityaboveandbeyondwhatwewereabletodobefore.Inalikeforlike
case,Iwouldestimatethatourcostsavingwasabout20%.
HRapps ADP
In-houseappsrelatedto
HR/Payrollthatwereformerlybeing
providedbyCeridian
Aggregatecostdecreasedapproximately10%whenyoufactorinhardware,IT
support&licensing.
PatientDataManagementSolution Amazon
Internallyhostedandmanaged
application
Around20to30%decreased.
AmazonEC2 In-houseSystem
Overfiveyearsacrossdeployment,weexpecttotalexpenditures(includingITstaff
reduction)tobereducedby25-40%,thoughIexpectagreaterrateofsavingsasstaff
becomemorefamiliarandefficientwithEC2deployments.
ProcurementSolution Ariba Ariba
Savedseveralhundredthousanddollarsinhostingcostsbygettingtonewmarkets
faster.Wedrovecompliancewithourprocurementpoliciessavingover$10M
annually
Electronicmedicalrecordssystem Cerner In-housesystem
Byhavinganexternalvendorhosttheserviceourcostsincreasedaproximately
$300k/yearbutwehaveaccesstosupportstaffthathaveaskillsetthatishardtofind.
Conferencingsolution Cisco(hosted) Cisco(WebEx)
Althoughthiswillnotdirectlydecreasecost,webelieveitwillavoidcostincreasesas
ourdemandforlarger,infrequentconferencesisincreasingandwedon'twantto
havethecosttohaveallthatcapacityin-houseallthetime.
Emailservices
DISA(DefenseInformation
SystemsAgency)cloud
Microsoft(ExchangeServerand
clientlicensesfor650users)
Byreplacingourhardwaresupportandsoftwarelicensesforemailfor600+users,we
haveeliminatedourneedtoreplace/maintainserverhardware/storage.Theservers
wereduetobereplacedatapproximately$25kx2for$50k.Andthestoragefor
theseserverswouldnotneedtobereplacedeitherat$50kfora25-50TBsolution.
Lastly,myserveradminsarenolongerrequiredtomanage/maintain/backupthese
servers,sotheyarefreeduptomanage/maintaintheserverswestillhouse.Thats
closeto4-5hoursx2staffperweek,foratotalcostsavingsof$500/week.
Emailservices Google In-houseSystem
Weeliminatedapproximately$200,000inhardwareandlaborrefreshcostsevery3
year.ThisinvolvedtheupdateofequipmentandOSversionin10offices.Weturned
themanagementofe-mailfromatechnicalnetworktoadministrativeposition
generatingasavingofapproximately$60,000peryear.Saves88%usingcloud
basedstoragecomparedtoin-housestorage.Movingtoasubscriptionmodel
savedthecompanyapproximate$250kinsoftwarelicensingcosts.
Emailservices Google
ThetransferofallstudentemailtoGoogleresultedinthemovementof11,000
mailboxesallowingtheretiralof15onpremiseserversandstorage.
Emailservices GoogleApps Microsoft(ExchangeServer)
ThismoveallowedustoreduceourannualITspendbymorethan$1millionper
year.
Emailservices Google'senterpriseGmail In-housesupportedonLotusNotes
Itreducedannualoperatingcostsbyover$500k(weeliminatedIBMservers,storage,
IBMSoftwaremaintenancecosts,andpeople).Atthesametimeproductivitygreatly
increasedonover2500endusers.
CallCenterApplication Salesforce.com
Ourtimetoimplementis65%to75%lessthanifweusedtraditionaltechnologiesof
standinguptheservers,switchesanddatabasesolutions.Further,outprojections
usingthePubliccloudsolutionthroughSalesforceareforanoverallcostreductionin
applicationcostofmorethan65%.Further,wewillnotbefacedwithmanagingthe
constantstreamofupgradesrequiredwithsoftwarechangeseachyear,asthe
modulesupgradethreetimesayearatnoadditionalcost.
CustomerRelationship
Management
Salesforce.com In-houseSystem
Ourcostshaveincreased60%onthatapplicationareagiventhedualsystems;
however,weexpecttoseecostsuponly15%afterthelegacysystemisretiredand
onceSalesforce.comiscompletelyrolledout.
Management
Salesforce.com Saleslogix,Oracle(Siebel)
Eliminatedmilliondollarsincosts.Wehad6differentSalesforceAutomation
Vendors.Weeliminatedthehostingcostsassociatedwiththeapplicationaswellas
increasedadoptionfivefold.Achievedatleasta50%reductionincost
AllTier1Applicationstoa
managedservicesprovider
datacenter
ScaleMatrix
ReductioninCapExwithaslightincreaseinOpExalongwiththeabilitytoscaleupor
downwithverylittletimeandnointernaleffort.Wenowrelyonthecollectiveexpertise
ofdatacenterprofessionalsversushiringwhichledtoareductioninstaff.Opportunity
costsavingsfaroutweighanyhardsavingsontheOpExside.Icannowhire
employeesthatcanmakeamakeadifferencetothebusinessinsteadofhaving
themmanageadatacenter.

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SUMMARI ZED RESPONSES, CONT D.

totheCl oud,
youmovei t?
thi sprocess.
Helpdesk ServiceNow CASoftware
I'mnotimpressedwiththecloudofferingsandreallyhavenotseenanyreductionin
spend.Wearenowlockedintoanannualspendandstillhavemanyofthesame
issueswehadwhenthiswasin-house.Iwouldnotcallitasuccess.-Sorry.
EmailandInstantmessage
infrastructure
Microsoft(Azure) Microsoft(ExchangeServer)
Thereductiononcostduetothisoperationisestimatedtobemorethan$500Kayear
forthenext5years.
Emailandcalendaringfunctionsfor
theentireorganization(approx
45,000users)
Microsoft(CloudEnvironment) Microsoft(ExchangeServer)
Theactualaggregatecostsavingfrommovingon-premisetothecloudwasbreak
even,orperhapsslightlyhighercostwise.
Consideringmovingemailservices
tothecloud
Microsoft(Office365)
Obviouscostadvantageforeducationalinstitution(nocostforstudents).A
conservativeestimateofreducedcostsis$50Kperyear.
Emailservices Microsoft(Office365) Cisco(WebExandGoToMeeting)
Thesavingsfromloweremailhardwarecostsisoffsetbyincreasedbandwidthcosts.
Longtermcostswillshowacostdecreaseof50%
Emailservices Microsoft(Office365) Microsoft(ExchangeServer) Webelievethesupporttimeandcostswillgreatlydecrease.
Email,sharepointandoffice(word,
exceletc)
Microsoft(Office365),
Thecostofthisisapprox$15peruser.Thisincludes25GBofusermailboxsizevs.
standard5GBweusedtoofferourusers.Additionally,wegetfreelicensesof
MicrosoftOfficewhichgivesapproxsavingsof$300peruser.
ITServiceManagement ServiceNow BMC(Remedy)
Thereisaslightdeflationoninfrastructureaswenolongerhaveservers,butthatis
smallincontextofoverallserverspend.Thebiggestdeflationisactuallyonlabor
spendduetonotcustomizingthesystemandnothavingupgradeseveryfewyears.
Thatprocessusedtocosta100-200k.Nowupgradesjusthappenoveraweekend.
SowearecertainlyspendingmoreeachyearwithService-Nowasweaddusersand
features,butweareavoidinglabortoproviderslikeTCSwhowewouldbepayingto
upgradeandtestRemedy'snewversion.
CallCenterApplication
Thisresultedincostsavingof200%infirstyearitself.Break-evenachievedwithin6
months.Reducedoneserveradmin,1DBAand2resourcesfromservicedesk.Over
allattheendof5thyearcostsavingwillbe330%.Withonpremisewehavehadto
spendtotalof$Xreducedto$X/3withhostedorcloudmodel.
TestingPlatform SOASTA(Cloudtestplatform) HPLoadRunner
WearefindingHPLoadRunnercannotsupportthevolumeswearetestingat.Weare
justbreakingeven...Havenotdeterminedthatthereisasavings,justconvenience
andbettersupportforscalability.
Management&ITService
Management
Salesforce.com,ServiceNow Sage(ACT),Microsoft(SCSM)
Costsarecertainlylessinthecloud--bothcapital/up-frontcostandongoingsupport
costs.WewillreduceITspendasaresultofmovementtocloudbutthatmoneywill
bereinvestedinanalyticsandotherareaswherewecanimprove.
WillconsumeCPU&Diskasa
service.
IBM(isatthetopofthelist)
AllVMs/w,bladeinfrastructure
(IBM)andSAN(EMC) Iexpectourcoststoincreaseslightly.
Management
Salesforce.com
Customin-houselegacycustomer
careapplication
reductioninopscostscirca10-20%
Management
Salesforce.com Goldmine
Initialcostincrease(assunkcostssupportedtheon-premisecase),butover5years,
costisexpectedtoreduceby20%.
Management
Salesforce.com
In-houseCRMandoldunsupported
technology
20%lessusingpubliccloud
Management
Salesforce.com Oracle(Siebel) Largesavingsininfrastructureandsupportreductions.
Management
Salesforce.com
Home-grownin-housesystemsfor
Leadmanagementandcustomer
management.
Eliminatedover$200,000inhardware/software/programming(excludingthecostfor
Salesforce.com.
Management
Salesforce.com on-premise Ourcostdecreased,butIdon'thaveanumber.
SeveralMediaClearingHouse
Applications
Salesforce.com Mainframeapplications
Realizedsignificantcostsavings(>30%)bymovingawayfromMainframe
applications.
HRSystems SAP(SuccessFactors) SAPSystems uptonowneutralcostdevelopment
ERP SAPBusinessByDesign.
SAPsystems.
Significant,numerousmillionsofdollars.
ServiceNow,BMC
HP,CA,Cisco,SomeMSlicencing
andSolaris
Hopingtodecreaseby10-20%

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totheCl oud,
youmovei t?
thi sprocess.
Documentproduction GhostDraft
Whileourlicensingcostshavegoneup,thesophisticationandsecurityofthe
productswillsaveourprofessionalstaff-conservatively2-3hoursofeffortperweek,
whileproducingmoreconsistentandmoredata-richdocumentation.Wewillrealize
fullROIwithinthefirstyear(thoughIcannotdivulgespecificnumbers).
Conferencing,Travel&Expense,
EmailArchiving.
Cisco(WebEx),Concur,LiveOffice Therewerenocostsavingsbutcertainlyefficiencygainsandadditionalfeatures.
Virtualprivatecloud CGI Reducingcostbymorethan33%.
Emailservices
MicrosoftEUCC(mail,sharepoint,
lync)
Variousemailsystems Decreased>10%
Consideringmovingemailservices
tothecloud

Thereisnotmuchvalueaddforinternalresourcestomanageemailandinternal
customersscreamloadlywhenemailisdown.Bestbetistofindacloudapplication
thatfreesupsupportresourcesandcanbeblamedwhenemailgoesdown.
GraphicalRenderingApplication AmazonEC2
Wecantakeadvantageofmassive-performanceon-demandinfrastructureandonly
payforthetimeandresourcesneeded.
Management
Wasactuallymoreexpensivebutflexible
E-mailscanningsoftware(spam&
virus)tothecloud.

Eliminatedtheneedtodoconstantupdates,eliminatedaserver,andeliminatedthe
maintenanceofthecapabilityfromaPCIcomplianceperspective.
HR/Payroll,CustomerRelationship
Management
In-houseProgressSystem Zerocostdecrease,Zerocostincrease
Microsoft(ExchangeServer)and
associatedservers,storage,
disasterrecoveryandadmin
ReducedRisk,Focusondifferentiators,~500Kannual
Fromacostsavingsstandpoint,wehaveseenourofficeexpensesgodown38%
whichforusisinthe$275,000peryearrange.Fora$200millioncompanythisis
significant,especiallycomingoutofsuchadeepfinancialrecession.
Microsoft(Office365and
SharePoint)
Costsavingstobedetermined.

Costsincreasedby30%bydeployingonthecloud.Butthecloudgavetheflexibilityto
reallyfigureoutwhatweneededandhowmuch.
Development&testing
infrastrucuture
VMwareandHP
Emailanti-spamsolution WebSense Microsoft(WindowsServer)
ConsideringeliminatingmySANS
andmovingthemtothecloud

HRInformationSystem Workday
SalesOpportunityManagement;
Talentmanagement
Salesforce.com,Taleoand
SuccessFactors
Oracle
Management
Salesforce.com In-housesalesapps
Management
Intuit(Quickbooks)
InventoryForecastingSystem JDASoftware
Customerfacing,employee
engagement,collaborationsuites
Fujitsu(Cloudprogram)
GlobalEmloyeebasedapplication AmazonAWS Microsoft(Database)
Localdatacenter Amazon
Oracle(Financials) Probablyincreasecostby15percent.
Salesforce.com
Supportcostsdecrease
Box.com

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RAW RESPONSES

Below are the raw responses for the following question we asked. Not all CIOs responded
to the question.

We are trying to understand the impact of what we call "Cloud Deflation" - the idea that
your IT cost might actually DECREASE as you move an on-premise
application/infrastructure to the Cloud. Please provide a detailed example of an application
which your organization has moved from on-premise to a Public Cloud (e.g.,
salesforce.com, Amazon, Google, Workday, etc.). Please think through the impact to the
underlying infrastructure (e.g., database & middleware software, server hardware, PCs,
storage, networking/routing gear, etc.) provided by legacy incumbent on-premise IT
vendors. 1) What application/infrastructure did you move from on-premise to the Cloud,
and to which Cloud vendor did you move it? 2) Please name specific vendors/products
which have been eliminated/reduced by this process, and 3) Please try to quantify by how
much your aggregate cost increased or decreased by moving from on-premise to a Public
Cloud provider.

We moved our email anti-spam solution from an onsite solution to a cloud-based
version of anti-spam from the same vendor. The vendor is WebSense. We eliminated
one MS Windows-based server in the process of doing this. We are seeing a significant
decrease in staff time spent dealing with SPAM issues, as well as management overhead
relating to handling blacklisting, DNS configurations (on our public DNS server), and
the spam server itself.
o We also saw simplifications in configuration which has lead to performance
improvements, server load improvements, and reduced staff time spent as the
result of handling a more complex configuration. With servers/services, the
simplifications came in the form of configuration simplification of our email
MTA servers (mail routing and rewrite rules), DNS servers, and firewalls.
o Although the net cost of the cloud-based solution was not significantly less,
the money and stress saved is significant. We have an easier, and less complex
system that is a lower TCO, and this is directly related to the cloud solution
for email spam control.

We are moving a traditional call center to a cloud based solution with Salesforce. The
call center is in our department of Health Care. As a part of the migration we will also
update many of the solutions to a variety of cloud technologies that will allow for a
smaller segment involving telephone calls and a more rapid and secure approach to
case management.
o Our time to implement is 65% to 75% less than if we used traditional
technologies of standing up the servers, switches and database solutions.
Further out projections using the Public cloud solution through Salesforce are
for an overall cost reduction in application cost of more than 65%.
o Further, we will not be faced with managing the constant stream of upgrades
required with software changes each year, as the modules upgrade three times
a year at no additional cost.
o Overall, this is going to be our approach for a majority of our current business
applications.
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We moved email from in-house supported on Lotus Notes to Google's enterprise
Gmail. This was a fantastic move. It reduced annual operating costs by over $500k (we
eliminated IBM servers, storage, IBM Software maintenance costs, and people). At the
same time productivity greatly increased on over 2,500 end users. The cloud based
email opened up new connectivity options and actually drove our mobile device users
into new options (i.e. iPhone/iPad and open devices). Now users, once limited to a
corporate VPN could access email with any IP enabled device. This actually started to
change the view of end users to cloud applications. In addition, we now have a mail
platform that is constantly being upgraded and enhanced - and I have no development
staff supporting it! This project had a six month ROI. We signed a three-year contract,
and will net $1.5m saving on this move. Best yet, my entire user base is greatly satisfied
with the change.

Our main public cloud implementation has been moving over 80 locations to an
Office365 product model. All of our locations operate independently under the
corporate guidelines. One of which is running the back office and by going to a
centralized public cloud managed by Microsoft, all facility documentation is now
stored and accessed electronically. From a cost savings standpoint, we have seen our
office expenses go down 38%, which for us is in the $275,000 per year range. For a
$200 million company this is significant, especially coming out of such a deep financial
recession.

We moved our Microsoft Exchange email and calendaring functions for the entire
organization (approx 45,000 users) to a Microsoft Cloud environment. We had
intended to move voice messaging as a phase two strategy, as well as a more robust
implementation of Lync, however the actual aggregate costing from moving on-premise
to the cloud was break even, or perhaps slightly higher cost wise. In order to take more
full advantage of the cloud (any cloud), we realized we need to make other necessary
infrastructure investments, such as full MPLS [Multiprotocol Label Switching]
implementation. Those other investments and enhancements need to be considered for
a real ROI experience. I have no doubt that our future utilization of the Cloud will
grow over the next five years, especially with Big Data and analytical needs driving us
there. As long as the infrastructure investments are made, AND the security protection
matures for the cloud environments, Cloud is the future.

I am a stand-alone health care entity, not spread out over a wide area. Just a local
provider. I try to keep things out of the cloud because the risk is not worth it. If I had to
operate a data center globally, or across the U.S, that would be a different story.
o I'm considering eliminating my SANs and moving them to the cloud. They are
very cost prohibitive and I can't keep up with products that reach end of life.
Vendors are going to be forced to expand end of life because the ROI isn't ROI
anymore. I should see a savings by not managing my own SANs. I just need to
find a way to do it securely and safely.
o My D/R [Disaster Recovery] is also in the cloud. Between VMware, Appsure,
Dell, and a colo, it is turning out really well. This is an improvement for our
infrastructure since we never had a hot site before. So the costs have increased.

I've yet to see any application that reduces overall costs as you move to the cloud. Any
cloud expense represents perpetual cost, growing over time. On-premise apps have a
fixed component for infrastructure (and sometimes, licensing) that amortizes and
eventually diminishes over time. While there may be benefit to the cloud in terms of
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time to deploy or ability to add features, total cost of ownership is definitely not a
benefit of cloud.
o This should be inherently obvious. The cost of infrastructure is commoditized
and fixed. When you move to the cloud, you are paying those same costs to a
vendor, plus their margin. When you stay on premise, you pocket that margin
for other uses.
o Here's a final analogy: how many people save money over their lifetime by
always leasing an apartment or home, as opposed to buying a home or condo?
The answer is, no one. Rented homes have other advantages in terms of
flexibility or maintenance, but the total cost of renting an apartment always
exceeds the equivalent cost of buying and owning a similar home.

In the government healthcare sector, we are very constrained to utilize public clouds
for most of our applications. This is primarily due the security documentation which
must be completed to utilize any of this from the DoD [Department of Defense]
network. The vendors not only have this documentation to meet government standards
but they are also not that familiar with the accreditation process to install any AIS
[Automatic Identification System] onto the network. We are developing our own
internal clouds to store huge quantities of patient imaging data such as the full range of
radiology and cardiology studies we must store cradle to grave. We have utilized Dell
for infrastructure with Acuo Technologies to provide the migration services to archive
study data to our DoD central archive facilities in San Antonio and Denver. We also
have a significant EMC archive footprint. We will save significantly by eliminating our
regional archives that run up considerable costs to expand and to maintain or replace
hardware. A huge consolidation project is underway to reduce the footprint of all IT
architecture at most locations and invest in the network infrastructure to provide better
connectivity between the remaining locations.

Our moves have been to a virtual private cloud hosted by CGI leveraging their
standard stack. We will be able to dramatically increase availability (to 99.99%) and
disaster recovery (Recovery Time Objective - 1 hour, Recovery Point Objective - 30
seconds) while reducing cost by more than 33%.

We moved from Ariba on premise to Ariba in the cloud for procurement. Enabled us to
globalize and roll out to new markets significantly faster. Saved several hundred
thousand dollars in hosting costs by getting to new markets faster we drove compliance
with our procurement policies saving over $10M annually.

Moved compute-heavy application (offline numerical simulations) from in-house built
and maintained Linux cluster (~50 CPUs) to Amazon EC2. Greatest gain has been the
fluidity of scale of available resources to accommodate unforeseeable workloads, and
the significant increase in reliability of service for a highly intermittent demand. Over
five years across deployment, we expect total expenditures (including IT staff
reduction) to be reduced by 25-40%, though I expect a greater rate of savings as staff
becomes more familiar and efficient with EC2 deployments.

We retired an internally developed application and transitioned to Salesforce.com. The
driver was for enhanced functionality and capabilities rather than cost reduction. We
have completed the first phase of the implementation of Salesforce.com but not yet
retired the prior internal application. Our costs have increased 60% on that
application area given the dual systems; however, we expect to see costs up only 15%
after the legacy system is retired and once Salesforce.com is completely rolled out.
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With the move to salesforce.com which we were very early in, we eliminated million
dollars in costs. We had 6 different Salesforce Automation Vendors, Saleslogix being
the largest, Siebel and others. All hosted in our data center. We eliminated the hosting
costs associated with the application as well as increased adoption fivefold. Achieved at
least a 50% reduction in cost.

[Redacted] has moved e-mail from an in house system to Google Apps. We eliminated
approximately $ 200,000 in hardware and labor refresh costs every 3 year. This
involved the update of equipment and OS version in 10 offices. We turned the
management of e-mail from a technical network to administrative position generating a
saving of approximately $ 60,000 per year. [Redacted] saves 88% using cloud based
storage compared to in house storage. Moving to a subscription model save the
company approximate $ 250k in software licensing costs.

We are on the way to move our email and Instant message infrastructure to the
Microsoft Azure cloud (365)
o We reduce the need of internal Exchange server, disk appliances from EMC,
backup systems from EMC (Avamar)
o The reduction on cost due to this operation is estimated in more than $500,000
a year for the next 5 years

ERP (consolidate from 6 to 1 systems) for the entire organization to cloud via SAP
Business ByDesign.
o [We moved off of] bricks and mortar SAP systems.
o [Savings will be] significant, numerous millions of dollars.

Our use of Amazon's EC2 infrastructure has been a boon to our on-demand, intensive
processing needs. Rather than maintain a sophisticated application processing stack for
periodic, high-intensity computing operations (graphical rendering in our case), we can
take advantage of massive-performance on-demand infrastructure and only pay for the
time and resources needed. (As an ancillary, this also makes accounting for individual
job requirements quite straightforward.)

Moved conferencing to WebEx, Travel & Expense to Concur; Email Archiving to
LiveOffice. In each case, there were no cost savings but certainly efficiency gains and
additional features.

Have not moved one yet - we started a couple in the cloud. I am not yet convinced it
will save funds until we can take an entire segment/function and move it to the cloud-
otherwise we must maintain at least some portion of both the in house infrastructure
(from staff support to h/w and s/w, telecommunications, b/u support, disaster recovery,
power, etc. Until we can remove that-it will not save.
o Six years ago we implemented a new Capital Projects Management System
(including business process change internally while purchasing Skire's Unifier
software (and making changes to it...) and as part of it it was hosted off-site
(now would be in the cloud). While it certainly made it easier on staff-we still
had those staff supporting other servers, etc. and they could have taken this on
without additional staff costs.
o More to come as we move forward with new projects and analyze the
return/benefit on Cloud vs. in house (we can't continue to keep highly skilled
staff, especially as some retire-so the challenge is what can be moved to the
cloud.)
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We are moving toward centralized email services via Office 365. This will reduce
exchange servers and eliminate several data closets. The savings from lower email
hardware costs is offset by increased bandwidth costs. Long term costs will show a
cost decrease of 50%. WebEx and GoToMeeting will be affected.
o We have our own active internal hosted cloud using Cisco servers, EMC
storage and VMware. We are reducing our server count from 5000 to 500 and
centralizing servers from outlying data centers. We are closing several data
centers as we move servers to our central data center. We expect a 25%
decrease by achieving a 10:1 virtualization ratio.

Only ServiceNow and BMC for now
o Still designing and evaluating. 2013 will be a transformational year. Possibly
affected vendors will be HP, CA, Cisco, Some MS licensing and Solaris
o Hoping to decrease by 10-20%

We moved from Remedy [by BMC software] to ServiceNow. There is a slight deflation
on infrastructure as we no longer have servers, but that is small in context of overall
server spend. The biggest deflation is actually on labor spend due to not customizing
the system and not having upgrades every few years. That process used to cost a $100-
200k. Now upgrades just happen over a weekend. So we are certainly spending more
each year with ServiceNow as we add users and features, but we are avoiding labor to
providers like TCS [Tata Consultancy Services], who we would be paying to upgrade
and test Remedy's new version.

We moved Sales Opportunity Management to Salesforce in addition to recruiting and
talent management to Taleo and Successfactors.
o We eliminated Oracle as part of this process although Taleo then got bought
by Oracle.
o I would say we achieved a 10% reduction in IT cost by moving these
applications to the cloud.

We moved our collaboration tools from Microsoft Exchange to Google Apps. This
allowed us to eliminate the in-house servers, applications, maintenance and support
staff for Microsoft Exchange. In addition, the Google solution allowed us to eliminate
VPN access for hundreds of users that needed to access our network for email only.
Google apps enabled us to reduce cost related to voice and video traffic for
collaboration. This move allowed us to reduce our annual IT spend by more than $1
million per year.

Our company moved a global Employee based application where over 250,000 users
could access non-sensitive data about other employees and interact with them over the
web through various channels. (IM, Email, Friending, etc). This consisted of a front
end web interface that connected to MS DB which we moved to Amazon Cloud. We
were running 3 Unix servers at $1,000/mo each which is now less than $90/mo for all
three.

Salesforce.com
o Eliminated home-grown in-house systems for Lead management and customer
management.
o Eliminated over $200,000 in hardware/software/programming (excluding the
cost for Salesforce.com. The cost elimination is minor compared to increase in
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productivity, competitive advantage, and readily available intelligence, as well
as streamlined internal processes for lead and customer management

Email, moved to the DISA [Defense Information Systems Agency] cloud
o Microsoft Exchange Server and client licenses for 650 users
o By replacing our hardware support and software licenses for email for 600+
users, we have eliminated our need to replace/maintain server
hardware/storage. The servers were due to be replaced at approximately $25k
x 2 for $50k. And the storage for these servers would not need to be replaced
either at $50k for a 25-50 TB solution. Lastly, my server admins are no longer
required to manage/maintain/backup these servers, so they are freed up to
manage/maintain the servers we still house. Thats close to 4-5 hours x2 staff
per week, for a total cost savings of $500/week.

Moved several Media ClearingHouse Applications to the Cloud using Salesforce.com.
o Eliminated several high-maintenance Mainframe applications supporting these
applications when we moved to the Lean-Mean yet scalable platforms
provided by Salesforce.com
o Realized significant cost savings (>30%) by moving away from Mainframe
applications.

Exchange / MS365
o [We eliminated] on Site Exchange and associated servers, storage, disaster
recovery and admin
o Reduced Risk, Focus on differentiators, ~500K annual

Moved from Siebel to Salesforce. Large savings in infrastructure and support
reductions.

The transfer of all student email to Google resulted in the movement of 11,000
mailboxes allowing the retirement of 15 on premise servers and storage.

We are a bank and hence are regulated by stringent data privacy laws. This has led to
real/ perceived constraints in terms of moving applications to the Cloud. We have, as a
result, retained customer-facing applications either in-house or at the most to a private
cloud. The only applications we have moved to a public cloud are non-mission-critical
internal applications, for e.g. HRMS. This is a very small piece of the total IT
expenditure and hence we are unable to comment on the substitution of existing
vendors or the impact on cost and user experience.

Considering moving email services to the cloud with Office 365. Obvious cost
advantage for educational institution (no cost for students). Students will receive 25GB
mailbox, much larger than we can currently provide. This will reduce our Exchange
administrator's workload by more than 60%, plus allow us to reclaim storage and
other resources currently allocated to student email. A conservative estimate of
reduced costs is $50K per year.

Moved all Tier 1 Applications to a managed services provider (ScaleMatrix) datacenter
to include servers, storage, security, and network. Reduction in CapEx with a slight
increase in OpEx along with the ability to scale up or down with very little time and no
internal effort. We now rely on the collective expertise of data center professionals
versus hiring which led to a reduction in staff. Opportunity cost savings far outweigh
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any hard savings on the OpEx side. I can now hire employees that can make a
difference to the business instead of having them manage a data center.

We moved our email, SharePoint and office (word, excel etc) to Microsoft Office 365
online. The cost of this is approx $15 per user. This includes 25GB of user mailbox size
vs. standard 5GB we used to offer our users. Additionally, we get free licenses of
Microsoft Office which gives approx savings of $300 per user.

Helpdesk. Moved from CA software in-house to ServiceNow. I'm not impressed with
the cloud offerings and really have not seen any reduction in spend. We are now
locked into an annual spend and still have many of the same issues we had when this
was in-house. I would not call it a success.

Costs increased by 30% by deploying on the cloud. But the cloud gave the flexibility to
really figure out what we needed and how much.

HP LR [LoadRunner]and SOASTA - for performance testing. None were eliminated
but we are finding HP LoadRunner cannot support the volumes we are testing at. We
are just breaking even. Have not determined that there is a savings, just convenience
and better support for scalability.

There really hasn't been a point in which the cost has DECREASED in any of the
application or infrastructure to the cloud providers. There has been a more effective
use of current staff and resources to focus on core competency items and tasks. It will
be many years before a cost savings is obtained given the size of the application and
infrastructure environments. It however is allowing us to meet new financial metrics
and KPIs of % of revenue. We are able to do more with the same amount of money at
this point.

We are currently moving our conferencing solution (WebEx) from on-premise to the
cloud (Cisco hosted). Although this will not directly decrease cost, we believe it will
avoid cost increases as our demand for larger, infrequent conferences is increasing and
we don't want to have the cost to have all that capacity in house all the time.

In my regulated world of financial services much work needs to be done by the vendors
to get them to the point they pass muster with the regulators and do not make our lives
hell in trying to justify why we are there. It will be some day but for us that is in the
future. Just not worth the pain and hassle and reputation if something goes bump in
the night.

We have moved our document production to the cloud using GhostDraft. While our
licensing costs have gone up, the sophistication and security of the products will save
our professional staff - conservatively 2-3 hours of effort per week, while producing
more consistent and more data-rich documentation. We will realize full ROI within the
first year.

Unfortunately our public cloud experience is very limited. We use many private cloud
services in our organization. We utilize a private cloud to dramatically decrease our on-
site IT costs both in labor and equipment costs. Our entire data processing
environment was moved offsite and we no longer are required to have and maintain the
hardware associated with that...along with no longer needing 24/7 staff to manage it. If
our DP system was on-site we would easily require multiple IBM AIX servers, 3-4 IT
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staff, on-call hours w/OT, and not to mention the security costs involved. We house
no servers, have 1 IT staff (that gets actual vacation!).

The combination of Box.com and Tekla BimSight created an environment for real-
time updates of trade, designer, and coordination models to be self managed by
each responsible team member. [Redacted] developed a collaboration space for
design review within Box.com, sharing access to model files by responsible design
party. This collaboration area was augmented by Box.coms desktop sync client.
Design partners were able to synchronize files from their local hard drive directly
to the Box.com cloud via Box Desktop Sync, in turn updating all other design
partners local files. Because each partner is responsible for modeling only a
portion of the overall project, file exchange sizes are reasonable and occur without
user intervention. When a trade or design partner completes an update, the Box
Desktop Sync client takes care of the traditional workflow of upload/download of
model files via FTP or other solution, email regarding completion of the update,
and corresponding download from [redacted] team; by brokering the file
distribution process through the Box.com cloud.
o [Redacted] paired automated file distribution through the Box Desktop
Sync client with the Tekla BimSight product. Prior to leveraging Tekla
BimSight [redacted] observed industry standard process for clash
detection. A typical model management cycle would involve
downloading all partner models, accumulating them in an industry
standard file format, and distributing a consolidated model for design and
trade partner review. Then repeating the cycle in reverse to consume
updates from design partners and ultimately generate a revised
consolidated model. Teklas free BimSight product provided a perfect
pairing with the Box Desktop Sync client. BimSight is able to monitor
local or network drives for updated file information, and consolidate IFC
files into a coordination model without intervention from a [redacted]
team member. Each trade and design partner leverages Tekla BimSight
with Box Desktop Sync to create their own real-time view of the
consolidated project model. The Tekla BimSight application then
provides clash detection and an integrated notation tracking mechanism.
[redacted], design partners, and trade partners leveraged Tekla Bimsight
notations to drive model weekly model reviews, assigning responsibility
for model revision within the shared model.
o It is difficult to quantify the aggregate cost decrease - the combination of
Box.com and Tekla Bimsight provide real-time updates and insight into
future construction issues to all responsible parties. Without this pairing,
extensive work is necessary in the field to correct material collisions and
design defects.

We will be outsourcing our entire infrastructure at our next refresh so that we will
consume CPU & Disk as a service - vendor is not selected but IBM is top of the list.
ERP vendor is undetermined at this point
o [We will eliminate] all VM s/w, blade infrastructure (IBM) and SAN (EMC)
o I expect our costs to increase slightly

Actual cost decreases will be rare as most organizations will use this opportunity to
either reinvest or upgrade functionality. We moved our on-premise ITSM [IT Service
Management]solution (BMC Service Desk Express) with about 2000 users to a new
SAAS solution (ITRP run on AWS).
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o The net effect was that we maintained the spend but dramatically improved
the user experience through better UI design and faster performance and
enhanced the functionality above and beyond what we were able to do before.
In a like for like case I would estimate that our cost saving was about 20%.

Our Call Center Application (including app & Database) implemented in hosted
model. This resulted cost saving of 200% in first year itself. Break-even achieved
within 6 months.
o Call Center Application & its server hardware moved to cloud. Reduced one
server admin, 1 dba and 2 resources from service desk.
o Over all at the end of 5th year cost saving will be 330%. With on premise we
have had to spend total of $X reduced to $X/3 with hosted or cloud model.

HR apps via ADP
o Eliminated most internal apps related to HR/Payroll that were formerly being
provided by Ceridian
o Aggregate cost decreased approximately 10% when you factor in hardware,
IT support & licensing.

Patient Data Management is on public cloud from Amazon
o [We eliminated a] internally hosted and managed application
o Around 20 to 30% decreased [costs]

We migrated our electronic medical records system from an in house system to one
hosted by Cerner which is the creator of the software as well as the organization that
hosts the service for us.
o By having an external vendor host the service our costs increased
approximately $300k/year but we have access to support staff that have a skill
set that is hard to find.

We're followers right now -- Salesforce.com from ACT, looking to move E-mail to the
cloud in next 12 months, some aspects of big data will be in the cloud as we connect
internal to external/public data on customers. Another example - moving from
Microsoft SCSM [System Center Service Manager]to ServiceNow.
o Costs are certainly less in the cloud -- both capital/up-front cost and ongoing
support costs. We will reduce IT spend as a result of movement to cloud but
that money will be reinvested in analytics and other areas where we can
improve.

Moved e-mail scanning software (spam & virus to the cloud). Eliminated the need to
do constant updates, eliminated a server, and eliminated the maintenance of the
capability from a PCI compliance perspective.

Our primary target has been to create our own internal network; that is to seek
synergies and cost saving by creating an internal cloud and consolidating and
rationalizing both our infrastructure and application landscape into this internal cloud.
We have then sought external cloud providers that meet certain criteria:
o Ones that can provide cost savings beyond the ones already achieved
o Application cloud providers that provide business process ennoblements
not provided by our current systems as long as they require simple or
loose integration to the internal primary systems on which we run our
business.
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o Speed to market in infrastructure and application deployment
o Cloud services that offers subscription or load flexibility
o Cloud services that require heavier initial investments than can justify the
business case especially for support of new global regions.

Looking across the Healthcare gamut to see how we might move processing and
storage to the cloud. Looking at Azure as well as we have challenged EMC to
determine how we can have a similar situation for long-term storage.

We currently use Salesforce.com for sales applications, however movement to public
clouds has been limited due to security concerns. We are continuing to investigate
using public clouds for non-production environments but have not made any
significant plan yet.

We are currently testing two applications this year based in the cloud. Salesforce for
CRM and Pivotlink for business BI and analytics. Although we like these cloud base
solutions, this will not be core to our central customized software solutions, but will
only complement our core systems.

Have not moved any mission-critical applications to the cloud. Will do so in the
coming ~5 years. The win, as we see it, is not in reduced cost, but improved scalability
and reliability while reducing the administrative headaches.

Microsoft EUCC (mail, SharePoint, Lync)
o [We eliminated] various email systems
o [Costs] decreased >10%

Oracle financials. Probably increased cost by 15 percent.

Lots of sensitive information. Unfortunately, cannot be disclosed. However, we are
unable to move data to public cloud particularly with the big Vs as their data centre
resides outside the country and therefore, will result in non compliance with regulatory
rules.

In our group, usage of public cloud is still in debate. Our approach has been to secure
more global infrastructure and run services by ourselves. I personally cannot see
moving into any public provider before 2015, and most probably would be a European
provider. In particular our China operation is very sensitive to regulatory framework.

We implemented a cloud-based CRM initiative with Intuit Quickbase. This did not
eliminate any vendors/products, as it was our first CRM project.

Not much of decrease. Utilization of technology is growing and any SaaS or Cloud
service would help manage the growth and costs associated with growth.

We are considering moving our email system to the cloud. There is not much value add
for internal resources to manage email and internal customers scream loudly when
email is down. Best bet is to find a cloud application that frees up support resources
and can be blamed when email goes down.

We have not found that we can decrease the costs, but prefer to look at this as an
initiative to decrease risk.
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We have not moved an on premise app to the cloud as of yet. I will say that the cloud
option is easier, however more expensive than private cloud.

As a financial service provider, we are exceptionally limited in our ability to utilize
public cloud offerings.

HR Systems to SuccessFactors
o From SAP to SuccessFactors
o up to now neutral cost development

The cloud for our organization merely provides another technology tool. As a whole it
really hasn't provided us with any appreciable/measurable financial benefit. Given the
dynamics of my organization and the market that we operate in, the current use of
cloud based infrastructure and applications is limited and selective.

We operate closed networks due to classification and cannot leverage public cloud
environments. We are however refreshing our on premise infrastructure to a more
cloud-ready construct to enable ready access to private cloud-based applications within
our security domain.

Customer facing, employee engagement, collaboration suites. We moved to Fujitsu
cloud program.

We are moving our inventory forecasting system to the cloud with JDA software

Slow process in moving application/infrastructure to Cloud. MS 365 and SharePoint
are in the process. Cost savings to be determined.

We have not moved an existing application into the cloud, but are currently doing an
analysis to see if we will be able to leverage the cloud.

We moved our legacy helpdesk management system to Salesforce in 2009. After 3 years
of running on Salesforce, we opted to moved back to an in-house platform due to the
high cost user model on Salesforce platform. In 2012 we moved back to an in-house IT
helpdesk management system.

CRM is in the cloud was actually more expensive but flexible.

Custom in house legacy customer care applications were migrated to Salesforce.com
reduction in ops costs circa 10-20%.

CRM - Goldmine to Salesforce
o [We eliminated] Goldmine
o Initial cost increase (as sunk costs supported the on-premise case), but over 5
years, cost is expected to reduce by 20%.

We have not tried our mission critical application to Cloud still due to security
concern. Only email, complaints tracking, etc are running now on cloud.

Salesforce.com
o [We eliminated] in-house CRM and old unsupported technology
o 20% less using public cloud.
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Organization does not use cloud in a large strategic manner at this time.

We have moved a small DB to Amazon's cloud.

We have not moved any applications directly from on-premise to the cloud. Where we
have used cloud applications, it has been incremental, new applications.

HR/Payroll, CRM
o [We eliminated] custom Progress System
o 0 cost decrease 0 cost increase

Our email is moving from Exchange to Office 365. We believe the support time and
costs will greatly decrease.

We have moved our development & testing infrastructure to the cloud. Solution was
based on VMware & HP Software

We have only moved new solutions to the cloud. In our opinion, the next set of
decisions will be assessed against both internal and cloud solutions. They must be cost
competitive and the cloud solutions are typically not core competencies of our
company.

We are evaluating cloud based solutions and have not currently moved any
applications / infrastructure to the cloud.

We moved from on-premise to Salesforce.com. Our cost decreased, but I don't have a
number.

HRIS/ Workday

Went from local to Amazon

On a long term basis, it is not a cost reduction.

Did not move any services to a Cloud vendor, still under study. Currently using Private
Cloud.

We didn't have any application or infrastructure moved to Cloud yet. May consider
Office365.

We have not moved a premise application to the cloud and experienced lower costs.

Support costs decrease

We have no plan to move the Public Cloud

We have not moved an application to the public cloud at this time.

Have not moved any large infrastructure to 'cloud' at this time

Commercial application with mostly salesmen

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We have no major application we have moved to the cloud.

We have not moved anything significant at this point.

Homegrown Sales Apps to Salesforce

Haven't moved to cloud yet

We have not moved any on-premise application/infrastructure to the cloud at this time.

Our initiative was time based and the cloud based services were able to be delivered
within the needed schedule.

We are still investigating a cloud strategy.

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SERVER OPERATI NG SYSTEMS

We asked 141 CIOs to indicate whether each of the four major Server operating systems
(Linux, Windows, UNIX, Mainframe) would Gain, Lose, or Maintain share of their
organization's Server environment in 2013.

The chart above presents the results on a "Net-Gainer" basis; meaning if 55% of CIOs
indicate a certain OS will gain share of their server environment, and 45% indicate it
will lose share, that would equate to a "Net-Gainer" score of +10%.

On this basis, we find Linux leading the pack at +23%, Windows next at +18%,
UNIX next at -29%, and Mainframe last at -54%. This compares to +37% for
Windows, +32% for Linux, -25% for UNIX and -48% for Mainframe in 2Q:2012, and
+33% for Linux, +15% for Windows, -31% for UNIX and -46% for Mainframe in
4Q:2012. In our last four CIO surveys, the data have oscillated (sometimes Windows
edges out Linux, sometimes vice-versa).

Both UNIX and Mainframes are expected to lose material share, and at an even more
dramatic pace than in 2Q:2012. In aggregate, IT organizations seems to recognize very
clearly that incremental server workloads will be deployed on Linux and Windows
platforms, with a slight edge for Linux.
Exhibit 18
SERVER OPERATI NG SYSTEM WI NNERS VS LOSERS
(Net-Gainer Basis)
36.7%
32.4%
33.3%
22.7%
34.9%
37.1%
14.8%
18.4%
-17.4%
-24.8%
-31.1%
-29.1%
-39.4%
-47.6%
-45.9%
-53.9%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
4Q:2011 2Q:2012 4Q:2012 2Q:2013
Linux Windows UNIX Mainframe
Linux
Windows
UNIX
Mainframe

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The chart above represents the data when considering only the largest IT budgets (in
excess of $250M annually).

If we examine organizations with large IT budgets (>$250M in IT spending), spending
intentions are even stronger for Linux at +33%, Windows at +22%, UNIX at -36%,
Mainframe at -61%.

Linux has repeatedly edged out Windows amongst the largest IT budgets, although the
Linux data did decline materially in the past six months.

Exhibit 19
(Net-Gainer Basis, IT Budgets > $250M)

52.4%
40.7%
60.0%
33.3%
23.8%
29.6%
13.3%
22.2%
-9.5% -11.1%
-30.0%
-36.1%
-42.9%
-40.7%
-56.7%
-61.1%
-80.0%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
4Q:2011 2Q:2012 4Q:2012 2Q:2013
Linux Windows UNIX Mainframe
Linux
Windows
UNIX
Mainframe

Key Takeaways from
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MOST VALUABLE CLOUD PLAYER: SALESFORCE. COM

$111B in annual IT spending and asked them to name the SaaS/Cloud Computing vendors
that are impressing them with their technology, vision, and value-add.

The chart above shows a list of SaaS/Cloud Computing vendors that were mentioned
by more than two CIOs as impressing them with their technology, vision, and value-
add.

Salesforce.com retained its No. 1 ranking, mentioned by 31% of CIOs, followed by
Microsoft at No. 2, Amazon.com at No. 3 and Google at No. 4.

Exhibit 20
PLEASE NAME 2 OR 3 SAAS/ CLOUD COMPUTI NG VENDORS WHI CH ARE I MPRESSI NG YOU
WI TH THEI R TECHNOLOGY, VI SI ON, AND VALUE- ADD TO YOUR ORGANI ZATI ON?

0% 5% 10% 15% 20% 25% 30% 35%
Salesforce
Microsoft
Amazon
Google
Workday
VMware
IBM
Oracle/Taleo
ServiceNow
SAP/SuccessFactors
Cisco
ADP
Concur
Rackspace
Box.com
Citrix
Dell / Boomi
EMC
HP
Airwatch
AT&T
BMC
Okta
Ultimate
Verizon / Terremark
Accenture
Q2:2012 Q2:2013

Key Takeaways from
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The chart above shows the y/y change in CIO mindshare for various companies.

Positive standouts include VMware (+7 points) and Workday (+4 points), and negative
standouts include Google (-11 points but still ranked in the top 4), IBM (-6 points), HP
(-4 points) and ADP (-4 points).

VMware had zero mentions in our survey from one year ago, and was mentioned by
7% of CIOs this year, possibly reflecting gains made in its hybrid cloud messaging and
product portfolio. This is also consistent with our prior survey work showing strong
positive spending intentions on VMware.

Eight percent of CIOs mentioned Workday, twice as many as last year, which we
believe shows Workday's strong success in its target market of large organizations,
with a roadmap to move into larger markets such as Financials and Big Data Analytics.

Exhibit 21
LARGEST YEAR- OVER- YEAR CHANGES

7%
4%
4%
3%
3%
2%
2%
2%
-2%
-4%
-4%
-6%
-11%
-12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8%
VMware
Workday
Microsoft
SAP/SuccessFactors
Salesforce
BMC
Okta
Ultimate
Box.com
ADP
HP
IBM
Google

Key Takeaways from
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Google was mentioned by 12% of CIOs this year, down from 22% last year, possibly
due to a more mature enterprise product set in its corporate mail, storage and
productivity applications and/or Microsoft's success with Office365.

IBM was mentioned by 6% of CIOs, half as many as last year, and also recently
disclosed an SEC investigation into its Cloud Computing accounting.

HP's decline mirrors our continual stream of survey work showing weak corporate
perception of HP's value in IT architectures.

ADP's decline is noteworthy because it occurs as ADP tries to sharpen its focus on
cloud-based HR offerings and it occurs while Workday, Ultimate Software, and
SAP/SuccessFactors show noticeable y/y improvement, probably a clear marker of
market share shift in the HR software marketplace.

Accenture, Allscripts, Aptus, Athena, Atlassian, BaseCamp, Birst, Blackrock,
Brightsolid, Campus EAI, Century Link, CGI (private cloud), Clariondoor, Cloud9,
ComplianceWire, Compuware, CyberSource, Descartes, Dropbox, Extranormal,
Firecloud, Harmony IS, Host, Intuit, IST Host, JDE Cloud, Jive, Korbitec, Kyriba,
Logfire, Lognet, Mendix, Microstrategy, Mirantis, New Relic, Nuance, Panaya, Peak
10, Perceptive, Perceptive Software, Ping Identity, Pivotlink, Plan Grid, Progress
Software, Proofpoint, QAD, QlikView, Riskonnect, Saba, SilkRoad, Soasta, SPS
Commerce, Teradata, Think Project, Thunderhead, Velocity UI For Eclipse, and Zoho
each received a single CIO mention.

Vendor Receiving A
Single Mention
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DATABASE VENDORS

$111B in annual IT spending and asked them to name the vendor(s) best positioned to meet
the evolving future database needs of their IT organization.

The chart above presents the results from all CIOs and reflects the "popular vote."

While the database industry maintains a "Big 3" appearance consisting of Oracle,
Microsoft and IBM, we believe change is brewing and the data suggests IBM could get
knocked out of the ring as Hadoop, Amazon, and SAP HANA strengthen their grip.
Exhibit 22
BEST- POSI TI ONED AMONG ALL ENTERPRI SES

63%
50%
25%
14%
7%
13%
10%
3%
7%
9%
2%
61%
46%
16%
16%
13%
11%
9%
8%
6%
5%
3%
0% 10% 20% 30% 40% 50% 60% 70%
Microsoft (SQL Server)
Oracle
IBM (DB2, Netezza, Informix, etc.)
SAP (HANA, Sybase)
Amazon Web Services
Hadoop (CloudEra, Apache, etc.)
Google
Other
HP (Vertica, Autonomy, etc.)
Teradata
SAS
Which vendor(s) is best positioned to meet the evolving future
DATABASE needs of your IT organization?
Q2:2012 Q2:2013

Key Takeaways from
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The chart above presents the results when including only the largest IT budgets (in
excess of $250M annually).

Oracle, selected by 61% of large Enterprise CIOs, increased its percentage of mentions
by six points over our 2Q:2012 survey. This is an important development, considering
the wide-ranging investor focus on emerging database and storage technologies, such as
Hadoop and SAP's HANA. Contrary to current investor perception, within the large
Enterprise category Oracle improved on its #1 position in our survey, essentially
moving from strong to stronger.

While Hadoop registered a more significant y/y improvement, it should be very clear
that Oracle's position in the large Enterprise database market is quite secure, whereas
IBM is falling out of favor at an alarming rate (a 22 point y/y drop), with Teradata,
Google, and HP also registering material losses.

Exhibit 23
BEST- POSI TI ONED AMONG THE LARGEST ENTERPRI SES

56%
41%
44%
26%
4%
7%
15%
15%
0%
4%
7%
61%
39%
22%
22%
14%
11%
8%
8%
8%
6%
3%
0% 10% 20% 30% 40% 50% 60% 70%
Oracle
SAP (HANA, Sybase)
Amazon Web Services
Google
Teradata
Other
SAS
DATABASE needs of your IT organization? ** FILTERED FOR IT
BUDGETS > $250M **
Q2:2012 Q2:2013

Key Takeaways from
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Exhibit 24
YEAR- OVER- YEAR CHANGES, ALL ENTERPRI SES
-8%
-4%
-3%
-2%
-2%
-1%
-1%
1%
2%
5%
7%
-10% -8% -6% -4% -2% 0% 2% 4% 6% 8%
Teradata
Oracle
Google
SAS
SAP (HANA, Sybase)
Other
Amazon Web Services
Y/Y Change, All IT Budgets

Exhibit 25
YEAR- OVER- YEAR CHANGES, THE LARGEST ENTERPRI SES
-22%
-6%
-6%
-5%
-4%
-2%
2%
4%
6%
8%
10%
-25% -20% -15% -10% -5% 0% 5% 10% 15%
Google
Teradata
SAP (HANA, Sybase)
SAS
Amazon Web Services
Oracle
Other
Y/Y Change, IT Budgets >$250M

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The charts above shows the y/y changes in spending for the various database vendors.
The second chart is filtered for annual IT budgets greater than $250M (i.e., the larger
Enterprise accounts).

The bottom line is that we believe IBM and Teradata are in worse shape than investors
realize, and will be replaced with Hadoop, Oracle, and Amazon Web Services in large
enterprise accounts.

We conclude that newer technologies such as Hadoop's distributed computational
framework atop clusters of commodity hardware, Oracle's Exadata systems, and
Amazon's low-cost cloud computing platform are better-positioned to gain share of
evolving future database needs.

Key Takeaways from
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SURVEY DI FFERENTI ATI ON, BACKGROUND AND
LI MI TATI ONS

This survey was conducted primarily in June 2013.

on smaller firms, because small-company CIOs are easier to reach. However, an IT budget of
$1 billion moves the needle 100x more than an IT budget of $10 Million, and thus large
company input is required to predict aggregate IT spending.

surveyed control at least $111 billion in annual IT spend, spanning at least 19 industry
sectors. We believe the survey is useful due to its scale and focus on larger organizations, but
we note the following limitations: 1) the survey is more weighted toward North American
organizations, with roughly 11% of respondents outside the Americas; and 2) for our
vendor-specific share gainer question, in our experience, large/stable mega-vendors typically
perform well due to their pervasive brand recognition, while results are less meaningful for
vendors with smaller customer bases which might not register more broadly but could still
gain substantial share within their existing customer base.

Our CIO Surveys
Differentiation
Survey Background
and Limitations
Exhibit 26
SI ZE OF I T BUDGET

2.8%
3.5%
10.6%
13.5%
29.8%
14.2%
10.6%
5.0%
2.1%
3.5%
4.3%
0% 5% 10% 15% 20% 25% 30% 35%
<$100K
$100K to $1 million
$1 to $5 million
$5 to $10 million
$10 to $50 million
$50 to $250 million
$250 million to $1 Billion
$1 Billion to $2 Billion
> $8 Billion
What is the size of your organization's Annual IT Budget, in US
Dollars?

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Exhibit 27

88.7%
4.3%
7.1%
0% 20% 40% 60% 80% 100%
Americas
Europe/Middle East/Africa
Asia-Pacific
Where does your organization reside?

Exhibit 28
I NDUSTRY SECTORS

16%
13%
12%
9%
9%
7%
7%
6%
5%
4%
3%
2%
1%
1%
1%
1%
1%
1%
0%
0%
0% 5% 10% 15% 20%
Financial Services
Health Sciences
High Technology
Insurance
Public Sector
Education and Research
Industrial Manufacturing
Real Estate, Engineering and/or Construction
Professional Services
Retail
Aerospace and Defense
Travel and Transportation
Media and Entertainment
Consumer Goods
Automotive
Utilities
Oil and Gas
Communications
Chemicals
Natural Resources
In what Industry Sector does your organization operate?

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Cloud First Mentality Taking Control And Not Just in the Government

Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

C I O S UR V E Y , 4 Q: 2 0 1 2

We surveyed 135 CIOs of large and mid-sized organizations responsible for over $93
billion in annual IT spending to derive a forward-looking assessment of software spending
and top winners/losers for 2013. We believe the survey is unique due to its scale and its
focus on larger organizations. Bottom line: A bifurcation in 2013 spending plans has
emerged with midsized firms cautiously optimistic and large firms optimistically
cautious. While the aggregate IT spending pool is only growing modestly, great
turbulence is brewing underneath the surface of that pool, with disruptive consequences.
We would position portfolios to align with the movement of workloads into the Cloud,
while keeping an eye on the top-ranked software share gainers in our CIO survey work
which aren't already deeply saturated.

Key Takeaways
Surprising Bifurcation in 2013 Spending Plans: At a high level, CIOs foresee better
growth in their IT budgets for 2013 than for 2012, but a divergence has emerged
between mid-sized IT budgets, which strengthened, and large IT budgets, which
weakened. Across all 135 organizations, IT budgets are set at +4.0% for 2013, up from
+3.1% a year ago. However, for budgets greater than $250M, which comprise 95% of
the dollar spend in our survey, IT budget growth is set at +0.9%, down from +2.0% a
year ago. In our view, investors should prepare for another slow-growth, muddle-
through environment which could still enable the top-prioritized emerging software
vendors (CRM, WDAY, RHT, etc) to post strong growth.

Cloud Vendors Gaining Dominance as Software Industry Evolves: We asked CIOs to
name standout software vendors. Cloud and Cloud Infrastructure vendors are capturing
greater mindshare of large-enterprise CIOs, demonstrating that the disruptive shift to
cloud-computing is strengthening. Public Cloud companies topping this years list
include WDAY, NOW and CRM.

Cloud First Mentality Taking Control And Not Just in the Government: Cloud
Computing plans will evolve in 2013. Amazingly, 40% of CIOs are just starting to
explore the concept of Cloud Computing, suggesting early-adopter phase with multi-
year runway. 50% are moving ahead aggressively, as more organizations use Cloud to
replace legacy business applications and the concept of Cloud First is taking hold
outside of government organizations.

Bullish on Linux for 2013: Whereas Linux edged out Windows by a narrow margin in
our year-ago survey, Linux wins by a noticeably wider margin heading into 2013. The
gap in favor of Linux widened even more powerfully when considering large IT budgets
>$250M. The changing preference should be positive for Red Hat. Both UNIX and
Mainframes should lose substantial share.

Risks: Economic fluctuations, competition, geographic variances, vertical concentration.

February 2013

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Across all 135 organizations, IT budgets are set at +4.0% for 2013, up from +3.1% a
year ago. However, for budgets greater than $250M, which comprise 95% of the dollar
spend in our survey, IT budget growth is set at +0.9%, down from +2.0% a year ago.
We think it's important to slice and dice the data to gain a truer understanding. If a
company with a $10M IT budget plans to spend 10% more, and another company with
Exhibit 1
201 3 I T BUDGET OUTLOOK
8.1%
5.2%
8.9%
8.1%
5.9%
8.1%
8.9%
5.9%
17.0%
6.7%
3.7%
3.7%
1.5%
2.2%
4.4%
1.5%
0.0%
0% 5% 10% 15% 20%
Increase More than 20%
Increase 15 to 20%
Increase 10 to 15%
Increase 8 to 10%
Increase 6 to 8%
Increase 4 to 6%
Increase 2 to 4%
Increase 0 to 2%
Remain the Same
Decrease 0 to 2%
Decrease 2 to 4%
Decrease 4 to 6%
Decrease 6 to 8%
Decrease 8 to 10%
Decrease 10 to 15%
Decrease 15 to 20%
Decrease more than 20%
Considering the current economic climate, how do you expect
your organization's IT budget to trend in 2013?

Exhibit 2
201 3 I T BUDGET OUTLOOK, FI LTERED BY BUDGET SI ZE

Q4:11 Q2:12 Q4:12
All Respondents +3.1% +2.6% +4.0%
Sample Size 109 105 135
IT Budgets >$50M +3.0% +1.2% +2.8%
IT Budgets >$250M +2.0% +1.4% +0.9%

Key Takeaways from
the Chart and Table
Above
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a $1B IT budget plans to hold spending flat, it wouldn't be wise to average these two
data points out and assume 5% spending growth; it would in fact equate to essentially
0% spending growth. So, weighting the data according to size of IT budget is
important, and we do see more enthusiasm among mid-sized firms offset by slightly
more caution among larger firms.

We offer a few theories to explain the bifurcation in spending plans between mid-sized
and large organizations: 1) larger organizations are more likely to be multinationals
with operations in weaker economies including Europe, and are thus constraining their
IT investments due to observed weakness in those end-markets; 2) we are simply at a
point in the IT spending cycle where mid-sized firms are ramping investments more
heavily; and 3) larger firms are reducing their spend on decades-old, on-premise
technologies that are frozen in time while ramping their Cloud spend, to net out fairly
flat, while smaller/newer companies aren't carrying the legacy baggage and are moving
forward unabated with consumption of new/emerging Cloud technologies.

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The data show a slightly aggressive IT spending environment, with a blended average
score of 6.3 on a scale of 1 to 10, 1 being un-aggressive and 10 being very aggressive.
This is a slight uptick from our survey one year ago, which had a blended average of
6.1.

Exhibit 3
I T SPENDI NG AGGRESSI VENESS I N 201 3
Blended Average = 6.3
0.7%
0.7%
10.4%
6.7%
12.6%
20.0%
15.6%
24.4%
3.0%
5.9%
0% 5% 10% 15% 20% 25% 30%
1
2
3
4
5
6
7
8
9
10
How Aggressively Will Your Organization Spend on IT in the
Next 12 Months? (1 = UN-aggressive, 10 = VERY aggressive)

Key Takeaways from
the Chart Above
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HALF OF CI OS ALREADY EMBRACI NG THE CLOUD; 40%
J UST STARTI NG TO DEVELOP CLOUD STRATEGY

We asked 135 CIOs to describe, in a few brief sentences, how their organization's Cloud
Computing approach will evolve during 2013. We also posed this question during our
December 2011 CIO survey. The main observation is the increase in the number of CIOs
who are embracing a cloud solution versus 2011, and a decrease in the number of CIOs who
have no cloud adoption plans, or are currently opposed to implementing a cloud solution in
their IT organization. In our most recent survey, a full 50% are already embracing the
cloud, up from 42% in our survey from a year ago. The number of CIOs who are either
anti-cloud or have no near-term adoption plans fell to 10% from 19% one year ago. We
believe this shift represents the continued evolution of cloud computing as a secure, reliable,
cost-effective IT delivery platform.

On the following pages appear the responses from the CIOs to the question In a few brief
sentences, please describe how your organization's Cloud Computing approach will evolve
during 2013? The responses are categorized by 1) Developing a Cloud Computing Strategy /
Pilot Phase; 2) Already Embracing Cloud and; 3) Anti-Cloud Viewpoint / No Near-Term
Adoption Plans.

We have adopted a "cloud first" policy for all developmental work within IT. Along with
the "cloud first policy we are adopting a "mobility first" policy as well.

We have moved email, office automation and Business Intelligence to the cloud and will be
working to move our data center to an IaaS supplier. All new development will be cloud based.

We are looking at cloud platforms for newer business and applications and continue to
aggressively look for SaaS applications to replace internal custom applications.

We already using a number of SaaS solutions for a few business units and IT has been
keeping abreast of trends in Cloud more intensely this year. This has been through
discussions with and presentation by key partners and with research analysts from Gartner.
This effort will intensify in 2013 as we will be looking at options for key software upgrades
and business applications implementation. There is still some nervousness around security
and privacy issues concerning data hosting but we are getting more open in the review and
analysis of options.

We will continue to increase our utilisation of external cloud SaaS solutions into more
business areas, replacing legacy business applications. We will start to utilise IaaS for data
with a low information security and low data privacy risk profile. Internal infrastructure
will be aggressively virtualised, with desktop access delivered via increased investment in
Citrix software.

We consider cloud solutions first before considering in-house hosting for any new
applications.

We will be moving from "generally considering" to actively incorporating select Cloud
technology. Focus will be on infrastructure (storage / compute) and not applications (yet).
Increase Among
CIOs Embracing the
Cloud
Quotable Quotes
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Exhibit 4

We are developing systems & solutions that help our customers with cloud, but internally we don't forecast much activity
for cloud in 2013 with our internal company use.
We are starting to look into cloud computing.
Anticipate gradual migration of additional services as confidence level in data security increases. Applications with less
sensitive data are more likely to move more aggressively than other applications that may have personally identifiable
information or data that is subject to regulatory controls.
We have no new plans at this time for Cloud Computing beyond to software as a service for workforce mgmt and payroll.
We will be moving from "generally considering" to actively incorporating select Cloud technology. Focus will be on
infrastructure (storage / compute) and not applications (yet).
We are beginning to look at what makes sense to "move" to a remote cloud environment. Security, HIPAA and other
health care regulations require significant due diligence on the strategy as well as the security and PHI (protected health
information) requirements. We do have a "cloud" strategy (really it is an ASP) for some of our applications today. The
cost/benefit, security requirements and functionality provided goes into determining if we implement an ASP application.
Due to sensitivity around customer data, our firm is hesitant about using an existing Cloud Computing vendor, it would
be more likely that we would develop our own. We may be investigating that possibility in 2013 but have not previously
seriously considered it. Our outlook is favorable toward the technology, we just do not yet have trust in the current major
vendors.
We will be looking to move some IT services to the cloud. Depending on effectiveness (ROI) will evaluate continued
deployment.
We are just starting to move into the cloud space for server hosting. In 2013 we should be moving more apps to the cloud.
Investing in foundational technologies to provide the platform to leverage cloud in FY16/FY17.
Looking at Cloud for test/dev environments
We are intending to increase our use of cloud computing in e-mail and are currently looking at personal productivity tools
in the cloud.
We are going to be assertive in use of the cloud in 2013-14; especially for dev / test environments.
Interest in Cloud Computing grows. Security and privacy is most important for healthcare.
We are exploring the possibility of using this in our Dev and QA environments
Unsure. We've just started looking into cloud computing. I'm in a university hospital setting, so protecting patient privacy
in a cloud environment is reason for caution. SharePoint is becoming more of a presence on internal servers, moving away
from standard file servers & mapped drives.
The Cloud computing is in evolution stage. The complexity comes from the integration of multiple platforms, OS and
applications into a one Holistic Cloud approach rather solo approach by each vendor.
We hope that with the increase in mobile devices and their intense use on campus that our institution will have its own
cloud for use by students, faculty & staff.
Our cloud strategy will become more clearly articulated. Our strategy continues to evolve as the available cloud
technologies mature.
We will continue to evaluate SaaS as a mechanism to reduce costs and capital expenditures. We do not believe IaaS will
work in our environment but a hybrid cloud solution will
We will move more 'non core' functions into the cloud (e.g. email). We will also look into hosting some of our systems
with 3rd party providers. Additionally we are looking into a cloud movie streaming service.
We hope to place our web site in the cloud and remove it from our data center.
We are evaluating AWS for our disaster recovery solution in lieu of a dedicated data center.

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CONTD.

We are currently working on 3 different RFP's for new application software. Much of that will be either cloud based or
SaaS.
We continue to explore (internal) cloud and virtualization as a means of providing less expensive delivery and being faster
to market for applications.
We will do more SaaS type plays and will be fully implementing MS365.
We will focus on most aggressive technology and cost-effective companies rather than big ones.
We will currently look to move non-critical, non-customer-facing applications to the cloud. Only when we get comfort on
service levels, and the prevalent legal/regulatory framework, we will look to move more applications to the cloud.
Look at Cloud solutions, mainly in backup/DR and SaaS applications
We have been very cautious in our adoption of cloud computing. We will expand that in 2013 - most notably with the
implementation of Salesforce.com. I expect placing sensitive data in a cloud environment will remain our primary concern
and continue to gate our adoption.
We are moving to provide our own Cloud Services using our Virtual Server Platforms
There is yet to be a fully developed strategy. Due to acquisitions we are focusing on other core priorities and expect that
we'll take a serious look at a Cloud Computing strategy in perhaps 2014.
As cloud services evolve, they are becoming more and more attractive to our organization. The issues around cross-border
storage of information has triggered privacy concerns, but these will be addressed as governments begin to take advantage
of the cost efficiencies.
Very cautiously on select low risk providers and services. i.e. e-Learning, mail filtering, cloud based storage. Higher risk
cloud solutions that require personal data will be reviewed more cautiously.
We are looking at cloud platforms for newer business and applications and continue to aggressively look for SaaS
applications to replace internal custom applications.
We are aggressively looking at Cloud Computing for any application needs we have.
Continuing to look for cost viable cloud solutions for large, heavy transaction data sets that are not structured.
Very little cloud computing. Only area of business in the cloud is marketing.
We will continue to evaluate cloud/hosted solutions alongside traditional on premise solutions. Our preference is on
premise. Cloud/hosted will be pursued when there are significant cost advantages or when an appropriate on premise
solution does not exist.
We are evaluating a number of cloud-based solutions for both disaster recovery and for hosted applications.
We currently have no dedicated plans to increase utilization of Cloud Computing. However, as new initiatives are
investigated, cloud computing would be considered as a solution option.
No change
We will be looking at investing more in Cloud computing in several areas of the firm including Risk etc.
We just started exploring the cloud computing in our company.
Cloud-based services are considered on a program/project per case basis based upon business requirements. Where it is
more economically feasible to buy rather than build, information services are being directed towards software as services
delivery models.
We do not expect to move anything significant to the cloud in 2013. However we are examining the possibility of moving
to the Microsoft Office cloud offering in either late 2013 or early 2014.
Cloud computing is being considered but only at the discovery stage.

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CONTD.

We are looking to centralize our IT operations and become more cloud oriented to save money and to reduce local
oversight. Storage consolidation is a priority.
We are exploring healthcare options as we face unfunded federal mandates.
This approach will not change and we will be cautious with our Cloud based decisions based primarily on security and
how it is hosted.
We are working to develop the concept of an internal cloud for services provided by IT to the rest of the organization, and
are cautiously evaluating the benefit of cloud initiatives in supporting future growth initiatives.
We will continue to evaluate cloud services, but due to our HIPAA requirements, most of our options are limited and will
likely not be implemented prior to 2014.
Cloud partners must provide Canada-only solutions. Anxious to pilot some VMs in the cloud as a proof of concept.
Buying decisions now are made keeping a view to moving to the cloud tomorrow
Continue to look at SaaS, IaaS and internal Cloud

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Exhibit 5
DETAI LED COMMENTS: ALREADY EMBRACI NG CL OUD

We have adopted a "cloud first" policy for all developmental work within IT. Along with the cloud first policy we are
adopting a "mobility first" policy as well.
Increased use of redundant cloud providers due to recent widespread failures.
We are upgrading our private cloud with a significant investment in 2013. Additionally we will be adding at least one and
possibly two SaaS components to our application portfolio.
We will have a public cloud offering, and a private cloud. The public one will be for products that need infrastructure
ASAP, and for a limited time period. Once Development or QA products are seeded in the public cloud, they will be
migrated to the private cloud to achieve longer term financial savings.
We have moved email, office automation and Business Intelligence to the cloud and will be working to move our data
center to an IaaS supplier. All new development will be cloud based.
Private cloud with adaptive bandwidth, storage, backup, and virtual data centers as a service.
We already using a number of SaaS solutions for a few business units and IT has been keeping abreast of trends in Cloud
more intensely this year. This has been through discussions with and presentation by key partners and with research
analysts from Gartner. This effort will intensify in 2013 as we will be looking at options for key software upgrades and
business applications implementation. There is still some nervousness around security and privacy issues concerning data
hosting but we are getting more open in the review and analysis of options.
Our organization is limited on use of cloud services due to intellectual property restrictions and the types of restricted
data generated. We continue to use services where applicable if contracts can be drawn up to our security satisfaction.
We have already moved all of our internal business systems to the public cloud. In 2013 we will build out our private
cloud infrastructure and begin to deploy services.
We will be migrating Exchange 2010 to the cloud.
We will continue to move to cloud computing. During 2013 we are moving our ERP system to the cloud. We already are
in the cloud for collaboration using Google.
We have already using public cloud for main services such as email, task management, documentation, and collaboration.
But still not sure to use public cloud for accounting and source codes. As a software/service provider, we are developing
our cloud edition of our product and plan is to launch it in 2013.
Selectively leveraging cloud based services to augment internal capabilities. Salesforce.com; Azure; email among the
selective areas of interest.
Utilize private cloud capabilities.
We will continue to utilize current assets in the cloud such as CRM and file share. Continue to evaluate cloud offerings
versus on-premise for certain application implementation initiatives.
Moving to private cloud computing
We are currently looking at using cloud based virtual machines to provide our students with desktops identical to what
they can access on campus. We have already moved all student email to the cloud and will be moving faculty and staff
email over the next 6-12 months.
We already implemented the private cloud for database as a service. Looking actively at cost effective cloud solutions for
app tier and other middle tiers. Looking for hosting mobile solutions on cloud.
Putting a major customer portal into the cloud but keeping financial systems and SAP in an outsourced arrangement.
Continue to use software as a service without people thinking of them as cloud - but really understanding the security.
Evaluating Microsoft 365

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DETAI LED COMMENTS: ALREADY EMBRACI NG CLOUD, CONTD.

We will enhance our private cloud to mimic the public cloud by offering self-provisioning and report-back on
consumption. We will promote using the AWS cloud for experimentation, backups and disaster recovery.
Where ever it makes good business sense and value for money the organisation will be adopting cloud. Our approach is
cloud first.
We will continue to increase our utilisation of external cloud SaaS solutions into more business areas, replacing legacy
business applications. We will start to utilise IaaS for data with a low information security and low data privacy risk
profile. Internal infrastructure will be aggressively virtualised, with desktop access delivered via increased investment in
Citrix software.
Further adoption of public and private cloud planned. Also further development and use of SaaS and IaaS services
We are continuing on a strategy to move services to the cloud when/where it makes sense from a functional (meets or
exceeds business requirements) and fiscal perspective. Specific areas of focus will be messaging, social, CRM, HRMS and
storage.
We apply cloud computing where risk of data loss is high, and need for collaboration is high.
At this time, there are no plans to change the current behavior of limited cloud usage.
All new deployments will be required to use a private cloud infrastructure at our infrastructure outsourcing partner. We
will be exploring public cloud for email next year as well. By 2015 we expect to have our infrastructure fully in a cloud
environment.
Will currently use a number of SaaS providers for core services, and we are exploring several IaaS options for some of our
computationally intensive, but bursty, processing needs.
We will continue to move infrastructure to the cloud and to integrate current cloud based systems. A push to Telephony
in the cloud is our big objective.
We will be aggressively implementing private cloud and cautiously exploring public cloud for select noncore areas.
The basic strategy is to virtualize our data centers so that we are not dependent on hardware. We are adding a fourth tier
to our storage strategy that includes cloud storage. We are also using Amazon Web Services for very high, consumer type
volumes and we are prototyping some cloud services for our business customers.
We consider cloud solutions first before considering in-house hosting for any new applications.
We are exploring using more COTS (commercial of the shelf) cloud services and developing our own private cloud
offering for our end users.
Currently we have an internal cloud and we will be exploring the use of external services in 2013.
After some initial successes with moving individual services to the Cloud I expect this trend to continue and we will
explore further opportunities to move services.
Leverage cloud where possible
Utilization of Microsoft cloud for email and SharePoint. Developing "internal cloud" for enterprise.
Continue with private cloud approach for critical apps. Look at public cloud for commodities.
We are going to be leveraging AWS and Softlayer to accommodate the growth.
We do not anticipate any growth in our external cloud computing. We will continue to grow our private cloud approach.
Looking to expand to provide cloud sharing capabilities for physicians and electronic protected health information. Will
also explore possibility of cloud storage for more of our data requirements. My true wish list is to have "near-Local"
cloud storage for everything possible that I pay as a utility. I need more, I pay more, and never have to worry about
upgrading technology. Healthcare security is a MUST.

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Cloud computing will continue to be integral to our strategy. We already have a fairly advanced cloud computing
approach, having enabled many functions in the cloud where the maturity was there. In 2013 we will look to move
additional applications as well as further expand in the areas of IaaS.
We have developed premised based "cloud" services over the last several years. In cases where we don't have the
bandwidth or there is specific capabilities only available via the cloud then we will/have engaged in cloud services. There
will be no change to this approach in 2013.
We are actively targeting the delivery of specific software utilizing the cloud. Our challenge is to ensure that the selected
services will guarantee that our data is properly secured and managed.
We are increasing our use of cloud technology but are doing so with vendor partners. We have not replaced data center
activities but are beginning to explore this possibility. Security and control remain a big concern.
We run a private cloud. Are not considering public given security concerns. We monitor cloud technology and
developments.
More than likely our Cloud Computing approach will [change] only slightly. We were somewhat ahead of the curve in
that we have been using the cloud for some time now. We will continue to use the cloud and look to move anything new
into the cloud if it fits our business need. There are still no plans to rip and replace anything currently in place just to
move it to the cloud. We intend to increase DR capabilities for our public website via the cloud to create better
availability at a lower price.
We continue to deploy our own internal cloud and be an internal cloud service provider in the infrastructure area. We are
selectively using applications in the clouds, especially those with minimum integration capability into our environment.
Cloud type computing already plays a large role in what we do as a financial institution that likes to maintain a high level
of efficiency. We outsource our data processing and online services to ensure that our institution does not have the
overhead of IT equipment and personnel. As we roll into 2013 we plan to continue to use this strategy and develop
additional relationships with cloud vendors who meet our criteria for service and innovation.
Mostly building private cloud for production. Strong migration to private cloud in 2013. Emerging use of public cloud for
non-production.
We're switching to cloud based email to save money
More workloads will continue to move to the cloud based on risk and priority. Larger number of SaaS based applications
will be evaluated rather than conventional apps on SAP.
We will be transferring all end user computing (mobile devices - smart phones, tablets, laptops and office productivity
applications - office 365 / unified communications) to the cloud. We are also looking at cloud services for our testing
environment.
Evolution, not revolution. We have moved several non-mission critical apps to the cloud; it will be a while before we
move business critical data or applications.
We'll continue to expand our usage of cloud based services. The IT approach is to use cloud wherever possible instead of
building, deploying in-house. Expand beyond cloud based email, sales applications, start using cloud computing
platforms like Amazon AWS or Microsoft Azure, specifically start moving away from hosting to cloud platforms.
Migrating from proof of concept to production environments in the cloud.
We will continue to leverage cloud. Cloud is cheaper, faster, more efficient. Cloud is the future.
We evaluate and cost willing we move what apps we can to SaaS.
Will be leveraging more cloud based solutions including Service Manager and internally developed cloud services.
We're moving slowly into cloud. First for storage then for applications.
We are using the cloud mostly for test/dev/QA environments and in a more limited fashion for production systems.

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We operate a private cloud and were an early adopter. We do not use public Cloud services.
Likely will move e-mail and document storage to cloud provider.
We are aggressively moving to leverage the Cloud for back office non customer differentiated solutions. We are moving to
the cloud for HR, Finance and other corporate/back office systems that are commonly the systems that support shared
services.
Move to more of a hybrid cloud environment and managed services data center as primary location. Plan to move email
and a few other applications to the cloud in addition to what we already use as a SaaS.
We use VMware vSphere locally. We have no plans to use any Cloud based services.

Exhibit 6
DETAI LED COMMENTS: ANTI - CLOUD VI EWPOI NT / NO NEAR- TERM ADOPTI ON PLANS

We will not be using cloud computing in 2013 due to FEDRAMP requirements.
We are pulling out of cloud/Amazon. This is primarily due to contractual obligations with our existing managed hosting
facility.
We are a single entity. Cloud computing is not on our priority list. If we were spread out, I'd consider it.
We do not plan on leveraging cloud computing in any manner at this time.
Don't have specific plans for any new movements to the cloud in CY2013. Could occur for minor applications, but we're
implementing a large ERP project over the next two years and will not be migrating any large efforts to the cloud. We do
consider its viability with each new opportunity.
We do not have a defined Cloud computing strategy at this time, and await direction from State and Federal agencies.
We do not and will not in the future use cloud computing
Cloud Computing has not been utilized for this division. It is unlikely to change in 2013.
Our Cloud Computing approach has been limited to functions that can be managed with consulting services. Given the
financial market uncertainty, our approach will not likely change in 2013.
No cloud computing approach.
No significant plans for cloud computing.
We are not currently looking at cloud computing as an option.
We are cautious about Cloud as patient information needs to be protected. In addition there aren't many cloud based
Electronic Medical Records available in the market. For non-patient related stuff we do use cloud on a limited basis.
It is not really evolving. We do not have plans to utilize the cloud computing.

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We asked CIOs to quantify their 2013 spending plans for a number of software
vendors, as measured by the y-axis. The percentage of CIOs already using these
penetrated. Growth should be considered along with penetration: WDAY enjoys low
penetration and the strongest spending growth, while VMW is deeply penetrated.

In our view, the companies in the most attractive position appear in the upper left
portion of the chart, which means they can expect to generate more revenue from their
installed base, and can also pursue a significantly untapped market opportunity by
adding new customers. For example, Workday and ServiceNow can look forward to
best-in-class installed base spending growth and also a long runway of new customer
additions before reaching the high level of saturation of MSFT and VMW.

Other winners in this zone of the chart include CRM and SAP. IBM software and
SYMC are in the least enviable positions, in our view, with reasonably high penetration
and a likelihood of installed base shrinkage.

Exhibit 7

Key Takeaways from
the Chart Above
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The chart above compares our survey data from June 2012, to our survey data from
December 2012.

The vendors with the strongest planned installed base spending increases in 2013,
excluding mega-vendors, include WDAY, VMW (caveat: VMW is deeply penetrated),
NOW and CRM. The weakest spending plans for 2013 include Infor, CA, SYMC and
IBM software.

Consistent with our Dec-2011 and Jun-2012 CIO surveys, the strongest spending
increases are being directed to cloud and cloud infrastructure providers, underscoring
the long-term attractiveness of high-quality investments in this space.

INFA saw a material positive swing versus our prior survey result, potentially reflecting
a return to stability.
Exhibit 8
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH COMPARI SON
(2013 vs 2012)

-2.0%
-1.7%
-1.3%
-0.9%
-0.8%
-0.3%
-0.1%
0.3%
0.4%
0.9%
0.9%
1.0%
1.7%
1.8%
2.1%
2.9%
3.7%
4.7%
0.8%
-1.1%
0.8%
-0.5%
-1.6%
-0.6%
0.4%
-1.9%
1.9%
1.2%
0.7%
1.1%
2.3%
3.5%
2.9%
3.9%
0.9%
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Infor
CA Technologies
Symantec
IBM Software
NetSuite
Tibco
Concur
Informatica
Red Hat
Citrix
Nuance
Oracle
salesforce.com
SAP
Microsoft
ServiceNow
VMware
Workday
Projected 2012 Installed base Spending Growth (June 2012) Projected 2013 Installed base Spending Growth (Dec 2012)

Key Takeaways from
the Chart Above
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This chart shows the raw data and methodology behind determining market
penetration and projected installed base spending growth.

Exhibit 9
PROJ ECTED I NSTALLED BASE SPENDI NG GROWTH
(Raw Data)

Vendors
We Do Not
/ Will Not
Use This
Vendor
Response
REDUCE
Spending
By >10%
REDUCE
Spending
By 0-10%
MAINTAIN
Consistent
Spending
INCREASE
Spending by
0-10%
INCREASE
Spending by
>10%
Market
Penetration
Installed
Base (# of
Respondent)
Projected
Installed
Base
Spending
Growth
Workday 89% 0% 0% 5% 4% 2% 11.1% 15 4.7%
VMware 9% 1% 1% 44% 29% 15% 91.1% 123 3.7%
ServiceNow 82% 0% 1% 12% 2% 3% 17.8% 24 2.9%
Microsoft 1% 1% 5% 56% 29% 7% 98.5% 133 2.1%
SAP 62% 1% 2% 23% 9% 3% 37.8% 51 1.8%
salesforce.com 55% 3% 4% 16% 19% 3% 45.2% 61 1.7%
Oracle 24% 4% 7% 41% 20% 4% 76.3% 103 1.0%
Nuance 79% 2% 0% 13% 4% 2% 20.7% 28 0.9%
Citrix 28% 6% 4% 43% 12% 7% 71.9% 97 0.9%
Red Hat 47% 2% 4% 34% 12% 1% 52.6% 71 0.4%
Informatica 70% 4% 0% 18% 6% 2% 29.6% 40 0.3%
Concur 65% 1% 1% 28% 3% 1% 34.8% 47 -0.1%
Tibco 87% 1% 1% 10% 0% 1% 12.6% 17 -0.3%
NetSuite 85% 1% 1% 11% 1% 0% 14.8% 20 -0.8%
IBM Software 36% 4% 8% 46% 6% 1% 64.4% 87 -0.9%
Symantec 21% 7% 10% 52% 9% 1% 78.5% 106 -1.3%
CA Technologies 56% 4% 9% 28% 3% 1% 44.4% 60 -1.7%
Infor 89% 1% 1% 8% 1% 0% 11.1% 15 -2.0%

Key Takeaways from
the Chart Above
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This chart provides a rapid way to visually determine the direction of spending by
CIOs on each of the vendors we asked the CIOs to evaluate.

Exhibit 10
DI RECTI ONAL SPENDI NG PLANS PER VENDOR
(Sample Size of Installed Base is Different for each Vendor)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Tibco
Infor
CA Technologies
NetSuite
IBM Software
Concur
Symantec
Red Hat
Citrix
Informatica
Nuance
ServiceNow
SAP
Oracle
Microsoft
VMware
salesforce.com
Workday
Increase Spending Maintain Spending Reduce Spending

Key Takeaways from
the Chart Above
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We asked 135 CIOs: Which SERVER Operating Systems will Gain or Lose Share of
your Organization's Server Environment in 2013? The chart above shows the raw
data, which clearly highlights that Linux, and to a lesser extent Windows, are
expected to extend their footprint across server environments, while both UNIX and
Mainframe platform stand out as the definite share losers.

Exhibit 11

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Linux
Windows
UNIX
Mainframe
Which SERVER Operatings Systems will Gain or Lose Share of
your Organization's Server Environment in 2013?
Gaining Maintaining Losing

Key Takeaways from
the Chart Above
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We analyze the results on a "Net-Gainer" basis; in other words, if 55% of CIOs
indicate a certain OS will gain share of their server environment, and 45% indicate it
will lose share, that would equate to a "Net-Gainer" score of +10%.

Whereas Linux edged out Windows by a narrow margin in our year-ago survey,
Linux wins by a noticeably wider margin heading into 2013.

We find Linux leading the pack at +33%, Windows next at +15%, UNIX next at -
31%, and Mainframe last at -46%. This compares to +37%, +35%, -17% and -39%
in 2012, respectively. In aggregate, this suggests that both Linux and Windows will
gain share in 2013, but that Linux became more disproportionate in terms of
leadership versus Windows year-over-year. Both UNIX and Mainframes are expected
to lose material share.

Exhibit 12
(Net-Gainer Basis)

36.7%
34.9%
-17.4%
-39.4%
33.3%
14.8%
-31.1%
-45.9%
-60% -40% -20% 0% 20% 40% 60%
Linux
Windows
UNIX
Mainframe
Which SERVER Operating Systems will Gain or Lose Share of
2012 2013

Key Takeaways from
the Chart Above
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If we filter the data to show only Large organizations with >$250M in IT spending
(which would loosely equate to firms with >$8B in revenue), results are
disproportionately strong for Linux: Linux at +60%, Windows at +13%, UNIX at -
30%, Mainframe at -57%.

Because Red Hat dominates the Linux Server market with roughly 70-80% market
share, and has made a strong showing among the largest IT budgets, we believe the
results foreshadow a high likelihood of ongoing rapid market share gains in 2013.

Exhibit 13
(Net-Gainer Basis, IT Budgets > $250M)

52.4%
23.8%
-9.5%
-42.9%
60.0%
13.3%
-30.0%
-56.7%
-80% -60% -40% -20% 0% 20% 40% 60% 80%
Linux
Windows
UNIX
Mainframe
your Organization's Server Environment in 2013? (Filtered for IT
Budgets >$250M)
2012 2013

Key Takeaways from
the Chart Above
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MOST CRI TI CAL MEGA- VENDORS FOR THE FUTURE

Exhibit 14
CRI TI CAL I T MEGA VENDOR

3%
3%
6%
7%
10%
11%
16%
45%
4%
5%
8%
10%
11%
10%
19%
33%
0% 10% 20% 30% 40% 50%
Apple
Hewlett Packard
EMC
IBM
Cisco
SAP
Oracle
Microsoft
Which IT Mega-Vendor Will Be Most Critical and Indispensible to your
Organization's IT Environment in the Future?
2012 2013

Exhibit 15
YEAR- OVER- YEAR SHARE CHANGE
Vendor
2012
Share
2013
Share
Y/Y
Change
SAP 10% 11% 1%
Cisco 11% 10% -1%
Apple 4% 3% -1%
EMC 8% 6% -2%
Hewlett Packard 5% 3% -2%
Oracle 19% 16% -3%
IBM 10% 7% -3%
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Exhibit 15 shows Microsoft as the clear share leader, followed by Oracle. Exhibit 20
shows the share changes from 2012 to 2013, led by Microsoft and follow by SAP.

Exhibit 16 examines year-over-year share changes on a dollar-weighted basis. When we
look at CIO responses and assign weights based on the size of their IT budgets, and
then look at the total share change, we can see that SAP, Microsoft and Cisco were the
biggest share gainers. This has to be taken with a grain of salt, however, because it does
not mean that the magnitude of spending on a vendor will rise by the amount of share
the vendor gained in our survey. E.g. we dont believe spending on SAP will rise by
21% among our respondents. It only means that more of the CIOs with the largest IT
budgets are SAP shops in our current survey. Therefore it should not be viewed as a
literal correlation to IT spending, but rather as a directional indicator of CIO
mindshare and thought leadership.

61 out of 135 CIOs named Microsoft as their most critical mega-vendor for the future, more
than double the number of mentions for the second place vendor. CIOs state that "There
are really no alternatives to Microsoft", "MS services are getting better and will allow us to
move more to the cloud", and "We are highly invested in their technologies and dependent
on them extending their platforms". We believe Microsoft's dominance in the enterprise is
underappreciated, and some of the threats against Microsoft, such as alternatives to the
Windows desktop OS in the enterprise or productivity software, may be over-hyped in the
near-term. That said, keep in mind that our CIO survey does not address the large
consumer business for Microsoft, which faces much more intense competitive pressures
than its enterprise business.

21 out of 135 CIOs named Oracle as their most critical mega-vendor for the future. CIOs
mentioned Oracle due to "Considerable existing reliance on applications and databases".
Other CIOs are "way too heavily invested in their ERP and supporting technologies", and
their "core GLs and some key analytical applications are on the Oracle platform. Many
developments are anchored around these applications." Note that only 2 CIOs cited
Oracle's database as the key driver of strategic value, whereas 10 CIOs mentioned Oracle's
Exhibit 16
YEAR- OVER- YEAR SHARE CHANGE, DOLLAR WEI GHTED

Vendor
2012 $
Share
2013 $
Share
% Dollar
Share,
2012
% Dollar
Share,
2013
Y/Y
Change
SAP $3.8 $30.7 11% 33% 21%
Cisco $3.7 $23.7 11% 25% 14%
Microsoft $6.0 $23.1 18% 25% 7%
EMC $0.9 $1.5 3% 2% -1%
Apple $2.0 $0.6 6% 1% -5%
Oracle $4.2 $6.0 13% 6% -6%
Hewlett Packard $2.3 $0.2 7% 0% -7%
IBM $10.3 $7.7 31% 8% -23%
Total $33.2 $93.5

Key Takeaways from
the charts above
Microsoft: "Still the
Best Corporate
Desktop
Environment."
Oracle: Stickiness
Driven by Apps More
than Database
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ERP offerings. Notably, for the second year in a row, it appears that Oracle's applications
create more stickiness than its database and middleware offerings.

15 CIOs selected SAP, 9 of which did so for SAP's applications, specifically calling out ERP
and CRM. This year's responses are similar to last year's response. "Virtually all application
software is based upon our SAP ERP platform" and "they [SAP] are our core ERP vendor".
Some CIOs are in the midst of new SAP projects "to replace aging legacy systems" and
"standardizing our many acquired ERP and CRM solutions towards SAP". In the dollar-
weighted vote, SAP has a hefty 33% of the dollar share. We note that this could be due to
one or two vendors with very large IT budgets participating in the survey, but likely also
reflects an increase in SAP's mindshare among CIOs.

13 CIOs selected Cisco, stating that "Cisco is the core of our voice and data network as well
as our compute power hardware" and "Our networks are the most critical to our success.
Cisco is installed everywhere and we don't see that changing." One CIO referred to use of
Cisco for "video and web conferencing" and another for "Their ability to supply network
and security innovations."

9 of the 135 respondents selected IBM as most critical and indispensable to the future of
their organization. CIOs cited a variety of IBM technology deployments including "tool for
development", "MDM and WebSphere", "mainframe", and "IT infrastructure is outsourced
to IBM". The company did not poll as strongly on a dollar-weighted basis as it did in our
2012 survey.

8 of the 135 CIOs (6% of total) selected EMC as the most critical and indispensable to their
organization. Interestingly, only 3 of the 8 were in reference to VMware. The remaining 5
CIOs all chose EMC for their industry-leading storage offerings. While EMCs share of
responses dropped from 8% in 2012 to 6% in 2013, we note that the dollar-weighted share
was only 2%, meaning the IT budgets of the CIOs that responded in favor of EMC likely
had IT budgets on the lower end of the scale. EMC has always dominated the large Fortune
100 data centers in terms of storage market share, but has recently begun focusing on the
mid-size and SMB markets, by way of VNX, VNXe, Vblocks and Isilon. We view the
small/mid-size enterprise markets as a significant growth opportunity for EMC in 2013 and
the upcoming refresh of the mid-range VNX platform should enable further share gains in
this space.

Apple was mentioned four times by CIOs in our survey. Two CIOs mentioned Apple
because of its "mobility" and another for its relevance to the "BYOD" trend, or Bring Your
Own Device. One of the CIOs who favors Apple also noted "Microsoft becoming too
unfriendly and costly." Please note that we view Apple's appearance anywhere on this list as
a positive, as Apple is not traditionally thought of as an Enterprise IT vendor in the same
way as the other vendors in the survey.

In our survey last year, HP only received more votes than Apple, but this year received the
same number of CIO votes and saw its dollar-weighted share shrink to a frighteningly
miniscule level. Of the four votes, two of the respondents mentioned that they use HP for
their outsourcing needs, and only one mentioned their use of HP because of its "Breadth of
hardware, software and services available." HP has made little progress in convincing CIOs
that they should embrace HP's technology portfolio in a strategic manner. The recent
headlines that HP may now divest assets such as EDS and Autonomy paint a picture of very
costly mistakes in the past and are likely be headwinds against HP's efforts to get a toehold
in large IT organizations.
SAP: The
Applications Leader
Cisco: Core Network
Technology
IBM: Pervasive in the
IT Organization
EMC: The Storage
Leader
Apple: Mobility is
Key
HP: Underperforms
Again
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Exhibit 17
DETAI LED COMMENTS FROM MI CROSOFT SHOPS

We are a Microsoft shop
MS continues to be the standard platform for server, PC, laptop, database and office automation applications.
SQL Server with extended BI
Microsoft provides the backbones for our internet services. The servers; operating systems, the NFS, the databases, etc.
We've made heavy investments in Microsoft and know what we are getting. They partner with us and when we have a
problem/they have a problem.
This is our bread and butter
We are a full AD [Active Directory] and SharePoint shop.
The servers that run the business are Windows based.
We are highly invested in their technologies and dependent on them extending their platforms with new and more
enabling capabilities.
Integrating Dynamics AX
Win 7 migration and resulting desktop performance/stability improvements
We are Microsoft shop
As we move our email to cloud based we will be utilizing Microsoft's services. We are also moving from Cisco Clean
Access to Microsoft's NAP
We build on the .NET platform
We will be migrating off our mainframe over the next three years and expanding our already extensive use of Microsoft
products (Oracle is likely to be a close second)
We use Microsoft's Office suite and an increasing amount of their products each year.
Our current Office solutions and software products in use are only supported on MS.
They are our partner creating a Dealer Management System for auto dealers.
Windows 8 as well as potential cloud provider
Still the best corporate desktop environment with tight integration with network access through Active Directory.
Use of products across all areas of business
Standard Operating System for most of our mission critical applications.
As we move away from a Notes environment, we'll be using more MS products
If I could have answered none of the above I would have. In the past we have heavily relied on one of these firms and we
are moving away from a dependence on the mega-firms.
Everything is based on this [Microsoft].
We are still a Microsoft shop, though I would say that none of the mega-vendors are increasing in their importance to us
We are moving to MS365 (over Lotus Notes)
It's how we communicate and do business, not changing soon
OS and office automation tool penetration
We are a Microsoft development shop and use Systems Center
There are really no alternatives to Microsoft. We have looked at Chrome OS but it doesnt meet our needs.
Basic software platform
Most dominant

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DETAI LED COMMENTS FROM MI CROSOFT SHOPS, CONTI NUED

None of the above. We use commodity HW and Open Source software
Is on every desktop
Desktops and Servers. We couldn't run our operation without Microsoft.
Our SharePoint investment will continue to grow as we leverage the web internally and externally.
We have completed the transition from Novell to Microsoft and foresee Microsoft will be dominate player for us
Utilize their office suite, development tools and server technologies. Have an enterprise agreement.
Enterprise move to Win7
We use it throughout the organization
Almost everything we do it with them - Desktop, Office Suite, email, database, etc.
Outlook, SQL, Exchange
OS
Our core IT environment relies heavily on Microsoft products.
Productivity Enablement & Collaboration capabilities
We are heavily dependent on SQL Server for both vendors supplied and internally built systems.
We have standardized on the Windows platform for servers/PCs.
The largest provider of all elements of our software going forward.
For Office, Windows Servers, Mobility (surface Tablets)
All of our key systems run on the MS platforms.
Leaning more and more on their portal technology for internal/external collaboration.
Desktop tools
MS services are getting better and will allow us to move more to the cloud.
Lots of investment in MS stack
Infrastructure
Entire application and database stack built on their platform
Base OS for the company. No plans to switch.
We are a Microsoft based IT department.

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Exhibit 18
DETAI LED COMMENTS FROM ORACLE SHOPS

No viable alternatives
Growing percentage of total IT spend that they will have to defend with service else they will lose that position
We are running JDE as our ERP platform.
Object Level Security is essential to our infrastructure
Our Core Trading app moved to Sun Super Cluster
Our analytics platform is built on Oracle and will be critical to our success
We are way too heavily invested in their ERP and supporting technologies.
The majority of our critical systems utilize this vendor.
Key back office integration with our MES/ERP
We rely on their products across all of our enterprise.
Taleo is our main product delivery (human resources) engine.
Our core GLs and some key analytical applications are on the Oracle platform. Many developments are anchored around
these applications.
ERP and database investments
Provides our global ERP footprint
Our ERP system depends on them
Implementing Oracle EBS.
PeopleSoft and our data warehouse and applications underpinning.
Considerable existing reliance on applications and databases
Core platform, need for integrated tooling
Significant investment in Oracle

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April 2014

Exhibit 19
DETAI LED COMMENTS FROM SAP SHOPS

80% of our business is using SAP
ERP system. We are hooking up customer and business apps to SAP backend
Cloud ERP
We are growing and the ability to have consistent processes globally will be key
SAP needs to be aware about all business changes.
Currently deploying SAP Business Suite to replace aging legacy systems
As our entire transactional backbone runs on their technology
Runs our core order mgmt
We are standardizing our many acquired ERP and CRM solutions towards SAP. It is a fundamental initiative.
They are our core ERP vendor and the space that the most business process changes will be taking place
95% of our enterprise runs on SAP software
Virtually all application software is based upon our SAP ERP platform.
We run our company on SAP with more implementations to come
Enterprise ERP and CRM

Exhibit 20
DETAI LED COMMENTS FROM CI SCO SHOPS

Their ability to supply network and security innovations
It is our delivery mechanism
Unified communications trends
Cisco is the core of our voice and data network as well as our compute power hardware.
Network Infrastructure is based on this company
Mobility and communications for electronic medical record
Core network technology
We are looking to transform our retail store networking environment to support new customer-facing technologies (magic
mirror, iPads, etc.).
Use in our backbone
Starting to use them for more of our infrastructure
Increase video and web conferencing using their solutions
Our networks are the most critical to our success. Cisco is installed everywhere and we don't see that changing.
Networking across entire organization

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Exhibit 21
DETAI LED COMMENTS FROM I BM SHOPS

We run our ERP on IBM
IT infrastructure is outsourced to IBM and we have also standardized on a number of IBM tools for development
including testing, change and incident management
Because our Electronic Medical Record Software is running on IBM Unix.
They provide critical computing and support services
Key components run on their hardware and OS software
Broadest footprint and range of solutions
Strategic Vendor - integration, MDM and WebSphere (WAS/WVE)
We are an IBM mainframe shop, and the software and services will continue to influence our delivery of IT.
We depend on them for many facets of IT products and services

Exhibit 22
DETAI LED COMMENTS FROM EMC SHOPS

New innovations and technology and software solutions helping manage Data Centre Technologies
Big Data storage requirements keep growing and EMC is the leader
Between VMware and our overall SAN needs, EMC will play a crucial role with us going forward.
VMware virtualization software is critical now and will increase as we virtualize desktops and leverage their
virtualization for DR capabilities.
Storage
We are critically dependent on high availability storage at many locations.
Healthcare data
Provides core storage services which is #1 in terms of criticality for VMware.

Exhibit 23
DETAI LED COMMENTS FROM APPLE SHOPS

BYOD at upper management level
Really, none of these vendors. As we move to device independence, the need for any of these [vendors] decreases.
Mobility
Mobility, ease of use. Microsoft becoming too unfriendly and costly

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Exhibit 24
DETAI LED COMMENTS FROM HP SHOPS

We are heavily outsourced and HP is our primary partner
Have signed an enterprise agreement to outsource and centralize data centers.
Breadth of hardware, software and services available.

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April 2014

STANDOUT SOFTWARE VENDORS

We asked each CIO to name 2 or 3 standout small or mid-sized software vendors that are
impressing them with their technology, vision, and value-add to their organizations.
VMware maintained its #1 position with 7.4% of CIOs mentioning it, followed by
Workday and ServiceNow each at 5.9%, AirWatch (provides MDM solutions) at 4.4% and
salesforce.com at 3.7%. Key Takeaway: Cloud and Cloud Infrastructure vendors continue
to capture the mind share of large-enterprise CIOs, demonstrating that the disruptive shift
to cloud computing is strengthening. Mobility and Business Intelligence solutions moved
higher up the list as CIOs grapple to equip the enterprise with technologies to handle the
BYOD and Big Data waves. Rather than providing a predetermined list of companies, the
question was open-ended, so that CIOs could mention any vendor that came to mind. In
total, 224 vendors were mentioned: 30 received multiple mentions, and 194 others received
a single mention.

Exhibit 25
Q4: 201 2 CI O SURVEY - STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS
(Mentioned by two or more respondents)

7.4%
5.9%
5.9%
4.4%
3.7%
3.0%
3.0%
3.0%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
2.2%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Vmware
ServiceNow
Workday
AirWatch
salesforce.com
Box / Box.com
Nuance
Symantec
Aruba
Dell
Epic
QlikView
SHI
Splunk
Veeam
Adobe
Amazon
Apple
CA
Citrix
Geodesic
ICC
Jive
Log Rhythm
MicroStrategy
Ruckus Wireless
Social Text
SuSE
Tableau
Zenprise
Please name 2 or 3 standout SMALL or MID-sized SOFTWARE VENDORS that are impressing you with their
technology, vision, and value-add to your organization.

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Cloud and Cloud Infrastructure vendors continued to rule the top of the list with
numerous mentions, including VMware, WorkDay, ServiceNow, AirWatch,
salesforce.com, Box, QlikView, Splunk, Citrix, and others. We can debate whether
certain companies are indeed small or mid-sized software vendors, but keep in mind
that we surveyed some very large organizations with Billion-dollar-plus IT budgets,
and to those organizations, essentially any software vendor is a relatively small or mid-
sized company.

VMware and Workday maintained their 1st and 2nd positions, as compared to the
results from our survey conducted one year ago. VMware was mentioned by 7.4% of
CIOs (versus 9.2% a year ago), while Workday followed closely and was mentioned by
5.9% of CIOs (versus 4.6% a year ago), representing a tie with ServiceNow.

As compared to the year-ago survey, the current survey shows an increased number of
multiple mentions for vendors providing mobility solutions (3 vs 1) as well as Business
Intelligence Solutions (3 vs 0). Mobility vendors receiving multiple mentions include
AirWatch, Zenprise and Geodesic, while BI vendors receiving multiple mentions
include QlikView, Microstrategy and Tableau.

Key Takeaways from
the Chart Above
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April 2014

Exhibit 26
STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS

Company
# of
Mentions
% of CIOs
who
Mentioned
Description
Vmware 10 7.4% Leader in Virtualization and cloud infrastructure
ServiceNow 8 5.9% IT Service management (SaaS) company
Workday 8 5.9% HR Information System & ERP (SaaS) company
AirWatch 6 4.4%
Mobility Solutions (Mobile Device Management,
Mobile Application Management, Mobile Content
Management) vendor
salesforce.com 5 3.7%
Leader in Customer Relationship Management
(SaaS)
Box / Box.com 4 3.0%
Online file sharing and Cloud content management
service vendor
Nuance 4 3.0%
Speech recognition and imaging applications
company
Symantec 4 3.0% Enterprise Security Software vendor
Aruba 3 2.2% Distributed enterprise network solutions vendor
Dell 3 2.2% A computer technology company
Epic 3 2.2% Health care software company
QlikView 3 2.2% A Business Intelligence (BI) software vendor
SHI 3 2.2%
Corporate reseller of software, hardware, and
related services
Splunk 3 2.2% Operational intelligence software vendor
Veeam 3 2.2%
Virtual infrastructure management and data
protection company
Adobe 2 1.5% Multimedia Software Products vendor
Amazon 2 1.5% World's Largest eCommerce Retailer, AWS
Apple 2 1.5% Leading consumer electronics company
CA 2 1.5% IT Management Solutions vendor
Citrix 2 1.5% Desktop and server virtualization company
Geodesic 2 1.5%
Provide Unified Communication and Collaboration,
Multimedia Content Delivery, Financial Products and
Mobile Computing
ICC 2 1.5%
Document management and Biometric solutions
company
Jive 2 1.5% Leading provider of social business solutions
Log Rhythm 2 1.5%
Security information and event management (SIEM)
IT platform
MicroStrategy 2 1.5% A Business Intelligence (BI) software vendor
Ruckus Wireless 2 1.5% Builds Smart Wireless LAN systems
Social Text 2 1.5% Produces enterprise social software
SuSE 2 1.5% Open Source Operating System
Tableau 2 1.5% Award-winning business intelligence software
Zenprise 2 1.5% Leader in mobile device management

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The chart above shows last years standout vendors.

The data painted by our Q4 2011 survey is not too dissimilar from our Q4 2012 survey.
Two names from our Q4 2011 survey fell out of the top five in our current survey
(Citrix and Riverbed) and were replaced by Airwatch and ServceNow.

Half of the top eight vendors in our Q4 2011 survey were cloud or cloud infrastructure
provider vendors. Five of the top eight vendors in our Q4 2012 survey are cloud or
cloud infrastructure provider vendors

Following is a list of each vendor mentioned at least once by our survey respondents.
Exhibit 27
Q4: 201 1 CI O SURVEY - STANDOUT SMALL OR MI D- SI ZED SOFTWARE
VENDORS
9%
5%
4%
4%
3%
3%
3%
3%
3%
3%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
VMware
Workday
Riverbed
salesforce.com
Citrix
MobileIron
Nuance
Sitecore
SuccessFactors
Concur
Descartes
EMC
Epicor
Google
Intelligent Medical Objects
JDA
Quest Software
RightNow
Symantec
TIBCO
Troux Technologies
Veeam

Key Takeaways from
the Chart Above
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Exhibit 28
Q4: 201 2 STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS
(Single Mentions)

3Par (Still very impressed; Concern is HP will screw them up)
Accellos
Acumlus
Aderant
Akamai
Alpinat - for portal
Alpine Data Labs
Appcelerator
AppDynamics for monitoring production servers
Apptricity
Appworx
Articulate
AssetWorks
Atlassian did a great job with their line of products and cloud services.
Atomic Learning
AtTask
BankServ who is now owned by fundtech (again concern about screwing them up)
Barracuda
Baseware for Invoice Managemet as a SaaS
Bigdata
Bluecoat
BMC
Boundary
Boxtone
Canonical
CastIron
CEI
Chaotic Moon
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(Single Mentions)

Cheetah
CipherHealth aims to help hospitals avoid government penalties associated with preventable hospital readmissions.
Code Green
Cogent QC
Cognizant
Commvault
Compliance Assist
ComponentArts
Concur
Couchbase
CURA for risk management
Dellworks products
Descartes - a Canadian company that provides logistics via SAAS.
Desknet - Client reporting software
DigitalPersona
Digital Reef
Docusign has also allowed us to launch some new features on our portals that were otherwise cost prohibitive.
Doubletake
DSI (mobility platform)
Duck creek
Dundas - visualization tools for SharePoint
eDocument
Egenera
Egnyte
Eloqua
eLumen
EMC
Evernote
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(Single Mentions)

Exabyte
Excitor (www.excitor.com)
Exinda
Fair Isaac for Blaze Advisor Business Rules
FireEye
Fiberlink MDM
First best
Force10
Forescout
Fortherecord (digital capture company)
Geezeo
Gem-Box Software
GetSatisfaction
GhostDraft
Golden Gekko (www.goldengekko.com),
Good Technologies
Google
Greenway
Guidewire for core insurance platform
HB Gary
HCL
Healthcast
Hybris
I3 (call center automation)
Igloo Software
Imperva
Inflectra - SpiraTeam Testing software
Infor
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(Single Mentions)

Informatica
Infragistics
IntApp
InterTech - Heat CRM application
Intuit
In Your Class.com
Ipswitch
ISCS
ITRP institute
Jeff-Net
JetBrains
Jolera
Joyent
Juniper
JWSoftware - Claims Admin software
Landpark
LifeRay
Lifesize
Lithium
Maas360
Mandiant
Maxxvault - Document imaging system
McKesson Paragon. Visionary and rapid development.
Micro focus
Microsoft Lync
Midas
Mitel
Mobile Defense (security-focused Mobile Device Management)
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(Single Mentions)

Mobile Iron
Mocana
MortgageFlex
MVisum
Nessus
Nasuni - Wonderful, simple and affordable cloud based NAS that we use for Home directories and backup files
NCR
Netbrain
Netscout
NetSuite
Neudesic
Nexus - Voice Logger
Nimble
Novell
Okta
Omtool LTD
OPTier
Oracle
Outstart for LMS as a SaaS
Palo Alto
Pearson eCollege
PeerVue (McKesson)
Pentagon Software
Perceptive Software
Phone Factor (multi-factor authentication via mobile devices)
Pilgrim Software - qmis
PMG for Service Catalog
PointAlliance
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(Single Mentions)

Polk
Progress Software
Pronto
Protegra
QAD
Qatalys is a software/services vendor that has helped us with our Dynamics GP system
Qualcomm
Quest Software (pre-Dell)
Quick Solutions
Rackspace
Radware
Rainstor
Rapid7
Razorthreat
Recommind
Red Prairie
Redgate
Remedy Systems provides a flexible care coordination platform to help lower health care costs and improve quality
Retalics
Right answers
Riverbed
Rover Apps
Salient
SciVal
Shoretel
Skillsoft for online learning tools
Slideshark
Smarter Agent
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(Single Mentions)

SolTech
Sonicwall firewalls were impressive. Easy to setup and maintain in compare to Cisco
SpaceWalk (Linux Patch Management)
Spigit
Sprout Social
Square
SSO Easy
Success Factors
Syncom (Fujifilm)
Synygy
TCL - Instacc Call Center hosted model
TCS
Telus
Threatmetrix
Tibco
Telerik
Torbit
TRACtion from moresteam.com for lean six sigma project reporting
TripWire (change management)
Trustee
TWC
Unity
Urban Turtle - Agile project management software
Varonis
Velos
VersionOne
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WHAT WENT WRONG I N TECH DURI NG Q3?

The chart above represents our interpretation of the responses from our survey of 135
CIOs when we asked them Enterprise Technology vendors generally reported
noticeably weaker sales results in the recent Q3, including IBM, Intel, Microsoft,
VMware, Informatica, Checkpoint, Citrix, Fortinet, F5, Teradata, and MicroStrategy.
From your perspective, what caused IT spending to dry up so noticeably during Q3 (i.e.
August, September, etc.)?

To categorize each response, we determined the primary factor or factors provided in
response to the survey question, and then assigned one or more categories to each
response. The percentages add up to more than 100% because most CIOs cited
multiple factors. Many respondents referred to economic uncertainty, and uncertainty
due to the US presidential election. Some respondents referred to uncertainty in
general, so "General Uncertainty" received its own category.
Exhibit 29
CATEGORI ZATI ON OF RESPONSES ( TAGGED)

39%
28%
16%
8%
7%
7% 7%
4%
2%
1% 1%
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
What caused IT spending to dry up so noticeably during Q3 (i.e.

Key Takeaways from
the Chart Above
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The chart above represents a raw word count based on the open-ended responses; it is
a mechanical process. It does not consider the context of each response.

On the following pages are the specific responses from the CIOs when we asked them to
provide an explanation for the causes are the Q3 IT spending dry up.
Exhibit 30
CATEGORI ZATI ON OF RESPONSES ( WORD COUNT)

36%
34%
24%
7%
6%
5%
2%
1% 1% 1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
What caused IT spending to dry up so noticeably during Q3 (i.e.

Key Takeaways from
the Chart Above
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Exhibit 31
WHAT WENT WRONG I N Q3 ? TECH THEMES / COMPANY- SPECI FI C COMMENTS

Uncertain economic conditions and an inherent shift in approach from infrastructure to cloud services.
Economy, but also shifts in needs. We are buying services from Google which reduce spend with Microsoft, Citrix, and
IBM. We shifted most of our data center into the cloud, so less Dell, IBM, VMware, Microsoft and storage. Finally, we
moved our BI to the cloud, reducing in-house software needs.
Probably fear of the fiscal cliff, but I would also wager that frequent reports of ERP implementation failures during 2012
have not helped the situation.
Some of these products aren't keeping up with the times, and their support is farmed to countries where you can't
understand the people on the other end. I think they are getting too big for their britches. Products overpriced. i.e.. Citrix
doesn't work well with the internet. Cisco and others pricing out of control. VMware - empty promises, product failures.
Political uncertainty and stagnant product life cycles for the most of the companies.
Few new technologies that are important revenue drivers.
Utilizing more enterprise architecture and more holistic approach to spending.
Moves to optimise existing infrastructure and processes during 2012 maintaining a work as usual. Tendency to shy away
from new initiatives due to lack of funding.
Probably a combination of cost cutting, consolidation/standardization and execution of projects started prior to Q3 that
reduced the need to buy more solutions.
Open Source is becoming more reliable. This is the main reason.
There is a lot of evolution in technology right now, and in several areas of the stack it is unclear which type of product to
buy? Many vendors are starting to converge on mobile device management, identity management, analytics, and
infrastructure management but they come at it from different starting points. So which one is the way to go, requires more
investigation. Also, most of the innovation is smaller companies that will eventually be acquired. In the short-term they
are taking sales away from traditional suppliers. But we also have a general fear of the acquirer being Oracle or SAP -- so
we would rather wait and see how the consolidations shake out before making a huge commitment to a new product
suite.
US election uncertainty, health care legislation, fiscal cliff uncertainty. Not knowing the direction our country was headed
seems to have been a huge factor in many large scale projects for many companies. Now fiscal cliff uncertainty will
continue to plague growth. Knowing that the US is now lead by those who tend to penalize big business and growth will
only continue that plague.
In our industry and particularly in Massachusetts - in healthcare there is great pressure to reduce ongoing operating cost.
We have had to significantly reduce both capital and ongoing operating [budget]. We are also waiting for the virtual
desktop space to become more clear before spending in this technology space.
Not really sure. IT is waiting for the new releases to be proven by those willing to be early adopters.
I am holding off on a complete PC refresh until Windows 8 licenses start shipping with PCs. Also we are not sure how
Windows 8 tablets will work out, so we don't want to commit to the wrong technology.
Uncertainty around mobile device and coordinated Windows 8 roll out.
No must-haves or interesting technology, wait and see approach on Windows 8 in the Enterprise. Business environment
still not safe enough for larger projects.

Source: Piper Jaffray
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Exhibit 32
WHAT WENT WRONG I N Q3 ? ADDI TI ONAL NOTABLE QUOTES

Business performance in current economic climate has been off plan for some organizations, coupled with uncertainty in
immediate future with respect to growth outlook caused the dry up.
IT discretionary spend normally coincides with the general business climate. Q3 was not an easy quarter; A lot of
uncertainty globally and here in the US with elections, etc.
Concerns about the economy and the already reduced revenues, while spending has not decreased sufficiently to fully
account for that; therefore a continued reduction in revenues, so would require a commensurate reduction in our
spending. We were also planning for an expected budget gap next year.
I believe the uncertainty around the elections and looming fiscal cliff stalled many organizations. I expect that spending
will recover now that the elections are done and the fiscal cliff will either be kicked down the road or resolved within a
month.
The election distracted everyone and we seemed to be teetering on the edge of slow growth / recession. It wasn't until post
election that economic data became noticeable stronger.
The general nervousness and volatility in the investment climate based on trends in Europe and the US Presidential
elections had caused a number of key clients to stay put and watch.
It could have been concern over the election which is now past. Also many organizations have fourth quarter freezes in
terms of new technologies. Vendors should check the timing on their prospects to see if customers are avoiding fourth
quarter implementations and have instead committed to Q1 contracts or implementations. Also, successive years of
negative media comments about the economy create concern in the buying habits.
The uncertain economic conditions have caused our customers to become very cautious; carry very little inventory; and
place orders on us at the last moment. That uncertainty translates into less capital investment on our part and an
environment where we manage expenses more closely.
For higher education it is a reduction in tuition revenue. Our enrollment is down and that means we don't have as much
money to budget. On a positive note, a decrease in community college enrollment tends to signal an improvement in the
national economy. We see fewer students because they have found jobs and don't need to be retrained.
Companies are facing a tough economic environment and one of the responses is to delay discretionary spending and
hence postponement of IT projects. The other issue is that ROI and delivery vs. expectations is a major challenge for large
projects. This makes companies naturally cautious about large technology projects.
What we consider time and again is the current economic climate in Europe and Asia. Also it is expected that Fed Gov
spending will decrease in some areas of IT.
For us and a lot of small to medium sized enterprises, the uncertainty regarding the election and the resulting tax and
regulatory environments caused us to hold on large expenditures. Even now, we plan to increase spending, but will do so
cautiously.
The economy is soft and the next round of earnings announcements will show this. The election and fiscal cliff are
causing companies to hold on spending. This is not 2008/2009, but we will see very slow growth.

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Exhibit 33
WHAT WENT WRONG I N Q3 ? ADDI TI ONAL COMMENTS

US "Fiscal Cliff" uncertainty caused our customers to be uncertain and delay purchases in services and supplies by 3-6
months.
Budgets
Budget uncertainty
Economy slow down, election, reduced spend.
Economic uncertainty generally, as well as political uncertainty given the US elections that were, at that time, pending.
Uncertainty with the consumer spending based upon employment.
This change is trailing global economic slowdown in Q2.
In Healthcare it is due to the national decrease in patients in hospitals and even in primary care. As companies place more
and more cost on the employees for healthcare, many of the "optional" or "non critical" activities are not happening
because they now come out of the employees' pocket. Surgeries are down, patients are sicker, etc.
Uncertainty about the continuation of the economic recovery and the presidential election.
We normally spend most of our budget by Q2.
Economic uncertainty
Uncertain economic conditions in Europe and gridlock in the U.S. political environment.
Uncertainty in the election.
There could be many reasons but for us it was more about uncertainty on what will happen in US (Election) and Europe
(Financial Crisis).
Anxiety about the election.
Q3 is the time to implement the technologies purchased earlier.
Uncertainty about the direction in government.
General economic uncertainty combined with an election year.
End of FY for government agencies.
Uncertainty in the markets and government policies may force organizations to take precautions on spending. Most of the
organizations follow the wait and watch approach.
The continued slow economic recovery.
Our spending is highest in that quarter because we have a fiscal September end and everyone wants to use their money
and deliver their projects. Hard when key players keep taking vacation.
Continued weak economy, slack revenue and the growth of cloud hosting.
Do not see it.
Don't have an opinion on that.
Slowdown in house sales in UK.
More caution due to macroeconomic uncertainty.
They have all been benefiting from 1st time adopters of their technology. Over time, I believe the market is getting
saturated with smaller opportunities for 1st time adopters and longer durations prior to refreshes/upgrades.
For us, Medicare / Medicaid expenses rose.
Economic uncertainty.
Deferral of projects and capital dollars given the election process, as well as the projections for end of year. By Q3 budget
deviations are noticeable and correctable by deferring spending.
Overall economic factors contributed to weaker sales including US elections and natural disasters across the globe.
Companies are cautious to invest unless needed.

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WHAT WENT WRONG I N Q3 ? ADDI TI ONAL COMMENTS, CONTI NUED

Anti-business policies of the Obama Administration.
Uncertainty in the global financial market and anti-business policies of the Obama Administration.
Macro economic conditions have not improved; global weakness remains; many countries continue to struggle with their
economic recovery plans and execution, including the US.
Uncertainty in the market restricting sales to only essential items.
Hard for me to say because we have not adjusted our spending patterns.
We rely on advertising revenue to fund our expense budget, and the revenue was simply not there. We had to reduce
spending in order to maintain our bottom line.
Vacations and election uncertainty.
My guess is the overall shakiness of the recovery, but since we had record spending years with some of these major
vendors, we're clearly not illustrative of the broader economy.
Fiscal cliff, uncertainty.
No question it was concern for the fiscal cliff.
We spent early in the year compared to previous years, natural pullback.
Business slowdown.
US Economic momentum and China investments.
I believe that companies are holding on to cash and will continue to conserve cash until the economy is more certain.
Companies with excess cash will continue to repurchase stock to improve EPS to preserve or increase stock value.
Uncertainty about the US economy. Weakness in Europe and slowing growth in China.
Efficiencies and lack of spending/budget increases.
Presidential elections.
The economic climate especially in Europe is worsening hence most enterprise customers are more cautious to engage in
new projects.
Focus on the election and uncertainty in the market for the year.
Uncertainty of economy. Ours did not change.
We have no idea; nothing changed for us.
Innovation gap. Not addressing pricing to reality.
No idea.
Uncertainty with economy in 2013.
Life cycles are extending for products.
Uncertainty - National political, global economic, and Middle East.
Unsure about political climate, busy time for implementing new projects.
Uncertainty about US economy/politics.
Summer months are generally slower. Taking a wait and see approach as well. There was a lot of European news, ups and
downs as well that caused caution. Competitive landscape is pressuring margins as well.
IT cuts due to softness in the economy and companies trying to make financial targets.
Healthcare reimbursements and new regulations.
From our perspective it was just digesting and installing systems. We did not withhold projects for any reason other than
our internal ability to implement them with staff.
Remaining money in IT budgets.

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Hard to justify large projects that involve these vendors when everyone was waiting to see what election and fiscal cliff
outcomes will be.
Uncertainty over economy.
Consumer confidence.
For us, the uncertainty of the Federal Budget (one was never approved) is causing the bulk of the problem since Federal,
State, and DoD are big customers for us.
For us it was the impact of the recent natural disasters which have put pressure on all budgets, including IT.
Elections
IT growth follows business growth. IT spending reductions follow reductions in revenue and income.
Caution caused by election cycle.
End of year budget 'surplus' spending curtailed.
Uncertainty on the economy and election. Organizations need to use what they have. Building too much complexity so
taking a breather.
I think a lot of people were waiting to see how the political election would pan out.
Economic concerns.
Economy, elections, fiscal cliff.
Company revenue loss.
Economic uncertainty in Europe and fiscal cliff in the US.
US election uncertainty, health care legislation, fiscal cliff uncertainty. Not knowing the direction our country was headed
seems to have been a huge factor in many large scale projects for many companies. Now fiscal cliff uncertainty will
continue to plague growth. Knowing that the US is now led by those who tend to penalize big business and growth will
only continue that plague.
Companies re-evaluated current project priorities and these reviews resulted in a decreased spend on human and
technology resources.
No noticeable difference here.
Ongoing economic uncertainty.
Uncertainty of future funding to provide support. Possible manpower cuts.
Less end of year monies available to use, more difficult acquisition procedures.
Macro economic conditions, consumer behavior.
Uncertainty about the economy in light of the elections, the threat of tougher regulations with no clarity on what they are
and how it could impact us. The continued decline in the EU economy.
Economic uncertainty; Obama and democrat senate, government intervention and directives adding costs.
Unfunded mandates deferring spending plans.
Uncertainty around government policies and impending elections were the most probable cause of the slowdown in IT
spending.
Unknown outcome of the Presidential election.
Stagnation within the economy, concern with spending related to the election; in the financial services side of the house,
additional compliance requirements diverting focus from system development to remediation of existing systems and
business processes.
Some of these vendors have saturated the market so heavily that they may not be seeing the results they expected.

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Lead-in to US elections.
Poor economy. Customers were not buying. Uncertainty in direction of our government. Concern for another recession.
General business is down and clients are not able to pay their bills.
Economic conditions faltered in Summer; slowed all spending, companies deferring upgrades and new purchases.
Tremendous uncertainty around economy due to the election.
Perhaps postponing purchase for potential Q4/EOY discounts.
August vacations.
Many of the new implementation for 2013 are started in Q1 and on average are completed by Q3. Also, timing of when
the software was originally licensed (predominately in Q1 and Q2 given budget cycles) and maintenance renewal.
Budgeting season starts in Q3 so most procurement goes on hold or slows.
Economic trends and uncertainty about the election.

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LI MI TATI ONS


on smaller firms, because small-company CIOs are easier to reach. However, an IT budget of
$1 billion moves the needle 100x more than an IT budget of $10 Million, and thus large

believe the survey is useful due to its scale and focus on larger organizations, but we note the
following limitations: 1) the survey is more weighted toward North American organizations,
with roughly 7% of respondents outside the Americas; and 2) for our vendor-specific share
gainer question, in our experience, large/stable mega-vendors typically perform well due to
their pervasive brand recognition, while results are less meaningful for vendors with smaller
customer bases which might not register more broadly but could still gain substantial share
within their existing customer base.

Our CIO Surveys
Differentiation
Survey Background
and Limitations
Exhibit 34
SI ZE OF I T BUDGET

2.2%
5.2%
8.9%
12.6%
32.6%
16.3%
9.6%
3.7%
2.2%
3.0%
3.7%
0% 5% 10% 15% 20% 25% 30% 35%
<$100K
$100K to $1 million
$1 to $5 million
$5 to $10 million
$10 to $50 million
$50 to $250 million
> $8 Billion
Dollars?

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Exhibit 35

92.6%
3.0%
4.4%
0% 20% 40% 60% 80% 100%
Americas
Asia-Pacific

Exhibit 36
I NDUSTRY SECTORS

13%
11%
9%
9%
8%
7%
7%
6%
6%
6%
4%
3%
3%
3%
1%
1%
1%
1%
1%
0%
0% 2% 4% 6% 8% 10% 12% 14%
Financial Services
Health Sciences
High Technology
Insurance
Public Sector
Retail
Consumer Goods
Automotive
Utilities
Oil and Gas
Communications
Chemicals
Natural Resources

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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705
mark.r.muphy@pjc.com
Piper Jaffray & Co.

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706
Piper Jaffray & Co.

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703
Piper Jaffray & Co.

C L OUD C A S T I NG A S HA D OW OV E R
T R A DI T I ONA L HR S OF T WA R E

HRIS Managers Survey Foreshadows Sweeping Changes for the HR
Software Landscape

We are re-publishing a survey of 125 Human Resources Information System (HRIS)
managers at large and mid-sized organizations (first published in March 2012), responsible
for managing core employee data, benefits administration, payroll and more, for more
than 3.5 million employees. We believe that the results of the survey have become
increasingly important in light of the impending IPO of Workday and provide a unique
perspective into the sweeping changes in the traditional HR software market. We believe
the survey is unique due to its scale, its specific focus on HRIS managers at large
organizations, and its ability to derive a forward-looking assessment of market share shift
across vendors. Bottom Line: Workday is emerging as a force to be reckoned with, as its
market share could increase more than five-fold, from 3.2% to 17.6% in the next three to
five years.

Key Takeaways

Sweeping Changes to Impact Core HR Software Landscape. 42% of organizations
will consider migrating off their current HRIS system in the next 3 to 5 years,
representing 10% annual turnover for a large $15B market. Organizations looking to
make a switch cite factors ranging from outgrowing our current system to the need
to move to a SaaS model to the need for better reporting and data capture to a
requirement to centralize HR data into one system subsequent to corporate merger
and acquisition activity.

Rapidly Escalating Preference for Cloud-Based Solutions. 59% of organizations will
consider using a Cloud (SaaS) based solution. The rising interest in Cloud solutions
stems from the recognition that it is nice not to have to worry about the server aspect
and maintenance of a system, to relieve the need of our IT department to perform
upgrades/installs, and to enjoy a Lower TCO [Total cost of Ownership] than in-
house. Additionally, as the use of mobile devices becomes more deeply entrenched
in our workforce, Cloud solutions will be in demand.

Workday Emerging as a Major Force. Workday is the current HRIS system for 3.2%
of the organizations we surveyed. According to our survey, however, Workday will
become the preferred HRIS system for 17.6% of organizations in the next three to five
years, representing more than a five-fold market share increase and a very rapid
growth trajectory. Workday claims the highest customer satisfaction level in our
study, at 8.8 out of 10, and ranks above all other SaaS providers in its ability to
provide a complete and robust HRIS system. Workday is praised for its innovative
approach to HRIS, strong reputation, global product from the core, and SaaS model.

Risks: Economic fluctuations, competition, technological change.

October

2012

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EXECUTI VE SUMMARY

We surveyed 125 Human Resources Information System (HRIS) managers at large and
mid-sized organizations to assess the trends and market dynamics that are creating growth
opportunities in the HR software market. The following is an executive summary of our
findings.

Organizational spending on HRIS systems will only grow about 1% in 2012. While
the uptrend appears modest, the following pages show that beneath the calm surface,
turbulent market share shifts will cause certain vendors to shrink and others to grow
very rapidly.

For example, 42% of organizations will consider migrating off their current HRIS
system in the next 3 to 5 years, representing 10% annual turnover for a large $15B
market.

In addition, architectural preference is shifting rapidly, as 59% of organizations would
consider using a Cloud (SaaS) based HRIS solution in the next 3 to 5 years.

Considering the sweeping changes and high migration likelihood in the following
years, vendors who are gaining mindshare and are in the forefront of HRIS managers
minds face an opportunity to capitalize by dislodging some of the incumbent vendors
and homegrown systems.

As part of the survey, as shown in the table below, we compile the current market
share of HRIS vendors within our survey sample of 125 HRIS managers, and compare
that to the preferred choice share if organizations were to migrate to a new HRIS
system. We believe this survey-driven analysis is a good barometer for directional
changes in brand recognition and purchasing preferences, and as such, will correlate
to the future market share shift among HRIS vendors.

The following table shows that while Oracle/PeopleSoft enjoys the largest current
market share (32.7%) followed by ADP (11.7%) and Ultimate Software (10.8%),
Workday emerges as the expected single biggest market share gainer in the next 3 to 5
years, with an estimated 14.4 points worth of market share increase. The data suggests
Workdays market share could increase more than five-fold, from 3.2% today to
17.6% in the future. Workdays gains appear likely to come from the falloff of ADP,
homegrown systems, Lawson, Ceridian, and other vendors. It is also worth noting
that the data clearly shows that Oracle/PeopleSoft is still highly respected in the HR
industry and is probably not facing the same severe customer exodus that Oracles
Siebel customers are undertaking.

The escalating impact of Cloud/SaaS vendors is also clearly visible in the following
table, as 5 of the top 6 emerging share gainers are pure-play SaaS providers, including
Workday, SuccessFactors, SilkRoad, Ascentis, and Ultimate Software.
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The survey also shows that 73.6% of HRIS managers would prefer an integrated
system from a single vendor including end-to-end HRIS and Talent management
functionality, rather than a best-of-breed approach using multiple vendors for HRIS
and Talent Management. This suggests market consolidation must occur over time.

Integration between HRIS modules is most frequently cited as the most critical
element of an HRIS system, as mentioned by 17.0% of HRIS managers.
Reporting/analytics also rated highly (13.8%), followed by Payroll (11.0%). When
asked which vendor gets it the most, the largest percentage of respondents
mentioned Oracle/PeopleSoft (31.7%), followed by Workday (17.7%), SAP (12.9%)
and Ultimate Software (9.7%).

Oracle and SAP appear at number one and number two in terms of their perceived
ability to provide a complete and robust HRIS system. We are impressed by
Workdays appearance at number three on this list, as Workday has existed only since
2005. Also, Workday rated highest among all SaaS HR providers, outpacing Ultimate
Software, SuccessFactors, SilkRoad, and Ascentis.

Finally, Taleo is viewed to be the most complete integrated Talent Management
solution by 28.6% of HRIS managers in our survey, followed very closely by
SuccessFactors at 25.4%. The third and fourth place vendors in the Talent
Management category, Workday and Ultimate Software, have historically placed a
greater emphasis on HR back-office functions, so their relatively strong ratings
suggest that their newer, less-established talent management solutions are gaining
traction.
Exhibit 1
FUTURE MARKET SHARE SHI FT TABLE

HRISVendors Current% Future% NetChange
Workday 3.2% 17.6% 14.4%
Oracle/Peoplesoft 32.7% 44.9% 12.3%
SuccessFactors 2.4% 5.3% 2.8%
SilkRoad 0.0% 1.9% 1.9%
Ascentis 0.0% 1.2% 1.2%
UltimateSoftware 10.8% 10.6% -0.2%
SAP 9.9% 8.3% -1.6%
Kronos 4.3% 2.7% -1.6%
SunGard 2.4% 0.0% -2.4%
Other 4.4% 0.0% -4.4%
Ceridian 4.5% 0.0% -4.5%
Lawson 7.3% 2.7% -4.6%
HomegrownSystem 6.3% 0.0% -6.3%
ADP 11.7% 4.7% -7.0%
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Oracle / PeopleSoft holds a dominant position in the HRIS marketplace, with 32.7%
market share of our sample group. If we drill down into the Oracle / PeopleSoft
usage, 78% is PeopleSoft, 12% is Oracle Fusion HCM, 9% is the Oracle E-Business
Suite, and 1% is JD Edwards. Clearly, Oracle PeopleSoft is viewed as an industry
standard with strong brand recognition in the HR industry.

Payroll-centric vendors ADP and Ultimate Software rank second and third, with
11.7% and 10.8% share of our sample group, respectively.

ERP vendors SAP and Lawson rank fourth and fifth, with 9.9% and 7.3% share of our
sample group, respectively.

High-growth SaaS vendors such as WorkDay and SuccessFactors hold 3.2% and 2.4%
share of our sample group, respectively.

Note that many organizations indicate usage of more than one HRIS system, and we
have prorated the market share statistics accordingly.

Exhibit 2
I NCUMBENT HRI S VENDOR

Key Takeaways from
the Chart Above
2.4%
2.4%
3.2%
4.3%
4.4%
4.5%
6.3%
7.3%
9.9%
10.8%
11.7%
32.7%
0% 5% 10% 15% 20% 25% 30% 35%
SunGard
SuccessFactors
Workday
Kronos
Other
Ceridian
Homegrown System
Lawson
SAP
Ultimate Software
ADP
Oracle / Peoplesoft
Which Human Resources Information System (HRIS) Does Your Organization
Currently Use?
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Most HRIS managers are reasonably satisfied with their current HRIS system, with
60% of respondents rating their satisfaction level between 7 and 10 out of 10.

However, fully 40% of respondents rate their satisfaction level with their current
HRIS at 6 or below. We believe this group of HRIS managers is most susceptible to
future migration to a different HRIS system.

Exhibit 3
SATI SFACTI ON LEVEL WI TH CURRENT HRI S SYSTEM

Key Takeaways from
the Chart Above
2.4%
3.2%
3.2%
3.2%
12.0%
16.0%
16.8%
26.4%
11.2%
5.6%
0% 5% 10% 15% 20% 25% 30%
1 - Extremel y Unsati sfi ed
2
3
4
5
6
7
8
9
10 - Extremel y Sati sfi ed
On a scale of 1 to 10, how satisfied are you with your current primary HRIS
system? (1 = Extremely UNsatisfied, 10 = Extremely Satisified)
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K
e
y

T
a
k
e
a
w
a
y
s

f
r
o
m

t
h
e

C
h
a
r
t

A
b
o
v
e
Exhibit 4
SATI SFACTI ON LEVEL WI TH I NCUMBENT HRI S VENDOR


Exhibit 5
SATI SFACTI ON LEVEL WI TH I NCUMBENT HRI S VENDOR ( RAW
DATA)

3.0
5.4
6.0
6.0
6.2
6.5
6.6
6.6
6.7
7.0
7.0
7.1
8
8.8
2.5 3.5 4.5 5.5 6.5 7.5 8.5
Infor
Ceridian
NuView Systems
Microsoft
SuccessFactors
Epicor
ADP
Ultimate Software
SAP
Kronos
Lawson
Oracle / Peoplesoft
SunGard
Workday
On a scale of 1 to 10, how satisfied are you with your current primary HRIS
system? (1 = Extremely UNsatisfied, 10 = Extremely Satisified)
Vendor AvgRating NumberofRespondents
Workday 8.8 5
SunGard 8.0 4
Oracle/Peoplesoft 7.1 50
Kronos 7.0 11
Lawson 7.0 12
SAP 6.7 12
ADP 6.6 22
UltimateSoftware 6.6 14
Epicor 6.5 2
SuccessFactors 6.2 5
NuViewSystems 6.0 1
Microsoft 6.0 1
Ceridian 5.4 9
Infor 3.0 2
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Workday tops the list in terms of vendor satisfaction level, rating 8.8 out of 10. As
shown on the following pages, Workday customers state that Workday works as we
designed it to, configurable, one platform and globally applicable and also cite the
user experience, strong reporting tool, leading edge program support, SaaS model.

SunGard ranks second, with 8.0 out of 10.

Oracle/PeopleSoft performs very well, with 7.1 out of ten and a much larger sample
size than we had for Workday and SunGard, with 50 ratings. As shown on the
following pages, Oracle/PeopleSoft is admired due to total control over functionality,
modifications and customizations, being a powerful system, and stable and
customizable.

Some of the sample sizes are small, so we wouldnt read too much into the satisfaction
rating for vendors who received only one or two ratings.

Key Takeaways from
the Chart and Table
Above
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Exhibit 6
DETAI LED COMMENTS WORKDAY AS THE CURRENT HRI S VENDOR

Newly implemented, works as we designed it to, configurable, one platform and globally applicable.
There is always room for improvement, but for the most part, it is good.
We are currently implementing Workday.
User experience, strong reporting tool, leading edge program support, SaaS model.
Exhibit 7
DETAI LED COMMENTS ORACLE AS THE CURRENT HRI S VENDOR

It provides accurate processing for the areas included.
Premise based - total control over functionality, modifications and customizations.
Stable and customizable
High cost of Upgrades
JDE is not HR oriented like PeopleSoft. But we have used it well.
We don't utilize all of the available functionality. Would rate it higher if we were able to.
PeopleSoft is a powerful system and we have developers on staff to enhance and maintain.
It provides reasonable functionality and is site-based so it is extendable.
Our company is an Oracle shop and we are integrated with Oracle systems. PeopleSoft provides a very flexible
architecture.
Serves basic needs but is somewhat inflexible.
We need to upgrade to take advantage of the new functionality being offered in the latest 9.1 release.
Functional and flexible
Multilingual internet based system.
Upgrade 9.1 has left a gap in what we did in the past.
Optimal functionality was not implemented, nor was self-service due to cost of licensing.
Still deploying.
It is an enterprise system mainly focused on students.
Works well with payroll, benefits and HR. Can customize if needed.
It meets all our current needs.
Recently moved to Oracle R12; not sure if Oracle issues or internal issues in creating system.
Reporting is difficult, not very user friendly for self-service.

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Exhibit 8
DETAI LED COMMENTS KRONOS AS THE CURRENT HRI S VENDOR

Premise based - total control over functionality, modifications and customizations.
System not flexible enough.

Exhibit 9
DETAI LED COMMENTS LAWSON AS THE CURRENT HRI S VENDOR

Ease of use, ability to transfer data to other systems, etc.
For a mature product, Lawson does not provide the best of breed solutions that other vendors in the mid-market space
provide.
Serves basic needs but is somewhat inflexible.
Not very user friendly. Lawson trained resources are also very hard to find especially on West Coast.

Exhibit 10
DETAI LED COMMENTS SAP AS THE CURRENT HRI S VENDOR

Very large system for our company size. Requires a lot of internal employees to support the system - programmer, project
manager, SAP Basis Administrator etc.
SAP is really too much for our small company.
Clunky, not intuitive, too much configuration needed to accomplish simple things, upkeep is expensive.
Complicated, but does a lot.
Interacts with other software and it also supplies ESS and MSS.
Great system, great service.
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Exhibit 11
DETAI LED COMMENTS ADP AS THE CURRENT HRI S VENDOR

System not flexible enough.
Technology not up to date - customer service is poor. Will be switching.
Similar to PeopleSoft, but a SaaS with easier benefits. However, can feel a bit disjointed at times - soooo many different
log-ins.
It provides reasonable functionality and is site-based so it is extendable.
Service isn't great and we are one of thousands.
We just upgraded to a new system and are happy with our system so far. We still have more to implement.
ADP is primarily a payroll solution and is lagging in the ability to support talent management initiatives.

Exhibit 12
DETAI LED COMMENTS ULTI MATE SOFTWARE AS THE CURRENT HRI S VENDOR

Meets 100% of our needs.
As a payroll system Ultimate is solid. Integrations with other systems are required as Ultimate is not robust in Recruiting,
Learning, Performance Management.
Wasn't here for implementation, so not really happy with the payroll centric setup. Could do a better job making all
customer services (i.e. technical support, consulting support) more seamless.
Ease of use. Contains all the functionality we need.
Overall pretty good, lacks some features and not all modules are worth using.
It's easy to use and administer.

Exhibit 13
DETAI LED COMMENTS EPI COR AS THE CURRENT HRI S VENDOR

Applicant and learning management modules are not robust.
Upgrades take forever and need company assistance which is paid for by the hour.

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April 2014

Exhibit 14
DETAI LED COMMENTS CERI DI AN AS THE CURRENT HRI S VENDOR

Lack of integration.
We have bastardized it to the point we cannot upgrade--going to SAP shortly.
We are happy with the Ceridian system but I think with anything there is always room for improvement.

Exhibit 15
DETAI LED COMMENTS OTHERS

SuccessFactors Lack of integration
Infor Does have many bells & whistles for HR; Doesn't support point-in-time reporting;
Delivered report writer is deficient.
SunGard It is an enterprise system mainly focused on students.
NuView Hard to make changes.
Microsoft Lots of limitations and slow.

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April 2014

A majority of HR managers (56%) intend to hold spending flat with their current
HRIS vendor. 30% plan to increase spending with their current vendor, while only
14% intend to decrease spending.

On average, the 2012 spending plans equate to an increase of 0.9%, below the 3.0%
aggregate IT spending increase indicated by our Q4:2011 CIO survey, and probably in
line with domestic workforce augmentation plans.

While the uptrend appears modest for 2012, the following pages show that beneath
the calm surface, turbulent market share shifts will cause certain vendors to shrink
and others to grow very rapidly.

Exhibit 16
SPENDI NG ON PRI MARY HRI S I N 201 2

Key Takeaways from
the Chart Above
2.4%
1.6%
0.0%
2.4%
0.8%
0.8%
2.4%
3.2%
56.0%
6.4%
4.8%
4.0%
2.4%
4.8%
6.4%
0.0%
1.6%
0% 10% 20% 30% 40% 50% 60%
Decrease 15 to 20%
Decrease 10 to 15%
Decrease 8 to 10%
Decrease 6 to 8%
Decrease 4 to 6%
Decrease 2 to 4%
Decrease 0 to 2%
Remain the Same
Increase 0 to 2%
Increase 2 to 4%
Increase 4 to 6%
Increase 6 to 8%
Increase 8 to 10%
Increase 10 to 15%
Increase 15 to 20%
Considering the current economic climate, how do you expect your organization's
SPENDING on your primary HRIS vendor to trend in 2012?
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April 2014

Fully 42% of organizations will consider migrating off of their current HRIS system in
the next 3 to 5 years. This represents 10% annual turnover for a large $15B market,
or $1.5B worth of spending up for grabs each year.

Considering the sweeping changes and high migration likelihood in the following
years, vendors who are gaining mindshare and are in the forefront of HRIS managers
minds face an opportunity to capitalize by dislodging some of the incumbent vendors
and homegrown systems.

As the following pages show, organizations looking to make a switch cite factors
ranging from outgrowing our current system to the need to move to a SaaS model
to the need for better reporting and data capture to a requirement to centralize HR
data into one system subsequent to corporate merger and acquisition activity.

Exhibit 17
I NCLI NATI ON TO MI GRATE OFF OF CURRENT HRI S SYSTEM

Key Takeaways from
the Chart Above
58.4%
41.6%
0% 10% 20% 30% 40% 50% 60% 70%
No
Yes
Do you think your organization would consider migrating off its
current HRIS system(s) in the next 3 to 5 years?
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Exhibit 18
POSI TI VE COMMENTS

YES, we will consider migrating off our current HRIS system(s) in the next 3 to 5 years because
Currently in the process of evaluating replacement technologies.
We are always interested in what's out there. We are not currently looking right now but if something came along that
would meet all of our needs for less we would go for it.
It is always good to evaluate other options.
We are in need of an upgrade from Oracle 11 to either Oracle 12 or Fusion. This would be a good time to possibly switch.
We are currently in de-support stage for our PS version.
I'm not entirely sure, but we've grown a lot as an organization since this software was implemented.
It is part of our plan.
Recently acquired another large organization. Looking to centralize HR data into one system.
Need to be more global.
If a better system was available at a savings from what we are currently paying, we would consider it.
We are outgrowing current system.
It's always worth considering another HRIS system if better software is available.
We are also using Oracle Financials and we will investigate the migration to Oracle HRMS with a Fusion solution.
Company is splitting into two big companies.
We are currently implementing a new HRIS system.
Yes, but the decision would be driven by our parent company IT leadership.
Parent company is on different system. If we move it will be to parent company's system.
We need a system that totally supports our business needs without high customization.
Too much technical debt with ADP's many disparate systems, which results in our babysitting processes rather than
auditing.
May be merging with parent company in regards to HRIS system.
Possibly
We need to move to SaaS model.
Migrating in the next year.
Will need to add employees across the world.
We are currently gathering our requirements, but we do not yet have an approved budget for a new HRIS.
Are exploring it now. Would like to integrate more pieces of our business.
We always evaluate our options every 3 to 5 years.
We are moving to SAP.
Our support is up in 2015 and we are not going to upgrade.
To move to an enterprise ERP solution as the organization continues to grow.
It would be a hard sell but things are always possible.
Possible in the 4-5 year range to consolidate systems and simplify processes.
We need a truly integrated system with better functionality.
We are currently discussing our needs as we expect to expand and grow and need better reporting and data capture, as well
as a system to house the HR information.
We're looking to be more global.

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Exhibit 19
POSI TI VE COMMENTS, CONT D.

YES, we will consider migrating off our current HRIS system(s) in the next 3 to 5 years because
Looking at switching to Ulti-pro [Ultimate Software] in the next 12 months.
Looking for a more reliable and flexible system.
If the system could take what we currently use, and combine it all into one system.
May look at SaaS or Cloud options.
If it will provide better functionality at same or better price.
Our current system is too expensive for the size of the employee population.
If a more robust and configurable offering were presented.
We are planning on moving to SAP in the next 2 years.

Exhibit 20
NEGATI VE COMMENTS

NO, we will not consider migrating off our current HRIS system(s) in the next 3 to 5 years because
We just changed in 2011.
We are too invested with what we have.
Implementation costs are high. Not sure any one product would be better because of our low employee count.
We implemented SAP 3 years ago and the company has invested a lot of money.
Satisfied with current systems.
We just spent millions on new Oracle system in 2010.
Just signed 3 year contract.
Just did upgrade in Lawson...would be hard to justify a change in short term.
Customers are satisfied, no budget.
We just went through a merger with company using PeopleSoft and there was no consideration to change at that time.
We have been very happy with Oracle products. There are so many other departments using Oracle that would have a vote
in changing and I am sure the ITS folks would not want to change.
Invested in current system.
Maybe 5 - 10 years, but not now. Budgets are tight.
We just went live in Lawson for HR/Payroll in 2009...lots of work. I think we are satisfied with our current system.
SAP meets our needs.
Getting ready to go through an upgrade and right now we have lots of "low hanging fruit" within the current system that
can still be tapped into.
Cost - we just re-implemented Oracle HRMS in 2010.

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Exhibit 21
NEGATI VE COMMENTS, CONT D.

NO, we will not consider migrating off our current HRIS system(s) in the next 3 to 5 years because
Costs
Currently implementing and investing in current software to meet the business needs long term in the school district.
Too much invested in our system to make a change - plus, there do not appear to be many superior options out there.
Cost; We already have invested in the current system and the headache to change to a new system. We changed 2 years ago.
Heavily invested with many enhancements and other system link ins.
Too much invested.
We just installed SAP.
Amount of bolt-on and customization involved.
We have a significant investment of time, resources and general commitment in our current system. Unless there is a really
compelling reason to move to a different system, in all probability in the next 3 to 5 years, the organization will still be with
the current system.
Too deeply invested in current system to consider changing in the next 3-5 years.
Doubt it since we just made the investment and are implementing the new system.
We have too much invested in the current system.
We just migrated to our current solution.
We just recently implemented SuccessFactors so probably will not change any time soon.
We are in the process of reimplementing Oracle eBusiness across the entire organization.
It's adequate for us for the next few years and internal processes and structure would need to change in order to force a
system change.
We just switched to ADP. Have heavy organizational commitment to them. Not our preference!
Cost / Resources
Because we just spent a large amount of money to upgrade to the latest version and anticipate being on these products for at
least five years.
This is a large project to complete, took a lot of time, money and resources.
Our company is an Oracle shop and we are integrated with Oracle systems.
Too much of an investment to switch.
Its always a possibility, but there is no future plan.
Global standards already designed and SAP is the HR company standard.
There is always a possibility but with cost in development or transition I doubt it. We like our system and support.
We use Oracle throughout the organization for our ERP system.
Recently renewed contract.
Just completed migration.
Not sure
Very happy with the system.
Too much already invested in implementation consulting and hiring on staff employees.
Significant investment. Works well
Premise based. We've seen the Workday Cookie-Cutter solution and were not impressed.
I think my company is happy where they are.
Recently implemented Workday and are satisfied with the result.

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April 2014

Impressively, 59% of organizations would consider using a Cloud (SaaS) based HRIS
solution in the next 3 to 5 years.

As shown on the following pages, the rationale for the rising interest in Cloud
solutions stems from the perception that it is nice not to have to worry about the
server aspect and maintenance of a system; and to relieve the need of our IT
department to perform upgrades/installs; and Lower TCO than in-house.
Additionally, as the use of mobile devices becomes more deeply entrenched in our
workforce, Cloud solutions will be in demand.
Exhibit 22
SENTI MENT TOWARD SAAS HRI S SYSTEM

Key Takeaways from
the Chart Above
40.8%
59.2%
0% 10% 20% 30% 40% 50% 60% 70%
No
Yes
Do you think your organization would consider using a Cloud (SaaS)
based solution in the next 3 to 5 years?
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Exhibit 23
POSI TI VE COMMENTS

YES, we will consider using a Cloud (SaaS) based solution in the next 3 to 5 years because
That is what we use now.
We already use a SaaS model.
It would be nice not to have to worry about the server aspect and maintenance of a system.
Possibly...we have a growing number of remote employees. The concern would mainly be that the data was maintained
securely.
Company currently is providing Cloud-based services.
One of the current solutions we have is a SaaS solution, and it works well for us.
SunGard offers a Cloud solution for Talent Management from Cornerstone On Demand that we are currently considering.
Cost
If it ended up being more efficient and no chance for security issues, we would consider it.
We are currently using a SaaS solution.
Would like to make that move now to relieve the need of our IT department to perform upgrades/installs. However, we
invested a lot in infrastructure and cannot justify the cost to make the move to SaaS.
We currently use SaaS vendors and will likely expand to include more SaaS vendors in the future.
Currently using Cloud based solution for intranet.
We are implementing Workday, which is a SaaS based solution.
Its something that interests our IT leadership at the Corporate level.
We have looked at Workday; however, the timeframe we had to get off 8.8 was so short time we had to go with Psoft 9.1. 5
year plan is to go to Cloud based SaaS system.
Lower TCO than in-house.
Would consider, if security model is right.
It's a consideration - but price would play a part.
I believe our organization would be open to using some form of Cloud solutions where it made sense within the context of
our current environment and served as a better alternative for addressing a particular business need.
As the use of mobile devices become more deeply entrenched in our workforce, Cloud solutions will be in demand.
Cost savings available from a Cloud model interest our company.
Our current system is SaaS and we are supplementing that with a SaaS model Talent Mgmt system; internal resource
challenges make SaaS the right choice for our org.
Being always on the most current version of software is a distinct advantage. Plus less support staff is attractive, as our
current staff is very lean.
Potentially. Security would be a concern.
Part of our evaluation process.
We are already using one.
I'm not sure if they would consider it or not but we are global even though small.
The IT infrastructure costs are too high for back office systems.
We're on SaaS now.
We find that SaaS is the best solution for us since we do not have internal IT to manage a system - but also need a system
that has the flexibility to grow with our needs.
Currently using SaaS.
Security & Functionality
Many other companies use it.
Security issues.
Less expensive and would keep internal headcount and hardware costs down.
We are using a Cloud based solution in Workday.

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Exhibit 24
NEGATI VE COMMENTS

NO, we will not consider using a Cloud (SaaS) based solution in the next 3 to 5 years because
Again, we are too invested.
Not for a core HRIS system, as already have ours. See above.
Our organization is too complex. We have had a very bad experience with IOIPay, which is a SaaS system. Truly a
disaster.
Security and privacy issues.
Currently do not know all the risks.
Current system does have this option which we are not using at this point.
Too soon
Data Control
We just changed systems and in process of new time systems.
We're slow adopters - will wait to see how the Cloud works for other companies - relative to security and reliability.
Data is stored in-house only.
Not for an HRIS, concerns of security and data privacy laws worldwide.
We just installed SAP.
Not sure to be honest, our IT group handles most of these decisions/solutions.
Our system is already a SaaS based solution.
Our current solution should last us 5-7 years and it is not a Cloud solution.
Not a priority.
Nobody here over 40 knows what that is.
Cost / Resources.
We do not like having upgrades or patches pushed on us and not being able to control the time table or release. Change
management before the updates is very important to us, and takes several months to put in place, making monthly updates
unusable.
Our company is an Oracle shop and we are integrated with Oracle systems.
We like local control of our hardware and data. We already have a full data center and recovery site.
However anything is possible.
We are invested in the Oracle solution and its offerings.
Security concerns are primary - depends on security etc...
I don't know what a SaaS solution is.
It's hosted - as a company, we've NEVER had a good experience with hosting. You're locked into a platform that is shared
with other companies - very cookie cutter. You're locked inside THEIR box - inflexible. With data security being
breached more often, sensitive HR data could be exposed. If the SaaS network goes down (which it did for Workday for
15 hours) then your company and all other companies that use SaaS are also down.
I think it will take the company a while to do this.
Security concerns and risks.
Security reasons

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April 2014

The chart above shows that 60% of HR managers would prefer to purchase a
Cloud offering from a traditional ERP vendor. This likely reflects the large size of
the ERP vendor installed base, and the center of gravity that it can exert as the key
information backbone for most organizations and a logical integration point from an
HRIS to other parts of that backbone, such as Financial applications.

However, it is impressive to note that 40% of organizations would prefer to purchase
an HRIS/HCM solution from a pure-play Cloud vendor such as Workday,
SuccessFactors, or Ultimate Software, especially considering that some of these
vendors have only existed for 6 or 7 years. Furthermore, if we examine the current
share of Cloud vendors among our survey respondents in exhibit 1, pure-play Cloud
vendors make up only 16.4% of the share. If 16.4% of organizations are using
solutions from pure-play Cloud vendors today, but 40% of organizations would now
prefer to purchase solutions from pure-play Cloud vendors, then logic holds that the
pure-play Cloud HRIS/HCM providers face a tremendous opportunity to gain market
share.

Exhibit 25
PURE PLAY SAAS VS. CLOUD OFFERI NG FROM LEGACY VENDOR

Key Takeaways from
the Chart Above
40.0%
60.0%
0% 10% 20% 30% 40% 50% 60% 70%
Pure Play Cloud Vendor (e.g. WorkDay,
SuccessFactors, Ultimate Software, etc.)
"Cloud" Offering from a major traditional ERP
vendor (e.g., SAP, Oracle, etc.)
For a Cloud (SaaS) based HRIS/HCM solution, would you prefer to purchase a solution
from a pure play cloud vendor or a "Cloud" offering from the major traditional ERP
vendors (like SAP, Oracle etc.)?
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April 2014

We asked our group of HRIS managers what their preferred choice would be for a
new HRIS system if they were to migrate off their current HRIS system.
Oracle/Peoplesoft tops the list as the preferred choice for 44.9% of respondents. This
is noteworthy because it is an increase relative to the 32.7% of organizations that are
currently using Oracle/PeopleSoft. HR managers respect Oracle because it has a
wide range of applications that can be customized based on the business needs and
due to its proven system reliability. Many also selected Oracle because Oracle is
our core system, because we are already using Oracle, and we would likely stay
with Oracle. Clearly, Oracle benefits from its brand recognition, global scale, and
ERP center of gravity in addition to the specific merits of the PeopleSoft applications.
At the same time, we believe it is also possible that many HRIS managers at smaller
organizations with less financial and IT resources yearn for the opportunity to use the
Cadillac of HRIS systems (i.e. Oracle / PeopleSoft), and thus they name it as their
preferred choice even though it is unlikely that their organization would actually sign
off on an Oracle / PeopleSoft purchase.

17.6% of HRIS managers selected Workday, impressively up from only 3.2% current
usage. Workday is praised because after seeing a demonstration of their product we
feel that they best meet our needs for integration, functionality & ease of use and the
viewpoint that it's a global solution designed by HR people for HR, not by
programmers who do not understand the function.

Ultimate Software, in third place as the preferred choice for 10.6% of HRIS managers,
received mentions because Ultimate seems to be the best system to support the needs
of our company and because they have the technology and functionality we need.
Exhibit 26
PREFERRED HRI S VENDOR

Key Takeaways from
the Chart Above
0.0%
0.0%
0.0%
1.2%
1.9%
2.7%
2.7%
4.7%
5.3%
8.3%
10.6%
17.6%
44.9%
0% 10% 20% 30% 40% 50%
Homegrown System
Ceridian
SunGard
Ascentis
SilkRoad
Kronos
Lawson
ADP
SuccessFactors
SAP
Ultimate Software
Workday
Oracle / Peoplesoft
If your organization were to migrate off of its current HRIS system, what would be
your preferred choice for a new HRIS system?
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April 2014
While Ultimate Softwares preference rank of 10.6% is in line with its current usage
mix of 10.8%, we note that Ultimate offers a payroll-centric solution rather than an
HR-centric solution. Thus, we would not interpret the data as a literal indication that
Ultimate Software will fail to grow its market share. We believe Ultimate Software is
more commonly selected by Payroll Managers than HRIS Managers, and in many
cases the customer will end up activating Ultimate Softwares HR and benefits
features after deploying it for the payroll features.

Other high-growth SaaS vendors appear likely to gain market share. For example,
SuccessFactors is currently used by 2.4% of the organizations we surveyed, but will
become the preferred choice for 5.3% of organizations, according to our survey.
SilkRoad and Ascentis arent being used as the HRIS system today for any of the
organizations we surveyed, but SilkRoad will become the preferred choice for 1.9% or
organizations and Ascentis will become the preferred choice for 1.2% of
organizations.

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April 2014

Exhibit 27
DETAI LED FEEDBACK ORACLE/ PEOPLESOFT AS THE PREFERRED CHOI CE

Previous experience with these systems.
The larger solutions have global capability and experience.
Customer Service along with system functionality is important. Having a holistic approach to service, where there is only
one point of contact instead of a 'black-hole' like ticketing system.
Sustainability
Integrated with the other enterprise applications.
Needs to meet our needs.
Reputation, currently using.
Oracle is our core system.
Same as current.
Fusion appears to have the functionality we will need and is not a major change from our current PeopleSoft platform.
We use PeopleSoft for Finance so this would be a good fit.
PeopleSoft would be a great solution to encompass HR, student, and financial functions for Medical Center, University,
and physician practice plan for our organization. If we were choosing for purely HR, I would prefer SuccessFactors or
WorkDay.
We've had success with PeopleSoft - we would probably look to Oracle's product line - specifically Fusion.
It is what I am familiar with.
Since we are already using Oracle.
Not prepared to discuss another choice when we are not actively searching.
Parent company makes the final decision.
Our parent company has a partnership with Oracle.
PeopleSoft has a wide range of applications that can be customized based on the business needs.
The one I know the most about.
Parent company's system.
I've seen info and reviews on both, and had demo of WorkDay.
New technology; newer concepts.
Oracle financials.
Next generation of existing platform.
We would likely stay with Oracle.
Reputation and functionality.
Name recognition and reputation.
We do not plan to migrate, but we are happy with Oracle PeopleSoft, and see Fusion as the future.
Functionality, ease of use and how well historical data is stored.
It is industry standard for HR.
We need an integrated solution that has vendors, admission prospects, students, alumni, employees, retirees and friends in
one system.
High data configurability; proven system reliability.
Havent done enough of an in-depth analysis to evaluate.
Proven in the HR industry.
Prior experience
The product. Reputation and functionality.
We already have Oracle and Fusion seems to tie it all together seamlessly and completely with Talent.

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April 2014

Exhibit 28
DETAI LED FEEDBACK WORKDAY AS THE PREFERRED CHOI CE

This seems to be a very popular system.
Functionality and Usability.
After seeing a demonstration of their product we feel that they best meet our needs for integration, functionality & ease of
use.
Other member firms have signed up and we have heard of other US companies switching to them.
At this time we wouldn't change.
WorkDay.
Seen demos and like the perspective.
Low maint with Workday, but not as flexible (customizations). Extreme flexibility with Oracle Fusion.
SaaS, with software that is configured according to our needs.
WorkDay and Ultimate have a great reputation - the features of their solutions meet most of our needs - much better
integration than ADP. SilkRoad - mainly because I want to kick the tires on their solutions. I like what I see, but have
concerns that all of our needs can be met.
We have benchmarked others in our area who have switched. Configurability, functional use and less $/time spent on our
IT end.
I've seen info and reviews on both, and had demo of WorkDay.
Because it IS a SaaS system. Like the reporting and configuration capabilities.
We would need more due diligence but I like the look of the product and have heard some really good feedback. I do wish
they would include Talent Management in their product.
Innovative approach to HRIS, lower cost of ownership, Cloud based solution.
Strong reputation, global product from the core, SaaS model.
To me they are the industry leaders.
Would definitely look for a solution that is full cycle -- from recruiting to Onboarding, LMS, analytics etc. Right now we
have several external systems to make it through the employment cycle. PeopleSoft is very expensive to add these in...
I feel that it's a global solution designed by HR people for HR, not by programmers who do not understand the function.
Have not looked at any. Liked the PS product when it first came out. Would be curious about Workday due to it being
founded by the same person (Dave Duffield).
Reputation and seem to be leading edge right now.
SAS applications on a Cloud environment. Payroll, benefits, reporting, tax services, unemployment, garnishments and self
service is a must.
I am impressed with both Workday & Ultimate Software's product. Since I am already an Oracle customer, I am drawn to
them as well.
I believe it has a great offering and is very ahead of others in its ideology and tools.
SaaS offering with broad functional offerings in a unified solution.

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April 2014

Exhibit 29
DETAI LED FEEDBACK ULTI MATE SOFTWARE AS THE PREFERRED CHOI CE

The company we acquired purchased Epicor and the costs of the system is very low compared to Oracle or other Cloud
solutions.
They were our second choice when we selected Lawson, but we went with an ERP instead.
Technology and functionality we need.
We'd have to really evaluate vendors.
I've used Ultimate in the past - they have an expanding product and have come a long way in the past few years. Kronos
HRIS product would also possibly work with us as we are considering them for Time and Attendance as well. We are
looking for an integrated solution and both Ultimate and Kronos offer that.
We really don't have a preference at this time, we would have to evaluate them all and determine which meets our needs
best. Without that eval, Ultimate Software is the one we are most familiar with for meeting needs.
Great product.
Ultimate seems to be the best system to support the needs of our company.
We looked at their system prior to making our decision.
The only thing we are unhappy about is getting timely technical support.
Had great success with this platform at other employers.
I am impressed with both Workday & Ultimate Softwares product. Since I am already an Oracle customer, I am drawn to
them as well.
Seems to have a high quality product.
SaaS offering with broad functional offerings in a unified solution.

Exhibit 30
DETAI LED FEEDBACK SAP AS THE PREFERRED CHOI CE

Integrated system with other parts of the organization.
The larger solutions have global capability and experience.
The company already decided to move to SAP for an integrated HCM, Finance and CRM system.
Sustainability
If we were to migrate we would select SAP due to our Finance and Supply functions being on SAP.
They gave us a screaming deal :-)
We use SAP ERP for the rest of our business systems.
Company is becoming more global. Would need to have a platform that works for all or most countries.
I don't think there will be any changes in systems because of continuing acquisitions and the deliverables currently
available.
SAP is currently our ERP system that we use for the entire company.

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April 2014

Exhibit 31
DETAI LED FEEDBACK SUCCESSFACTORS AS THE PREFERRED CHOI CE

Cloud capabilities, strong analytics.
We are implementing SF Learning now and considering SF Perf management - desire to consolidate systems and move to
Cloud based model.
I have not seen all of the HRIS systems listed above so I can't really say which one I would prefer. We currently use
products from SuccessFactors, SilkRoad and Paychex.
WorkDay.
Currently using it for LMS - would look if it could provide financial components that we need.
SAP recently purchased SuccessFactors.

Exhibit 32
DETAI LED FEEDBACK ADP AS THE PREFERRED CHOI CE

Any vendor that we choose would need to be able to integrate with Deltek Vision.
Unsure what we would use next but I remember we liked ADP and Ascentis at one point.
Just changed to ADP in the last year & going to ADP time systems in the next few months. Finance dept. makes the
decision.
Taxes
Payroll currently uses ADP so this would provide us with the advantage of HR and payroll using a single system.
Quicker delivery of cutting edge technology solutions and media; upgrades management; object-oriented interactive
orientation towards the business partners vs. HR users.

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April 2014

Exhibit 33
DETAI LED FEEDBACK LAWSON AS THE PREFERRED CHOI CE

Knowing that we most likely won't go away from Lawson, we haven't taken the time to look at any other products.
Do not plan to change, so not sure who we would change to if that were to happen.

Exhibit 34
DETAI LED FEEDBACK KRONOS AS THE PREFERRED CHOI CE

We are already using Kronos for Time and Attendance.
I've used Ultimate in the past - they have an expanding product and have come a long way in the past few years. Kronos
HRIS product would also possibly work with us as we are considering them for Time and Attendance as well. We are
looking for an integrated solution and both Ultimate and Kronos offer that.
More advanced product, ease of use on the employee side.
Reputation and ease of use.

Exhibit 35
DETAI LED FEEDBACK SI LKROAD AS THE PREFERRED CHOI CE

System is more flexible. User interface is user friendly and relevant. Appears that Silkroad will be investing in mobile
technology which will only become more important over time.

Exhibit 36
DETAI LED FEEDBACK ASCENTI S AS THE PREFERRED CHOI CE

Can't say, but we would be looking for a mid-tier system, nothing too big or complex.
Unsure what we would use next but I remember we liked ADP and Ascentis at one point.

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In our view, the table and chart above are critical elements of our HRIS managers
survey. We start with the current market share of HRIS vendors within our survey
sample of 125 HRIS managers of large and medium sized organizations, and compare
that to the preferred choice share if organizations were to migrate to a new HRIS
Exhibit 37
FUTURE MARKET SHARE SHI FT TABLE

Exhibit 38
SHARE SHI FT CHART, RANKED BY NET CHANGE

Key Takeaways
From The Table &
Chart Above
HRISVendors Current% Future% NetChange
Workday 3.2% 17.6% 14.4%
Oracle/Peoplesoft 32.7% 44.9% 12.3%
SuccessFactors 2.4% 5.3% 2.8%
SilkRoad 0.0% 1.9% 1.9%
Ascentis 0.0% 1.2% 1.2%
UltimateSoftware 10.8% 10.6% -0.2%
SAP 9.9% 8.3% -1.6%
Kronos 4.3% 2.7% -1.6%
SunGard 2.4% 0.0% -2.4%
Other 4.4% 0.0% -4.4%
Ceridian 4.5% 0.0% -4.5%
Lawson 7.3% 2.7% -4.6%
HomegrownSystem 6.3% 0.0% -6.3%
ADP 11.7% 4.7% -7.0%
-7.0%
-6.3%
-4.6%
-4.5%
-4.4%
-2.4%
-1.6%
-1.6%
-0.2%
1.2%
1.9%
2.8%
12.3%
14.4%
-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
ADP
Homegrown System
Lawson
Ceridian
Other
SunGard
Kronos
SAP
Ultimate Software
Ascentis
SilkRoad
SuccessFactors
Oracle / Peoplesoft
Workday
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system. We believe this survey-driven analysis is a good barometer for directional
changes in brand recognition and purchasing preferences, and as such, will correlate to
the future market share shift among HRIS vendors.

Workday emerges as the single biggest market share gainer in the next 3 to 5 years,
with an estimated 14.4 points worth of market share increase. The data suggests
Workdays market share could increase more than five-fold, from 3.2% today to 17.6%
in the future. Workdays gains appear likely to come from the falloff of ADP,
homegrown systems, Lawson, Ceridian, and other vendors.

Oracle/Peoplesoft ranks second on this list, as the data suggest its market share could
increase from roughly 32.7% today, to as much as 44.9% in the future. Again, it is not
clear to us that every HRIS manager wanting to use Oracle/PeopleSoft would be
successful in drumming up the internal support required to purchase such an expensive
system. However, the data clearly shows that Oracle/PeopleSoft is still highly
respected in the HR industry and is probably not facing the same severe customer
exodus that Oracles Siebel customers are undertaking.

The impact of Cloud/SaaS vendors is also clearly displayed in the chart above, as 5 of
the top 6 share gainers are pure-play SaaS providers, including Workday,
SuccessFactors, SilkRoad, Ascentis, and Ultimate Software.

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73.6% of HRIS managers would prefer an integrated system from a single vendor
including end-to-end HRIS and Talent management functionality, rather than a best-
of-breed approach using multiple vendors for HRIS and Talent Management. We
think of these categories as the back office (e.g. payroll, benefits) and front office
(e.g., Performance Management, Applicant Tracking) segments of the HR market.

In our view, the data suggests that the HR software market must inevitably continue to
consolidate over time.

Furthermore, vendors which have pursued an organically-grown, integrated approach
from the beginning, and who are thus able to amphibiously span the back office HR
and front office HR markets, may be advantaged as the market evolves and the
preference for an integrated system continues to develop.

Exhibit 39
I NTEGRATED VS. BEST- OF- BREED APPROACH

Key Takeaways from
the Chart Above
26.4%
73.6%
0% 10% 20% 30% 40% 50% 60% 70% 80%
A Best-of-Breed approach, using multiple vendors
for HRIS and Talent Management
An Integrated System from a single vendor
including end-to-end HRIS and Talent
Management functionality (i.e. Employee System
of Record, Payroll, Applicant Tracking,
Performance and Goal Management, Succession
planning, Learning and Development)
When considering a HRIS/HCM system, which of the following would your
organization prefer?
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People are most concerned with HRIS systems meeting certain company-specific
requirements for handling employee data. Thus, product features and functionality top
the list of important considerations when evaluating HRIS systems.

Product ease of use also shows up as an important consideration, because increasingly
business workers are expecting enterprise software to function like the intuitive web-
based applications they are so familiar with. In other words, applications like
Facebook and LinkedIn are driving the consumerization of enterprise software.
Clunky products that require massive training sessions for administrators or end users
wont be tolerated in the future.

We are surprised to see that Vendor Scale and Global Coverage are less important
considerations, especially considering that almost 80% of respondents in our survey
have >1,000 employees. However, note that no single category on this list was rated as
Unimportant; on a scale of 1 to 5, every category was rated between 3.38 and 4.66. The
narrow spread suggests HRIS managers do consider a wide range of criteria when
evaluating HRIS systems.
Exhibit 40
I MPORTANCE OF HRI S SYSTEM FEATURES

Key Takeaways from
the Chart Above
3.38
3.52
3.85
4.04
4.12
4.31
4.44
4.66
3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6
Vendor Channel / Services Partners
Vendor Scale / Global Coverage
Vendor Strategy / Vision
Product Architecture / Delivery Method
Vendor Viability / Reputation
Product Cost / Affordability
Product Ease of Use
Product Features / Functionality
When evaluating HRIS systems, how important are each of the following
considerations, on a scale of 1 to 5? (1 = UNimportant, 5 = VERY Important)
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HR is becoming a strategic part of the IT environment, driving a re-prioritization of
reporting and analytics capabilities toward the top of the list, so that employee-centric
data can be optimally used to make better business decisions.

Employee self service has also emerged as a top HRIS priority because companies can
offload a major burden from the IT department and HR staff by enabling employees to
directly access their critical payroll and benefits data, tax forms, pay stubs, etc. via a
web browser.

Note that certain front-office HR capabilities, such as Performance Management &
Compensation and Learning Management / Training are also being viewed as critical
components of an HRIS system.

Multi Currency and Multi Language capabilities rank toward the bottom of the list,
presumably because these are a de-facto part of the feature set and thus, not widely
differentiated among vendors.
Exhibit 41
CRI TI CAL AND DI FFERENTI ATED PRODUCT CAPABI LI TI ES

Key Takeaways from
the Chart Above
2.87
3.12
3.28
3.30
3.34
3.35
3.39
3.65
3.66
4.05
4.10
4.12
4.13
4.29
4.63
2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8
Multi Language
Multi Currency
Financial Management
Position Control
Attendance
Succession Management
Mobility / Device Support
Learning Management / Training
Time Collection / Attendance
Benefits Administration / Open Enrollment
Performance Mgmt & Compensation
Analytics
Payroll
Employee Self Service
Reporting
When evaluating HRIS systems from various vendors, which of the following
product capabilities are the most Critical and Differentiated among vendors?
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We asked our sample set of HRIS managers an open-ended question: What is the
most critical component of an HRIS system, and Which vendor Gets It the most?
The qualitative feedback is provided on the pages that follow, while we have also
compiled the chart above by reading through and categorizing the feedback.

Its not uncommon for an HRIS system to require dozens of points of integration to
other external systems, such as financials or insurance providers. An HRIS system also
benefits from superior integration within and among its own application modules for
instance, between the benefits and payroll modules. Therefore it isnt surprising to see
Integration at the top of the list, being cited as the most critical element of an HRIS
system by 17.0% of HRIS managers. In addition to integration with third-party
systems, respondents mention integration in reference to Integrating all aspects of
Human Resource Management into one system and Integration between different
modules.

Reporting/analytics also rated highly, being cited as the most critical element of an
HRIS system by 13.8% of HRIS managers. As HR become more strategic, measuring
and reporting against benchmarks necessitates the need for robust reporting and
analytics solutions. As one respondent stated, If a system can produce good data
then everything behind it likely has good system structure and organization.

Payroll is cited as the most critical element of an HRIS system by 11.0% of HRIS
managers. In our view, payroll is important because companies have zero leeway for
payroll inaccuracy. One HRIS manager stated that Payroll is the most critical
component due to legal and compliance issues.

Exhibit 42
MOST CRI TI CAL COMPONENT OF AN HRI S SYSTEM

Key Takeaways from
the Chart Above
0.5%
0.5%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
1.8%
1.8%
2.3%
2.8%
3.2%
3.7%
4.6%
6.0%
6.4%
8.3%
10.1%
11.0%
13.8%
17.0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Security
User support
Cost
Data management
Employee life cycle
Hierarchies
HR process
Stability
Workforce administration
Benefits administration
HCM
Compliance
Customization
Functionality
Scalability
Performance management
Employee self-service
System of record
Ease of use
Flexibility
Payroll
Reporting/analytics
Integration
What is the most critical component of an HRIS system?
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Exhibit 43
MOST CRI TI CAL COMPONENT I NTEGRATI ON

Integration between different modules. PeopleSoft.
I would put integration with other systems outside of HRIS as the most critical component.
I think an integrated system that allows for customization ease of use is most important. Unfortunately, I haven't done
enough research at this time to evaluate each of the vendors.
For us, we need an integrated, enterprise-wide solution for the entire university, and for us that solution is Banner.
Integrated system SAP.
Integration between components. The demos I've seen of Workday seemed to position them as a big player in this arena.
On the surface Ultimate has this, but in actuality not all integration between their own modules are real time.
Seamless integration and global coverage. Oracle.
Assuming functional needs are met... For me, it's the integration between modules/solutions - I can't stand bad data due to
sloppy/lazy mapping/ table joins/ etc. I want integration so tight that I don't ever want to have to think about it - let me
spend my time helping the business, not babysitting half-baked solutions!
SAP - Ease of integration.
In my opinion there is no one component, it is how all components integrate with each other and 3rd party vendors to
enable a solution that fits the companys demands. For our company PeopleSoft HCM "Gets it.
I believe for our organization understanding our business processes and being able to merge several systems together
seamlessly to provide a solution that meets our big picture needs.
Integration ease with other systems.
Core HRMS for integration. Oracle.
From my experience, I would say that Ultimate has the best integrated solution that I have seen. However, as mentioned
before, we are pursuing a review of other systems as well so there may be other "get it" players in the HRIS field.
Integrating all aspects of Human Resource Management into one system. I think PeopleSoft always did get it. When
acquired by Oracle they had some loss of that knowledge, but I think they are coming back.
End to End HRIS INTERNAL integration. Very happy with Ultimate Software.
Easy flow between all of the systems. SAP.
I would say that an integrated system is the most important component. I'm hoping that SAP is the right solution.
A Cloud system that has global capabilities, integrated payroll system and the availability of other integrated components
(Benefits, talent mgt, etc). Integrated capabilities is the most critical component and Workday "gets it" the best.

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Exhibit 44
MOST CRI TI CAL COMPONENT REPORTI NG/ ANALYTI CS

To me reporting is most important, and I like Ultimate Softwares reporting tool.
Analytics SAP.
The most critical component of an HR system is end user accessibility and reporting. Functionality is important but if the
information stored in the system is not easily accessible to functional staff, they system is not of much value. From what I
have seen PeopleSoft and SAP have been able to master a solution that includes robust reporting capabilities.
Oracle does an outstanding job of organizing the HR data in tables for easy analysis, especially historical information.
Reporting and analytics (dashboards). Workday provides some solid delivered reports and dashboards and tools that are
easy to use to adapt the delivered reporting/dashboards or create custom reports/dashboards. Embedded analytics in
business processes are also a solid differentiator.
Reporting capabilities ADP.
In my opinion, self service and reporting are the most critical. In general, I think SuccessFactors gets it for Talent
Management, but the reporting is not as flexible as I would like. I have only seen Demos of Workday, but they really seem
to "get it" for HR in general!
Reporting SuccessFactors.
Reporting is the most critical component. PeopleSoft gets it the most.
Being able to capture data and then report on it easily is critical for us. Not sure which vendor gets it the most, but have
heard many good things about Workday.
Reporting and Analytics - including system audit reporting. If a system can produce good data (as long as data entry is
accurate), then everything behind it likely has good system structure and organization. PeopleSoft really understood this.
Workday has potential, but the object oriented database, makes extracting data quite difficult. Tools like Excel work best
with relational databases.
To me reporting is the most important. SAP has the worst reporting of any system I have ever used. I haven't seen
SuccessFactors reporting for their HR module but we have it for our Performance Appraisals. They have multiple ways to
report which I like.
Reporting PeopleSoft.
Ability to have a large selection of standard reports and ease and reliability of creating custom ad hoc reports.

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Exhibit 45
MOST CRI TI CAL COMPONENT PAYROLL

Payroll and Employee self service. I have no [idea] which company understands or provides the best product. They all have
their strengths and weakness, but the weaknesses are usually because the people who work for the company don't fully
understand, so the issues are usually at a service level, but all development of the product.
From my perspective, HR/Payroll is the most critical component of an HRIS system.
Payroll accuracy.
The most critical component of an HRIS system is its ability to track and pay employees accurately. They all get that
concept, but they don't always deliver. I would say that, from my experience, Oracle/PeopleSoft has been the vendor that
"gets it" the most.
If managed internally, Payroll is the most critical component due to legal and compliance issues. PeopleSoft is the strongest
with Payroll and global functionality. However, PS is weak as far as offering robust enough integrated solutions for the
Talent Mgmt, Compensation and Learning components.
People, Benefits and Pay. Oracle.
Payroll - Lawson for the Healthcare Sector.
Payroll and Time & Attendance and for the IT programmer to be able to program a system the way the company wants
and not automatically say that it can't be done until he tries.
Most critical for a school district would be teacher pay and upcoming pay for performance.
The most critical component of an HRIS System would be the ease of flow during an export to the payroll system if we use
it to export. If not, then ease of reporting information from the system. If it is too complicated, it wastes time.
To our environment the most critical component is the interface between Personnel Administration, Time Collection and
Payroll Processing. I believe that Ceridian had a very competitive tool for this type of control, but I prefer SAP. It offers the
advantage of customization to fit the business and not necessarily the system directing the business. However, the
disadvantage, if you will, is that the ability to customize gives rise to the requirement of consulting or internal resources to
maintain and manage the system and customizations.
Payroll is still the most critical piece. Kronos gets it. I believe Cornerstone does as well, but their sales model is not going to
help them. Poor demos and too many sales reps involved in presentations. Bringing Workday to an LMS presentation was a
real turn off.

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Exhibit 46
MOST CRI TI CAL COMPONENT FLEXI BI LI TY

Flexibility in configuration to meet today's agile business environment. It is critical to provide insight into the company's
human capital to allow business leaders to make well informed decisions. In my opinion, Workday "Gets It" the most.
Flexibility and Integration for all of our needs from the store level to corporate capturing all HR and Accounting needs.
Not sure which vendor gets it most as I havent been able to compare many at this time.
Data. A system needs a flexible architecture that allows companies to store and report on not only core data points, but
also nuanced data. PeopleSoft.
Product helps users be more productive and self-sufficient while being easy to understand and navigate. Offer flexibility in
reporting and ways to view data (analytics) and distribute key statistics.
Match to the individual business process and strategy of the company or the flexibility to create this. Not sure who "gets it"
the most as we have only dealt with PeopleSoft and ADP at my company. Of these two, PeopleSoft has been the more
adaptable system.
Adaptability to change and the ever changing world of Human Resources management.
Flexibility.
Most critical: ability to meet the existing business processes. Who gets it the most? I've heard stellar things about
Workday, but PeopleSoft, Oracle, SAP all still have customers.
Freedom! Oracle PeopleSoft.
Kenexa provides a solid applicant experience and gets the need for flexibility in the configuration of its solution.

Exhibit 47
MOST CRI TI CAL COMPONENT EASE OF USE

Administration - overall packaging in relation to cost is ADP.
Most critical today would be easy/intuitive. We have to engage managers and employees in self service and for that to
happen it has to know what you want to do and walk you through it. From what I have seen via IHRIM and demos for
SaaS it would be Workday.
Ease of inter-facing and customization. Unsure which vendor "gets it" the most. I've heard PeopleSoft is pretty flexible.
Ease of usability, global set up, Analytics and reporting.
System functionality and the ability to integrate with other 3rd party vendors. SunGard Banner solutions do this best for us.
User Support and ease of use for HR staff.
It needs to make your job easier.
Ease of use. Ultimate Software.
Most critical part of the system is the functionality. The system needs to be easy to use and move around in and have single
sign on. So many passwords are needed for different applications, nice to have the same password for all functionality.
Ultimate software does understand the functionality, they get that. As we continue down the road with them we learn more
about what their system has to offer, never able to know it all.
Ease of use and Integration with culture is most important. I don't know who "gets it" the most, but I believe
SuccessFactors offers a lot (although we don't use it).

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Exhibit 48
MOST CRI TI CAL COMPONENT SYSTEM OF RECORD

Must be able to be the single source of record for an organization. I think that Oracle Fusion and Workday have really
made strides in "getting it."
Core HR portion of the system, where all the components of a job, which includes the position, pay, employee type, etc.
The HRIS system is the single source of information for our employees. It is business critical and data integrity is the most
important aspect. Self Service functionality and ease of use is another critical component, as well as ease of configuration
and integration.
Having all of the HR functional data (from applicant data to employee data including payroll, performance, training, etc)
in one HRIS system. This system must be easy to access, maintain, use and must play well with other
applications/systems. SunGard Banner comes close to the above demands (not completely, but close).
Most critical for our environment is a system that is multi-functional. Lawson currently offers a package for HR, Payroll,
and even Purchasing that allows our business partners to work together. Again, I'm not familiar with the other products, so
I can't honestly say that Lawson is the best product, however we have had much success using it thus far.
Tracking core Personal and Job related data.
Central repository for all info about staff (job, succession planning, performance reviews, etc) that is available to decision
makers when they need it.
Employee System of Record. Oracle.

Exhibit 49
MOST CRI TI CAL COMPONENT PERFORMANCE MANAGEMENT

Because we are interested in multi systems (Time, Self Service, Performance Management, etc) I would have to say Oracle
and Ceridian both have the "Gets It". They are both trying to bring it all into one easy to use system. Looks like SAP is also
working on bringing everything together.
I would really need to do more research on all systems to give a real fair answer.
Performance Mgmt & Compensation as well as Reporting & Analytics. Can not disclose the vendor at this time: we are in
the system selection mode.
For us right now, it is Talent Management. Taleo gets it the most, Oracle PeopleSoft (which is what we have) not so much.
Reason being, Taleo is user-friendly and intuitive. And it seems to work correctly. PeopleSoft is a mess.
Talent Management is of most importance right now. I am only very familiar with Oracle and Open Hire currently. We are
pleased with Oracle's offerings and will continue to expand our functionality in the HCM space.

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Exhibit 50
MOST CRI TI CAL COMPONENT SCALABI LI TY

Flexibility and usability - ability to grow with the organization. For this we chose Workday.
Scalability SAP.
Ability to continually improve the system to meet the needs of global and complex companies without requiring the end
user to need a large amount of resources to implement the changes. Workday has done a good job with recognizing and
implementing this vision.
Scalable, sustainable, and high user acceptance. Probably SAP "gets it."
Most critical for our company is a system that can handle a lot of changes and additions. We're constantly expanding both
domestically and globally, so it's critical for us to be able to maintain functionality in an ever-growing environment. For
now, ADP has been able to assist us with this request. But we're always open to looking at other options.

Exhibit 51
MOST CRI TI CAL COMPONENT FUNCTI ONALI TY

The general employee management applications. The complete suite of applications that manage on-boarding (recruiting)
basic employee administration (i.e., base record, payroll, succession planning, position control, benefits, T&L, absence,
manager/employee self-service, compensation, security, etc.), talent management (performance, development, ELM, safety),
and reporting (analytics/metrics, dashboards, compliance).
Beginning to End, with upgraded features, total employee management. I.E. Recruiting, On-Boarding, Document Storage,
Auto Letters, Notifications, Analytics, Compensation Planning & Implementation, Benefits Management, Employee and
Manager Self-Service, Hierarchy Management, Notifications, etc. Need a one stop shop. No company is 100% but Ultimate
Software seems to fit our needs best.
Employee Data and the ability to interface the data between vendors and internal systems. Ability to have all the detail
required for budgeting, headcount, EEO, survey data, etc. I am not sure which one "gets it" the most but my preference is
ADP as an integrated solution.
Ability to support HR Core functions. I believe today is Workday.

Exhibit 52
MOST CRI TI CAL COMPONENT CUSTOMI ZATI ON

For us it is the ability to be able to be customized to fit unique processes without compromising the vanilla system. I am
not aware of other vendors capabilities, but we are able to do that with Oracle/PeopleSoft.
Flexibility - ease of customizing the system to meet your needs.
Performance Management is the most critical, and it must be customizable to the organization because not every
organization can mold their processes to fit an out of the box solution. I haven't researched enough vendors to answer the
Gets It the most question.

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Exhibit 53
MOST CRI TI CAL COMPONENT COMPLI ANCE

We interviewed 3 or 4 HRIS vendors before selecting Ultimate. It was our opinion that they "get it" and are staying on top
of employer's needs as well as the need for up-to-date compliance.
Legal Specific Data Management, Performance Management, Benefits Administration, Analytics/Report needs,
Onboarding, Talent Management. I'm not sure if I have met the vendor yet who truly "Gets It" especially when it comes to
all the specific needs related to the legal industry.
The most critical component is absolute accuracy within statutory compliance. Our experience has shown that in spite of
system capability shortfalls, ADP NEVER misses on the compliance piece.

Exhibit 54
MOST CRI TI CAL COMPONENT HCM

Human Capital Management
Most critical component is reporting and SAP HCM.

Exhibit 55
MOST CRI TI CAL COMPONENT BENEFI TS ADMI NI STRATI ON

Benefits Administration is the most critical component. Vendor: Workday
Benefits Management and I think so far, Ceridian meets our needs.

Exhibit 56
MOST CRI TI CAL COMPONENT SI NGLE RESPONSES/ OTHER

Stable, reliable, continuing improvements without having to re-engineer processes every year or two. Oracle PeopleSoft.
The ability to assemble and disassemble an organization; who gets it most? SAP
Workforce Administration PeopleSoft
Most critical is end to end employee life cycle, including on-boarding, benefits, t&a [time & attendance] and payroll.
Workday gets it!
Data management and data integrity. If the data isn't correct (via validation, controls and auditing) nothing else will be
correct.
Security of data; flexibility.
Cost is number one in choosing an HR system.

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We asked HR managers to name the most critical component of their HRIS system,
and then to name which vendor gets it the most. The largest percentage of
respondents, 31.7%, cited Oracle/PeopleSoft as the vendor that gets it right. This is
almost exactly in line with the 32.7% who indicated that they use Oracle as their
current vendor, as shown in exhibit 1.

Next on the list is Workday, with 17.7% of HR managers saying Workday gets it the
most. In our view this is an eye-opening response rate for Workday because it eclipses
Workdays 3.2% current share among the survey respondents.

SAP, Ultimate Software, and ADP also perform well on this scale.

Exhibit 57
HRI S VENDOR THAT GETS THE CRI TI CAL COMPONENT RI GHT

Key Takeaways from
the Chart Above
0.5%
0.5%
1.1%
1.1%
1.6%
2.2%
3.2%
4.3%
4.8%
8.6%
9.7%
12.9%
17.7%
31.7%
0% 5% 10% 15% 20% 25% 30% 35%
Peoplefluent
SilkRoad
Kenexa
Kronos
Ceridian
Taleo
SunGard
SuccessFactors
Lawson
ADP
Ultimate Software
SAP
Workday
Oracle
Wich vendor "Gets it [Critical component of an HRIS System]" the most?
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April 2014

Not surprisingly, Oracle and SAP appear at number one and number two in terms of
their perceived ability to provide a complete and robust HRIS system. We believe this
perception stems from Oracle and SAPs stature as two of the largest HRIS vendors
which have spent decades developing rich functionality for the employee system of
record.

We are impressed by Workdays appearance at number three in terms of perceived
ability to provide a complete and robust HRIS system. Workday has existed only since
2005, so its rapid arrival as one of the most complete solutions HRIS solutions is that
much more impressive. Also, note that Workday rates highest among all SaaS HR
providers, outpacing Ultimate Software, SuccessFactors, SilkRoad, and Ascentis.

Exhibit 58
COMPLETE AND ROBUST HRI S SYSTEM VENDORS

Key Takeaways from
the Chart Above
2.61
2.64
2.69
2.87
2.95
3.00
3.25
3.56
3.88
2.5 3.0 3.5 4.0
Ascenti s
NuVi ew Systems
Si l kRoad
Kronos
SuccessFactors
Ul ti mate Software
WorkDay
SAP
Oracl e/Peopl eSoft
From your perspective, please rate the following vendors in terms of their ability
to provide a complete and robust HRIS system? (1 = INcomplete / UNrobust, 5 =
Very Complete / Very Robust)
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The chart above clearly depicts strong brand recognition for Taleo and SuccessFactors,
both recently acquired, in the talent management segment. Taleo is viewed to be the
most complete integrated Talent Management solution by 28.6% of HRIS managers in
our survey, followed very closely by SuccessFactors at 25.4%.

The third and fourth place vendors on this chart, Workday and Ultimate Software,
have historically placed a greater emphasis on HR back-office functions, so their
relatively strong ratings suggest that their newer, less-established talent management
solutions are gaining traction, as evidenced by their ability to surpass other pure-play
talent management vendors like Kenexa and Cornerstone OnDemand in terms of this
perception.

Based on its rapid growth trajectory and solid suite of integrated talent management
offerings, we expect Cornerstone OnDemand to rapidly climb this list in the near
future. Furthermore, recognize that Cornerstone OnDemand is a critical element of
ADPs talent management offerings via a large reseller deal. If we were to combine
Cornerstone OnDemands 6.3% with ADPs 5.6%, this would equate to 11.9% for
Cornerstone OnDemand. In other words, Cornerstone OnDemands talent
management offerings are likely much stronger than the chart above indicates.

Exhibit 59
MOST COMPLETE TALENT MANAGEMENT SOLUTI ON

Key Takeaways from
the Chart Above
0.8%
0.8%
1.6%
3.2%
5.6%
6.3%
8.7%
8.7%
10.3%
25.4%
28.6%
0% 5% 10% 15% 20% 25% 30%
Saba
SumTotal
Halogen
SilkRoad
ADP
Cornerstone OnDemand
Kenexa
Ultimate Software
WorkDay
SuccessFactors
Taleo
From your perspective, which SaaS vendor provides the most complete
Integrated TALENT MANAGEMENT Solution (Applicant Tracking, OnBoarding,
Performance management, Goal Management, Succession Management,
Learning Management)?
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LI MI TATI ONS

We surveyed 125 HRIS managers at large and mid-sized organizations. We believe the
survey is unique due to its scale and focus on larger organizations (nearly 80% of surveyed
organizations have more than 1000 employees), but we note the following limitations: 1)
the survey is more weighted toward North American organizations, with roughly 2% of
respondents outside the Americas; and 2) dispersion across verticals is good in our view,
with 19 verticals represented, but is arguably slightly overweight in Health Sciences at 13%.

Survey Background
and Limitations
Exhibit 60
GEOGRAPHI C MI X

0.0%
1.6%
98.4%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Asia-Pacific
Americas
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Exhibit 61
I NDUSTRY SECTOR

Exhibit 62
NUMBER OF EMPLOYEES I N RESPONDENT S FI RM

0%
2%
2%
2%
2%
2%
2%
2%
3%
3%
3%
4%
6%
7%
7%
9%
10%
10%
10%
13%
0% 2% 4% 6% 8% 10% 12% 14%
Chemicals
Public Sector
Natural Resources
Insurance
Communications
Utilities
Automotive
Oil and Gas
Financial Services
Retail
High Technology
Consumer Goods
Health Sciences
1.6%
0.0%
0.0%
2.4%
7.2%
6.4%
12.0%
13.6%
35.2%
20.8%
0.8%
0.0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
>800,000
400,000 - 800,000
200,000 - 400,000
100,000 - 200,000
50,000 - 100,000
25,000 - 50,000
10,000 - 25,000
5,000 - 10,000
1,000 - 5,000
250 - 1,000
100 - 250
< 100
How Many Employees Does Your Organization Have?
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Mark Murphy
Senior Analyst,
Enterprise Software
415 616-1705
Piper Jaffray & Co.

Matthew Coss
Research Analyst,
Enterprise Software
415 616-1706
Piper Jaffray & Co.

Pinjalim Bora
Research Analyst,
Enterprise Software
415 616-1703
Piper Jaffray & Co.

C I O S UR V E Y , 2 Q2 0 1 2

Cloudier Forecast For 2012

We surveyed more than 100 CIOs of large and mid-sized organizations responsible for
over $60 billion in annual IT spending to derive a forward-looking assessment of software
spending and top winners/losers for 2012.We believe the survey is unique due to its scale
and its focus on larger organizations. This mid year survey highlights changes in the IT
spending environment since our Q4:11 survey. Bottom line: IT spending plans are
consistent to very modestly decelerating through mid-year, as CIOs keep one eye on the
European financial crisis and the other eye on key Cloud and Cloud Infrastructure
initiatives.

Key Takeaways

Spending Deceleration: CIOs of large and medium-sized organizations are currently
expecting their IT budgets to trend down to +2.6% (blended average) in 2012, from
+3.0% in our prior survey, marking a very modest downtick in a span of only six
months.
Spending Impact of European Financial Crisis: Overall, 20% of organizations are
spending more cautiously in response to the European financial crisis and 12% have
gone as far as to reduce their 2012 IT budget due to the European financial crisis. In
EMEA, which is a small sample size for our survey, 67% of CIOs are currently
spending more cautiously, in comparison to 18% of Americas-based CIOs.
IT Categories At Risk of Spending Cuts: The top three categories at-risk of any
spending cuts if Europe or US enters into a recessionary environment in 2012 are
Applications (46%), Hardware (31%) and Services / Support / Upgrades (17%).
Among the most insulated categories are Cloud Computing and Travel, each
mentioned by only 5% of CIOs.
Valuable Cloud Players: Salesforce.com ranked No. 1 and was mentioned by 28% of
CIOs as the most valuable cloud player, followed by Microsoft at No. 2, Amazon.com
No. 3, and Google at No. 4.
Big Data Winners: MSFT ranked #1 among the companies CIOs would rely on for
Big Data initiatives and was mentioned by 32% of CIOs, followed by ORCL with
30%, and IBM with 29% mentions. Only one small-cap software company received
multiple mentions (Microstrategy).
Best Positioned Database Vendor: For CIOs with IT budgets greater than $250M,
ORCL is the number one vendor for evolving future database needs, selected by 56%
of CIOs. IBM and MSFT follow, selected by 44% and 41% of CIOs, respectively.


August 2012

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MI D- YEAR CI O SURVEY SHEDS LI GHT ON EUROPEAN
CONDI TI ONS: TOUGHER SLEDDI NG AHEAD?

CIOs of large and medium-sized organizations are currently expecting their IT budgets
to trend down to +2.6% (blended average), from +3.0% in our prior survey in 2012.In
our view, this marks a very modest downtick in a span of only six months.

Furthermore, because our CIO survey is US-centric, the data suggest that IT spending
constraints are not entirely contained within Europe, and may be gradually spreading
to US-based multinationals with exposure to Europe as they begin to position more
cautiously due to the volatile and uncertain conditions.

It is still worth pointing out that IT budget growth of +2.6%, while slow and
decelerating, is not quite recessionary. We maintain hope that key Cloud and Cloud
Infrastructure vendors can post good double-digit growth, but we still expect investors
to aggressively monitor risk in their portfolios based on the softening spending
environment.

Exhibit 1
201 2 ANNUAL I T BUDGET GROWTH TREND

5.7%
1.0%
9.5%
5.7%
11.4%
6.7%
6.7%
8.6%
18.1%
1.9%
6.7%
4.8%
4.8%
2.9%
3.8%
1.0%
1.0%
0% 5% 10% 15% 20%
Increase 15 to 20%
Increase 10 to 15%
Increase 8 to 10%
Increase 6 to 8%
Increase 4 to 6%
Increase 2 to 4%
Increase 0 to 2%
Remain the Same
Decrease 0 to 2%
Decrease 2 to 4%
Decrease 4 to 6%
Decrease 6 to 8%
Decrease 8 to 10%
Decrease 10 to 15%
Decrease 15 to 20%

Key Takeaways from
the Chart Above
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The majority of organizations, at 68%, have not adjusted their current spending
behavior or their 2012 IT budget in response to the European financial crisis. However,
20% are spending more cautiously and 12% have gone as far as to reduce their 2012 IT
budget due to the European financial crisis.

In EMEA, which is a small sample size for our survey, 67% of CIOs are currently
spending more cautiously, in comparison to 18% of Americas-based CIOs.

Net/Net, while we do not see a uniform and widespread move to spend
more cautiously, the survey suggests some adverse impact in both Europe and North
America, with enough impact to move aggregate IT spending growth to a slightly
lower level of +2.6% for the year. On that basis, we see some modest headwinds for
now, which should contribute to a tougher Enterprise selling environment and de-
risking of growth portfolios.

Exhibit 2
201 2 I T BUDGET SPENDI NG BEHAVI OR

20.0%
12.0%
68.0%
0% 10%20%30%40%50%60%70%80%
Yes, we are currently spending more
cautiously
Yes, we are reducing our 2012 IT
budget
No, we have not adjusted our
current spending behavior or our
2012 IT budget
Is Your IT Organization Currently Spending More Cautiously, or
Reducing its 2012 IT Budget, due to the European Financial
Crisis?

Key Takeaways from
the Chart Above
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The data shows a slightly aggressive IT spending environment, with a blended average
score of 6.1 in a scale of 1 to 10, 1 being un-aggressive and 10 being very aggressive, and
consistent with our previous survey conducted in Q4:2011, which also came in at 6.1.

We interpret the results as such: IT projects are viewed as being core to organizational
success, but IT investments will be executed in a relatively judicious manner. CIOs
appear to be cautiously optimistic about their IT spending plans. With a consistent
reading of 6.1, spending is clearly not in a 2008/2009 style freefall, and CIOs are still
proceeding in a fairly level-headed manner.

Exhibit 3
I T SPENDI NG I NTENTI ONS

2.9%
1.0%
6.7%
10.5%
14.3%
16.2%
21.9%
18.1%
4.8%
3.8%
0% 5% 10% 15% 20% 25%
1
2
3
4
5
6
7
8
9
10
How Aggressively Will Your Organization Spend on IT in the Next
12 Months? (1 = UN-aggressive, 10 = VERY aggressive)

Key Takeaways from
the Chart Above
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I T CATEGORI ES AT RI SK TO A EUROPEAN/US
RECESSI ON

This chart provides a rare, real-time, granular window into the current mindset of
large-company CIOs as investors grapple with the implications of a European debt
crisis.

The top three at-risk categories are Applications (46%), Hardware (31%) and Services
/ Support / Upgrades (17%).

Among the most insulated categories are Cloud Computing and Travel, each
mentioned by only 5% of CIOs. This makes us incrementally less worried about those
segments, and highlights their importance to enterprises.

Exhibit 4
DI SCRETI ONARY SPENDI NG CATEGORI ES

46%
31%
17%
14%
8%
6%
6%
5%
5%
3%
3%
19%
19%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Applications
Hardware
Services/Support/Upgrade
Infrastructure expansion/New Projects
Mobility
Education/training
Virtualization
Cloud
Travel
Staff
Disaster/Recovery
Others
None
What are the first 2 or 3 IT projects/spending categories within your organization that would
get cut if Europe or the US were to enter an economic recession during 2012? (i.e., your most
"discretionary" IT spending categories)
(As a % of CIOs)

Key Takeaways from
the Chart Above
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This chart is a drill-down into the Applications line from the chart in the prior page.

The largest category (27%) of applications at risk is generic and includes new
applications, development of in-house proprietary applications, application support
and application refreshes.

The next two largest responses (13% each) include BI/analytics and CRM, followed
by HR/HRMS and security (8% each).

Due to the open-ended questions, we don't have a precise way to determine how
potential spending cuts would be distributed among potential SaaS and on-premise
vendors. However, because so few CIOs (5%) mentioned cloud spending as being at
risk, we believe the on-premise applications businesses of SAP and ORCL appear to be
very discretionary at this point and are more at risk than their pure-play SaaS
competitors.
Exhibit 5
DRI LL DOWN: APPLI CATI ONS

27%
13%
13%
8%
8%
6%
6%
4%
2%
2%
2%
2%
2%
2%
2%
0% 5% 10% 15% 20% 25% 30%
Applications (new, development, support, refresh)
Business Intelligence/analytics
CRM (Customer Relationship Management)
HR/HRMS
Security
ERP (Enterprise Resource Planning)
Project Portfolio Management
Social networking
CAD (Computer Aided Design)
Collaboration
Facilities scheduling & Asset management
Knowledge Management
Maintenance Management
PLM (Product Lifecycle Management)
SIEM (Security Information and Event Management)
Applications : Mentioned by 45% of CIOs (Drill Down)

Key Takeaways from
the Chart Above
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CSOD: Only one CIO out of 105 mentioned Learning Management Systems as being at
risk; 3 others mentioned HRMS or HR, which primarily refer to back office HR
systems rather than front office Talent Mgmt suites such as CSOD. Modernization of
the strategic side of HR continues to be a top priority.

CNQR: Only one CIO out of 105 mentioned T&E as being at-risk; 4 others mentioned
Travel or Meetings. CNQR's installed-base spending should remain highly resilient
because expense report volumes don't fluctuate much in a recession.

CRM: While on-premise applications appear to be highly at risk, Cloud was only
mentioned by 5 CIOs out of 105. Additionally, salesforce.com's newer markets like
Social Networking/Collaboration were rarely mentioned as being discretionary (2 for
Social Networking, 1 for Collaboration). Tipping point for Enterprise-level Cloud
adoption.

RHT: Not a single CIO mentioned Linux or Open Source software as being at risk.
While Data Center Expansion and Server Hardware were mentioned by a handful of
CIOs, which could carry some indirect linkage to RHT's results, Cloud and
Virtualization categories (two big areas of focus for RHT) were infrequently
mentioned as being at risk.

Due to the open ended nature of the question we asked, we are able to see not only broadly
affected categories, but also several subcategories to analyze pockets of particular
weakness. This comes with the caveat that the responses were open-ended, and we had to
categorize some vague responses. For example, we categorized "Mobility applications"
under Mobility, which could be considered applications, and "new hires" under Staff, which
technically isn't a staff reduction. We did not categorize 19 responses because they were
overly vague or were unique among all other responses.

Survey Provides
Strongest Positive
Read-Through for the
Following Vendors
Open-Ended
Question Provides
Incredible Detail, But
Has Limitations
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The largest category (39%) of hardware at risk of any spending cuts if Europe or US
enters into a recessionary environment in 2012 is Desktop, Laptops and Tablets.

The next largest response (12% each) includes Data Center expansion and Servers
along with a more generic indication towards any hardware refresh. These are
followed by storage (9%).

Due to the open-ended nature of the question, we don't have a precise way to determine
how potential spending cuts would be distributed among the different hardware
components and there can be overlaps in the categories shown above.

Exhibit 6
DRI LL DOWN: HARDWARE

39%
12%
12%
12%
9%
6%
6%
3%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Desktop/laptop/tablet
Data center expansion
Hardware refresh
Server hardware
Storage
Networking
Telephony
Video conferencing
Hardware: Mentioned by 31% of CIOs (Drill Down)

Key Takeaways from
the Chart Above
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The largest category (50%) of Services, support or upgrades at risk of any spending
cuts if Europe or US enters into a recessionary environment in 2012 is very generic and
may include software as well as hardware refresh.

The next largest response (11% each) includes Software upgrades and Support.

Due to the open-ended nature of the question, we don't have a precise way to determine
how potential spending cuts would be distributed among the different components and
there can be overlaps in the categories shown above.

Exhibit 7
DRI LL DOWN: SERVI CES/ SUPPORT/ UPGRADES

50%
11%
11%
6%
6%
6%
6%
6%
0% 10% 20% 30% 40% 50% 60%
Technology refresh/pace of upgrades
Software upgrades
Support
Consulting
Database maintenace/license
Help Desk
Internal intranet upgrades
Remote support service
Services/Support/Upgrade: Mentioned by 17% of CIOs (Drill Down)

Key Takeaways from
the Chart Above
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Exhibit 8
UNEDI TED RESPONSES: DI SCRETI ONARY SPENDI NG CATEGORI ES

Supply Chain, Store Systems
Business analytics, wireless augmentation in 3 story building
Business intelligence, Mobility
Some SAP Services projects (CRM)
Capacity, technology refresh
Desktop support, server consolidation, CRM SAP
PC replacement, Support Initiatives
Non-core applications such as lead management, analytics; Budgeting/planning
Help Desk, Applications Maintenance
Infrastructure expansion, Greenfield installations
Travel, Desktop replacement, Improve availability of systems to meet disaster recovery requirements
Storage, desktops
Physical infrastructure
Data center expansion, VDI
Desktop, networking
Cloud Computing
Database maintenance/license, Offshore Development
Upgrade legacy systems
Essentially any projects not delivering material revenue or cost savings, unless they are compliance or key
infrastructure needs.
AODB replacement
We don't have any discretionary IT spending, after many years of trimming.
Security, Collaboration
We would reduce the number of projects -- which would reduce spending on consulting.
Nonstrategic legacy systems, in-house adm resources
Internal intranet upgrades, internal workflow / imaging optimizations
Education / training, travel, new hires
Migration to Windows 7/Windows 2008, Server Virtualization
New Solutions for Portal & upgrading the existing BI
Knowledge Management, Social Networking
In house applications, Storage, Data Management
None
Infrastructure growth, Support
PCI Compliance, Identity Access Management enhancements, Standardization of network security infrastructure
Salesforce projects
Not applicable
iPad purchases, Hardware EOF recycling
Dealer management systems
HRMS, CRM, Maintenance Management
Hardware renewal
Application Development, Staffing, Licensing, Infrastructure
Data Center Consolidation, IaaS, SaaS
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Exhibit 9
UNEDI TED RESPONSES, CONTI NUED

Data Center Expansion
Classroom technology / hardware and student services
Internal Support Applications - Project Management Office software, (2) Maintenance/Enhancement Projects -
Policy Admin, Claims, Billing (3) Hardware Enhancements/Technology Refresh
All projects will continue as they are already funded.
Not decided yet
Software updates, PC replenishment
Most projects have all been cut with the exception of our financial systems rationalization project; if things got
worse, they would simply slow down the pace of the project.
System refresh, new phone system, new data centers
Security improvements, new architecture
Video conferencing investment, ERP discretionary projects, CRM
Wireless, Tablets
Capital spending
Efforts on emerging technologies, Lower payback harmonization projects on our technology roadmap (e.g.
Conversion of legacy systems to SAP modules), Might extend refresh cycles (e.g. extend leases)
Learning Management System, Training, Travel & Expense
Major application projects - primarily people
Single Sign On, VoIP, Infrastructure
Infrastructure/build-out, RTB (where possible)
Nothing now
Business analytics, social networking
Mobile portal development, Facilities scheduling & Asset management
No Impact
Human Resources Management System and Project Portfolio Management System.
I dont have discretionary projects, we only do what is necessary, therefore, the economic recession doesnt affect
our strategy
Workstation refresh, SIEM
PC refresh, new projects
Training and R&D
No software upgrades
None unless it totally tanked the economy. Then maybe slow down on some areas of BI
Advisory services (Gartner, Forrester), Outsourcing to India, Mobility
Telephony, PLM
The pace of equipment upgrades, 2) Upgrades to our messaging platforms, 3) Discretionary BI projects
Lecture capture, portfolio management, SharePoint
HR, Finance Software
Mobility applications
Office suite; CAD
Smaller IT projects around departmental efficiencies with no real enterprise lift.
Virtualization, Remote support service, Disaster recovery
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Exhibit 10
UNEDI TED RESPONSES, CONCLUDED

None
Workstation and Laptop Upgrades, Travel
Rollout of certain Oracle EBS modules could be delayed or canceled.
Citrix implementation, Staff
Video Conferencing expansion, Voice/Mobile handset integration
Non customer, HR, legacy upgrades
Defer some laptop/desktop refreshes, slow down internal CRM deployments and ERP upgrades
Training, server hardware
Not applicable for us
I don't anticipate any cuts due the Europe issues.
Not applicable
Hardware refreshes, excessive software purchases.
Disaster recovery program, telecom
End user computing devices and VMware
Nothing
Scanning, Cloud storage
International language accessibility
None. Operations are strictly Canadian, primarily Ontario.
None
Project Portfolio Management, Public School Management
Blade Centers, Private Cloud for Lab Environment
IT is critical to our organization. There is very little chance that we will specifically cut IT budget. Overall cuts
(primarily relating to staffing) would have an impact on retaining technically skilled persons.
Meetings/traveling, physical hardware in favor of virtualization
Virtualization projects, mobility projects.
Innovation - money for research on new projects, etc. We would be forced to maintain the status quo.
Replacing legacy systems such as Mainframe or Lotus Notes applications
We have a very lean budget, so none
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HOW ARE CI OS RESPONDI NG TO THE EUROPEAN
CRI SI S?

Exhibit 11
NO I MPACT/ NO CHANGE I N SPENDI NG ACTI VI TY ( 48%)

WearenotdoinganythingdifferentlybecauseoftheEuropeanfinancialcrisis.
Focusonbasics,runningtheITinfrastructureandoperationsandnotfocusingonanyinnovation.
ThefinancialcrisisinEuropedrivesimmigrationpatternsthatbenefitourorganization-atleastintheshort-term.
NoadjustmenttoITspendingasaresultofEuropeancrisis.Wecontinuetolookforopportunitiestocapitalizeonimprovingmarkets.
TheEuropeanfinancialcrisisisn'taffectingourmarket.
TheeventsinEuropehavenodirectinfluenceonourdecisionsatthistime.Otherfactors,namelyeffortstoremovecostfromthehealthcare
deliverysystembyloweringthelevelofreimbursementprovidedtohealthcareorganizationsfortheservicestheyprovidearemoreimpactful.
Asaresult,newtechnologyinvestments-likeallexpendituresareundertighterscrutiny.
SinceourorganizationhasveryminimalinternationalexposureandtotheEuropeanmarket,thereisnotmuchimpactfromtheEuropean
financialcrisisonus.WeareveryconservativeandensurethatourITspendingprovidesfullROIandwealwaysstriveforcosteffective
solutionswithoptimizedTCOs.IrrespectiveofeffectofEuropeanfinancialcrisisonAPAC,wearealwayscautiousonspending.
TheEurocrisisisnotafactorinhealthcareITspending.Regulatorymandates(minimumuse&HIPAA)andhealthcarereformarethemain
drivers.
OurexposuretoEuropeislimitedandhencenochangeinITspendingasfarasEuropeisconcerned.
NorealimpactthatdoesnotaffectUSmarkets.
Notimpacted.
WearenotadjustingoutITbudget.
TheEuropeancrisishasnotaffectedourITspendingorprojectactivity.Themajorityofourfundingissecure,andmostofourworkisdonein
theAmericas,Asia,andAfrica.
TheEuropeanfinancialcrisisisnotimpactingourITSpend.Wedoseeitimpactingourrevenue.
NochangeinITspending,wemake2/5/10yearstrategyplans.
NoImpact.
MostofourworkisintheUS,sothefinancialcrisisinEuropeisnotagreatconcern.
Wearenotaninternationalcompany,andassuchthereisverylittleimpacttous.Wearenottakinganyactionsatthistime.
TheEuropeanfinancialcrisisdoesnothaveanimpactonourITspendingactivity.
Ourorganisationiscontinuingtooperateasnormalthroughoutthecurrentfinancialcrisis.
Noadjustments.ITspendnotimpactedbyEurope.
OurITbudgetisnotdirectlyaffectedbytheEuropeancrisis.
WearenotadjustingourITspendingbasedontheEuropeanfinancialcrisis.AllofourbusinessiscurrentlyintheUSandwearenot
negativelyimpactedbyEurope'scrisis.
TheEuropeanfinancialcrisisdoesnotinfluenceourITspendingdecisions.
Noimpact.Notaconsiderationatthistime.
Noimpact.
NoimpactfromEuropeforourITspend.
WeareaDoDagencyandaresomewhatimmunetothatcrisis.
Atthistime,theEuropeanfinancialcrisisisnotafactorthatwearelookingat.Europeisnotamajormarketforus.
Noimpacts.
AsweperformthevastmajorityofourbusinessinNorthAmericawecurrentlyseelittleimpactbasedontheEuropeanmeltdown.
NoplanstochangecurrentspendingonIT.
WearenotreducingourITspendingbasedontheEuroFinancialCrisis.WestillneedtooperateITevenifEuropefallsapart.
TheEuropeanCrisisisnotaffectingus,[its]moreofourUSdown-turnthananythingelse.Wearerecentlyseeingthischangeandseeingan
uptick.
TodatewehavenotmadeanychangesinresponsetotheEuropeanFinancialCrisis.
OuroperationsareprimarilyinOntario,Canada,andlargelyunaffectedbythefinancialcrisis.Ourregulatoryenvironmentmaybecomeeven
morestrict,sothereisapossibilitythattherewillbeanITimpact,sowe'rewatching,buthavenothadtoreactyet.
Sofarnoimpact.LastyearwassomewhatleanasfarasITspend.Iexpectthesameorhigherthanlastyear.
We'relookingforwaysofusingourITinfrastructuremoreefficientlyandeffectivelybyleveragingvirtualizationtechnology.
WedonothaveanyspecificresponsetotheEuropeanfinancialcrisis.
Weareaconveniencestorechainandhavenoimpactfromthecrisis.
Itisnotimpactingourbusiness,nordoweanticipateitdoingso.
Noimpact,noresponsenecessary.
NoimpactrightnowaswedealmostlywithStatesidevendors/solutions,althoughIimagineitcouldstartimpactingpricesofcertain
componentswhichwillhavetrickleeffect.
TheEuropeanfinancialcrisiscurrentlyhasnoimpactonourITspendingactivity.
ThefinancialcrisisinEuropedoesnotcurrentlyhaveanimpactonouroperationortheITspendingassociatedwithit.Wedonotutilizeoutof
countryproductsandservicestoadegreethatcouldnotbecompensatedforlocally,iftheneedarose.
ThisisnonimpactfulasweareaUSbasedonlyorganization.
TheEuropeanfinancialcrisishasnotaffectedoutIToperations.SinceweareaUSonlycompanyandassucharenotsellingintothe
EuropeanmarketnorutilizingITservicesinthatregion.
TheEuropeanfinancialcrisishasnoimpactonourITspendingatthispoint.
Nodirectaffectinspending.Standalonehospital.
WearedomesticallyfocusedsotheEuropeancrisisspecificallydoesnothaveaneffectonourspendingpatterns.Wearemoreinfluenced
byconsumerspending,retailsales,unemploymentandrelatedU.S.economicindicators.

Source: Source: Piper Jaffray Research
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The table above suggests that 48% of CIOs are either not impacted by the European
Financial Crisis, or are not changing any spending activity based on it.

Some CIOs remain completely unaffected, either due to industry focus, (e.g., "The Euro
crisis is not a factor in healthcare IT spending") or because of the strategic nature of IT
investments, (e.g., "We still need to operate IT even if Europe falls apart.")

The table above suggests that 25% of the CIOs are monitoring the situation and
havent yet made a decision one way or another.

Key Takeaways from
the Table Above
Exhibit 12
MONI TORI NG THE SI TUATI ON ( 25 %)

Takinggeographiclocationandownershipofvendorsintoconsideration;aligningmorecloselywithdomesticstrategicpartners.
WedoverylittlebusinessinEurope(asopposedtoAsiaortheMiddleEast),sowehaven'tadjustedmuchintermsofspecifics.Thatsaid,in
asmuchastheEuropeancrisisaffectstheUSeconomy,weclearlykeepaneyeonit.
WearereviewingoursalespipelineweeklytoseeanyimpactoftheEuropeanFinancialcrises.Specifically,wearewatchinghowthecrisis
affectsourretailcustomers.Anyimpacttoconsumersabilitytospendhasadirectimpactontheretailenvironment.Ourapproachistobe
cautiousinhiringplans,whileatthesametimeprovidingsolutionstoourcustomerstoexcelinalowgrowthenvironment,bycontrollingtheir
sourcingcostsbyleveragingcheapercommodityprices.
NotadjustingITspendbecauseofEuropespecifically.
DefinitelybeingabitmorecautiousinEuropegiventheeconomicsituation.Notcuttingback,butnotlaunchinganynewlongerterminitiatives
untilwegetbetterlineofsightintofuturesituation.
WearereviewingtheEuropeanfinancialcrisisdailyandattemptingtoanticipatenegativeimpactsquickly.Wewillcontinuetoreviewand
makeadjustmentstotheentirebusinessasrequired.
Watchingitasitrelatestotheeconomyandrecovery.WehavelittledirectEuropeancontactsoitismoreofonemorefactortowatchasit
regulatory,election,etc.
WearemonitoringtheEuropeansituationcloselybuthavenotmadeanyadjustmentonITspendtomitigatethepotentialimpact.
Europeanfinancialcrisisisonesmall(albeitsignificant)consideration.ITinvestmentsarefocusedgloballytoenableallmarketsincluding
growthmarkets.
WearecarefullymonitoringtheEuropeansituationandinconstantcontactwithourmajorfunders.Wehavenotcutbackyet.
WewatchtheEconomicindicatorsthroughourownindicatorslikefuelconsumptionbyvarioussectors(e.g.construction)plustheoverall
dollarspendoncorporatecreditcardsandotherproductsofferedbyus,primarilybasedonUSdata.WehavestartedtoexpandinEurope
andAsiaPacrecentlysowewillbeapplyingthesamelogicandconceptsforthesenewregions.
ImprovingourgovernancemechanismsthatsecurealignmentofbusinessandIS/ITstrategies.Re-prioritizeonaquarterlybasis.Chunkingof
projecttimelines.
WearenotmakinganychangesfornowbasedontheEuropeansituation.Wecontinuetomonitorthesituationandareconsideringthe
potentialimpacts.Ourcurrentspendingplansarefairlymodestandwedon'texpectachangeunlessthesituationbecomesmorevolatile.
Currentlynodirectimpact,however,weareevaluatingpotentialimpacttocustomerswhichmayultimatelyimpactourgrowth.
ItsanallhandsondeckapproachtomonitortheongoingsituationinEurope.Anyeffectofthisonbanksearningwillleadtoreductionin
spendacrosstheboardtocopewithit.
Wearewatchingtoseeiftheeconomiccrashisgoingtobringthehardwareandsoftwarecostsdownorup.
Noimpactdirectly,however,theoverallglobaleconomyiscausingbothcapitalandoperationalspendtobescrutinizedmorecloselythan
before.
CautiouslyoptimisticitwillworkoutOK.ITspendingisstillontarget.
Cautiousspending.
Theunpredictableeconomicoutlookforthebalanceof2012andinto2013and2014continuestobethehighestrisktothebusiness.Growth,
jobsandconsumeroptimismdirectlyimpactourindustryandwethereforefeelveryvulnerable,simplybecausethefutureissohardtocall.
WefeelthatitisessentialthatweinvestforfuturegrowthandthereforeallofourbudgetsandITinvestmentplansremaininplace.Howeverwe
dohaveanumberof'emergency'budgetchangesthatweareholdingbackandthatwewillonlyinvokeiftheshort-termrevenuenumbers
substantiallychange.Itisaprecariousenvironment!
Wearecautionsandwatching.Nobigchangeinthestrategy.
ReviewingourEuropeanCustomer.
MostofourworkisconcentratedintheAmericas,however,wearebeingopportunisticinourinternationalpursuitofwork.Europehasno
impactonourITspend,however,thereisstillaglobalslowdown,notjustaEuropeanonethathasusexercisingmorecautionthatnormal.
BymakingsurethefinancialdecisionswemakeareprudentandwellreasonedinlightoftheEuropeanfinancialcrisis.Ibelievewehavethe
fortitudetosuccessfullyrideoutthecrisis.
TheITbudgetisbeingtiedtoharddiskdrivedemand.IfdemanddropsbecauseofthecrisisinEUITbudgetwillbeimpacted.
Allprojectswerunhavetodeliveraclearpaybackinashorterperiodoftime(18months).Additionallyallexpensesnotbudgetedare
scrutinizedtoensuretheyarereallyneeded.

Source: Source: Piper Jaffray Research
Key Takeaways from
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The table above suggests that 22% of the CIOs are actually reducing their IT spending
levels based on the European Financial crisis.

Exhibit 13
REDUCI NG SPEND ( 22%)

Themarkethasnoimmediateimpacton[us](buthaslongterm,sobudgetadjustmentsbelowarebasedonlong-termratherthanshort-term
economicfactors).
WeareaFrenchcompanywithworldwideoperations-thecrisishasadefiniteimpactonITspending-wehavestoppedalldiscretionaryIT
spend.
WearereducingourspendbecauseofthepotentialofaEuropeancrisistotrickleintotheUSeconomy.Weareassumingthattherewillbea
netnegativeimpactandslowingdownourspendinallareas.
Predominantlyreducingcapitalexpensesfornonessentialprojects.
TheEuropeanfinancialcrisishasnotimpactedonourITspendingactivity.WehadplannedtoreduceourITspendingBEFOREthe
Europeanfinancialcrisisbecamewidespread;however,ithasnotcausedustore-evaluatehowmuchmoreweneedtocutandtherefore
havenotmadeanychangestothebudget.Asconstructionactivityincreases,IexpectourITspendingtoincreasewithinthenext12months-
probablystarttoincreaseclosertothe6monthmarkandrampupfromtherein2013.
Wearelookingatallopportunitiesglobally,acrosstheentireEnterprise,forcostsavings.
We'removingmanufacturingtolowestcostcountries(Polandspecifically)andthinningtheEuropeanteamwherepossible.
Duetouncertaintyinourindustry,partiallydrivenbytheEUfinancialcrisis,ourITspendingisbeingconstrained.We'veloweredITmanager
spendingauthorizationlimitsonbothcapexandopextohelpmakeITspendingmorevisible.
Cuttingdiscretionaryspendandcapital.Acceleratingcreationoftoolstosupportthesalesforceinfindingopportunities(webanalytics,
dashboards,reportingoutofSAP).Stillfullyfundingstrategicinitiativestotakeusintonewhighermargin,highergrowthbusinesses.
Alldiscretionaryspendingisunderreview-everyfunctionandteamhasbeengivencostreductiontargets.
LookingforshorterROI.Concentratingonbenefitsrealization.Reducingoperationalbudgets.
Overall,thecrisisishavinglittledirectimpact,andthereisageneralexpectationthatthecrisiswillsoonresolveitself.However,that
assessmentiscontroversial,andsubjecttofrequentrevisiting.However,ourIT-relatedexpendituresonR&Dhavebeenreducedslightly,in
partduetoloweredlong-termmarketexpectations.
WeareconcernedthattheEuropeanfinancialcrisiswillaffectourtaxcollectioneffortforthenextfiscalyear.ThiswillfurtherreduceourIT
spending.
WearenotadjustingourITspendatallbasedontheEuropeanfinancialcrisisbutratherduetoourowninternalconstraints.
Myorganizationisnotreactingdirectlytothiscrisisbutindirectlythebudgetshavebeenreducedandnon-essentialspendingisbeing
reducedduetorevenueuncertaintiesandfiscalprudence.
Morerigorousgovernanceprocess.Movingprojectsandspendingtolessexpensiveresources.Carefullyreevaluatingrenewingcontracts
andvendorsforbestpricing.
TheEuropeanfinancialcrisisisn'timpactingourspending.However,theUSfinancialsituationis.Weareacommunitycollegeandfundingis
beingcutduetoreductioninstateandfederalrevenue.
WeareadjustingarespendinEuropeandsomecountriesinSouthAmericaalsohavingcurrencyissues.Wearealsolookingatsellingmore
usedmachinesinthesemarkets.
WearelookingtoconsolidateITasasharedservicemodelinEurope.WearealsolookingatoutsourcingcertainITfunctions.
WeareabankbasedinIndia.Ourbusiness,whichisfocusedonthedomesticIndiaopportunityisrelativelyunaffectedbytheEuropean
financialcrisis.Asaresult,wearenotamendingourITplansonaccountoftheeventsinEurope.HavingsaidthattheIndiagrowthisalso
slowerthisyear,andtothatextent,wehavemarginallymoderatedourITspendintermsofnewprojects.
Wearelimitingexpendingfornewprojects,onlythosewhichwillprovidesavingsinlessthantwoyearsandthosenecessaryforbusiness.We
arecuttingcurrentcostsandtryingnottohurtservice.
LookingforITsupplieralternatives,speedingupERPprojects,overheadreduction.
Weareallowinginfrastructureageoffourusualcycle.Weareincreasingourratiooftechstousers.

Key Takeaways from
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The table above suggests that 6% of the CIOs are surprisingly increasing their IT
spending levels despite the European Financial crisis.
Exhibit 14
I NCREASI NG SPEND ( 6%)

Thereisnochangeinplannedprojectorcapitalspending.Infactwearecurrentlyplanningtoexceedbudget.
OurITorganizationisglobalandisoperatedunderasharedservicesmodel.Assuch,wehavenothadtoadjustfortheEurofinancialcrisis.In
fact,wehaveincreasedourITspendinginEurope.
WearenotadjustingourITspendinourpartofthebusiness.WestilldoseeraisingsalesinEurope,NorthAmericaandAsiawithour
customersandmoreandmorerequestsontheITsidetosupportthebusiness.Butourpartoftheindustryisanexceptiontotherule.
AsofrightnowthereisnochangeinourITspendduetotheEuropeancrisis.Ifanything,weareacceleratingseveralinitiativeslikeourfinance
sharedservicescenterinEasternEuropethathandlesbackofficefunctionsforoperationsintheregion.Acceleratingthoseprogramsrequires
moreITspend.
OurindustryisnotreallyimpactedbyEuropeanfinancialcrisis.Infactwehavesignificantimprovementinbottomnumbersandhadsuccessful
mergerwithtechnologycompany.WehaveplantoincreaseITspendinginlastquartertoimproveinfrastructureandmigrateInformix
databasetoSQLserver.
IamnotawareofanybudgetimpactbytheEuropeanfinancialcrisis.Wearehavingtoincreaseourspendingduetomandatesrelativeto
AffordableCareActandotherhealthcaremandatesbythefederalgovernment.Muchofourspendingisfederallyreimbursed.

Key Takeaways from
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MOST VALUABLE CLOUD PLAYER: SALESFORCE. COM

Salesforce.com ranked No. 1, mentioned by 28% of CIOs, followed by Microsoft at
No. 2, Amazon.com No. 3, and Google at No. 4.

CRM's Cloud mindshare has catapulted past the software and internet juggernauts;
mindshare leads to market share, and we expect a strong 2H for CRM.

Oracle's results are a disappointment, substantially trailing MSFT and IBM and tied
with HP at 6%, even despite ORCL's recent barrage of Cloud marketing hoopla.

Private vendors including ServiceNow (7%), Box (4%), Workday (3%) and DropBox
(2%) are punching above their weight, demonstrating that the reach of the Cloud is
expanding into IT Help desk, file sharing storage, and core Human Resources
processes.
Exhibit 15
MOST VALUABLE CLOUD PLAYERS

28%
26%
25%
22%
12%
7%
7%
6%
6%
4%
4%
4%
3%
3%
3%
2%
2%
2%
2%
2%
0% 5% 10% 15% 20% 25% 30%
Salesforce.com
Microsoft
Amazon
Google
IBM
ADP
ServiceNow
HP
Oracle
Box
Cisco
Concur
EMC
Rackspace
Workday
Dell
DropBox
Intuit
NetApp
SuccessFactors
Please name 2 or 3 SaaS/Cloud Computing vendors which are impressing
you with their technology, vision, and value-add to your organization

Key Takeaways from
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AirWatch, Akamai, Apache, Apple, AT&T, Autonomy, BigMachines, BrightIdea,
Bullhorn, CA, Capgemini, CipherCloud, Citrix, Control-S, Descartes, E2Open,
eClinicalWorks, Evernote, Fusion Ops, GCloud, Hadoop, iCims, Instec, Intersystems, Job
Diva, Jolera, Kaseya, Kinaxis, MaaS360, Microstrategy, Mimecast, NetDocuments,
Pearson eCollege, Planview, Procore, Proofpoint, Red Hat, RightNow, RSA, SABA,
ScaleMatrix, SciQuest, Secure-24, SecureWorks, Sonian, SunGard, Telstra, Verizon, and
Webroot each received a single CIO mention.

AmazonProvides cloud computing platform known as Amazon Web Services (AWS)
made up of Amazon EC2 (Elastic Cloud Computing) and Amazon S3 (Simple Storage
Service).

CiscoOffers public, private and hybrid computing solutions.

DellProvides software, platform and infrastructure as a service.

EMCProvides products to build private, public and hybrid clouds.

GoogleOffers web-based productivity applications, such as Google Docs.

HPConverged Cloud lets enterprises construct a hybrid cloud environment.

IBMOffers to host applications and provides hosted infrastructures and platforms for
enterprises through IBM SmartCloud.

MicrosoftProvides Windows Azure, a cloud computing platform used to build, host and
scale web applications through Microsoft data centers. Office 365 provides hosted
Microsoft applications such as SharePoint (collaboration), Exchange (email), and
productivity applications like Word and Excel.

OracleOffers cloud-based applications via Fusion, hosted infrastructure through Oracle
Cloud Java and Database Services, and the Oracle Social Network for online collaboration.

NetAppAugments cloud services providers with advanced storage and data management
technologies.

Vendors Receiving a
Single Mention
Traditional Enterprise
Vendors Providing
Cloud Solutions
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BI G DATA WI NNERS

Big Data is becoming a key interest area due to the rapid explosion of data volumes, and a
multitude of vendors are attempting to position themselves as Big Data plays. This survey
attempts to filter out the hype around Big Data based on inputs from 105 CIOs.

MSFT ranks #1, mentioned by 32% of CIOs, followed by ORCL with 30%, and IBM
with 29%.

We interpret the data positively for Oracle, as Street perception is that Oracle is being
overtaken by newer Big Data alternatives such as SAP's HANA, Hadoop, and
Teradata, whereas Oracle ranks higher than all three combined.

Only one small-cap software company received multiple mentions (Microstrategy),
suggesting other names such as Splunk, QlikTech and others need more exposure to
large-company CIOs.

We are encouraged that salesforce.com was mentioned twice, suggesting its reach and
CIO-level visibility are pulling it into unexpected territory.

Exhibit 16
BI G DATA MI NDSHARE L EADERS

32%
30%
29%
12%
10%
7%
6%
6%
5%
3%
3%
3%
2%
2%
2%
2%
2%
2%
10%
0% 5% 10% 15% 20% 25% 30% 35%
MSFT (SQL Server, Azure)
ORCL
IBM / Cognos / Netezza
SAP (HANA) / BO
EMC
HP
Dell
TDC / Aster Data Systems
Apache (Hadoop)
CSCO
NTAP
SYMC
AMZN
CRM
GOOG
Meditech
MSTR
VMW
No Big Data Initiative
What are the top 2 or 3 vendors your oganization will rely on for its "Big Data"
initiatives? (Please remember to include any SMALL or MID-SIZED software
vendors that may apply)

Key Takeaways from
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35 additional vendors received a single mention, including: 10Gen (MongoDB), 2e2,
Accruent, Acronis, Blackboard, CGI, Cloudera, Deltek, Domo, Ellucian, Epic, Epicor,
Geodesic, Georgia Tech, INFA, Infor /Lawson, Island Pacific, Job Diva, Maple Lake,
McKesson, MID, MIT, Nimble Storage, Odiago, Pearson eCollege, Pythagoras, Rackspace,
Revolution Analytics, Saama, SalesLogix, SAS, StorSimple, Tableau, TCS, Virtualization
computing environment (VCE).

Vendors Receiving a
Single Mention
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ORACLE SHI NES AMONG DATABASE VENDORS

In aggregate, among the vendors best positioned to meet the evolving future database
needs of an IT organization, MSFT leads the pack, selected by 63% of CIOs, followed
closely by Oracle selected by 50%, followed by IBM and SAP selected by 25% and 14%
of CIOs respectively.

We view the chart above as the popular vote as it does not weight the responses by
size of the IT budget, thus disproportionately benefitting MSFTs mid-market presence.

Exhibit 17
BEST- POSI TI ONED VENDORS AMONG ALL ENTERPRI SES

63%
50%
25%
14%
13%
10%
9%
7%
7%
3%
2%
0% 10% 20% 30% 40% 50% 60% 70%
Oracle
SAP (HANA, Sybase)
Google
Teradata
Amazon Web Services
Other
SAS
DATABASE needs of your IT organization?

Key Takeaways from
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If we filter the data to show only large organizations with >$250M in IT spending,
ORCL comes out on the top as the number one database vendor to meet eveolving
database needs, selected by 56% of CIOs. IBM and MSFT follow, selected by 44% and
41% of CIOs, respectively.

Many investors currently believe that Oracle is being left behind in the database
industry, as the world migrates away from the traditional relational database and onto
newer technologies such as in-memory databases (e.g., SAP's HANA), unstructured
data (e.g., Hadoop), and Big Data appliances (e.g., IBM Netezza). These results
provide a moment of clarity amidst the hype surrounding new database technologies.
Exhibit 18
BEST- POSI TI ONED VENDORS AMONG THE LARGEST ENTERPRI SES

56%
44%
41%
26%
15%
15%
7%
7%
4%
4%
0%
0% 10% 20% 30% 40% 50% 60%
Oracle
SAP (HANA, Sybase)
Google
Teradata
Amazon Web Services
SAS
Other
DATABASE needs of your IT organization? ** FILTERED FOR IT
BUDGETS > $250M **

Key Takeaways from
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THE LARGEST ENTERPRI SES ARE BETTI NG ON LI NUX

In the chart above, we net out the gain and loss percentages to calculate a net-gainer
percentage. On this basis, in the popular vote, Windows led the pack at +37%,
Linux next at +32%, UNIX next at -25%, and Mainframe last at -48%.

This compares to the data from the previous survey six months ago of Linux at +37%,
Windows at +35%, UNIX at -17%, and Mainframe last at -39%

In aggregate, this suggests that both Linux and Windows will gain share, while UNIX
will lose moderate share and Mainframes lose material share.

Exhibit 19
SERVER OPERATI NG SYSTEM WI NNERS AND LOSERS

37.1%
32.4%
-24.8%
-47.6%
-60% -40% -20% 0% 20% 40% 60%
Windows
Linux
UNIX
Mainframe

Key Takeaways from
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If we filter the data to show only large organizations with >$250M in IT spending,
results are disproportionately strong for Linux at +41%, Windows at +30%, UNIX at
-11%, Mainframe at -41%.

share, we believe the results foreshadow a high likelihood of ongoing rapid market
share gains in 2012.
Exhibit 20
SERVER OPERATI NG SYSTEM WI NNERS AND LOSERS( FI LTERED FOR
I T BUDGETS > $25 0M)

40.7%
29.6%
-11.1%
-40.7%
-60% -40% -20% 0% 20% 40% 60%
Linux
Windows
UNIX
Mainframe
your Organization's Server Environment in 2012? (FILTERED for
IT Budgets >$250M)

Key Takeaways from
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I NSTALLED BASE SPENDI NG GROWTH AND VENDOR
PENETRATI ON

Exhibit 21

Microsoft
VMware
Oracle
Symantec
IBM Software
Citrix
Red Hat
CA Technologies
SAP
salesforce.com
Concur
Informatica
Nuance
SuccessFactors
Infor
Tibco
NetSuite
Workday
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0% 20% 40% 60% 80% 100%
P
r
o
j
e
c
t
e
d

I
n
s
t
a
l
l
e
d

B
a
s
e

S
p
e
n
d
i
n
g

G
r
o
w
t
h
Market Penetration

Exhibit 22
(Raw Data)
Pleaseindicat eyourorganizat ion's2012spendingplansf ort hef ollowingvendors?
AnswerOpti ons
WeDoNot
/ Wi l l Not
UseThi s
Vendor
REDUCE
Spendi ng
By>20%
REDUCE
Spendi ng
By10-20%
REDUCE
Spendi ng
By5-10%
REDUCE
Spendi ng
by0-5%
MAINTAIN
Consi stent
Spendi ng
INCREASE
Spendi ng
by0-5%
INCREASE
Spendi ng
by5-10%
INCREASE
Spendi ng
by10-20%
INCREASE
Spendi ng
by>20%
Market
Penetrati on
Spendi ng
Growth
VMware 6% 1% 3% 0% 2% 34% 21% 18% 11% 4% 94% 3.9%
SAP 59% 1% 0% 1% 0% 19% 7% 8% 4% 2% 41% 3.5%
Microsoft 0% 2% 1% 4% 2% 38% 23% 21% 7% 3% 100% 2.9%
salesforce.com 61% 2% 2% 0% 1% 16% 7% 5% 6% 1% 39% 2.3%
RedHat 50% 0% 0% 0% 4% 30% 9% 4% 1% 2% 50% 1.9%
SuccessFactors 81% 1% 0% 1% 0% 9% 5% 3% 0% 1% 19% 1.4%
Citrix 29% 1% 3% 1% 3% 41% 10% 8% 3% 2% 71% 1.2%
Oracle 25% 3% 1% 4% 4% 39% 12% 6% 3% 4% 75% 1.1%
Workday 90% 0% 0% 0% 0% 9% 1% 1% 0% 0% 10% 0.9%
Infor 89% 0% 0% 0% 0% 10% 1% 1% 0% 0% 11% 0.8%
Symantec 25% 1% 1% 2% 2% 45% 17% 6% 2% 0% 75% 0.8%
Nuance 79% 1% 2% 0% 1% 9% 3% 4% 2% 0% 21% 0.7%
Concur 73% 1% 0% 0% 2% 17% 6% 0% 0% 1% 27% 0.4%
IBMSoftware 27% 2% 5% 4% 7% 39% 9% 5% 3% 1% 73% -0.5%
Tibco 89% 0% 1% 0% 0% 8% 3% 0% 0% 0% 11% -0.6%
CATechnologies 56% 3% 3% 0% 1% 27% 5% 6% 0% 0% 44% -1.1%
NetSuite 90% 0% 1% 0% 1% 9% 0% 0% 0% 0% 10% -1.6%
Informatica 79% 3% 1% 0% 0% 14% 1% 0% 2% 0% 21% -1.9%

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The chart and data table above compare various software vendors on two main
dimensions derived by our survey: the average estimated installed base spending
growth, and their current market penetration among the 105 CIOs we surveyed. We
dont think investors spend much time considering the market penetration rates of a
broad swath of enterprise software companies, and the data above helps to shed light
on this topic. In our view, the most coveted position in the chart would toward the
upper left corner which represents low current enterprise penetration with high growth
in the installed base.

Some of the clear winners in this context are SAP, salesforce.com and Red Hat. These
vendors not only have less than 50% market penetration at this point, indicating plenty
of runway left to add new logos, but also enjoy relatively strong projected installed
base growth.

Some of the other vendors such as Informatica, NetSuite and TIBCO show a decline in
projected installed base spending, but they also have low market penetration within
our sample of 105 CIOs. In other words, although existing customers may be spending
slightly less with these vendors, they have the runway to go after new customer logos
for growth.

In our view, IBMs software business looks to be in a tougher position, with very high
market penetration (73%) and a decline in projected installed base spending.

Microsoft is the only vendor that is 100% penetrated into our survey base, but we are
surprised to see that VMware is close behind at 94%. In our view, VMwares level of
market penetration deserves greater consideration. For example, it seems counter-
intuitive to observe that VMware is materially more penetrated than Oracle.

Key Takeaways from
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April 2014
LI MI TATI ONS

The survey was conducted primarily in late May through early July 2012.

of $1 billion moves the needle 100x more than an IT budget of $10 Million, and thus large

believe the survey is useful due to its scale and focus on larger organizations, but we note
the following limitations: 1) the survey is more weighted toward North American
organizations, with roughly 13% of respondents outside the Americas; 2) dispersion across
verticals is good in our view, but is overweight in Financial Services at 14% versus Health
Sciences at 12%, and Public Sector, High tech and for Real estate, engineering or
construction at 10%; and 3) for our vendor-specific share gainer question, in our
experience, large/stable mega-vendors typically perform well due to their pervasive brand
recognition, while results are less meaningful for vendors with smaller customer bases
which might not register more broadly but could still gain substantial share within their
existing customer base.

Our CIO Survey's
Differentiation
Survey Background
And Limitations
Exhibit 23
SI ZE OF I T BUDGET
1.9%
5.7%
10.5%
15.2%
26.7%
14.3%
12.4%
3.8%
6.7%
1.0%
1.9%
0% 5% 10% 15% 20% 25% 30%
<$100K
$100K to $1 million
$1 to $5 million
$5 to $10 million
$10 to $50 million
$50 to $250 million
> $8 Billion
Dollars?

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Exhibit 24
GEOGRAPHI C MI X

86.7%
5.7%
7.6%
0% 20% 40% 60% 80% 100%
Americas
Asia-Pacific

Exhibit 25
I NDUSTRY MI X

14%
12%
10%
10%
10%
7%
7%
6%
5%
3%
3%
3%
3%
2%
2%
2%
1%
1%
1%
0%
0% 2% 4% 6% 8% 10% 12% 14% 16%
Financial Services
Health Sciences
Public Sector
High Technology
Insurance
Retail
Utilities
Consumer Goods
Oil and Gas
Automotive
Communications
Chemicals
Natural Resources

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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705
Piper Jaffray & Co.

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706
Piper Jaffray & Co.

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703
Piper Jaffray & Co.

C I O S UR V E Y , Q4 : 2 0 1 1

C L O U D Y F O R E C A S T F O R 2 0 1 2

We surveyed more than 100 CIOs of large and mid-sized organizations responsible for
over $33 billion in annual IT spending to derive a forward-looking assessment of software
spending and top winners/losers for 2012. We believe the survey is unique due to its scale
and its focus on larger organizations. Bottom line: a muddle-through environment appears
likely in 2012, while spending plans are robust for key Cloud and Cloud Infrastructure
vendors.

Key Takeaways

Spending Deceleration: IT budgets are being set at +3.0% for 2012, confirming a
decelerating environment but inconsistent with a recessionary mindset.

Cloud Tipping Point: A fairly large mix of CIOs are only now formulating a Cloud
strategy and just getting started (41%), confirming our prior prediction that 2011
would be a turning point for large-enterprise Cloud adoption. Large companies view
the Cloud as a "faster way to provide services" and enable "access anywhere" in a
"globally spread company," with some firms aggressively moving to an "everything as
a service" model. Private Clouds/virtualization, and "peripheral" processes for
software as a service (SaaS) command attention.

Top Share Gainers for 2012: According to the 109 CIOs, top software share gainers
for 2012, excluding mega-vendors, include VMW, CTXS, CRM, CNQR, and RHT.
Respondents also positioned virtualization as the disproportionate spending priority,
followed by BI/Analytics and Data Integration, while Payroll and Corporate T&E
ranked at the bottom of the stack. This clearly suggests a solid growth runway for
virtualization players such as VMW and RHT.

Most Critical Mega Vendors for the Future: While CIOs voted MSFT and ORCL as
the most critical mega vendors for the future, the biggest firms with the biggest IT
budgets are clearly IBM shops. Moreover, HP is revealed as a clear loser and Apple is
emerging as a dark horse in the enterprise due to the consumerization of IT.

Linux Rising to the Top: CIOs expect Linux to be the biggest operating system share-
gainer within their server environments, followed closely by Windows, while UNIX
should lose moderate share and Mainframes should lose material share. Among larger
organizations that move the needle on spending, Linux is expected to gain share much
more powerfully than Windows. We expect RHT to capitalize on the prioritization of
Linux.


January 2012

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I T SPENDI NG EXPECTATI ONS FOR 2012

CIOs of large and medium-sized organizations are currently expecting their IT budgets
to trend upward by 3.0% (blended average) in 2012.

The bad news is that this marks a deceleration from Gartner's estimate of +5.9% in
2011, and also falls below Gartner's forecast of +3.9% for 2012. We should assume
2012 is a tougher year and that industry forecasts may still face downward revision.

However, in our view +3.0% is inconsistent with a recessionary mindset, suggesting a
slow-growth, muddle-through environment which could still enable the top emerging
software vendors to post strong growth.

Exhibit 1
201 2 I T BUDGET OUTLOOK

2.8%
10.1%
4.6%
9.2%
5.5%
10.1%
10.1%
8.3%
13.8%
2.8%
2.8%
5.5%
1.8%
5.5%
4.6%
2.8%
0.0%
0% 2% 4% 6% 8% 10% 12% 14% 16%
Increase 15 to 20%
Increase 10 to 15%
Increase 8 to 10%
Increase 6 to 8%
Increase 4 to 6%
Increase 2 to 4%
Increase 0 to 2%
Remain the Same
Decrease 0 to 2%
Decrease 2 to 4%
Decrease 4 to 6%
Decrease 6 to 8%
Decrease 8 to 10%
Decrease 10 to 15%
Decrease 15 to 20%

Key Takeaways from
the Chart Above
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The feedback shows an essentially normal environment, as 17% see stronger than
normal spending, 64% see normal spending, and 18% see weaker than normal
spending.

How could this possibly be the case, considering the volatility of the macroeconomic
climate and intensity of foreboding headlines? We see two factors at play: 1) the deeply
engrained use-it-or-lose-it nature of IT budgets generally prevails, even during tough
times; and 2) the 100% Bonus Depreciation legislation stimulates accelerated
technology capital investments in 2011, because it speeds up business tax deductions,
but it fades away in 2012, creating an extra incentive to spend in Q4:2011.

Exhibit 2
YEAR- END I T BUDGET OUTLOOK ( Q4 201 1 )

17.4%
64.2%
18.3%
0% 10% 20% 30% 40% 50% 60% 70%
Our year-end IT spending will be
Stronger than normal
Normal
Weaker than normal
What is your current organizational plan for year-end IT
spending for calendar Q4 of 2011 (Oct/Nov/Dec) ?

Note: Although this data refers to the quarter ending December 2011, we are highlighting it because as of today only a few
companies have reported their Q4 results.
Key Takeaways from
the Chart Above
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The data shows a slightly aggressive IT spending environment, with a blended average
score of 6.1 in a scale of 1 to 10, 1 being un-aggressive and 10 being very aggressive.

We interpret the results as such: IT projects are viewed as being core to organizational
success, but IT investments will be executed in a relatively judicious manner. CIOs
appear to be cautiously optimistic about their IT spending plans.

Exhibit 3
I T SPENDI NG AGGRESSI VENESS I N 201 2
Blended Average = 6.1
0.9%
2.8%
10.1%
8.3%
14.7%
19.3%
17.4%
13.8%
7.3%
5.5%
0% 5% 10% 15% 20% 25%
1
2
3
4
5
6
7
8
9
10
How Aggressively Will Your Organization Spend on IT in the
Next 12 Months? (1 = UN-aggressive, 10 = VERY aggressive)

Key Takeaways from
the Chart Above
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TI PPI NG POI NT FOR CLOUD ADOPTI ON

We asked >100 CIOs to tell us how their organization is approaching the topic of Cloud
computing. The main observation is the stunningly large mix of CIOs who are only now
formulating a Cloud strategy and just getting going (41%), confirming our prior prediction
of a turning point for large-enterprise Cloud adoption. Generally, large companies view the
Cloud as a "faster way to provide services" and enable "access anywhere" in a "globally
spread company," with some firms aggressively moving to an "everything as a service"
model. The large volume of big-company CIOs who are preparing to embrace the Cloud
may help to explain why, in the span of six weeks, ORCL has bid for RNOW, SAP has bid
for SFSF, and IBM has bid for DMAN: software mega-vendors simply can no longer afford
to sit on the sidelines and miss out on the Cloud opportunity.

Initiatives do not include just public Cloud but also private Cloud, as many CIOs view
private Cloud construction, using virtualization to consolidate servers, as a preliminary
step. CIOs are mostly moving "peripheral" processes to the Cloud, while
core/sensitive/unique processes may be kept in-house for organizations worried about
security.

"Developing a Cloud computing strategy for determining which applications can go
into the public Cloud, which must go to our private Cloud."

"Aggressively moving to an Everything as a Service" model with consideration given
to the need for security and continuity as primary considerations on which route to
take."

"We review any new discretionary expenditures for moving to the Cloud."

"In the process of virtualizing all servers in order to be prepared to move to the Cloud
when ready. Country-specific Cloud solution will be key for us can't have data in the
US."

"Looking at implementing Cloud computing where possible to take advantage of access
anywhere policy in a globally spread company. Also looking to reduce TCO by
implementing Cloud storage."

Please refer to the Exhibits below in the next pages for detailed comments from >100 survey
respondents.

Large-Enterprise
Tipping Point for
Cloud Adoption
Private Clouds,
Virtualization
"Peripheral"
Processes, and
Security
Quotable Quotes
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Exhibit 4
(44 Responses = 41% of Total )
We are developing a Cloud computing strategy for determining which applications can go into the public Cloud, which
must go to our private Cloud, and the timetable for each. We are aggressively moving to an "Everything as a Service"
model with consideration given to the need for security and continuity as primary considerations on which route to
take.
Considering Google apps very seriously.
We review any new discretionary expenditures for moving to the Cloud. If there are no impending upgrades, then we
would not consider moving to the Cloud.
Pilot phase.
Reviewing, not yet using.
We are exploring opportunities in private Cloud computing for transaction/ core applications and public Cloud for
non-customer related applications (e.g. HR, payroll, lead management, etc.). As far as customer-related applications
are concerned, we have a cautious approach due to customer confidentiality and regulatory issues (which, we
understand, are typical for a Bank). For other applications, we are open to Cloud computing, provided we are able to
partner with reliable vendors who have the technical and financial ability to scale up quickly. We also see it as an
opportunity to enhance focus on core banking activities by leaving IT activities in the hands of experts.
In the process of virtualizing all servers in order to be prepared to move to the Cloud when ready. Country-specific
Cloud solution will be key for us - can't have data in the US.
Not in the road map yet due to risks surrounding privacy and security. Once the risks are properly mitigated, Cloud
computing will become a faster way to provide services.
Company is looking at implementing Cloud computing where possible to take advantage of access anywhere policy in a
globally spread company. Also it is looking to reduce TCO by implementing Cloud storage.
Investigating potential for Private Cloud.
Slowly with a focus on data gathering, learning, and understanding.
Cloud computing will be applied in certain areas, where we are comfortable with the risks of storing our data outside of
our own data centers. We are already applying it for performance assessments and recruiting, and other areas are being
evaluated.
We are looking at potential opportunities around applications such as email and our services for delivery to external
clients. Web report availability is very important to our customers.
We are beginning to use more web based applications across the organization rather than centrally supported systems.
They are exploring it generally. It is becoming part of many of the applications that we utilize.
We are working with our vendor to establish several opportunities. We will go through an assessment for Health Care
Information System storage. We are working with several vendors to review feasibility of virtualization versus Cloud
storage solutions.
Experimenting with Private Cloud. Virtualized 90 % of servers. Will look into Public Cloud in 2012.
Looking for opportunities to leverage Cloud computing to support our non-differentiated business processes (HR,
Finance, etc). Still have concerns over customer data and privacy.
We are cautiously open to it. We like to have our Cloud source remain in our country.
We are seeking ways to leverage Cloud within the security requirements of our data. We want to take advantage of
leaner infrastructure and concurrent use licensing.
We are thinking about it but will proceed carefully due to PHI (Public Health Institute) security concerns.
Concentrating on Virtualisation and looking to a private Cloud within 2 years.
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CONTD.
(44 Responses = 41% of Total )
We are currently looking into private Clouds. Due to the nature of our data we are reluctant to use Clouds for fear of
where it may be stored and the difficulty of protecting it and of even being able to retrieve it.
Selectively choosing which services to put in the Cloud that have been established for a long period of time, or have
minimal risk associated (i.e. less availability or sensitivity requirements).
Assessing the 3 categories, IaaS (Infrastructure as a Service), PaaS (Platform as a Service) and SaaS (Software as a
Service). The current view is that the IaaS will most likely meet our security needs as it gives the most control.
Currently in the process of obtaining quotes from different vendors on how much our systems would cost in their
Cloud. Modifying current systems to allow for a move in some future year.
We are actively looking for ways to leverage Cloud service. Our current focus is on storage as a service and high
performance computing. The challenges are data security and the reliability of the available vendors. We're also
concerned about our ability to seamlessly change vendor if we find better service or lower prices elsewhere.
We are currently working on implementing an internal Cloud to share resources between different locations. We
are considering using external service providers but no plan to implement in the near future.
We are implementing private Cloud and looking into public Cloud but with dedicated data. We still see a fair
amount of risk in current shared models.
We plan to explore Cloud computing as a potential solution.
We are cautiously considering options for SaaS. Currently using one system in the Cloud. Evaluating a Cloud-based
CRM (Customer Relationship Management) and possibly Cloud-based email for some users.
We've been considering Cloud services for pure compute needs, but so far the costs are still too high. This may
change as we downsize some internal support.
Shifting focus and priority onto Cloud based structure and more on integrations into back office instead of building
out more functionality and capability in our ERP (Enterprise Resource Planning) systems. Looking for nimble, agile,
innovations to meet our business needs.
Dabbling and learning where and when it would be a benefit to move to it.
The entire tech solution is going to be hosted in Cloud within the next few quarters. Partial technology is already in
Cloud, but accessed through dedicated link.
Conducting study to determine appropriate applications and feasibility. This study will assist in priorities and specific
areas to pursue.
Still in the initial assessment phase.
Starting to look into it. We have privacy and security concerns.
We are actively looking into Cloud computing as a cost savings. We hope to decrease the number of computer rooms,
the number of servers, the required staff and electrical power.
We have started to embrace the Cloud, Amazon EC2 and will continue to move in that direction over the next few
years.
Aggressively moving to the Cloud, exploring options from AWS (Amazon Web Services).
Just beginning to do some research into the topic. More "skunk works" at this point, as security is a significant concern
for our business partners.
We are investigating the road maps and deciding how it keys into our current structure.
We are proceeding cautiously. We see benefit, but not strong enough to jump in with both feet.
Cautiously. Looking into several solutions!
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Exhibit 5
DETAI LED COMMENTS: ALREADY EMBRACI NG CLOUD
We have embraced the Cloud and use dozens of SaaS solutions, storage in the Cloud and business continuity solutions
in the Cloud.
Cloud computing is our "preferred" architecture for solutions.
HIPAA (Health Insurance Portability and Accountability Act) concerns have us doing private Clouds. Do SaaS where it
makes sense.
Recurring expense items that can be Cloud-based at same or lower cost as internal provision are moved as contracts are
renewed (e.g. Internet perimeter content-blocking and virus checking). The SaaS model is still valid and business cases
for application renewal must consider the externally hosted option (e.g. employee travel and expense workflow
processing). Core business applications (i.e. transactional trading platforms and e-mail) will be considered for external
provision but at this time it feels like we are 3-5 years away from having the confidence to take that leap for our
revenue-earning applications. However, infrastructure in the Cloud (i.e. compute power and storage) is something that
we expect to extend in the next 2-3 years (in practical terms this means no longer knowing or caring where the physical
equipment is located, but concentrating on the attributes and service levels associated with the infrastructure (i.e.
compute power, storage space, replication and back-up provision, etc.)).
Doing it already. Worried about security.
Implementing private Cloud...not public Cloud.
Build internal Cloud and service the rest of the organization. Rely selectively on external Cloud providers (mainly
SaaS).
Moving to Cloud computing where there is proven success and cost advantage. We follow Gartner recommendations
closely on this topic.
We are embracing the Cloud and actively leveraging Cloud computing technologies. Continuing to evaluate and select
Cloud based solutions on an application by application basis.
Researching. Doing SaaS with HR apps. Using Amazon Cloud for a minor app needs.
We have begun investing in Cloud computing. We think it has a bright future and very useful for a variety of projects. It
appears that we have already begun to realize savings from our investment.
Using several Cloud offerings but still reviewing our Cloud strategy for options to move low risk services to Cloud.
We have adopted "Cloud" concepts for our internally run operations. We do SaaS when we don't have the band width
to handle the project internally but our clear preference is on-premise solutions.
Looking for solutions in Cloud to support our business. Prefer Cloud solutions over in-house when feasible and
practical.
We are building software for our customers so we approach the Cloud from various sides, i.e. R&D software as a
service, internal IT, Desktop virtualization
Already started to embrace it.
We are using a colo facility in lieu of our own data center. We use infrastructure on-demand for our SAP landscape.
Most newly deployed commercial apps (including email, calendar, chat) are provided by some form of Cloud service in
our company.
We have a private Cloud using VMware infrastructure and are utilizing Cloud services from Microsoft.
I am a huge proponent of Cloud computing on a macro level. We are having all servers and network devices hosted in a
Cloud environments in a data center. We have virtualized our ERP infrastructure for a Cloud-like model.
We are very much into Cloud computing. Can't give you more details on this though.
Cloud computing is being adopted wherever there is a strategic reason to do so.
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Our parent company is undergoing a data center consolidation effort. Part of that is going into a data center that
also hosts vCloud express, so there is an ability for smaller business units who cannot use the private Cloud side of
the house to go into vCloud with company-wide pricing and oversight. That is for infrastructure-as-a-service. We do
not have many platform-as-a-service use cases. There are many SaaS applications being used (Workday, Service-
Now, etc).
As Federal Gov't mandates for consolidated hosting centers and adoption of "Cloud computing" solutions are
enforced, my command will continue its ongoing move from local unique solutions to centralized enterprise
solutions. As part of the military, virtualized servers and desktops, private Cloud and SOA (Service Oriented
Architecture) are central to our strategy.
We are cautiously considering applications for Cloud storage and do already utilize Cloud providers for
applications.
We are both a provider and consumer in the Cloud. We provide outsourced payroll and HR services via the Cloud.
On the consumption side we are aggressively moving ahead with Cloud deployments of business applications,
including CRM, expense reporting, desktop backup.
Leverage combination of (primarily) in-house Cloud infrastructures with stages of virtualized shared serves. Cloud
computing is a component of our IT strategy which will include selling Cloud services and partnering with service
providers.
Moving email to the Cloud via Microsoft.
Already utilize Cloud for hosting a few apps. We are restricted in many situations to service offerings that are only
hosted within Canada.
1) Deploying new features of our ERP system that are Cloud based; 2) Deploying Box.net for non-ERP document
storage; 3) Deploying Vela field management software, Cloud based SaaS.
We are utilizing Cloud computing selectively. We know that in 10-15 years, the Cloud will be the dominant
computing model, so we will put systems in the Cloud today, when a good solution exists.
We're using a Cloud Help Desk solution right now. As times are tight, we're only considering solutions that can be
obtained for free, and using that to "Prove" that Cloud computing can be safe and cost-effective. Having a
management team that is severely anti-technology creates significant challenges for any change, and especially if
the change involves something as vague (to them) as "the Cloud."
Private Cloud maturation through infrastructure and platform as a service offerings in both self-service and
managed formats. Enabling true charge-back (invoice-billing-dunning-aging). Building automation through robust
orchestration tools between multiple disparate systems.
We are moving to the Salesforce platform for provisioning our field-based services.
Slowly but IT is utilizing this in some functions.
We have created a diagnostic service which helps clients plan their roadmap for migration to Cloud. We have
moved our internal HR, PM, Financial systems, CRM to the Cloud.
Leveraging it slowly. Our IVR (Interactive Voice Response) is Cloud based but most of our applications are home
grown so no real need at this time. We will incorporate Cloud based applications for future COTS (Commercial off-
the-shelf) products.
We host as few applications in house as is possible. Attempting to use internal IT resources as integrators and
advisers not developers.
Cloud computing is integral part of all new projects. We are offering Cloud computing services to our customers. As
well as consuming Cloud computing services from various providers.
We use the Cloud.
Already taking advantage of several Cloud Services. Plan to take advantage of more services in the coming year.
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We've been challenged to find the right enterprise IT fit to warrant the use of a Cloud. We've found more success in
using the Cloud to support R&D (e.g. HPC) than in our enterprise systems at this point. It's on our radar but not yet on
our roadmap.
Timidly at this time. Only Cloud product is CRM.
Evaluating where, if any place, this might be appropriate for us. Already have many systems under the SaaS model, and
use co-lo data centers for much of the rest "on premise" technology.
Currently used for regional hospitals to connect into our Remote Hosted Data Center. Cloud Storage is also being
considered after due diligence for security.
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Exhibit 6
COMMENTS: ANTI - CLOUD VI EWPOI NT / NO NEAR- TERM ADOPTI ON PLANS
(19 Responses =18% of Total)
We have not chosen Cloud computing due to security concerns.
We have not utilized the Cloud in an organized way. While we know it is on the horizon and inevitable, utilizing Cloud
services is not on next year's plan.
We are approaching Cloud very cautiously. Cloud scares several senior executives within technology due to the
perceived lack of control (meaning that we don't directly control the security and are always fearful that others don't
take security as seriously as we do). We know that there are tremendous opportunities but are having difficulty getting
past the issues of security, control and compliance.
Not involved in Cloud computing at the moment. No immediate plans to evaluate.
We consider it a buzz word for sales. Most if not all of our important data will be housed on site for the near future. 3+
years. Analysis does not prove the Cloud will save us money.
Our organization is not spread out nationally, regionally, or globally. We are local. SaaS is not a priority and not
preferred since we have a lot of medical record information online.
We will continue to monitor and evaluate, no firm plans. We tend to be conservative adopting in technology shifts
of this magnitude.
We are not approaching Cloud computing at this point in time. Because of the new healthcare security
requirements for data in motion, data in storage, etc. we will wait until we have our products implemented and
then determine if we have any opportunities for "the Cloud". If you are calling ASP vendors Cloud computing then
we are using Cloud computing for some specific reporting and business intelligence areas.
No plans as of yet.
With caution. There are still considerable risks that in most cases outweigh the benefits.
Not likely to use Cloud storage.
Largely ignoring. We do everything in-house so have less to gain than many - you could call our huge Citrix farm a
private Cloud, perhaps. Very cautiously due to patient information and HITECH [Health Information Technology for
Economic and Clinical Health (HITECH) Act] penalties for breech.
We see Cloud as a buzz word that must be put into various powerpoints to make everyone feel warm and fuzzy. We
have a new institution wide Cloud hosting service for researchers and will re-designate existing projects as "private
Cloud" because that complies with the marketing demands but "public" Cloud is still not secure enough for our
industry.
Cloud computing is not an active pursuit for my company in the near future. We will be passively investigating the
technology and looking for value.
We are not considering Cloud at this time.
Not really of interest. Performance and security do not lend to Cloud. No runaway storage needs pushing us to
Cloud. Not using much of any Cloud services.
Tentative investigation of Cloud services due to security and stability concerns.
Wait and see approach for now until it matures.
Cloud computing has too many concerns (mostly around security) to be used by the financial services industry in a
meaningful way.
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CLOUD AND CLOUD I NFRASTRUCTURE PLAYERS ARE
POI SED TO BE THE BI G SHARE GAI NERS I N 2012

The feedback clearly positions virtualization as the disproportionate leader in winning
incremental IT spending, followed by BI and Analytics and Data Integration, while
Payroll and Corporate T&E came in at the bottom of the stack.

This clearly bodes well for virtualization players such as VMW and RHT as well as BI
and data integration vendors such as TIBX and INFA.

We are surprised to see the relative strength of ERP spending intentions and the relative
weakness of Sales Force Automation spending intentions. It is possible that the later-
cycle nature of ERP purchases is driving some buoyancy for that category at this point.

Exhibit 7
I NCREMENTAL SPENDI NG PLANS BY CATEGORY FOR 201 2

3.92
3.76
3.55
3.42
3.39
3.35
3.31
3.26
3.25
3.22
3.22
3.06
2.88
2.0 2.5 3.0 3.5 4.0 4.5
Virtualization
Business Intelligence / Analytics
Data Integration (ETL, Migration, MDM)
ERP (General Ledger, Financials, Inventory)
Middleware (SOA, Web Services)
Customer Service (Call Center, Online
Talent Management (Recruiting,
Infrastructure as a Service (IaaS)
Supply Chain
Sales Force Automation (SFA)
Platform as a Service (PaaS)
Payroll
Corporate Travel & Expense Management
Incremental Spending Plans for Software Categories
(1 = Dramatically REDUCED Spending, 5 = Dramatically
INCREASED Spending)

Key Takeaways from
the Chart Above
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We asked 109 CIOs: Which Vendors Will be Gaining or Losing Share of your
Organization's IT Budget in 2012? This was not an open-ended question; we
provided 16 vendors from which to choose. The chart above displays the raw data and
clearly shows that the primary share gainers for 2012 are expected to be VMW, MSFT,
CTXS, ORCL and CRM.

VMW again disproportionately led the group with 71% of CIOs indicating VMware
will gain share of their IT budget, clearly indicating ongoing runway for server
virtualization at large organizations.

For our vendor-specific share gainer question, in our experience, large/stable mega-
vendors typically perform well due to their pervasive brand recognition, while results
are less meaningful for vendors with smaller customer bases, which might not register
more broadly, but could still gain substantial share within their existing customer base.

Exhibit 8
VENDORS: WI NNERS AND LOSERS FOR 201 2

0% 20% 40% 60% 80% 100%
VMware
Microsoft
Citrix
Oracle
salesforce.com
Concur
Red Hat
SAP
SuccessFactors
Nuance
Tibco
Informatica
IBM Software
NetSuite
RightNow Technologies
Infor
Which Vendors Will be Gaining or Losing Share of your
Organization's IT Budget in 2012?

Key Takeaways from
the Chart Above
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The chart above uses the same data from the prior chart, but nets out the gains minus
the losses. Thus, on a net-gain percentage basis, VMW widely outperformed all
vendors. Excluding mega-vendors, CTXS, CRM, CNQR and RHT also performed
well.

The data supports a bullish stance on key Cloud and Cloud Infrastructure names, as
organizations are clearly prioritizing server and desktop virtualization, targeted SaaS
applications, and open source infrastructure.

In our view, these companies are likely to weather the storm better than most and
emerge in a stronger position due to share gains and high prioritization for IT dollars
in 2012, particularly among the largest enterprises.

Exhibit 9
VENDORS: WI NNERS AND LOSERS FOR 201 2 ( NET- GAI NER BASI S)

66.1%
37.6%
32.1%
22.9%
13.8%
11.0%
10.1%
9.2%
4.6%
1.8%
-0.9%
-0.9%
-1.8%
-3.7%
-6.4%
-8.3%
-20% 0% 20% 40% 60% 80%
VMware
Microsoft
Citrix
Oracle
salesforce.com
Concur
Red Hat
SAP
SuccessFactors
Nuance
Tibco
Informatica
IBM Software
NetSuite
RightNow Technologies
Infor
Which Vendors Will be Gaining or Losing Share of your
Organization's IT Budget in 2012?

Key Takeaways from
the Chart Above
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We asked 109 CIOs: Which SERVER Operating Systems will Gain or Lose Share of
your Organization's Server Environment in 2012? The chart above shows the raw
data, which clearly highlights that Linux and Windows are expected to extend their
footprint across server environments, while UNIX will likely lose some share and the
Mainframes platform stands out as the definite loser.

Exhibit 10
SERVER OPERATI NG SYSTEM - WI NNERS VS LOSERS

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Linux
Windows
UNIX
Mainframe

Key Takeaways from
the Chart Above
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Using the data displayed on the prior page, we net out the gain and loss percentages to
calculate a net-gainer percentage. On this basis, not surprisingly, Linux led the pack at
+37%, Windows next at +35%, UNIX next at -17%, and Mainframe last at -39%.

In aggregate, this suggests that both Linux and Windows will gain share (with Linux
edging out Windows), while UNIX will lose moderate share and Mainframes lose
material share.

Exhibit 11
SERVER OPERATI NG SYSTEM - WI NNERS VS LOSERS ( NET- GAI NER
BASI S)

36.7%
34.9%
-17.4%
-39.4%
-60% -40% -20% 0% 20% 40% 60%
Linux
Windows
UNIX
Mainframe

Key Takeaways from
the Chart Above
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If we filter the data to show only large organizations with >$250M in IT spending
(which would generally equate to >$8B in revenue), results are disproportionately
strong for Linux at +52%, Windows at +24%, UNIX at -10%, Mainframe at -43%.

share, we believe the results foreshadow a high likelihood of ongoing rapid market
share gains in 2012.
Exhibit 12
SERVER OPERATI NG SYSTEM - WI NNERS VS LOSERS ( NET- GAI NER
BASI S, I T BUDGETS > $25 0)

52.4%
23.8%
-9.5%
-42.9%
-60% -40% -20% 0% 20% 40% 60%
Linux
Windows
UNIX
Mainframe
your Organization's Server Environment in 2012? (FILTERED for
IT Budgets >$250M)

Key Takeaways from
the Chart Above
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The chart above clearly shows that most CIOs of large organizations are not planning
on adopting an integrated hardware/software appliance from Oracle in the next 12
months and that Exadata is not a mainstream product at this point in time. Specifically
only 12% of CIOs are either likely or very likely to adopt such a product in 2012.

That said, if we consider the very early stage and emerging nature of the Exadata
product cycle, the high price point for Exadata boxes (around $1M +) and the breadth
of Oracle's customer base (>300K database customers), a 12% adoption rate seems
adequate to support a multi-billion dollar revenue stream, in our view.

Exhibit 13
ADOPTI ON OF I NTEGRATED HARDWARE/ SOFTWARE APPLI ANCE
FROM ORACLE

5.5%
6.4%
18.3%
28.4%
41.3%
0% 10% 20% 30% 40% 50%
Very Likely
Likely
Neutral
Unlikely
Very Unlikely
Likelihood of Adopting an Integrated Hardware/Software
Applicance from Oracle, Such as Exadata, in Next 12 Months

Key Takeaways from
the Charts Above
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MOST CRI TI CAL MEGA- VENDORS FOR THE FUTURE

The chart above clearly shows that MSFT and Oracle carry the broadest mainstream
sense of criticality across the 109 CIOs we surveyed. MSFT placed first with 33% of the
vote, followed by ORCL with 19% and CSCO with 11%. IBM and SAP followed
behind.

HP shows up as the clear loser among established IT mega-vendors in this survey, with
only 5% of the vote.

Apple is emerging as a dark horse in the enterprise due to consumerization of IT which
is beginning to create an effortless presence.

Exhibit 14
CRI TI CAL I T MEGA- VENDOR

Key Takeaways from
the Charts Above
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If we dollar weight the responses according to size of IT budget, IBM ranks first with
$10.3B worth of votes, MSFT ranks second with $6.0B, and ORCL ranks third with
$4.2B. The results are noteworthy because they create a variant viewpoint versus
current consensus thinking, as MSFT/ORCL/CSCO shares have been out of favor.

36 out of 109 CIOs named MSFT as their most critical mega-vendor for the future. MSFT
was referred to as the best of all evils and an increasingly popular database platform. For
many companies, MSFT is the foundation of our development environment which drives
a commitment to MSFT platforms. While some customers say they are looking for
innovation from Microsoft, others noted that Microsoft's latest generation of operating
systems is a large step up from their previous versions and that it would be painful to
attempt to unravel or replace [Microsoft] without a real need to do so.

21 out of 109 CIOs named ORCL as their most critical mega-vendor for the future. ORCL
is hailed for being a one stop shop based on significant adoption of the Red Stack.
Surprisingly, 10 out of the 21 ORCL shops specifically mentioned Oracles applications in
our discussions, whereas only 5 mentioned the database. This could imply that Oracles
applications create more perceived value, or are more deeply embedded in business
processes, than its database. Only one CIO mentioned Exadata, which suggests to us that
ORCL is still in the early innings of its engineered systems strategy.

12 out of 109 CIOs named CSCO as their most critical mega-vendor for the future. This
selection is relatively intuitive given Cisco has roughly 76% of the enterprise routing market
and 66% of the enterprise switching market (according to research firm IDC). In addition
to switching and routing, Cisco has also established itself as an industry leader in unified
collaboration, video conferencing, security and several other technologies used by
Exhibit 15
CRI TI CAL I T MEGA- VENDOR ( DOLLAR- WEI GHTED ACCORDI NG TO
SI ZE OF I T BUDGET)

Note: Dollar Weighted means, for example, if a CIO has a $1B IT budget and votes for IBM as his most critical vendor, we would
allocate $1B to IBM's vote total. Or if a CIO has a $10M IT budget and votes for SAP, we would allocate $10M to SAPs vote total.
Key Takeaways from
the Charts Above
Microsoft: No Viable
Desktop Alternative
Oracle: Valued for its
Apps and the Red
Stack
Cisco: Network and
Telephony Backbone
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enterprise customers. The company has also done an effective job of selling end-to-end
networking solutions. Given the network is the backbone for so many mission-critical
business applications, we agree with Cisco being viewed as one of the most critical mega-
vendors in IT. Coverage on Cisco is provided by Troy Jensen, Piper Jaffray Senior Research
Analyst.

11 out of 109 CIOs named IBM as their most critical mega-vendor for the future, ranking
IBM 4th in the popular vote. However, the largest organizations disproportionately favor
IBM, and thus on a dollar-weighted basis, IBM is the clear winner in this survey. For IT
budgets >$1B, no one came close to matching IBM, as CIOs cited the extremely valuable
partnership and the combination of HW, SW, Services in a strategic Cloud and business
solution context while noting their service and support is the best in the business.

11 out of 109 CIOs named SAP as their most critical mega-vendor for the future. While one
organization stated that we have poured tons of money into SAP with very little value
returned and must get something out of it soon, others view SAP as their core ERP or
ERP standard and suggest that they are consolidating other applications onto the SAP
platform, making it critical for the future of the company. Additionally, our CIO survey
was focused on the Americas, with only 9% of respondents overseas, and we believe SAP
would have received more mentions if we had included more European responses.

9 out of 109 CIOs named EMC as their most critical mega-vendor for the future, though it
is clear that some of the votes EMC received were likely due to its ownership of VMware.
Virtualization is the core foundation of all datacenters now and in the future and as such,
likely garnered some of the favorable votes in this survey. Nonetheless, we view these
results favorably, given that EMC is not a complete datacenter provider like
IBM/HP/Oracle and does not have a complete portfolio of products for the datacenter.
Further, we note that EMC scored higher than HP, despite having a much smaller product
offering, which we believe highlights HPs lack of innovation and value of HP as a
datacenter provider. CIOs noted that they are heavily vested and invested in VMware's
tech stack and that they cannot survive without storage. Coverage on EMC is provided
by Troy Jensen, Piper Jaffray Senior Research Analyst.

Only 5 out of 109 CIOs named HP as their most critical mega-vendor for the future. In our
view, this is a terribly weak result for a vendor who offers a full data center offering and
broad product portfolio. Attaining the status of Worlds Leading PC Manufacturer with
$127B in revenue and 350,000 employees has only translated into a paltry value perception
among large and mid-sized organizations. While one CIO noted that HP hosts our private
Cloud and is the primary provider of IaaS, PaaS, and SaaS for our organization, others
view HP mostly as a PC provider. Our conclusion is that Printers and PC hardware are
among the least critical and most dispensable product lines in the enterprise.

We included Apple on the list purely out of curiosity, expecting essentially zero mentions
because AAPL is a consumer-focused company, but we are surprised to see AAPL receiving
almost as many mentions as HP (4 out of 109 CIOs). Our conclusion from the data is that
Apple is benefiting from pull-demand driven by employees within enterprises, particularly
helping iPhone and iPad uptake. CIOs view Apple as the consumerization of
infrastructure, while noting the move away from central management and increasing
uptake of tablet devices. In our view, Apple is beginning to penetrate into the Enterprise
without even trying, and this remarkable and overlooked phenomenon will continue as
long as consumers continue to gravitate toward iPhones, iPads, and MacBooks.
Coverage on Apple is provided by Gene Munster, Piper Jaffray Senior Research Analyst.

IBM: Doesnt Win the
Popular Vote, But
Unheralded
Dominance in
Largest Accounts
SAP: Core ERP
System
EMC: Storage and
VMware.
HP: Weak Results,
PC-Centric
Apple:
Consumerization
Creates an Effortless
Presence.
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Exhibit 17
DETAI LED COMMENTS FROM MI CROSOFT SHOPS
(36 responses = 33% of total)
It is our operating environment.
The best of all evils.
Windows.
More DBs are SQL, Dell should also be on this list as they are a major player for us.
Key infrastructure supplier.
Most of our critical services run on top of MS servers.
We have been moving heavily toward Microsoft as a database platform for the past couple of years. This will provide
significant cost savings.
More systems that we run are built on Windows technology.
Foundation for our development environment and committed to their platforms. Increasing utilization of SharePoint
and Office integration capabilities.
Our entire environment is Microsoft and I do not see that changing.
Desktop, OS, servers.
Continue to utilize Office, Exchange and upgrade to OS7. Also utilize MS's GP [Great Plains] ERP application.
We use their products on our network and plan to further leverage these.
We currently utilize MS for database and in-house development and are considering them for email and collaboration
platforms.
We do not use any of the other listed vendors except IBM.
Working with them to help create a single sign on for users.
Microsoft shop.
Our desktop services are Microsoft based, Our infrastructure services will be provided by another department.
We are expanding hosting our own core systems.
There is no viable alternative without a massive reinvestment.
Most of our desktop software comes from Microsoft. Today there are no alternatives for the desktop.
Despite efforts to diversify away from the ubiquitous Windows platform, Microsoft remains at the center of the IT
infrastructure.
We expect significant reductions in MS Office spending and Windows software assurance. At the same time, we expect
increased spending around SharePoint and possibly Office 365.
We are a Microsoft shop. We rely on MS for server OS, workstation OS and applications. Unless there is a better
alternative we will continue to rely on MS.
We developed solutions based on Microsoft products.
Apps (.NET, BizTalk, Lync, SCOM).
Server and Office suites.
Still need Office Suite.
Looking for innovation from Microsoft.
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DETAI LED COMMENTS FROM MI CROSOFT SHOPS, CONTD.
Deploying MS Dynamics AX.
A majority of our enterprise systems use MS "stack" -- will be expanding them.
80% of our desktops run Windows and Office products.
Open systems are becoming more and more useful for critical systems (replacing mainframes), and Microsoft's latest
generation of operating systems are a large step up from their previous versions.
We have developed much of the infrastructure on and using MS servers and software. Significant initiatives using
SharePoint and deep use of SQL, Exchange, SQL Analysis tools and have enterprise agreements for OS. Would be
painful to attempt to unravel or replace without a real need to do so.

Exhibit 18
DETAI LED COMMENTS FROM ORACLE SHOPS
Several applications are already from Oracle and we see synergies in continuing with the same house. However, we
would, of course, need to satisfy ourselves with their execution capabilities.
One stop shop. Volume discount.
Large investment in Oracle EBS [E-Business Suite of applications] for past 15 years. No cost-effective replacement to
run our business.
We are an information analytics company and Oracle provides the best fit for our environment.
Because heavily using Oracle in database which is critical backend database for us. Adding Identity and access
management and other areas.
Company's financials and many databases run on Oracle.
Just installed Exadata / OBIIEE.
Our J.D. Edwards ERP is with Oracle.
We are pursuing a MDM that will involve Oracles data labeling schema.
Existing Commitments.
Provides the basis for our database solutions.
Our fully integrated ERP system is based on Oracle, Our plan is to increase business process based on our ERP system
and stop using non-integrated non oracle business processes.
ERP and CRM systems rely on Oracle.
Main ERP vendor.
Currently heavily invested in multiple Oracle business solutions in addition to DBs.
We've made a significant adoption of the "Red Stack" (OEL [Oracle Enterprise Linux], E1 [Enterprise Edition One],
AIA [Application Integration Architecture], Hyperion, etc). The hardware and storage that it runs on can always be
replaced, but the stack is the core.
Installing Oracle Enterprise Business Suite 2012.
Dependent on E-business suite.
Integration of data and voice in single solution.
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Exhibit 19
DETAI LED COMMENTS FROM CI SCO SHOPS
This is how we deploy our applications (internal and external) while balancing the associated risks.
Mobility. The wireless network and connectivity for clinicians at the point of care.
They provide our core network infrastructure and we need them to keep up with and enable our mobile computing
environment and integration of our voice/network environment.
Standardization across the organization.
We are working on IP V6 meter reading system that will explode in the coming years.
Moving to UCS blade servers and virtualizing everything.
Cisco provide our end to end data network which underpins everything we provide.
They are already the core of our network. We are now going with the Cisco unified platform for our servers as well.
Network and Telephony backbone.
We really only use Cisco and some Microsoft. Since we have very low-level users in the stores, Cisco has the biggest
impact - in terms of keeping the business running in all locations.
Switches.
We have decided on an enterprise model UC.
Exhibit 20
DETAI LED COMMENTS FROM I BM SHOPS
Oracle holds its customers hostage, especially those who used Sun technology. What I used to pay $1M a year for they
now want $12M (settling at 3 to 4x over what I pay today after long negotiations). All Oracle products will leave my
data center (database, app servers, infrastructure, PeopleSoft, etc.) as a result.
Watson for decision support in healthcare.
IBM's products have been in place for a few years. Their service and support is the best in the business and hence we
will continue to use their products and services.
Extremely valuable partnership. Strategic to our organization.
Fully rounded set of solutions.
Combination of HW, SW, Services in a strategic Cloud and business solution context.
We currently depend on IBM for most of our HW and middleware. We have a great relationship with them.
Core critical business system is here.
Key Intel and AIX platforms that run key systems.
We outsource most of our IT capabilities to them.
We currently have several iSeries implementations (hardware) and are in discussions to assess datacenter opportunities.
Source: : Piper Jaffray Research
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Exhibit 21
DETAI LED COMMENTS FROM SAP SHOPS
Core ERP system worldwide.
ERP standard for the company and remaining legacy applications that need to be migrated.
Implementing global general ledger - a first for our company.
We are in the process of expanding our SAP footprint for SAP and consolidating core ERP capabilities onto SAP. Single
largest spend item is SAP. Oracle is critical to our eCommerce futures due to ATG/Endeca acquisition.
We are currently implementing ERP globally.
Standardizing all financial, personnel and logistics management in new SAP-based ERP solution, [organization]-wide.
Have established a government-wide policy to drive the use of SAP across all business units.
New emphasis on Business Objects. Also we have poured tons of money into SAP with very little value returned and
must get something out of it soon.
SAP is our back office engine. Will see more growth in front office (Microsoft & SaaS) area as well.
SAP - Integrated solution for numerous business applications; critical for future of company.
Core ERP and consolidation around ERP.
Exhibit 22
DETAI LED COMMENTS FROM EMC/ VMWARE SHOPS
They handle all core business processes for us.
Explosion of healthcare electronic medical records.
They provide full service solutions.
We are heavily vested and invested in VMware's tech stack.
They are integrated with all aspects of our IT environment. (Servers, laptops, desktops, databases, intranet and extranet
platforms, OSs, etc.)
Consuming EMCs product stack is key to our vision.
Cannot survive without storage.
VMware.
We use all the [vendors you asked about], except for Apple, for their expertise in specific areas.
Exhibit 23
DETAI LED COMMENTS FROM HP SHOPS
HP hosts our private Cloud and is the primary provider of IaaS, PaaS, and SaaS for our organization.
Datacentres run on it and 16,000 PCs.
Infrastructure is primarily HP.
Buying 12,000 PCs probably from HP.
We presently rely on HP hardware and consulting services. This will not change.
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Exhibit 24
DETAI LED COMMENTS FROM APPLE SHOPS
Consumerization.
Our field-based services are moving to tablet devices and Apple leads the way.
We're moving away from central management where possible, toward consumerization of infrastructure. Apple's
laptops play an important role in this.
Strategic partner.
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I MPORTANT BUDGETARY CONSI DERATI ONS AND
STANDOUT COMPANI ES

Companies are clearly focused more on reduction although not all of the mentions
negatively affect growth in IT spending. The context varied widely across the >100
CIOs and ranged from reduction of operational costs and reduction of anticipated
budgets to TCO reductions, reduction of administrative workload and reduction of
infrastructure footprint, the latter highlighting a favorable inclination toward
potential Cloud computing initiatives.

Evaluation of IT investment is increasingly based on strategic business needs, the
ability to increase efficiency of business processes and reduce operational costs.
Companies are looking to do more with less. Finally, companies are looking for
measurable and quick ROI on their IT investments.

A few respondents also highlighted the growing importance of recruitment of the
right talent and the retention of the workforce.

Please refer to the Exhibits in the next few pages for detailed comments from >100
survey respondents.
Exhibit 25
I MPORTANT CONSI DERATI ONS WHI LE FORMULATI NG THE 201 2 I T
BUDGET

1
3
3
3
4
4
4
4
6
7
8
8
8
11
11
12
12
13
15
16
23
26
Productivity
Economy
Talent
Compliance
Mobile / Mobility
Align / Alignment
Short ROI / Quick ROI
Return / ROI
Virtual/Virtualization
Innovate / Innovative
Value
Cloud / SaaS
Budget
Investment
Efficient / Efficiency
Spend
Security
Strategy / Strategic
Support
Costs
Reduce/Reduction
Business
What are the 1 or 2 most important considerations as you put together your IT
budget for 2012?
Key Takeaways from
the Chart Above
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Exhibit 26
DETAI LED COMMENTS
Important Considerations While Formulating The 2012 It Budget
1) Total cost of ownership given reduced budgets in the future years; 2) Moving to SaaS platforms and focus on
procurement of services vs. products.
Reducing spend on Microsoft; reducing operational costs
Alignment with business while doing more with less.
1) Identification, recruitment and organization of talent. 2) Finding cost savings to fund IT reinvestment to improve
reliability.
The Economy, the economy ......
1) Resource planning; 2) Technology Trends; 3) Business Direction
Security, mobile devices
Changing revenue and redesigning healthcare systems to match /ACOs.
Compliance with regulatory mandates for Minimum Use payment incentives
Optimize business processes, Increase collaboration, Support flex working and the future of work
Does the investment forward existing strategies, Does it reduce administrative workload.
1) Flexibility - 2012 is going to be a strange year for us and we are going to need significant flexibility to shift our spend
quickly if/when needed. 2) Strategy - We have 2 significant long range strategic items that are forefront in the plans for
2012. Keeping the main thing, the main thing.
Compatibility with the company's strategy and operations, ability to deliver successful implementation on the ground,
flexibility and adaptability of the vendors with the company's processes and finally, return on investment
Consolidate vendor spend to drive cost savings; Getting more effective and efficient.
Major investment on migrating legacy ERP apps; Rely on SaaS for some traditional business applications.
Alignment between IT investment areas and business objectives. Investment and focus on foundational capabilities,
such as Agile and Quality Assurance, to reduce delivery time and costs.
No tolerance for ""contingency"" amounts - all expenses must be linked to projects; focus on reducing co-location
costs, maintenance costs.
Web enhancements, data hardware consolidation.
Measurable ROI (with tangible benefits), Reduced operational complexity
Getting the most for the money that we invest
Scalability and legacy retirement
Cost reductions, less support costs and efforts, continued virtualization and consolidation.
Reduce infrastructure footprint via consolidation or virtualization. Automation to reduce manual work. High
resiliency, low latency trading platform.
Sustainability in infrastructure with money so tight. Hiring the right talent for the position.
1) Increased virtualization - servers and desktops. 2) security.
Focus on fewer things. Business analytics.
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DETAI LED COMMENTS, CONTD.
Efficient spend. Improvement on collaboration tools. Short-term ROI on investments.
Funding projects that directly generate revenue. Reducing overall costs while continuing to adopt mobility solutions
globally.
Significant SAP implementation drove project, software, and consulting costs
Maintaining service and level of support. Security. We must reduce our expenses as our budget is being reduced.
Controlling costs. Innovation.
Ongoing Support and Maintenance costs. Implementation of new capital items and the ongoing costs of those items.
Critical business/strategy implementations and the capital/operational costs.
There is tremendous pressure for IT to reduce cost and increase efficiency with Cloud making compelling reasons. But
even with PCI compliance and others security concerns, people are still watching carefully what to invest in. Mobile is
exploding, so is social media, end to end encryption - POS. I am looking at using significant professional services and
SaaS model.
IT strategy must align with business strategy. Standardization.
Delivering capabilities that allow for top line profitable growth. e.g. removing technology constraints to business
performance.
Efficiency and strategic alignment with Business Objectives
Flat is the new "growth"; Operational efficiency; reallocate spend from maintenance to innovation.
Our ability to secure IT talent to support the business. And, the governments influence and regulations on the
healthcare industry necessitating major renovation of our environment.
Change the IT mindset of traditional IT to become Virtual. Security.
Cost of moving towards Cloud computing and security concerns in bringing together disparate systems.
Recruitment. Support of Legacy systems during transition to new technology.
How to support SAP post-go-live. How to manage operations across a Cloud landscape.
Ease for end users, ease of support, and Value
Staffing levels and recruiting; project and resource management.
How do technology products fit into my enterprise architecture. Which products add biggest value to productivity
enhancement of my business.
VOIP Phone rollouts, Cisco support.
Defer Capital Spending. Improve Back Office Efficiency (Finance, HR, etc).
New technologies and cost.
Retain our good people and offshore team; keep costs down; best use of small budget especially on multichannel.
Efficiency because of reductions anticipated in budget. Refreshing our user-facing technology to prepare for the next
few years.
Maintaining investment to deliver innovative solutions. Ensuring all investments demonstrate a value to the business.
Continuing resolution status for government (unsure of amount of $$ we'll receive), Data center relocation.
Implementation and cost of Portal (physician and patient) services and disaster recovery/business continuation/high
availability solutions
Standardization and strategic planning
Integration and global growth
Mandated Federal Government IT spending reductions. Mandated IT services consolidation initiatives / enterprise
solutions.
Quality and value
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Security, Redundancy, and Performance are our major themes for next year.
Growing infrastructure at a lower rate than revenue. Prioritization of spend based on strategic initiatives.
1) Spend where we will have immediate direct impact on our business. 2) Reduce resources on initiatives/projects that
have a low impact on the business.
Staffing and Vendor Support
Where to allocate the money to for innovation and innovative ideas that will propel the firm to new heights.
The two issues are the budget must be driving to a reduced overall spend and deliver greater value, not only on
disparate investments but also at an enterprise level. Simultaneously drive corporate entities to reduce dedicated spend
to enterprise spend benefits.
Security is a primary concern, particularly with moving things to 'the Cloud'.
Capacity to provide business requirements in a timely manner to outsourced project vendors. Availability of project
managers to lead upcoming project portfolio.
Personnel costs. Software licensing costs.
Delivering business efficiencies through IT. The IT investments must be tightly coupled with the strategic priorities of
the business. Resources will be dedicated to improving IT governance processes and accountability. Second, the IT
budget will enable the mobile workforce by promoting integration of diverse devices and OS.
1) Most IT spending must demonstrate a short duration return on investment. 2) IT spending will also occur in areas
that will increase our technology leadership in our industry (Construction), including BIM, Field management software,
collaboration.
IT Security/PCI and eCommerce
Lowering internal transaction costs. Creating operational efficiency throughout the IT organization and other
administrative units.
The IT budget is driven by business initiatives as well as technology driven initiatives like upgrades to the
infrastructure. It comes down to what area can we invest in that will have the best return for the investment.
Capacity of the overall organization to accomplish objectives.
Training and Virtualization.
Service vs. internal costs to provide same. Ability of vendors to meet compliance demands for education.
Most important is finding ways to work with old software and old hardware, as upgrades are not possible at this time.
As information security requirements increase, managing without increased spend is a superior challenge.
We're taking a good hard look at all IT expenses-- infrastructure stays as needed, but we believe that our
(comparatively) highly technical staff can manage with significantly reduced support staff. (I.e., we're putting cards
into the "consumerization" of our infrastructure-- it's amazing what a good laptop can do these days, even for content
creators.)
Focus on business value and delivering for our customers, increased efficiency of staff and investment in innovation.
1) identifying operating expenses for labor. 2) identifying critical capital expense.
Effective use of technology and customer wow factor.
Security, Vendor Management
Innovation. Strategic vision.
ROI
Scalability & stability
Increase sales, reduce expenses, customer retention
Service enhancements. Middleware improvements.
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Business Value and keeping the lights on
Reputation in the industry and solid performance.
Capital (new business request) needs and maintenance containment.
Return on investment in short period of weeks
Cost of staff.
Source: Consolidation.
ERP deployment support. PLM spending.
Key hardware refreshes to prevent downtime.
Flexibility to handle expansion - Cloud Services. Security.
Cost. The single overriding consideration this year is COST. All other business related IT needs come in second.
Stability and automation. Closely followed by cost.
The economy and how it will impact our revenue growth.
Identify 'must have' vs. 'like to have' and spend accordingly.
ROI, strategic fit.
TCO Reduction. Business Value. Frictionless Systems. Self Service.
Fitting more work in on a flat IT budget. Reducing the number of systems I currently support.
ROI. Cost.
TCO comparisons and durability.
Little to zero growth. ROI.
Quick ROI, and looking for means to be more efficient.
Support organization's growth. Investment in infrastructure and proprietary development to support company's vision.
Increase in operational I.T. expenses only where there is clear business need.
Virtualization and Data Center relocation.
Architecture governance and future POS solutions
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We asked 109 CIOs an open-ended question: Please name 2 or 3 standout SMALL or
MID-sized SOFTWARE VENDORS that are impressing you with their technology,
vision, and value-add to your organization. 22 vendors received multiple mentions
and another 153 received a single mention.

The chart above highlights the companies receiving multiple mentions as a standout
small to mid-sized software vendor. VMW receives the maximum mentions, which is
consistent with previously highlighted survey results. This clearly shows that
virtualization tops the priority list for CIOs.

Leading Cloud and Cloud infrastructure players such as VMW, Workday, CRM and
CTXS continue to rise to the top even in an open ended question format.

Please refer to the Exhibits in the next few pages for a list of other companies that were
mentioned at least once by >100 survey respondents.

Exhibit 27
STANDOUT SMALL OR MI D- SI ZED SOFTWARE VENDORS ( MENTI ONED BY TWO OR MORE
RESPONDENTS)

9%
5%
4%
4%
3%
3%
3%
3%
3%
3%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
VMware
Workday
Riverbed
salesforce.com
Citrix
MobileIron
Nuance
Sitecore
SuccessFactors
Concur
Descartes
EMC
Epicor
Google
JDA
Quest Software
RightNow
Symantec
TIBCO
Troux Technologies
Veeam
Please name 2 or 3 standout SMALL or MID-sized SOFTWARE VENDORS that are
impressing you with their technology, vision, and value-add to your organization.

Key Takeaways from
the Chart Above
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Exhibit 28
STANDOUT SMALL AND MI D SI ZED SOFTWARE VENDORS ( MULTI PLE MENTI ONS)

VMware
- Provides virtualization-based Cloud infrastructure solutions for data centers
and end user computing.
- www.vmware.com
- Public (NYSE:VMW)
Workday
- Provides web-based human capital management and ERP software.
- www.workday.com
- Private
Riverbed
- Offers products that enable users to improve the performance of their
applications and access to their data across WANs.
- www.riverbed.com
- Public (NASDAQ:RVBD)
Salesforce.com
- Provides Cloud-based enterprise applications, and an application hosting and
development platform.
- www.salesforce.com
- Public (NYSE:CRM)
Citrix
- Delivers solutions that enable IT services to be securely delivered on demand,
independent of location, device or network.
- www.citrix.com
- Public (NASDAQ:CTXS)
MobileIron
- Provides mobile device management.
- www.mobileiron.com
- Private
Nuance
- Offers voice automation and speech recognition solutions.
- www.nuance.com
- Public (NASDAQ:NUAN)
SuccessFactors
- Delivers web-based human capital management and business execution
software.
- www.successfactors.com
- Public (NASDAQ:SFSF)
Concur
- Provides web-based travel booking and expense automation software.
- www.concur.com
- Public (NASDAQ:CNQR)
Descartes
- Delivers global logistics and supply chain management solutions.
- www.descartes.com
- Public (NASDAQ:DSGX)
EMC - Develops, delivers and supports information infrastructure and virtual
infrastructure hardware, software, and services.
- www.emc.com
- Public (NYSE:EMC)
Epicor - Offers ERP and other business software to the manufacturing, distribution,
retail and services industries.
- www.epicor.com
- Private
Google - Specializes in Internet search, Cloud computing, and advertising technologies.
- www.google.com
- Public (NASDAQ:GOOG)
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STANDOUT SMALL AND MI D SI ZED SOFTWARE VENDORS ( MULTI PLE MENTI ONS) , CONTD.

(IMO)
- Develops, manages, and licenses medical vocabularies, as well as health care software
applications that utilize the medical vocabularies.
- www.e-imo.com
- Private
JDA Software - Provides supply chain management, merchandising and pricing solutions.
- www.jda.com
- Public (NASDAQ:JDAS)
Quest Software - Provides solutions for the management of databases, applications, Windows,
virtualization, and more.
- www.quest.com
- Public (NASDAQ:QSFT)
RightNow Technologies - Provides Cloud-based Customer Experience Management software.
- www.rightnow.com
- Acquired by Oracle
Symantec - Provides security software for computers, best known for its Norton brand.
- www.symantec.com
- Public (NASDAQ:SYMC)
TIBCO - Provides middleware and infrastructure software in the areas of service-oriented
architecture (SOA), business optimization, and business process management (BPM).
- www.tibco.com
- Public (NASDAQ:TIBX)
Troux Technologies - Provides tools and services in the areas of Enterprise Architecture and Strategic Planning
for large enterprises.
- www.troux.com
- Private
Veeam - Develops innovative products for virtual infrastructure management and data protection.
- http://www.veeam.com
- Private
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Exhibit 29
STANDOUT SMALL AND MI D SI ZED SOFTWARE VENDORS ( SI NGLE MENTI ONS)

A10 Networks - Specializes in the manufacture of application delivery controllers (software and
hardware).
- www.a10networks.com
- Private
Active navigation - Provides software and services for organizations to control their unstructured information
stores.
- www.activenavigation.com
- Private
Adobe - Provides multimedia and creativity software products, with a more-recent foray towards
rich Internet application software development.
- www.adobe.com
- Public (NASDAQ:ADBE )
Alexander Open System - Provides information technology services in the area of networking, data center, network
monitoring and management etc.
- www.aos5.com
- Private
- Does a good job helping us with our strategic and tactical needs for our Cisco and EMC
needs.
Altova - Produces integrated XML, database, UML, and data management software development
tools.
- www.altova.com
- Private
App Sense - Provides user virtualization solutions to businesses worldwide.
- www.appsense.com
- Private
Apple - Designs and sells consumer electronics, computer software, and personal computers.
- www.apple.com
- Public (NASDAQ:AAPL)
- Not small-mid size but tablets in healthcare are big and meet a need no one else is
touching relative to user interface and user acceptance with doctors.
Apposite Technologies - Provides easy-to-use, professional-quality network simulation products.
- www.apposite-tech.com
- Private
Automotive Resources
International (ARI)
- Provides fleet leasing and management services throughout the world.
- www.arifleet.com
- Private
Aruba Networks - Provides next-generation network access solutions for mobile enterprise networks.
- www.arubanetworks.com
- Public (NASDAQ:ARUN)
ARX Cosign - Provides cost-efficient digital signature solutions for industries such as life sciences,
healthcare, government, and engineering.
- www.arx.com
- Private
Aternity - Provides end user experience management solutions.
- www.aternity.com/
- Private
- Makes IT more proactive on client system management.
Source: Piper Jaffray research
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STANDOUT SMALL AND MI D SI ZED SOFTWARE VENDORS ( SI NGLE MENTI ONS) , CONTD.

Autonomy - Provides enterprise search and knowledge management applications.
- www.autonomy.com
- Acquired by HP
AVG - Provides anti-virus and Internet security software.
- www.avg.com
- Private
Azzurri Communications - Provides managed communications services in UK.
- www.azzurricommunications.com
- Private
Bankserv - Provides SaaS banking and payments systems to financial institutions and businesses.
- www.bankserv.com
- Private
- for our wire transfer business.
Barracuda Networks - Provides security, networking and storage solutions based on appliances and Cloud
services.
- www.barracudanetworks.com
- Private
Bayshore Solutions - Provides web development and website development solutions.
- www.bayshoresolutions.com
- Private
BMC Software - Develops, markets and sells software used for multiple functions, including IT service
management, data center automation, performance management, virtualization lifecycle
management and Cloud computing management.
- www.bmc.com
- Public ( NYSE:BMC)
BoardVantage - Provides secure board portal for boards of directors.
- www.boardvantage.com
- Private
BrightIdea - Provides Cloud-based innovation management software solutions.
- www.brightidea.com
- Private
BullZip - Provides PDF conversion tools.
- www.bullzip.com
- Private
BusinessGenetics - Provides Business Process Modelling solutions.
- www.businessgenetics.net
- Private
Cardiocomm Solutions - Provides software solutions for information management systems in cardiovascular
medicine and telemedicine.
- www.cardiocommsolutions.com
- Public in Canada (TMX:EKG)
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CDW
- Provides technology products and services for business, government and education.
- www.cdw.com
- Private
CEI
- Provides contracting and technology services.
- www.ceiamerica.com
- Private
CGI
- Provides information technology and business process services.
- www.cgi.com
- Public (NYSE:GIB)
Charter UK
- Provides Customer Complaints Management and Feedback Management, Customer
Experience Management software solutions.
- www.charter-uk.com
- Private
CipherCloud
- Provides Cloud data protection solutions.
- www.cipherCloud.com
- Private
- For securing data in Cloud.
Clarizen
- Provides Cloud based online project management software solution.
- www.clarizen.com
- Private
Clearpath
- Develops network infrastructure and security solutions.
- www.clearpathnet.com
- Private
ClusterSeven
- Provides Enterprise Spreadsheet Manager (ESM) and Access Database Manager (ADM).
- www.clusterseven.com
- Private
CmiC
- Provides complete, integrated and advanced enterprise software solutions for construction
and capital project firms.
- www.cmic.ca
- Private
Code 42 Software
- Provides onsite, offsite and Cloud data backup solutions.
- www.code42.com
- Private
CodeRyte
- Provides natural language processing solutions for healthcare sector.
- www.coderyte.com
- Private
Cofio
- Provides information/data management solutions.
- www.Cofio.com
- Private
Cogent Systems
- Provides biometric identification solutions.
- www.cogentsystems.com
- Acquired by 3M
Cognos
- Provides BI and Financial Performance Management software solution.
- www.01.ibm.com/software/analytics/cognos/
- Acquired by IBM
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Copiun - Provides endpoint User Data Management solutions.
- www.copiun.com
- Private
Cordys - Provides software for business process innovation.
- www.cordys.com
- Private
Createch Group - Provides supply chain optimization and information technology (IT) integration solutions.
- www.thecreatechgroup.com
- Private
DecisionZone - Provides business compliance management software for visibility into the organizational
workflow with workflow compliance checking methodology and technology.
- www.decision-zone.com
- Private
DuckCreek Tech - Provides software for the property and casualty insurance industry.
- www.duckcreektech.com
- Acquired by Accenture.
E-Plus - Provides IT products and services, flexible lease financing, and enterprise supply
management solutions.
- www.eplus.com
- Private
Epic Systems - Provides Healthcare Software solutions.
- www.epic.com
- Private
EPM LIve - Provides Microsoft SharePoint-based Enterprise Project, Portfolio and Work Management
Solutions.
- www.epmlive.com
- Private
Evernote - Provides software to capture, organize, and find information across multiple platforms.
- www.evernote.com
- Private
Exagrid Systems - Provides cost effective disk backup solutions.
- www.exagrid.com
- Private
eyeOS - Provides Cloud desktop solution.
- www.eyeos.org
- Private
Fortify - Provides Software Security Assurance products and services.
- www.fortify.com
- Acquired by HP
Forward Advantage (FAI) - Provides healthcare solutions that integrate seamlessly with a HCIS.
- www.forwardadvantge.com
- Private
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FatStax
- Provides mobile based software tools that enhance sales productivity.
- www.fatstax.xom
- Private
Frontier Software
- Provides integrated HR & payroll software solutions.
- www.frontiersoftware.com
- Private
Fusion IO
- Provides a new storage memory platform that significantly improves the processing
capabilities within a data center.
- www.fusionio.com
- Public (NYSE:FIO)
Futrix Ltd.
- Provides Business Intelligence solutions.
- www.futrix.com
- Private
Guardium
- Provides a database security solution.
- www.ibm.com/guardium
- Acquired by IBM.
Gembox Software
- Provides .Net components that interface with Excel Spreadsheet and AdWords.
- www.gemboxsoftware.com
- Private
Gladinet
- Provides Cloud storage related solutions with backup, access, sync, integration, connect,
identity & control management.
- www.gladinet.com
- Private
Golden Gekko
- Provides mobile application and web solution development services.
- www.goldengekko.com
- Private
Good Technology
- Provides push e-mail and mobile device management and security products for mobile
phones.
- www.good.com
- Private
Hawkes Learning Systems
- Provides learning systems that specialize in mathematics courseware.
- www.hawkeslearning.com
- Private
Healthcast
- Provides enterprise single sign on products for the healthcare industry.
- www.gohealthcast.com
- Private
iEnterprises
- Offers a mobile CRM solution.
- www.ienterprises.com
- Private
Imperva
- Provides award-winning database and application security, reporting and audit solutions
for organizations across the globe.
- www.imperva.com
- Public (NASDAQ:IMPV)
Imprivata
- Provides identity management technology solutions.
- www.imprivata.com
- Private
- security tied tightly to application for positive identification.
Informatica
- Provides enterprise data integration software.
- www.informatica.com
- Public (NASDAQ:INFA)
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Insight
- Provides information technology - hardware, software and service solutions to businesses
and public sector clients.
- www.Insight.com
- Public (NASDAQ GS:NSIT)
Intermec
- Manufactures and supplies automated identification and data capture equipment,
including barcode scanners, barcode printers, mobile computers and RFID systems.
- www.intermec.com
- Public (NYSE:IN)
Intuit
- Develops financial and tax preparation software and related services for small businesses,
accountants and individuals.
- www.intuit.com
- Public (NASDAQ:INTU)
- wondering if this could be a good solution QB Pro for us
iRise
- Provides enterprise visualization software that gives companies a powerful way to fully
experience business software before development.
- www.irise.com
- Private
Iron Bow
- Provides intelligent, full-lifecycle technology solutions for government and industry.
- www.ironbow.com
- Private
iWave software
- Develops software products to integrate, automate, and orchestrate Information
Technology service management processes.
- www.iwavesoftware.com
- Private
JAMF software
- Provides a client management software for the iOS platform.
- www.jamfsoftware.com
- Private
Jaspersoft
- Provides open source business intelligence software worldwide.
- www.jaspersoft.com
- Private
Juniper Networks
- Produces high speed, reliable switching routers.
- www.juniper.net
- Public (NASDAQ:JNPR)
Kaseya
- Provides IT Systems Management software.
- www.kaseya.com
- Private
Kronos
- Provides automated time-tracking software.
- www.kronos.com
- Private
LibreOffice
- Open Source personal productivity suite for Windows, Macintosh and Linux.
- www.libreoffice.org
- Private
- LibreOffice has impressed.
Lionshare
- Provides strategic marketing services and offers a database marketing suite.
- www.lionsharemarketing.com
- Private
- Data Analytics that provides marketing needs.

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Magstar Total Retail
- Provides fully integrated, multi-channel enterprise management systems for distributed
retail operations.
- www.magstarinc.com
- Private
- Data Analytics that provides marketing needs.
MangoSpring Technology
- Provides an enterprise social software called MangoApps.
- www.mangoapps.com
- Private
- MangoApps - for SaaS Social Media
Marketing Pilot
- Provides integrated marketing management and advertising agency management software.
- www.marketingpilot.com
- Private
MarkLogic
- Provides software that helps organizations manage unstructured information and Big
Data.
- www.marklogic.com
- Private
McAfee
- Delivers complete virus protection and Internet security solution.
- www.mcafee.com
- Acquired by Intel
Meditech
- Provides integrated software solutions that meet the information needs of health care
organizations worldwide.
- www.meditech.com
- Private
Meridian Integration
- Provides software development and consulting services around Oracles CRM and ERP
software solutions.
- www.meridian-integration.com
- Private
Mezeo Software
- Provides a deployable, software-only REST API accessible Cloud storage platform.
- www.mezeo.com
- Private
Microstrategy
- Provides enterprise software platforms for business intelligence.
- www.microstrategy.com
- Public (NASDAQ:MSTR)
Mitek Systems
- Provides mobile imaging solutions that use patented document capture software that
allows consumers to use the camera on their smartphone or tablet to take a photo of a
document to perform tasks and facilitate commerce.
- www.miteksystems.com
- Public (NasdaqCM:MITK)
MyEclipseIDE (Genuitec)
- Supports one of the fastest growing developer communities for Eclipse tools.
- www.genuitec.com
- Private
NaturalMotion
- Specialises in creating animation technology for the game and film industries.
- www.naturalmotion.com
- Private
- though their price is still way too high per seat.
NetSuite
- Provides a Cloud based ERP system.
- www.netsuite.com
- Public (NYSE:N)
- especially for ERP and employee integration

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NextPage
- Provides information governance solutions that augment control and management of
unstructured information within a company.
- www.nextpage.com
- Private
Nomadesk
- Provides Cloud storage, file sharing and synchronization software.
- www.nomadesk.com
- Private
OpenText
- Provides Enterprise Content Management (ECM) applications and solutions.
- www.opentext.com
- Public (NASDAQ:OTEX)
Palo Alto Networks
- Provides firewalls enabling greater visibility and control of applications and content.
- www.paloaltonetworks.com
- Private
Paperthin
- Provides SaaS-based content management solutions for improving and getting more
value from web strategies.
- www.paperthin.com
- Private
Pentagon Software
- Offers software systems for aerospace, electronics, power systems, metals trading and
defense customers.
- www.pentagon2000.com
- Private
Perceptive
- Creates enterprise content management and business process management solutions.
- www.perceptivesoftware.com
- Private
- Document imaging needs as we drive toward paperless environments.
Pervasive
- Provides software to manage, integrate and analyze data, in the Cloud or on-premises,
throughout the entire data life cycle.
- www.pervasive.com
- Public (NASDAQ:PVSW)
Pilgrim Software
- Sells enterprise risk, compliance and quality management software solutions for highly
regulated industries.
- www.pilgrimsoftware.com
- Private
Planview
- Provides product portfolio management solutions and services.
- www.planview.com
- Private
Plex Systems
- Provides SaaS-based manufacturing ERP software.
- www.plex.com
- Private
Postini - from Google
- Offers hosted communications security, compliance, and productivity solutions for
email, instant messaging, and Web applications.
- www.google.com/postini
- Public (NASDAQ:GOOG)
- While owned by Google it still runs as a stand-alone unit.
Progress Software
- Delivers software that lets enterprises be more operationally responsive to changing
conditions and customer interactions.
- www.progress.com
- Public (NASDAQ: PRGS)
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Pronto Forms
- Offers a mobile forms on-demand service.
- www.prontoforms.com
- Private
Protegra
- Offers consulting for IT and business processes, and some specialized software for case
management and payroll.
- www.protegra.com
- Private
QAD
- Offers software to support all key processes of global manufacturers.
- www.qad.com
- Public (NASDAQ:QADA and QADB)
Rapid Decisions
- Sells a software product for building a data warehouse.
- www.rapiddecision.com
- Private
Redwood Software
- Develops automation software for connecting critical processes across disparate
technologies and platforms.
- www.redwood.com
- Private
- Report2Web technology for report distribution and reduce TCO.
Red Hat
- Provides open source server, middleware, virtualization and storage management
software.
- www.redhat.com
- Public (NYSE:RHT)
Red Prairie
- Offers supply chain, workforce and all-channel retail solutions to increase
collaboration among manufacturers, distributors, retailers and consumers.
- www.redprairie.com
- Private
Results
- Provides CRM and business management solutions software.
- www.results-software.com
- Private
RoamBi
- Offers a mobile business intelligence solution.
- www.roambi.com
- Private
SafeEnd
- Delivers endpoint data security to guard against corporate data loss and theft.
- www.safend.com
- Private
Sage
- Sells ERP, CRM and HCM software.
- www.sagenorthamerica.com
- Private
SaS Institute
- Offers business analytics software and services.
- www.sas.com
- Private
Savo
- Provides Cloud-based sales enablement technology and consulting solutions.
- www.savogroup.com
- Private
- Improves channel management.
SD Sharp
- Specializes in building customer software solutions for a variety of industries.
- www.sdsharp.com
- Private
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Secure-24
- Provides managed hosting and private Cloud computing for the enterprise level
applications of large and mid-market customers.
- www.secure-24.com
- Private
Sentillion (Microsoft)
- Provides identity and access management to applications and patient data for caregivers
and hospital IT organizations.
- www.microsoft.com/en-us/microsofthealth/products/microsoft-health-sentillion-
products.aspx
- Acquired by Microsoft.
ServicEngine
- Provides strategic management technology to manage the logistical and financial
challenges of a global workforce.
- www.servicengine.com
- Private
- We couldn't run our relocation business with out it.
ServiceNow
- Delivers a suite of Cloud-based services for enterprise IT management.
- www.service-now.com
- Private
Shunra
- Offers application performance engineering solutions for testing of software
applications.
- www.shunra.com
- Private
SmarterAgent
- Delivers a location-based platform for development of mobile search and discovery
applications.
- www.smarteragent.com
- Private
- Outstanding real estate technology platform.
Softchoice
- Markets software and hardware technology products to businesses and organizations.
- www.softchoice.com
- Private
Sophos
- Offers security for IT environments, including computers, laptops, virtual desktops and
servers, mobile devices, and web and email gateway.
- www.sophos.com
- Private
Sparta (TrackWise)
- Provides web-based software applications used by quality, manufacturing and
regulatory affairs professionals to manage quality control and compliance issues across
the enterprise.
- www.spartasystems.com
- Private
Splunk
- Provides software to monitor and analyze data generated by websites, applications,
servers, networks, mobile devices and other IT assets.
- www.splunk.com
- Private
SugarCRM
- Provide open source, web-based CRM software.
- www.sugarcrm.com
- Private
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Surecomp
- Develops global trade solutions (treasury finance and confirmation matching) for the
financial services community.
- www.surecomp.com
- Private
- for our international business.
Symmetry
- Provides technical managed services, security administration and project consulting for
SAP customers.
- www.sym-corp.com
- Private
- SAP BASIS support
Tableau
- Provides analytics and data visualization software solutions.
- www.tableausoftware.com
- Private
Talend
- Provides open source data integration software solutions.
- www.talend.com
- Private
Taleo
- Offers web-based e-recruiting and performance management software.
- www.taleo.com
- Public (NASDAQ:TLEO)
Target X
- Offers interactive recruiting software for colleges and universities.
- www.targetx.com
- Private
Tata Consultancy Services
- Provides IT Consulting services.
- www.tcs.com
- Public (Indian stock exchange)
TechSmith
- Provides screen capture and recording software for professional and individual use.
- www.techsmith.com
- Private
TeraMach
- Provides information technology solutions to the government sector, corporations, and
small and medium business clients in Canada.
- www.teramach.com
- Private
The OmniGroup (OmniFocus,
OmniPlan)
- Develops productivity applications exclusively for Mac OS, iPhone and iPad.
- www.omnigroup.com
- Private
- Has been something of a surprise for their high quality.
Thoughtworks
- Offers technology consulting services that provide insights into existing systems
portfolio, architecture, platforms, and technologies, and optimizes IT organizations,
software development, and provides testing services.
- www.thoughtworks.com
- Private
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Thunderhead Technologies
- Offers a single software platform based on open standards to manage all customer
communications.
- www.thunderhead.com
- Private
Trinity Expert Systems
- Provide a range of IT solutions across a number of industry sectors.
- www.tesl.com
- Private
Unicon
- Provides IT consulting services to educational institutions.
- www.unicon.net
- Private
Unit4 Business Software
- Develops and distributes integrated business information and management systems.
- www.unit4.com
- Public (Amsterdam Euronext)
Varicent
- Provides incentive compensation and sales performance management software solutions.
- www.varicent.com
- Private
Vela Systems
- Provides software that automates the execution and oversight of field activities on
construction and capital projects for contractors, architects, engineers and owners.
- www.velasystems.com
- Private
VersionOne
- Provides a project management tool designed specifically for agile software development.
- www.versionone.com
- Private
Vidyo
- Provides both software-based technology and product-based visual communication
solutions. Implemented in Gmail's video and phone calls and is speculated to be used in
Google+s hangout feature.
- www.vidyo.com
- Private
- For mobile video conferencing.
Vision Solutions
- Offers efficient business continuity disaster recovery and high availability software
solutions.
- www.visionsolutions.com
- Private
Yeahpoint
- Provides self service solutions on kiosk, signage and mobile platforms to a wide range of
industries across the globe.
- www.yeahpoint.com
- Private
Zilliant
- Provides price optimization solutions.
- www.zilliant.com
- Private
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LI MI TATI ONS

The survey was conducted primarily in November 2011.

of $1 billion moves the needle 100x more than an IT budget of $10 Million, and thus large-

believe the survey is useful due to its scale and focus on larger organizations, but we note
the following limitations: 1) the survey is more weighted toward North American
organizations, with roughly 9% of respondents outside the Americas; 2) dispersion across
verticals is good in our view, but is overweight in Health Sciences at 17% versus 10% for
Financial Services/Insurance, 10% for Public Sector, and 10% for Retail; and 3) for our
vendor-specific share gainer question, in our experience, large/stable mega-vendors
typically perform well due to their pervasive brand recognition, while results are less
meaningful for vendors with smaller customer bases which might not register more
broadly but could still gain substantial share within their existing customer base.

Our CIO Survey's
Differentiation
Survey Background
And Limitations
Exhibit 30
SI ZE OF I T BUDGET

2.8%
4.6%
16.5%
14.7%
26.6%
15.6%
8.3%
11.0%
0% 5% 10% 15% 20% 25% 30%
<$100K
$100K to $1 million
$1 to $5 million
$5 to $10 million
$10 to $50 million
$50 to $250 million
>$1 Billion
Dollars?

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Exhibit 31
GEOGRAPHI C MI X

90.8%
6.4%
2.8%
0% 20% 40% 60% 80% 100%
Americas
Asia-Pacific

Exhibit 32
I NDUSTRY MI X

17%
10%
10%
10%
7%
7%
5%
5%
5%
4%
3%
3%
3%
3%
2%
2%
2%
2%
1%
1%
0% 5% 10% 15% 20%
Health Sciences
Public Sector
Retail
Financial Services
High Technology
Insurance
Utilities
Automotive
Consumer Goods
Oil and Gas
Communications
Chemicals
Natural Resources

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April 2014
Ma r c h 6 , 2 0 1 3
Bazaarvoice, Inc. (BV) Overweight
Customer Checks Highlight Favorable Spending Intentions, Value of Bazaarvoice
PRICE: US$6.85
TARGET: US$11.00
3.8x CY13E Sales of $178.6M+ $1.47 net
cash/sh and 71.9M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Changes Previous Current
Rating Overweight
Price Tgt US$11.00
FY14E Rev (mil) US$182.8
FY14E EPS US$(0.22)
FY15E EPS US$(0.07)
52-Week High / Low US$21.10 / US$6.37
Shares Out (mil) 71.9
Market Cap. (mil) US$492.5
Avg Daily Vol (000) 861
Book Value/Share US$3.60
Net Cash Per Share US$1.47
Debt to Total Capital 0%
Div (ann) US$0.00
Fiscal Year End Apr
Note: price reflects close on 3/6/13.
Price Performance - 1 Year
Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13
22
20
18
16
14
12
10
8
6
USD
Source: Bloomberg
CONCLUSI ON
We attended the Bazaarvoice Summit (user conference) in Austin this week and
come away more positive about Bazaarvoice based on customer feedback regarding
Bazaarvoices strategic direction, customer spending trends, and product use intentions.
We spoke to 14 customers, and 8 of the 14 have plans to increase their spending
on Bazaarvoice solutions in 2013 while none plans to decrease spending. Of the
customers who plan to hold spending steady, two have an all-you-can-eat agreement with
Bazaarvoice, which gives them the option to roll out additional Bazaarvoice products,
and they are planning to do so. Although Bazaarvoice is viewed very favorably by its
customers, investors would ultimately like to see the company sign a larger volume of
new logos and show healthy organic sequential growth, which are possibilities over a
year-long time horizon. Reiterate Overweight, $11 PT.
Additional Conference Takeaways:
PowerReviews Acquisition Viewed to be Positive for the Industry. During our

conversations we had a chance to inquire about the acquisition of PowerReviews by
Bazaarvoice, and what it meant for the customer. The general tone we received was
that the acquisition was positive for the industry. The reason is that brands want to be
able to syndicate to as many retailers as possible, and retailers want as much content
as they can from the brands they sell. Having two distinct vendors provided negative
economies of scale for both brands and retailers. One Bazaarvoice customer, who was
originally a customer of PowerReviews, said that the acquisition has definitely been
good for them, citing the increased training and support available from Bazaarvoice.
Another customer described different aspects of technology he liked from Bazaarvoice
and PowerReviews, and viewed the merger positively because he now has access to
both technologies.
Longboard Media Appealing to Customers. We believe the acquisition of Longboard

Media by Bazaarvoice has been a mild distraction in the minds of investors because
of its perception as a commoditized display ad service. Feedback from customers
regarding the capabilities of Longboard Media was generally quite positive for a
couple of reasons. 1) Brands want to leverage the positive feedback of Ratings &
Reviews and use that content in targeted display ads. Before Longboard Media,
Bazaarvoice customers had to use other vendors to insert their content into targeted
display ads. 2) Longboard Media has access to the ad networks, which give
Bazaarvoice customers a greater reach for their ads. Because customers have to pay
someone else for their content to go into these ads, Bazaarvoice was leaving money on
the table before acquiring Longboard Media. ***Continued on Page 2***
RI SKS TO ACHI EVEMENT OF PRI CE TARGET
Outages, security breaches, competition and economic fluctuations.
COMPANY DESCRI PTI ON
Bazaarvoice offers a Social Commerce platform with a SaaS-based subscription model.
YEAR
2013E
2014E
2015E
REVENUE (US$ m)
Jul Oct Jan Apr FY CY FY RM CY RM
35.7A 38.6A 42.7A 42.4 159.4 178.6 3.1x 2.8x
43.5 44.4 48.2 46.7 182.8 206.4 2.7x 2.4x
51.3 52.0 56.4 56.0 215.7 2.3x NA
EARNINGS PER SHARE (US$)
Jul Oct Jan Apr FY CY FY P/E CY P/E
(0.07)A (0.07)A (0.06)A (0.11) (0.32) (0.27) NM NM
(0.07) (0.07) (0.03) (0.06) (0.22) (0.10) NM NM
(0.01) (0.03) 0.00 (0.04) (0.07) NM NA

April 2014
Ma r c h 6 , 2 0 1 3
Oracle Relationship The announcement from Bazaarvoice regarding Oracle relates to new integration of
Bazaarvoice into Oracle RightNow. Bazaarvoice had an existing relationship to Oracles
Endeca product line. One of the functions of Endeca, an e-commerce application, is to provide
product filters so online shoppers can narrow search results by criteria such as size, price,
brand, rating, etc. Endeca inserts Bazaarvoice ratings into its search filters.
The new relationship with Oracle RightNow provides a customer of both Bazaarvoice and
Oracle RightNow a seamless ability to resolve customer service issues that begin with bad
reviews. For example, if a consumer leaves a bad review about a laptop she recently purchased,
the brand can send the case to Oracle RightNow where the consumers problems with the
product can be addressed by a dedicated individual and associated resolution processes.
Additionally, Oracle RightNow can trigger upsell events to consumers. For example, if a
consumer purchases a two-year extended warranty on a camera, that warranty data will be
stored in Oracle RightNow. As the warranty nears its expiration, Oracle RightNow can send
an email prompting the consumer to extend their renewal again. Oracle RightNow can also
prompt a consumer to write a review about their experience thus far with their camera.

April 2014
Fe b r u a r y 2 1 , 2 0 1 3
Near-Term Choppiness Expected; Company Likely Trading Below LT Intrinsic Value
PRICE: US$7.32
TARGET: US$11.00
3.5x CY13E Sales of $184M+ $1.99net cash/
sh and 71M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$14.00 US$11.00
FY13E EPS US$(0.37)
FY14E EPS US$(0.18)
Div (ann) US$0.00
Fiscal Year End Apr
Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13
22
20
18
16
14
12
10
8
6
USD
Source: Bloomberg
CONCLUSI ON
Since last summer we have noted new risks entering the equation for BV: 24M shares
coming off lockup, experimentation with gain-share models and emerging advertising
streams, management transitions, a likelihood of sequential growth slowing, and the
DoJ investigation into the PowerReviews acquisition. Quarterly results have been fine,
but the lack of clarity into these factors has weighed. Recently we reached out to a
couple of contacts in Bazaarvoice's ecosystem and they continue to appreciate the value
provided by Bazaarvoice, including its data assets. At 2.2x EV/FTM revenue, we note
that Bazaarvoice is trading below historic levels for public SaaS acquisitions, while
noting that the company is in a transitional phase with uncertainty around the digital
media strategy and overhang from the DOJ lawsuit which could potentially weigh on
the guidance. Reducing target to $11. Maintain OW rating.
Customers and Partners See Ongoing Value. Our conversations with a couple of
contacts in Bazaarvoice's ecosystem show that customers continue to appreciate the
value provided by BV, while partners are optimistically cautious about BV's foray into
digital media. We spoke to a large consumer goods company which considers BV as a
"key partner for our brands this year and in 2013" and continues to see future spending
with the company. Meanwhile, our conversation with a media management company
in Bazaarvoice's partner ecosystem highlighted the value of Bazaarvoice's data asset.
The partner mentioned that BV has "tremendous retail shopping data" and qualified
the data as "very powerful". Some quotable quotes :-
Digital media is definitely growing rapidly. Using social reviews in media
is a great idea.
They are really like an Amazon. They have the same type of data that Amazon
gets on those reviews that Amazon has.
Probably Trading Below Long-Term Intrinsic Value. We believe that at 2.2x,

Bazaarvoice's shares are below the historical floor and well below the high end of EV/
FTM revenue multiples paid for any public SaaS companies to date. Historically, the
range has been between 2.5x-8.5x. Bazaarvoice's market leading Ratings & Reviews
platform, its valuable data asset along with its huge retail customer base, could
arguably create some hidden value beyond what is visible on the P&L.
Potential Disruption From DOJ Lawsuit Could Eventually Weigh On Guidance. We

believe the recent lawsuit filed by the US Department of Justice (DOJ) regarding
Bazaarvoice's acquisition of PowerReviews could potentially cause disruptions in
some parts of the business and at this point we do not think it would surprise investors
if this disruption eventually weighs on guidance. *** Detailed Comments on Page 2***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
22.1A 25.0A 27.6A 31.4A 106.1A 149.6E 4.9x 3.5x
35.7A 38.6A 43.9 43.1 161.2 184.0 3.2x 2.8x
42.8 46.0 52.2 52.1 193.1 0.0 2.7x NA
(0.08)A (0.09)A (0.09)A (0.08)A (0.34)A (0.31)E NM NM
(0.07)A (0.07)A (0.10) (0.13) (0.37) (0.30) NM NM
(0.10) (0.07) 0.00 (0.01) (0.18) NM NA

April 2014
Fe b r u a r y 2 1 , 2 0 1 3
Detailed Feedback Customer (Large Consumer Goods Company)
Has been using Bazaarvoice for 3-4 years. Uses only Ratings and Reviews as of now.
They are one of our key partners for our brands this year and in 2013.
In 2012, we ramped up quite significantly across our brands. Doesnt think that all of the
services have rolled out yet.
Does foresee some increase in spending next year but is unable to equate that to dollars at
this point.
Digital media is definitely growing rapidly. Using social reviews in media is a great idea.
When he saw the presentation, it caught his eye. It was very intriguingdont have plans at
this point to utilize that but its certainly something that is of interest. Bazaarvoice needs
to find new avenues of distribution and new channels.
Thinks it was a great move to acquire PowerReviews. They essentially acquired their
primary competitor, which is good.
Doesnt really know what the management transition means for the company. Hasnt spoken
to either about it.
Partner (Media Management Company)
Thinks that the data that Bazaarvoice have is very powerful. They have tremendous retail
shopping data.
They are really like an Amazon. They have the same type of data that Amazon gets on
those reviews that Amazon has.
Thinks what BV needs to do is sell the data buckled with media. Amazon is [also] going
into the media business. They are always selling their data, if you want to buy it, with
media.
Explains, that when a user visits HomeDepot.com Bazaarvoice has a gateway to drop a pixel
on the users browser. When they drop that pixel, they know that user now. They are going
to find that user someplace else. If this person was reading a review on a lawnmower, BV
can make a determination about where this person is in their shopping funnel by analyzing
what pages he visited on HomeDepot.com as well as how much review content they are
digesting. Now, BV can go and sell that cookie to a 3
rd
party like himself. He can now go to
an Ad Exchange like those provided by Google or Yahoo and look for that user and buy
media and mix the two together. Now, he has got an ad being served to that person using
that data.
Thinks BV can do two things. They can just sell the data or they can also get the media and
sell the data and the media together, which is far more valuable than selling just the data
itself. Ultimately, thats where they need to head in my opinion.
Thinks that the reviews market is mostly saturated. They already have most of the major
brands. Thinks there might be some room to go for on the manufacturing side. Thinks
international expansion could increase the number of opportunities.
They have built a sales team and are calling ad agencies now. Thinks that BV has been
selling some kind of an ad product in the marketplace with probably some level of limited
success. Thinks it's kind of a rich media product that they are selling, which has reviews
as part of the ads. If your client is LG and they are doing an ad campaign, they can pull
information in from LGs site where people left reviews, on a refrigerator or on a dishwasher
or what not. They can pull that data, comments from the user, into the ad. The premise
is that having that review data makes the ad that much more powerful.
Price Target Lowering PT to $11 (was $14) based on 3.5x (was 4.6x) CY13E Sales of $184M+ $1.99net
cash/sh and 71M s/o. Lower multiple reflects lower peer group multiple.

April 2014

Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705
Piper Jaffray & Co.

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706
Piper Jaffray & Co.

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703
Piper Jaffray & Co.

B A Z A A R V OI C E , I NC . (BV $19.27)
Overweight

Unleashing The Voice of the Market: A Social Phenomenon with
Cloud Roots and a Network Effect; Initiate With OW

We are initiating coverage of Bazaarvoice (BV) with an Overweight rating and $21 price
target. Bazaarvoice offers a Social Commerce platform with a SaaS-based (software-as-a-
service) subscription model. As companies begin to embrace social media marketing and
de-emphasize traditional advertising/marketing methods, we expect Bazaarvoice to deliver
rapid revenue growth due to its disproportionate leadership position in the market and its
rapidly increasing data scale and network effect, which are further widening the
competitive gap. We note a healthy current valuation on BV shares due to frothy
comparable valuations for the Cloud/Social peer group, which have doubled since August
2011, and may create higher volatility for BV shares.

Social Commerce a Disruptive Force Displacing Traditional Advertising Models.
Bazaarvoice enables companies to grow a base of engaged and loyal customers by
offering a Cloud-based Amazon.com-style Ratings & Reviews capability and
Syndication of social content to retail channel partners. Our work suggests traditional
marketing and advertising budgets will give way to this type of user-generated social
content because consumers trust unbiased, real-life feedback from people like me
more than they trust companies internally-generated marketing propaganda.

PJC Report Validates the Social Commerce Opportunity. Our April 2011 Social
Commerce report, in which we surveyed 175 online shoppers to assess their viewpoints
regarding user-generated Ratings & Reviews , shows that 94% of online shoppers view
a strong selection of user-generated Ratings & Reviews to be valuable, and 59% of the
purchasing decision is influenced by such Ratings & Reviews. This marks a tremendous
shift in consumer purchasing dynamics, and drives an imperative for businesses to
increase their spending on a Social Commerce presence.

Disproportionate Leadership Position and Impressive Consumer Reach Create Unique
Data Asset, Hidden Value. Our work suggests Bazaarvoices revenue run-rate could be
as much as 5x larger than its closest competitor. BV counts 154 of the Internet Retailer
(IR) Top 500 as clients, has served 300B impressions since inception, and is now run-
rating 260M per day. As such, we believe Bazaarvoice has amassed a unique and sizeable
data asset, which could enable alternative monetization streams over time.

Network Effect Driven by Syndication, a Key Differentiator Which Creates a
Competitive Moat. BV offers syndication capabilities, enabling brands to distribute
Ratings and Reviews among retail websites within and beyond the BV network. This
capability attracts more brands and retailers to BV as they gain access to more online
word of mouth content than they can collect on their own.

Risks: Outages, security breaches, competition and economic fluctuations.

NOTE: The foowng pages are an excerpt from the BV Intaton report.

April 2012

April 2014
SOCI AL COMMERCE MARKET DYNAMI CS

In April 2011, we published a report called Social Commerce - The Next Generation
Branding & Advertising Medium, in which we explored the dynamics of the Social
Commerce market and how user generated content is influencing purchasing decisions in
the online world.

As a part of the report, we surveyed 175 online shoppers to assess their viewpoints
regarding user-generated Ratings and Reviews, such as those offered on Amazon.com,
Yelp, Best Buy and TripAdvisor. Key findings include the following:

94% of online shoppers view a strong selection of user-generated Ratings and Reviews
as Very Valuable or Moderately Valuable

86% of online shoppers would buy more from a web site that offers strong user-
generated Ratings and Reviews features, as compared to a web site that does not

When shopping online, 59% of the purchasing decision is influenced by user-generated
Ratings and Reviews

The results strengthen our belief that Social collaboration will occur on a global scale to
power better purchasing decisions. The stakes are high: traditional advertising models will
falter as spending funnels its way toward businesses that offer the best user-generated
Ratings, Reviews, and Question & Answer capabilities. Businesses will face an imperative
to increase their spending on a Social Commerce presence. Specifically, businesses must
invest to produce a higher volume of user-generated Ratings and Reviews, across a broader
array of offerings, because of the following:

92% of online shoppers would value Ratings and Reviews for Services (an area not
currently exploited by businesses), not only for physical Products

Ratings and Reviews written by the product manufacturer are only valued at 2.0 out of
5, versus 3.6 for Ratings and Reviews written by random users

To experience a valuable critical mass, online shoppers want to see 40 Ratings/Reviews
for a given product or service

To prevent the online shopper from leaving the web site, a merchant must display 80
Ratings/Reviews for a given product or service

April 2014

Online shoppers clearly perceive substantial value presented by user-generated Ratings
& Reviews

In fact, the large majority of online shoppers (63%) describe Ratings and Reviews as
Very Valuable

94% of users view Ratings and Reviews as Very Valuable or Moderately Valuable

In our view, businesses must recognize the widespread value created by user-generated
Ratings and Reviews to attract and retain a large customer base and enhance their
brand Value.
Exhibit 3
I MPORTANCE OF RATI NGS AND REVI EWS FOR ONLI NE SHOPPI NG

0%
1%
6%
30%
63%
0% 10% 20% 30% 40% 50% 60% 70%
Negative Value
Neutral
Only Slightly Valuable
Moderately Valuable
Very Valuable
When shopping for products or services online, how valuable is it for a website to
provide you with a strong selection of user-generated Ratings and Reviews?
Key Takeaways
From The Chart
Above

April 2014

It is more valuable to hear what actual buyers think of a product than it is to read
marketing hype

Online shopping doesn't allow for the "feel" and in most cases the true look of a
product. Ratings help provide the confidence to buy - "If they like it, I probably will
too".

Users tend to be more honest in the feedback that they provide.

I have found these reviews to be a very good indicator in the past

An option to provide a review (and keep reviews displayed - the positive and the
negative) is an indicator of an impartial retailer. I favor impartial retailers.

Gives confidence and gives a sense of informed shopper.

It tells me the website is a trustworthy site and that a lot of people have ordered from
the site meaning it is highly unlikely that I will be scammed for my purchase.

Peer reviews tell me much more than manufacturer or distributor marketing blablah

Crowd sourcing is more reliable than site promotional ads or links.

Why? Because they are non-biased reviews, actual customer reviews.

Simplifies the decision-making process and also gives greater confidence that the
purchase will prove to be money well-spent.

There's a trust factor.

I would prefer to know that the supplier I am dealing with is "real", "reputable" and
others have had a good experience doing business with the supplier. Given the distance
of transactions and the impersonal nature of working via the web, knowing that others
have had a good experience is very important.

It lends the website more legitimacy

The lack of ratings from customers about a product or about the company's
process/policies etc. leaves the consumer with a void or questions of what are they
hiding, or why are they not open about their company and customer satisfaction ....

Users tell as it is.

You can't trust the manufacturer's sales literature.

I have found independent consumer reviews to be highly reliable when taken in
aggregate.

The more people who have provided a rating, the better.

Quotable Quotes:

Why Do You Value
User-Generated
Ratings and Reviews?

April 2014

The vast majority of online shoppers (86%) would buy more from a web site that
offers relatively stronger Ratings and Reviews features.

This is significant because it demonstrates that Ratings and Reviews functionality is a
big driver of buying activity; Ratings and Reviews drive the customer to the checkout.

This data should reinforce the idea that most customers dont just use the Ratings and
Reviews to educate themselves and then buy from a different merchant with a lower
price; the Ratings and Reviews feature engenders customer loyalty.

Exhibit 4
PROCLI VI TY TO BUY MORE FROM A WEB SI TE THAT OFFERS
STRONG RATI NGS AND REVI EWS FEATURES

13%
86%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
No
Yes
Would you buy more from a web site that offers strong Ratings and Reviews
features, as compared to a web site that does not?
Key Takeaways
From the Chart
Above

April 2014

On average, 59% of the online shoppers decision-making process is influenced by
product Ratings and Reviews.

We find it remarkable that more than half of the purchasing decision is driven by user-
generated Ratings and Reviews, whereas the typical online merchant spends a
substantially larger portion of its budget on traditional marketing and advertising
channels such as print, television, radio, and keyword search.

The data illustrates a very high-ROI proposition for investments in user-generated
Ratings and Reviews engines.

Exhibit 5
PERCENTAGE OF DECI SI ON MAKI NG PROCESS THAT I S
I NFLUENCED BY PRODUCT RATI NGS AND REVI EWS
(Blended Average Is 59%)
1%
4%
11%
11%
6%
11%
16%
25%
10%
5%
0% 5% 10% 15% 20% 25% 30%
0 to 10%
10 to 20%
20 to 30%
30 to 40%
40 to 50%
50 to 60%
60 to 70%
70 to 80%
80 to 90%
90 to 100%
When shopping online, what percentage of your decision-making process is
influenced by product Ratings & Reviews?

Key Takeaways
From the Chart
Above

April 2014

Online shoppers, very clearly, perceive absolutely minimal value in Ratings and
Reviews that are written by the Manufacturer of the product (only 1.99 on a scale of 1
to 5). Online shoppers broadly understand, as one respondent stated, You can't trust
the manufacturer's sales literature.

Ratings and Reviews written by Friends and Family carry the most value (4.1 out of 5).

That said, Ratings and Reviews written by Friends of Friends or Random Users carry
almost the same value (3.6 out of 5).

Our conclusion is that the effectiveness of traditional manufacturer-sponsored
marketing and advertising methods is rapidly declining. Online shoppers understand
the inherent limitations of its bias, and are developing a strong preference for the
transparency of crowd-sourced Ratings and Reviews.

Exhibit 6
VALUE OF RATI NGS AND REVI EWS FROM VARI OUS SOURCES

1.99
3.59
3.61
4.06
4.17
1.0 2.0 3.0 4.0 5.0
Ratings & Reviews written by the
Manufacturer of the Product
Ratings & Reviews written by Random
Users
Ratings & Reviews written by my Friends'
Friends
Ratings & Reviews written by my Family
Ratings & Reviews written by my Friends
On a scale of 1 to 5, how much value do you place on the following types of Ratings
& Reviews?
Key Takeaways
From The Chart
Above

April 2014

The large majority of online shoppers extract more value from Reviews (68%) than
Ratings (9%).

In addition, 23% of respondents insisted that BOTH Ratings and Reviews are
desirable, even though that response was not an option that we presented.

The data clearly shows that detailed qualitative feedback is perceived to be much more
valuable than quantitative ratings. This rationale is highlighted in the feedback on the
following page.

We conclude that businesses should invest more to incentivize customers to contribute
qualitative written feedback (Reviews) because Reviews are more valuable than
Ratings.
Exhibit 7
RATI NGS VS. REVI EWS

9%
23%
68%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Ratings are More Valuable
I Want BOTH Ratings & Reviews
Reviews are More Valuable
When shopping online, what adds more value to your experience: the
user-generated Ratings (i.e. one star, two stars, three stars) or the user-
generated Reviews (i.e. "Powerful laptop but heavier than I expected")?

Key Takeaways
From The Chart
Above

April 2014

Reviews because I want to hear specific feedback on product experience. Also makes
shopping more fun.

User generated reviews provide more practical information than just the ratings.

The ratings are great for a quick overview but I find the reviews more valuable because
they often highlight potential problems or perks I may not have considered.

Reviews. Ratings are relative and subjective - my 4 stars can be your 3 stars.

I like the reviews. It gives more details and you get to see what the strengths and
weaknesses are.

The reviews - because then I can read why the person liked or didn't like the product,
and I can evaluate whether the reason for their like or dislike is salient to me. With just
the stars, I get an idea, but it doesn't have nearly the same depth.

User generated reviews are more important, especially when they link to social media
sources, where I can see that the people are "real" people. If I see "5 friends have
commented" I know it must be popular.

Reviews are more useful as I feel that it requires thought to convey your feeling for a
product. Clicking on a scale from 1 to 5 is a brainless act and provides little help if not
accompanied by a written review.

I like the one star, two star, etc...[ratings]. It is easy to get a sense if people liked it.
Then you can get into the details and see what they liked or did not like.

The rating: The rating is the shorthand for the review

I use them both; the ratings help me determine which reviews to read.

I prefer a mixture of both. I like viewing the stars at first notice so that I can filter
which businesses or products I want to buy. Then, I read the reviews. There might be
something in the reviews that indicates which store, business or person would be my
preference.

I really like having both. The star ratings give me a quick snapshot. Then, I look at
the test for the specifics. If I only could have one or the other, I would keep the free-
form.

Quotable Quotes:

When shopping
online, what adds
more value to your
experience: the user-
generated Ratings
(i.e. one star, two
stars, three stars) or
the user-generated
Reviews (i.e.
"Powerful laptop but
heavier than I
expected")?

April 2014

The data shows very clearly that the vast majority of online shoppers believe user-
generated Ratings and Reviews are not only valuable for physical products, but could
also be valuable for Services (92%).

This highlights a much-overlooked business opportunity, because, as the feedback on
the following page indicates, users face a void of content when trying to evaluate
services online.

In our opinion, Service firms should rapidly introduce user-generated Ratings &
Reviews capabilities based on the favorable value perception. Additionally, they
should consider next-generation user-generated content such as Question & Answer
capability and Storytelling capability, because the intangible nature of services offerings
makes it relatively more difficult for users to comprehend the offering.
Exhibit 8
ARE ONLI NE USER- GENERATED RATI NGS AND REVI EWS ONLY
VALUABLE FOR PHYSI CAL PRODUCTS?

8%
92%
0% 20% 40% 60% 80% 100%
Only Valuable for Products
Valuable for BOTH Products & Services
Do you think online user-generated Ratings & Reviews are only valuable
for evaluating physical products (e.g. electronics, clothing, hotels, etc.) or
could they also be useful for evaluating services (e.g. dentists, doctors,
day-care services, etc.)?

Key Takeaways
From The Chart
Above

April 2014

Anything that can be reviewed, should be reviewed.

Both. In fact, services are a lot more subjective and not typically mass-produced and
have a lot of variance (e.g., was the Dr having an off day?)

Valuable for both. Consider Yelp.

Both, even more value for services.

Anything is valuable when you can understand the experience that other people have
had (i.e. yelp and "angie's list").

We all use word of mouth reviews for services, why not take the next step and put this
online.

For both. A great example is Angie's list. I am a member there.

Yes, even more so since services are generally less well-specified and much more
dependent on the general attitude and service-orientedness of the provider.

Angie's list is awesome, so services are at least as relevant as products for these reviews.

Probably even more important for services. When looking for a service provider, I give
much more weight to one that comes recommended versus one I know nothing about.

Reviews are valuable for anything that you are going to spend your money on.

There is no limitation as to where a written review could benefit the consumer. There
are a number of sites now appearing where consumers can post a review about a
service provide - babysitter, plumber, etc.

I believe user ratings would be even more beneficial for health care, etc., because when
you are seeking individual care you rely even more on other people's preference
opinions than when you are purchasing a product.

They would be INVALUABLE when evaluating services. I have been researching new
doctors and find this type of information is very lacking on the Internet today.

I check reviews for services, but don't always find as many as I would like. The "critical
mass" is missing from service providers.

They are valuable for nearly everything you can procure online from physical products
to travel destinations and even services. These are just another form of 'word of
mouth' which has always been viewed as one of the best marketing tools a company
can have.

Quotable Quotes:

Are Online User-
Generated Ratings
and Reviews Only
Valuable for Physical
Products?

April 2014

When trying to evaluate a product or service, online shoppers look for a certain
quantity of Ratings and Reviews in order to feel comfortable that a critical mass of
opinions exist.

On average, online shoppers want to see 40 Ratings / Reviews, but that doesnt tell the
whole story. The Median requirement is closer 18 Ratings / Reviews. Furthermore,
the data exhibits a bi-modal distribution, as 21% of respondents are satisfied with only
5 to 10 Ratings / Reviews, while 24% want to see 20 to 50.

The chart shows: If an online business wants to satisfy the needs of 90% of online
shoppers, then it will need each of its products and services to display 50 to 100
Ratings/Reviews.

We conclude that most online businesses will need to invest heavily in their user-
generated content, because many products and services suffer from a very under-
reviewed and under-rated status.

Exhibit 9
NUMBER OF RATI NGS/ REVI EWS NECESSARY TO CREATE VALUE FOR
THE ONLI NE SHOPPER
(Blended Average is 40, Median is 18)

1%
6%
21%
13%
14%
24%
12%
6%
2%
1%
0%
0% 5% 10% 15% 20% 25% 30%
Never Valuable
1 to 5
5 to 10
10 to 15
15 to 20
20 to 50
50 to 100
100 to 200
200 to 400
400 to 800
More than 800
When shopping online and trying to evaluate a product or service, how
many user-generated Ratings/Reviews are necessary to achieve "critical
mass" that you would view to be valuable?
Key Takeaways
From The Chart
Above

April 2014

In the prior question, we asked online shoppers how many Ratings / Reviews are
required to create value in the decision-making process; but the shopper might still feel
the need to leave the web site and seek out additional reviews on a different web site.
In this question, we ask how many Ratings / Reviews are necessary to prevent the
shopper from leaving the web site.

On average, online shoppers need to see 80 Ratings / Reviews to keep them on the
website. The Median requirement is closer 35 Ratings / Reviews.

The chart shows that if an online business wants to keep 90% of online shoppers on its
web site, then it will need each of its products and services to display 100 to 200
Ratings / Reviews.

Exhibit 10
NUMBER OF RATI NGS REQUI RED TO KEEP THE ONLI NE SHOPPER
ON THE WEBSI TE
(Blended Average is 80, Median is 35)

3%
13%
11%
14%
24%
15%
12%
5%
2%
2%
0% 5% 10% 15% 20% 25% 30%
1 to 5
5 to 10
10 to 15
15 to 20
20 to 50
50 to 100
100 to 200
200 to 400
400 to 800
More than 800
When evaluating a product on a web site, how many ratings must the
web site offer in order for you to say "This is enough ratings such that I do
NOT have to leave this web site to search for more reviews on another
web site"?

Key Takeaways
From The Chart
Above

April 2014

The vast majority of online shoppers (87%) are unwilling to pay more for a product
from a company that is very active in the various social media platforms such as
Facebook and Twitter.

This data reinforces the idea that consumers believe you cant trust the manufacturers
sales literature, no matter where it appears. In other words, the consumer will value
his friends opinions or random users opinions on Facebook and Twitter, but will not
be convinced by company-sponsored marketing propaganda just because it exists on
Facebook or Twitter.

In our view, online merchants would be better served by investing in infrastructure that
enables user-generated Ratings and Reviews on their own web site, rather than heavily
investing in a direct presence on Facebook and Twitter.

Exhibit 11
PERCEI VED VALUE OF ACTI VI TY I N SOCI AL MEDI A PLATFORMS
SUCH AS FACEBOOK AND TWI TTER

87%
13%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
No
Yes
Would you be willing to pay more for a product from a company that is
very active in the various social media platforms like Facebook/Twitter
etc?

Key Takeaways
From The Chart
Above

April 2014

56% of online shoppers will pay more for a product that has a higher quantity of user-
generated ratings, as compared to a similar product with a similar overall rating but
based on a lower volume of ratings.

Results of prior questions already demonstrated that strong user-generated Ratings and
Reviews features engender customer loyalty, drive purchasing decisions, and keep
customers on the web site. This question takes it a step further and demonstrates that
willingness to pay more can also be driven simply by providing a larger volume of user-
generated Ratings.

The data reinforce our view that businesses should ramp investments to stimulate a
larger volume of user-generated Ratings for their products and services on the Internet.

Exhibit 12
I NCLI NATI ON TO PAY MORE FOR A PRODUCT WI TH MORE RATI NGS

43%
56%
0% 10% 20% 30% 40% 50% 60%
No
Yes
If you have to choose between two very similar products that happen to have the
same rating (say, 4 out of 5 stars), would you pay more for the product whose rating
is based upon a significantly higher number of votes?

Key Takeaways
From The Chart
Above

April 2014

We asked 175 online shoppers Which web sites provide a high-quality Ratings and
Reviews Experience? Amazon.com came back as a clearly disproportionate leader
with 138 mentions. TripAdvisor was next with 18 mentions. eBay, Best Buy, Yelp,
Newegg, and CNET were also frequently mentioned.

Most online shoppers indicate that the factors that attract them to these web sites
include: 1) the volume of reviews; 2) a perception of honest and unbiased reviews;
3) the sense that the reviews are free of gaming by the manufacturers; 4) the ability to
review Sellers (i.e. on eBay) is valuable; 5) special features such as Real Name or
Top 100 Reviewer; 6) ability to review the reviews and have the most useful
reviews filter up to the top.

We dont think it is a coincidence that Amazon is viewed as an incredibly
disproportionate leader in user-generated Ratings and Reviews, and Amazon is the
clear standout in terms of scale/growth/profitability among all online retailers. This
clearly demonstrates the power of user-generated Ratings and Reviews to enhance
branding and engender customer loyalty.
Exhibit 13
WHI CH WEB SI TES PROVI DE A HI GH- QUALI TY RATI NGS AND
REVI EWS EXPERI ENCE

138
18
17
14
13
11
9
8
7
5
5
5
5
4
4
4
4
4
0 20 40 60 80 100 120 140 160
Amazon
TripAdvisor
Ebay
BestBuy
Yelp
Newegg
CNET
Sears
Consumer reports
Buy.com
TigerDirect
Overstock
Apple (Appstore / iTunes)
REI
Angieslist
Zappos
ToysRUS / BabiesRUS
QVC
Web site mentions for providing online shoppers with a high-quality
Ratings & Reviews experience
Key Takeaways
From The Chart
Above

April 2014

Amazon - pure mass of ratings. The reviews are also typically more thoughtful, because
Amazon incentivizes users to use their ""Real Name"" or be a ""top 100 reviewer""-
ostensibly it provides the reviewer with a sense of pride and thus, is more likely to be
thoughtful in crafting a review. Additionally, the exposure of the reviewer's region
(e.g., Mobile, AL vs. NY, NY) is very helpful. What's helpful to someone in a
particular geo/economic region is a good thing for me to compare against. Other sites
that use Facebook Connect authentication, so that the reviewer can't hide behind an
anonymous handle are helpful.

Zappos - specific details about fit, width, etc of shoes; Amazon.com - great robust
review system; TripAdvisor - excellent community for review of hotels.

TripAdvisor, Amazon. These sites have uses that give well-thought-out reviews.
TripAdvisor offers rewards to members who give reviews, thereby getting the critical
mass necessary.

eBay - for rating sellers.

Amazon.com, Buy.com, tigerdirect.com --- all of these sites uses Ratings and Reviews ,
as well as suggests alternative products.

Recipes.com - Their rating system is the best and they also include reviews from people
that have tried the recipes and added their own flavor. I think this is one of the best
combinations.

Amazon does a nice job of showing ratings and user reviews (I like how I can see the
reviews where people have denoted them as valuable).

Newegg.com for the technical user community and amazon.com for the critical mass
and large numbers of users.

Amazon presents the best and worst reviews side by side, makes it easier to see the
extremes people have experienced

Amazon, Parts Express, Crutchfield. They are very customer oriented and typically
have enough reviews that it is obvious they are real users.

Askpatient.com has a great review of prescription drugs based on a 1 to 5 rating.
Extremely valuable information.

eBay: controlled for positive and negative reviews on sellers (not products). Amazon:
user experience and ratings along with manufacturer and site reviews.

Amazon does a great job--I like the way that they invite you to review things by
actively soliciting your feedback--by making it easy to provide feedback, they get lots
of responses.

Amazon.com has a fantastic rating system that is well-moderated (the fact that other
customers can "review the reviews" is important because they can help me determine
which reviewers are too positive or too negative - they also help filter the good reviews
to the top).

Quotable Quotes:

Which Web Sites
Provide a High-
Quality Ratings and
Reviews Experience

April 2014
CUSTOMER/PARTNER DUE DI LI GENCE SESSI ONS

We engaged in detailed discussions with many Bazaarvoice customers and technology
partners to gather feedback regarding their reasons for selecting Bazaarvoice, their
evaluation of the product, customer satisfaction levels, opinions about the company,
current and future levels of spending with Bazaarvoice, competition and other qualitative
information. The following section provides key takeaways from 11 customer and partner
conversations and consists of customer and partner feedback, our interpretation and
analysis, and information gathered from other inputs.

Exhibit 17
SESSI ON #1 ( PARTNER)
A Consumer-Centric Advertising Agency

Role
Agency of record for a lot of in-store interactive experiences at a large Bazaarvoice customer, and
works with another large Bazaarvoice consumer goods product company.
Bazaarvoice uses them to bring Ratings & Reviews to brick-and-mortar locations, whether on a
touch screen interactive display, or on a mobile device, or in other ways.
Bazaarvoice already had the relationship with the large customer, and this contacts company had the
idea to use the customers API for pulling Ratings and Reviews off the Web and putting them in the
store.
Feedback on in-store
Ratings & Reviews
Uses in-store Ratings and Reviews for the large Bazaarvoice customers laptop and desktop
merchandising. They make Ratings and Reviews available for the products on display.
Using a the touch-screen interactive display in a pilot at 48 stores. Metrics theyre using internally for
measuring the effectiveness is that engagement times between sales personnel and consumers has been
reduced to 10 minutes from 30 minutes, although this is a function of multiple things.
Why is Ratings &
Reviews different in a
store versus an
ecommerce site?
The investment is significantly different to outfit stores with touch-screen displays, so the overall
spending is larger. Conversion is not the top priority, but rather operational efficiency.
The reason for doing this is labor efficiency, to make the investment in the hardware worth the cost.
However some retailers see interactive touch-screens as a non-starter; they think it cant be scaled
well.
Bazaarvoice API
That[Bazaarvoice API] is where monetization can take on new forms beyond the traditional pricing
models that Bazaarvoice has for their platform currently.
Bazaarvoice should be monetizing their API calls. So if they open up their API to let a network of
people get access to Ratings and Reviews content, and can deal with the syndication of that content
with their client base, then they have a new revenue opportunity through monetizing their API calls.
Other use cases
Worked with the Bazaarvoice labs team to create an API application.
Created a fictitious retail brand mobile app where you could basically walk up to any product in a
retail setting, pull up the app, scan the UPC code, and then see Ratings and Reviews for the scanned
product.
This helps the consumer at the point of purchase to know whether the product will do what it says it
will do.
Areas for improvement
Bazaarvoice has been growing very quickly, and therefore some of the things that agencies and
marketers want to do to stretch the limits of the platform have been difficult to accomplish. Its hard
to get a collection of folks in a position to make changes occur.
Other opportunities
around Bazaarvoice
platform?
Marketers are looking at creating inbound marketing opportunities. Rather than traditionally
pushing out messages at targets, they want to create more immersive experiences that draw people in
and result in more traffic.
Inbound as a concept is where were seeing marketers spend more.

Source: Piper Jaffray Customer Due Diligence

April 2014

Exhibit 18
SESSI ON #2 ( CUSTOMER)
A Large Computer Retailer

Role
Has been in ecommerce for last 18 years, and with current employer for five years.
Focuses on social commerce and user-generated content programs, meaning customers point of need,
for all segments globally.
Tries to decide on the experiences a customer should have, and of how to build tools and experiences
to help customers make purchasing or technology decisions on the site that might require data from a
social or user-generated experience.
Implemented Bazaarvoice Ratings & Reviews in 2006, and has been managing that since.
Why did you select
Bazaarvoice?
As far as vendor maturity goes, it was extremely early.
In 2005 and 2006, Ratings and Reviews were pretty prolific on some websites. Wanted to get customer
testimonials and reviews on the site when he started with his current employer.
At the time PowerReviews was very small, and Bazaarvoice was a little bit bigger.
At the time PowerReviews was built on an advertising model, and Bazaarvoice wasnt. Saw a lot more
stability with Bazaarvoice.
90% of the decision makers wanted to get a third-party application. Decided not to build it in-house
from a prioritization perspective, which would give them a chance to influence the product roadmap,
given their size relative to Bazaarvoice.
How did your use grow
since you first
implemented it in 2006?
Started off at a very simple implementation of getting Ratings & Reviews on a few of their accessory
products, because people were nervous about the feedback they would get on their core products.
Started in Europe.
Had some success, then quickly added it to more accessories, then added it to core products in the U.S.
Added it to a very popular product, then extended Ratings & Reviews across the U.S. and to more
products.
Has 15 languages in 66 countries with Ratings & Reviews.
Quality of Ratings & Reviews monitoring remained high among all language implementations.
Tools show any type of gaming of the system.
Has implemented Ask & Answer over the last year in English, and will soon add Chinese, German,
French and Portuguese.
How do you use the
Ratings & Reviews
feedback?
Mined content to build a better mousetrap, such as a better product. All reviews are circulated among
product teams, which have a rating threshold requirement. Ratings & Reviews helps them find
elements and issues keeping them from this threshold.
Has been doing this for 2.5 years now.
If there are customer service issues, any review below a certain number of stars will be contacted by
the company to help resolve the issue before they share their experience on other social media.
We use Ratings & Reviews for a lot of different things across the site.
Whats the great value
to your organization
from Ratings &
Reviews?
From a customer perspective, from the way a site is designed today, it needs to voice many different
types of opinions, from manufactures, expert third parties and peers. We have found upon
engagement with Ratings & Reviews, our conversion and the revenue per visit of those who interact
with Ratings & Reviews is higher than the average site visitor who converts.
[Customers] are finding the information that they need to make a decision.
We are building better products because of what our customers have to say.
You cant ask for a better focus group of real customers independently submitting content. Id say
thats probably the most impactful thing from a business perspective.
How do you take
advantage of the
syndication
capabilities?
Thats really the value of Bazaarvoice. The value comes with the network, with how much content
they put in the network, and how big is the syndication web.
Brings in content from third-party manufacturers. Would like to see Bazaarvoice spend more time
there to get additional languages. They are just at the tip of the iceberg.

April 2014

Exhibit 19
SESSI ON #2 ( CUSTOMER) , CONT D.
A Large Computer Retailer

Any improvement
needed?
To handle large customers with many segments and operations in many languages and countries, his
company pushes the boundaries of what Bazaarvoice can do.
Sees this as an opportunity for growth for Bazaarvoice to improve their enterprise capabilities for
things like requirements gathering, to road-mapping and executing a plan.
How hard would it be
to switch to a
competitor?
Technically, it would not be difficult to switch, as long as you have the data.
As you get more and more in depth into their tools, it gets pretty sticky after a while and its harder to
make that jump.
It would be at least a 12-month migration where his company stands right now.
Thoughts on customer
intelligence product?
In terms of a an improvement in analytics, this is a step up for the typical Bazaarvoice customer.
The functionality has to get down to sentiment analysis, and the algorithm to get to this is pretty
robust on something like with Radian6. Omniture is getting into this as well. The question is how is
Bazaarvoice doing sentiment? Looking at the product on a peripheral level, he hasnt seen a lot of
detail around that algorithm.
How many reviews are
enough, and not
enough, for a given
product?
I dont get push back for too many reviews, ever.
But there is a certain point where there are too many, but they rarely get there because of frequent
product refreshes. Tends to have a couple of refreshes a year where they start over on the review
volume.
The minimum number of reviews for a great customer experience is approximately 12. That gives
you a pretty good cross section of what customers are looking for.
The volume of reviews depends on how websites sort the reviews, either by date, usefulness, rating,
etc. For example, if you dont have a lot of new content, then the user base might not have a lot of
confidence in the product reviews.
Internally, how much
turnaround success can
be attributed to
Bazaarvoice and what
your team is doing with
it?
A lot of it has to do with the change in the way that we operate. We put our customer hat on first and
are listening first.
Using a customer voice in their marketing and merchandising, those are things that help them create a
perception around their brand that they are all about how customers think about them, perceive them,
and use their product.
Bazaarvoice content and functionality derived from their product has [definitely been] a catalyst in
how we measure our success.

April 2014


Exhibit 20
A Large Well-Known Travel Booking Website

Role VP of Site Experience. Looks after customer experience, design and product management.
Reasons behind
decision to select
Bazaarvoice
Used to just collect survey feedback from customers after a purchase, and then display that feedback
for future customers to see.
Was in a buy versus build scenario. Looked at what it would take to build something, and what their
competitors were using and doing, and what solutions were in the marketplace.
Finally made decision to go with Bazaarvoice because they have a very advanced platform beyond just
reviews, such as Ask & Answer, to link customers and suppliers with support staff, and Stories.
It only took them 8 weeks to go live the Ratings & Reviews, has they have rolled out additional
products over the last year. They rolled out the products in phases to make sure they were ready to
support it. This also made it faster to get the first product out.
Customers love user-generated content because its fresh.
What other vendors did
you consider?
Looked at PowerReviews, but there was no one with the capabilities that Bazaarvoice had.
How will your
spending on
Bazaarvoice change?
Expects spending to go up a little bit, but hes worked at other places that have used Bazaarvoice and
seen spending grow quite a bit. Bazaarvoice tends to add products and functionality that isnt too
costly, but over time you realize that you spend more money with them.
This year, we probably added from when we initially signed [the contract] in December, we probably
added 15-20% in incremental revenue onto the contract. This was over the period of approximately
six months.
Contract
Bazaarvoice had his company look at page views and where the review information would be placed
on the website.
The other big item that Bazaarvoice looked at is what the company thinks their volume of reviews is
going to be. Bazaarvoice is often better at estimating this than the retailer is, based on their experience.
This customer currently got about 100,000 reviews annually on an old platform, but increased that by
10 times after moving onto Bazaarvoice, which was in line with their expectations.
But having done contracts with Bazaarvoice at a number of employers, they definitely have a set fee
they want for the product. This enables them to recover their cost because they have a fairly significant
amount of data on Akamais network, and they pay for people to moderate the content. So they have a
proxy for what the cost of that is, and include it in what they want to get for the product.
Challenges going live?
The biggest challenge was how to get old review data into the system, which had to do with how they
stored data in the past.
What impact has
Bazaarvoice had?
We can definitely see a conversion lift of five to 10 basis points overall.
Comparing people who do and dont engage with the social commerce platform, its about 9% spread
in revenue.
How has Bazaarvoice
evolved in the various
roles youve had using
the product?
Its been a very collaborative approach. At a former employer he took the Ask & Answer product and
made it more of a category level discussion. There was a partnership between Bazaarvoice and
retailers to help find out what was really going to drive a retailers business conversion, versus
demoing a product and trying to push it to everyone.
They partner with retailers to test and develop, and then productize it.
Where else could you
use Bazaarvoice, in
addition to core
product?
Started out with Ratings & Reviews, Ask & Answer and Stories for their own products.
Will soon get to the point where users can follow each other, to make it a real social commerce
platform.
Plans to take their product to the destination level, starting with Ask & Answer and Stories, meaning
users will be able to review places theyve visited.
Also wants to launch an area where users can review airlines, hotels and cruises.

April 2014

Exhibit 21
A Large Well-Known Travel Booking Website

Is there anything that
hasnt lived up to
expectations?
Bazaarvoice is probably one of just a few companies in the Internet space that I would trust with my
life.
Theyre always there. Theyre always available. If something goes wrong at 3 a.m. theyre typically
there before your IT group is on it.
Ive made a habit in my career of going into ecommerce companies that are in bad shape from a
market perspective and turning them around, and Bazaarvoice is typically one of the first few
companies I call on to come in and give me a hand.
How hard is a rip and
replace?
From a technical perspective, if there was someone else that had a solution that was better, turning
off JavaScript and inserting something else would be fairly easy. But from an experience perspective
and how embedded theyve become with our business over time, even in this short time, I think it
would be very difficult because were starting to rely on that data more and more.
Have you looked at
Bazaarvoices analytics
product? Where would
you use it?
Theyre coming out with an advancement moderation tool for filtering data and looking at customer
recovery to improve bad experiences.
Theyre having a conversation about review conversion, and doing advanced capability analytics to
understand what kind of review is most valuable, such as photos or particular content is of more value
to a website. Theyre trying to attach value such as A review with five photos is worth X amount of
conversion or EBITDA.
Another thing Bazaarvoice does a good job of is integrating into click stream analytics. It will help you
get a an understanding of whats triggering conversion, and how is that social content helping drive
conversion. Theyve got a whole lot of stuff coming out in that area.
Are you trying to take
data from multiple
sources to provide
better
recommendations for
customers?
Still trying to figure that out.
Experimenting with linking to users Facebook accounts. This gives users the option to see any friends
reviews on their website. When a user gets their friends to sign in via Facebook, they can interact with
them.
Will be introducing polling measures by firing out an inquiry to your whole social network, or just a
few people, and saying Here are three products Im looking at, whats your feedback? Behind the
scenes they can capture all of this data to continue to build on it.
Could PowerReviews
get to Bazaarvoices
level?
PowerReviews initially had a free model, and they would make money off of the review content.
Theyve gone away from this business model now. Their product isnt anywhere near the Bazaarvoice
product.
If you just look at the customer base Bazaarvoice has today, its just got that mass scale of what I
would assume is very strong revenue to allow them to continue to develop their product. But its also
the volume of reviews theyre getting, so when they want to test something and evolve something,
theyre doing it on such a large scale that allows them to get traction.
I know from talking with some PowerReviews customers that they either have or are considering
switching over to Bazaarvoice.
Its hard to say what PowerReviews plans are. I think it would be very difficult for them to catch
up.

April 2014


Exhibit 22
A large US Wireless Carrier

Role
Manages all the user-generated content on their website.
Interfaces with Bazaarvoice on a daily basis.
Primarily uses Ratings & Reviews, but looking to launch two or three more products.
Has been using Bazaarvoice since 2007, before she started.
I love working with them. Theyre a truly wonderful partner of ours.
How broadly is
Bazaarvoice used?
Uses it on consumer products and accessories. Looking to extend it to other lines of business. Also
looking to launch Ratings & Reviews on all videos and tutorials.
Evaluating Ask & Answer so customers can get responses to questions from customer service reps as
well as the user base. Were in the final stages of implementation now.
Also working on a project which allows all Ratings and Reviews to be followable for search. Were in
the final stages for implementing this as well.
Pricing structure:
volume, one-time fee?
Its a little bit of both. Has a set fee for implementation and monthly service fee. Also pays for volumes
on each product, and our cost increases as our volume continues to grow.
Do you syndicate back
and forth between
manufacturers?
Exploring syndication right now, where reviews go back and forth between her company and the
manufacturers. Looking at potentially involving manufacturers with the Ask & Answer product.
Also exploring advanced content tagging, which is where Bazaarvoices moderators tag review for
particular content, to get good, valuable feedback from customers and send it back to their
manufacturers.
How has your spending
trended with
Bazaarvoice?
Has an annual contract, and are working on a couple more things right now.
As Bazaarvoice is rolling out more functionality, were absolutely taking advantage of it and continue
to spend with them.
How do you measure
the success of
Bazaarvoice?
The most important thing is how do Ratings & Reviews increase the conversion rate, and what is the
conversion rate of people who read reviews versus people who dont read reviews. Cant share specific
numbers but does see a lift in conversion rates based on people reading reviews. Thats the most
important metric.
Has a reviews sweepstakes right now to get customers to write more reviews. More volume is
important. Wants to have more ways for customers to write their reviews, help customers understand
who is writing the review, which helps customers make more informed purchase decisions.
How easy or hard is it
to get users to leave
reviews?
Gets a very significant amount of submission volume, but was getting a significant amount before
beginning the review sweepstakes. Bazaarvoice saw so much success with other customers doing it, so
this customer decided to do it as well. The lift has been incredible.
Were really just starting to see more and more high quality content from our customers.
Is there any room for
improvement?
Theres one tiny complaint on my end, but its us, not them. We use Webtrends for reporting instead
of Omniture, and Bazaarvoice doesnt have Webtrends reporting available to us. That would be the
only thing that at times is frustrating.
But its so minor and theyre working on fixing it for us, which is, I think, a testament to how great
they are. Anytime we need anything, I never hesitate to ask, because if they dont have it, theyll make
it for us.
Has rolling out other
products been difficult?
No, not at all. In fact when it was decided that the customers could roll out Ask & Answer, she
brought it up to her account manager and went through what she wanted out of it, and within a week
Bazaarvoice built the entire functionality that the customer wanted from it.
Its amazing and impressive how quickly they get things done over there. Working with them is a
wonderful experience.

April 2014

Exhibit 23
A large US Wireless Carrier

How do Bazaarvoice
and Lithium work
together?
Uses Lithium for all community forums. Has been working with both companies to incorporate
community content into Bazaarvoice Ask & Answer. The relationship is just beginning to grow.
Trying to figure out how to partner Bazaarvoice and Lithium as far as monitoring Ratings & Reviews
content and also community content.
Converging these platforms into a single vendor is something on the roadmap, but shes not in the role
to make that decision. This customers strategy team is working on which vendor will be most
effective at monitoring all user-generated content, regardless of source.
I dont know if this will happen in the next two years, but were working on it.
Is it possible to gauge
social media spending
versus total marketing
spending?
What she spends on Bazaarvoice is significantly lower than the advertising and marketing spending in
her division.
Measuring ROI with Bazaarvoice is very important. Without getting specific, I can tell you we have a
great ROI with Bazaarvoice.
What % of total social
media budget goes to
Bazaarvoice?
Social media team is a virtual team, which means my boss and I represent social media for ecommerce,
but also have a social media team for customer care, PR, etc. Works very closely together, but as far as
a company-wide social media budget, thats not something she can speak to.
How effective if your
Facebook fan page
versus Bazaarvoice?
Facebook is managed by the corporate communication agency and the digital marketing team. They
get measured very differently and the two dont compete for resources.
Facebook is a brand awareness mechanism and is more analyzed by clicks.
What they doing with Bazaarvoice is truly different. Its all about conversion.
Its pretty hard to compare the two, but they definitely dont compete budget-wise.

April 2014


Exhibit 24
A Social Marketing Platform

Role
SaaS social marketing platform. Helps about 500,000 companies manage their marketing efforts
primarily on Facebook, but also on mobile and some international social networks.
Three core products that dovetail with Bazaarvoice: a marketing application with 30 pre-built
applications that allows brands to create engagement with customers. Has a developer toolset that
allows brands to customize those applications. Third product is a monitoring and publishing
measurement dashboard that enterprise brands will use to manage all of their applications and
engagements they create with customers across all of their websites.
Describe your
relationship with
Bazaarvoice
Began with Bazaarvoice in mid-2010. Saw a desire from their customers for third-party applications.
Vision is to work with best-of-breed vendors to bring their applications and functionality into their
platform and then into Facebook and other social channels they enable for their enterprise customers.
Saw exciting opportunity to enable retail and brand customers with social commerce types of
applications. Though it would be better to partner with Bazaarvoice rather than build something.
Uses Ratings & Reviews as well as Stories, and builds extensions of those products into their platform.
Bazaarvoice is about 10% of their revenue
What has the trajectory
of the products being
sold jointly, and where
do you expect that
trajectory to go?
I could see the revenue to [us] easily doubling over the next quarter, and then tripling or
quadrupling over a couple of quarters in 2012.
Who has responsibility
for running each
platform?
Bazaarvoice runs the APIs that they built and that relate to their core product.
Bazaarvoice maintains frontline customer support and responsibility.
The company is responsible for their own APIs.
Are there any software
companies you work
with that do what
Bazaarvoice does?
The deal is structured such that theyre not permitted to develop a similar product.
Works with a growing number of third-party developers similar to Bazaarvoice, like Get Satisfaction.
How is Bazaarvoice to
work with?
Im a big fan of the company and a big fan of the management team.
The working relationship at a project execution level has been pretty good. Its very difficult to do the
type of work were doing with Bazaarvoice.
From a product development and engineering point of view, Bazaarvoice have a lot of work to do.
What is Bazaarvoices
strongest asset?
Their customer relationships are their greatest asset, specifically in the context of enabling the brand in
the social web with the marketing department and agencies that support them.
Enabling these brands in the social web in the context of ecommerce is huge. The brands that work
with them, and think about how their business is evolving in the social web, they look to Bazaarvoice
as the end-to-end enabler to make that transition happen.
What does Bazaarvoice
need to improve its
product?
They have a very small engineering team relative to the size of their company, and they spend as a
percentage of their OpEx, a very small amount on R&D. Their strategy of investing in S&M first and
R&D second has worked for them. But in terms of actual product, its really just their Ratings &
Reviews product thats very popular amongst their customers, but its not a terribly complex product
to deliver. They really need to start building out their product development team. The need to develop
IP thats more differentiated and is higher value than what theyre doing today.

April 2014

Exhibit 25
SESSI ON #5 ( PARTNER) , CONT D.
A Social Marketing Platform

Who owns client-
generated data?
Most of the data generated by users interacting with Bazaarvoice products on Facebook is owned by
Bazaarvoice. In those cases we dont even see that data.
Competition
Hasnt seen a great deal of interest from other companies thus far in getting into this market.
Bazaarvoice seems to be the company that everyone is familiar with.
There is interest in customers in getting Ratings and Reviews to generate transactions. This is pushing
other providers to think about developing a similar product.
Wouldnt surprise me if someone like Buddy Media decided to do this.
Companies looking at enabling retailers on Facebook might look to do some sort of customer
engagement that increases transactions.
ROI examples or case
studies?
Very early in lifecycle of retailer enablement on Facebook, so the objective thus far has been getting a
presence and creating engagement, so we dont have a hard ROI yet.
Has seen other ROI scenarios, for example coupons on Facebook that the contacts company has
powered. This will change, but not in the next six to 12 months. Expects hard ROI in12 months or
more.
App sells for $36,000 a year, so its nothing to some of the large brands, its just another branding
opportunity, and they dont require a hard ROI.

April 2014


Exhibit 26
A Large Quick Service Restaurant

Role
Works in the digital marketing side for his company, which includes the e-commerce site and all the
other platforms that drive traffic into that site, such as social media, mobile marketing, paid search,
etc.
His boss, who had utilized Ratings & Reviews in some of his previous experiences, took the initiative
to bring Bazaarvoice into the company after he came to know about it in a social media conference.
RFP/Selection Process
There was no selection process. It wasnt even a question. They are considered the Best-of-Breed
within that space. Based on his bosss interactions with some other clients of Bazaarvoice that he had
previously worked with It was a pretty simple decision for us.
Majority of the work was around determining the best model and how it would fit into the platform.
Products currently used
and plans to use other
Bazaarvoice products
Currently using Ratings & Reviews.
Wants to expand beyond leveraging only Ratings & Reviews, but constrained by their own platform.
Issue is around implementation and the dynamics of staff that they are working on internally. Built the
online ordering platform in-house, which required a complete rebuild. Plans to nail it before adding
any significant new functionality. Its a 100% internal issue. Implementation to a client from
Bazaarvoices perspective is incredibly easy and seamless. Its just a resource problem on our side.
Started using Ratings & Reviews with a certain product around September or October 2010 and now
every time we roll out a new product we make sure we include Ratings & Reviews. Launched Ratings
& Reviews with another product in early 2011 and there are a few more coming.
Some of the social things we find incredibly interesting
Negotiation around the
volume based contract
Did a bunch of work around the order volume coming through the platform. Were very comfortable
with the volume since it is very consistent and doesnt change drastically.
Payment Structure
Transactions volume is very different than most sites. Thinks that they are the 3rd highest
transactional site in the US. Does close to 800k orders a week coming through the platform. So, based
on a volume model with Bazaarvoice.
Pays quarterly but have an annual agreement.
The contract is based on total number of reviews moderated or submitted. Have 5-6 buckets/tiers of
submission volume and then have a rate based on those tiers.
Probably using an older model, as he thinks Bazaarvoice no longer signs contracts based on volume.
Currently the products that are using Ratings & Reviews are about 15-20% of the mix and so not
much of an issue from the volume perspective since it has been pretty consistent. But when Ratings &
Reviews will be extended to the higher volume products, thinks that the payment structure would
probably have to be re-addressed, since then the volume would be way above what we can afford as a
client.
Bazaarvoice Spending
Incremental or coming
off of traditional
market research/ad
spending ?
Comes out of the digital bucket. Started as incremental spending and now considered a normal bucket.
Was incremental initially because then it was not planned. Now, the customer plans for it every year.
Spending
Staying consistent with the original commitment as of 2010 since the products used now will not
exceed the volume commitment agreed upon initially.
Adding additional services like some of the social tools will require an increased spend, although the
timing is uncertain.
We certainly dont see our relationship going anywhere but increasing with them.
Roadmap with Bazaarvoice as of now includes adding Ratings & Reviews in the non-customizable
product lines as well as to any new national product launches.

April 2014

Exhibit 27

Evaluating ROI
Launched a premium product in the early part of 2010. Leverages Ratings & Reviews to get a broader
understanding from a consumer perspective of what the product actually was and what customers
thought of it - we thought [Ratings & Reviews] was an excellent way to increase mix and
awareness. Went national with the new line in late 2010 and wanted Ratings & Reviews on the site
before going national on TV. Missed that launch due to internal execution issues and were able to get
it live mid way through the national window. Saw a 9-10% point increase in the % of orders that
included this new premium product. Furthermore, after the ad campaign ended, online orders dropped
a little bit but not nearly to the point that the phone orders did. So, its [Ratings & Reviews]
definitely driving an increase in mix of that product line.
Another product was launched earlier on the digital platform and Ratings & Reviews was live on the
site a couple of weeks before they went on national TV. And within two days, we were getting a
significant number of reviews coming in that were pretty much telling us that we needed to make some
changes in the product. So, the customer immediately pulled as much as information as possible from
the customer reviews and started tweaking some of the aspects of the product in order to be in a better
place before the TV launch. So, you could easily say that Ratings & Reviews provides us a good
litmus test before we go national, on what the consumers are really going to say outside of the
qualitative and the quantitative research we would do before hand.
When the customer started with this launch, ratings were in the low 2s in terms of ratings out of 5
stars. Didnt drop any of those low ratings. Right now averaging around 3.3 for this product line. It
takes several weeks for the numbers to change significantly.
Opinion on Ratings &
Reviews adoption
among other Quick
Service Restaurant
It fits really well into our brand and our brand message right now as far as being transparent and
studying customer needs. I also like to think because we are the first one, we are also smarter than
everybody else.
I havent found any issues and dont know why others wouldnt adopt this.
It provides incredible knowledge before you go national with a product and if you do it right, it
allows you to tweak what you are doing based on true customer feedback.
It increases mix, of whatever you are promoting, as customers can learn better and understand what
they are purchasing.
Hasnt run into any problems as far as system adoption or frustration within the franchise
community.
Its all been very, very positive and so why other brands havent picked up on that within my space, I
am not quite sure.
Other ways of using the
Ratings & Reviews
data
A significant amount of the negative feedback received through Ratings & Reviews is around the
customers service component, and delivery is part of it.
Currently, doesnt post the service-related reviews on the site so as to keep it focused only on the
product, but dont delete those reviews either. Any reviews on services are pulled in and negative
services reviews are routed into the internal customer support process in order to reach out to that
customer. Also, involves taking the issue directly to the franchise and asking the franchise to resolve a
concern on their own.
Has just started doing this not too long ago. We are seeing a nice lift in return visits and increasing
loyalty, which you would expect to see obviously when you solve a customer complaint.
Its definitely providing us with better insights regarding whats going on in the system. It is a nice
add-on to the existing structure [of other ways of tracking customer satisfaction].
Bazaarvoice does the first layer of moderation followed by tagging by the customer. There are lots of
categories that the reviews fall under including those around pure services. So, whenever its related to
services, the review is pulled off and is sent to customer service to follow up.

April 2014


Exhibit 28

Points of improvement
They are constantly trying to push us to try new things but slowed down solely due to internal
resource constraints.
Works with 7-8 agencies on a daily basis. Bazaarvoice is definitely best of breed within that group.
Is there a critical mass
of the number of
reviews for the content
to be directionally
relevant?
Critical mass would have been important if there were a couple of hundred reviews. We probably
have 25-30k reviews already between the two product lines we are on.
When the customer started with one brand before going national, it had several hundred reviews in.
And once you start getting it, it doesnt change much. What you see with 15 reviews is going to be
consistent when you get up to 1500, unless you have significantly changed your product.
Steps taken to stimulate
reviews and ratings
Starting to leverage reviews in the digital space. We put them on display ads, we put them in email
and highlight things people have said about the products.
Saw 2-3% increase in the open rate when reviews were included in email marketing. You cant 100%
say that its because of Ratings & Reviews; we completely changed our creative approach.
If anything, it provides another item to talk about with our customers.
Doesnt allow reviews to be written without purchasing the product.
How did you measure
the effectiveness of the
changes made to the
product based on initial
reviews?
Doesnt have a quantitative approach of doing that and it is more subjective.
If anything, I think we probably saved ourselves from a mess.
Doing Ratings &
Reviews in-house
Has some review process in-house. Ask a lot of questions during the purchase process which doesnt
use Bazaarvoice and gets fed directly to the store, and are more around service and experience and not
necessarily around the product.
I would not foresee bringing what we are doing in the product side, in-house because there is no-way
we would be able to manage the moderation internally. Just from a resource perspective, it would not
make sense. There is no way we will be able to do it as efficiently as what we get through Bazaarvoice.
And if we send the product related reviews to the store, they wouldnt be able to handle the volume.
Executive management
engaged with customer
reviews
It [customer reviews] goes all the way up to the CEO.
Facebook Vs.
Bazaarvoice
We are heavily involved there [Facebook], obviously, like many other brands
However doesnt use Facebook as a sales driver, but only to increase engagement with customers,
increase awareness and promote transparency.
Doesnt see his company getting into allowing customers to review its products from Facebook, since
customers cannot review a product without actually buying it. However, open to looking into ways of
displaying existing reviews along products on Facebook page.

April 2014

Exhibit 29
Software Development Provider in Eastern Europe

Relationship with
Bazaarvoice
Has been working with Bazaarvoice since July 2005.
Strategic partner of Bazaarvoice and have grown together. Team of 70 people working with
Bazaarvoice.
Works with BV mainly in two aspects engineering/operations and customer support. Customer
support is mainly around technical customer support and implementation support and constitutes the
largest part of the operation in terms of employees. .Engineering team works with the BV counterparts
on software development. The operations team helps manage the different BV environments, periodic
deliveries, and customizations and so on. Another important aspect of the engineering team is a focus
on quality assurance.
Any particular product
developed
Most of the work from an architecture point of view and product roadmap point of view is done by
Bazaarvoice.
Only helps to create small components in cooperation with the Bazaarvoice developers.
Not involved in R&D.
Is it an exclusive
contract with BV?
It is not an exclusive contract to Bazaarvoice.
Bazaarvoice doesnt have many competitors.
Financial Structure
Its not a flat rate.
Rate is based on time worked per month. It is different for different roles.
Bazaarvoice pays them monthly.
When does a customer
reach you when looking
for tech support?
This partner is the first line of support for customers in Europe only.
For US, only provides technical work and doesnt interact directly with customers.
Perception about
Bazaarvoice
My perception is very good. Has had steady growth all these years.
Great business to work with.
View on Bazaarvoices
Technology
Based on his assessments a year ago, thinks that Bazaarvoice technology complies to the level 4 of SaaS
maturity level. So, from a technical point of view, it is in a very good shape.
Thinks that Bazaarvoice sticks to the schedules for product launches. Cant remember even one issue
when new functionality was not put into production on time.
Price Charged to
Bazaarvoice
Price is increasing every year as the team is constantly growing. Has grown from 2 people in 2005 to 70
people now.
Pays low-to-mid single digit million dollars per year.
The headcount might increase by 8 additional people in FY2012 going toward to support.
Most of the growth seen in the last two years in terms of headcount is in the support side and
development team has been fairly constant in size.

April 2014


Exhibit 30
A Big US based Conglomerate

Role
Global Director of e-Commerce and e-Marketing. Looks after the all e-commerce initiatives across the
company.
Role involves planning the digital strategy for the company and work on its execution by putting the
infrastructure and programs in place, globally.
Relationship with
Bazaarvoice
Has 29 different digital touch points with the consumers, and reviews is just one of them.
Before Ratings & Reviews, had matured the email marketing campaign such that the company was
able to pull in email reviews from consumers, which signaled to the company that the consumers want
to be engaged. Next, the company switched on social listening to listen to customer conversations
related to keywords took 90 days to build it and roll it out for two brands.
First project with Bazaarvoice commenced in September 2010 with a particular brand. It was a single
product adoption and used Ratings & Reviews. Goal was to get it integrated with the core web
architecture and to train the marketing team to make effective use of the Bazaarvoice product. Hadnt
looked at syndication at that time, and Ratings & Reviews was supposed to live only on the
companys web property and nowhere else.
In Spring 2011, conducted a broad scale analysis of the social media landscape in association with
Forrester to understand how customers are interacting with the company. From that it was
determined that the best thing that we could do was really adopt the platform that Bazaarvoice had
across all of our brands. Was surprised that the only two players offering products that it could adopt
were PowerReviews and Bazaarvoice. Then, looked at the second set of criteria how many of our
channel partners have switched on using Bazaarvoice it was practically all of them using
Bazaarvoice to syndicate reviews. Thats what triggered the decision to adopt them.
Growth in Spending
Certainly well continue adopting this in more locations around the world.
Has signed an agreement to expand the use beyond the US. International expansion should take 12-18
months.
Beyond that, the customer is looking at more innovations with them. One of the areas of interest is
how to get reviews into the stores.
Spending:
o In 2009, total investment on Bazaarvoice = ~$31K for one brand.
o In 2010, total investment on Bazaarvoice = just under $500k.
o In 2011, Spending on Bazaarvoice = ~$870K in US and ~$110K internationally.
o In 2012, as geographic expansion continues, expect the spend to move towards $1.5-1.6M.
Pricing
Last year was paying feature by feature and brand by brand.
Now closer to negotiating a single fee for all the functionality and features for a country.
And just for perspective, the amount we are spending with Bazaarvoice far surpasses what we are
spending with Epsilon, with Radian6, with Context Optional and a whole bunch of other vendors that
we use. So, they are an expensive partner, but in my opinion, its worth it.
As a company, aspiring to spend 1-1.5% of total sales on digital marketing.
Current Usage
Currently, uses Ratings & Reviews, Ask & Answer, Stories and brand syndication.
Currently, using the platform across 17 brands, predominantly in North America. Working on
International expansion; already rolled out in Mexico and is work in progress in Brazil, Chile and
Australia, which should go live in the next 45 days.

April 2014

Exhibit 31

Experience with the
Product
The key point was not the Technology. I think the technology is very robust. Bazaarvoice is
integrated within the core platform. Bought Bazaarvoice as an API and we are able to architect
around it to integrate it with other internal social initiatives. We didnt have lot of technical issues.
The bigger challenge has been to inform the customers initially about the new capabilities regarding
Ratings & Reviews and to motivate customers to leave a review. Designed a number of marketing
initiatives such as sweepstakes, contests, etc., incenting consumers to make them want to leave a
review, analyze those reviews to see what kind of brand sentiment the company was getting and
finally using that to shape how to use the Bazaarvoice product on the website to effectively guide
consumers.
Got around 14,000 reviews over a very short period of time which has been syndicated over 100,000
times.
Has started using the reviews in the sales channel to sell in a product into the account and position
better in the shelf.
Evaluating ROI
For us Bazaarvoice is a tactical aspect of integrated marketing. Our product will not be purchased
just because it has been sitting on a shelf in some store. People have to know about the product, they
need to know that its better than anything else they can buy and even know that its worth paying the
premium for the quality we provide. So for us effectively marketing and staying in touch with shoppers
is as important as having a factory to make the product. So, as part of the marketing discipline we
have to be contemporary. The lifestyle of our consumers has evolved tremendously for the last six to
nine years. If you dont adopt these new technologies to reach them in an effective way youre going to
fail. Adoption of Bazaarvoices products are in line with this philosophy.
Having analyzed purchase behavior and consumption behavior, we know that loyal buyers buy 4-5x
more than average buyers. So the question becomes how do we nurture more loyalty for our brand.
To do that effectively, we have to give a voice to our loyal buyers. Weve got to give them the ability to
be connected with our brand, listen to them and then to amplify their voice to others who are not
loyal.
First ROI is that its a cost effective way of implementing a marketing strategy. Two is that from a
targeting standpoint, social and being able to engage with consumers in conversation is directed
towards driving loyalty which has proven to having a much higher return.
We know that in the purchase funnel, what drives higher conversion is top quality content and the
number one tool for high quality content is authentic voices of consumer. Whether its a great review
or an outstanding review, it doesnt matter. People still want to know that these products are being
used and are being reviewed.
Looked at the delta in sales lift in two products using two different review products, one being
Amazon.coms product in which reviews are not syndicated and the other being Bazaarvoices which
involves syndication, over a period of three months. That was quite significant.So from that
perspective we know that the payout is justified both from a integrated marketing standpoint and the
actual channel impact. Although the purchase lift can be 100% attributed to the higher value content
of the reviews, since nothing else changed its a good hypothesis.

April 2014


Exhibit 32

Differentiation from
Competition
On the face of it, you and I will get the same customer experience if we use either of these two
products [PowerReviews and Bazaarvoice]. So, from an end user standpoint the two products are
practically identical.
The difference is the integration back into our organization. The dashboarding capabilities of
Bazaarvoice are very impressive. Its the marketing dashboard that we absolutely love.
The main difference is the ability to retrieve the assets from Bazaarvoice and embed it within other
marketing vehicles. Ran a test in Chicago to test the effectiveness of online mediums and to see what
kind of marketing vehicles work. The only vehicle that got 74% hits was an integrated vehicle that had
an embedded video, embedded reviews and a coupon. That is [the level of integration] only possible
with Bazaarvoice We have been effectively doing that across all the consumer touch points
The sentiment about the product in the channel side also helped to differentiate.
Points of Improvement
One of the things that Bazaarvoice could do is keep the name of the people who leave their reviews
and create a way to somehow retarget those people. Its a business model they have chosen not to
embrace and they want the asset to belong to the customers.
Expects Bazaarvoice to have significant international presence.
Thinks that the analytics piece is critically important.
Build Vs Buy
Possible to build it organically in house. Limitation would be the richness of functionality.
Our retail partners, many of whom hand built this capability on their website, arent getting the kind
of leverage we are seeing.
Uses of Reviews
Helps to educate consumers how to use the product and correct them if they are using it incorrectly
and are dissatisfied because of that. Thus, uses the reviews to supplement customer support.
Also uses reviews for design enhancement of the products.
There is multi-attribution of this technology. Overall, I think the first and the most obvious benefit is
in social media consumption. But beyond that it has many other lives within the organization.

April 2014

Exhibit 33
A Large Sportswear and Equipment Supplier

Role
As the Social Commerce Platform Lead he worked with the platform team for Global Digital
Commerce. Coordinated with business stakeholders to understand what digital/social commerce
capabilities were needed and then worked with IT to enable those capabilities.
Although the company works with various other vendors in the social arena across the different
brands, Bazaarvoice is the only vendor in the Social Commerce space as related to the store site.
Has moved on to another role, but still manages the relationship.
Selection Process/RFP
Wasnt part of the selection process.
Thinks that most of the team involved in the selection process has since left the company.
Thinks that Bazaarvoice was brought on in 2009 and there was a lot of turnover in the team in the
company that was interfacing with Bazaarvoice. Then, later in the year the company decided to create
a role specifically dedicated to Social Commerce in November 2010. Before that it was a hodge-podge
of different people in different roles that managed the relationship.
Initial selection probably included Bazaarvoice and PowerReviews.
Why was the new role
created by the
company?
It was because of realization on [the companys] side that we are just underutilizing [Bazaarvoices]
platform, their services, them as a vendor and that we didnt have enough focus on Social Commerce
in general. So, as related to Bazaarvoice Ratings & Reviews but also as related to just the industry
really changing and the emergence of Facebook, the potential for commerce and really the evolution of
the industry.
Reason for Underutilization Realization - I dont think there was an unrealistic set of expectations
set and was mainly the realization to maximize the use of the platform.
A lot of [the companys] challenges with Bazaarvoice are because of technology. The company
used flash on its site and so were not using Bazaarvoices platform at all. They just imported the
reviews data through a set of APIs from Bazaarvoice and built the entire front end on Flash, with the
help of a digital agency.
We pay for this Software as a Service platform where they own real estate on our website and they do
all the design and they do all the coding and we just integrate it and it works. They do all the changes
and they do all the updates...you can take advantage of their innovation platformthey are a pretty
big innovator and they have very frequent releases. We couldnt take advantage of any of what we
were paying for because our site was Flash and not HTML.
These internal technical and process limitations that involved the interactions with a third party to
switch on any new feature released by Bazaarvoice, made the relationship complicated.
Faces this problem with many SaaS vendors due to the Flash site.
Now, in the process of migrating to HTML from Flash and should be able to use Bazaarvoices full
platform. We are getting what we are paying for now.

April 2014


Exhibit 34

Expansion of Usage
Footprint
As the site is migrated to HTML, adding functionalities like Photo reviews, videos, commenting
things that we never had before. So, definitely expanding the functionalities available in Ratings &
Reviews and will continue to do so.
Using their Stories product as well for another site.
There are some discussions about using the syndication functionality within a different part of the
organization. Doesnt use syndication overall because of various internal structural/process issues.
Also, with the migration, it will be easier to adopt their other products such as Ask & Answer.
The company recently went through the biggest digital reorganization in its history. Had three digital
silos historically, one of them being commerce. The company recently merged these silos into one from
an IT perspective. So, what that means going forward is that any solution that we try to find with any
social capability has to meet the needs of all three digital silos. Thats the biggest problem that
Bazaarvoice is going to face in the company, since it is very focused on commerce.
So, if we want to do Ask and Answer functionality, we just dont want consumers to be able to ask
product questions and get answers from some other consumers. We may want users to be able to ask
performance questions and have a [company employee] go and answer the question that doesnt tie
directly into commerce. Thats going to be one of the challenges with Bazaarvoice going forward.
There are also impending talks about a vendor evaluation and consolidation due to the internal
reorganization and my gut feeling is that we will probably use Bazaarvoice for more staff on the other
sites and not the other way around.
Spending
Spends about $750K with Bazaarvoice globally.
That has gone up pretty significantly in the past year.
Just switched on Ratings & Reviews in Europe in the fall in 5 languages. Monthly service fee in
Europe is higher because of foreign language moderation.
When you add it all up and you look at them as a holistic technology vendor it does raise some
questions, especially with the perception that they were just a data feed. once you explain to
people what we are getting helps to answer some of the questions.
Pricing
Pricing for Ratings and Review is tied to the volume of reviews and has a threshold.
Syndication pricing is based on nodes and differs based on the number of nodes. A single node is this
much, 1-5 nodes is this much, 5-10 nodes is this much and a full network integration is this much.
However, it is a flat fee since it doesnt involve re-moderation.
Evaluating ROI
Everybody inherently understands the value of Ratings and Reviews while online shopping, but has
extreme difficulty quantifying it mainly due to the lack of internal analytical capability.
Bazaarvoices Insight product could help in this regard, but since the company hasnt been using the
platform completely, it has not been of much help yet.
They[Bazaarvoice] have given us all the tools and advice how to do it, but the company hasnt been
able to implement them. In the grand scheme, anything related to social gets de-prioritized because
it has the least direct impact on revenue. If the shopping cart is broken or there is something in the
shopping cart we need to measure, we are going to do that first before we do the reviews.
For so long it has just been a data feed and so have faced a lot of difficulty in proving the returns.
Bazaarvoice started sending some reports like top 10 highest rated products for the month, the 10
lowest rated products for the month and then the most reviewed product for the month. That
distribution list has expanded enormously, and has grown up to the CEO. The takeaway is that
there is recognition from the highest echelons at [the company] that this is one of the few ways that we
actually get true consumer feedback right now and that we need to do more with it.
No other vendor can really surpass what they do in that [social commerce] specific area.

April 2014

Exhibit 35

/ Pain Points
From a partnership perspective, 95% of the issues have been from the [customers] sideThey
[Bazaarvoice] have really gone above and beyond and bent over backwards to accommodate us on
every level. They have been extremely professional and they have really been an exemplary partner
in that sense.
One negative is that at times Bazaarvoice might have oversold the product in terms of its simplicity to
integrate, although the feeling might have been exacerbated by the companys own technical
limitations.
Also, Bazaarvoices implementation process is timeline based and it is difficult to incorporate that into
an agile project development and has resulted in delayed project execution.
Differentiation from
Competition
Bazaarvoice has something very unique that other vendors cant replicate and most people
understand that.
However, Bazaarvoice has other solutions as well for which this client uses other vendors right now.
For example a photo gallery widget where a user can upload a photo of the unboxed merchandise.
Bazaarvoices Stories platform can support that, but there are many other vendors who can do that as
well.
The situation we are in is that if we do a vendor evaluation and try to consolidate vendors, they have
something that other people dont and I think they also have functionalities that we use other vendors
for right now because of the lack of awareness that Bazaarvoice provides it. And if the awareness
spreads across digital, the consolidation will work in their favor.

April 2014


Exhibit 36
SESSI ON #1 0 ( CUSTOMER)
A Large Multi-National Company Specializing in Optics and Imaging

RFP/Selection Process
About 2-3 years ago, realized the need for social capabilities on the website. Ratings & Reviews were
a big driver for what we were looking to do. Was also nudged by one of the large retailers to move in
that direction.
Started looking for tech vendors providing such services and came across PowerReviews and
Bazaarvoice, as the two main major players.
Brought both the vendors in for evaluation. Bazaarvoice was by far the most forward thinkingand
offered features that PowerReviews didnt offer. However, PowerReviews had existing relationships
with some of the smaller retail vendors that the company sells to. Bazaarvoice had some very large
retailers like Best Buy, to whom they syndicate their reviews.
Bazaarvoice also had a lot of features that they offered in addition to just simple star ratings. Like
the ability for customers to share picture, share videos, share their story as well as the ability to have a
Q&A section, that we are leveraging.
Signed the contract in April 2010 and implemented the platform quickly to the US website which was
within the scope of the initial two year contract.
Has expanded to Canada, Brazil and Mexico since then and has also expanded the number of product
lines.
Plans to implement Stories in some of the newer product lines. Allows customers to describe the
experience in more words than just a small review.
Also working on a project to use Ratings and Review not on the products, but articles on the website.
Pricing
The pricing was very interesting. They came in with an extremely high number. Went back and
forth but ended up around $700K.
Spending
Started with around $700K in US. Added about $300K on top of the initial amount, mostly accounting
for the other languages and some other functionalities.
Next year (2012), expects to budget just over $1M with Bazaarvoice.
Since there is nothing significantly different planned at this point in time, expects the same budget
range of $1M-1.5M in the year after, unless they have some brand new product that has some
significant use.
Differentiation vs.
Competition
The implementation of Bazaarvoice into the companys own web platform was more seamless.
Also, their Search Engine Optimization Capabilities were impressive.
Plus we really, really liked the way that Bazaarvoice handled the retailer syndication. I think on a
technical side that was easier for us to implement and made more sense to us than PowerReviews.
Retailers Influential in
Adopting Ratings &
Reviews
Best Buy was asking us to provide them with reviews and they do a lot of great reviewing on their
own.
The average reviews on our site were a little higher than the average reviews for the same product on
a third partys site. But once we started syndicating that data to the third partys site it will brush up
their average.
Spending on Social
cannibalizing
traditional marketing
spend?
Initial investment was unbudgeted expense. Had to pull from other projects.
Started budgeting for it from the second year. And each year the amount has been increasing. So, it is
new money.
Evaluating ROI
Not all that driven on ROI internally. Sometimes you know that what you are doing is the right thing
for the customer, the right thing for the brand. Providing the reviews felt like a competitive need. But
hasnt gone back and done a lot of ROI studies around it.
Does use the review data to analyze the voice of the customer through the development department.

April 2014

Exhibit 37
SESSI ON #1 0 ( CUSTOMER) , CONT D.
A Large MNC specializing in Optics and Imaging

International
Experience
Expansion into countries with different languages always presents internal challenges due to shortage
of staff.
From a Bazaarvoice perspective, they seem to know what they are doing and it never felt like we are
trying to do something that we havent done before.
The company is structured in the form of geographic silos with each silo acting as its own company.
So, doesnt really know if there are plans of expanding outside the American continent. Each different
region makes its own decisions. However, there is some talk about expanding in Europe. Unofficially,
would expect to use Bazaarvoice there too. Generally if US and Europe are on the same page, Asia, not
including Japan, would usually follow in line. Standardizing on the same system makes sense from a
reporting standpoint.
Works with a wide range of companies from small start up to the SAPs of the world.
Bazaarvoice is kind of a joy to work with. They are a very young company. They are a fun
company. They have always been very responsive to our questions from a support level. They work
with us really well.
One negative point on the technical side, is that they work according to a template model and they
dont want to get too far away from it.
But overall they have been very good.
How sticky is the
solution?
Basically we kind of cut out a hole in our website and their solution appears within that hole. I
dont think it would be a significant work effort to move to a new system if we chose toI cant
imagine we would though.
On the pricing perspective, they seem to be on the high end of what we can get, but they definitely
seem to be the leader in the industry.

April 2014
S e p t e mb e r 1 4 , 2 0 1 2
On the Road with BV: Multi-Year Network Monetization in Focus
PRICE: US$14.59
TARGET: US$21.00
7.3x CY13E Sales of $182.9M+ $2.03 net
cash/sh and 70.3M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$21.00
FY13E EPS US$(0.40)
FY14E EPS US$(0.12)
Market Cap. (mil) US$1,025.7
Div (ann) US$0.00
Fiscal Year End Apr
Feb-12 Apr-12 Jun-12 Aug-12
22
20
18
16
14
12
10
USD
Source: Bloomberg
CONCLUSI ON
We hosted BV CFO Stephen Collins and VP-Finance Brian Smith in investor meetings
this week. Key takeaways: 1) the core Retail and Brand SaaS business will continue to
grow, but BV is taking unique calculated risks as it plants the seeds to try to extend best-
in-class revenue growth rates beyond next FY; 2) the central concept is to leverage BV's
critical mass of retailers and brands to broker monetize-able solutions in between the
two camps; and 3) Connections, gain-share models, and emerging advertising streams
represent the most significant experiments which will be borne out in the next 2-3 years.
Tactically, we note that 24M shares come off lockup in a month and sequential revenue
growth should slow after FQ2 (Oct) as the push-down of services backlog should begin
to reverse. Overweight, $21 PT.
Retail & Brand SaaS Platform Dynamics. BV had reached roughly a 50/50 split
between its Retail and Brand businesses; when it acquired PowerReviews, its mix
shifted back slightly in favor of Retailers. BV feels it could at least double its Retail
business in the US with no additional products, but the next retailer will be more
difficult than the first one, given the penetration (259 of the IR 500 are clients). Latin
America and Europe are attractive, but pricing overseas is unlikely to match pricing
in the US, and BV's pricing is increasingly oriented around getting Retailers on the
network, versus maximizing the upfront pricing. Thus, expanding the footprint in
Brands is certainly the most important near-term growth driver for the company, as the
addressable market for Brands is much larger than that of Retail. In combination, we
view the core Retail and Brand SaaS businesses as steady sources of growth, but not a
source of enough juice to drive ongoing multi-year 50-60% growth rates on their own.
Monetizing the Network. The emerging central concept is to leverage BV's critical
mass of retailers and brands, and the roughly 400M unique visitors which crisscross
the network, to broker monetize-able solutions in between the two camps. This
involves several significant experiments whose ultimate potential for success will
be borne out in the next 2-3 years. Front-and-center among these initiatives is
Connections. We believe BV quickly signed up 8 of its top retailers and is now giving
them an incentive to sign up new brands, and enable brands to answer consumer
questions directly on the retailers' web sites. Previously, a Brand would have had to
purchase BV's Conversations platform to do this, so the pricing barrier has been
substantially minimized. Studies show that conversion rates can move higher by as
much as 53% when brands answer consumer questions directly. **Continued on page
2**
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
22.1A 25.0A 27.6A 31.4A 106.1A 144.3E 9.7x 7.1x
35.7A 38.0 39.2 40.2 153.1 182.9 6.7x 5.6x
44.6 48.7 49.4 49.5 192.1 0.0 5.3x
(0.08)A (0.09)A (0.09)A (0.08)A (0.34)A (0.36)E NM NM
(0.07)A (0.11) (0.11) (0.11) (0.40) (0.19) NM NM
(0.05) (0.01) (0.02) (0.04) (0.12) NM

April 2014
S e p t e mb e r 1 4 , 2 0 1 2
We have always liked the concept of a Brand creating a virtual presence on a retailer's
web site, since we heard Home Depot describe its experiences earlier this year, because
Retailers don't have in-house resources to answer consumer questions at scale. While on
the one hand this initiative is new and unproven in terms of success rate and monetization
potential, we believe the virality will be different, and stronger, as BV uses its retailers as its
primary sales force for attracting new Brands. While we would be cautious on the timeframe
for substantial new revenue streams, we believe the new initiatives reflect the company's
forward-thinking view of social commerce and advertising and can further fortify BV's
powerful network and platform.
Tactical Considerations. We estimate BV's float currently stands at roughly 39M shares.
We expect to see 24M shares come unlocked on October 16th, and then 6.3M additional
shares come unlocked in mid-December. While lockup releases should not have any notional
impact on the value of a business, investors generally like to be aware of the time-frames
in the event that a temporary supply/demand imbalance were to result. Note that BV has
increased its revenue guidance during each of its last two quarterly earnings results. We
are cautiously optimistic that this trend can continue for now. That said, we believe recent
sequential revenue growth rates have benefited from the push-down of services backlog; we
think that backlog is now about as low as it is going to get, and as such, in our view it
is reasonable to expect that sequential revenue growth rates will slow materially after Q2
(Oct). Q2 will mark the first "full" quarter of inclusion of Power Reviews results, and thus
we model 7% sequential revenue growth for Q2. For Q3 and Q4, we model 3% sequential
revenue growth.

April 2014
January 30, 2012
Mark R. Murphy, Sr. Research Analyst
Piper Jaffray & Co.
Matthew J. Coss, Research Analyst
Piper Jaffray & Co.
Pinjalim Bora, Research Analyst
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Neutral
Price Tgt -- $52.00
FY12E Rev (mil) -- $437.0
FY13E Rev (mil) -- $526.7
FY12E EPS -- $0.85
FY13E EPS -- $1.13
Price $52.95
52 Week High $58.19
52 Week Low $34.30
12-Month Price Target $52.00
31x FY12E untaxed OCF/sh of $1.46 +
$6.60cash/sh
Market Cap. (mil) $2,949.3
Book Value/Share $12.56
Net Cash Per Share $6.60
Yield: NM
Est LT EPS Growth 25%
P/E to Est LT EPS Growth 2.5x
Fiscal Year End: Sep
Rev (mil) 2011A 2012E 2013E
Dec $80.2A $98.7E $118.4E
Mar $84.6A $105.8E $127.5E
Jun $89.5A $111.8E $134.8E
Sep $95.2A $120.7E $146.0E
FY $349.5A $437.0E $526.7E
CY $367.9E $456.7E --
FY RM 8.4x 6.7x 5.6x
CY RM 8.0x 6.5x --
EPS 2011A 2012E 2013E
Dec $0.22A $0.20E $0.20E
Mar $0.16A $0.19E $0.26E
Jun $0.19A $0.20E $0.29E
Sep $0.24A $0.26E $0.37E
FY $0.82A $0.85E $1.13E
CY $0.79E $0.85E --
FY P/E 64.6x 62.3x 46.9x
CY P/E 67.0x 62.3x --
We show Non-GAAP EPS
Concur Technologies (CNQR $52.95)
Neutral
Q1 Preview: Checks Point to Aggressive Hiring,
Growth in SMB Segment
CONCLUSION:
We spoke with a handful of contacts in the Concur ecosystem, including corporate
travel partners, and walked away with three key observations: 1) whereas AMEX
corporate travel data decelerated in Q4, Concur's travel partners indicate corporate
travel remains steady, and expect modest growth in 2012 based on YTD trends;
2) partners see Concur hiring sales resources aggressively to drive future growth,
primarily for SMB coverage, as the large business segment appears relatively more
saturated; and 3) while Concur's support services are still lacking in the eyes of
customers, and contacts cited high sales force turnover rates, the company is winning
deals much more frequently than its competitors. Finally, we remind investors that
CNQR performed well in our most recent CIO survey, and we expect reasonably good
quarterly results. However, we view CNQR shares as fairly valued for the time being
at 31x EV/untaxed FY12 OCF.
Detailed Feedback
Positive
Industry Contact 1
Been working with Concur for a long, long time.
Cliqbook seems to be the tool of choice out there, mainly because of its integration
with Expense.
The advent of Concur has started the inflow of [companies which never believed in
managed travel and always went to the Internet to book their tickets, as they didnt
want to pay the travel agencies booking the travel] into the managed environment.
Now with the integration of travel and expense, the value proposition is different
and those companies are coming back.
Concur seems to be easy to work with. Their implementation staff seems to click
with the travel focus implementation resources when working together.
Thinks that demand is increasing based on the fact the Concur is adding a lot of
sales staff. I cant see Concur making the decision to add sales staff at the rate that
they are if they saw the market going flat.
Works pretty closely with Concur sales and gets most of their leads from Concur to
act as the TMC (Travel Management Company) and provide fulfillment of orders.
We have seen a lot of activity from Concur in the last two years and I dont see
it slowing down.
[CONTINUED ON PAGES 2 - 3]
INVESTMENT RECOMMENDATION:
Neutral, $52 PT = 31x FY12E untaxed OCF/share of $1.46 + $6.60/share.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
1) Competition 2) Partnership dependency 3) Decelerating corporate travel trends.
COMPANY DESCRIPTION:
Concur is an on demand software provider of corporate expense management.

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April 2014
January 30, 2012
Sees Concur expanding its sales capacity largely in the segment targeting customers with up to 500 employees. Seen some growth
within the sales team targeting companies with 500-1,000 employees. Havent seen a lot of addition of sales people in the segments
targeting businesses with employees of more than 1,000. If there is any saturation happening thats in the top of the market."
They ended the year well and overall seeing a positive trend for travel.
Had dinner the other night with numerous [sales and marketing personnel in the integrated T&E ecosystem] and thinks that they are
in good spirits coming off of the recent quarter.
Industry Contact 2
Sells both Concur and GetThere.
Concur winning much more frequently than GetThere.
These vendors are the two biggest. Youll hear names like Reardon (a private competitor providing an online marketplace for a variety
of services including travel, hotel, airline, restaurants, rental cars, shipping, event tickets, and parking). American Express has put its
name on a tool as well.
From a clients perspective, Concur is the tool that works the best.
Concurs customer service is still an issue, but its getting better, mostly in the response time.
Concur salespeople turn over like theres no tomorrow.
You get used to working with one person, and then theyre not there anymore.
This is due to Concurs demand on their sales team, and thats not a good thing.
I think that they did [experience good trends recently]. At least in their opinion they did.
Industry Contact 3
Demand for travel management
The economy in general is improving and corporate travel is responding in kind.
Thinks corporate travel continues to firm up and strengthen.
Has seen an increase in volume booked both on transactional volume and the cost per transaction, as airfare and hotel rates firm up.
Travel is such a great barometer of the economy in general and a companys level of confidence.
Based upon what he sees customers are very confident; thinks that bodes well that they feel like the economy is strengthening, and
that at least the short-term future is pretty promising.
His business was up 20-30% in 2011. Wont be as strong in 2012, but anticipates double-digit increase in demand year-over-year,
from the same client base.
Thinks consumer confidence in 2011 was far ahead of what the media was reporting, and 2012 will be a continuation of what he
saw in 2011.
2012 wont grow 30%, but it will be quite good.

Concurs growing pains
Heard from two customers who contracted directly with Concur that are now considering dropping Concur.
They were unhappy with Concur, and suspects it was on the service side.
Infrastructure doesnt keep pace with demand for service.
These customers still likely use Cliqbook, because you can use Cliqbook without using Concur expense.
"A good question to ask Concur is how many customers theyve lost."
Concerned about the rapid growth of Concur. His business was damaged as a result of the ADP partnership.
Concur referred two of his customers to ADP for fulfillment and he lost the business.
Neutral

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January 30, 2012
Industry Contact 4
FQ1/2011
Majority of accounts showed good growth in 2011.
Last couple months of year, corporate travel slows down significantly.
Nov and Dec have historically been slow months for business travel.
But y/y trends for November and December travel bookings were good.
Some accounts were flat but a few of them were up.

Outlook
Phone volume has increased so far this year.
But tracking in line from last year for the first few weeks of January.
Expects 5-10% 2012 growth for this year based on activity level so far.
Had an extremely good 2011, with everything picking up in September and October.
Investment Thesis
Concur is a leading provider of on-demand Corporate Employee Spend Management (ESM) solutions that enable customers of all
sizes and verticals to better manage their employee travel and expense. The company's solutions provide customers with the ability to
significantly reduce operational costs, streamline business processes and improve internal controls and compliance. We believe Concur is
the only vendor that provides an integrated end-to-end travel and expense suite which encompasses corporate travel procurement, expense
management/reporting, invoicing, auditing, payments and analytics. Other successful vendors have specialized in certain segments
such as Necho, ExpenseWatch, Oracle, and Infor for expense management, or American Express, Carlson Wagonlit, BCD Travel for
corporate travel management, but none offers a fully integrated suite like Concur. Because all elements of Concur's solution suite are
fully integrated, customers can better manage their travel and expense in a single turnkey on demand solution. Our customer survey
indicates that Concur significantly increases productivity, performance, and ROI and improves compliance. The company has very low
market penetration and is well-diversified among customer and vertical contributions, and considering the expansion of its third-party
partnerships, service offerings and international presence, we believe greater opportunity lies ahead for Concur.

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Fe b r u a r y 2 6 , 2 0 1 4
salesforce.com (CRM) Overweight
CRM Deep Dive Checks: Salesforce1 Trending, Analytics on the Horizon
PRICE: US$63.66
TARGET: US$60.00
39.2x our CY14E OCF of $1.55/sh -0.78 net
cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$60.00
FY14E Rev (mil) US$4,052.1
FY14E EPS US$0.33
FY15E EPS US$0.48
Avg Daily Vol (000) 4,811
Net Cash Per Share US$(0.78)
Yield 0.00%
Fiscal Year End Jan
70
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We conducted interviews with 14 key contacts in the salesforce.com ecosystem to
provide the most prolific 9-page-long look at emerging trends. Key Takeaways: 1)
Customers view Salesforce1 positively, and its pace of adoption is likely underestimated:
I think its going to be faster adoption than everybody thinks it will based on what
I have seen with my really big customers.; 2) Partners feel that the next logical step
for salesforce is Analytics, perhaps foreshadowing an Analytics Cloud in the next 12-24
months to leverage and refine the EdgeSpring and ExactTarget capabilities; and 3) the
Marketing Cloud is still developing into a product pillar for salesforce.com, but does
not yet have the traction of the Sales Cloud, Service Cloud or Force.com.
Notable Quotes:
(+) We are extremely bullish and we are seeing it in the business in every way.
(+) Based on conversations with a number of salesforce.com system integrators (SIs)

focused mainly on the Service Cloud, all said they [SIs] had a good quarterall of
them are hiring as fast as they possibly canall of them were complaining that they
are short staffed and there is plenty of project workthats frankly the first time [in
a long time] that I have heard true desperation for staffing.
(+) Our customer engagements are getting more strategic and more in-depth and
faster moving, which is probably a reflection of both the economy and the market
acceptance of the platform.
(+) One partner thinks that the next logical step for salesforce.com is Analytics....
Believes one of the reasons behind salesforce.com going after ExactTarget was the
enhanced analytics capabilities of the ExactTarget platform.
(+) I think [customers] love [Salesforce1]. Weve moved all of our customers, or have
advised them to move off of the older platforms and onto Salesforce1. I think its a
game-changer for Salesforce.... Customers are buying Salesforce just for the mobile
aspect. Its tremendous. And were talking about massive, massive, big companies.
(+) One partner heard that there is an 80,000 seat [Service Cloud] deal somewhere
in the market.
(=) Marketing Cloud to me is cloudyits still somewhat nebulous...***SEE PAGES

2-10 FOR DETAILED FEEDBACK***
Risks include outages, security breaches, competition & economic fluctuations.
Salesforce.com is a leading provider of On-Demand applications.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
Apr Jul Oct Jan FY CY FY RM CY RM
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,052.1E 13.4x 10.1x
892.6A 957.1A 1,076.0A 1,126.3 4,052.1 5,166.7 10.1x 7.9x
1,174.7 1,259.6 1,335.0 1,397.4 5,166.7 7.9x NA
Apr Jul Oct Jan FY CY FY P/E CY P/E
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.09A 0.06 0.33 0.48 NM NM
0.07 0.12 0.15 0.14 0.48

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Fe b r u a r y 2 6 , 2 0 1 4
Industry contact 1
He doesnt think theres any predominant Salesforce cloud whose demand is far ahead of
another. He does a lot of platform and integration work using web services and connecting
through the salesforce.com API.
A lot of his work is around mobile with customers moving to the Salesforce1 platform or
building using the mobile SDK.
He doesnt believe theres a shortage of work for partners. Everyone is trying to get into
the game right now, including the IBMs of the world.
He doesnt believe some of the larger SI partners have the proper skill sets. They think
Its salesforce, how hard can it be. We implement SAP. He perceives many SIs take this
approach, which is not really working out for them. Even though some salesforce.com
partners appear much smaller than an SI, if you stack a smaller partners salesforce.com
bench against that of an SI, or stack a smaller partners experience against an SI, the smaller
partners can be bigger in those terms. He thinks Accenture only has 200 consultants who
are certified in salesforce.com, which isnt a lot for the type of projects theyre taking on.
Some new partners think they can take an SAP CRM specialist and turn them into a
salesforce.com CRM specialist, but I dont think it translates like that in a lot of scenarios.
Salesforce1:
I think [customers] love [Salesforce1]. Weve moved all of our customers, or have
advised them to move off of the older platforms and onto Salesforce1. I think its a
game-changer for Salesforce.
He believes mobile today is where websites were in 1990. Everyone knew they needed
one, just didnt quite know what their website should do. Everyone knew they
needed a social media strategy two years ago so they created a Twitter account and
a Facebook account and figured it out later. With mobile, organizations are trying
to figure out what their mobile presence is. Hes working with large customers that
have back ends on everything from AS 400 to other platforms, and he can take an
AS 400, connect to the Sales Cloud to analyze their sales data, and those analytics
become available on the mobile device. Its very, very powerful.
He thinks 90% of the work he does is about unlocking decades of history in his
customers' legacy back end systems, which is done with the Sales Cloud. A number
of CEOs have told him Ive never even seen my sales data the way youre presenting
it to me in my life, ever. These include F500 companies.
Im doing whole customer demos just in Salesforce1. Customers are buying
Salesforce just for the mobile aspect. Its tremendous. And were talking about
massive, massive, big companies.
A lot of companies are moving off of older salesforce.com products onto Salesforce1.
Many organizations struggle with the transition from Blackberry to the iOS and
Android. Mobile is the hottest topic right now because companies are investing in
hardware and companies want to know theyve made the right bet. First theyre
investing in an infrastructure and they want the device they eventually choose to
have a greater ROI than just email use. The ability to launch apps, view content and
use it as a collaboration tool all become very attractive for a CIO thats trying to
justify the cost of 5,000 iPads or something similar.
The older salesforce.com platform is known by a few names, Salesforce Classic, the
old platform was called Touch. Salesforce1 was to unite all their disparate platforms
into one.
He also highlights Communities, salesforce.coms new portal, is generating a lot
of business. Were doing a ton of Communities work. Some customers are
migrating off of older platforms, and some are realizing the power of what they
have internally and they want to make portions of that available externally. This
is especially true with wholesalers that have dealer communities, both in financial
services and manufacturing. These industries have the trifecta of customer, dealer,
and manufacturer. This could include a fund wholesaler, life insurance wholesaler,
mortgage wholesaler, or a tractor wholesaler. This trifecta includes a consumer
coming to a customer facing portal to access forms, or other information.

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He estimates his salesforce.com practice is growing the top line above 50%.
Although he comments EBITDA growth is lower because salesforce.com resources
are getting more expensive.
Q4:
I think people did well. Its not greenfield like it once was because patches are
shrinking. When I read reports that people think Salesforce is slowing down, I think
its because if you take it at a micro level, before a sales person might have [covered]
a state, or half a state, or a full zip code.
He argues the comparison has to be adjusted because several years ago a place
like Manhattan would have been a territory, now it might be 51st to 56th
streets. Salesforce has created a lot more named account roles. He thinks that as
salesforce.com matures and becomes an enterprise company, if you take each sales
reps perspective, its just changing by the sheer nature of how the company is
changing.
If you take [negative feedback] with a grain of salt, Salesforce has doubled its
headcount in the last 24 months, so you have twice as many people selling. Each
of them is probably going to feel like their individual numbers are less, but as a
company theyre probably doing better than theyve ever done. And from a partner
perspective, things have never been better.
Industry contact 2
We are extremely bullish and we are seeing it in the business in every way.
Our customer engagements are getting more strategic and more in-depth and faster
moving, which is probably a reflection of both the economy and the market acceptance of
the platform.
From his perspective, thinks Q4 was really, really goodand they are also quite well front
loaded for Q1we are seeing a lot of activity this month in particular. Also referred to
few deals that got pushed out to Q1.
Based on his conversations with a few sales reps [in the customer relationship management
ecosystem], observes that they are absolutely happy coming off of Q4. The reps I know
are smilinga lot of them finished way over planAnd I think everybody feels good
momentum going into Q1 as well.The reps, especially on the platform side, did really
well last year even without a few deals that got pushed out.
Talking about big deals, refers to [speculation] he heard about the big $80M deal. I do
know there is some good stuff going on Refers to a potential deal which will be a big
one multiple millionscould be that big [high 8-figure] over time with a big airline.
We are seeing good install base activitysigned a big one this morning [with a large
telecommunications company]low millions. So, we are seeing really a good combination
of some great new opportunities and these are all global 500 to 1000 customers that are
both new and existing.
Observes that as salesforce.com focuses on capturing wallet share, he is seeing fewer and
fewer accounts per sales rep. I see platform AEs get one account, whereas typically they
were an overlay of 3-4 accounts.
Senses that salesforce.com is approaching a bought-not-sold phase, i.e. a phase where

there is no sales cycle and the customer calls in to buy rather than a sales guy trying to sell,
but it is not there yet. From his conversations with sales reps, thinks currently everything
is a sale at salesforce.com.
Observes that salesforce.com brought a lot of Oracle people in recently. I think there is
pressure being applied in a maybe more expedient way to certain folks to get deals done
faster they are much more focused on the quarterthat kind of an Oracle culture is
coming in a little bit. Doesnt think that might be the best approach and speculates that
some accounts might feel an unrealistic pressure being applied to sign contracts. We
both see their momentum growing but I dont think salesforce is necessarily the de facto
standard that everybody just buys yet."
Marketing Cloud to me is cloudyits still somewhat nebulous. Buddy Media is pretty

much invisible to me... There is a lot of noise around ExactTargetRadian seems to be
perking alongWhat I am not hearing as much today as I might have heard a year ago is
this coherent story of the Marketing Cloud. Thinks there is a lot of work to be done and
all the products are still disparate systems still with a lot of work for integration.

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Observes a clear divide among the field reps between Marketing Cloud and the rest of
the clouds, which could be a manifestation of whats going on at the higher levels of the
organization.
Thinks that there are a lot of sales reps who have got their head stuck in CRM [customer
relationship management]. Adds that selling a platform is a very abstract idea vs.
selling an app where you can do the traditional feature function benefit discussion. He
has seen platform reps who have been 190% of plan while also seeing other platform
reps strugglingThey dont really know what they are selling. Thinks thats one of
salesforce.coms biggest problems.
Thinks that there is a lot of confusion among business people about the platform and who
it competes with. Many business users stack them as a competitor to Amazon.com. But
they are not alike and are not in competition. Amazon provides an infrastructure and not a
platform. They have all got great value but its just that they are different.
Industry contact 3
Based on the activity he sees, I think they [salesforce.com] had a good quarter, Q4.
Our inquiries are shooting probably 30% more this quarter generally its been a very
busy quarter for them as well.
Talking about expansion of existing deals, refers to a large American semiconductor

company and a large American machinery company. Adds that these expansions are
reasonable [3k-5k seat deals] in size but have the potential to become really big.
Referring to the semiconductor company, mentions that they are trying salesforce.com
Service Cloud in a key business unit and is a reasonable deal but if they decide to expand
it across the different business units it will be really large. They [salesforce customers] are
all expanding.everybody is expanding their [Salesforce] foot print.
Saw a lot of smaller [less than 7-figure] opportunities in the quarter and thinks that total
impact of all the smaller deals could be bigger than the impact of a few 7-figure deals.
Based on his business, in terms of deals that have closed, Service Cloud is clearly the
number onebut in terms of opportunities that people are talking about, Marketing Cloud
is becoming equally strong. Seeing sales cloud in consolidation deals.
Adds that although he hasnt seen any reasonable deals being consummated on the
Marketing Cloud side as of now, the pickup in the activity around the Marketing Cloud in
terms of pilots seems to indicate a promising future. Mentions that the current Marketing
Cloud deals are smaller, maybe a few 100 seat deals as compared to an average of 1,000 seat
deals for Service Cloud.
Mentions that companies which are going through a refresh of their marketing IT stack
are bound to consider salesforces marketing cloud now. Gives the example of a large Swiss
financial services firm which is contemplating a refresh of their marketing technology stack
and is 95% Adobe and 5% salesforce.com (Radian6) at this point. Thinks salesforce.com
has a big opportunity in such accounts to muscle in now with a good marketing technology
stack. Nobody in the world will say no to a Salesforce guy trying to showcase a newer
solution.
On the negative side, adds that salesforce.coms Marketing Cloud is not a deep and
profound solutionExactTarget is strong but not necessarily everythingthe product line
is not super strong as Sales Cloud or Service Cloud.
Considers Adobe a strong competitor to salesforce in the marketing arena. Explains that
Adobe comes from a strong creative side of marketing while salesforce is coming from the
sales side. Adobe will be always in the number one or number two position in marketing,
unless they [make] some missteps.
Explains that the rewrite with respect to the platform is not on the back end but in the user
interface or front end. The versatility has increased and any application written on the
platform can now support a large number of device configurations. It [Salesforce1] will
protect the leadership.its not going to create new space.
Based on his conversations with the sales reps [in the customer relationship management
ecosystem], thinks that the general mood is good among sales reps coming off of Q4.
All the powerful guys in Salesforce, who were there before Keith Block came inthey have
all been sidelinedslowly Keith has taken complete control.
To the best of his knowledge, nothing has changed dramatically in terms of sales
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Indicates that he is feeling good about 2014 and the pipeline is in a reasonably good
shape.
Based on inquiries and what we see in the market, 100% growth or even higher is possible
and is dependent upon getting and retaining people to service salesforce.com clients.
Oracle is trying hardthey are really trying hardthey are just one or two steps away
from the [spike]right now they dont have powerful messaging. Thinks that in a blind
test of features between the cloud products of both the companies, Oracle could come very
close to salesforce.com.
Industry contact 4
Overall seeing continued strong demand.
Thinks that the NSA-Snowden issue is pushing companies, including salesforce.com,

Google, Microsoft, etc., to re-think their global data center strategy. Hearing a lot of buzz
that countries in Europe are now starting to strictly enforce some of the laws regarding
the location of data for cloud companies. Thinks for salesforce.com most of the data as of
now resides in the US, although they are creating a data center in the UK. Heard that Marc
Benioff was meeting the French president this week to discuss these matters.
Believes that Keith Block is pushing a verticalization strategy internally, especially for its
large enterprise accounts. In the short term, believes it would create some disruption for a
small portion of the sales reps, but in the long term will help sell the large deals. Indicates
that industry specific sales artifacts and case studies as well focused sales reps often help
to make the large enterprise deals.
Thinks that the next logical step for salesforce.com is Analytics, although thinks that
the Force.com platform is not architected for data-crunching. Believes one of the reasons
behind salesforce.com going after ExactTarget was the enhanced analytics capabilities of
the ExactTarget platform. Thinks that the ISV channel is making great strides, although
he is not sure about the magnitude of revenue coming from that channel and if it can move
the needle.
Industry contact 5
I think the momentum is behind them I think they are doing very well.
From the momentum he is seeing in his practice, speculates that salesforce had a fairly
solid Q4.
Talking about Keith Blocks arrival along with other sales executive hires from Oracle,
thinks that the changes are starting to show some results and that he is seeing more
stabilized, more mature engagements with clients as well as partners. Thinks that Keith
Block is bringing discipline and focus to the sales force.
Mentions that most of the deals his practice is getting involved in lately are all fairly large
enterprise deals, unlike the case 12 to 18 months ago.
Explains that most of the opportunities he is seeing are in a few areas such as major
Siebel replacements, large enterprise transformations driven by Sales and Service Cloud
adoption, and platform opportunities.
Thinks that the platform is becoming big for Salesforce. Thinks that the game-changer
for Salesforce will be when the platform becomes a de facto development platform within
enterprises. Mentions that its a great, great product especially for building vertical
solutions. Thinks platform will be big and above and beyond the sales and marketing
applications.
He has seen some ExactTarget deals, but nothing of the scale of a typical Service Cloud deal,
although he expects to see some major marketing cloud deals in 12 months time. Mentions
that he has seen more Eloqua deals in the market than Marketo deals.
Pipeline is solid right nowthe challenge is finding enough people. Mentions that if he
has a chance to double the headcount in his practice in the next 18 months, he would. Refers
to some large 8-figure deals in the pipeline in verticals such as life sciences and financial
services.
Industry contact 6
We had a record setting year last year and started the year this year good. Service Cloud
and the platform are both rocking and rolling, if you will. Communities is beginning to take
hold. Hes seeing some early signs of success in Marketing, but not a lot of activity yet.
Hes hired a couple of people with a marketing background to move further into that space.

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His salesforce.com practice grew 62% year-over-year in the fourth quarter, and grew over
60% for the year 2013. We think our first quarter here will be 37% growth sequentially.
Salesforce is migrating to more of a vertical approach to the market place. Specifically, the
company is adding more vertical specialists, meaning reps whose territories are vertically
oriented. Also, theyve added substantial resources, both technical and go-to-market, by
vertical and in a support capacity. Partners are being encouraged to select one or two or
three verticals to go deep and develop a degree of expertise. He has already been going in
the direction of healthcare, financial services and tech.
Salesforce seems to have done a good job of managing territory change this year. It seems
to be more methodical, controlled and thought out than sometimes in the past.
Theyre putting new resources in the field; theyre beefing up field operations significantly.
Salesforce has done a good job of continuing to raise the level of support for partners
and theyve done a good job of raising the requirements of partners so that the quality is
maintained and improved.
He hasnt heard of any mega deals, but opines that It doesnt mean that it doesnt happen.
Sometimes those deals are closely held. I know they really put some major efforts in. Some
of these very experienced management and sales reps have been working [large] accounts
for months... they literally work for months with a very dedicated team. Their approach is
working. Those are big lumpy deals, as you know. And they dont come overnight.
Industry contact 7
Mentions that he saw lot of end of year activity in January and there were a lot of good
deals signed. Also, indicated that a few deals got pushed out to Q1 FY15.
Overall, we definitely saw that upswing. From his business perspective, thinks he saw
more activity and a higher volume of deals in this Q4 than last year. Adds that a part of the
reason for the increased activity could be attributed to a late Dreamforce.
We definitely saw traction in the verticals we were going after like retail and healthcare.
With respect to the platform, seeing a lot of interest around the concept of private
AppExchange. Two common questions he fielded from his clients after Dreamforce were
1) how quickly can I move to Salesforce1? and 2) How can we enable that [the private
AppExchange or app store for the enterprise] in our company? Seeing conversations
starting, but havent seen deals flowing in yet.
Indicates a bullish outlook for the upcoming year for his practice and is expecting a fairly
healthy uptick based on his investments.
Expects good penetration into APAC and EMEA this year and is encouraged by the early
results. Definitely we are seeing interest from the customer communitycustomers in
those areas are starting to take a good look at salesforce. Thinks its only a matter of
time before Salesforce starts seeing strong activity in these regions.
Thinks that the platform is starting to become interesting to IT organizations as

extensions to the legacy ERP investments. Customers are looking at the platform as a
fair alternative for the contextual applicationsabsolutely we see that. Seeing customers
rebuild applications on the platform, such as spreadsheet based or lotus Notes based ones,
which were living off of data from SAP or Oracle.
Industry contact 8
Speaking about the demand environment, overall I think its growing[the momentum he
is seeing is] not stopping anywhere. Adds that he is adding more and more clients every
week.
Comparing the activity to a year ago, I think its actually growing more, definitely
because the footprint that they have is also kind of expandingI think people are actually
buying more.
Adds that he has started engaging with a lot of Pardot customers. Pardotpeople are
buyingI dont see anyone stopping there Every other decent size customer that we
talked to, they say yes we signed up for Pardot. Thinks Marketo got hit due to the
acquisition of ExactTarget by Salesforce. Now, its in the best interest of Salesforce to
position Pardot and not Marketo or any other solution for that matter. Adds that Marketo
can no longer rely on Salesforce as a valid sales channel.
Referring to Communities, thinks its a little cost prohibitive for the SMB sector.
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Reports that salesforce added a new industry segment consumer markets and thinks
CRM penetration in such B2C markets is low.
Industry contact 9
Our fourth quarter ended up being very strong and ended up finishing the year 15-20%
above his goal. Adds that this year already the first six weeks have been better than the Q1
goals and everything else is gravy. Adds that January was a record month but I think
February is going to eclipse January.
As far as Salesforce goes its full speed ahead.
Seeing a number of existing customers expanding on the platform. Referring to brand new
engagements, he categorizes them as being larger because its not just Sales Cloud or
Service Cloud, its some of those with additional Force.com [licenses] on top of it.
Refers to a few large accounts that signed up for the Salesforce platform. We seem to have
more and more engagements on the consulting side that are quickly turning into successful
projects for implementations.
Thinks that the Salesforce1 platform is a great option for an enterprise thinking to go the
mobile application route. Adds however, that the development tools provided by Apple or
Android are more robust at this point in time, but thinks salesforces platform will quickly
accelerate.
Mentions that he closed several big deals [6-figure consulting projects] and highlights
Financial Services and Technology as two verticals with good traction. Adds that such
consulting projects foreshadow license deals.
ecosystem], I think they are all a little tired because I know they are all pushed pretty hard
to get to year endI think all of them have kind of eclipsed their goals, which is great.
Reports that some of the typical year end changes among the sales structure in terms of
movement of reps are creating some level of loss of continuity with a few accounts, resulting
in minor frustration among clients.
Mentions that with verticals being identified, there are a lot more reps even in smaller
marketsthere are more reps around to support more accounts.
Feels confident about the pipeline.

Industry contact 10
Based on his conversations with a number of salesforce.com system integrators (SIs) focused
mainly on the Service Cloud, all said they [SIs] had a good quarterall of them are hiring
as fast as they possibly canall of them were complaining that they are short staffed and
there is plenty of project workthats frankly the first time [in a long time] that I have heard
true desperation for staffing. Thinks that the desperation was more in the latest Q4 as
compared to a year ago. If thats any indication, they [salesforce.com] must have a pretty
healthy quarter.
I think in general I got this sense that everybody is swamped and everybody is really happy.
Talking about changes in the structure of the sales organization and the hiring of a lot of
Oracle sales executives, refers to some changes in the sales compensation. I know that a lot
of the overlays now have some of their own clientsits more co-selling than it was and that
they are now responsible to hit a certain sales quota. Thinks that the overlay teams and the
verticals are critical to salesforces success. Thinks that in general the impact [from sales
changes] is probably more at the enterprise levelits a smaller portion of the organization
but its a critical part of the organization. Also mentions that SIs are frustrated with the
changes in their salesforce.com channel contacts.
Thinks that FY2015 would be the first year where salesforce.com could have a real impact
from Marketing Cloud. Thinks salesforce.com partners are scouring, trying to figure out
how this whole ExactTarget thing will shake out for them as partners of salesforce.com.
Lots of them are jumping through hoops to get ExactTarget certified.
Talking about Salesforce1, we have some of our own customers that are playing with it and
have said they are going to adopt it as their platform going forwardI think its going to
be faster adoption than everybody thinks it will based on what I have seen with my really
big customers.
Industry contact 11
Theres definitely a lot of demand. Theres also a hell of a lot of competition for us. Theres
a lot of consulting firms in the mix.

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He notes that his demand is coming from Sales Cloud, Service Cloud and the Force.com
platform. His largest verticals are financial services, high tech and life science. His largest
engagements are near seven figures, and the engagements are growing in size and complexity.
He clarifies that increased size and complexity come because organizations are looking to
port their entire platform over to the salesforce.com platform, so theres just a heck of a lot
more work. The entire platform refers to applications, like sales, marketing and customer
service, and other back-office systems like accounting/ERP. If a customer maintains their
accounting/ERP systems, his firm will integrate it with cloud apps the customers chooses
to move to Force.com with tools like Scribe, Jitterbit, Boomi or Informatica.
He hasnt noted any pushback from standardizing on a single vendors technology. It hasnt
come up. If anything theyre looking to go to one platform.
His practice grew mid-teens in 2013, and expects 2014 growth to be higher than that.
Regarding the Q4 success of sales reps in the CRM ecosystem, Its hard to say. I know they
closed a lot of business and there was a lot of business that was just teetering at the end and
I dont know if they were able to push it over the edge. There were a lot of engagements
in play.
He doesnt have much of an opinion on Salesforce1 yet. He thinks it looks interesting and
I think they needed to have some sort of better mobile offering.
He hasnt detected any weakness in demand. I havent seen any softening at all.
CRM is putting its emphasis on working with larger partners. Theyre building out PwC,
Accenture and Deloitte, but they have to do that in order to get the big accounts.
Industry contact 12
Everything looks up and up.
Salesforce1 is a big thing right now.
He reports that in the fourth quarter, For the [reps in the sales force automation ecosystem]
that we deal with they did really well.
He observes that insurance and life sciences have been strong verticals, and that the retail
space has also been performing well for salesforce.com. Retail is adopting customized
Force.com applications and mobility solutions using Salesforce1.
He thinks his practice grew 150% last quarter, which includes consulting work for a few
other cloud vendors in addition to salesforce.com.
Large customers are worrying less and less about running their data in the cloud, but it
still comes up from time to time. He called out an AppExchange partner, CipherCloud,
which does data encryption, so that a company can have its data in the cloud but have it be
encrypted and not be publicly facing. Organizations opposed to putting data in the cloud
are not mainstream anymore. Its definitely not the norm. Its more the exception than the
rule.
Industry contact 13
He highlights that plenty of opportunity remains for salesforce.coms Sales Cloud as a

lot of companies are still struggling with their [on premise] CRM systems. He cites an
opportunity in financial services to replace an incumbent called Redtail, which is SaaS
based, but whose mobile capabilities are lacking.
He mentions that a lot of companies are under-utilizing their current salesforce.com

installations, which provides his firm with a training opportunity to increase the ROI.
Lately [sales reps] have been very focused on selling licenses like crazy. What I guess from
what I have seen and heard is that they did really well.
During the end of his Q4 he had some consulting work slip into Q1, but at least one of
those deals closed in Q1 already.
Salesforce1:
His firm uses Salesforce1 internally. In our business we work with projects and milestones
and we have activities tied to milestones. Every time we do any sort of [billable] work, all we
have to do is just go to our phone and then access our milestones and update our activities
inside the milestones.. Its the same thing with sales, if they want to update an opportunity
they can easily use Salesforce1 from their mobile devices. He isnt saying he cant already
log into salesforce.com from a mobile device, but with Salesforce1 you can configure it to
display what you want it to display. You dont have to show everything Its a lean user
interface. He indicates its much easier than accessing the full salesforce.com application
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He mentions that Salesforce1 makes the salesforce.com application sticky. Who doesnt
have a smartphone?
Industry contact 14
From his perspective with respect to the Salesforce practice, Demand is there.things
are going goodseeing a lot of existing customers also wanting to do new things,
enhancementAlso, seeing new deals coming here and there, which is great.
With respect to new deals, seeing traction in sales cloud as well as service cloud. Also seeing
demand for some partner products in the area of CPQ (configure, price, quote).
Would love to see more action in the Marketing Cloud. Has not seen much activity as
of yet in that space.
Heard that there is an 80,000 seat [Service Cloud] deal somewhere in the market
Calculates that with a list price of around $250/user and a 40% discount brings it to about
$12M for a year or about $60M for 5 years.
Indicates that the pipeline is looking good.
With Keith Block on board, reports that the expectation in the Salesforce ecosystem is that
the partner ecosystem will improve big time.
Indicates increasing competition in the platform side from Amazon AWS and Microsoft
Azure. Salesforce needs to reduce price or do something.
Indicates that Salesforce1 is the same Force.com platform with enhanced integration
capabilities and more mobile centricity.
Price Target We will examine our price target after CRM reports its FQ4 earnings on Thursday, February
27.

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53 CRM Partners Finished 3.4% Above Plan; Expect Consistent Q4
PRICE: US$63.02
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$60.00
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
70
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 53 salesforce.com partners and found that 2 of the 3 major metrics we track
improved y/y, while one deteriorated. Partners finished 3.4% above plan on average for
Q4, slightly better than last quarter's 3.2% but less robust than the Q4 norm of 5%
above plan. On the positive side: 1) observed momentum for the Force.com platform
and Service Cloud (the two most important pillars of multi-year growth) moved to
new highs; and 2) Partners expect their own salesforce.com practices to grow at exactly
the same rate for 2014 as they experienced in 2013, thus overcoming the law of larger
numbers and supporting our 28% revenue growth forecast. Although we acknowledge
already-high expectations due to recent outperformance in CRM shares, we conclude
that the business was on track for FQ4 and is building up to a strong FY15.
Partners Finished 3.4% Above Plan for Q4. Partners were 3.4% ahead of plan, a
downtick versus an average of 4.9% ahead of plan for Q4s in the last four years
but consistent with Q3 feedback. Overall, we think these results should be viewed
holistically in the context of both a variety of positive market dynamics (movement
of workloads to the public Cloud, CRM-specific momentum with Service Cloud and
Force.com, etc.) and also some negative market dynamics such as oft-noted emerging
markets weakness for a variety of enterprise IT firms and a potential lull in business
following the US Federal Government shutdown last October.
Silver Linings in the Data. While the "percent of plan" data lagged slightly below
historical Q4 norms, and this is an important observation with CRM shares already
up 15% in the first 6 weeks of 2014, we sensed some important silver linings in
the data which keep us positive on the longer-term outlook. First, the other two
major metrics we track, Pace of Business and Bookings Expectations, while generally
less-scrutinzed than the percent-of-plan data, improved very modestly y/y and lend
credence to our view that CRM experienced a normal/healthy Q4. Second, observed
momentum moved to new highs for the two most critical pillars of future growth:
the Force.com platform (3.83 versus 3.72 in the prior survey) and Service Cloud (3.71
versus 3.54 in the prior survey). In particular, Force.com addresses the largest, most
open-ended and stickiest TAM of all CRM products. Third, Partners expect their own
salesforce.com practices to grow at exactly the same rate for 2014 as they experienced
in 2013, thus overcoming the law of larger numbers and supporting our 28% revenue
growth forecast. Bottom line, we continue with our recommendation of owning CRM
shares as a core long-term position and adding to positions on pullbacks rather
than upward spikes, with an expected EV/FTM revenue trading range of roughly
5-8x during normal market environments. ***See Page 2-3 for Detailed Tables and
Charts***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,052.1E 13.2x 10.0x
892.6A 957.1A 1,076.0A 1,126.3 4,052.1 5,166.7 10.0x 7.8x
1,174.7 1,259.6 1,335.0 1,397.4 5,166.7 7.8x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.09A 0.06 0.33 0.48 NM NM
0.07 0.12 0.15 0.14 0.48

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April 2014
Fe b r u a r y 2 0 , 2 0 1 4
Force.com Platform Showing
Significant Momentum
We asked partners to rate 12 salesforce.com products in terms of their momentum within
their base of customers and prospects, and the Force.com platform ranked highest at 3.83
out of 5, up from 3.72 in FQ3 and 3.68 in FQ2. Adoption of the Force.com platform is
crucial because it invokes a larger TAM than any of the core pillars (roughly $50B), offers
a longer-tail growth curve, and creates stickiness across the entire suite. This carries major
implications for the long-term success of salesforce.com, and is another reason why we
believe investors with a long term horizon will be rewarded.
Exhibit 1: Detailed Survey Data (Time Series)
Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
CRM: Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14 Q3:FY14 Q4:FY14
Sample Size 45 50 52 52 50 55 47 50 42 42 50 47 45 48 50 53
% of Plan: 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6% 4.2% 5.0% 3.1% 6.9% 3.2% 3.4%
Better Pace of Biz 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0% 57.1% 44.0% 55.3% 40.0% 50.0% 46.0% 47.2%
Same 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5% 44.0% 29.8% 52.5% 45.8% 46.0% 47.1%
Worse Pace of Biz 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4% 12.0% 14.9% 7.5% 4.2% 8.0% 5.7%
TOTAL 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7% 32.0% 40.4% 32.5% 45.8% 38.0% 41.5%
Above Expectations 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7% 36.0% 38.3% 22.5% 27.1% 34.0% 32.1%
Inline 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2% 52.0% 48.9% 70.0% 68.7% 62.0% 64.1%
Below Expectations 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1% 12.0% 12.8% 7.5% 4.2% 4.0% 3.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6% 24.0% 25.5% 15.0% 22.9% 30.0% 28.3%
Product Momentum, 1-5
Force.com Platform 3.80 3.49 3.68 3.72 3.83
Service Cloud 3.91 3.39 3.60 3.54 3.71
Sales Cloud 3.72 3.68 3.40 3.60 3.40
Chatter 3.62 3.76 3.38 3.56 3.40
AppExchange -- 3.36 3.34 3.44 3.37
ExactTarget -- -- 3.21 3.22 3.29
Radian6 3.36 3.21 3.13 2.88 2.92
Heroku 2.94 3.00 3.11 3.06 2.89
Data.com (JigSaw) 3.36 2.98 2.94 2.84 2.79
Database.com 3.13 2.93 2.85 2.84 2.72
RemedyForce 3.06 2.93 2.74 2.65 2.75
Buddy Media -- -- 2.74 2.78 2.74
Work.com (Rypple) -- 2.98 2.72 2.55 2.71
Expected Growth,
Current/Upcoming Year 20.9% 25.9% 29.8% 24.4%
Expected Growth, 21.6% 24.5% 27.9% 23.1%
Excluding Outliers
1.6%
3.3%
6.1%
3.3%
4.6%
4.2%
5.0%
3.1%
6.9%
3.2%
3.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
CRM Partners as % of Plan
40.0%
38.3%
64.0%
38.1%
54.7%
32.0%
40.4%
32.5%
45.8%
38.0%
41.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
CRM Partners Pace of Business Net-Better %
14.6%
19.2%
30.0%
16.7%
28.6%
24.0%
25.5%
15.0%
22.9%
30.0%
28.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
CRM Partners, CRM Bookings Expectation,
Net-Above %

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April 2014
Fe b r u a r y 2 0 , 2 0 1 4
Exhibit 2: Product Momentum
3.72
3.54
3.60
3.56
3.44
3.22
2.88
3.06
2.84
2.84
2.65
2.78
2.55
3.83
3.71
3.40
3.40
3.37
3.29
2.92
2.89
2.79
2.72
2.75
2.74
2.71
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
Force.com Platform
Service Cloud
Sales Cloud
Chatter
AppExchange
ExactTarget
Radian6
Heroku
Data.com (JigSaw)
Database.com
RemedyForce
Buddy Media
Work.com (Rypple)
Please rate the following salesforce.com products in terms of
their momentum within your base of customers and prospects
(5 = gaining significant momentum, 1 = losing significant
momentum)
Q3 FY2014 Q4 FY2014
Source (All) : Piper Jaffray Research
Price Target We expect to reexamine our price target after salesforce.com's earnings conference call on
Thursday, February 27th, 2014.

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April 2014
No v e mb e r 2 6 , 2 0 1 3
Survey Says: CRM Answers Partners' Wishes With Salesforce1
PRICE: US$52.75
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$60.00
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
Prior to Dreamforce, we asked 50 salesforce.com partners what they thought would
be the most logical "next new area" for salesforce.com to enter. A material overhaul
of its Mobile offerings ranked first at 34%, followed closely by the desire for a Big
Data & Analytics Cloud at 30%. The survey results are a very strong validation for
the introduction of Salesforce1, a new mobility-focused platform stemming from a
fundamental rewrite of the Force.com platform and a 10x increase in API functionality.
The goal is to enable salesforce.com's breadth of applications and its ecosystem of
third-party applications, which were written for web browsers, to run automatically
on iOS and Android platforms. Bottom Line: because it delivered exactly what its
partner ecosystem desired (enhanced Mobility), we believe salesforce should be creating
a monetizable opportunity, while clearly carrying the potential to move into Big Data &
Analytics over time. OW, $60 target.
Survey of 50 CRM Partners PRIOR to Dreamforce. We asked partners "In your

opinion, what is the most logical next new area for salesforce.com to enter, and why?"
34% of the partners surveyed wanted to see a material overhaul of salesforce.com's
mobile offerings, while another 30% wanted salesforce to offer a big data and analytics
cloud. 10% voted for a Financials Cloud, 10% voted for an eCommerce Cloud, 6%
voted for a Core HR Cloud, 6% voted for a Talent Management Cloud, and 4% voted
for a Supply Chain Cloud.
Quotable Quotes Regarding Mobility: 1) "Mobile is key to the future of cloud

software"; 2) "Advent of BYOD, current SFDC mobile apps need a retool."; and 3)
"This seems to be the area of the market place that everybody wants, but also that
is moving the fastest in terms of frameworks and expectations. As a result, I would
venture a guess that it is the highest priority for them."
Quotable Quotes Regarding Big Data & Analytics: 1) "Because companies are
aggregating sales & marketing related information from various channels and they
need powerful tools to analyze it in a timely manner."; 2) "Logical that salesforce.com
would focus on helping its customers to make sense of and leverage the flood of data
now available."; and 3) "Marketing and big data are linked. The ET purchase allowed
SF to put their foot in the water on marketing but in order to 'own' the space they
need to continue to accelerate, innovate and provide a complete offering. Pardot is not
an enterprise tool, so the goal should be to enhance ET's automation offerings and
enable in depth analysis and reporting (on all marketing components)."
*** Chart and Detailed Responses on Pages 2-4***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,052.1E 11.1x 8.3x
892.6A 957.1A 1,076.0A 1,126.3 4,052.1 5,166.7 8.3x 6.5x
1,174.7 1,259.6 1,335.0 1,397.4 5,166.7 6.5x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.09A 0.06 0.33 0.48 NM NM
0.07 0.12 0.15 0.14 0.48

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April 2014
November 26, 2013

Exhibit 1
SURVEY DATA SUMMARY

34.0%
30.0%
10.0%
10.0%
6.0%
6.0%
4.0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Materially Overhaul its Mobile Offerings
Offer a Big Data & Analytics Cloud
Offer a Financials Cloud
Offer an e-Commerce Cloud
Offer a Core HR (Human Resources) Cloud
Offer a Talent Management Cloud
Offer a Supply Chain Cloud
In your opinion, what is the most logical next new area for
salesforce.com to enter, AND WHY?


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April 2014
November 26, 2013

Exhibit 2
MOBI LE

Mobile is where it's at right now
The Mobile has been lacking in the last two years, both in terms of apps as well as the mobile UI. Expecting them to
announce their mobile platform at Dreamforce, and then use the new features to expand on the mobility theme. As a
second, expect them to get more into HR cloud.
Mobile is the way the IT world is going.
Mobile refresh will also benefit web interface.
Cross platform UI next logical step to maintain market leader position.
Mobile is where everyone wants to quickly access this info, the experience needs to be better.
This seems to be the area of the market place that everybody wants, but also that is moving the fastest in terms of
frameworks and expectations. As a result, I would venture a guess that it is the highest priority for them.
There has been a significant increase in the need for mobile Salesforce CRM and related applications.
The need for mobile applications has increased significantly. There is a significant increase in demand for integrated
financial accounting and supply chain management.
Mobile is key to the future of cloud software.
Mobile is a huge requirement in all projects, redesigned Mobile UI and offer offline/disconnected capability.
Global clients will already have tools / systems in place for other options. Mobile still needs full offline option.
Many deals are focused on Mobile and customers want a clear strategy from SFDC with defined roadmap and app
available.
Advent of BYOD, current SFDC mobile apps need a retool.
Exhibit 3
BI G DATA

Because companies are aggregating sales & marketing related information from various channels and they need
powerful tools to analyze it in a timely manner.
Marketing and big data are linked. The ET purchase allowed SF to put their foot in the water on marketing but in order to
"own" the space they need to continue to accelerate, innovate and provide a complete offering. Pardot is not an
enterprise tool, so the goal should be to enhance ET's automation offerings and enable in depth analysis and reporting
(on all marketing components).
Every organization needs better analytics and there are limited options
Big Data is important for Marketing and internal development. It is something that is vital part to a company's
infrastructure and business plan.
Everyone's going to need it.
Logical that Salesforce.com would focus on helping its customers to make sense of and leverage the flood of data now
available.
Biggest weakness against competitors.
Big time "movement/hype" in that area.
Big Data continues to be talked about in all aspects of our business.
Infrastructure is in place for it.
Increasing trend towards analytics.
Big data is very much on the mind of CEOs and they are asking about it.
The Internet of Things seems to be gaining steam and how the data derived from each device is managed will be big
business.

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April 2014
November 26, 2013

Exhibit 4
FI NANCI ALS CLOUD

CRM is their strong suit but most companies want a seamless integration into their back end financials. And with their
cloud expertise it should be a no brainer for them to enter this market.
Full circle Lead to Order makes sense, but will need to have different levels of complexities. FF [Financial Force] offers a
good mix but is highly complex. Need financials before analytics can be worth anything.
Take sales from Oracle. Nobody likes them and users will pay extra to get away.
Compete with NetSuite
Exhibit 5
E- COMMERCE CLOUD

With the acquisition of ET, they now have thousands of B2C brands that have material e-Commerce needs. They have a
ready base of clients to sell into and the email capabilities now with ET.
Tough decision, many of the above should be explored but e-Commerce would probably yield the most interest.
Would LOVE to see e-Commerce cloud. May of our customers are looking for CPQ [Configure, Price, Quote] or shopping
cart capabilities. We see momentum in overall Sites development and B2C - I think this would be a huge growth area!
While Salesforce has seemingly addressed the Marketing Cloud unless it fully integrates it into one platform (one data
base) it will be fundamentally less practical for clients. In other words my vote would be to make sure they truly address
core requirements before jumping on the next big thing.
Exhibit 6
CORE HR CLOUD

HR departments have the vast majority of files and data that they need to keep for long periods of time and I find that it
would be extremely beneficial for HR departments to have a specialized instance to work with.
Exhibit 7
TALENT MANAGEMENT CL OUD

Seems like a key need and it can be woven into current key areas nicely.
SFDC needs to move into the training for revenue sector as it is a revenue stream that is largely untapped.

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April 2014
November 26, 2013

Exhibit 8
SUPPLY CHAI N CLOUD

There are no real players in the Cloud space for Supply Chain, and it is a logical extension of Sales Cloud.
I talk with a lot of customers that have tangible needs for Inventory Management and Logistics.

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April 2014
No v e mb e r 2 6 , 2 0 1 3
Partners at Dreamforce Bullish on Mobility, Growth
PRICE: US$52.75
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$60.00
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with 20 salesforce.com partners during Dreamforce give us
incremental confidence in the trajectory and sustainability of market share gains for
CRM. Key Points: 1) Forward-looking growth rates across the ecosystem of services
partners and Force.com ISVs look solid, with some large services firms forecasting 30%
+ next year and a few forecasting 40-70%; 2) Partners sense deal sizes are increasing
and report greater confidence in converting the pipeline, with one of the largest CRM
partners assessing its pipeline as "bigger than it has ever been;" and 3) Partners either
opined that Salesforce1, the company's newly branded platform optimized for Mobility,
was a catch-up move or positioned CRM ahead of competitors; but all indicated an
inflection point in mobility-focused customer conversations and expect salesforce to
benefit. We continue to see CRM as a core long term holding. OW, $60 PT.
Notable Quotes
(+) "Seeing a lot of conversations around mobility."
(+) "Salesforce never had a mobile strategy until now. With Salesforce1, Salesforce is
providing the easiest, fastest and effective way to build enterprise mobile apps."
(+) "Seeing continued strength in Sales. There is still a lot of room. They are barely
scratching the surface in Europe. Japan is just getting started."
(+) One contact refers to his pipeline as "bigger than it has ever been," with average
deal sizes of $2-3m, and a few deals in the 8-figure range.
(+) One partner mentions that his confidence in converting his pipeline "was never
higher... If I have 10 prospects I am very confident of converting 8 of them."
(=) "Salesforce1 is old wine in a new bottle".

***Detailed Feedback on Page 2-5***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,052.1E 11.1x 8.3x
892.6A 957.1A 1,076.0A 1,126.3 4,052.1 5,166.7 8.3x 6.5x
1,174.7 1,259.6 1,335.0 1,397.4 5,166.7 6.5x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.09A 0.06 0.33 0.48 NM NM
0.07 0.12 0.15 0.14 0.48

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April 2014
No v e mb e r 2 6 , 2 0 1 3
Industry Contact 1
Has brought close to 30 people to Dreamforce. They got their largest customer at
Dreamforce.
Hearing a lot of inquiries from customers about Salesforce1 and wanting to build out their
mobile strategy.
Salesforce never had a mobile strategy until now. With salesforce1, Salesforce is providing
the easiest, fastest and most effective way to build enterprise mobile apps.
Salesforce has always been API-based and that makes them easier to embrace mobility as
compared to Oracle or SAP.
Mentions that his confidence in converting his pipeline was never higher. "If I have 10
prospects I am very confident of converting 8 of them."
Salesforce has finally gotten the messaging right. "Social Enterprise" messaging was not
doing the trick. Companies outside the Bay Area won't get that. But companies get the
connected customer messaging.
Industry Contact 2
Latest thing we're doing is a lot of mobile development on the Touch SDK from CRM. We've
developed apps for two large US telcos so the field reps can view their schedule, customer
data and allow customers to sign off on work done in the field.
We did a custom mobile app for a confectionery company that allows a delivery driver to
view the store inventory when he arrives at a store (e.g. Safeway), and then reorder based
on current inventory.
For a large U.S. life insurance company we built a custom app that allows private wealth
management reps to have access to client data, both online and offline.
Did a custom mobile app for a or medical device company that lets a doctor, once he
completed a surgery, take inventory of everything he used during surgery that needs to
be replaced. That data is then sent to the purchasing department to keep appropriate
levels of inventory and equipment, and helps reduce expenses based on buying unnecessary
equipment or supplies.
Industry contact 3
We do Salesforce only. Growing 30%
Salesforce1 was more of a catch-up move. Not sure it pushes their mobile ahead of others.
But no one has really had their hands on it to do anything deep with it yet. We have heard
about it, but haven't done enough with it yet to really make a judgment.
What usually happens is customers buy Sales Cloud first. Service Cloud goes in later, and
is generally a smaller deal.
We do some integration work with Eloqua and Marketo. We have occasionally seen an
ExactTarget customer move to one of those products. Not because ExactTarget is bad, but
because they need more specialized functionality. For example lead scoring. Marketo is very
good for that. No, we don't think we have seen customers moving from Marketo or Eloqua
over to ExactTarget quite yet.
Industry Contact 4
A technical guy at Oracle looked at Salesforce1 and said Oracle won't have anything that
can touch it in the next 2 years.
Their CRM practice will grow 50% next year hopefully.
Service Cloud is the real story. If a company has 50 sales reps, they have 500 people in service.
Its 10 to 1. Yes, Service Cloud could be bigger than Sales Cloud. Service is the place to be.
FinancialForce is also an important piece, as is Remedyforce but only for the really large
customers.
Industry Contact 5
Pipeline is bigger than it has ever been. Average deal sizes of $2-3m, with a few deals in the
8-figure range.
Seeing continued strength in Sales [Cloud]. There is still a lot of room. They are barely
scratching the surface in Europe. Japan is just getting started.

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April 2014
No v e mb e r 2 6 , 2 0 1 3
Also a lot of deals in Service Cloud.
ExactTarget will take some time - maybe about a year. "It's a [weak] tool", especially for
marketing automation. However, he is optimistic about ExactTarget. In his view, Marketo
and Eloqua lead that area.
Industry contact 6
Focused on Salesforce across the world. Opening an office in Australia and developing a lot
of capabilities in Japan.
Seeing a lot of conversations around mobility.
Deal sizes vary from 5k seats to smaller.
Implementing at a large British telco at present. Signed implementation contract in June.
Seeing some "net-new to salesforce" customers in this Dreamforce.
Service Cloud deals are typically larger dollar value but complex in nature, with telephony
integration etc. So, slower to close.
Industry contact 7
50 people in this salesforce practice, goal is to double that in next 12 months.
"We see a lot of pipeline."
Salesforce1: the problem was, you built an app for a web browser and whatever you built,
it didn't work on mobile. Touch used different code. With Salesforce1, whatever you built
on the web, runs automatically on mobile. And, it worked OK on iPhone in the past, but
not Android. Now it works well on Android too - "one of our guys was showing us that
last night on his Android phone. Custom stuff, reports, everything - whatever you built for
the web browser, now it will run on mobile automatically." Yes it is a big leap forward, but
probably more of a catch-up move when you compare it to some of the other companies
on AppExchange.
Service Cloud will be a big area. "Our business is mostly Sales Cloud, but Service makes
sense and we do have customers moving off of legacy service apps and onto Service Cloud."
Industry contact 8
CRM practice growing 70% organically without acquisitions. Headcount won't grow that
fast next year, but revenue will.
We built an app on Salesforce1, for Salesforce.
We are trying to push ourselves to do more Service Cloud and Marketing Cloud.
Industry contact 9
We view the automobile as a future platform. Bandwidth available to automobiles will now
allow for custom apps to be written and used for automobiles.
Nissan uses the Service Cloud and Ford used the Sales Cloud.
Detroit knows they have to catch up to stay relevant, and are starting to embrace new
technology that will improve the customer experience and increase retention.
In Financial Services we're doing a lot of work with asset management firms to build a new
front end for legacy apps and rewrite legacy apps on the CRM platform.
Industry contact 10
This firm is growing at about 35% a year.
"We do a lot of work for implementing the Service Cloud. Our go-to partner is Five9, but
we'll also do work with Live Ops and inContact. Those are the only vendors we like because
they're pure cloud plays."
Thinks Salesforce communities are going to be interesting. "This is really something to

replace portals."
Portals are something that's very necessary for a lot of companies, but they're old and not
very well designed.
Industry contact 11
In Consumer products and retail, companies actually buy Service Cloud first, and yes they
spend more on that than they spend on Sales Cloud.

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April 2014
No v e mb e r 2 6 , 2 0 1 3
With Salesforce the discussion is: what do customers want to do differently with it or add to
it this month or this quarter? With other technologies you can only think about that every
10 or 12 months. So it moves a lot faster with Salesforce.
"Internally we use both Salesforce and Siebel. Between us, I'd be really glad if we would
move off of Siebel entirely and just use Salesforce."
Industry contact 12
Seeing a lot of customers coming up and asking about mobility.
Seeing a lot of traction in marketing. Thinks marketing automation is getting lot of traction
and many companies don't have any idea what it is. Hearing a lot about Marketo. Thinks
that there is enough room in the market for multiple players.
Seeing a lot of large deals, in the works, in the San Francisco Bay Area. Seven figures and
a few eight-figure deals.
Industry contact 13
Chatter immediately switched to Salesforce1; "I wish they would have told us that was
coming instead of just doing it."
There are several AppExchange partners that can get healthcare companies to use CRM
despite cloud storage. One deal he did was with a German healthcare company that stored
the data with a third party and used an on-premise device to scramble and unscramble the
data as it was sent back and forth. All the data appeared as if it would come straight from
CRM when you're working in the app, and there's no data latency. Difficult to design the
solution but it works very well.
Industry contact 14
Does a lot of work migrating custom marketing applications to CRM's platform. These
apps are usually written in .NET and Java. "We've done a lot of work with HP since they
became a big CRM customer and we're currently working with them to try and get them to
move their customer marketing app to the CRM platform."
Industry contact 15
Continues to see a lot of deals in Sales. Starting to see lot if traction in services as well.
Still continues to see many clients who have on-premise installations or are not using any
CRM tool at all.
Thinks 2014 will be the year where a big chunk of these companies will come out and adopt
the cloud/mobility and Salesforce will be a big beneficiary.
Salesforce1 is "very real and not BS". Talking about customer reaction, refers to one of his
clients who came back and said that he is being blown away by Salesforce1.
Industry contact 16
Doesnt see ExactTarget as a true marketing automation tool. Acknowledges that Salesforce
is working toward it. "It's still an email service provider."
Also, doesn't think Salesforce has good integration points between Sales Cloud and
Marketing Cloud at this point in time.
Industry contact 17
This is the most significant Dreamforce in the last 4 years.
Salesforce's strength has been the API-based architecture, and they are exposing even more
now.
Has had a lot of customer conversations in Dreamforce about expanding their footprint.
Industry contact 18
"We did a cool geo-location based mobile app for a real estate company." This is so that
agents can market, prospect and conduct incident resolution much easier in the field.

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Industry contact 19
Salesforce1 is "old wine in a new bottle."
Its the same platform, but they are exposing many more APIs now. "They didn't want to
release that without branding, because they won't be able to price for it then."
Industry contact 20
Seeing traction in all the clouds. Stressed Platform traction.
Europe is starting to pick up pace as well.

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Deep Dive CRM Checks: Staggering Demand for Force.com
PRICE: US$57.31
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$60.00
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep dive interviews with 11 key contacts in the CRM ecosystem to
provide an extremely detailed window into the salesforce.com landscape. Key takeaways:
1) Contacts indicate that strong momentum continues for salesforce.com and regarding
demand, noted I think theres plenty of business. Theres a ton of business out there...;
2) Contacts are bullish on new President & Vice Chairman Keith Block, noting that he
has been removing the inefficiencies in the firm with respect to go-to market and is
starting to shine the light on some accounts that should be larger than they are;
3) Nine of the 11 contacts mentioned Force.com being brought to the forefront of
conversations and ascending into a critical development platform; and 4) One contact
noted a 9-figure deal in the works, along with several deals in the $20-30M range.
Reiterate Overweight, $60 PT.
Notable Quotes:
(+) I dont think there should be any concern [regarding the quarter] because our
own data in terms of inquiries and opportunities we are seeing, its all going up.
(+) One source mentions that he saw a huge healthy spike in enterprise IT
conversationsCIO conversations.and closures.
(+) The average deal size is improving in a big wayevery deal they are trying to go
after is becoming an enterprise deal.
(+) I think they [salesforce.com] had a very good third quarter.
(+) Salesforce is going from strength to strength
(+) Were expecting to [quintuple revenue] in the next two years.
(+) I think theyre still innovative. I think theyre ahead of the curve.
(+) In general, we are well ahead of goal for the year. Thats the good news.
(=) No change in the pipeline I havent heard anything negative.
(-) I am definitely not hearing a lot of happy sentiment to be honest with you." ***
CONTINUED on Page 2***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,004.5E 11.7x 8.9x
892.6A 957.1A 1,052.5 1,102.3 4,004.5 5,115.9 8.9x 7.0x
1,183.2 1,259.6 1,305.7 1,367.5 5,115.9 7.0x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.08 0.06 0.33 0.48 NM NM
0.10 0.13 0.13 0.12 0.48

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Positive Feedback (10) Industry contact 1
Salesforce is going from strength to strength Mentions that there is a groundswell of

support for Salesforce and it is only getting stronger.
This company somehow seems to have some sort of magical touch. Whatever they talk
[about], there is a significant constituency for them who wants to try out those things. There
are people who want to take them at face value thats a loyalty thats very difficult for an
enterprise software company to build and gain in such short time. Compares salesforces
aura to that of SAP in the early 2000s.
Probably, they are the fastest growing enterprise software company today and I think they
will continue to be like that for the next two, three quarters at least.
Talking about the product line with the highest momentum, explains that in terms of license
conversions thats the Service Cloud and in terms of discussions its Service Cloud and
Marketing Cloud.
Senses that its important for Salesforce to build the aura around Marketing Cloud now, as
this is the time when enterprises finalize their IT budgets for 2014 and any benefits could
be reflected in Q1-Q3 of next year. I think they have created the right buzz [at the right
time around ExactTarget and Marketing Cloud in general]and its helping customers to
provision something in the budget planning exercise this year.
On the slightly negative side, mentions that the industry domain expertise or their services
expertiseis not scaling up with the product vision and the marketing message that
they give. Opines that Salesforce could do much better if they get the right talent and
investments in these areas.
Observes that the Marketing Cloud with assets such as Radian6, ExactTarget, etc. is being
run as a separate company within salesforce.com and is consolidated under Scott Dorsey.
Keith Block is running all the non-Marketing Cloud business and Vivek Kundra is taking
control of all the industry focused solutions. These are the three power centers now.
Senses that Scott Dorsey and Keith Block are actually being seen as competitors next in
line to Marc I am hearing Salesforce insiders tell me that the next CEO will be Scott
he is really being promoted in such a big way.executives are trying to align with Scott
substantially, thinking that he is the winning horsevirtual polarization is happening
internallyone part of the organization wants to be on the marketing side [and] the other
part wants to be on the sales, service and enterprise side. Observes that Marc Benioff
is trying to make everybody else work through these two people (Scott Dorsey and Keith
Block).
Heard that Scott Dorsey sold his company just through his conversations with Marc and
that Marc was been very, very impressed with Scotts vision and articulation.
Mentions that Keith Block has completely dismantled the power structure and today
about 50 executives directly report to him.
Indicates that the marketing organization has its own sales force and when a core enterprise
sales rep brings in a marketing deal, both get credit and vice versa.
Thinks that Dreamforce 2013 will be focused around Partner centric solutions, i.e. vertical
solutions built by partners on Force.com.
Based on his conversations with sales reps [in the customer relationship management
ecosystem], he didnt see [any] worry among reps but sensed that people are extremely
busy, maybe because of DreamForce. I dont think there should be any concern [regarding
the quarter] because our own data in terms of inquiries and opportunities we are seeing,
its all going up.
Observes that the average deal size is improving in a big wayevery deal they are trying
to go after is becoming an enterprise deal. Thinks that blockbuster deals is not an
appropriate index to measure Salesforces success. All I am seeing is currently, [deals]
starting at around $800k and it goes up to $8M. Adds that earlier the deals used to start
at around $400k, but now the initial deals are 800k-$1M.
Talking about the pipeline entering Q4, I feel very, very good about it. Reports that he
has seen five new inquiries come in today [the day we spoke with him] in the morning from
9am1pm. Adds that the inquiries are mostly around Service and Marketing Cloud.
Reports that Salesforce is now starting to sell packaged deal ELAs involving a couple of
different modules such as Sales Cloud and Service Cloud or Service Cloud and Marketing
Cloud etc. Those types of deals are becoming commonplace. Explains that in such deals

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if the overall value for the package is good, customers might buy ELAs that might give them
access to more Sales Cloud licenses than required. Or the per seat cost for Sales Cloud in a
composite deal may not be comparable to per unit sale of a Sales Cloud license. So, explains
that its becoming difficult to measure which cloud is growing faster. Thinks the average
number of modules involved in packaged deals is three.
Reports that many companies have separate instances of Salesforce running in different
divisions or departments and whenever people want to consolidate the instances,
Salesforce makes a killing.
Indicates that Keith Block was supposed to make the final call regarding the changes to
the sales structure and the comp structure with sales by the first week of November, before
Dreamforce.
Speaking about the overall IT spending environment, thinks that it is slightly betterH2
(2H: 2013) is better than H1 (1H: 2013).
Industry contact 2
Observes that Sales Cloud is moving into a consolidation market where enterprises are
increasingly consolidating disparate Salesforce instances across the organization in different
business units to have a single view of the customers. Thinks that enterprises are increasingly
looking at Salesforce as a system of engagement versus system of record.
Mentions that the momentum of Service Cloud is at its highest and is peaking right now.
Seeing large enterprises rip Siebel, put in Salesforce as a way to transform their business.
Talking about the traction of the platform, refers to an enterprise which is moving multiple
hundreds of applications to Force.com.
Thinks its too early to gauge the traction with the Marketing Cloud and havent seen a
lot of very large deals involving marketing as of now. Speculates that the Marketing Cloud
could start maturing in the next 6-9 months.
Reports that the kind of opportunities that he is seeing now have truly moved toward the
enterprise level. Adds that some fairly large deals are happening in the marketplace.
Mentions that he is already working on a number of low 8-figure deals.
Talking about deals closed in Q3, thinks Salesforce was working on a 9-figure deal with a
financial services company but not sure if it has been closed.
Opines that with the management change and the focus Salesforce is putting on large deals,
thinks we will see a very different salesforce.com in the next 12 months.
ecosystem], thinks they are very happyvery confident.very bullish. Based on the
momentum he is seeing for his services business which is based on what Salesforce is selling,
thinks Salesforce is in a very hot seat right now.
Thinks that Keith Block is removing the inefficiencies in the firm with respect to go-to
market. Heard that Keith Block has already let go two of salesforces sales presidents and has
restructured a few teams. Tony Fernicola is running global sales and is reporting to Keith
Block. Vivek Kundra is also reporting to Keith Block and is running industry applications.
Thinks that the sales force is more energized due to the changes Keith Block is making as
they are now focusing more on the large deals.
Industry contact 3
I just see a really good continuing momentum.
Heard that Salesforce billed only 1/3rd of the deal with the largest food distributor in Q2
(announced in the Q2 call) while the rest got signed in the last three weeks. The total deal
size is in high 8-digits. Speculates that the majority of the deal involves the platform. This is
from a company that has spent a billion dollars on SAP. So, its a pretty strong commitment
to the platform. Mentions that the company is looking up to sales force to provide them
with agility and ability to connect with customers.
Based on his conversations with customers globally in the last few weeks, the demand is
very strongI think the enterprises are really catching on to Force.com.
Sharing a metric that he came across recently regarding the platform opportunity, if you
went back to just Salesforces customers and you had a reasonable cost license and you try
to sell that to just the employees who are not currently using Salesforce in their customer
base, the opportunity is about 25% bigger than Salesforces total revenue today. So, if

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they execute the platform piece, and we have seen some brilliant work done in the USthey
have got a very long runway upwards.
Indicates that he is seeing staggering demand among ISVs to build on Force.com. People
are starting to build really serious applications and starting to see some terrific stuff
come out of the developer community. Thinks that evangelism around the platform is really
their play going forward.
We are increasingly seeing some very large projects being done on the platform at some
of the largest companies of the world.
Notices that Salesforce has built a very strong sales and distribution team in the platform
area, at least in the US and is hence seeing great success. Believes that salesforce is starting
to build sales coverage for the platform around the world.
Talking about the pipeline, my understanding is there are quite a few deals in the pipeline
certainly stuff in their in tens of millions [of dollars]so we are not talking about knocking
off a mid-market company for $300kthere is some serious sized stuff in the pipeline.
ecosystem], thinks sentiment is pretty positive coming off the quarter. With the disclaimer
that it was a summer quarter, I think that they did fine. Mentions that he felt that it was
a slower summer.
He expects to grow 150-175% in 2013, and expects even stronger growth next year.
Heard that Keith Block is starting to shine the light on some accounts that should be larger
than they are and that might have created some discomfort among some reps.
Industry contact 4
Were starting to get larger engagements and were doing everything above and beyond
sales, marketing (campaign management) and customer service. Were doing integrated
ERP systems, were putting up AppExchange ERP systems along with sales, marketing
and customer service. So weve really expanded what were offering our clients. The ERP
systems he helps install are third-party apps built from the AppExchange.
Over the last three years his engagements have been steadily getting larger.
We're still busy with the traditional sales, marketing and customer service systems.
Financial services, life science and high tech are his strongest verticals.
Still feels very good about end market demand and his business trajectory. He observes that
the biggest challenge for his firm is other salesforce.com partners. PwC just rolled out a
salesforce.com practice, and he reports they invested $1M just to get it up and running. I
think theres plenty of business. Theres a ton of business out there. What concerns me is
really just the competitive landscape. Im not even concerned about other products because
were not losing because of other products.
Regarding salesforce.coms competitive position, I think theyre still innovative. I think

theyre ahead of the curve.
He believes mobility and Force.com are going to be two themes at Dreamforce. However he
thinks Dreamforce provides less value for him because the people he wants to meet with are
so inundated with appointments and are so tired. He would prefer to meet with customers
and prospects during a different time of the year.
Industry contact 5
In general, we are well ahead of goal for the year. Thats the good news.
Mentions that its exploding in terms of conversations around Force.com. Seeing a lot
of strategy and application development work on the platform Force.com enablement
beyond Sales and Service Cloud.
Seeing a lot of buzz and discussions about Communities and the expansion of Chatter
and the combination of all those solutions.
Also seeing a lot of excitement around Dreamforce among customers. Observes that a lot
of customers are bringing 6-7 people from various departments to Dreamforce as compared
to may be 2-3 people at previous DreamForce. Especially to get their arms around the
platform and what it can do.
Mentions that he is seeing a lot of conversations around the Marketing Cloud, but hasnt
seen lot of people pull the trigger on it. Thinks its a compelling solution but there are
already a lot of marketing solutions from competing vendors such as Marketo, Eloqua,

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Hubspot,etc. which are embedded among Salesforce customers. Indicates that clients are
currently doing a gap analysis to understand what they already have and what is offered
by the salesforce.com Marketing Cloud.
ecosystem], in general thinks they have a positive sentiment coming off the quarter but
might get differing feedback across the sales force on a one-on-one basis. Some reps in
the enterprise spacecan barely keep their head above waterothers in the small-medium
sized base that are always looking to get aheadoverall everybody is pretty excited about
the investments they are making.
Talking about the pipeline, indicates that he is very much excited. Mentions that the third
quarter, which hasnt been traditionally strong, exceeded our expectations. So, coming
out of DreamForce, we think it [Q4] is going to be a good quarter and a great year, from
what we see so far. Mentions that he is expecting growth of 75% for 2013.
Industry contact 6
Demand is still very high.
[Whereas] we used to do a lot of implementations all over North America, were starting
to see a very high concentration on the East Coast where were primarily located. From an
industry standpoint, instead of just anybody and everybody calling us, were starting to see
a lot more industry-specific calls.
He reports that demand is for both out-of-the-box implementations and for custom work
on Force.com. In certain industries salesforce.com CRM out of the box doesnt serve their
needs well, especially if its a B2C company, theyre looking for more customization. Hes
seen more requests for custom work in healthcare and media.
I think they [salesforce.com] had a very good third quarter.
His salesforce.com practice has been doubling in size every year through 2012. Although it
wont double this year, but we still grew pretty rapidly.
Industry contact 7
Business is still going very good.
He notes the consulting side still continues to be a lot of fun. Its going through quite a
bit of growth. Hes bringing in someone to run the consulting practice full time. This is
just another indication to me that were going to see quite a bit of growth in the next four to
five years. Were expecting to [quintuple revenue] in the next two years. Although his entire
practice is made up of more than just salesforce.com revenue, he estimates salesforce.com to
comprise 60% of the business, 30% is management consulting and 10% is other technology.
He reports that most of the demand he sees is for SFA and the Marketing Cloud.
Salesforce.com continues to just drive more value into the platform to the point where $100
or $200 a month becomes a rounding error when you look what you can do with it.
He reports that he most regularly sells a full salesforce.com license. He has developed
some products for salesforce.com that take what salesforce.com does and enhance it, which
are free. These free products can only be accessed with a premium salesforce.com license.
Beyond the free products he also offers some paid add-ons, for a freemium model. The
free products get more people to use more of the platform, it creates stickiness for the
account executives selling the products, etc. These are all 100% native applications on the
AppExchange.
Industry contact 8
Characterized the quarter as one of the best quarters we had in a long time.
Mentions that he saw a huge healthy spike in the enterprise IT conversationsCIO

conversations.and closures. Mentions that his Salesforce practice closed some really
good logos, almost all of which is related to custom application development on the
platform.
In terms of technologies:
Indicates increasing activities around Communities (the new Salesforce portal) or
companies trying to build portal-based solutions.

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Highlights continued momentum in Service Cloud and refers to a couple of deals
closed in that space for the quarter.
Also refers to demand for mobility. Practically across all the projects, had [demand
for] some element of mobile applications as well, all on the Force.com platform.
With respect to industries with increasing traction, refers to healthcare and retail.
Pretty healthy outlook as well. Refers to two conversations during the quarter which could
translate into large license deal [one could be 7-figure] for salesforce in the next couple
of quarters.
ecosystem], he didnt sense anything alarming or anything like that with regards to their
sentiment coming off the quarter. Mentions that there has been a lot of hustle and bustle
among sales reps regarding Dreamforce in the last couple of weeks.
Industry contact 9
In his vertical, seeing a bit more pick-up in Force.comSeeing Salesforce account

executives pushing Force.com in the enterprise space [into companies with $8-10B in
revenue].
Mentions that Salesforce is facing a slight challenge in trying to sell the platform because
it is a bit more generic sale rather than specific solution selling. So, Salesforce is looking
to partners in his vertical who have an industry specific solution built on Force.com as an
entry-point.
ecosystem], didnt detect quite as much pressure among reps as compared to last year Q3.
Also, sensed that reps are not interested in doing sales deep-dives for opportunities which
are not focused on this year end.
Thinks salesforce.coms penetration is quite low in the energy sector and provides great
opportunity. Reports that Salesforce hired a VP for that sector and is starting to focus on it.
Characterizing the energy sector, mentions that the companies in the sector can be laggards
[in terms of adoption of technology] but once one organization jumps on, more follow.
Industry contact 10
He notes that his company is changing, slowly but surely. Recounts that in the past his
company was focused on implementations and custom development of salesforce.com,
and now its more focused on sales performance and sales methodology implementations.
Theyre using Force.com to help them with this.
On the custom development side with Force.com, they only develop tools if theyre doing
a complete implementation of salesforce.com as well as adding training services. Its more
profitable to do only training, but his customers wont pay for training only; they pay for
the whole gamut of services.
Among the work theyre doing on Force.com, they recently built a sales pricing tool, or
a CPQ (configure, price, quote) tool. They used Apex, Visual Force pages and some Java
script. The tool allows the customer to go through the process of preparing a quote for a
service agreement, and then at the end the system stores all the info. They can then generate
a PDF or Word document with templates that have terms and conditions, a cover page, the
actual details of the quote, and other documents describing the plans and the services.
CPQ is the general term used in the market. A company that provides a service, like an air
conditioning company, is an example of a company that might use their sales pricing tool.
The manufacturer of A/C units, in addition to selling the equipment, also sells the service
that goes with the equipment. This is especially true if its a commercial piece of equipment.
Theres a lot of stuff that goes into a commercial A/C unit like oil changes, parts changes,
etc. They need a very sophisticated quoting and pricing tool. Salesforce.com out of the box
doesnt do that. Out of the box it provides a simple quote that will put together a one-page
quote, with little to no terms and conditions, and thats it.
He also developed a sale process tool for a client that ended up being a product. In some
industries a sales rep must go through a sales process that requires certain steps to be
completed before moving to the next stage. This happens in industries where sales reps have
to follow the steps exactly or theyll lose a sale, or lose the opportunity to sell more. It

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may not happen in some other businesses, like transactional business, but this application
is for businesses going through sales processes. This became a product and its now moving
through the AppExchange security review.
Workflows are particularly important for financial services companies, because the steps
they must follow can be defined by law. Technology services could use this product, too.
Every industry will need this. Anyone who is in a field sales environment will need
something like this, a sales process tool. He argues that many sales reps will say they dont
have a sales process, but they actually do. Its just in their head, not in an application. The
reason why an organization would have a system like this is to help with sales ramping.
He believes were getting to a point where salesforce.com is becoming mature in terms of

penetration in the market. Theres still plenty of runway, but were getting to a point where
salesforce.com has a lot of clients, and now its a matter of keeping those clients. There are
many ways of keeping those clients. One way is to lower the price of their licenses, which
many not keep them on board for too long. Another way of keeping clients is bringing value
to the investment they made on those licenses. He believes there are a lot of implementation
partners that they do an implementation and then get out. But they dont have a plan to
help their clients extract a lot of value from their investment. Salesforce.com is trying to
invest more money in making sure clients get value from their investment. He thinks this is
why they bought Work.com and ExactTarget.
Neutral Feedback (1) Industry contact 11
Speculates that Keith Block is going to instill the Oracle manner of selling at Salesforce
- split the sales teams up into technologiessplit their quotas and [ask] everybody to sell
their own thing
Mentions that Salesforces product portfolio is too broad now for every single
salesperson to be an expert on the entire suite. I dont know too many of these
[salesforce.com] salespeople that can sell more than a couple of technologiesnow
they have got literally a dozen or more.I can tell you [that] most of the sales reps
I work with, they dont know anything about Radian6, they dont know anything
about ExactTarget.
Thinks its hard to sell Service Cloud and senses that most of the Service Cloud deals
got sold by the overlay team and not the local core sales team. So, customers are
already dealing with more than one person.
Opines that salesforce.com being mainly a business/functional buy rather than
more of an IT buy, the different products could have a different initial buyer. The
marketing guys selling to a CMO and not the CIOthe Service Cloud guys are
selling to the heads of service or CMOit only makes it to the CIO later on in the
process.
I think it [breaking up of the sales teams to focus on particular products] actually
would be very good for Salesforce to do that.
Speculates that they are going to come out with a truly unlimited license, is what I
understand. Explains that the license will include every product that they have. Its an ELA
(Enterprise License Agreement) but its an ELA that I understand that anybody will be able
to use itany size company and customers will have access to any of the salesforce.com
products. Explains that the unlimited license today is really not unlimited and is focused
around SFA or the Service Cloud. Opines that this license will allow anybody anywhere
to sell all of Salesforce without having to know it all and the customers themselves can
get the help they need. I like the idea of having a completely unlimited licensenone of
the customers like the add-on [conversations]this whole concept of well, no, no, you
bought the Service Cloud license. You dont really have access to the opportunityall those
terrible conversations can be put to bed.
Thinks that the technology consulting/system integrator companies working around

salesforce.com such as Cloud Sherpas, etc. are planning to grow anywhere between 20-40%
next year. The shortage of certified consultants has been really a problem for these guys
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Heard about a salesforce.com deal sold to one of the federal agencies which could be a
$6-15M deal for Salesforce. Heard from a peer that the number of deals that he has seen
finally in the public sector space is going through the roof.
ecosystem], I am definitely not hearing a lot of happy sentiment to be honest with you.
Adds that the sentiment he is sensing is about the same from last quarter. Mentions that it
could be because of the large number of new hires that Salesforce has brought in who dont
hit their quotas in their first year. I think there is more pressure on the enterprise guys to
hit some of the numbers.
No change in the pipeline I havent heard anything negative.

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50 CRM Partners Finished 3.2% Above Plan
PRICE: US$56.99
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$60.00
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
60
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 50 salesforce.com partners and conclude that the business was on track for
FQ3 and is building up to a strong Q4. Partners finished 3.2% above plan on average
for Q3, a drop-off from last quarter's +6.9% and last year's +4.2%, but we are not
concerned because partners have increased the growth plans for their CRM practices
for the year. Partners reported a "Net-Better" score of 38% in their observed pace
of business, softer sequentially but still up y/y. We saw an improvement in partners'
expectations of salesforce.com's bookings results, with a "Net-Above" score of 30%
compared to 24% one year ago. We acknowledge already-high expectations due to recent
outperformance in CRM shares, but see excitement building into Q4 (Jan). Reiterate
OW, $60 PT.
Partners Finished 3.2% Above Plan for Q3. Partners were 3.2% ahead of plan versus
4.2% ahead of plan for Q3 one year ago and 3.3% ahead of plan for Q3 two years
ago. In the immediate-prior Q2, partners were an unusually-high 6.9% above plan.
The Q3 performance is not materially out of line with historical Q3 performance, as
3 of the prior 8 quarters' survey results were around this level of +3%. Furthermore,
results should be viewed holistically in the context of both a variety of positive market
dynamics (movement of workloads to the public Cloud, CRM-specific momentum
with Service Cloud and Force.com, etc.) and also some negative market dynamics
such as generally lackluster Q3 earnings results from on-premise traditional enterprise
technology firms, a potential lull in business around the US Federal Government
shutdown in the beginning of October, and oft-noted emerging markets weakness for
a variety of enterprise IT firms.
Observed Pace of Business Better than Year-Prior Q3. 46% of the partners indicated
that the pace of business was better in the past three months relative to the prior three
months, while 8% indicated the pace of business was worse. This results in a "Net-
Better" score of 38%, versus 32% one year ago and 38% two years ago. The improved
"Net-Better" score as compared to a year ago is trending near the trailing-four-quarter
average of 39%. Also, partners indicated that they expect to grow their salesforce.com
practices at a slightly faster pace in CY13, versus what they had indicated to us in our
prior two surveys. Finally, 34% of partners expect salesforce.com billings to be above
expectations, while only 4% expect billings below expectations. This results in a "Net-
Above" score of 30%, the highest level since 4QFY12, or seven quarters. Thus, while
partners exceeded plan by a smaller amount in FQ3 than in FQ2, they still have very
positive expectations for CRM's near-term results.
***See Page 2 for Detailed Tables and Charts***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,004.5E 11.7x 8.9x
892.6A 957.1A 1,052.5 1,102.3 4,004.5 5,115.9 8.9x 7.0x
1,183.2 1,259.6 1,305.7 1,367.5 5,115.9 7.0x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.08 0.06 0.33 0.48 NM NM
0.10 0.13 0.13 0.12 0.48

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April 2014
No v e mb e r 1 5 , 2 0 1 3
Detailed Survey Data (Time Series)
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14 Q3:FY14
Sample Size 41 51 45 50 52 52 50 55 47 50 42 42 50 47 45 48 50
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6% 4.2% 5.0% 3.1% 6.9% 3.2%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0% 57.1% 44.0% 55.3% 40.0% 50.0% 46.0%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5% 44.0% 29.8% 52.5% 45.8% 46.0%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4% 12.0% 14.9% 7.5% 4.2% 8.0%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7% 32.0% 40.4% 32.5% 45.8% 38.0%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7% 36.0% 38.3% 22.5% 27.1% 34.0%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2% 52.0% 48.9% 70.0% 68.7% 62.0%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1% 12.0% 12.8% 7.5% 4.2% 4.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6% 24.0% 25.5% 15.0% 22.9% 30.0%
Expected Growth,
Current/Upcoming Year 20.9% 25.9% 29.8%
5.4%
1.6%
3.3%
6.1%
3.3%
4.6%
4.2%
5.0%
3.1%
6.9%
3.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
61.4%
40.0%
38.3%
64.0%
38.1%
54.7%
32.0%
40.4%
32.5%
45.8%
38.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
40.9%
0 0%
45.0%
CRM Partners, CRM Bookings Expectation, Net-
Above %
40.9%
14.6%
19.2%
30.0%
16.7%
28.6%
24.0%
25.5%
15.0%
22.9%
30.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Above %
Price Target We expect to reexamine our price target after salesforce.com's earnings conference call on
Monday, November 18.

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April 2014
No v e mb e r 1 , 2 0 1 3
Survey Says: Force.com Platform Surging, Increasing TAM Opportunity
PRICE: US$53.36
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$60.00
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13
60
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 48 CRM partners and asked them to rate 13 salesforce.com products
in terms of their momentum with customers and prospects. This presents investors
with a proprietary, crowd-sourced, real-time window into the health of salesforce.com's
primary product lines. Bears will be disappointed to see that the product with the
strongest momentum is the Force.com platform, because it addresses the largest TAM
($17B) of all CRM products due to a near-limitless opportunity to move a broad swath
of legacy applications to the Cloud. We believe this carries big implications because
the Force.com platform greatly increases the stickiness of the core salesforce.com
applications and allows salesforce.com to touch more employees beyond sales, service,
and marketing personnel. Combined with the momentum of Service Cloud evident in
the survey, we believe investors are underestimating the sustainable growth runway for
CRM. Reiterate OW, $60 PT.
Please see chart on page 2 for the momentum ratings of AppExchange, Buddy Media,
Chatter, Data.com, Database.com, ExactTarget, Force.com Platform, Heroku,
Radian6, RemedyForce, Rypple, Sales Could, and Service Cloud.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,004.5E 10.9x 8.3x
892.6A 957.1A 1,052.5 1,102.3 4,004.5 5,115.9 8.3x 6.5x
1,183.2 1,259.6 1,305.7 1,367.5 5,115.9 6.5x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.08 0.06 0.33 0.48 NM NM
0.10 0.13 0.13 0.12 0.48

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April 2014
No v e mb e r 1 , 2 0 1 3
3.68
3.60
3.40
3.38
3.34
3.21
3.13
3 11
Force.com Platform
Service Cloud
Sales Cloud
Chatter
AppExchange
ExactTarget (Email Marketing)
Radian6 (Social Media Monitoring/Engagement)
Heroku (Cloud App Platform)
Please rate the following salesforce.com products in terms of their
momentum within your base of customers and prospects (5 =
gaining significant momentum, 1 = losing significant momentum)
3.11
2.94
2.85
2.74
2.74
2.72
2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9
Data.com (Jigsaw)
Database.com
Buddy Media (Social Marketing Suite
Remedyforce (IT Helpdesk)
Rypple (Social Performance Reviews)

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April 2014
S e p t e mb e r 2 5 , 2 0 1 3
Conversations At The ExactTarget Conference Highlight Enthusiasm & Optimism
PRICE: US$52.14
TARGET: US$60.00
cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY14E EPS US$0.33
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
Note: Price as of the close September 24, 2013.
Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
After attending ExactTarget's annual user conference last week, we walk
away incrementally more confident in ExactTarget's sustainable momentum and
salesforce.com's broader vision for the Marketing Cloud. Key takeaways: 1) multiple
partners strongly sense that the CRM+ET combination threatens other Marketing
vendors (Responsys, Marketo, Eloqua etc.) and has them scared; 2) Customers seem
to be floored by ET's newly enhanced marketing automation capabilities and enhanced
user interface, with two separate contacts suggesting the audience was "drooling" over
the products; and 3) customer satisfaction, spending plans and excitement/optimism
levels were quite high and eerily similar to the vibe at CRM's own DreamForce
conferences in 2004-2006. While integration/rationalization will take time, we are
optimistic about the burgeoning of the Marketing Cloud and continue to view
salesforce.com as a core long term holding. Reiterate OW, raising target from $53 to $60.
Notable Quotes:
(+) "The demos have got people drooling, I can tell you that....If the solution works
as it is being shown, the other independent vendors must be scared. I know I would
be, if I were them."
(+) "Salesforce sales reps are drooling to get their hands on ExactTarget."
(+) One source believes that the independent vendors in the Email Marketing and
Marketing Automation space are "definitely feeling threatened" by this move.
(+) One contact reports that in the last six months, salesforce.com passed a large
number of leads to ExactTarget.
(+) One partner mentions that Salesforce has already seen some joint wins including
a global telecom company and a large financial services company.
(+) One contact refers to a company (a salesforce shop), who was about to implement
Eloqua, but they stopped the implementation after they heard about the Salesforce-
ExactTarget acquisition and are now looking at ExactTarget.
(+) One partner observes that the pace of innovation at ExactTarget has really
accelerated in the last six months.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 4,004.5E 10.7x 8.1x
892.6A 957.1A 1,052.5 1,102.3 4,004.5 5,115.9 8.1x 6.4x
1,183.2 1,259.6 1,305.7 1,367.5 5,115.9 6.4x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.33E NM NM
0.10A 0.09A 0.08 0.06 0.33 0.48 NM NM
0.10 0.13 0.13 0.12 0.48

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April 2014
S e p t e mb e r 2 5 , 2 0 1 3
Detailed Partner Feedback (9) Industry Contact 1
Reports that in the last six months, Salesforce.com passed a large number of leads to
ExactTarget.
Estimates that 70-80% of Marketo and Responsys customers are salesforce.com customers.
Mentions that Salesforce has already seen some joint wins including a global telecom
company and a large financial services company.
Indicates that the problem with Pardot [ExactTarget's B2B Marketing product] to scale up
market at this point in time is that Pardot only integrates with standard objects and not
custom objects, which are prevalent among large enterprises. That has to be fixed to really
scale it up.
Thinks that Fuel (ExactTarget's platform) will probably become the marketing platform
[for salesforce.com] and will integrate strongly with Radian6 and Buddy Media as well. It
will coexist with force.com at least at this point in time.
Gartner estimates that the marketing cloud as an industry will grow at 21%. Indicates that
the salesforce.com marketing cloud should grow faster than that and will take market share
from other vendors.
Reports that the plan is to keep using the 500+ marketing organizations that resell
ExactTarget at least for the time being but it's not clear if they will be selling the whole
Marketing Cloud, at this point. About 15% of ExactTarget revenue comes from their
indirect channels.
Industry Contact 2
Psyched about the relationship, but mentions there are some unknowns, especially around
the consolidation of the ExactTarget sales force in terms of territory overlaps etc.
Refers to a salesforce shop who was about to implement Eloqua [a marketing automation
company recently purchased by Oracle], but they stopped the implementation after they
heard about the Salesforce-ExactTarget acquisition and are now looking at ExactTarget.
Refers to another company that was evaluating a lot of companies in the multi-
channel digital marketing space and decided to go with ExactTarget after the acquisition
announcement, since the company was also looking to get Salesforce for their CRM needs.
Thinks Responsys is struggling to sell its product.
Talking about the lead flows from Salesforce to ExactTarget - "phew it's been crazy".
Industry Contact 3
Continues to see the traction with ExactTarget. Thinks they have a very high level of
buzz in the cross-channel marketing industry. There is hardly anyone who has not had a
conversation with them or has not heard of them.
Thinks that with a lot of the new innovations around marketing automation at ExactTarget,
they will be compared to the Eloquas and Unicas of the world, which have more broad and
true marketing automation capabilities. Has heard rumors that Gartner is thinking about
including them in the enterprise landscape with the Aprimos and Unicas of the world.
"Customers are drinking the Kool-Aid." Mentions that she is excited too to see some of the
innovations.
Indicates that Pardot had very little time to integrate with the ExactTarget platform before
Salesforce bought ExactTarget. Thinks that the Pardot developers haven't even completed
the integration with ExactTarget.
Reports that Pardot is rewriting a lot of code to make it enterprise-class and to be able to
scale up.
Thinks that Pardot was included in the Sales Cloud by Salesforce (rather than in the
Marketing Cloud) because it fits the cost model better. For the Sales Cloud, organizations
pay based on accounts while for the Marketing Cloud, it is contacts based. Makes more
sense for a lead scoring and lead nurturing solution [such as Pardot] to have an account
based cost model. "They [Pardot] have a phenomenal scoring solution".
"Salesforce sales reps are drooling to get their hands on ExactTarget."
Doesn't think salesforce is breaking all ties with Marketo, at least at this point in time, as
they are a platinum partner for Dreamforce 2013. But they will move apart over time because
Salesforce now owns Pardot, which competes against Marketo.

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April 2014
S e p t e mb e r 2 5 , 2 0 1 3
Industry Contact 4
Reports that ExactTarget looks very promising, but it still has some issues to be hashed out
such as - Why is Pardot part of Sales Cloud while it has a role with Marketing, etc. Thinks
that the ExactTarget employees don't have all the answers as of now.
Observes that the pace of innovation at ExactTarget has really accelerated in the last six
months. Even the ExactTarget employees are blown away by all the product innovations,
with some pretty big functionalities to be released for General Availability in a few months.
Reports that ExactTarget always had a clunky user experience. Marketo and Eloqua were
much better. Now, ExactTarget seem to have closed that gap.
Thinks that Radian6 might be exposed as a stand-alone system via APIs to integrate with
the Fuel (ExactTarget) platform.
Mentions that among the companies trying to tap into the increasing IT budgets controlled
by the CMO, Adobe is coming from a content angle, while salesforce is coming from the
data angle. Adobe already has the content of its customers, while salesforce already has the
end-customer data and both are trying to position Marketing around those assets.
Thinks that now Salesforce will aggressively go after the salesforce customers who are
currently using a different vendor for Email Marketing or Marketing Automation.
Senses that Marketo was expecting to be bought by Salesforce. Indicates that a majority
of Marketo's customers are already salesforce customers, while the overlap was less for
ExactTarget.
Industry Contact 5
Thinks that Salesforce is interested in ExactTarget's email piece only. Indicates that email
is still the majority of all marketing campaigns and the rest of ExactTarget's technologies
are "nice-to-haves."
Detects that there is a lot of overlap between Buddy Media and ExactTarget's Social Pages
tool. So, thinks that there could be some consolidation at some point. "The dust has not
settled yet, the confetti is still falling."
Thinks salesforce is integrating Pardot with the Sales Cloud because it is more of an
automated process and makes sense to score and nurture the leads pushed to sales.
Thinks it's pretty costly to switch from one email marketing vendor to another, mainly
around data transfer. So, people don't want to switch their email marketing vendors as
much.
Thinks Responsys' core business will not be threatened by the ExactTarget+Salesforce

combination, but they might have problems growing. Heard that Responsys is hiring partner
enablement people to be more friendly to partners than before, and to try and create an
ecosystem. Adds that Marketo is different since its core is mainly in the area of lead scoring
and nurturing, similar to Pardot. That market is not that competitive as compared to
something like email marketing.
Industry Contact 6
Senses that product innovations have been much faster this year as compared to the last few
years, in terms of new innovative functionalities being introduced.
Reports that the sheer size of the conference is growing and last year didn't have to use the
convention center.
Industry Contact 7
Thinks that the ExactTarget acquisition was a great move by salesforce to own the
Marketing Automation piece, and it makes a lot of sense from the standpoint of a single
data source etc. Adds that we will have to wait and see how the integration pans out. He
is optimistic.
Believes that the independent vendors in the Email Marketing and Marketing Automation
space are definitely feeling threatened by this move.

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April 2014
S e p t e mb e r 2 5 , 2 0 1 3
Industry Contact 8
"The demos have got people drooling, I can tell you that."
Reports that ExactTarget has revamped the interface and a lot of stuff for which one would
have needed a developer, now it's way easier and drag-and-drop based. Thinks this will
increase the accessibility of the software down market as more people would be able to use
it without much investment in IT staff.
"If the solution works as it is being shown, the other independent vendors must be scared.
I know I would be if I were them."
Industry Contact 9 (OEM vendor)
Deciding to partner with ExactTarget is the best decision he made among all the other
vendors in this space. Adds that the other vendors are nowhere close to matching the
capabilities ExactTarget has from an Email Marketing standpoint.
Thinks ExactTarget had already scared all the vendors in the Email Marketing space before
being acquired by salesforce. Now, he is definitely not bullish on the existing independent
vendors.
Mentions that he has been coming to this conference for the last four years, and every time
it's increasing a lot in scale. Was amazed to see the turnout in the keynote.
Detailed Customer Feedback (4) Customer 1 (A Healthcare Provider)
Signed a contract with ExactTarget in April. Looked at Marketo, SilverPop, Eloqua etc.
Added that ExactTarget was also recommended by many other existing ExactTarget
customers who [moved to] ExactTarget after having bad experiences with a few other
vendors.
"Connections 2012 helped to cement the decision."
Mentions that he met a group of 6-7 customers for dinner and everyone had a very positive
impression of the conference. Adds that one of them was a prospective customer who is
impressed by the conference and will sign the deal soon.
Pretty excited to see all the innovation.
Plans to invest more with ExactTarget and salesforce.
Mentions that it was interesting to see that Radian6 and Buddy Media will become part
of ExactTarget's Fuel platform, although it's not totally clear since there is some overlap
between those and ExactTarget's solution.
Customer 2 (A Sports Equipment Manufacturer)
Uses ExactTarget for email, SMS and social.
Has a very positive impression about the conference and the product demos. Mentions that
she is hearing a lot of good things from peers as well.
Mentions that she will "definitely" increase investments in the future. Adds that she would
love to use the predictive analytics piece, as it makes it easier for medium sized companies
to really crunch the numbers without much investments into tools, data scientists etc.
Customer 3 (A Photography Company)
Uses ET, but has realized he could do much more with the tools after attending this
conference.
Mentions that he Is really impressed by some of the functionalities shown in the demos.
Customer 4 (A Non-Profit Organization)
Mentions that she is hearing a lot of positive chatter among ExactTarget customers and
hasn't heard anything negative.
Reports that there is a large startup community in Indianapolis and a lot of young
talent. Adds that a lot of these entrepreneurs are looking up to this acquisition between
Salesforce.com and ExactTarget.
Price Target PT of $60 (was $53) = 39.2x (was 35x) our CY14E OCF of $1.55/sh -1.02 net cash/sh. Higher
multiple refelcts higher peer group multiple.

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April 2014
Au g u s t 2 7 , 2 0 1 3
11 Deep-Dive Partner Interviews: Service Cloud, Force Platform Driving Growth
PRICE: US$43.40
TARGET: US$52.00
35x our CY14E OCF of $1.54/sh -1.57 net
cash/sh (est. post acquisition cash balance).
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$52.00
FY14E EPS US$0.31
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13
50
48
46
44
42
40
38
36
34
USD
Source: Bloomberg
CONCLUSI ON
We conducted in-depth interviews with 11 key contacts in the salesforce.com ecosystem
to compile 8 pages of in-the-trenches commentary. Key takeaways: 1) Service Cloud is
described as CRM's "fastest-growing success" and regarding potential future Service
Cloud deals, "there are some big ones" on the horizon; 2) partners observe that many
transactions are becoming "very platform-centric" including an 8-figure "wall to wall
deal" with a big food distributor; 3) Feedback on the Marketing Cloud remains mixed, as
some partners feel it needs refinement, while others expect it to emerge as a major growth
area and a threat to Marketo/Responsys because of CRM's enviable "marketing power
and reach within enterprises. Investors should recognize that no large-cap enterprise
technology companies have reported upside & acceleration in recent months; that said,
we think CRM can relatively outperform amidst the choppy demand environment.
Reiterate OW, $52 PT.
Notable Quotes:
(+) Keith Block is actually becoming pretty significant within Salesforce. He is a

significant force within Salesforce.
(+) We continue to see really, really, really strong growth.
(+) the pipeline is growing faster than we expected.
(+) We have a couple of pretty significant engagements where theyve really

transformed their organization in using the entire Salesforce platform.
(+) We have seen a tremendous amount of growth in that [ISVs on Force.com] space.
(=) Service Cloud continues to be a strength. Sales Cloud is saturated.
(-) I havent seen Salesforce do a good job of assimilating their acquisitions.
(-) People are not really impressed with the whole Marketing Cloud and the vision.
***SEE PAGES 2-9 FOR DETAILED CHECKS***

Risks include outages, security breaches, competition and economic fluctuations.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 3,950.2E 8.9x 6.8x
892.6A 935.2 1,024.0 1,098.3 3,950.2 5,046.7 6.8x 5.4x
1,183.2 1,230.6 1,270.4 1,362.6 5,046.7 5.4x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.31E NM NM
0.10A 0.06 0.07 0.08 0.31 0.48 90.4x 90.4x
0.11 0.12 0.12 0.13 0.48

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April 2014
Au g u s t 2 7 , 2 0 1 3
Thinks the Q2 demand environment was good.
Observes that Service cloud has actually gained very good traction and adds that he is
beginning to see bundled deals within Salesforce.
Also mentions that salesforce.com is promoting Data.com in a big way.
Refers to some discrete big deals in new areas such as the Chatter Communities, etc. that
Salesforce does but it never gets announced.
Within his customer base of medium to reasonably large customers, he doesnt see platform
taking off in any big way.
Mentions that salesforce.com is starting to roll out incentives among its sales force to
include the ExactTarget piece and also Oracle Fusion HCM to some extent. Adds the
initial conversations have already started among a large number of salesforce.coms existing
customers to sell these new products. Thinks that salesforce.com should have a few
ExactTarget deals in the mix starting in Q3 and more so in Q4.
Thinks that salesforce.com with Exact Target could be a big threat to the independent
incumbent email marketing vendors such as Marketo and Responsys in the medium term,
say in more than 3-4 quarters. You cant ignore their [salesforce.coms] marketing power
and their reach within enterprises.
Characterizing the sales force adds that, It is well-oiled sales machinery now, it moves
fastThey have got enough things on their plates. Now lets go and sell that thinking is
dominant now within Salesforce. Senses a focus on large deals among the sales force.
ecosystem], he has not detected any significant pressureI see calmness there, which
means they are comfortableEverybody is moving fast they are in a good spot
now.Their [current] ability to cross sell is definitely very significant.
Detects a sense of relief among the sales force because of the Oracle partnership because
they have a larger platform to sellThey dont need to keep on reinventing spaces every
timeThey are beginning to believe that they have a larger story than what they had six
months back, lets say. He had expected resistance and confusion. Absolutely thinks that
Oracle admitted defeat at least in the CRM space by joining hands with salesforce.com.
Keith Block is actually becoming pretty significant within Salesforce. He is a significant

force within Salesforce.
Although he hasnt heard of any mega deals [>8-figure], he wont be surprised if there are
a few that they signed in Q2.
Looking at the pipeline into the second half of the year, mentions that with respect to cross
selling new products/modules to existing salesforce.com customers, that funnel is very
big.
Thinks that Salesforce is making some inroads into state governments, but the main traction
they are seeing is in local governments.
Industry contact 2
Service Cloud is still their fastest growing success.They continue to grow their Service
Cloud overlay teamthere are some big ones [potential deals].
Thinks that the top salesforce.com systems integrators [SI] are very, very busy and are
generally having a tough time finding and hiring peoplenone of them are hurting for
businessit [business focus] all seems to be large mid market or large enterpriseI dont
know anybody anymore who is really just doing SMB type stuff.
Thinks that there is a huge shortage of qualified, experienced, technical architects and
solution architects that are available in the salesforce.com SI space.
Observes that Salesforce has quite a few ISVs that are creating a heck of a lot of license
[Force.com] sales for them and that salesforce.com is deploying big overlay teams in that
space.
Based on his conversations with different partners in the salesforce.com ecosystem, thinks
that people are not really impressed with the whole Marketing Cloud and the vision.
[and] are not necessarily happy.I just dont see the vision Mentions that ExactTarget

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is strong in the B2C space, although they have developed some B2B competencies as well
[mainly with the Pardot acquisition]. It is really easy to useit is one of the easiest to
deploy technology...it is far easier than Eloqua and probably even easier than Marketo.
ecosystem], they are going to hit their numbersI still think that there are plenty of
people, easily over half, that wont hit their numbers at Salesforce but he believes that
salesforce.com has hired so many reps, that even if many miss quota it's still difficult to
gauge the overall performance.
"Theyre focused on really large accounts and hiring one or two guys to cover an account,
that seems to be working. I think its a multiple year strategy but they are way in front of it.
It seems to be workingthey are breaking the barriers down.
Industry contact 3
Demand is definitely increasing in general for salesforce.com.
With the recent acquisition of ExactTarget, salesforce.com is pushing itself to be more

relevant for a long period of time. The marketing automation that comes with ExactTarget
via Pardot (acquired by ExactTarget in October 2012) is definitely a huge changer in
the market place. It can definitely upset companies like Eloqua and Marketo that had a
big stronghold. Pardot was mainly in the SMB and mid-market space, but now a lot of
enterprises are looking at [Pardot] as a viable solution now that its backed by Salesforce
and the R&D dollars that come with that. And its natively in Salesforce, which companies
love that everythings the same, they dont have to learn a new systems. Its all integrated
perfectly.
Explains that Pardot was built on the Force.com platform, so its fully integrated into
salesforce.com.
Currently Service Cloud is the biggest growth area for [salesforce.com]. The Service Cloud
is definitely getting some huge traction at major organizations. We just did a major rollout
at two of our big clients, and both of those guys are doing huge deployments of thousands
and thousands of users. The contact centers are going onto Service Cloud. Thats huge.
These customers are already live.
Numerous big organizations are moving to [Service Cloud].
Marketing Cloud:
He thinks the Marketing Cloud will be the next growth area because of recent
acquisitions, but opines that salesforce.com needs to package it all together a little
better. They have a complete Marketing suite at salesforce.com. You can listen
to everything thats going on with Radian6, you can roll out all your ads and
SEO campaigns through Buddy Medias tool. Then you have the whole marketing
automation suite with Pardot, and the deliver-ability with ExactTarget. They have
a huge suite of services now that is second-to-none.
He thinks a second-place vendor in marketing automation is Oracle. He estimates
that SAP is probably second place in CRM, but only because they give their
CRM away for free with other products, which acts to make the ROI of their
ERP look better with an additional application. Excluding this give-away from
SAP, he thinks Oracle is second in CRM. Microsoft is in third place, but notes
that Microsoft Dynamics CRM is missing marketing automation, and only has a
campaign management tool.
Regarding his pipeline, he reports that his business will grow between 25% and 60% y/y,
depending on close rates. Very conservative close rates = 25% growth. If everything in his
companys pipeline were to close, which isnt realistic, revenue could be up 60% y/y.
Industry contact 4
We continue to see really, really, really strong growth. Mentions that there is a big push
around the social intranet.
ecosystem], they are seeing really strong demand across the board. Thinks that Service

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Cloud continues to be sort of that really strong core pieceSense I have is everybody seems
to be pretty upbeatI think they have got a lot of momentum. They have got a lot of good
press about themwith the US economy coming back all those things are kind of feeding
into a perfect storm of goodness, if you will.
Based on his conversations with a few executives [in the customer relationship management
ecosystem], thinks that salesforce.com was really getting busted by customers around not
having a marketing solutionPeople like Radian6jury is still out on Buddy [Media]
[but] it would always come back to the fact that email marketing is still the king and
Salesforce didnt have a story.every time they got to do a serious deep conversation about
the Marketing Cloud, they really got busted for not having an email marketing automation
solution. Thinks that the ExactTarget acquisition is much more rational as compared to
the Buddy Media acquisition in terms of valuation.
Thinks that salesforce.com is being reasonably proactive and aggressive in terms of

reaching out to customers to start the conversation around ExactTarget, including his firm.
We are seeing very strong healthy demand. There has been no slowdown.Fundamentally,
we are seeing great activity here [North America], Australia, New Zealand, Europe. We are
not seeing any slowdown at all Mentions that on the contrary, demand is starting to
pick up even more and he is hiring pretty aggressively.
Thinks that a lot of salesforce.coms big deals are now very platform-centric. Refers to a
really big deal [>8-figure] with a big food distributor. Its a wall to wall deal.
There is a slowbut growing recognition that there is a very large latent opportunity in
the salesforce installed base [around] employees of Salesforce customers who are not using
Salesforce. According to some math someone showed him, if salesforce.com sells a very
low cost license to all the employees of salesforces customers who are not currently using
Salesforce, the revenue number will be much larger than salesforces current revenue run
rate.
Looking forward, observes that the pipeline is growing faster than we expected.
Industry contact 5
I would say business is still brisk. He is seeing lots of activity this summer, but also
lots of competition from other salesforce.com partners. We dont really lose very much to
competitive products. We usually lose to no decision, thats probably the biggest one. Then
secondly well lose to another Salesforce partner.
He observes that some AEs are overly aggressive with prospects and clients with respect to
deal terms and how much theyre willing to help win the business, but it depends on the AE,
their manager and the time of year. The partner has to play ambassador sometimes.
A couple of his significant engagements revolve around Sales Cloud, Service Cloud and
Force.com development. We have a couple of pretty significant engagements where theyve
really transformed their organization in using the entire Salesforce platform.
Most of his work involves the Sales Cloud, followed by the Service Cloud. He doesnt sell the
Marketing Cloud, but only because its only currently sold through a handful of partners.
Its pricing is such that its targeted only to large buyers.
Has one prospect looking at FinancialForce right now. A year ago he had a client using
FinancialForce, but not many use it. As people start comparing their existing, mature ERP
solution they realize that theyre going to take a step backwards in a lot of areas.
Has been very impressed with Desk.com and it has a good price point.
I think theyre really doing a good job building out the Service Cloud, continually adding
more features and functionality. Theyre going to be much more competitive I still think
theyre doing a good job being innovative.
Industry contact 6
We have seen a tremendous amount of growth in that [ISVs on Force.com] space. Indicates
that the growth of the ISVs correlates positively with the growth of Force.com licenses. A
lot of them seem to be Force.com-driven in nature and they complement Sales, or Service
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Salesforces core application continues to grow along with mobility

Sales Cloud is still pretty steady
We are seeing more growth in Service [cloud] right now just because it seems that
there is a bigger demand or push.we have seen kind of a second generation of
customers that had the Sales Cloud for a while now, are either going down the path
of Service Cloud or Force.com extensions So, overall seeing Service Cloud and
Force.com growth across the existing customer base that has Sales Cloud...
ecosystem], observes a lot of enthusiasm mainly in the markets where Salesforce is fairly
established Chicago, LA, San Francisco, New York. However, observes varying results
in the Midwest, It is a little bit more of a conservative market and so the growth is less
than other markets. Thinks that sales reps [in the customer relationship management
ecosystem] are excited about the fact that they now have more to offer. Overall, in general
I think they are upbeatthere is some enthusiasm and it seems to be more upbeat than
normal.
Speaking about large deals in Q2, in the enterprise level there is a lotthere are large deals
that they are working on in multitude of different ways and different areas.
For Q2, was on plan...a little ahead of it. Adds that although summer is typically the
worst period seasonally, we are actually ahead of the curveJune and July were our best
months [primarily as it relates to the ISV space]
Pipeline Optimistic about the 2nd half. I think we are going to be well beyond our goal
for the year.
Industry contact 7
They [Salesforce.com] are a strong dominant forcethey are competing hard against other
enterprise focused firms like Oracle and SAP.
Indicates that his firm is seeing a lot of focus on Marketing and Social, especially even at
the enterprise level. Mentions that everybody wants to take advantage of mobility, twitter,
Facebook etc.
Still seeing a lot more of application developments on the platform.we are seeing bigger
use cases and business cases mainly focused on integrating the customer data with the data
from other vendors in the ecosystems, such as partners, contractors etc.
Mentions that Sales Force Automation is mature and customers have gone for one vendor
or another. There are still some big wins out there, obviously.
Thinks that the ExactTarget acquisition was a counter move against Oracles acquisition
of Eloqua with the aspiration to be a one stop shop. Optimistic that the integration with
ExactTarget going forward will be stronger than before.
Based on his conversations with mostly the enterprise field sales reps [in the customer
relationship management ecosystem], thinks that unilaterally, they are doing wellthey
seem to always be growing. Observes that there are more regional sales managers now
than there were last quarter or last year for that matterthe territories are being refined.
Was on plan for Q2. Our net new is probably flat but we have an existing installed base
where we are continuing to roll out.
Very much so optimistic about the second half of the year. There is a lot of activity
and lot of positive things going on now with clients who are starting to earmark 2014s
priorities. Customer centricity.customer 360CRM synergies are some of the buzz
words he is hearing from different customers. Senses that clients are getting the importance
of clear visibility into the entire customer lifecycle.
Industry contact 8
Increasingly been running into conversations about business in the cloudpeople are
looking at stitching together the various niche applications in the cloud Seeing a lot
of customers and prospects who really understand what business in the cloud means
nowrunning my entire business in the cloud is a message I am starting to see from

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the customers than the vendor. In that context, thinks that cloud is truly becoming
mainstreamIt is definitely an inflection point that I see from where I see it.
Seeing traction in the order of Sales Cloud, Platform and Service Cloud.
Seeing a definite uptick in conversations around the platform, although his opinion is
slightly biased from the fact that his firm is strong in the platform. Capability of the
platform is becoming a more and more interesting question for our customers.
Mentions that there are some big deals [> $1M] in the works. Hasnt heard of any mega
deals that Salesforce has closed in the last couple of months.
Based on his conversations with sales reps [in the Customer Relationship Management
ecosystem], thinks that reps are happy coming off the quarter. Nothing to believe that they
are hurting at all. Continues to hire fresh new faces every quarter.
Mentions that he was on plan for his practice. He is seeing some pent up demand that he
is able to fulfill in the current quarter as well.
Our prior customers are spending morethey are adding more adjacent technologies like
mobile enablement, analyticsother things they are adding are more Force.com apps
It's quite common now for enterprise customers to say I have got more than a handful
of applications that I want to build now in Force.com'. We have seen that in our current
customer base.More penetration into current customers is definitely happening.
Observes that the pipeline for the 2nd half is looking healthy.
Doesnt think Google App Engine is a viable competitor to Force.com. I cant specifically
say that I have ever seen a customer say I am having to choose between Force.com and
Google App Engine in a competitive way'. They are either using Google Apps and happy
with it and not thinking at all about anything else [Or vice versa]. I have never seen them
stacked against each other.
ExactTarget:
The move into email marketing was well-publicized; thats where they wanted to go.
Believes that ExactTarget didnt align quite as well as some of the other potential
acquisitions, such as ConstantContact. It will work, its just going to take a little
more back office, under-the-covers connective tissue creation from a technology
perspective to knit it together than some of the other options that were probably
on the table.
He notes that salesforce.com will have some challenges around spam filtering and
spam monitoring. This is because salesforce.com has always advertised itself as a
place where users cant send out lots of stuff from, so that means theyre going to
have to keep the ExactTarget technology stack and cloud separate in order not to
get blacklisted from an email blast perspective. It sounds easy on paper, but that
basically means theyll need a pipe between the two data centers and have some
phenomenal throughput.
If salesforce.com puts the salesforce.com UI skin on top of ExactTarget, it will be
easier for salesforce.com users to be able to interact with ExactTarget. In order
to interact with ExactTarget, or even an Eloqua or Marketo, you have to speak
marketing speak in terms of understanding Google AdWords and all the other
vocabulary. Those programs were written by people from that space for people in
that space. I think theyre going to have to dumb it down a little bit in terms of
how the users interact with it. A critical factor for them is creating wizards, or other
things to soften the vocabulary, learning curve of those people who are not truly
marketers, to be able to get this add-on to the Marketing Cloud. He expects the
time to adoption to be much longer without some investments to make ExactTarget
easy to use by the salesforce.com installed base. Having been through the Eloqua
curve and the Marketo curve, it really is a different language, and its a different way
of thinking than what sales uses.
Demand Environment:
He observes that Service Cloud continues to be a strength. Sales Cloud is
saturated.

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He thinks that salesforce.com is past the tipping point of 50% saturation. Im
getting a lot of conversations from a lot of senior people that theyre pretty tired of
the arrogance of Salesforce, but no ones been able to walk in with a better solution,
or even one thats comparable. Hes observing whats going in the Microsoft stack
and what SAP is about to launch in terms of its CRM, and hes beginning to feel
like the waters for salesforce.com are getting choppier. Its not a slam dunk for
salesforce.com anymore. Theyre not helping themselves by building an arrogant
sales culture.
One company hes working with is in a situation where they need salesforce.coms
help for some full sandboxes to evaluate whether or not salesforce.com will
be their CRM vendor of choice going forward, because they have a significant
investment in other legacy technologies. Salesforce.com is going to charge them list
price for testing the Unlimited Edition during the evaluation phase. The company
is currently using the Enterprise Edition. The CIO is upset that hes not getting any
consideration for the fact that hell be adding several thousand users if he chooses to
stay with salesforce.com, and that salesforce.com is charging full price for the pilot.
This is penny-wise and pound foolish. Im just waiting for the day when someone
else pops on their horizon, and I think that isnt as far away as Salesforce would like
to think it is, in the SFA/CRM space. In the Service Cloud, I still think they have a
significant advantage.
Marketing Cloud, its the right move, now its just a matter of timing. Can they get
it up and running and in place before Marketo merges or gets bought by somebody
else? It seems like theres more competition in the Marketing Cloud space that makes
that a murkier picture.
Competitors on the heels of salesforce.com:

Notes that Microsoft Dynamics CRM (not Dynamics ERP, which is Great Plains)
has improved a lot and Microsoft has rolled out a lot of new features. For the
mid-market company that doesnt want to pay a salesforce.com price, the buyer is
not losing that much functionality compared to salesforce.com. If youre already
a Microsoft shop, the way that Microsoft is approaching the market is intelligent,
theyre making Dynamics CRM a safe, comfortable play for an IT manager or
director to get behind. Microsoft is flexible, theyll work with you.
"Salesforce.com is getting as bad some of the SAPs, and other ERP/MRP vendors in
terms of entering that arrogance window and that drive for something because they
can, as opposed to maintaining that nimbleness and agility and flexibility that got
them where they are. They cant be that, because theyre too big now.
Something as simple as asking for a sandbox refresh, I used to be able to call the
sales person, and they would make some change in the back office, and the next day
I would have a sandbox refresh. Now I have to explain up to three different levels of
management, and Im on a call three days later to talk about if theyre going to
authorize it or not. Thats three days I didnt have, that Im telling a F50 company to
sit and wait because Moses hasnt come down the mountain yet with the answer.
Hes seeing this on a pervasive level from Salesforce.com.
Q2:
Regarding reps [in the customer relationship management ecosystem], No ones going out
and buying boats or cars, or sitting back and smiling. Normally you start winding down [at
quarter end], they didnt wind down, they were running around trying to find something.
They were either short or [really] close.
His consulting business is on track to grow in the mid-20s this year.
Partners:
Salesforce.com is making some changes to how they work with their partners.
Theyve redefined the difference between platinum and gold. If you cant write a
large check to buy your way to platinum status, youll be downgraded to gold. The
large check is for millions, and its "under the guise of paying for Dreamforce".
So if youre not going to be a platinum sponsor and Dreamforce, you wont be a
platinum partner.

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Industry contact 10
In terms of aggregate demand, mentions that he had a very soft calendar Q2, especially
April, Mayhorrible months for usand then things started to pick up for usJuly was
really good.Momentum [now] is picking up quite a bit.
I do see Platform continuing to be very strong.
However, adds that he is seeing a threat for the first time from Google. Thinks that Google
is emerging as an alternative paradigm for custom app development.
Thinks that Microsoft shops are more inclined to adopt Googles approach to the cloud than
Salesforces, because these clients can do a one-to-one mapping between already-existing
Microsoft toolset that they are using and Google apps that they can use in the cloud, such
as for email clients like Gmail instead of Outlook etc.
Refers to Google App Engine for custom building.
Highlights that many traditional salesforce.com integrators such as Cloud Sherpas, Appirio
etc. have embraced Google.
I havent seen Salesforce do a good job of assimilating their acquisitions. Thinks that
Salesforce has not quite figured out the sales model for Radian6 yet, if they should go with
an overlay model or not. Integrating acquisitions is a real competency that companies need
to developlike Cisco who made it into an art formSalesforce is known for its innovation
culture. Thinks that the ExactTarget acquisition was more of a defensive move to plug
a gaping hole in the tool-set.
Mentions that it is harder and harder to rationalize point solutions like RightNow in the
notion of a holistic front office across all business functions you are going to embrace
a vendor for your front officeits going to be Oracle, its going to be Salesforce [or even
SAP].
Based on his interaction with a large higher-Ed customer in his area, thinks that Oracles
acquisition of RightNow could be helping Salesforce. Mentions that this client is not happy
with Oracle and is currently unwinding RightNow with Service Cloud.
Industry contact 11
It's hard for me to say thumbs down [on salesforce.com in aggregate]. Our business is
booming. We are growing more than double year over year. So the partnership side is good.
But there are glaring weaknesses, like Marketing Cloud.
The UK is killing it. The East [East Coast of U.S.] is weak for us.
He senses overall that "it's more like neutral". His business is growing more or less like theyd
want it to.
The East, the Enterprise sales there are struggling to make numbers, which they hadn't in
the past. The East region is trying to pull stuff in. So that part is a bit down. But that is East
enterprise [not the entire global business].
In the East, I wish I knew what the root cause [of weakness] is. There is a lot of activity,
but [we are] not able to close quite enough. Thinks it might be the economy.
Marketing Cloud:
The one thing that concerns me is the amount of money they have spent on
Marketing Cloud and they don't have enough to keep their own Pro Services
busy. That part, I just don't see it. Marketing [departments do] niche things
and campaigns. [Global Marketing departments are] NOT standardizing the
organization [on a single marketing suite]. It is all campaign-driven.
Observes that the Marketing Cloud is struggling. His is among salesforce.coms
largest services firms, with [more than several hundred] certified people, and they
dont have any Marketing services projects. They are struggling there.
ExactTarget, they don't know how to sell it. Pardot is going under the Sales Cloud.
The sales people don't know anything about it. It's embarrassing. It's gonna take
a while.
Currently does $750K per month in services for [a major Fortune 50 firm] now. All Sales
Cloud, and it's growing. That's a monster for us.
Keith Block:

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Thinks everyone is waiting to see what's happening. Anthony from Oracle, their #1
North America sales guy went to salesforce.com and will be based in New York.
Doesnt think Keith Blocks arrival has drastically affected the culture or feeling
inside of salesforce.com.
Big deals:
Heard something is in the works with [a Fortune 100 healthcare firm].
Has had some decent sized deals, but nothing out of the ordinary. No million dollar
deals.
Currently working with a large food distributor, but uncertain where it is in the sales
cycle.

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48 CRM Partners Finished 6.9% Above Plan; Better Tone in Mid-Market and APJ
PRICE: US$43.39
TARGET: US$52.00
35x our CY14E OCF of $1.54/sh -1.57 net
cash/sh (est. post acquisition cash balance).
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$52.00
FY14E EPS US$0.31
FY15E EPS US$0.48
Yield 0.00%
Fiscal Year End Jan
50
48
46
44
42
40
38
36
34
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 48 salesforce.com partners and found that they finished 6.9% above plan
on average for Q2, better than we expected and marking an improvement from Q2 last
year, when they were 4.6% above plan. The feedback is not unilaterally bullish, as some
elements of the survey are still less-positive than they were a year ago and Marketing
Cloud feedback remains muted, but the aggregated feedback is noticeably better than
our Q1 survey data. Importantly, contacts suggest a stronger APJ performance (which
has stung many other technology vendors recently) and a better Commercial (i.e., mid-
market) performance. We believe Keith Block, CRM's recently hired president and vice
chairman, will effect significant change on the company's Enterprise sales strategy,
introducing some short-term unknowns, but setting the company up well for FY15. We
continue to view CRM as a core long term holding and the best way to play the cloud
computing wave. Reiterate OW, $52 PT.
Partners Finished 6.9% Above Plan for Q2. Partners were 6.9% ahead of plan versus
4.6% ahead of plan for Q2 one year ago and 1.6% ahead of plan for Q2 two years ago.
The Q2 outperformance, which is the highest in the last 15 quarters we have tracked
this metric, is greater in magnitude than we could have reasonably expected, and we
think it suggests a better performance in the Commercial (i.e., mid-market) segment
following a somewhat muted Q1 performance.
Observed Pace of Business Slightly Softer than Year-Prior Q2. 50% of the partners
indicated that the pace of business was better in the past three months relative to the
prior three months, while 4.2% indicated the pace of business was worse. This results
in a "Net-Better" score of 45.8%, versus 54.7% one year ago and 40% two years ago.
Although the "Net-Better" score is slightly softer as compared to a year ago, it is the
strongest reading in the last 4 quarters, including Q4 (Jan). Also, partners indicated
that they expect to grow their salesforce.com practices nearly 26% y/y in FY2014
[CY13], an improvement from their expectation in the prior survey, and a good result
considering we primarily speak with contacts in North America, the most mature and
presumably slowest-growth geography for salesforce.com.
Detailed Comments Highlight Encouraging Deal Pipeline and Customer Activity

Levels. We asked partners to describe the deal pipeline and customer activity levels
during salesforce.com's Q2. A majority of partners indicated a healthy/growing
pipeline and increasing customer activity levels. The more optimistic partners
characterized activity levels as "much better," "seems solid" and "stronger than in the
past." *** Historical Data and Detailed Comments on Pages 2-4 ***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 3,950.2E 8.9x 6.8x
892.6A 935.2 1,024.0 1,098.3 3,950.2 5,046.7 6.8x 5.4x
1,183.2 1,230.6 1,270.4 1,362.6 5,046.7 5.4x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.31E NM NM
0.10A 0.06 0.07 0.08 0.31 0.48 90.4x 90.4x
0.11 0.12 0.12 0.13 0.48

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Exhibit 1
DETAI LED SURVEY DATA ( TI ME- SERI ES)

Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14
Sample Size 41 51 45 50 52 52 50 55 47 50 42 42 50 47 45 48
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6% 4.2% 5.0% 3.1% 6.9%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5% 44.0% 29.8% 52.5% 45.8%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4% 12.0% 14.9% 7.5% 4.2%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7% 32.0% 40.4% 32.5% 45.8%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7% 36.0% 38.3% 22.5% 27.1%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2% 52.0% 48.9% 70.0% 68.7%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1% 12.0% 12.8% 7.5% 4.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6% 24.0% 25.5% 15.0% 22.9%
Expected Growth,
Current/Upcoming Year 20.9% 25.9%
4.3%
5.4%
1.6%
3.3%
6.1%
3.3%
4.6%
4.2%
5.0%
3.1%
6.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13
57.7%
61.4%
40.0%
38.3%
64.0%
38.1%
54.7%
32.0%
40.4%
32.5%
45.8%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
21.2%
40.9%
14.6%
19.2%
30.0%
16.7%
28.6%
24.0%
25.5%
15.0%
22.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Net-Above %

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August 20, 2013

Exhibit 2
PLEASE DESCRI BE THE DEAL PI PELI NE AND CUSTOMER ACTI VI TY LEVELS DURI NG
SALESFORCE. COM' S Q2 ( MAY/ J UNE/ J ULY) ? STRONG/ GROWI NG

There seems to be lots of potential implementation deals coming up at the company that I work for. I believe it will continue to
increase.
Busy, interested and engaged. Trying to close deals and start engagements.
Strong pipeline, lots of new, more enterprise clients.
Very good.
It looks like we had a great pipeline in Q2 with regards to Salesforce deals.
Solid - Growing Year over Year and Quarter over Quarter.
Good Momentum of Sales cloud and Service cloud, Marketing cloud is growing.
Exceeding projections, many new projects, mobile apps projects are increasing.
Bigger deals evolving and Communities starting to take hold.
Solid and building well for Q3.
Lots of active interest, particularly from overseas where IT budget seem to be opening up.
Getting better despite the holidays break in Spain.
Continues to be strong with a mix of existing and soon to be SFDC [salesforce.com] customers - so they are still signing new, big
deals.
Very strong, consistent with prior months.
Much better.
Seems solid.
Customers beginning to seek more solutions.
Lots of smaller deals and customers looking at Cloud based business operational and mobile applications. The growth rate for
traditional CRM and SFA has flattened.
It was a rough first half but things seem to be coming back to normal.
Strong and growing.
Great!
Pipeline significantly over plan, actual bookings at plan.
We were up since the previous quarter and have been able to leverage SFDC with more of the options to get the whole marketing
leads etc. into SFDC to pre-sales for further qualification to the outside sales team etc. in a much smoother fashion than we were
able to before with our partial use of SFDC for the entire process.
Wrapping up some huge implementations so back on the biz dev circuit now that we have capacity.
Some slowness around 7/4 holiday but otherwise good high level of consistent activity.
Stronger than in past - especially in summer months.
Pipeline is huge, just need to close now.
More Service cloud and Force.com development work.
We still see a lot of movement in the Radian6 and Heroku areas, but the biggest buzz is all around AppExchange lately.


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April 2014
August 20, 2013

Exhibit 3
SALESFORCE. COM' S Q2 ( MAY/ J UNE/ J ULY) ? STEADY

We continued to see consistent and strong levels of deal pipeline. However, I expect the ability for us to continue to drive business
out of SFDC will deteriorate over the next 12 months with the acquisition of ExactTarget. They are now competitive to my
company as well as several other companies (which are normally Platinum level sponsors at Dreamforce and generally very active in
the ecosystem).
More or less the same for us.
The same.
We don't have as much pipeline as we want, but we are seeing an improving trend.
They are just at the same level as originally planned.
In line with expectations.
All is steady stream, not a lot going on in the marketplace.
Steady rather than spectacular, good signs for Q3.
Has been steadily increasing.
Exhibit 4
SALESFORCE. COM' S Q2 ( MAY/ J UNE/ J ULY) ? SLOWI NG

The pipeline has dried out. Less activity.
In the summer a lot of people take vacation. Not much gets done. It will hopefully pick up in the fall.
A bit of a decline in past few months, but stronger than plan.
Things have slowed a bit for the summer months, but not at a rate we find alarming.
Current customers and prospects alike dropped potential new deals for use of Salesforce products throughout Q1 and Q2.
Slowing down slightly for the summer.

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Detailed Proprietary Feedback: Know Your Customer (Company)
PRICE: US$46.33
TARGET: US$52.00
36.7x our CY13E OCF of $1.36/sh + $2.02
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$52.00
FY14E EPS US$0.49
FY15E EPS US$0.56
Yield 0.00%
Fiscal Year End Jan
May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13
50
45
40
35
30
25
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 11 key contacts in the CRM ecosystem to
provide a uniquely intricate view of the Cloud war from the trenches. Ten of our 11
contacts provided positive feedback, and we note 3 key common themes: 1) Force.com
traction, driving projects to rearchitect on-premise applications to the platform and a
creeping realization that it's "a major enabler and a major shift in paradigm"; 2) large
companies embracing ELAs as they look for ways to consolidate multiple departmental-
level instances and deepen the relationship with CRM; and 3) a strong sense that the new
"Customer Company" message has resonated powerfully throughout the ecosystem with
broader acceptance than Social Enterprise. We expect a fairly inline Q1 with many
moving parts, but believe CRM remains a core cloud computing winner. OW, $52 PT.
Quotable Quotes:
(+) One key partner sees a good pipeline going forward with deals from new
installssometimes replacing legacy CRM application to new projects leveraging the
platform.
(+) Frankly theyre [reps in CRM ecosystem] speaking with confidence about the
quarter, speaking with confidence about the expansion of the footprint, which is a big
initiative for them
+) The Customer Company message is being well received.
(+) Salesforce story is getting strongerNobody else is getting anywhere close to

Salesforce in terms of winning deals, I am talking about large enterprises.Their
winning streak continues to be very impressive.
(+) Big picture is we are seeing the same amount of continued enthusiasm
continued embrace of the platform by some of the larger enterprises [of the likes of
Coke and GE].
(-) One of the continued struggles that customers have with Salesforce is the licensing
model.
(-) I see a lot of competition [on Force.com] with SAP.

***See pages 2-8 For Detailed Feedback***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 3,823.6E 9.3x 7.4x
884.4 913.2 984.1 1,041.9 3,823.6 4,716.8 7.4x 6.0x
1,104.0 1,131.3 1,200.6 1,280.9 4,716.8 6.0x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.49E 94.6x 94.6x
0.10 0.10 0.13 0.15 0.49 0.56 82.7x 82.7x
0.15 0.12 0.13 0.15 0.56

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Positive Feedback Industry contact 1
Seeing a quite strong demand trend.
From his perspective, mentions that the rest of the world outside the US has a
steady to increasing demand trend while for the US the demand trend is increasing
astronomicallywhich I think is a reflection of...Salesforces ongoing success in terms of
the marketplace. US is really coming very strongI think its a testament to Salesforces
success and the continued recovery in the US. Thinks that its brewing the perfect storm
for a really strong demand curve in the US side.
We are seeing guys such as PwC and Accenture really starting to round out their SaaS
practices and their Salesforce practice in particular. So, thinks the big SIs are starting to
embark upon the path to maturity around their salesforce.com practice. Thinks partners
are starting to look through beyond CRM and beyond customer service and to the other
areas.
Thinks that the Customer Company message is being well received.
Seeing tremendous demand in the social intranet and portal space coming out of the
Salesforce team as well as the marketplace.
From his business perspective, which focuses on portals that deal with all employees within a
company, we are seeing a lot of interest inthe whole wall-to-wall [kind of] deployments.
Mentions that he is currently working with about half a dozen significant global 700 kinds
of opportunities.we are seeing a ton of those opportunities.
Regarding Force.com, I really do believe that the platform team is doing a great job they
fired up two or three years agothey are getting a lot of traction now.
Regarding Radian6, based on his conversations with sales reps [in the customer relationship
management ecosystem], 60-70% of the time there is a reasonable-size, up to 7-figure
Radian6 deal in the offing...a lot of them are working on large Radian deals. Thinks
Radian6 is doing well for them but he is not sure about the Buddy Media acquisition.
ecosystem], thinks they are absolutely happy coming out of Q1. I think the sentiment
is really good.
I think there could be some really interesting announcementsif not in Q1, certainly in
Q2 of those kind of [Walmart] sized deals...big enterprise wall-to-wall [kinds of deals]
.[with] big players that everybody knows who have large investments in traditional IT
who are just saying, we are going to set up a cut point here and we will get those back
end systems integrated, but going forward we are going to start building strategic apps on
SalesforceThey [salesforece.com] are just getting started is what I feel.
I think customers are starting to realize its way more than CRM or a customer support
playI think people are starting to look at Salesforce very seriously for global applications
in their environmentwhich is really exciting.
Very optimistic for 2013 and on track to do 100% growth again this year. Mentions that
he is certainly seeing no lack of demand and he could probably do even better if he has
the capacity to do more.
Industry contact 2
Thinks that Facebook has been consolidating some of its homegrown systems used in
different departments in the organization and is standardizing on salesforce.com.
The Salesforce story is getting strongerNobody else is getting anywhere close to

Salesforce in terms of winning deals, I am talking about large enterprises.Their winning
streak continues to be very impressive.
Thinks that the Q1 mood is much better.
In Q1, I am seeing deals of a different kind. Explains that, in the last several years,
large organizations of the F2000/F5000 scale have made investments in salesforce.com
across various parts of their organizations. This has resulted in multiple instances of
salesforce.com across these organizations. Mentions that now he is starting to see demand
from these organizations to consolidate these instances. When you begin to consolidate
these multiple instances of salesforce.com, Salesforce is able to go and up sell a complete
enterprise-wide agreement which creates a new way of investment for companies and a new
way of revenue for salesforce.com. I can tell you 10 different opportunities that I am

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seeing today in Salesforce, 8 of them happen to be of this genre I am talking about really
big opportunities here. When you have a consolidation plan put in place, that means
a larger license agreement with salesforce.comthat is creating a new wave .existing
opportunities are becoming larger opportunitiesI think they are really enjoying the
limelight now.
Mentions that a lot more new, forward, leading edge conversations are happening all
across salesforce.coms product lines.
Service Cloud is picking up tractionI would think today probably somewhere
around 8 out of every 10 Salesforce Sales Cloud customers, the large enterprises
they are definitely either talking about Service Cloud or have initiated something
on Service Cloud.
There is an aggressive push on the Marketing Cloud. Mentions that even though
salesforce.com is not as strong as some others in that space, still they are able to
carry forward the conversations.
Thinks that the Social.com initiative is more like a tool than a platform at this point.
Analytics is the next big opportunity for them.
Our pipeline on Salesforce looks the best never looked this good so far. Suddenly we see
so many things coming together.
Industry contact 3
Mentions that demand for core Sales Cloud and Service Cloud is steady.
Have significantly increased our own investments toward supporting Salesforce

engagements. Mentions that the Salesforce resources in his organization have increased
significantly this yearmore than doubled, almost tripled. We think its a great bet to
make.
We continue to look at the platform as a major enabler and a major shift in paradigm of
companies migrating or consolidating disparate operational systems to the cloud. Amazon
and Force.com are the two most significant target platforms...
Thinks functional business heads are taking more ownership of technology and CIOs are
having an identity crisis of sorts.
Doesnt think the demand for the Marketing Cloud is a significant blip for his firm. Every
now and then there is a conversation. I do see more people getting added, I do see teams
increasinggrowing. So, everything seems to be business as usual as far as I can tell. I
felt general early-in-the-year excitement
ecosystem], the hiring from Oracle seems to continue.
Hasnt heard of any mega deals in Q1.
Mentions that there have been some good conversations around app rationalization. A
CIO would have a number of applications that could migrate to the cloud Salesforce has
always been good and active about helping CIOs with such advice and engagement. He
sees some renewed interest in some of those conversations.
Seeing some generic cloud conversations around the internet of things, in terms of
companies thinking how to move the data from sensors, etc. into the cloud.
Highlights a few themes in the enterprise IT universe:

Move to cloud computing:
It is always driven by economics. There is always a reduction of cost behind
that movement.cloud is making [that become] mainstream. So the cost
of infrastructure, the cost of managing the infrastructureall of which was
really a part of the revenues of these companies [legacy vendors] we are
talking about, they are all eroding. So you are probably seeing that at a macro
level across the software industry. Mentions that all the on-premise legacy
vendors realize this and are making a strong push for Cloud across their
existing customer base.
Mentions that another impact of the move to cloud computing is its effect on
services revenue. Its faster, its easier and takes less time to actually develop
products. ...what used to take six months and a 10 member team to do, now
probably takes half the time and half the resources Mentions that its

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certainly inevitable that we will see big system integrators having problems
with revenue growth.
Mobility. Mentions that mobile devices are becoming the de facto consumption
device, even across the enterprise. Thats very clear to us.
Data. We are seeing conversations around data centric business modelsthere is
a definite shift to data as a core driver of the enterprise value.
Industry contact 4
He ended up growing about 60% in 2012, which is after letting up at the end of the year.
He could have done close to 100% growth. Even with a strong 2012, he still believes This
year there is still great growth opportunity.
Expects between 40% to 50% growth this year. It will be a combination of his salesforce.com
consulting practice and his software product, which is built on Force.com. Its definitely a
really, really healthy space with no end in sight.
Still sees a lot of opportunity on the SFA side. Theres no lack of opportunity to automate
sales and the operations around it.
Financial services: Has seen strong growth in financial services. Its not the classic
deal-flow sort of stuff. Its much more advanced, and its mostly for private equity. It
is SFA but with a lot of variations. A lot of it is account management, relationship
development and time management.
Starting to see more mortgage traffic, too.
The sense he got from reps in the [customer relationship management ecosystem] was that
it was a slow first quarter, but it picked up toward the end of the quarter.
Seeing a lot more in the way of NetSuite integrations with salesforce.com. NetSuite will
do the accounting and salesforce.com will still be the predominant CRM that customers
want. A lot of his clients are maturing and wanting better cloud accounting solutions, and
salesforce.com doesnt really have a compelling offering. Believes that FinancialForce is
still struggling. NetSuite customers and partners are not very positive on NetSuites CRM
solution. Believe its just an accountant CRM and cant really do what salesforce.com can
do. Believes NetSuite really focused its efforts on accounting rather than its CRM.
If salesforce.com quickly moves away from their Social Enterprise strategy and focuses
its messages on serving customers, which everyone can understand, I think its going
to be a good thing. Doesnt believe they got the traction they wanted with Social
Enterprise [messaging].
Site.com is also a great product. Its way bleeding edge technology. Hed much rather
salesforce.com put energy into products like Site.com because theyre phenomenal in what
theyre going to be able to do on the platform. Im hoping this year that theres a big push
on Site.com and finishing their suite a little more aggressively. They stretch themselves so
far and so wide sometimes on so many different SKUs that some of these more advanced
or cool products die or suffer.
Site.com is template based. Its super easy to build a site. It has drag and drop
functionality. Ive been doing web development for as long as I can remember and this was
like a walk in the park to do a heavy, heavy data website.
Industry contact 5
Weve had the best six months, April included, that weve ever had. It exceeded his
expectations.
Service Cloud is getting some nice traction in the marketplace. Salesforce has been pushing
it for a while but were seeing real evidence of that in the marketplace itself.
More and more of his implementations are including the Service Cloud.
SFA continues at a very good pace; on the commercial side its just a machine. Its just
very consistent.
The Enterprise team is getting lots of traction from its visioning exercise, telling companies
how their future might look. This is taking hold in some large accounts.
Its a strong quarter, in my sense. Sometimes April and May have historically taken a little
dip, but he doesnt see any evidence of that this year. April was the second-best month hes

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had in terms of results and activity levels. Hes getting a lot of implementation work from
salesforce.com.
One thing helping is that the sales reorganization was less impactful to business
momentum. Salesforce.com did the reorganization much more efficiently than
theyve ever done it, at least since Ive been around in the last 10 years. They did
make changes, but they werent as dramatic and usual, and they did it more quickly.
In 2012 the sales reorganization strung itself out over two or three months. This time
sales people were able to maintain a lot of the accounts they were working on.
He met with two or three VPs in the CRM sales ecosystem, and while there was the
usual end-of-quarter tension, frankly theyre speaking with confidence about the quarter,
speaking with confidence about the expansion of the footprint, which is a big initiative
for them It certainly wasnt any level of arrogance, Im not saying that, but they spoke
with confidence. Its working, we just have to stay at it. That encouraged us, and it was
consistent with what we saw.
Didnt hear of any mega-deals, but that doesnt mean that none were closed. Believes theyre
continuing to put emphasis and activity around this whole visioning, collaboration, etc. to
get large accounts to have a much bigger salesforce.com footprint.
Industry contact 6
Business has been very good for us over the last several months. Our pipeline is good. Our
backlog is good.
In the middle of a couple of very large [SMB] engagements. Refers to one of them as
transformational, meaning hes taking all of their infrastructure and back office systems
and moving them to the salesforce.com platform. This includes accounting, service, sales,
or any specialty/custom-designed system they may have had. Theyre either rewriting or
writing from scratch a system that they need and dont have. One is a software company
and another is a high-tech company. They both have a couple of hundred employees.
Social Enterprise never really took off, in his opinion. Doesnt think it resonated well with
SMBs. Getting to a different message, this customer centric message, I think is going to be
better. He didnt have any luck selling any social solutions, but salesforce.com also moved
to agencies to sell their Marketing Cloud.
There is still a long runway for Sales, Campaign Management and Service solutions.
Theres a lot of figuring out going on in Q1 as account executives (AEs) get new territories
and quotas. February is up in the air and the AEs get settled in March and April. He
believes territories have gotten smaller and quotas have gotten bigger.
Hes also seeing more turnover than there had been in the past, because its harder to
make your quota and there are just more opportunities. If you have salesforce.com
on your resume there are a lot of places you can work in the cloud world.
Workday, ServiceNow and a slew of other cloud vendors, a lot of start ups, are all
opportunities for salesforce.com AEs.
It surprises us in this day and age that we still see companies that dont have [a CRM
solution]. He finds this especially true among technology laggards like manufacturing
companies and some other old companies based in his region.
He knows of a recent salesforce.com deal where a publicly traded company didnt
have any CRM solutions at any of their divisions.
He also sees customers moving away from old technology like SalesLogix (Sage),
Act and Goldmine, because those products have not kept up technologically.
An increasing comfort level with a cloud solution is also moving people to
salesforce.com. Hes seeing a lot of traction in financial servicesthey have the
money and its a very good fit.
His 2013 outlook is very positive, but he believes his geographic location is providing him
above average growth relative to other areas of the US.
Industry contact 7
Regarding demand for the core Sales and Service Cloud Nothing out of the norm in either
direction. Nothing extraordinarily up or down. Just sort of continued consistent demand.
Big picture is we are seeing the same amount of continued enthusiasmcontinued embrace
of the platform by some of the larger enterprises [of the likes of Coke and GE].

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We had a killer Q1 [calendar]. It was huge for us. Just saw a lot of momentum through
the early part of the year, then March and April things seemed to hesitate a bit, [but] now
we are seeing a pickup again. Could just be us. Big picture I am just seeing continued
strength and momentum.
ecosystem], I am not sensing worrythe machine continues to churn.
Mentions that one of the continued struggles that customers have with Salesforce is the
licensing model. For example, after Salesforce sells a big ELA to a customer, the customer
still has to pay Force.com licenses when they consume any application built on Force.com
from an ISV. It gets very confusing with CRM, Force and portals and all these different
entitlements. He thinks that Salesforces next release could have a big impact in this
regard.
Salesforce Communities 80% of Communities is a marketing veneer and repackaging of

existing capabilities.
Social.com The launch was really inspired by Buddy Mediathe messaging is primarily
around managing ad spend on Social and thats Buddy Media. The listening piece is the
feedback loop for that. Mentions that its a way for Salesforce to rationalize the Buddy
Media acquisition in the portfolio from a go-to-market standpoint. They have yet to
rationalize it in the platform, at the technical level.
Mentions that Salesforce is losing deals in the CMS (Content Management System) space
for not having an enterprise scale CMS. Mentions that they partner with a few ISVs for
the same. Thinks a good CMS is important to manage content in the portals or now
communities.
Industry contact 8
Seeing more large customers moving their sales organizations to the cloud. The skepticism
due to security reasons is being resolved by putting measurements in place to allow
for cloud-based applications to run in their environment. Companies with thousands of
employees, with multiple divisions and worldwide footprints are what he means when he
says large customers.
This phenomenon isnt industry-specific, as some of his recent customers include companies
in packaging, office equipment, consulting, IT outsourcing, etc.
Just finished an implementation at a company with 1,500 users.
Theres another company deploying salesforce.com with 700 users, and theyll go to 3,000
users by the end of the year.
Working on deal with a significant reseller of a large company, and will eventually provide
services work for this large company. Estimates it will be a few thousand seats.
Force.com:
Its just the tip of the iceberg because not too many companies have touched the
Force.com platform. They havent taken their custom developed apps and moved
them to the cloud. Sales reps tend to go with the Sales Cloud or the Service Cloud but
they havent actually gone in there with a fully customized deployment where there
are no sales or services. Its a very large market. There are a lot of legacy systems
out there that havent been moved to the cloud.
I see a lot of competition [on Force.com] with SAP. He believes SAP has a private
cloud that they offer, but theyre offering that option to large companies. Large
companies are concerned that about security and SAP says hey, we have a private
cloud and well give you a private area, just for you.
His biggest concern is that SAP offers a very low price on the CRM if the
customer goes with SAPs ERP. Microsoft does this a lot with Microsoft
Dynamics. But salesforce.com doesnt have leverage.
The advantage that salesforce.com has is its vision and forward-thinking
people and high-quality products, and they can maintain a lead if they keep
this up.
He expects to grow his practice between 50% and 75% in 2013.

Industry Contact 9

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I am not seeing any deceleration.
Definitely seeing steady and continuous demand for the core Sales Cloud and Service
Cloud as well as the platform. Most of what I am talking about these days is CRM
[Customer relationship management/Sales force automation] related workThere are a
lot of companies out there which are wrestling with how do I get a complete view of my
customers?
Mentions that there is a lot of activity around Service Cloud across his firm.
Regarding Radian6, There is tractionthere has been interest [its more along the lines
of] I want to learn more, as opposed to I am starting to put money aside.
Thinks that the Customer Company messaging is more digestible and its getting a wider
acceptance than the Social Enterprise messaging.
The Customer Company [messaging] might move people down the funnel more
[than the Social Enterprise messaging].
Thinks that the previous messaging resonated only with specific industries and
many companies would dismiss it as that doesnt really apply to meI cant see
how my business needs to be social, but the new messaging is able to garner more
attention because every company has customers.
His firm is putting some marketing into the idea of Social intranet and how Chatter can
be used for that. Has already done a project along those lines for a domestic airline carrier.
Thinks Chatter could replace the existing corporate intranets and build on the idea of
increasing true enterprise wide collaboration.
Mentions that he has a few big deals in the pipeline and feels confident about the year going
forward.
Industry contact 10
Demand is remaining highthey seem to be doing well.
Within his install base of clients, mentions that he is seeing new opportunities both around
the traditional sales force automation implementation or migration as well as around
custom application development work on Force.com such as portal development to solve
specific business requirements.
Absolutely seeing traction around Service Cloud. Mentions that a lot of the portal
development leverages a lot of the Service Cloud functionality such as case management,
etc. Also, mentions that there were a few call center projects which included salesforce.coms
solution, specifically around call center users managing customer activities.
Thinks that Salesforce is front and center around all the campaign management that
you can do in the social universe.
ecosystem], thinks they are happy and pumped-up coming off the quarter. They are
winning business; they are winning big dealsenterprise level 500-plus seat deals.
Thinks that Salesforce signed a deal with a big religious institution within the last one to two
months. It seemed like a pretty big license. Mentions that lot of it was social or Chatter-
based licenses with tens of thousands of users. Thinks the deal also had a Service Cloud
component for their call centers. Definitely 7 [figure deal] would be my guess.
Sees a good pipeline going forward with deals from new installssometimes replacing
legacy CRM application to new projects leveraging the platform.
Based on a presentation by Salesforce employees at a client site, thinks that Salesforce is

making forays into the public sector. They have pretty good depth into one of the federal
agencies. Mentions that its kind of one of their common rebuttals, when someone is
saying that the cloud is prone to hacking.
Neutral Feedback Industry contact 11
Seeing continuous demand for the Sales Cloud. That really hasnt changed.
Mentions that some of the large global oil and gas companies he works with in his region are
starting to really take on the Force.com platform. Also, seeing them use Salesforce more
and more for the Sales Cloud side of things, even for managing their retail operations.

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Mentions that there seems to be some interest [among some large companies]
around [Chatter] Communities that aims to connect customers, partners, suppliers and
distributors through social networking.
Mentions that within his region, there is definitely some interest in the Marketing Cloud
and Radian6. However, he is not doing any business as of now.
Mentions that he is not seeing the kind of traction Salesforce is seeing in the Service Cloud
side and that he is doing comparatively little business in Service Cloud as compared to
Sales Cloud. Mentions that the dynamic could be regional or may even be firm specific
because of less marketing around Service Cloud services.
Based on his interactions with sales reps [in the customer relationship management
ecosystem], mentions that commercial guys are very month-end driven and appear to be
pushed pretty hard.to the point where they are almost jeopardizing deals by pushing too
hard. Its not so much true about the enterprise guys. Adds that it could be because of
cultural differences.

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45 CRM Partners Finished 3.1% Above Plan; A Lot of Moving Parts in Q1
PRICE: US$47.01
TARGET: US$52.00
36.7x our CY13E OCF of $1.36/sh + $2.02
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$52.00
FY14E EPS US$0.49
FY15E EPS US$0.56
Yield 0.00%
Fiscal Year End Jan
50
45
40
35
30
25
USD
Source: Bloomberg
CONCLUSI ON
on average for Q1, marking an immaterial downtick from Q1 last year, when they
were 3.3% above plan. Across all three of our quantitative survey metrics, results look
consistent to just slightly softer than a year ago, suggesting a fairly normal start to
the year but not a particularly explosive environment. The Q1 earnings report should
entail tough optics and a lot of moving parts - high exposure to the weakening yen, a
$30M billings headwind due to an early renewal, a shift toward larger enterprise business
and movement toward annual billings. However, our survey work officially shows the
Force.com platform carrying the strongest momentum of all CRM products, and we
continue to view CRM as a core long term holding due to the larger TAM and stickiness
invoked by the Force.com platform. OW, $52 PT.
Partners Finished 3.1% Above Plan for Q1. Partners were 3.1% ahead of plan, versus
3.3% ahead of plan for Q1 one year ago and 5.4% ahead of plan for Q1 two years
ago. We view this as an essentially immaterial y/y difference, although we do see the
possibility that CRM's mix is shifting toward larger enterprise business over time,
which could begin to drive stronger Q4 seasonality and softer Q1 seasonality, as larger
transactions tend to close during Q4.
Observed Pace of Business Slightly Softer than Year-Prior Q1. 40% of the partners
indicated that the pace of business was better in the past three months relative to
the prior three months, while 7.5% indicated a worse pace of business. This results
in a "Net-Better" score of 32.5%, versus 38% one year ago and 61% two years ago.
This minor softening might surprise investors, as CRM shares are up 18% in the
past month and 57% since last August to an all-time high, but we note that no
large software company reported any broad-based strength with acceleration in recent
months, whereas many companies reported material softness. While we expect CRM's
trajectory to outshine that of essentially all other large cap software companies, it
shouldn't be completely uncorrelated with the broader IT spending climate.
***Additional Commentary Relating to Q1, Detailed Survey Data and Customer

Comments on Pages 2-6***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
695.5A 731.6A 788.4A 834.7A 3,050.2A 3,823.6E 9.4x 7.5x
884.4 913.2 984.1 1,041.9 3,823.6 4,716.8 7.5x 6.1x
1,104.0 1,131.3 1,200.6 1,280.9 4,716.8 6.1x NA
0.09A 0.10A 0.08A 0.13A 0.41A 0.49E 95.9x 95.9x
0.10 0.10 0.13 0.15 0.49 0.56 83.9x 83.9x
0.15 0.12 0.13 0.15 0.56

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April 2014
Ma y 2 1 , 2 0 1 3
Force.com Platform Showing Significant Momentum. We asked partners to rate 12

salesforce.com products in terms of their momentum within their base of customers and
prospects, and the Force.com platform ranked highest at 3.64 out of 5. Adoption of the
Force.com platform is crucial because it invokes a larger TAM than any of the core pillars
(roughly $50B), offers a longer-tail growth curve, and creates stickiness across the entire
suite. This carries major implications for the long-term success of salesforce.com, and is
another reason why we believe investors with a long term horizon will be rewarded.
A Lot of Moving Parts in Q1. Several moving parts are likely to hurt the optics of the Q1
earnings report, and may cause the results to be more open to interpretation and requiring
more analytical calculus than normal. First, high exposure to the weakening yen should
weigh on reported revenue, deferred revenue, and billings growth, and should also prevent
the company from increasing its full year revenue guidance as much as it otherwise would.
Specifically, we believe roughly 10% of CRM's revenue is recognized in the Yen, which
has moved by 9.5% since CRM provided guidance in mid-February. All else equal, this
large move in the Yen should adversely impact FY14 revenue guidance by roughly 1%, or
$38M. This delta is not insignificant, in our view, as a "typical" upward revenue revision
is less than 1%. Second, as mentioned on the Q4 earnings call in February, CRM billed
and collected a $30M invoice which was originally billed as new business in Q1 of FY13. In
other words, $30M worth of billings, perhaps relating to State Farm, was collected a quarter
ahead of schedule and thus creates an additional $30M (or 5% y/y) billings headwind for
Q1. Third, the ongoing mix shift toward larger enterprise business and movement toward
annual billings could theoretically be producing a softer Q1 billings seasonality over time,
and the mathematical calisthenics required to produce an "adjusted" billings growth rate has
become quite complicated and very much open to interpretation in recent quarters. Because
of this, our approach has been to consider CRM's quarterly results across a broader array
of metrics, rather than exclusively/myopically focusing on the Billings results. That said,
obviously we can't control how the rest of the street interprets quarterly results, and some
of the subtleties of the broader analytical framework have been very slow to seep their way
into this consensus-forming thought process. Finally, we believe the overhang of the recent
$1B financing and the apparent likelihood of a large acquisition in the Email Marketing
arena could certainly be considered as a material "moving part" of the equation for now.
We continue to believe CRM should include large vendors in its framework and believe
CRM would be best served by acting sooner rather than later, while the Street unilaterally
(and perhaps incorrectly) views Email Marketing as a commodity-like market unworthy of
their investment, and while the stocks in this segment trade at uniquely low levels relative
to their growth trajectories. We firmly believe that a real opportunity exists to transform
the ultra-fragmented Marketing segment into a huge opportunity by congealing several of
the "fragments" into a cohesive whole for which the center will hold. Salesforce.com has
acquired two of the very important future assets in this arena (Radian6 and Buddy Media),
but has perhaps over-estimated the pace at which customers would embrace some of these
future "social" assets, and could benefit by addressing the area of current real spending and
interest - that being Email Marketing.

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April 2014
May 21, 2013

Exhibit 1
DETAI LED SURVEY DATA ( TI ME SERI ES)

Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6% 4.2% 5.0% 3.1%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0% 57.1% 44.0% 55.3% 40.0%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5% 44.0% 29.8% 52.5%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4% 12.0% 14.9% 7.5%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7% 32.0% 40.4% 32.5%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7% 36.0% 38.3% 22.5%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2% 52.0% 48.9% 70.0%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1% 12.0% 12.8% 7.5%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6% 24.0% 25.5% 15.0%

1.7%
4.3%
5.4%
1.6%
3.3%
6.1%
3.3%
4.6%
4.2%
5.0%
3.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
40.4%
57.7%
61.4%
40.0%
38.3%
64.0%
38.1%
54.7%
32.0%
40.4%
32.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
19.3%
21.2%
40.9%
14.6%
19.2%
30.0%
16.7%
28.6%
24.0%
25.5%
15.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Above %


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April 2014
May 21, 2013

Exhibit 2
PRODUCT MOMENTUM

3.64
3.56
3.51
3.42
3.29
3.18
3.09
3.07
3.02
2.96
2.91
2.78
2.5 2.7 2.9 3.1 3.3 3.5 3.7
Force.com Platform
Chatter
Sales Cloud
Service Cloud
AppExchange
Data.com (Jigsaw)
Radian6 (Social Media Monitoring/Engagement)
Buddy Media (Social Marketing Suite
Database.com
Rypple (Social Performance Reviews)
Please rate the following salesforce.com products in terms of
their momentum within your base of customers and prospects
(5 = gaining significant momentum, 1 = losing significant
momentum)


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April 2014
May 21, 2013

Exhibit 3
DETAI LED COMMENTS POSI TI VE

Increase in pipeline and activity, but still cautious conservatism.
Running consistently strong, in line with expectations and growth trend.
Still strong as SaaS is now mainstream.
Slightly above plan going into Q2.
We're almost sold out, big deals are great and going well.
Continuing to see increased movement into the B2C market which also seems to have higher deal
values.
A few more customers have been asking about it.
Pipeline has more than doubled in last 4 months. Expect it to accelerate as we continue to expand our
sales team.
The pipeline has increased exponentially through marketing efforts linked to SFDC, and sales have been
coming in much more often these past few months.
We have seen the development of larger deals in 13.
Some overall improvement in customer activity.
Very good.
Overall good, a lot of interest in expansion to additional services.
Very robust and covers areas beyond SFA. Service Cloud is moving along well.
Good Trend. Many leads and demos coming in. Sales Cloud, Force.com, Service Cloud and Marketing
Cloud (especially Radian6) are gaining momentum.
In So Cal - great to see the franchise focus - seems to be in building mode.
Has been steadily increasing.
A lot of activity.
A lot of prospects - deals taking longer to close though.
Great start to the new year... heavy interest in Heroku. Also, some partners are rolling out Rypple but
we have not sold any directly.
Salesforce is the best thing out there. Nothing else comes close.
Solid
Excellent, above and beyond
We continue to experience a significant portion of our pipeline to be from the Salesforce base. It has
been trending upward over the past few years and has become a majority.
Larger deals, pipeline is full and project backlog is also full.
Excellent growth in mid-market and enterprise.
Very strong, record levels of deals and add-on business.
Up slightly


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April 2014
May 21, 2013

Exhibit 4
DETAI LED COMMENTS NEUTRAL

It's about the same.
Q1 was normal pace and activity.
Steady, but Salesforce.com has never been the source of leads we hoped. Mostly we connect with
prospects on our own, and then discover they use SFDC.
Q1 was full of activity, but little sales closing. Lack of government support, from sequester has
dampened our sales.
Deal pipeline has been in line with projections. We have seen an increase in the scope of individual
projects which is proving to be beneficial from a cost of sale standpoint.
The same
No significant change
Level
Customer activity has been going as planned.
There is no change in sales force activities.
As expected
Feb through April results are somewhat flat, but our expectations for the next quarter are higher.
I would expect Q1 to be relatively slow/quiet & not ramp up until Q2/Q3.
At plan

Exhibit 5
DETAI LED COMMENTS NEGATI VE

Poor.
We have a larger numbers of leads but significantly lower uptake of Salesforce. We feel as if Salesforce
is working actively against us by cutting us out of deals and going in directly. Salesforce also offers
Premium Support in almost every partner-led opportunity, effectively quoting against us.
Most likely as a result of the drop in the value of our local currency and the economic downturn, we are
way below target in our Salesforce business overall.


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April 2014
Fe b r u a r y 2 7 , 2 0 1 3
47 CRM Partners Finished 5% Above Plan for Q4
PRICE: US$163.36
TARGET: US$208.00
36.7x our CY13E OCF of $5.50/sh + $6.01
net cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.50
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
190
180
170
160
150
140
130
120
110
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 47 salesforce.com partners and found that they finished 5% above plan
on average for Q4, slightly softer than the exceptionally strong Q4 last year (6% above
plan) but consistent to slightly better than prior Q4s. Across all three of our quantitative
survey metrics, results look slightly softer than a year ago but consistent with other Q4s
for CRM, suggesting a normal/healthy finish to the year. Additionally, 66% of partners
saw favorable large deal activity ($1M to $5M transactions) in Q4 as compared to a year
ago, while only 13% saw a weaker environment. Partners see "noticeably stronger" large
deal activity in the pipeline while noting that such activity is lumpy. The survey results
are generally consistent with our deep-dive checks published last week and corroborate
our belief that CRM is the best long-term (12 month) investment in the powerful Cloud
Computing wave. Reiterate OW, $208 PT.
Partners Finished 5% Above Plan. Partners were 5.0% ahead of plan, versus 6.1%
ahead of plan for Q4 one year ago and 4.3% ahead of plan for Q4 two years ago.
Sequential Change in Observed Pace of Business in Positive Territory, but Softer than
the Prior Two Q4s. 55% of the partners indicated that the pace of business was better
in the past three months relative to the prior three months, while 15% indicated
a worse pace of business. This results in a "Net-Better" score of 40%, versus 64%
one year ago and 58% two years ago. This is the one element of our data which is
noticeably softer than in prior Q4s. This could be a result of CRM coming off a
stronger-than-normal Q3 or could reflect a softer macroeconomic tailwind.
Bookings Expectation: Net-Above 25.5% Versus 30% One Year Ago and 21% Two
Years Ago. 38% of surveyed partners foresee Q4 bookings above expectations, while
13% sense a disappointment. This results in a Net-Above score of 25.5%, slightly
softer than a year ago but stronger than two years ago.
Detailed Feedback on Large Deal Activity. Based on our segmentation of the detailed
feedback, 66% of partners saw increased large deal activity, 15% saw activity
level consistent with prior quarters while 13% saw a decreasing large deal activity
environment. Our sense is that partners tend to have more exposure to transactions of
a few million dollars than they do of any occasional 8- or 9-figure mega-transactions.
The more optimistic partners state that they saw a "greater number of large deals
than we have seen in the past 5 years" and "are seeing several more large deals slated
to close in Q1". More cautious contacts note that "many government customers and
contractors were waiting out the 'Fiscal Cliff'".
***Detailed Survey Data and Partner Commentary on Pages 2-5 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,043.8E 10.8x 8.1x
695.5A 731.6A 788.4A 828.3 3,043.8 3,783.3 8.1x 6.5x
874.7 913.2 969.3 1,026.1 3,783.3 6.5x NA
0.28A 0.30A 0.34A 0.43A 1.36A 1.50E NM NM
0.37A 0.42A 0.33A 0.38 1.50 1.94 84.2x 84.2x
0.44 0.44 0.50 0.56 1.94

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April 2014
Febr uar y 27, 2013

Exhibit 1
DETAI LED SURVEY DATA ( TI ME- SERI ES)

Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6% 4.2% 5.0%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0% 57.1% 44.0% 55.3%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5% 44.0% 29.8%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4% 12.0% 14.9%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7% 32.0% 40.4%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7% 36.0% 38.3%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2% 52.0% 48.9%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1% 12.0% 12.8%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6% 24.0% 25.5%
6.2%
1.7%
4.3%
5.4%
1.6%
3.3%
6.1%
3.3%
4.6%
4.2%
5.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
54.0%
40.4%
57.7%
61.4%
40.0%
38.3%
64.0%
38.1%
54.7%
32.0%
40.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
32.0%
19.3%
21.2%
40.9%
14.6%
19.2%
30.0%
16.7%
28.6%
24.0%
25.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Net-Above %

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April 2014
Febr uar y 27, 2013

The chart above represents our interpretation of the responses from our survey of 47
salesforce.com partners when we asked them the following open-ended question:
Please describe the Large Deal Activity you observed during salesforce.com's Q4
(Nov/Dec/Jan) and how it compared to the large deal activity one year ago.

To categorize each response, we used our best judgment to interpret each response to
the survey question, and then assigned one of the five categories to each response. A
few respondents didnt provide a clear viewpoint and we categorized those under the
No Response category.
Exhibit 2
LARGE DEAL ACTI VI TY

Methodology
28%
38%
15%
13%
0%
6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Significantly
up
Slightly up Same Slightly
down
Significantly
down
No
Response
In a few brief sentences, please describe the LARGE DEAL ACTIVITY
you observed during salesforce.com's Q4 (Nov/Dec/Jan) and how it
compared to the large deal activity one year ago.

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April 2014
Febr uar y 27, 2013

Exhibit 3
DETAI LED COMMENTS LARGE DEAL ACTI VI TY SI GNI FI CANTLY UP

Significantly more large deal activity in Q4 than the year before.
We focus on the Mid Market and there was 45%-55% more activity in this segment than the year before with emphasis on Service
and Marketing Cloud adding momentum.
We opened the largest Salesforce deal of the past 5 years during December. It will close in Q1 2013.
More larger deals moving faster.
Noticeably stronger.
We saw several very large deals in Q4 and we are seeing several more large deals slated to close in Q1. Of note is that these
opportunities are B2C deals.
Cloud Computing is taking momentum in Italy. Salesforce is widening its activities in large deals better than one year ago.
So good.
We've seen a significant increase in large deal activity compared to a year ago. This is consistent with a general trend toward larger
deals throughout last year.
Greater number of large deals than we have seen in the past 5 years.
Large deal activity for this year was much better than the last year. We saw a 50% increase year over year from 2011.
We've had a bunch of large deals close in Q4.
We have some great activity and all six figure opportunities.
Exhibit 4
DETAI LED COMMENTS LARGE DEAL ACTI VI TY SLI GHTLY UP

Continues on a consistent growth curve.
Good pick up in large deal activity -very lumpy though.
Clients are more willing to spend money than one year ago.
This was a large expansion with one of our consumer vertical companies that is integrated with SFDC [salesforce.com].
Big deals opened up in our Field Sales business.
Lot of clients spinning up Service Cloud now that they use CRM. Also clients in January pursuing more SFDC [salesforce.com]
projects with new licensing.
More large deals, shorter decision cycles.
More large deals in the pipeline than a year ago.
The large deal activity for our organization increased since last year.
The deal[s] [were] bigger and closed much faster.
Up slightly over last year.
Increased interest by larger companies.
Lots of interest in cloud, though there are concerns about disaster recovery in the cloud.
Seems to be more large deal activity.
Larger and more complex.
Bigger, more complex.
It is slightly growing
There appears to be an increased amount of large deals.

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April 2014
Febr uar y 27, 2013

Exhibit 5
DETAI LED COMMENTS LARGE DEAL ACTI VI TY SAME

I did not notice a difference.
Around the same amount of activity from our perspective.
There was not a lot of Net New business. Strong renewal rate though!
[Redacted] and [Redacted] were large for us (well into six figures), and were similar in size to a few deals in our Q4 2011.
It was the same. It was healthy.
Same
Our deal activity has stayed about the same for the past couple of years but that is mostly attributed to the economy and our services
we offer, but just last month we began to see improvement.
Exhibit 6
DETAI LED COMMENTS LARGE DEAL ACTI VI TY SLI GHTLY DOWN

Large deal activity less than one year ago.
Large for me is relatively small overall. But, large deal activity is down.
Largest deal was only about 30 users and that is down from a year ago.
Deal activity seems to be on a better trajectory. Still not at previous levels, but improving.
Large Deal Activity has been slowing.
Large deals at the end of 2012 were down slightly from 2011. Many Government customers and contractors were waiting out the
"Fiscal Cliff". Sales activity didn't increase as much as usual toward year end.

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April 2014
Fe b r u a r y 2 2 , 2 0 1 3
Deep-Dive Interviews with 12 Key Partners: CRM as Transformational Vehicle
PRICE: US$168.55
TARGET: US$208.00
36.7x our CY13E OCF of $5.50/sh + $6.01
net cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.50
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
190
180
170
160
150
140
130
120
110
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 12 key contacts in the salesforce.com ecosystem
to provide a detailed view from the trenches. The feedback is almost universally positive
and fairly consistent with recent quarters, with perhaps a greater focus on forward
pipeline health. The central theme is: companies are looking at using salesforce as
their main Cloud Computing platform and tying it in with other apps to re-charge, re-
energize, and change the way they do business. Companies will be going wall-to-wall and
embracing salesforce as their transformational vehicle. The nascent Marketing Cloud is
trying to find its way by rationalizing acquired products into the existing framework, but
the Service Cloud is on fire, with CRM telling its partners that 70% of customer service
systems will be replaced or upgraded by 2016. We believe CRM remains a core long-
term holding for its prominent role in the cloud computing mega-trend. We reiterate our
Overweight rating and PT of $208.
Quotable quotes:
Our pipeline is probably 3x what it was a year ago this time in Salesforce
opportunitiesthe reps are all speaking of other opportunities I havent even
accounted for yet.
I think they [salesforce.com] are one of the best run software companies out there
right now and nothing that I have seen is suggesting otherwise to me.
As much as you think its [SFA] a mature market, there still seem to be people
who either are switching from something else or they dont have anything. Its really
amazing to me in this day and age you still see these people who arent using anything."
"It feels like they really havent broken stride since the end of January, while the last few
years I would say that they stalled out in FebruaryThis year it feels like execution
is much better going into the year.
A number of accounts where we are right now, they are all looking at fairly large
Radian6 deals, some of them in the 7-figure range.
People are making reasonable investmentsand talking about exciting things. Its
not extraordinarily positive but its reasonably positive."
Absolutely seeing continuous growth and adoption of the Platform at very, very
big levels. There is a very strong momentum.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,043.8E 11.2x 8.3x
695.5A 731.6A 788.4A 828.3 3,043.8 3,783.3 8.3x 6.7x
874.7 913.2 969.3 1,026.1 3,783.3 6.7x NA
0.28A 0.30A 0.34A 0.43A 1.36A 1.50E NM NM
0.37A 0.42A 0.33A 0.38 1.50 1.94 86.9x 86.9x
0.44 0.44 0.50 0.56 1.94

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Detailed Partner Feedback Industry contact 1
Absolutely seeing continuous growth and adoption of the platform at very, very big
levels. There is a very strong momentum.
As an ISV, mentions that his pipeline has never been strongerwe are seeing extraordinary
pipeline...across the board. Also, refers to a lot of demand and momentum around custom
application development on the Force.com platform and highlights a million dollar custom
application development deal that his organization closed late last year for an ISV in the
Higher-Ed sector.
Seeing a lot of demand in the Higher-Ed sector and thinks that Higher-Ed is really, really
grabbing onto this [Force.com platform].
Those companies that were on stage in Dreamforce last year, they are really digging in
and going deep and widenot just platform but apps. Mentions that the handful of large
organizations they are involved with are rolling out global sales and service and this is net
new business for Salesforce. Mentions that these are certainly thousands and sometimes
tens of thousands of seats. Doesnt know the timing of the deals though.
Wont be surprised if [an American multinational conglomerate corporation] signed a large

deal with Salesforce.com in Q4. Weve got four divisions that are banging on our door.
Youve got Cisco, HP and GE, they are really continuing to reinvent themselves, look for
ways to cut cost, become more nimble and all three of those have embraced Salesforce as
the transformational vehicle for achieving their goals. Thinks that these large accounts are
going to be major growth engines for salesforce.com.
Thinks that Accenture is a big part of these large enterprise deals. They [Accenture] seem
to have really monopolized almost all of the high end Salesforce deals.
Thinks that the ISV team is continuing to see very, very strong growth but the relative size
of the organization is negligible.
Thinks that Salesforce is still struggling in the Marketing Cloud. Thats an area that
hasnt really gelled yet still. Thinks that the rationalization of the various products
acquired by Salesforce within the existing framework is a work in progress. Thinks
salesforce.com is a long way from getting Buddy Media integrated.
About Work.com, at best its a bolt on. Its a step child in a family with a lot of kids, lot
of mouths to feed.
Fears the Oracalization of Salesforce as more and more sales guys come in from Oracle
to salesforce.com.
I will be concerned if Salesforce continues to make big acquisitions. Mentions that

Salesforce making acquisitions is different from Oracle making acquisitions. When Oracle
makes acquisitions there is a different set of expectations that customers have. Mentions
that customers are not expecting RightNow to fit elegantly with other Oracle products.
Whereas Benioff has just set a different bar for himself and the company and there is
a different set of expectations that it's [salesforce.com] a more harmonious platform.
Thinks that the execution on the Marketing Cloud will be very telling over the next couple
of yearsthats their biggest risk point.
Industry contact 2
Deals are getting biggerand within that there are a number of large platform deals.
Thinks that platform is still a big piece of what Salesforce is doing, although they dont
really talk about it as much as the Marketing Cloud and social, etc.
We just closed a really good year. Adds that he has made some aggressive plans for 2013.
Mentions that his Salesforce practice was slightly above plan in Q4. Looking at a high
double digits growth in 2013.
Thinks that Salesforce closed a large 7-figure deal with a recruitment and staffing company
in Q4.
Based on the conversations with a few sales reps [in the customer relationship management
ecosystem], thinks that they are quite positive coming off of Q4.
Mentions that Salesforce is again realigning the territories but not as dramatically as last
year, from what I understand.

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We have done some pretty cool things lately with Service Cloud and tying it into Radian6.
Mentions that these products are much more interesting together than either one of them
alone. We are hoping to build some momentum around that. Thinks that Service Cloud
is a key application for Salesforce.
Thinks that at this point in time, the Marketing Cloud is too narrow. So, very large
enterprises that have super sophisticated marketing teams want something that has to be
multi-channel or omni-channel. Thinks that right now the Salesforce Marketing Cloud is
pretty focused on social aspects of things and they need to find ways to expand across other
channels. Thinks for that, Salesforce would need a Marketing Automation engine.
I think they [salesforce.com] are one of the best run software companies out there right
now and nothing that I have seen is suggesting otherwise to me.
They seem to be doing it [land and expand] extremely well and maintaining a customer
success focus that I always felt was lacking in Oracle back in the '90s. The canary in the
coal mine is going to be if the customer satisfaction numbers start dropping. I dont get the
sense thats happening. Thinks that the Customer for Life organization that Salesforce has
built out is unique in the industry and they are super serious about it.
Industry contact 3
I think they are in a comfortable state now.
Thinks that Q4 momentum was positive. Mentions that the aggregate demand and the
aggregate pull looked reasonably good in Q4.
Traditional areas are doing well. Seeing a lot more Service Cloud.
Mentions that Social Enterprise as a theme is resonating well among established large
customers.
Doesnt think that Work.com has taken off. I dont think its a very serious effort so far
unless they launch something big at Dreamforce.
Thinks that Salesforce has over-invested in sales and so the feedback among sales guys
[in the Salesforce ecosystem] varies. Didnt see any nervousness among sales guys [in the
customer relationship management ecosystem]. My sense is I think they were on track
in Q4.
Hasnt heard of a mega deal closing during the quarter but I am beginning to see them a
lot more in almost all the enterprises we talk to.
Seeing more 7-figure deals.
Mentions that any top 10-15 service companies focused on salesforce.com should see
40-50% growth in Salesforce opportunities.
Thinks that Salesforce would need to [launch] something soon in the Analytics space as well
as the Marketing Automation space.
From a general spending standpoint, mentions that the mood looks a little betterit is not
as despondent as it looked a few months ago. Mentions that last month, overall sentiment
was a little soft in general, but the level of conversations happening in February is much
better. So, in general the mood is reasonably positive. Mentions that when you see the type
of opportunities people are contemplating investing, we dont need to be so pessimistic.
People are making reasonable investmentsand talking about exciting things. Its not
extraordinarily positive but its reasonably positive and for Salesforce definitely its looking
good.
Industry contact 4
Our year was great. Mentioned that her salesforce.com practice grew substantially year
over year.
Thinks that the Force.com platform is definitely one thats going mainstream.
Mentions that she is seeing a lot more enterprise engagements specifically driven from IT
organizations. Thinks that it clearly is a shift in the landscape.
Mentions that in the past salesforce.com was sold predominantly to business owners
who were frustrated with their IT departments and would buy Salesforce as an easy-to-
implement solution. But now she is seeing more and more IT organizations coming forward
as buyers, mainly from the perspective of a Cloud computing platform, which is a shift from

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business owners and functional owners. Mentions that organizations are looking at using
Salesforce as the main platform and tying it with other applications in the market place
such as demand generation solutions, document generation solutions, financial solutions
etc. IT organizations are looking to recharge, re-energize and change the way that they
do business.
Mentions that Governance is another topic that is becoming an important part of these
conversations now.
Sees continued momentum in the Sales and Service Cloud. Service Cloud is definitely
picking up in the marketplace. She is seeing a lot of activity but thinks that Service Cloud
is a longer sales cycle.
Thinks that one of the main focuses for the sales guys currently is honing the sales cycle with
this new set of buyers and moreover to be able to sell the increasing number of products
that Salesforce has. Thinks that sales guys are excited about the diversity of the offering
that Salesforce has.
In terms of deals closed in Q4, thinks there is quite a bit in higher education and financial
services.
Sees tremendous opportunities going forward in 2013.

Industry contact 5
Thinks that there is a lot of interest in the Marketing Cloud. A number of accounts where
we are right now, they are all looking at fairly large Radian6 deals, some of them in the 7-
figure range. Thinks that there is some more work that needs to be done around Buddy
Media. Certainly, Radian6 continues to do well for them.
Thinks that Service Cloud is doing really well for them.
Thinks that Sales Cloud is facing a combination of competition [mainly at the low end]
and a flatter market in general [due to high market saturation].
Refers to a deal with a global retailer, in the global 30s, which he thinks is a pretty
major win for salesforce.com. Thinks that salesforce.com would announce the same in the
earnings call. Adds that it will be high sevens [seven figure] I think in terms of the basic
licenses. Mentions that its a beachhead and not by any means the end point and it could
be well into the eight-figures.
Thinks that Salesforce is focused very much on growing the platform and is working
closely with a number of ISVs. Thinks that now there is a lot of attention being given to
people who are expanding the platform for them.
Based on his conversations with fellow partners (other ISVs), they are seeing a lot of
interest in Salesforce around adding value and helping them get wall to wall by putting those
applications that are more enterprise oriented and are broadly used across companies.
Thinks that the Force.com team is getting much more engaged around looking for broader
based applications to grow. Mentions that customers are also doing the same thing and
looking out to the platform after their initial purchase of Sales Cloud or Service Cloud to
see how they can get more value out of the platform. Seeing good opportunity there for
them [helps them] break out of some of the corners of the enterprise they are stuck in
more typically.
I think there is a refocused effort on their core [refers to Sales Cloud, Service Cloud &
Marketing Cloud]. I think they have heard from their advisory side of their business that
they need to focus back on the core of what they are doing.
Mentions that he sees a very healthy pipeline that is growing very quickly, certainly
at our end.lots of great engagements with their field teams around the world. Our
pipeline is probably 3x what it was a year ago this time in Salesforce opportunitiesthe
reps are all speaking of other opportunities I havent even accounted for yet. Based on his
conversations with a half a dozen of his peers, thinks everybody is pretty optimistic.

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Based on his conversations with sales guys [in the customer relationship management
ecosystem], he got the sense that they are happy and upbeat coming off the quarter. This
year they seem to be very much on the ground running as compared to the disruptions that
Salesforce underwent as part of the sales reorganization last year. Feels like they [sales guys]
are moving really quickly and they are not stuck at planning or account shuffle [stage] that
they have been at in the past. Mentions that they are increasing focus on specific areas and
verticals. It feels like they really havent broken stride since the end of January, while the
last few years I would say that they stalled out in FebruaryThis year it feels like execution
is much better going into the year.
My understanding is GE is very fast becoming a very big customer of theirs

[Salesforce.com]
Talking about the US economic recovery pre-June 2012 versus today its a staggering
difference in the level of activity and the scale of opportunities that are coming out in the
US market alone.
Industry contact 6
I would say business is pretty brisk. A lot of activity. We had a good year last year. We were
up about 30%.
Overall demand is good and weve been busy.
There is a lot of competition among consulting firms, however. Theres also been a lot of
consolidation in the salesforce.com channel. A lot of larger firms have evolved.
Some US firms are buying overseas consultancy firms. Some foreign firms are establishing
a presence in the US.
Theres definitely been a lot of M&A activity among larger firms.
At the lower end theres are a lot of one-man shop consulting firms, creating a lot of
competition there.
Salesforce.com still seems to be hiring an awful lot of people, which makes it hard for
partners in the field to know how it all fits together.
Its hard to keep up with what everyones role is. The names and titles are so similar. Its
hard to distinguish between what one person does and what the next person does.
Has a partner account manager, but the key is to maintaining a good relationship with the
AEs (account executives).
SFA Runway
As much as you think its a mature market there still seems to be people who either
are switching from something else or they dont have anything. Its really amazing
to me in this day and age you still see these people who arent using anything. Or
theyre using Excel or Outlook for their CRM.
Marketing Cloud
One of the things salesforce.com talked about at their recent partner conference
was the Marketing Cloud. Theyve broken out a separate partner community, or
channel, to sell the Marketing Cloud.
Theyre looking at big partners that have experience in social media, or theyre going
to social media agencies.
Salesforce.com isnt encouraging smaller partners to get involved with the
Marketing Cloud.
They feel its a different sort of business because youre dealing with different people,
it requires different skill sets, etc.
Currently using a firm in California to resell the Marketing Cloud, as well as a firm
in Minnesota which is a roll up of three companies.
The Marketing Cloud is definitely an enterprise play.
Partner conference
Salesforce.com said that by 2016, 70% of the installed customer service systems will
be either be replaced or upgraded.
It appears theres still a heck of a lot of opportunity.
The question is how salesforce.com will deliver this. Will they continually try to
ramp up and work with bigger partners or will they have a diverse partner program?

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Industry contact 7
We had by far our best year. We had significant growth last year, almost 70%, which is
great.
December was a little bit iffy in terms of closes, but then it rallied.
Sales were slow the first eight or 10 days of January, but then they rebounded significantly
in the back part of the month.
Doesnt see any major shift in the competitive scenario versus whats normally there.
SFA has a lot of room left because of the expansion of the application Thats real and
we see it every day.
Service Cloud is beginning to get very decent traction.

About 70% of our implementations now are involving some aspect of the Service
Cloud. We think now that Salesforces traction in the service environment is very
real
This is true for field service, were getting traction from companies with field service
fleets.
Data.com, the whole arena around data, social and otherwise, is beginning to help
salesforce.com.
Marketing Cloud still has a lot of buzz to it. It of course doesnt have the same traction as
the Service Cloud or even the continuation of Sales Cloud, but theres definitely something
to be had there in my view.
Hes seeing more customers begin to think about marketing and look at their vendor
options.
He believes territory changes this time seem to be a little bit more controlled and less total
disruption, so I would expect some positive results from that. Sometimes those things
slow down sales a little bit but this particular time around, at least in [our region] it looks
like the territory changes will be less disruptive than was the case before.
Salesforce.com is really raising the requirements on certifications for partners.

It really helps weed out situations where there may be some issues of technical
competence or things of that nature. So he sees that as a very positive move.
Salesforce.com is more frequently involving partners and has very precise messages
on its webinars, which is good.
Large deals
Salesforce.com has been working with GE on a machine to machine idea.
They want to have machines talk to each other and talk to engineers or technicians.
This is part of their broader concept of visioning exercises.
I know theyve done a lot of work with GE. I havent heard if it closed. If will be
a big deal when it does, if it hasnt already.
The companies featured during the Dreamforce visioning exercises, salesforce.com
is working those almost daily.
Industry contact 8
We are seeing significant opportunity for us in oil and gas.
Seeing opportunities with one of the largest oil and gas companies in North America as
well as with some global juggernauts in the space.
Seeing opportunities not only in the Sales Cloud and Service Cloud but more interestingly
fairly significant Force.com components. Their [Force.com] [oil and gas clients] are
quite interested in automating some of their processesand leveraging cloud and mobile.
Mentions that one example of an application built on the Force.com platform by a client is
to enable maintenance management of drilling rigs. So, we are starting to see Force.com
apps built in that space which is quite interesting and potentially fairly significant.
Refers to one net new Salesforce client in the oil and gas space which committed to about a
couple of million dollar spend over the next year or two for platform licenses in Q4.

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ecosystem], thinks that they are happy coming off the quarter. My sense is they had a fairly
decent quarter.
Thinks that the pipeline looks good getting into 2013. Once one large integrated company
goes, others go. So, he expects a large number of the big players in the space to start to
adopt Salesforce as well.
Mentions that penetration of Salesforce in the oil and gas area is in its infancy. Mentions
that these companies have large pockets and when business is good they have lots of money
to spend. Thinks there is a tremendous opportunity in this space for salesforce.com.
Industry contact 9
Sees the demand trend continuing. Continues to see migration activity from legacy systems
toward Salesforce.
Refers to a large retailer that signed with Salesforce. Thinks it could be a pretty massive
deal and estimates that it could involve tens of thousands of seats. Mentions that it could
be a net new install or a considerable expansion.
Have done some web chat implementations and thinks that is picking up some momentum.
Thinks that the functionality should be a part of Salesforces Service Cloud.
Thinks that a lot of their [sales reps in the customer relationship management ecosystem]
territories and plans are changing now. Refers that it could be focused toward creating
smaller territories for more people or to increase industry specializations. From a regional
perspective, he sees the sales leadership continue to hire. The sales reps [in the customer
relationship management market] he interacts with that mainly work across enterprise
accounts, they seem to be doing well, whether thats making their numbers or having a
productive pipeline.
Looking at the pipeline, he is optimistic about Salesforce going into 2013. There are some
large customers that have multi-year plans to kind of transform their operation. Refers to
a deal of 500 seats with a single division of a financial services client.
Industry contact 10
We continue to be extremely bullish on the cloud, especially around salesforce.com.
Salesforce.com continues to evolve and improve the channel program.
When salesforce.com closes a deal there is zero lag between when a customer signs a deal
and when the services partner begins implementations.
When a customer procures salesforce.com, usually they get a services quote at the
same time.
The customer is making a capital investment, at least for the first time, and they
have to go through a process to determine all the costs, including implementation.
Services is a coincidental indicator of software sales.
Product lines
Interest has increased in the Marketing Cloud; demand is not there, yet.
Usually when salesforce.com introduces a new product like this, usually it takes
almost until the next Dreamforce until it starts to get traction.
Seeing a lot of traction on the Service Cloud, mostly from new customers.
Were a long way from saturation in that space [SFA] in the enterprise. The Siebel
investments are continuing to age and were going to continue to see strong demand
while those Siebel installs age out and they replace them with good technology.

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Industry contact 11
We are closing deals left, right and center. So, doing good.
Closed a big deal [Healthcare sector].Multi-million dollars in services for us. Adds that
the deal has sales, serviceseverything under the sun possible on Salesforce. Another
one is coming up.
Thinks that the pipeline is looking good getting into 2013.
Thinks that the sales reps [in the customer relationship management ecosystem] are getting
back into action.
Adds that Siebel Open UI has picked up. Old Siebel customers are pretty stable with Siebel
now. Thinks that it is a negative development from salesforces perspective as he believes
that the new Open UI will increase retention of Siebel customers.
Industry contact 12
Thinks the momentum continues around the Sales cloud and the Service cloud. I dont see
them slowing down.
Mentions that Salesforce.com is working closely in the public sector showcasing the solution
etc. They [salesforce.com] are excited.been hearing that they are making real good
progress.
Thinks that ServiceNow is going to give real tough competition to Salesforce when it comes
to the platform. Thinks that it will play out in the next year or two.

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Detailed Interviews Suggest New Order Emerging as Platform Takes Hold
PRICE: US$147.32
TARGET: US$208.00
36.2x our CY13E OCF of $5.50/sh + $8.86
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.49
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 15 contacts in the salesforce.com ecosystem
to amass a highly detailed view into salesforce.com. While we continue to expect that
deteriorating IT spending patterns will eventually impact all vendors and will drive
cautious guidance near-term, the detailed feedback shows that a new order is emerging
which could benefit salesforce.com longer term. Key non-consensus takeaways: 1) F1000
CIOs are accelerating their consumption of the Force.com platform, and are now
formulating 3 to 5 year plans to move back-office apps onto Force.com; 2) large global
companies are starting to implement salesforce.com Centers of Excellence to match their
level of commitment to Oracle and SAP; and 3) Marketing Cloud is opening up many
new conversations, but still needs more refinement as customers try to understand how
to take advantage of the concept. Overweight, $208 target.
Notable Feedback:
(+) "We are scheduled this year to clip a pretty significant growth pattern. We are well
ahead of our game for this yearWe are poised for very large growth here in the final
stretch of the year."
(+) "Definitely what we are seeing is what I consider a major shift in the enterprise
with respect to the embrace of the platform, the Force.com platformit's been very,
very significant."
(+) "Service Cloud is a blockbuster for salesforce.Service Cloud is a big engine of

growth for salesforce."
(+) "We had a great Q3... Things continue to look real good. The pipeline is good.
Theres a lot of movement into the Service Cloud and some of the elements of the
platform, so that continues to drive our business well."
(=) [Marketing Cloud] has certainly created some buzz and excitement, but not too
much direct business yet from it.
(=) "[Social media] has been slow. Its the only way I can describe it."
(-) "The number of elephants, or massive deals, is decreasing."

***See Pages 2-11 for Detailed Feedback***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,025.2E 9.5x 7.1x
695.5A 731.6A 773.3 824.8 3,025.2 3,629.0 7.1x 5.9x
842.8 879.6 922.5 984.2 3,629.0 5.9x NA
0.28A 0.30A 0.34A 0.43A 1.36A 1.49E 98.9x 98.9x
0.37A 0.42A 0.31 0.39 1.49 1.94 75.9x 75.9x
0.40 0.41 0.50 0.62 1.94

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Positive Feedback Industry Contact 1
Thinks Q3 is more of a stable quarter. Wont categorize Q3 as a blockbuster quarter

but definitely as a much healthier quarter.
Saw a lot more inquiries this quarter. Thinks that there was a certain momentum post
Dreamforce, at least in terms of activities.
Saw good robust traction among existing customers as well as new engagements or
opportunities. Thinks that customers who made some early investments in salesforce.com
but have not fully utilized it, are showing some aggressionto essentially double down.
Service Cloud is a blockbuster for salesforce.com .Service Cloud is a big engine of growth
for salesforce.
Real investments are certainly happening in the Service Cloud space while there is
definitely an increase in mindshare/inquiries among customers around the Social Enterprise
messaging.
Saw a slight uptick in engagements around Force.com. But thinks that the real money for
salesforce is in the applications side and not in the platform side.
Thinks that the Marketing Cloud (Radian6 and Buddy Media) are in the early adoption
stage. We do see inquiries here and there, but nothing to say that it is gaining critical mass
as compared to the adoption of Sales Cloud and Service Cloud. Thinks that the Marketing
Cloud is all about ROI.
Large deal pipeline

Definitely seeing big customers, large customers talking about salesforceI am
sitting on half a dozen potentially large deals but unsure if they would be inked in
Q4 or Q1 of next year.
Mentions that two quarters ago these were not the type of deals we were seeing.
Thinks that the there's a deal [in the pipeline] that can be 50-60% the size of the
State Farm deal.
Elaborates on the deals salesforce.com is targeting:

Complete enterprise wide license, which is what they tried to do with State Farm
Insurance or Cisco.
Expansion of pockets of investments inside a large enterprise, either in a division
or a region or geography.
Expansion across product lines inside an organization.
Conversations with sales guys [in the CRM ecosystem]

Thinks sales guys [in the CRM ecosystem] look comfortable. I didnt see any
desperate calls.
Thinks that salesforce.com is imitating Oracles sales structure. Whatever Oracle
used to do 5-6 years back, they are retaining that structure.
His opinion about the reason behind the Radian6 "layoffs":

Mentions that although salesforce.com bought companies such as Heroku and
Radian6, they were operating fairly independently inside salesforce.com. They had
a separate contract; they had a separate marketing plan and separate training event.
It was confusing.
Suspects that the company-inside-a-larger-company structure was creating a lot of
separate overhead not only for the partners to handle, but also for salesforce.com
sales reps, and was acting as a headwind not in line with the unified messaging.
This (the layoffs) is more of a small company getting rolled up into a larger
companythats the real reason if you ask me.
As an example Heroku had a VP of Marketing and VP of Channel development.
These guys were not getting integrated into the salesforce structure at all. Same
with Radian6. Mentions that Radian6 had separate marketing events independent
of salesforce.com and had separate legal contracts.
They (salesforce.com) are very poor in corporatizing all the acquisitions. They
wanted to retain their freshness. But after a point thats not possible, especially
given the large quotas the corporate sales guys carry nowadays, which require selling
across the entire stack.

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Industry Contact 2
Mentions that CIOs are increasingly looking to migrate their adjacent applications, which
are not their core apps, into the Force.com platform.
Seeing increasing conversations with CIOs about road maps, over the period of 3
to 5 years to migrate hundreds of our apps into the Force.com platform.
Seeing that in Fortune 1000, Fortune 2000 kind of companies.
Mentions that these business processes moving into Force.com are typically not part
of a mainstream ERP vendor.
Mentions that these are mostly homegrown systems, spreadsheet applications,
Lotus Notes, SharePoint all the way to Siebel or other niche players.
Increasingly seeing mentions of Center of Excellence (COE) around salesforce.com

technology stack, which kind of tells me it [salesforce.com] is mainstream now for the
CIOs. Adds that historically CIOs would build COEs within their companies around
technologies that they have invested a lot in, typically for Oracle or SAP, etc.
Continues to see integration between salesforce.com and back end systems such as SAP and
Oracle.
I am seeing a lot of government pursuits as well. Mentions that Salesforce has ramped
up its hiring of sales people who are serving the government sector and do see RFPs being
addressed and so onjust in the last few months.
All the social enterprise messaging that salesforce did quite effectively, I think is starting
to show results.
Mentions that although most companies still dont say that they want to realize the
social enterprise vision, they basically translate that to things like portals.
"We see that a lot. Portals help companies to answer questions like How do we
deal with partners, how do we build systems that help our employees to collaborate?
these are very real conversations that we are having. So, portals to support
these processes such as partner relationship management, employee relationship
management are getting a lot of traction.
Thats pretty much more than half of our conversations.
These could be part of a Sales Cloud implementation or a Service Cloud
implementation or a pure Force.com implementation.
Mentions that pricing for portals could be based on log ins or on dedicated users,
and price points vary from a few pennies per log in to $35-40 per user per month.
We do see a spike in Service Cloud conversationsall kind of inclination of Service

Cloud with call centers and things like thathave seen a gamut of those conversations and
implementations come our way.
Mentions that they have seen a spike [in conversations and leads] since Dreamforce
pipeline is very, very healthy after Dreamforce.
Mentions that for a long time now, seeing many ex-Oracle sales guys moving to
salesforce.com. Adds that CXO type conversations that these people are sort of used to
when they were with the larger companies like Oracle and so on, I think salesforce still
has a distance to go in really becoming part of the CXO agenda. They (salesforce.com)
are not front and center as say, an SAP and Oracle would be. But mentions that they
(salesforce.com) have definitely brought on people who are ready to influence CXO
decisions.
Thinks that sales guys [in the Customer Relationship Management ecosystem] are
enthusiastic and positive coming off the quarter. I do see hiring happening all the time.
Thinks that the Marketing Cloud is opening up a lot of new conversations, similar to what
Chatter did when it was released.
Industry Contact 3
Q3 and Outlook
Weve been doing a lot of business, and we believe that its moving to more business
in 2013.
This is based on his own pursuit of leads and organic growth.

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Salesforce.com has been very passive in terms or providing leads.
His business grew over 50% in Q3.
Large Deals
Working with a large Northeastern company. They signed a deal with
salesforce.com and his firm was hired to do the initial implementation.
Deal was signed about two months ago.
His firm started the implementation within a week of the deal signing.
Theres going to be tons of business out of that corporation because theyre
embracing salesforce throughout the [organization].
Training
We are going to see big growth on sale training, sales management training and
Salesforce training.
We think that companies are going to start investing more money on sales training,
and we have the skill set for that.
In terms of salesforce.com, he sees the current clients that he has, and their goal is
to invest in leveraging their investment in salesforce.com.
A very large consulting firm invited us to help them resolve an issue they had to
work on with a salesforce project theyre deploying. We expect theyll continue to
invite us to these projects, and theyll do the implementations and well take care
of the training.
Salesforce isnt saturating the market, but is getting to a point where he sees the
market share is getting high. Now he sees customers in need of enhancing the
tool theyve already purchased. Most consulting firms, all they do is implement
salesforce.com; they dont do more than that.
Hurricane Sandy
We were affected in terms of payments. We had a lot of issues getting paid on time
due to the hurricane. Other than that there was maybe a one-day or two-day delay
on things in that area.
It didnt prevent business from closing. It just delayed it a few days.
We have one person in Philadelphia and one person in Connecticut. They didnt
have power for one day and thats about it.
Partner relationships
Salesforce.com is very picky about working with consultants. If youre in the mid-
market you have to be in the area where theyre selling. If youre in the enterprise
market you have to be a gold partner, otherwise they dont even consider you.
We have to find our own deals and then invite salesforce whenever we are ready
to invite them.
Industry Contact 4
Pace of business
We had a great Q3 and Q4 [October for this partner] was great. Things continue
to look real good. The pipeline is good. Theres a lot of movement into the Service
Cloud and some of the elements of the platform, so that continues to drive our
business well.
Third-quarter YTD we have 100% growth in billed revenue. We had just a fabulous
third quarter. We expect that to continue in the fourth quarter as we see it now, in
other words we have a very strong pipeline. Were out hiring people left and right
and well continue that process to get ready for next year.
Were getting deal size increases in the sense of being able to get more seats planted
initially and the follow-on business is very, very good. The idea of the expanded
platform, using salesforce.com to do more things, be it Service Cloud, be it writing
special code for Force.com to do special needs of a particular customer. That is
really, consistently performing."

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The idea of visioning, of going into a customer and envisioning what their
future business might look like, let us participate in that and bring a technology
component to that, thats really beginning to work for them.
He has his mini version of this. Hes really getting traction with some of his
medium-sized customers by laying out a vision for their business, similar to the way
salesforce.com laid out a vision for GE or Coke and presented it at Dreamforce.
This is going to unlock a lot of seats for salesforce.com.
Service Cloud
Theres so much emphasis on revenue generation and one of the things
salesforce.com has been able to do, and what hes been doing in his practice, is to
show how customer service and support products can drive revenue. They can drive
revenue, save revenue, drive customer retention, etc.
Service Cloud enables more frequent touches with the customer.
It has the knowledge base and content, and more and more customers are turning
to this.
Marketing Cloud
What he doesnt know yet, but for which he has optimism, is the Marketing Cloud.
Hes been waiting for this for a while.
It has certainly created some buzz and excitement, but not too much direct business
yet from it.
It does probably need more features and functionality for everyone to embrace it.
As usual salesforce.com is out in front of it, but they either have to create or buy a
capability, like Eloqua has or Marketo has, to put inside the Marketing Cloud.
The thing the Marketing Cloud is really beginning to do though is further legitimize
their message of business being social. This is being much more accepted in the
marketplace than the social enterprise tagline.
More people are asking how do we really take advantage of this?
Dreamforce
It was a very successful event for his firm.
They held an event for both customers and prospects, and it was a very powerful
event for him.
He also recently sponsored a booth at a local Cloudforce event.
There were about three or four thousand attendees at the Cloudforce he attended.
Hurricane Sandy
We werent impacted by the hurricane.
"I dont think its going to slow down salesforce.com."
Obviously there will be a few accounts that have delayed decisions or whatever else.
Industry Contact 5
Business trends
Weve been busy. Business is definitely up.
Hes been adding contractors, on the consulting side. This makes it easier to ramp
up and down quickly if necessary.
Social Media
Its been slow. Its the only way I can describe it.
The larger enterprises have the resources and expertise to figure it out, but SMBs
dont.
Also Buddy Media and Radian6 are very expensive for a small or mid-sized firm.
Radian6 is being sold through its own team, not the larger salesforce.com
organization, so he hasnt seen a lot of that business coming his way.
Sales Cloud, Service Cloud and development work gets referred to him, but not
social media work.
Sales Cloud, Service Cloud

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He describes business as Very positive. Business is up about 20%.
Were seeing more Service Cloud, were seeing a lot of custom development projects
using the platform. Our pipeline is very good and business has been good.
Turnover
Salesforce has added a lot of people and for the first time were seeing turnover in
their sales ranks.
Hes seeing, for the first time, significant turnover, because the territories have
gotten smaller, quotas have gotten bigger, and the other thing is theres just
more opportunities for SaaS sales people. Theres just more companies and more
opportunities.
Theres definitely a lack of continuity in the sales team and overall were finding
some AEs (account executives) are not as good. Theyre just not.
Hurricane Sandy
We lost a couple days of consulting services but not really. Well make it up.
Industry Contact 6
Mentions that Dreamforce 2012 was really interesting. Based on the maturity of his
discussions with customers in Dreamforce, he qualifies 2012 as a huge transition year.
In previous years we have seen a lot of people who are very early days on salesforce, some
evaluating and not very sure beyond CRM what they will use it forbut this year was a
huge shift where we saw people just literally saying we bought in, we drank the Kool-Aid,
we got in for CRM and we are doing a myriad of things on it and we are here to see what
else we can do with itIt seemed like a really big shift.
Mentions that he is seeing really good enterprise deals now and adds that customers are
moving fairly aggressively. Moreover, seeing the enthusiasm and confidence of customers
on salesforce.com in the market in terms of sales cycles, they are definitely getting shorter
while deals are getting larger.
Thinks that salesforce has pushed through that next barrier of adoption. Most of our
new customers are Global 1000, so we are seeing that kind of adoption.
Thinks sales reps [in the CRM ecosystem] are talking platform more and more and they are
speaking with CIOs more and more. Thinks that the platform is maturing and attracting
many big ISVs, who are making serious investments in the platform. Thinks that the build-
up of critical mass of ISVs on the platform will further attract more enterprise CIOs to
adopt the platform, which should in turn attract more ISVs.
Thinks sales reps [in the CRM ecosystem] are still very aggressive and also very positive.
They are not shying away from going after some fairly sizable deals. Mentions that sales
reps [in the CRM ecosystem] hold the State Farm deal out as where they are going.
Working on some fairly large deals that could close in the next month or so. One of the
projects he is working on has 25M portal users which is a big lift from a year ago where if
they got tens of thousands it was considered a good deal. Another project he is working on
in the UK will have 200M portal users if successful. This does mean that the applications
are becoming deeper and they are getting more intimate with the customers customer.
Mentions that portal user licenses are less costly as compared to the salesforce.com user
license and there are 4/5 different types of license. Also at that volume, the pricing is based
mostly on per logins than on a per user basis and it could be as low as 3 to 5 cents per login
per month.
Thinks that salesforce.com has closed a number of deals in the financial services sector in
the US as well as in APAC. We are seeing a lot of Chatter-plus wall to wall type deals that
they announced at Dreamforce like the one with Commonwealth Bank of Australia.
From the perspective of his own business, believes that Q4 will be better than Q3. Adds
that he felt January of 2012 a bit slow but this year, as of now, he can see a robust pipeline
through April of 2013. We are hiring like mad and my current resources are pretty much
booked through April. Expecting 70-100% growth this year, consistent with the last three
years. We are seeing a lot of activity all over the world, really. Thinks the US is really
ramping back up nicely from a slight anemic activity level and hopes that bodes well for
the economy at large.

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Thinks that although macro is a part of the reason, another important reason for the
lackluster Q3 earnings season in technology is because there is a lot of disruption going
on. Thinks that customers are not only increasing scrutiny around IT spending, they are
also looking at alternatives to reduce cost and become more agile and on top of that the fears
around cloud adoption are dissipating. Thinks its an interesting time right now, certainly a
very volatile very disruptive and a fantastic timeto create a new orderwe are just seeing
the maturation of a lot of stuff that happened 10-12 years ago.
Industry Contact 7
Seeing good things. Definitely what we are seeing is what I consider a major shift in the
enterprise with respect to the embrace of the platform, the Force.com platformits been
very, very significant.
Seeing that the biggest and best accounts, that salesforce.com is working with, are looking
at using the platform to extend into different capabilities away from those provided by their
incumbent legacy solutions. They are starting with the back-office, interestingly enough
and looking at products built on the platform to perform things like order management
(vendors like Glovia) and configure price quotes (vendors like Aptus and Big Machines).
They are starting with back office and taking cost out of their order processing, which
he thinks is very, very expensive using the traditional ERP systems. Also seeing vendors
such as Kenandy, the SaaS ERP system built on Force.com, being evaluated for some very
significant accounts.
Thinks that the messaging (with respect to the platform) has finally come through. The
product has also matured over the last 3 or 4 years.
Another thing is that there is a tremendous amount of business disruption that is

happeningbusiness models all over the planet are being disrupted by the internetyou
name the industry. Refers to Borders books, Blackberry, Dell and HP as poster children of
this disruption in the market. SaaS is feeding itself and lots of institutions are forced to
re-evaluate their cost structures.
Dreamforce 2012 was our best one to date in terms of opportunities.
The marquee accounts that you saw in Dreamforce, the GEs of the world, the Cokes of the
world, are absolutely accelerating their consumption of platform and platform resources.
Thinks its absolutely unprecedented for a company like GE to be endorsing a software
product. Never has GE been associated with a vendor like this. Why and what does it mean
for one of the largest market caps to be embracing this platformpossibilities are just really
limitless way beyond the numbers even for a large SAP project.
Feeling really optimistic that the traction he is seeing in the platform is not a blip. These
institutions are just too big. Its not something that just started this year but it feels like its
accelerating.
Sales and Service Cloud Consumption across the board of those products is continuing
to be really robust.
Thinks that when salesforce.com initially bought Radian6 sales popped and then plateaued
within a quarter or two. Its a huge challenge for salesforce to internalize the Marketing
Cloud right now. There is a lot of confusion, even internally about how does Buddy Media
fit with Radian6.
Industry Contact 8
Things are all going fine, in a good way.
Salesforce is getting into public sector in a big way in order to take advantage of the
Cloud First policy. Thinks that many partners are also building their practices to support
salesforce.com in this initiative. He is already involved in a few mid-sized deals. Thinks that
there is a huge opportunity for salesforce.com in this space.
Sales Cloud and Service Cloud Its all growing. Adds that Salesforce is no longer limited
to sales and marketing anymore.

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Platform is another one which is really picking upno other platform you can think of is
close to where salesforce is, thats the advantage. Seeing both medium as well as large sized
companies equally adopting the platform.
Based on the momentum he is seeing, he expects to double his salesforce.com business from
ELAs in 2013.
Mentioned that he hasnt seen any slowdown in corporate spending in Q3 from

salesforce.coms perspective.
Industry Contact 9
Thinks the demand trends looks good.
Seeing large Fortune 500 and Global 2000 companies in financial services or manufacturing/
industrial sectors heavily invest in salesforce.com as well heavily invest in other Software
as a Service choices.
Seeing large Fortune 500 type companies invest in the platform, some not so
comprehensively but others that are in the process of migrating a large set of their business
applications to a cloud structure, not necessarily all salesforce, taking advantage of cloud
computing."
Continues to see large opportunities in terms of seat count or license count or based on
the complexity of the project, especially related to migrations from on-premise solutions to
salesforce.com. However, thinks that from a pure sales force automation (SFA) perspective,
this space might be reaching a saturation point especially among the large enterprises.
Thinks that sales guys [in the CRM ecosystem] are always very optimistic and gung ho.
Currently working on a few potential 7-figure deals (from a services perspective) - a fortune
50 retailer which has the potential of being a couple of thousand seats and a large energy
services client.
Mentions that he is optimistic going into CQ4 and CQ1 is shaping up. I am upbeat.
Industry Contact 10
"We are starting to see a lot of Force.com larger development projects."

Traditional Java shops, some of those individuals that were on LAMP (open source
software bundle with Linux, Apache, MySQL and PHP/Perl/Python) stack are
looking for force development work.
Thinks that clients are increasingly realizing the benefits of developing on
Force.com, Database.com and Heroku.
We are getting more and more demand for that type of platform work.
Mentions that the demand is across the board with a large mixture between large
companies and SMBs.
Also, there is a lot of demand coming from ISVs as well.
Thinks that is has been a shift as he is seeing more requests around Force.com
as compared to before when there would be requests for Microsoft or some of the
other technologies.
Mentions that initially the Force.com platform was limited to developing fringe
apps or proof of concepts by customers, but now we are starting to see people that
are really starting to think about long term.
Thinks there are multiple reasons for the shift he is seeing

Part of it is the open nature of salesforce and the APIs and the open technologies
that they currently support have proliferated their message and have helped them to
be looked at as not necessarily just a CRM anymore.
Also, seeing a lot of social enablement projects and with Chatter and some of the
tools that are core to the Force.com platform is driving customers/developers toward
Force.com.
Also, thinks economics of developing on the platform as opposed to developing in
a private cloud along with the ease of use of the tools on the platform is helping
drive traction. Many times when [customers] look at the cost of what it would take

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for them to build their own solution or platform on a private cloud there is a pretty
compelling reason for them to go to the Force.com platform.
To cater to the demand he is seeing, He is bringing in 12 new developers/consultants globally

every other month. So, we are seeing a lot of growthwe feel that the true momentum
element of our business today centers around salesforce and mobility and integration. We
are scheduled this year to clip a pretty significant growth pattern. We are well ahead of our
game for this yearWe are poised for very large growth here in the final stretch of the year.
We are spinning up new proof of concepts all the time for everybody from Airline
businesses to financial services companieswe are having conversations in all verticals
which means that the message is getting out and thats pretty exciting, I think, for
everybody.
Thinks sales guys [in the Customer Relationship Management ecosystem] are excited
coming off the quarter.
We see a lot of day to day activity on Sales Cloud and Service CloudMarketing Cloud is
fairly young I have conversations about the social enterprise quite often with customers
because of what salesforce has done from an awareness standpoint but execution standpoint
we havent done a lot of Marketing Cloud work so far just because its so new.
Industry Contact 11
Q3
Continues to grow around 30%.
Platform
In general I continue to be very bullish on Force.com.
Hes doing quite a bit of platform development.
Customers are developing business applications for functional areas that arent
sales, service or marketing. Theyre departmental and in some cases enterprise
applications.
Sales Cloud and Service Cloud

Absolutely seeing strong demand for Sales Cloud and Service Cloud. Were
involved in pursuits and projects on both fronts, probably more so around Service
Cloud.
Demand is broad based, from all industries.
Neutral Feedback Industry Contact 12
Marketing Cloud
Companies like Bluewolf, Accenture, Appirio are coming up to speed rather quickly
on Marketing Cloud.
Customers are taking a wait and see attitude on [marketing] because a lot of
companies have decided, yes, we do social media of some kind, but lighting up a
channel is easy, managing a social channel is not so easy. So a lot of companies have
tried it and then realized theyve opened up Pandoras box. OK, now that Ive got
something on Facebook, oh my gosh, now Ive got thousands of people coming at
me with comments and documents and feedback and theyre filling my surveys out
and Ive never even thought about how do I respond to it. How do I inject that data
back into my platform, how do I make that work for me, how do I turn that back
into a proactive marketing or selling opportunity? And then what do I do by the way
if the feedback is bad? If theres a marketing emergency out there how do I respond
to that quickly enough to be able to derail negative impact in the marketplace?
Companies havent thought about all of that yet.
So what salesforce.com is trying to do is standardize an approach or platform to go
out there. One thing he noticed at Dreamforce was that the Marketing Cloud tracks
were sold out. They were standing room only. Three-quarters of the people in there
were representing companies that were doing some kind of social media and had no
idea what to do with it.
What is salesforce.coms next move?

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Salesforce probably shouldnt buy someone like Eloqua or Marketo.
Silverpop is doing things that those companies arent doing from a page or
marketing standpoint.
The marketing holy grail is not necessarily sending out the right email at the right
time. Its being relevant, its sending out the right message to the right consumer at
the right time.
You achieve those types of things with dynamic content, with the smallest amounts
of information a consumer shares with you on a website. Maybe its not an email
or phone number, but maybe its a personal preference, and once they capture the
consumer data, its completely different.
The automation part of sending emails, thats the easy part. Thats a commodity
play.
If salesforce.com were to figure out how to capture, and acquire, or embed natively
behavioral marketing instinct, it would do things that nobody else does.
If salesforce.com can harness those analytics and behavioral aspect, and it begins
to shape what it does to the marketplace that will react better to it, it will take it
to the next level.
Right now salesforce.com is building a baseline platform and its looking for partner
and customer feedback. It wants the market to tell them how to build a product.
Industry Contact 13
Things are going well, I would say...more momentum is expected.
He is absolutely bullish on salesforce.coms future opportunities.
Hasnt seen too many new deals come his way in terms of implementation last quarter but
thinks that the pipeline is looking positive.
Dreamforce was very, very nice. had real good traction.
Mentions that his concern with salesforce.com is about their acquisitions. He is concerned
about how all the acquisitions will come together as single unified solution. Its not just
technical integration but also business flow integration that matters. Thinks that Oracle
has passed that "smell test."
Thinks that Oracle is catching up pretty well! Fusion is catching up

Industry Contact 14
Thinks "there is too much momentum in the CRM industry," one reason being the "cloud
angle." Thinks that enterprises are re-evaluating their technology investments with respect
to social, mobility and openness and that's where the SFA deals are getting revived to the
benefit of salesforce.com.
"Service Cloud and platform will definitely go a long way with respect to growth."
Views the platform as a "glue that sticks all of their applications and products together." Any
customization of Sales Cloud or the Service Cloud requires development on the platform.
Mentions that since the company he was working for started in the platform space, he has
seen traction in the platform since sometime last year. "We were talking to the top banks, we
were talking to the top insurance companies," but the sales cycles were really long and it was
more conversations and POCs (Proof-of-concepts). Now, he is encouraged to hear many
partners talking about the platform which indicates that the "pipeline size has increased
which means closing will increase."
Mentions that he is a "big fan of the Social Enterprise story." Thinks that salesforce, with
its Social Enterprise messaging, is "finally moving from a product company to a solutions
company." Adds that the solutions approach will lengthen the sales cycles but "the returns
are also there."
Mentions that one of the reasons Heroku will lag the growth seen by Force.com is because
it's a very developer-focused tool and doesn't have a meta-data driven development platform
like Visualforce that business users can use to build applications on. "I think they are
working on that and it will take about 18-24 months to come up with a unified platform
of Heroku + Force.com."

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Mentions that one of the major issues with salesforce as it acquires companies is - "if a
partner is in a salesforce deal, sometimes in these big deals you are talking to 8 people in
salesforce. The reason is that there are 5 products that are involvedand then there is a
partner manager, an engagement manager, a pre-sales guy" "Hopefully in the next one
year if there are no further acquisitions, I think they would have gotten their arms around
this."
Thinks IBM didn't choose salesforce for some political reasons.

Negative Feedback Industry Contact 15
Partner consolidation
Services market among tier 2 and tier 3 players is ripe for consolidation.
This isnt just among salesforce.com partners.
Salesforce also has too many Platinum partners.
Last year you could buy your way into the Platinum program and next year youll
have to earn it and bring something to the party.
Salesforce.com tried to spread the value of the platinum program across too many
partners, and a lot of the partners didnt see a return on their investment.
So theres pushback from senior leaders at the largest partners who are saying to
salesforce.com that they need more revenue from their salesforce.com relationship.
Largest SIs were especially dissatisfied.
This just means there will be fewer seats at the table.
Salesforce.com may create a new partner tier.
Business trends
The number of elephants, or massive deals, is decreasing. The duration of pursuit
time is significantly increasing. What used to be the tier-2 deals of the say $200K
to $650K deals are increasing in volume and velocity, i.e. the time it takes to turn
them is decreasing.
This is why he believes salesforce.com may create a new partner tier. The Platinum
partners in the future will be only the SIs and probably no one else, because no one
else will be able to write the check.
The next partner tier will be competing for the tier-2 deal size, which is a healthy
chunk of the market. Its got significant growth.
That Q3 was as good as Q1 and Q2 is a defensible statement.
Channel
Salesforce.com is shifting the cost of the sales engineer (SE) function onto the
channel, so they wont need to invest in people to make available to their partners
whenever the partners want them.
Salesforce.com will involve partners much earlier in deals, but its now going to be
up to partners to provide SEs. This allows salesforce to defray its SE costs. And if
the deal gets done, salesforce can easily hand off the services work to the partner
which provided the SEs.
The partners sales costs could eventually decline if theyre providing SEs and are
able to win business much earlier in the deal cycle.
Microsoft and Oracle did this as their channels matured.
This benefits some of the larger partners.
Large deals
A foreign telco and two others are the last elephants in the herd.
Im not seeing any more elephants on the horizon. If youre seeing them then great.
I think this is the last quarter theyre going to do that, maybe another laggard or
two before Christmas, but that would be scaring one out of the bushes.
Look at the F500 and identify how many of them have ELAs with salesforce.com.
youll start to see a law of diminishing returns effect.
Theyre running out of places to penetrate.

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On ELAs: They bought the cow, and they can have as much milk as they can get
out of that cow.
Salesforce.com is getting the revenue its going to get, but their costs will continue to
rise as these customers use more licenses. But there certainly isnt any more margin
for them, gross or net. These customers are paying $3M a year for all-you-can-eat.
Enterprise who didnt adopt didnt adopt for a reason. Those that arent going to
adopt for technology challenges, executive leadership direction or that cant afford
it are still where they are. The early adopters and followers, the second wave has
already committed. Youre not going to get the laggards.
Sales reorg, sales future

They must turn their sales reorganization much faster this year than in previous
years. The annual shuffle needs to be cut in half. They paralyze the entire ecosystem
for 60 to 90 days. Its just brutal.
It creates an artificial dead spot. If they could tighten that up they could add
another 30 days to their year.
If salesforce is going to continue to do this they need to go down the Microsoft
model and have vendors resell for them and get themselves out of the sales game just
like they go out of the delivery game.
Routing the sales cost to partners will save them money just like routing SEs to
partners will save them.
Theyll need to retain inside sales for the largest accounts, but for a customer with
$3B in sales, or a university system, do you really need a $75-80k base plus $90k
commission sales person on the books, when you could bounce that to the partner,
and the partner makes the money on the licenses, and you dont carry the cost, you
just win it when they win it? I see them in the next couple of years moving in that
trend.

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50 CRM Partners Finished 4.2% Above Plan for Q3
PRICE: US$144.30
TARGET: US$208.00
36.2x our CY13E OCF of $5.50/sh + $8.86
net cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.49
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
on average for Q3, in line with the rolling 8 quarter average of 3.8% above plan. While
the recent wave of Tech earnings results has shown a sudden and material downshift
which should not be taken lightly, our proprietary salesforce.com partner survey seems
to foreshadow better resilience and relatively stronger results versus peers thus far.
As we mentioned previously, Hurricane Sandy might have shifted a small amount of
business into Q4, but we think the impact was manageable and would be forgiven if
the company chooses to quantify it. Detailed feedback on pipeline/activity levels shows
58% of partners see strength, 18% are neutral and 20% see weakness. Overweight, $208
price target.
Partners Finished 4.2% Above Plan. Partners we spoke with were on average 4.2%
ahead of plan, versus 4.6% ahead of plan in the prior quarter. The current survey
results are within the normal range of 1.6% to 6.2% above plan for the last couple of
years, and the highest Q3 outperformance in the last several years.
Observed Pace of Business in Q3 Deteriorated versus Q2. 44% of the partners we

surveyed indicated that the pace of business was better in the past three months relative
to the prior three months, while 12% indicated a worse pace of business. This results
in a "Net-Better" score of 32%, versus 57% in the prior quarter. We think the slightly
softer characterization of the pace of business reflects the reality of a more tepid tech
spending and macro economic environment being subtly sensed by our sample of
partners in the relatively healthy salesforce.com ecosystem. Also, looking at the data
for the prior Q3s, the deterioration in "Net-Better" score seems to be partially seasonal
as well.
Bookings Expectation: Net-Above 24% versus 29% the Prior Quarter. 36% of
surveyed partners foresee Q3 bookings above expectations, while 12% sense a
disappointment. This results in a Net-Above score of 24%, slightly below the 29%
level in the prior quarter but better than 3 of the last 5 quarters.
Detailed Feedback on Pipeline/Activity Levels. 58% of partners see strength, 18% are
neutral and 20% see weakness. The more optimistic partners state that "Interest is
strong for the approach to year end" and that it was "a very strong Q3 both in terms
of lead flow & deal closures." More cautious contacts note "some delays in project
decisions" or that "Lots of deals stalled."
***Detailed Survey Data on Page 2 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,025.2E 9.3x 7.0x
695.5A 731.6A 773.3 824.8 3,025.2 3,629.0 7.0x 5.8x
842.8 879.6 922.5 984.2 3,629.0 5.8x NA
0.28A 0.30A 0.34A 0.43A 1.36A 1.49E 96.8x 96.8x
0.37A 0.42A 0.31 0.39 1.49 1.94 74.4x 74.4x
0.40 0.41 0.50 0.62 1.94

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Exhibit 1: Detailed Survey Data (Time-Series)
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
CRM: Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6% 4.2%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0% 57.1% 44.0%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5% 44.0%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4% 12.0%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7% 32.0%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7% 36.0%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2% 52.0%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1% 12.0%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6% 24.0%
4.2%
6.2%
1.7%
4.3%
5.4%
1.6%
3.3%
6.1%
3.3%
4.6%
4.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
CRMPartners as % of Plan
48.9%
54.0%
40.4%
57.7%
61.4%
40.0%
38.3%
64.0%
38.1%
54.7%
32.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
17.8%
32.0%
19.3%
21.2%
40.9%
14.6%
19.2%
30.0%
16.7%
28.6%
24.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
CRM Partners, CRM Bookings Expectation, Net-Above %
Exhibit 2: Deal Pipeline And Customer Activity Level
4%
20%
18%
58%
0% 10% 20% 30% 40% 50% 60% 70%
No Opinion/NA
Weak
Neutral
Strong
"In a few brief sentences, please describe the deal pipeline and customer activity levels
during salesforce.com's Q3 (Aug, Sept, Oct)."

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April 2014
No v e mb e r 1 9 , 2 0 1 2
Exhibit 3: Deal Pipeline And
Customer Activity Level (Strong -
29)
Our pipeline has increased in terms of quantity of ISV projects, but we still have bench for
implementation projects, and while we are currently engaging with existing customers and
Salesforce AEs to let them know we have bench, we would certainly like to find more Service
Cloud and Custom Cloud implementations.
Ramping up from Q2.
Awesome.
Increased interest. Pipeline is increasing.
It was the end of the Federal FY so this is when we typically do most of our business.
Good pipeline.
Deal pipeline is looking solid.
We saw a very strong Q3 both in terms of lead flow & deal closures.
We are experiencing an increase in quick starts and Service Cloud projects.
A significant amount of prospects were interested in implementing SFDC services and many
existing customers were interested in expanding their use of the products.
Closed 3 small deals. Pipeline looks good.
Strong pipeline.
Strong.
Our pipeline levels increased again. Not sure how much is attributed to new marketing
campaigns or better usage of SFDC yet though.
Sales, marketing, and customer support are consistently the focus of customers.
Our pipeline continues to increase with salesforce customers.
Very good.
SaaS still going strong.
There has been a continued interest in moving to the cloud.
We've seen a 15% increase in initial implementation requests. The majority of this business
has been from the Biotech/life sciences sector.
Pipeline has been building as a result of customers needing to change as a necessity to keep
business flowing.
Still very active, lots of activities around Chatter Plus and custom apps at that lower price
point ($15/month). Everything's going very strong, no end of that momentum in sight.
Pipeline has been growing.
Pipeline looks good. There are good leads that have turned into evaluations. Interest is
strong for the approach to year end.
Sales Cloud interest remains strong. Service Cloud interest is significantly increasing.
Sales Cloud demos and closing, Chatter positioning, Service Cloud demos, Marketing
Cloud evangelisation.
Pipeline is looking good. After election is over and economy stabilizes, things should get
better.
Deal pipeline is heavy and the expanded platform is helping get new customers and
expansion of existing seat counts in the customer base.
With the economy picking up, activity will increase.

Customer Activity Level (Neutral -
9)
Solid but not spectacular.
Slow, steady growth.
Minimal increase year over year.
Our pipeline is at its expected level.
No major change from previous quarter.
Normal.
Decent, but not growing. Good news is talking about SFDC with lots of clients!
The pipeline is neutral. A lot of our business is Europe and it is still nuclear winter in Europe.
No major changes.

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Customer Activity Level (Weak- 10)
We have experienced some delays in project decisions.
Pipeline is smaller and average deal size is down 10%.
Pipeline is lower than desired.
Below expectations. Many deals stalled during the 3rd quarter. Slight improvement in
October.
Q3 is normally slow, but the uncertainty around the election is hurting people.
The pace has slowed considerably. MS Dynamics is making huge inroads.
A bit slower than Q3 2011, not as many initiatives in our prospect base.
Lots of deals stalled. Customers appear to take a wait and see approach to the recent
economic situation.
More older customers looking to get more functionality out of what they have.
Steady, slowing a bit, compared to Q2.

Source (All) : Piper Jaffray Research

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April 2014
No v e mb e r 8 , 2 0 1 2
Did Hurricane Sandy Wash Away Business in Late October?
PRICE: US$146.52
TARGET: US$208.00
36.2x our CY13E OCF of $5.50/sh + $8.86
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.49
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
We asked 30 contacts in the salesforce.com ecosystem to weigh in on the impact of
Hurricane Sandy on salesforce.com's ability to close business in the crucial final days
of its October quarter. Based on the detailed feedback, we think a range of zero to 3
percentage points of billings growth will be transferred out of Q3 and into Q4 as a result.
10% suspect a material impact, 37% see minimal impact, 40% see no impact, and 13%
lack visibility. On the one hand, the eastern seaboard is a big market for salesforce.com,
many offices were out of commission and sales representatives' mobile device batteries
were dying with no power and spotty online access. Then again, many partners agree
that slipped business will close in Q4, sales reps may have anticipated and closed deals
earlier, and non-cloud downtime could spark incremental Cloud demand. OW, $208
target.
We extend our deepest sympathies to all those who are dealing with a variety of
circumstances and severe disruptions relating to Hurricane Sandy.
Notable Feedback:
(-) "Even in the Boston area where some companies only lost power for a day or so, it
has had an impact as even they sell to the east coast, so things are slow."
(-) "Basically there's been at least one week that everything got pushed back; however
projects that were expected to close by end of year, should still close by end of year. In
the larger picture, I think the impact will be at most a rounding error."
(-) "It minimally affected the closing of new Northeast coast business."
(=) "I would venture to guess that as people prepared for the storm, sales reps tried
to get business in a few days earlier."
(+) "...it may open the door to more opportunities as a result of downtime experienced
by companies not being in the Cloud."
*** Charts and Raw Feedback on Pages 2 and 3 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,025.2E 9.5x 7.1x
695.5A 731.6A 773.3 824.8 3,025.2 3,629.0 7.1x 5.9x
842.8 879.6 922.5 984.2 3,629.0 5.9x
0.28A 0.30A 0.34A 0.43A 1.36A 1.49E 98.3x 98.3x
0.37A 0.42A 0.31 0.39 1.49 1.94 75.5x 75.5x
0.40 0.41 0.50 0.62 1.94

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Exhibit 1: Impact of Hurricane Sandy on salesforce.com's ability to close business at the end of Q3 (Oct) - Qualitative Responses/
Feedback Categorized by Piper Jaffray
10.0%
36.7%
40.0%
13.3%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%
Material Impact
Minimal Impact
No Impact
Don Know/ Can't comment
Based upon what you have experienced or heard, do you think Hurricane Sandy, the largest Atlantic
hurricane on record which struck the eastern seaboard and New York City area of the United States on
October 29th, materially impacted salesforce.com's ability to close business at the end of its October
quarter?
Exhibit 2: Raw Feedback -'Material
Impact'
Yes, many places were out of commission for at least a week.
Big time!
Even in the Boston area where some companies only lost power for a day or so, it has had
an impact as even they sell to the East coast, so things are slow.
Exhibit 3: Raw Feedback -'Minimal
Impact'
It minimally affected the closing of new Northeast coast business.
I think it will delay some work, but that it won't have a significant impact.
I'm sure it [will have] some impact, but limited to a finite geographical area, and I would
venture to guess that as people prepared for the storm, sales reps tried to get business in
a few days earlier.
Basically there's been at least one week that everything got pushed back. However, projects
that were expected to close by end of year, should still close by end of year. My focus [is] in
the NYC area, so can't speak for NJ or other parts that might have been affected longer with
power outages etc. In the larger picture, I think the impact will be at most a rounding error.
I don't have direct insight or figures into this, but I think it is possible some impact was felt.
Many of our customers in that area are distracted from business as usual, so closing sales
has been more difficult. However, I believe all of these opportunities are still open. I suspect
many of these customers will come back in Q4 or Q1 2013.
It could have some impact in the SMB market, but I do not expect it to impact significantly
the larger account segment
It may have a slight impact given that it came right at the end of the month. But things will
just slip into the following quarter which will outperform.
Probably not a material impact since most deals were probably closed before the 29th.
I do not think that SFDC would be impacted by this substantially since they are SaaS/Cloud
based, other than the individual workers and their lives.
I think it did have an impact of business flow that may extend closings. However, it may
open the door to more opportunities as a result of downtime experienced by companies not
being in the Cloud.
Perhaps. The Eastern Seaboard is a huge market for Salesforce.com.

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Exhibit 4: Raw Feedback -'No
Impact'
We do not transact very much business on the East Coast, so no impact to us.
No. Businesses recover quickly and need IT solutions. SaaS is a good answer to natural
disaster as well since it decreases data center vulnerability.
No.
It should not be impacted.
We have seen no change in the deal climate to date.
No - I think that deal cycles will continue as normal. We have seen some meetings slow
down but not a stop or hold.
Probably not. Any big deals were far enough along that they would not have been affected.
No I don't believe it had an impact.
No.
I think not, because the salesforce idea is based on not delivering or installing software.
Instead probably, most companies would realize in such a difficult situation they can
concentrate their efforts on core business instead of fighting with technology complexity.
I don't believe so. Any deals put on "hold" will go on.
It will help with people going to the cloud.

Exhibit 5: Raw Feedback -'Don't
Know / Can't Comment'
Cannot comment - We live in South Africa. Too far away. We just know that it was a huge
disaster. Must have had some impact, probably less so on Salesforce.
Cannot say - We are too far away to have such finite knowledge of a US disaster.
We have minimal operations in the NY/NJ area so we are unable to comment.
I have not heard of any impact on SFDC's ability to close business. Can't comment based
on our experience.
Source(All): Piper Jaffray Research

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April 2014
Oc t o b e r 3 , 2 0 1 2
Deep-Dive Discussions with 12 Top Partners Reveal Powerful Transformation
PRICE: US$152.94
TARGET: US$208.00
36.2x our CY13E OCF of $5.50/sh + $8.86
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.49
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
We spoke at length with 12 key salesforce.com partners to take the pulse of the ecosystem
heading into the second half of the year. Key findings: 1) it is "not the kiddie table
anymore" as CRM is "transforming into a real, legitimate Enterprise platform"; 2) this
trend is noticeable enough that now "CIOs are feeling guilty if the don't do anything
around salesforce"; 3) the big deals are out there; 4) the market for salesforce.com service
resources is very tight, while consulting partners are shrinking their Siebel practices;
5) partners feel a higher level of buzz now than they did last year at this time; 6) for
certain partners, 60% of deals involve non-SFA work, which is much higher than a year
ago, demonstrating product diversification. We reiterate our Overweight rating and $208
price target.
Notable Feedback:
"It is not the kiddie table anymore. CRM is transforming into a real, legit enterprise
platform. The big deals are out there."
The CRM customer experience stands in stark contrast to the old guard, as one
customer is spending $35 million per month on services for an SAP rollout with no
success yet per a partner.
Contacts see a continuous talent inflow of executives from Oracle to salesforce.
Sources see opportunity for an Analytics Cloud, currently a missing piece.
There is an inflection point in terms of clients adopting third party apps from
AppExchange.
Partners feel CRM will make another move(s) in the Marketing arena if it wants to
offer capabilities similar to Marketo, Eloqua, and others.
The Marketing Cloud is potentially a big deal.
See pages 2-4 for detailed feedback

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,025.2E 9.9x 7.4x
695.5A 731.6A 773.3 824.8 3,025.2 3,629.0 7.4x 6.2x
842.8 879.6 922.5 984.2 3,629.0 6.2x
0.28A 0.30A 0.34A 0.43A 1.36A 1.49E NM NM
0.37A 0.42A 0.31 0.39 1.49 1.94 78.8x 78.8x
0.40 0.41 0.50 0.62 1.94

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April 2014
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Detailed Partner Feedback Industry Contact 1
"It is not the kiddie table anymore. CRM is transforming into a real, legit enterprise
platform. The big deals are out there. Our headcount increased more than 40% this year.
It is ballistic, cant keep up with demand."
"Yes I heard Cisco could be the biggest deal ever, it is still out there. When I heard about the
big deal in January, I thought it was Cisco, but it was State Farm. There are big deals like
that out there. That was just the tip of the iceberg."
"Our growth is through the roof. Clients want us in China and everywhere. A client of ours
in the U.S. is spending $35m per month on services for an SAP rollout, and they have been
doing that for five years and it isnt working yet. Yes, they will spend over a billion dollars on
it. A bunch of Deloitte guys are doing the work. They fill up entire airplanes with Deloitte
consultants flying down there."
Industry Contact 2
Just signed a deal with Salesforce. 3 months old. Hoping that it will be big. If he cant make
$5m in a year he would be disappointed.
Seeing lot of opportunities in the government and education verticals.
Also, Sales, Service and the Marketing clouds are the main areas he is targeting.
"The Force.com platform is not forecasted to be too big and is kind if niche as of now."
Sees opportunity in verticalization of salesforce products. Thinks that salesforce will need
to have some level of expertise but don't need to be 100% vertical. He can provide the level
1 and level 2 support for his clients, but would expect Salesforce to come up with a clear
accountability structure within verticals for any further escalations.
Industry Contact 3
Most of his customers appreciate that salesforce is getting into marketing. But the
functionality isnt that rich. Salesforce will likely have to acquire Eloqua or Marketo to get
the ability to track leads from the beginning to the end of a campaign.
60% of his deals involve non-SFA work, which is much higher than a year ago.
He likes salesforce.coms vision and it resonates well with customers. "Salesforce does a
good job balancing between promoting the product and the vision without getting too far
ahead of itself regarding what the product can deliver."
The contact center is a critical area where salesforce has been getting a lot of traction.
Industry Contact 4
"Talking to 2x the number of customers as compared to last year. CIOs are feeling guilty if
the don't do anything around salesforce." Feels a higher buzz this time than last year.
His sales force will have robust growth for the next 12 -15 months. Grew 250% last year to
$20M. Forecasts 100% growth this year to around $40M. Salesforce will soon announce a
global partnership with [this firm].
Suspects that salesforce will soon buy one of the marketing automation companies like
Eloqua, SilverPop or Aprimo. That will give them the ability to promote the marketing cloud
to B2B companies as well.
By pushing annual billings, in his opinion, salesforce might be reducing their ROI for
customers due to the high turnover of sales functions and for those who pay their sales
guys in commissions only and have seasonal hiring requirements. In his opinion it's no
longer a 'pay as you go' model for customers and so they have to over-provision for the year
with salesforce. But that's good for salesforce. Also, customers resent the annual billings in
general, but finally they pay up since they realize that CRM is becoming pervasive like the
bigger players.

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April 2014
Oc t o b e r 3 , 2 0 1 2
At least as of now, salesforce plans to be platform focused as opposed to business process

focused. In other words, they don't have vertical specific solutions like that of Oracle or SAP.
Salesforce expects the partner ecosystem to support the verticals by building on Force.com.
But partners can build on any platform. They are not yet able to fill the gap created by the
need of vertical-specific solutions. Thinks they might have to hang up that stance in the
future and become more vertically oriented. [Note that PJC believes this has already begun.]
Its true that Partner Relationship Management is driving large deals. Thinks that the
Cisco deal was a deal around Partner or Channel management. They don't talk about it
because its changing. Chatter Communities are going to take over the partner or channel
management piece.
Conversations with Workday [around partnering etc.] are an ongoing activity. Currently,
he heard that the IPO is on. His suspicion is that Workday doesn't want to sell, as they
think they can be a $10B company in the next 2 to 3 years. Thinks that Aneel is tougher to
deal with. Thinks that Workday has to increase marketing many fold and follow Benioff's
footsteps.
In his opinion Salesforce might consider looking at Informatica. It's an important part of
the back end integration play and also might pave way to the analytics cloud, which he
suspects is a missing piece.
Industry Contact 5
Seeing 'gratifying' interest in his ecommerce product on AppExchange. "There is an

inflection point in terms of clients adopting third party apps from AppExchange."
"Marketing Cloud adoption will be slow. It may resonate well with some B2C companies.
But companies in verticals like high tech and manufacturing will be slow to adopt.
Marketing is really neglected in such verticals [where] CMOs don't have too many budget
dollars."
Characterizes the continuous inflow of senior execs from Oracle to salesforce as the
'oracalization of salesforce.com'. Seeing this trend accelerating lately.
One of the biggest growth areas he sees for salesforce within the Sales Cloud is PRM or
Partner Relationship Management or the portal. Salesforce doesn't want to talk about it
- it doesn't fit in the story neatly. Many large deals, including the State Farm deal, are
portal driven. Gartner wanted to include salesforce in a magic quadrant for Portals and they
refused.
Sees one of the hurdles going forward is Salesforce's horizontal structure. Thinks that
they have to incorporate more verticalization to penetrate areas like financial services and
insurance.
Suspects that Accenture is behind the three largest deals so far: HP, State Farm and Cisco.
Certainly believes that Accenture was the SI for the first two.
"Salesforce again increased the prices for the sponsors. They have been raising prices 50-80%
every year."
Industry Contact 6
"Business is going great. The Marketing Cloud is a big deal. Instead of blasting the same
message out to everyone and hoping it sticks... Now you make a video, blast it out and if
people like it they LIKE it [i.e. click the "Like" button] so you can measure it. That is a huge
fundamental change for most marketers."
Industry Contact 7
"The salesforce practice is growing. Salesforce is doing well. The market for salesforce.com
resources is tight, consistently tight. Our Siebel practice is shrinking. Our Oracle ERP team
isn't shrinking though. We have 350 guys in our salesforce practice."

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Oc t o b e r 3 , 2 0 1 2
Industry Contact 8
Having a lot of conversations with Fortune 1000 companies around social enterprise. Thinks
it's resonating well.
Social enterprise messaging is a perfect way to expand salesforces footprint.

Industry Contact 9
Business is good, growing rapidly. Not getting many customer inquiries on Chatterbox or
Marketing Cloud because they are brand new products. Most inquiries are on Sales Cloud
and Service Cloud.
Marketing Cloud seems to have the risk of Facebook or Twitter getting serious about
these areas someday and building their own products with richer functionality and deeper
integration. Or changing the APIs. But it is fine for now.
Workday and salesforce have VERY different cultures because most Workday employees
come from Oracle PeopleSoft. They are very secretive and don't talk about work outside
of work. Workday wouldn't host a big happy hour on a Thursday. Salesforce throws big
parties all the time.
Hard to say how the 2H will go for salesforce, but assuming it will be solid. Heard they
did their largest deal ever recently. Read about it somewhere on the internet a month or two
ago. Cant remember who the customer was.
Industry Contact 10
Marketing Cloud in Europe will gain traction for the next 12-18 months. Salesforce.coms
Marketing Cloud isnt as robust or capable as someone like Marketo or Eloqua, so salesforce
will only be able to go after SMB business with its Marketing Cloud.
In the US, because Marketo and Eloqua have a high share of marketing automation, theres
not a lot of business for salesforce to pursue. Salesforce needs to build or buy something. If
they were to buy one of these vendors, it would be Eloqua because its more sophisticated
and its architecture would make it much easier to integrate.
On the execution side, salesforce isnt doing a great job with its acquisitions in his opinion.
They dont have a hard core execution guy at salesforce, which they need. For example,
theres a lot of hype around acquisitions like ModelMetrics and Heroku, but then we dont
hear much about them now.
The next step for salesforce partners will be to help customers integrate cloud solutions
with client server and mainframe.
Industry Contact 11
Salesforce is up and to the right in Norway. Its growing rapidly and becoming more
accepted. Does Sales Cloud, Service Cloud and Heroku. Heroku gets positioned by
salesforce for public facing apps, Force.com for internal employee apps. No, what we see
customers doing on Heroku is not dominated by FB apps.
Industry Contact 12
Thinks that the main imperative in many customer minds currently is how to integrate back-
office legacy systems with Salesforce. Bets that about 90% of customers in Dreamforce are
looking to do that.

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S e p t e mb e r 2 7 , 2 0 1 2
Survey Says: 84% of Salesforce.com Customers Spending More in Next Six Months
PRICE: US$148.94
TARGET: US$208.00
36.2x our CY13E OCF of $5.50/sh + $8.86
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$208.00
FY13E EPS US$1.49
FY14E EPS US$1.94
Yield 0.00%
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
During Dreamforce last week we spoke with 25 salesforce.com customers to gauge
their spending intentions by asking if they planned to increase their total spending
on salesforce.com in the next six months. Twenty-one of the 25 customers, or 84%,
plan to increase spending in the next six months. The remainder are maintaining their
spending, and none plan to reduce spending. Surprisingly, this marks an increase from
our 2011 Dreamforce poll in which 71% of customers planned to increase spending in
the next six months. Additionally, we asked customers about the Marketing Cloud, and
found that many learned of it for the first time at Dreamforce, and were very impressed
with salesforce.com's efforts in marketing. Results give us incremental confidence in a
sustainable best-in-class growth trajectory. We reiterate our Overweight rating and $208
price target.
84% of Customers Surveyed Plan To Increase Spending In The Next Six Months.
Out of the 25 customers we spoke with, 84% plan to increase spending with
salesforce.com, while the remainder do not have plans to increase their spending.
Despite the broad-based perception of a sluggish domestic economy and a high degree
of global uncertainty, we didn't speak with any customers who plan to reduce spending
in the next six months. When compared to our prior CRM customer survey data
(Exhibit 2), customer spending intentions increased versus last year. Many customers
conveyed both an intention to increase their seat count and expand the product
footprint. Also, this marks the second consecutive year in which the percentage of
customers planning to increase or maintain subscriber count over the next six months
has reached 100%. In our view, the sample size is fairly small and we expect these
numbers to fluctuate over time, but as a general rule across our broader survey work,
any company with more than 50% of its customers planning to increase spending is
definitely doing something right. Please refer to Exhibits 1-4 on the next two pages
for more details.
Marketing Cloud New to Many Customers. At Dreamforce we also asked these

same customers their thoughts on the Marketing Cloud. Many customers heard
about it for the first time at the conference, and were impressed by demos they saw
and salesforce.com's vision for marketing. We believe that as salesforce refines and
reiterates its vision about the Social Enterprise, customers will embrace the Marketing
Cloud as part of that vision, much in the same way customers are now embracing and
successfully deploying Chatter and the Service Cloud.
*** Continued on Page 2 ***
Salesforce.com is a leading provider of cloud-based applications and infrastructure.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 3,025.2E 9.6x 7.2x
695.5A 731.6A 773.3 824.8 3,025.2 3,629.0 7.2x 6.0x
842.8 879.6 922.5 984.2 3,629.0 6.0x
0.28A 0.30A 0.34A 0.43A 1.36A 1.49E 100.0x 100.0x
0.37A 0.42A 0.31 0.39 1.49 1.94 76.8x 76.8x
0.40 0.41 0.50 0.62 1.94

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S e p t e mb e r 2 7 , 2 0 1 2
Exhibit 1: Do You Plan to Increase/Decrease/Maintain Spending Over the Next 6 months?
84%
40%
50%
60%
70%
80%
90%
o
f
r
e
s
p
o
n
s
e
s
16%
0%
0%
10%
20%
30%
Increase Maintain Decrease
%
o
Exhibit 2: PJC Historical salesforce.com Customer Spending Intentions
Date Increasing Maintaining Decreasing
Net between
Increasing or
Decreasing
Increasing or
Maintaining
Jun-08 72% 21% 7% 65% 93%
Nov-08 35% 15% 50% -15% 50%
May-09 39% 44% 17% 22% 83%
Aug-09 67% 26% 7% 60% 93%
Jun-10* 85% 13% 2% 83% 98%
Aug-11 71% 29% 0% 71% 100%
Sep-12 84% 16% 0% 84% 100%
Subscriber Count Growth Next 6 Month
* The June 2010 data was slightly skewed positive due to a heavy mix of Tech Companies in the sample.

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Exhibit 3: Percentage of salesforce.com Customers Planning to Increase Spending Over the Next 6 Months (Time Series)
72%
35%
39%
67%
85%
71%
84%
40%
50%
60%
70%
80%
90%
f
R
e
s
p
o
n
s
e
s
0%
10%
20%
30%
Jun-08 Nov-08 May-09 Aug-09 Jun-10* Aug-11 Sep-12
%
o
Exhibit 4: Percentage of salesforce.com Customers Planning to Increase or Maintain Spending Over the Next 6 Months (Time Series)
93%
50%
83%
93%
98% 100% 100%
40%
50%
60%
70%
80%
90%
100%
f
R
e
s
p
o
n
s
e
s
0%
10%
20%
30%
40%
Jun-08 Nov-08 May-09 Aug-09 Jun-10* Aug-11 Sep-12
%
o
*The June 2010 data was slightly skewed positive due to a heavy mix of Tech Companies in the sample.

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Deep-Dive Partner Interviews Reinforce a Strong 2H Pipeline
PRICE: US$148.62
TARGET: US$207.00
36.2x our CY13E OCF of $5.49/sh + $7.91
net cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$207.00
FY13E EPS US$1.62 US$1.48
FY14E EPS US$1.98 US$1.92
Yield 0.00%
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 11 key contacts in the salesforce.com
ecosystem, and provide 7 pages of detailed feedback for investors who are interested
in gaining a deeper understanding of salesforce.com's evolving business strategy and
competitive dynamics. Key Trends: 1) core SFA and Service Cloud conversations are
fundamentally changing, as they are now happening in conjunction with a marketing
automation discussion, foreshadowing future success in a large new market; 2) Partners
are seeing a "really solid" pipeline and wouldn't be surprised if salesforce enjoys a very
strong second half; 3) Partners refuted any perceived weakness in SFA, salesforce's largest
product segment, and still continue to observe strong SFA deal flow; and 4) Partners are
seeing a trend in which many customers want to consolidate around two vendors SAP
in the back office and salesforce in the front office. Overweight, $207 target.
Noteworthy Feedback
One source expects Q2 to be fine, not great, not bad, inline. I have a feeling that
they are out of the woods [in terms of the reorganization] and they are really going to
have a very very strong, very strong Q3 and Q4.
Regarding installed base growth and absorption of new technologies: We are seeing
pretty robust demandthe pie keeps growingthere is just so much momentum in
the install base for incremental growth
Contacts note that It still surprises me the amount of SFA that gets soldit's just
amazing the deals that continue to get soldhuge deals."
A few partners are sensing a trend in which clients are saying we want to consolidate
around two vendors SAP in the back office and salesforce in the front office.
A larger CRM partner is having a lot of conversations about collaboration with some
of his customers and in particular have the potential for salesforce to either augment
or replace their corporate intranet."
***DETAILED CHECKS CONTINUE ON PAGES 2 THROUGH 8***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 2,982.3E 9.6x 7.3x
695.5A 725.8 754.0 807.0 2,982.3 3,577.3 7.3x 6.1x
842.8 872.2 899.4 962.8 3,577.3 6.1x
0.28A 0.30A 0.34A 0.43A 1.36A 1.48E NM NM
0.37A 0.38 0.33 0.40 1.48 1.92 77.4x 77.4x
0.45 0.42 0.46 0.59 1.92

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Detailed Positive Comments from
Industry Contacts (10)
Industry Contact 1
Expects Q2 to be fine, not great, not bad, inline. Thinks that salesforce will
report a decent quarter, not far exceeding expectations but a good solid quarter.
About the sales reorganization - salesforce seems to have weathered it.
From his conversations with contacts in the center of the salesforce ecosystem and in
the partner community, thinks that everyone feels very very very good about Q3.
From his visibility of the demand and pipeline generation, their [salesforce's] Q3
and Q4 look phenomenal. Based on his own opportunity creation tracking, it
is going to be an incredible back half of the year for salesforce. His opportunity
pipeline jumped 11% sequentially in Q2 from Q1; thats a pretty significant jump
quarter over quarter. Also had a very very strong July.
I have a feeling that they are out of the woods [in terms of the reorganization] and
they are really going to have a very very strong, very strong Q3 and Q4.
Product Specific
Salesforce Automation (SFA)
SFA is very very strong.
Any perceived weaknesses in SFA, I dont think is there.
It still surprises me the amount of SFA that gets soldits just
amazing the deals that continue to get soldhuge deals."
Service Cloud
Service Cloud is, as expected, growing like a weed for them
[salesforce].
Continues to be the fastest growing piece of their [salesforce's]
business.
Those [service cloud] deals are so big because in an organization if
there are 50 sales people there are 250 services people.
Believes that salesforce's non-SFA business is primarily driven by the
Service Cloud.
Radian6
Thinks that it's still very much missionary work.
Thinks that it is a little slower sale and seems to include more
people putting the rubber stamp on a deal approval since it crosses
sales, services and marketing departments.
It is actually easier to get into the door but harder sometimes to close
unless you have a single buyer.
Mentions that salesforce will have a couple of hundred sales people
by the end of this year selling it to SMBs through enterprises.
From his conversations with his contacts at Radian6, they are crazy
busy.
Thinks its going to be phenomenal for them and believes that it is
one of salesforce.coms best acquisitions.
Heroku
Thinks Radian6 and Heroku are going to be "unsung heroes".
Thinks Heroku is a heck of a product. It is a really really strong
and fabulous product
Thinks that the growth in number of apps that have been built on
Heroku is astounding.
Chatter
Thinks Chatter is very important to get into deals and is a great
product that facilitates a cheap way to have a conversation, but it
doesnt help moving the revenue needle.
Rypple
Thinks that it's currently mainly around performance management
and employee rewards.

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Thinks that they will continue to add functionality around the HR
tool.
Thinks that they will talk more about HR Information Systems at
DreamForce.
Buddy Media
Thinks it's too early to tell and is a long way from seeing any revenue-
pop from that relationship.
Thinks it will be part of the Radian6 business unit along with
Data.com.
The Social Enterprise Vision
It opens the door to a really good conversation.
Thinks that transforming into a social enterprise involves an enormous
amount of stepsyou dont wake up and say let's do it.
"As a marketing messageI do think its ringing through.
Big deals
I havent heard anything of State Farm size, but I [suspect] of several that
were 8-figure deals that they have soldso they continue to sell some big
ones
Estimates that they closed two 8-figure salesforce automation deals in FQ2.
I think in aggregate they [sales reps in the salesforce.com ecosystem] made their
numbers in Q2
Industry Contact 2
Had a really challenging Q1 but things bounced back really nicely in Q2. Most
of the challenges he faced in Q1 were because of clients pushing out decisions to
Q2. Seeing a much stronger outlook right now, in general, than we did earlier in
the year.
We are seeing pretty robust demandthe pie keeps growingthere is just so much
momentum in the install base for incremental growth
Mentions that his pipeline is looking great and really solid. I wouldnt be
surprised if they [Salesforce.com] have a very strong second half.
Heard that some impact of the reorganization was felt by Salesforce.com in Q2.
Havent heard of any additional deals of the size of the HP deal recently.
Products
Seeing large deals consisting of Sales and Service Cloud. Those are the deals
that are really driving growth and account penetration.
Thinks that reps are still really confused on how to sell Radian6. Everybody
[sales reps] is dying for use cases on Radian6its just not their world.
The whole paradigm [around the Force.com platform] is relatively early in
its evolution and the licensing model is really cumbersome. Mentions that
in a solution sale which consists of the core salesforce.com platform with a
few ISVs offering different components, the licensing process becomes very
complicated.
Seeing a trend in which clients are saying we want to consolidate around two
vendors SAP in the back office and salesforce in the front office. Mentions that he
sees such a dynamic playing out only in SAP shops and not as much in Oracle shops.
Thinks that Marketing Cloud is the next piece of the puzzle and that salesforce really
need native functionality, like those provided by the likes of Eloqua and SilverPop,
to provide management of compelling closed loop campaigns at large scale.
Industry Contact 3
Was on-plan for last quarter. He feels good about salesforces Q2.
Seeing a very strong pipeline in the 2H:2012.
Conversations with Sales reps [in the salesforce.com ecosystem] - I havent detected
anything other than satisfaction from them.

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Having a lot of conversations about collaboration with some of his customers and
in particular have the potential for salesforce to either augment or replace their
corporate intranet Customers are looking at using Chatter to drive usage and
increase the value of their intranet. Thinks that salesforce might talk about similar
use cases at the upcoming Dreamforce conference.
Mentions that most of his conversations are still around the Sales Cloud and
around the theme of the single view of the customer, the 360 degree view. Mentions
that although these themes have been around for the last three to four years, there
are lot of companies which are just now grasping it.I dont think that trend is
behind us necessarily in the marketin fact it may just now be hitting the sweet
spot.
Thinks that whats different in a salesforce conversation with a client now and a
few years ago is that, it seems to be happening in conjunction with a marketing
automation discussion. His clients are asking him - How do I maximize my impact
across all the channels that I am marketing to, that kind of question
Mentions that although salesforce has some campaign tracking capabilities, classic
marketing automation, lead scoring, conversation monitoring, closing the loop
piece of it is the forte of other vendors like Eloqua and SilverPop etc. Thinks that
this space might be something in salesforces acquisition roadmap.
Mentions that Radian6 is going to be an important part of the marketing cloud
because you put your message out and you want to hear what comes back.
Personally, he hasnt been part of a lot of conversations involving Radian6, but that
could be because he is more interacting with the IT organization.
Thinks that longer term salesforce.com wants to be the marketing platform and
they [salesforce.com] realize that they have some holes that they need to fill in order
to get there.
Salesforces foray into HR I dont get it to be honest with youI mean I get it
in the sense that they want to be across the enterprise but dont get the need to do
the HR cloud.
Thinks that Workday and salesforce are more valuable to each other as partners
than as one company.
Industry Contact 4
Q2 Performance
Weve had a very good quarter in our business and I think that parallels to
at least what Ive seen at salesforce.com.
July was a record-setting month on a year-over-year basis.
Growth has been well over 60% y/y.
This is a function of two dynamics:
Hes moved into some new market segments; hes not much larger in
the enterprise segment.
Hes also added significant capacity in terms of consultants and
technical architects.
Business has been very good. The extent of the dimension of the
salesforce.com application is very, very good.
Each month this year has frankly far exceeded last year, and quarter-over-
quarter is the same kind of story.
Business Drivers
Seeing three things that are really driving business:
The social enterprise theme is beginning to take hold and get some traction.
Its becoming now a bit more than a marketing theme.
People are actually seeing some benefit to reaching out and tapping
into the social networks in order to influence business decisions, to
gain information about decision makers, help develop more precise
marketing campaigns, and things of that nature.

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Thats beginning to get some traction. Its not world conquering by
any means, but its much better than it was three to six months ago,
in my opinion.
More people are beginning to understand what it is and what it can
mean in a business environment.
The Service Cloud, which has been a point of emphasis for a good period
of time, is really getting traction.
Estimates that almost 70% of his implementations now include some
element of Service Cloud. A year or year-and-a-half ago that simply
wasnt the case. It was a much smaller percentage.
The code written on Force.com is increasing as well. Hes seeing this in
numbers and numbers of implementations hes doing.
Sales Reorganization
Hes hearing that once the disruption of the salesforce.com sales
territory change was absorbed, which took place toward the end of
salesforce.coms first quarter, the activity levels, the proposal levels,
the close ratios all returned to total normalcy.
He saw the disruption for five or six weeks, but it got all sorted out.
A majority of their sales territories are account defined, whereas
a lot of them used to be geographically defined, especially in the
SMB. That [account defined] strategy paid off for them in the larger
accounts over the last year, and now theyre beginning to use the
account assignments in the mid-market. Salesforce.com refers to the
mid-market as the commercial market.
The much larger product portfolio of salesforce.com is allowing them
to go with a named account strategy, and allows for much greater
account penetration.
Thinks today, a sales person can start with the Service Cloud and talk
about integration with SAP or Oracle as the back end, much more
effectively. Those two things are working in combination very well for
them.
Buddy Media
Has a few internal resources looking at Buddy Media and salesforce.coms
overall direction in the Marketing Cloud. But, he isnt yet familiar with all
the functionality.
Early vibes from salesforce.com show they feel very strongly that theyre
really knitting things together headed towards Dreamforce, and well
probably see a more consolidated strategy around the Marketing Cloud at
Dreamforce.
Industry Contact 5
Demand
Mainstream Sales Cloud and Service Cloud doing very well.
Theres just enormous demand for the core functionality.
There is demand for other products, like Radian6, but the core demand is
still there.
He fundamentally disagrees that there arent many new opportunities in
SFA.
Growth
Growing at 150%.
We should double in revenue without any doubt, this year over last year.
Hell probably do this again next year, and this is conservatively speaking.
Most business is coming from customer referrals and word of mouth.
Social Enterprise
Hes a little jaded after being in the business for 9 years.

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His customers still want to know how to get more out of their salesforce.com
application.
Social Enterprise is geared to large enterprises.
Small and mid-market consumers just want to get greater leverage from their
current CRM investment.
Industry Contact 6
Have been growing revenue on average 50% for the last three years. This
year(ending Nov) plans to grow 10-15% y/y because of company specific
issues.
Pipeline is pretty strong$50-100k opportunities pipeline is definitely
strong for the 2H:2012. Feels that the momentum is going to increase in the
2H:2012.
Salesforce practice was definitely up last fiscal quarter (May) y/y.
Thinks Sales Cloud would be 70% of the opportunities while Service Cloud
would make up the rest, 30%.
Thinks that he should see some revenue starting to flow in from Radian6
implementations next year.
There is more traffic coming from the AppExchange for the two products
his firm created. Thinks thats up 25% y/y.
Thinks that the handful of sales guys [in the salesforce.com ecosystem] he
spoke toseem to be fairly upbeat coming off the quarter.
Thinks that GoInstants revenue is next to nothing.
Industry Contact 7
General demand
Spring was a little slower, but the summer picked up.
He would imagine that the pace keeps up through DreamForce.
Most of the time the month before DreamForce is usually a little bit slower
because everyone is getting ready for DreamForce.
Its actually been a much busier summer than normal.
Business is coming from customers who are on the lower end when it comes
to sophistication of technology and who are just now getting into something
like salesforce. Its also coming from the people on the hyper-advanced end,
where theyre looking to do a whole lot. Those who are somewhat tech savvy
and have a middle level of requirements for the system that have disappeared.
Hes been busy with simple projects and highly complex ones.
Q2 performance
His second quarter is skewed, as he had his biggest deal ever in Q2.
Weve experienced massive growth this year.
Were talking about potentially growing as much as 60% or 70% this year.
This is predominantly due to the highly complex deals theyre closing with
the sophisticated IT buyer.
Q1 was a little bit slower, but the reorganization, once it took shape, its been
very fast since then.
Each month has been just as busy as the previous month. No summer
slowdown.
The large deal he closed was predominantly a sites.com deal.
Products
The unsophisticated buyer will always start with the Sales Cloud.
The more complex buyer is dealing more with the Service Cloud and
salesforces web-facing products, whether it be salesforces portal offering or
their sites.com offering.
A lot of it is much more about customer interaction.
Enterprises are extending Chatter internally.
Extending Chatter externally is fairly new. We havent seen a lot of that yet.

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Chatter answers, communities, whatever you want to call it, is still fairly new.
Theres lots of buzz, but at least from an implementation standpoint he hasnt
seen very much of it yet.
The conversation weve heard is more about Chatter answers and support
with customers, and peer-to-peer support through Chatter answers.
Acquisitions
One reason salesforce.com has experienced such good growth is from large
deals
This is because of the acquisitions theyve made over the past three or four
years.
If you put them all together, the vast majority of them are lining them up
to attack the very large B2C marketplace where salesforce was not really
positioned to do that before.
Now theyre positioned to sell to those organizations that primarily sell to
consumers.
Industry Contact 8
Seeing a lot of success in the SMB market.
Getting lots of business from companies that have implemented
salesforce.com and are looking to enhance and maximize their use of the
product.
Doing some very significant engagements using the entire platform; Doing a
lot of custom development on Force.com, integration work into back office
systems, etc.
Wrapping up an engagement where he rewrote an in-house, proprietary
application onto Force.com.
Has added some sales people, and that has caused his pipeline to grow.
Radian6
Hired a social CRM consulting manager to work on social opportunities,
but not having lots of success yet.
Sales reps in the salesforce.com ecosystem
CRM has added so many sales reps, decreased the size of their territories,
increased their quotas and decreased their commission, he has a difficult time
knowing how successful the sales reps [in the salesforce ecosystem] were in
Q2.
His company interacts with several dozen account executives [in the
salesforce ecosystem] because he has multiple office locations, does business
with the emerging small business group, small business, mid-market/
commercial, and vertical markets for financial services and life sciences. To
track AEs is a job in itself.
Sales force automation
Theres still a heck of a lot of activity, even though the really easy deals
are gone.
Performance/Outlook
Up about 25% year-to-date. This is significant because he expected to be up
around 15-20% for the year after Q1
Pipeline for the rest of the year is better. Were bullish. Our pipeline looks
very good.
Industry Contact 9
Development on the Force.com platform and Heroku are very strong.
Service Cloud has been very popular.
The Service Cloud isnt the best application, but still continues to sell well.
Salesforce wins because of the platform and the infrastructure. [Customers] want
to decrease their operational costs like servers, upgrades, IT head count , and
salesforce is the safest bet. Theres just no competition in the marketplace.

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Customers can put multiple business units on the platform, and they can have one
group internally that can manage the application whether its for the call center,
SFA, marketing or something custom
I dont think they have great applications, personally. I think they just win on the
platform.
The best way to get an idea of momentum at salesforce is looking at their
DreamForce attendance.
Industry Contact 10
Definitely seen a great amount of interest among customers.
Has a recruiting product on Force.com. Thinks a lot of staffing companies, domestic
as well as international, are opening up to the salesforce.com platform and are
starting to consider salesforce as part of their recruiting strategy.
Seeing continuous adoption of salesforce from an implementation perspective.
Also, seeing a lot of interest around the Service Cloud.
Sales guys [in the salesforce ecosystem] are doing an awesome job. Have been
working with the same reps for a really long time. I think they are [hitting their
numbers] but it would be wrong on my part to assume anything.
Detailed Neutral Comments from
Industry Contact 11
Salesforce is business as usual. Thinks that Q2 was not a super exciting quarter
but also not an average quarter.
Seeing broader demand across various products such as SFA, Service Cloud, and
Chatter.
With the caveat that services pipeline lags the pipeline that salesforce.com might be
seeing and that there are sales that might not be visible to him, thinks that there can
be a slight slowdown in the 2H but nothing to be alarmed about. I would think they
are still in the green zone Thinks that the pipeline is building in a steady state
rate but he doesnt see an exponential growth.
Havent heard of any super laterally large [State Farm sized] deal but substantial
amount of average size [7-figure/few million dollars] deals are happening
Products
Thinks most of the deals are Service Cloud.
Doubts that Radian6 and Heroku are really contributing.
Also, seeing more and more deals around solutions.
Very Confident that sales reps [in the Salesforce.com ecosystem] are beating their
numbers. Had a few sales guys [in the Salesforce.com partner ecosystem] present
and everybody confirmed that business is looking good.
Thinks that MSFT is getting aggressive. Thinks that MSFT CRM is very very cost
competitive and giving a run for their money for Salesforce in emerging markets.
Adjusting Model To Reflect the
Buddy Media Acquisition
We are also adjusting our model to reflect the Buddy Media acquisition. According to
salesforce.com, the acquisition should be $0.14-$0.15 dilutive to FY2013 PF EPS. We are
lowering our PF EPS forecast by roughly this amount. Salesforce.com closed the acquisition on
13th Aug 2012. Our price target remains at $207 based on 36.2x (was 36x) our CY13E OCF of
$5.49/sh + $7.91 net cash/sh. The slightly higher multiple reflects a higher peer group multiple.

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PRICE: US$147.57
TARGET: US$207.00
36x our CY13E OCF of $5.54/sh + $7.91 net
cash/sh.
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$207.00
FY13E EPS US$1.62
FY14E EPS US$1.98
Yield NM
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 42 salesforce.com partners and found that they finished 4.6% above plan,
on average, for Q2. All three elements of the survey feedback improved in Q2 versus
Q1, suggesting a healthy pace of business. We expect a solid Q2 across a holistic set
of metrics including constant currency revenue and revenue guidance, but continue to
think the real story is the strength of pipeline building for the second half of the year,
not the Q2 results themselves. To illustrate the point, positive feedback on the deal
pipeline outweighs negative feedback by a ratio of 5 to 1 across the 42 firms in our survey,
including assessments of a deal pipeline that is "huge and very promising" and "large big
deals for closing in Q3." Overweight, $207 price target.
Partners Finished 4.6% Above Plan. Partners we spoke with were on average 4.6%
ahead of plan, versus 3.3% ahead of plan in the prior quarter. The current survey
results are within the normal range of 1.6% to 6.2% above plan for the last couple of
years, and are stronger than 3 of the prior 4 quarters.
Observed Pace of Business in Q2 Improved versus Q1. 57% of the partners we surveyed
indicated that the pace of business was better in the past three months relative to the
prior three months, while only 2% indicated a worse pace of business. This results in
a "Net-Better" score of 55%, versus 38% in the prior quarter, and also stronger than
3 of the prior 4 quarters.
Bookings Expectation: Net-Above 29% versus 17% the Prior Quarter. 36% of
surveyed partners foresee Q2 bookings above expectations, while only 7% sense a
disappointment. This results in a Net-Above score of 29%, a material improvement
versus 17% in the prior quarter.
***Detailed Survey Data on Page 2 and Detailed Comments on Page 3***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 2,982.3E 9.5x 7.2x
695.5A 725.8 754.0 807.0 2,982.3 3,577.3 7.2x 6.0x
842.8 872.2 899.4 962.8 3,577.3 6.0x
0.28A 0.30A 0.34A 0.43A 1.36A 1.62E 91.1x 91.1x
0.37A 0.38 0.39 0.48 1.62 1.98 74.5x 74.5x
0.47 0.44 0.47 0.60 1.98

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April 2014
Au g u s t 2 1 , 2 0 1 2
Exhibit 1: Detailed Survey Data (Time-Series)
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
CRM: Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3% 4.6%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0% 57.1%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1% 40.5%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9% 2.4%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1% 54.7%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0% 35.7%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7% 57.2%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3% 7.1%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7% 28.6%
4.2%
6.2%
1.7%
4.3%
5.4%
1.6%
3.3%
6.1%
3.3%
4.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
48.9%
54.0%
40.4%
57.7%
61.4%
40.0%
38.3%
64.0%
38.1%
54.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
17.8%
32.0%
19.3%
21.2%
40.9%
14.6%
19.2%
30.0%
16.7%
28.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Above %

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April 2014
Au g u s t 2 1 , 2 0 1 2
Exhibit 2: Detailed Comments
"Please describe the deal pipeline and customer activity levels during salesforce.com's Q2 (May, June,
July)"
Positive Comments (30)
I just joined the company, but July was a very successful month.
The deal pipeline in the 2nd quarter was the best ever for our business, with 70% growth over last year. It has continued into July and
August as well, with good activity in the key Cloud segments.
Increasing momentum. Less competition.
Pipeline has stayed consistent.
Business level is consistent.
Slight increase in customer spend levels.
Customers are renewing, but still making a push to find net new customers.
Additional new large deals in the pipeline, with continued project work for existing customers.
Pipeline and activity levels are growing.
Huge and very promising.
More sales activity.
Was a good pipeline, but a lot of noise from Microsoft.
Active - seeing more edge case deals that require some creativity.
Greater acceptance of cloud computing and activity across many different customer segments.
More activity across a wide spectrum of customer size, industry and applications.
Activity/pipeline are good.
Many customers are expanding beyond core "sales" CRM and starting to involve customer service/Service Cloud. There is a large
push by established customers also to work their channel partners into their SFDC instance by utilizing Partner Portals capability
within SFDC or on Heroku.
Seeing more large deals and some of the larger accounts are starting to branch out.
Deal pipeline has grown for us significantly due to better marketing and brand awareness of salesforce.com.
Our pipeline continues to be dominated by SFDC users.
Strong growth in May and June. As expected, July a quieter period.
Insanely good!
The problem is not demand generation for consulting services, but finding the resources to actually deliver the implementation. This
has put some restraint on increasing the revenue growth on our side.
Large big deals for closing in Q3.
Strong pipeline closing in September.
Some customers implementing for first time, others re-implementing after it didn't catch on first time. Good news is [they are] not
switching to a different tech/vendor.
Pipeline is building. There is a lot more interest. Budgets are loosening.
Our deal pipeline has been the most robust it has been in years, even given the slower summer months. Customers are reaching out
to us on their projects, are requesting estimates and proposals, and are executing contracts via signature. This year has been by far
the most robust Q2 we have seen [in terms of] activity and customer contracts "inked".
We are getting more and more qualified prospects form the new lead gen process that funnels back through SFDC and SFDC helps us
to manage these leads with the integration to Marketo much more smoothly than before.
Has been slowly increasing, and will continue to get better.
Neutral Comments (6)
As is usually the case with the previous quarter, new deals have slowed but active customers continue to request new projects. We
are expecting activity in September to increase quite rapidly given our pipeline.
Pipeline is moving downstream to SMB. Three years ago you could still find companies without a CRM, now everyone has one and it's
a sale to MOVE them, rather than sell them.
Business is brisk, but MS Dynamics CRM continues to be strong and a formidable competitor at the middle to low end of the market.
It's a bit pricey to get going with it, but ongoing it is less than half of SFDC.
Activity/Pipeline are stable.
No significant change from previous quarter.
About the same.
Negative Comments (6)
Pipeline is weak in customer count and everything hinges on big deals.
AppExchange continues to be a poor source of new leads, more in line with adding value to leads and deals we have sourced
elsewhere. SFDC relationship not a selling point any more, but rather more of an expectation. Good for Salesforce, but bad as a lead
source for partners.
It has been kind of slow compared to where we want to be.
The pipeline is not staying full. Too many other options.
Not too deep a pipeline currently.
None.
Source (All): Piper Jaffray Research

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April 2014
Au g u s t 1 0 , 2 0 1 2
"Taking Home the Gold" Investor Call: Unmistakably Strong Spending Intentions
PRICE: US$137.76
TARGET: US$207.00
cash/sh.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$207.00
FY13E EPS US$1.62
FY14E EPS US$1.98
Yield 0.00%
Fiscal Year End Jan
170
160
150
140
130
120
110
100
90
USD
Source: Bloomberg
CONCLUSI ON
Our investor call with 2 leading-edge CRM customers and a key CRM Platinum
partner revealed unmistakably strong spending intentions and an unusual recent surge
in pipeline activity. Key points: 1) an "amazing turnaround in deal flow" should drive a
strong Q3 and could crescendo in a Q4 that is "absolutely off the charts"; 2) contrary
to conventional wisdom, the core SFA market is not slowing and not close to being
saturated, with "a lot of runway left"; 3) both customers are running Paid versions of
Chatter, driving broadcast email volumes to decline by 70-100%; 4) Service Cloud is
now losing "very few" deals to competitors, as it is seen leading the battle for call center
transactions. Bottom Line: We continue to believe CRM is the best long-term (12 month)
investment in the powerful Cloud Computing wave. Reiterate Overweight, $207 price
target.
Yesterday we hosted an investor conference call with Enterasys Networks, DenMat,

and Astadia to discuss product and demand trends relating to salesforce.com.
Recent Pipeline Surge Foreshadows Possibility of Strong Q3 and Q4 "Off the Charts".
The infamous sales re-org was described as "very real" and it affected everybody.
However, a "hiring binge" of high-end talent is now ramping, driving an "amazing
turnaround in deal flow". Astadia's opportunities grew 11% sequentially in Q2, an
unusual amount, as clients are contemplating some very big moves. Q3 is expected to
be stronger than Q2, leading to a Q4 that could be so "off the charts" that it could
be much bigger than the last impressive Q4. We have also collected several other data
points that strongly align, and as such, we think CRM shares are a must-own through
year-end.
Core SFA Market Stronger and Has More Runway than Investors Realize. No
detectable slowdown in SFA has occurred. Customers using Oracle/Siebel, SAP, and
even Microsoft products continue to buy and install CRM's Sales Cloud product. The
installed base of Sales Cloud customers, while >100K, is viewed to be not all that many
because it isn't "in the millions yet," suggesting substantial runway remains.
Paid Chatter, Not Free Chatter, Being Used with Strong Success and ROI. Both
Enterasys and DenMat are excited about Chatter, with continually increasing
adoption. Whereas investors generally believe Chatter is always free, both customers
use Paid versions of Chatter. Chatter is being driven into "every corner of the business"
and also beyond the four walls of the organizations.
*** Full Transcript On Pages 2 - 14 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
504.4A 546.0A 584.3A 631.9A 2,266.5A 2,982.3E 8.9x 6.7x
695.5A 725.8 754.0 807.0 2,982.3 3,577.3 6.7x 5.6x
842.8 872.2 899.4 962.8 3,577.3 5.6x
0.28A 0.30A 0.34A 0.43A 1.36A 1.62E 85.0x 85.0x
0.37A 0.38 0.39 0.48 1.62 1.98 69.6x 69.6x
0.47 0.44 0.47 0.60 1.98

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April 2014
August 1 0, 2012

SALESFORCE. COM I NVESTOR CALL

Good afternoon. I am Mark Murphy, a software analyst with Piper Jaffray. We are very
pleased to be joined by two salesforce.com customers, including Ben Doyle from Enterasys
and also Jonathan Green from DenMat, as well as Blake Wolff from a key salesforce.com
Platinum Partner called Astadia. Gentlemen, thank you very much for joining us. Lets start
by having each of you briefly introduce yourself and you firm. First Ben, and then Jonathan
and then Blake.

Benjamin Doyle (Enterasys Networks): Thanks Mark. Hi everyone, Im Ben Doyle. Im the
VP of Sales Enablement and Analytics at Enterasys, and I also have responsibility for our IT
applications function. Enterasys, we are a computing networking vendor. Weve been
around for about 30 years. We make switches and routers, wireless access points,
controllers, and network management security software. Were based in Massachusetts just
outside of Boston.

Great, thank you. Jonathan.

Jonathan Green (DenMat): Hi my names Jonathan Green. Im the Vice President of IT at
DenMat. Were a dental manufacturing company located in Santa Maria, California. Were
the innovators who brought to market products like Rembrandt toothpaste, and were best
known for products like Lumineers and Snap-On Smile. I represent all areas of IT and also
the business analysis group.

Ok, fantastic Jonathan. Thank you. Blake

Blake Wolff (Astadia): Thank you. Im Blake Wolff. Im one of the co-founders of Astadia
and run business development, marketing and commercial sales for Astadia. I appreciate
you having me. Astadia is a Platinum Partner, as you said earlier, and we have about 250
consultants across the US, UK and Asia that focus on mid-market enterprise clients helping
them deploy a variety of cloud technologies including salesforce.

So I think the way we want to begin is spend a little time on the customer side with Ben and
Jonathan. Ill say up front were excited to check in with you guys because we hosted you
about two-and-a-half years ago on a similar conference call when you were both private
beta-test customers of Chatter. So youve both been on it for more than two years now, and
I want to start by asking you what can you share with us? Any anecdotal success stories? Is
there anything thats happening with Chatter that you couldnt have achieved without
Chatter?

Benjamin Doyle (Enterasys Networks): This is Ben, I can start. We were very excited about
Chatter two years ago. We continue to be extremely excited about Chatter and the impact
that its having on our organization. When we started as part of the private beta there was a
small group of individuals who were kind of the champions. Where we are today is that
Chatter is widely used across our company, across all of the different departments and
functions in our business. I think even to our surprise our CEO is a regular contributor to
Chatter and it has really had a profound impact on our organization. Specifically, near the
end of one of our quarters, and actually throughout the quarter, our CEO will chat sales
wins and it really gets the whole company involved in our selling process. Its been
extremely well received. Our usage has really continued to increase over the two years that

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August 1 0, 2012

weve been using Chatter. We do feel like its a very important set of capabilities for our
business right now.

Now Ben, why do you say youre surprised that the CEO is a regular contributor? Did he
come into it with a negative stance on the idea of an enterprise social network?

Benjamin Doyle (Enterasys Networks): I dont think he was negative, but he was not in that
early group of folks pushing for enterprise collaboration. But he saw the benefits and really
warmed up to it and I think he really has started to help drive Chatter to every corner of
our business. It was a new thing when we started. It wasnt something that we had a lot of
experience with as a company. I think the more that weve used it the more people have
understood it and seen the benefit of collaborating in Chatter.

Ok now Jonathan, what about from the perspective of DenMat? Has Chatter been an
upside surprise? Are you disappointed with it in any way?

Jonathan Green (DenMat): No it has not been a disappointment in any way. Unfortunately
our CEO is not in Chatter as much as we would like and hes not in the office as much as
we would like either, so I cant fault him for that. The rest of the C-levels are active Chatter
participants. Since our last meeting my company has been acquired so they brought in with
them an entirely new set of executive managers. Much to my surprise those executive
managers have taken to Chatter even faster than the group that we had initially deployed it
with because all the seed was already there as they had come in with virtually no salesforce
experience or Chatter experience. They saw the potential of the tool immediately and dove
right in and that helped transition, lets see, Im now in my ninth month of acquisition.
Almost immediately everyone knew their faces from Chatter, everyone knew what was
important about them from Chatter, and it really felt like they could reach out and touch
people they had never even seen or met through the organization, which is pretty spread out
with our work at home model.

So they could do something with Chatter that they couldnt do with email?

Jonathan Green (DenMat): Oh absolutely. I mean weve got people out located in Indiana,
Ohio, and our C-levels wont ever get out to those locations because of their work at home,
so immediately they were able to see the picture of who that person was, read about the
profiles, they had gone ahead and set themselves up in that. Then they see and respond to
the communication thread right in Chatter, because they feel approachable in Chatter as
opposed to an email where you dont really want to send an email back to everybody and
you dont want to look silly. In Chatter its much easier to click like than it is to send an
email back to somebody saying you like what they said.

Ben, going back to you, is there anything you can tell us in terms of real-world impact that
Chatter might have had on productivity, collaboration, communication, or on anything
else? As a part of that, I believe you might have mentioned a couple years ago that you
believed it could cause email volumes to drop. Im interested in checking out both those
topics.

Benjamin Doyle (Enterasys Networks): I think there have been two or three pretty
significant areas where Chatter has had an impact. Certainly one area that we call
broadcast emails in our company, the volume of broadcast emails, so an email that we sent
to a large group of people or everyone at the company, I would say has dropped by 70-80%.
A lot of that communication has been replaced by communication in Chatter.

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August 1 0, 2012

When we were in the private beta of Chatter, the functionality called Chatter groups didnt
exist. We now have well over 100 different Chatter groups in our organization for all sorts
of different topics. We have groups around product lines. We have groups for competitive
information. We have groups for different sales functions. IT regularly creates Chatter
groups for projects. We recently migrated our organization off of Outlook and Exchange to
Google and we created a Chatter group. Everyone in the company became a member of that
group to get updated on whats happening with the Google rollout and learn tips and tricks
and things like that. Were actually moving to a new facility in January so we have a
Chatter group about our new office. The ways that were using Chatter, its just incredible
all of the use cases. People think of things that we would never think of from a management
standpoint. Its had a really big impact in that respect.

Now in Chatter you can do more directed communication, person to person. Im actually
looking at a chat right now from a sales person to our director of IT operations. Theres
just a lot of back and forth dialogue. The beauty of Chatter is that its much more public,
so other people benefit from the communication.

We have one really good example where we have a call center agent who has expertise in
the wireless space. Hes a very talented employee. He took it upon himself to start chatting
and sharing some of his knowledge. His influence in our company has risen dramatically.
Hes widely viewed as one of our wireless product experts based on his use of Chatter. Hes
really kind of built his own personal brand using Chatter, which is really interesting.

Remarkable. It sounds like its really evolving. Jonathan, do you have any thoughts on
productivity impact or maybe the way its impacted your email volume, if at all?

Jonathan Green (DenMat): Its really funny how similar our stories are. We had the same
situation where basically the broadcast emails are cut down to zero because people realize
that by putting it in the Chatter feed the most current one will always be at the top. You
dont have to go searching through your email to go find what the broadcast was about.
Subsequently if they made a mistake they dont have to go in and take that mistake out or
recall that message. Its become much more approachable to send out these broadcast
messages through Chatter.

I dont know if this is because were on Chatter, but were actually moving as well. We have
a group created for the move and lots of little groups that are set up throughout the
organization. Weve also invited some of our outside partners into those groups. Were not
just collaborating inside the company. Were collaborating with the architects, with the
builders, with other people so the most current sets of data are all in one place. This
morning people had comments about the size of certain offices in the new building. There
was a nice little discussion about that that threaded off from that group. A lot of that type
of communication certainly wouldnt have happened in the past, and not even allowed it to
happen. The net outcome is were going to have a better solution in the end because of that.

Now day-to-day emails going back and forth, theres still a trust issue with the security of
Chatter. Not that its not secure, but the perception is that if its not in my email box, and I
cant hit delete in my email box, theres some legacy somewhere in salesforce thats keeping
it. So I think thats whats really holding down the peer-to-peer communication in our
environment. Just because we have [inaudible] issues, we have lots of regulatory
requirements, where people are just nervous about whether this is really the trusted
platform [inaudible], but we see that growing.

I think the question thats going to be on everyones mind right now is obviously youre
seeing real business value out of it. Weve had a tough time determining how well

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August 1 0, 2012

salesforce.com is monetizing it, or I guess how directly theyre monetizing it. From your
perspective, how you look at it, are you paying salesforce.com money to use Chatter or is
there may be some kind of hidden effect where it made you sign an ELA or its driving you
to use the force.com platform, or something else?

Benjamin Doyle (Enterasys Networks): We are using a paid version of Chatter. I think from
a functionality standpoint I dont believe theres any difference between the paid version
and the free version. Everyone in our company is now licensed for salesforce. Im not sure if
that was the case when we spoke two years ago. It has certainly made salesforce stickier. I
think that it is definitely a competitive differentiator for salesforce. I cant speak to how
salesforce is monetizing it.

One really interesting thing, and I should have mentioned this earlier, we at Enterasys have
integrated our networking products with Chatter. This is kind of a really innovative thing,
a network admin or a helpdesk operator, someone can actually have bidirectional
communication through Chatter with a wireless access point or a switch on the network.
You can issue commands, receive data, reboot devices. Because its in salesforce its secure,
enterprise grade. We have about 10 different customers right now across all different
verticals communicating with their network through Chatter and getting updates through
Chatter. Its a really interesting thing. In that use case it definitely does drive a little more
revenue for salesforce because for a customer of ours to take advantage of that they have to
have a paid salesforce license. As Jonathan said we also have groups that include customers
and partners, so Chatter has moved beyond our four walls. Over time Im sure that it will
drive additional revenue for salesforce.

Jonathan, how would you answer that question?

Jonathan Green (DenMat): The monetization of Chatter at our company initially when we
rolled it out we did the free version. As we looked at trying to get away from having
multiple silos of information and communication in the company we dont want to have
Office Communicator, we dont want to have Outlook, we dont want to have an intranet,
we dont want to have a document management system. We really want to consolidate that
into a single view. We did also license the whole company for Chatter, plus docs, so we
could have a migration task from our intranet and SharePoint environments into the
salesforce world where you have a single source of content where we could start
maintaining it and using it more as a holistic approach to the company for our
communication and document storage needs. We did certainly go down that route and we
are actively pursuing what I like to say, as you mentioned stickiness, we want to make more
of our investment with salesforce. We know we like the platform. We like what were doing
on the platform. We need to get more value out of the platform. What else can we do on it
that will allow us to reduce cost throughout the organization? Thats where we see us
taking money from other initiatives and pushing them in this direction because we need to
get more bang for the buck.

Just to clarify, Jonathan, say you license Chatter plus docs, is that what you called it?

Jonathan Green (DenMat): Yes. Its called Chatter plus license and includes the ability to
work on documents for additional objects.

That means youre explicitly paying money for Chatter, correct?

Jonathan Green (DenMat): Correct.

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April 2014
August 1 0, 2012

Thats enough on Chatter. Lets step back and think more broadly about the evolution of
your salesforce footprint within the organization. Could you tell us what other products are
you using and what else you might be looking at?

Benjamin Doyle (Enterasys Networks): We use Sales and Service Cloud extensively. We do
quite a bit of Force.com development and we have started to do some exploration of
Heroku as well. Weve had multiple demos of Radian6 and I think we will certainly head in
that direction. Overall were very excited about some of the acquisitions salesforce has
made and some of the new capability that they seem to be driving. I think the footprint is
definitely growing. Similar to what Jonathan said. Salesforce is our single most strategic
vendor now. They have ousted Microsoft and SAP and now other vendors as being our key
vendors and salesforce is the single largest line item in our budget right now. So theyre
consuming more line share inside of IT.

Fantastic. And Jonathan from your perspective?

Jonathan Green (DenMat): So we started with the Service cloud. We quickly jumped to
the Sales Cloud. We then jumped to Force.com and then we again tried to find value on the
platform. We explored the use of Herokuand if youre on the fence about Radian6, Ben,
just jump right in. Thats really a game changing platform. Especially because in our
environment, were selling direct to consumers for a period of time to allow us to get
insight, and action that insight into what the consumers were saying, thinking about our
product. We took a $2M dollar product and took it to $12M in 12 months. So it really did
help us to get a feel for what was out there and what we needed to work on, make that
product launch as successful as it was. Were looking forward to doing that again.
Heroku, we see the benefit of the platform. Were just looking for the right business
condition for us to take advantage of it. Were happy since weve been working on it. And
were looking at changing up a bit of how we interact with our customers to the new
medical devices type scenario, getting our customers to work with us and providing
additional channels to communicate with us. On the force.com side weve actually gone
ahead and using FinancialForce for the accounting side of the force platform, as well as
building out our own internal applications including our own websiteand a full
eCommerce development internally as well and we continue to develop on this platform.

Benjamin Doyle (Enterasys): This is Ben. If I can add just one other thing. Weve also done
other projects that are part of the salesforce ecosystem. Weve deployed Marketo for
marketing automation and really a lot of our IT decisions are integrated with salesforce as
one of their App Exchange partners. So their ecosystem goes beyond just the functionality
that they provide and is becoming increasingly important to our business.

Jonathan Green (DenMat): Its a great point. I cant tell you how many different apps we
download from the App Exchange and we use throughout the infrastructure.

So that leads me into the really big question - as you extend that trend forward, do you
think its very safe to say that salesforce will your spend on salesforce grow faster than
your aggregate IT spendor vice- versa, and maybe if salesforce wins or loses then whos
on the other end of that? If youre adding salesforce products, which other vendors do you
think are losing out?

Benjamin Doyle (Enterasys): Yes, our spend with salesforce will grow. Theres so many
things we want to do. Radian6 is on the top of our list. Theyve made a number of
interesting acquisitions so were definitely waiting to see what happens with some of those
other acquisitions like Rypple. Right now, most of our growth on the salesforce side is at
the expense of Microsoft. I may have mentioned a few years ago that we still are a

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August 1 0, 2012

Microsoft SharePoint shop, but our SharePoint footprint is probably half or less than half
the size it was 2 years ago. And SharePoint is what is getting hurt most directly by our
further adoption of salesforce. In general, weve also adopted a cloud-first IT strategy, and
I attribute that to the success that weve had with salesforce, thats driven a lot of
opportunity for other cloud vendors in our IT environment. Most of that is at the expense
of Microsoft.

Jonathan, how about from your perspective?

Jonathan Green (DenMat): The spend for salesforce is sort of plateauing for us for a bit as
weve seen a lot of the efficiencies in the company. So, we are able to buy more things or get
more things from salesforce but keep our costs relatively flat because were eliminating
other systems that were behind the scenes. As a whole the salesforce spend is getting a
bigger percentage. And while Microsoft is head to head in a lot of areas, were also seeing a
lot of hardware vendors get hit. As we dont need as much storage, we dont need as much
infrastructure to support it. So Im seeing quite a pull away from vendors like HP and
EMC.

Would you assume, in terms of the hardware and storage, you dont think thats being
made up for on the other end in salesforce.coms datacenter because presumably theyre a
lot more efficient?

Jonathan Green (DenMat): I couldnt say for sure. Thats not my problem, thats their
problem.

Ben, Your comment about salesforce wins, Microsoft SharePoint loses. Do you think thats
something you would imagine thats unique to your situation at Enterasys, or as you
network around with other IT executives, is this something you think is pretty common
place?

Benjamin Doyle (Enterasys): Ive heard from a lot of other folks, and I think its no secret
that, SharePoint is complex and resource intensive. SharePoint is a very good tool, but I
think what we found with salesforce is that its so much easier, the time to value is so much
faster. So I think that because salesforces functionality, like chatter, is much easier to
administer and easier to develop new functionality and the work flow engine is very easy to
use. If youre a salesforce customer and you have SharePoint, I think SharePoint is almost
the natural loser in that scenario. I think that Microsofts acquisition of Yammer was a very
smart strategic move for Microsoft. Competitively they had no choice because, I think,
salesforce was really ahead of everyone else when they deployed Chatter.

That makes sense. Gentlemen, thank you very much. I want to transition over to Blake and
get the perspective of an important platinum partner. So, Blake, you have, I believe, 2,600
customers that youre working with and quite a number of very large ones, at a high level,
as you interact with them, how well do you think CRM is positioned in the current
technology landscape versus some of the other vendors that are out there?

Blake Wolff (Astadia): Mark, its good question. And when you look at CRM or SFA and
you narrow it down to each product line, I think the answer may change on each one. I
think everyone on the phone would agree theyre incredibly well positioned on the SFA
side. On the Service Cloud or the call center side, they worked really hard, tirelessly, over
the last 3 years to build that product out to a standard thats acceptable to the call center
managers. And you can see that in their latest Gartner reports. Im sure everyone has a copy
of that now. Theyre on the top of the quadrant so its positioned technically as well as it
could be and the Service Cloud has grown rapidly. I went back and looked and at our

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numbers 2011 over 2010 and our service cloud business grew 8x year over year. And its a
new implementation. Its upwards to 30-50% of new implementations, new seats, that
were deploying or selling on a monthly basis. Its a much more rapidly adopted cloud than
everyone thought it would be. It is amazing. But its not to say, Mark, that SFA has slowed
down, I think thats a misconception. We hear a lot as though SFA must be slowing down.
We dont necessarily see that. We continue to see folks that have technologies whether its
Siebel or SAP CRM or, they dont have anything which is hard to believe. They continue to
buy and implement salesforce. I think that has a long runway. So, from the big two -
Service Cloud and Sales Cloud, they obviously own SFA but in the service cloud space
theyve moved up top. We lose very, very few deals to SAP CRM or Microsoft CRM,
Siebel. If theres a loss its usually because one of the vendors came in and basically gave
them the keys. I dont want to lose you as a customer, Ill give it to you for free, or nearly
for free. Free is hard to compete against, but its very few times we lose in a head to head
contest.

So, Blake, how would you explain the perception that we occasionally do come across this
viewpoint that the core sales market is saturated? And thats been a painful decision for the
people who have thought that way for a number of years because its continued to grow at
a solid rate. So, what inning is the sales cloud in and Im also interested in, at this point, is
every sales deal a Siebel replacement or is there still some greenfield going on in terms of
Sales Cloud implementations?

Blake Wolff (Astadia): I love your question about what inning it is, and I think we forget
that salesforce from a sheer number doesnt have that many customers today. Really its
still over 100,000 but its not in the millions. I think its easy to forget that theres so many
companies globally and theyre still only selling into 7 or 8 core countries. Theres a lot of
room left. So in the US, you might have a different inning per se that youre in, maybe
youre in your 6th or 7th, but in western Europe youre certainly still in very early, 4
th
or 5
th

inning, everywhere else in the globe were in the beginning of the game still. So, lot of
runway left. Of course, most of the assets are in 7 or 8 countries, but were still very early.

The other thing we see is the folks that have it, and have had it a while, just like the folks on
this phone call, theyre finding new business processes that they want to implement that are
around salesforce automation or around customer touch, customer interaction, so the use
of force.com and now the use of Heroku is allowing them to do that so they kinda got
through the SFA push. Everybodys doing opportunity management. And now whats
happening is theyre expanding or improving other business processes besides just core
selling. Well theres a lot of other effort that goes around core selling that needs business
processes around. That lead-to-cash cycle can be very complex for our customers. So
theres still a lot of room there. I think those numbers, which are reported tend to be non-
SFA numbers but still drives an enormous amount of SFA sales for them. And as more
people in a company jump onto a business process that theyve enabled. So, its not just
over for a customer that buys it. I think youve heard earlier that the business processes
that theyre looking at expand and it expands their licenses. And we see that a lot.

Whos losing? Its the core 3. Its Microsoft CRM, its traditional Siebel. SAP, if they
already own SAP and they have licenses that are literally lying around. I was visiting a client
earlier, and hes got several thousand of SAP CRM licenses and he doesnt want to use
them. He knows if he uses them the cost will be off the charts and the flexibility wont be
there and its just around his neck like a bad noose. So, those are the ones who continue to
lose. Shockingly we still see folks who have nothing or spreadsheets or Microsoft Excel
its still out there, theyre still doing it.

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To be clear, youre seeing people with SAP SFA licenses, who have paid for them and own
them but dont want to deploy them?

Blake Wolff (Astadia): Absolutely.

OK. Fascinating. Now I wanted to step back and ask you a bigger picture question.
salesforce has been moving pretty fast in terms of product development and some
acquisitions that theyve been making how well understood do you think salesforces
messaging is in terms of direction with customers and how thats leading into the whole
social enterprise vision ?

Blake Wolff (Astadia): Good question that I get a lot. When you look at the social
enterprise messaging, its resonating with innovators and change agents in a company.
Sometimes thats the CEO thats the head change agent, sometimes its not. That tends to
define that role. Generally, its aimed at the CEO and thats who theyre having that
conversation with. The messaging around Heroku and Force.com, which sometimes can be
a little confusing, is completely aimed at the CIO. Obviously salesforce wants to sell much,
much more to the IT department. Theyre the ones with the long term consistent budgets,
thats the budget that theyre targeting. Its yet to be seen with the marketing cloud and
their acquisition of Radian6 and Buddy Media. Are they gonna get their fair share of the
marketing budgets that are out there? And in some cases, and many, many cases,
marketing departments still have nothing or theyre using some very old, email only
technologies and youre talking about something way different. A lot of times those budgets
dont even exist. So that money has to come from somewhere, whether it is IT money or
marketing budget money. So we hear from the analysts that a marketing department could
be one of the biggest buyers of the cloud in a few years. We certainly see that, but were
very early. Were doing a lot of missionary work right now with customers trying to explain
what the message is and then you have to explain what the value is and they have to go sell
it. So I think theres a lot of missionary work left in marketing cloud. In general, there is
still lots of conversation to be had and why you would use it and the value and paint a
vision. So, each one of those clouds in my mind Mark are a little bit different, but if you
talk about the core Social Enterprise one, I think its being understood by the change agent
and the CEO. Its not a message that will last much longer. Well see what the message is
coming out of DreamForce. They always change the message around coming out of
DreamForce so will be interesting to see. The message into the CIO is not a Social
Enterprise message typically. The CIO is not falling for that, but they understand 100%
that they better figure it out. The message doesnt necessarily resonate with them, yea yea I
get it but I gotta solve these business problems So they get right to the business problem
much faster.

I want to go back to the comment that you made about Service Cloud. Salesforce
highlights it as the fastest growing piece of the business and it sounds like what you said
about the growth rate in 2011, Im wondering if youre seeing the growth in the service
cloud following through in 2012 and maybe in the long run did you have a personal sense of
how much potential could Service Cloud have relative to Sales Cloud? I thinks its
something that we are all trying to assess could it be as big, will it be half as big, could it
be twice as big etc.

Blake Wolff (Astadia): Well! Let me go up one step even further and say that I was a skeptic
around that. I came out of a call center outsourcing space. I ran a call center outsourcing
company for 5 years. And its not a space that has historically spent a lot of money over
the past 10 years. That was my, kind of, basis or paradigm when I looked at it a couple of
years ago. And as they started, it was a pretty immature product, lets call it what it was. It
was not a good solid product. And it hadnt, frankly, gotten updated in a long time. And

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the core things that are important to call centers and big service managers are the things
that you got to have you got to have knowledge, you got to have chat and you got to have
CTI and all these incredible work flow and business flow managers that just didnt exist 3
or 4 years ago.

So, it took a long time and a lot of effort to get that product to where it is today. And of
course the people that are buying it first are the ones that are already in on the SFA
sidethey want a 360 degree view of their client. Thats a relatively easy sellwhen they
say I want to use salesforces Service Cloud. Its the folks that have 5,000 seats and they
need to pick a new CRM thats not 15 years old in some cases. So, they are going back and
doing a search on what are the big, safe, easily configurable technologies that they want in
the Service Cloud. But when you get down to those little details - they cant be missing. And
I think thats part of the reason that they had so much success is that they have added in
features that are just check boxes. And if you dont have them, you are not included in the
conversations. I think thats whats helped them.

I am still surprised how well the overall market has done in just buying call center and
Service Cloud seats. Thats the first part I am surprised about. I am not surprised that
salesforce is leading the battle inside of it because its really a product that has very few
competitors when they got finished with it. You are talking about RightNow and Siebel.
So, there is not a slew of them, there is not 20 or 30. You are really down to very few and I
think people understand when they get to play with it. It is amazing for the business.
And the businesses in Service Cloud are very, very process intensive. And they go six
months waiting for a change to happen in their current technology just to change a simple
business process. And they are so fed up. So, when they see the simplicity of being able to
change workflow and business rules with salesforce, it makes a huge difference and they
naturally gravitate to it.

Ok Great. I am going to go ahead and ask may be one or two more questions for you Blake.
But I wanted to encourage the audience should you have any questions please go ahead and
join the Q&A queue by pressing *1 at this point.

So, Blake, let me continue with you. What can you tell us about force.com and Heroku, for
an audience here that is not extremely technical on all this stuff? Are you seeing the right
kind of momentum among your customers that you want to be seeing for those kinds of
product?

Blake Wolff (Astadia): On Force for years, we have seen current customers of salesforce
expand business processes on Force. I have gone to 3 or 4 CIO counsel meeting with 20
CIOs in the room that are using Force. Just the pure emotion that they have around it, their
love for it, is amazing to see. Because they have got 100/200 development projects that are
on backlog that normally just gets ignored and Force allows, obviously, these projects to
move forward. Their love for the product is amazing.

Heroku was a different acquisition. It was really early on conversation about being able to
put these two together and bring Heroku right into the stack and you can get right access to
it. All of that is taking longer and I think even if you physically visit the salesforce website
they are showing them as kind of different products Hey! Force does this great for the
enterpriseif you are using SFA today or Service Cloud, extend into Force. And then
Hey! Developers, ISVs come build on Heroku. Over the last six days Mark, I am talking
about a very short period of time, I am seeing more and more customers from the IT side
say you know what, Heroku is a really, really sleek platform and I would like to be using
Heroku. And its got some pretty sleek advantages.

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So, I think in general we are going to continue to see, at least for a year, people with
salesforce today are going to continue to go the Force path. Savvy customers, like the ones
we have on the phone today, they are going to look at Heroku right away and say yes!
This app dev stack over here is a better, more complex, thought-out through app dev stack
and its amazing. I have talked to a couple sales guys and RVPs that have said Yes! I am
including Heroku now in Enterprise License Agreements and we are getting more requests
to include it. I think Heroku, in general, is going to be, for a while, an unsung hero to their
success.

So, just to be clear, what you are seeing on Heroku, what mix of that is people that are
trying to build Facebook applications versus something else.

Blake Wolff (Astadia): I dont see those Facebook applications being built because of the
nature of the business we are in and the processes we focus on. But I would tell you, in
general, if you said is it more people who are going right to Heroku, buying it and are
developing on it, I still think there is more of thatmuch more of that than salesforce
customers that are extending into Heroku. They are still extending typically to Force.

Ok. Now Blake, I wanted to ask you something a little more tactical, in terms of what you
are seeing in the trenches. I think a lot of investors feel that salesforce did a reorg of their
sales teams that could have impacted Q1 and/or Q2 results. I think there is no clear
consensus on that. But I wanted to ask you about that and may be more importantly just
the deal pipeline. Do you have any personal guess based upon what your customers are
reflecting to you about their spending plans on salesforce.com products going forward?
How would you assess that?

Blake Wolff (Astadia): Well! I think 1) the sales reorg was real and it affected everybody.
Not only salesforce but it certainly affected all the partners in the space. I mean I think it
was a very difficult time. Was it something that they had to go through? Yes. Could they
have done it better? Probably. They needed to move up that stack and really focus on
these very large enterprise organizations, and you dont do that with a model they had.
They had to move their model of named accounts, where you own 1 or 2 accounts if you
are at the top of that trianglethey had to move to that.

We all survived it and it appears that its working. Generally speaking, their quotas are
back loaded the sales guys at salesforce. So, your Q3 and Q4 represent +60% of their
quota. Generally speaking, those guys at the top of the triangle focusing on those large
customers, have a back ended quota.

I think its working. What we see is that folks that they have hired and they are still trying
to hire more. Their hiring binge is not over by a long shot. And they are trying to find the
people that are selling into the large company they were at IBM, and they were selling
into this company for eight years thats the person they want. Thats a very specific thing
but thats how you win on relationships in these big companies, they know who all these
people are. Thats what they are doing on the top part.

We are seeing an amazing turnaround in deal flow. This is a number that I looked up just a
week ago our Q2 quarter over quarter increase in opportunities, meaning number of
opportunities that came to us from the channel increased 11% quarter over quarter. Thats
a pretty big number. Normally we would see it would be kind of a steady risethat was
a heck of a jump quarter over quarter, not year over yearand [these are] Q2 deals, of
course our Q2 is calendar. We know that will affect salesforce's Q3. And on the very large
enterprise deals, which takes typically a six months sell or longer, those will affect Q4. So,

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my personal opinion I think Q3 will be stronger than their Q2 and I think Q4 could be
off-the-charts.absolutely off-the-charts.

You think Q4 could be off-the-charts compared to the Q4 that we came through about 7 or
8 months ago. That was the most off-the-charts quarter we have ever seen.

Blake Wolff (Astadia): I absolutely believe it could be much bigger than that.

Wow. Ok.

Blake Wolff (Astadia): And you got to give these guys credit. I mean, you are talking about
hundreds and hundreds and hundreds of really high end sales guys they went out and hired
and said do you know this company, lets get you in the door here and here is your bag of
tricks- thats been wildly successful for them. And you guys see the percentage of a sales
and marketing cost as a percentage of their whole. They are betting big on it but they are
doing it the right way. They have got really wonderful sales vice presidents and are hiring
very smartly. Generally speaking, all the people I see they are hiring today are really sharp
folks. Given they are enterprise sell, you got to find the sale, create the need and then sales
cycle going which could take six months. They could have some amazing time periods.

Ok. Fantastic Blake. Really appreciate that feedback. We are coming up on the time, so
want to ask the operator we may have time for one or two questions or any out there.

Investor #1/Q1: Appreciate you offering your time. I have a question about your thoughts
on new implementations and what you think of salesforces Q2. How has that been
trending versus Q1 and has there been any big movements?

Blake Wolff (Astadia): So, this is Blake. So, Q2 over Q1 was up, and ours is a calendar
quarter. Q2 was up slightly over Q1 and we expect Q3 to be up significantly over Q2. So,
10-20% quarter over quarter growth.

Investor #1/Q1: Wow, great, thank you.

Let me go back to you Blake. I wanted to ask you one other question in terms of the Social
Enterprise License Agreements. Is it something that you see any adoption of within the
customer base?

Blake Wolff (Astadia): You know, its hit or miss. And I think depending on the sales
person you are talking to that use the word ELA and SELA interchangeably because its
kind of the same agreement. If you buy different things, different products, more Radian6
and data.com type products, they start calling it [the agreement] SELA. But we are seeing
more and more customers buy large ELAs and SELAs. And I get a lot of calls from my
clients that are contemplating really big moves. You know, moving the entire company
around how do I work with salesforce and come to an agreement that makes sense. And,
so there is more pent up demand and I think there is still a lot of confusion in the space and
may be a little bit inside of salesforce around how to sell an ELA and how to sell a SELA.
But there is an enormous amount of pressure inside of salesforce to get out there and sell
wall-to-wall for a full blown client even if its steps, even if its got growth quarter over
quarter in terms of seats for that client. They are trying to be as flexible as they can to the
clients. I have never seen them not be able to figure out a way to make it work for a client.

Impressive. Ok. Jonathan, I think we have got a couple more minutes. Jonathan, I wanted
to go back to you. You mentioned the usage of Radian6. I guess again for a non-technical
audience that we have here, most of whom have never seen a screen shot of radian6, could

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you may be give us a little over view from an laymans perspective of what that looks like,
may be what exactly you are doing with it?

Jonathan Green (DenMat): Sure. So Radian6 is a I think they tried to coin the phrase a
listening station, if you will. So, out in the Internet there are lot of conversations that are
occurring in the different social networking, like Twitter and Facebook etc. and probably
nobody in your company is set up to be friends with everybody whos talking about you or
following everybody whos talking about you, just simply because thats just not possible.
What Radian6 allows you to do is to aggregate all the comments about words or phrases
that might relate to your company or business. So for us, its typically our brand name or
industry segment. People talking about dentistry or maybe even our competitors. And then
very quickly with their tools, you can narrow down to what are the important
conversations or topics that are trending out there, so that we can do something about
them. So, on our case, product like Snap-On Smile which was new to the world, people had
never talked about it before and people thought it was a joke, they thought it was silly, they
thought it was toy. And we very quickly were able to get our message out there that it
wasnt a toy with the various cosmetic devices and had medical purposes as well and can be
used to change peoples lives. We delivered our message through that and we were able to
record how that got received and what people started thinking about it and how we
changed trending topics in our favor. Its something you can do in real time and no other
solution I am aware of gives you the breadth of information and the ability to action that
information to drive results.

Have you had a chance to look at how Buddy Media could fit in or whether it could be a fit
for you?

Jonathan Green (DenMat): Those productsits so easy when you use the Salesforce
integrated products in order to get them to create activities of people already used to being
on those tools, to make things happen. I try not to take people out of the tool they are used
to working in. And adding additional products usually have some nuances. This really just
hit our sweet spot.

Terrific. Thank you very much Gentlemen. We really appreciate you taking the time here to
join us for close to an hour and we are going to conclude the call there.

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May 17, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Overweight
Price Tgt -- $206.00
FY13E Rev (mil) -- $2,928.7
FY14E Rev (mil) -- $3,512.0
FY13E EPS -- $1.58
FY14E EPS -- $1.88
Price $136.58
52 Week High $164.75
52 Week Low $94.09
cash/sh.
Yield: 0.00%
Fiscal Year End: Jan
Rev (mil) 2012A 2013E 2014E
Apr $504.4A $676.3E $819.0E
Jul $546.0A $702.9E $844.5E
Oct $584.3A $748.6E $892.8E
Jan $631.9A $801.0E $955.7E
FY $2,266.5A $2,928.7E $3,512.0E
CY $2,928.7E $3,512.0E --
FY RM 8.5x 6.6x 5.5x
CY RM 6.6x 5.5x --
EPS 2012A 2013E 2014E
Apr $0.28A $0.34E $0.41E
Jul $0.30A $0.34E $0.37E
Oct $0.34A $0.40E $0.48E
Jan $0.43A $0.50E $0.62E
FY $1.36A $1.58E $1.88E
CY $1.58E $1.88E --
FY P/E 86.4x 72.6x --
CY P/E 86.4x 72.6x --
salesforce.com (CRM $136.58)
Overweight
Detailed Checks with 12 CRM Partners Paint a
Robust Long-Term Picture
CONCLUSION:
We conducted deep-dive interviews with a dozen key contacts in the salesforce.com
ecosystem, and provide 7 pages of detailed feedback for investors who are interested
in gaining a deeper understanding of what makes the CRM ecosystem tick. Key
Trends: 1) contacts observe more and more "platform-centric dialogue" as customers
are porting more systems over to the Force.com platform; 2) that said, salesforce is
maintaining a strong vision with its applications, and strong momentum in Service
Cloud was highlighted several times, as partners think Service Cloud is "under-
appreciated" by investors; 3) partners believe they are "in for a long ride" with
salesforce.com, and they observe major SIs "aggressively entering the salesforce.com
practice" as a result; and 4) partners are not overly concerned with the sales re-org
because they sense some very large deals being lined up for the second half of the
year. Overweight, $206 target.
Detailed Industry Checks (positive)
Industry Contact 1
Thinks that in terms of short term opportunity the momentum is definitely

building up. He is responding to more RFPs and expanding his Salesforce practice.
Commenting on his own business - We are actually growing very well. The RFPs,
the opportunities, everything is getting better and bigger. Perpetually we are
running behind in terms of ability to cater to needs. Thinks that his Salesforce
practice will have grown 200-250% by June 2012 and he is aiming for 60-70% in
the next twelve months.
Thinks there is a huge shortage of Salesforce consultants. Mentions that

Salesforce themselves estimate that there is a shortage of 20,000 consultants in
America and globally he estimates the shortage to be double that size.
Mentions that Salesforce is making massive investments on the sales side.
Mentions that he has observed a new aggression in the sales organization. Earlier
there used to be a smoothness with which they used to operate. Thinks that sales
guys are now beginning to work harder to win deals. Has seen Salesforce.com
Account Manager/Vice President reaching out to partners to see how partners could
help expedite the sale. Mentions that earlier the VP level people, who are the
managers of the account executives, never used to get this aggressive on deals
which I now see happening.
***CHECKS CONTINUE ON PAGES 2 THROUGH 7***
Overweight, PT of $206 = 36x our CY13E OCF of $5.53/sh + $6.71 net cash/sh.

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April 2014
May 17, 2012
Industry Contact 1, Cont'd.
Has observed sales execs trying to reopen deals that were lost in the past. Compares that to the Salesforce days when if they lost a
deal they would move on to the next one.
Mentions that Salesforce fired the entire India management team recently because sales was not cranking in that region.
Net/net he sees an aggression in the field but wont categorize it as desperation. Somewhere somebody in Salesforce is recognizing
that they need to act very differently now. Thinks that the aggression in selling is not something he had seen in Salesforce in the last
7-8 years. In general, they are making a lot more effort to make sales happen, that much I can confirm.
Mentions that there can be two reasons behind such a sales aggressiveness either they have drained their pipeline and are desperate
for deals, which he suspects is not the case, or they are preparing for an explosion in sales going forward.
Thinks that the [contacts in the Salesforce ecosystem] are reasonably happy about Q1.
Products
Mentions that Undisputedly Service Cloud is the number one choice, especially among his large enterprise clients.
Also, there is a lot of chatter about Chatter. Adds that he hasnt seen much Chatter adoption among the large enterprises but there
is a high level of awareness about Chatter. Thinks that these two are definitely two growth engines for Salesforce.
Thinks Force.com is like a slow moving animal. It has its own velocity in terms of adoption. If you are a Salesforce customer
you dont want to say no to Force.com but at the same time he doesnt think it's becoming the major development platform within
enterprises. Thinks that it will take some time before the platform becomes pervasive.
I am personally excited about Heroku. Thinks that it will become a good strategy for Salesforce in bringing small customers the
real large and 'enterprisey' class of applications that Salesforce currently has in its ecosystem. Thinks the current adoption is a little
slow but believes that its a growth engine and has yet to fire.
Thinks that Rypple is next years story for Salesforce. Thinks the acquisition is absolutely, absolutely low key and doesnt think
Salesforce is ready to go against the likes of Workday. Mentions that one of the things that Salesforce is talking about is What if
we integrate Chatter and HR? What if we integrate a feedback system on the fly? Expects some announcements around Rypple in
the second half of this year.
Industry Contact 2
Thinks that the CRM side of the business is maturing pretty quickly. Thinks that there is growing competition in the space as well,
especially in the low end. Mentions that there are a lot of purpose built CRM systems which are much cheaper than Salesforces offering.
Mentions that he is seeing a solid shift towards platform sales. Thinks that the platform is a market for them thats going to grow
very quickly. Seeing a lot of interest in that area.
Looks at Heroku as more of a me too thing to pull in and accommodate Java and Ruby developers.
We are starting to see Salesforce arrive at the enterprise at this point and believes that the opportunity for Salesforce is much bigger
when it enters the enterprise with the platform piece. Also, thinks that as the bigger SIs get involved with the Force.com platform,
as it is happening now, there will be a strong proliferation of custom applications developed on Force.com, which may or may not
have anything to do with CRM. Speaking to some of the managers in the field, they see a big opportunity in the platform space going
forward. He qualifies the Salesforce.com development platform as a cloud operating system. He hopes more and more SIs and ISVs
will step up into the space as they see more opportunity in the platform.
Mentions that Force.com has Apex and VisualForce as the two native languages along with the object model, the business process
automation, the analytics engine and all of the other core platform services. So when you start to combine that you can do anything
from mortgage application processing to something like an ERP or Supply Chain Management application, like what Kenandy is doing.
Mentions that there are clients who are coming to him with very unique application development requests that have nothing to do
with CRM. As an example, he mentions that he recently built a research portal for a tier-one bank. Mentions that these non-traditional
applications built on Force.com help CRM get into parts of the organization which would probably never use CRM otherwise.
Salesforce is doing a lot of work in educating their field team on platform and AppExchange and third Party apps etc. Thinks that
their comp structure has also changed a little bit to align to platform sales.
Grew bookings 100% in Q1 y/y and expects to grow 70-80% in 2012. Grew 80% in 2011. These growth numbers include the license
component of the vendor's custom application built on Force.com (which will drive Force.com and portal license) along with the
professional services component of the vendor's business. Professional services was above plan in Q1 by about 20%. Had a reasonably
conservative Q1 forecast. Saw acceleration in February.
Economy - Mentions that he feels like the US market is coming back, from around February. Its not roaring back but just judging from
the level of interest we see in US. Europe It really does feel like a tale of two ropes going on no matter where you are. There are
companies that are really moving at speed regardless of their sector and then there is everybody you read about. Thinks that APAC/
Australia region is doing really well. Thinks that healthcare is doing great globally.

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Sales Contacts in the Ecosystem
They are busy. They seem to be in a good mood and I dont see any of them sitting around with a great deal of time to spare. Not
sure if thats because they are really busy with business or they are being pushed from behind really hard.
I havent seen anybody upset or think that they are going to miss their number. Thinks that contacts are very focused on the
opportunity in front of them.
Thinks that some of the guys in APAC were having difficulty hitting their numbers last year, but their numbers are going up 130%
a year.
Thinks that contacts are very active and mentions that there are a lot of referrals coming to us on a weekly basis from sort of all
over the world, quite uniformly.
He is seeing some aggressiveness. Thinks that Salesforce has put some Oracle folks at the top of the sales organization. Thinks that
the aggressiveness that you would expect of them is starting to permeate into Salesforce.
He is also seeing a bigger picture view among reps. Thinks that guys in the field have a broader perspective now and are concerned
about selling a broad solution as compared to just selling a point application.
Thinks that Salesforce initially got into a lot of organizations without really talking to IT. Now, Salesforce has realized the fact that
they cannot have a giant deployment without the CIO signing off. ISV developments built on Force.com increase the credibility of the
platform in the eyes of a CIO. In short, he thinks that the platform is the key to the giant deployments Salesforce is aiming at, to reach
a $5B revenue goal. Adds that it also depends on the ecosystem to really dial it up for the strategy to work.
In regards to deals in Q1, hes heard a lot of "rumblings around financial services. Thinks that they have won a large platform only
deal worth many millions of dollars.
Industry Contact 3
Thinks that the sales reorganization affected their underlying success in Q4. If it wasnt for [large insurance company deal] and a
couple of other really big deals they would have been in a bit of trouble. Thinks that the reorg lasted three to four months starting in
November of 2011. They have reorganized, they have put the right executives in charge of each piece of the business and Marc has
personally taken a strangle hold on the sale piece that rejuvenated a little bit. I think we are kind of out of the woods on that.
The number of referrals he is getting from Salesforce is up month over month [for the last several months]. Based on his perspective,
he thinks [Salesforce] is generally out of [the effects of reorg]. Mentioned that he hasnt seen a lot of deal slippage recently
compared to what he saw during late last year.
I am pretty sure they made their numbers in Q1 everybody I spoke to within the [sales contacts in the SaaS CRM ecosystem] is
feeling more comfortable with their roadmap. Thinks that contact are stressed after the reorg since many of the strategic accounts just
have a couple of accounts to pull in business from. But he adds that such stress is good in a sales environment and they are working
really hard. Thinks that Q1 was a back-end loaded quarter.
He doesnt think that Q2 is going to be an outstanding off the charts quarter. He suspects that Q2 will be back end loaded as well,
but may be better than Q1. Thinks that it will take at least one more quarter and maybe two for sales guys to be ramped in the new
positions and be able to smooth sail. I do think that Q3 and Q4 are going to be larger than I think most people are planning for.
I have heard of some nicely-sized deals of [2,000-10,000 seats] but havent heard of anything comparable to the [large insurance] deal.
In his business, January and February were soft because of slippage but as expected [Salesforce] pulled enough in March and April
to make our quarter. Mentions that it was very back-end loaded.
Products
Service Cloud continues to be an amazing success story for them. Thinks that the numbers that can be generated by deals with the
Service Cloud can be incredible. Thinks that the bigger deals bring complexity and might slow them down a bit. I am seeing lots
and lots and lots of 300 to 1000 seats sized deals. Thinks that Service Cloud is generally underrated by the financial community.
Sales Cloud In his opinion SFA has slowed down. Thinks that the combined revenue between [Sales and Service Cloud] is holding
the average together.
Thinks that the two product lines that people greatly underestimate are Radian6 & Heroku. Demand for Radian6 is off the charts.
Thinks that Salesforce took a lot of their top sales people and have moved them into Radian6 to ensure success -and its working.
Thinks that every app that is built on Heroku typically stays for a long time. I think those two product lines are going to fuel some
amazing success this year.
HR Cloud I think it will be a while before they build trust in the HR cloud. They have a long way to go at least a year.
Industry Contact 4
Demand is still very good.
As an implementation partner/SI, we had an outstanding first quarter.

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Some of the folks in our space had equally optimistic results in the first quarter.
Salesforce went through an end of year territory change like they do every year.
This largely occurred through February and March.
Saw mild customer delays in decision making in March, but this rebounded greatly in April and didnt cause any disruption to the
quarter.
Once a sales rep gets a new assignment, he has 60 days to close business from his prior territory, then it goes to the new person.
This method of reassigning territories normally works well for Salesforce, and he thinks it worked well for them again this year.
Service Cloud
Service Cloud is beginning to take off more dramatically both in the Enterprise and in the second-tier accounts, or the non-F500,
where the demand is still good.
The Service Cloud aspect of the application is growing very well.
Salesforce heavily markets the social enterprise dimension. Many customers were skeptical several months ago about the social
enterprise, but now theyre getting a lot of senior-level attention. The C-level decision makers are getting involved. What this does
is drag additional [Salesforce] business with it.
Our business is strong, and partners that were close with across the country have generally the same story.
Outlook
Salesforce has a good vision of what theyre trying to do with the application.
The quality and reliability of the product adds significantly to their growth profile.
He believes hes still in for a pretty long ride with Salesforce.
Doesnt see anyone catching them in the short run.
Salesforce has maintained a lead that will be hard to break.
I would expect their first quarter to be a good one.
They reach out and add platform elements that make sense.
Theyll reach out and buy a piece, such as Data.com, that shores up the functionality.
Salesforce has a much better capacity for developing the talent they hire.
They have a very vigorous on-boarding program not only for employees of Salesforce, but for partners like us.
They have a much better support mechanism for partners. Theyre much more upfront on the tactical nature of things theyre doing,
as opposed to many years ago, where a partner had to scramble to catch the train, if you will. Now they have the infrastructure in
place to make the partner experience a much better one.
Growth
Q1 growth rate was about 55%, exceeded plan for Q1.
2012 plan is about that for the year.
Seeing growth both in the customer base and with the expansion of the application, or what its being used for. This of course drags
seats with it.
Industry Contact 5
General trends
Weve been very busy. Weve added some people. We have a lot more activity.
Theres a lot more competition, but theres still a lot of opportunity.
Focuses on the small and mid-market, but deals are getting bigger.
Getting into upper mid-market, just seeing larger opportunities.

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Existing customers are buying more.

Re-deployments
Has been doing a lot of re-deployments. Some people who have Salesforce are under-utilizing it.
Its sort of like Microsoft Word. The people who use Word regularly might use 5% of its capabilities. Its a similar situation with
Salesforce. You have an initial implementation and users are only using it for forecasting and as a Rolodex, and maybe some activity
management. But its so much more powerful than that.
He gets in and shows management what they can really do with the system, which adds a lot of value for them, and is a good business
for him.
Force.com
Were starting to see more platform opportunities.
Were getting organizations who are using Salesforce or want to use Salesforce for sales and marketing and customer service. But
they also have another system that they want to port over. They want to replicate it and put it all under the same umbrella and use
the platform. Were getting more and more of that.
Hes currently in the midst of helping a customer who is using a very expensive and non-user friendly application to put it onto the
Force.com platform. They want to replicate this application using Apex and Visualforce.
Radian6
Just hired someone to work predominantly with Radian6.
Just starting to demo the product.
Hasnt sold Radian6 yet because Salesforce hasnt come out with a partner program for it.
Were getting very positive responses from our prospects.
The issue is that Salesforce hasnt put a lot of effort behind getting its channel to sell Radian6, and its taking longer than anyone
expected.
Growth
Probably grew mid-teens in Q1.
Will probably grow 15-20% for the year.
95% of revenue is consulting.
Salesforce has added a lot of new sales reps, and they shuffled around a lot more people than they had before.
Industry Contact 6
Salesforce is really catching on like wildfire even among the large enterprises. Many people are thinking about it very seriously.
Thinks that the demand has been across the board and mainly around Sales cloud, Service cloud and Radian6.
Salesforce practice did well and was probably a little over plan. Globally we have done pretty well! He is comfortable with
his numbers with respect to his plan. A couple of deals we have won and couple of deals have come in. Hasnt done any Social
Enterprise deals (like building a social command center, etc.) yet. We are talking to some people.
Chatter from sales contacts in the ecosystem they are going big. Thinks they are pushing Social enterprise in many places.
Salesforce is beating their numbers, no questions asked. Thinks that this is across the board, in both Enterprise as well as the SMB
side. "In every area I would say that they are beating their numbers. Thinks that they are closing a lot of deals and suspects that there
are talks going on about deals as big as the [large insurance] deal. Expects Salesforce to have a good quarter again.
He closed a couple of big NetSuite services deals to the tune of a million dollars in April. He is not so gung ho about the NetSuite
product personally.
Thinks Microsoft CRM is doing good as well, especially in the Banking, Financial Services and Healthcare sectors, mainly because
of continued security concerns in those sectors around the cloud model. He closed a very big services deal related to Microsoft CRM
in the UK.
Industry contact 7

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Demand
The biggest situation hes running into is lack of resources for some of the custom development on Force.com. Sometimes he has to
go offshore to meet that demand.
A lot of their customers need custom development, which goes beyond configuration.
Some people are looking for proposal generatorsvery common for companies manufacturing office equipment and HVAC systems.
Some of his customers are also looking for mobile app development.
Growth
Grew 60% in 2011 and expects to grow 100% in 2012.

Chatter
People are getting more engaged with Chatter, but not to the point where they are really embracing it, but they are really interested.
Many customers still dont know what the point of Chatter is. Some think its just an instant messaging tool.
Still a lot of learning to take place.

Database.com
Seeing more discussions around database.com.
Healthcare customers have a lot of information that needs to be stored.
Hes introducing Database.com to all his healthcare customers.
The core CRM application is more expensive for storing information than Database.com.
Database.com is great because theres a ton of companies with huge storage needs, and its inconceivable to keep all that data inside
the Salesforce.com application.
A Salesforce.com user can connect to Database.com to access all of their data.
Healthcare customers are very interested so far.

Industry Contact 8
We are just out of control, exploding. The demand continues to grow every day.
Set a goal to grow 40% in Q1, but ended up growing 45%.
Many of the deals are hybrid deals, meaning theyre either deeper into the Salesforce product offering, or are in combination with
AppExchange.
Seeing a big shift in larger SIs aggressively entering the Salesforce practice. Theyre actually acquiring a lot of the smaller and mid-
market Salesforce partners.
Predicting a void in the small to mid-market sector, it will lack resources for years.
Salesforce is going back to bigger accounts to look for business. Going back to Blizzard, because Activision will be using Salesforce.
Customer base is warming up to newer products. Radian6 is starting to seem more appealing, and so is Heroku.
Expects to win a manufacturing deal against SAP and Microsoft.
Does a lot of custom application work for clients.
Work on Force.com site is mostly custom work, and theyre usually writing new applications.
Industry Contact 9
Consulting side of the business continues to grow. Saw revenue growth of 60% y/y in 2011. 10-15% above plan in his Q1 (ending
February). Projecting about 30% for fiscal year 2012.
Seeing demand from more traditional, Sales and Service Cloud, tilted towards Sales Cloud. Mentions that last year probably only
25-30% of the clients were extensively involved in Service cloud.

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Thinks that the Social Enterprise is yet to be adopted in Canada. We are still lagging a little bit in this part of the world in terms
of adoption of the Social Enterprise messaging.
Didnt feel anything from the sales reorganization. The account representation didnt change, as far as we know.
Industry contact 10
Demand is very high.
Salesforce is doing very well in insurance and life sciences.
Life sciences is mostly using the platform and CRM.
Building own applications on the platforms, making pretty deep customization to replace existing legacy systems and functionality
and tie them into new applications.
We cant hire fast enough. Nobody can.
Could grow 50%, but the limiting factor to growth right now is being able to hire enough people.
Industry Contact 11
Demand has been solid over the past three months.
Its probably above what it was near the end of last year.
Estimates top-line growth for his firm was about 30% for Q1.
Primary driver of his growth is custom applications on Force.com.
Social Enterprise is certainly catching on.
The company is doing a good job of selling the Social Enterprise vision.
Neutral
Industry Contact 12
Was well below plan in Q1. It was a very rough quarter. Deals that he thought would be closing in the quarter got pushed out three
to six months for no apparent reason. Companies out there are just being cautious. Reasons customers gave strictly budgetary,
have realigned our priorities. It is not a Q1 priority now, it is a Q2/Q3 priority. Q1 was really brutal.
Q2 - looks great and our backlog is picking up dramatically. I dont know what happened in Q1. My outlook is still pretty bullish.
Long term becoming only more bullish on Salesforce.com. I think they are only becoming more entrenched in the enterprise
platform Certainly seeing more and more platform centric dialog versus app centric dialog Certainly what we are seeing is
extremely encouraging. Certainly a pick up from last year.
Investment Thesis
Salesforce.com is a leading provider of On-Demand applications and infrastructure. We believe the preferred model for enterprise
software will increasingly shift away from client-server architectures in favor of on-demand architectures as customers embrace the
cost savings, ease of use, and development efficiency of the newer model. We believe salesforce.com is best positioned to capitalize
on this growth trend because of its early-mover advantage, battle-tested data center technology, powerful global brand, large and
highly referenceable customer base, innovative corporate culture, and emerging platform ecosystem. Our due diligence sessions reveal
a uniquely high level of customer satisfaction and loyalty toward salesforce.com. While the size of the customer base at more than
3.0 million subscribers eclipses that of other on-demand CRM providers, we note that there are 6 million businesses and 116 million
employees in the US alone. We believe if salesforce.com continues to succeed in cultivating an ecosystem around its platform, then its
corporate momentum is more likely to persist because the ecosystem's efforts will further augment the breadth of offerings available to
customers.

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April 2014
May 16, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY13E Rev (mil) -- $2,928.7
FY14E Rev (mil) -- $3,512.0
FY13E EPS -- $1.58
FY14E EPS -- $1.88
Price $138.10
52 Week Low $94.09
cash/sh.
Yield: 0.00%
Rev (mil) 2012A 2013E 2014E
Apr $504.4A $676.3E $819.0E
Jul $546.0A $702.9E $844.5E
Oct $584.3A $748.6E $892.8E
Jan $631.9A $801.0E $955.7E
FY $2,266.5A $2,928.7E $3,512.0E
CY $2,928.7E $3,512.0E --
FY RM 8.6x 6.7x 5.6x
CY RM 6.7x 5.6x --
EPS 2012A 2013E 2014E
Apr $0.28A $0.34E $0.41E
Jul $0.30A $0.34E $0.37E
Oct $0.34A $0.40E $0.48E
Jan $0.43A $0.50E $0.62E
FY $1.36A $1.58E $1.88E
CY $1.58E $1.88E --
FY P/E 87.4x 73.5x --
CY P/E 87.4x 73.5x --
Overweight
CONCLUSION:
We surveyed 42 salesforce.com partners and found that they finished 3.3% above
plan, on average, for Q1 representing less-robust feedback than in Q4, but not
outside the range weve seen in the past two years. We are scale-in buyers of CRM as
we make the following key points: 1) widespread feedback suggests CRM will have a
great year, irrespective of Q1 results, based on a 2H deal pipeline that surpasses Street
expectations; 2) five key product engines should drive upside as the year progresses
(Sales Cloud, Service Cloud, Chatter, Force.com, and Radian6); 3) we think FY13
guidance will be at least reaffirmed exiting Q1; and 4) any adverse impact from the
Q1 sales re-org may have been anticipated/priced in, and will likely add uplift to the
remainder of the fiscal year. Overweight, $206 price target.
Partners Finished 3.3% Above Plan. Partners we spoke with were on average
3.3% ahead of plan, versus 6.1% ahead of plan in the prior quarter. The current
survey results reinforce our opinion that salesforce.com's partner ecosystem
probably saw slight softness in FQ1 due to the sales reorganization efforts, although
we didn't sense any panic and they still finished above plan, and we note that the
sales re-org may have been intelligently timed.
Observed Pace of Business Continues in Positive Territory, but Downticks

Versus Q4. 50% of the partners we surveyed indicated that the pace of business
was better in the past three months relative to the prior three months, while 12%
indicated a worse pace of business. This results in a "Net-Better" score of 38%,
versus 64% in the prior quarter.
Bookings Expectation: Net-Above 17% versus 30% the Prior Quarter. 31%
of surveyed partners foresee Q1 bookings above expectations, while 14% sense a
disappointment. This results in a Net-Above score of 17%, a deterioration versus
30% in the prior quarter but still in positive territory.
***Detailed Survey Data on Page 2***

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Exhibit 1: Detailed Survey Data
CRM: Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1% 3.3%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0% 50.0%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0% 38.1%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0% 11.9%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0% 38.1%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0% 31.0%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0% 54.7%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0% 14.3%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0% 16.7%
4.5%
4.2%
6.2%
1.7%
4.3%
5.4%
1.6%
3.3%
6.1%
3.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
54.9%
48.9%
54.0%
40.4%
57.7%
61.4%
40.0%
38.3%
64.0%
38.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
31.4%
17.8%
32.0%
19.3%
21.2%
40.9%
14.6%
19.2%
30.0%
16.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Above %
Investment Thesis
cost savings, ease of use, and development efficiency of the newer model. We believe salesforce.com is best positioned to capitalize on
this growth trend because of its early-mover advantage, battle-tested data center technology, powerful global brand, large and highly
reference-able customer base, innovative corporate culture, and emerging platform ecosystem. Our due diligence sessions reveal a
uniquely high level of customer satisfaction and loyalty toward salesforce.com. While the size of the customer base at more than 2.0
million subscribers eclipses that of other on-demand CRM providers, overall penetration is still low compared to the 4 million plus
licenses sold cumulatively by Siebel Systems with what we regard as a cumbersome product. If salesforce.com can also succeed in
cultivating an ecosystem around its platform, then its corporate momentum is more likely to persist because the ecosystem's efforts will
further augment the breadth of offerings available to customers.

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April 2014
May 4, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY13E Rev (mil) -- $2,928.7
FY14E Rev (mil) -- $3,512.0
FY13E EPS -- $1.58
FY14E EPS -- $1.88
Price $157.52
52 Week Low $94.09
cash/sh.
Yield: 0.00%
Rev (mil) 2012A 2013E 2014E
Apr $504.4A $676.3E $819.0E
Jul $546.0A $702.9E $844.5E
Oct $584.3A $748.6E $892.8E
Jan $631.9A $801.0E $955.7E
FY $2,266.5A $2,928.7E $3,512.0E
CY $2,928.7E $3,512.0E --
FY RM 9.9x 7.6x 6.4x
CY RM 7.6x 6.4x --
EPS 2012A 2013E 2014E
Apr $0.28A $0.34E $0.41E
Jul $0.30A $0.34E $0.37E
Oct $0.34A $0.40E $0.48E
Jan $0.43A $0.50E $0.62E
FY $1.36A $1.58E $1.88E
CY $1.58E $1.88E --
FY P/E 99.7x 83.8x --
CY P/E 99.7x 83.8x --
Overweight
Survey Says: 5 Product Engines Driving Growth
for salesforce.com
CONCLUSION:
Our survey of 50 key CRM partners provides conclusive evidence that 5 product
engines are driving the solid growth trajectory, flying in the face of the bear thesis,
which holds that salesforce.com is "only a Sales application." All 9 products we asked
about are viewed to carry positive momentum, but the data shows that 5 key growth
engines stand out: Sales Cloud, Chatter, Service Cloud, Radian6, and the Force.com
Platform. Remarkably, 2 of these 5 product lines, Chatter and Radian6, didn't exist in
CRM's portfolio 2 years ago. In our experience, very rarely can a company expand
beyond its core product with such a resounding success rate. The broadening product
adoption shows that CRM has earned the trust of its customers and its ecosystem, and
thus is likely to drive sustainability of growth beyond current investor expectations.
Overweight, $206 target.
Five Product Engines Driving Solid Growth Trajectory. On a scale of 1 to

5, CRM's partner ecosystem rates Sales Cloud at 3.78, Chatter at 3.71, Service
Cloud at 3.70, Radian6 at 3.53, and the Force.com Platform at 3.51, in terms of
their current momentum within the base of existing customers and future prospects.
Other products such as the Data Cloud, Heroku, Database.com, and Remedyforce
are trailing behind, but are still viewed to carry positive momentum.
Why These 5 Products in Particular? We believe the Sales Cloud, Chatter,

Service Cloud, Radian6 and Force.com Platform each address a pain point that
is common across a large majority of organizations. Additionally, they have each
captured the imagination of customers because salesforce.com has innovated ahead
of the curve. Finally, these products appear to be reaching a point in their adoption
curves where they are moving past the bleeding-edge innovators and into the early
adopters segment for more mainstream adoption which can resonate more broadly.
Sustainability of Growth Beyond Current Expectations. In a nutshell, the data

creates compelling evidence that salesforce.com is anything but a one-trick pony.
We reaffirm our differentiated viewpoint that salesforce.com is morphing beyond
"just Sales" to become a true platform and a strategic IT provider. In retrospect, the
recent closure of a $140M multi-year transaction - very rare in the software industry
- is another reflection of salesforce.com's strategic transformation. We believe the
strong and diversified product uptake across 5 key engines will drive sustainability
of growth beyond current investor expectations
*** Please See Chart on Page 2 **


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May 4, 2012
Exhibit 1: Momentum of Various Salesforce.com Products
3.78
3.71
3.70
3.53
3.51
3.33
3.25
3.18
3.04
2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9
Sales Cloud
Chatter
Service Cloud
Radian6 (Social Media
Force.com Platform
Data Cloud (Jigsaw)
Heroku
Database.com
Please rate the following salesforce.com products in terms of their
momentum within your base of customers and prospects (5 =
gaining significant momentum, 1 = losing significant momentum)
Investment Thesis
corporate momentum is more likely to persist because the ecosystem's efforts will further augment the breadth of offerings available to
customers.

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April 2014
April 25, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY13E Rev (mil) -- $2,928.7
FY14E Rev (mil) -- $3,512.0
FY13E EPS -- $1.58
FY14E EPS -- $1.88
Price $150.70
52 Week Low $94.09
cash/sh.
Yield: 0.00%
Rev (mil) 2012A 2013E 2014E
Apr $504.4A $676.3E $819.0E
Jul $546.0A $702.9E $844.5E
Oct $584.3A $748.6E $892.8E
Jan $631.9A $801.0E $955.7E
FY $2,266.5A $2,928.7E $3,512.0E
CY $2,928.7E $3,512.0E --
FY RM 9.4x 7.3x 6.1x
CY RM 7.3x 6.1x --
EPS 2012A 2013E 2014E
Apr $0.28A $0.34E $0.41E
Jul $0.30A $0.34E $0.37E
Oct $0.34A $0.40E $0.48E
Jan $0.43A $0.50E $0.62E
FY $1.36A $1.58E $1.88E
CY $1.58E $1.88E --
FY P/E 95.4x 80.2x --
CY P/E 95.4x 80.2x --
Overweight
IBM Migrating Off of Oracle/Siebel
CONCLUSION:
We attended SugarCRM's user conference and learned that IBM has selected
SugarCRM to replace its Siebel CRM system. The transaction is momentous because
IBM and HP were two of the largest Siebel deployments to our knowledge. Recently
salesforce.com won at HP to replace Siebel. IBM selected SugarCRM for three
reasons: 1) IBM's CIO was unwilling to put its data into an off-premise database;
2) SugarCRM, as an open-source vendor, will give IBM the desired flexibility
to integrate it with existing systems and business processes; and 3) SugarCRM
will provide a new user experience for IBM's roughly 100,000 sales people, with
simplified use, simplified processes, mobile support and offline access. We doubt
this is a setback for CRM's pipeline because IBM was unwilling to use a pure
cloud vendor, but this deal shows that legacy, proprietary applications are continually
threatened by newer, more nimble vendors. Overweight, $206 PT.

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April 2014
March 19, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY13E Rev (mil) -- $2,928.7
FY14E Rev (mil) -- $3,512.0
FY13E EPS -- $1.58
FY14E EPS -- $1.88
Price $149.94
52 Week Low $94.09
cash/sh.
Yield: NM
Rev (mil) 2012A 2013E 2014E
Apr $504.4A $676.3E $819.0E
Jul $546.0A $702.9E $844.5E
Oct $584.3A $748.6E $892.8E
Jan $631.9A $801.0E $955.7E
FY $2,266.5A $2,928.7E $3,512.0E
CY $2,928.7E $3,512.0E --
FY RM 9.4x 7.3x 6.1x
CY RM 7.3x 6.1x --
EPS 2012A 2013E 2014E
Apr $0.28A $0.34E $0.41E
Jul $0.30A $0.34E $0.37E
Oct $0.34A $0.40E $0.48E
Jan $0.43A $0.50E $0.62E
FY $1.36A $1.58E $1.88E
CY $1.58E $1.88E --
FY P/E 94.9x 79.8x --
CY P/E 94.9x 79.8x --
Overweight
Cloudforce SF: Big Turnout, 45% of Customers
Using Or Evaluating The Platform
CONCLUSION:
We walk away incrementally positive on CRM after attending the Cloudforce
user conference last week in San Francisco. We were very encouraged to see
the large turnout - 20,000 registrations, which is one of the largest among the
various CRM regional user conferences. Furthermore, our conversations with 29
customers at the conference indicate that 28% are currently using the platform
(Force.com/Heroku) while an additional 17% are evaluating the platform for future
use. Surprisingly, the customers using the platform are mostly large, market-leading,
well-known companies and their usage of the platform spans across extensions of
SFA functionality, as well as core application development. While the deep platform
usage by larger enterprises validates the attractiveness of the platform, attendance and
interest levels suggest plenty of runway for additional platform adoption. Reiterate
CRM as a top pick. OW rating and $206 PT.
***Detailed survey results included on page 2***
* Note priced as of the close March 19, 2012.

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April 2014
March 19, 2012
Survey Data
Do you Use CRM's platform (Force.com/Heroku)
Yes No
No, but I intend to use
the platform Comments
1
1
Doesn't use platform, but is considering Radian6, because it has
tie ins with FB and Twitter.
1
1
1
1
1
1 Has a patient portal built on Force.com.
1
1 Enhanced CRM functionality.
1 Uses Sales Cloud. Looking to invest in Platform.
1 Uses Sales Cloud. Looking to invest in Platform.
1
Just bought Force.com licenses. Using it for some custom app
development.
1 Uses Sales Cloud.
1
Uses Sales Cloud, Service Cloud, Force.com for custom apps.
Doesn't use Heroku but looking into it to create on the fly portals.
Primarily uses cloud application internally.
1 Uses Sales Cloud.
1 Just implemented the Sales Cloud.
1 Uses Sales Cloud.
1
Not aware of any platform usage. Many groups internally uses the
Sales Cloud. Has a lot of legacy systems internally due to the
plethora of acquisitions. p q
1
Uses Sales Cloud. Want to use platform but don't have a timing in
mind.
1 Uses Sales Cloud. Has only two employees.
1
Uses Sales Cloud. Doesn't have a direct investment in the platform
but uses a vendor to develop custom code.
1 Uses Sales Cloud. Might use the platform in future.
1
Uses Sales Cloud. Uses Force.com for some custom app
development around core SFA and has no intention to use the
platform as a general development platform for IT. Moving heavily
into their own private cloud.
1 Looking into Force.com. Doesn't have any investment in CRM yet.
1 Looking to invest in the sales cloud and the platform.
1
1 Uses Force.com. May use heroku as well in the future.
1
8 16 5
28% 55% 17%
Investment Thesis
corporate momentum is more likely to persist because the ecosystem's efforts will further augment the breadth of offerings available
to customers.

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April 2014
March 13, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY13E Rev (mil) -- $2,928.7
FY14E Rev (mil) -- $3,512.0
FY13E EPS -- $1.58
FY14E EPS -- $1.88
Price $147.17
52 Week Low $94.09
cash/sh.
Yield: 0.00%
Rev (mil) 2012A 2013E 2014E
Apr $504.4A $676.3E $819.0E
Jul $546.0A $702.9E $844.5E
Oct $584.3A $748.6E $892.8E
Jan $631.9A $801.0E $955.7E
FY $2,266.5A $2,928.7E $3,512.0E
CY $2,928.7E $3,512.0E --
FY RM 9.2x 7.1x 5.9x
CY RM 7.1x 5.9x --
EPS 2012A 2013E 2014E
Apr $0.28A $0.34E $0.41E
Jul $0.30A $0.34E $0.37E
Oct $0.34A $0.40E $0.48E
Jan $0.43A $0.50E $0.62E
FY $1.36A $1.58E $1.88E
CY $1.58E $1.88E --
FY P/E 93.1x 78.3x --
CY P/E 93.1x 78.3x --
Overweight
On the Road with CRM: All Systems Go Entering
FY13
CONCLUSION:
We recently hosted Graham Smith, CFO of salesforce.com, for a day of investor
meetings, and we believe strong business momentum is clearly evident in the
discussions. Three key takeaways: 1) CRM should enjoy a 2 to 3 year period of
accelerated billings/cash flow growth, as the annual billings mix could escalate from
<65% to 70-90% of total; 2) the non-SFA new bookings mix should reach 50% in
the next year or two, marking an inflection point in new-product adoption while
defeating a significant pillar of the bear thesis; and 3) an $8B-$10B revenue run rate
is conceivable in 5 years, in our view, using a mid-30s CAGR, as CRM marches past
its Sales/Marketing core and extends deeper into heavy-usage, pervasive apps that are
synergistic with its broader Social message. Reiterate Overweight rating and CRM
as a top pick, target $206.
Two to Three Years of Accelerated Billings/Cash Flow Growth Begins Now.

We do not think investors fully appreciate the extent to which CRM has "taken
its lumps," so to speak, for the past 5 years as billing duration has slowly receded
quarter to quarter. As great as the reported billings and cash flow growth has
been during that period, the true potential of the business model has been partially
masked in recent years. Investors also may not fully understand that Q4 was "very
much the first inning" of CRM's efforts to revert billings duration back toward the
1-year standard, and that it will likely take 2 to 3 years to work through the entire
customer base, because multi-year contracts won't be modified until they come up
for renewal. We think the Annual billings mix could escalate from <65% to 70-90%
in a few years, and there will be nothing artificial about the shift; the business will
simply be reverting back toward the 1-year standard, where it was 4 to 5 years ago.
We like the idea of a multi-year billings and cash flow catalyst and the likelihood
that investors will get a purer look at CRM's true, underlying cash flow potential.
Non-SFA Bookings Mix to Reach 50% as Four Engines of Growth Diversify

the Business. A few years ago, less than 20% of new business was directed at
Non-Sales Force Automation (SFA/Sales Cloud); this ratio has risen over time to
over 40% in Q4. Our quarterly CRM partner surveys paint a very clear picture
of 4 product engines driving the growth: Chatter, Force.com, Service Cloud, and
Sales Cloud, while Radian6 seems to be emerging as a fifth engine. If the non-SFA
bookings mix were to cross through 50% in the next year or two, as seems likely,
then in our view a key tenet of the Bear thesis (i.e., "CRM is a one-trick SFA pony")
will be resoundingly defeated.
CONTINUED ON PAGE 2.

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April 2014
March 13, 2012
$8B - $10B Revenue Run-Rate Conceivable in 5 Years. In our view, it couldn't be any clearer that CRM is aiming high rather than
crafting its business plan around a "slow" multi-year revenue CAGR of, for example, 20%. If it were to grow at "only" a 20% CAGR,
it would take roughly 10 years to reach $8B in revenue, and we suspect the company would be willing to sign up for +300 bps/year
of operating margin expansion in such a scenario. However, we think the data points suggest CRM is laying the foundation for a
materially higher multi-year CAGR: 1) CRM is distancing itself from the pack with is Social Enterprise messaging; 2) it is in a much
better position broadly to execute on big strategic deals such as the recent $140M transaction; 3) growth metrics were up 35% to 50%
y/y in Q4, excluding the $140M transaction and adjusting for the effect of invoice duration fluctuations; 4) our work suggests a tipping
point for large-enterprise adoption of Cloud technologies; 5) our CIO surveys show CRM as a top share gainer for 2012 and beyond;
and 6) the market opportunity is larger than people think, even within just the Customer Relationship Management market, because
salesforce.com captures what customers would have spent on a complete system including software, servers, storage, databases, data
center space, heating and cooling, etc. An $8B-$10B revenue run rate is conceivable in 5 years, in our view, using a mid-30s CAGR, as
CRM marches past its Sales/Marketing core and extends deeper into heavy-usage, pervasive apps that are synergistic with its broader
Social message. To be clear, even a 20% CAGR would set CRM apart from virtually any other software company of this scale and
could support higher stock prices, but we think a better trajectory is conceivable if the company continues to execute the way it has in
the recent past. Finally, the path to $8B-$10B certainly won't take the form of a straight line, and growth rates are likely to continue
to ebb and flow with the economic and technology cycle.
Other Key Takeaways:
1. Salesforce reaffirmed that it "didn't empty the pipeline in Q4" and has "gone into Q1 with a good pipeline."
2. The pricing environment has been very consistent; CRM has not seen erosion, but rather is seeing "real solid trends."
3. The off-balance-sheet backlog number (which exceeds $2B) is subject to seasonality, but the trends have been consistent year to
year, and average contract length is still less than 2 years, which means that y/y comparability is reasonably good.
4. CRM had been trying to sell in to HP for many years, but ultimately the deal came together very quickly, presumably due to
leadership changes at HP.
5. Stock-based compensation expense focuses on the Development group; it is a very intense labor market as CRM competes with
Google, Facebook, Twitter and others; options were issued at $25 and the stock rose to the $140s in the span of a few years, which
by itself drove a 6-fold increase in option-based SBC expense.
6. Gross Margins have been fairly flat year to year; GMs are around 90% on core products, while some of the recent acquisitions such
as Radian6 and Data.com are lower, in a 70-80% range. Cost per transaction is dropping, but it is difficult to expand gross margins
when transactions are growing 60-70%+ and CRM is investing in incremental data centers.
7. CRM is clearly NOT offering discounts to customers as it moves them from Quarterly to Annual billings cycles; it is simply a
policy change, with no real choice for a new customer, and for renewals, any exception to the Annual rule has to be approved
through the CFO.
8. The churn rate (or the inverse of "dollar-based attrition") moves very slowly because it is a huge ballast and big number for CRM;
the company has put in early-warning systems and started compensating personnel on renewal values, but the economy is still the
single biggest factor on overall renewal rates.
9. The change in billing terms in Q4 did not impact SMB churn rates; in fact, SMB churn improved in Q4.
10.At this point, over 100,000 customers are using Chatter. Chatter is of fundamental importance to the "Social Enterprise" strategy,
but isn't seen as becoming a Billion-dollar business on its own. CFO Graham Smith has not doubt that "eventually, every company
will move to that interface... it's just a more efficient way" for organizations to collaborate.
11.The Platform business (i.e. Force.com, Heroku, etc.) produced its second consecutive year of close to 100% growth.
12.CRM has "thought long and hard" about what its first step outside of core CRM should be. The company now states that "CRM
is big, but ultimately we have very big aspirations." Regarding the HR market, CRM views it as having a front-office component
(e.g. talent management, recruiting, etc.) and a back-office component (payroll, benefits, transactional stuff). The back-office
components are seen as being "a stretch" for CRM, but there could be a synergy with the front-office, where real-time collaboration
matters more.
Investment Thesis

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April 2014
March 13, 2012
corporate momentum is more likely to persist because the ecosystem's efforts will further augment the breadth of offerings available
to customers.

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April 2014
February 23, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY12E Rev (mil) -- $2,254.9
FY13E Rev (mil) -- $2,847.8
FY12E EPS -- $1.32
FY13E EPS -- $1.44
Price $128.07
52 Week Low $94.09
43.1x our CY12E OCF of $4.11/sh + $5.67
net cash/sh.
Yield: NM
Rev (mil) 2011A 2012E 2013E
Apr $376.8A $504.4A $663.5E
Jul $394.4A $546.0A $695.2E
Oct $429.1A $584.3A $729.6E
Jan $456.9A $620.3E $759.5E
FY $1,657.1A $2,254.9E $2,847.8E
CY $2,254.9E $2,847.8E $3,415.4E
FY RM 11.0x 8.1x 6.4x
CY RM 8.1x 6.4x 5.3x
EPS 2011A 2012E 2013E
Apr $0.30A $0.28A $0.31E
Jul $0.29A $0.30A $0.32E
Oct $0.32A $0.34A $0.39E
Jan $0.31A $0.39E $0.41E
FY $1.23A $1.32E $1.44E
CY $1.32E $1.44E --
FY P/E 97.0x 88.9x --
CY P/E 97.0x 88.9x --
Overweight
Detailed Partner Feedback Shows Long-Term Bull
Thesis Solidly Intact
CONCLUSION:
We conducted in-depth interviews with 12 contacts in the salesforce.com ecosystem.
We believe the firmly positive feedback incrementally supports our thesis that CRM
continues to ride a wave of strong business momentum. Many contacts proclaimed
that Q4 business trends exceeded expectations and that they expect continued positive
momentum heading into 2012. "From what I can tell it was a knock out year for
them," and "Salesforce has been closing a lot of business... in December and January"
stated two contacts. Another stated that "Our pipeline looks very strong for this
year." Radian6 is described as "sizzling technology" while Force.com momentum is
observed to be "very, very good." The feedback bodes well for ongoing market share
gains and product diversification, in our view. Overweight, $183 price target.
Detailed Feedback
Positive
Industry Contact 1
What continues to impress me the most about salesforce.com is the control and
the influence that Marc Benioff has on the organization and how that translates into
them, still even at this scale, being very nimble. Everybody is on the message...
their messaging is just unmistakable. the discipline and focus around Social
Enterprise and solution selling is amazing and everybody is on board with it.
It continues to amaze me how quickly salesforce can respond and evolve.
Thinks culture is a big part of an organization's differentiation. And their culture
is incredibly strong. Nobody is complaining about where Marc is taking the
company, nobody is questioning it he is the messiah and he is able to instill
confidence and faith on a level that is unprecedented. They are all in ...and they
genuinely believe in the Social Enterprise and it's not just marketing. If I would
be betting on salesforce.com it would be for that reason. Thinks in todays world
of compressed business cycles, sustainability is all about culture, i.e. the ability to
change, evolve, adapt Those are the organizations that sustain themselves.
Thinks that salesforce in many ways is still managed like a small company.
There is no question they are closing some big deals. Heard about a $20M deal on
the East coast closed in Q4. Thinks Q4 should be good. Heard about the HP deal,
but doesnt know about the specifics.
There is probably a very large backlog of Siebel that is at end of lifecycle

Siebel installations which are 8-10 years old these are prime targets for CRM.
**CONTINUED ON PAGES 2 THROUGH 7**
Overweight, PT of $183 = 43.1x our CY12E OCF of $4.11/sh + $5.67 net cash/sh.

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April 2014
February 23, 2012
Service Cloud I am very bullish on service cloud. Thinks that it is going to be very significant, especially in financial services.
Thinks that the messaging of Social Enterprise and service cloud dovetails really well in that sector.
Platform
Momentum is picking up but its slow.

Thinks for internal corporate application development, .NET continues to have a strong presence.
Microsoft SharePoint continues to be a significant phenomenon especially compared to SiteForce. SiteForce continues to
underwhelm SiteForce is not ready for prime time. Doesnt have anything compelling to maintain a large website. Thats
one thing holding them back.
They are struggling with how to go to market with ISVs. Thinks it is important for salesforce.com to attract ISVs for them
to be able to legitimize the platform, and thinks that it's critical to the success of the platform. Although salesforce.com has
some traction from ISVs like BMC, CNQR and some announcements from Infor, he thinks that overall they are struggling to
attract ISVs. Thats partly because the incentive structure is not conducive for an account executive (AE) to actively promote
a third party solution in the platform. It is far more profitable for the AE to sell a custom built product where they sell the
licenses directly. ISVs have special pricing for the licenses and the commission to an AE to sell an ISV deal is far lower. Reps
would want to close the deal as close to the list price while the ISV would need a significant discount to be successful. Its
something they need to work through
Thinks that they are potentially hitting a saturation point in terms of account coverage because there are only a fixed number of
enterprise accounts. In Midwest, he thinks that each AE had 5-10 accounts 2 to 3 years ago but now they have 1-3 accounts and many
only have one. Marc Benioff talks in his book that if you want to double sales, double the sales force and there was a direct correlation
between number of sales people and the ability to grow revenue. That model worked for them until now. But now its no longer land-
and-expand but their ability to do a solution sell and penetrate deep in each of the enterprise accounts. Thinks the question going
forward is Can they sell enough $20M deals to get into that $10 billion revenue level?
Thinks it is a question mark if they are going to be able to sustain the level of growth maybe in another 5 years time without any
breakthrough in other areas, particularly back office the ERP route. $20M deal in the SAP world is routinesame goes for Oracle...
very common 8 figure deals.
His Cloud business has grown 25-30% y/y in Q4.

Industry contact 2
Hasnt seen anything out of the ordinary on the negative side in the last three months.
Feels that salesforce is really reinventing themselves as a play on B2C customers.
They "really just rock it on B2B."
With a lot of their social enterprise, theyre getting into more consumer-oriented businesses.
Sees "tons and tons" of momentum and pipe building for some of the new concepts.
Radian6
The notion of Radian6 being able to listen to all social media and bring in any hash tags that are bad that were said about your brand,
and then bringing that right into your salesforce application as a trouble ticket, theres a lot of evangelizing on that. It's one of these
education sales where everyone wants to hear about it but arent sure if they want to spend money on it yet.
Salesforce is two animals right now: 1) its a finely oiled machine of selling their modules, Sales Cloud, Service Cloud and the
platform; and 2) Benioff is educating the world that web conversations are happening, and its up to you if you want to be a part of
the conversation.
Radian6: Its probably the most sizzling thing Ive been around in 20 years of technology.
The way they demo Radian6 is you roll into a big brand, and youre trying to sell it to them. The sales rep will do a weeks worth of
listening to online conversation using Radian6 about the brand theyre trying to sell to. Then in the meeting theyll say something like
in the last seven days youve had X thousand mentions of your brand. Some were good, some were negative.'
'This person has 600,000 followers and they decided to say something good about your brand. This sales strategy kind of [surprises]
the customers. The sales reps know more about how the brand is perceived after only a weeks worth of due diligence than the customer
does. Its very powerful in terms of getting the customer's attention. Benioff is so smart he just says, OK, now what are you going to
do with it. Now that you know that people are saying things, what are you going to do about it?
So when you ask a buyer how theyre going to deal with these mentions, good or bad, thats where they get interested. And they bring
these mentions in house by getting on salesforce.com.
No one goes to a companys suggestion box. You either like them or you hate them and you blast off on Twitter.

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Acquisitions
Salesforce has bought so much in the last five years and thinks theyre struggling as a company to cobble these things together.
He bought Dimdim, the fourth biggest web go-to meeting, and where is that?
Chatter is a very good thing. A company might have 300 CRM users and 3,000 employees, so how do you get those guys?
Heroku
Heroku is very forward thinking, its almost like salesforce.com scooped that up before someone else did.
Benioff is not a CRM guy and never was. He was never into sales methodology and best practices. He ran the tools group for Larry
for 10 years. In the simplest terms Oracle used to be a database company, with applications on that database and tools that extended
those applications. Benioff ran that tools group and won the war against PowerBuilder [a Sybase product and now part of SAP], wiped
them off the map.
Basically hes recreating the Oracle dynasty.
You buy the database from salesforce.com, you buy the CRM modules, and then you extend them using the toolkit.
Ask yourself, is salesforce a CRM company? The answer is no. Theyre a data company.
Thats why salesforce is buying Heroku and all these other things. He doesnt want them to fall into VMwares hands or someone who
can spin a better story on virtualization versus the cloud.
Salesforces enemies are [Microsoft] Access, [Microsoft] SQL Server, anything that a developer would pull off a tool belt to develop
an application.
IaaS versus PaaS
IaaS versus PaaS is where the new war is headed. Some say you should own your infrastructure to have more control over it. And
Salesforce would say, why?
As days go on, I call them Wayne and Terry, like the hairy-armed IT guys that stop a lot of innovation. Everyday those guys get
closer to being 65. Everyday there are guys firing out of MBA school and will become CIOs who want no part of that [legacy IT
environment].
People have a lower pain threshold for user experience.
Why do I need a separate whole team for my database? Why to I need a separate whole team for my applications?
Q4 Expectations
Do I feel like they did well? ...I feel like they did well.
I feel like they did as well as they always do in Q4.

Industry contact 3
Business from a Salesforce point of view is really booming.
As soon as we hit January I started getting phone calls, meetings, proposals, deals closing.
December for his company has always been really flat, but this year was really good, compared to previous Decembers.
Core business is training, and at the end of the year, because of budgets, theres usually no money for training. This December was
just different, though.
In terms of incoming business, they get a lot from Salesforce, especially recently. Lately the mix has been 70/30, Salesforce/own efforts.
Can usually do a small installation, like 30 users, in 30-60 days, assuming no back-end integrations. Then theres two days worth
of training.
Salesforce has been closing a lot of business, I know for a fact, in December and January.
Salesforce tries to keep it to themselves as to how much business they are closing, but I know they are closing a lot of deals, because
theyre making very good commissions income.
Even telesales guys are making over $100k.
Working on a large deal with a client that will have up to 7,000 users.

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April 2014
February 23, 2012
Working on another deal with one division at a large company for 1,000 users. This company has eight or nine divisions.
This is something I have visibility on. Imagine what I dont have visibility on.
Also hearing about CRM growing very fast in Latin America, especially Brazil and Mexico.
His company is getting a lot of leads from Australia.

Industry contact 4
Demand in and around Salesforce is ever increasing.
The last three months have seen quite a bit more demand for some bigger projects.
People are starting to eat up their budgets again.
The Sales Cloud and Service Cloud are where the most demand is.
People are still experimenting with Chatter, and trying to figure it out. But seeing more and more demand from other departments as
Salesforce expands licensing options.
2012 outlook
Expects pretty consistent demand in 2012.
We have the potential to double in revenue because of it.
There are more services to sell, but theres definitely more product and opportunity to expand on top of the platform.
Feedback from sales reps
Most of the [sales reps in the SaaS SFA/Service ecosystem] that weve been dealing with are achieving all of their sales numbers,
and are exceeding them quite a bit.
From what I can tell it was a knock out year for them.
Industry contact 5
For all the service providers in the past three years, salesforce.com is probably the fastest growing practice across all the service lines.
The last three years I can confirm that this practice is doubling in size.
In the last three quarters, 60% of the entire customer base for his company is having some sort of interest around salesforce.com,
whether it's expansion of an ongoing relationship or a completely new opportunity. The traction is really high Thinks that, on any
given day, 60-70% of his time is going toward catering to opportunities related to salesforce.com.
There are many early adopters who have used the SFA and now being hit by this powerful message from salesforce.com in terms of
the Service Cloud, the collaboration product, etc. So, people want to evaluate salesforce.com before they want to commit their dollars
to buy anything. The preliminary level of interest in salesforce is perhaps at its height at this point around the world.
Thinks that SFA module has around 90% penetration in his salesforce.com customer base.
Salesforce.com is not a very heavy duty product. Thats why they have made an intelligent shift from product into platform so that others
can build products over the core functionality. This will make the product stickier. But that doesnt always translate with clients' needs.
There are different types of customers. There are some customers who are die hard fanatics and they keep on increasing the footprint of
salesforce.com in their organizations. There are others who are interested but would want to do a clinical analysis of the products, check
the cost benefit analysis, pricing for additional modules, etc. and may decide to just stick to the their Oracle or SAP platforms and stop
their assessment there. There are some who do a full analysis in terms of how heavy duty is the platform, can it support all the business
processes, can it really integrate with the internal processes, etc. and such customers decide not to go into the salesforce.com route just
because they think that the platform is not tested and is at a nascent stage. So net/net, the hype to conversion ratio is around 35% or so.
So out of all the companies evaluating salesforce.com for a full blown implementation, the actual customers who are embracing it are
probably one third at this point in time. But that still is a substantial level and in the last three four quarters it has been accelerating.
In other words if 10 companies are evaluating the SFA solution from salesforce, he thinks 7/8 would have adopted it. But if 10 people
look at the newer modules/ social enterprise solution, probably the number of people adopting it is 2 or 3.
So, thinks hype of the new products is much higher than the actual adoption but it is very powerful hype. If an organization does
not look at salesforce they will be made to look like idiots. They have succeeded to get the message far across.
Seeing that salesforce.com is heavily investing in the sales team, in their partner enablement organization and in their service/resolution
teams. When there is an opportunity sometimes salesforce says go and sit on top of it. Thats the level of bandwidth that they have
expanded to in the last 12 months or so.

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Seeing salesforce.com evolving in terms of pricing. Thinks they are moving more into a disciplined approach to pricing and nobody
now can make an ad hoc decision on pricing. There is certain amount of sales discipline evolving within salesforce.com.
They have the bandwidth to go and sit on top of an opportunity.
Seeing a clear message coming from Marc top down to move up market and do 10 large deals rather than 100 smaller deals.
Force.com
In terms of Force.com adoption, thinks that people are taking very measured steps. He estimates the conversion ratio at 10:2 i.e., for
each 10 customers evaluating force.com only 2 are adopting it. Thinks there is a lot of potential. Its going to be a long journey.
Majority of the large customers of Force.com still use Apex.
Thinks Heroku is a promising platform, but will take time for serious adoption.
Thinks that they need more third parties to adopt the platform for it to be a success, and thats where they are struggling a bit.
Salesforce.com practice doubled last quarter and expects the momentum to continue. Thinks there is phenomenal demand. Also
mentioned that the opportunity pipeline looks very, very good.
Thinks that Q4 is going to be a blockbuster quarter for salesforce.
Heard about the [Insurance industry] deal - $140M, 180K enterprise licenses, probably 5 years. Thinks it is a rip-and-replace deal of
Siebel. Also, thinks Facebook did a big investment with salesforce.com last quarter as well.
Industry contact 6
Gets leads from salesforce.com AppExchange as well as from salesforce.com account reps.
For the past 6-7 months, seeing a pretty good lead flow for us which means demand for salesforce is ever growing The pace of
growth is much higher. Having tough time following up with all the leads. Its a very good sign for salesforce as well as companies
like us.
Service Cloud is picking up a lot. But still trying to figure out how to position the social enterprise story.
Momentum in Force.com - very, very good. Many traditional development companies are looking at it as an option, which is a
very good sign.
Business grew 40% y/y in Q4 and based on the traction in the beginning of the year thinks that the growth in Q1 2012 might be
much higher.
Industry contact 7
Demand has actually gone up over last few months.
Part of the reason is that people are more comfortable with the general idea of cloud computing, and salesforce.com has also expanded
their offerings in the past year. People who previously had requirements that could not be met by salesforce.com now have the ability
to investigate salesforce.com as a potential solution.
One of these solutions is their Sites functionality, which essentially allows salesforce.com to host someones website.
Hasnt seen a lot of demand for some of salesforce.coms other products, like Radian6, but thats only because it hasnt been fully
baked into the salesforce.com interface. Expects demand to go up once its in the UI.
A good example of this is Data.com. Until it was fully baked into the UI, there werent a lot of people asking for it. But after it was
included in the UI, there was a significant uptick in those interested in it and buying it.
Adoption of social enterprise is resonating with companies already taking advantage of social media. Thats not a lot of companies
yet. Anyone that has a social aspect to their go-to-market strategy has expressed interest. It has less to do with salesforce.com than
the culture of business.
Business hasnt slowed down in February, which is a sign of things to come.
Typically February is very quiet because January is busy due to year end of salesforce.
This year momentum has maintained pace through February so far.

Industry contact 8
It's been quite good. The business continues to grow and we are quite happy with it.
Thinks demand was strong and continues to grow. Thinks that there is absolutely no slowdown in demand from his perspective.

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His business grew 180% in 2011 and plans to grow another 200% this year, although off of a small base.
Thinks that competition has grown in the small market segment with a lot of cheaper products available. But he doesnt see the growing
competition as a problem for SFDC.
Demand is primarily driven by the Sales Cloud. About Service Cloud, I love it. I think it is a great product and I think there is a
lot of room for growth.
Sales guys excited closing Q4 I would think so, yes.

Industry contact 9
In Latin America, seeing a lot of interest in Force.com. Seeing people asking about new custom app development on Force.com. Has a
few customers asking them to create mobile applications using Force.com as the back end. Seems like the whole social mobile trend
is beginning to make an effect [on Force.com].
In the SMB space in the U.S., seeing more people making decisions to go with salesforce.com as they are getting a lot of customization
requests. Its been a very busy beginning of the year.
Felt accelerated demand at the end of last year. Thinks that salesforce.com sales guys were very aggressive at the end of the year and
were all over the place.
Heard about some kind of a deal with Facebook.
Grew his business 20% in Q4. Seeing a very good pipeline going forward. Thinks can grow his business 25% in 2012.
Thinks that there was a bonus program in place for Q4 and sales guys were running around to close business to achieve that incentive
program.
Industry contact 10
I have limited visibility into the "real story" at Salesforce, but from what I've heard, they are also doing well. It's not a zero-sum game
between CRM & N; both are benefiting from the industry-wide shift to the cloud.
Neutral
Industry contact 11
Q4 was flat for us, had a very good 2010 and disappointing 2011.
But our pipeline looks very strong for this year. Were very bullish on this year.
A lot of reasons Q4 was flat: Microsoft has become a more competitive player, seeing more competition from other firms that do what
he does, a lot of prospects pushed deals out until 2012.
Every client has their own story for why they push deals out, some dont have the resources, maybe they had a weak quarter and didnt
want to make the investment.
Thinks the whole social enterprise story is really great, and kind of rejuvenates the whole CRM industry. CRM became a mature
industry, then all of a sudden social revitalized the whole discussion.
Salesforce.com needs to do social enterprise because all the standard low-hanging CRM fruit is gone.
Needs to offer a wide variety of solutions around customer data.
Every major organization already has a CRM solution, so the ripe pasture of a few years ago isnt there anymore.
Doing more with Hubspot (inbound marketing software solution) and Chatter. Out there pitching Radian6, but salesforce.com is just
getting around to getting a partner program for Radian6.
Larger organizations see the benefit of Chatter. Small companies have a hard time getting their arms around it.
Thinks the small business team is still robust and very busy, but mid-market and enterprise team are not growing as fast as they used to.
The challenge for the reps is on one hand they have a number to make every single month, and on the other hand they have to be
evangelists for the social enterprise, so the sales cycles could get longer.
Industry contact 12
Felt a normal seasonal slowdown during summer and felt the normal back-to-school kind of a boost in September. September was
a fantastic month for us. However, mentions that the months surrounding September were softer than their expectation. This was

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purely in the large enterprise business. I started feeling that enterprise weakness a little bit in salesforce right around the August time
frame. I was a little surprised not to see more activity. Hence, wasnt surprised at CRM Q3 results.
Thinks that there was a little bit of a softening in the customer acquisitions side for salesforce.com. Also thinks that sales force is trying
to reinvent their go to market strategy to figure out how they are going to cater to the enterprises.
Thinks that they are moving the company field reps which were traditionally split into verticals and geographies have now completely
moved into verticals and named accounts to penetrate deeper into existing large enterprise accounts. They want the field to create
deeper relationships with the IT and the other business owners and sell more of their product linesdeeper into the organizations.
This transition over the last 6 months to more of wall to wall type deals probably took their eye off the ball a little bit. Each rep is
probably assigned no more than 10 named accounts and on average 5-7 accounts and there are a few who have just one assignment.
Thinks that its just a change in the go-to market model being updated to enable where they want to be.
These guys were initially used to sell to new enterprise clients. They are moving the acquisition of smaller new clients into the hands
of inside sales reps in San Francisco and Toronto. Thinks it is a good strategy and will help increase customer acquisition in the small-
mid market. That group has proven their success over 11 years; they know how to sell over the phone. The smaller deals, the land
and expand type of deals they can sell over the phone. I have a positive feeling that we can see a turnaround in the higher mid-market
enterprise space for salesforce."
Thinks that they are doing really well in their large enterprise opportunities 10k-20k seats.
Thinks that they lost their focus a bit from mid-market deals with 10-100/200 seat deals which were the bread and butter of
salesforce.com for a very long time, to the large enterprise type deals. Thinks the transition of change in focus was probably not as
smooth as they probably had hoped.
If you get too dependent on the really big deals you can have some swings. And I think it will get fixed. Also thinks that the large
deals are very hard to close. They dont have any competition at the high-end and the hiccups are generally have they proved the
value, and, is there budget? These are 5-10 or 20-30-million-dollar deals and if they dont close them, it hurts. I didnt hear that
they missed any deals. Thinks that these deals took much longer to close than they had hoped for.
Q4 I dont think it was any better than where it has been [last quarter]but I think pretty strongly that they can see 35%-37% y/
y growth. Also, the number deals they saw coming in the last week of January was up. His salesforce.com practice grew 20-25%
y/y in Q4.
They are working on a large deal with HP.

Investment Thesis

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February 21, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY12E Rev (mil) -- $2,254.9
FY13E Rev (mil) -- $2,847.8
FY12E EPS -- $1.32
FY13E EPS -- $1.44
Price $127.61
52 Week Low $94.09
43.1x our CY12E OCF of $4.11/sh + $5.67
net cash/sh.
Yield: NM
Rev (mil) 2011A 2012E 2013E
Apr $376.8A $504.4A $663.5E
Jul $394.4A $546.0A $695.2E
Oct $429.1A $584.3A $729.6E
Jan $456.9A $620.3E $759.5E
FY $1,657.1A $2,254.9E $2,847.8E
CY $2,254.9E $2,847.8E $3,415.4E
FY RM 11.0x 8.0x 6.4x
CY RM 8.0x 6.4x 5.3x
EPS 2011A 2012E 2013E
Apr $0.30A $0.28A $0.31E
Jul $0.29A $0.30A $0.32E
Oct $0.32A $0.34A $0.39E
Jan $0.31A $0.39E $0.41E
FY $1.23A $1.32E $1.44E
CY $1.32E $1.44E --
FY P/E 96.7x 88.6x --
CY P/E 96.7x 88.6x --
Overweight
50 CRM Partners Finished 6.1% Above Plan for
Q4: Expect a Solid Quarter
CONCLUSION:
We surveyed 50 CRM partners and found that, on average, they finished 6.1% above
plan for Q4, marking a significant improvement versus 3.3% above plan in Q3, and
also the strongest outperformance in a year and a half. Additionally, on a net basis
64% of the partners observed a Better pace of business in Q4, much improved versus
38% last quarter and the strongest result in two years. The bullish commentary from
partners reinforces our confidence in current customer demand trends and supports
our expectation for growth moving closer to the 30%+ level, as opposed to the bear
thesis which calls for growth to slow to 20% with tail risk below that level. Bottom
Line: We continue to believe CRM is the best long-term (12 month) investment in
the powerful Cloud Computing wave and reiterate CRM as our top mid-cap pick for
2012. Overweight, $183 price target.
Partners Finished 6.1% Above Plan. Partners we spoke with were on average
6.1% ahead of plan, versus 3.3% ahead of plan in the prior quarter, and was the
strongest outperformance in a year and a half. The current survey results reinforce
our opinion that salesforce.com's partner ecosystem is still being positively
surprised by the tone of customer demand.
Observed Pace of Business Continues to Improve. 66% of the partners we

surveyed indicated that the pace of business was better in the past three months
relative to the prior three months, while only 2% indicated a worse pace of business.
This results in a "Net-Better" score of 64%, versus 38% in the prior quarter and the
strongest result in over two years. The results clearly show that the pace of business
is improving for salesforce.com.
Bookings Expectation: Net-Above 30% versus 19% in the Prior Quarter. 36%
of surveyed partners foresee Q4 bookings above expectations, while only 6% sense
a disappointment. This results in a Net-Above score of 30%, an improvement versus
19% in the prior quarter. The irony here is that the partners generally do not know
where investor expectations and guidance are set; however, we believe the data is
still helpful as a proxy for the overall confidence of the partner ecosystem.
***Detailed Survey Data on Page 2***
Salesforce.com is a leading provider of On-Demand applications and platforms.

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Exhibit 1: Detailed Survey Data
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12
CRM: Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12
% of Plan: 4.5% 4.2% 6.2% 1.7% 4.3% 5.4% 1.6% 3.3% 6.1%
Better Pace of Biz 80.5% 60.8% 55.6% 58.0% 48.1% 65.4% 61.4% 49.1% 51.1% 66.0%
Same 19.5% 33.3% 37.8% 38.0% 44.2% 26.9% 38.6% 41.8% 36.1% 32.0%
Worse Pace of Biz 0.0% 5.9% 6.7% 4.0% 7.7% 7.7% 0.0% 9.1% 12.8% 2.0%
TOTAL 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 80.5% 54.9% 48.9% 54.0% 40.4% 57.7% 61.4% 40.0% 38.3% 64.0%
Above Expectations NA 35.3% 20.0% 34.0% 30.8% 32.7% 47.7% 25.5% 29.8% 36.0%
Inline NA 60.8% 77.8% 64.0% 57.7% 55.8% 45.5% 63.6% 59.6% 58.0%
Below Expectations NA 3.9% 2.2% 2.0% 11.5% 11.5% 6.8% 10.9% 10.6% 6.0%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 31.4% 17.8% 32.0% 19.3% 21.2% 40.9% 14.6% 19.2% 30.0%
4.5%
4.2%
6.2%
1.7%
4.3%
5.4%
1.6%
3.3%
6.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12
54.9%
48.9%
54.0%
40.4%
57.7%
61.4%
40.0%
38.3%
64.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
31.4%
17.8%
32.0%
19.3%
21.2%
40.9%
14.6%
19.2%
30.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Above %
Investment Thesis

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February 10, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY12E Rev (mil) -- $2,254.9
FY13E Rev (mil) -- $2,847.8
FY12E EPS -- $1.32
FY13E EPS -- $1.44
Price $125.61
52 Week Low $94.09
43.1x our CY12E OCF of $4.11/sh + $5.67
net cash/sh.
Yield: 0.00%
Rev (mil) 2011A 2012E 2013E
Apr $376.8A $504.4A $663.5E
Jul $394.4A $546.0A $695.2E
Oct $429.1A $584.3A $729.6E
Jan $456.9A $620.3E $759.5E
FY $1,657.1A $2,254.9E $2,847.8E
CY $2,254.9E $2,847.8E $3,415.4E
FY RM 10.8x 7.9x 6.3x
CY RM 7.9x 6.3x 5.2x
EPS 2011A 2012E 2013E
Apr $0.30A $0.28A $0.31E
Jul $0.29A $0.30A $0.32E
Oct $0.32A $0.34A $0.39E
Jan $0.31A $0.39E $0.41E
FY $1.23A $1.32E $1.44E
CY $1.32E $1.44E --
FY P/E 95.2x 87.2x --
CY P/E 95.2x 87.2x --
Overweight
Cloud War Over: Salesforce.com Won
CONCLUSION:
Checks and analysis indicate CRM recently closed a monster transaction worth
$140M in the financial services/insurance vertical. Additionally, contacts indicate
Facebook has materially ramped its commitment to the salesforce.com platform.
These eyebrow-raising events increase our confidence in CRM's future results to
an incrementally higher level, suggesting blockbuster bookings in the combined
January/early February timeframe and potentially easing the burden of the well-
identified tough billings comp upcoming in Q1/April. We simply do not observe
any Cloud competitors closing $140M transactions, drawing in 10,000 attendees at
regional conferences, and winning as much crucial platform business with internet
leaders. Bottom Line: We continue to believe CRM is the best investment in the
powerful Cloud Computing wave and reiterate CRM as our top mid-cap pick for 2012.
Overweight, $183 price target.

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Fe b r u a r y 1 1 , 2 0 1 4
Cornerstone OnDemand (CSOD) Overweight
Cornerstone Partners Optimistic Based On Healthy Q4 Activity
PRICE: US$57.58
TARGET: US$59.00
13.5x EV/2014E revenue of $254.9M +
$73.8m in Net Cash (59.4M s/o)
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$59.00
FY13E EPS US$(0.21)
FY14E EPS US$(0.07)
Yield 0.00%
Fiscal Year End Dec
60
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
Our in-depth conversations with five key CSOD partners provide a detailed picture of
Cornerstone's current business environment. Key positives: 1) during Q4 partners cited
"really heavy activity" in the market and interpret the "overflow of services work" in
January positively; 2) contacts indicate increasing deal sizes with "pretty big logos" and
increasing volume of six-figure seat deals; 3) partners also referred to a "very active"
mid-market business and see the Recruiting product making headway with attach rates
of 16-20%; and 4) partners are "feeling very good" from a pipeline perspective. On the
negative/unconfirmed side of the ledger, the ADP partnership is seen as gradually fading
in importance. Net/net, we think the business is tracking well, driving sustainable growth
at well-above-industry rates. Overweight. $59 PT.
Noteworthy Feedback:
(+) I see real potential in Cornerstone not becoming a system of record like Workday,
but really building that knowledge layer for the web.
(+) "Big companies are starting to recover a bit and they are looking at more HR
and people investments and the platforms are a more and more integral part of that
overall strategy.
(+) Demand [in Q4] was strong and continues to build."
(+) [Seeing some] pretty big logosthe deals seem to be getting larger [from a
licensing perspective].
(+) It's still Learning #1 and Performance #2hearing more on Recruiting [with
estimated attach rates of 16-20%].
(+) One partner refers to very large ones [+100k seat deals]. quite a few of them
handful of deals in the pipeline.
*** DETAILED FEEDBACK on pages 2 - 5 ***
Cornerstone OnDemand is a leading SaaS based Learning and Talent Management
solution vendor.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
Mar Jun Sep Dec FY FY RM
24.0 27.4 31.2 36.7 119.4 28.6x
37.8A 44.4A 48.3A 54.3 184.8 18.5x
55.2 60.8 66.1 72.8 254.9 13.4x
Mar Jun Sep Dec FY FY P/E
(0.10) (0.09) (0.07) (0.06) (0.32) NM
(0.10)A (0.07)A (0.04)A 0.00 (0.21) NM
(0.06) (0.02) (0.02) 0.02 (0.07) NM

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Industry Contact 1
Thinks the demand momentum continues. Based on the overflow of services work in
January, thinks Cornerstone had a good Q4. Seeing some pretty big logosthe deals seem
to be getting larger [from a licensing perspective].
It's still learning #1 and performance #2hearing more on recruiting although reports
that Cornerstone is keeping some of the services business related to recruiting in-house to
keep up the quality of customer support.
Senses that recruiting has a bigger attach rate with performance. Estimates an attach rate
of 16-20% of deals for the recruitment module.
Continues to see Workday bring Cornerstone into Learning deals, although

opportunistically. Thinks that the Workday Applicant Tracking/Recruiting module is not
where Cornerstones is in terms of maturity of product and Cornerstone is able to fill the
gap, for now.Workday certainly doesnt want SAP filling in, they certainly dont want
Oracle filing in. Thinks Taleo continues to lose sharecustomers are turning them off
and in some cases migrating that data to Cornerstone and in some cases starting from
scratch.
Referring to deal traction, really across the board from an industry perspectivefinancial
services, manufacturing distribution Thinks Cornerstone also had good deal traction in
the Public Sector mainly at the state level, much better in the 2H2013 than the 1H.
Starting to see more extended enterprise deals.
Talking about large deals [10k seats and above] in Q4, there are several.In most cases a
lot of them are replacements for any number of providers, whether its SAP, or SumTotal.
Talking about potential big deals, refers to a project with a F100 company that has started
with a relatively small footprint but could easily go into six figures [seat count] within the
next few years.
Based on his conversations with sales reps [in the talent management ecosystem], senses
that they are happy and excited coming off of Q4.
Thinks Cornerstone is really making headway in EMEA and thinks it will be a big growth
driver this year. Senses that there are much greener pastures in EMEA than there are in
the US. Thinks APAC will lag the growth in EMEA as EMEA had a head start with
investments.
Referring to pipeline, feels good about Q1 from the traction he is seeing already.
Based on the turnover he is seeing in the ADP Cornerstone practice, thinks the relationship
is not what it once was. ADP is pushing their own stuff.
I see real potential in Cornerstone not becoming a system of record like Workday but really
building that knowledge layer for the web.
Thinks Cornerstones Innovation fund is a great initiative and thinks might be able to
increase the size of their addressable market.
Industry Contact 2
Thinks that the demand environment was largely comparable to what they had in the
fourth quarter of the prior yearI think the volume picked upso, it was bigger than the
prior, based on what I could seeI think Q4 should be pretty good for them.
It's definitely continued growthI didnt see really any slowing down from what they had
going on
Mentions that after Learning Performance is always a big number two.
Continue to see a lot of activity around Recruitinglots of interest in it. Thinks that
Cornerstone still has a lot of work to do in the Recruitment cloud, but they have made
substantive improvements.
Talking about full suite or multiple cloud deals from the get-go, that seems to be happening
more often than not.
Has heard that Cornerstone closed a few pretty big ones in the quarter. There has been
some talk of some big names out there.
The six figure [seat counts] deals are definitely getting more significant out therethere
are more of them. Estimates that despite heavy discounts, such large deals enter 7-figure
dollars in annual revenue.
Mid market for us looked really good.Cornerstones mid-market is very active right
now.they are engaged on multiple levels.

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Based on his conversations with sales reps [in the talent management ecosystem], thinks
they are very happy and very busythey are running 100 miles/hour.
His firm grew 45% last year and is projected to grow close to 60% in 2014; a large part of
this growth is Cornerstone driven.
Thinks ADP is still selling Cornerstone and seems to be pretty active. However, thinks
that ADP is not giving significant attention to the relationship anymore as ADP has its
own product offering that competes directly with Cornerstone.
Competitively, I am seeing a lot of takeaways [Also] they are not having to compete on
price as much anymore. They were competing very heavily on price before and I think they
are getting some of that eased up.
Mentions that he hasnt directly bumped up against SuccessFactors in a while. I see lots of
Saba, lots of SumTotal, lots of small players. Thinks that Saba claims that they do have a
real cloud offering but he thinks its a hosted solution. Reports that SumTotal has got a new
product out mainly in the area of data integration to connect different systems of records.
Its not a normal play for them [SumTotal].
Industry Contact 3
Thinks Q4 demand was strong and continues to build, from what I could seeI think
demand picked up, from what I could see in the market.
Thinks that Cornerstone is making more traction with the non-Learning components of
the platform. Recruiting in particular seems to be starting to make some headway.
Mentions that big companies are starting to recover a bit and they are looking at more
HR and people investments and the platforms are more and more integral part of that
overall strategy.
Based on his conversation with sales reps [in the talent management industry], thinks reps
are happy coming off the quarter yes, extremely so.
Senses that the relationship with Workday is going pretty strong.
Mentions that his pipeline is very strong and is 2x his pipeline the same time last year.
Mentions that one interesting thing that he has observed in the market in the last two
months is that a few of his clients [Fortune 100 companies] are considering Cornerstone
OnDemand as an interim platform. The idea is to use it for a couple of years, while they
implement an ERP system like SAP, which could have a talent management system of its
own. Adds that the cloud model makes it perfect to turn it on, configure and start using it
quickly. So, there is this interesting spot in the market where because of the complexity of
an ERP based solutionit seems like its opening some opportunities and doors for them.
Adds that it is a political minefield to do those deals because of IT's affinity to the big
ERPs. Explains that the upside opportunity for Cornerstone is that if it gets in as the interim
system, establishes itself, performs well and people are happy with itthen when its time to
switch to the ERP, the ERPs Talent platform has to justify from a business case perspective
why it makes sense to switchwhich is very hard to justifythese platforms are very sticky
once they are in.
Thinks SuccessFactors is going strong in the market, but he doubts that it continues to have
the focus inside SAP. Talking about Saba and Sum-Total They are therethe word on
the street is that they are both financially in dire straits. They havent figured out a true
cloud based model yet.
Industry Contact 4
For his Cornerstone practice, the fourth quarter was very good. In this industry I am always
very much a bear in terms of Q4 because in the Learning and Talent market you generally
dont see a lot of purchases at the point in time. But we saw really heavy activity [from
Cornerstones perspective] there was a very very large amount of business in Q4 and even
starting here in Q1.
The overall business environment is, I think, very very strong.I am very encouraged by
what I am seeing out there.
Mentions that he is not seeing much competition to Cornerstone in the mid-market.

Describes the deals in mid-market as shooting fish in the barrel. Not seeing
SuccessFactors/SAP in those deals unless it's an SAP client.

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Starting to see a number of more enterprise sidebigger enterprise20,000 and above

[seats] .some that have never had systems before are really starting to lookseeing others
that are on old legacy systems that are not supported anymore.
Mentions that Cornerstones heavy focus is still Learning and its in the core of everything.
Indicates that he is also seeing a lot of full-suite deals and adds that these are really
mostly new dealsbrand new deals. Also seeing a lot of expansions where a client with
Learning is expanding to use Performance and Succession. Further explains that most of
these expansion deals are happening very quickly after the implementation of one of the
modules. Adds that he is seeing more of Learning, Succession match.
Refers to very large ones [+100k seat deals]. quite a few of themhandful of deals in
the pipeline. I know there are some very large deals in Europe that are going that if they
havent already closed, they are getting very very close. Thinks these might close in Q1 or
early Q2. So, indicates that he is feeling very good from a pipeline perspective.
On a slightly negative side, adds that Cornerstone is very popular but they still struggle
with enterprise from some of the system functionality and from some of the sales model.
Reports that he is also starting to see a large number of Extended Enterprise deals out there
that are very very large as extended enterprise involves training of partners and suppliers
etc. He is working on a few that are in the 50-70k seat range.
Thinks that Cornerstones Recruitment module is okay and has a long way to go.
Adds that people who are going to buy the Recruiting product, are only going to buy the
Recruiting product because it is part of the full suite solution. Mentions that he is seeing
more of IBM Kenexa in terms of standalone Applicant Tracking systems and adds that IBM
has opened it up to all the IBM partners to sell Kenexa. However, thinks Kenexa is nowhere
near ready in terms of overall talent management functionality. Thinks Cornerstones
advantage over Taleo and Kenexa is its seamless integration into the full Cornerstone Suite.
they are happy coming off of Q4. I think the enterprise team is feeling pretty good but the
mid market guys are all very very happy.
Thinks the Workday relationship is going pretty wellI dont see a lot of desire from the
Workday side to enter into the Learning market or expand their Succession product. Adds
that Workday is more inclined in the partner model and partners not only with Cornerstone
but also with Saba, SumTotal and some of the smaller vendors. Talking about the difficulty
of creating Learning products, they take a long time to mature to really get the functionality
worked out. So, if anybody is going to invest in that, then its going to take them years to
get a product out in the market thats going to be useful.
Heard from his peers that SAP/SuccessFactors has not been able to sell even 50 units of
EmployeeCentral, which was SuccessFactors' entry into core HR / system of records. They
are questioning whether they should even try to sell it anymore.and if they are not going
to sell it anymore, then thats a huge piece of their strategy that is just going to disappear.
Industry Contact 5
I still hear really good things [about Cornerstone]frankly I am admirer of the company.
In terms of true SaaS players, I think they are an example of how to build a SaaS business.
But claims to have heard that Cornerstones attrition rate of reps is going up pretty
dramatically. Estimates the turnover, excluding non-performers, is 30-40%, which is
pretty significant in the past six months [please note that this comment is speculative and
unconfirmed].
Has also heard that a lot of reps [in the field] are not really being able to hit their numbers
[in the past few quarters]. They are still doing very very well in Learning but are really
struggling on the true talent management side of the deals [for large enterprises]. Claims
the example of AT&T (believes CSOD lost to IBM) and Merck as large suite deals lost by
Cornerstone in the past few quarters.
Thinks that Cornerstones win rate for Talent Management modules other than Learning
is pretty low.

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Mentions that Cornerstones is doing well in terms of selling other talent management
modules like Performance and Compensation modules to their existing customers. But the
net new [deals driven by the need for a talent management suite for large enterprises]they
are winning some but the percentages that I am getting are pretty low.
Regarding SuccessFactors, has heard that growths tough from a net new perspective for
them.
About Kenexa, thinks they are doing okay but the growth has been slower than what
people would have liked.Where they are doing well is in big enterprise deals but I would
attribute that more to IBM. However, has heard that IBM really struggles to put together
a cloud proposal.
For SumTotal, from his conversations with a top executive, thinks that growth is stagnant.

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Deep-Dive Checks Suggest Consistent Trends, Solid Year-End Demand Environment
PRICE: US$45.55
TARGET: US$57.00
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$57.00
FY13E EPS US$(0.22)
FY14E EPS US$(0.11)
Yield 0.00%
Fiscal Year End Dec
Note: Priced as of the close on August 6, 2013.
60
55
50
45
40
35
30
25
USD
Source: Bloomberg
CONCLUSI ON
Our in-depth conversations with four key CSOD partners paint a detailed picture of
Cornerstone's current business environment. Key positives: 1) partners continue to see
"strong" demand and a "tremendous amount of activity and interest" in the market; 2)
contacts indicate Cornerstone is "making waves" and doing very very well in the mid-
market; and 3) partners referred to a "very healthy" and "incredibly full" pipeline for
Q4. On the negative side of the ledger, one partner senses that the enterprise sales teams
are still working to try to reach their plans by year-end, with less cushion than at this
time a year ago. While we acknowledge a very tough billings comps in Q3, we think the
business is tracking and will lead up to a strong Q4. CSOD is uniquely positioned to
take advantage of a growing market as the only integrated homegrown Cloud suite for
Talent Management. Overweight. $57 PT.
Noteworthy Feedback:
(+) Demand still seems to be strong."
(+) It is clear that the Cornerstone business is tracking very wellmy guess is that
they are going to have a decent Q3 and probably going to have a spectacular Q4.
(+) Learning and Performance still very strongRecruiting seems to be catching up

a bithave seen a quite a bit of compensation [as well], surprisingly [definitely in the
mid market]...the rounding out of the clouds is definitely happening."
(+) [Pipeline is] very healthy.this is the most robust its been everwe are adding
headcount to keep up pretty dramatically.
(=) "I know a lot of the mid-market guys [in the talent management market], they have
already made plans for the year based on where they were for the third quarter... the
enterprise guys [in the talent management market] are a little cautious and I wouldnt
say they are wildly excited."
(=) [Workday potentially developing an LMS] would be a threat.Workday is a very

formidable platform [but] the question there is will they really do it rightto say
you will do it is another thing than doing it and doing it correctly.
solution vendor.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
24.0 27.4 31.2 36.7 119.4 22.5x
37.8A 44.4A 47.7 53.6 183.5 14.7x
53.3 58.1 62.0 68.6 242.1 11.1x
(0.10) (0.09) (0.07) (0.06) (0.31) NM
(0.10)A (0.07)A (0.05) 0.00 (0.22) NM
(0.06) (0.02) (0.04) 0.00 (0.11) NM
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Industry Contact 1
Absolutely seeing a lot of demand in Q3. It is clear that the Cornerstone business is
tracking very wellmy guess is that they are going to have a decent Q3 and probably going
to have a spectacular Q4. Mentions that he is seeing a lot of activity in Q4 but didnt see
anything slower in Q3 either. [In Q3] pace was very consistent [with previous quarters]
and very active.
Learning and Performance still very strongRecruiting seems to be catching up a bitthe

rounding out of the clouds is definitely happeninghave seen a quite a bit of compensation
[as well], surprisingly [definitely in the mid market].
Mentions that the traction with the Recruiting module is on par with his expectation
although my expectation continues to grow.
Senses a general level of excitement within the sales teams [in the talent management
market] and the number of deals seems to be growing.
Indicates that his pipeline for Q4 is very healthy.this is the most robust its been ever
we are adding headcount to keep up pretty dramatically.
Based on his conversations with the sales reps [in the talent management market], mentions
that it seems to be that they are hitting their numbers. They seem to be pretty pumped
in general.
Reports that he was ahead of plan and is forecasting over 50% growth y/y in 2013.
On the competitive front, Saba seems to be losing a lot of dealsSaba seems to be getting
replaced little bit faster than some of the others Cornerstone is doing very well against
Saba.
Cornerstones pricing is definitely going up. I have not seen them having to price
aggressively to win deals.
I have always wondered if Workday and/or Salesforce was going to make a play for
Cornerstone. Also, thinks Microsoft could be the dark horse in the context of potentially
acquiring Cornerstone.
Industry Contact 2
Demand still seems to be strong. I still think that they are getting a lot of play out of the
fact that they have the single true SaaS model and that they have got the expanded capability
to go beyond just training, to integrate some of the talent components.
Referring to big deals [>7-figure] signed in Q3, refers to a couple of deals in the energy
industry that are sizable.
Indicates that Pharmaceutical could be a huge market upside for Cornerstone now that
they have an FDA validated environment [a level of security that Pharmaceutical companies
need as they can be audited by the FDA] for the industry. Adds that Cornerstone didnt have
this validation three years ago. If you signed a three year license in 2010 with SABA and
thats coming up for renewal, now you can consider Cornerstone, which three years ago
you couldnt. Refers to one very large global pharmaceutical player which is in a similar
situation and is going to evaluate Cornerstone for their need.
Indicates that he has a strong pipeline going into Q4.
Competition:
Speaking about the competitive front, reports that the pressure from SAP and the
other big ERPs is building and mounting and that SAP is pushing SuccessFactors
very strongly. Indicates that it could have an impact and at least make the fight
in the market tougher.
Refers to one enterprise client who went with SuccessFactors simply because
they are a big SAP shop, but now the SuccessFactors implementation is taking
so long and going so poorly that they are looking to use Cornerstone in the
interim potentially. So, thinks that despite the pressure in the market from SAP,
some of the opportunities could come back to Cornerstone if the SuccessFactors
implementation doesnt go well.
I still think Cornerstone is in a better position if you were to look apples to apples
and compare the systems. Functionality is on par, if not better at Cornerstone. The
other thing Cornerstone has always had going for [them] is the level of service and
No v e mb e r 4 , 2 0 1 3

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support. Adds that SuccessFactors level of support and service were never at the
level of Cornerstone and I continue to see that.
Referring to the possibility that Workday might delve into the Learning space, that would
be a [potential] threat.Workday is a very formidable platform [but] the question there
is will they really do it rightto say you will do it is another thing than doing it and doing
it correctly. Further adds that Learning is one of the most complex modules to build in the
talent management space.
Based on his conversations with the sales reps [in the talent management market], thinks the
reps are happy coming of the quarter. Indicates that reps are very focused on the customer
and attributes that as one of the reasons for Cornerstones success.
Although he has less visibility into Cornerstones Performance Management and Recruiting
business lines, senses that it continues to grow.
Industry Contact 3
Just from a general perspective, I think we are seeing across the board, just industry wide,
a tremendous amount of activity and interest...
Referring to the demand he saw at the HR Tech conference, probably 40% of the interest
that we received in HR Tech was for selecting a new Learning or talent management
systemthe surprising part was, 9 out of 10 of those companies, that were looking to
select an LMS [Learning Management System] have never owned an LMS before. Also,
highlighting the size of these prospective clients, mentions that except one company, which
was around 5,000 employees, all the rest of the companies were above 10,000 employees.
Mentions that companies in general are really pressed by the fact that there is more and
more training and development of individuals going on within their organizationsthats
the key [driver]thats really the thing thats triggering whats going on.
Thinks that in the mid market area [less than 10k employees], Cornerstone is making
waves and is doing very very well.
Based on his conversations with the sales reps [in the talent management market], adds
that for Q3, the enterprise guys [in the talent management market] are a little cautious
and I wouldnt say they are wildly excited. I know a lot of the mid market guys [in the
talent management market], they have already made plans for the year based on where they
were [for the] third quarterso, mid market guys are doing very very well and they are
continuing to press for additional opportunitiesI think enterprise guys are still working
to try to make sure they hit that number before the end of the year. Mentions that same
time last year the enterprise reps [in the talent management market] were at plan by the end
of Q3, this year its taking a little bit longer and thinks some of the enterprise reps [in the
talent management market] could be well over plan by the end of the year.
He continues to hear that their [Cornerstones] pipeline is incredibly full for Q4I think
there is a tremendous amount of activity in a variety of areas there [in Cornerstone]
They struggle in some of the larger projects just because the capabilities of the LMS side
of the system are not as well developed as their competitors such as SumTotal or Saba. So,
thinks Cornerstone still misses out on deals in the large enterprises. Adds that also from
a services aspect, they are still a little bit immature in the services side just because they are
trying to focus on the very rapid implementation model that sometimes is not what some
of those bigger organizations are looking for.
Reports that he was on plan for Q3 and not ahead of plan although he thinks we will be
well ahead of plan by the end of Q4a good amount of that will be driven from Cornerstone
traffic. Mentions that for his business in the last 10 years, Q3 has always been the biggest
quarter for the year for us[this year] everything is trending to the fact that thats actually
shifted a quarter for us this yearQ4 is tracking to be a very very large quarter as is Q1.
Mentions that although he hasnt heard of any large deals signed in Q3, has heard that
there are some very good sized extended enterprise deals in the pipeline. Adds that the
largest deal he has heard is about a 45k seats, but thinks there are a good number of deals
in the 10k-25k range as well as in the 1k-5k range. I think the revenue per seat is much
greater on the mid market deals than it is on the enterprise deals
No v e mb e r 4 , 2 0 1 3

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Reports that he is seeing a lot of deals that involve the Compensation module. Explains that
Cornerstones Compensation module, although not the strongest thats out there but it
meets the needs of a lot of mid market businesses.
Indicates that he not seeing much of Recruiting deals, as he thinks Recruiting is a very
competitive field.
Speaking about the public sector, although he is not seeing much activity in the federal
sector area, but state and local government these guys [Cornerstone] are moving along
pretty well.I think they have got some real opportunities in the higher-Ed side. Thinks
companies like Blackboard are faltering a little bit and sees that space as having a lot of
opportunities for Cornerstone.
We still see deals coming through on the ADP side fairly regularly but thinks that the
relationship is more of a referral now as compared to ADP actually selling Cornerstone.
Thinks that it could be a threat to Cornerstone if Workday comes out with an LMS, but
building an LMSthats a huge challengethats just as complicated as anything that you
want to build out there.
Indicates that any more consolidations in the industry, especially involving legacy vendors
such as Saba, might bode really well for Cornerstone. Thinks Saba could be a potential
acquisition target for someone like IBM.
Thinks SuccessFactors is refining their approach and mostly changing the way they
were doing things. Reports that, unlike last year, this year at the HR Tech conference,
SuccessFactors was branded as themselves as opposed to as SAP. Also seeing SuccessFactors
heavily pushing EmployeeCentral [SuccessFactors' core HR module] into the market.
Demos that they were doing [at HR Tech Conference] were all Employee Central.
Industry Contact 4
From what I can see they [Cornerstone] seem to be the darling child.
Its pretty clear that a lot of clients are wanting, are searching for a solution that can enable
them to better manage their talent overall.
Reports his firm still runs up against all the usual suspects in competitive bids, such as
Taleo and SuccessFactors, and Peoplefluent in some situations. His firm tends to be solution
agnostic for its clients.
Performance management edges out Learning management among all the vendor products
he resells, but not by much. This hasnt changed much recently. Compensation and
Succession have gained some momentum recently.
He reports that some of his clients have embraced Cornerstones Social collaboration
functionality and like it. Other clients state that they arent sure how to best leverage it, and
that its not in their culture to use a social collaboration tool. Adoption within business [of
social collaboration], I dont know yet.
No v e mb e r 4 , 2 0 1 3

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Deep Dive Partner Interviews Indicate Continued Strength, Likely Stronger 2H
PRICE: US$46.12
TARGET: US$55.00
$73m in Net Cash (58.7M s/o)
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY13E EPS US$(0.18)
FY14E EPS US$(0.10)
Yield 0.00%
Fiscal Year End Dec
50
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
Our detailed conversations with 6 key CSOD partners paint a detailed picture of
Cornerstone's current business environment. Key points: 1) partners continue to see
strong momentum across both enterprise as well as mid-market and refer to a "strong
close" to the quarter; 2) partners feel that although Q2 felt better than Q1, the 2H of the
year could see even more traction as compared to the first half; 3) partners referred to a
60/40 deal mix between Learning and Performance and also indicated a "lot of interest"
around the Recruiting product; and 4) partners in general observe that the market is
"picking up pace" and "RFPs are coming out of the woodwork right now." Bottom Line:
the unique power of the integrated homegrown Cloud suite for Talent Management is
enabling CSOD to pull away from the pack and leverage powerful demographic and
workforce tailwinds. Overweight. PT to $55 ($45 prior).
Noteworthy Feedback
(+) Cornerstone is doing very very well...still continuing to grow and may be even
growing more than expected in the mid market.
(+) Cornerstone is throwing us more than we can handle right now and he is trying
to hire as quick as I can.
(+) I didnt find any sales people [in the talent management ecosystem] who were
not where they wanted to be by the middle of the year, although some had hoped
of some bigger moments and some bigger deals.
(+) Talking to some enterprise reps handling larger accounts [in the talent
management ecosystem], their pipeline is significantlyreally filled up for the
second half of the year.they are really excited about what could potentially happen
in the rest of the year.
(+) I absolutely think that they are going to have more business in the second half of
the year than they did in the first half.
(+) Cornerstone continue to be the alternative to anyone not interested in doing

business with SAP.
solution vendor.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
24.0 27.4 31.2 36.7 119.4 22.7x
37.8A 41.5 46.5 55.3 181.0 15.0x
52.2 54.8 59.5 69.6 236.1 11.5x
(0.10) (0.09) (0.07) (0.06) (0.31) NM
(0.10)A (0.07) (0.04) 0.02 (0.18) NM
(0.08) (0.04) (0.04) 0.06 (0.10) NM

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Industry Contact 1
Mentions that Cornerstone is doing very very well...still continuing to grow and may be
even growing more than expected in the mid market.
Mentions that overall level of business in the last three months has been right where I
expected it to be, in terms of volumes. Referring to a typical back-end loaded quarter,
mentions that in May I was worried because I wasnt seeing the volumes that I expected,
but June more than made up for it. Mentions that the Cornerstone teams that work on
signing-off on deals are working overtime on a regular basis writing these statements of
work and putting deals together.
From his perspective, we have seen a lot more mid market deals as compared to the
enterprise side.
From his perspective and what he is hearing in the market, my expectation for next
quarter (Q3) is that its going to be pretty big. Based on his pipeline visibility and current
conversations with prospective customers, I dont know if Q4 is going to be that big. I
know Q3 will be very big and I think Q1 will be very big. Thinks sales reps [in the talent
management ecosystem] are pretty bullish about whats going to go on in Q3, from what
I am hearing.
Based on his conversations with a few sales reps [in the talent management ecosystem],
thinks that they felt good coming off Q2. I didnt find any sales people [in the talent
management ecosystem] who were not where they wanted to be by the middle of the
year, although some had hoped of some bigger moments and some bigger deals. Adds
that talking to some enterprise reps handling larger accounts [in the talent management
ecosystem], their pipeline is significantlyreally filled up for the second half of the
year.they are really excited about what could potentially happen in the rest of the year.
Talking about big deals from his perspective, he hasnt heard of anything in Q2, but thinks
that they will have quite a few in Q3, with one or two 7-figure deals and then there are
several that are high 6-figures.
Mentions that the mix is definitely Learning...We are starting to see more and more
bundling of Learning & Performance and Learning & Succession. Also, mentions that
he is seeing a few Recruiting deals. I think they are doing a very good job of selling
additional clouds.
Mentions that bundling of multiple clouds typically results in delaying the signing of a
deal by a one to two quarters, as the client needs time to put together a strategy around
Succession or Performance. Mentions that once Cornerstone hones in on the approach to
selling multiple clouds, they are going to be able to do a lot of up sells from one cloud to
multiple clouds. He is seeing multiple clouds being sold as an up sell to existing customers
as well as completely new sale to new customers.
Mentions that he is starting to see a lot of CEOs pushing toward the route for integrated
talent management solutions and are trying to figure out strategies and processes around
an integrated approach to learning, performance and succession.
Thinks that he doesnt believe that customers will buy Cornerstone only for Recruiting.
They are going to be buying Cornerstone for the seamless integration between learning,
performance, succession and connect. They might buy recruiting because they bought those
other pieces, but I dont think recruiting is going to be a lead purchase for anybody.
Thinks that they are doing quite well in public sector. Thinks that the focus within public
sector where most deals will close is mainly state and local governments as opposed to
federal. The big federal deals are a little bit slower right now. Thinks that Cornerstone is
doing a very very good job in the state and local space and is building a sales force focused
on that area. They are actually performing quite well. Thinks there is a huge education
opportunity for Cornerstone. Thinks that Blackboard is losing share in the K-12 market.
Thinks that Cornerstone is, just in general, working through some struggles in trying to
figure out their service model, in terms of how are they going to deliver services, either
through partners or direct. Mentions that there was a big focus on implementing the
services internally in the month of May and then in late June and in July there has been a
lot more focus on partners. Thinks that there could be some internal leadership structure
challenges, which could be the source of these debates, typically between the services teams
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On the competitive front, he is seeing SuccessFactors, Saba, SumTotal, NetDimensions and

a few others:
SuccessFactors is buying a lot of business by offering really really low prices.
Mentions that they have improved their application but I still dont think that it
can beat Cornerstone.
Mentions that Saba is turning a corner. Mentions that their new leadership and
the changes they are making are really good. Mentions that he expects to see Saba
being very competitive in the enterprise market.
Thinks that SumTotal has fixed their customer service issues. The product was
always really good and they are changing the environment in that company to be
very customer centric, very customer centric. Thinks they are going to be a big
competition in the enterprise market as well.
In terms of prices, I have been pleased that even where we see SuccessFactors trying to buy
some of the market, that other organizations are not trying to just match price. They are
holding strong on the pricing and pricing model. On the services side, mentions that he is
actually seeing an uptick in pricing in terms of what people are willing to pay.
"From an adoption standpoint, we are getting beyond the organizations who say 'I am
buying an LMS and I want to pay as little for the LMS [Learning Management System] and
as little for the implementation as I possibly can', to organizations saying - 'you know what,
I know its going to take some work to do it right, but I am willing to invest in being able to
do that.' Thats a good sign of the maturation of the market, I believe.
Industry Contact 2
From his Cornerstone business perspective, 2

nd
quarter had a strong close to it. Adds that
the Q2 pipeline was a little bit volatile in the sense that some of the deals that closed in
the quarter were not in the funnel until the end and were last minute, while some others
that were projected to close didnt close in the quarter.
Mentions that Cornerstone continues to compete well against other vendors in the space.
Reports that Cornerstone continue to be the alternative to anyone not interested in doing
business with SAP. Thinks that the SAP acquisition of SuccessFactors didnt go as SAP
would have envisioned. He saw a lot of reorgs, even before Lars Dalgard left the company.
Thinks many sales guys will jump ship once their options expire.
Senses that the market is actually at a point now where its ready to adopt some of the new
capabilities that Cornerstone has released recently. They continue to be in a really good
position to satisfy most customers requirements.
Seeing some good amount of pull for their [Cornerstones] Recruiting solutionso a lot
of interest. But thinks that the market is still waiting for it to catch up and thinks that
Cornerstone should see significant traction for its Recruiting product by next year. In the
meantime, I am starting to get calls from potential candidates from Oracle Taleo, who
want to work for his Cornerstone practice. Mentions that its another sign that the market
is moving towards Cornerstone, away from the ERP providers.
Mentions that he is seeing a deal mix of 60% Learning and 40% Performance (including
succession).
Indicated that his Cornerstone practice closed 8-10 sizable opportunities in Q2.
Referring to the pipeline, He is bullish about the 2

nd
half of the year. Cornerstone is
throwing us more than we can handle right now and he is trying to hire as quick as I can.
thinks that they are happy and pumped up coming off the quarter.
Thinks that the Workday-Cornerstone relationship is going strong. Have had some inquiries
from Workday partners to engage Cornerstone in some Learning opportunities. Adds that
Workday continues to compete with Cornerstone as well for Performance, Succession and
Compensation. [Ruminating on potentially intriguing match-ups], he sees Salesforce.com
acquiring Cornerstone, as opposed to Workday acquiring Cornerstone.
For his Cornerstone practice, he was above his internal plan for Q2.
Talking about Convergence [Cornerstones user conference], the attendance was a lot
larger that it was in the past. Estimates that there were about 1,000 people in total of which
600 were customers, whereas last year the total count was around 600.

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Industry Contact 3
Talking about continuous rolling out of new functionalities, they keep bringing out more
stuff that further solidifies their spot in the Learning and talent space".
Based on a slide he saw in the user conference that showed the number of Cornerstone
customers sorted according to the number of modules that they owned, he observed that
the number fell off pretty sharply after 3 modules. Number of customers with 4, 5 and
6 modules were significantly smaller.
Observes that Cornerstone is being pretty successful going downstream (up to 3,000
employees) with the Cornerstone for Small Business (CSB) product. Thinks there is a lot
of potential in that market.
I absolutely think that they are going to have more business in the second half of the year
than they did in the first half.
From his perspective and based on his conversations in the ecosystem, I think Q2 was better
than Q1...I definitely believe that the guys [sales reps in the talent management ecosystem]
in the southeast feel like Q2 was better than Q1...They all seem confident in the business
that they have got in hand and they are even more confident about the business looking
forward.
Thinks that the market is picking up, absolutely...Companies are releasing dollars to be
spent. RFPs are coming out of the woodwork right now.
Recruiting I still think that the product itself is rather thin. Thinks that Recruiting will
be an add-on module for an existing customer who already owns a large part of the platform.
Thinks that there will be a lot of product development over the next year.
Refers to one 7-figure deal with a company which is a global leader in consumer transaction
technologies. Believes that there are more 7-figure deals in the 2H of the year. The bigger
companies are really starting to spend money now.
Workday relationship Mentions that the last time he heard anything about the Workday
relationship was about 6 months ago and they had quite a pipeline of stuff working
together. Suspects that there continues to be a lot of business coming from that
relationship. Mentions that although Workday has multiple LMS partners, they dont talk
about anybody else but Cornerstone.
For his Cornerstone practice, adds that he was at plan for Q2 and indicates that he will
be above plan for Q3. His practice is growing at 20% CAGR through 2012 but believes
he can grow 25-30% y/y in 2013.
To me Learning is a very complex implementation process. Learning is a more mature

business process than performance and succession, particularly with respect to using
automation for that. Mentions that customers dont want to replace a learning system,
particularly if its working well. Once Cornerstone lands the learning piece and its
implemented and its working well, I think customers are going to be very hesitant to move
off of that learning product. They will be more likely to add modules on to learning than
to add modules on to something else and move towards replacing learning in the future.
Thinks that the deal with the LA County school district, which is the second largest school
district in the nation, was a pretty big deal but was signed in Q1.
Industry Contact 4
Everything that I am seeing is picking up pace.
Thinks that Learning and Performance are both going strong...I have seen a lot of
performance, both opportunities and deals.
Mentions that he is also seeing some continued uptick in Recruiting. Thinks that
recruiting is solidifying itself as a full fledged product and a full featured product and
believes that it has got a great potential.
Thinks that the challenges that Saba is facing are playing out in Cornerstone's favor. I see
a lot of potential Saba replacements on the horizon.
they seem pretty excited. Based on his visibility, it looks like they might have led a couple
of good sized [7-figure] deals in Q2.
For his Cornerstone practice, we are above plan for sure.

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Pipeline looks greatthere seems to be a really strong interest in CornerstoneI dont see
any downside right nowIts definitely looking very strong. Thinks that it is going to be
a continued successful year.
Thinks that Convergence [Cornerstones annual user conference] seemed really strong as
represented by strong client turnout. Also, mentions that the partner ecosystem continues
to grow, which is a good sign.
Industry Contact 5
Seeing good demand in the Learning space.
When we think about learning, Cornerstone is one of the folks we think about. Thinks
Cornerstone is one of the best in the industry in the learning space.
Industry Contact 6
Competition:
Its certainly nice to have a company like SAP behind SuccessFactors. I think what
the perception is, whether reality or not, the way theyre marketing it, it hasnt scared
people away. Customers feel comfortable that they can go to SuccessFactors for
talent management and not feel compelled to buy Employee Central.
For Oracle and Taleo, I feel like people are shying away from looking at Taleo as an
independent recruiting solution anymore, because of the way Oracle markets them.
Oracle has largely integrated Taleo with Fusion.
Recruiting module:
Certainly Cornerstones home-grown solution and independence I think is
strength. Cornerstone recently released its recruitment module, and as it gets better
and more robust she thinks the platform will even be stronger. Her impression of
the recruitment module so far is that its in its infancy phase.
Price Target Raising price target to $55 (was $45) = 13.5x (was 11x) CY2014 Revenue of $234.2M + net
cash of $73M and 58.7M s/o. Higher multiple reflects higher peer group multiple.

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CSOD Conference: Proprietary Survey Shows Strong Customer Spending Intentions
PRICE: US$40.96
TARGET: US$45.00
11x EV/2014E revenue of $236.1M + $73m
in Net Cash (58.7M s/o)
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$45.00
FY13E EPS US$(0.18)
FY14E EPS US$(0.10)
Yield 0.00%
Fiscal Year End Dec
Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13
45
40
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
Last week we conducted a proprietary survey of 21 of CSOD's customers at its user
conference, asking about their spending intentions on CSOD, and if near-term plans
included the purchase of additional Cornerstone products. 81% of customers responded
that they would spend more on Cornerstone this year than last year, which includes
additional spending due to both headcount growth and acquiring new products. We
also asked customers if they had plans to buy another Cornerstone product in the near
term, and 43% responded affirmatively. Performance Management was most frequently
mentioned (by 5 customers), followed by Recruiting (2) and Social Connect (2). These
customer responses, along with management's bullish view of its market opportunity,
strengthen our belief that Cornerstone remains well positioned to continue its market
share gains and remain a leader in its space. OW, $45 PT.
Existing Customers Spending More with Cornerstone. We asked customers whether

or not they planned to make additional expenditures on Cornerstone and were
surprised that 81% said their plans included adding additional seats (i.e., headcount
driven growth) or products. Slightly more than half of those spending more money
will be adding a new product. Although the company recently released a Recruiting
product, Performance Management (which includes reviews, succession planning and
compensation management) was most frequently cited by customers we surveyed.
The primary feedback regarding Cornerstone's Recruiting product is that it didn't yet
have all the functionality necessary to supplant their existing recruiting solution. We
also spoke with some customers who planned to acquire Social Connect, which is
Cornerstone's Social Networking product.
Competitive Dynamics Shifting. During lunch with management, the company

highlighted the impact it expects from the departure of Lars Dalgaard from SAP
SuccessFactors. Cornerstone believes that SuccessFactors is still competitive and they
still have a very good Performance product. However, when CSOD walks into the room
at a F50 account, Lars won't show up anymore, and he was a "big gun." Furthermore,
some of SuccessFactors' employees were under 18-month retention plans which are
expiring this month. In addition, CSOD believes that SAP's price drops are becoming
less effective. SuccessFactors is now under the leadership of Ariba, and the core
development team from SuccessFactors is under SAP's core development team, which
CSOD believes will be a disadvantage for SuccessFactors.
***SEE PAGE 2 FOR ADDITIONAL TEXT AND CHARTS***

solution vendor.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
24.0 27.4 31.2 36.7 119.4 20.1x
37.8A 41.5 46.5 55.3 181.0 13.3x
52.2 54.8 59.5 69.6 236.1 10.2x
(0.10) (0.09) (0.07) (0.06) (0.31) NM
(0.10)A (0.07) (0.04) 0.02 (0.18) NM
(0.08) (0.04) (0.04) 0.06 (0.10) NM

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Several of the customers we spoke with are currently using Taleo for their recruiting tool
and have said that Cornerstone's Recruiting tool does not yet have the required functionality
to make it worthwhile to replace Taleo right now. However, some of these customers also
noted that Oracle has neglected them, as well as the product, and their satisfaction with
Taleo has decreased since it was acquired by Oracle. CSOD management said that although
its own Recruiting product is not yet good enough to compete head to head with Taleo,
it eventually will be. Additionally, Cornerstone has already sold Recruiting to "dozens and
dozens" of customers, and it's been implemented a "few dozen" times at some smaller
customers. Eventual feature parity, a single platform and current customer dissatisfaction with
the direction Taleo has taken could create a perfect storm of conditions for Cornerstone to
become a significant recruiting player.
81%
19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Yes No
Will you spend more money with Cornerstone this
year than last year?
43%
57%
0%
10%
20%
30%
40%
50%
60%
Do you plan to buy another product from
Cornerstone in the near term?
0%
10%
Yes No

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Strong Checks Indicate Continued Positive Traction, Large Deal Activity
PRICE: US$35.15
TARGET: US$45.00
11x EV/2014E revenue of $234.2m +
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY13E EPS US$(0.18)
FY14E EPS US$(0.10)
Yield 0.00%
Fiscal Year End Dec
Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13
40
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
Our detailed conversations with 4 top CSOD partners paint a picture of strong positive
momentum. Key points: 1) partners regularly cited growth rates of 40-50% for their
own practices; 2) qualitatively, partners see a "robustness of growth out there" and are
growing more optimistic about the runway for CSOD; 3) several large transactions with
"household names" exceeding 50,000 or even 100,000 seats are visible in the pipeline; and
4) a major update to the nascent Recruiting product is expected in June, enabling CSOD
to compete effectively with Taleo, Kenexa, and others. Bottom Line: the unique power
of the integrated homegrown Cloud suite for Talent Management is enabling CSOD to
pull away from the pack and leverage powerful demographic and workforce tailwinds.
Overweight. Price target to $45 from $36.
Noteworthy Feedback
(+) All I am seeing is upside right now. I am seeing activity across the board.
(+) They [Cornerstone] have got some really positive traction, especially on the
enterprise sidesignificant traffic at levels I havent seen in a long time.
(+) I know there are some big deals that are either closing or are closed right now
some pretty significantly sized [at least over 50,000 seats] ones in Q2.
(+) I think there are a number of [redacted] individuals across the sales team that
have never really hit their numbers in the past, that I think are going to hit or exceed
their quota..."
(+) My biggest concern right now is hiring at a pace that we can keep up with the
demand...that would be globally.
(+) There is a robustness of growth out there in the [Cornerstone] partner

ecosystem.
(=) Q1 started off really slow...it was almost painfully slow in the January
timeframebut it very very rapidly picked up toward the end of the quarter.
solution vendor.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
24.0 27.4 31.2 36.7 119.4 17.2x
37.9 41.2 46.2 54.3 179.6 11.4x
52.3 54.3 59.1 68.5 234.2 8.8x
(0.10) (0.09) (0.07) (0.06) (0.31) NM
(0.09) (0.06) (0.04) 0.01 (0.18) NM
(0.07) (0.04) (0.04) 0.05 (0.10) NM

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Industry Contact 1
All I am seeing is upside right now. I am seeing activity across the board.... Just the overall
activity in the spaceits very busy. There is a lot going on, lots of interest. I dont see any
downturns at allit's just accelerating.
Mentions that although Learning and Performance are the stronger modules and typically
lead the way, he is starting to see a lot of multi-cloud deals that are involving Recruiting,
Compensation, etc. I am seeing the other modules pick up.
Mentions that Compensation seems to be busy lately too. Thinks that Cornerstones
Compensation module is still not the market leader and has a ways to go, but clients like
it because it's part of the integrated solution.
Demand around Recruiting seems to be increasing steadily. Thinks that it is still very
young, but is starting to gain traction.
Mentions that he tends to see SuccessFactors and Taleo periodically. Also, tend to see Saba
"quite a bit. Adds that Saba is currently distracted with internal accounting problems,
which is a clear advantage for Cornerstone.
Regarding the mobile strategy among the various vendors, thinks that Cornerstone plays
natively well on tablets...thats certainly one thing in their favor. Thinks mobility is an
opportunity for growth for Cornerstone and they have not marketed it heavily enough.
Refers to a large +100,000 seats deal with a global named brand closed recently by
Cornerstone.
they are pretty pumped and seems like the attitudes are very positive for sure.
I grow more optimistic as I move forwardthis is probably going to be the best quarter ever
[for his business]we are seeing just tremendous activity and upside. Thinks Q1 looked
great...looked pretty good but thinks Q2 is going to be even better. Mentions that he
was on plan for Q1 and forecasting a 40-50% y/y growth rate for 2013.
I am curious to see if they [Cornerstone] end up really building up the partner ecosystem
similar to what Salesforce has. I think its certainly something thats feasible. Mentions
that Cornerstone has already opened its platform up to some extent. It's pretty open in
terms of ways you can integrate it. Thinks that many people dont realize the potential
of the platform but thinks that its gaining attention, as validated by some new strategic
partnerships.
Thinks there will be quite a turnout at Convergence [Cornerstone's annual user

conference] this year and he is very excited about it.
Industry Contact 2
Mentions that he continues to see a robust demand environment for Cornerstones products
and services. My biggest concern right now is hiring at a pace that we can keep up with
the demand...that would be globally. Mentions that most of the demand he is seeing is in
the US but also seeing a lot of strength in Europe. Asia I am not as bullish on.
Mentions that he is seeing demand across the entire suite. Learning is still the most popular
of the modules but followed pretty quickly by Performance management. Adds that he is
seeing on average 2 clouds per deal.
Expects Recruiting to reach prime time in terms of product maturity in Q3 in terms of

being able to truly go out with campaigns centered on replacing legacy Taleo customers
and Kenexa customers and so forth.
Mentions that he is seeing deal activity involving many household names including a
global financial services firm with over 50k employees and a couple of large retailers. Its
across the board. Thinks that the deal with the financial services firm is a big deal and is
a competitive win over SAP.
they are happy coming off the quarter.
There is a robustness of growth out there in the [Cornerstone] partner ecosystem.
Talking about the robustness of the pipeline, it is across the board financial services,
retail, professional services, transportation, education and public sectordefinitely seeing
demand across the board.
Based on his conversations with hires from ADP, thinks that within ADP, the Cornerstone
relationship is not a big point of emphasis, in terms of providing services.

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Mentions that for integrated talent management requirements, the two top names that
are part of the bake-off are Cornerstone and SuccessFactors. Those are the two most
consistently at the table. Mentions that there might be another vendor involved, if
Recruiting is a big focus. Mentions that he is not hearing much about Oracle Fusion or
PeopleFluent.
Thinks that Cornerstone has taken a philosophical change in direction as it relates to

partners." Mentions that Cornerstone is outsourcing a large amount of their professional
services work.
Industry Contact 3
Mentions that Q1 started off really slow...it was almost painfully slow in the January
timeframebut it very very rapidly picked up toward the end of the quarter. Mentions
that toward the end of Q1 and the beginning of Q2, he is seeing some pretty significant
acceleration across the entire market place in this space.
For Cornerstone specifically, thinks that they have got some really positive traction,
especially on the enterprise sidesignificant traffic at levels I havent seen in a long time.
Mentions that the demand is driven by two sets of customers:

Pretty decent sized organizations (5,000-20,000 employees) that never had a
Learning Management System [LMS] or a Talent Management System before.
Organizations that are customers of the formerly acquired companies such as Taleo
and SuccessFactors. Thinks many such organizations are trying to find a way out
of those situations because, they dont want to be an SAP or an Oracle client. I
think there are a lot of those people who are in the market as well.
From his business, LMS or Learning is still the number one thing we see as a request out
thereadding Performance, Succession, Recruiting is beginning to build on.
Mentions that he is seeing a lot of deals that are Learning only.
Mentions that among the deals his business is involved in, clients looking to do add-
ons are around 10-15%.
Among the different Cornerstone modules in terms of demand, ranks Learning
[first], followed by Performance and Recruiting.
We are seeing a real demand for integrated talent management and integrated talent
management strategies.that also leads on to opportunities for Cornerstone because their
system then can take those strategies and help push them into reality.
From an overall market standpoint, mentions that we are seeing high levels of demand for
new and improved Recruiting tools and Recruiting products. Even Taleo customers are
beginning to come back and ask for either more capability or to not be part of Oracle.
Thinks that there is a new release for Cornerstones Recruiting product coming out in the
1H of June. From everything we have heard, it doesnt solve all the problems but it definitely
creates a much more mature product.
Based on demand for full integrated systems, among the vendors in the space, he ranks
Cornerstone at the top, followed by SuccessFactors and SumTotal. Thinks PeopleFluent is
a close fourth but has a weak LMS.
I know there are some big deals that are either closing or are closed right nowsome pretty
significantly sized [at least over 50,000 seats] ones in Q2. Thinks that one of the deals he
is aware of is over 100,000 seats.
For his business, he saw a few deals getting pushed into Q2 and got closed in the first two
weeks of April. Doesnt think its because of macro issues or spending being tight. Most
organizationssat on their thumbs and really didnt do anything in January.and then
getting towards the 2
nd
or 3
rd
week in February, all of a sudden the activity happened and
I think a lot of companies ran out of time to be able to get their deals close by the end of
quarter.
they are happy coming off the quarter. I think there are a number of [redacted] individuals
across the sales team that have never really hit their numbers in the past, that I think are
going to hit or exceed their quota [in Q1 and potentially in Q2].I think everybody is pretty
pleased but they want to keep it going.

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Mentions that he was above his internal forecast for his business and we are actually
significantly along the way for the first part of Q2 as well. He thinks that he could grow
30-40% in 2013.
Talking about SuccessFactors, they are telling a really strong mobile story right now
but they also have some pretty big misses. Mentions that the administrative side of
SuccessFactors [product] has all been built on flash and hence cannot run on an iOS device.
Industry Contact 4
Cornerstone is a really great system.it's fairly robust it could be way too much for a
smaller client. But if you have the right type of client, its a really really great application.
We just put one of our larger clients in the Cornerstone platform. About a 2,000 employee
deal for Performance management, Compensation management and Learning and Content
Management.
[Contacts in the SaaS integrated Talent Management Suite ecosystem] sound excited
coming off of Q1 Yes, absolutely do.
Thinks that Cornerstone is trying to come down market a little bit and will grow in the
SMB space through acquisitions.
Price Target Raising price target to $45 (was $36) = 11x (was 8.6x) CY2014 Revenue of $234.2M + net
cash of $74.6M and 58.4M s/o. Higher multiple reflects higher peer group multiple.

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F e b r u a r y 1 2 , 2 0 1 3
Deep Dive Partner Interviews Suggest Consistent Momentum
PRICE: US$32.80
TARGET: US$36.00
9.4x EV/2014E revenue of $214.5m +
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY12E EPS US$(0.34)
FY13E EPS US$(0.23)
Yield 0.00%
Fiscal Year End Dec
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
Our detailed conversations with 5 key contacts in the CSOD ecosystem paint a picture
of consistent year end momentum. Key points: 1) partners experienced strong year-end
deal volumes with a few deals exceeding 100k seats; 2) Cornerstone is able to hold onto
its price points despite aggressive pricing tactics by one of its competitors; 3) Clients are
increasingly buying "on average two clouds at a time"; and 4) partners believe that a few
deals might have been pushed into Q1, although the Q4 volume was strong enough to
offset any slippage. Bottom Line: We expect sub-seasonal billings growth coming off a
powerful Q3, but think CSOD was able to meet aggressive targets and see an upward
bias to our revenue target even if billings growth moderates. OW, PT to $36 from $32.
Noteworthy Feedback
(+) At least from my vantage point, they [Cornerstone] continue to close really good
sized deals. They are winning their fair share of the corporate marketplace.
(+) From the areas that we work with specifically, very, very good volume of business
at the close of the year and very good volume for Q1 as well.
(+) People are starting to buy based on the concept of an integrated suite. I see that
in more and more of their [Cornerstone's] projects.
(+) Cornerstone is doing more multi-talent - Performance, Learning deals than they
were prior when it was mainly Learning.
(+) "I think its [2013] going to be a big year for CornerstoneQ4 is going to be a
strong launching point for a very strong 2013.
(+) Conversation with sales reps [in the SaaS talent management ecosystem]: The
ones we are talking to are feeling very well. They are feeling very good. Some of them
hit their biggest numbers ever. And they have got pipeline that is going to help them
get even bigger.
(+) Workday Partnership: In fact the other LMS vendors who have a partnership
[with Workday]their sales people say that its useless to try to work with them
[Workday] because they are so in bed with Cornerstone.
** DETAILED FEEDBACK on pages 2-5 **
solution vendor.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
15.7 17.4 20.0 22.4 75.5 25.1x
24.0A 27.4A 31.2A 35.1 117.8 16.1x
35.3 37.6 43.1 48.5 164.4 11.5x
(0.26) (0.07) (0.06) (0.06) (0.32) NM
(0.10)A (0.09)A (0.07)A (0.07) (0.34) NM
(0.12) (0.08) (0.04) 0.01 (0.23) NM

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Industry Contact 1
At least from my vantage point, they [Cornerstone] continue to close really good sized
deals. They are winning their fair share of the corporate marketplace.
Big deals
Refers to a large deal in the High Tech sector closed in Q4 with at least 150k users
and potentially a lot more than that because they have got the Extended Enterprise
model. So, its a big dealit was highly contestedand they [Cornerstone]
brought it home. Thinks that its specifically a Learning deal.
Also refers to another High tech deal that closed in Q4 with about 40k users in total,
out of which 30k seats are just in China.
Thinks that increasing adoption of Cornerstone by High tech clients, who are
generally at the forefront of technology, is also a really positive sign.
Overall, he is seeing more and more larger deals getting closed.
Thinks that many of the mid-sized deals (5-10k seats) are tapping into modules other than
Learning, mainly Performance. People are starting to buy based on the concept of an
integrated suite. I see that in more and more of their [Cornerstone's] projects.
Thinks Cornerstone is able to get a price point close to $8-10 per user per year for large deals
like the one mentioned, and are able to secure $25/user/year price point for deals around
10k seats. Thinks that these could be the result of bundling product modules, but certainly
they are not having to compete necessarily on price, which is a good thing.
Mentions that the sales executive [in the SaaS Talent Management ecosystem] in his region
exceeded his numbers. That means all of the sales reps [under the exec] are producing close
to their bogey.
Cornerstone has expanded their platform from a regulatory compliance standpoint. They
can now claim they have got a validated environment for 21 CFR part 11 customers.
21 CFR part 11 is the FDA guideline on electronic records and electronic signature
applicable for drug makers, medical device manufacturers, biotech companies,
biologics developers, CROs, and other FDA-regulated industries.
Thinks that the certification completed in fall 2012 opens up a big, whole new
market that has been dominated by Plateau, Saba and SumTotal. Thinks that it
could open up an avalanche of opportunities.
Mentions that validating a new SAP instance with Plateau is way more expensive for
a customer, because of the numerous customizations involved, as compared to doing
the validation for Cornerstone. Because they are a SaaS platform, because that
platform gets updated once a quarter, I think they have got a very clear advantage.
Thinks that there is a lot of buzz about the Recruiting product, but hasnt seen any deal that
involves Recruiting. However, adds that this could also be because of his limited visibility
outside Learning.
Thinks that his Cornerstone practice should grow about 30% in 2013 y/y.
Mentions that SuccessFactors is making inroads into the SAP install base and is starting to
lobby the big SAP customers. Refers to an equipment manufacturer with around 45k users
that is in the process of ripping out SumTotal for SuccessFactors and Plateau.
Thinks that the Cornerstone-Workday partnership is working out extremely well.

In fact the other LMS vendors who have a partnership [with Workday]their sales
people say that its useless to try to work with them [Workday] because they are so
in bed with Cornerstone.
Thinks that relationship is certainly blossoming.
In the May timeframe, they [Workday-Cornerstone] had 30-something deals in the
pipelineI bet its even bigger now.
Mentions that two years ago, SumTotal was the biggest LMS player by a factor of 2 they
were twice as big as anybody else in the marketplace. That company is collapsing on itself.
Its going to create a huge void in pretty large customers and I think Cornerstone is going
to win a fair share of that business. Predicts that in the next 12-18 months, all the clients
will come off of the SumTotal platform.
Thinks that Workday had a territory realignment in the enterprise sales side, where sales
executives were given new sales reps and new accounts were set up. A friend of his who is an
enterprise sales executive at Workday was telling him that he needs just one deal to make
his numberjust the size of those deals are much bigger.

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Industry Contact 2
Based on his limited view of Cornerstones business: very, very good numbers from sales
people and from the business. From the areas that we work with specifically, very, very
good volume of business at the close of the year and very good volume for Q1 as well.
If Cornerstone sells a lot in December or Q4, we are going to see a lot of activity in Q1.
We are just beginning to see some of that Q1 activity
From his perspective, the business activities on our end are busier than we have ever been in
January till this pointits all good quality businessI think Q1 for us is going to look very,
very strong and a good amount of that is because Cornerstone is looking very strong in Q1.
Because of the fiscal cliff / tax discussions, adds that in some areas he saw that a number
of organizations didnt want to spend their money in December and wanted to push
it to January. Even though he thinks that Cornerstone might have experienced similar
situations in Q4, he thinks that the volume still was great enough that that wasnt a problem
[for Cornerstone]. Thinks that the spending freeze in December was mainly among large
enterprises.
Mentions that he is seeing more add-on business among Cornerstone clients like buying
additional clouds. Thinks that these add-on transactions are also driven by renewals.
Thinks that this year and the next year, there will be a critical point in the volume of sales
for Cornerstone as the clients signed in 2009 and 2010 come into renewal. Thinks that
opportunity from the adoption of the Recruiting cloud as the upgrades come online could
be very large and very beneficial for the organization.
Thinks that the clients implementing the Recruiting cloud today have very basic needs. But
there is a significant piece of connection in their needs back to looking at the fully integrated
talent management solution from a business process standpoint. Thinks that there will be
a major upgrade to the Recruiting module coming in Q2. Once that happens, I think we
are going to see a lot more purchase adoption and application of the Recruiting cloud than
what we are seeing today.
His Cornerstone practice was a little bit ahead of plan for Q4. He plans to more than
double his Cornerstone business in 2013, although off of a small base since its a relatively
new partnership. I think the growth path is going to be larger than what we had expected
in Q3 [2012], now that we are sitting here in Q1 [2013]. We are in a much different place
and its good.
Refers to the BP deal [Closed in Q3] Mentions that its a global deployment of Learning
and Performance. Probably more than 300-320K seats. Guesses that price points would be
close to the $4-5/user/year range.
Europe From an operations standpoint they [Cornerstone] have done a great job of
building a really good team. And they are functioning very well. Everybody that we know
over in Europe that is working with Cornerstone is pleased. I think they are doing pretty
well but doesnt have too much visibility into European sales.
Mentions that Cornerstone is building an office in Hong Kong.
Based on his conversation with sales guys [in the SaaS Talent Management ecosystem]
coming off the quarter, the ones we are talking to are feeling very well. They are feeling
very good. Some of them hit their biggest numbers ever. And they have got pipeline that is
going to help them get even bigger.
Thinks that SuccessFactors is more and more each day being molded into SAP. Thinks
that in existing SAP or Plateau customer base, SuccessFactors is undercutting the market
with software discounts in the range of 60-75% in order to win the deal. We are seeing
multiple deals where SuccessFactors is basically out there buying the business. Thinks that
SuccessFactors is not yet completely integrated with Plateau.
Adds that for a typical 1,000-person deal on the Learning side, Cornerstone deals are still
holding up between $15-20/user/year. I think prices are still holding pretty well.
Thinks that SuccessFactors will soon become just another product line within SAP and
when that happens, the Learning-only deals in which Plateau competes against the likes of
Cornerstone are going to be few and far between. Adds that he is currently helping a few
organizations select their Learning platform and SuccessFactors is not even in the deal
mainly because there is no focus and its not an SAP deal.
Highlights PeopleFluent as the competitor to look out for as far as Cornerstone is

concerned.

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Industry Contact 3
I think they continue to gain momentum in the market. I think the scalability of their truly
SaaS-based model is continuing to benefit them.
Thinks that roles for managing Learning and Talent are converging in the organization
and its an ongoing trend. Mentions that its making the value prop of the [Cornerstones]
combined solution even more compelling to large organizations.
Mentions that Cornerstone is doing more multi-talent - Performance, Learning deals than
they were prior when it was mainly Learning.
He was on plan for Q4, although he doesnt set hard targets around his Cornerstone
practice.
Based on his conversations with sales guys [in the learning and talent management
ecosystem], thinks that they are very very pleased coming off of Q4.
Thinks that the talent management market will continue to get undercut by players such as
SAP/SuccessFactors. Mentions one client who is implementing SuccessFactors and price
was a huge driver in that deal.
Industry Contact 4
Mentions that he continues to see traction. We see significant pipeline for Cornerstone and
its global. Thinks that the global demand Cornerstone is seeing is beyond their capacity
to meet themselves.
Clients are buying on average two clouds at a time.
Thinks that the absence of standalone Taleo and standalone SuccessFactors is definitely
helping them [Cornerstone] to get a certain customer profile.
Thinks that there is a lot of market share to be taken, particularly on the ORCL side. Thinks
ORCL Apps customers are not happy with ORCL PeopleSoft. They [ORCL Customers]
dont wanna build out the footprint anymore to take advantage of talent modules from
PeopleSoft or Fusion or Oracle EBS [E-Business Suite].
Mentions a potential Q1 deal with a pretty large retailer in the Midwestfor their
[Cornerstones] entire talent suite. Expect it to be definitely a 7-figure deal and they
would have beaten SuccessFactors to win it.
Cornerstone Versus SuccessFactors: Thinks Cornerstones modules are maturing.

Mentions that LMS [Learning Management System] has always been Cornerstones
beachhead and superior to SuccessFactors. Now, they are on par with Performance.
Global Compensation is one area where Cornerstone is still a bit behind. Recruitment is
slightly behind as well, but catching up.
SuccessFactors/SAP
One of the reasons that SuccessFactors is undercutting Cornerstone in the market
is in part because SuccessFactors sales force is under pressure from SAP to go out
and win non-SAP customers.using SuccessFactors as a lead-in to sell other SAP
products.
Adds that SuccessFactors is beginning to release cloud products outside talent
management. They have got their CRM in the cloud, they have got Financials in the
cloud too - all on the SuccessFactors platform.
Based on his conversations with the sales guys [in the SaaS talent management ecosystem]
They are "feeling good".
Heard a few deals got pushed into Q1, but that doesnt concern him as far as Q4
numbers are concerned.
They [Cornerstone] are still getting plenty of leads [for Learning] and opportunity
sharing from the Workday sales team. Same is true for Recruiting, but that wont
last long.
According to his interactions with ADP for mid-market clients, they [ADP] are pitching
Vantage for core HR and their entire talent suite there has been no mention of
Cornerstone. A year and a half ago, it would have been a prospect where ADP would have
been pitching the partnership with Cornerstone [for the talent management part]. Thinks
that there is still a healthy amount of business on the SMB side.

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Industry Contact 5
Thinks that the trends are just continuingits a significantly upward trend. Qualifies
the demand environment in Q4 2012 as even stronger compared to Q4 2011.
Looking forward he is extremely optimistic about 2013. I think its going to be a big year
for CornerstoneQ4 is going to be a strong launching point for a very strong 2013.
They are going to probably announce a very strong Q4 and I am pretty excited about what
2013 is going to look like.
In Q4 I saw much more general activity but specifically more interest in their recruiting
module, although, he is unaware of how the actual sales of the recruiting module is shaping
up. It is definitely piquing peoples interest.
Seeing a lot of multi-module multi-cloud purchases going on. Also, seeing a lot of interest
around Extended Enterprise modules as well.
Hasnt had a lot of conversations with sales guys [in the talent management ecosystem], but
I am hearing its very exciting over there.
Thinks that the price points for Cornerstone are holding up in the market.
Cornerstone-Workday relationship Everything that I have seen is very positive.
Keeping in mind that he had a pretty aggressive plan, mentions that he was on plan for Q4,
which is above where he was in the prior year.
Price Target Raising price target to $36 (was $32) = 9.4x (was 11x) CY2014 Revenue of $214.5M + net
cash of $63.5M and 57.7M s/o. The lower multiple reflects the roll forward to 2014 basis.

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Deep Dive Checks Suggest Strong Year-End Momentum
PRICE: US$28.93
TARGET: US$32.00
11x EV/2013E revenue of $159.8m +
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY12E EPS US$(0.28)
FY13E EPS US$(0.07)
Yield 0.00%
Fiscal Year End Dec
35
30
25
20
15
10
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive conversations with 6 key contacts in the CSOD ecosystem give us greater
confidence in its strong traction. Key points: 1) contacts see CSOD more frequently
involved in larger full-suite deals which are brewing, including a 400K seat opportunity;
2) CSOD's pricing firmness on mid- to larger-sized transactions is surprising multiple
sources, with lesser discounting than in the past; 3) while competitors are mired
down with acquisition distractions and code integrations, contacts highlighted that the
"market is becoming more receptive to the single source native [Talent Management]
platforms" like Cornerstone's, which is homegrown top to bottom; and 4) while not
included in current guidance, interest in CSOD's nascent Recruiting cloud is blossoming.
Services revenue remains a near term question mark, but upper echelon bookings and
revenue growth should drive ongoing outperformance. Overweight rating, raising PT to
$32.
Noteworthy Feedback
One partner thinks Cornerstone is going through an inflection point. They seem to be
doing extremely well and their growth is starting to accelerate. Seeing a continual
uptick in their [Cornerstones] demandproduct is well received and the demand
seems to continue to grow.
Another source senses They are actually getting in the mix of some pretty big deals.
There is a decent amount of deals for Cornerstone and some pretty sizable ones
[$500-$1M in Subscription types]"
Other commentary includes: "We are starting to see interest really grow in the
recruiting side. Cornerstones recruiting cloud is going to be very very significant
next year.
Demographic/Workforce drivers: We are seeing a lot of companies that have never

really purchased a system in this marketplace [Learning Management Systems (LMS) ]
really coming out..."
Workday seems to continue to bring more deals to the table for Cornerstone. That
relationship continues to flourish.
** DETAILED FEEDBACK on pages 2-5 **
solution vendor.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
15.7 17.4 20.0 22.4 75.5 22.1x
24.0A 27.4A 29.6 35.1 116.2 14.4x
35.3 37.0 40.0 47.4 159.8 10.4x
(0.26) (0.07) (0.06) (0.06) (0.32) NM
(0.10)A (0.09)A (0.07) 0.00 (0.28) NM
(0.06) (0.03) (0.04) 0.05 (0.07) NM

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Industry Contact 1
Thinks Cornerstone's sales team is pretty seasonedlook at the credentialsthey have

been in the industry for a long time
They are actually getting in the mix of some pretty big deals. Refers to an opportunity
thats brewing in a company with about 400K employees in the Business Services vertical
for an initial deal of 70K seats (management only). Thinks Cornerstone has a pretty good
shot at itand that could have a ripple effect in deploying a bunch of their [Cornerstone's]
other components. Thinks that the fact Cornerstone is a front runner for this deal with a
company that big speaks volumes.
Also, mentions an extended enterprise deal with 150K seats that Cornerstone is working
on since last quarter.
They [Cornerstone] have landed a number of other deals that are fairly large. Refers to a
35K seat deal with a manufacturer and another 20K seat deal with a manufacturer/retailer,
both closed in Q3.
Thinks that the discounted seat value for Learning only is coming in at around $8/seat/
month. They are definitely showing up in the mix for deals of every size.
Mentions that two of the sales managers [in the SaaS Talent Management ecosystem] he is
close to both made their numbers for the quarter. Confidence of these two people that
I know is probably representative of whats happening in the organization. Thinks that
Cornerstone's pipeline is pretty strong based on the pipeline of the industry sales guys he
knows.
Relationship with Workday

Workday seems to continue to bring more deals to the table for Cornerstone.
That relationship continues to flourish.
Workday hired a guy with pretty tight connections in the Learning community and
he continues to bring in Cornerstone on all those projects.
Mentions [theoretically] that he wouldn't be surprised to see Workday acquiring
Cornerstone. Workday is in a market that screams for having a whole product
portfolio and they have got everything but Learning. Its a glaring hole for them and
so, I expect them to correct that hole within the next six months
Starting to see a whole lot more activity on the SAP side. Thinks that it would be tougher
for Cornerstone or any other LMS vendor to win business at core SAP shops in the near
term. SAP is beating the SuccessFactors drum pretty hard. Doesnt see Oracle as a threat
at all, as he thinks that even the large Oracle customers are not talking much about the
HCM space.
Industry Contact 2
Thinks Cornerstone is going through an inflection point. They seem to be doing extremely
well and their growth is starting to accelerate.
Seeing continual uptick in their [Cornerstones] demandproduct is well received and the
demand seems to continue to grow.
Generally seeing multiple modules being purchased and interest across their
[Cornerstones] stack. Was impressed by the interest he is seeing around the Recruiting
product across his client base, especially given the fact that it's relatively new.
Thinks the market is becoming more receptive to the single source native platform where
it's all built from the ground upa lot of clients are preferring that model.
Thinks that Cornerstone is more than capable of handling the competition not being
part of a big conglomerate certainly is something thats attractive to a lot of organizations.
Havent seen any slowdown in buying patterns among customers. I see it accelerating
Thinks that businesses are starting to spend the capital in-hand a little more.
Industry Contact 3
We are seeing a good amount of activity out therewe are certainly closing deals.
Although he thinks everybody saw a slower September than they really expected to be.

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For Q4, we personally have a good amount of business thats going to close. We are
very excited for what we are seeing for Q1. The volume and the demand is pretty
significant. Thinks 2013 is going to be a pretty significant year.
We are seeing a lot of companies that have never really purchased a system in this
marketplace [Learning Management Systems (LMS) ] really coming out and honestly,
thats where a lot of our business and the business we are seeing from sales reps [in the
SaaS Talent Management ecosystem] is coming from.it's not [from] switching LMS'es or
Talent management systemsit's [from] buying new Talent systems.
Products
Learning Management System (LMS) - Thinks that LMS is a big driver right now
but organizations are not going into the conversations without considering the
Performance and Succession or the Talent side of it.
Recruiting - We are starting to see interest really grow in the Recruiting side.
Thinks that Cornerstones Recruiting cloud is going to be very very significant next
year.
Compensation management - Not seeing any demand for Compensation
management at least from his perspective. But we are also not there really pushing
it.
I know from talking to Cornerstone sales people [in the ecosystem] there is a ton of stuff
that they have got on table that they are working on.
Havent heard of any large deals in Q3 but I know that there are several in the 4
th
quarter
that are very significant [more than 100k seats]and they are in very good shape to close
them in the 4
th
quarter.
Prices are driven by how many modules are bought. You are going to have a higher dollar
volume if you are [buying] more than LMS. From an industry perspective, mentions that
for deals of >100k seats, we are typically seeing in the $7-$9 per seat [per month range].
Adds that there are a couple of organizations that are trying to undercut the market and
offer $3-$4 seats, but I dont see those as profitablethey are just trying to buy market
share. One of the players undercutting the market is a large legacy player with a second
tier LMS. Thats because they are losing market share and struggling right now.
Mentions that he won't use the word excited or satisfied for the sales reps [in the SaaS
Talent Management / Learning ecosystem] coming off of Q3. I think they are OK with it.
Competition
In terms of competition, thinks the biggest competitor of Cornerstone continues
to be SuccessFactors. Doesnt think Plateau is completely integrated with the
SuccessFactors platform yet. I can tell you that from first hand experience right
now and even where they are going with the product I would say there is less features
in the online SuccessFactors platform than there were in the [original] Plateau
platform. Thinks that they have a long way to go.
Also mentions PeopleFluent as a rising star. SumTotal and Saba have kind of fallen
off the mapthey are targeting very very specific deals but you dont see them
universally.
Mentions that there are a lot of Oracle shops who are SuccessFactors customers and a lot
of SAP shops who are Taleo customers. I think the kind of squabble and the change in
that [due to the recent consolidations] is going to create an opportunity for Cornerstone
to get in there.
Thinks IBM will provide a full HCM solution and services and might create some headwind
for Cornerstone.
Thinks that Learn.com is not a large enterprise solution and thinks Oracle has got a little
bit of a problem there.
Thinks that SAP/SuccessFactors will be much more successful in holding on to their

customer base as compared to Oracle/Taleo.
I think in terms of the LMS market you are going to see a lot of large organizations
that will probably switch that direction [toward Cornerstone] just because its an easier
implementation.
Thinks that the market in general is a little bit soft at the moment. The main reason we
are hearing is people waiting in for the results of the election It's starting to get a little
bit softer.

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Industry Contact 4
Mentions that Cornerstone and Saba are consistently winning deals from the likes of
Kenexa, especially on the LMS (Learning Management System) front.
Cornerstone is certainly consistently winning business. There is a decent amount of

deals for Cornerstone and some pretty sizable ones [$500K-$1M in Subscription types]
they continue to do pretty well on the LMS front and the competency management
[Performance Management] part, not so much in the applicant tracking.
The big change I am seeing for them [Cornerstone] is really around complete suite deals.
On the Learning side, thinks that Saba continues to do pretty well for very very large
enterprise there is kind of win-one-lose-one between Saba and Cornerstone. But when
you start to talk about a suite dealthats where Cornerstone is really excelling.
Thinks that regarding Cornerstones Recruiting product, they are starting to get more and
more buzz around the social aspects of the application.
Thinks that the ADP and Cornerstone's relationship is a really strained relationship
specifically at the executive level. I dont think there is much of a future beyond the legacy
ties. Also thinks ADPs presence y/y in Cornerstones user conference has been consistently
trending down over the last three years.
Thinks that it might become tougher and tougher for Cornerstone to break into large
enterprises which have a strong ORCL, SAP or IBM presence.
Mentions that one sales guy he knows in SuccessFactors/SAP cannot recruit

[implementation guys] fast enough. Thinks they are doing really well in big enterprises,
places like Cardinal Health.
Mentions that there is a lot of pressure in Kenexa now to raise prices. Kenexa, OutStart
and even Cornerstone are pretty famous at just wheeling and dealing per deal and has a lot
of liberty in terms of what the per user fee would be, thats going to go away with IBM.
Industry Contact 5
I am still very bullish on Cornerstone and the market in general for these products.
We have seen the volume of activity and interest remain steady in the market.
Industry Contact 6
Mentions that it was a bit slow in Q2. Saw interest rise in Q3. There was certainly plenty
of interest but not many people committing to actually go forward. We are seeing that
now changing. Hopes to see a lot of deals closing through the end of the year and first
half of next year.
Was a little below his internal plan for Q3 but adds that it was not because of lack of pipeline,
but because of clients are taking time to make decisions. Mentions that clients are becoming
very very focused on contract terms and conditions. A lot of due diligence seems to be
going on in the market particularly among new clients.
Thinks Q4 will be better than Q3.
Thinks the demand is split 50-50 between Learning and Performance. Its quite even
now.
Thinks that the Performance module is now mature. Thinks that clients are realizing the
benefits of an integrated Performance, Succession and Learning solution.
Mentions that Recruiting is starting to generate a lot of interest among the client base.
Thinks that Cornerstone has a very aggressive development roadmap around it. Mentions
that Cornerstone's Recruiting module is starting to go head to head with Taleo. Thinks the
product is mature enough to compete with Taleo as of now, but mentions that its too early
to choose a winner. Mentions that there is a lot of frustration among clients around the
Taleo product.
Continues to think that Taleo and SuccessFactors are still mired by the distractions related
to their acquisitions by ORCL and SAP respectively.
Sees a lot of increased interest out of Asia and particularly having lot of active discussions
in Malaysia, Hong Kong and Singapore.

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Sees a lot of interest at the moment around governments in APAC for talent management
solutions. Also, seeing interest among higher Ed organizations in APAC as well.
There are actually some large deals [>$1M] we are working on for Q4. Havent heard of
any large deals closed in Q3.
He feels absolutely good about Cornerstone going into Q4 and into 2013. If you are
going to choose a partner that doesnt have distractions, that has a very good roadmap
and good support on the ground, you couldnt go past Cornerstone. Mentions that
Cornerstone doesnt have some of the Corporate Baggage that some of its competitors
are carrying which ultimately affect client relations. Thinks it would be a very clear sailing
for Cornerstone moving forward and the competitors will fall behind.
Price Target We increase our price target from $31 to $32. Our price target multiple of 11x (was 10.7x)
is higher based on a higher peer group multiple, which is also trading at 11x, and strong
business outlook based on solid checks.

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On The Road with CSOD: Don't Expect Growth to Slow
PRICE: US$26.73
TARGET: US$31.00
10.7x EV/2013E revenue of $159.8m +
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY12E EPS US$(0.28)
FY13E EPS US$(0.07)
Yield 0.00%
Fiscal Year End Dec
30
25
20
15
10
USD
Source: Bloomberg
CONCLUSI ON
We hosted CSOD Co-Founder and CFO Perry Wallack in investor meetings and
conducted a round of channel checks. Key takeaways: 1) the market is big and healthy,
with CSOD standing at 9.4M deployed seats out of a 400M global seat opportunity; 2)
CSOD clearly enjoys a current tailwind with both SAP and ORCL customers, as those
vendors are working on integration rather than innovation and don't have an integrated
suite to sell; 3) checks suggest bookings linearity improved in Q2 and Q3, and while
we model revenue deceleration in 2013, we see upside with a long shot opportunity for
growth acceleration. One area of minor caution is that service revenue is becoming less
predictable near-term; but if it were to drive adverse Q3 revenue optics, we would still
expect to see underlying strength reflected in bookings and forward revenue guidance.
Reiterate OW, raising target to $31.
Large, Healthy Market with Plenty of Runway. CSOD sizes the market as a 400M
worldwide seat opportunity for its Talent management suite. We view this to be a
reasonable estimate, at less than 6% of the total global population of 7 billion. CSOD
has amassed 9.4M deployed seats, representing 2.4% penetration into the global
seat opportunity, while SuccessFactors had claimed roughly 15M subscribers. Note
that because the product is priced lower in less-developed countries, international
expansion may drive the average price down, although that effect could be offset by
the mid-market expansion. The product is priced much higher in the US mid-market
($70-$80 per user per year per module) than it is in the US Enterprise (roughly $12-
$20 PUPYPM after volume discounts). Bottom Line: the market is large, minimally
penetrated, and very healthy as companies race to address demographic changes which
are reshaping the workforce.
Don't Expect Growth to Slow: Due to the size and strength of the market, and the
consolidation tilting the playing field in CSOD's favor, we believe bookings linearity
improved materially in Q2, and we suspect this dynamic has followed through into
Q3. Our current model shows revenue growth decelerating from 54% in 2012 to 38%
in 2013, which should normally be expected due to the law of large numbers. We do
see good odds for upside to our forecast, and as we consider our assumptions for sales
hiring, sales productivity, and the unknown outcomes for the new Recruiting Cloud
next year, we see a longshot possibility (10-20% odds) that revenue growth could
actually accelerate in 2013. In either case, CSOD should remain one of the absolute
fastest growing SaaS businesses, and perhaps the fastest relative to its efficiency and
cash flow production, through 2013.** CONTINUED On Page 2 **
solution vendor.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
15.7 17.4 20.0 22.4 75.5 20.4x
24.0A 27.4A 29.6 35.1 116.2 13.3x
35.3 37.0 40.0 47.4 159.8 9.7x
(0.26) (0.07) (0.06) (0.06) (0.32) NM
(0.10)A (0.09)A (0.07) 0.00 (0.28) NM
(0.06) (0.03) (0.04) 0.05 (0.07)

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Industry Consolidation Drives
Tailwind.
Partner and reseller checks show CSOD enjoying strong current momentum. SAP and ORCL
are both sidetracked, working on integration rather than innovation. for example, Oracle
is essentially getting rid of Taleo's Performance Management and Learning products as it
tries to rationalize its product portfolio. With its differentiated organic-suite positioning,
Cornerstone is as visible as ever and making every shortlist according to our field work. We
think this accelerated window of opportunity should last roughly 1 to 2 years because software
integration is a long, drawn-out process.
Change in Price Target We have increased our price target from $29 to $31, based on a 10.7x (was 10x) EV/2013E
revenue plus net cash. Higher multiple reflects higher peer group multiple.

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Checks Suggest Solid Traction, Large Deal Flow
PRICE: US$25.99
TARGET: US$28.00
10x EV/2013E revenue of $151.6m + 87.2m
in Net Cash and 57.3M s/o
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY12E EPS US$(0.28)
FY13E EPS US$(0.08)
Yield 0.00%
Fiscal Year End Dec
30
25
20
15
10
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive conversations with 7 key contacts in the CSOD ecosystem paint a
bullish picture for 2012 and 2013. Development of People is becoming an elevated
corporate strategy due to the shortage of skilled labor externally, while the younger
generation of workers wants to be developed as badly as they want to be compensated.
Against these multi-year demographic and workplace drivers, competitors are mired
down in acquisition re-writes, thus accentuating CSOD's unique flavor of organically-
developed talent management suite, helping CSOD stand out in the marketplace.
Contacts indicated that Cornerstone is "continuing to win and have very good traction
in the market while "getting bigger and bigger clients and sensed several 7-figure deal
wins. The Workday relationship appears to be flourishing, driving stronger deal flow.
Recent strength in CSOD shares may price in some upside, but upper echelon growth
should follow in 2H:12. Overweight rating, raising PT to $28.
Noteworthy Feedback
Cornerstone won a deal with a large European consumer goods firm, which is huge,
200,000 users, and an Asian financial services firm.
Cornerstone is "...getting bigger and bigger clients and winning some pretty good
deals.
They [Cornerstone] are very visible.I would say they are always on the shortlist at
least, and then we are seeing them win.
Conversations with Enterprise reps [in the SaaS talent management ecosystem] lead
one source to believe that they are very optimistic and very positive and he thinks
they are beating their numbers.
Workday has got partnerships with a number of different LMS companies. The
only one they talked about in the boot camp was Cornerstone.they also said that
they have 35 projects in the pipeline contingent on Workday winning the business...If
Workday wins, Cornerstone will be pulled in.
Clients like the pure organic nature of Cornerstones solutions and that its best of
breed and the fact that its Performance Management is tied together with its LMS
[Learning Management System]. ** DETAILED FEEDBACK on pages 2-5 **
solution vendor.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
15.7 17.4 20.0 22.4 75.5 19.7x
24.0A 26.2 29.8 34.7 114.8 13.0x
33.6 34.1 38.8 45.1 151.6 9.8x
(0.26) (0.07) (0.06) (0.06) (0.32) NM
(0.10)A (0.09) (0.07) (0.01) (0.28) NM
(0.08) (0.05) (0.01) 0.05 (0.08) NM

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Au g u s t 8 , 2 0 1 2
Industry Contact 1
They [Cornerstone] are continuing to win and have very good traction in the
market
Cornerstone won a deal with a large European consumer goods firm, which is
huge, 200,000 users, and an Asian financial services firm. Either right at the end of
the second quarter or beginning of the third quarter... won both in the same week.
Thinks that these can easily be 7-figure deals.
Mentions that the demand is still primarily Learning driven. Thinks that
Cornerstone is using Learning as the foothold and then trying to up-sell
Performance. However, mentions that his perspective might be skewed because he
is a Learning-focused person.
Definitely trending above his annual projection for Cornerstone business.
The convergence of talent and Learning continues to be a big force in the market.
Thinks that more and more corporations are consolidating those roles such that
talent and Learning would report to the same individual. Thinks that such a trend
bodes well for Cornerstone and also differentiates them from some of the other
LMS providers that are lagging in terms of Performance, Succession and Recruiting
modules. I dont think SumTotal or Saba has near the capability of Cornerstone.
Continues to see SuccessFactors in the market. Thinks that SuccessFactors is
integrated with Plateau at the front end, but doubts that everything is connected at
the back-end under one code base.
Industry Contact 2
With respect to the consolidations in the industry, the confusion in the marketplace
is persistentI really believe that confusion is helping Cornerstone particularly
They are getting bigger and bigger clients and winning some pretty good deals
Sales Chatter
Conversations with Enterprise reps [in the ecosystem] lead him to believe
that they are very optimistic and very positive, and he thinks they are
beating their numbers.
One of the sales guys [in the ecosystem] said that his pipeline has been
pretty full and thinks it is finally starting to shake loose and he feels better.
Sales people get nervous when they cannot close dealshe seems to be a lot
more comfortable about his position particularly. He has been working at it
for about a year and a half and he is really starting to weigh in some good
business
Sales guys [in the SaaS talent management ecosystem] alluded to a couple
of big 7-figure deals that they landed in Q2, not including the deal with the
European consumer goods firm and the Asian financial services firm.
Thinks that the sales executives [in the ecosystem] are setting a pretty high
bar for the reps.
Working with a client now with about 150K people in their extended enterprise.
Thinks that Cornerstone is a great fit for the client.
Thinks that Cornerstone customers are pretty satisfied with what they are buying.
Thinks Cornerstone has done a good job of addressing the breadth of the product,
but believes that there will be pressure on Cornerstone to continue to add depth to
their product as they get into larger clients. As their customers get bigger, they have
more unusual requirements.
Workday
Workday is actually considered a good partner for Cornerstone
Heard that Workday closed 9 Cornerstone deals.
In a recent Workday boot camp for new hires, they mentioned Cornerstone
as the preferred Learning vendor. Workday has got partnerships with a
number of different LMS companies. The only one they talked about in the
boot camp was Cornerstone.they also said that they have 35 projects in
the pipeline contingent on Workday winning the business... If Workday wins,
Cornerstone will be pulled in.

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Plateau/SuccessFactors
There was a big exodus of Plateau peoplethings were quiet and customers
were a little upsetbut I see that they are back out and really pressing
hard their whole Human Capital platformThere has been a little bit of a
resurgence of SuccessFactors in the market with their SAP hat on and the
SAP sales people are finally starting to talk about it.
Good news is that they are out talking about it, now we will see if they are
effective in selling it. It's one thing to pitch it and another to close deals. At
least the noise level is back up again.
Saba
Thinks that Cornerstones main competitor in the learning space is Saba.
Although Saba is just starting to transform into a SaaS platform, Saba is
a much deeper and much more configurable application. Thinks that for
really really big clients, Saba will consistently win because of the depth of
the product.
For Saba, thinks that about 65%-70% of the revenue comes from SaaS.
Thinks that they are pressing clients to move into the new platform by
providing a lot of capabilities and making it lucrative for the client to make
the move. All the new installs, all the new upgrades - are all going into the
cloud product.
Industry Contact 3
Sees continuous momentum around Cornerstones solutions in the market.
They [Cornerstone] are very visible.I would say they are always on the shortlist
at least and then we are seeing them win. Seeing them against the traditional
vendors SumTotal, Saba. Havent seen Plateau/SuccessFactors much.
Sales guys [in the SaaS talent management ecosystem] I think they are very
excited. Thinks that Cornerstone is in a great position to take advantage of the
consolidations in the market, making them one of the few independent vendors.
CSOD slightly re-organized its partner group to focus more on the pure reseller
partnerships.
Industry Contact 4
In his opinion, most of the recent consolidation in the talent management market
is based on the acquisition of client bases without looking at - how do you
strategically integrate the product for a successful solution?Because of that,
demand for the Cornerstone product is continuing to increase. Believes that
Cornerstone has a very unique solution versus the solutions from SAP and ORCL.
Mentions that from a consulting standpoint, starting to see more and more
organizations interested in Learning and Development of employees as compared
to 5 years ago. Cites a few reasons for such a dynamic -
Development of people has become much more strategic.even though
unemployment is high, its a very competitive market for good employees.
So, organizations want to develop people in order to increase retention.
There is a greater demand today from people in the workforce to be
developed as employees than I think I have seen in my 25 years or so
in this particular industry. For the younger generation, its almost more
of a demand for development than it is a demand for dollars in terms
of employment. Mentions that more employees today actually want to
participate in Learning and Development without an external push.
Cost of product and implementation has come down dramatically.
In terms amount of activity with Cornerstone, its very steady and very consistent.
I am very bullish on 2012 to 2013 based on where we are and the different types of
things we are working onI think 2013 is going to be better than 2012.
Competition
Rarely ever see SumTotal out there

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April 2014
Au g u s t 8 , 2 0 1 2
In his opinion, the biggest competitor to Cornerstone long term is
PeopleFluent (Was PeopleClick Authoria). PeopleFluent bought Strategia,
which is a SaaS LMS platform, early this year. I know they are in the midst
of closing quite a few pretty big deals. Thinks Cornerstone has a better win
rate in head to head competition, mainly because of the organic nature or
Cornerstones platform.
Doesnt see SAP customers using Taleo or ORCL customers using
SuccessFactors.
I really enjoy working with Cornerstone as a company and a partner. Thinks
Cornerstone is very fair, open and honest and operates with a great deal of
integrity...You cant say that about everybody out there.
Industry Contact 5
Mentions that there is a dearth of resources in the space to execute projects and
every company is facing this.
Cornerstone continues to be a finalist in a lot of accounts
Questions the ADP partnership in the long term, although hasnt seen any direct
evidence of it falling apart as of now.
Seeing Cornerstone deals flowing through Workday. Thinks that the acquisition
of SuccessFactors and Taleo by the legacy players has made Cornerstone
very appealing to Workday. Mentions that [an American data communications
and telecommunications equipment provider] is deploying both Workday and
Cornerstone. Wont be surprised if Workday acquires Cornerstone.
Thinks that Cornerstone lacks the depth around Reporting and Analytics and
Compensation as compared to the other competing solutions. Cornerstone doesnt
have the global Comp capabilities that some of the other providers have.
Definitely more bullish [than Kenexa] when I talk with Cornerstone reps
Mentions that he has a strong pipeline of SuccessFactors/Plateau deals and based
on his conversation with other SuccessFactors partners, it's difficult to keep up with
the demand due to lack of resources. The SAP acquisition for them has opened up
a new worldpeople are returning their calls that never would have in the past.
Havent seen Taleo/Oracle as much. Fusion continues to be a bit of an Enigma.
Thinks PeopleFluent has good software, they just need to market it more.
Ranking in terms of demand from his perspective SuccessFactors, Kenexa and
Cornerstone. Kenexa is number two because we have seen greater demand for
Recruitment solutions from our clients as opposed to Learning management
solutions.
Industry Contact 6
Cornerstone is moving into the talent acquisition space.
Seeing some interest from a couple of his clients.
There are a number of clients at the high-end who are looking for a single source, a
company that can help them with talent management both pre- and post-hire.
The organic development at Cornerstone is absolutely one of the differentiating
drivers.
Has a client looking to roll out the Cornerstone talent acquisition solution, and this
client speaks very highly of Cornerstone from a talent management perspective
Weve been impressed so far with the interactions we have had with Cornerstone,
and the joint customers we have spoken with have very high regard for
Cornerstone.
Industry Contact 7
Clients continue to show interest in Kenexa and Cornerstone.

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Thinks that some clients like the pure organic nature of Cornerstones solutions and
that its best of breed and the fact that Performance Management is tied together
with LMS [Learning Management System].
Mentions that as the line between HRIS [Human Resource Information System]
and Talent Management blurs, Workday will be competing with the various talent
management vendors like, Kenexa and Cornerstone.
Price Target Our price target multiple of 10x (was 8.5x) is higher based on a higher peer group multiple,
which is also trading at 10x, and strong business outlook based on solid checks.

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Checks Show 200,000 Seat Deal
PRICE: US$23.90
TARGET: US$24.00
8.5x EV/2013E revenue of $151.6m + 87.2m
in Net Cash and 57.3M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$24.00
FY12E EPS US$(0.28)
FY13E EPS US$(0.08)
Yield 0.00%
Fiscal Year End Dec
Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12
26
24
22
20
18
16
14
12
10
USD
Source: Bloomberg
CONCLUSI ON
Our preliminary checks and analysis indicate CSOD closed a 200,000 seat transaction
with a large European consumer goods firm, either in late June or early July. Sources
also indicate closure of another good-sized transaction with an Asian financial services
firm, in the same timeframe. We are encouraged to see strong European traction
for CSOD, particularly amidst a challenging macroeconomic environment. Large deal
success supports our thesis of a greenfield opportunity in Talent Management and a
strong prioritization for modernizing the strategic side of Human Resources. We believe
Cornerstone's industry-leading growth sets it apart as one of the highest-quality on-
demand firms. Reiterate Overweight rating.
solution vendor.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
15.7 17.4 20.0 22.4 75.5 18.1x
24.0A 26.2 29.8 34.7 114.8 11.9x
33.6 34.1 38.8 45.1 151.6 9.0x
(0.26) (0.07) (0.06) (0.06) (0.32) NM
(0.10)A (0.09) (0.07) (0.01) (0.28) NM
(0.08) (0.05) (0.01) 0.05 (0.08) NM

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May 13, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Price Tgt -- $23.00
FY12E Rev (mil) -- $113.1
FY13E Rev (mil) -- $149.4
FY12E EPS -- $(0.28)
FY13E EPS -- $(0.08)
Price $18.82
52 Week High $23.50
52 Week Low $11.50
8.1x EV/2013E revenue of $149.1m + 85m in
Net Cash and 56.5M s/o
Yield: 0.00%
P/E to Est LT EPS Growth NM
Fiscal Year End: Dec
Rev (mil) 2011A 2012E 2013E
Mar $15.7A $23.9E $33.5E
Jun $17.4A $26.2E $34.1E
Sep $20.0A $29.8E $38.8E
Dec $22.4A $33.1E $43.1E
FY $75.5A $113.1E $149.4E
CY $75.5A $113.1E $149.4E
FY RM 14.1x 9.4x 7.1x
CY RM 14.1x 9.4x 7.1x
EPS 2011A 2012E 2013E
Mar $(0.26)A $(0.13)E $(0.07)E
Jun $(0.07)A $(0.08)E $(0.04)E
Sep $(0.06)A $(0.05)E $0.00E
Dec $(0.06)A $(0.02)E $0.03E
FY $(0.32)A $(0.28)E $(0.08)E
CY $(0.32)A $(0.28)E $(0.08)E
FY P/E NM NM NM
CY P/E NM NM NM
Cornerstone OnDemand (CSOD $18.82)
Overweight
Checks with 8 Key Contacts Suggest In-Line Q1,
Solid Pipeline
CONCLUSION:
Our conversations with 8 key contacts in the CSOD ecosystem suggest Cornerstone
will continue to benefit from its uniquely solid, organic foundation and lack of
distraction, while the impact of industry consolidation (SFSF/TLEO) is unclear
thus far. Contacts indicated that momentum continued to build at a "steady" pace
and they sense a "very healthy pipeline" going forward. Contacts also underscored
the increasing strength in Cornerstone's non-Learning modules (i.e. Performance,
Compensation, Recruiting) and mentioned that Cornerstone likely closed a large
100K seat deal with a financial services firm in the APAC region. While some
contacts noted some possible deal slippage into Q2, they still expect a solid year.
We believe Cornerstone offers the most complete, organically grown HCM platform
in the industry, and that its best-in-class growth will be buoyed by its expanding
footprint. Reiterate Overweight and $23 PT.
Checks Indicate Steady Momentum. We spoke with 8 key contacts in the

Cornerstone ecosystem, of which all but one shared positive comments about the
current demand environment, while one contact had a cautiously optimistic outlook.
Contacts mentioned that demand in the quarter ranged from "steady" to "strong",
with specific strength in the APAC region. Based on the vibes in the ecosystem,
contacts indicated that Cornerstone's Q1 "should be" good with a possibility that
"they will beat the numbers slightly." Contacts further added that while Learning
continues to be the "position of strength" for Cornerstone, they are also "expanding
away from LMS" as evidenced by the continuous demand for Performance and
Succession management tools. One of the contacts mentioned that "half of the
requests we have are for LMS and half are for Performance." Additionally, one
of the contacts indicated that some of the deals might have been pushed to Q2,
although we think some of that is typical for a Q1 environment.
Cornerstone To be The SaaS Beneficiary of Market Consolidation. A majority

of the partners we spoke to believe that Cornerstone stands to benefit from the
recent consolidation in the industry and that its "solid foundation" and "lack
of distractions" will help it fare well against its competitors. However, there
are also some variant viewpoints. One of the partners mentioned that now that
SuccessFactors is a part of SAP, he suspects that Cornerstone might be pushed
out from some of the enterprise opportunities, especially from SAP shops. Another
partner feels that Cornerstone may eventually consider adding a core HR solution
to its portfolio, as customers increasingly gravitate toward unified HR and Talent
management offerings.
Overweight rating. Price Target $23, based on 8.1x EV/2013E revenue of $149.1
million
solution vendor.

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May 13, 2012
Detailed Feedback
Industry Contact 1 (Positive)
Provides a learning effectiveness measurement solution. Has a referral relationship but looking to integrate the Cornerstone solution
into its own. Have a lot of mutual clients.
Cornerstone recognizes the value of an objective third party learning measurement system. Lot of other LMS providers and talent
management providers shy away from the impact and effectiveness measurement because they worry about what the results will show.
Our team recognizes that Cornerstone is the best player in the space. Having a lot of conversations among clients regarding
Cornerstone. A lot of her corporate clients are looking to change their LMSs mainly because of the dissatisfaction of what they have
in place to meet their need.
Thinks that Cornerstone stands to benefit from the consolidations in the market. SumTotal Systems is very fractured in the market
as they try to integrate Geo-Learning into their legacy system and thinks other players also suffer from the same distractions. I think
Cornerstones strength is just their solid foundation and their lack of distraction. They are very focused.
Sales contacts in the industry seem very enthusiastic. Based on her visibility and the buzz she is hearing, she thinks Cornerstone
has been doing very well recently. I hear them everywhere and see them at least making it into the final list in all the RFPs among
her clients.
Estimates that to date, Cornerstone has deployed more than 100 customers using the content from the partner alone. Those will all
be customers using Performance Management. That speaks well to increasing their Performance Management side of their business.
They are expanding away from LMS.
Thinks that Cornerstone added about 30-40 Performance Management customers in conjunction with the partner in Q1. These are
companies using the partners competency metrics and so, as a whole for Cornerstone, the number of Performance Management clients
added in Q1 would be much more. Most of these are the Business Edition (for SMBs) with an average of about 750 seats. Thinks that,
as a whole, Cornerstone probably sold 20 Business Edition systems last year and this year has sold 100+ systems already. Thinks that
sales reps have learned how to sell it now.
Q1 should be good. They seem to be selling. He is aware of only one sell last quarter, that he was involved in, where Cornerstone
lost to SuccessFactors.
A couple of the sales contacts in the SaaS integrated Talent Management segment he interacts with seem quite excited and
comfortable. However, I dont think Cornerstone is as draconian as SuccessFactors in managing their sales teams.
Thinks that Cornerstone is beefing up their product management and product marketing people in the Performance Management area.
They definitely see it as a growth area.
Thinks SuccessFactors is selling reasonably well as well, as far as his conversation with SuccessFactors partners. Knows that the
SuccessFactors partner he spoke to is looking for another potential supplier other than SuccessFactors, just in case SAP starts forcing
the resellers to adhere to their criteria. Suspects that a number of the resellers (especially the SMB ones) might be thinking along those
lines and Cornerstone can stand to benefit from that.
Demand is very strong. It is a world class solution.
Demand is also split between Performance Management and Learning. Half of the requests we have are for LMS and half of the
requests we have are for Performance. Mentions that the mix shift is very seasonal in nature as more clients want to get the Performance
Management solution in place before June, which is the beginning of a new appraisal cycle, while more LMS gets sold during end of
the year. The clients going for Performance are mostly those who already have a tier two LMS and are looking for more of an integrated
end-to-end talent management solution, like what Cornerstone provides. Thinks that Cornerstone's organically built integrated talent
management solution is a good selling story and a value proposition to the clients.
Three or four of his clients are already asking about the Recruiting module but he hasnt sold any as of yet, since Cornerstone is just
rolling it out now.
Competitive environment in the Australia/New Zealand region is very favorable for Cornerstone. We are looking very strong and
very comfortable and optimistic, we really are.
SumTotal has almost withdrawn from the Australia/New Zealand market. Although they have clients in the market, they are
trying to service them from China and India, which he thinks is not going to serve them well. Thinks that most of those clients
are reconsidering.
Thinks that Taleo and SuccessFactors are distracted due to their respective acquisitions by Oracle and SAP.
Saba is the only competitor in the market and 9 times out of 10 we will replace Saba in the shootout.

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Thinks that there is a lot of demand in Asia. But also adds that the markets are not so mature there and hence sales cycles are much
longer as it includes an education piece. Also, people are more cost sensitive and so it takes a little bit longer. But the volumes are
bigger due to the large populations and so thinks that more negotiations on the pricing front are possible.
We have a very healthy pipeline. Many of his payroll clients are looking at Cornerstone as potential customers. The firm is also
trying to work on integration between the payroll solution and Cornerstone to accelerate the cross-sell.
Was on Plan for Q1.
Thinks that the Sonar6 solution will play well, since the partner already has around 2000 SMB clients in the APAC region where they
are looking forward to introducing the Sonar6 solution.
Mentions that Cornerstone is a very friendly and very supportive relationship.

Thinks that the market views talent management as still very immature in terms of a truly integrated set of applications. Thinks that
it is a race among vendors, each one trying to get there first.
One of the largest Telcos in the US recently boiled the selection to SuccessFactors and Taleo and shut out Cornerstone and Kenexa,
largely because it was a Performance opportunity. If it was applicant tracking, Kenexa would have been in the finals and had there
been more of a Learning focus, I bet Cornerstone would have been in the finals. It really comes down to the module of emphasis.
Big Deals in Q1 - I have heard that they did pretty well but havent heard of any watershed deals.
From the vibes he is getting from [sales contacts in the integrated SaaS talent management industry] I think they will beat the
numbers slightly. They seem to be pretty satisfied, which makes me think they could meet it or slightly exceed it.
Due to the polarized (either you love it or hate it) views among customers toward SAP or Oracle, the latest acquisitions of
SuccessFactors and Taleo made by these vendors respectively, should largely play to the benefit of Cornerstone and Kenexa.
Provides a workforce planning and analytics application. Has a referral partnership with Cornerstone.
Thinks that the acquisition of SuccessFactors by SAP will push out Cornerstone from some of the up-market opportunities into more of
the SMB market as the SAP shops put more eggs in the SAP basket. Thinks that this fits well with Cornerstone's acquisition of Sonar6
(an SMB solution) as well. So, overall thinks that the acquisition of SuccessFactors by SAP might prove negative for Cornerstone for
larger enterprise customers. However, he mentions that it all depends on how well SAP integrates the SuccessFactors acquisition.
Thinks that currently Cornerstones sweet spot is the medium-size companies.They have a very nice thing going on in selling what
they have.
Havent spoken to [sales contacts in the SaaS integrated talent management industry] recently. I think they have been signing some
deals and the mood seems to be very positive overall.
Thinks that the fact that Jason Corsello, the leading industry analyst, joined Cornerstone last year, validates Cornerstone's position.
He is pretty upbeat [about the long term opportunity] and I think he feels good about what they are trying to do right now.
I think they are definitely successful across multiple modules. Thinks their LMS is a position of strength. As far as I know,
Performance is a successful module for them from what I have seen and I have heard. Thinks that the challenge is to move towards
an end-to-end talent management sell.
About Customers - I observe that their customer base is usually loyal towards themthey have a very tight relationship.
Thinks that the Cornerstone sales process is very disciplined, even if you cant be popular in how you answer stuff. They dont go
and tell outrageous lies in the sales process. SuccessFactors, in my opinion, are dirt-bag-liar sales people, like used car salesmen.
I see them [Cornerstone] winning bigger and bigger projectsThey win the beauty contest every time when the customer is not that
sophisticated.
Mentions that Cornerstone has got a couple of new sales executives (regional sales VP level) in place in the US. Pretty sharp .really
well seasoned peoplethat bodes wellthey are attracting better talent. This guy is very sophisticated when you meet him. So his
ability to go into say Home Depot and UPS and close business, in my opinion, is very high; contrast it to sales reps that I would meet
3-4 years ago from Cornerstone. I think they are getting a more sophisticated crew.
Q1 for his plan was short of plan but I had a pretty aggressive plan. Plan to grow 23% off a higher base in 2012 as compared to
better than 25% in 2011. Its [growth] roughly the same magnitude as last year.
They [Cornerstone] seem to be in the final two in every acquisition project that we are involved in. Saba is the other. Thinks that
85% of Sabas sales are SaaS platform based. Thats a pretty significant turnaround for them [Saba] in one year.
Thinks that customers base their decisions on the sophistication of the platform. Cornerstone is the one who is now charging into
a more traditional Saba territory in the bigger enterprise clients. So, Cornerstone is a newer kidSaba has definitely got a bigger
footprint in the enterprise space. Thinks that Cornerstone is catching up to Sabas position in certain respects.

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Have heard that a number of deals have got pushed out of March and into April/May. I think there is a lot of pressure on these guys
to close business [whatever slipped from Q1] before the conference.
Based on his conversations with [sales contacts in the integrated SaaS talent management industry] they probably had a good
quarterthey had a few deals that could have made it a great quarter, but those slipped. I think they are probably going to be pretty
close to plan.
He predicts that in 18 months or less, the Plateau user base will be decimated. Thinks that SAP will not continue with the Plateau
platform and will try to move the customers to some other platform. I havent heard that starting yet, but I suspect they will move
them sometime this year, 2012. Have heard that a lot of the Plateau people have bailed out from the business and so there is no one
left to defend the platform. SAP has got 5 platforms. Thinks that SAP might use the IP in the platform but to integrate it with SAPs
Learning platform will take years. So, when SAP would ask the customers to move to another system, the customers are going to
bail on them faster than you can imagine. His firm has hired a couple of people from Plateaus ecosystem, who is helping customers
to transition off of Plateau.
Thinks that the real question in the integration of Plateau is the database integration. If someone creates a competency in the
Performance module of SuccessFactors, does it show up in the Learning [Plateau] module? Its one thing to do look and feel
integrationbut is there a real integration behind the scenes?
We look at Cornerstone as the most viable standalone suite provider now that Taleo and SuccessFactors are no longer independent.
Currently working with a manufacturer with over 100,000 employees globally who is likely going to be evaluating Cornerstone
with one or two other vendors. The customers main priorities are Learning, Performance and Succession and so right now I do
like their [Cornerstone] chance relative to the other two competitors in the bake-off. Thinks it will be a global and enterprise wide
implementation spread over a couple of years.
Was ahead of plan in Q1. Planned on growing 50% this year and we are ahead of plan alreadyhistorically that hasnt been the
caseQ1 has typically been a tough quarter for us. However, the portion of that growth associated with Cornerstone is not much.
Has a greater dependency on SuccessFactors and Workday than Cornerstone.
Thinks that there is a lot of curiosity among his clients around the Recruiting module.
Thinks that even after the acquisition of SuccessFactors by SAP, They continue to operate largely independently.
Thinks that it will cost Cornerstone business over the long term not having a core HR solution of any kindI have seen it begin to
happen in some situations. Biggest concern within the Oracle and SAP customers is that they are going to jack up prices after the
respective acquisitions of SuccessFactors and Taleo and they are potentially looking at Cornerstone as a more affordable solution,
although not sure if Cornerstone is looking to compete on price. Right now, one of the things that they simply cant offer is the
integrated data and analytics that SAP or Workday to a lesser extent and Oracle can offer. He hears talent management questions
like how much of a constraint on organizational productivity is lack of skills? Or what is the turnover amongst our high performers
and high potentials actually costing us? If you got Cornerstone as a solution you are reliant on at least one other system for some of
the data to answer these questions unlike Oracle and SAP. In short, he thinks that Cornerstone will win if the main focus is on price
and Talent Management capabilities only, not including core HR; but if someone is looking for a unified HR and talent management
system, Cornerstone will lose in those circumstances.
Thinks that Cornerstone might have a bandwidth constraint in the services side as seen from the issues faced by one of his clients.
Thinks that clients can get most of the talent management capabilities from Workday, except Learning, and that Workday might also
start competing with Cornerstone directly in the near future.
Have seen business come back for all verticals apart from Financial Services. (Doesnt work with Govt. and healthcare).
Industry Contact 8 (Neutral)
Demand is constant. I dont think it is changed. Thinks that Cornerstones market reputation continues to grow solid from an LMS
[Learning Management System] and a true SaaS model perspective. Thinks that LMS is still the lead. Thinks that all the talent systems
will move to the cloud eventually.
As an organization we have passed them [Cornerstone] a half a dozen qualified opportunities in the last quarter, which for a platform
of that nature is a lot.
Based on the leads he is getting for companies wanting to buy a Learning system, he thinks Cornerstone is doing well in the market
relative to others. I still think they have an advantage; I still think they are the best platform out there; I still think they are the best
implementer and supporter of those technologies out there; And I still think they have got an opportunity to go really head to head
against the SuccessFactors of the world and some of the other heavy talent systems.
Learning services was flat y/y and was well below plan in Q1. It was a very very slow quarter. Thinks that this Q1 was significantly
slower than other Q1s. The companys main business is Learning process outsourcing, which involves analyzing learning effectiveness

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for clients, improving and transforming learning processes etc. So, he added a disclaimer that his business performance may not be
truly reflective of Cornerstones results.
Thinks that SuccessFactors, with the power of SAP behind them, is going to challenge Cornerstone in some situations in the market.
I actually saw a few weeks ago that the Plateau LMS is truly integrated into the SuccessFactors tool. He was surprised to see that,
because earlier he was thinking that the integration of Plateau might become a low priority after SuccessFactors' acquisition by SAP.
It appears to be fully integrated at least from a learners perspective. It was pretty seamless. He hasnt seen the administrators
view yet.
Deloitte acquired a company called Aggressor and Aggressor is one of the largest implementer of Workday. Deloitte HR/Talent group
thinks that Workday is going to be an emerging platform in HR. Thinks that this move is pretty telling of what Deloitte thinks about
Workdays potential.
With respect to Kenexa, thinks OutStart is an expensive content platform relative to functionality they deliver. Also thinks that Kenexa
would have to do a lot of work to develop OutStarts e-learning capabilities into an LMS.
Investment Thesis
Cornerstone OnDemand is a leading SaaS based Learning and Talent Management solution vendor. Cornerstone's offerings enable
businesses to more effectively support the full lifecycle of an employee post-hire, including onboarding, teaching/developing, evaluating,
compensating, retaining, promoting, and providing succession plans, all in a closed-loop process. Cornerstone's historically strongest
and most differentiated module has been Learning Management, which automates the administration, tracking, and reporting of training
programs, classroom and online events and is considered one of the most complex modules in the Talent Management stack. Cornerstone
leverages its pure cloud architecture and also enjoys strong differentiation versus its peers because thus far, its entire suite is 100%
homegrown and fully integrated. We expect Cornerstone to deliver rapid revenue growth due to the superiority of its broad, fully-
integrated suite of talent management offerings and the powerful demographic changes which are quickly reshaping the fundamental
structure of the global workforce.

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Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Price Tgt -- $21.00
FY11E Rev (mil) -- $74.6
FY12E Rev (mil) -- $109.1
FY11E EPS -- $(0.30)
FY12E EPS -- $(0.09)
Price $18.09
52 Week High $23.50
52 Week Low $11.50
10.1x CY12E Rev of $1091m + 81m in Net
Cash and 55.9M s/o
Yield: NM
Rev (mil) 2010A 2011E 2012E
Mar $9.7A $15.7A $22.8E
Jun $10.6A $17.4A $26.2E
Sep $12.3A $20.0A $28.2E
Dec $14.0A $21.5E $31.8E
FY $46.6A $74.6E $109.1E
CY $46.6A $74.6E $109.1E
FY RM 21.7x 13.6x 9.3x
CY RM 21.7x 13.6x 9.3x
EPS 2010A 2011E 2012E
Mar $(0.28)A $(0.26)A $(0.06)E
Jun $(0.25)A $(0.07)A $(0.01)E
Sep $(0.28)A $(0.06)A $(0.03)E
Dec $(0.41)A $(0.02)E $0.00E
FY $(1.23)A $(0.30)E $(0.09)E
CY $(1.23)A $(0.30)E $(0.09)E
FY P/E NM NM NM
CY P/E NM NM NM
Cornerstone OnDemand (CSOD $18.09)
Overweight
Checks Indicate Continued Strong Momentum
CONCLUSION:
Our conversations with key contacts in the CSOD ecosystem provide us with
incrementally greater confidence in the current demand environment, and we
believe Cornerstone will report another strong quarter. Contacts mentioned
that demand for Cornerstone's platform continues to build at a steady pace and
further indicated that CSOD's "pipeline is in great shape for 2012." Contacts
also underscored the increasing strength in CSOD's non-Learning modules (i.e.
Performance, Compensation) and mentioned that CSOD likely closed a deal with
a major French multinational corporation with 380,000 employees, to roll out
CSOD's Performance Management module in 80 countries and 27 languages.
With the planned introduction of a Recruiting platform in a month, we note that
Cornerstone will have the only complete, organically grown HCM platform in the
industry, and that its best-in-class growth will be buoyed by its expanding footprint.
Reiterate Overweight and $21 PT.
Checks Indicate Steady Momentum. We spoke with a handful of key contacts

in the Cornerstone ecosystem, of which 80% shared positive comments about
the current demand environment while one contact shared a cautiously optimistic
outlook. Contacts mentioned that demand for Cornerstone's platform continues
to build at a steady pace and that they continue to see momentum in NA and
EMEA. Contacts indicated that CSOD will likely "post good numbers" for Q4.
Contacts further highlighted that CSOD's "pipeline is in great shape for 2012" both
in terms of new business and expansions. Contacts also underscored the increasing
strength in CSOD's non-Learning modules (i.e. Performance, Compensation)
and mentioned that CSOD likely closed a large non-Learning deal to roll out
CSOD's Performance Management module in 80 countries. In our view, CSOD
is set to completely dominate the SaaS Learning market because its two biggest
competitors, Plateau and Learn.com, have been acquired and disrupted. On top of
that, CSOD rolls out its Recruiting Cloud in a month - perfect timing to capitalize
on disruptions in the Recruiting market driven by Oracle's acquisition of Taleo.
Contacts Suspect Defection Of SFSF/Plateau Customers/Partners; CSOD

Likely the SaaS Beneficiary. Contacts suspect that as a result of the SAP merger,
SFSF might fall short of its promise to integrate Plateau and may trigger SFSF/
Plateau customers and partners to evaluate other options. Contacts indicated that,
especially for customers planning to buy a SaaS based Talent Management system
in 2012, CSOD will be seen as a very attractive option especially because of its
100% organically developed technology platform. One of the contacts even offered
an example of two financial services customers of SFSF/Plateau who are going to
evaluate other options after the merger and are "guaranteed" to look at Cornerstone.
Overweight rating. Price Target $21, based on 10.1x EV/2012E revenue of $109.1
million.
solution vendor.

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Detailed Feedback
Industry Contact 1 (positive)
Met a couple of [sales contacts in the SaaS Talent Management Suite ecosystem] at a year end party and they are all pretty happy with
where they are. The guys here in [my region] anyway seem to be on planThese guys seem to think that they are on track and that first
quarter is going to be even better. If they are representative of the nation and their global footprint I think things are gonna go well.
Not seeing any slowdown in business. Talking about current business environment for his firm - I feel like I am a soldier in the
trenches and its just incoming in every direction. Services business is normally slow from November to February but thats certainly
not the case right now. Doesnt have any bandwidth from now until March.
Although his company is not currently working on any Cornerstone projects, still sees Cornerstone in general doing extremely well
in the marketplace.
Thinks that Cornerstone is an excellent fit for the small and medium sized customers. There are large customers that buy them as well
but thats more the exception rather than the rule.
SFSF/Plateau pains
UPS is a big Oracle PeopleSoft shop and they bought Plateau and are scheduled to go live in late January. The fact that Plateau
will be an SAP product now, I am sure gives them enormous heartburn. But after a year of implementation and with a few
weeks left to go live, they will probably not throw it out. Tipping point will be customers who are planning to buy an LMS in
2012 and I believe customers will not go to Plateau and will go to something else because of the transition into SAP.
Also, there is a current dearth of Plateau resources. A lot of the Plateau knowledgeable resources are gone and are not available
in the market and companies implementing projects are using resources who are less knowledgeable or trained on the Plateau
platform. Some of these guys are poached by competitors, some made some money and are moving on in life into something
else, some of the guys dont like working for large companies and hence are moving away etc.
Thinks that the main benefactor of Plateau customers defecting away from SFSF would be Saba and Sum Total and not
Cornerstone. If these customers preference was SaaS and ease of use, they would have chosen Cornerstone in the first place.
Cornerstone is the best in the market in terms of ease of use. These customers would look for a solution which is deeper and
wider with a bias towards on-premise delivery model.
He had a couple of projects of around half-million dollar value that were pushed into Q1 2012 from Q4, but thinks that it's mainly a
project specific issue (in one case it was because the company was unable to complete staffing allocations) and doesnt reflect broader
market sentiment.
Demand for Cornerstones learning platform continues. There is still volume, there is still demand.
Thinks that Plateau integrations that SFSF made grand promises that will get delayed significantly because of the SAP merger. SAP
had never thought much about learning management. They never thought of it as a mission critical application. Their own learning
management platform, frankly [wasn't good].
A lot of what was promised [by SFSF] to the market by acquiring Plateau has very likely been diluted as a result of this [SAP merger]
and the window of opportunity for Cornerstone has expanded.
The advantage Cornerstone has is that its all homegrown, all integrated and not something which has been patch-worked together.
We see ongoing activity with Cornerstone. Its not increasing nor is it decreasing. Demand is stable.
Getting a few more inquiries than usual from Cornerstones international sales reps. Not sure if that represents increasing international
business for Cornerstone or more familiarity of the partner among Cornerstones international reps. The amount of inquiries and
support requests we have gotten in the last quarter is the same as the previous one in North America and we had more interest or
inquiries or support requests from international than we had previously.
Has a negative bias towards the SFSF/SAP merger based on SAPs ability to integrate acquisitions. SAP is almost like a religion and
all of a sudden you are bringing in a new messiah; usually they stone those guys.
A couple of SFSFs partners he knows are ambivalent and are making sure they are covering their bases in case something goes wrong.
So, overall if SuccessFactors partners are deciding to look into other platforms as an insurance plan, it could benefit Cornerstone
OnDemand
Last quarter, the bulk of the inquiries came from Financial Services small banks, insurance companies. These are 1,500-3,000
employee kinds of organizations.
Thinks that CSOD won a major deal in Western Canada, which they have been trying to close for the last two years. Could easily
be a million dollar deal, but he doesnt know how widely it is being deployed. Believes it was closed in the last two - three weeks
and not sure if it would be a part of Q4.

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Thinks that the [sales representatives in the SaaS Talent Management suite ecosystem] he has spoken to are excited coming off the
quarter.
He continues to hear good momentum both in North America and EMEA.
Thinks that for integrated talent management clients, particularly for those where LMS is a driver, CSOD will continue to be a favorite
for clients and a lot of large deals could go its way, especially after the SFSF acquisition.
ADP Relationship
Thinks that CSOD's ADP relationship could evolve. ADP is a reseller with a increasingly competitive product.
ADP is investing in its Vantage platform, which includes a lot of competitive functionality although ADP embeds CSOD
to cover the learning functionality. Thinks that ADP acquired some assets from Workscape and has improved the capabilities
around Performance management, succession management and compensation.
Thinks Vantages compensation functionality is more mature than CSOD.
To resell, CSOD is using Ceridian in Canada, ADP globally, Logica in Western Europe, and in EMEA they are using a combination
of two companies CDP and Genpact.
Hasnt seen any slowdown in business in Q4.
Thinks sales guys are excited now that they even have a recruiting module. Thinks that there is a good opportunity in the install base.
Regarding SFSF - Thinks it's business as usual for him as far as SFSF goes. Currently, working with a big retail client which is in the
process of negotiating a deal with SFSF. Was a competitive deal between SFSF and TLEO. But he suspects that there are deals that
are getting slowed down due to the acquisition, and many clients are concerned that prices might go up.
Clearly sees steady demand, if not a little bit more, for Cornerstone products.
Thinks that their backlog is really healthy. So, even if it was a lighter quarter, I have no doubt they will post good numbers. I really
dont. But he thinks that net new deals might have slowed in Q4 as deals might have pushed out to 2012.
Apart from the Learning piece which is their stronghold, they are making a lot of progress in other modules such as Performance and
Succession. Seeing deals starting from other parts of the solution set, other than Learning. They won a deal with Sodexho which is
mainly non LMS modules until now and is rolling out CSOD in around 80 countries and around 27 languages. Their Performance is
becoming stronger and they have really deepened the modules.
Has also heard a few deals that they have won of pretty decent size. However, hasnt heard about any big watershed deal like the
U.S. Treasury deal in Q2.
Knows about two financial services customer that are Plateau customers who are going to evaluate their options now after the SAP
merger and are guaranteed to look at Cornerstone.
Was skeptical about the importance of the one-platform message by CSOD, but is now slowly seeing that it will have an influence on
getting deals now in sales conversations. Doubts that Plateau is even going to be around for long.
Thinks that they have done some good work from a verticalization standpoint in the Health Care sector.
Their pipeline is in great shape for 2012. They really are and not only from a net new business but also from expansion. Knows of
a number of accounts that have budgets and are planning to expand.
Curious about the calendar Q4 numbers although believes that they will have an overall good year. "In terms of what I saw, it was
kind of mixed. Wonders that they might be light in terms of new business in Q4 as he saw a few deals pushed out into 2012, a couple
of losses but also saw a few net new decent size deals.
They had a pretty good Q2 and Q3 and I wonder how that affected Q4I still admire the company but I just know that normal things
happen within sales cycles like that and their ability to make their numbers will be purely based on how big their pipeline was.
Saw a number of deals jointly worked with CSOD which were pushed into 2012 and didnt go through in Q4.
Has seen some cracks in their implementations. Think their utilization at one point was 150%. They were booking so much business
that its hard to keep your projects all successful. They have started to experience a few little hiccups in implementations. Thats
something that they are going to have to address soon.
They lost a big potentially 7-figure deal in a big bank in Europe to Saba, which is kind of rare because they have always beaten Saba
on the Learning side. However, the deal might not have affected Q4, as it was supposed to close in January. It was a big outsourcing
deal too.
Knows that one of the big million-dollar plus deals in North America pushed into 2012.

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Also, thinks that there is a difference in how they have performed in North America as compared to their performance in EMEA.
Thinks that EMEA may be light for Q4 and Q1 2012. CSOD has overstaffed in EMEA and there are not many watershed deals out
there. So, when you lose one of the few big deals it would be difficult to have a good quarter for the region.
Conversations with [sales representatives in the SaaS Talent Management suite ecosystem] were really positive, probably mainly
because they had a really good year. They were certainly not down in the dumps but they were also not leaping for joy.
Investment Thesis
Cornerstone OnDemand is a leading SaaS based Learning and Talent Management solution vendor. Cornerstone's offerings enable
businesses to more effectively support the full lifecycle of an employee post-hire, including onboarding, teaching/developing,
evaluating, compensating, retaining, promoting, and providing succession plans, all in a closed-loop process. Cornerstone's historically
strongest and most differentiated module has been Learning Management, which automates the administration, tracking, and reporting
of training programs, classroom and online events and is considered one of the most complex modules in the Talent Management
stack. Cornerstone leverages its pure cloud architecture and also enjoys strong differentiation versus its peers because thus far, its
entire suite is 100% homegrown and fully integrated. We expect Cornerstone to deliver rapid revenue growth due to the superiority of
its broad, fully-integrated suite of talent management offerings and the powerful demographic changes which are quickly reshaping the
fundamental structure of the global workforce.

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Informatica Corp. (INFA) Overweight
Deep-Dive Checks Highlight Continued Strong Momentum
PRICE: US$42.55
TARGET: US$47.00
24x our 2014E EPS of $1.66+ $5.73 net
cash/share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$47.00
FY13E EPS US$1.45
FY14E EPS US$1.66
Yield 0.00%
Fiscal Year End Dec
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14
46
44
42
40
38
36
34
32
30
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 8 key contacts in Informatica's ecosystem and
amassed 8 pages of proprietary content to provide a detailed view into Informatica's
current business environment. Key takeaways: 1) Several partners observed good end
of year activity; 2) Sources referred to multiple 7-figure deals signed in the quarter,
including a probable contract with Facebook; 3) Partners were encouraged by the level
of engagement at the sales/partner kickoff held in January and referred to the mood as
"pretty upbeat" and "very positive"; 4) contacts see Big Data Integration as a "big growth
area" with Informatica playing a leading role; and 5) A contact sensed soft Federal sector
results in Q4. We expect a solid Q4 report with essentially inline guidance for Q1 and
2014. Overweight, $47 PT.
Notable feedback:
(+) [Informatica is] back in stridereally moving forward.
(+) I still see demand.for services it is bigger than ever. We cant fill all the needs.
There is huge demand for services."
(+) Everything [in the sales kickoff] was very upbeatmuch more so than the last
couple of yearsthey were very positive
(+) We have pretty decent deals cutting across all product lines, whether it is data
virtualization, data masking or master data managementDeals which are in the
pipeline are large deals.
(+) [New Informatica Sales Teams are a] whole new breedthey are really really
goodstrong, very strong and very convincing.
(-) [In the Federal sector, not seeing an] exponential increase [in demand and activity]
which we saw for a while....People are still a little gun shy.
***DETAILED FEEDBACK on Pages 2-8 ***

Macroeconomic fluctuations; volatile quarterly license revenue results; competition;
financial services exposure.
Informatica delivers data integration and data quality software and services.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 5.8x
214.3A 222.4A 235.4A 264.5 936.6 5.1x
231.9 250.8 263.9 294.2 1,040.8 4.6x
0.35 0.29 0.27 0.41 1.31 32.5x
0.31A 0.31A 0.33A 0.50 1.45 29.3x
0.27 0.37 0.42 0.60 1.66 25.6x
Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
.

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Positive Feedback (6) Industry Contact 1
Based on his business momentum and his conversations with sales executives [in the data
integration ecosystem], thinks that Informatica came very close to breaking the billion
dollar mark in 2013. Sensed that sales reps [in the data integration ecosystem] were pumped
up about Q4. Also, thinks that they did very well in services.
Thinks that Informatica is back in stridereally moving forward. Senses that Informatica
is expecting a really big yearI think they felt really good about coming off of last year,
especially with all the changes they made.
Talking about big deals in Q4, heard about a deal with MetLife.
Refers to the pipeline as real strong and adds this is going to be our biggest year, I
would think, based on our pipeline. Also, is encouraged by the excitement among the
new sales people to work with partners. I came out talking about at least 8 new MDM
opportunitieseverybody is very upbeat about the year.
Thinks Informatica is doing very well with cloud and it's one of the growth areas. Also
adds that Informatica is using it [cloud] as an opportunity to get in front of business
usersexpand out of their IT focus to solution selling to the business users.
Talking about the sales kickoff, Everything was very upbeatmuch more so than the last
couple of yearsthey were very positive
I would say that it was the largest turnout of partners I have ever seen in the 13
years of going to these thingsit was big. Estimates that out of about 1,000 people
who attended the kickoff, there were about 250 partners.
Mentions that Informatica had a lot of sales management changes They basically
replaced everyone in the front line of sales management. Adds that Informatica is
focused on adding a lot of Enterprise Application sales people. Heard John McGee
say that there were 68 new sales people.
Mentions that Informatica referred to the next goal as reaching $3B in top line in
the next 7 years. Observes that the $1B goal took 9 years, although the plan was to
complete it in 7 years.
Thinks that MDM [master data management] is a very big component of their
future growth story.
Indicates that Informatica sees their core products as Data Integration, Data
Quality, Master Data Management and Information lifecycle management. Also
lot of talk about Vibe.
Reports that Informatica is also doing more vertical markets approach as wellthey have
split out financial services into insurance and banking and capital markets. Also referred
to the possibility that Informatica creates a new retail vertical.
Referring to the PIM [Heiler] product, there is not a lot of training available in the US and
it's mostly concentrated in Germany. Thinks Informatica will be starting to train people in
the US in Q1, and should see growth in that product line in 2014.
Indicates that he could be doubling his Informatica services business this year.
Industry Contact 2
Talking about his practice, from Informaticas perspective, last year was very good.
Mentions that he was able to close deals around core PowerCenter, Master Data
Management, Test Data Management and Data Masking etc.
Talking about large deal traction, refers to two 7-figure [few millions] deals signed in
Q4. Also reports that he has heard a few 7-figure deals signed in Q4 by a couple of his
competitors [other Informatica partners] as well.
Speaking about the pipeline in the banking and financial services verticals, we have pretty
decent deals cutting across all product lines, whether it is data virtualization, data masking
or master data managementDeals which are in the pipeline are large deals. Refers to
expected growth of +18% y/y in 2014 for his practice.
Adds that his Q4 performance exceeded his internal plan as a few deals that he thought
would spill over to Q1 2014 closed in Q4 2013. Adds that the growth was overall better than
Q4 2012.
Mentions that he has not seen too many new faces in the sales side in the financial services
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Thinks that the PowerCenter Big Data Edition is a good stable product now. Refers to
a couple of deals he is working on around that tool. Also adds that his firm is planning
to create a practice around that specifically. That we see as a big growth area for us Big
Data Integration side.
Talking about sales kickoff takeaways, mentions that Informatica is breaking down their
Financial Services and Insurance vertical into two separate units. Thinks that will align well
with the SIs [System Integrators] who have already split the two units and will act as a good
motivation for sales reps to go after more focused sectors.
Estimates that partners have contributed at least $80-100M in new license revenue to
Informatica in 2013. So to incent the partners properly, reports that Informatica has
increased the referral and source revenue to partners by 2%. Adds that it was around
5-10% and now it's 7-14% for sourced deals [deals that are sourced by partners].
Industry Contact 3
I still see demand.for services it is bigger than ever. We cant fill all the needs. There is
huge demand for servicesin the core integration side.core PowerCenter product. We
cant hire Informatica developers fast enough. Mentions that the increase in demand is
also true regarding IBM DataStage.
Thinks that the increase in demand is happening because of an increase in IT spending.
Adds that he is also seeing a number of new clients who are starting to do data warehousing
and business analytics. Believe it or not, we are seeing large enterprises and medium
enterprises which have never done this [data warehousing and analytics] before. Refers to
a global manufacturing company and a fortune 20 company that he is in talks with that
currently use nothing for data warehousing even today, and have been using spreadsheets.
Also, seeing many existing customers looking for more - more projects are spinning up.
With respect to MDM, we are seeing some uptick, but its not as pervasive as you would
expect. Mentions that its something like Data Quality (DQ) as everyone recognizes the
need for DQ but no client is ready to do anything about it.
With respect to analytics solutions, reports that we are starting to see a noticeable uptick
in demand for QlikView and Tableau in particular in addition to the legacy solutions such
as Oracle BI, Microstrategy, Cognos and Business Objects. Also, seeing more demand for
statistical tools like SPSS and SAS.
Adds that a year ago we had zero Big Data projectsnow we are actively doing three or
four although they are still in the early adoption/ proof of concept stage. Acknowledges
that Informatica has two ways of leveraging on the Big Data wave when enterprises are ready
to make a legitimate investment in that area through connectors and through the Big Data
edition of PowerCenter. Indicates that he has not seen or heard many clients buy the Big
Data edition of PowerCenter.
On the competitive front, I am seeing IBM and Informatica duking it out on every
account.the data integration wars are over in many aspects. The F500-1000s have made
their technology choices. Indicates that net new accounts are very scarce and because
of the scarcity of demand now, you have the giants fighting over the remainders. Adds
that displacement of one technology by another does not fly well with clients at all, and
is an extremely expensive undertaking. So, the only solution left for growth is cross-sell.
Mentions that in a head to head fight with IBM, Informatica wins if its about the strength
of the data integration suite, but loses when IBM bundles data integration as part of a larger
deal. Its neck and neck based on what he sees.
Reports that the Informatica sales teams that he has met in the last 6-8 months are a whole
new breedthey are really really goodstrong, very strong and very convincing.
Based on his conversations with sales reps [in the data integration ecosystem], I think they
are [happy] coming off the quarter.
Referring to his sales pipeline, its as strong as it has ever beenWe have no Informatica
people on the bench, no data integration people on the bench. Recruiters are scrambling to
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Industry Contact 4
Q4 was goodcould have been great if not for a couple of deals that got pushed out to
Q1, although he was able to close many deals which have been pushed out in the previous
quarters.
Heard that Informatica closed a couple of big deals in Q4, although he doesnt know the
specifics.
With respect to Q4, thinks overall they [Informatica] seem to have done well, at least
from an MDM [Master data Management] standpoint. Mentions that at the recent sales
kickoff, there was a lot of touting about how the MDM business is growing and how the
ILM [Information Lifecycle Management] business is growing.
My guys walked away fairly energized from the kickoff.they liked what they heard and
they liked the people who were delivering it. Messaging was much more focused. Thinks
that the sales kickoff was focused around new technologies such as the MDM and ILM.
Reports that there was also a lot of talk about Vibe as well and how it can play a vital role
in the internet of things. Observed a lot of new faces not only in the sales side but also
in the product and marketing side. The messaging is coming from a new set [of people]
again. Heard Informatica throw out a plan to grow to $3B, although he doesnt remember
the time frame they set for the same.
Our pipeline is looking good. Refers to a couple of MDM opportunities in the pipe.
Mentions that his firm is investing in the MDM and ILM area as the next area of focus.
Thinks that Informatica is looking at these as growth areas and areas to differentiate.
Have heard sales guys realize that things are changingin terms of the focus, in terms of
what they want to do and how they want to do itthey see that change. Those who can
swim with it will be happy; those that cant wont be too thrilled about it.
Referring to a new competitive threat on the horizon, talks about [Microsoft] SQL Server
integration services. To me, SQL Server seems to be the new replacement for hand coding
[for ETL scripts]. Refers to a couple of SQL Server customers who decided not to use
Informatica [sometime last year] and use SQL Server Integration Services instead.
Industry Contact 5
The big push that we are seeing from Informatica, and specifically the request from our
clients, is around Informatica MDM. Adds that even clients using Oracle MDM and IBM
MDM are interested in learning to use Informaticas MDM Asset Hub.
Informatica has jumped on to the data and cloud bandwagon big time.
Reports that Informatica has made some good strides in the Big Data PowerCenter edition.
Refers to a couple of client projects where they are bringing in data into the Hadoop
framework, whether on premise or in the cloud and we are bringing in that data using
Informaticawe are getting good performance out of it. Adds that apart from pulling
data into the Hadoop framework, he is also virtualizing that data using Informatica to be
fed into a BI tool.
Mentions that one thing he has not yet seen from Informatica is real time streaming of
data. Adds that Amazon AWS can stream data at the rate of 1TB per hour.
Adds that he is also seeing a lot of salesforce.com integration with Informatica.
Talking about the sales kick off, seems to be a lot of energy generated around this. He
got leads from Healthcare, Financial Services and Telecom, passed on by the Informatica
sales reps during the event. Bottom line is that, everything I am seeing here looks to be very
positive in terms of what customers of Informatica or prospective customers are asking for.
Mentions that key sales reps [in the data integration ecosystem] are telling him that we
have lots of opportunities and that they need more engagement from a partner like him.
They are overzealous in partnering with us.
Thinks that Informatica, like Teradata.. they are running a little bit scared from the
various Hadoop enabled open source tools and solutions in the market from companies like
Cloudera and Pentaho etc. Mentions that one can already move huge volumes of data using
Pig, Hive and other tools that are part of the Hadoop framework and it's much cheaper. So,
Informaticas value prop is centered around the fact that Informatica is already entrenched
within the organization and it provides capabilities such as visualization of data mappings,
redundancy, error recovery etc. that other companies dont provide.

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Thinks Informaticas plan is to go further and deeper into organizations with MDM and
ILM etc. such that it raises the overall switching cost for customers. Adds that Pentahos,
Clouderas and everybody else they dont address the MDM side of the equation as well.
Refers to a deal signed by Facebook with HP Vertica for 32 petabytes of data. And I believe
the integration platform for that was Informatica, but I need to verify that.
For Q4, we were definitely above plan. Mentions that he is under plan for January though.
The train is starting out a little bit slower than I think we want, but I think by probably
Q2 / end of Q3, we are going to have an engine running pretty full speed ahead.
Pipeline is starting to look strong already.We are seeing a lot more opportunity around
Informatica MDMDefinitely seeing more services around just Informatica PowerCenter
solution.
Expects 12-15% growth from his Informatica practice in 2014.
For Big Data, he is seeing use cases to build solutions such as predictive asset maintenance
or profit velocity, predictive inventory management.
Talking about the sales conference, thinks that the overall general mood of the conference
was pretty upbeat and the engagement with all the partners was very positive.
Industry Contact 6
Q4 for us was very busyand we are getting more leads within healthcare. He is pretty
bullish on healthcare for 2014 mainly around MDM [master data management] hub.
Mentions that for 2013 he well-exceeded his internal plan for his Informatica practice.
Observes that January has been a little slow [in terms of activity] but presumes that the
growth will pick up."not really tremendously worried because we know actually that
a number of things are coming up from clients that are looking to do something Expects
2014 to be a good year for Informatica.
Refers to one big deal in the healthcare sector which could be close to 7-figure.
Based on his conversations with Sales reps [in the data integration ecosystem], they are
doing very well across the board. Refers that they seemed to have a good year and that
they seem really jazzed up for 2014. Thinks that MDM has been really just fantastic for
them overall.
Senses that this year Informatica will really push partners to sell or generate leads around
MDM.
Refers to a couple of Siperian executives who left Informatica and have now come back in
the last few quarters.
Neutral Feedback (2) Industry Contact 7
Reports that he is seeing his Informatica practice a bit stabilizing in Q4 and so far in the
year. Adds that he has been seeing increasing growth activity in prior quarters but things
have stabilized a bit in terms of activity and he feels it has taken a step back. He is not
seeing an exponential increase [in demand and activity] which we saw for a while.
Thinks that the government shutdown last year had a direct effect on a few deals for his
practice. Indicates that it should have an impact on the year-end activity in the Federal sector
for every software vendor including Informatica, Oracle, SAP etc.
Talking about the pipeline, adds that he is probably not quite as bullish as I would have
been last year, specifically on Informatica. Mentions that although his existing Informatica
customers continue to buy, he is not seeing much activity in terms of new customer
acquisitions.
From his conversations with sales reps [in the data integration ecosystem], thinks they are
still doing pretty wellI think they are doing more deals with existing customers which
are probably larger.
Among existing customers, he is seeing the uptake of data quality and B2B. Thinks the
government space is a little behind in the uptake of MDM [Master Data Management].
Thinks that the various Federal agencies are finalizing their portion of the agreed-upon
budget this week. People are still a little gun shy and didnt know how much budget did
they have for IT spending. On top of that, there is a lot of backlog that the agencies have to
sort through. So bottom line, thinks that all the pent up demand will come out in calendar
Q2 and Q3 (government year end), which he predicts will be big quarters in the Federal
sector.

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Industry Contact 8
He notes the data warehousing, BI and ETL space is akin to the client-server wave of
technology in the late 80s to early 90s where there are a lot of new and different ways of doing
things. The legacy vendors (on-premise BI and analytics market, and database market)
havent quite grasped the shift in the technology underpinnings. Theyre all designed to
work under a particular set of assumptions about data and infrastructure, and these arent
valid assumptions anymore. Its hard to change your mentality when youve done something
the same way for 10 or 15 years. You have the classic legacy code problem where you want
to milk it for as long as you can. I havent been particularly positive about any of the major
vendors because of that.
He observes that Informaticas ability to move data among on- and off-premise sources
has been used mostly by Informatica shops. Informatica seems to be doing well with it,
but to be honest its really not hard to get that data out of salesforce.com. I think what
Informatica was trying to push was to get some market share and adoption without having
to go through that whole on-premise and direct sales model installation. Several years ago
he was doing work with someone and he needed to pull data for online companies, and
they all have methods to access the data, its just that the methods are not the ones the data
integration vendors are used to because theyre used to having a database inside a company.
He thinks data integration companies have been really poorly suited to getting data from
non-traditional sources and it took them a long time to add the features to do it. In that
case Informatica told him to buy a particular version of PowerCenter for $180,000, but he
instead went to a developer and asked him to write some extraction code to drop a file on
a disk somewhere and he was able write that code in less than a day.
In his view data integration companies have been slow to add these features because if they
add these features to their core products, theres not a reason to buy additional, add-on
products. The distinction between data integration and application integration is one of
those walls that is starting to fall and it really affects product offerings when theyre designed
around an artificial distinction between those things. He believes the vendors that have these
models that are constructed around that are in trouble. In his view the pricing models a lot
of data integration vendors are using are pushing people that have to do data processing,
rather than data extraction, its causing them to gravitate towards Hadoop, as long as youre
doing fewer feeds but bulk processing, and thats where more of the new data is coming
from.
In one way data integration vendors are threatened by Hadoop, but to be honest once
things start to get complicated you need features that are built into legacy tools. He notes
some web data integration companies are struggling to grasp all the other parts that have
been added over the last 10 years. Im not particularly bullish on most of those guys because
theyre not understanding the enterprise data needs and thats where the revenue is. Some of
the new vendors are solving certain problems but they do not understand how their products
integrate into a larger enterprise. Hes seen this over many years, where a startup gets an
idea, and their customers are all web companies, and so theyre selling to each other, and
maybe theyre selling to a larger organization with a large IT staff and a heavy custom
investment, but once the funding starts to shift more towards getting sales and not living off
the VC anymore, they suddenly realize that 50% of the features they built are of no interest
to non-web companies.
He indicates that technology shifts shouldnt have caught the likes of IBM and Informatica
unawares, but they did. He reports that IBM seems to be doing the best out of it because
they have a giant product portfolio and they sell it and make money integrating it because
none of it works well together.
Most of the interesting stuff seems to happen in the world of startups, but now, unlike the
late 80s and early 90s, as soon as a startup gets marginally interesting it gets acquired.
Competition
One of the companies that he believes is doing a really great job, even though theyre focused
on the late mainstream market, is WhereScape. He observes theyre interesting because
theyre really aimed at a couple of things that work well for a tech company or a large mid-
market company. The high-end market is using WhereScape to build small systems. They

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partnered with Teradata. Theyre definitely lodged in the big, old market. He sees them a
lot and theyre better than what Microsoft offers. Theyre doing things with a price point
and feature set that fits well for the market that is buying new licenses now, which is the late
mainstream. It fits well with people that have really big piles of data infrastructure.
Open Source data integration offerings like Talend and Pentaho are mostly competing with
coders. I think theyre fine as far as they go, but theyre not really great products that can
unseat the Informaticas and DataStages of the world.
Talend is focused on largely a developer market where they sell low cost individual seats but
a higher volume market, and Informatica is solidly in the enterprise space. Talend hopes to
seed those products and then sell other products that they offer. Informatica just doesnt see
Talend that much because if a company uses Talend it will be on the periphery. He says a
vendor like Informatica wont talk about Open Source vendors that much because it doesnt
want to legitimize their business.
He opines that the BI front is more interesting. Tableau and Qlik have been doing really
well by serving the underserved. Theyve been serving a large market that didnt have any
tools.
He offers an example of a company with a few hundred seats of Business Objects. Then
some other department wants to run a report, but its not a standard report, and this
department needs to do some slightly different things, but those Business Objects were
built for financial reporting. What happens is tools like Business Objects have a centralized
mindset; youre going to try and do something heavily centralized and everyone sees the
exact same information, the same version of the truth. This works when youre doing
financial reporting, but when someone is doing sales commission work and someone else
is doing margin analysis they need different information and they need to see it in different
ways. Single interpretations of a number doesnt work in that environment. So you have
these unsatisfied people with clunky tools like Business Objects, Cognos and Microstrategy.
If you want to do anything slightly more than simple, you immediately shift the work to the
laps of very technically savvy business people of the IT BI group. So Tableau and Qlik are
being used on the fringes, outside the corporate standard of data reporting. The problem
is that Tableau just doesnt understand the data integration side. They have some really big
gaping holes in their products that make it hard to turn into an enterprise standard."
He views companies like Birst doing BI as a software service being very similar to the
Tableaus of the world. Theyre limited in what you can accomplish because once you have
to start to manipulate data you fall back out of what a non-technical person can do. BI tools
are supposed to be publishing tools. You publish data and users consume it, but the reality
is that most people take that information and try to refine it. The only way for them to do
that is put it into Excel or Access. BI tools that were supposedly state of the art were really
read-only publishing tools. This is where the newer vendors are a little bit different.
He calls out Platfora, which he describes as similar to Tableau for running in a Hadoop
cluster. Its been getting a lot of buzz and theyve raised a lot of money.
ClearStory is much more in the right direction, in his opinion. This is a product set for
people that actually look at and analyze information. ClearStory has based its product on
what the user needs to do, rather than on how the technology performs its tasks. You just
dont see IBM or Oracle or anybody doing that kind of stuff. I think their assumption is
that if anybody gets big enough doing it well just buy them.
Tableau already assumes you have data and just need to explore subsets of it. Its an OLAP
product from the 1980s with a really nice, usable user interface. All the legacy vendors,
Business Objects, Microstrategy and IBM, all have sort of equivalents to Tableau, just not as
polished. Id expect that [Tableau] might see some slowdown but most people cant stand
their incumbent.
Cloudera has really made a bet with Impala, and trying to make Hadoop a database is a
mistake. It takes a long time to build a good parallel database. Ten years from now maybe
it will be a viable database, but I worked on databases and I just dont see any way around
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And theyve suddenly changed that to be now I can get it from salesforce.com and a
database. They havent rethought the process of how you develop it and how you deploy
it. The coordination of seven or eight different products being managed in seven or eight
different groups or departments was always a nightmare. A big part of that is just how
some of the products work. The people who are looking at Hadoop and thinking of it as an
ETL tool to compete with the big vendors, I think they miss one of the key points, which
is you dont move data into it, process data and take data out. Thats what an ETL tool
does. You move data into it, and you leave it in there, and you process it there. Then you
either look at subsets or take stuff out, but you dont really use it for the same kind of work.
Its a processing engine rather than a data transformation engine to make data usable for
somebody else.
The fundamental way that Hadoop works under the hood, the map reduce operator, does
not permit small scale processing and continuous flow. This makes it really inefficient. Its
scalable but only reasonably efficient if you process everything in very large batches.
The stuff thats really interesting in the market to pay attention to, theres finally a company
thats trying to offer commercial support for it is Spark and Shark, from UC Berkeleys
Berkeley Data Analytics Stack. If you take Spark and Shark, those give you the equivalent of
a parallel data flow engine, which is what DataStage and Informatica are. And once you put
that on top of Hadoop what you then have is a data storage facility inside of Hadoop. And
you throw out the map reduce part of Hadoop and you forget about it, youre only using the
Hadoop file system and the cluster at that point. Then what you have is the equivalent of the
engine part of DataStage and Informatica. Then once you have the engine its only a matter
of time until people start slapping tool interfaces on top of the engine. The kind of people I
work with who do the data science stuff thats what they used. I looked at what it did and
its like wait, if I took the user interface off of an Informatica or DataStage or whatever, hook
it on this thing, Id have the same product but it would be built to run natively in the cloud.
Thats the scary thing. Once that part hits, then the market is going to see some interesting
shifts. Now you dont have the same level of resistance and you have a product that can do the
job. Right now Informatica versus Hadoop Hadoop cant quite do the same job because it
has to do things in a certain way thats very resource inefficient. Everybody always says Oh,
but we can scale by adding servers. We did that in the 1980s with databases. The real world
doesnt work that way. Efficiency always matters. He concludes that Hadoop is flexible but
the trade-off is that its inefficient. The flexibility trade-off is what web companies and data
scientists need. It solves a problem that data warehousing tools have never, ever solved.
Generational Rifts
Most people in the market doing data warehousing and BI are mid to late career people.
Now many young people are steeped in internet infrastructure and alternative ways to build
systems. Theyre starting to get mid-management technical management jobs and theyre
bringing new ways of doing things and using even the old technology in new ways. The
next five years he expects a lot of IT turmoil because of it. I see the arguments being put
forth about why we cant have Hadoop, or why we cant have Tableau or whatever, and
theyre the same arguments the mainframers used to give to me. When you have a big
generational break in the technology market, one of the interesting things that happens is
the older generation has a lot of knowledge that takes a while for a younger generation to
pick up. Theres also a lot of baggage as well, and after a while the baggage outweighs the
useful knowledge, and then the market tips over. Were seeing it now.
Hadoop
He explains that Hadoop was designed to be a batch processing programmable engine. The
mindset ETL vendors have is to get data from a database and to put data into a database.

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Deep-Dive Partner Interviews Suggest Good Q3 Demand Environment; OW, $44 Target
PRICE: US$38.41
TARGET: US$44.00
23x our 2014E EPS of $1.68+ $5.43 net
cash/share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$44.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 11 key contacts in Informatica's ecosystem, and
amassed 7 pages of proprietary content to provide a detailed view into Informatica's
current business environment. Key takeaways: 1) Several partners observed an uptick
in sales activity in Q3; 2) Demand for INFA's Big Data products continues to rise,
with reports that Big Data should "pick up in full force next year"; 3) A contact also
referred to an $8-10M ELA renewal contract signed during the quarter with a financial
services company; and 4) Sources also sensed better competitive dynamics with IBM
and highlighted a few competitive wins against IBM, especially in the MDM arena.
While Q3 guidance already reflected a strong North America performance and on-
premise infrastructure results have been soft recently, we think INFA can deliver a good
performance. Reiterate Overweight, $44 PT.
Notable feedback:
(+) "We are seeing a lot of growth in demand. We are seeing expansion of existing
accounts as well as the addition of new logos and some competitive wins. I dont think
I could give you a much rosier report than I feel like we are seeing right now.
(+) Everybody seems to be happy, very optimistic. I believe there are a lot of things
in the pipelinethere is definitely an uptick in sales activities.
(+) "The MDM business is exceeding their numbers...MDM continues to grow

significantly.
(+) They [Informatica] are clearly going to be the leader in data technologies for the
foreseeable future.
(+) Big Data is continuing to pick upWe are seeing a lot more activities for
ourselves. So, definitely the adoption rate seems to be climbing."
(+) Financial Services and Healthcare are both doing very well as verticals...I think
demand is still strong [in public sector].
(-) Generally speaking, the perception of everybody, is that Informatica ETL is down
a bit. ***DETAILED FEEDBACK on Pages 2-7 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 5.3x
214.3A 222.4A 221.9 255.6 914.2 4.7x
236.1 252.1 250.5 286.3 1,025.0 4.2x
0.35 0.29 0.27 0.41 1.31 29.3x
0.31A 0.31A 0.31 0.52 1.45 26.5x
0.38 0.41 0.36 0.53 1.68 22.9x

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I am still very optimistic about Informatica and their new sales team. Seeing a lot more
[sales] activity.
Seeing MDM picking up for sure. Also, seeing companies continuing to invest in the Data
Quality tools.
Seeing a lot of interest in their Cloud MDM and characterizes that offering as something
that would be interesting to watch. Thinks that a solution thats the key in the cloud
MDM area is the one with the salesforce.com component.
Big Data is continuing to pick upWe are seeing a lot more activities for ourselves. So,
definitely the adoption rate seems to be climbing. The fact that Informaticas tool runs in
Hadoop, I think, is a great step forward because you dont have to retool everybody. So
existing [Informatica] clients who are going to leverage Big Data, I would expect, some of
them to make the investment in [Informaticas] Big Data version [of PowerCenter]makes
a lot of sense from a business and learning curve perspective.
Based on his conversations with sales reps [in the data integration ecosystem], everybody
seems to be happy, very optimistic. I believe there are a lot of things in the pipelinethere
is definitely an uptick in sales activities.
Talking about big deals, havent heard of anything that has closed but absolutely thinks
that there are a few in the pipeline.
They are becoming much more cost competitive. I think they have learned how to compete
with IBMNow, they are starting at a much deeper discount rate [even for the initial pricing
as opposed to starting at a higher price historically] because that's what IBM does. I think
they have learned their lesson and I think that puts them at a competitive position from the
get-go as opposed to trying to play catch-up. They have caught on to how IBM does things.
Not really seeing any other competition in the market. Not seeing a lot of people going
in the direction of open source vendors such as Talend.
Mentions that the number of companies investing in net new data integration tools is a
smaller number. I think Informaticas opportunities are in selling additional products like
the Data Quality, like the MDM, like the Big Datamost companies already have an ETL
tool.
Talking about Informaticas sales organization, I think they made some very wise decisions
in their sales teams As opposed to years past, I am very optimistic about what they are
doing.
Based on his limited visibility, thinks that in the Midwest, Informatica is trying to penetrate
more deeply into the various state agencies. Thinks that with the changes in healthcare,
benefits etc., states are recognizing needs for more data integration.
For his own Informatica practice, he was above his internal plan for Q3 (Sep) and expects
at least 20% growth (services) in 2013, an acceleration as compared to 2012. There is a
tremendous amount of sales activity.
Industry Contact 2
We are real busy. We have got a lot of work with Informatica clients, all services related.
Definitely characterizes the demand for Informatica's tools and products as growing
and accelerating. Especially on the MDM [Master Data Management] sidethe MDM
business is exceeding their numbers. Based on his conversations with executives [in the data
integration ecosystem], heard them saying that MDM continues to grow significantly.
Financial Services and Healthcare are both doing very well as verticals. Reports that in
financial services they brought in some customers on the MDM side such as MetLife, GE
Money, Home Credit etc., while in the Healthcare side refers to Pharmacyclics and Celgene
as newer additions.
I heard they are doing pretty well in Public Sector but I dont know the particular divisions
[or accounts].I have seen a lot of growth right now in education services and home
shopping types of markets.
Observes that Informatica is actively pushing cloud, but havent heard much about how
they are doing. Heard that the cloud offering, at least in the MDM space, is only appealing

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to clients as of now who are interested in doing certain proof of concepts and not really for
full-scale implementations.
Senses that Northeast has done pretty much right on their number through [the last] three
quartersI think through the year they are at about 98% of their numbers or soI would
say they are pretty much right on target.
Talking about big deals, refers to a deal with a big box membership based retailer involving
MDM and the PIM [Heiler] product, although he is unsure of the timing of the deal.
I know there is a big push for the PIM product right now, especially in retail and
manufacturing.
Referring to his pipeline for the rest of the year, it's looking strongit's looking very
strongI would think their [Informaticas] pipeline is pretty strong [too].
Referring to the competitive dynamics, I know they run into IBM in all the MDM deals
I know they [Informatica] had a few opportunities come up where clients are looking either
to replace the IBM solution or the Purisma solution.
Observes that Informatica is bringing in a lot of new people in the sales organization.
I think they are trying to change the culture of the sales organization. I think they are
dangerously close to cutting off a lot of muscle and bone vs. non-performers just because
they want to make a cultural change. Refers to a few people who were let go that were long
time contributors and on their numbers, yet they [Informatica] didnt feel like they [the reps
who were let go] were cut-throat enoughThey [Informatica] didnt want the nice-guy-
approach type of people. Observes that there are a lot of Oracle sales people coming in.
Highlights this as a concern of his.
Industry Contact 3
Currently working on a full blown Informatica implementation in a financial services

company involving pretty much every Informatica product in the suite - PowerCenter,
MDM [Master Data Management], Data Quality, Data virtualization etc. Mentions it was
a high 7-figure deal in Informatica licenses for a total of three years. Could have been a Q2
deal. Thinks at some point the company would look at big data extensions as well.
Indicates that demand for Informatica products is increasing in the market. I am getting a
lot of calls for Informatica [resources]. Also, seeing some demand for Talend resources.
Based on her conversations with sales reps [in the data integration ecosystem], they seem
to be very happy.
I hear that MDM is moving very quickly. There is a lot of work out there if you are looking
out for MDM people.big billing rates.
Have done a few cloud implementations in past quarters. Doesnt think its their fastest
growing product but thinks it has good potential.
Industry Contact 4
Reports that he closed 3-4 deals with Informatica in Q3. Highlights two of these as larger
in magnitude, of which refers to one as an ELA [Enterprise License Agreement] renewal for
one of the largest banking organizations in North America, with a deal size of $8-10M for
license.
Talking about the pipeline, refers to a couple of ELA opportunities in the pipeline, one
in Q4 for a banking client and another for Q1:2014. Also highlights a few opportunities
related to mainframe modernization and mainframe migrations by using Informaticas
data integration and data archiving tools. Those are the good opportunities for their
[Informaticas] new tools as well as PowerCenter.
Also seeing some interest on the data masking side as well as on the data virtualization side,
which are part of Informaticas ILM [Information Lifecycle Management] suite.
Reports that he is seeing opportunities in the manufacturing vertical in the area of data
archiving, especially between Ariba and Oracle. Also, seeing data migration opportunities
in the Retail sector - fairly large opportunities in some of the large retailers. Also, observes

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traction in the telecom sector and adds that two or three customers in the telecom area are
looking at test data management kinds of scenarios.
Mentions that MDM [Master Data Management] deals have a slightly longer cycles because
those need business justification and might also be driven by specific business units as
opposed to an independent IT initiative. Reports that currently he is working on a couple
of opportunities around MDM. Thinks that most of the larger financial institutions are
already using some MDM solution. Most of the opportunities he is seeing are at the smaller
regional banks, which are now looking for MDM capabilities.
Observes that the main traction with Informatica cloud involves data integration use cases
with Salesforce.com.
Reports that Informaticas big data flavored tools are picking [up] well. Thinks its a
logical extension for the clients already using PowerCenter for data integration as and
when they want to do anything on the Big Data side. I see multiple opportunities in that
segment.
Based on his conversations with sales reps [in the data integration ecosystem], indicates that
they are happy and confident coming off of Q3.
Europe is picking [up] wellnot as compared to the USon their traditional PowerCenter
side as well as on the MDM side... Observes better traction in Europe as compared to a
year ago. Adds that they [Informatica] have put specific focus on regions.
On the competitive front, as compared to IBM, mentions that Informatica is a clear

cut winner from a technical perspective, but loses at times to IBMs ability to bundle
technologies as part of an ELA.
Industry Contact 5
Across the board, I would say, we are as optimistic as we have ever been in that relationship
[with Informatica]. We are seeing a lot of growth in demand. We are seeing expansion of
existing accounts as well as the addition of new logos and some competitive wins. I dont
think I could give you a much rosier report than I feel like we are seeing right now.
Among the trends he is observing in his client base, refers to a deep integration of
IDQ [Informatica Data Quality] into MDM [Master Data Management] projects and a
standardization of MDM, IDQ and DI [core data integration] on a common interface and
kind of a logical platform. Thinks that the standardization is going to be very beneficial
for Informatica customers. As a result, clients that were not sure that they were going to
expand either the ways that they are using the products or add new modules like IDQ, are
now much more open to it.
The area of greatest growth, [although] still fairly early on, in terms of net new logos and
just overall market momentum is around the PIM [Product Information Management
Heiler] solution, no question.:
Indicates that Informatica hasnt yet integrated the PIM solution with the core
platform, but he doesnt think that would be a headwind to adoption.
I think that space is underserved by Informaticas largest competitors, IBM and
Oracle. The competitive landscape is primarily made up of smaller [companies]
its just a much more fragmented space. Refers to Hybris (SAP), and other smaller
international companies as competitors.
If you are a fortune 500 company and you have the option now to consider a
company of the size and reputation of Informatica vs. what you had before that, I
think it's drawing a lot of conversations and being a source of some great potential
net new logo wins for Informatica.
Explains that the PIM solution is aimed at online retailers, consumer packaged
goods companies etc. organizations that have a lot of purchased products
that they resell. Its not good for process manufacturing or complex engineered
products.
It is a single system where you can set up the items that you purchased and resell
and it allows you a singular place to managedefault pricing, who did you buy it
from, how is it described on the web, what pictures are associated with it, managing
the media assets as well...

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Mentions that all this information could be pushed back up to the supply chain into
the procurement system or with the vendors or can be integrated downstream with
the e-commerce platforms allowing a singular location from which one can manage
how products are presented on the e-commerce channel.
Refers to an independent hardware company and a big box members only
retailer as some companies that Informatica has recently signed.
Reports that he is not seeing a pickup in the cloud space and attributes that to the
fact that Informatica cloud ETLs capability is currently limited to data integration
with the salesforce.com application and hence it is dependent upon the client being a
salesforce.com customer as well. Characterizes that area in Informaticas product set as
mildly disappointing. Thinks that Informatica recognizes the limitations and by version
9.7 Informatica should be able break out of those limitations and support more platforms.
Based on his conversations with a few sales reps [in the data integration ecosystem], senses
that they are happy coming off of the quarter and feels like that they are beating their
numbers.
In Q3, have seen some large dealshealthy 7-figure deals with some well respected
companiesnew logos for Informatica.
Talking about the pipeline, its as healthy as it has ever been. Adds that a few deals
that should have closed in Q3 got pushed out to Q4. Late summer was a slow time; it
usually isit was slow from a new license acquisition standpoint. Thinks its a function
of the economy and a wait and see approach developed by customers. Adds that he is
encouraged by the fact that the deals remain in the funnel. Meanwhile, the funnel has
grownthe services funnelis as large as it has been since we began working with them in
2011 I think there is a shortage of Informatica professional services capacity because there
is a high volume of demand and on the license side, I am detecting a lot of optimismI
am beginning to get pulled into a lot of conversations, both pre-sales and delivery oriented;
that tells me that there is a lot of demand.
Observes Informatica absolutely competing better against IBM, at least in the PIM space.
I have just never seen IBM convert the Trigo acquisition into real momentumInformatica
has turned the Heiler acquisition into a major source of new conversations with new clients,
new conversations with existing clients.
Speaking about the sales organization at Informatica, there has been a huge infusion of
new and very driven sales leadership at the senior and upper-middle levelsI have been
taking note of the number of former Oracle sales people that Informatica has brought on
board.
Industry Contact 6
Informatica is actually doing pretty good.
Mentions that in the Master Data Management [MDM] side, they are doing quite a
bit there They are definitely getting traction within the MDM space for both net new
opportunities as well as expansion of existing accounts.
Highlights that in the MDM space, I think they are winning a lot of deals against IBM
These are large deals [on average 7-figure]. Explains that MDM deals could start anywhere
from $350-500K for initial licenses to over a $1M including implementation services. They
[Informatica] are gaining competency in how to sell MDM, which is very complex.
Indicates that even though Informatica and IBM are the leaders in MDM, one shouldnt
discount Talend and Kalido and some other vertical MDM solutions.
Seeing a little, not much traction in the cloud MDM offering as well. Adds that the cloud
offering is mainly focused on smaller companies that dont want to spend too much on
infrastructure dollars.
Based on his conversations with a few sales reps [in the data integration ecosystem], thinks
they are absolutely happy coming off of the quarter. From the traction he is seeing, senses
that they are having a good quarter.

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Lot of companies right now are getting their arms around all the big data technologies like
Hadoopat the same time they still need core data management, which MDM is a part of,
and so our relationship with Informatica is definitely helping to fuel that growth.
Industry Contact 7 (Public Sector)
I think demand is still strong, although is not aware of any specific big Q3 deals related
to the government fiscal year end this year. But I still see they are growing strongly and
doing well.
As compared to last year's Q3, thinks the public sector traction as it relates to his
Informatica practice was probably a little better.
Noticed that Informatica has hired some additional people and has spread out the coverage
of accounts a little more.
Seeing good traction with Data Quality [DQ]. We are seeing that in just about every
situation and saw a couple of standalone deals involving DQ.
Mentions that Deloitte is working on implementing MDM at the U.S. Food and Drug
Administration although thinks that the software deals could have been a few quarters old.
Thinks that is the only one project going on in the public sector as far as MDM goes.
Thinks some of the other technologies such as B2B, PowerExchange, some of the connectors
etc. are still going strong. Also seeing a little bit more traction around some of the ILM
[Information Lifecycle management] components such as data masking and data archiving.
Thinks that the intelligence community had adopted big data technologies 6-7 years ago,
while Healthcare is starting to get into it now. Referring to traction of Informaticas big data
enablement tools, I am sure they [Informatica] are having conversations around it with
those types of organizations.
Based on his conversations with sales reps [in the data integration ecosystem], I think they
generally are [happy]. Thinks Informatica is hiring more sales reps in the public sector.
Reports that because of spreading of accounts across a larger base of sales reps, it could
have created some disappointment among some of the sales reps. But overall, thinks he is
seeing a normal level of sales activity.
Indicates that state and local is a big growth area for Informatica but senses that they
havent totally figured it out.
Reports that his firm had the best Q3 ever in terms of sales, although it involves technologies
other than Informatica as well.
Indicates that there were some deals happening in September, but he also saw some contracts
that had been delayed. We have start dates delayed, we have RFPs due dates delayed along
with other delays which cause the award dates to be pushed out a month or two.
Senses that the impact of the government shutdown on technology companies might be
more apparent in Q4 than in Q3. RFPs and things that were out there for a Q4 award, for
an award in October or for an award in November or even in December, all those things
are kind of pushed backed now because nobody is there doing the work to evaluate the
proposals. So, he expects a backlog resulting in a huge delay in awarding of contracts in Q4.
Feels very good about his pipeline for his Informatica practice.
Based on the demand for Informatica resources, a lot of it is around the steady state growth
around traditional data warehousing.
Reports that Informatica recently released their HANA connector which is a new improved
and optimized version. That will really position Informatica well in that whole in-memory
analytics space.
Mentions that Informaticas capabilities around real time provisioning of data to traditional
data warehouses or big data platforms like Hadoop is in a developing stage. These are
certainly the guys to be able to do itthere are still some questions in peoples heads around
whats the roadmap to get therethey have made some really great stridesbut it's still not
as smooth as they would like to see it, especially the whole data virtualization. Refers to
the Amazon RedShift connector as an example and characterizes it as a phase 1 maturity
product. Mentions that Informatica should work on maturing [these connectors and tools
related to the big data] faster.

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What they need to do for Informatica in the cloud and for big data, it really needs to be
the core product that we all know and love from Informatica. They need to get it translated
to both of those platforms.
Based on his conversations with sales reps [in the data integration ecosystem], senses that
Informatica might be struggling slightly in terms of selling the core data integration product
as they are approaching channel partners to do license sales for them.
Indicates that he sees so very little of IBM Data Stage, maybe because of his focus on the
Informatica client base.
They [Informatica] are clearly going to be the leader in data technologies for the foreseeable
future.
Our pipeline for Informatica is really strong. Refers to a potential Q4 data migration
opportunity at a Telco off of Teradata into Hadoop and HP Vertica. That will involve a
lot of Informatica type of workthat would easily be 7-figures [for Informatica].
Thinks that Big Data will really pick up in full force next year.
Industry Contact 9
As compared to last year, there is definitely a lot of interestthere are lot of people who are
sitting and talking to us about the various technologies. However, he is still not seeing deals
closing on time as per what was being projected by the customer. He is even seeing funding
being cut halfway through the project. Scrutiny is happening and people are constantly
thinking about value.
Speaking about his own business in Q3, reports that he didnt close as many deals as he
thought he would have coming into the quarter. So, he had an okay quarter.
His focus is still core data integration and data quality. We are definitely not seeing
any ILM [Information Lifecycle Management] casesWe are seeing MDM [Master Data
Management] but not at a place where he is actively going and selling MDM.
He has brought PowerCenter Express into the market for some of the customers, where
otherwise customers would have looked at SQL server as the platform. Adds that the
premium version of the PowerCenter Express, which is equivalent to a low end PowerCenter
standard product, is based on a subscription license and is about $8k/per user/year. Adds
that a small organization with $100-150M in revenue could be sold a 3 license deal (one
admin and two developers).
Mentions that Informatica has a program out where Informatica is getting a select broad
group of partners to get trained in MDM so that the partners can then go and evangelize the
MDM solution, resell it as well as do services around it. Thinks there could be one or two
partners on either coast that are possibly already doing it. Expects some of the partners in
the program to start doing some campaign around the MDM solution in early next year.
Reports that later next month, Informatica is actually doing a 7-city road showon
products beyond data integration. As a part of this Informatica is actively pushing
customers to participate to highlight projects that they have done beyond data integration
such as in ILM Hadoop connectors etc. That should trigger action and activity in Q1 is
what I expect.
Based on his conversations with a handful of sales reps [in the data integration ecosystem],
this quarter have heard both.it's almost like a 50-50 split among reps who reached their
number and those who didnt.
My pipeline is goodI think we have a decent pipe in both as in new business and in the
financial services verticalfor the fourth quarter.
One of his customers is looking at extending Informatica core to the big data Edition of
PowerCenter.
Industry Contact 10
In the last few months he hasnt seen a change in overall demand. As far as demand in
the marketplace it has really been the status quo over the last few months Its definitely
plateaued, I would say.

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Resources are easier to find, meaning there is a greater supply of Informatica developers
available to contract hire. I think thats an indication that theres either more resources out
there, or theyre just less busy. My guess is probably theyre just a little less busy right now.
Also now a QlikTech partner, and has noted a good demand for QlikTech, but mostly from
mid-sized customers. The larger customers are still looking at Informatica, IBM, etc.
Where Informatica takes data and provides a single view of it, QlikTech does that in a
more simple manner. QlikTech is doing the integration work that Informatica does, but
it has a little different spin on it. Observes that QlikTech is really geared more toward the
mid-market client, or a department within a company, like marketing. Informatica wants
to be the integration solution across the entire company.
I dont see it [QlikTech] taking business away from Informatica. It might take some
incremental business away from Informatica but its not going to take that big sale to a F500
company away from Informatica. I dont think yet. But they are adding a lot to the product.
For QlikTech, he notes that the projects hes done so far that they spend about a week or
two of development time, which is mostly tying integrations together. After that the front
end and the UI side can be handled by the business customer after a half day of training or
so. Therefore the implementation times are relatively short.
Negative Feedback (1) Industry Contact 11
Honestly, compared to last year [Informatica market demand] has dropped off.
He notes that its difficult to quantify a drop off in demand, but indicates it may be in
the 10% to 15% range in the number of requirements that his firm is seeing. Thinks that
demand has declined for both Informatica and its competitors.
Generally speaking, the perception of everybody, is that Informatica ETL is down a bit.
Observes that Informaticas technical capabilities are not a factor at all in the decline in
demand.
What were seeing is a number of clients who are slowing down on hires because of the
[US Government] shutdown. He indicates that he cant get worker visas processed through
the government and that some of his customers are just becoming nervous, and have just
said Were going to wait this out and see what happens. Its a real factor right now. He
thinks this affects about 10% of his customers.

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Deep-Dive Checks Indicate Good Demand Environment, Big Data Traction
PRICE: US$38.46
TARGET: US$44.00
23x our 2014E EPS of $1.68+ $5.33 net
cash/share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$44.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive conversations with 10 key contacts in Informatica's ecosystem,
and amassed 7 pages of proprietary content to provide a detailed view into Informatica's
current business environment. Key takeaways: 1) Partners are seeing an uptick in demand
and continued traction around core PowerCenter; 2) Partners characterize the MDM
business as "solid," "fairly active" and becoming "more mainstream"; 3) Partners are
starting to see Informatica being included as the ETL component in large Big Data/
Hadoop projects, including a project in the financial services with more than a billion
dollar in total opportunity; and 4) a couple of contacts referred to strong public sector
traction. The feedback suggests that the business is returning to form, invalidates the
bear thesis regarding the perceived threat from Hadoop and bolsters our confidence
that Informatica is poised to surf through the rising wave of the data-driven economy.
Notable feedback:
(+) Compared to a year ago, it [demand] has increasedcompared to three or six

months ago, it has increased. I am seeing a significant uptick following Informatica
World.
(+) Reps [in the data integration ecosystem] are excited and seem to be firing on
all cylinders, as far as I can tell.... They are making their numbers.
(+) Our pipeline is really strongI cant hire fast enoughI cant keep up with the
demand. Optimistic about the 2
nd
half - very much so, unless there is a calamity in
the market.
(+) I think they [Informatica] are making great waves now with the emergence of big
data as an adaptive tool, something that would make the adoption of big data easier
and make the adoption more efficient.
(+) Referring to more than a billion dollar total opportunity, "we are deploying
entire storage on Hadoopwe are deploying a Hadoop based architecture and still we
are using Informatica, because for the ETL piece we dont want to take any chance..."
(-) It surprised me a little bit in January when a CIO said ETLs dead in my
organization, but since then Ive heard a few more people say it. Its happening. I dont
know how quickly it will catch on. *** DETAILED FEEDBACK on Pages 2-7 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 5.3x
214.3A 218.5 211.4 255.6 899.8 4.8x
237.3 248.9 240.0 287.9 1,014.1 4.2x
0.35 0.29 0.27 0.41 1.31 29.4x
0.31A 0.30 0.32 0.51 1.45 26.5x
0.44 0.41 0.31 0.51 1.68 22.9x

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"Were up to our eyeballs in work"
Seeing "Predominantly MDM" traction. "I dont know whether its just that INFA figured
out MDM or what."
"A lot of deals are coming on" but this contact has no visibility beyond his own product
and geographic focus.
"Its extremely strong for us right now."
"Were being called into more opportunities than at any time in [the past] 5 years probably."
"No, it couldnt be just follow-on services from [license purchases made in] Q1, because
were being brought in for stuff thats closing now. Like, next week well hear from
[Redacted], or [Redacted] is signing a deal right now." These are 'now' deals, in contract
now, not stuff that closed on 3/31. So, these are new opportunities. Not software that was
acquired 3-6 months ago.
Industry Contact 2
Informaticas traditional PowerCenter products are still picking up in some areas.

Informaticas Data Masking tools are also picking up, more than IBMs offering with
similar capabilities. MDM [Master Data Management] is going good and it is definitely
a growth area for them [Informatica].
Competitively Informatica is winning more when it comes to data masking and virtualized
data environments.
Seeing a lot of opportunities around a lot of the tier 2 or regional banks. Traditionally IBM
has been a major player in that market.
Signed two-three deals in Q2 that involved Informaticas data virtualization component.

Talking about large deals, refers to a more than a million dollar [Informatica] deal signed
in Q2 that involves the data quality products.
Based on his conversations with a few sales reps [in the data integration ecosystem], thinks
they are making their numbers.
Refers to comments made by regional sales executives [in the data integration ecosystem],
such as biggest pipeline [we] ever had for the 2
nd
half of the year. From his Informatica
practice perspective also the pipeline looks very good and we have activity in every single
large account in the US in the financial services sector.
For most of the Big Data projects, he is seeing the use of Informatica for the ETL piece
of the project. There is an ETL component even for those deals. Hadoop is a commodity
storage scenariobut what to do if some other application wants to integrate with that
data sourceThose kind of things have to be done by a standard tool [like Informatica]
which is already in place for years.
Refers to a more than a billion dollar opportunity he is currently working on in financial

services. We are deploying entire storage on Hadoop [on top of commodity hardware
as opposed to using traditional storage vendors in order to reduce storage cost]we are
deploying a Hadoop based architecture and still we are using Informatica, because for
the ETL piece we dont want to take any chance.We are using Hadoop for storage and
doing Big Data Analytics. Expect it to be a multi-million dollar license opportunity for
Informatica. Its a big one for Informatica and expect it to close in Q3/Q4.
Mentions that a few deals related to Data Quality and Big Data slipped from Q2 to Q3.
Increasingly seeing many organizations, mainly in the financial services vertical, doing their
IT spending-related budgetary planning in a quarterly/monthly basis or on a need basis, as
opposed to doing it on an annual basis. So, until and unless there is a need, there is no
budget. Attributes such a scenario for longer sales cycles and deal slippage.
Was above his internal plan for his Informatica practice in Q2.
Industry Contact 3
Mentions that demand for Informatica products seems to be picking up slightly. Still
seeing an uptick in demand, as compared to Q1. Certainly seeing people willing to spend
money on tools and I see an uptick in Informatica sales activity.
Continues to see demand in the core PowerCenter, but clients are looking at beyond just
the core PowerCenter tools and looking at some of the other tools like their MDM [Master

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Data Management] product and some of their peripheral products like data quality. We
continue to seek to hire more Informatica PowerCenter developers. We are investing
in education, training and certification for the MDM suite, because we are seeing the
demand. He is not seeing the demand for ILM [information Lifecycle Management].
Highlighting the current traction, refers to two potential deals with Informatica license
components of one around half a million dollars and the other around a million dollars.
Thats quite a bit more than what I have seen historically. Mentions that although these
deals are both competitive against IBM and Oracle, he is optimistic about Informaticas
chances to win them. Havent heard any large deals in Q2.
Thinks that Informaticas stance toward engaging and embracing the channel has
definitely changed.
Havent heard anything much about the Big Data Edition of PowerCenter. He has not
focused in that area yet and also thinks that its too early to tell. Also, thinks that its a
rebuy, i.e. one has to buy a separate license for the Big Data Edition.
Thinks that from a technology point of view, they [Informatica] are equal to or better
than anybody. I think they are the market leader. Mentions that the only challenge for
Informatica historically has been the access to the board room, which is enjoyed by its
competitors such as IBM and Oracle. Havent heard of any competitive losses in Q2.
For Q2, he is well above plan. Adds that for the first half of the year, as of June, he is
150% of his internal plan as compared to 83% of plan in Q1. He expects the Informatica
services business to grow 15-20% in 2013 (was pretty flat last year).
Industry Contact 4
Mentions that the traditional data warehousing business is in a steady state growth mode,
while the fastest growth is in big data, since it started from zero last year.
Mentions that he is seeing three different types of conversations for Informatica.

Master Data Management:
We are walking in the door, and we dont even have to pull out our 'hey,
would you like to have an MDM conversation' clients are doing it for us.
They are recognizing the value of it [MDM] more and more.
Categorizes MDM as an emerging opportunity for his Informatica
practice.
Big Data:
Seeing the demand for Informatica available for big data processing,
especially as it relates to unstructured data from social networking sites at
near real time accessibility. Thats huge for us, for Informatica. Mentions
that Big Data is about 20% of the Informatica practice and it's growing.
Mentions that for Informatica to be able to be successful in a Big Data
environment, it has to be able to optimize the throughput. Typically the
unstructured nature of data would be a hindrance to an ETL solution if it
werent optimized. Informatica has gone a long way to optimize how they
manage that unstructured data. So, if we are pushing it to a Hadoop platform
or pulling it out of Hadoopthey [Informatica] have the connectors, they
have the capability to pull that data.
We are not seeing just yet fully real time data. We are seeing the need for
near real time, typically doing 15 minutes data pull from some POS [point
of sales] system or some social networking sites.
Adds that Informatica has both very strong batch capabilities as well as
trickle feeds, like every 15-20 minutes, as well real time capabilities [although
his team has not fully tested the real time capabilities].
This year so far we have $11M that we have generated as a result of big
data opportunities of which Informatica was a partcertainly last year that
number was zero. Thinks about a tenth of it conservatively would be related
to Informatica licenses.
Cloud: Refers to an Amazon Web Services connector from Informatica which they
are using extensively. Uses Informatica as the data feed within AWS, the data from
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Mentions that he knows about three large [7-figures] Informatica deals that his practice
signed in Q2. Mentions that one of the deals in the communications industry was for MDM,
while the other had a small Big Data component to it.
Based on his conversations with sales executives [in the data integration ecosystem], thinks
they are not disappointednot hugely disappointed, not overly excited about Q2.
Our pipeline is really strongI cant hire fast enoughI cant keep up with the demand.
Optimistic about the 2
nd
half - very much so, unless there is a calamity in the market.
Mentions that specifically around Informatica, I am exceeding planalready 12% above

budget [for the year] Also, adds that he is looking at about 15% growth for the year.
Industry Contact 5
Referring to demand for Informatica products, mentions that compared to a year ago,
it has increasedcompared to three or six months ago, it has increased. I am seeing a
significant uptick following Informatica world.
Thinks that there is a lot of good developer buzz around the PowerCenter Express
product.
MDM is solid. Thinks it's finally becoming more mainstream and is fairly prolific in
commercial accounts.
Mentions that he has worked with the Informatica Hadoop adapter a little bit and from
what he can tell, they enable people fairly easily, without learning all the ins and outs of
MapR and all the set of Hadoop queriesto work with big data. From his conversations
with other consultants and sales reps [in the data integration ecosystem], Informatica has
got a good buzz around big data. I think they[Informatica] are making great waves
now with the emergence of big data as an adaptive tool, something that would make the
adoption of big data easier and make the adoption more efficient.
Quoting a conversation with sales managers [in the data integration ecosystem], mentions
that they are very pleased, excited with the outlook, especially in the public sector.
In public sector, mentions that he is seeing multiple new products go in this year. Mentions
that One or two [products have] already gone in and there is another one still to go in.
Thinks that Informatica is broadening its footprint [in public sector] and substantially so,
because of its strength of its product, stability of support and availability of resources.
Refers to a couple of quarter million dollar deals, one done in Q2 and another one in the
pipeline for Q3. They are new acquisitions ...new Informatica technology.
For the second half of the year, mentions that he is more than excitedthrilled. Thinks
the opportunity around social media data mining and PowerCenter Express options for
niche organizations is hugeI think it's absolutely huge...I am excited. Based on how his
business pans out, he expects to expand back up to 17 people soon.
Thinks that it is difficult to work with Informatica sales people, but he thinks that might
change soon.
Industry Contact 6
Thinks that the demand for Informaticas offerings has been high as usual.
We are definitely seeing spending in this area [public sector].
Refers to a shortage of Informatica resources as compared to the demand he is seeing. I

have got people all over me for resources.
Seeing demand in the traditional areas in the healthcare space, in the national security/
homeland security space as well in DOD (Department of Defense).
Based on his conversations with sales reps [in the data integration ecosystem], thinks that
reps are excited and seem to be firing on all cylinders, as far as I can tell.
He was above the internal plan for his Informatica business and the magnitude of
outperformance was higher as compared to that of last quarter.
Mentions that July-August is a big time for proposals and we have got a lot of them.
Refers to proposals being sent almost every week and adds that it will be this way for a
little while. So, thinks that things are generally pretty positive.
Thinks Informatica World was a pretty good event, was well attended and the energy
level was pretty high.

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Industry Contact 7
With respect to the performance of his Informatica practice, we didnt do the number that
I projected we [would] do, but I thought we did reasonably okay...it still was better than
where we were in the same quarter in 2012. Mentioned that one of the deals he expected to
close in Q2 slipped into Q3. Mentions that the license resell component of his Informatica
business grew 25-30% y/y in Q2.
The pipe looks good as well, for Q3.
Mentions that he mostly sees core Informatica PowerCenter opportunities driving the
demand. Thinks Informatica is giving much more of a push around the MDM product
and he is pursuing a few cases, but haven't seen a standalone MDM opportunity. Thinks
Informatica had some key successes in the ILM [Information Lifecycle Management]
space, but doesnt know about the volume of deals in that area.
Based on his conversations with a few sales reps [in the data integration ecosystem],
mentions that most of them seem to have done okayall seemed to have a decent quarter,
as far as Q2 is concerned. Mentions that one of the reps [in the data integration ecosystem],
missed a deal in Q2 which slipped into the next quarter but he didnt seem bummed out
about it and didnt seem desperate to meet his sales target.
Mentions that he is pleased with the increased engagement with Informatica and its channel
team to generate more leads through joint marketing efforts etc.
General IT spend decision-making trends:

Consistent with the last few quarters, mentions that I am seeing more rigor thats
being exercised in any of the deals that are going through, whether it's Informatica,
whether it's MicroStrategy
Adds that it's rebounding but companies are still cautious about spending.
In general, seeing an increasing revalidation of the value of projects from a business/
functional groups standpoint, even if IT is ready to sign off on it, which is
lengthening the sales cycle of the IT spends.
So, more overall involvement of business or functional groups in IT spending
decisions. Started noticing from the end of last year.
Refers to situations such as we have got everything nailed and the customer comes
back and says you know what, I have to run this by business and get their valid
approval again.
Mentions that he is not seeing any new sales and might have one client looking at a potential
new purchase in the next 6-12 months. But in terms of stability of the tool set thats already
been sold, I see its very solid. Clients who are using it, are embedded in it and will be
using it for many years ahead.
Doesnt think that Big Data is an immediate threat to Informatica. Thinks that if
Informatica doesnt adapt to the Big Data the environment and the skill set, then
potentially it could be a threat but its not a threat for a long time.
Mentions that MDM could be considered as an under rated product for Informatica. In
terms of Data Integration, Informatica is for sure in the top three products [Informatica in
the 1
st
or 2
nd
position, followed closely by Ab Initio; IBM Data Stage at the 3
rd
place] he
recommends to his clients. It [Informatica] is a very strong tool in the Data integration
side.
Informatica always is innovative, they are always doing the right thing
Thinks that Informatica was challenged in the revenue side last year in his part of the world.
It was fairly down but I know that the long term future of the company itself is very viable.
From his conversations with peers [in the data integration ecosystem], categorizes the
demand environment in the last few months as so far good.
Industry Contact 9
I just talked to a couple of my friends who are sales reps [in the data integration
ecosystem ]and theyre saying that they didnt add any additional accounts in [my region].
Believes theyve probably been adding new capabilities to existing accounts, however. I
think they were okay for the quarter. I didnt hear of any struggles per-se but, maybe just
in line with what they were hoping to do.

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Business in MDM has been fairly active.
Im not sure how much Informatica On Demand has actually started to pick up. He
doesnt believe that wholesale adoption of Informaticas cloud will take place just yet. He
thinks Informatica will be reluctant to put all of the functionality in its cloud product.
Hadoop:
He argues that Hadoop isnt replacing Informatica. You will need to move [data]
from Hadoop into an analytics engine.
He knows of a project that is sourcing data from a social networking site and putting
that data into Hadoop. Once that data is in Hadoop it is still fairly slow in terms
of responding. You still have to combine this social networking data with data that
resides in the firewall; the transactional data needs to be integrated with the social
data. For that you need to bring both transactional data and social data into a single
platform. Im in the camp that you will need to at least clean up and aggregate
data in a structured format from Hadoop into a database. That database may be a
massively parallel database rather than an Oracle kind of a database.
Hadoop is good if you have got a set of people who are really skilled at Python and
Hadoop type of technology. The learning curve is fairly steep... It takes a team quite
a while to understand how things work and get something productive out of them.
The maturity factor is not there, further down is the maturity cycle... It will take
time to get to a level where we can say Hadoop, no problem, we can get data into
and out of it in like two weeks or three weeks. Were still not there. Doesnt believe
its a technology issue with Hadoop, but rather many of the bells and whistles that
improve the productivity of a programmer are still not there, although CloudEra
seems to have made a significant improvement in its code product.
There are still other issues. If a user sources data from a social networking site, once
they figure out how to do that, they then have to figure out how to automate that
process, so that it happens with a desired level of frequency. To make that happen,
theres a lot of scripting involved because the tools to automate this process dont
have a lot of support.
So I dont see Hadoop becoming a challenge to Informatica just yet.
He recently spoke with a friend who was a star former sales rep [in the data
integration space] for a decade, and he basically said that once the penetration
increases to a point of about 50% or so, then it becomes much harder to sell into new
accounts. He argues that once a product is that penetrated, additional companies
might not be interested in the solution in the first place, or they may not be part of
the segment that has the complexity that they need a data integration tool. So the
size of the market that is perceived initially in reality might be much smaller.
He thinks that everyone in his region that has enough complexity in their organization
has already purchased Informatica. The growth is going to be more incremental sales to
the existing customer base. He notes that Informatica is good, and it can scale up for a
long time, which means that in some cases a company buying Informatica does not need
to upgrade it for 10 years or so. Cites one customer that was able to use Informatica for a
decade, and then upgraded after exhausting all possible options of optimization.
Negative Feedback (1) Industry Contact 10
Informatica reorganized its sales team, but he believes that didnt really change things
competitively. Theyve come back somewhat in the marketplace, you see them more and
more, but at the same time he's starting to see the competition spring up. Theyre really
struggling against the big data play now. When companies are looking at ETL tools and
some of the stuff Informatica does theyre also throwing big data in there. If theyre going
the big data route theyre not going with the ETL tools. Informatica has a solution for
Hadoop but Im not seeing it in much play out there currently.
Longer term prospects are not that bright unless they do some good acquisitions or find
a way to meet that big data threat.
Some of the CIOs he deals with at some larger companies are at the point where theyre
saying we wont do ETL anymore, were not going to do Informatica, were not going to do
some of the IBM solutions either. Were just going to do everything in the bid data realm.

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A CIO of a very large pharmaceutical company in the US recently told his staff that were
not going to do ETL anymore. Thats the big change. I dont know if thats going to really
affect [Informatica] this year but it will definitely affect them next year.
Some of the big companies out there are to the point now where theyre just throwing
unstructured data into Hadoop. Theyre not transforming it, theyre not doing anything
with it. As that occurs more and more theres less of a need to have that integration path,
have that data mapping, have that kind of ETL tool there. Really youre just throwing a
bunch of unstructured data, and some structured data, into Hadoop and then theres some
tools out there where you can analyze that data very well.
It surprised me a little bit in January when a CIO said ETLs dead in my organization,
but since then Ive heard a few more people say it. Its happening. I dont know how quickly
it will catch on.
DataStage from IBM is still the most direct competitor. QlikView is getting on the short list
against Informatica. Sees Talend once in a while, but not lately. It usually comes down to
IBM versus Informatica. The win rate is about 50/50. The licensing price for Informatica
has come up a little bit, and it used to be cheaper than IBM. Informatica is now closer to
the cost of DataStage.
The [Q2] pipeline seems about average from the sale people I talk with [in the ETL
ecosystem]. Its not overwhelming, its not horrible, its pretty much okay. Okay to good.
Also sees an okay pipeline for Q3. Sales reps dont seem to have the end-of-quarter drive to
get deals closed, but that is not something different than the culture of sales reps in the past.
He has seen Informatica really pushing their cloud solutions, but hasnt seen much traction.
His fear is that CIOs dont feel comfortable putting their very important data in the cloud
to be analyzed.

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INFA World 2013: Proprietary Checks Highlight A Strong Positive "Vibe"
PRICE: US$36.36
TARGET: US$44.00
23x our 2014E EPS of $1.68+ $5.33 net
cash/share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$44.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
After attending Informatica World 2013, we are incrementally more confident that the
company is back on track. Various Q1 data points shared by the company, such as
record number of reps hitting their objectives, 11% sequential new logo growth and
greater than 75% win rate, suggest that the sales discipline and focus put in place by
management is starting to bear fruit. INFA also unveiled its plan to allow 3rd party
applications and devices to embed its core platform, thus expanding the TAM, as well as
its plan to move down market. Our conviction is further bolstered by our conversations
with partners, who are seeing a robust pipeline and a good demand environment for Q2,
especially for products such as Master Data Management and Data Quality, as well as
by our conversations with customers, who are looking at exploring new ways to utilize
INFA in their IT infrastructure. Reiterate OW.
Key Takeaways - Partners
Partners feel good about Q2 and the overall demand environment.
Partners are seeing a robust deal pipeline for MDM and Data Quality.
Partners are seeing typically large companies, with the capital and the resources,
embark upon a lot of big data initiatives.
One of the contacts from a major Hadoop distributor mentioned that many of his
clients who are also Informatica clients are inclined to use Informatica for Hadoop.
Another contact highlights Informatica's value proposition in the Big Data arena by
saying that Informatica can reduce the time it takes to prepare the data for a Hadoop
installation from 14-16 weeks to a couple of weeks, thus saving time and money.
Key Takeaways - Customers
Customers continue to believe in the value proposition provided by INFA. Customers

point out Data Virtualization and Information Lifecycle Management as the under-
appreciated modules/products within INFA's broad product portfolio.
Out of the four customers we spoke to, two customers had little to no familiarity with
Hadoop, while the one customer with familiarity is struggling to find a real use case
for Hadoop.
***Detailed Comments and Conference Takeaways in Pages 2-4***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 5.0x
214.3A 218.5 211.4 255.6 899.8 4.5x
237.3 248.9 240.0 287.9 1,014.1 4.0x
0.35 0.29 0.27 0.41 1.31 27.8x
0.31A 0.30 0.32 0.51 1.45 25.1x
0.44 0.41 0.31 0.51 1.68 21.6x

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Financial Analyst day Key
Takeaways
Vibe: The Evolution of the Information Infrastructure layer: Informatica is decoupling

its core technology platform and is now branding it as Vibe. It is the core stack on
top of which all of Informatica's products have been built. Informatica defines it as "the
worlds first embeddable virtual data machine for accessing, aggregating and managing
data regardless of source or format". The vision for Vibe is to make it the new information
infrastructure layer used not only by the core Informatica applications but also within 3rd
party applications and devices. Informatica is already embedded in SaaS applications such
as those from Ultimate Software and Xactly. Informatica further plans to push Vibe to
devices with small footprints, such as smart meters etc.
Move to the mid-market: Informatica also introduced a lightweight version of its core
Enterprise Powercenter product, namely PowerCenter Express. Now it has two products,
the Cloud Express and the PowerCenter Express, with which Informatica plans to hit the
mid market using a low touch model.
Increasing TAM: Informatica estimates its existing market to be a $12B+ market by 2017.
Including the opportunity offered via the ability of embedding its core platform into
applications and devices, Informatica estimates its market to be another $2B more or $14B
+, by 2017.
Other noteworthy data points: 1) Informatica is focused on double digit productivity growth
and sales is on track to meet or beat that objective in 2013; 2) Record number of reps hit their
Q1 objectives; 3) Sales is "getting more on the offensive"; 4) Had a greater than 75% win
rate in Q1; 5) 11% sequential increase in new logo acquisition in Q1; 6) Increased Quota
Carrying reps by 50% from 2012-2013 and have started giving inside sales quota; and 7)
Operating margins will be down in 2013 vs. 2012 and it will probably take until 2014 for
operating margins to move up to the peak levels seen in 2011.
Partner Comments Industry Contact 1
Doesn't talk about ETL with the client, but mostly talk about DQ (Data Quality), Big Data
and MDM (Master Data Management). Thinks DQ and Big Data are the most under-
appreciated products in the Informatica portfolio.
Mentions that one of his big clients is doing 5 large Big Data projects within the company.
Mentions that Big Data is real and Informatica can play a clearly complementary role.
Believes that anyone who says Big Data is a threat for Informatica will fall on his face.
Had a client discussion, in which the client is doing a Big Data project but it takes him 14-16
weeks or about 4 months to prepare the data and then a week or two to get the business
intelligence out of it, which gives the client a revenue boost of $20-25M. Informatica can
reduce the prep time to a week or two and now the client can run the analysis many times
a year.
Mentions that people are using Big Data to create new revenue sources which they were
unable to do before as well as working on many cost savings initiatives.
Big Data Use case: Hospitals have a large number (say 1000) of false alarms per day because
of somebody's vitals exceeding the preset average in the model. Using historical data and
segmenting it based on race/age etc. these hospitals will be able to optimize the thresholds
customized for each individual, beyond which an alarm should be sounded. That is expected
to result is substantial cost savings.
Big Data Use case: Refers to the fact that annually 10-12k deaths happen in the US due
to infections that happen in hospitals. A perfectly healthy gentleman might have visited a
hospital to cure a cut and is infected with something else because he had some risk factor
associated with him. This will cost insurance companies for further visits and will also cost
the individual now that he can't go to work for a few days etc. With Big Data, hospitals now
will be able to cross-reference historical risk factors associated with patients and may be
able to give him an antibiotic when he came for treatment of the cut.
Industry Contact 2
Thinks Q2 is going great in 1H of 2013. Will probably make more than what they made in
their entire last year.

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Thinks demand is really good.
Mentions that last year in Q4, CIOs/CFOs were very carefully spending due the impending
resolution for expiration of payroll taxes. As soon as some resolution was passed in January,
they were ready to spend again.
Seeing a lot of opportunities in MDM and DQ.
Big data is really hot in very large companies.
Thinks that the most under-appreciated product in Informatica's portfolio is Data

Validation. It helps validate if migration was successful between two data stores by
comparing the two. Mentions that the global sales rep [in the data integration ecosystem]
made 140% of quota last year. Very simple to use. About $100K per license.
Industry Contact 3
Seeing a lot of activity in Q2.
Seeing a good pipeline of MDM deals building up. Thinks that bringing back the sales
specialist/overlay structure was vital and its absence was hurting INFA.
Thinks that the sales reps [in the data integration ecosystem] on the east coast sound good,
although quarter is not done yet.
Thinks that the metadata management part of Powercenter is the most under-appreciated
product in INFA's portfolio.
Industry Contact 4
Mentions that the Q2 services pipeline is good. Have seen a lot of demand in the last 3-4
weeks among retail customers, dot coms, insurance etc. So overall the pipeline is good.
Thinks that for the first time INFA is proactively pushing MDM to the channel partners,
who are qualified enough to sell them. Thinks there is definitely more focus on the channel.
He spoke to a sales rep [in the data integration ecosystem] who is more focused on the
book building activity and is not doing that great, while the territory sales rep [in the data
integration ecosystem] on the west coast is "milking it".
Haven't seen any sales reps [in the data integration ecosystem] leave the company, at least
on the west coast, in Q1.
Industry Contact 5
Seeing a lot of demand for Big Data - Bank of America, Chevron etc. Mainly large
companies who have the resources and the money to do these projects.
Don't have to use Informatica to use this Hadoop distribution, but many of these clients are
Informatica clients and hence they are using INFA for Hadoop.
Customer Comments Customer 1 (A European multinational pharmaceutical and biologics company)
Interested in ILM (Information Lifecycle Management) .
Very optimistic about the value proposition offered by ILM and thinks ILM in general will
be a huge business for INFA.
Thinks that by decommissioning a lot of systems that nobody is anymore using and
archiving the data in those systems using ILM, companies, especially those with large M&A
activities, can save a ton of money.
Mentions that these are greenfield opportunities.
The company is an SAP shop. They are using PowerCenter core and some ILM. Thinks they
will probably be INFA's first customer to archive SAP data.
Not interested in open source ETL (Extract, Transform and Load) tools because of strict
FDA regulations.
Customer Contact 2 (A Large Wholesale Club)
Has an ELA with Informatica. Modernizing their infrastructure. Currently using a large
number of data sources - DB2, Netezza, doing an SAP implementation and also planning
on getting an Exadata.
Looking to get Data Virtualization. Data virtualization allows creating virtual tables/joins
by integrating data from various data sources. Those virtual tables can be used by any BI
front end and can be tweaked in real time, if needed. The mappings created can be further
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such as Powercenter, Cloud etc. In other words data virtualization can also be used as a
prototyping tool before creating persistent mappings. Also, allows to clean the data using
data quality when creating the maps.
Have a few use cases he is testing it on Data Virtualization from INFA. Will look at some
other vendors as well.
He is struggling to have a real use case for Hadoop. Mentions that analyzing the logs from
the warehouses could be a use case.
Absolutely thinks that Hadoop is complementary to Informatica. Mentions that Hadoop

is just a data source. It just allows faster analysis of some set of data which is stored in
Hadoop. Companies still have to synchronize data across other systems as well as get data
from different databases to have better BI, all of which will need ETL. Considers Hadoop
as just another data source, like Oracle or SAP
Customer 3 (A Staffing Company)
Thinks that Informatica is a clear leader in data integration. If you have Informatica, you
will never go hungry.
Informatica makes it easy to write ETL. The company is a Microsoft shop and he used to
code in .Net to do batch ETLs before Informatica.
Currently using Informatica in test/dev/production environments. Have at least three

environments, each running different INFA instances. You can't consolidate these instances,
due to the complexities and workflow involved.
Don't have any concrete idea about Hadoop. Have heard about it and will look at it after
the conference.
Customer Contact 4 (American retailer and direct marketer of women's classic clothing, shoes
and accessories)
Recently bought core PowerCenter.
Thinks it makes so much sense and makes it easy to pull data from different systems and
parse them and use it for BI. For example, get some data from the SAP system and some
from the Oracle system and join the data and make intelligent decisions.

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Informatica's Cloud Business: Up and to the Right
PRICE: US$35.28
TARGET: US$44.00
23x our 2014E EPS of $1.68+ $5.33 net
cash/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$44.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
Our analysis of Informatica's transaction volumes shows growth accelerating and
exceeding 100% y/y in recent months. We believe investors are largely unaware of
this strong growth dynamic for Informatica's Cloud subscription revenue stream, and
are not incorporating it into their valuation framework. For the last two years we
have been collecting INFA's transaction data, which reflects rows of data that flow
through the Informatica Cloud each day. Going forward, the data will become more
important, as it should correlate strongly to INFA's cloud subscription revenue, which
INFA began reporting separately in Q1 because it has exceeded a materiality threshold.
With transaction growth accelerating and exceeding 100%, it should become clear that
INFA is winning the battle for Cloud data integration. Reiterate OW, $44 PT.
Strong & Accelerating Transaction Growth. In the five quarters for which we can
track y/y growth, we observe that the growth rate has accelerated during the last
four quarters, with y/y transaction growth of 110% in 1Q13. We believe this is clear
evidence of increased usage and adoption of Informatica's cloud services. The monthly
y/y growth rates are somewhat lumpy, but demonstrate a similar trajectory of up-
and-to-the-right growth. Additionally, thus far the correlation between the quarterly
transaction volumes and Informatica's subscription revenue is very strong. The future
will determine whether this correlation will hold, but for now transactions appear to
be a strong leading indicator of Informatica's subscription business strength.
Informatica Cloud Business Underestimated. We are currently forecasting

Informatica's subscription business to grow 52% and 38% in 2013 and 2014,
respectively, producing revenue of $44.5M and $61.8M. We think these forecasts could
prove conservative, as INFA closed a very large Cloud transaction in Q1 which should
put it in very good shape for the next couple of years. Cloud software companies
of proportionally larger size and proportionally slower growth profiles, such as
RALY, SQI and SPSC, have market values in the $450M to $750M range. We aren't
suggesting Informatica's cloud business will be spun out in the near term, but we
believe this comparison highlights the value that investors assign to cloud-based
software businesses with subscription visibility. The largely-unnoticed Informatica
Cloud subscription business could currently be worth as much as $6.75/share, and if
growth rates remain high for a multi-year horizon, could potentially become much
more. It is important to realize that INFA made a very large and very early bet on the
Cloud data integration paradigm, as it realized that the ascent of Cloud applications
would drive a wave of demand for cloud-based data integration to connect all the
clouds to each other. ***SEE PAGE 2 FOR CHARTS***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 4.8x
214.3A 218.5 211.4 255.6 899.8 4.4x
237.3 248.9 240.0 287.9 1,014.1 3.9x
0.35 0.29 0.27 0.41 1.31 26.9x
0.31A 0.30 0.32 0.51 1.45 24.3x
0.44 0.41 0.31 0.51 1.68 21.0x

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Per share valuation To arrive at the $6.75 per share potential value of Informatica's cloud business, we use the
high end of the $450M to $750M range of cloud software companies of proportionally larger
size and proportionally slower growth profiles, and divide it by the number of fully diluted
INFA shares outstanding. $750M/111.3M shares is roughly $6.75.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Informatica Transactions, Monthly Y/Y Growth
120%
Informatica Transactions, Quarterly Y/Y Growth
0%
20%
40%
60%
80%
100%
Q1-12 Q2-12 Q3-12 Q4-12 Q1-13
Sources: Informatica, Piper Jaffray Research

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Proprietary INFA Customer Survey Invalidates Hadoop As A Threat
PRICE: US$34.93
TARGET: US$44.00
23x our 2014E EPS of $1.68+ $5.33 net
cash/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$44.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
* Price as of the close April 29, 2013
50
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
Part II of our Informatica customer survey provides strong viewpoints invalidating the
bear thesis regarding the perceived threat from Hadoop. First, Informatica customers
lopsidedly (75%) agree that there are no emerging competitive products or technologies
that would likely cause them to moderate their spending on Informatica products, and
only 3% mentioned Hadoop as a potential threat. Second, only one out of 63 customers
in our survey is currently using Hadoop in a very serious way, marking a clear disconnect
from the hype in the marketplace. Finally, 83% of the customers indicated that Hadoop
will have no impact on their spend with Informatica, and on the contrary, an additional
10% see Informatica spend going up due to Hadoop. Bottom line, it is reasonable to be
bullish on both INFA and Hadoop technologies. Reiterate OW, $44PT.
Key Takeaways
75% of the customers we surveyed believe there are no emerging competitive products
or technologies that would likely cause them to reduce their spend on Informatica.
Additionally, only 3% referred to Hadoop as a potential threat against Informatica.
Only 1 out of 63 customers we surveyed (which are generally very large global
organizations with massive data volumes and sophisticated IT staffs) is seriously
using Hadoop in its IT infrastructure, while 5 additional customers are experimenting
with Hadoop, thus highlighting the nascent state of Hadoop adoption across large
enterprises. Also, 56% of the Informatica customers we surveyed have no plan to
use Hadoop in the future. There simply isn't enough Hadoop usage in Informatica's
customer base to view Hadoop as the driving force behind INFA's 2012 woes.
83% of the customers believe that the emergence of Hadoop will have no impact
on their spend on Informatica's products, while an additional 10% think that the
emergence of Hadoop will actually lead them to spend more on Informatica.
As a reminder, part I of our survey (Proprietary INFA Customer Survey Shows Strong
Spending Intentions), showed that 1) customers lopsidedly feel INFA is increasing
rather than losing its technology differentiation (48% versus 5%); 2) INFA will
become more widely deployed rather than less widely deployed in the next 1-2 years
(43% versus 8%); 3) spending intentions for INFA licenses are stronger now than they
were in our 2010 survey, suggesting growth may surprise to the upside in 2013.***
Charts and Detailed Comments on Pages 2-9***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 4.8x
214.3A 218.5 211.4 255.6 899.8 4.3x
237.3 248.9 240.0 287.9 1,014.1 3.8x
0.35 0.29 0.27 0.41 1.31 26.7x
0.31A 0.30 0.32 0.51 1.45 24.1x
0.44 0.41 0.31 0.51 1.68 20.8x

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May 15, 2013

The chart above summarizes any emerging competitive products or technologies that
customers perceive as likely to cause them to spend less on Informatica.

Out of a total of 63 customers, 75% of the customers we surveyed believe there are no
emerging competitive products or technologies that would likely cause them to spend
less on Informatica. The remaining 25% are fairly fragmented across various
technologies, with SAP leading the pack.

It is interesting to note that only 3% of the customers perceive Hadoop as a potential
threat against Informatica, clearly debasing any wholesale fears that investors might
hold in that regard.

The data clearly validates Informaticas continued leadership position within the data
integration landscape.
Exhibit 1
EMERGI NG COMPETI TI VE PRODUCTS/ TECHNOLOGI ES
6%
2%
3%
3%
3%
3%
6%
75%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Others
Oracle (Data Integrator)
Open Source ETL (Talend)
Hadoop
IBM (Data Stage)
Microsoft (SQL Server Integration Services)
SAP (Data Services)
None
Are you aware of any new or emerging competitive products or
technologies which are likely to cause you to spend LESS on Informatica's
products in the near future than you otherwise would have spent? If so,
what are those products or technologies?

Key takeaways from
the chart above

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May 15, 2013

The chart above aggregates information about customers current usage of Hadoop in
their IT infrastructure.

We note that among 63 customers we surveyed, only one customer (2%) is using
Hadoop in a very serious way while five customers (8%) are experimenting with
Hadoop. While Hadoop is a very promising and innovative technology, it has not yet
widely proliferated into Informaticas customer base.

Also, out of the vast majority (91%) of Informatica customers who are not using
Hadoop 61% have no future plans of using Hadoop.

Exhibit 2
CURRENT HADOOP USAGE ACROSS RESPONDENT ORGANI ZATI ONS

2%
8%
35%
56%
0% 10% 20% 30% 40% 50% 60%
Yes, we are using Hadoop in a very serious way
Yes, we are experimenting with Hadoop but not
using it in a serious way
No, we are not using Hadoop but we might in
the future
No, we are not using Hadoop and have no plans
to use Hadoop in the future
Is your organization currently using Hadoop (an open-source software
framework that supports data-intensive distributed applications)?

Key takeaways from
the chart above

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The chart above summarizes the sentiments of Informatica customers about the impact
of Hadoop on future spending on Informatica.

We note that among 63 customers we surveyed, 83% do not think that the emergence
of Hadoop will have any impact on their future spending on Informaticas products.
Additionally, 10% of the customers actually think that Hadoop will cause them to
spend more on Informatica rather than spending less. On a net basis, ironically, the
data is slightly positive for Informatica. In other words, the emergence of Hadoop will
cause customers to spend slightly more on Informaticas products.

On the following three pages, please find a sample of the qualitative underlying
rationale behind customers opinions.

Exhibit 3
SPENDI NG ON I NFORMATI CA VS. HADOOP

8%
83%
10%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
The emergenec of Hadoop will cause us to
spend LESS on Informatica's products
The emergence of Hadoop will have NO IMPACT
on on how much we spend on Informatica's
products
The emergence of Hadoop will cause us to
spend MORE on Informatica's products
What does the emergence and rapid growth of Hadoop (an open-source
software framework that supports data-intensive distributed
applications) mean for your company's future spending on Informatica
products, AND WHY?

Key takeaways from
the chart above

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Exhibit 4
HADOOP WI LL HAVE NO I MPACT ON OUR I NFORMATI CA SPEND BECAUSE:
Informatica was mostly used for ETL in the firm. I believe the adoption of Hadoop will have no impact to usage of
Informatica.
As of now we have not considered Hadoop.
We are not using Hadoop and have no plans to use Hadoop in the future.
Not on our radar.
We'll continue using PowerCenter for data migration/integration.
Have not evaluated this enough to make a decision of more or less.
Not yet tested thoroughly.
We will not acquire any new tools in the current year.
There are no discussions currently underway within I.T. architecture group.
Our organization will continue to have needs in structured data tools.
We are currently unaware of Hadoop.
It is a framework model.
There is no news about incorporating Hadoop.
Informatica is good for our projects.
We are not expecting to implement any Hadoop.
Might switch to SAP Data Services.
With Informatica supporting Hadoop integration it will probably be a part of our Hadoop solution.
We have custom software to do the analysis.
Company hiring people to write Map Reduce jobs and Apache Pig jobs.
We are very satisfied with Informatica, but if Hadoop is really attractive, anyone would like to look at it.
Our company invests in software which is production ready, and will have support in case of issues.
No Hadoop here.
Don't plan to use it.
We have no plans for Hadoop, at this time.
We have no plans to use Hadoop and appreciate the support we have with Informatica.
We are not that big in tapping into social media.
We are too small to research Hadoop.
We're not yet evaluating Hadoop so at this point I don't see any impact.
We do not expect to really have "Big data".
We have no plans to implement Hadoop.


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Exhibit 5
HADOOP WI LL CAUSE US TO SPEND MORE ON I NFORMATI CA BECAUSE:
To compete with Hadoop.
More data integration opportunities.
If the management realizes that there is a lot of data to process, which is not in a structured form.
Informatica will have new products.
Exhibit 6
HADOOP WI LL CAUSE US TO SPEND LESS ON I NFORMATI CA BECAUSE:
Probably won't impact our spending, but it is possible. Budgets are squeezed and our processing needs are simpler
than most.
It gives data accuracy with minimum requirements and with less effort.
Hadoop is open source and supports commodity hardware.

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SURVEY DI FFERENTI ATI ON AND BACKGROUND

This survey was conducted primarily in January 2013.

We believe our survey is unique due to its scale and its focus on Informatica. We surveyed 63
existing Informatica customers distributed across 20 industry verticals and 52.4% of them
were from companies with more than $1B in annual revenue. Dozens of very large household
names participated in the survey. Also, the survey is primarily focused on North Americas,
with a couple of responses from EMEA. Financial Services at 24% of total responses, is very
much in line with Informaticas customer mix.

Our INFA Surveys
Differentiation
Exhibit 7
SI ZE OF ORGANI ZATI ON ( REVENUE)

7.9%
12.7%
14.3%
12.7%
52.4%
0% 10% 20% 30% 40% 50% 60%
< $50M
$50M to $100M
$101M to $500M
$501M to $1B
> $1B
What is Your Organization's Annual Revenue?


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Exhibit 8
PRODUCT USAGE

89%
43%
27%
21%
13%
10%
8%
6%
5%
5%
3%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
PowerCenter
PowerExchange
Data Quality
Master Data Management
Cloud Data Integration
B2B Data Exchange
Data Masking
Application ILM
Data Replication
Data Virtualization
Complex Event Processing
Messaging / Ultra Messaging
Which Informatica product(s) does your organization currently use?

Exhibit 9

97%
3%
0%
0% 20% 40% 60% 80% 100% 120%
Americas
Asia-Pacific


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Exhibit 10
I NDUSTRY SECTORS

24%
10%
10%
10%
8%
5%
5%
5%
5%
3%
3%
3%
2%
2%
2%
2%
2%
2%
2%
0%
0% 5% 10% 15% 20% 25%
Fi nanci al Servi ces
Heal th Sci ences
Hi gh Technol ogy
Insurance
Consumer Goods
Publ i c Sector
Retai l
Travel and Transportati on
Uti l i ti es
Medi a and Entertai nment
Chemi cal s
Educati on and Research
Industri al Manufacturing
Engi neeri ng or Constructi on
Professi onal Servi ces
Automoti ve
Oi l and Gas
Communi cati ons
Natural Resources


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Deep-Dive Checks Indicate Good Demand, Competitive Wins, Large Deal Activity
PRICE: US$31.15
TARGET: US$42.00
22x our 2014E EPS of $1.68+ $4.83 net
cash/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$42.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
55
50
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive conversations with 11 key contacts in Informatica's ecosystem,
and amassed eight pages of proprietary content to provide a highly detailed view into
Informatica's current business environment. We expect INFA to buck the Enterprise
trend by attaining its guidance. Key takeaways: 1) Partners are incrementally more
positive on Informatica based on MDM product demand and early signs of success
from recent leadership changes; 2) Partners highlight some multi-million dollar deals/
opportunities, including a $4.5M win with an American multinational conglomerate;
3) Partners also picked up a sense of "aggressive enthusiasm" within the sales force and
think they are "well aligned and optimistic" to go to market; 4) INFA is competing well
against IBM and in some cases, replacing it altogether; and 5) investor concerns relating
to Hadoop seem clearly overblown, as partners view Hadoop to be more opportunity
than threat for Informatica. Reiterate Overweight, $42 PT.
Notable feedback
(+) "...Informatica is really is the only truly enterprise option that enables customers
to begin to experiment with something at the business unit level and cloud and move
it all the way up to Hadoop deployment."
(+) The leadership changes that have been made within Informatica and their new
message and their new product, I am much more bullish on them than I was last time
we talked.
(+) "I dont know how they are doing overall but I think they are doing better this
quarter [referring to Q1] than they were in the prior quarter.for sure. I would
guess they must be seeing some upside.
(+) I keep feeling that they had very big demand coming out of last year and this year
I think they have a number of big deals in the offing.
(+) There is a lot of enthusiasm down there [at an Informatica get-together he went
to]. I gathered that people were well aligned and optimistic about what they were
working on in their individual books of business or territories.
(=) Lead times are still longer than they used to be.but we havent seen necessarily
anybody dropping off.it just takes longer to get through the cycle." *** Detailed
Feedback on Pages 2-9 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 4.3x
200.3 214.9 215.1 264.7 895.1 3.9x
220.3 245.8 244.6 298.2 1,009.0 3.4x
0.35 0.29 0.27 0.41 1.31 23.8x
0.30 0.31 0.32 0.52 1.45 21.5x
0.33 0.40 0.35 0.59 1.68 18.5x

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I think Informatica is definitely stepping up their gameThey continue to add to the depth
and breadth of their solutions offering.
Thinks Informatica is bringing several new products to the market that could result in
some significant sales increases for them.
Thinks that demand will remain strong for Informaticas core PowerCenter component.
Another area in which he expects Informatica to see strong traction is the MDM solution.
We are starting to see demand across the board for MDM solutions.
Mentions that two components categorized under ILM (Information Lifecycle

Management) that he sees as another growth area for Informatica are: the data masking
piece [where] we are starting to see more demand as government regulations, both
here and especially in Europe, become more stringent around who is allowed to see what
information and the data archiving piececompanies are starting to look at [it] [It] is
a very viable cost effective alternative to buying more hardware.
Thinks Informatica could make another acquisition in the MDM space which should add
to the arsenal of their MDM solutions.
Speaking about the Big Data Edition its pretty darn exciting. I think they are the first
company to actually port a product to run directly inside Hadoop clusters. Thats something
that differentiates them.
They are definitely stepping up their game in terms of leveraging their partners and partner
channels and starting to finally recognize that the partners and the partner channel is a force
multiplier for them to extend their selling reach beyond their direct selling team. Mentions
that Informatica is putting some interesting incentives in place.
Refers to a large deal with the State of [large swing state] which could result in Informatica
pocketing anywhere between $2-5M.
Mentions that it is part of a monster deal of close to $300M led by Accenture and
comprises of software, services and hardware etc.
Mentions that it was awarded about a month ago but doesnt know if the licensing
deal has been signed in Q1 or pushed to Q2.
Mentions that, for Informatica, the deal comprises of the core data integration
modules, along with ILM and some of the B2B offerings around healthcare
specifically.
Thinks Informatica is competing well with IBM. Thinks that IBM has not stepped up
their game in terms of innovation and has been growing through some acquisitions etc,
although IBM continues to be the big selling machine.
The leadership changes that have been made within Informatica and their new message
and their new product, I am much more bullish on them than I was last time we talked.
Big Data As opposed to a threat, actually I think they have an opportunity, although
Informatica still has to crack ETL strategies around specific data types such as an audio
or a video file etc. Explaining the opportunity, adds that if you make the investment in
Hadoop in whatever form it may take, Cloudera or Hortonworks or whatever, you still have
a data integration problema data integration problem on steroids because of the volume
and the types of data. Instead of doing it programmatically through PIG, Cassandra or
Java, you can use the same features and functions of a data integration tool to build the
data integration component much more quickly and more efficiently by leveraging the tools
as opposed to building from scratch. That is an extremely wonderful value proposition
to anybody, whether they are legacy Informatica clients or somebody who needs to do
data integration. I think they are definitely seizing a huge opportunity and at this point,
differentiating themselves from anybody else.
Thinks that the state government has definitely tightened their budgets. Their propensity
to buy is lower mostly because of the financial situation most states find themselves in and
they are seeking new ways to generate tax revenue. However, also mentions that from the
point of view of what states have to do from a federal mandate, fed is pouring a lot of
money into the states for projects like ObamaCare. Mentions that the large opportunity he
mentioned earlier with the state of [large swing state]was right out of that playbook.
Mentions that he has seen a huge uptick in services in the financial service sector to deal
with compliance, reporting and risk management etc. Financial institutions are making
monster investments because of federal regulations which presents an opportunity for

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Informatica to sell more products because demand has definitely gone up for those types
of product and services.
Industry Contact 2
The demand environment [for Informatica] is getting much strongerpeople are starting
to look at more strategic solutions [as opposed to more tactical investments].
Thinks that right now everybody is opening up to spend big money on a lot of strategic
initiatives. Thinks that companies havent been investing in strategic investments in the mid
to later part of the last decade, and that allowed clients to reach a level of maturity with
their existing infrastructure. Now they are at the point, where they are at the maturity level
that they can start expanding and start looking into other areas.
Also, people are looking at expanding the type of information they are accessing, the
variety, certainly the frequency of the information coming in is more real time. As well as
many people are starting to play into some Big Data enablement technologies like Hadoop.
Working on a very big [Informatica] project with a financial services client the
company is huge.
The deal would include Data integration + Data Quality (DQ) + Master Data
Management (MDM) + Data Virtualization services + Metadata Manager.
Previously using Ab Initio, Informatica (for DQ) and IBM (for MDM) and Adaptive
(for Metadata management).
Thinks that its quite a huge changeover but the the driver is the wholly
integrated platform which will allow them to share and process metadata and have
it integrated with the MDM. Its a very challenging but exciting project.
Thinks its definitely a 7-figure deal for Informatica. Its a question of how many
multiples of 7-figures.
Depending on the breadth of the deployment, the deal could be very big. Mentions
that Informatica sells the data integration platform based on the number of
cores on the server while it sells MDM and DQ based on the actual number of
transactions that are processed. So, when taking into consideration the breadth of
the deployment, number of years the contract is signed for, thinks the deal could
be close to $15M.
A POC [proof of concept] has been done with Informatica and thinks that the POC
will meet the success criteria set, which indicates a sale.
Its a potential competitive win against IBM.
Thinks Big Data is an up sell for Informatica. Mentions that Informatica already has
adapters into many of the databases in the big data world like: PostgreSQL, Hadoop,
MongoDB, a number of the NoSQL or columnar type database. They are also playing in
the appliance market. They have got a very tight partnership with Greenplum. They also
have setups with Teradata, Oracles Exadata etc. Also thinks Informatica has a very strong
relationship with QlikView. Not sure about SAP's HANA.
Think that in the latest Informatica release (9.5), they made a lot of forward motion on
the integration between some of the various products. So, the Data Quality tie into Master
Data Management which is then overseen by PowerCenter, is a very strong relationship. Of
course, that means that you now get the meta-data from all of those various, what used to
be, disparate applications. So, it's much better.
Based on her conversations with sales reps [in the data integration ecosystem], I keep
feeling that they had very big demand coming out of last year and this year I think they have
a number of big deals in the offing.
Thinks that a number of old senior Informatica people have moved over to Talend. Every
time she talks to someone in Talend, she keeps bumping against old Informatica senior folks.
I see Informatica being a very strong player throughout the rest of the year.
Industry Contact 3
We have been kind of heads down ourselves. Mentions that he is seeing a lot of strong
activity for services around Master Data Management, Data governance and also starting
to see requests for data services/ data virtualization. We are seeing a real strong response
from customers.
He has not done too much financial services work with Informatica in the last couple of
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quite a while. Adds that it's all MDM relatedI dont know if thats a sign that things
are picking up there.
Based on his conversations with the sales reps [in the data integration ecosystem], thinks
that north-east commercial region had a real good first quarter but hasnt heard about
the other regions. According to another conversation he had with a territory sales person [in
the data integration ecosystem] in the western region, his Q1 wasnt as good as he hoped
it would be because a big deal that he was counting on got delayed but adds that because
it got delayed, the client is now rethinking of signing an even bigger deal. Should get it in
Q2 and will be bigger than the deal he was hoping to close in Q1.
Mentions that Informatica reorganized their Master Data Management sales specialists
into a team like they had a couple of years ago when they had the overlaysthey are back
doing that again. Thinks that its working and showing a much stronger activity on the
MDM front. Mentions that Informatica got rid of their overlay sales team last year and as
a result their MDM sales got hurt by about 50%.
Thinks that the great majority of the Siperian folks have left Informatica, although he
knows of one person who came back in January. Mentions that Informatica also brought
on some other strong MDM people, not necessarily with Informatica product background.
Mentions that these people included some former Initiate [IBM MDM] and SAP people.
Thinks Informatica also brought in a lot of new senior management people. A lot of them
came from Oracle I believe. They dont necessarily know the product line, but I think, they
are real focused on sales and reporting and forecasting. I know they have got some fairly
stringent quarterly business review formats that they [Informatica] have asked everybody
to follow, which basically keeps a tight reign on the pipeline as to whats your committed
close? Whats in your pipeline? If it doesnt close, what are you going to replace it with
because you've got a commitment to make. So, the mindset is very much focused on the
number.
There is a fairly large contingent of new people in their sales organizations. Mentions
that in the last 1 year he has been working with Informatica, and this year is the first year
when the number of new faces and names is quite larger than I have ever seen before. Adds
that from what I can tell, the quality seems pretty good, at least at the higher levels.
Thinks the restructuring has settled, but mentions that he wouldnt be surprised to see a
fallout among field sales people. Especially, if they [sales reps] have been performing for
years and then they happen to have a bad year, the year the new administration comes in.
Then, they will be kind of asked to leave and there will be some bad blood, I would think.
Thinks John McGee is very much sales oriented, numbers oriented. Thinks that he
is changing the culture in Informatica. So, its fairly stringent around meeting your
commitments and your numbers. So, it all depends. If you are doing well, you will think
it's great, and if you are not, you probably wont like it so much because it's coming down
on you.
I heard that they got a real big deal at [American multinational conglomerate]
somewhere around $4.5 million, I think. Mentions that it definitely had MDM in the mix.
Talend Can't say I am seeing a wholesale rush to it and thinks most of the purchases
are price-related decisions.
Industry Contact 4
We are actually doing very well. We just had kind of an upsurge, a number of wins.
Mentions that he saw three wins and only one loss in Q1, which is very good given that
they were in head to head competition with some larger software vendors. So, I dont know
how they are doing overall, but I think they are doing better this quarter [referring to Q1]
than they were in the prior quarter.for sure. I would guess they must be seeing some
upside.
We know that they changed some of the strategy, and we saw a huge difference from our
perspective in the partnership and its been really great. The partnership is probably better
than its ever been. They are really reaching out. They are doing a tremendous job of turning
all that around. We have seen more upticks and opportunities. I would guess that they
are getting back on the right track.
Seeing demand in the core PowerCenter, MDM, Address Doctor etc. Seeing some
opportunities around the data quality product and also looking to invest more in terms of
resources around the B2B product to service customers better.

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Mentions that the lead times are still longer than they used to be.but we havent seen
necessarily anybody dropping off.it just takes longer to get through the cycle.
Mentions that he has signed a few multi-million kind of deals in Q1. Refers to one deal
which is a little more than a couple of million dollars.
Mentions that overall he is seeing larger deals. Basically, if they dont have money, people
arent doing anything; if they do, they are putting the dollars behind it.
We are well beyond our projections. We are way beyond our projections right now.
Mentions that for 2013, he is already well beyond his projections in terms of resources that
he put into his budget.
Thinks that Big Data is definitely an opportunity for them [Informatica]. Thinks that
Informatica is the pipe that enables data integration and the more data, the better it is for
Informatica.
Industry Contact 5
The main trends he is saw in Q1:

Thinks that Informaticas standard products are picking up.
Have seen a few cases where Informaticas ETL tool is replacing IBM DataStage
among some banking and financial services customers. That trend I see in some of
my cases and I cannot generalize it, but definitely there might be some issues going
on with DataStage from a maintenance perspective or feature wise. Thinks that
with Informatica 9.1 and above, they stack better in competition with DataStage.
I have 2-3 deals this quarter on that.
The data quality piece is also picking upI see multiple opportunities in the
financial vertical around data quality, which subsequently leads to the master Data
management solution as well. Explains that typically customers start with data
quality and then they [clients] might realize that their [clients] master data is also
not perfect normally data quality leads to an MDM [deal].
Saw a few deals around MDM in the quarter as well.
Seeing some traction in the Big Data area as well. The Hadoop integration is a good
area [where] we are working. Mentions that there is a clear value for integrating
Hadoop environment with existing data integration points within Informatica and
other packages or legacy solutions.
Big Deals
Mentions that one of the deals where Informatica is replacing IBM DataStage is
with a large financial services company and is a more than a million dollar license
deal that will definitely lead to replacing all the DataStage the customer has right
now. Thinks it will close in calendar Q2.
Then we have multiple data quality deals within a large enterprise between
different LOBs [Lines of Business] which can definitely lead to a very large deal by
the end of the year. Mentions that it could be $2-3M based upon how many LOBs
we are able to influence.
Thinks that Informatica has structured their sales team well, is more partner focused and
also structured its verticals sales teams well. He is optimistic about the quarter and the year
with a strong pipeline ahead.
Thinks that Informaticas recent restructuring efforts have settled down. They are in good
shape for go-to-market.
Industry Contact 6
I have seen a definite uptick in forecasted deals as well as closed deals, and thats across all
of the solutions with which we work. So, on the whole there has been an uptick.
There hasnt been a radical uptick in the MDM funnel but there is an increase in the close
rate of what is in the funnel. So, I think whats there is of higher quality and [of] higher
probability [to close].
Thinks that some of the increased accuracy was attributed to more discipline brought to
their sales engagement and sales forces pipeline management process. Also, thinks part of
it is a sign of a rebound in the market.
Mentions that last year, there were quite a few changes around product management, sales
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their services relationship managers and services delivery folks. There was quite a bit going
on last year. All of that has settled down substantially.
There is a lot of enthusiasm down there [at an Informatica get-together he went to]. I
gathered that people were well aligned and optimistic about what they were working on in
their individual books of business or territories.
Coming off of the sales kick off in January, thinks that as an organization Informatica is
focusing on more [pipeline] accuracy, more transparency internally about whats happening,
better engagement of the right people, less turnover in the sales force and better customer
service.
Based on his conversation with sales reps [in the data integration ecosystem], on the whole
I would say there is a lot of aggressive enthusiasm.
Cloud:
He is personally enthusiastic about the attractiveness and the adoption rates of
the cloud solutions and the rate at which Informatica is deploying those cloud
solutions.
I am seeing a tremendous amount of activity on the cloud side.
Mentions that the sales organization within Informatica is still distinguished
between cloud and on-premise solutions, although he thinks that ultimately that has
to be reconciled because customers like that to be one conversation and probably
dont want to have two reps to deal with.
Mentions that, as of now, IBM doesnt have any cloud based integration capabilities
that extends their DataStage solution, and is not expected to have one until early
next year.
With the explosion of a lot of Software-as-a-service options for companies, it really has
only made the data integration options and requirements greater. We work quite a bit with
other integration solutions.Informatica is really the only truly enterprise option that
enables customers to begin to experiment with something at the business unit level and
cloud and move it all the way up to Hadoop deployment.
Dont see open source solutions as a competitive threat. Thinks that the customers who are
going open source genuinely dont have the money to go to a solution like Informatica
or ...they have got 100% focus on build vs. buy mentality and have the skills in house to be
successful. Mentions that there are some large companies using the open source option but
interestingly enough a lot of those companies immediately want to bring the open source
technology on-prem and license it because they dont want to contribute back into the open
source community.
Doesnt think Hadoop is going to threaten Informaticas market positioning and sees
Informatica as the Information management backbone for the foreseeable future.
Mentions that Hadoop is very early in its lifecycle and there are already 3-4 MapReduce
standards emerging. Thinks that there will be a greater number of standards before there are
fewer options and standards. As large Fortune 500 companies start adopting these various
standards either in different business units or subsidiaries or through M&A, it will play into
Informaticas strength to synchronize the data across the organization.
Mentions that there is a lot of interest, no question among clients around the Big Data
edition. A lot of those conversations that I have been privy to are fairly nascent. Clients are
looking at Hadoop as a silver bullet not understanding that it is a new option that provides
immediate responsiveness to somewhat unpredictable demand for analytics of unstructured
or semi structured data volumes. A lot of times clients will think of it as a turnkey BI
solution. A lot of people are still trying to figure it out. Mentions that he has not been
involved in any meaningful text-book Hadoop implementation.
Industry Contact 7
Our Informatica business [implementation services in the public sector] has been good,
has been very goodit is growingwe are probably up year over year 30-40%.
PowerCenter and Data quality -are the two things that are driving our business. As a
business, he is investing in those two areas. Other areas such as B2B integrations come up
every now and then. Thinks data quality has good market opportunity and there is a lot of
lack of resources in that field.

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Although he caters to the federal government, he has not experienced any impact in his
business due to the sequestration. I suspect you would probably see it [an impact] more in
the new license purchase business. In other words, new acquisitions are harder than what we
have, sort of existing ongoing contracts that we can grow. When you buy new stuff people
tend to put more scrutiny on it.
Based on his conversations with the sales reps [in the data integration ecosystem], he doesnt
see any overly concerned people coming off the quarter. I dont see anything out of the
norm.
Thinks that out of the entire federal government business, if Informatica sees some impact
of the sequestration it will be around the Department of Defense, which he estimates as
around 1/3
rd
of their federal government business. I think its less so in the civilian side,
as he thinks that a lot of the projects are already budgeted for the year.
Mentions that during the January-February time frame, there was a lot of uncertainty
among the different agencies. They just didnt know whats going to happen, is there going
to be sequester or some other worse situation for them. So, they were really kind of frozen
up for purchases in January and February. Thinks that it could have pushed some things
from getting done in March to getting done in April/May. That probably did happen at
some level.
Thinks that even if Informatica sees a soft spot in terms of new license sales, it could surprise
to the upside in terms of up sells into existing accounts that already understand the value
proposition.
He is seeing two trends in federal government:

Mentions that while traditionally, software was looked upon as an expense in the
last 5-6 years, its been more and more looked upon as an investment. Especially
in data integration, how many times have you heard somebody say why would I
buy this tool, I can just hand-write this, which would cost a lot more than just the
Informatica license cost.
Mentions that there is a newfound focus in the government to use the governments
data assets to their advantage. Traditionally, it has always been how can we
use these [the data assets] for our advantage? But now they are opening up to say
how can we partner with folks to create something of value that helpsthe
constituencies we serve, whether it is beneficiaries of Medicare Uses Center for
Medicaid Services (CMS) as an example. Thinks that Informatica plays a key role
in these initiatives.
Likes the value proposition of the Big Data Edition, but hasnt seen any traction in his space.
Integrating databases was very complex, back in the day, 15-20 years ago. Of course, they
came up with PowerCenter which allowed people to graphically integrate databases. And
now there is a different paradigm where dealing with Hadoop is extremely complicated and
difficult. You've got to write code and allso now they are trying to help basically eliminate
that complexity with the Big Data Edition.
He is very optimistic about the opportunities around Informatica and the growth of his
practice for 2013. Our biggest challenge with the Informatica practice is finding new
people [Informatica resources]to keep up with the customer demand. Mentions that he
is really excited about his Informatica practice and that it had grown into the largest
technology that his company supports.
Had seen some deal slippage in Q4, which he thought he would close in Q1. However, out
of the three deals that slipped, he could close only one in Q1 and the rest slipped again.
However, he ended up closing three new deals and hence met his expectation for the quarter.
On that run rate, mentions that he is on track to do somewhere close to 40% y/y growth on
Informatica sales for the year. Can we do more? Absolutely, we can do moreAm I seeing
the pipe for it? So far so good.overall, I am happy.
Very optimistic about the Information Lifecycle Management solutions data governance,
data security etc. Seeing Informatica investing a lot of time and effort in that area.
There seems to be continuous push to make sure that the partner channel is encouraged
and motivated from their side. So, they are trying to put more feet on the street with the
partners.

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We see significant management change. He works closely with the channel/partner

managers but he has not met the new channel managers as of now. Thinks that the changes
due to the sales restructuring, from his perspective, havent settled yet all the way.
Based on his conversations with some of the sales reps [in the data integration ecosystem],
there is one guy that we work with pretty closely that consistently hits his quota and more,
and he didnt see anything different in Q1. Also mentions that a couple of other guys
he knows seem happy coming off the quarter as well. But as an organization are they
getting more focused on these guys hitting their numbers? I think they are. I would be
very surprised if all of them did [hit their number].
Based on his conversations with some of the sales reps [in the data integration ecosystem]
working in the financial services vertical, thinks that Informatica has a big book of business
for that vertical but essentially its a book at this point of time, it's not deals. Am I seeing
a slowdown? NoI dont know. But have I seen them close a lot of business [in financial
services]? No. Financial services is clearly one of the areas that they [Informatica] are
focusing on.
Thinks that the Big Data Edition is still evolving and has ways to go before it is something
that is truly ready for the marketplace. Believes that Facebook and OpenTable are
sophisticated enough to put in additional work and will contribute to help that product to
grow.
Industry Contact 9
Coming out of the sales kick-off earlier in the year, he got the sense that Informatica is
focusing a lot in Data Quality, MDM and Big data.
In his region, he is seeing a few MDM and data quality initiatives under way but still waiting
for some of them to close. They are getting some really good buzz out there.
In the last three months, thinks that Informaticas sales have been flat in his region compared
to a year ago. They are talking that they have a lot of dealsthey are saying that there
is some pent up demand. So, he thinks that the sales have been flat but the potential is
growing, whether they are able to close it or not is another thing.
Thinks that the sales reps [in the data integration ecosystem] in his region have been
blowing their number away" and he is quite comfortable that he will do that again this year.
However, for Q1, I know they didnt do great in his region and the quarter was pretty
quiet. Also mentioned that Informatica's VP for his region has left the company mid-march
2013.
Mentions that he has seen a ton of success with SAP HANA and are pushing their own ETL
tools. Thinks Informatica needs to figure out a play with that.
Have not seen much movement in his region around Big Data in general.
Industry Contact 10
My business is fairly stable.
Nowadays their [Informaticas] fortune is probably decided by what theyre able to sell in
emerging markets and Europe.
In his region the market is certainly saturated.
The reps in the Informatica ecosystem appear to be selling more to existing customers rather
than new customers.
There was a point in time where companies were buying BI products all the time. After
doing so they realized they would need to buy tools from a company like Informatica or
DataStage (IBM). This market dynamic doesnt exist the way it used to anymore.
The market is in more of a replacement cycle. Theres not a lot of new business. Most
companies have already purchased Informatica or DataStage.
Big Data
Big Data products dont harm Informatica. In his region theres a lot of academic
interest in big data projects.
Also, he believes the big data support integration by Informatica PowerCenter Big
Data edition could benefit the company, but hes not sure yet.
Theres a big developer base that knows Informatica. If Informatica is successful
in moving data directly into Hadoop, you dont need other developers with a
knowledge of Python, or PHP and so on. Companies may be inclined to work

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with Hadoop a lot more if they can deploy existing resources to extract data from
something like Twitter or salesforce.com and load it into Hadoop.
Industry Contact 11
Market demand has been stop and go. He saw some good business indicators in the early
part of Q1, but things slowed down at the end of the quarter.
Large deals are difficult to come by.
The deals he is closing are mostly with existing customers. New customer acquisition is
difficult.
Seeing more competition from improved open source technology, such as Cloudera, and
hes seeing customers still trying to justify business cases for big data projects. Big Data is
massive marketing hype.
A lot of companies talk about big data, but when you look under the covers, the data is
not that big.
The problem with Informatica and big data is not just loading the data, its the actual
business case behind big data. Some companies actually have large amounts of data and
want to load it and figure out what to do with it. He recently had a client cancel a big data
project because of the lack of a business case.
He and others he knows in the Informatica ecosystem are seeing increased competition from
SnapLogic.

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Proprietary INFA Customer Survey Shows Strong Spending Intentions
PRICE: US$36.71
TARGET: US$42.00
22x our 2014E EPS of $1.68+ $4.83 net
cash/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$42.00
FY13E EPS US$1.45
FY14E EPS US$1.68
Yield 0.00%
Fiscal Year End Dec
60
55
50
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 63 Informatica customers and found compelling evidence which negates
the bear thesis and foreshadows improving growth in 2013. Specifically, 1) Customers
lopsidedly feel INFA is increasing rather than losing its technology differentiation (48%
versus 5%); 2) INFA will become more widely deployed rather than less widely deployed
in the next 1-2 years (43% versus 8%); 3) Surprisingly, spending intentions for INFA
licenses are stronger now than they were in our 2010 survey, suggesting growth may
surprise to the upside in 2013. Finally, in this note we provide proprietary detailed
commentary on what is driving each INFA customer's spending plans and what they
view to be INFA's true differentiation. The street is materially underestimating customer
loyalty, appreciation, and interest in Informatica. Reiterate OW, $42 target.
Quotable Quotes:
What truly differentiates Informatica versus competing products?
"Market leader and innovation.... Has true vision in the data space....keeping itself
way ahead and leading the pack with new technologies like Cloud computing and
Hadoop framework."
"In a simple answer, it works. We have explored other options in the past and have
found the competitors' products to be lacking in either scalability or, critically, ease
of use."
"Informatica is more flexible with rich functionality to perform any data migration
with complex transformation and calculation requirements compared to any existing
competing products available."
Why are you spending more on Informatica?
"We plan to increase spending on licenses for Hadoop connector, Social media
connector for PowerCenter."
"We see good potential in Informatica and want to use Informatica in multiple
projects."
*** SEE PAGES 2-15 FOR CHARTS AND DETAILED FEEDBACK ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
196.0 190.5 190.3 234.7 811.6 5.0x
200.3 214.9 215.1 264.7 895.1 4.5x
220.3 245.8 244.6 298.2 1,009.0 4.0x
0.35 0.29 0.27 0.41 1.31 28.0x
0.30 0.31 0.32 0.52 1.45 25.3x
0.33 0.40 0.35 0.59 1.68 21.8x

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The chart above summarizes customer perceptions of Informaticas technology
differentiation and vision.

While the results are quite positive and fairly similar to the results from our 2010
survey, we note that on a net basis (i.e., subtracting the negative perceptions from
positive perceptions), the 2013 results (+43%) are stronger than in our 2010 survey
(+34%).

The data clearly suggest that Informatica is fundamentally delivering a strong set of
technologies within the data integration landscape.

Exhibit 1
ASSESSMENT OF I NFA' S PROGRESS, LAST 6- 1 2 MONTHS

44%
46%
10%
48%
48%
5%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
INCREASING its technology differentiation and showing better
technology vision
MAINTAINING the same technology differentiation and technology
vision
LOSING its technology differentiation and showing worse technology
vision
How would you assess Informatica's progress in the past 6 to 12 months?
2010 Survey 2013 Survey

Key takeaways from
the chart above

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The chart above summarizes future customer deployment trends from our 2010 and
2013 surveys.

Clearly the vast majority of Informatica customers will maintain or more widely
deploy Informatica technologies in the next 1-2 years.

On a net basis (i.e., subtracting the shrinking deployments from the growing
deployments), the results are slightly stronger by a couple of points in our 2013 survey
(+35%) than in our 2010 survey (+33%).

Exhibit 2
DEPLOYMENT CHANGE I N NEXT 1 - 2 YEARS

46%
42%
13%
43%
49%
8%
0% 10% 20% 30% 40% 50% 60%
More widely deployed within your organization
No change to your current deployment
Less widely deployed within your organization
In the next 1-2 years do you expect Informatica to become:
2010 Survey 2013 Survey

Key takeaways from
the chart above

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On average Informatica customers in our survey intend to spend 6.1% more on
Informatica licenses in the next twelve months.

Note that this is stronger than the +1% blended average in our 2010 customer survey.

Keep in mind that these growth rates reflect spending from the existing installed base,
and mostly in North America. Any addition of new customer logos, or the factoring in
of Informaticas exposure to other higher growth geographies such as Asia Pacific
would be incremental and additive to these growth rates. Thus, we believe
Informaticas reported license growth for 2013 will be much higher than 6.1%.

On the following three pages, please find the qualitative underlying rationale to explain
why each customer is either increasing, maintaining or decreasing its spending on
Informatica licenses.

Exhibit 3
DOLLAR LI CENSE SPENDI NG GROWTH NEXT 1 2 MONTHS

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
+ 50% or more
+40-50%
+30-40%
+20-30%
+10-20%
+0-10%
Remain the Same
Decline 0-10%
Decline 10-20%
Decline 20-30%
Decline 30-40%
Decline 40-50%
Decline 50% or more
How much will your organization's spending on Informatica SOFTWARE LICENSES
grow in the NEXT 12 months?
2010 Survey (Blended Avg = 1.0%) 2013 Survey (Blended Avg = 6.1%)

Key takeaways from
the chart above

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Exhibit 4
I NCREASI NG LI CENSE SPENDI NG RATI ONALE

To enhance data warehouse.
The other SQL and PL/SQL projects may start [to] use Informatica PowerCenter or Power Exchange
Our data sources are remaining stagnant and current functionality meets our needs for the most part. If the price was right we might
add FTP functionality to complement our cloud implementation.
Increase in line with growth.
We're picking up new business and will need more licenses for more domains.
We plan to increase spending on License for Hadoop connector, Social media connector for PowerCenter.
Our organization owns the legacy MDM [Master Data Management] product previously owned by Siperian. Plans to
purchase/upgrade to the enhanced MDM offering which Informatica acquired. This includes the Hierarchy manager tool which is
higher licensing cost.
Many clients either need new data warehousing solutions or upgrades.
We are buying new license for Netezza database.
Due to increase in licensing costs.
We are getting new licenses for new Salesforce adapters.
More new projects are coming up so will need more folks using Informatica to load the data warehouse
We are in currently v.8.x and planning to move 9.5 which require new servers and licenses cost will change.
Might switch to SAP Data Services.
[Plan to] Purchase Data Quality.
No decision made yet on these licenses for the next year.
Buy new software like: cloud integration, data quality, archiving.
Team based development and enterprise grid.
1. The organization is growing in terms of revenue with recent merger with another big corporation.
2. The data ETL activity is growing exponentially with changes in health insurance business.
3. The number of processes is growing to support the increasing client base.
Interested in Messaging Technologies.
Licenses and support.
Company is conservative and tight economy.
We see good potential in Informatica and want to use Informatica in multiple projects.
Getting more data quality solution in place with the tools Informatica has put into their portfolio.

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Exhibit 5
MAI NTAI NI NG LI CENSE SPENDI NG RATI ONALE

We already have the enterprise license. I dont see any new products coming on-board.
We don't have any new projects in the pipeline.
My Organization is not completely satisfied with Informatica. They are trying to convert the Informatica code to SSIS [Microsoft SQL
Server Integration Services] packages in future.
It is good enough for data migration. May increase in the future.
In process of implementing MDM [Master Data Management] Registry Edition to augment our Identity Resolution capabilities. We
will be settling on our current licenses as is.
We purchased a large number of licenses in the last year. We have what we need.
The existing licenses are enough for the existing processes.
We are a new company now and will assess purchasing moving forward.
We don't see any significant increase in data to justify any additional expenditures.
Our project has funding until 2014 and the needs are stable.
Use of in-house technology
We started using SSIS [Micosoft SQL Server Integration Services] as well as Informatica.
We plan on using Informatica for our Data Conversion projects. There are no plans to increase or decrease components of Informatica
that we currently use.
As it stands the licensing is fine.
We want to look at SAP BO [Business Objects] Data Services also.
We just upgraded and added more functionality and don't expect to increase in the next year.
There are no new projects coming along that I am aware of.
There are no additions planned.
[Organizational] restructuring and changes related to the new healthcare mandate has affected many financial decisions.
There is no increased demand.
Lot of in-house development - Custom software.
Regular budget allocation.
All BI [Business Intelligence] software components are in place.
We don't plan on purchasing or getting rid of any Informatica software licenses in the next year.
Our plans are to stay on course with funding availability. Hence, no change.
Current licenses serve our needs
[Redacted] Divested half of the company business. All of the associated ETL utilization ceased with the divestiture. The remaining
ETL utilization should be covered for the next 2 to 3 years, or until an acquisition comes to fruition.
We use Informatica with OBIEE [Oracle Business Intelligence Enterprise Edition] Oracle platform. At this point we don't plan to use
Informatica as standalone data migration tool.
We have an ELA. We are part of the [redacted] in Spain.
Based on the projects in pipe and projects that are kicked off, we have the Informatica software licenses and components required.
We don't plan on synchronizing any more data than we do today so we don't expect any changes.
We added data quality this year and SAP NetWeaver PowerExchange last year. We have no plans right now to add other products in
the coming year so am assuming we'll remain flat on licenses.
No initiatives requiring us to change our current product mix with Informatica. We already use DVO [ Data Validation Option],
PowerCenter, PowerExchange, and that might be all we need for a while.

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Exhibit 6
DECREASI NG LI CENSE SPENDI NG RATI ONALE

More complex and ineffective and didn't work, we can use PL/SQL better ways.
Expect to replace dual Windows/UNIX environments with a single environment under UNIX.
Maintenance fees for this year are already known and no new purchases will be made.
We do not have plans to increase spending on Informatica licenses because it does not work well on Netezza target with huge volume
data processing in our warehouse.
We purchased a major upgrade to our licenses last year and in turn do not have any plans that I am aware of to purchase any
additional licenses this year. Just the normal expenditure for support.

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On average Informatica customers in our survey intend to spend 5.7% more on
Informatica in total in the next twelve months.

Keep in mind that these growth rates reflect spending from the existing installed base,
and mostly in North America. Moreover, the growth rate for total spending on
Informatica includes the maintenance piece which tends to grow slower than licenses.

Exhibit 7
TOTAL DOLLAR SPENDI NG GROWTH NEXT 1 2 MONTHS
(BLENDED AVERAGE = 5.7%)
0.0%
1.6%
3.2%
3.2%
17.5%
20.6%
47.6%
3.2%
0.0%
1.6%
0.0%
0.0%
1.6%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%
+ 50% or more
+40-50%
+30-40%
+20-30%
+10-20%
+0-10%
Remain the Same
Decline 0-10%
Decline 10-20%
Decline 20-30%
Decline 30-40%
Decline 40-50%
Decline 50% or more
How much will your organization's TOTAL spending on Informatica products & services (i.e.
software LICENSES, MAINTENANCE, SUPPORT, etc) grow in the NEXT 12 months?

Key takeaways from
the chart above

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We asked Informatica customers an open-ended question: In your view, what truly
differentiates Informatica's products and vision versus competing products in the
market? The chart above represents our interpretation of the responses from our
survey of 63 Informatica customers. To categorize each response, we determined the
primary factor or factors provided in response to the survey question, and then
assigned one or more categories to each response. The percentages add up to more than
100% because most Informatica customers cited multiple factors.

The chart above shows the responses that were mentioned at least three times. Ease of
use was the clear differentiator, mentioned by 25% of Informatica customers,
followed by mentions of Informaticas leadership position in ETL, with 22% of the
responses. Informatica is highly prized for its ability to integrate with multiple
platforms, mentioned by 14% of customers, and its neutrality in regards to data
sources, mentioned by 10% of customers.

Exhibit 8
WHAT TRULY DI FFERENTI ATES I NFORMATI CA VERSUS COMPETI NG PRODUCTS?
(THREE OR MORE RESPONSES)
25%
22%
14%
10%
8%
6% 6%
5% 5% 5% 5%
0%
5%
10%
15%
20%
25%
30%
In your In your view, what truly differentiates Informatica's products and
vision versus competing products in the market?

Key takeaways from
the chart above

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Exhibit 9
I N YOUR VI EW, WHAT TRULY DI FFERENTI ATES I NFORMATI CA' S PRODUCTS AND VI SI ON
VERSUS COMPETI NG PRODUCTS I N THE MARKET? DETAI LED FEEDBACK

1. Support - Informatica's support is reliable and readily available 2. Informatica has large developer base and resources are available
for development.
We are happy with the Informatica results and not considering any other ETL technologies for now
We use the cloud offering and love the simplicity and performance combined with price point. Informatica cloud is a great value and is
so easy a CIO can use it. Also have received excellent support on the few occasions we needed it. The fact that this is in the cloud has
really been a difference maker.
Easy to use.
Informatica provides a suite of products covering a vast range of systems, technologies, which make integration, collaboration so much
easier for an IT planner.
Informatica remains platform neutral, not limited to Microsoft. Database flexibility is key, connecting to multiple disparate data
sources and targets is a major strength. Informatica developer training is comprehensive and widely available.
In a simple answer, it works. We have explored other options in the past and have found the competitors' products to be lacking in
either scalability or, critically, ease of use. There are always some problems with any product of this size and scope but for the most
part we can have faith that once everything is in place it will work and not let us down.
Good data migration functionalities. Easy to use. The ability of integrating multi-types of data sources/targets.
More user friendly with lot of connectors and best ETL tool in the market.
Breadth of products and integration capabilities.
Moving to the cloud was a big step for them. They still live in a world of downstream cleaning of data which is changing and they will
need to continue to be the big data lifter and find a smarter way to leverage quality data coming downstream for mastering data.
The robustness of the Informatica environment and good knowledge base.
Informatica has always stayed abreast of changes within IT and quickly deploys a tool to fit those changes.
Informatica has positioned themselves as the preferred integration partner of Salesforce.com. Our org has made the investment in
Informatica Cloud to load data to Salesforce where our business views sales reports and runs campaigns. Informatica has developed
PowerCenter into a tool that has become a common language among ETL developers worldwide - both off and onshore. Also, the
Informatica MDM offering, albeit thru their acquisition of Siperian has the best developed user Interface by which our business clients
can manage a larger volume of hierarchies than any other competing product (of which we are familiar) currently on the market.
For our company, [Informaticas] integration with Salesforce was the deciding factor. We have an order processing/inventory
management system that we depend on Informatica to get data from the system uploaded into Salesforce on a nightly basis. Informatica
performs this flawlessly - the best part for me was the 'set it & forget it' mindset I can take using Informatica for our data migration
needs.
The PowerCenter product is widely used in the market, making human resources easier to find.
Informatica has the best product support in the market. Informatica products are able to connect with a big number of sources and
target, that makes Informatica the leader as an integration tool.
More expensive, more stable
Informatica is not able to handle Big data. Moving data in and out of DB for using Informatica is a pain.
[The products are] Very good
Because the clients feel that we need to purchase all the Native SQL server access again and expenses are more on Informatica than
compared to other tools and technologies

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DETAI LED FEEDBACK, CONTD.

We are leaning toward ELT instead on ETL due to its limitation on Netezza database.
Informatica has found a niche and is the leading product when it comes to ETL. Many other data warehousing products fail in terms of
quality or robustness. Informatica is definitely the go to software for many if not ALL DW projects here.
Informatica is the market leader in data integration and data quality services. Informatica ETL is moderately expensive tool, whereas
tools like Ab Initio are very expensive and have many added advantages in technical aspects. As far as training and tool availability
Informatica is easy where other ETL tools are way behind in this aspect. This definitely helps our organization in reducing training
costs. Informatica comes with internal scheduler unlike many other ETL tools where one needs to use third party scheduler. An added
advantage for those who are not using enterprise scheduler.
I do not know about competing products. We have used Informatica for the last 7 years and it has met our expectations.
Informatica has better understanding of customer requirements and they are delivering the products accordingly.
Usability. Better interface to users. Ability to logically distinguish work data.
Other tools in the market don't provide complete Integration like Informatica does. Though we don't get license for all tools in
Informatica, as our organization grows we will be able to easily adopt the Informatica integration tools.
Simplicity, handling, price
The product is easier to use and better efficiency and easy to maintain
Ease to maintain mappings, integrated products with same look and feel.
Informatica data accuracy and user friendly and secured compare to all other technologies
The ability to code easily and performance
Might switch to SAP Data Services
No Comment, (have not looked into competing product)
INFA products are known for being a market leader because of ease of development as they are intuitive, connectivity, high availability,
resources in the market, creation of custom objects to deploy within the ETL and last, but not the least, an amazing knowledge base
with good customer service.
Platform independence, reliable functionality, good support, staying on top of industry trends
We think the strength of Informatica lies in the ease with which we can integrate all the legacy data sources
Wide variety of features
It is not dependent on a particular technology (Oracle, Microsoft, etc.) and has true vision in the data space
Ease of use and integration with multiple platforms. Common look and feel to all the toolsets which allows for faster learning curve
and reuse of current skill sets. All inclusive in its functionality from basic core ETL to MDM
Market leader and innovation. Better integration of other products with the Core ETL product. Keeping up with latest technologies
and adding new features. Independent of any database or hardware.
Informatica is so intuitive and easy to develop applications at a rapid scale.
Informatica was/is pioneer in ETL market; with performance which is hard to compare to any other ETL tools. However, Business
Objects Data Services are getting more share in the ETL marketplace.
1. Informatica is great because of primarily ETL support. Its mapping engine is easier to understand and code to do any ETL from any
source to target.
2. Informatica has a real time (demand increasing) engine to support the real time data.
3. Informatica is easier to connect to big data like Netezza and Teradata as those will likely increase and replace Oracle to support the
fast growing data in all organizations.
In my opinion, Informatica has been able to consistently evolve keeping in account the changes in the Technology, and also moving
towards a less footprint oriented software (ex: thin clients).

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DETAI LED FEEDBACK, CONTD.

I also believe that Informatica was able to mold itself as an all around Data management, Data Profiling and Data Quality provider in
addition to their robust Data Integration framework.
Ease of use and variety of products.
Top tier ETL tool that is independent of database vendors, but plays well with Oracle.
Truly segment leader and fully integrated BI solutions.
Products are very intuitive
Ease of use. Much easier to drag and drop than code. Also Informatica is the leader of this technology, have looked at other options
from Oracle and IBM, and Informatica clearly had a better technology. They keep improving things.
Informatica's product line is technically as good as most competitors and their pricing is more palatable. For the companies where the
technology may be superior, the pricing difference does not justify the superiority, at least in our case.
Informatica is more flexible with rich functionalities to perform any data migration with complex transformation and calculation
requirements compared to any existing competing products available.
The key to [Informaticas] differentiation is Integration. The products need to be one suite and share metadata. [Informatica is] on that
path.
They are focused on being open. Both in development (repository stores all data and you are able to query/build reports off it) and in its
connectors (you are able to connect to a variety of different target/source database technologies). Unfortunately I have not been able to
make use of many of their new technologies outside of PowerCenter Proper but Power Center remains a very capable, stable, and fast
tool for performing ETL even within the same Database environment (Oracle to Oracle).
It has placed itself in a very good position through organic growth by acquisitions and also helped itself cater to different needs like
MDM, IDQ etc... and keeping itself way ahead and leading the pack with new technologies like Cloud computing and Hadoop
framework.
I am not sure of any competitors, however, the product is well priced and is reliable. I haven't seen a need to look anywhere else.
Easy to work and easy to implement
We like that Informatica is a company that is purely focused on ETL and related technologies. For example, IBM has an ETL tool, but
it is buried amongst its portfolio of offerings. Informatica is also the leader in the ETL space because it has focused user groups, an
annual World conference which brings leaders and users together, and has a strong presence in all industry markets. We have never had
a problem with our Informatica environment that wasn't self-inflicted. We continue to believe it is a strong product and rely on it
heavily.
We're long-time PowerCenter users going back to version 5. That being the case we appreciate the efforts that Informatica Corp.
continues to put behind advances to that core flagship product and anticipate the same going forward. We appreciate the
advancements in PowerCenter along with related products and continue to adopt as necessary also. The emphasis on making
PowerCenter better with each release is what differentiates the company though in my opinion.
The quality of the product as well as the diverse but yet focused on data tools they have and support.

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SURVEY DI FFERENTI ATI ON AND BACKGROUND

This survey was conducted primarily in January 2013.

We believe our survey is unique due to its scale and its focus on Informatica. We surveyed 63
existing Informatica customers distributed across 20 industry verticals and 52.4% of them
were from companies with more than $1B in annual revenue. Dozens of very large household
names participated in the survey. Also, the survey is primarily focused on North America,
with a couple of responses from EMEA. Financial Services at 24% of total responses, is very
much in line with Informaticas customer mix.

Our INFA Surveys
Differentiation
Exhibit 10
SI ZE OF ORGANI ZATI ON ( REVENUE)

7.9%
12.7%
14.3%
12.7%
52.4%
0% 10% 20% 30% 40% 50% 60%
< $50M
$50M to $100M
$101M to $500M
$501M to $1B
> $1B
What is Your Organization's Annual Revenue?


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Exhibit 11
PRODUCT USAGE

89%
43%
27%
21%
13%
10%
8%
6%
5%
5%
3%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
PowerCenter
PowerExchange
Data Quality
Master Data Management
Cloud Data Integration
B2B Data Exchange
Data Masking
Application ILM
Data Replication
Data Virtualization
Complex Event Processing
Messaging / Ultra Messaging
Which Informatica product(s) does your organization currently use?

Exhibit 12

97%
3%
0%
0% 20% 40% 60% 80% 100% 120%
Americas
Asia-Pacific


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Exhibit 13
I NDUSTRY SECTORS

24%
10%
10%
10%
8%
5%
5%
5%
5%
3%
3%
3%
2%
2%
2%
2%
2%
2%
2%
0%
0% 5% 10% 15% 20% 25%
Fi nanci al Servi ces
Heal th Sci ences
Hi gh Technol ogy
Insurance
Consumer Goods
Publ i c Sector
Retai l
Travel and Transportati on
Uti l i ti es
Medi a and Entertai nment
Chemi cal s
Educati on and Research
Industri al Manufacturing
Engi neeri ng or Constructi on
Professi onal Servi ces
Automoti ve
Oi l and Gas
Communi cati ons
Natural Resources


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Detailed Checks with 12 Contacts Suggest Execution Turning the Corner
PRICE: US$31.80
TARGET: US$36.00
21x our 2013E EPS of $1.45+ $5.23 net
cash/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.00
FY13E Rev (mil) US$898.1 US$894.8
FY12E EPS US$1.29
FY13E EPS US$1.45
Yield 0.00%
Fiscal Year End Dec
60
55
50
45
40
35
30
25
20
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 12 contacts in the Informatica ecosystem
and amassed eight pages of proprietary content, providing a highly detailed view into
Informatica's current business environment. Our key takeaways: 1) INFA has recently
made a number of positive organizational changes, a few great hires, and renewed
focus on its overlay sales model in key areas to drive improved execution in 2013;
2) partners sensed a better performance in Q4, with some solid new logos; 3) key
verticals may perform better in 2013, as one Public Sector partner expects 50% growth
and Healthcare specialists see rising demand based on ICD-10 conversions; 4) investor
concerns relating to Hadoop seem clearly overblown, as partners view Hadoop to be
more opportunity than threat for Informatica. We walk away with increased confidence
that INFA is currently stabilizing and is poised to get solidly back on track in 2013.
Notable Feedback:
(+) As far as demand is concerned, there is definitely demand for their products.
(+)Many companies are trying to do a POC connecting Hadoop with Informatica

to other systems... In the long run I see that it is going to be complementary.
(+) Our demand for Informaticas core product couldnt be higher right now. We are
sold out. We cant hire fast enough.It's been pretty good.
(+) We still just dont see a lot of companies saying that they are going to go open
source unless they truly, truly dont have any cash.
(=) There is a lot of shake up thats going on now too for the New Year. Mentions
that last week across the country Informatica made a bunch of sales management
changes. Thinks that they have better coverage now and have stabilized the situation.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
168.0 192.7 195.9 227.1 783.8 4.5x
196.0A 190.5A 190.3A 224.1 800.9 4.4x
199.5 223.1 216.4 255.8 894.8 4.0x
0.28 0.33 0.34 0.47 1.43 22.2x
0.35A 0.29A 0.27A 0.38 1.29 24.7x
0.30 0.38 0.32 0.45 1.45 21.9x

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Thinks that the main reason for Informaticas recent poor performance was a result of the
sales restructuring that was done a few quarters back. Mentions that a few top sales guys
left the company after signing a few really large deals which created a lack of coverage,
especially around large accounts.
As far as demand is concerned, there is definitely demand for their products, mainly
around data archiving and data integration. Thinks that demand is going to be there for a
long time in these areas. He is optimistic about performance in both North America and
Europe going forward.
Thinks that demand in their core ETL product will continue to lead the pack, followed by
Data Archiving and Master Data Management.
Europe
Thinks Europe is going to stabilize because they have put [in place] a different
structure starting 2013. They have redefined certain strategies, working more with
partners (as a reseller) Its going to improve, definitely in Q1.
Refers to 3-4 deals he is working on in Europe across different product areas.
Mentions that one of the main drivers for demand in Europe is data migration from
mainframe computers. Customers who are using mainframes want to reduce their
maintenance cost with IBM. Mentions that customers can reduce a lot of costs
that way.
Competition
Mentions that based on his experience, IBM never wins deals against Informatica
based on the quality of the software. Its only because of IBMs political relations
and their connection in the executive level that they win those deals.
Thinks that there are lots of large enterprises that dont want to go the open source
route but adds that the trend might pick up among small and midsized customers.
Mentions that a few small organizations are trying to cobble together a big data solution
using open source technologies Talend, Cassandra, etc. but he thinks that it wont be
successful and they would have to come back to something like Informatica.
Based on his conversations with sales guys [in the data integration ecosystem], thinks they
are happy coming off of Q4. Adds that he hasnt seen much turnover among sales guys lately
as well.
Big Deals:
Mentions a data integration deal and an MDM deal (with a large Insurance
company) that closed last quarter. Adds that each of these is more than $1M, and
one could be more than $3-3.5M.
Mentions that 7-figure deals are mainly in the MDM, Data Archiving and Data
Masking space.
Mentions that because of the high penetration of the ETL tool, ETL deals will
be incremental sales only. However, adds that these ETL incremental sales are so
frequent most of the time that over a year from one account they could sell more
than a $1M worth of core ETL tools in multiple orders.
Hadoop
When it comes to Big Data and Hadoop, they have found a way to integrate the
Hadoop data with other systems as wellIt's not like after using Hadoop nobody
can use Informatica.
Mentions that Hadoop is a threat, but what companies are realizing is that if
companies start extracting data using only Hadoop, that data has to be cleansed,
transformed and synchronized across various other operational systems. Many
companies are trying to do a POC connecting Hadoop with Informatica to other
systems so that the batch processing of the data is done on Informatica. In the
long run I see that it is going to be complementary.
Mentions that Informatica is entrenched in all the various systems such as SAP,
Oracle, any e-commerce systems, etc. Nobody is going to change all those things
for Hadoopit can be a fifty year process.

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Industry Contact 2
Mentions that Informatica is essentially going back to the silo model that was working when
things were more on track. Adds that they had a little bit of a learning curve. They have
read the writing on the wall and they have really responded to it.
Mentions that Informatica has made a lot of positive organizational changes and has made
a few great hires. Also, adds that Informatica has a renewed focus back on the overlay sales
model for key areas such as MDM. MDM is a very particular kind of a product and sales
guys need to have specific domain specific knowledge.
We are actually feeling right now very optimistic. They are definitely making significant
changes that we feel are actually positive. So, we are feeling pretty good. Adds that they
closed a couple of deals recently. Mentions that he is in the process of planning for 2013 and
we are certainly now looking to uptick that based on where we ended up last year. Adds
that he has a number of leads so far in the year and seeing more activity going on already.
Thinks that he should be able to hit a 15-20% growth based on a reality check of whats
going on and some of the things in the pipeline already.
Thinks that Informatica is getting some competition from IBM and open source players like
Talend in the core ETL space.
IBM: Thinks Informatica will continue to compete well against IBM, even in the
ETL space.
Open Source: Has seen some clients go the Talend way and then switch back into
Informatica. Adds that it will be hard to imagine any major companies going the
open source way. We still just dont see a lot of companies saying that they are going
to go open source unless they truly, truly dont have any cash. Also, adds that there
are a lot of Informatica resources to tap into as compared to resources for Talend
and that resource cost adds up. Even though it sounds really good, it doesnt work
out in the end when you run the full financials.
Informatica has a huge base.I dont think they are going to lose their current
market.
Big Deals: Mentions that he helped Informatica close two deals right at the end of the
quarter. Also, adds that he is working on a couple of large 7-figure deals right now.
Hadoop: I dont really see it actually as a threat. Thinks that one would require
Informatica to cleanse and transform the data and get it to the point to be used in Hadoop.
The more people do with data, that could only help a data company.
Industry Contact 3
Hadoop
Doesnt see Hadoop as a threat to INFA because he doesnt see how it could
displace Informatica.
I would think that Informatica would have to interface with Hadoop.
He knows someone who works as the head of data for the personal lines group
of a major insurance company, and he is looking at Hadoop to displace Teradata,
particularly in his staging layer, where he brings data in and stages it, and then sends
it out to star schemas. Hes saying that he can pretty much get it done with Hadoop
and not have to pay all the Teradata fees, and get it done easier with Hadoop.
So, youre still going to need a tool, such as Informatica, to get the data in there.
ETL
The only competitive threat in ETL seems to be coming from Microsoft from its
SQL Server Integration Services (SSIS).
Informatica is still the gold standard.
Ive got a customer doing ETL with Pentaho These guys are using Pentaho
and are moving to a different hardware platform, potentially moving to a cloud
platform, and that vendor has recommended that they consider Informatica instead
of Pentaho. The customer hasnt seen a good reason to do that. I think they

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[customer] understand that the Informatica product would be more mature, but
they havent seen a good reason to make that switch yet.
Demand
Im swamped right now with requests for information. Im seeing a lot of demand
for our services, which tend to go into planning.
Industry Contact 4
Mentions that based on the business momentum of his Informatica practice, he didnt see
it [the midyear sales mishap] coming. He didnt observe any slowdown and was business
as usual at least with our group.
Thinks that public sector probably continued to be strong in Q4 based on his business
momentum, although services have a slight lag to the product sale. He continues to see a
lot of demand in the public sector. Mentions that Informatica is pretty pervasive in public
sector, especially in federal government .
Forecasting 50% growth in his Informatica business for 2013. There is so much
opportunity, so many things thats driving Affordable care Act in the medicare space,
lots of work with the IRS, DHS (Department of Homeland Security), huge works in the
military related to global networks for information sharing etc. They [Informatica] are
just everywhere.
I know they [Informatica] will figure it out. Doesnt see the recent hiccups as a big deal
at all. More concerned about Informatica getting acquired.
Thinks that some of the area sales execs [in the data integration ecosystem] are working
on some large deals.
Thinks that Informatica attracts sales people of a very high caliber and unless the company
creates a bad environment within, they should shine through any rough patch. Thinks that
Informatica sometimes overreacts to bad quarters by, for example trying to cut expenses
across the board for all groups, including the ones that had a good year. That creates
frustration among sales guys and creates a bad environment. He hopes that Informatica
doesnt react similarly this time around.
Industry Contact 5
Within their core group of healthcare customers (payers, insurance companies, hospitals
and large physician group practices) theres a substantial amount of demand for
Informatica around ICD-9 to ICD-10 upgrades.
From a partner channel point of view, Informatica has put a lot of their efforts and
investments into being a leader in life sciences.
Because Informatica is the leader in life sciences this market is pretty saturated. They really
are the market leader in life sciences with the pharmaceutical companies. So this partner
is trying to maintain that business through upgrades. The primary source of upgrades is
PowerCenter and what used to be the Siperian business on the MDM side.
On the healthcare side its a much bigger market, and ICD-10 is driving that market.
Many customers are moving to the next version of the legacy Siperian product because
theyre somewhat forced by Informatica. Informatica stops supporting the legacy version
usually within 12 to 18 months of announcing the next version.
Demand has tailed off a little bit in life sciences, because a lot of what was driving life
sciences activity was aggregate spend for compliance laws. Its more steady state right now,
but they [partner], as well as Informatica, expect upgrades to drive revenue in 2013.
Q4
They [Informatica] were spending a lot of time not working with partners in the
fourth quarter and trying to get their numbers up to make sure they could meet
their goals.
Industry Contact 6
Mentions that interestingly in 2012, as far as his Informatica reselling practice goes every
quarter was an improvement over the previous oneour book was building and we did
more business, as the relationship (started in mid 2011) ramped. While he is watching

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the changes that Informatica as an organization is going through, he is hopeful that the
momentum will continue.
Thinks that Informatica seems to be focused on making the reseller program a success. The
reseller program helps Informatica to not just put more feet on the street but also to sell
the products in areas that the partner is strong in, say in certain verticals where the partner
might have stories to tell.
Thinks that the uptick in leads coming in from Informatica as seen during Q2 and Q3 was
sustained during Q4. However, mentions that Q4 was below his expectations as some of
the deals did get pushed into Q1 2013. We actually have a decent pipe going into Q1
Q1 is looking strong for us.
For the most part we are seeing it [demand] in core ETL. Havent done any MDM (Master
Data Management) and ILM (Information Lifecycle Management) deals last year because
of his own focus.
Mentions that his team had a chance to meet a few of the new sales execs that have been
brought in and so got enough exposure regarding the changes being made, in light of
which he is pretty optimistic going into 2013. Mentions that in many verticals like financial
services, State and local etc., Informatica has some interesting stories and opportunities.
Based on his conversations with a few sales reps [in the data management ecosystem], he
thinks they met or exceeded their numbers in Q4.
I heard recently that they [Informatica] closed something with Facebook.I dont know
if its true or not, we were not involved in that.
Hadoop:
Mentions that some of his leading customers are starting to figure out that Hadoop
is complementary at best.
On a sustained basis is it a threat dont know yet.
If it just stays in the realm of programming it will not be a threat. Its got to get far
more configurable and its got to get to a place where you are not talking java this
and java that and do this and do that to get the whole thing working.
His final view at this point is that Hadoop is a complementary technology that an
Informatica or IBM Datastage should be able to leverage.
Mentions that his firm was an early stage Talend partner but has not done anything with
Talend in the last couple of years.
Industry Contact 7
Our demand for Informaticas core product couldnt be higher right now. We are sold out.
We cant hire fast enough.It's been pretty good.
Hasnt seen a dip/slowdown in Q2 and Q3 at all. We are working with their active clients
they are still getting used out there quite a bit. Doesnt have visibility into new license sales.
Thinks Informatica is getting pretty creative these days in terms of pricing to get into the
door with their core product.
He is pretty optimistic about his Informatica business in 2013.

Industry Contact 8
In the Nordic region of Europe (Denmark, Norway, Sweden, Finland, and Iceland), The
demand for Informatica products is good, has been so over last 3 years and we expect
growth.
Healthcare Driving Business

Towards the end of the year he picked up a significant piece of business from a
customer trying to spend the remainder of its 2012 budget.
Healthcare was driving another portion of his Q4 business. They [healthcare
companies] are scrambling to get their act together.
A client on the East Coast is undertaking a major project.

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Service providers are required to provide search tools on their website where the user
can find out whether or not a doctor is in network. The problem this customer, and
others, are facing is that the data quality is not good, and therefore the search results
for in-network providers arent always accurate.
Problems arise when people looking for an in-network doctor are mistakenly
directed to out-of-network providers, and then later find out their insurance
company wont pay. The patient can then take their healthcare provider to
arbitration over the matter.
Not sure if Informatica had a good Q4

Hard to say if overall demand is coming back from the lulls in Q2 and Q3.
On the West Coast there isnt too much activity, although the West Coast is a fairly
saturated market for Informatica.
Informatica is focusing more on emerging business, meaning smaller companies.
Competition
Suggestions that open source or other vendors are harming Informaticas business
are not new. This has been talked about for five years.
There will always be companies that start off on this path, and initially go with
tools like Pentaho and SQL Server, or SSIS. What essentially happens is they stumble
across a situation that they cannot fulfill.
He ran into a scenario at an aerospace company. This company started with SQL
Server and then they discovered they needed global reporting of data. They were
trying to do it with SQL Server but it didnt really work, and to make it work was
very complex.
The thing is, whenever companies scale up, then they run into the problem that
they are forced to backtrack and then go with Informatica.
Commoditization isnt much of a factor. Informatica is probably only losing a few
deals as competitors improve their capabilities.
The bigger problem is that Informatica is a developers tool. There are a limited
number of developers who are actually going to use it. The other problem is
that once a company buys Informatica, the growth of its use inside a company is
significantly curtailed. Implementation takes a long time and there isnt really a need
to increase the number of Informatica licenses from year to year.
The key thing that Informatica is known for is their integration tool.
Even though Informatica sells MDM and data quality products, those have not
taken off. And these have not taken off for any vendor.
Hadoop
Informatica 9.5 has the ability to natively load data into a Hadoop cluster.
Informatica wants to charge for it separately, but the Hadoop environment is such
that a lot of people are still doing things by hand, writing MapReduce code and such.
If Informatica can successfully integrate with Hadoop and MPP [massively parallel
processing] databases, like ParAccel or Vertica, that could be good for Informatica.
Informatica used to have a decent relationship with Vertica, at least before they were
acquired by HP. So if Vertica does well then Informatica should benefit.
Industry Contact 10
Thinks financial services is still struggling.
Thinks that Informatica had quite a bit of sales turnover in 2012, as a result of which they
didnt have enough coverage to support the various product lines. Thinks that was one of the
causes of the weak Q2 and Q3 along with a worse than expected European performance.
Mentions that the sales re-organization around MDM hurt them quite a bit this year.
Formerly, the sales representatives from Siperian used to be an overlay sales team and used
to focus on MDM exclusively. Then, INFA tried to assimilate these sales reps into the rest
of the sales force and that didnt work as expected. Thinks that an MDM sales cycle is a
different animal and involves more selling to the business as compared to selling to IT. As
a result, I think they saw a drop in the MDM sales because of it. I think they are still
feeling the effects of that.

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There is a lot of shake up thats going on now too for the New Year. Mentions that last
week across the country Informatica made a bunch of sales management changes. Thinks
that they have better coverage now and have stabilized the situation.
I dont think Q4 would have pulled them out of that. Expects Q4 to be inline with
guidance. Thinks that Q4 was obviously healthier than Q2 and Q3 but dont think it
was healthy enough to push the whole company back on track.
Based on his conversation with the sales representatives [in the data integration ecosystem],
thinks that the Southeast had a really good year. Thinks that in the Northeast,
Informatica tried a new model where they divided the accounts into strategic accounts and
named accounts. The strategic accounts were the really big name accounts like GE, AT&T
etc. They created a sales team focused on each of these clients. In 2012, some of these
big accounts put a freeze on spending and that hurt their sales efforts because those
people were struggling. Thinks that all the major accounts or the named accounts did
very well and I think they made their numbers. The strategic accounts, which had some
big numbers associated with them, had big misses. So, he guesses that the Northeast as
a whole probably didnt make it because of that.
Thinks that there are some low morale issues with the sales force right now based on a lot
of the changes that took place last year. Mentions that there was a lot of finger pointing at
the sales organization the people in the field, which I dont think necessarily was accurate.
Thinks that the issues were more to do with [management]. Also, I dont think they did a
good job of assimilating the MDM sales team and they lost all those people. A majority
of the Siperian guys left the company. Thinks that instead of management accepting the
problems and making amends to uplift the morale and working towards solving it as a team,
the message from the new sales leadership is more of the form of you didnt do it right,
let me show you how to do it. More of a negative connotation to the people in the field.
He is concerned about what that would mean in 2013 for the sales organization in terms
of increased turnover.
I still see a pretty strong demand for them.
Thinks that Informatica has always been facing pricing pressure in the core ETL space.
In the past two quarters, havent had the chance to work with any Informatica products at
all [for her clients]I was working with Talend [open source].
Thinks that open source products such as Talend are making inroads and taking share from
Informatica. I do see a number of bigger corporations moving towards open source as
open source technology matures and provides more functional parity.
Refers to an auto recovery firm (revenue around $500m) based out of the West Coast which
is using Talend for Big Data and a tier 3 insurance carrier which is using it for data quality,
data integration and web services. Both of these were greenfield opportunities. The former
client recently bought EMC Greenplum and wanted some data integration capabilities on
top of it.
Mentions that Talend has a license subscription model as well. Adds that Talend offers
functionality such as MDM, data quality, address cleansing, web services, etc. Based on
cost, its a very good competitor. Mentions that a Talend subscription for three years would
cost $120k per year, while an Informatica license for the 'exact' same capabilities would cost
$750k with an additional maintenance fee of 20% each year.
Adds that both Informatica and Talend have adapters that connect to the Hadoop stack.
Industry Contact 12
Thinks that there is too much competition from small players. Competition has grown
drastically in the past two years.
Based on his conversations with contacts in the Informatica Cloud ecosystem, it's evident
that they are missing their numbersthey are not happyThis has been going onthey
are barely making numbers Thinks that the reason is tougher competition.
Mentions that Talend shows up in OEM deals for sure. Many small players like
Jitterbit [another open source player] are catching up. Highlights Mulesoft as another

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strong vendor as well as SnapLogic. Also, thinks Boomi is stabilizing their integration
platformthey are providing competition too every now and then. Thinks many people
have issues with IBMs solution.
Refers to some [Informatica Cloud] deals that he was unable to close due to the higher
price point and more available alternatives.
Thinks that there is a lot of money to be made in cloud integration in the mid/upper-mid
market space.
Minor Adjustments to Our Model After considering the feedback from our latest round of partner checks, we have made a few
immaterial tweaks to our Informatica model. Our Revenue and EPS forecasts for 2012-2014
remain essentially unchanged.

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Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Neutral
Price Tgt -- $45.00
FY12E Rev (mil) -- $905.5
FY13E Rev (mil) -- $1,070.3
FY12E EPS -- $1.57
FY13E EPS -- $1.85
Price $49.35
52 Week High $62.42
52 Week Low $34.15
25x our 2012E EPS of $1.57 + $5.37 net
cash/share.
Yield: 0.00%
Rev (mil) 2011A 2012E 2013E
Mar $168.0A $192.1E $227.3E
Jun $192.7A $222.7E $263.3E
Sep $195.9A $227.2E $268.8E
Dec $227.1A $263.5E $311.0E
FY $783.8A $905.5E $1,070.3E
CY $783.8A $905.5E $1,070.3E
FY RM 7.1x 6.1x 5.2x
CY RM 7.1x 6.1x 5.2x
EPS 2011A 2012E 2013E
Mar $0.28A $0.32E $0.37E
Jun $0.33A $0.37E $0.44E
Sep $0.34A $0.39E $0.46E
Dec $0.47A $0.49E $0.58E
FY $1.43A $1.57E $1.85E
CY $1.43A $1.57E $1.85E
FY P/E 34.5x 31.4x 26.7x
CY P/E 34.5x 31.4x 26.7x
Informatica Corp. (INFA $49.35)
Neutral
Q1 Preview: Inconclusive Checks Suggest In-Line
Results
CONCLUSION:
We spoke with 11 contacts in the Informatica ecosystem, and expect a mostly inline
quarter with a likelihood that some license backlog was drained. Eight of our contacts
leaned slightly positive on demand trends, while three offered a more restrained
viewpoint, leading us to believe domestic trends could be subtly better, but not off to
the races as some investors might expect. Several contacts highlight strength in Master
Data Management (MDM), and noted that Informatica is working on at least two
"fairly large" MDM deals. A couple of contacts mentioned that Informatica recently
realigned its sales force, with some sales reps now working more closely with the
channel to close deals. Net/Net, we believe that the 12-month risk reward is balanced
at current levels and do not expect a snapback recovery in the business. Maintain
Neutral rating.
Interest in BI and Analytics from SMB to Enterprise. More sophisticated usage

of data, especially data warehousing, analytics and BI, is growing for small and
medium-sized companies as well as large corporations, according to our contacts.
SMB customers are more likely to use SaaS or open-source BI tools, however.
High Level of Interest in MDM. Our contacts noted that We are hearing that there
are a lot of MDM opportunities, We are definitely seeing some MDM interest
and demand, and that The sales contacts in the data integration ecosystem are
excited coming off of Q1 especially around opportunities around MDM.
2012 Pipeline is Shaping Up Well For Some Partners. Among smaller partners,
three of our contacts are optimistic about doubling their revenue on a y/y basis for
2012, and another expects to grow in the 60-70% range.
Big Data Projects Not That Common Yet. Only one of our contacts reported
that their customers are talking firmly about INFA-related Big Data projects, and
another contact is working with three customers to implement projects related to
Hadoop infrastructure. In the eyes of partners, it is not certain when Big Data
projects could become a more material driver of Informatica's business.
[Continued on Page 2]
Neutral; PT=$45 based on 25x our 2012E EPS of $1.57 + $5.37 net cash/share.

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Detailed Industry Feedback
Positive
Industry Contact 1
Demand Trend - I think it was up pretty good. I think it's kind of remaining pretty strong. We have seen pretty strong demand.Our
feeling is very, very positive on Informatica. Several projects starting, good pipeline going forwardso it looks pretty strong.
Doesnt have a plan around Informatica or other technologies, but more of a plan around customers. Grew 20% sequentially in Q1
overall, of which Informatica accounted for around 50% of the revenue.
We are hearing that there are a lot of MDM opportunities. Knows of two fairly large MDM deals that Informatica is working on
currently. Has also seen traction around B2B Data Exchange, ILM and Data Quality. Seeing Data Quality being dragged along with
PowerCenter pretty often. Knows of other large deals that Informatica is working around PowerCenter/Data Quality.
We introduced Informatica to a client, a data warehousing client of ours, and [the client] wanted to talk about archiving of this
particular data warehouse. As the conversation went on to wow, you can use this technology for archiving of anything? Next thing
you know they [Informatica] are having a conversation with CIO level and archiving 1,000 applications
Thinks that Informatica is stacking up strong against IBM. Based on his observation in a particular deal against IBM - It is ready for
prime timethey had some excellent pointscustomers were very impressed with what they were saying how it worked customers
had a bunch of questions, they kind of snapped the answers right back.
Thinks that Informatica has a very good sales force and the sales guys have really long tenure. They show up and they know how
to make it shine.
Sales contacts in the ecosystem My impression is that they are working harder than ever seeing them working hardgetting
emails at all hours of the day. Doesnt think it portrays anything negative. I feel like it's like oh my gosh, I cant believe how
much is going on and I am going crazy with these opportunities. Doesnt get the impression that sales contacts are missing their
numbers and are going to lose their jobs.
Thinks that in Public Sector you got to have a pretty strong business case to use something else [other than PowerCenter]they
are pretty well established.
Thinks that they are highly penetrated in the Public Sector. Once you sold a license to every person in an agency wouldnt you
think there is no more to sell? But the reality is there is always more. There are always new problems, new data, more stuff. Thinks
Informatica is by far the enterprise standard in most of the large agencies with tons of data like IRS, Medicare, etc. Thinks that the
high Public Sector penetration is definitely a problem for long-term growth in that sector. Thinks that generating new opportunities
by innovating new products around the core is a way to offset this effect.
Thinks that customers are driving towards a subscription based licensing. Thinks that they will be pressured from the open-source
guys as well to have some flexible licensing models. Mentions that he is seeing more of the open source players like Talend, more
in the market. Thinks that the open source players can do the basic use cases but not the more sophisticated ones but they are very
flexible in their licensing models.
Industry Contact 2
Because of an outstanding Q4 that resulted in cleaning out the pipeline, his Informatica practice performed below what was expected in
Q1. Q1, I was below plan internally but I am OK with that. Mentions that he has developed a very good pipeline and great prospects
for Q2 and Q3. He is looking to double his practice this year as compared to last year and thinks that he is on track. Internally I have
projected somewhere around 2.6-2.7x from a license sales perspective, although it is based on a small base. Thinks that based on the
coverage and the leads that we have, he can pull in such a level of business this year.
Products
We continue to aggressively mine the market for the data integration/ data mining piece. There are lot of active pursuits of
PowerCenter/PowerExchange
We are definitely seeing some MDM interest and demand. Has seen a few customers asking for MDM. Signed up one new MDM
customer in Q1 and lost one deal to Oracle, mainly because the client was an Oracle shop.
Mentioned that the Informatica sales organization is fundamentally divided into three teams Strategic accounts, Named accounts and
Territory accounts. Territory guys seem to be thriving hitting numbers and more. Has seen some of the Named account reps he
works with pull a few new logos in Q1 in the auto sector and also in the high tech sector. Also thinks that Strategic account reps are
selling more software into the existing accounts. Overall, he feels good about the traction around Informatica products My sales
guy feels extremely good about his interactions with Informatica in the field.
Thinks that the Channel program is slowly turning the corner and evolving into a mature program that they [Informatica] are willing
to support and they are supporting well internally. Thinks that he is doing a lot more work with Informatica compared to a couple
of quarters ago.
Informatica is adding to the demand generation that the partners are doing on their own by asking the territory reps to work more closely
with the ecosystem. These reps are not conflicted because the partners help sign net new logos for them while taking the implementation

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services piece for themselves. Transactions in terms of how it is filling the pipe, tells me that this model is starting to work for them.
To drive more business through the channel, Informatica has been adding sales guys in the territory essentially resulting in some level
of account and territory redistribution. Where there were two guys handling all of west coast, now there are three or four resulting
in the division of geographies. Havent really seen accounts being moved from territory reps to strategic reps though in his region.
Due to the realignment, thinks that there was a slight confusion in terms of account ownership during the beginning part of Q1.
Thinks that Informatica is playing hardball with its partners with respect to MDM and making sure that only those partners sell it,
who know how to sell it effectively such that it grows. Informatica is also pushing partners to invest in building up a strong MDM
services practice. Thinks that its a good medium to long term strategy. An MDM product can be either sold very narrowly to solve
some specific business issue in a siloed department, or it can be sold such that the customer understands the value of an MDM solution
such that it can grow across departments. How do you sell it in a way that you dont make it a larger sale cycle by way of making
sure every body has to get involved in the sales cycle but you sell it in such a way that the group that sees the value buys into it but
the way you sell the vision is that other groups can benefit as well and go back and sell more. Thinks thats how MDM would grow
for Informatica and everybody who is associated in the sale.
Industry Contact 3
Demand seems to be quite good right now.
A lot of companies and a lot of people are interested in BI right now.
A lot of laggards are also getting onto that bandwagon.
Companies that are in the $10-15M revenue range are looking into BI. These companies need to get a SaaS tool, of course, but there
is interest from this segment. Interest from this size of customers is a good sign.
Met internal targets for Q1.
Sales cycles are getting shorter, marginally so. Over the last two years hes been hearing customers indicate they wanted a BI solution,
but nothing more. More recently hes seen companies actively seeking proof of concept proposals, indicating growth in the marketplace.
Fusion IO
Fusion IO is an interesting company hes following.
They have a product that you plug into your server that improves the performance of disk-based servers up to 1,000x.
Its a flash card you plug into the server, and it has some very sophisticated algorithms which improve the response of the server. Its
almost like putting flash memory into the main memory CPU and the disk, and then directly connecting the CPU to it.
This is one of the better technologies that will accelerate the performance of BI quite a bit.
Hadoop
The performance of traditional BI, pretty honestly, [is not good].
If you look at what Google does for you, it analyzes huge amounts of data and gives you results in less than a second. That has sort
of become the gold standard of query analysis.
None of the BI architectures can provide that.
This is why the Hadoop story can become very effective.

Industry Contact 4
Traditionally has been focused on providing data integration technology in the Life Sciences vertical. Has expanded into Healthcare
recently.
Thinks that Informatica has a relatively small presence in the Healthcare market right now and thinks there is a lot of room for growth
in that sector.
Has seen a lot of activity in Q1. Was on plan for Q1. Doubled their MDM business (Informatica is a major piece of that) as compared
to a year ago. Q1 y/y was excellent for us and looking to continue on that growth trajectory.
Thinks that the build up into Q2 is a little bit softer due to budgetary reasons, although might be sector specific.
Thinks that their Data Quality product is also getting a lot of traction. However the data quality product has a lot of overlap from
what came in with the Siperian acquisition and its not clear how Informatica is going to work around those two components. We
are seeing more interest in what the data quality product could do. Also, Informatica product AddressDoctor seems to be attracting
a lot of interest.

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Thinks that the lack of an ESB (Enterprise Service Bus) is hurting Informatica to some extent around MDM in competitive sales with
someone like IBM. Thinks that the larger vendors such as IBM/Oracle with a story around ESB, BPM and MDM, all working together,
resonates well with customers.
Thinks that there was restructuring of the sales organization that happened around MDM during late last year/early this year. Initially,
Siperian sales guys were acting like a separate team selling MDM and the regional reps were selling the suite. But more recently,
since the end of last year, they have decided to pull the MDM product into the main sales force and ask the entire sales force to sell
the suite and frame the story around MDM. Thinks that MDM is the key component of the main message around Informatica as a
product company.
Thinks that the transition created a little bit of a drop in activity in the first half of Q1. But thinks that they have gotten aligned now
and came around since the last one-and-a-half months. We are getting extra calls from different regional people about MDM.
Thinks that all the [sales contacts in the data integration ecosystem] seem fairly positive.
Industry Contact 5
Q1 2012 as compared to Q1 2011 I would say its lot fasterfrom a services standpoint; we are seeing real strong demand.
Performance with respect to internal plan I would say we are over plan. Thinks the outperformance is fairly significant. We
are talking about doubling as compared to last year.
We have signed some very large contracts in the first quarter.
There is a lag between services work and the license sale. It can be a month or two but lots of times its fairly synchronized since
the client needs to know the implementation cost before they go out for capital budget approval, etc.
Seeing a real strong demand around Master Data Management (MDM). We had a lot of calls from individual sales people asking
us to engage with their clients. So, we had a very full plate.
Thinks that Informatica is seeing a lot of demand for their ILM product. Getting a lot of request for ILM support.
Also, continues to do full data integration and BI work with clients who are utilizing the PowerCenter platform. Thinks that
PowerCenter 9.5 is coming out and suspects that clients would be looking out for social capabilities.
Thinks that Informatica did some realignment within their sales organization in January and added another layer of accounts. They
had strategic accounts, named accounts and territory reps. Thinks that the territory reps are now targeted to work more with the new
channel organization (resellers). Thinks these resellers are smaller boutique service type firms. The territory reps had to give up some
of their better accounts to named accounts, etc., and so may not be too excited. Thats a different sales model for them.
The sales contact in the data integration ecosystem are very excited recently especially around opportunities around MDM. I do
see a lot of activity there [MDM deals] and excitement there. And I think they all feel thats how they are going to make their numbers;
they all need to have a couple of good MDM deals in their pipeline along with their traditional business.
Thinks that MDM drives larger deals and that they have a more significant license component for the sales people than the more
traditional business (PowerCenter, data quality etc.)
Thinks that definitely MDM is one of the most important growth areas for Informatica.
Industry Contact 6
ETL
Seeing more [Microsoft] SQL Server Integration Services over the last few years (SSIS).
Microsoft embeds in their SQL Server database a tool called SSIS.
SSIS is more or less free when you buy their database, however its not as powerful or as good a tool as Informatica.
But its good enough, particularly when you consider that its free.
SSIS will only work if SQL Server is the target database, however.
If youre writing to Oracle, Teradata or Netezza, you cant use SSIS.

BI
BI space, more and more push towards in-memory technology.
Tools called QlikView and Tableau are getting a lot of attention right now.
HANA is coming up in conversations, but hasnt seen any implementations yet.
Microsoft is teaming up with Dell for an in-memory solution. A couple of years ago they bought a company called DATAllegro, which
was a competitor to Netezza. Microsoft is marketing this through both Dell and HP.

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Informatica maintaining share among his clients.
He hit internal targets for Q1, but they were pretty easy targets.
Believes that Informaticas market is growing.
Informatica has the technological lead in ETL.

Industry Contact 7
Theres a lot of demand from mid-tier retailers, but does BI across any vertical.
Mid-tier retailers looking to leverage their sales data.
Their customers struggle is what type of tools they should use, either for ETL, or reporting, etc.
Informatica comes up the most often.
Informatica is the industry leading product for ETL.
Were in line with plan, and to give you an idea, our plan is between 60% and 70% growth.
We probably did more in Q1 than we did in all of 2009.
Last year was 35-40% growth. Were easily gonna hit 60-70% this year.
Not all this growth is BI, but almost all of his deals have a BI component. Its a huge part of our strategy.
Seeing many customers accelerate BI adoption. Thats something different than weve seen before.
Usually a customer will implement their core retail transaction system first, and then think about BI. Now hes talking to his customers
about getting ROI from BI earlier in his deals, even though the customer may have to redevelop some of that integration right away.
If they have an ROI on BI sooner, it gives them justification for the rest of their implementation.
BI is far more in the forefront for CIOs today.
Seeing customers implement BI earlier than in the past.
Doesnt use any open source tools, but uses some SaaS tools from Microstrategy.
Industry Contact 8
We see a lot of demand whether you are a large, multi-billion dollar corporation, or a smaller shop.
Were seeing companies leverage the tremendous amount of data they have for marketing purposes, because they can see what type
of customers they have and their buying behavior, where theyre spending their money and how often.
Usage of the data, especially data warehousing, analytics and BI, is growing for every sector, for small and medium-sized companies
as well as large corporations.
Large corporations have been doing this for ten years, but smaller companies are also now starting to analyze the data they have to
get intelligence out of it.
In general, this year, [starting] from the first quarter, the numbers are pretty good and its growing this year at a pretty good trend.
Big Data is one of the areas thats becoming hot, starting about a year and a half ago.
Neutral
Industry Contact 9
All of his customers, and all of the prospects hes working with, are already running Informatica.
Theyre now using Informatica beyond what they originally bought it to do.
Instead of just data warehousing, theyre using it for analytic data marts, data mining and master data management (MDM).
HANA is more interesting, but the people looking at it are existing SAP customers.

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Im definitely seeing quite a bit of conversation around HANA. Although none of his customers has migrated to HANA yet.
One thing hes seeing a lot of right now is Big Data integrations.
Working with three customers to implement projects related to Hadoop infrastructure.
IBM DataStage is currently biggest Informatica competitor, and sees them quite a bit.
The smaller his client, the more likely they are to use open source.
2011 was tough, and he thinks hell do better in 2012.
Q1 went pretty well.

Industry Contact 10
Informatica World is in May and supposedly they will be introducing the latest version of Informatica Informatica 9.5. Thinks thats
going to be the biggest bang for the buck this year.
Seeing a lot of increases in data quality and data validation work. Thinks that Metadata Management (which is a standalone product)
is not getting the amount of market share it probably should. Hasnt seen as much activity around the cloud product as she would have
thought based on Informaticas claim of growing traction around that product.
Getting a lot of Informatica professional services work being pushed off to her company. They might be going through another policy
change there to use outside consultants for services work.
Below plan for Informatica practice in Q1. Last quarter (Q4) had been pretty good.Its been very long sales cycles recently.
However, she thinks it might be a regional phenomenon.
Industry Contact 11
Growth is similar to last quarter
Probably growing about 10%
Doesnt see demand improving near term.
Everything feels like its a bit of a holding pattern right now.
East Coast, from Boston to Washington, is showing strongest demand.

Investment Thesis
As corporate IT environments grow in complexity, data is fragmenting both within the enterprise (via proliferation of traditional enterprise
applications) and beyond the enterprise (via adoption of On-demand offerings). Corporate data volumes are also growing to previously
unimaginable quantities. While corporations recognize the need to convert the data into usable assets, they suffer severe issues with
consistency of data, accessibility of data, and timeliness of data. Informatica's data integration platform addresses these needs by providing
IT personnel with a labor-saving device that masks the complexity of accessing, organizing, and moving all of the data contained in
various enterprise systems. Informatica has established a market leadership position in this emerging market, and has cultivated a vibrant
partner and OEM ecosystem along with a large global pool of talent that is trained to use the PowerCenter platform. Due to the ongoing
healthy fundamental growth drivers and Informatica's favorable positioning, we believe Informatica will continue to grow much faster
than the broader enterprise software market.

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Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Neutral
Price Tgt -- $45.00
FY11E Rev (mil) -- $782.5
FY12E Rev (mil) -- $907.6
FY11E EPS -- $1.40
FY12E EPS -- $1.60
Price $39.48
52 Week High $62.42
52 Week Low $34.15
25x 2012E EPS of $1.60 + $4.93 net cash/
share
Yield: NM
Rev (mil) 2010A 2011E 2012E
Mar $135.1A $168.0A $194.9E
Jun $155.7A $192.7A $223.6E
Sep $161.3A $195.9A $227.2E
Dec $198.0A $225.8E $261.9E
FY $650.1A $782.5E $907.6E
CY $650.1A $782.5E $907.6E
FY RM 6.8x 5.7x 4.9x
CY RM 6.8x 5.7x 4.9x
EPS 2010A 2011E 2012E
Mar $0.21A $0.28A $0.32E
Jun $0.25A $0.33A $0.38E
Sep $0.28A $0.34A $0.40E
Dec $0.39A $0.44E $0.50E
FY $1.13A $1.40E $1.60E
CY $1.13A $1.40E $1.60E
FY P/E 34.9x 28.2x 24.7x
CY P/E 34.9x 28.2x 24.7x
Informatica Corp. (INFA $39.48)
Neutral
Q4 Preview: Expect Inline Results, Slower License
Growth May Emerge
CONCLUSION:
We conducted checks with 13 contacts in the INFA ecosystem, which suggest that the
company likely achieved its targets for Q4 in North America. On the positive side,
contacts sense INFA enjoying a wide technology lead versus IBM, such that INFA
is the "default vendor" for large organizations, and data integration remains a high-
priority category according to our recent CIO survey. On the other hand, contacts
observed some sales turnover at year-end, occasionally see more low-end pressure
from open source competitors and MSFT, and sensed that more effort was required
to reach the finish line in Q4. The pullback in INFA shares from the $60s into the
$30s reflects evaporation of upside expectations, in our view, which does improve
risk/reward longer term. For now, we think INFA's license revenue growth is in the
middle innings of a deceleration phase, and would be surprised if INFA materially
raised guidance.
Key Takeaways:
Wide Technology Lead Versus IBM. Contacts see INFA as "the data integration
platform of choice" due to its wide technology lead and clearer messaging versus
IBM, and INFA's relentless pace of innovation.
MDM / ILM Sales Changes for 2012. According to contacts, INFA had separate,
specialist sales forces for its high-priority Information Lifecycle Management and
Master Data Management product offerings, but plans to roll them into the main
sales force and cross-train the main sales force on these products.
Cloud Practice Doing Well Even if Q4 Was Over-Forecasted. Contacts suspect

INFA's Cloud integration business is growing over 100% off of a small base;
the company may have over-forecasted this business for Q4, but the trend is still
positive and INFA has won the SMB segment of this market already.
MSFT and Open Source Nipping at the Heels in the Low End, but Probably
No Material Impact. At the low end of the market, open source data integration
vendors such as Talend are gaining some traction, and MSFT's SSIS (SQL Server
Integration Services) occasionally appeals to mid-sized organizations who prefer a
very low-cost option. But again, INFA dominates at the high end.
Some Signs of Hadoop / Big Data Traction. Certain contacts noted sporadic INFA
transactions relating to Hadoop and Big Data usage scenarios, while others feel that
customers using Hadoop are "a bit less inclined to use traditional ETL."
***Detailed Feedback from 13 Industry Contacts on Pages 2 - 7***
Neutral; PT=$45 based on 25x our 2012E EPS of $1.60 + $4.93 net cash/share.

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Industry Contact 1
Focuses exclusively on Public Sector. Primarily federal governments (80-85%) and also state and local governments, associations and
non profits, etc.
Informatica has a large presence in the public sector as the data integration platform of choice for the last several years.
There are constantly different types of requirements popping out at different parts of the organization and that keeps the core
PowerCenter market in public sector from getting saturated.
We are seeing an uptick in a lot of the other add on pieces Data quality, Information Lifecycle management and Identity Resolution.
So, no longer involved in a deal with just PowerCenter but PowerCenter + with at least one other thing.
From the guys [Informatica] we work with, I know they are still selling a lot, they are still doing well.
Hasnt seen upgrades as a big driver till now.
B2B is also a big focus for clients in the Federal sector. Mentions that Department of Treasury is a big user of B2B as they have to
interact with a lot of different organizations.
Sales reps [in the ETL/data integration ecosystem] he interacts with seems very excited and pumped coming off the quarter.
For ILM and MDM, Informatica had separate dedicated sales staff and one of the major pushes is to roll them into the main sales force
and cross train the main sales force to sell those products to increase the sales capacity.
Believes the pipeline for public sector deals is robust.

Industry Contact 2
System Integration partner for INFA cloud products. His integration services are growing rapidly. Currently 20% of revenue and
expects drastic growth in 2012 to about 30-40% of revenue.
Informatica Cloud practice is doing good.
INFA is trying to get into enterprise accounts for their cloud product. They have captured the small and mid-market pretty much.
Enterprise clients are looking to use INFA for integrating Oracle ERP or PeopleSoft with salesforce.com, even if they have an on-
premise version of Informatica used internally.
Hasn't seen any sluggishness or projects pushed out to Q1 2012 from Q4 2011 due to budgetary reasons.
Thinks that the [sales and marketing personnel in the ETL/data integration ecosystem] are definitely excited coming off the quarter.
Thinks that they closed a couple of very good deals in the month of December. One was a million dollar deal. Although he doesnt
know how much cloud business was involved.
Suspects the Cloud team might have over-forecasted in Q4 and couldnt close a few deals and meet their goals. So thinks they will
miss their Cloud segment goals in Q4. A few west coast guys left because they couldnt meet their numbers.
Industry Contact 3
Informatica started the resell program in the beginning of 2011. Signed in as a resell partner about 8 months back. Currently, there
could be around 15-16 resellers in the US.
His Q4 closed very well as far as the product resell business goes. Did particularly well with Informatica and closed multiple deals.
A couple of the deals began in the quarter and closed while another couple of deals that closed were works in progress for a while.
About the deals that closed in the quarter They moved fast and Informatica was aggressive in what it was willing to do for the
customer to close the deal.
The guys that I work with in [one region], they were knocking their numbers out of the park. One of the guys had already hit his
numbers and [our company] sweetened it for him with a deal that [our company] brought in. He went away very happy.
Saw some interest in the B2B Data Exchange family of products and sold one of the products that had to do something with Hparser,
Hadoop and Big Data. Thinks that the client was really impressed and was happy that the product met most of the promises that were
highlighted during the selling process.
Industry Contact 4

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Theres a lot more interest in Informatica versus IBM lately. Not sure exactly why, but could be pricing.
Also seeing interest in open source.
Works with a company called Talend (French) that does open source ETL, data quality and MDM.
This is more appealing to smaller customers.
Informatica is winning versus IBM because their message is more clear on what customers need to run their businesses. IBM solutions
are generally overkill for mid-market customers.
Used to exclusively sell IBM 2-3 years ago.
Theres an internal push to hire more Informatica-specific resources.
Strong verticals have been finance, insurance, healthcare, and state and local government. Healthcare is strongest among all verticals.
Healthcare is being driven by compliance, information governance, metadata management and a drive to improve and perfect existing
systems.
Sees Microsoft occasionally in deals. Microsoft has some SQL tools for custom ETL scripts.
Most Microsoft customers are generally happy with their Microsoft tools.
Industry Contact 5
Larger companies continue to purchase BI, data warehousing and MDM tools.
Mid-market purchasing isnt as strong.
Doesnt see any signs of slowdowns in growth.
Platforms and strategies are maturing, however.
Once a company gets migrated to their platform of choice, the demand goes down a little bit.
Strongest vertical right now is healthcare, and weakest is Federal Government.

Industry Contact 6
Market dynamics
Over the past few years some competitors have added a nice spark to the market, like Tableau. Doesnt see demand scaling
back. Sees a lot of requests for Informatica staffing, much more than in the past.
Theyre getting more Informatica calls than they were one or two years ago.
Doesnt think that companies clearly understand what they want to get out of BI.
Not very many companies receive the benefits from BI that theyre hoping to realize
Problem that BI has

He recently had conversation with a large client that manages many billions of dollars of facilities assets.
Client put a lot of money into BI and data warehousing.
The guy who pushed for all of this BI and data warehousing was complaining that he couldnt get people in the organization
to use the tools.
The client alternatively mentioned that some things he now does internally, such as analyzing data that he could not have
analyzed before, saved his organization many millions of dollars.
So the system has more than paid for itself, but the vision of the entire organization using it hasnt come to fruition yet.
There are some reasons behind that, that most organizations encounter and very few admit.
One is if you expect wide usage of your BI system, you have to understand when designing and building it why people are
going to use it.
Essentially you have to change your business processes.
If you dont change your business processes, people will just continue to do their jobs without your expensive tools.
They really arent going to want to use this system unless you give them a new reason to do so.
So if the business processes changes, and data is at the heart of the process, then people will use it
You cant look at a trade publication without reading about data marts, big data, Hadoop and all that stuff.

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And managers go put it into their organization.
But its different than putting in SAP.
When you put in SAP, 90% of the people who have to use it hate it.
They use it because its the only way for them to get their jobs done.
BI isnt the same thing unless you redesign the job.
You have to say, we are going to be data driven.
For example, if Im a manager and Im managing employees, its not just Im going to give you the BI tool. Im going to say, Here
are the metrics I expect you to be managing. And by the way, every month I expect us to collaborate on the BI tool and see how youre
performing against those metrics.
So now Ive taken that tool and put it into the heart of running my business.
Value of BI
Data as an asset isnt accounted for under GAAP.
But theres huge value in there if you can tie it together and do the right stuff with it.
Doesnt think the vast majority of businesses are seeing this.
BI is almost like a price of entry nowadays. Everyone else has it, so I have to have it.
Thinks that organizations can do a lot more with their BI systems.
Has seen a number of times over the years that systems get built but they dont get used.
An organization has to figure out who will use it.
If you build a system that only four analysts are going to use, and spend $10M on it, its not a failure if those four people are
making multi-million-dollar decisions.
You have to understand what your goal is, and understand what you want when youre building it.
Opinion on Informatica
Informatica is the first place that companies turn when they know they need an ETL.
The product is a good product.
Informaticas presence is such that theyre the default vendor.
But they are expensive and that turns a lot of people off.
Competition from Microsoft

Seeing a lot of SQL Server Integration Services (SSIS.)
Microsoft baked SSIS into their SQL Server database.
It is not nearly as strong as Informatica.
But when it comes down to spending decisions, he cited a client who was deciding between Informatica for $100k or SSIS,
which was free.
They went with the free, and decided just to work with it.
Microsoft is making a bigger splash in the data space than I expected them to.
They drove the database data warehousing market for a while by embedding a multi-dimensional database in their relational
database.
Power Pivot is an extension Microsoft just released to Excel. What it allows you to do is handle massive data sets.
Power Pivot is a way to put a lot more data into a Pivot Table.
Beginning to think that Excel is overlooked as a BI tool.
More on SSIS
Decent-sized companies dont really push hard on the open source stuff.
SSIS is the biggest competitor he sees.
Small and mid-sized companies go with SSIS, and even some larger ones.
They say SSIS is already built in. Lets just run with that.
Thinks that Informatica has to figure out a way to target the lower end of the market.
For years weve been told BI is moving down market, and that would be a new area for growth.

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Instead hes seeing more and more interesting mid-sized companies (less than $500M in revenue) shy away from something
like Informatica, but theyre all over SSIS.
QlikView
QlikView is a newer BI tool.
Its the fastest growing BI tool right now.
Its very cool. Rarely do you see a tool that users just cant get enough of.
QlikView has its own built-in database.
You can integrate data from multiple sources into its database.
In some cases, not every case, but in some cases you might be able to obviate the need for a data warehouse by using this tool.
Wonders if in the long-term, in the mid-tier and smaller organization, if tools like QlikView will impact the need for pure
ETL tools.
A lot of what QlikView does is drive the BI industry, the whole push to in-memory, they were really the ones who pushed it.
Now everyone has to step up and compete against it.
Industry Contact 7
Involved in BI strategy and product recommendations.
Sometimes does implementations.
Informatica remains the 800 pound gorilla in the ETL space.
Their footprint continues to increase at most companies.
There will always be demand for data integration.
Among his customer base, those using Hadoop are a bit less inclined to use traditional ETL.
Hearing a lot of good things about SAPs HANA.
Oracle and IBM remain biggest competitors. Demand environment
Thinks demand has slowed over the last year for BI.
Large companies are not doing big BI strategies with accompanying large purchases.
BI, data integration have reached a certain level of maturity, since companies have been working on their strategies for 15 years.
Hadoop is the new, novel thing.
Open source BI providers like Talend and Pentaho are also gaining traction.
The SMB market is especially looking at open source.
Theres a lot of ETL functionality being added to tools where it didnt exist before.
Industry Contact 8
Hasnt been supporting Informatica for about the past year.
The reason has primarily been that their customers are largely using home-grown solutions.
Occasionally supports Business Objects, but thats about it.

Industry Contact 9
Provides staff augmentation, like programmers and systems analysts, to Informatica customers.
Still growing at a healthy rate, but not as fast as this time last year.

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Estimates growth of 10-15%.
Informatica definitely has the technological lead over IBM.
Sees infrequent mention of open source BI tools.

Industry Contact 10
Works with Informatica the most as the enterprise data integration platform of choice, and focuses largely on Informatica client base.
Things are pretty active. Had a good year last year and things are off to a good start in 2012.
Last year (2011), INFA increased quotas of their sales guys to push MDM products. Thinks that they had some success with that and
many clients were looking at MDM. But there is a lot of preparatory work involved with the implementation of an MDM solution in the
area of Data Governance. That tends to delay some of the technology decisions or the implementations, as there is a lot of collaboration
required between the business and IT. So they might have been gotten into a little bit of slower start than they might have expected.
Based on industry trends and geographic considerations, suspects several key US regions made numbers. Wouldnt be surprised if
other regions missed their numbers as they have struggled for the last couple of years and had some turnover among the sales reps and
the field sales management as well. Has heard that one of the accounts in the US went with Orchestra networks, which is a French
company that provides multi-domain MDM software.
Thinks financial services might have been a little down due to all the turmoil in the financial services sector in general. In the healthcare
sector on the MDM side, thinks that INFA experienced an uphill battle with IBM whose MDM product has a stronghold in that sector.
Suspects that Financial Services and Healthcare might have missed their marks, but not entirely sure.
Thinks MDM is definitely a big growth area for Informatica and there is a lot of interest among all the clients. Every client we speak
with, it largely revolves around Data Governance and MDM. Doesnt see much in the Complex Event Processing area and it probably
depends on the particular business case. Believes that there is a lot of effort currently put on MDM and the ILM product. Thats
where they are pushing real hard. Thinks that INFA feels that the PowerCenter product has kind of reached a maturity level and is
not a very big growth engine for them.
The license associated with an MDM implementation is fairly hefty and also they license it based on certain data volume as well. So
once it is implemented, thinks it could be an ongoing source of additional revenue.
Open source is getting a lot more attention than it had in the past and that does create some competition for INFA." Hasn't evaluated
the technology of the open source products like those offered by Talend yet.
Industry Contact 11
Has worked with large, national insurance and pharmaceutical companies. Hasnt worked with INFA for the last couple of years as
clients have moved away from the INFA product set.
Primary reason for the move, he believes, is cost. And as more lower cost solutions appear in the market, clients tend to test those.
Has heard that one of the big clients that moved away are now planning a comeback.
Industry Contact 12
Seeing broad demand for Informatica products across various verticals.
There is a big upgrade cycle thats taking shape where customers are moving from older versions to Informatica 9. Customers are
moving really quickly to do the upgrade to version 9 mostly because version 8 was sunsetted and is no longer supported as of the
end of last year.
Customers are upgrading from older versions to 9.0 as well as many customers using 9.0 are upgrading to 9.1, which is the latest
version and has a big delta in terms of capabilities from 9.0. Informatica 9.1 is a more integrated version of the different components
of the Informatica product suite.
A lot of customers who are doing upgrades are not only upgrading PowerCenter, but also Data Quality, Data Explorer, Meta data
manager and the Data validation options (an automated testing tool that compares meta data itself).
People started looking at doing an upgrade and started talking about it around 2nd quarter last year. Customers have a very, very
slow sales cycle; probably due to budgetary reasons on their side it seems to take so long to get budgetary authorizations done. A
lot of customers didnt get approvals to go forward until 3rd-4th quarter last year. We have a large number of clients in the 1st and
2nd quarter this year who are doing an upgrade.
The other thing that we are seeing is quite a bit of interest in is the Cloud service. They have four editions of the cloud software.
Customers who have never seen Informatica are able to be comfortable with the standard version of the cloud offering with just one
week of training and are able to build processes, etc. It is very user friendly. For the more advanced users of Informatica who already
are using PowerCenter on premise, customers need to buy plug-ins, aggregators, etc., to be able to integrate the cloud services and
it is a little complex. One use case is an offshore outsourcing model where Informatica cloud can be used to integrate the onsite and
offshore PowerCenter environments.

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We are getting a lot of interest in the MDM product. We feel that the Informaticas MDM version is more robust, is a better product,
than the IBM and the Oracle product.
Thinks that companies have started thinking of data management from a very strategic point of view in the last couple of years and
data quality is and MDM are gaining a lot of importance.
Informatica does a lot of restructuring of its professional services group.
I have seen a lot of turnover in Informatica sales recently. Knows about three sales guys who left recently, probably because they
didnt make their sales numbers. Thinks that although cloud offerings might be growing at 100% off of small numbers, sales reps
might not be reaching their sales goals that came down from corporate.
For certain markets, Informatica is saturated. IBM cannot get a foothold in certain markets, period.
Negative Comments (1)
Industry Contact 13
Some conversations with contacts at the center of the Informatica ecosystem lead him to believe there was a bit of a struggle in Q4.
He spoke with 6 or 7 [sales contacts in the ETL/data integration ecosystem] near the middle of December.
Also heard that Siperian is becoming a significant portion of revenue.

Investment Thesis
As corporate IT environments grow in complexity, data is fragmenting both within the enterprise (via proliferation of traditional enterprise
applications) and beyond the enterprise (via adoption of On-demand offerings). Corporate data volumes are also growing to previously
unimaginable quantities. While corporations recognize the need to convert the data into usable assets, they suffer severe issues with
consistency of data, accessibility of data, and timeliness of data. Informatica's data integration platform addresses these needs by providing
IT personnel with a labor-saving device that masks the complexity of accessing, organizing, and moving all of the data contained in
various enterprise systems. Informatica has established a market leadership position in this emerging market, and has cultivated a vibrant
partner and OEM ecosystem along with a large global pool of talent that is trained to use the PowerCenter platform. Due to the ongoing
healthy fundamental growth drivers and Informatica's favorable positioning, we believe Informatica will continue to grow much faster
than the broader enterprise software market.

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Kenexa Corporation (KNXA) Overweight
Numerous Data Points Suggest a Good Q2, Strength in Core Software Business
PRICE: US$24.75
TARGET: US$40.00
18x 2013E OCF of $2.13 plus net cash of
$1.93/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$40.00
FY12E EPS US$1.05
FY13E EPS US$1.19
Yield 0.00%
Fiscal Year End Dec
35
30
25
20
15
10
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with 10 sources in the Kenexa ecosystem, and the
feedback suggests KNXA should report a solid Q2 due to ongoing strength in its core
software business. Staffing firms are seeing similar to improving trends versus Q1. Our
industry contacts highlighted Kenexa's strong pipeline, which has strengthened in the
wake of Oracle's acquisition of Taleo, involvement in large deals and customer interest in
non-ATS products, such as compensation. We believe investors' limited view of monthly
payroll data is a distraction from numerous data points which we believe paint a clearer
picture of the health of Kenexa's business and end markets: 1) strong channel feedback,
2) exposure to European countries outperforming in the Monster Employment Index, 3)
Kenexa's involvement in large software deals and 4) decreasing unemployment among
skilled workers. Overweight, $40 target.
Healthy Pipeline Growth and Enhanced Differentiation in the Wake of Oracle/

Taleo. Our industry sources observe that Taleo's acquisition is clearly working out in
Kenexa's favor thus far. The acquisition has frozen certain segments of the market,
including companies that are not aligned with Oracle. Kenexa is being viewed as a
reliable talent acquisition pure play, particularly for very large enterprises. One of our
contacts stated that "I can speak to the strong pipeline that they talk aboutwe have
seen it on the ground. Kenexa is seen to be differentiating on the basis of providing a
comprehensive solution including data and the framework to actually drive employee
engagement and tie it to performance, rather than just providing a few of the software
elements, which is the approach of most competitors.
Kenexa Exposed to Outperforming European Countries. According to the Monster

Employment Index Europe, which is a monthly gauge of online job posting activity,
Germany grew 16% y/y in Q2 and the U.K. grew 1%. Of Kenexa's total revenue,
1-2% comes from Germany and 9-10% comes from the U.K. Thus, most of KNXA's
European business happens to be located in the strongest countries in Europe.
Although Kenexa does have aggregate additional 4-5% revenue exposure to other
European countries, we believe the exposure to Germany and the U.K., which are
outperforming all other European countries measured by Monster, is overlooked by
investors and should allay fears about the volatility of Kenexa's business in that region.
Unemployment Among Skilled Workers Improves in Q2. The average monthly

unemployment rate among skilled workers, the pool from which Kenexa's customers
draw their applicants, declined to 4.0% in Q2 from 4.1% in Q1. We believe the
structural shortage of skilled labor should support ongoing growth for Kenexa, even
if aggregate unemployment sees an uptick.
Macro economic fluctuations, competition, acquisition integration challenges.
Kenexa Corporation is a software provider of talent management solutions.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
63.0 71.3 77.2 79.6 291.1 2.4x
80.1A 86.9 93.4 97.4 357.7 1.9x
90.0 99.8 102.3 105.9 398.0 1.7x
0.15 0.18 0.23 0.27 0.84 29.5x
0.19A 0.22 0.27 0.37 1.05 23.6x
0.19 0.28 0.32 0.40 1.19 20.8x

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Detailed Industry Checks, Positive Industry Contact 1
Mentions that there is a dearth of resources in the space to execute projects and every
company is facing this.
Kenexa
Thinks Taleos acquisition is clearly playing out in Kenexas favor.
I think from a talent acquisition perspective they will continue to benefit from
being a great pure play primarily for large, very large enterprises.
They have a great story to tell thinks that their messaging is stronger than
Cornerstones in many ways. Mentions that the Software, Content and Services
package that Kenexa offers resonates a lot with customers' requirements.
Thinks that they havent been able to advance in terms of product innovation
as quickly as the market would like them to in the area of integrated talent
management.
I can speak to the strong pipeline that they talk aboutwe have seen it on the
ground Thinks that they havent been able to keep up with customer demand
due to lack of resources.
Mentions that he has a strong pipeline of SuccessFactors/Plateau deals and based on his
conversation with other SuccessFactors partners, its difficult to keep up with the demand
due to lack of resources. The SAP acquisition for them has opened up a new worldpeople
are returning their calls that never would have in the past.
Hasnt seen Taleo/Oracle as much. [Oracle] Fusion continues to be a bit of an Enigma.
Thinks PeopleFluent has good software, they just need to market it more.
Ranking in terms of demand from his perspective SuccessFactors, Kenexa and

Cornerstone. Kenexa is number two because we have seen greater demand for recruitment
solutions from our clients as opposed to learning management solutions.
Industry Contact 2
Thinks that Kenexa platform is very good, very solid.
Mentions that as the line between HRMS and Talent Management blurs, Workday will be
competing with the various talent management vendors, like Kenexa and Cornerstone.
Clients continue to show interest in Kenexa and Cornerstone.
Thinks that some clients like the pure organic nature of Cornerstones solutions and that
its best of breed and Performance management is tied together with LMS (Learning
Management System).
Thinks Sales guys in Kenexas Comp group are getting used to all the integrations, the
consolidations and the organizationwith the acquisition [of Salary.com] there is still some
sorting out, but thats typical with any organization.
Mentions that there are a couple of big deals in play right now related to Kenexas
Compensation module. Couple of hundred thousand each.ones retail and ones
financial.
Mentions that there is absolutely a lot of interest around the Compensation product and
there are a lot of opportunities in the pipeline.
Industry Contact 3
Has a SaaS performance management suite for SMBs.
Kenexa sees this product as a preferred product for the SMB sector. Has a referral
relationship. Kenexa also uses a self service product from these guys as the performance
solution for much smaller clients.
Talking to a lot of prospects in South Africa, Europe and US. I am happy with what we
are seeing.
Mentions that Kenexas differentiation is the combined offering of Technology, Data

and Consulting. There are a lot of big HRIS/ERP vendors that have various of these
pieces from onboarding, applicant tracking through comp management, performance
management all that stuffbut I dont know of any of those for the most part that comes
at it with not only here is the solution but here is the comprehensive data/framework, here
is the way to drive engagement, here is how to tie with performance etc. They seem to
have somewhat of a differentiating position there.

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Detailed Industry Checks, Neutral Industry Contact 4
Kenexa's Applicant Tracking

Brass Ring is a very, very good ATS.
Hes used PeopleSoft, Vurv, Taleo, iCIMS, Bullhorn.
Brass Ring is at least as good as Taleo.
90% of ATSs are identical; its the other 10% where products are differentiated.
Ford Deal
Kenexa underestimated how difficult the Ford account would be to service.
Ford understated how much they expected from Kenexa.
The workload was way out of proportion with the number of people Kenexa
brought to do the work.
Kenexa, on the RPO side, has done very well with a few large clients, and very well
with a whole slew of smaller clients.
Ford was the biggest RPO client at the time, and Kenexa struggled with the
implementation, and is still struggling with the implementation a year later.
Kenexa has been extremely successful other places, like UHG and U.S. Steel
Ford was a huge feather in Kenexas cap.
Kenexa had to renegotiate the contract with Ford to make it financially feasible, but
they wanted Ford to remain in their portfolio.
Consolidation
Oracle buying Taleo didnt consolidate the ATS industry because they didnt really
have an ATS.
PeopleSoft has an ATS but its probably as old as you are, and thats not good in
the software industry.
They havent done much with the PeopleSoft recruiting tool in years.
Its truly not a good one.
Taleo
Brass Ring will never beat Taleo because its truly David and Goliath. Taleo is the
biggest dog in the ring by far.
The only reason other people are succeeding in that marketplace is because Taleo
acts like theyre the Goliath of the marketplace."
Theyre real arrogant, they come in and theyre nasty to deal with.
At one of his former employers which used Vurv, Taleo came in and told them how
and when his company would move to Taleo from Vurv, and didnt want much input
from him.
Industry Contact 5
Overall
Volume of assessments and backgrounds screenings are indicative of business health.
Looking at same store sales, hes not seeing the upward trend he saw in 2011.
In 2011 he certainly saw an uptick from 2010.
This year that uptick has flattened out.
The hiring is just not taking off.
The trajectory he saw last year has not held up this year, at least for our business.
The hiring market is just not that robust right now.
Areas of strength
International business is still growing a little bit.
Theyre very heavily focused on financial services in international markets.
Financial services would be his bright spot, but he wouldnt call it robust.
Industry consolidation
With the Oracle purchase of Taleo, theres a bit of a pause in the marketplace,
particularly with F500 accounts that dont want to make a multi-year commitment

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with Taleo and then two months later find out Oracle up and changes the product
strategy.
So theres a little bit of a pause in the market.
In his discussions with Kenexa, they believe this market pause is helping their
business.
[Kenexa] feels its creating some opportunities for them.
Detailed Staffing Checks, Positive Staffing Contact 1
The biggest change since the beginning of 2012, even though employers are still deciding
on a lot of temp-to-hire talent, is that theyre starting to convert a lot of their temporary
talent to full-time employees. I think that theres less concern over doing that as the year
has gone on. Thats been both good for us and good for candidates.
Places for all industriesmanufacturing, engineering, legal, financial services. In a lot of

harder-to-fill positions employers have to make decisions very quickly. In some instances,
such as in technology, her firm has to really encourage clients to make decisions quickly. If
they dont theyll miss out on the top talent. Top talent is getting multiple offers.
Demand for engineers is also high, right up with technology.
Highly skilled people in finance and accounting candidates are getting multiple offers.
Any high-end, professional services are all generally in high demand.
Manufacturing is still lagging, but not nearly as badly as it has been in the last couple of
years. Weve been surprised at how its picked up. Its definitely doing better than we would
have expected.
2011 was wonderful compared to 2010, so this year she hoped to see steady growth, and
thats what has happened.
Staffing Contact 2
Temporary hiring and temp-to-hire
Its been a lot busier in Q1 and Q2 of this year with respect to a year ago. But Q3 and Q4
are the seasonally busiest quarter and we are starting to get ramped up in that aspect.
Trending above internal plan for Q2.
In terms of verticals, mentions manufacturing, construction, financial institutions and

property management companies as really busy.
Mentions that in general the companies hiring are small to medium sized companies, but
some of the large companies like Wells Fargo are starting to hire as well.
Mentions that a lot of companies are filling more temp-to-hire positions.
Permanent hiring:
Second quarter was one of the busiest quarters they had in years.
Staffing Contact 3
Continues to see an increase in hiring and short wait times for candidate placement. Its
still trending that way.
Has not noticed any change to the number of incoming positions in light of economic
headlines.
Positions have been coming in fairly regularly and more than last year.
Temp is stronger than full-time, but full-time is getting better also.

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Detailed Staffing Checks, Neutral Staffing Contact 4
For the most part, demand seems similar to last year.
Theres usually a little bit of a slowdown entering the summer months in regards to staffing.
Direct hire positions are down a little bit, and temp or contract positions are coming in a
bit more steadily.
Employers feel safer bringing on a temporary employee, and a lot of hiring managers in the
area are under pressure to bring in the right person, and are also constrained on how many
direct hires they can bring on.
Staffing Contact 5
There have been more temp positions.
The direct hire [business] is still there, but it seems like were getting a lot more temp stuff
called in.
The current demand isnt as good as last year because they landed a couple of large clients
that kept them very busy at this time in 2011.
A lot of clients are dragging their feet and meeting a lot of people before making their
decisions.
People are still hiring, theyre just being really selective.

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CEO Meetings Highlight Recent Business Strength, Consolidating Market
PRICE: US$29.66
TARGET: US$40.00
$1.93/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$40.00
FY12E EPS US$1.05
FY13E EPS US$1.19
Yield 0.00%
Fiscal Year End Dec
35
30
25
20
15
10
USD
Source: Bloomberg
CONCLUSI ON
We recently hosted KNXA CEO Rudy Karsan in investor meetings. Key takeaways: 1)
Surprisingly, May was the strongest monthly increase in 15 months, in terms of system-
wide job postings, producing double-digit y/y growth and no significant deterioration
in the time taken to fill the positions; 2) KNXA's pipeline has strengthened in the wake
of Oracle's acquisition of Taleo, driving a stronger deal pipeline and handing KNXA
the status as "largest independent HCM vendor"; and 3) We walk away incrementally
more confident that KNXA's margins have troughed in 2010/2011, and should expand
to yield a better mix of investor-friendly growth with leverage. We think Kenexa is well
positioned to address the shortage of skilled labor. We expect de-risking of portfolios
to weigh on the broader software group, but continue to like the long-term setup for
KNXA. Overweight, $40 target.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
63.0 71.3 77.2 79.6 291.1 2.9x
80.1A 86.9 93.4 97.4 357.7 2.3x
90.0 99.8 102.3 105.9 398.0 2.1x
0.15 0.18 0.23 0.27 0.84 35.3x
0.19A 0.22 0.27 0.37 1.05 28.2x
0.19 0.28 0.32 0.40 1.19 24.9x

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J u n e 5 , 2 0 1 2
On The Road with Kenexa: Q1 Momentum Spilling Over into Q2
PRICE: US$26.82
TARGET: US$40.00
$1.93/share.
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$40.00
FY12E EPS US$1.05
FY13E EPS US$1.19
Yield 0.00%
Fiscal Year End Dec
35
30
25
20
15
10
USD
Source: Bloomberg
CONCLUSI ON
We recently had dinner with KNXA President/COO Troy Kanter and hosted the
company in investor meetings. Key takeaways: 1) deal sizes are getting significantly
larger with plenty of greenfield opportunity remaining to reinvent the recruitment
process for global organizations; 2) some surprisingly large deals are in the pipeline,
albeit no assurance on timing; 3) KNXA is partnering more closely with both Workday
and IBM; and 4) the company hasn't yet seen any slowdown in terms of job requisitions
or time to fill, which are leading indicators of hiring activity, and we continue to sense
a solid pace of new software bookings. We think Kenexa is well positioned to address
the shortage of skilled labor. We expect de-risking of portfolios to weigh on the broader
software group, but continue to like the long term setup for KNXA. Overweight, $40
target.
Trend Toward Larger Deal Sizes. Kenexa is seeing a trend toward larger, global
deployments involving more software modules. Back in 2005, its average revenue
across its top 80 customers was roughly $500K, and it set a long term target of growing
that to $2M. Today, it stands at $1.8M, and has nearly reached this target even despite
a high-unemployment environment. KNXA now believes it can move this metric to
$5M over time. As a reminder, KNXA won three enterprise deals with Fortune 50
companies during Q1: Home Depot, CVS Caremark, and Boeing. Remarkably, this
probably means KNXA won all of the large, pure software Applicant Tracking deals
that closed across the entire industry during Q1. Our sense is that many other HR
executives have noticed KNXA's recent ability to win the largest deals in the industry
based upon its differentiated mix of offerings, and they are more inclined to engage in
higher-level strategic discussions with Kenexa as a result.
New Partnerships with Workday and IBM. Taleo was a long-time partner of Workday
for applicant tracking deployments. Because Workday is highly competitive with
Oracle/PeopleSoft, Oracle's acquisition of Taleo prompted Workday to re-evaluate.
From what we have heard, it appears that Workday is now referring a material volume
of Applicant Tracking leads to Kenexa. Furthermore, IBM has also recently linked
up with Kenexa subsequent to Oracle's acquisition of Taleo. Due to the breadth of
its software, hardware, and services offerings, IBM is routinely involved in massive
outsourcing deals with the world's largest companies. When customers ask IBM to
engage in deep transformation of the entire recruitment process, IBM sometimes lacks
the domain expertise required and thus, IBM joining forces with KNXA could make
quite a bit of sense.
CONTINUED ON PAGE 2
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
63.0 71.3 77.2 79.6 291.1 2.6x
80.1A 86.9 93.4 97.4 357.7 2.1x
90.0 99.8 102.3 105.9 398.0 1.9x
0.15 0.18 0.23 0.27 0.84 31.9x
0.19A 0.22 0.27 0.37 1.05 25.5x
0.19 0.28 0.32 0.40 1.19 22.5x

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J u n e 5 , 2 0 1 2
No Slowdown in Hiring Indicators
Yet
Kenexa tracks job openings, the time it takes to fill open positions (time to fill), and other
leading indicators of hiring activity. Coming off of a very strong Q1, the company has not
yet noted any slowdown in any of these leading indicators, even despite the recently choppy
employment statistics. The US labor market has a giant dislocation in which there is very
little unemployment for educated and skilled workers, which keeps the pressure on major
corporations to constantly fight it out for top talent despite a slow-growth economic climate.

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April 2014
April 30, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Price Tgt -- $39.00
FY12E Rev (mil) -- $352.7
FY13E Rev (mil) -- $388.2
FY12E EPS -- $0.99
FY13E EPS -- $1.11
Price $32.67
52 Week High $33.58
52 Week Low $13.96
18.5x 2012E OCF of $1.93 plus net cash of
$3.55/share.
Market Cap. (mil) $911.5
Yield: 0.00%
Rev (mil) 2011A 2012E 2013E
Mar $63.0A $78.1E $87.0E
Jun $71.3A $84.5E $96.1E
Sep $77.2A $93.4E $101.1E
Dec $79.6A $96.7E $104.0E
FY $291.1A $352.7E $388.2E
CY $291.1A $352.7E $388.2E
FY RM 3.1x 2.6x 2.3x
CY RM 3.1x 2.6x 2.3x
EPS 2011A 2012E 2013E
Mar $0.15A $0.16E $0.15E
Jun $0.18A $0.19E $0.23E
Sep $0.23A $0.28E $0.33E
Dec $0.27A $0.36E $0.41E
FY $0.84A $0.99E $1.11E
CY $0.84A $0.99E $1.11E
FY P/E 38.9x 33.0x 29.4x
CY P/E 38.9x 33.0x 29.4x
Kenexa Corporation (KNXA $32.67)
Overweight
Checks Suggest Good Q1 Demand Environment
for Kenexa
CONCLUSION:
We conducted interviews with 7 contacts in the Kenexa ecosystem, including several
staffing firms, and the feedback improved versus our checks last quarter. We are
buyers of KNXA as our checks indicate closure of one, possibly two, watershed
deals during Q1, which could help propel KNXA shares to a new 4-year high in the
coming months. Our work shows that domestic staffing firms are enjoying notable
improvements in demand for new hires and are finding it "harder to find people",
indicating a tighter supply of potential employees, which is positive for KNXA.
Additionally, we think KNXA capitalized on turmoil in the wake of the TLEO and
SFSF acquisitions, and will provide some strong new announcements. We think
Kenexa remains well equipped to address the shortage of skilled labor, and shares are
undervalued at 2.3x EV/FTM revenue versus 4.6x for SaaS comparables. Overweight.
Staffing Firms Seeing Tighter Supply of Employees. We spoke with six different
staffing firms across the country, and they noted that, "its been harder to find
people, "Were back to having difficulty finding candidates for the positions", and
The permanent team last month and the month before had the highest months that
they have had since 2007 or 2008Its definitely been good for them. We believe
this feedback indicating a tighter supply of employees bodes well for Kenexa
(because KNXA's software helps companies address the shortage of skilled labor)
and highlights an improving employment environment.
Skilled Labor Unemployment Remains Low. As the chart on page 2 shows,

unemployment for people with a bachelor's degree and higher in the U.S. was 4.2%
in each month of Q1, slightly better than the 4.3% average in Q4. Skilled workers
are the primary type of recruit for Kenexa's customers. For this reason, we believe
the structural shortage of skilled labor should support ongoing growth for Kenexa,
even if aggregate unemployment sees an uptick. Recall that in the last recession,
unemployment shot up from 4% to 11%, creating a severe headwind for KNXA
amidst the worst employment environment in decades; at this point we think another
increase of this magnitude is highly unlikely.
*** Detailed Feedback Provided on the Following Pages ***

Overweight, PT of $39 = 18.5x 2012E OCF of $1.93 plus net cash of $3.55/share.

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April 2014
April 30, 2012
Unemployment Level by Education
Source: bls.gov
Industry Check
Industry Contact 1
Thinks Kenexa is being really carried by the former BrassRing acquisition. They are doing a couple million dollar deals each quarter
on applicant tracking.They are slowly growing into the Performance market, but getting beat more than winning by SuccessFactors.
By acquiring OutStart, Kenexa fills a missing piece in terms of a full talent management suite. Thinks one of the first things Kenexa
will do is try to put the OutStart product in the 2X platform. Thats survival in business. Thinks that OutStart has been historically a
Learning Content Management system, but over the years had also developed some of the core LMS capabilities. Thinks that OutStart
and Plateau were rated with Cornerstone by industry analysts as the top three LMSs. Thinks that with Kenexa, OutStart will be now
considered by large companies like the GEs or GMs of the world. Thinks that OutStart had a very good pipeline when it got acquired.
Had heard of 5 active large RFPS with some pretty recognizable names to replace Saba that were getting some traction before it was
acquired.
Watershed Deals in Q1 - Kenexa Kenexa had a couple.

Staffing Checks
Industry Contact 2
Q1 and Q2 is generally slower and hence that is evident as compared to the end of the last year. We have been busier this Q1 than
we were last Q1.
The internal targets grew from last year and we have already hit what our baseline was last year.that obviously gives me high hopes.
The permanent team last month and the month before had the highest months that they have had since 2007 or 2008Its definitely
been good for them.
In terms of temporary hires, industries that are picking up the fastest right now are manufacturing, a big push for customer service
and inside sales. Also, construction to some extent and some higher level executive assistant positions.
SMB is the niche for the contact and she mentions - Mid-sized companies are kind of our hot topicI know they have been getting
better. She thinks that even the smaller mom-and-pop kind of shops are hiring a lot, which is good.
Industry Contact 3
The demand has been extreme, very good.
They fill a lot of manufacturing positions for Honda suppliers. Theres a little bit of distribution and customer service as well.
Companies are feeling more comfortable with the economy.
90% of the positions they fill are temp-to-hire.

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April 30, 2012
This is like a fourth quarter for us, and fourth quarter is our busiest time of the year. Im gonna guess probably 75-100% increase
[in positions].
They havent had to use advertising dollars since 2009, but has had to dig into advertising budget for the first time since then. Im
gonna say its been harder to find people.
Continued growth. Thats what were hearing from all of our customers.
Industry Contact 4
Works on filling permanent positions, not temporary positions. Doesnt do government placements.
Fills a lot of support/administrative positions.
Seeing an increase in the positions to fill, and the market seems to be much stronger.
Believes this is a sign of good things to come, but they did see a similar trend last year. In 2011, hiring trends were very strong up until
about May and early June, then the demand softened, but were optimistic.
They have steadily done better each month.
One indicator of demand is how quickly positions are filled. A few years ago, when there was a job opening, it would remain vacant
for three to five months while the employer looked for the perfect candidate. Now employers need to move much quicker if they find
someone that they like. Hiring decisions are being made faster than they have been over the last three years.
Industry Contact 5
Has very little insight into temporary, but believes its improving.
Knows that permanent hiring is definitely getting better.
Works on C-Level support market.
The temporary market is a leading indicator, and her market, her particular niche, is often a lagging one. So its a good sign for everyone
that her market is better.
Let me put it this way. Were back to having difficulty finding candidates for the positions. Its definitely a [good] problem to have.
Industry Contact 6
Things seem to be moving.
If feels like theres still a little bit of a tech boom, but theres more of a balance between corporate and tech hiring. Corporate hiring
is steady.
Legal is definitely busier than it has been the past four years.
Getting calls from companies they havent heard from in a while.
She has to recruit more and work harder to find candidates because many of them are employed already.
When a position to fill comes in, she has to react much more quickly than in the past.
Industry Contact 7
Current placements are three times the volume as they were last year for permanent positions.
Demand has been growing a lot over the last six months.
Q1 2011 was flat from 2010, so theyre experiencing great growth.
The first jobs to come back were sales, followed by admin, then HR and marketing, since these are overhead to a company, but now
these overhead jobs are growing as well.
The trend is favorable.

INVESTMENT THESIS
Kenexa is a provider of talent acquisition and employee performance software solutions, services, and proprietary content that enable
businesses to improve the effectiveness of talent acquisition and increase employee productivity and employee retention. Kenexa's
solutions fall within four product lines - talent acquisition, talent management, assessment, survey solutions, and employment outsourcing
service. The company has completed an impressive transformation (via numerous acquisitions) from a low-margin recruiting service
firm into a focused provider of human capital management.

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April 2014
February 2, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Price Tgt -- $39.00
FY11E Rev (mil) -- $288.1
FY12E Rev (mil) -- $321.9
FY11E EPS -- $0.82
FY12E EPS -- $0.95
Price $25.59
52 Week High $33.19
52 Week Low $13.96
$3.36/share.
Market Cap. (mil) $714.0
Yield: NM
Rev (mil) 2010A 2011E 2012E
Mar $39.7A $63.0A $74.9E
Jun $44.9A $71.3A $80.7E
Sep $50.8A $77.2A $83.3E
Dec $64.1A $76.6E $83.1E
FY $199.4A $288.1E $321.9E
CY $199.4A $288.1E $321.9E
FY RM 3.6x 2.5x 2.2x
CY RM 3.6x 2.5x 2.2x
EPS 2010A 2011E 2012E
Mar $0.10A $0.15A $0.18E
Jun $0.13A $0.18A $0.23E
Sep $0.16A $0.23A $0.27E
Dec $0.23A $0.25E $0.27E
FY $0.62A $0.82E $0.95E
CY $0.62A $0.82E $0.95E
FY P/E 41.3x 31.2x 26.9x
CY P/E 41.3x 31.2x 26.9x
Kenexa Corporation (KNXA $25.59)
Overweight
Checks with 13 Contacts in the KNXA Ecosystem
Suggest Stable Environment
CONCLUSION:
We conducted interviews with 13 contacts in the Kenexa ecosystem and see potential
for modest revenue upside and conservative margin guidance if KNXA follows suit
with the recent forecasts of other SaaS vendors. Our main takeaways are (1) Domestic
Staffing firms, by a 3 to 1 ratio, are enjoying consistent improvements in both demand
for new hires and an increase in the mix of permanent hiring versus temporary hiring;
(2) Partners cite Kenexa as "easy to work with" and highlight "strong demand" for
SaaS-based recruiting solutions; and (3) While European conditions may dampen
growth rates in 2012, we suspect KNXA's European business was fine in Q4. We think
Kenexa is well equipped to address the shortage of skilled labor heading into 2012 and
shares are undervalued at 1.9x EV/FTM revenue versus 4.8x for SaaS comparables
even if KNXA's growth lags the broader industry. Overweight.
Stable Industry Trends for Kenexa. Our contacts in the Kenexa ecosystem
generally observed positive demand trends for domestic skilled labor and SaaS
recruiting solutions. The hiring environment in general "looks very positive" there
is "strong demand" for SaaS-based recruiting solutions. Tech hiring has shown
particularl strength, but one contact is "beginning to see a comeback" of more
traditional work for legal, finance and real estate positions. Customers are "very
happy" with the relationship they have with Kenexa. Overall, the responses indicate
stable/healthy fundamentals.
Employment Trends Favor Skilled Workers. As the chart on page two shows,
unemployment among skilled, or college-educated workers remains low, and has
actually reached its lowest level since February 2009, at 4.1%. Skilled workers are
the primary type of recruit for Kenexa's customers. For this reason, we believe the
structural shortage of skilled labor should support ongoing growth for Kenexa, even
if aggregate unemployment resumes on an up-ticking trajectory. Recall that in the
last recession, unemployment shot up from 4% to 11%, creating a severe headwind
for KNXA amidst the worst employment environment in decades; at this point we
think another increase of this magnitude is highly unlikely.
* Note priced as of the close February 2, 2012.
Overweight, PT of $39 = 20x 2012E OCF of $1.76 plus net cash of $3.36/share.

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April 2014
February 2, 2012
Unemployment Level by Education
Source: U.S. Bureau of Labor Statistics
Detailed Feedback
Staffing firms
Staffing firm 1 (positive)
Definitely been really busy. Goals have increased this quarter as compared to last quarter in terms of number of people to place
on a weekly basis.
Thinks that the hiring environment in general looks very positive.
For 2012, thinks that there might be intermittent dips throughout the year but overall it will be a very successful year. We are expected
to have a bigger year, better year than last year even as well.
Thinks that the hiring outlook is improving across the board. This time of the year, tech and mortgage industries are really busy and
so is advertising and marketing.
Seeing people with gaps in their employment coming back to look for jobs.
The permanent hiring division definitely very busy. They had a good year and a few good quarters and they are expected to
continue to grow as well.
We are working with clients with whom we havent worked in a while just because they havent been doing any hiring and they are
starting to call us again, which is very exciting obviously.
November and December were the best two months theyve had in years.
Seeing strong hiring across the board, with trading, consulting, financial services and legal being standouts.
Theres always demand from tech startups and existing tech firms.
However "beginning to see a comeback" of more traditional work for legal, finance and real estate positions.
Every year since the recession has improved, and things improve month by month.
Holidays are usually slow, but seeing things pick back up again.
Best indicator of outlook is that her clients are moving to more permanent hiring versus temporary hiring.
Q4 2011 definitely better than Q4 2010.

Q4 was definitely up year-over-year, but not sure exactly how much.

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February 2, 2012
Direct hire boomed in 2011.
Direct hire still continues to do well in 2012 so far.
Temp hiring did okay off of a tougher comparison; it has more volume than direct hire.
They do a lot of government and NPO work, but theyre seeing a strong surge in non-government hire, with finance and real-estate
being the strongest.
Hasnt yet returned to pre-recession levels, but had a good Q4.
Thinks she grew 14%. Expects growth of 23-25% in 2012.
IT recruiting has improved significantly.
Her counterparts at other agencies have seen improvement and have been very busy.
Does mostly staffing for NPO firms.
The biggest growth theyre seeing is for executive searches.
Also seeing good growth in permanent positions.
Believes that NPO budgets are loosening up because NPOs will only hire more permanent positions if they believe theyll have the
budget for it.
Also does tech recruiting. Seeing an increase in demand for permanent positions there, as well.
Staffing firm 7 (neutral)
Demand has been picking up over the last couple of months.
It hadnt been improving very much prior to that.
Unsure if the pace will continue this year.

Staffing firm 8 (neutral)
Monster.com is getting into applicant tracking, increasing competition for traditional ATS vendors.
2011 was far better than 2010 and 2009, maybe even combined.
Focuses solely on technology.
Technology is at full employment.
Cant find a Java developer in the three markets she recruits for. Hard to find available technology talent.
Lifecycle in the technology sector still hasnt filled out.
For example you cant find a software engineer, but you can find 100,000 QA people, product managers and sales people.
Believes that once you start seeing more demand for QA people is a sign the market is really getting better.
QA is a luxury in lean times.
Developers are doing their own testing right now.

Kenexa Partners
Partner 1 (positive)
Many deals get done through partners such as Taleo, Kenexa, Kronos, or others. He will use Kenexa if the client is already using
Kenexa.

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February 2, 2012
If the client has no solution and asks for help in selecting a vendor, hes inclined to recommend Kenexa. The reasons are (1) Kenexa
is just a lot easier to deal with. He thinks that competitor fees to integrate are too high. (2) Kenexa treats its partners well.
Has a co-opetition relationship with Kenexa.
Competes with them on assessments.
Kenexa is a very strong competitor in assessments.

Verticals
Has recently seen financial services segment increase their hiring and generate significant year-over-year revenue for his firm.
Retail is also showing improvement.

Rating geographies:
North Americahad a good year, not a great year.
Asia Pacifichad a very good year.
EMEAstruggling, not seeing any sort of rebound at all.

Outlook
More optimistic about growth in 2012.
Unemployment rate, new jobless claims, other underlying economic data make him more optimistic.
Monthly year-over-year volume indicates an improvement in his business. Volume includes number of assessments and background
screenings.
His clients sounds more optimistic.

Partner 2 (positive)
This partner is vendor agnostic, so they go into a client looking to identify what their needs are first, rather than with a list of vendors.
Sometimes they help a client select a vendor, but usually leaves it up to the client.
More mature clients will select the vendor, and less mature clients will ask for help with vendor selection.
There is definitely strong demand for SaaS-based recruiting solutions.
Demand is driven by specific industries.
Most of her clients are either replacing legacy systems or consolidating onto a single platform from multiple vendors.
The clients she works with are hiring at a strong pace.
Not witnessing any business slowdowns among her clients; no consulting push outs or delays.
The biggest challenge her clients are facing is getting the right person for the position, which she thinks is another driver for SaaS-
based recruiting solutions.
Customers
Customer 1 (positive)
Just met with internal team because KNXA contract is up for renewal pretty soon.
Definitely plans to renew, and expects to sign for at least two years.
Loves Brass Ring.
Theyre also planning on adding on-boarding from KNXA, and theyve allocated budget for it.
KNXAs on-boarding has some bells and whistles they could use, and interfaces well with their HRIS.

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February 2, 2012
A sister department in his org is looking at 360 surveys; its an RFI at this point.
Customer 2 (positive)
Not quite half way through Kenexa contract.
"Very happy" with relationship, no reason to move off of platform.
Received record number of applications last yeargetting moneys worth from Kenexa.
Currently uses two Kenexa products: Storefront and Recruitment Enterprise.
May eventually standardize on Brass Ring.

Customer 3 (neutral)
Currently uses Brass Ring for recruiting.
Doesnt plan to increase Kenexa spending in the near term.
Expects corporate hiring to be flat, but will hire 125 outside recruiting managers.
Very interested in embracing social media for recruiting efforts, but this wont affect their current spending with Kenexa.
INVESTMENT THESIS
Kenexa is a provider of talent acquisition and employee performance software solutions, services, and proprietary content that enable
businesses to improve the effectiveness of talent acquisition and increase employee productivity and employee retention. Kenexa's
solutions fall within four product lines - talent acquisition, talent management, assessment, survey solutions, and employment outsourcing
service. The company has completed an impressive transformation (via numerous acquisitions) from a low-margin recruiting service
firm into a focused provider of human capital management.

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Au g u s t 7 , 2 0 1 3
Model N Inc. (MODN) Neutral
Customer Checks Indicate Consistent Customer Value Perception
PRICE: US$22.83
TARGET: US$22.00
3.6x EV/CY14 revenue of $125M + net cash
of $105.1M and 25.2M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$22.00
FY13E EPS US$(0.07)
FY14E EPS US$(0.18)
Yield 0.00%
Fiscal Year End Sep
Mar-13 May-13 Jul-13
26
24
22
20
18
16
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with a few Model N customers and partners suggest that customers
generally remain satisfied with their existing relationships. One [F500 pharmaceutical]
customer referred to the relationship as "still strong" and noted its current evaluation
of an additional module, while another [Large technology firm] customer hinted at
potential expansion of the relationship within the next 18 months. Our conversations
also suggest that Model N could be carving out "Manufacturing" as a third vertical
(beyond Life Sciences and Technology) and it is conceivable that small tuck-in
acquisitions could help it to embark on that path. We remain optimistic on Model
N's cadence and discipline to get implementations done and thus achieve its near-term
revenue goals. FY14 objectives will depend on near-term new business bookings, into
which we have very limited visibility. Neutral, $22PT.
Detailed Customer Feedback
Customer 1[Large technology firm]

"We will adopt new modules from Model N in 2H12."
"No customer reference calls [recently], but yes we see some market traction
from Model N."
"We see Model N adopting a more transversal market approach beyond the
traditional Semiconductor and Healthcare market in the Software vendors
space and High Tech manufacturing."
Customer 2 [F500 pharmaceutical]

"I would say our relationship is the same. Still strong."
"In the final stages of selecting a new software package to do our [redacted].
We are in fact evaluating [redacted] software from multiple vendors...Model
N has a very good product, as do competitors. The final selection will be based
on functionality as well as cost."
Customer 3 [F500 pharmaceutical]

"There are no changes to our relationship with Model N. We have deployed the
software ...and have a services agreement with them to manage the system."
"I have not recently done any reference calls nor have I heard anecdotally about
[Model N] winning or losing customers recently."
Competition, Customer Concentration, Long disruptive implementation cycle, Likely
ongoing operating loss.
Model N is a leading provider of Revenue Management solutions optimized for life
sciences and high tech manufacturers.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
Dec Mar Jun Sep FY CY FY RM CY RM
18.1 20.2 22.8 23.2 84.3 88.5 6.8x 6.5x
22.3A 24.6A 27.0 27.5 101.4 105.6 5.7x 5.4x
26.6 29.3 32.2 32.9 121.0 4.8x NA
Dec Mar Jun Sep FY CY FY P/E CY P/E
(0.01) (0.12) 0.07 0.10 0.04 0.03 NM NM
(0.03)A (0.01)A (0.01) (0.02) (0.07) (0.15) NM NM
(0.11) (0.06) 0.00 0.00 (0.18) NM NA
Au g u s t 7 , 2 0 1 3

M
O
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N
April 2014

Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

MODE L N (MODN $20.54)
Neutral

Bold New Vision for Revenue Management; Initiating at Neutral

We are initiating coverage of Model N with a Neutral rating and $22 price target. Model
N is the leading provider of Revenue Management solutions optimized for life sciences
and high tech manufacturers. While we see near-term upside to estimates, MODN shares
are up 52% from the midpoint of the IPO pricing range and are being valued similarly to
our comparables list despite Model Ns lower gross margin profile. At the current price of
$20.54, MODN offers only modest upside to our price target. The average EV/2014 sales
multiple for our comparables group is 3.6x. We apply the same multiple of 3.6x EV/2014
sales to calculate our MODN price target.

Positive Attributes:
1. Impressive Customer List, including Merck, Amgen, Johnson & Johnson, Boston
Scientific, Novartis, Bristol-Meyers Squibb, and Dell.
2. Forward-Thinking Vision: Notion of a single platform for sales, marketing, legal,
finance and the channel to collaborate.
3. Strong Revenue Visibility, with a low/mid 90% coverage ratio into FY13 revenue
based upon likely deployment timelines.
4. Deep Domain Expertise in Life Sciences, including complex applications for
Government Pricing, Medicaid Claim Processing, Contract Management, and Rebates
& Incentive Management.
5. Proven ROI: Customers noted material reductions in revenue leakage and in some
cases, a payback period of as little as 11 months.
6. Mission-Critical Stickiness: Model N becomes central to the process of quoting prices,
generating revenue, and in some cases filing financial reports.

Negative Attributes:
1. Vertical and Customer Concentration, with 90% of revenue in the Life Sciences
vertical, 10% in Technology; Merck contributed 14% of revenue and Amgen
contributed 10% of revenue in FY12.
2. Low Gross Margins, as we forecast 53.7% non-GAAP GM for FY13 and a net loss for
the next 2 years.
3. Complex Revenue Recognition, as License and Implementation revenue are combined
together and recognized on a percentage-of-completion basis.
4. Mostly On-Premise Solution, as a large majority of revenue is derived from on-
premise products.
5. Arduous and Expensive Implementation, which can require organizational
transformation, up to tens of millions of dollars in implementation costs and
deployment teams as large as 150 people.
6. Potential for Sporadic Customer Issues, based on the scope and complexity of the
implementation process.
Risks: Competition, Customer Concentration, Long disruptive implementation cycle,
Likely ongoing operating loss.

NOTE: The following pages are an excerpt from the MODN Initiation report.

April 2013

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CUSTOMER DUE DI LI GENCE SESSI ONS

We engaged in detailed discussions with a number of Model Ns customers as part of our
due diligence process. The following section provides quotable quotes from our
conversations to form an executive summary, followed by 17 pages of detailed feedback.

It is a very important system for us. And, we spent a lot of money acquiring it,
licensing it, implementing and so forthso, we have a significant investment involved
in this.
The biggest concern I have had in the past 6 months was with SAP.the Model N
members of the team helped us get through.
So, far we are pretty happy with the solution. Business stakeholderswere quite
bullish with Model N and people are quite happy with the solution.
The only point where we could finger point a little bit is the quality of software
development.
Globally speaking the relation[ship] is good. The best proof of it is we continue to
work with them. We have extensive work with them this year and we have plans for
next year. We have trust in each other.
Long story short, we chose Model N and I feel fairly safe saying that there are no
regrets.
The way to think of it is its an automated, systematic pricing and contract
management system. It allows us to not only do the pricing. It allows us to do the deal
analysis. It allows us to track compliance, which is a huge thing for us. It allows to [do
the cost] of rebates. It allows us to apply admin fees to GPOs [Group Purchasing
Organizations]. That can be challenging because we have different deals with every
customer inside the GPO.
These guys blow our mind at how good they are at the stuff theyve done for us.
Model N is a very focused, committed organization of very, very bright people. When
they tell you theyre going to do something, they do it.
To estimate ROI, We took a very conservative swag at margin improvement and
profitability for the business, and in the first year we actually exceeded those numbers
by more than 100%.
We accomplished the deployment within the original stated budget for the project and
we were only 3 months over the original estimate for deployment time of an 18-month
project, so I would consider that to be quite successful as far as IT deployments go.
Quotable Quotes

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April 2014
I really like that fact that I feel like Im a really important customer to them, which I
think speaks volumes to the way they conduct themselves.
Were happy with the level of engagement. I can pick up the phone any time of the day
on any matter and call Zack [Rinat], and Zack is usually well versed, and if hes not, he
deals with it quickly.
I am very comfortable with the choice we made and would be very uncomfortable if
wed made another choice. We have to be successful in this partnership and I dont feel
I have to work very hard at it.
I feel like Model N works harder than I do in maintaining the partnership.
Their capabilities are leading edge, but theyve been able to make our required
changes, to meet what Im going to tell you is more complex than most of our
competitors, and theyve done it very well.
Regarding the ROI, I can certainly say it was well over 8-figures in terms of savings
we expected in terms of reduced discount savings as well as efficiencies savings by
shortening the sales cycle.
If they do foray into the software business theyre going to have to make some of the
customizations that we have done more core into their product. Otherwise theres no
solution out there in the industry thats targeted to solve this business problem.
One thing worth mentioning is they have definitely made us feel very important. They
have gone way beyond, in the last year-and-a-half, to build a direct relationship with
me, to make sure that my needs are met. I appreciate that a lot.

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Exhibit 4
CUSTOMER #1
A pharmaceutical company

Role and
Responsibility
Responsible for sales, marketing, contracting and customer service relative to the US business.
Relationship
with Model N
Relationship with Model N goes back to 2009 or so.
Had a lot of legacy, disparate homegrown systems related to the management of contracting and pricing functions. Wanted to
retire a lot of these systems and consolidate them into a new contracting and revenue management system.
Started investigating and exploring the leaders in the space. Thats when they discovered Model N for the first time along with
other competitors. Ultimately, chose Model N.
Functionality of the system was really important to us and so the decision was driven by the business rather than IT.
We have a fairly complex contracting strategy, because of the size of our portfolio. We deal with a lot of GPO [Group
Purchasing Organization], end customers, distributorswe needed a system that we felt can accommodate that.
The division that uses Model N internally intends to expand the usage to other users from a data access standpoint. This
division is responsible for contracting functions, maintenance, contract administration, chargeback management, rebate
management, etc. They are actually looking at Model N as a way to improve the efficiency of that group going forward.

Implementation
Implementation began more in earnest in 2010.
Faced some delays and difficulties. Was using third parties for integration efforts. Had many dependencies such as an SAP
system and other systems which had to interface with the Model N system.
We learned many things along the way, may not be directly related to Model N but just things you learn when you
implement a complex revenue management system like Model N.
We had...delays along the way, mainly in terms of go-live targets. We had some delays on our endwe had data clean up
things that we needed to address and so forth. Has a lot of customer data and so had a significant effort to cleanse that data.
These delays culminated in a go-live date of April 2012.
Then, Model N signaled a technology delay from their end. They were questioning whether or not the rebate bucketing and
the chargeback bucketing and so forth was adequate for us to go liveso, we delayed at their suggestion and established a
new go-live date of Augustwhich was ultimately executed.
My sense is that Model N had sent us a signal that, hey, we are not comfortable handling this kind of bucketing. It's quite
intensive on the systemand this is what we learned post go-live In order for the system to operate functionally to manage
the amount of chargeback information that we flow through each day in the company as part of the process, the overnight
batch runs have to run efficientlyand my sense is that they were uncomfortable with that and thats why they signaled to us
that we need some more timethat was the genesis of the delay from April to October.
From a user standpoint, the customer felt that they were ready. Model Ns perspective was that the state of readiness for the
organization to go-live wasnt optimal.
Model N raised the flag a few weeks before the April go-live date.

$8.6M claim put
forward against
Model N

The expenses for system implementations were part of the IT budget. The IT folks came up with a methodology around the
claim and considered factors such as cost of the project internally, the delays associated with the project, ongoing burn rate
on the project associated with the delay. Doesnt know the details.

How did Model
N respond to
the concerns
before the actual
settlement?
Thinks that Model N was taken aback by the claim and the magnitude of the claim. Their response was the delays were
primarily those associated with internal [customers] challenges in implementing the system, state of readiness, state of the
data and things like that.Our position on it was that we recognized that we have some culpability in this as well as an
organization, but underlying that we felt that there were a lot of system performance issues that manifested itselfwe didnt
feel that the system was managing the process as efficiently. The organization had to work around the system as opposed
to the system working around the organization.we did have some culpability but beyond that we didnt feel that the system
was performing well.
Mentions that a big part of it is the complex contracting processes and the big volume of transactions processed every day.
I was concerned that Model N hadnt encountered a contracting system [before]with the sort of complexity and volume
which we have.

Source: Piper Jaffray Due Diligence

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CUSTOMER #1 , CONTI NUED

Are you
comfortable
with the
functionality
that you have
today or at least
the go forward
path laid out for
additional
implementation?
Mentions that since the announcement of the Notice of Breach, it has been an arduous process but the teams have come
together as I expected they would[they have] got together and worked closely in putting together a project plan with
deliverables and, what I consider it to be meaningful outcome measures that would lead us to success. There are a lot of
elements associated with that, but confident that it will get us to an end state thats successful.
Mentions that Model Ns senior management was highly engaged in the whole process and helped in reaching a resolution.
Terminated certain on-the shelf license agreements as a part of the settlement because there seem to be no use for those extra
licenses. On a going forward basis, we would relook at those in sort of a new light to assess their utility.

Usage of Model
N in the future

Assuming success [of the implementation], usage of Model N will increase. It is a very important system for us. And, we
spent a lot of money acquiring it, licensing it, implementing and so forthso, we have a significant investment involved in
this.
Interested in Government Pricing Management module. Currently using a 3
rd
party government contractor. That would be
probably one that has the potential to be revisited, once again assuming success.
Other areas of consideration could be the advanced analytics piece.
Model N will be the preferred choice for any additional functionality. One thing that from an IT standpoint we are trying to
avoid is complexity with different applications. That was one of the fundamental tenets involved with in choosing Model N
to begin with.In the future I would like to avoid any bolt-on new application if we could choose to sort of harmonize on
one system.

Anything else
we should know
The relationship is much healthier today in the wake of our settlement and the new statement of work and so forth. My
expectation is that we are going to be successful at the end of this.there is a high level of commitment on both sides.
From the relationship standpoint, I would say for a period of time it was pretty abrasive, if you willI think we are beyond
that now and in a much healthier place.

Performance
issues

Our perspective on the performance is that the system was not managing the volume and the complexity of our
agreements. E.g. has a complex agreement with one of the GPOs and when the system was updating the contract, it took a
very significant amount of time. Also, during that period, the system was restricted in terms of other functions. So, had to
work around the system.

Experience since
the go-live in
August
Since go-live its been troublingWe had a pretty significant chargeback backlog, as a result of not being able to efficiently
manage the chargeback process. Had a big effort in Q4 2012 to try to reduce it through some manual interventions to keep
the backlog under control. Also, had to do high level estimates on rebates and so forth because the rebate bucketing was not
managed efficiently.
Saw things deteriorate a little bit in the first quarter. That triggered more intense negotiations on both parties to try to end
up with a path forward that would lead us to success. Model N brought in some external people to look at the functionality
as well, and the customer hired some external consultants. The efforts helped to lay the foundation for system improvement
from Model Ns perspective and process improvement from the customers perspective.
In recent days, it has gotten better because of a new build that we put init's been a meaningful performance effort even in
the last week or so.there are a couple of other performance improvement milestones. Moved the Model N solution on to
a new Oracle Exadata platform. Its been troubling but in recent weeks it looks like things are starting to improve.


M
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April 2014

Exhibit 5
CUSTOMER #2
A Medical Devices Company

Role and
Responsibility
VP of IT for commercial applications.
Relationship
with Model N
Spearheaded the model N relationship. Was trying to replace a very weak incumbent commercial pricing system and a fairly
strong compliance or government pricing system. Wanted a single solution.
Went through a very exhaustive selection process that ended with the selection of Model N.
Our success with Model N gives some internal referencable information to the other divisions that also chose to buy the
product. Within his organization, three more divisions currently use Model N.
His division uses Model N only for the US business but another division has deployed Model N in 8 countries and has
integrated it with the respective ERP systems. I think they would have done more countries if we didnt get kind of engulfed
by a large SAP project that required our attention and required us to reintegrate Model N with the newest version of SAP.

More about the
re-integration
process
For the last 1.5 to 2 years, has been implementing SAP EE6. Needed to reintegrate Model N to this newest version of SAP and
had to go through all the appropriate testing and regression testing.
For his business, the SAP implementation coincided with the plan to implement Model Ns compliance module, which got
delayed about six months as a result.
Model N was involved in the SAP integration process as the data from SAP feeds into the Government Pricing calculation in
Model N.

How did
different
divisions within
your
organization
choose to
deploy the
Model N
solution?
Each division needed some autonomy in contracting. First wanted to do more vanilla contracting with a lot of additional back
end customization using SAPs contracts pricing and chargebacks component (CPCC). However, in the phase 0 testing, they
found out that less than 30% of the types of contracts were supported within CPCC and the rest were supported through a
variety of other means. So, it was concluded that contracts for each division were more specific to each business and each
business wanted to get more features. Hence, decided to get separate contracting and pricing systems each connected to SAP,
so that each division can have a more full set of contracting and pricing functionality in the system. As it turned out, we all
chose the same system. We all chose Model N.

Future
engagements
with Model N
Thinks that his division is using all the modules that they need, except reference pricing.
Opportunity for his division will be around international expansion as SAP gets rolled out to the different geographies.
However, it will depend on which region requires a more feature rich pricing system for Model N to be deployed. Mentions
that Germany has a complex pricing framework but UK may not be as complex.
His companys strategy around analytics is to keep it independent of a platform or a single vendor solution. I dont think we
would go through an analysis of RMI [Revenue Management Intelligence] only because we invested quite a lot in Analytics
internally.

Implementation
Process & Issues
Had issues with one of the divisions in his organization. But other than that he doesnt think there have been any issues in the
other four divisions where Model N was implemented.
Thinks that the implementation process for his division was better than most. Will put Model N implementation in top 10-
20% among other enterprise software implementations with respect to scheduled budget, user engagement, and user
satisfactions at the end of a process and during the process. We had some issues but I think I have had issues with just about
any project.
Attributes the success to a good team.across everyone who was involveda good leadership team, a good project team.
A good product always helps and has created very good working relationship along the waya working relationship based
on past successes and trust. I would say, aside from the quality of the software, a good set of people that came together,
and coalesced and worked well together.
Thinks that every division works differently and aspires to have the same kind of dynamic.
Talking about the implementation issues faced by one of the divisions - The dynamic that I mentioned must not have been
there. The combination of the internal IT folks, working well with the user groups, working well with the integrator,
working well with the software vendor somewhere along that line broke down.


M
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April 2014

CUSTOMER #2, CONTI NUED

How does the
escalation
process works?
Has two avenues of escalations. One is to escalate to the head of IT. Other is through the functional boss. My escalation
point would have been [Model Ns senior management]; I would have called him on phone.
Cant think of one instance which was a big deal.
Had some bad performance issues recently due to problems in the testing environment, which were fixed in the next release.
Other disconnect is typically with 3
rd
-party integrators.
The biggest concern I have had in the past 6 months was with SAP.the Model N members of the team helped us get
through.
Is there anything that would prevent you from using Model N or from continuing to work with them? No.

Future spending
with Model N
Once you put in the compliance module, as the government defines healthcare reforms you typically have to make changes.
That in and of itself will probably increase beyond our standard license fees that we are paying. Once you put in government
pricing, you are kind of going all-in.
Other than that might use reference pricing and also might expand geographically.
That speaks to more investments, if Model N continues to deliver.


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Exhibit 6
CUSTOMER #3
A Semiconductor Manufacturer

Role and
Responsibility
Global CIO. Responsible for about $300m of IT budget.
Relationship
with Model N
Relationship with Model N started in 2008. Has been using Model N for Quotation, Pricing Variability and Contract
management, etc.
Mentions that for his company, 70% of the business happens through direct sales force while the rest happens through 3
rd

party vendors. Model N is used for the entire book of business, including channels.
Currently working with Model N to implement Claims Management, Point of Sale management, etc.

How widely is
Model N
deployed?
Model N is widely used and widely deployed.
Has 1,200 sales people and almost all of them are working with Model N functionalities.
Also has 3,300 named users of Model N, with about 2,000+ active users.
Its a worldwide deployment.

Selection
Process
The company was looking for solutions to improve efficiencies around Quotation, Pricing Variability and Contract
Management, etc. Had investigated a couple of other solutions. Model N topped the list of vendors that we contacted.
It was a pretty long pre-sales process, about six months. It was a very technical approach and had a laundry list of business
requirements.
First approach was to look at CRM suppliers to see if someone had off-the-shelf solutions that covered the business
requirements they were looking for. Looked at salesforce.com, SAP, and MSFT, etc. Figured out that no one covered the
business requirements the company was looking for.
Model N was definitely one of the companies with the ability to cover or address most of them [business requirements].
Looked at lots of competitors, but Model N was definitely from a price and functional point of view the best company at
the time.

Before Model N
what were you
using?
Was using certain basic home-made legacy system before getting Model N. Mentions that its in the culture of the company
to try to build out a solution first before thinking about looking at a commercially available option. Was also using SAPs
CRM modules to some extent but it was definitely not sufficient.
Estimates a recurring expense of about $2M a year on running and maintaining these legacy systems.

ROI analysis to
support the
Model N
decision
Mentions that his company is not used to working based on ROI models. The decision was mostly based on business targets
or KPIs to improve a few important parameters such as success rates, win ratio, reduction in cycle time, automatic approval
process and flow and also to have an online and easily manageable list price.

Model N
Contract
Characteristics
Mentions that Model N and his company have a close partnership, in which his company is helping Model N a lot from a
pure business knowledge point of view to develop functionalities specific for them but which could also be leveraged by other
semiconductor manufacturers. So, he got a good deal from Model N.
Initially, a couple of million dollars was put on the table to initiate the relationship. But soon after started developing on this
partnership. So, currently doesnt pay the full license price but shares a part of the development cost.
Estimates the current out-of-pocket dollar value that is paid to Model N as close to a million per year.
I will consider it as a win-win partnership.

Implementation
Process
Doesnt know how the initial implementation was.
Today has more-or-less 4-5 people from IT/Business working with Model N to support the partnership. Has more people
involved when a new release comes out to test and implement, etc.
No system integrators involved in the process. Its a one-to-one relation.

Quality of the
Model N
solution
There [are] good and less good points.
The quality of the business relation in terms of exchange of information, direction, and cooperation is quite positive.
Has pretty good relation with senior management.
Mentions that Model N could improve in the quality of software development. Quality of code is sometimes so-so,
especially during customizations. I would say this is an area of improvement for Model N the quality of code. Thinks
that Model N should move from non-standard coding and develop some specific standards during customizations.
So, far we are pretty happy with the solution. Business stakeholderswere quite bullish with Model N and people are quite
happy with the solution.


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April 2014


Experience with
the Customer
Service
Mentions that he is satisfied with the level of customer service provided globally by Model N so far. The support is
definitely good.
His relationship with senior management is very positive.
The only point where we could finger point a little bit is the quality of software development. Mentions that sometimes
patches have some glitch.
They have a very good listening attitude. They care about our problem and they do the best to figure [out] the problem.
Globally speaking the relation is good. The best proof of it is we continue to work with them. We have extensive work with
them this year and we have plans for next year. We have trust in each other.
Mentions out of the many enterprise software vendors his company works with, Model N is one of the few companies that
his company has developed a business relationship to work together.

Future
engagements
with Model N
Working with Model N to develop much functionality such as design registrations, claims management, etc.
Mentions that his team has ambitious plans for next year.
For the first half of next year he has a budget of $500k to extend the functionality of Model N.

Any other
processes that
can be moved to
Model N?
Mentions that the company is moving to a commercial CRM solution, which will complement Model N.
Model N product is good on some aspects but definitely there [are] other aspects that they dont coverfrom my point of
view, Model N cannot be considered as a CRM kind of tool and we need a CRM.

Who is using the
system other
than the sales
reps?
Has 1,200 direct sales reps who use Model N along with people from various departments such as marketing from different
divisions working on quotes.
Plans to develop an interface between the CRM tool and Model N, since both are very complementary tools.

Do you see
moving out of
Model N after
getting the
CRM system?
CRM will be used to capture ongoing opportunities, will act as some kind of a dashboard to the sales reps to provide
information about where the deals stand in terms of quote achievements, its also a repository of customer information etc.
Model N will be providing other functionality that the CRM doesnt.
Model N has specific things [capabilities] that I believe still todaythat you cant find in a classical CRM, especially
everything around quotation, functionality and the flow.


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April 2014

Exhibit 7
CUSTOMER #4
A life sciences company

Role SVP of global corporate sales.
Relationship
with Model N
He learned about Model N at a conference, back in 2003-2004. His employer decided that they had significant pricing
challenges and issues in terms of protecting their ASP and profitability.
The relationship started as a US endeavor, in which they had 6,600 customers in the US at that point. In addition to that, they
had contracts coming through seven divisions to those 6,600 customers. They had to manage 25,000 contracts, and they were
trying to manage it with pencil and paper, which is not the most effective way to do it. Whether it was about pricing, rebates
or analytics, or however they might want to look at a deal, they wanted to make sure they knew when a deal was coming up
for renewal. We didnt have any automation around that process and we realized that we needed it. That got them into the
market for trying to find someone.
At that point there were a couple of options. There was a vendor called I-Many, which they thoroughly vetted and then felt like
it wouldnt meet their needs, and didnt have a proven track record. Also talked to SAP, because theyre an SAP shop. They
didnt feel that SAP had any deep capabilities on the pricing management side of the business. Then they met Model N, which
was new at pricing management at the time. After a number of meetings, and Model Ns willingness to customize the solution
and work to get exactly what the customer needed, they selected Model N. Long story short, we chose Model N and I feel
fairly safe saying that there are no regrets.
A new CEO recently took over and asked How come we dont have Model N globally? He loves what hes seeing here in the
US.

Which
application do
you use?
Theyve automated everything from the analysis of a deal to applying a pricing strategy. With Model N they built 16 different
pricing strategies. Some are only used two or three percent of the time, and some are used more. It allows them to track
performance compliance. It allows them to do contract management, such as when the contract begins and ends. It also help
them to develop the offerthere are multiple people involved in offer development, and they wanted multiple people to be able
to weigh in on that.
They also use Model N for settlement, which is the system of record for pricing and rebates. For example, if they have a deal
with a [GPO] with 1,400 customer and over $1B in sales, they can automatically settle all of their rebates. A recent audit with
this GPO led them to say that it was the cleanest and best audit theyve ever done of a manufacturer.
The way to think of it [Model N] is, its an automated, systematic pricing and contract management system. It allows us to
not only do the pricing..it allows us to do the deal analysis..it allows us to track compliance, which is a huge thing for us...it
allows to [do the cost] of rebatesit allows us to apply admin fees to GPOs. That can be challenging because we have different
deals with every customer inside the GPO.

Competing
Vendors
In terms of the system assessment, the team came back after looking at the other systems and indicated holes and gaps with the
other solutions. However they werent certain Model N had the required capabilities, even though Model N said it did. They
really believed in the management team of Model N, and frankly the leadership of Zack. Fortunately we made the right
choice.
Internally there was a push to use SAP, but they didnt think it would be very user friendly.
For I-Many there were some questions about that companys viability.
Model N replaced a lot of pencil and paper processes.

ROI Analysis
They didnt go through any type of serious ROI analysis because they recognized that they had a 30% to 35% pricing band
with no real rhyme or reason to it. They felt that if they didnt fix this it would come back to haunt them. So, they knew they
had hundreds of millions of dollars at risk in ASP.
He told his CEO that the pricing problem was serious, and that they were working on a potential solution, and the CEO said
go ahead and do it regarding getting a pricing solution.

Buy all at once
or over time?
Purchased some new capabilities over time, but theyve actually gone to Model N about capabilities theyve needed, and built
these capabilities with Model N. A number of these capabilities have become part of Model Ns capabilities and product
portfolio.
When we identified something we wanted to work on, they [Model N] were usually pretty good about saying okay, lets see if
we [can] figure it out.
These guys blow our mind at how good they are at the stuff theyve done for us.


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April 2014

CUSTOMER # 4, CONTI NUED

Integration
Model N is fully integrated into SAP. Accenture put in SAP, and they dealt with Accenture for putting in Model N.

Implementation
There were people from both his firm, Model N and Accenture to do the implementation.
It took about 18 months to build and implement.
There were roughly 15 to 20 of their own people, and Model N and Accenture provided about 60 people for the installation,
for a total of 80 people on the project, because they wanted to get it done quickly.
There werent any issues on the go-live.
He visited a very big customer of theirs, and pulled out with absolute certainty all the details about the customers purchases,
which is in the hundreds of millions of dollars. He was able to show them where they were delivering in the contract, where
they werent delivering and why they werent delivering. When you can show a customer so much detail your credibility goes
up. You can very quickly pick up business because customers realize they made commitments and they have to fulfill them.
Its a lot easier, instead of raising prices, to go back to a customer and point out an unfulfilled commitment, and most often the
customer will give them the business rather than pay the unfulfilled portion of the contract.
One division discovered 96 of its top 100 customers were not compliant, and was able to get 90 of them into compliance.

Customer
service and
support
Hes not directly involved in this aspect, but if there were a problem he would have heard about it. Everyone believes things
are going reasonably smoothly.
Model N is a very focused, committed organization of very, very bright people. When they tell you theyre going to do
something, they do it.

Future
Potential
Model N
engagements?
They need to get all of their acquisitions onto Model N. However the first step when acquiring a company is to get them on
SAP.
They have two divisions out of seven that arent fully on Model N.
The next step is to get Model N into EMEA.
Not sure where theyll go after EMEA. Maybe Japan or maybe Brazil. That decision is two years down the road.

Incremental
capex spend on
infrastructure
to implement
Model N?
There was some, but it wasnt super heavy. Believes it was closer to $2 or $3 million, but not $10 million.
How strategic
is Model N
versus other
systems?
Each division has a different CRM system, some home grown, some not. But getting utilization from sales organizations is
tough. With Model N, everybody sees value in it, so its an easier sell to the organization.
All customers are set up in Model N by IDN, by GPO, and he can slice and dice the numbers. I can anticipate that when I
find out tomorrow that the Mayo Clinic just gobbled up another 10 hospitals in the upper Midwest, I know exactly what the
implications of that could be to the company, and we can start preparing for that immediately.

Anything else
interesting?
Hes thrilled about how engaged their CEO is with people like me and the head of IS, and our CEO. Hes a tireless worker.
He hires great people.
No one there accepts anything less that getting it done and getting it right.


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Exhibit 8
CUSTOMER #5
A conglomerate

Role Works as the division CIO for his companys life sciences division. His company has six operating line segments.
Relationship
with Model N
Identified a problem about four years ago related to contract management and pricing. They met with consulting firm AMR,
which suggested they speak with Model N.
First met with Model N in 2009, and shortly after that they engaged in an implementation project that has taken about 18
months. That project is complete for a multi-regional deployment for several Model N modules.
Started with a number of modules all at once. It didnt make sense to go one by one.
Spent a great deal of time preparing for the project, even before they met with Model N, to get an accurate understanding of
exact requirements.

Selection
process
Went through a rigorous evaluation process, which Model N won.
The requirements were fairly broad. They narrowed it down to Model N and another unnamed vendor. They then gave each
vendor a script that they had to build a demo against, and that demo took a couple of days. Model N was very good with
them about working through this process. Model N was very reasonable in the process, trying to understand what we
needed, understanding our goals and objectives. Also the manner in which they executed the demos through that process was
very impressive.
We felt very confident in the ability of Model N.
When investing in strategic applications or technologies, the engagements tend to be very long, so customers cant take these
investments lightly.
Deployed price management, contract management, chargeback and distributor agreements, contract compliance, and the
performance analytics tool.

Key areas where
Model N was
differentiated
You really have to map your requirements against the products and how they fulfill the business needs. The key area of
concern for them was around contract management and compliance. Their commercial group, sales people and product line
managers needed a solution.
The other product they looked at did not have a sweet spot around contract management. In fact the other vendor
suggested a dual deployment of both Model N and their product.

ROI Analysis
They will make investments, in some cases, where there isnt a significant compelling financial reason to do so. They made a
decision as a management team to implement Model N as a replacement to a legacy system that was near the end of its life.
To estimate ROI, We took a very conservative swag at margin improvement and profitability for the business, and in the
first year we actually exceeded those numbers by more than 100%.
The entire deployment was about $9.6M, of which about 60% was capitalized and the rest was expensed, and it had a
payback of less than 11 months.
Recently completed their European go-live, and they are looking for a similar payback.
.
How broadly is
the solution
implemented
across all
operations?
The deployment was for North American operations and Europe, which is the equivalent of about 30 countries, four
languages and six currencies.
Theyre also in the second phase of a Japanese deployment, and will soon deploy to China.
Expects to have Model N deployed globally by the end of the summer 2013.
Was the initial
scope of the
deployment
consistent with
what you
expected?
We accomplished the deployment within the original stated budget for the project and we were only 3 months over the
original estimate for deployment time of an 18-month project, so I would consider that to be quite successful as far as IT
deployments go.
Model N was a great partner in that process as were some of the outside implementation and testing partners, like HighPoint.
Size of Model N
team and day-
to-day
involvement
during
implementation?
Had a team deployed at their office during the implementation working with them on a daily basis for 18 months.
Not completely sure of the number of FTEs from Model N working on the project, but there were more than 10 to 15
resources. Sometimes there were quite a few, but depended on the workload and what was going on.
The head of Model Ns implementation group participated in his companys steering team, which oversaw the
implementation. It was one of the best projects Ive ever worked on in my career.

Implementation
partner, similar
size to the
Model N team?
His team was smaller and depended on what was happening in the project. About 25% of the cost of the project was the
implementation partner. They managed the testing process and had resources onsite every day.


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How much of
Model Ns
teams work
was focused on
the tactical
implementation
versus change
management to
adjust your
organization to
the new
system?
He had an internal project team working with Model N. Its a collaborative situation. The internal team would seek out
counsel and advice from Model N. They would engage Model N resources for training, or whatever else was required for
change management efforts.
The internal team was about the same size of the Model N team, but could vary from day to day. Sometimes they could have
as many as 30 people working to get through tasks.

Total
investment into
Model N,
including
implementation
and IT
purchases
The investment included the software purchase, the first year of support, the Model N and [implementation partner]
resources, and his internal IT division, which is a corporate asset which he is charged back for time.
Other employees working on the project that are part of the pricing group, or sales management group, or product line
management, they look at those people doing part of their job with the Model N implementation, and they have to be
involved. It becomes difficult to track their time and spend against investment in the project, so they didnt.
All in, the $10M included the corporate IT resources participating in the implementation, the software, Model N people and
the implementation partner.

Areas for
improvement
During the implementation, they quickly realized there was an opportunity to improve the contract offering process. They
worked with Model N on a customization, which is now so successful that Model N will roll it into the main product for all
their customers. This was one of the tremendous successes of the project. This is typical of software deployments. You dont
really understand the package until you kick the tires and start looking at the gaps between those defined capabilities that you
need and the processes of what the software actually does.
One area that still remains an area of opportunity for Model N is the impact pricing analytics application that they just
recently deployed. His company is on the first generation of this product, and it does need some work. Hes given feedback to
Model N, in which he said its a great start and has extraordinary potential, but its new, and Model N has some growing
pains to work through. But our experience so far has been that theyre [Model N] absolutely committed to doing that. It
works, theres just a little bit of wrinkles here and there. Every customer likely has their own idea of what this application
should do.
.
Which
applications
would you
consider in the
future?
His business is focused on deployments in Asia at this point.
Another division at his firm is considering deploying Model N, and my personal opinion is that they will deploy it. This is in
high tech and would be a completely separate implementation.
The fact that another division within the company is interested in that after our deployment speaks volumes to our
experience as a corporation with Model N.

Future
spending with
Model N
His division is probably looking at $1M to $1.5M a year in investment for support, services, etc. This does not include
implementation for Asia.
He pays Model N to support the implementation on his infrastructure. His company is very particular about where the data is
stored, and it prefers to have it on-premise. There are a couple people in India and in North America working full time to
support his Model N implementation.
He spends about $27M a year on IT in his division.

Customer
service
Model N has a services group that works with his internal IT group. He tracks several metrics in the relationship. If something
isnt right they escalate it with Model N. Hes never had to complain about the quality of support.
This is a partnership because of that notion that youre getting involved with somebody for a very long time. Its quite
difficult to replace Model N in a business thats running.
I really like that fact that I feel like Im a really important customer to them, which I think speaks volumes to the way they
conduct themselves.


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Would it be
difficult to
replace Model
N?
It would likely cost something similar to what theyve spent to implement Model N. You also have to consider that youve
capitalized a material portion of that investment. It could be a very significant financial impact to the business.
Beyond the investment, the effort to train the organization to deal with a new system and new capabilities, and get them to
understand how that system fits within their needs, its a tremendous amount of effort.
The human element to changes in the business is one of the most difficult aspects to the project.

What did you
use before
Model N?
He had a homegrown pricing application. It was completely focused on the contract management process and when renewals
had to happen. It had some unsophisticated workflows to route changes for those contracts if they needed it. They used it for
12 years and it was supported by an outside contractor. It did not scale, however, as the life sciences division grew.


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Exhibit 9
CUSTOMER #6
A pharmaceutical company

Role
Oversees all technology that support the US market in sales and marketing. Has been with the company for 26 years in the IT
organization and has spent 12 years supporting sales and marketing.
How did
relationship
with Model N
begin?
In 2009, when she took on current role overseeing systems in the US market in vaccines and pharma, she was generally aware
that their contracting, rebating and government pricing system was very old, running on mainframes with custom
development. It was reaching a point where the cost of maintaining those systems was high and the usefulness of them had
declined, and they needed to be replaced.
She met with a senior VP at her organization to discuss replacing their system based on her high level of concern on their ability
to continue to modify their systems, and the VP agreed that they should be replaced.
They started to evaluate vendors and other options. Her IT organization wanted to use a technology-based solution, iMany
[now known as Revitas], that competes with Model N and the business wanted to use Model N. Once her company made an
acquisition, the conversation moved to integration from which vendor they would select for rebating and government pricing.
They set up a process for a technology selection and embarked on a deep-dive evaluation on iMany and Model N, but the IT
and business side could still not agree on a vendor. She ended up taking some influential members of her organization to do a
comparison of Model N and iMany, and they returned to her with the conclusion that iMany and Model N were evolving
differently as companies. iMany planned to serve many markets, and they had concerns about their financial viability. They
believed that Model N was very firmly aimed at the pharmaceutical space.
So, she ended up going with Model N. I cant tell you how many times my management, myself and my team have all been
very grateful that we had the fortitude to stand up and say IT is wrong, we should be moving with Model N.

Key deciding
factors in
selecting
Model N
Some core critical factors were her business needs compared to what the technology provided. A very detailed analysis of
capabilities of both software solutions included running conference room pilots, bringing in people from all different areas of
the business to participate in those pilots, etc. It was a very deep review of the functionality.
They had very complicated legacy environments and the goal was to not make any company specific changes, but to implement
the software as is. That predominantly is a driving factor when they select all software solutions.
Second factor was the technology architecture. They wanted to select an architecture that they were comfortable with that
would take them into the future, especially in an area thats so dynamic. Her company has always been a large player in
pharma, but after their merger with another company, it became even more critical to have a solution that would scale and
meet the needs of the volume of business and the complexity of it.
Other factors were comfort level with the company overall, their future viability, their commitment to and understanding of
the pharma market, customer service and a relationship that could be well managed.

What solutions
do you use?
They only have Medicaid up on running on Model N currently. Shes in the process of testing the commercial contracting
software and plans to implement around October 2013. Then theyll move ahead with the government pricing module which is
targeted for 2014. Theyre working on the analytics capabilities from Model N and the goal is to move off of all legacy
platforms in analytics.
Intention is to use the Model N solution for Medicaid, commercial contracting, government pricing and analytics. They will
run all of US pharma and vaccine businesses on this solution.
They havent included animal health or consumer business, but its their intention to include their consumer business.
They have not yet dealt with the idea of seeing if they can leverage this capability globally, but its something they want to look
at.
They intend to use Model N for the complete suite of Model N in their core businesses.

ROI Analysis
It started with a need to replace legacy systems, and then it evolved to not being able to run a combined company because the
current solution cant handle the capacity. The easiest ROI to see was as they implemented better technology solutions, they
can actually reduce headcount associated with the legacy technology, then they could obtain better information about the their
contracting strategy, and then therefore make better contracts.
The most common benefit is improving the rebating accuracy. Its been a rather fluid awareness of all the benefits. The
improvement in reducing rebate leakage was very pleasing to management. They expected a 1% improvement on rebate
leakage, or about $8M a year. But theyve gotten almost 3%, and are tracking from $20M to $25M in rebate savings with the
improved data quality. This was all just in the Medicaid product.
.
Cost to
maintain
legacy system
On an annual basis, they were spending about $7M. This might be doubled with the legacy sharing environment. This is only
the cost of programmers to update the system and make changes to reflect new regulations and ongoing operational costs. It
excludes other costs such as maintaining Excel spreadsheets that business users had created over the years in order to manage
contracts outside the system. I believe we were spending somewhere upwards of $25M in supporting the environment. If you
ask me what I can show you, I can only show you somewhere in the neighborhood of $10M to $14M.

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Product quality
They took the Medicaid product off the shelf and put it in without making any changes. The quality of the way the program
ran was fairly good.
Theres room for improvement, such as in the quality of documentation and quality of their support staff in being able to
triage some of the problems and address them quickly.
Overall the program went very well but they applied a lot of learning from their Medicaid implementation to their commercial
contracting implementation.
Shes finding that Model N has changed things for the better.

Implementation
They organized their business people with a working team of about 50 people for the overall align program for Medicaid
and Commercial. She had everyone define the core and critical functionality of operations they needed the product to achieve.
They worked with Model N to blueprint their needs to Model Ns system.
They had some problems to work out once they completed this process. For Medicaid they didnt make any customizations,
nor did they request that Model N make any changes. They then went through installing the software, loading the data and
performing rigorous testing. They then loaded contracts into the system and then switched over. Medicaid is about 19% of all
their contracts.
The aligned team doing the implementation was about 150 people. The percentage of people working on Medicaid to make it
successful is 50-80%. Blueprinting was for Medicaid, commercial, government and analytics, and took 8 months. Medicaid
was a 3-4 month effort.
They spend about $7M annually on Model N to support the implementation. This was for 2012 and the plan in 2013.

License or
subscription?
They purchased licenses. She doesnt believe that Model N has a subscription offering that could meet her companys needs.
She was approached early on to see if she would partner with a Model N integrator to see if she would do a subscription and
be among the first in her space to do it, but had no desire to do that. Pharma wants to be last, not first.

Customer
service
Were happy with the level of engagement. I can pick up the phone any time of the day on any matter and call Zack, and
Zack is usually well versed, and if hes not, he deals with it quickly.
It was very concerning when we implemented Medicaid, and then when we took an upgrade, some of the things that worked
before now all of a sudden didnt work, and caused us to do a full-scale retest of the product. That cost [us] more money, and
raised a lot of red flags around the quality of their development processes. Weve been very transparent and worked with them
to help them improve it. Were starting to see the results of this improvement.

Competing
Vendors
She took a very brief look at Vertex and they did not come close to what they needed.
It was really only Model N and iMany they looked at.
.
Integration
Model N hasnt yet been integrated with their CRM system, which was a custom system, but is being moved to
salesforce.com.
Model N is currently being integrated with their ERP system (SAP), customer masters, products masters and overall financial
system.
Some of the master data doesnt reside in SAP, so they have some complexity where they need to integrate outside SAP with
master data. They have much more complex integration requirements than many others would.

Roadmap
Globally they try to standardize their IT platforms. So globally theyre prioritizing their CRM, analytics, and marketing
platforms. Then theyll look at standardizing their contracts platforms.
In 2014 theyll likely start evaluating their global needs of contracting, and speak to some others whove implemented Model
N globally. Theyre also rolling out SAP globally; theyre just in a few markets now. As they get success with SAP theyll be
able to roll out Model N more globally.


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Model N
versus other
software
companies
shes worked
with
Has worked with Oracle, Microsoft, SAP, Viva (pharma that sits on salesforce.com), and IBM.
She has a higher comfort level that Model N is trying to understand her companys challenges and how best to work with her
company, not the other way around. She expected this to change eventually, but it never did.
I am very comfortable with the choice we made and would be very uncomfortable if wed made another choice. We have to
be successful in this partnership and I dont feel I have to work very hard at it.
I feel like Model N works harder than I do in maintaining the partnership.
Their capabilities are leading edge, but theyve been able to make our required changes, to meet what Im going to tell you is
more complex than most of our competitors, and theyve done it very well.
.

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Exhibit 10
CUSTOMER #7
A software company

Role
VP of worldwide customer operations. Primarily responsible for sales operations and all aspects of customer facing operations,
which include sales, services and customer support.
How did your
relationship
with Model N
develop?
One of the groups in his organization manages the deal desk for his sales reps when they do large transactions. One of their
pain points was that when theyre in a sales cycle, the reps dont have good visibility into the workflow of the entire sales cycle
as to who internally has the paperwork, and when. The pain comes along when youre doing 1,500 large transactions per
quarter and having over 1,500 sales reps. Most companies like NetApp, Microsoft, and Oracle, all manage this process
through emails and some partial automation.
So they embarked on a cutting edge project to look how to automate, starting with the CRM system where a rep can initiate a
request for a large transaction and from soup to nuts how could they manage a deal in an automated way with workflow. And
if they did that, what sort of visibility could they give their sales reps? How much could they reduce the sales turn time from
customer interest to deal closure?
There didnt seem to be a lot of vendors getting into this niche. They realized theyd have to find a vendor with specific
workflow engines as well as the analytics capabilities. They were able to identify two companies in the marketplace, through
Deloitte, one was Vendavo and the other was Model N.

Implementation
Deloitte helped them with the implementation, but was unhappy with the level of knowledge that Deloitte brought to the
table. There are not many vendors that have the skillset to implement Model N solutions.
They had Model N folks directly working with them. After they got into more of the scope discussions, they had more Model
N than Deloitte people working on the project.
Model N was fairly close to their estimate regarding the cost of implementation. Model N was off by about 20%, but in
fairness to them I think it had to do with some of the scope creep.
The implementation was split into two phases. They planned to implement the workflow and analytics piece at the same time.
However when they began the workflow piece they started to realize that the software customization was so unique that they
wouldnt be able to do a simultaneous implementation.
The total cost was $10M, which included Model N professional services, the companys own customization work, and
Deloitte. Some of this is from their internal IT. This is in addition to the cost of the license and maintenance.

Which
applications
have you
implemented?
So far they have the workflow product implemented, which they customized. The next implementation will be for analytics.
They started with workflow as a pilot in two regions, but currently has it rolled out on a worldwide basis and across all large
deal businesses.
They looked for companies with a robust and proven workflow engine, as well as deep analytics capabilities.
Hes not aware of any other Model N solutions that hell need to implement at this point.

What processes
did you use
before Model
N?`
They had workflow templates for the big deal process, but it wasnt true workflows. Most of the math done to structure the
deals was done in Excel and communicated via Microsoft Outlook. For the entire process, except for a contract management
function which was taken care of by a SaaS-based contract management system, they really didnt have any core automation.
To start a transaction he would open an Excel template, fill it out by the deal desk people, and from there they would attach it
to an email and send it to legal and finance, etc. If at any given point in time the sales rep wanted to follow up with the
customer on the deal progress, it was a guessing game and created a lot of frustration, but thats how the process worked
before.
Now that the process has been automated hes been able to reduce staffing of his deal desk by 70%, and hasnt had to add
anyone else.

ROI Analysis
They went through a very specific methodology using the deal scoring value which comes with the analytics part of the Model
N solution. The analytics capability of Model N looks at deals coming in for approval and examines the dynamics of the deal
(discount, term, etc.), the deal scoring engine will prompt the rep with something like saying only 2% of the deals being
submitted are similar based on the characteristics of your deal, do you want to submit this or do you want to push back on the
contract?
He doesnt feel comfortable going into specific dollar amounts. I can certainly say it was well over 8-figures in terms of
savings we expected, in terms of reduced discount savings as well as efficiencies savings by shortening the sales cycle.


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Quality of
Model N
solutions
Its a good product from a software industry perspective. Theres a lot of new capabilities that they need to introduce into
their product that do not exist today. They have customized the solution to include those features, and Model N is actively
trying to work these customizations into their core code, and their ability to incorporate this could influence their success in
the software business.
The workflow engine coupled with the scalability and reliability of the tool, combined with the pricing analytics engine is
probably the most valuable part of the application.

Mission
Critical
In their September quarter Model N went down for a day, and he got calls from everyone in every geography asking him what
was going on. Its a very mission critical solution.
Its integrated with salesforce.com and theyre in the processes of integrating Oracle ERP. Deals will flow right from Model N
to Oracle once those deals are closed, which will save 80-90% of the input time, which was typically 35 to 45 minutes per large
deal. He expects the time to be reduced to five minutes.

Cost of Model
N
Purchased a license model and spent about $2M on the license fee. It covers roughly 1,000 licenses, and they could potentially
buy another 400 at the end of their three-year contract. Sales reps, sales managers, or anyone who has access to deals on a day-
to-day basis has a copy of the license. This includes members of the financial and legal teams.
Just upgraded support to 24x7 support because of the mission-critical nature of the application.
Annual support is about $300,000, and might be another $200,000 for the upgraded support level.

Improvements
Theyre definitely a 1.0 company from a software business perspective.
A lot of the customization this customer has done is not supported by Model Ns support contract, and this has to be
covered by Model N. Model N needs a lot more people in their professional services organization.
If they do foray into the software business theyre going to have to make some of the customizations that we have done more
core into their product. Otherwise theres no solution out there in the industry thats targeted to solve this business problem.
Theyre in the process of having this conversation with Model N to seek the changes, and thinks if Model N doesnt include
some of these customizations theyd have a problem expanding further in the software space. It all depends on how serious
they are about the software industry.

Does Model N
give you a
competitive
advantage?
I think so. For sure.
He believes that software competitors will absolutely adopt Model N over time.
Everyone whos got a software business out there with transactions greater than $100,000 will need to use this solution.
Otherwise theyll be carrying additional cost as a business and missing out on true value that they can get.

Customer
Service Quality
I think the service overall has been very, very good but we also had a very high level of visibility with Zack, the CEO. So
anytime we asked for something we always got it.
They [Model N] are definitely, incredibly accommodating.
One thing worth mentioning is they [Model N] have definitely made us feel very important. They have gone way beyond, in
the last year-and-a-half, to build a direct relationship with me, to make sure that my needs are met. I appreciate that a lot.

Workflow
Say a sales rep is getting ready to do a large deal with his customer. Hes putting in a quote. He opens up his salesforce.com
opportunity for that customer. In that opportunity theres a Model N button. When you press that button it launches Model N
immediately and opens up a large deal template and pulls in data to populate all necessary fields, and then it comes up with a
pricing configurator. From there the rep goes through a step-by-step process to fill out a 25-line questionnaire with deal length,
non-standard requests from the customer, etc. Once that has been filled out and submitted, Model N will come up with the
total proposed price of the contact, with discounts and other terms. Once the rep is comfortable with all the components of the
contract he can submit the deal for approval. Once submitted for approval the rep can see to whom the contract will be sent
for approval. This is a very custom-driven workflow depending on the types of discounts, non-standard terms, etc. The rep
can monitor at any point in time who has the deal, where the approval stands, so they know exactly who to call if they need to
speed something up in the process. The system has a feature that will trigger an escalation if someone hasnt approved
something in a 24-hour period.
All the approvals are done in Model N. The contract management has been customized so that legal language can be added to
or deleted from a contract. From legal the contract is sent to finance for review. The contract then goes from draft to final
proposal, and the reps are allowed to take that and present it to the customer.


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J a n u a r y 3 0 , 2 0 1 4
NetSuite, Inc. (N) Neutral
Partner Interviews Suggest Steady Channel Growth, Good Product Advancements
PRICE: US$105.33
TARGET: US$92.00
12.9x EV/CY 2014 rev estimate ($200m net
cash, 76.4m s/o)
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$92.00
FY13E EPS US$0.25
FY14E EPS US$0.26
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with five partners in the NetSuite ecosystem to
provide a comprehensive view into NetSuite's channel. Key highlights include: 1)
NetSuite's trajectory has not decelerated for channel partners, with some partners
noting outperformance in their NetSuite practice relative to expectations and prior
fourth quarters; 2) Our contacts relayed the first indications of interest from their
customers in TribeHR, whose acquisition was announced by NetSuite in October;
3) Contacts pointed to continued increases in deal size, partially aided by a price
increase in 2013 that deters smaller customers; and 4) NetSuite has been careful with
its SuiteCommerce roll out, and recently began allowing partners to sell it. We expect
NetSuite's top line will remain on a consistent trajectory in the high 20s/low 30s. Neutral,
$92 PT.
Notable Quotes:
I would say it was one of their better quarters based on my experience over the last
couple of years.
Talking about TribeHR, we have a lot of customers asking about that
There is nothing that I see that says they [NetSuite] are slowing down. I still see them
continuing on the same relative growth path. Still see the product maturing more. Its
all good stuff.
From my standpoint I can tell you the deals are getting bigger.
If [demand] is changing Id say its for the better...
...a lot of pent-up demand from people that are running on systems they put in during
the late 90s.
I think NetSuite did really good, thats just my perceptionEverybody that I know
in NetSuite made their numbers and were in the accelerator areaI think they had
a good quarter.
Reports that NetSuite is taking a lot of the functionalities of OpenAir and building
it into the core product.
Lower churn, better than expected earnings, improved competitive positioning
NetSuite is a leading on-demand ERP provider.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
69.3 74.7 79.8 85.0 308.8 26.1x
91.6A 101.0A 106.9A 111.0 410.5 19.6x
118.2 129.3 136.4 144.3 528.1 15.2x
0.06 0.06 0.08 0.06 0.26 NM
0.04A 0.05A 0.09A 0.07 0.25 NM
0.05 0.05 0.09 0.07 0.26 NM
Non-GAAP EPS, which is untaxed.

N
April 2014
J a n u a r y 3 0 , 2 0 1 4
Industry Contact 1 (+)
It was very fever-pitched towards the end of the year as you can imagine.
I would tell you the [deal close] rate was probably 50% or better, from what I could tell.
He notes that this is a lot higher than usual.
Talking with some of the sales reps in the SaaS ERP ecosystem, I think it went very well
for them.
I would say it was one of their better quarters based on my experience over the last couple
of years.
He observes that Workday and NetSuite live in two different worlds and that there is
no competition between the two. He occasionally talks to a colleague running Workday
Financials and he is not enamored with the thing. He reports theyve been having issues
for over two years with Workday Financials, and that they think its limited in terms of what
it can do.
From my standpoint I can tell you the deals are getting bigger. He notes theres still less
emphasis on smaller deals, although he thinks theres a lot of opportunity at a lower level,
but moving towards bigger deals is better for pricing stability. He also sees that the discounts
NetSuite provides now are not nearly as large as they were two years ago.
He also believes that the fear of the cloud is not there anymore for organizations putting
financials into the cloud. Theyre looking at functionality versus functionality, and Many
times over NetSuite wins.
He doesnt see any real SaaS threats to NetSuite from a competitive standpoint, but
mentioned Intacct. They have a good handle on things, but theyre still, in my mind, a mix
between Great Plains and QuickBooks for the cloud. So even that offering is not as capable
as what you can get out of NetSuite in terms of reporting, functionality, flexibility, partner
ecosystem, etc.
My [NetSuite] business has been doubling [for several years]. He expects that his growth
in 2013 will come out at about 80%.
The systems NetSuite replaces are all over the place. These include old Unix systems, old
Microsoft implementations, Sage, QuickBooks, a big variety. The catalyst for replacement
is that an existing system doesnt work or its a startup and they want to start fresh.
The company hasnt done any price increases since early 2013. This weeds out the smaller
customer for sure, but its in line with the go-to-market strategy of the company.
OneWorld is really the thing that gives NetSuite a competitive advantage. Theyre adding
industry-specific functionality, but OneWorld still remains the primary differentiator. In
order to do the same thing with any other product you need a reporting tool on top of your
system. OneWorlds ability to run multiple company subsidiaries with multiple currencies
is super important.
I think youre going to see a lot more of [SuiteCommerce] this year. SuiteCommerce
doesnt have a pure competitor, maybe Magento is close, but its not as tightly integrated.
Thats the value of SuiteCommerce, the out-of-the-box integration with NetSuite. Magento
would have to connect to Microsoft, Sage, and even NetSuite. We connect Magento to
NetSuite all the time.
Industry Contact 3 (=/+)
There is nothing that I see that says they [NetSuite] are slowing down. I still see them
continuing on the same relative growth path. Still see the product maturing more. Its all
good stuff.
Based on his conversations with sales reps [in the cloud ERP ecosystem], thinks that they
are feeling positive coming off of Q4. I would expect they will come out as they said
they are going to come out or better.
Mentions that NetSuite was touting about a SuiteCommerce deal with Williams Sonoma
a few months back but outside of that, hasnt heard much. Adds that about 3 months

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April 2014
J a n u a r y 3 0 , 2 0 1 4
ago, NetSuite opened up SuiteCommerce for partners to sell and implement. Indicates that
NetSuite is still cautious about who they sell it to.
Indicates that he likes what NetSuite is doing in the ecommerce area, especially in terms
of back end fulfillment in manufacturing and distribution. Adds that he thinks there is
more that needs to mature in terms of functionality for large companies. We are confident
that they will get there.
Hasnt seen Workday Financials coming up against NetSuite.
Was on plan for Q4 for his NetSuite Practice.

His relationship with NetSuite is good. I think theyre starting to get to the point where
its pressing the mid-market as far as the price-value point goes, but theres still plenty of
good market opportunities related to the product at this price point.
He notes their recent couple of increases in prices have diminished maybe some of the lower
to mid-market type customers.
He reports that if a company is below $50M in annual revenue, the NetSuite pricing can be
a little steep, but above that revenue threshold the pricing is quite acceptable. He thinks
NetSuite is trying to go up market while adding new value. He notes that customer losses
at the low end are coming because NetSuite is pricing itself out of the lower-end market.
Regarding demand, If [demand] is changing Id say its for the better. I think theres a lot
more acceptance of cloud-based applications in general. I think that NetSuite continues to
become more compelling both from a feature set side as well as cloud acceptance point of
view for general ERP.
He reports that in Q4 for his NetSuite practice, we did better than expected.
He observes that were starting to touch the tip of the Y2K replacements. He thinks its
typically 7-10 years before organizations change out an ERP system, but that point in time
is when we entered the recession in 2008, so theres a lot of pent-up demand from people
that are running on systems they put in during the late 90s. Theyve either outgrown these
systems or they arent current and theyre looking for a new solution.
Talking about Q4, I think NetSuite did really good, thats just my perceptionEverybody
that I know in [the cloud-based ERP direct sales ecosystem] made their numbers and were
in the accelerator areaI think they had a good quarter.
Thinks that the SAP Business ByDesign debacle has helped NetSuite, referring to a few
customers who went with SAP and now are coming back for NetSuite and regretting their
initial decision.
Reports that until now he has never seen Workday in the bakeoffs. I see Intacct more than
I see Workday.
Talking about TribeHR, we have a lot of customers asking about that and he is very
hopeful of the success of that solution. Adds that it has not been fully rolled out yet.
Reports that NetSuite is taking a lot of the functionalities of OpenAir and building it into
the core product. Thinks that it would make it easier to sell and make NetSuite a stronger
Package as compared to dealing with two applications connected via APIs.
They seem to be taking good care of their channel partners.
His overall business grew about 25% y/y, but my NetSuite growth was 200% [off of a
very small base]...definitely our fastest growing piece of the business. The number of
consultants for his practice also doubled in a year.

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April 2014
Oc t o b e r 2 4 , 2 0 1 3
NetSuite Q3 Preview: Deep-Dive Partner Interviews Show Good Fundamentals
PRICE: US$105.77
TARGET: US$88.00
12.9x EV/CY 2014 rev estimate ($186.1m
net cash, 76.1m s/o)
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY13E EPS US$0.26
FY14E EPS US$0.42
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
60
50
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with four partners in the NetSuite ecosystem to
provide a comprehensive view into NetSuite's channel. Key highlights include: 1) resellers
still see strong demand, with some partners noting their growth rates into the 50%
range, and one partner indicated that The issue that I have is ramping up our services
department so that we can keep up with the demand.; 2) NetSuite continues to see large
deals, with one contact reporting a seven-figure deal, and another seeing "solid six-sigure
deals"; 3) Pipelines remain strong going into Q4; and 4) SuiteCommerce is still being
rolled out at a slow pace in a controlled way to ensure the success of implementations.
Bottom line: in our view NetSuite is likely to post upside to estimates and could guide
mildly higher, but we believe this is factored into the current valuation. Neutral, PT from
$77 to $88.
Notable Quotes:
(+) Talking about the Q3 performance of his NetSuite practice, one partner stated
good quarter, probably our best quarter.
(+) The issue that I have is ramping up our services department so that we can keep
up with the demand.
(+) Another partner reports that last month he closed the biggest deal that we have
ever done in the history of the company a 7-figure 3-year deal.
(+) The demand momentum is still the same.
(+) We had our best ever quarter by a fair bitIt was really good even though it
tends to be the slowest quarter of the year
(+) Referring to the pipeline going into Q4, a reseller indicated its strongwe are
being much more selective in what we are choosing to pursue.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
69.3 74.7 79.8 85.0 308.8 26.1x
91.6A 101.0A 105.1 109.8 407.5 19.8x
114.9 124.0 129.9 135.7 504.5 16.0x
0.06 0.06 0.08 0.06 0.26 NM
0.04A 0.05A 0.08 0.09 0.26 NM
0.11 0.09 0.12 0.11 0.42 NM

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April 2014
Oc t o b e r 2 4 , 2 0 1 3
Talking about the Q3 performance of his NetSuite practice, good quarter, probably our
best quarter. Saw 50% y/y growth, although not sure how much of that correlates to
NetSuite since the outperformance in his business could be because of his own marketing
efforts.
Half of the deals he works with have an e-commerce component, mostly with the legacy
NetSuite e-commerce product. Mentions that he is doing a rollout of the new e-commerce
product [SuiteCommerce] right now.
Based on his conversations with the sales reps [in the cloud ERP market], if he thinks the
reps are happy coming of the quarter yes, I think sono bridge jumpers.
Hasnt seen any marquee 7-figure deals in Q3. Just good solid 6-figure deals.
Referring to the pipeline going into Q4, its strongwe are being much more selective in
what we are choosing to pursue.
Referring to NetSuites capabilities in the manufacturing area, the product still has to
mature more, I think, before they can really kick it into gear.
Industry contact 2
We are doing really well on the sales side.
Reports that last month he closed the biggest deal that we have ever done in the history of
the company a 7-figure 3-year deal:
They agreed to make the commitment for the first three years upfront.
Adds that this deal mainly comprises of NetSuites new usage based billing
module that competes with Zuora. Thinks that this deal was also NetSuites largest
deal as well in that module.
Thinks that the client looked at Zuora, but NetSuites integrated platform and single
data model trumped.
Indicates that this deal was about 5x bigger than the previous largest deal.
Indicates that excluding the large deal, he added an additional net new customer in Q3 and
hopes to add two more net new customers in Q4.
The issue that I have is ramping up our services department so that we can keep up with
the demand.
Pipeline is still looking quite wellwe definitely should double over what we did last year.
Based on his conversations with his sales exec [in the cloud ERP market], mentions that he
seems to be pretty excited.
Industry contact 3
For his NetSuite practice, we had our best-ever quarter by a fair bitIt was really good
even though it tends to be the slowest quarter of the year Talking about some of the
products he sells in the NetSuite ecosystem, demand is just growing higher and higher,
which is great to seewhich is indicative of the larger NetSuite space.
Based on his conversations with the sales reps [in the cloud ERP market], sensed that there
are lots of large deals that closed. Certainly think so that sales reps [in the cloud ERP
market] are happy coming off the quarter. Mentions that since the end of the quarter, he
has not heard anything negative except one person who told him that some of the deals got
pushed out to Q4.
Characterizes the SuiteCommerce product as still a work in progresslot of re-

architectureand its slow and the number of customers that they have [live] is still a very
small number in SuiteCommerce Advanced. Mentions that NetSuite is closely guarding
the SuiteCommerce product and it is not broadly open for partners to sell. Explains that
partners are allowed to do one project on SuiteCommerce Advanced and only after NetSuite
approves the quality of that project are partners allowed to take on additional projects.
Thinks no partner has yet completed any such projects.

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April 2014
Oc t o b e r 2 4 , 2 0 1 3
Industry contact 4
Relationship with NetSuite is fairly new and he notes that Were doing well with NetSuite,
were still happy with them.
Price Target $88 = 12.9x (was 13.9x) EV/CY 2014 rev estimate ($186.1m net cash, 76.1m s/o). Lower
multiple reflects roll forward to calendar 2014 basis from calendar 2013.

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April 2014
J u l y 2 5 , 2 0 1 3
Deep Dive Partner Interviews Suggest Solid Pipeline
PRICE: US$94.29
TARGET: US$75.00
13.9x EV/CY 2013 rev estimate ($172.6m
net cash, 77.5m s/o)
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY13E EPS US$0.26
FY14E EPS US$0.36
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
50
40
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with five partners in the NetSuite ecosystem to
provide a comprehensive view into NetSuite's channel. Each of our contacts offered
positive feedback. Key highlights include: 1) Deals are starting to get "much bigger" with
pipelines composed of "good sized deals"; 2) Partners are seeing services lead flow from
direct NetSuite reps, who do not get paid when they give services work to consultants,
meaning that internal sources are likely completely utilized, indicating strong deal flow;
3) pipelines look robust, "The funnel going forward is looking very strong...", although
some partners note that it can be seasonally harder to close deals during the summer;
and 4) the April price increase doesn't appear to be materially disruptive thus far, and
might be providing uplift on renewal prices. Partners remain bullish, and expectations
for NetSuite are high. Neutral, $75 PT.
Notable Quotes:
(+) Its continued more of the same good direction and strong interest people are
not just talking, they actually are taking action [by investing in NetSuite].
(+) Have been extremely busy with NetSuite implementations.
(+) we are continuing to see strong demand and continuing to see NetSuite move up
market.
(+) The funnel going forward is looking very strongThe funnel is filling up really
fast with really strong potential opportunities.
(+) We have seen more of that activity [services lead flow from direct sales reps] in
the last quarter than we did initially.
(+) SuiteCommerce continues to be a compelling reason to go the NetSuite

direction.
(+) I expect it [NetSuite] to be a bigger part of our new business sales, absolutely.
(-) New business was kind of slow for us in Q2.
(-) its hard to get momentum for new projects in the summer
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
69.3 74.7 79.8 85.0 308.8 23.1x
91.6A 100.3 103.1 109.8 404.9 17.6x
109.1 118.9 120.5 128.3 476.8 14.9x
0.06 0.06 0.08 0.06 0.26 NM
0.04A 0.02 0.09 0.11 0.26 NM
0.08 0.10 0.09 0.10 0.36 NM

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April 2014
J u l y 2 5 , 2 0 1 3
Detailed Feedback Industry Contact 1
I do believe demand and demand interest in NetSuite remains highit is more accelerating
than decelerating Its continued more of the same good direction and strong interest
people are not just talking, they actually are taking action [by investing in NetSuite].
However, adds a caution that its hard to get momentum for new projects in the summer,
especially in the Midwest.
With respect to Q2 performance for his NetSuite practice, we had a better quarter than
last quarter increased business [this] quarter compared to the last quarter. A few deals
slipped in Q1 for his practice and were closed in Q2, which acted as an additive gravy on
top of the organic Q2 performance. We are going to be consistent with NetSuites growth
for the year.
Referring to mid-market and upper mid-market deal sizes, we are continuing to see strong
demand and continuing to see NetSuite move up market.
Referring to deals that closed in Q2, two are very heavy SuiteCommerce, while another
had a pretty strong component of SuiteCommerce as well. Adds that these were
competitive deals against disintegrated ecommerce and ERP versus integrated. Mentions
that SuiteCommerce continues to be a compelling reason to go the NetSuite direction.
feel good coming off the quarterI will be shocked if there is a negative surprise.
Mentions that he is optimistic about the growth of his NetSuite business for the year.
Industry Contact 2
Have been extremely busy with NetSuite implementations.
Certainly for us it [demand] is trending up, although adds that its a fairly new
partnership. Managed to do three deals in the first year of the partnership.
The funnel going forward is looking very strongThe funnel is filling up really fast with
really strong potential opportunities.
We are having to struggle keeping up with just the demand in actually going out and really
addressing all the opportunities that are popping up.
Mentions that he was absolutely above plan for Q2.
Based on his conversations with sales reps [in the cloud ERP ecosystem], thinks that sales
reps are happy coming off the quarter.
Mentions that direct sales reps dont get compensated for outsourcing services work to
external vendors / partners and hence uses them only as the means of last resort. So, the
uptick that he has seen in services lead flows from direct sales reps [in the cloud ERP
ecosystem] indicates to him that the internal professional services group is tapped out,
which would indicate strong deal activity. We have seen more of that activity [services lead
flow from direct sales reps] in the last quarter than we did initially.
In the first year, he built out his practice to a couple of million dollars in services fees, which
was double of what the firm was expecting to do, with very little marketing push. Hoping
to double up on that this year.
Doesnt see Workday at all in the competitive space. Mentions that when Workday comes
up in conversations with clients, its still as an HCM play. I have never heard it mentioned
in the realm of serious considerations for financials. I think they have a ways to go, 5 years
maybe.
Industry Contact 3
The user conference was a positive catalyst for his business.
Recently met with an employee from NetSuite in charge of the support group and he said
that NetSuite is starting an internal group to help NetSuite partners with their existing
installations of NetSuite. This employee has been very busy going all over the country
helping partners with implementations and optimizing whats been put in place.

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April 2014
J u l y 2 5 , 2 0 1 3
Deals are starting to get much bigger. Its taking longer to close some deals because they
are bigger, but the deal flow, at least in the Southeast and Midwest, is composed of good-
sized deals.
The price increase is mostly impacting the smallest companies, the 10-to-30 user sized
operations.
Hes in the midst of implementing NetSuite at a healthcare facility that will eventually have
between 300 and 500 users. He thinks the deal was for about $300,000 in software, but thats
only for 175 users to begin with. The deal value could double or triple in size once software
has been deployed to all users. This is the first really large-sized healthcare deployment of
NetSuite that hes aware of.
The only company thats currently undercutting NetSuite in terms of pricing is Business
ByDesign from SAP. Theyre giving it away, but I still dont think its going very well. Im
not saying theyre not going to get there, but theyre not getting there by the end of this
year, thats for sure.
Industry Contact 4
Mentioned that he had a good quarter for his NetSuite practice. Recurring subscription
revenue for his practice grew almost 100% y/y, with 100% client retention.
New business was kind of slow for us in Q2. But refers to several large deals on track to
close in Q3. We are real happy with our pipeline and things look good. His formal plan
is to grow the business 50% this year, with a stretch goal of doubling it.
Based on his conversations with sales reps [in the cloud ERP ecosystem], mentions that
his contact, who primarily focuses on a certain geographic territory outside US, was very
disappointed and had a poor quarter.
Mentions that the price increase, that went into affect the beginning of last quarter, is
causing all the renewals to be signed at a higher rate (5-12% higher). We have done all our
renewals at a 10% increase. Another corollary is that some of his clients are committing
to longer contracts to have price stability and lock in the current renewal rates.
Industry Contact 5
Still seeing some good momentum for NetSuite.
The pricing change that began in Q2 has negatively impacted smaller customers, referring to
customers with less than $20M in annual revenue. Based on these price increases he expects
ASPs to rise, however.
Going forward I expect it [NetSuite] to be a bigger part of our new business sales,
absolutely. Were committed to the product line and looking forward to continue to grow
that business unit.
Also in the midst of hiring additional sales reps and deployment personnel for his NetSuite
practice.
Price Target PT = $75, 13.9x (was 12.9) EV/CY 2013 rev estimate ($172.6m net cash, 77.5m s/o). Higher
multiple reflects higher peer group multiple of 13.9x.

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April 2014
Ap r i l 2 4 , 2 0 1 3
Revised: Q1 Preview: Significant Price Increase April 1st; On the Uptrend
PRICE: US$80.11
TARGET: US$65.00
11.8x EV/CY 2013 rev estimate
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$65.00
FY13E EPS US$0.26
FY14E EPS US$0.34
Yield 0.00%
Fiscal Year End Dec
* Price as of the close April 24, 2013
90
80
70
60
50
40
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with 10 partners in the NetSuite ecosystem to provide
a comprehensive view into NetSuite's channel. Eight of the 10 partners offered positive
feedback, while two were neutral. Key dynamics include: 1) NetSuite implemented a
significant price increase on April 1 which potentially accelerated some deal activity
into March; 2) positive assessment of Q1 and the 2013 outlook, with partners very
capacity constrained; 3) NetSuite's ability to replace aging, on-premise applications,
with multiple contacts citing both SAP or Oracle replacements; 4) the head of Sales
change feels like an overlooked risk factor for NetSuite, while contacts feel the company
is behind on hiring as of April. Bottom Line: Field work suggests a solid uptrend for now;
NetSuite is cloud, but economically-sensitive cloud due to the complexity and duration
of ERP deployments. Neutral, $65 PT.
Note: this revised report truncates and eliminates certain comments.
Notable Quotes:
(+) NetSuite did another major price increaseon April 1Thats what pulled a
whole lot of business into March. I think you are going to see very strong Q1
numbers because of that [price increase].
(+) That piece of our business [NetSuite] is just growing a lot because NetSuite is
really the only product out there that has all this capability [SuiteCloud], and its
phenomenal.
(+) They [NetSuite] actually closed a few very large deals.they are really excited
about what is happening with them in the marketplace.
(+) A customer is actually replacing their whole PeopleSoft/Siebel with NetSuite...
(=) SuiteCommerce: Its a very compelling solution. I think NetSuite is still trying to
figure out how best to price it, what if their services are required vs. partner services
and so forth
(-) Continued strong interest in NetSuite solutions in companies making technology

changes but noticeable delays or caution in actually pulling the trigger.
*** SEE PAGES 2 THROUGH 7 FOR DETAILED FEEDBACK ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
69.3 74.7 79.8 85.0 308.8 19.5x
90.4 95.3 101.8 109.8 397.3 15.1x
107.7 112.9 119.0 128.3 467.9 12.8x
0.06 0.06 0.08 0.06 0.26 NM
0.03 0.05 0.09 0.10 0.26 NM
0.08 0.08 0.09 0.09 0.34 NM

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April 2014
Ap r i l 2 4 , 2 0 1 3
Thinks that NetSuite is on the uptrend. Mentions that, in the last 4 months, he has seen a
significant demand trend.
Thinks that the core ERP market he is seeing develop is a very different market from what
they were serving last year.
Mentions a customer who implemented SAP in one of their business divisions and
they have three other business divisions, is now considering to implement a cloud
ERP solution instead, potentially NetSuite.
Mentions another customer, a large industrial manufacturer, who is contemplating
going the cloud ERP route for one of its division. Adds that the division spans across
35 countries and currently uses Microsoft, Oracle, AS400 applications.
Thinks that SuiteCommerce is getting some traction but thinks that it is struggling when
competing against some of the best-of-breed companies.
Refers to a Life Sciences company which wanted to implement an ecommerce
platform and had a bake-off including NetSuite SuiteCommerce, Hybris,
Demandware etc but NetSuite couldn't compete with the other best-of-breed
solutions.
Mentions that from a usability standpoint, the user experience is higher for some of
the best-of-breed products as compared to SuiteCommerce at this point in time.
Thinks that the Workday Financials is not mature at this point in time for large customers,
but adds that they could be critical in the next 6-9 months.
Thinks that the first two months of Q1 for NetSuite were very bullish.
Refers to a wall-to-wall deal in the insurance sector which comprised of the core
financials, order to cash and SuiteCommerce. Mentions that it was about a 500 seat
deal and a potentially million plus opportunity for NetSuite.
Also, refers to a deal in financial services which is implementing core financials
globally. Mentions it could be about half a million dollars in recurring revenue for
NetSuite.
Thinks that NetSuite is investing heavily around manufacturing. Adds that NetSuite hired
a person from SAP last year who is focusing on that effort.
Mentions that NetSuite is capacity constraint in terms of sales distribution.

Industry contact 2
He usually gets a lot of reference calls from NetSuite, but he hasnt gotten as many lately.
He perceives this as positive because he believes NetSuite doesnt need him to help close
deals as much anymore.
Organizations are adopting this stuff [NetSuite] more easily. I dont think theres a lot of
the angst, if you will, that probably existed before.
In talking to a few colleagues [in the cloud ERP ecosystem], theyre not having a bad
quarter.
Business is strong. I can barely absorb everything I have thrown at me right now. Thats
not a bad situation. NetSuite starts reaching to me when they get completely inundated and
backlogged [with services work].
Hes getting calls from NetSuite to do implementation work, help out on deals, etc.
Price changes:
The price increase, in most cases, new customers coming to the door dont even
know theres a price increase. This issue is that customers that dont have a contract
locked in for several years will see the price increase. Existing contracts have a clause
that limits the annual price increase.
I suspect it could have some impact, but my perspective on that is you have people
wanting to go to the cloud now. They dont know any better, but if you can be
competitive relative to the on-premise offerings, I dont see it as a really big deal,
frankly. Maybe instead of selling 10 deals you sell 8, but from a revenue standpoint
youre still ahead.

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April 2014
Ap r i l 2 4 , 2 0 1 3
SuiteCommerce:
Not quite sure if theyve done a good job marketing it.
Looking at the overall NetSuite trajectory the company continues to do well, but
hes not sure that can be attributed to SuiteCommerce.
Retail Anywhere:
NetSuite is doing a complete redesign of that product.
A lot of his customers are in the retail segment, and he thinks retailers are really
going to benefit from Retail Anywhere. The primary beneficiaries would be mid-
sized retailers with fewer than 200 locations.
Mid-sized retail is a very big market. There are mobile franchises, restaurant
franchises, etc. Some of these are corporate, but many are franchises.
The success will probably come down to the price point. In the past NetSuite has
partnered with retail software offerings, and the retail software costs as much or
more than NetSuite. NetSuite has the opportunity to bundle it and sell it that way,
and I think it will do quite well for them, frankly.
The product redesign could lend itself to larger retail customers. It could allow them
to put everything on one platform, from point-of-sale to back office.
He equates this to how NetSuite started by connecting CRM and ERP on one
platform. Now NetSuite has the opportunity to integrate point-of-sale in a similar
way.
Industry Contact 3
Business is good. We had our best ever quarter in Q1. We are certainly seeing the demand
and the trend is certainly trending upwards.
Referring to the price increase, mentions that he has no doubt that customers or prospects
were influenced by that to try and get in. We certainly saw that a fair bit in some of the
deals we were working.
Talking about OneWorld, certainly the same trend, certainly if anything its getting more
and more traction, although thinks that it could be affected by the price increase.
In terms of large deals, refers to a deal in the wholesale vertical that NetSuite was working
on close to the end of the quarter. Licensing alone was somewhere in the million dollar
range. Not sure if it closed in Q1.
Mentions that although he didnt close any massive deals in Q1, he did close a number of
good sized deals.
Based on his conversations with sales reps [in the cloud ERP ecosystem], anecdotally,
reading between the lines, kind of judging overall mood, I would say was very positive
coming off of Q1. Certainly the vibe was a positive one.
For his NetSuite practice, we came in slightly higher than our expected forecast. Growth
rate projection for 2013 for his NetSuite practice - Looking at about 50% at a minimum.
Last year growth was around 40% with less headcount as compared to this year.
Our pipeline is massive right now. Its a question of execution. We are certainly not left
wanting in terms of deals and opportunities. We have a really good pipeline right now.
Thinks that regarding SuiteCommerce, everything that I have been told is pointing towards
second half of this year is when this is going to become ready to sell, including by partners.
Thinks that NetSuite is trying to get some connectivity built between NetSuite and
Workday from an HCM perspective.
Thinks that the new NetSuite EVP of Worldwide sales was at NetSuite before. So, its not
a complete outsider. Suffice to say that the sales team was surprised to get the news about
Ramseys departure.I think he is well liked. But all-in-all thinks its just a minor blip.
Thinks that Ramsey has been involved this quarter.supposedly he was in the office on
and off. Mentions that he will be surprised to see any disruption in sales, unless the new
sales management takes a different approach.
Industry contact 4
We remain very bullish about NetSuiteFrom a companys strategic view perspective we

remain optimistic about NetSuite with respect to the role it fulfills in the market.

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April 2014
Ap r i l 2 4 , 2 0 1 3
We are seeing pretty good activity. Mentions that he is a little bit ahead of his
internal plan. Mentions that he closed a nice dealcouple of hundred thousand in annual
subscription in Q1 and also has a couple of deals in the pipeline for Q2/Q3. Mentions a
few OpenAir leads he is working on.
If there is one thing that I have seen, in the last couple of deals that we have closed,is that
they didnt close as quickly as we would have liked them to have. Thinks that the main
reason behind the delays is that customers [are taking] a little more time to socialize the
prospect of going off-premise internally. Although the concerns related to getting into a
public cloud still persist to some extent, thinks gradually the market is becoming more
knowledgeable about the SaaS solutions.
We are seeing a pickup in lead activityWe are seeing more leads coming in 2013 than we
did per month in 2012the activity level seems to be picking up.
Thinks NetSuite, at this point, doesnt have the brand identity as compared to some of the
competition like Microsoft, SAP or Oracle.
Thinks that the price increase for the mid-market product was pretty dramatic. However,
thinks that NetSuite wont lose any deals because of pricing and could involve some
aggressive discounting going forward.
are happy coming off the quarter.
Thinks NetSuite has really good upmarket potential. We believe we could move NetSuite
upmarket into some of the enterprise class companies. Its a difficult conversation to have
with the CFO of a big company that NetSuite is a viable solution. While we believe it is,
there is just a little bit of skepticism. They are dipping their toe in the water there and its
the right place to go [but] there is lot of work to be done to make that work.
Hasnt seen Workday in the market. Thinks that Workday financials is not completely
market ready.I think it's still work in progress up to some degree. We are not seeing
companies migrate to Workday financials.
Hasnt done anything around SuiteCommerce. Introduced it to one of his clients (a fairly
large organization) who was doing an evaluation, it didnt make it through the evaluation.
Thinks that the main compelling reason behind SuiteCommerce is its integration with
the core ERP, resulting in a single view of the customer record across Finance, CRM and
eCommerce.
He is optimistic about NetSuite going into 2013.

Industry contact 5
Mentions that he is having issues keeping up with the demand in terms of getting NetSuite
resources. It seems to me that the demand is a lot bigger than the capacity of knowledgeable
NetSuite consultants to deploy.
Had a good quarter. Have done more than $300k in NetSuite already in the year. Thats
fantastic for us.Its been a great quarter. I dont know if its our absolute best quarter
ever, but its close to it.
Mentioned that he is selling deals for longer contract terms as compared to a year ago and
seeing customers committing to longer time frames. Two of the deals he sold in Q1 are
three-year deals. I think we are seeing more of that.
Talking about SuiteCommerce: From what I understand, they are still kind of keeping some
of that still under very limited availability. They are really watching those customers very
carefully.
Based on his conversations with sales reps [in the cloud ERP ecosystem], everybody that
I know hit their numbers in Q1.
NetSuite is very good. It can do a lot. It's very function rich.
NetSuite did another major price increaseon April 1stThats what pulled a whole lot
of business into March. Mentions that NetSuite almost doubled the price for the base
product of the Limited and the mid-market edition.
Thinks that the price increase is by design as NetSuite is trying to move up market.
They think that they are really leaving money on the table when they are competing

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against Oracle and SAP. Thinks that he will continue to see NetSuite discount its
products which has traditionally been 30-40%.
I think you are going to see very strong Q1 numbers because of that [price
increase].
Industry contact 6
Pricing change:
Its a little early to tell how the price change might impact the market because it just
went into effect earlier this month.
In a lot of cases the price increase was a call to action for people to pull the trigger
before April first. It actually helped us close some business.
Demand:
I would say the [NetSuite] demand has been strong. It gets us in the door a lot of
places that our prior exposure through on-premise software didnt.
Comments from people in the cloud ERP ecosystem are that their [NetSuite] first
quarter was good.
Were looking for this to be quite a bit of a robust year.
Hes been [an on-premise software company's] top partner for over 20 years, and
year-to-date his new business sales of NetSuite are already 3x of what they are for
this on-premise company.
Hes seen some significant transactions on the NetSuite platform.

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Industry contact 7
"The reason Im so bullish on NetSuite is because it has this open architecture.

The open architecture refers to the SuiteCloud, NetSuites platform for building
additional functionality or applications for NetSuite.
The SuiteCloud lets you build whatever you need and integrate it with the platform.
This partner uses NetSuite internally and is also a reseller and implementation partner.
That piece of our business [NetSuite] is just growing a lot because NetSuite is really the
only product out there that has all this capability [SuiteCloud], and its phenomenal.
He expects the size of his NetSuite practice to double in 2013 based on current business
momentum.
Price increase:
It was a dramatic price increase. Prices didnt double, but it was still pretty high.
Thinks NetSuite will have to discount quite a bit if they still want to get the sales.
Industry contact 8
Industry dynamics and demand for NetSuite products continue to be very healthy, and
hasnt seen a change from Q4.
From our point of view as an implementation partner theres a lot of interest. Theyre
[NetSuite] in a lot of deals.
Were getting a lot of activity with them [NetSuite] for sure.
Demand for consulting services in general continues to be strong, too.

Continued strong interest in NetSuite solutions in companies making technology changes

but noticeable delays or caution in actually pulling the trigger.
Thinks that there is a multitude of reasons we are too busy we are waiting
we are this we are that.
One of the prominent reasons cited by clients are concerns about folks internal
resources being able to put the time and effort into the job right now. Its like
I know its good its something we should do we like what we see but we
are not ready. You probe deeper and there are concerns about resources. That
could be a convenient objection in some cases. I would say there is definitely
caution. Mentions that at least half his pipeline [mainly in the manufacturing and
distribution sector] is behaving in this manner.
Mentions that across the board that [manufacturing and distribution] is still a
cautious industry.
It doesnt seem to be an if question as much as it seems to be a when question.
He didnt see any of his clients wanting to sign off on a deal in Q1 to avoid the price increases,
mainly because he works with large companies, who have better leverage and which can
absorb some price increases. Also, most folks that we talk to about that take a pretty
jaded view and say well, when we are ready to buy there will be some reason why they
[NetSuite] need to give us a discount. So, we are not going to make a business decision this
significant just because of something like that.
He was below plan for his NetSuite practice in Q1 but adds that it may not be reflective
of NetSuite as a whole, since it could be an industry characteristic or limited to the set of
prospects he has.
Mentioned that he has a couple of opportunities that involve SuiteCommerce. Its a very
compelling solution. I think NetSuite is still trying to figure out how best to price it, what if
their services are required vs. partner services and so forth, but adds that it's not unnatural
for a newer module especially if it came as a part of an acquisition.

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Mentions that there is continued traction in OneWorld. Adds that its like a lay up and
not a very complex sale.
Refers to a large deal with a large insurance provider that he thinks closed in Q1, but doesnt
know the actual magnitude. Adds that the company is using Workday in the HR side but
implementing NetSuite for financials.
Mentions that he is optimistic for the year overall and is projecting a growth rate of +30%.
Adds that he has at least one potential +7-figure deal in the pipeline but doesnt know when
it will close.
Mentioned that EVP of Worldwide Sales for NetSuite left the company, and the position
has recently been filled by an internal resource who was the second-in-command.
Thinks Workday could be a formidable competitor going forward. Both companies may
be taking different paths to a similar goal. Workday started out and said 'we wont talk
to anyone who has less than 4,000 or 5,000 employees', from the get go. They were going
after the large enterprise with the HR Suite. NetSuite basically said 'we are an alternative
to QuickBooks'. So, you have got tops down, bottoms up. And I say they are going to hit
in the middle at some point in time. Thinks that Workday recognizes that they have to
come down market while NetSuite is pushing up-market. However, mentions that a bigger
impediment for Workday at this point in time is the maturity of their financials module.
Industry contact 10
Speaking about current demand trends, Its been pretty constant. I dont see an upturn
necessarily.
NetSuite just updated their pricing so significantly, effective April 1st. Thinks that it will
be an uphill battle for small to mid sized customers, although suspects that it is by design
to move up market. Refers to the price increase as pretty substantial. Mentions that deals
that closed in Q1 were able to lock in the old prices but the deals that didnt close in Q1
are subjected to the price changes.
Speaking about SuiteCommerce, we havent seen anyone really successful with it. We are
kind of waitingwe dont want to be the guinea pig and to be the first one out there to
discover that you have some problems in the platform. We are really waiting to see some
proof before we take our clients down that path.
It seems like NetSuite is such a natural choice for new and upcoming businesses.
Mentions that he has seen some competition from Microsoft Dynamics, especially as
NetSuite matures and moves up market. So, a little more competition I would definitely
say is out there.

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Deep-Dive Interviews with NetSuite Partners Suggest Consistent Year-End Trends
PRICE: US$68.95
TARGET: US$60.00
11x EV/CY 2013 rev estimate
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY12E EPS US$0.24
FY13E EPS US$0.27
Yield 0.00%
Fiscal Year End Dec
75
70
65
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 6 key partners in the NetSuite ecosystem and
found that most contacts are fairly positive regarding Q4 performance and NetSuite's
prospects for growth. Most of the partners cited increased traction and activity during
Q4 and referred to a number of mid-sized deals closed during the quarter. Contacts
also referred to increasing deal sizes, highlighted continued OneWorld traction and early
traction around SuiteCommerce. Partners seemed to sense sales reps in the SaaS ERP
ecosystem doing "fine" and "pretty well" coming off of Q4. Neutral/cautious aspects
of the feedback include a couple of contacts citing some deals getting pushed into Q1,
while one contact referred to seeing a little bit of Workday" creeping into NetSuite
deal mixes. We believe the company will post good Q4 revenue results, but the premium
valuation keeps us on the sidelines. We maintain our Neutral rating and $60 PT.
Notable Feedback:
(+) We chose to add the NetSuite partnership because we saw so much interest among
our prospects within our ERP practice, which was primarily in the past focused on
just the Microsoft solutions.
(+) The New Year is seeing a nice new pool of prospects that are coming into our
pipeline.
(+)I think the most obvious trend is that deal size and company size is definitely
picking up or continuing to pick up.
(-) I am going to give it about two years and then I think around that time you are
going to see NetSuite going further up market and Workday, regardless of what they
say publicly, coming further down into NetSuites space. And there is going to be
a big battle. Its my assessment that Workday will end up being NetSuites biggest
competitor down the line.
(-) We saw more deals slip out of Q4 into Q1they didnt go awaypeople just
didnt pull the trigger....I dont think it's concerning for NetSuiteI think it might be
more isolated to the types of customers or prospects we were working with.
YEAR
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2012E
2013E
REVENUE (US$ m)
53.4 57.8 61.0 64.1 236.3 21.7x
69.3A 74.7A 79.8A 82.5 306.4 16.7x
87.6 94.7 101.1 106.7 390.1 13.1x
0.03 0.02 0.05 0.05 0.15 NM
0.06A 0.06A 0.08A 0.04 0.24 NM
0.07 0.06 0.07 0.07 0.27 NM

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We are definitely seeing a lot of opportunity.
We chose to add the NetSuite partnership because we saw so much interest among our
prospects within our ERP practice, which was primarily in the past focused on just the
Microsoft solutions.
Almost all companies today are considering them [NetSuite] as an option, in the mid-
market.
When Im in an opportunity, in the mid-market, for ERP, its very rare that theyre
[NetSuite] not one of the options that are being considered.
Certainly met his goals for the NetSuite relationship for 2012. Expects similar success in
2013.
Recently acquired a small, successful NetSuite partner which contributed to their growth.
Workday
Sometimes runs into Workday during earlier stages of deals.
Workday is in larger deals and primarily ones that are driven from the HR and
financials side.
NetSuite wins on ERP, eCommerce, inventory, manufacturing, anybody that needs
a full-blown ERP.
Competition
Microsoft is still a very strong competitor. If youre in the mid-market, a prospect is
generally looking at between one and several Microsoft solutions.
Microsoft has come a long way as far as their ability to have a cloud story, but still
not as far along as NetSuite is, but not every prospect is interested in [the cloud].
Microsofts functionality is greater because its been in the market for quite a bit
longer. The interface is part of the reason that Microsoft isnt doing better, but its
more that the integration between ERP and CRM is much stronger in NetSuite.
Within a single platform NetSuite can very quickly show capabilities for all their
modules in one place. NetSuite comes across as being all connected.
NetSuite is a little slicker in terms of dashboards and analytics. Thats kind of what
you always hear. If someone has just seen a NetSuite presentation theyre kind of
wowed by the dashboards. This is available in Microsoft but not quite as strong or
intuitive.
Doesnt see Sage as often.
Deal sizes
Has recently been involved in some large deals.
Channel
For a long time NetSuite didnt sell through partners, and theyve really been
focusing on building their channel partners over the last year.
NetSuite finds themselves competing directly with the company on some deals.
However, He [Zach Nelson] and the entire team of people we work with have been
extremely supportive of us.
The leadership team has been phenomenal. I have no complaints about the
support that they [NetSuite] have given us.
They just dont want to be in the implementation business.
Industry Contact 2
Deal sizes are getting bigger. Seeing more mid-sized deals starting to close faster. A number
of mid-sized companies are jumping onto the NetSuite ship.
Part of that could be that both the partners and the NetSuite sales force are trying to bag
bigger deals, and are leaving smaller deals to anyone who wants them.
Some of the mid-sized deals are at $25M or $50M revenue companies which are spending
a significant chunk on NetSuite.

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I think Q4 was good for them [NetSuite]. I think that there wasnt the feverish push that I
normally experience at the end of December. Not that there wasnt a push but they were
not as crazy as they were in other years is what Ill tell you.
I would be very surprised if they didnt make their numbers.
With whats been going on and some of the adoption and the activity Ive been seeing, and
the reference calls Ive been asked to give, Id be surprised if it was a situation where they
missed it. Very surprised.
Retail Anywhere
There are plenty of retail offerings out there that can be integrated into NetSuite.
But there was really nothing that did a great job of integrating well with NetSuite,
and none of the technology was flexible enough or met a lot of retail requirements.
The retail channel could be an extremely large opportunity for NetSuite. I think
retail Anywhere is not ready for primetime yet...
Now that NetSuite has acquired them, he believes that in the next 180 days it could
be like night and day as far as what NetSuite can do to improve Retail Anywhere,
based on software development cycles.
It [Retail Anywhere] is definitely a good buy. They really didnt pay much for it at
all. The technology is pretty good, but I think NetSuite will make it significantly
better both in the short term and the long term.
Believes they paid in the low single-digit millions for Retail Anywhere.
Workday
Doesnt run into Workday because of the size of the deals Workday pursues.
Industry Contact 3
All in all we had a great quarter. Using that as a gauge, thinks that NetSuite also likely
had a good quarter.
His NetSuite practice was slightly above plan for Q4 despite some aggressive numbers. He
is looking for a minimum of 50% growth in 2013 vs. 2012. Mentions that he could be more
aggressive if he could have invested more in terms of head count. Adds that there is plenty
of demand if somebody wants to double down.
In terms of big deals, refers to having closed a few mid-sized deals but nothing spectacular
that comes to mind". Saw some of his deals push out to Q1 but its for typical reasons
like holidays or didnt get enough time for due-diligence and not because of a secular macro
trend.
Thinks that OneWorld traction continues.
Thinks that its too early to talk about SuiteCommerce traction. Thinks that although
NetSuite is investing in it, its taking time and NetSuite has not really been aggressively
selling it because its not ready. Thinks there is demand in the customer base but NetSuite
is being very selective and careful of who take on. Thinks that with the new version in
2013 coming out is the right time for them to start pushing it.
Mentions that mid-market customers are replacing the incumbent with NetSuite but its
just not possible for large enterprises. Thats why they have a two tier implementation to
get into customers who use SAP or Oracle e-Business Suite as their main ERP. Thinks its
a good strategy.
Workday
Thinks Workday has a great pedigree to rest its name against. Thinks they are
still focused on much larger customers as compared to NetSuite.
But there is a little bit of Workday starting to show up in the NetSuite deals. From
a technical perspective, doesnt think that the financial product is fully baked.
I am going to give it about two years and then I think around that time you are

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He has heard not so good things about FinancialForceits not a mature product.
Industry Contact 4
Q4 trends
For the time weve been involved with NetSuite, theyve been happy with their
growth and their numbers, and Im not expecting anything different [in Q4].
We had a pretty good fourth quarter with NetSuite. We closed two or three deals
that were all pretty decent-sized deals [$100k plus]. We were happy with them.
NetSuite is still a great opportunity for the partner. The only negative aspect to the
relationship is that the biggest competitor is the product that youre selling. The
channel conflict is something NetSuite needs to work on a little bit.
The one thing that occurs very frequently in deals is the number of people who want
to understand or at least look at a SaaS solution. By offering both an on-premise
and a SaaS-based solution you get invited to the dance a little more often. Then you
can have an intelligent conversation with the prospect about what are the benefits
of SaaS and what are the benefits of on-premise. Then you can work on getting the
best solution for their business.
Workday
Weve run into it [Workday] a couple of times but I wouldnt say that its very high
on our competition list. We run into a lot of other vendors before we run into them.
Runs into Microsoft Dynamics most frequently.
Outlook
Were looking to do over $1M worth of business with NetSuite in 2013. We dont
think theyll be a problem to meet that objective.
Looking to do two to three deals a month with NetSuite.
Our minimum target is $1M and our desired target is in the $2M range with them.
I think the most obvious trend is that deal size and company size is definitely picking up
or continuing to pick up. Thinks that NetSuite has proven itself as the leader in Cloud
based financial software and larger customers are getting more and more comfortable with
storing their financials in NetSuite.
Thinks Q4 demand was good in terms of conversations. But we saw more deals slip out
of Q4 into Q1they didnt go awaypeople just didnt pull the trigger. He is not sure
if that was because customers are just cautious because of macro issues or because the
incentives were not enough to overcome the hesitance for whatever reason. Thinks that he
saw deal slippage across the spectrum of companies, from small companies to larger ones.
I dont think it's concerning for NetSuiteI think it might be more isolated to the types
of customers or prospects we were working with.
Based on his conversations with sales reps [in the SaaS ERP ecosystem], my sense is that
they did fine in Q4. Adds that he didnt see any indication that was hugely positive or
hugely negative.
His NetSuite practice was definitely on plan from the services perspective, but was off
plan in terms of software deals he wanted to close. Talking about demand for services, asks
is the need [for NetSuite] growing in the marketplace and thus short capacity of services?
absolutely.
SuiteCommerce
Seeing a lot of interest around SuiteCommerce and thinks its absolutely the right
direction for NetSuite. Thinks there is a renewed interest in e-commerce, especially
in the B2B level.

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Doesnt think that any of NetSuites competitors has a similar module on the
on-premise side. The closest would be something that Oracle has called Oracle
iStore. On the SaaS side, although there is no out of the box solution other than
SuiteCommerce, a Force.com customer can tie up various components on the
platform to come up with something similar.
Explains that SuiteCommerce is an end-to-end integrated platform with front-end
capabilities, such as Web Design, Shopping cart, Web Analytics and ability to react
to what customers are doing in the website and ability to make real time suggestions
and offers etc., connected all the way to the financials. So, you can measure the
profitability of a web order for example. Also, adds that it has a multi-channel
commerce aspect spanning across various devices and form-factors such as tablets,
Smartphone, hand-held retail store device, a retail POS system etc.
Workday Financials
Thinks that Workday financials is still a work-in-progress. They are not fully, fully
capable.
Adds that Workday also has truly taken a different approach to financials.
Explains that there are different ways to group and categorize accounts into account
numbers and there are different departments, classes etc. as attributes. Workday
has something called tagging, it's differentSo, if you are going to put in Workday
and you are going to get the most out of that solution, you have to think differently
and innovate differently around your financial processes, which some organizations
are aware of and capable of doing and other organizations arent. Thinks that
Workday has to educate the market to show the value prop.
Hasnt seen Workday at all in any of the deals in his sector. Talks about a deal
which is deploying Workday HCM but NetSuite Financials. That is a maturity
of functionality issue more than anything. Also, suspects that Workday might be
more expensive than NetSuite.
Industry Contact 6
Mentions that demand is really kind of holding steady and havent seen substantial
increase of sales leads or business."
Mentions that he closed a bunch of deals in December and the New Year is seeing a nice
new pool of prospects that are coming into our pipeline.
Mentions that some of the other partners he interacted with also finished strong last year
and are doing fairly well.
Mentions that one of the top NetSuite sales reps is leaving NetSuite and joining a partner.
are doing pretty well, but not phenomenal.
He was about 25% below his internal plan for Q4 but thinks, for the most part, that was
because of an aggressive plan that they had put in place. Adds that he still grew his NetSuite
practice about 1.5x in 2012 compared to a year ago. For 2013, he is aiming to double
his practice again. We are expecting a pretty significant increase in revenue. Thinks its
achievable if he continues to get a nice stream of leads.
Regarding SuiteCommerce, his opinion is that its not mature yet and he is waiting for it
to be proven in the market.
Have never run into Workday in a competitive sale situation.

Price Target PT = $60 (was $56) based on 11x (was 10.3x) EV/FY13E revenue est. of $390.1M with 74.2M
s/o and $2.33 cash/sh. Higher multiple reflects higher peer group multiple of 11x.

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Oc t o b e r 2 5 , 2 0 1 2
Deep-Dive Interviews with NetSuite Partners Suggest Healthy Q4 Pipeline
PRICE: US$58.75
TARGET: US$52.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$52.00
FY12E EPS US$0.22
FY13E EPS US$0.41
Yield 0.00%
Fiscal Year End Dec
70
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We conducted 7 deep-dive interviews with contacts in the NetSuite ecosystem and found
that most contacts are positive regarding Q3 performance and NetSuite's prospects for
growth. Most of our contacts highlighted large deals closing in Q3 and that Q4 is off
to a good start. SuiteCommerce is still in its early stages, but it is progressing well and
customers are pleased with the product once it has been implemented. Our contacts
also highlighted increased interest from SIs in building or strengthening their practices
around NetSuite, healthy ASPs in enterprise deals and success in winning both Oracle
and SAP two-tier implementations. Neutral/cautious aspects of the feedback include one
contact citing a somewhat slow quarter and another seeing seasonal summer slowness
and some deals getting pushed into Q4. We believe the company will post good Q3
revenue results, but the stock has little to no room for error. We reiterate our Neutral
rating and $52 PT.
Notable Feedback:
When we do side-by-side marketing for multiple products its been an eye-opener for
us as to how many more opportunities or leads that we generate with the NetSuite
brand..."
For me its been going hot and heavy. Its not slowing down.
Some of our largest deals got pushed, not canceled but just pushed to next quarter.
Mostly for that reason, we were hoping for a blowout quarter but we didnt quite get
there.
There is good demand in the market.
Our biggest hold up is resources having enough resources to manage the workload
effectively.
I understand NetSuite is the fastest growing and is gaining market share faster than
all the others, but its small as compared to a Great Plains install base.
"Things are on fire. We continue to have a fantastic year."
The only thing that concerns me is the economy and the fiscal cliff.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
53.4 57.8 61.0 64.1 236.3 18.3x
69.3A 74.7A 77.9 81.4 303.3 14.2x
82.3 87.7 89.6 94.9 354.5 12.2x
0.03 0.02 0.05 0.05 0.15 NM
0.06A 0.06A 0.05 0.05 0.22 NM
0.07 0.09 0.12 0.13 0.41 NM

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Demand
He sees demand for NetSuite in 70-75% of the opportunities he runs across.

His company generates about 300 leads a month which turn into about 70 opportunities
or so. Of these 70 opportunities, 70-75% want to consider NetSuite as part of the selection
process.
Regarding business momentum, I hear nothing but positive things from them, but frankly
thats what I would expect anyway. Im also hearing positive things from other people in the
industry. And frankly, more importantly, were seeing very positive things.
"One of those measurement points for me is how do we get invited to the dance? and what
I can tell you is were invited to more dances because of our relationship with NetSuite.
When we do side-by-side marketing for multiple products its been an eye-opener for us as
to how many more opportunities or leads that we generate with the NetSuite brand and the
SugarCRM brand versus the Sage brand.
ERP Systems Are Painful to Change Out
Even if the software was given away for free, theres a significant cost associated with making
the move.
Existing customer base isnt a good indicator to move to a SaaS model.
People in the market looking for a new solution are a better indicator of demand, and hes
seeing a high percentage of prospects looking at a SaaS ERP solution and as a result looking
at NetSuite.
Competition
Microsoft Dynamics is in pretty much every deal.
Some individuals go with Microsoft just because its Microsoft.
Microsoft and Sage have a lot of the same challenges as far as the baggage associated with
their existing product lines.
While NetSuite may not be as deep in some areas as the Microsoft and Sage product lines,
theres a lot of flash associated with the product.
The challenge today is that the average customer is taking a look at all these products and
saying theyre basically all the same.
The average customers probably use 15-20% of the product they buy.
Today the NetSuite product is deep enough with features and functionality, and more
importantly it has a lot more sizzle and flash to it. Customers have a tendency to gravitate
towards that because its a differentiator.
While it may not be the right thing from a decision point, these are differentiators: A
customer might think it looks easier to use, it looks like it has newer features, etc.
If a customer goes with Microsoft or Sage its because of the depth of features. If they go
with NetSuite its usually more of the features were good enough, and the presentation,
the approach and the model is what they liked. It mostly looked like a newer product or a
fancier product.
Their perception is that NetSuite is going to move forward faster than some of the more
on-premise models.
Cost of SaaS Versus On-Premise
There are different challenges to the cost model, and both sides say they have the least costly
approach.
Depending what you throw into the mix of the TCO, it can have a dramatic change on what
those numbers really are.
When NetSuite uses its calculation they talk about reduction in this and that, and 90% of
what theyre saying you can reduce is really not a reality.
Removing one server from your business and putting it in the cloud will not allow you to
remove IT staff.
People also dont consider the end of life TCO.

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When youre using an on-premise system and paying for standard maintenance
and support, theres a point in time when a buyer becomes complacent with the
product: theyre not adding new functionality which adds value, or dont plan to
stay on the product for much longer. This is when the user decides to stop paying
the maintenance fee.
Typically an on-premise solution during a transition stage will have five years worth
of use after the customer has made the decision to move somewhere else. The
customer is not paying maintenance during this time.
Lets say day one I make a decision and say this product isnt working for me and
Im not going to continue to invest in the maintenance and support plan for it. It
may take me two years to get to the point where Im making decisions about a new
product line, one year to implement it and then another two years of using the old
product line for history because I didnt want to pay the $50K to convert my history
files.
This is five years of no cost to use an on-premise system. For a SaaS model you have
to continue to pay for it.
Thats one of the challenges SaaS will have, but it wont come to light for another
5 to 10 years when people start moving from SaaS product A to SaaS product B,
and they recognize the cost of doing that has significant penalties associated with
the SaaS model.
Industry Contact 2
Demand has strengthened. Closed some good deals last quarter. Also, mentions that Q4
is off to a good start as well. Our biggest hold up is resourceshaving enough resources
to manage the workload effectively.
Closed a decent sized deal (large six figure deal) that involves Open Air, first OpenAir deal
his firm has done. Mentions that revenue from services alone will be around $200K.
The only thing that concerns me is the economy and the fiscal cliff. Thinks that if
the market takes another turn, lots of his clients are going to hold off on expenditures
like NetSuite. Currently one of his clients is holding on to investments due to the macro
environment.
I understand NetSuite is the fastest growing and is gaining market share faster than all the
others, but its small as compared to a Great Plains install base.
Most of the opportunities he comes across are large $15-20M and sometimes even $100M
companies that are using QuickBooks and spreadsheets and its a mess. However, he
doesnt see many companies switching from the likes of Great Plains to NetSuite, since its
an expensive drill.
Thinks NetSuite sometimes falls short for complex enterprise use cases. Its sweet spot is
medium size companies.
Guesses that the Sales reps (in the NetSuite ecosystem) are likely excited coming off the
quarter, based on the momentum he is seeing.
The internal target for his NetSuite practice was doubled from 2011 to 2012. Believes that he
is on track to achieve it. It was an aggressive goal but I believe we are on target right now.
Industry Contact 3
Q3
For me its been going hot and heavy. Its not slowing down.
Everything from my standpoint is going along quite well.
The frequency of reference requests he receives is increasing, and these are for fairly large
deals in the 200 to 500 seat range.
The momentum is at the same quick pace as its been for the last couple of quarters.
He just spoke to a company whos trying to figure out how to deploy OpenAir for a 200
seat deal.
This company does software development, but they feel the advanced projects module in
NetSuite isnt enough for them so they want the OpenAir capabilities to manage their
projects.

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Oc t o b e r 2 5 , 2 0 1 2
OpenAir pricing per seat is consistent with NetSuite.
What Im starting to find now is companies want to go to the cloud and then they just
want for comparison purposes they say can you include someone like Microsoft of Epicor
or whatever.
People are, in his mind, wanting to go to the cloud. What hes ending up doing now is
performing comparisons of cloud vendors, such as Financial Force, Workday, QuickBooks
Online, etc. Customers want to know about other offerings in the cloud, and then ask for
an on-premise vendor for comparison purposes.
SuiteCommerce
He recently spoke with a beta or test customer using SuiteCommerce.
The feedback is that the customer is pleased with whats going on.
There are some nuances that NetSuite has to address, but when it comes to the core
capabilities of what NetSuites supposed to do, its working well.
Its not like NetSuite walked in, plugged it in and everything works great. Theres some
elbow grease they had to put into it, but its progressing well and meeting expectations.
Industry Contact 4
There is good demand in the market. Been steady in the last couple of quarters.
Seeing more and more larger companies getting interested in NetSuite.
Thinks ASPs are holding steady and dont see any dramatic shifts one way or the other.
Believes for the most part Sales reps (in the NetSuite ecosystem) are hitting their numbers.
Slightly below plan for Q3. Results mixed due to longer sales cycles associated with larger
organizations. Forecast more than 30% growth y/y for 2012.
Industry Contact 5
"Things are on fire. We continue to have a fantastic year."
One NetSuite customer started off as a $10K or $20K annual contract, and this year they
will do around $1M with NetSuite.
There are multiple companies growing their spending with NetSuite at this rate.
NetSuite does Oracle two-tier implementations just as often as they do the two-tier SAP
implementations.
NetSuite has been getting a lot more attention from systems integrators. SIs are getting more
interested in building or strengthening their NetSuite practice.
At this point NetSuite does few enterprise deals under $100K.
SuiteCommerce is still in the early stages. NetSuite will first evaluate a clients ability to be
successful on SuiteCommerce before they even try to sell them SuiteCommerce.
Industry Contact 6
Lot of interestsgrowing leaps and boundshiring a lot...very, very strong [demand].
Beat his internal plan for the NetSuite practice. Some of our largest deals got pushed,
not canceled but just pushed to next quarter. Mostly for that reason, we were hoping for a
blowout quarter but we didnt quite get there. Larger the deal size gets, obviously, there
is more due diligence that needs to be done, last minute things that happen, management
wants another look
With the current productive headcount, forecasts growth of 30-40% in 2012 vs. 2011. Should
be doing better than that number once the new hires get ramped up.
Thinks that the ongoing theme for the last two years have been that more and more larger
companies are getting interested in NetSuite.
There are some fairly large deals happening as well that we know about. Definitely saw
some 7-figure deals in the pipeline, not sure some of those closed or not.
Extrapolating on what he sees, he suspects that NetSuite will have a strong end to the year.
Thinks its fair to say that Q3 could be a little muted and Q4 will be big.

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Thinks there are some growing pains and delays in the e-commerce side with all the new
initiatives.
Suite Commerce
Thinks that for a certain level of customers and above, there are a lot of choices
when it comes to e-commerce best of breed proven solutions such as Demandware,
Magento, etc. Doesnt think NetSuite has ambitions to compete directly with these
players as a pure e-commerce solution but rather positioning itself as an end-to-end
solution with the backend. Clearly NetSuite has invested a lot in SuiteCommerce
there is no going back. However, thinks its going to take time for it to be a
compelling solution for large companies.
Thinks NetSuite is selling SuiteCommerce right now only on a very selective basis
and will continue to do so may be until Q1 2013 when they might meet some of
the milestones and thats when they could possibly open the floodgates and start
really selling this.
OneWorld - OneWorld has been a great success for NetSuite. There are still
improvements on some of the functionalities that a large company would expect from a
consolidated system. All in all it's doing wellI think it's making a lot of money for
NetSuite.
Had a somewhat slow quarter for NetSuite, which is partially seasonal. Didnt get any
big deals for Q3.
Mentions that the west coast Sales Manager (in the SaaS ERP or NetSuite ecosystem)
dealing with channel sales didnt hit his number for the quarter either. He was not too
happy. Thinks that from his perspective last quarter was not really exciting.
Working on a bunch of large deals for Q4 including a 1,000 seat deal which is big for him
since he normally does 100-200 seat deals. Mentions that NetSuite is pushing partners like
him to sell to more medium and large sized companies. Selling in the SMB space is also
more competitive and NetSuite is considered pricey in that space.
SuiteCommerce - Mentions that he is talking much more about e-commerce now and is
becoming more of a differentiation point. There are a lot of e-commerce capabilities that
NetSuite offers that excite companies even if they are not pure e-commerce companies. For
example the ability for Clients to get into the portal and viewing their bills, changing
credit card info etc. I was surprised how easy it was to get up and configure and maintain.
It's really cool. As the world moves more and more to e-commerce, I think NetSuite is
going to have an edge there.

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Oc t o b e r 3 , 2 0 1 2
Preliminary Checks Show Strong Traction at NetSuite
PRICE: US$62.49
TARGET: US$52.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY12E EPS US$0.22
FY13E EPS US$0.41
Yield 0.00%
Fiscal Year End Dec
70
60
50
40
30
20
USD
Source: Bloomberg
CONCLUSI ON
Preliminary checks with our contacts indicate that during Q3 NetSuite maintained the
strong momentum it experienced during the first half of 2012, and our contacts are
confident in the company's Q3 performance. Our contacts highlighted increased interest
from SIs in building or strengthening their practices around NetSuite, healthy ASPs in
enterprise deals and success in winning both Oracle and SAP two-tier implementations.
One contact noted that several customers which began at $10K or $20K in annual
spending with NetSuite are now approaching $1M annually with NetSuite. They view
SuiteCommerce as still in its early stages, but expect that NetSuite will make sure that
a customer can be successful with SuiteCommerce before selling it to the customer. We
will conduct additional checks for a broader base of data points, but initial feedback on
Q3 is positive. Valuation keeps us Neutral. Our price target increases from $45 to $52
as we roll forward to a 2013 revenue basis.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
53.4 57.8 61.0 64.1 236.3 19.4x
69.3A 74.7A 77.9 81.4 303.3 15.1x
82.3 87.7 89.6 94.9 354.5 13.0x
0.03 0.02 0.05 0.05 0.15 NM
0.06A 0.06A 0.05 0.05 0.22 NM
0.07 0.09 0.12 0.13 0.41 NM

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April 2014
J u l y 2 4 , 2 0 1 2
Checks Indicate Good Momentum, Reveal Price Increases & Increasing Competition
PRICE: US$48.75
TARGET: US$44.00
10.3x EV/FY 2012 Rev est
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$44.00
FY12E EPS US$0.22
FY13E EPS US$0.43
Yield 0.00%
Fiscal Year End Dec
60
55
50
45
40
35
30
25
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with key sources in the NetSuite ecosystem lead us to believe that
NetSuite will post good Q2 results. Out of the 7 contacts we spoke with, 4 experienced
a strong demand environment, while only one experienced a slowdown in the quarter.
Sources indicated that activity was at "an all time high" during Q2 and the demand was
very broad based. Contacts further observed a good vibe in the SaaS ERP ecosystem
and believe that sales teams are likely achieving/beating their numbers. Contacts also
mentioned that NetSuite significantly increased prices during the quarter and that SAP
Business ByDesign is trying to aggressively enter the market at the low-end "by coming
in with dramatically lower prices." We are encouraged by the momentum highlighted
by partners, but believe the stock has priced in this outlook at the current price levels.
Maintain Neutral, $44PT.
Noteworthy Feedback
Contacts mentioned that NetSuite doubled their prices essentiallyvery recently

in certain segments. On the high end, they [NetSuite] thought they were actually too
cheap.
Contacts are seeing larger companies - half a billion to a billion in sizemore

interested, less resistant to the idea of cloud or if NetSuite is mature or capable
enough.
One of the large consulting firms mentioned that they closed a couple of big NetSuite
services deals "to the tune of million dollars" in April.
One source lost two deals to SAP Business ByDesign. SAPs list price was 30% below
NetSuites. "...SAP Business ByDesign, it appears, is trying to buy the market by
coming in with dramatically lower prices.
Having some good traction with the OpenAir product.

**DETAILED Industry Feedback on Pages 2-4***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
53.4 57.8 61.0 64.1 236.3 15.0x
69.3A 73.0 76.4 79.5 298.3 11.9x
82.3 87.0 88.6 93.6 351.4 10.1x
0.03 0.02 0.05 0.05 0.15 NM
0.06A 0.05 0.06 0.06 0.22 NM
0.08 0.10 0.12 0.13 0.43 NM

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Industry Contact 1
"Our activity with NetSuite is certainly at an all time highso I would say its going well.
Thinks that the demand is broad based and all over the board. There is enough diversity
in our pipeline.all ships are rising
If I look at last fiscal year to this coming fiscal year, there is no reason why we shouldnt be
able to easily double albeit from small numbers since the partnership is fairly new. Shooting
for 40-60% growth for 2012. Was at or slightly above plan in Q2.
Mentions that he is seeing larger companies - half a billion to a billion in sizemore

interested, less resistant to the idea of Cloud or if NetSuite is mature or capable enough.
Conversations with sales contacts [in the SaaS ERP ecosystem] Thinks they are doing
fine... I think from our perspective it feels good .dont hear anyone saying its time to
get out on a ledge or anything like that
Hasnt come across any budgetary concerns among customers. Feels like business as usual
and we are in hiring mode.
Thinks that in the upper end of the mid-market and the lower end of the enterprise market,
there has been a substantial lack of investments in prior years in cloud, which have been
catching up lately.
Also, thinks that in the lower end of the mid market, there is still a ton of opportunity.
There are lots of companies which are still using systems such as Epicor or PICK based
systems. More importantly, the acceptance of Cloud is much higher now as compared to
a year ago.
Industry Contact 2
Closed a couple of big NetSuite services deals to the tune of million dollars in April.
Industry Contact 3
Having some good traction with the OpenAir product. Sold the biggest NetSuite deal
that we have ever sold...was an Open Air deal, about a couple of hundred thousand dollars.
Thinks that while people are always hesitant to talk about replacing their General Ledger,
resulting in a longer sales cycle, something like the Open Air product, which helps clients
manage professional services projects better, is a much easier/faster sale.
The limited sales people [in the SaaS ERP ecosystem] I have been working withboth of
them have met their numbers. Mentions that one of the guys he knows was in the incentive
area in the last week of Q2 where the accelerators etc. kicks in if he can make more than his
quota. I know at least for his part he hit those accelerators.
Mentions that NetSuite raised the prices, which has caused us to do more discounting.
A company with 6-7 users is paying twice as much as they were before. Thinks that the
rationale behind the price increase is that NetSuite feels that it is leaving money on the table,
especially in the high end of the market. On the high end they [NetSuite] thought they
were actually too cheap.
Thinks that competition from SAP is increasing in the low end of the market. I lost two
deals to SAP Business ByDesign. They came out with a new pricing model where they have
a flat fee based on the usersand no [additional] module fees like NetSuite has.SAP
ByDesign, it appears, is trying to buy the market by coming in with dramatically lower
prices. Mentions that for the deal he lost to SAP, SAPs list price was 30% below NetSuites.
Industry Contact 4
Normal activity has not dropped, and didnt see any summer slowness until July.
There was a lot of activity going on in April, May and June.
Got an uplift from SuiteWorld and is doing a large number of reference calls.
If he sees any decline its July, but only because a lot of people are on vacation.
SAP Business ByDesign

SAP is trying to buy business.
He spoke to an acquaintance who recently decided to implement SAP. The
acquaintance said SAP begged for the business, and that he wishes hed known
more about NetSuite before making the decision to go with Business ByDesign.
Two other people who contacted him for consulting told him that Business ByDesign
has been a disaster in terms of implementation and the amount of time its taken.

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Business ByDesign failed in one location. Theyre reassessing if Business ByDesign
is the right way to go.
Hes not saying there arent good examples, but his feeling is that Business ByDesign
is not all the way there yet.
It was a rush to finish and they dont have a product working the way people would
expect coming from SAP.
Outlook
The discounts he saw for NetSuite in Q2 arent as deep as they used to be.
Not sure whether this is a good or bad thing, but hes not seeing any business turned
away because of it.
The days of 50% discounts for SMB targets is going away.
Even without the deep discounting, the NetSuite ROI is still more favorable than
some competing solutions, like Great Plains.
Business ByDesign is discounting. Theyre going really low.
Great Plains and Epicor arent changing their [discounting] practices.
NetSuite now has the credibility, where in the past they had cloud and its small size
going against it. This is allowing them to inch the price up so they dont have to be
as price competitive as they once were.
Industry Contact 5
They are getting pretty pricey. As a result, her firm is warming up to use Intacct as the
main accounting solution for her clients. Thinks that NetSuite is trying to get away from
the SMB space and move up-market.
Thinks that NetSuite doesnt seem to be interested in working with the Limited Edition
version and thinks that NetSuite will get rid of it altogether in the near future.
The thing that NetSuite has that a lot of other ones dont is just sincerely the whole
package.
Thinks that NetSuite is doing all right... Thinks that people are getting more and more
comfortable with cloud. I cant see them [NetSuite] go anywhere but up.
Thinks that the rep [in the SaaS ERP ecosystem] is meeting/beating his numbers. He said
he was pretty busy at the end of the second quarter.
Detailed Negative Comments from
Industry Contact 6
Had a really strong 4

th
quarter last year and a strong 1
st
quarter in terms of new license sales,
but second quarter slowed up. The number of leads coming in fell a little but we are still
getting traction. Mentions that clients were not in a rush to make decisions. Thinks that
Q2 slowdown is not unusual and is more seasonal. Thinks deals were average sized in Q2.
Mentions that the growth in Q3 is starting to pick up and he is working on several new
deals Some of those deals are coming to fruition now[beginning to] see the pipeline
go up againits not flaming hot but we still got nice strings of sales coming innot quite
strong as it was last year. Based on the pipeline, thinks that the demand environment will
warm up in the second half and he hopes to have a really strong fall.
Q1, he was above plan but Q2 was below plan.
Thinks that Q1 had a good start but Q2 set us back and would need a good, solid Q3/
Q4 to make the plan for 2012. Aiming for a couple of million dollars of NetSuite business
in 2012, up 100%.
OneWorld demand is still strong. Thinks that e-commerce demand will increase.
NetSuite is no longer selling the RootStock manufacturing product. NetSuite offers a light
manufacturing product of their own.
Industry Contact 7
No longer a NetSuite partner. Reasons for getting out of the partner program:
NetSuite really doesnt treat their partners that well.
In theory, we are supposed to get 10% of every deal we bring to NetSuite. In reality,
their record-keeping is so bad and they never pay. Mentions that they take at least
6 months to pay. You can't do any budgeting from that.

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Mentions about an implementation with a client, which took two years to
implement NetSuite. Relating to Data Migration, NetSuite has some bugs in web
services and they would never acknowledge them or fix themand they would
instead blame the partners so that the partners would work around the bugs.
Thinks NetSuite is too busy chasing new featuresthey have pressure to innovate.
Thinks that their quality control has suffered in the last year and a lot of these bugs
have propped up recently.
Thinking about being a Microsoft partner. Recently been to the Partner conference in
Toronto which had 16,000 people. At least on the surface, they seem to treat their partners
a lot better than NetSuite does.
Mentions that NetSuite doubled their prices essentiallyvery recently. Adds that a
bottom of the food chain 5 user license used to cost $10k excluding implementation, now
it costs $18K. They are basically giving up the low end of the market.
Adds that NetSuites SuiteCommerce platform costs a lot of money. The pricing that we
have heard was $4,000 per month + 2% of your gross online revenuesI dont know if they
backed down from that but it's so expensive that only the big companies can afford.
Thinks that direct sales guys [in the SaaS ERP Ecosystem] are doing well. Wont be surprised
if they closed a few big deals.

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April 2014
April 25, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Neutral
Price Tgt -- $40.00
FY12E Rev (mil) -- $296.7
FY13E Rev (mil) -- $349.7
FY12E EPS -- $0.22
FY13E EPS -- $0.42
Price $48.02
52 Week High $51.78
52 Week Low $25.32
Yield: 0.00%
Rev (mil) 2011A 2012E 2013E
Mar $53.4A $68.2E $80.9E
Jun $57.8A $73.0E $87.0E
Sep $61.0A $76.2E $88.4E
Dec $64.1A $79.4E $93.4E
FY $236.3A $296.7E $349.7E
CY $236.3A $296.7E $349.7E
FY RM 14.7x 11.7x 9.9x
CY RM 14.7x 11.7x 9.9x
EPS 2011A 2012E 2013E
Mar $0.03A $0.03E $0.08E
Jun $0.02A $0.06E $0.10E
Sep $0.05A $0.07E $0.11E
Dec $0.05A $0.07E $0.12E
FY $0.15A $0.22E $0.42E
CY $0.15A $0.22E $0.42E
FY P/E NM NM NM
CY P/E NM NM NM
NetSuite, Inc. (N $48.02)
Neutral
Q1 Preview: Checks Indicate Robust Demand
Environment
CONCLUSION:
Our conversations with 7 key contacts in the NetSuite ecosystem lead us to believe
that NetSuite will post solid Q1 results. All but one contact experienced a strong
demand environment for NetSuite, both for the core ERP product and the premium
OneWorld product, and mentioned that their only complaint is the lack of qualified
implementation resources to keep up with the growing sales. Contacts observed
a good vibe in the SaaS ERP ecosystem and believe that sales teams are likely
achieving/beating their numbers. Partners are seeing more of MSFT and SAP
Business ByDesign in the mix, although they enjoy a high win rate for NetSuite
against both. We are encouraged by the traction, but believe NetSuite is pricing in
some revenue upside at the current valuation of 11.1x EV/FTM revenue, representing
one of the richest valuations in the software industry. Maintain Neutral.
Checks Indicate Strong Demand Environment: Our conversations with 7 key

contacts in the NetSuite ecosystem suggest that NetSuite enjoyed a very robust
demand environment in Q1. All but one of the contacts we spoke to seem to be
very encouraged by the accelerating momentum of NetSuite's products. One of
the contacts mentioned, "Its pretty interesting the amount of activity Im seeing
across the board." Most of our contacts also mentioned that the only complaint they
have is the lack of qualified implementation resources to keep up with the sales.
Contacts see demand mainly in the core ERP product as well as the OneWorld
product. Partners sense a great vibe in the ecosystem and believe that reps are "doing
quite well" and likely beating their numbers. One of our contacts also indicated
that Q1 could have been very back-end loaded as NetSuite signed "some crazy
number of deals that all happened in the last few days of March. The contact with
the neutral comment had a flat Q1 mainly because of the increasing competition
between NetSuite service providers.
Competition: More of MSFT Dynamics, Business ByDesign: Contacts indicated

that they are seeing more of MSFT Dynamics line of products, including AX,
Great Plains and NAV at different segments of the market. Explaining the
reason, a contact mentions "NetSuite has matured a lot and its capabilities have
expanded...Great Plains is squarely mid market and can handle bigger companies
and NetSuite is playing right in that space now." One of the contacts mentioned
that NetSuite wins 85% of the time against MSFT. Contacts also referred to some
competition from SAP's Business By Design, although dismissed it as not yet living
up to its expectations. Among other systems in competition with NetSuite, contacts
referred to QuickBooks, Epicor, Infor and Intacct.
**Detailed Industry Feedback in the next few pages***
Neutral, $40 target = 9.3x EV/2012 (Rev $296.7M+ $135.7M net cash, s/o 2.1M)

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April 2014
April 25, 2012
Detailed Industry Feedback [6 Positive Comments, 1 Neutral Comment]
Made two NetSuite sales today. Have never done that before. Typically makes one a quarter. One was a net new client while another
was an existing client who added more users and a new module. Although NetSuite is trying to go up market, I have been able to do
OK on the small companies. I never actually made two NetSuite sales on the same day, so thats good.
Q1 was the biggest quarter we had, ever. Had a six-figure sale in the last day of last month. It was a combination of OpenAir and
NetSuite.
For NetSuite as a whole, apparently, it sounds like there was a lot of business that was done in the last few days of March.They
had some crazy number of deals that all happened in the last few days of March.
[A contact in the SaaS ERP ecosystem] didnt think he would make his numbers for his quarter and ended up making itanother
[sales contact in the SaaS ERP ecosystem] has made all his sales through September of this year so he is three-fourths through his
quota. So it sounded pretty good.
The problem he is facing is recruiting new people to keep up with the growth in sales. At least from my standpoint, we can sell more
than we can implement.
Thinks people continue to become comfortable with the cloud delivery model. Also, NetSuite as a brand is getting popular NetSuites
name is more and more known. And frankly, NetSuite is the most robust and most function-filled application ERP in its space in the
cloud. Who is a really mature and established as a cloud ERP vendor it's only NetSuite.
Thinks that SAPs Business ByDesign is not hitting their expectations.

Things are going very well.
Closed four consulting deals in Q1 for installations, which is more than usual.
One of the deals is for a customer with >$200M in revenue, and there arent too many of these [customers] around.
Having trouble getting enough staff for implementations right now.
Things are 100% better than last year, referring to a turnaround in his business.
Its going quite well. I cant complain.
Getting calls even from NetSuite asking for help because they dont have the bandwidth.
I probably closed twice as much business in the first quarter relative to NetSuite than I did all of last year.
Drivers
Peoples anxiety about having their financial information in the cloud has waned.
The other reason, is when you look at the offerings from Dynamics, Epicor, Oracle, SAP, the amount of involvement required
to implement the product is, in my estimation, like a root canal. Im not saying its easy with NetSuite, but its a heck of
a lot easier than any of those [vendors]. "
The difference between an on-premise install versus a cloud install is that people feel that on-premise installs need to have
every single detail and piece of functionality correct before going live. The difference with cloud, particularly NetSuite, is you
can configure the system and go live on it, as long as you have basic functionality in place. Modifications can be made while
youre using the system, sometimes as simply as making a few clicks.
Another driver is that you dont need heavy IT involvement when youre dealing with NetSuite. That is both in terms of IT
help desk or a particular report guru; you can do reporting yourself.
NetSuite is starting to get a little more expensive and not discounting as deeply as in the past.
Theyre starting to get away from 10-or-less user situations.
Replacing
NetSuite is typically replacing something like a QuickBooks or a Great Plains.
Has been in situations where hes counseled customers that have been implementing SAP and the customers decided to pull
the plug on it.
2012 Outlook
Hoping I can get done what Ive bitten off in the first 90 days.

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April 2014
April 25, 2012
If anything, his business will slow down as he turns down new work because he doesnt have the bandwidth.
Getting inquiries from everything from advice on vendors, running back office on NetSuite, cloud strategy, etc.
Its pretty interesting the amount of activity Im seeing across the board.
Sales Contacts in the SaaS ERP ecosystem - I think theyre doing quite well.
We are seeing, once again, increased momentum on NetSuite. Mentioned that every new hire since the last conversation after Q4
has been NetSuite related. The main challenge he is facing is bandwidth, ability to hire qualified employees.
Thinks that NetSuite is doing a good job of addressing some of its prior weaknesses, especially in the manufacturing area. It wouldnt
surprise me if NetSuite incorporated a lot of the Plex features very soon.
Growth rate remains at double digit.
In terms of head to head business, we are seeing MSFT a lot more. Thinks that it's about 85% win rate for NetSuite.
Sales guys remain very optimistic and very busy.

Many of his customers are fast growing companies with $20-30M in revenue, which have a hodgepodge of spreadsheets or have
outgrown the capabilities of QuickBooks, and are looking for a more robust solution.
Thinks that demand has definitely increased as compared to a year ago. He is above his internal plan in Q1. Q1 grew between 50-70%
from a year ago. Hopes to double the business this year.
His firm is hiring aggressively as well to cater to the soaring demand. Have already added 4 additional people in 2012. We haven't
had enough experienced consultants to deal with the work flow that we have. Thinks that NetSuites big partners are also having
similar resource problems as they are reaching out to his firm for support.
Sales guys I think they are doing well!
The only problem he sees is in the pricing front. Mentions that NetSuite just increased their pricing. Thinks that it's going to weed
out some of the smaller clients. Magnitude increase in price It varies module to module, some stays the same and some increase
significantly.
NetSuite is trying to go up-market but the accounting functions for NetSuite may not be deep enough yet to support large enterprise
needs. Depends on the sophistication of the accounting environment from firm to firm.
I do see us running up against Great Plains more than we ever have before. Thinks that part of the reason is that NetSuite has
matured a lot and its capabilities have expanded. Great Plains is squarely mid market and can handle bigger companies and NetSuite
is playing right in that space now. Other than MSFT, it's QuickBooks who they see most in competitive deals.
NetSuite has an appeal given that it is a cloud based solution.we have got a couple of deals and a couple of very attractive ones in
the pipeline right now. Helped them close a deal in Q1 but it drifted into Q2. Mentions that its a mid six figure deal for phase one
to be closed in Q2 and a 7-figure deal over an 18-24 months time frame. Its a global company with operations in Australia.
Had a head to head competition with Business ByDesign in his first deal after signing the partnership with NetSuite. I thought NetSuite
would win but they won by a LOT.
Thinks that without question demand for NetSuite is robust and trending up.
Growth: We are going to have the opportunity to do a multiple y/y Sees a lot of opportunity in the space and is willing to make a
lot of specific investment around the NetSuite Partnership.
As compared to the big legacy vendors, thinks that the NetSuite sales channel is entrepreneurial. They are very interested in getting
deals, they are flexible and they are fast, they turnaround decisions very quickly.
Had a MSFT line of business and used Dynamics line of products to replace tier one ERP products. MSFT products didnt scale
as easily, they were more difficult to procure and implement, they were on-premise and was making things costlier for the clients.
Thinks that by partnering with NetSuite, will be able to move more quickly. The NetSuite implementations he has been involved
with so far have gone dramatically faster mainly because of the SaaS based component of the software.
Thinks that NetSuite could pique the interest of some of the bigger companies if they focus on highlighting these faster implementation
cycles in their marketing message. They do have a bit of a small company software image among the bigger guysthats something
that has to overcome. Based on the Oracle infrastructure under the hood, he thinks there is no reason it cant scale. The main
question is do they have the functionality to meet the requirements of a more complex organization.
Thinks that the other mid-market solutions like Great Plain, Epicor, Intacct etc. dont deploy globally well at all.

N
April 2014
April 25, 2012
Does NetSuite implementation work. NetSuite Services is 70-80% of revenue. Mainly deal with customers after they have implemented.
Typically NetSuite implementations are done very poorly and so his firm picks these poor implementations and fixes them. More,
recently have been chasing license deals.
Seeing a pretty flat demand environment. We are not seeing an increase.its certainly not through the roof at this point.
Q1 were just below plan. Accustomed to grow at the 30-40% range. But our Q1 was equal to last year. Thinks competition
among NetSuite service providers is the main factor followed by higher price point for a lackluster performance.
NetSuite looks the best and sells the best when it is looked at as an entire Suite of application .NetSuite is great when its used
across all aspects of the business and there is one customer record. Thinks that people dont buy NetSuite CRM+ standalone and if
someone does it would be if he has a plan to switch on the accounting features later on.
Seeing OneWorld a lot in the market. And it is getting better and better and stronger and strongerIts definitely picking up traction
It wasnt that great when it came out, but that was several releases ago and now its definitely something thats very good.
Sees Infor, Intact and all of Dynamics. Among the MSFT Dynamics product lines, seeing AX a lot, which is the higher end ERP;
followed by Great Plains and Navison. A little bit of Workday as well, but not a whole bunch.
Investment Thesis
NetSuite is a leader in comprehensive on-demand offerings that enable customers to run their entire business operations. Its offerings are
primarily aimed at SMBs. NetSuite is the only vendor we are aware of that provides a single-system on demand suite which spans back-
office (ERP), front-office (CRM), and eCommerce capabilities. Other successful on demand vendors have specialized in a best-of-breed
niche such as sales force automation, travel & expense processing, or PR automation. Because all elements of NetSuite's application suite
share the same transaction and customer data in a single database, customers can run their entire business without facing a burdensome
integration task. Therefore, NetSuite represents a fundamentally new concept. Many small and medium sized entities struggle to automate
their business due to the complexity and inefficiency of traditional client-server software. If NetSuite can eventually make it easy for
SMBs to run their business by simply "plugging into the cloud," then we believe it will be able to address a very real need for tens of
thousands of customers or more.

N
April 2014
February 2, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Neutral
Price Tgt -- $34.00
FY11E Rev (mil) -- $236.5
FY12E Rev (mil) -- $292.8
FY11E EPS -- $0.16
FY12E EPS -- $0.28
Price $42.63
52 Week High $48.03
52 Week Low $25.32
Yield: NM
Rev (mil) 2010A 2011E 2012E
Mar $44.3A $53.4A $66.9E
Jun $47.1A $57.8A $72.0E
Sep $49.7A $61.0A $75.3E
Dec $52.1A $64.3E $78.6E
FY $193.1A $236.5E $292.8E
CY $193.1A $236.5E $292.8E
FY RM 15.7x 12.8x 10.3x
CY RM 15.7x 12.8x 10.3x
EPS 2010A 2011E 2012E
Mar $0.02A $0.03A $0.06E
Jun $0.03A $0.02A $0.07E
Sep $0.04A $0.05A $0.08E
Dec $0.04A $0.06E $0.07E
FY $0.13A $0.16E $0.28E
CY $0.13A $0.16E $0.28E
FY P/E NM NM NM
CY P/E NM NM NM
NetSuite, Inc. (N $42.63)
Neutral
Checks with Key Partners Indicate Ongoing
Healthy Demand, Traction Upmarket
CONCLUSION:
We recently spoke to 6 key NetSuite partners and believe that the company will
post good Q4 results. Most contacts experienced a healthy demand environment
for NetSuite, both for the core ERP product and the premium OneWorld product.
Contacts also highlighted that NetSuite is successfully moving up-market and more
frequently competing with the legacy mega-vendors such as SAP and ORCL for two-
tier deployments. A good vibe was observed in the SaaS ERP ecosystem and contacts
believe that sales teams are likely achieving/beating their numbers for now. As we
have indicated previously, NetSuite enjoys a relatively more insulated demand picture
in the near-term because of the later-stage ERP adoption cycle. We are encouraged
by the apparent traction, but believe NetSuite is priced for the best possible revenue
growth scenario at the current valuation of 10.4x EV/FTM revenue, representing the
richest valuation in the software industry. Maintain Neutral.
Checks Indicate Healthy Demand Environment: Feedback from our

conversations with 6 key contacts in the NetSuite ecosystem suggest that NetSuite's
ERP solutions continue to see healthy demand. The majority of contacts seem to be
encouraged by the growing momentum of NetSuite's products, out of which a few
highlighted substantial headcount additions to keep up with the demand. Contacts
see demand mainly in the core ERP product as well as the OneWorld product, with
some pockets of excitement around the Webstore/e-commerce add-on. Contacts
also believe that NetSuite has a solid pipeline heading into 2012. Partners sense
a good vibe in the ecosystem and believe that reps are "probably doing pretty
well" and likely beating their numbers. Among the negative comments, one of the
contacts referred to a few NetSuite projects being pushed out from Q4 2011 to Q1
2012 while another contact experienced sporadic pull-back in on-demand spending
by IT professionals trying to protect their turf.
NetSuite Moving Up-Market: A few contacts observed NetSuite more frequently

penetrating into larger customers and hence driving an increase in deal sizes.
Moreover, contacts mentioned that NetSuite is sometimes moving beyond
departmental systems, leading to replacement of an existing full scale ERP system.
Contacts also suggest that NetSuite is playing into the "front-end" of the ERP
renewal cycle: as large companies evaluate their options before renewing a contract
with the legacy players, NetSuite is increasingly making the short-list for vendors
evaluations. However, contacts also added that for very large organizations,
NetSuite is still a departmental play and tends to co-exist with the legacy ERP
vendors.
**Detailed Industry Feedback in the next few pages***
Neutral, $34 PT (7.8x EV/2012E Rev of $292.8M + $120.7M net cash, 71M s/o).

N
April 2014
February 2, 2012
Industry Contact 1
Been very busy and in some cases had to turn down work because of staffing issues. NetSuites contribution - pretty much all of it.
Thinks the market is really moving towards NetSuite. Nowadays dont get calls for SAP, MSFT Dynamics or SaaS based providers
like Workday and Intacct. Seems like most of our calls are coming for NetSuite.
Thinks demand is accelerating year over year. NetSuite practice doubled in Q4 y/y off of a pretty good base line.
Sees demand across the board, but recently seeing a lot of e-commerce demand. Explains that the advantage with NetSuite is that their
e-commerce is very tightly integrated with the ERP system and the disadvantage is that their e-commerce templates are not that easy
to customize as say a Magento template (another web eCommerce provider). About the NetSuite eCommerce offering - all things
considered, its a simpler process to get it up and running.
Core ERP Product demand - They [NetSuite] are doing great. Thinks that there is continued demand for NetSuite's core ERP product
as they continue to innovate and expand the feature set of their product offering. For example, a lot of new features have been introduced
in the supply chain side such as MRP (Materials Requirements Planning), Inventory projections and planning features, such that
many customers now dont need to integrate with custom MRP tools. A lot of the features that NetSuite didnt have a year ago,
that Plex Systems had, NetSuite has started to get those features, although Plex Systems is probably still the better choice for Heavy
Manufacturing clients.
Thinks that increasing feature set might result in a longer sales cycle as customers try to evaluate the various features. But hopefully
the pipeline will make up for that. You can go through a month where nothing closes because everyone is evaluating, and the next
month they could all close.
Sees a robust pipeline going forward. We have various clients who are at various stages of making a decision. Have a better visibility
of the pipeline than we did last year According to recent conversations with [sales contacts in the SaaS ERP ecosystem], thinks
NetSuite has lot of deals in the pipeline.
Haven't seen any slowdown in Q4 whatsoever from his business point of view.
Thinks that sales contacts in the SaaS ERP ecosystem are excited coming off the quarter from what I can tell and assumes that they
are meeting their numbers. They are probably doing pretty well.
Industry Contact 2
Work closely with NetSuite sales reps and gets inquiries from them. Based on the number of requests he gets, thinks that the volume
of requests was much more in Q4 and continuing into 2012 as compared to a year back. From all indications, they are doing well.
Thinks that NetSuite has a good demand trajectory and a good pipeline going forward Certainly seems like that, anecdotally.
Product specific demand

Thinks that the bulk of the requests he is getting is around the core NetSuite product and the OneWorld product.
Thinks that CRM+ is not a best seller for NetSuite at all.
E-Commerce Product (Webstore) - There will be some very significant changes in e-commerce.they are pushing that a lot
and they are investing in it. Thinks that it is becoming more prominent from its stepchild status couple of year back.
Pricing: It is sold as an add on module @ $4800/company/year + couple of thousands for every additional store you
run + Net-Analytics product (optional) @ $3600-4800/company/year.
Works well for small customers, but hasnt been updated in a while. Have been band-aided and updated in patches
and seems like a product which is a decade old.
But it works well when it works.
Verticals - Thinks that the wholesale distribution vertical is doing well. There is lot of work there it's doing really well.
Thinks that [sales contacts in the SaaS ERP ecosystem] he interacts with are excited coming off the quarter and are beating their
numbers. At this point, the sales commissions are pretty well set over there and the reps are doing well. I think there is a really
good vibe.
They are getting into larger customers with larger licensing deals than before. But for really large companies, they are still more
departmental. Mid market they are getting a lot of deals done.
Thinks that 2-3 years back, NetSuite was claiming that they were competing with the big legacy vendors like ORCL and SAP but it
was all lip service and they were not competing directly. Thinks that the environment is changing now. I am working on multiple
deals right now this quarter where NetSuite is competing with ORCL and SAP. Thinks that NetSuites products still have some gaps
as compared to an SAP, but in certain situations they can compete, no doubt about that. Have seen rip-and-replace of legacy vendors,
but typically it is in the lines of a two-tier ERP system in which NetSuite co-exists with the legacy vendor.

N
April 2014
February 2, 2012
Market saturation/Growth areas - There is still more that they can do in the mid market. Thinks that they are competing against
Great Plains (Microsoft) and losing to them in some cases mainly due to customer preference. Has also seen NetSuite lose a few deals
to Epicor and some other solid mid market players. I certainly dont think that mid market is saturated and there is still plenty of
room for them to grow and become a dominant leader in that space, especially for replacement type scenarios. Thinks international
could be big, but have to invest in better localization.
Q4 grew 85% y/y and increased headcount substantially. But thinks Q4 was down sequentially for his business, as some of the deals
got pushed into Q1 2012.
Industry Contact 3
See continued and accelerating acceptance of cloud solutions for enterprise systems. Thinks that the move into cloud is moving
beyond departmental systems and large enterprises are realizing that the value proposition is too compelling to ignore. Also seeing
less resistance to some of the common objections like enterprise data being on public cloud, security concerns, response time etc. I
won't say we are there broadly yet, but you can certainly see and feel the movement in that direction. Seeing interest from larger and
more complex companies multi-site, multi-language, multi-currency kind. This clearly bodes well for NetSuite as being a mature
player with a large number of customers and rich functionality they are gravitating towards the top of the to be considered under
cloud list, without question.
Thinks that NetSuite is playing into the front-end of an ERP renewal cycle and its maturing cloud ERP product is making companies
evaluate it before renewing their existing legacy ERP solution, many times resulting in a complete rip and replacement project. The
main losers would be Oracle, SAP, Microsoft the legacy leaders. The last such window of time was during the year 2000.
The increasing momentum among larger more complex companies is driving more business from partners as well for more niche point
solutions that integrate into NetSuite. This might be driving the SuiteCloud momentum.
Thinks that the momentum of the OneWorld product continues.
Thinks that there is certainly a growth focus with the organization. From the demand he is seeing, he assumes that NetSuite is doing
pretty good. Also thinks that the pipeline is pretty solid.
Havent seen Business ByDesign (SAP) in any specific pursuits or even in any competitive situations. Also, acknowledges that there
have been some increasing investments in the ERP area in the Force.com side (salesforce.com).
Havent seen any projects being pushed out from Q4 to Q1 2012 as a result of budgetary reasons.
Industry Contact 4
Just completed a NetSuite deal very recently to mark the start of the year. Did 4 net new deals last year.
Didnt do any new deals in Q4. Had a customer renew and there was a slight price increase and negotiations around it. Had a few
customers buy some additional seats etc. Also, lost a sale to Intacct.
Still engaged in a lot of conversations. Interest levels still there, as it was last quarter. Things are going along and expecting a better
2012 than 2011.
Have come across a new NetSuite competitor called Accumatica, which one of his clients brought forward. This company offers on-
premise ERP solution to SMB but have recently got their code running on MSFT Azure and calls it the SaaS offering. They are
positioning themselves squarely at NetSuite.
Sales guys [in the SaaS ERP ecosystem] sound quite bullish. Things look strong.
There is a new release of NetSuite coming up next month that might have some price adjustments. Also, suspects some capabilities
that would compete against Aria and Zuora in the field of recurring online billing.
Industry Contact 5
Relationship been about a year. Pretty small practice in terms of headcount. Have a few existing NetSuite customers. Added one in Q4.
Work primarily with small clients who are coming off of QuickBooks (Intuit). These clients are interested in a BPO option in which
they can outsource say the bookkeeping to someone else. But NetSuite doesnt offer that option and is much pricier for firms of that
size. They feel that they would be spending a lot of money and not using all the great things that NetSuite has. Hence, she is more
and more working with the other cloud accounting firm - Intacct.
NetSuite primarily focuses on larger companies. We love NetSuite and if we could use them to be our primary we would. Thinks
that NetSuite is more intuitive as compared to Intacct.
Have seen an increase in interest/curiosity regarding the capabilities of NetSuite.

N
April 2014
February 2, 2012
Thinks that the [sales representatives in the SaaS ERP ecosystem] are excited coming of the quarter and believes that they made their
numbers.
Sees a lot of defection from QuickBooks. QuickBooks users are pretty much our primary target.
Industry Contact 6
Did fewer deals this quarter.
Seeing some IT guys pull back on their on-demand spending.
Some of these IT guys arent wanting to give up on managing their on-premise environments, so are putting up roadblocks to on-
demand solutions.
Believes his customers have money to spend, but he is losing to IT guys protecting their turf.
NetSuite is looking to make a big push into ERP of online retailers, like Ralph Lauren.
He lost a deal to a customer that went with an on-premise solution built on AppExchange that serves as a substitute for a NetSuite
rev rec capability.
Increasingly running into competition from Oracle and SAP.

Investment Thesis
NetSuite is a leader in comprehensive on-demand offerings that enable customers to run their entire business operations. Its offerings are
primarily aimed at SMBs. NetSuite is the only vendor we are aware of that provides a single-system on demand suite which spans back-
office (ERP), front-office (CRM), and eCommerce capabilities. Other successful on demand vendors have specialized in a best-of-breed
niche such as sales force automation, travel & expense processing, or PR automation. Because all elements of NetSuite's application suite
share the same transaction and customer data in a single database, customers can run their entire business without facing a burdensome
integration task. Therefore, NetSuite represents a fundamentally new concept. Many small and medium sized entities struggle to automate
their business due to the complexity and inefficiency of traditional client-server software. If NetSuite can eventually make it easy for
SMBs to run their business by simply "plugging into the cloud," then we believe it will be able to address a very real need for tens of
thousands of customers or more.

N
April 2014
Ap r i l 1 , 2 0 1 4
Oracle Corporation (ORCL) Overweight
Why is ORCL Surging? Cloud Traction.
PRICE: US$40.91
TARGET: US$46.00
15x CY14E EPS of $3.06
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY14E EPS US$2.92
FY15E EPS US$3.32
Shares Out (mil) 4,575.0
Div (ann) US$0.48
Yield 1.17%
Fiscal Year End May
Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14
42
40
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
ORCL shares have been surging higher, while SaaS stocks have been pushed down from
recent highs, including Concur (down $32), Ultimate Software (down $33), and NetSuite
(down $25). To resolve this stunning dichotomy, we reached out to 50 Oracle resellers and
asked them to identify the single biggest trend theyve observed in the Oracle ecosystem
in recent months. The detailed qualitative feedback tilts noticeably toward the notion of
Oracles cloud offerings gaining traction, with comments like the cloud model for ERP
is the future for Oracle. Partners also mention growth in Exadata/ODA and increasing
enterprise technology budgets, but Cloud is mentioned more prominently. We think
ORCL shares can grind higher toward an S&P 500-type multiple ~16x based on Cloud
traction. Raising PT to $46.
Quotable Quotes
(+) "I see Oracle taking the lead in the cloud and big data arenas. Customers appear
to be seeking to partner with a strong combined hardware and software support
company like Oracle."
(+) "There is significant anticipation of what Oracle's cloud offerings will be this year."
(+) "High demand for Cloud computing, Oracle Fusion."
(+) "Customers moving to the cloud. They are leveraging hybrid clouds to launch into
the cloud."
(+) "The cloud model for ERP is the future for Oracle. They need to be quicker."
(+) "Increased opportunities in the pipeline due to increasing budgets for technology
investment at the enterprise level."
Price Target Change: $46 (was $43) = 15x (was 14x) CY14E EPS of $3.06. Higher
multiple reflects higher peer group multiple of 15x.
*** SEE PAGES 2-3 FOR FULL DETAILED FEEDBACK ***
Macroeconomic outlook, integration of acquisitions, and competition.
Oracle Corporation is a leading enterprise software provider.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
Aug Nov Feb May FY CY FY RM CY RM
8,209.0 9,113.0 8,970.0 10,961.0 37,253.0 37,595.0 5.0x 5.0x
8,381.0A 9,283.0A 9,315.0A 11,489.6 38,468.6 39,154.1 4.9x 4.8x
8,669.3 9,680.1 9,744.4 12,132.2 40,226.0 4.7x NA
Aug Nov Feb May FY CY FY P/E CY P/E
0.53 0.64 0.65 0.87 2.68 2.79 15.3x 14.7x
0.59A 0.69A 0.68A 0.96 2.92 3.06 14.0x 13.4x
0.64 0.78 0.80 1.10 3.32 12.3x NA
Non-GAAP EPS

O
R
C
L
April 2014
Apr i l 1 , 201 4

Exhibit 1
POSI TI VE COMMENTS ( N=33 )
More interest in the cloud.
Cloud Applications and Solutions.
Cloud, Hosting and SaaS solutions.
There is significant anticipation of what Oracle's cloud offerings will be this year.
I see Oracle taking the lead in the cloud and big data arenas. Customers appear to be seeking to partner with
a strong combined hardware and software support company like Oracle.
Cloud infrastructure initiatives.
High demand for Cloud computing, Oracle Fusion.
Customers moving to the cloud. They are leveraging hybrid clouds to launch into the cloud.
Application modernization and cloud services.
Looking for Cloud based solutions.
Cloud adoption.
More customers are focusing on Cloud based applications.
Cloud.
Cloud computing.
Cloud based application services.
Greater interest in ODA [Oracle Database Appliance], customers continuing to invest in traditional
technology stack.
Exadata Database Machines
Moving to ODA [Oracle Database Appliance] or Exadata.
Exadata is finally gaining momentum with customer base, but Oracle is changing the messaging and is now
pushing SPARC heavily.
Exadata and ODA [Oracle Database Appliance] for server consolidations.
Growth in interest of Fusion solutions.
Big data.
With respect to our specialization area, Oracle Webcenter not seeing much of growth. However, noticed that
SOA, ecommerce and CX [Oracle RightNow Customer Experience] area seems to be picking up which we
see as a growth area.
Reinvestment and re-evaluation of the Oracle suite.
Uptick in large Oracle Technology stack software opportunities.
Customers are starting the new year with new projects - especially Oracle ERP and including the hardware
infrastructure to support the software implementation.
Increased opportunities in the pipeline due to increasing budgets for technology investment at the enterprise
level.
Primavera [Oracle Project Portfolio Management].
Customers are interested in product demos and are energized to spend new budgets. Customers seem
reluctant to spend money to train their users on the software they have invested in.

O
R
C
L
April 2014
Apr i l 1 , 201 4

Exhibit 2
POSI TI VE COMMENTS ( N=33 ) , CONTD.
I've seen a slight uptick in Middleware/custom development.
Strong Demand in Revenue and Billing Management System. Big Financial Institutions, Insurance
Companies looking forward for Revenue and Billing systems.
More Application upgrades / migrations due to govt approval to proceed.
Exhibit 3
NEGATI VE COMMENTS ( N=1 0)
Customers are embracing Cloud solutions and some of the long term frustrations of paying the 22% support
and having "shelfware" are driving customers to consider options. Many EBS R12 upgrades are getting
pushed out or opening up smaller customers to consider moving off of Oracle which is concerning.
Hardware continues to trend downward..
Customers are waiting before they commit to anything Oracle proposes.
More procurement scrutiny.
The pricing is becoming a sensitive matter. Due to policy changes within Oracle, the discounts and the
process takes too long. SAP and Microsoft are very aggressive on the applications side and so are IBM & HP
on the hardware front. It's always a tough call and Oracle is losing some business due to not being able to
lower their margins.
Resistance to upgrades.
Customers are continuing to look more at virtualization and cloud computing including Oracle's competitors
in the cloud space such as NetSuite, WorkDay, and Salesforce.com.
Confusion with customer understanding of products.
No long-term vision for Oracle EBS, so clients are wary about upgrading.
Customers delaying purchasing a bit.
Exhibit 4
MI XED COMMENTS ( N=7)
Consolidation leading to decrease of SE [Standard Edition] and SEO [Standard Edition One] deals and
increase of EE [Enterprise Edition] and Exa deals.
Looking to use more of their existing investments.
Consolidating servers and licenses.
Platform consolidation.
Oracle Sales reps are slow to adopt cloud technologies. JD Edwards in the ERP space is on fire. The cloud
model for ERP is the future for Oracle. They need to be quicker.
IT continues to face budgetary pressure and look for cheaper alternatives and scale back projects.

O
R
C
L
April 2014
Ma r c h 1 8 , 2 0 1 4
Oracle Partners Constructive on 2014
PRICE: US$38.22
TARGET: US$43.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$43.00
FY14E EPS US$2.93
FY15E EPS US$3.32
Div (ann) US$0.48
Yield 1.26%
Fiscal Year End May
42
40
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
We spoke with six key contacts in the Oracle ecosystem to provide an in-the-trenches
view of Oracle's third quarter mid-range trends. Key takeaways: 1) Oracle is advancing
its level of channel support and "working for channel partners everyday", as long as
channel partners develop their expertise in part or all of Oracle's Red Stack; 2) Contacts
feel more "optimistic, bullish" today about CY 2014 than they did one year ago about
CY 2013; 3) Oracle's marketing message about big data is increasingly resonating with
clients; and 4) Fusion applications are garnering more interest, but interest seems be
remain high-level. As a reminder, our Oracle partner survey suggests at least a mid-
single-digit growth trajectory for partners and thus suggests attainability of forecasts in
CY14. OW, $43 target.
Notable Quotes:
(+) Many partners that I talk to are off to a better start two, three months into the
year than they were 12 months ago. And I think many are much more optimistic,
bullish, on their prospects as partners in the Oracle ecosystem in 2014 than they were
in calendar 2013, which I think bodes well, for those I know and talk to, as far as
Oracles FY 2015 is concerned.
(+) For resellers, integrators, and enablers, people who make Oracle available to the
public, [multitenant is] huge. 12c has multitenant capability built into it. Thats big.
(+) Seeing more interest from customers around Oracles cloud offering, much better
than a year agodefinitely compared to two years ago
(+) Oracle is strengthening on the channel side, evolving in the field.
(+) Last year the spending situation with the clients was not very clear. This year at
least it seems like the budgets are more aligned. Projects are inclined to be approved.
There seems to be some certainty in terms of spending.
(=) Oracle spends its time doing the really unsexy, boring stuff, that Oracles always
done, which is worrying about scalability and security. Super boring but absolutely
vital to run a business.
(-) I would say in general, overall, it's [performance compared to last quarter]
probably kind of flat for them. They want to see more. But a lot of these guys are still
newtheir pipelines are not as robust as they need to begoing to take them time.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,595.0A 4.7x 4.7x
8,381.0A 9,283.0A 9,306.4 11,464.2 38,434.5 39,066.5 4.6x 4.5x
8,669.3 9,680.1 9,735.5 12,105.2 40,190.2 4.4x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 14.3x 13.7x
0.59A 0.69A 0.69 0.96 2.93 3.07 13.0x 12.4x
0.64 0.78 0.80 1.10 3.32 11.5x NA
Non-GAAP EPS

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Current trends:
Many partners that I talk to are off to a better start two, three months into the
year than they were 12 months ago. And I think many are much more optimistic,
bullish, on their prospects as partners in the Oracle ecosystem in 2014 than they
were in calendar 2013, which I think bodes well, for those I know and talk to, as far
as Oracles FY 2015 is concerned.
However, he notes that the most successful Oracle partners are bullish because their
professional services practices have really picked up on the back of Oracle product
sales. These partners he talks to are doing as little as 90/10 services/product sales
mix. His business is going great, but is anchored by services. For every dollar in
Oracle product he sells he can make two to three dollars in service revenue. The
service revenue margins are 30-35% and the hardware margins are less than 10%.
On the Exa-platform set, margins are 0-5%. The cost of the sale in Exadata makes
selling it entirely unprofitable, but this matters very little as long as theres an
attractive service component.
He summarizes that yes, partners are indeed doing better at selling Oracle products
than a year ago, but that the improvement in the services portion of their businesses
is improving at a faster rate than the product portion.
He thinks his practices Oracle product revenue growth will be greater than 20%
this year.
The investment necessary to have the machines to test drive, the talent around
product knowledge, is expensive. The partners get the same discount as the
customer on the hardware, but distributors like Avnet and Arrow are stepping up
with programs so that hardware is easier to access for resellers.
Oracle Multitenant:
For resellers, integrators, and enablers, people who make Oracle available to the
public, [multitenant is] huge. 12c has multitenant capability built into it. Thats big.
He opines that from a purely financial standpoint, the fact that Oracle continues
to add options to their core product is great. Oracles investment in enhancing the
core database is absolutely beneficial to them because its add-on revenue. Every
time you add on a dollar in software theres 22 points in recurring revenue for
maintenance.
In addition, he was recently at a channels event and chatted with some people at
SAP. SAP is trying to make HANA sound like the second coming. SAP is adamant
about getting people off of Oracle and onto HANA. One of the SAP reps went on
about how antiquated the Oracle database platform is. He relates that SAP reps
can say that all they want, but close to half of any enterprise in North America, and
maybe on the planet, is running Oracle.
What Oracles doing by adding options like Multitenant, they continue to build a
bigger wall, from a market penetration standpoint, around their database clients for
the HANAs of the world to get over. They keep making the wall higher and higher
and thicker and thicker. Its a great strategy on a bunch of levels. He observes that
the partners in the channel are going to make a little money selling it, theyre going
to make a bunch of money delivering it and partners make money downstream as
the customers require services. Oracle makes 22 points in maintenance, and from a
defensive standpoint it keeps the HANAs or Hadoops out.
Channel strategy:
I think Oracles channel strategy under Tom LaRoccas leadership is coming
together brilliantly.
The amount of muscle Oracle has put into the channel has multi-fold increased.
Oracle is out there working for channel partners every day. If partners leverage
that support theyre going to do great.
Its incumbent on partners to figure out how to be Red Stack capable. Partners
need to take all seven layers of Oracles Red Stack and figure out which, if not all

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seven, theyre any good at, and align themselves to be a collaborative integrator with
Oracle.
Oracle is strengthening on the channel side, evolving in the field.
The demands on channel partners are greater because there are more products and
they are more complex but We have a channel champion in Tom LaRocca who is
really helping us.
Industry contact 2
What I find is that when we talk to customers, no one has a clear definition of what big
data is. It means something different to everybody. If you talk to a marketing person they
have no idea what Hadoop is. Theyre thinking Tableau, Birst, Good Data, etc. If you talk
to an infrastructure person, some of them think of it as straight up storage. Its all over the
board.
About a year ago Oracle released its Big Data Appliance. Nobody knew what it was
and frankly that wasnt as much of a concern for Oracle as determining their corporate
marketing message around big data. Oracle looked at surveys to see where the biggest
spending in big data was taking place, and they decided that the clear winner was data
management. Companies are going to need to store more data. Oracle spent a lot of time
doing road shows and marketing campaigns to C-Level individuals. These road shows are
still going on.
Oracle thinks that the message it put out there about what big data is, and what the end
game is for all CIOs, which is how to monetize your data, is the message that needs to go
out. No one objects to that.
He opines that the confusion comes when other vendors come out and say you dont
need traditional databases anymore. You can do everything on Hadoop. And they lose a
little bit of credibility because customers arent dumb. Customers know Hadoop is good at
parallel or batch processing but wouldnt ever considering putting OLTP there. So why do
Cloudera and Hortonworks think [customers will] listen to the message?
He believes Oracles messaging is that you should want them both, a Hadoop environment
and a relational environment. Based on what a customer is trying to do, they should choose
what they want but the technologies should all work interchangeably and thats where
customers start acknowledging in a very affirmative way and they totally agree. When you
buy a book on Amazon you use a NoSQL database, a relational database and a Hadoop
environment all in one purchase. In two minutes you use the products the way they were
designed to be used and at their best potential.
All these customers already have a lot of Oracle database and they are sitting there going
you know, this totally makes sense. A lot of these guys have Exadata, so rolling in a Hadoop
cluster that just plugs in with one cable makes perfect sense to them.
He also explains that organizations have really enjoyed playing with Hadoop, but in light
of recent data breaches, everyone is stepping back in saying that theres real value in mining
data, but has anyone thought of the security?
Oracle spends its time doing the really, unsexy, boring stuff, that Oracles always done,
which is worrying about scalability and security. Super boring but absolutely vital to run
a business.
While people may complain about Oracles sales cycle, about their sales teams, about the
aggressive nature of their sales force, ultimately customers say the bulletproof nature of
the Oracle database is something I cant live without.
He estimates Oracle will do its next release of Cloudera Hadoop fairly soon, and expects it
will have security all the way through except for LDAP, which may come soon after.
He believes there will be a hockey stick effect as customers will have an exhale and say I can
connect to my Exadata with one InfiniBand switch and Im moving very little data around,
but its secure in the Oracle ecosystem.
This is where Oracle has focused because customers have said they dont want to move a
lot of data around and they need security.
He indicates that Hadoop vendors are in a co-opetition, and if you read the tea leaves,
theyre trying to create a database from an unstructured world up. Theyre adding SQL to

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it, theyre adding search, all these widgets that they can charge more for in hopes of creating
a full-fledged database from a Hadoop environment. Then they can say this a cheaper, more
scalable way to host your data. Even Facebook will tell you Hadoop isnt a panacea, they
need a relational database too.
HortonWorks is trying to be the most open version of Hadoop, and the [speculation from
this contact] is theyre trying to sell themselves to Microsoft.
People dont realize that from Oracle 8i, you can actually use unstructured data in the
Oracle relational database. Going back 10 years Oracle has been able to do this.
Industry contact 3
Since the new year he notices a pickup in activity in BI and analytics projects.
In responding to whether 2014 is better than 2013 in terms of demand, he comments I

think so. Definitely. Last year the spending situation with the clients was not very clear. This
year at least it seems like the budgets are more aligned. Projects are inclined to be approved.
There seems to be some certainty in terms of spending.
He thinks the improvement this year is partly due to projects being pushed out and delayed
last year. A lot of this is pent up demand that [customers] either didnt feel comfortable
doing projects before a lot of these are carry overs from previous years. Thats what I
would say.
He observes that specific projects are being driven by advanced analytics. A lot of demand is
not for traditional BI, but that customers are more demanding in terms of how they want
to visualize the data.
He notes that customers want better latency. He used to have many discussions with
customers about running overnight reports, but that customers want refreshes more
frequently than nightly.
Another area where Oracle seems to have improved since last year, they realigned their sales
teams to better align with customer demand. There seems to much more clarity in terms
of who to call for something. Earlier there used to be multiple [reps] covering the account.
The customers were always confused about who does what. Now there seems to be, granted
its my perception, better clarity on who to call for something. It looks like the sales teams
and their engagement with the customer is better. I see less and less complaints about that.
From a technology perspective, I do see that the newer versions of the BI applications,
you see better integration within the Oracle tool sets. For example, [Oracle] GoldenGate
for zero latency. ODI for integration. OBIE for reporting. That type of product integration
seems to have been taken to the next level.
I think somewhere they have realized that they have lagged substantially behind. So they
are clinging to the core belief that we need to beef up the sales team in a big way [and]
automatically revenues will follow. That seems to be their thinking.
Mentions that earlier Oracle used to do across the board sales headcount increases, but now
Oracle is choosing certain key categories where they think they need to catch up or they
see growth, to increase sales headcount. Thinks that the sales engine is actually getting a
lot more strengthened. Adds that last month they substantially expanded their HCM and
CRM sales team and probably doubled or tripled their sales headcount as compared to
prior year. Also refers to social listening, marketing as a few of the other areas for which
Oracle is beefing up its sales headcount.
Refers to the database and middleware business as mature business and expects standard
growth in those areas. Thinks that the big data hype doesnt seem to be impacting Oracle
and the sales guys are in a very cozy state as far as database is concerned.
Notices that historically Oracle sales reps have been very end-of-quarter focused and very
transaction centric. However, in the last quarter, for the first time I see Oracle sales guys
talk futuristicI could see some sense of relief [And] comfort.panic was not there.
Speculates that Oracle might have changed the sales incentive structure to focus more on
longer term [annual] goals than short term [quarter end] quotas.
Talking about areas of demand, HCM there is a lot of interest In the marketing part
of Oracle, more conversations [not sales necessarily] are happening than what I expected
More conversations are happening around Fusion apps. Adds that customers used to view

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51 Oracle Resellers 1% Above Plan; Sequentially Better, Historically Consistent
PRICE: US$37.60
TARGET: US$43.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$43.00
FY14E EPS US$2.93
FY15E EPS US$3.32
Div (ann) US$0.48
Yield 1.28%
Fiscal Year End May
42
40
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 51 ORCL partners/resellers and found that they finished 1.0% above plan
in FQ3, marking an improvement from FQ2. Each of the metrics we track for Oracle
up-ticked sequentially in Q3 and remained within a consistent range. On balance,
partners expect Oracle to report revenue roughly in-line to mildly above expectations.
Results suggest stability and consistency rather than a powerful inflection point, but
Oracle partners see mid-to-high single digit growth in their own Oracle practices this
year, perhaps signaling Oracle is through the worst of its sales execution and hardware
shrinkage issues. We expect in-line results with some silver linings in Engineered Systems
and Cloud services. OW, $43 PT.
51 Oracle Partners 1.0% Above Plan; Suggests Consistent Growth Environment.

We surveyed 51 Oracle partners and on average these partners were 1.0% above
plan for their Oracle business in FQ3, demonstrating a seasonally normal sequential
improvement from FQ2. Additionally, 47.1% of partners saw a Better pace of business
while only 9.8% saw a Worse pace of business in FQ3. This results in a "net-better"
score of 37.3%, better than 30.9% last quarter, and slightly below the 42.9% from
FQ3 of last year. Regarding quarterly expectations, the difference between partners
expecting Oracle to be above quarterly expectations (15.7%) and those expecting
Oracle to be below expectations (11.8%) is much better than last quarter, when
9.5% expected "above" and 11.9% expected "below." Considering the data holistically,
in our view, there is no material change in the tenor or trajectory of the Oracle
partner ecosystem, although we are encouraged that Oracle's partners expect a growth
trajectory of mid-to-high single digits this year. We can debate whether Oracle will
grow 2% or 6% this year, but we think 0% or negative look increasingly unlikely
based on partner feedback. The growth rate cited by partners/resellers in their own
Oracle practices outpaces the recent growth rate of Oracle's "total software revenue,"
and this probably speaks to the resilience/stability of demand for the Oracle database
and middleware platforms within large organizations.
*** DETAILED data on page 2 ***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,595.0A 4.6x 4.6x
8,381.0A 9,283.0A 9,306.4 11,464.2 38,434.5 39,066.5 4.5x 4.4x
8,669.3 9,680.1 9,735.5 12,105.2 40,190.2 4.3x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 14.0x 13.5x
0.59A 0.69A 0.69 0.96 2.93 3.07 12.8x 12.2x
0.64 0.78 0.80 1.10 3.32 11.3x NA
Non-GAAP EPS

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Mar ch 1 7, 201 4

Exhibit 1
CURRENT AND HI STORI CAL SURVEY RESULTS

Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14` Q3:FY14
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41 53 42 40 41 42 51
%of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1% 0.4% 1.1% 1.4% -1.7% -0.5% 1.0%
Observed Pace of Business:
Better Pace of Biz 37.0% 57.0% 58.0% 79.0% 52.0% 62.0% 66.0% 60.5% 22.2% 41.5% 55.6% 52.6% 31.7% 39.6% 50.0% 47.5% 29.3% 35.7% 47.1%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9% 52.9% 42.9% 45.0% 51.2% 59.5% 43.1%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4% 7.5% 7.1% 7.5% 19.5% 4.8% 9.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3% 32.1% 42.9% 40.0% 9.8% 30.9% 37.3%
Expectation for ORCL Revenue:
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8% 13.2% 11.9% 20.0% 7.3% 9.5% 15.7%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1% 62.3% 76.2% 60.0% 65.9% 78.6% 72.5%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1% 24.5% 11.9% 20.0% 26.8% 11.9% 11.8%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3% -11.3% 0.0% 0.0% -19.5% -2.4% 3.9%
Expected Growth in Oracle
Practice, Current/Upcoming Year
Practice, Excluding Top 10%/Bottom 10%Outliers
9.9% 9.6% 11.5%
10.4% 6.5% 10.1% 8.5%
-0.2%
1.5%
2.5%
1.0%
-1.1%
0.4%
1.1%
1.4%
-1.7%
-0.5%
1.0%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14
ORCL Partners as % of Plan
-5.6%
26.9%
40.0%
42.1%
7.3%
32.1%
42.9%
40.0%
9.8%
30.9%
37.3%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
ORCL Partners Pace of Business Net-Better %
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-11.3%
0.0% 0.0%
-19.5%
-2.4%
3.9%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
ORCL Partners, ORCL Revenue Expectation,
Net-Above %


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On The Road with Oracle: Hardware Progress and Limited Emerging Mkts Exposure
PRICE: US$35.84
TARGET: US$43.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$43.00
FY14E EPS US$2.93
FY15E EPS US$3.32
Div (ann) US$0.48
Yield 1.34%
Fiscal Year End May
40
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
We recently hosted Oracle VP of IR Ken Bond in two days' worth of investor meetings.
No updates or near-term views were provided, but some thoughtful perspective was
offered as follows: 1 (+) The positive-sloped growth trendline of the Hardware business
should continue and move into positive territory; 2 (+) Oracle is theoretically past the
potential for sales mis-execution stemming from the re-org; 3 (+) Limited exposure
to emerging markets and low likelihood of NSA-linked demand issues; 4 (+) the
12c database "pluggable container" could be the biggest database option ever; 5 (+)
core software business growing 5-6% and could grow high-single-digits in a better
environment; 6 (-) But Oracle didn't offer a rosy spending picture ("2014 smells like
2013"); and 7(-) Hiring pace is likely slowing, not accelerating. We reiterate our
Overweight rating and $43 target based upon earnings resiliency and valuation.
Hardware Growth Shouldn't Be a One-Quarter Phenomenon. Oracle has a very weak

track record in forecasting its Hardware Systems Products revenue trend since it
closed the acquisition of Sun Microsystems in 2010. However, it's been clear that a
crossover should occur at some point, as the high-growth Engineered Systems business
would eventually offset the declining commodity server business. At this point we are
more inclined to believe that the hardware business could cross over into sustainable
growth, thereby alleviating a painful drag on total reported revenue and EPS growth.
Our rationale is that Engineered Systems have now reached 30% of the hardware
business and the trendline has essentially reached the crossover point. Hardware
revenue growth in the last six quarters has moved from -20% to -17% to -16% to -9%
to -7% to flat. Guidance calls for -2% to +8% growth in hardware product revenue
for Q3 (Feb) and we infer that the positive-sloped growth trendline should continue.
Theoretically Past the Potential for Sales Mis-Execution Stemming from the Re-
Org. In June of 2012 we believe Oracle initiated a material Sales re-org, shifting its
organization away from a product focus and more toward a functional focus, for
example a focus on Human Resources. The following couple of quarters were decent,
but then ORCL tripped itself up in the February-2013 quarter (a lagging effect of the
sales re-org) and again in the May-2013 quarter, which was also complicated by issues
in Australia, Japan, and Brazil stemming from currency and macro effects. The last
two quarters (August-2013 and November-2013) have felt more stable, in our view. In
our meetings, Oracle made absolutely no commentary about current conditions, but
we would be surprised if the company were to cite sales mis-execution or re-org-related
issues rearing their head again, given that the re-org occurred roughly 18 months ago.
***CONTINUED ON PAGE 2***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,595.0A 4.4x 4.4x
8,381.0A 9,283.0A 9,306.4 11,464.2 38,434.5 39,066.5 4.3x 4.2x
8,669.3 9,680.1 9,735.5 12,105.2 40,190.2 4.1x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 13.4x 12.8x
0.59A 0.69A 0.69 0.96 2.93 3.07 12.2x 11.7x
0.64 0.78 0.80 1.10 3.32 10.8x NA
Non-GAAP EPS

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Additional Detail
Limited Exposure to Emerging Markets and Low Likelihood of NSA-Linked Demand

Issues. By our estimates, Oracle has very low single-digit percentage exposure to each of
China, India, Brazil, and Russia. And while the numbers are small, Oracle has recently
been performing well in China, in sharp contrast to Cisco's recent commentary. We would
not argue that Oracle is immune to overseas issues; clearly a potential combination of
Asian problems (particularly in Japan), currency issues, and emerging-markets woes have
impacted Oracle once in a great while and could do so again. However, Oracle should not
screen toward the top of the list for companies exposed to or intensely concerned about
emerging markets issues. Furthermore, we see a lower likelihood of NSA-linked technology
demand issues for Oracle than for others. Although Oracle was apparently temporarily
implicated in the NSA's operations, we don't see a viable non-US database alternative. The
database market is dominated by Oracle, Microsoft, and IBM; in contrast, a US-based
provider of networking gear could have to contend with a redirection of orders to China-
domiciled firms such as Huawei and ZTE.
12c Database "Pluggable Container" Could be the Biggest Database Option Ever. We
struggle to concisely describe the technology advancements in the 12c database, but suffice
to say that our contacts have repeatedly told us that the pluggable database architecture
is a big departure and that it could fundamentally change the whole lifecycle of Oracle's
software because it will cause customers to upgrade faster. During our meetings, we heard
viewpoints which strongly downplay the near-term revenue impact from the 12c database
product cycle, but we also heard an upside scenario for the pluggable container option which
is interesting from a multi-year perspective. Going back many years, the RAC database
option was significant and highly touted, but due to its limited applicability to big clusters of
computers, it was irrelevant for most of Oracle's 310,000 database customers. The pluggable
container option is cheaper than RAC, probably a 30-50% discount by our estimation,
but we think it'll ultimately be adopted by a much broader swath of Oracle customers.
Thus, there is an upside scenario where the pluggable container option becomes the biggest
database option ever.
No Rosy Picture for Macro Demand. We struggle to recall the last time that Oracle cited
a very strong demand environment or truly attempted to call a turn in the macroeconomic
climate. In fact, Oracle has repeatedly stated that "we'd be the last to know" given the
backend-loaded nature of its quarterly license bookings. In our meetings, the company did
not stray from this messaging, even when investors cited improved 2014 IT budget growth
forecasts from the major market research firms. Oracle is highly skeptical of any claims for
IT budget growth on the order of +6% in 2014, for two primary reasons. First, political
gridlock remains, and risk-averse large enterprises don't like uncertainty; when companies
"don't know the rules of the road", it keeps capital expenditures and hiring plans in check.
Second, there is a likelihood that enterprise decision-making cycles are being impacted by
too much choice in the application market. In other words, the growing slate of SaaS options
(salesforce.com, Workday, etc.) could be causing large organizations to spend more time
evaluating their multi-year road maps versus spending money now. Netting it all out, we
don't think Oracle sees a big change coming this year - it expects more of the same.
Hiring Pace Likely Slowing. In a recent note, we had pointed out our suspicion that
Oracle's pace of hiring had returned to sequential month/month growth in December, and
we surfaced the potential possibility that Oracle had re-engaged on hiring subsequent to
a slight total headcount contraction of 0.4% in the November quarter. However, in our
meetings, we inferred that Oracle was engaged in an accelerated wave of hiring through
Q4 (May 2013), which maintained some inertia through Q1 (August 2013), but that it
slowed in Q2 (November 2013) and could now remain fairly muted. The thought process
is that productivity slowed into the hiring ramp, and from this point revenue growth could
(hopefully) occur as a function of a recovery in productivity.

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De c e mb e r 1 7 , 2 0 1 3
Oracle Checks Show a Few Bright Spots, But Some Challenges Remain
PRICE: US$33.54
TARGET: US$36.00
12.3x FY14E EPS of $2.93
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.00
FY14E EPS US$2.93
FY15E EPS US$3.31
Div (ann) US$0.48
Yield 1.43%
Fiscal Year End May
Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
We spoke with five key contacts in the Oracle ecosystem to compile an up-to-date
view of the business. On the positive side of the ledger, contacts spoke positively about
in-memory solutions, Oracle storage, strength in one particular segment, and stated
that the fear that Oracles business will be severely impacted from new technologies
like Hadoop is overdone. On the negative side of the ledger, our contacts suggest that
new database licenses continue to show little to no growth, some regions in North
America experienced acute weakness in the November quarter and Oracles go-to-
market strategy of multiple sales reps (sometimes as many as half a dozen) calling on
the same customer is creating ill will among its customers. Growth at Oracle is likely
to remain challenged as it balances slow-growth / declining established businesses and
ramps high-growth new businesses. We view potential upside longer term based on
valuation. OW, PT $36.
Notable Quotes:
(+) The Oracle business, weve got a really good pipe right now.
(+) In our case we did about 25% on top of our November 30 quota We had a
good quarter.
(+) From an Oracle perspective I think theres a lot of interest in [in-memory

solutions].
(=) Customers are talking they want to run Oracle on Oracle but theyre also very,
very open to hearing about other alternatives.
(=) Its definitely in line with my expectations. I did not expect Oracle to grow.
(-) Database has been slightly shrinking. This is not a new trend. Its been there for
a while.
(-) ...Theyre way behind plan. They may be marginally better year-over-year, but
they are so far off their quota its not funny.
***Detailed Feedback on Pages 2-5***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,585.8E 4.2x 4.2x
8,381.0A 9,273.8 9,264.4 11,464.2 38,383.4 39,066.5 4.1x 4.0x
8,669.3 9,668.6 9,691.6 12,105.2 40,134.8 3.9x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 12.5x 12.0x
0.59A 0.69 0.69 0.96 2.93 3.08 11.4x 10.9x
0.64 0.78 0.79 1.10 3.31 10.1x NA
Non-GAAP EPS

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Their customers are mostly database customers, and they also sell engineered systems. We
do quite a bit of Exadata and Oracle Database Appliances. He reports that hes on calls
every other day regarding ODA deals. Over the last three years he has doubled his unit sales
each year for the ODA, going from 25 to 50 to an expectation of over 100 units this year. Hes
seeing a similar pattern for Exadata, going from roughly 15 to 30 to about 50+ this year.
Once a customer gets their first engineered system on site, they get over the psychological
hurdle of moving to an engineered system. This usually spurs interest from other areas of
the organization. We see repeat buying that way.
Database has been slightly shrinking. This is not a new trend. Its been there for a while.
The way Oracle grows its database business is by selling a lot of management packs (built-in
automation like self-tuning) and database options (advanced functionality such as advanced
security). During hardware refresh cycles customers typically buy more database licenses or
move to engineered systems. One of the downsides of engineered systems for resellers is that
they require fewer database licenses, which results in less margin for resellers.
By looking at his numbers he can get a good gauge for Oracles quarter [for a certain
segment]. A lot of what Oracle sells [within a certain segment] goes through his business
and is closed by his company. In our case we did about 25% on top of our November 30
quota We had a good quarter.
This is our number, this is what [we] sold. But that is a direct reflection of how good
Oracles sales force is doing [within a certain segment]. If Oracles sales force is doing bad
we do bad. If theyre doing good we do good. By looking at our numbers I can make a pretty
good guesstimate as to how their number should look. He notes that this is for his vertical
only, however.
On the applications side he noted a lot of PeopleSoft upgrades during the quarter. A lot of
people are purchasing business intelligence products.
He has people asking him all the time if he can provide maintenance support for their
Oracle products. He doesnt think this is workable, however, because he doesnt believe it
can be done without access to Oracles support code. If it is workable we would definitely
go into that business. We are looking for opportunities like that to make money, but that
is not workable at all.
Industry contact 2
The Oracle business, weve got a really good pipe right now. He observes the challenge will
be to convert the pipe into signed deals, but the pipe looks strong for Oracle right now.
He notes that his pipeline consists of deals in BI, database, a fair number of E-Business Suite
(EBS) projects which are closely tied to R12, Hyperion, and some Siebel work.
Workday is in the mix of some of their E-Business Suite deals. Is [Workday] a big
competitor right now? Not for me. He doesnt have a view into the entire competitive
landscape. He notes that a fair number of companies are looking at Workday or have
already implemented it. His firm is examining whether or not it should build out a Workday
practice.
Notes that his EBS practice seems to be growing strongly with large opportunities. He
reports that his Hyperion practice has been closing some very large deals.
He summarizes that Hyperion is a solution that really can provide financial decision makers
insight into the business. A company can implement an EBS solution or a Fusion solution,
or any financial solution, and its going to give you data. However what you do with that
dataview it, analyze it, and use it to make a decisionis important. Hyperion takes that
raw financial data and gives you the tool to properly analyze it and make a decision.
In his view, the threat of Open Source or Hadoop is overdone. The reason is because
companies get invested with Oracle and its technology, and once companies get invested in
Oracle, its very difficult to step away from Oracle. As a result, people are going to stick
it out with Oracle in spite of all the pain Oracle is going to deliver for their clients because
moving over into a new technology area, even though it theoretically works, people know
that the Oracle technology will work. If an alternate technology has a different or better

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solution, companies have just made that investment in Oracle and theyre sticking with it
because it works.
A lot of people coming out of college might get more excited about Open Source
because Oracle is viewed as being old school but a seasoned financial professional or
manufacturing professional knows Oracle works.
SAP is a constant competitor to Oracle. The competition is in ERP applications, analytics.

They have matching products almost everywhere across the board, but he believes anyone
who buys an old-line SAP application (not SAPs acquired companies), written using the
ABAP code set, I think those companies are just throwing their money away. Its too difficult
of an application to alter once you get it up and running.
Industry contact 3
Related to the columnar storage component of Oracles database, he works with several
vendors, including SAP HANA and HP Vertica. From an Oracle perspective I think theres
a lot of interest in [in-memory solutions].
He reports that hes in the middle of a Vertica sales cycle right now with an Oracle customer.
He thinks it will be interesting to see if the pain points theyre looking at Vertica to relieve
if they decide to stick with Oracle or not.
He believes for companies that have Oracle today and have small data warehousing and
analytics environment, which would be roughly 20 or fewer TBs, these are the types of
opportunities where EMC, GreenPlum and Vertica have made some traction.
If a business has a 50 or 100 TB environment theyre not going to use Oracle for that, or
any other in-memory solution. But for smaller process-mediated types of warehouses (built
from data coming from ERP, CRM, etc), these types of applications that tend to be between
5 and 15 TBs, it will be interesting to see if Oracle chews away at Vertica and GreenPlum
business given the fact that an Oracle customer can theoretically start pushing that data
into in-memory.
He senses its probably going to drive Greenplum, Netezza and Vertica up the chain in terms
of the size of the deployments they continue to sell on an ongoing basis. He notes that if
an Oracle customer is okay paying an Oracle license today, and they have a 5-15 TB sized
data warehouse, they may just stick with Oracle where they traditionally may have been
looking elsewhere.
The size of the data warehouse can be very independent of the size of the organization, but
rather based on what they do. For example, he notes that smaller web 2.0 companies or
smaller marketing companies might deal in big data because their customers pay them to
manipulate large amounts of data. He works with some very large companies but their ERP
systems might only be 10 TBs in size, which is still a pretty large system. But if the core of a
business is analyzing network logs, 10 TBs is nothing. Process mediated data is different than
machine- or human-generated data like text messages or Facebook data. I think Oracle is
really going to have a lot more traction in the process-mediated world with its columnar in-
memory solution. He believes that the machine-generated data leader is likely to be HP
Vertica. He thinks the human/sentiment data is really the empire of Hadoop.
He notes that his business is trending up.
I see demand in general for all the platforms we work with trending up. I just see a lot of
demand out there. I think the economy is better on the business to business side, particularly
in this space. I dont know that its necessarily Oracle specific, I just think theres a lot of
buying out there for these types of products right now.
Hes doing some ODA business, but really not very much. There are a few customers buying
that. Hes also doing some core tech (database) business, which he hasnt really done before
in a couple of accounts. He also seeing that, Theres a tremendous amount of activity
within Oracle with certain partners that are very focused in particular areas around storage.
Theyre doing a tremendous amount of storage business in [my region]. Storage is having
fantastic success, not so much through partners, but with direct sales, and then a partner

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might fulfill it. The end user reps on the storage teams are all performing extremely well
this year.
From the partners that hes spoken with, and for his firm, theyre all seeing the same thing.
Customers are talking they want to run Oracle on Oracle but theyre also very, very open to
hearing about other alternatives. These alternatives include SAP HANA. SAP is very, very
active in the marketplace here. Extremely active. What some of Oracles biggest customers
in his region are saying is that they can run SAP HANA in certain areas and look to run
SAP with their Oracle back end. The core tech organization has been mortgaging their
future over the last couple of years. This year there are some big ELAs that have been
signed and as a result a lot of customers are now contracted into a third of the cost, which is
the database. The other two-thirds are in the server, storage and other components of their
IT infrastructure. The cost to put it on Exadata, as an example, especially with some of
the storage costs, is not compelling. He notes that EMC has been successful with vBlock
(EMC Storage with Cisco Blade infrastructure). [EMC] allows customers to be much more
flexible than they would be with Exadata.
Hes not certain that Oracle is seeing the uptick around Exadata in his region that it sees
in their largest markets.
He notes that his year-over-year business with Oracle is flat. Its definitely in line with my
expectations. I did not expect Oracle to grow. He reports that theres not a whole lot of
growth around database.
He believes license audits are driving a lot of new business. He was at an Oracle event a
while ago and asked some direct reps how business was going. The reply was Business is
good. Lots of audits. One of his customers recently bought a ULA because they got a large
bill from Oracle, close to eight figures, because of license audits. The customer didnt want
to pay it so signed a ULA instead. He believes this is prevalent.
Negative Feedback Industry contact 5
Oracle has done a lot of hiring of recent college graduates. Ive met more kids that are
younger than my kids at recent meetings at Oracle for partners. These are recent graduates
that Oracle has hired to bring into its sales organization with a view to save money because
Oracle doesnt need to pay them a lot. This gets them seeded as they make their way into
the working world with an Oracle bias.
Recent grads who work for Oracle may not have spent a lot of time training on Oracle
at school, but Oracles done a good job of branding at the college level. The perceived
threat that college students likely didnt learn much about Oracle development in school
and therefore wont want to use Oracle professionally is way overstated.
On the tech side in North America, the West is in deep [trouble] The East is doing
better. He notes that the East is doing relatively well, but thinks the West will not hit its
quota. He observes that Oracle is having difficulty in areas where it has traditionally been
strong, such as the San Francisco Bay Area. Theyre steady in the Pacific Northwest and
Canada.
He reports the downstream effect of their June sales reorganization is larger than usual.
These reorganizations always occur and produce churn, but he says that if there are
normally three new faces out of 10 after this sales reorganization, this time it seems like
there are nine new faces out of 10. He attributes this to Oracle losing a lot of good mid
to upper mid-level managers who believe theyve hit a ceiling with Oracle. Oracle is losing
talent to Workday, Salesforce.com and ServiceNow, to name a few.
Oracle also cut a lot of reps and managers who missed their numbers around the country.
Oracle reorganized its inside sales group and did some relocation of these groups. This is on
top of the usual attrition. He reports that during a recent presentation he gave to 20 Oracle
sales reps, only two of them had been with Oracle more than a year. This is completely
different than its been in the past.
He believes that Oracle has gone overboard in hiring people and then putting them in sales
silos. This has resulted in half a dozen sales reps showing up to an opportunity when the
client really only wants to talk to one person at Oracle. He reports of a recent sales call for a
$1M business intelligence deal in which 12 Oracle sales reps were also on the call. He thinks
the inefficiencies of the sales silo model have been magnified by the increase in turnover. If

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Safra Catz knew what she was spending on car allowances to get six people to a single sales
meeting that could be managed by one person, Im sure shed go ballistic.
He thinks Oracle can afford this experiment of sales silos, and that it wont kill them.
The risk is that a lot of current and prospective customers will be turned off by this sales
approach and that Oracle will generate ill will in its user community. Do I think people
will throw out Oracle? No but it has made a big dent on their first half results in my
world. Their numbers are way off. Theyre way behind plan. They may be marginally better
year-over-year, but they are so far off their quota its not funny. His area VP has no shot
at making my number this year.
He doesnt see Oracle being able to make up any first half shortfalls in the second half of
their fiscal year. I think it could be worse because the level of panic, the level of stress
in December after the November quarter end, the level of stress in the field is acute. It is
absolutely acute. Much more so than in years past. He thinks that they could make their
numbers based on the sheer volume of sales reps, but he cant fathom how profitability can
improve because there are so many more reps calling on a single account than in the past.
One of his accounts didnt get rid of Oracle, but got rid of Oracle maintenance and switched
to a third-party maintenance provider. This is happening more and more so.
He observes that Oracles emerging markets organization (EMO), which sells to businesses
with less than $75M in annual revenue, is primarily showing new revenue growth through
license audits. Its become a great source of revenue for them in the mid-market. A new
sales reps can look at what a client is officially licensed for, and if the reps think theres an
opportunity for an audit, the rep can call their license management service counterpart at
Oracle which does the audits, have a stern letter sent, and then call back their customer with
a solution of how to get back into license compliance. Its a good cop bad cop tactic. This
is also happening on the applications side.

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42 Oracle Resellers 0.5% Below Plan for Q2; Less Negative but No Major Change
PRICE: US$33.54
TARGET: US$36.00
12.3x FY14E EPS of $2.93
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.00
FY14E EPS US$2.93
FY15E EPS US$3.31
Div (ann) US$0.48
Yield 1.43%
Fiscal Year End May
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 42 ORCL partners/resellers and found that they finished 0.5% below plan
in FQ2, an improvement from FQ1 to the extent that the performance is less negative.
Each of the metrics we track for Oracle upticked sequentially in Q2, although they are
generally still down y/y and stuck within a consistent range. On balance, partners expect
Oracle to report revenue roughly in line to mildly below expectations, as 10% expect a
beat and 12% expect a miss. Although the results are sequentially better, we note that
the partners are still below last year's level for percent of plan and the observed pace of
business. The survey results suggest Oracle continues to run in a low gear and thus a very
low revenue growth trajectory. We expect unexciting results but still think ORCL shares
could offer a couple dollars worth of long term upside based on valuation. OW, $36 PT.
42 Oracle Partners 0.5% Below Plan, Suggests Consistent Very Low Growth
Environment. We surveyed 42 Oracle partners and on average these partners were
0.5% below plan for their Oracle business in FQ2, demonstrating a seasonally normal
sequential improvement from FQ1. Additionally, 35.7% of partners saw a Better pace
of business while only 4.8% saw a Worse pace of business in FQ2. This results in a "net-
better" score of 30.9%, seasonally better than 9.8% last quarter, but slightly below
the 32.1% from FQ2 of last year. Regarding quarterly expectations, the difference
between partners expecting Oracle to be above quarterly expectations (9.5%) and
those expecting Oracle to be below expectations (11.9%) is much smaller than last
quarter, when 7.3% expected "above" and 26.8% expected "below." Considering the
data holistically, in our view, there is no material change in the tenor or trajectory of
the Oracle partner ecosystem. We are surprised that partners/resellers continue to see
growth in their own Oracle practices that slightly outpaces the recent growth rate of
Oracle's "total software revenue," and this probably speaks to the resilience/stability of
demand for the Oracle database and middleware platforms within large organizations.
Offsetting headwinds to total revenue growth for Oracle include shrinkage of the
hardware business and cloud-based competition in the applications business stemming
from CRM, WDAY, and others.

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,585.8E 4.2x 4.2x
8,381.0A 9,273.8 9,264.4 11,464.2 38,383.4 39,066.5 4.1x 4.0x
8,669.3 9,668.6 9,691.6 12,105.2 40,134.8 3.9x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 12.5x 12.0x
0.59A 0.69 0.69 0.96 2.93 3.08 11.4x 10.9x
0.64 0.78 0.79 1.10 3.31 10.1x NA
Non-GAAP EPS

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December 17, 201 3

Exhibit 1

Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY15 Q2:FY15
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41 53 42 40 41 42
%of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1% 0.4% 1.1% 1.4% -1.7% -0.5%
Better Pace of Biz 37.0% 57.0% 58.0% 79.0% 52.0% 62.0% 66.0% 60.5% 22.2% 41.5% 55.6% 52.6% 31.7% 39.6% 50.0% 47.5% 29.3% 35.7%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9% 52.9% 42.9% 45.0% 51.2% 59.5%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4% 7.5% 7.1% 7.5% 19.5% 4.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3% 32.1% 42.9% 40.0% 9.8% 30.9%
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8% 13.2% 11.9% 20.0% 7.3% 9.5%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1% 62.3% 76.2% 60.0% 65.9% 78.6%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1% 24.5% 11.9% 20.0% 26.8% 11.9%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3% -11.3% 0.0% 0.0% -19.5% -2.4%
10.4% 6.5% 10.1%
9.9% 9.6%
4.4%
-0.2%
1.5%
2.5%
1.0%
-1.1%
0.4%
1.1%
1.4%
-1.7%
-0.5%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13
57.9%
-5.6%
26.9%
40.0%
42.1%
7.3%
32.1%
42.9%
40.0%
9.8%
30.9%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
60.5%
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-11.3%
0.0% 0.0%
-19.5%
-2.4%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Net-Above %


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Oracle Partners Highlight Near-Term Opportunities, Headwinds
PRICE: US$33.26
TARGET: US$36.50
12.3x FY14E EPS of $2.95
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY14E EPS US$2.95
FY15E EPS US$3.32
Div (ann) US$0.48
Yield 1.44%
Fiscal Year End May
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 10 contacts in the Oracle ecosystem for a
very detailed, insiders' view of current trends and sentiment in the Oracle ecosystem.
Feedback from contacts reflects typical Q1 seasonality for Oracle, with a bias toward
greater-than-usual negative sentiment for a Q1. Contacts pointed to steadiness on the
technology side, and some enthusiasm surrounding the prospects of Oracle's Cloud
applications. Some commentary suggests that the hardware business may still be
struggling, with particular critiques hurled at Oracle's direct sales strategy. Contacts still
rave, however, about the technical superiority of Oracle's engineered systems. We still
believe that Oracle is running in a lower gear than in years past and that FQ1 results
or FQ2 guidance may be choppy, but also believe Oracle's earnings resiliency supports
a $36.50 price target. Overweight rating.
Notable Quotes:
(+) I still remain enormously bullish on the technology, I dont think there is any
vertically integrated information management systems technology that is close to
what weve got with either ODA, Exadata, Exalytics, Exalogic, Big Data, I dont think
anybodys got a better story...
(+) Oracle very strongly wants to move all their customers into a SaaS environment.
Its just more profitable.
(=) My success is directly driven by Oracles success I could be doing better.
(=) I think they did okay, especially in the public sector, here in [my region].
Commercial side, my understanding was they made their numbers for core tech and
middleware. Hardware-wise, unless they had a very small number I dont think they
made it.
(-) Hardware is still an oozing wound. I dont think theyve that figured out yet. It
may be getting worse.
(-) At least two established Siebel customers, fairly large Siebel user base [F500, close
to $30B revenue company], are actively looking at switching out of Siebel to SFDC
[salesforce.com].
***See pages 2-8 for detailed checks***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,861.5E 4.2x 4.2x
8,475.0 9,455.5 9,334.8 11,515.7 38,780.9 39,472.7 4.1x 4.0x
8,766.1 9,856.1 9,764.6 12,168.3 40,555.2 3.9x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 12.4x 11.9x
0.56 0.71 0.70 0.97 2.95 3.11 11.3x 10.7x
0.64 0.80 0.79 1.09 3.32 10.0x NA
Non-GAAP EPS

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In Q1, a lot of the business thats going to be driven is all SaaS-related. Oracle is pushing
their sales force very, very hard to sell SaaS-oriented business. He mentions that Oracle put
very lucrative incentive plans into place for the sale people, both direct reps and partners,
to sell SaaS versus on-premise software licenses.
Oracle very strongly wants to move all their customers into a SaaS environment. Its just
more profitable.
Most of his discussions have been with the commercial sales reps at Oracle. The
commercial reps are primarily focused on selling Fusion, EBS, Taleo, etc., all of
Oracles software packages, and he thinks theyre being pushed very strongly to sell
SaaS.
He notes that one of his clients is taking a very serious look at moving their
entire software environment from in-house to a hosted environment, including their
database. He will be providing a statement of work to upgrade some aspects of
their Oracle environment but also migrate it into a hosted environment. It may not
be hosted at an Oracle site, but it will be hosted somewhere, such as Rackspace,
Amazon, etc.
He also believes that HP will be doing a lot of hiring for Cloud-related positions,
including their hosted Cloud environment.
My success is directly driven by Oracles success I could be doing better.
To a certain extent, he perceives that some of his customers are considering switching from
on-premise vendors to hosted vendors, such as Salesforce.com and Workday. Because of this,
his firm is building out practices in both Salesforce.com and Workday.
Believes that Oracle cares very much about the channel. Notes that Oracle does not care
whether its a channel partner that sells the license or the SaaS contract, or the direct sales
rep. If the channel partner comes back and closes the license deal, the Oracle guy gets the
same credit as if he or she sold it.
He spoke with a couple of sales reps in the [applications software ecosystem] and they had
a good Q1. A lot of reps had business slip out of last year and I know quite a few people
who closed some sizable contacts. The deals are multi-million dollar deals.
Industry contact 2
Storage:
Exadata in and of itself is engineered to be a balanced platform, so the idea is that
you have approximately the right amount of processing power to be able to address
the amount of data that can be stored inside of an Exadata. The InfiniBand network
is designed to help manipulate data back and forth on an open highway.
The ZFS storage is exactly the same storage servers within the Exadata. In other
words connecting an Exadata to additional external ZFS storage is ballooning the
amount of data that is accessible to the compute section of Exadata. This changes
the ratio of compute power to storage.
There is database software on the Exadata that sits inside the storage servers and
because Oracle owns the database, theyre the only company that can do this. The
software is an extension of the database. In that sense it actually offloads a sizable
chunk of work that the database would do inside the compute server to the extra
processing power that sits on the chips in the storage servers. The Exadata can send
a much smaller amount of data to the database server because the software on the
storage servers themselves is actually doing some of the data presorting. He thinks
Oracle should talk about this more in terms of marketing the Exadata.
Like a lot of companies, Im sure Oracle could tighten up the way they sell their products.
Exa products are an emergence of products essentially all built out of the same building
blocks, or DNA. The compute servers, storage servers, are essentially the same whether its
an Exadata, or a ZFS file systems, or a big data appliance, or an Exalytic Server. The big
data appliance has a lot more storage and relatively less compute. Exalogic has a lot of
compute and less storage. In the long run that DNA sharing could be a very clever strategy

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because a competing vendor, such as IBM, in order to do the same things that Oracle Exa
servers do, youre using three or four different families of products. Looking at a stack of
products from Cisco, VMware and EMC put together, its three different companies trying
to manage everything together, which is complicated.
Being engineered is different from being integrated. Its relatively simple to
integrate something. People have been doing that for 15, 20, 30 years in the IT
space. Its different when a company has a system thats engineered from top to
bottom.
He expects almost a data center strategy emerging over the next several years.
This means that were starting to see different aspects of data management being
addressed through engineered systems designed to solve specific problems. If thats
the case, then cost becomes, in the long run, less of a factor. If youre manufacturing
a relatively small set of products but are using them over and over again in many,
many different ways then your cost of manufacturing goes down.
Highlights that Accenture recently announced that they would create an engineered systems
practice. The first of the major SIs to do so. From a partner perspective I think thats a huge
deal. It will be interesting to see if the other SIs follow suit or in some ways up their game.
Whatever mistakes they were doing [in the last two years], I think they have realized some
of them. I think they are going back to basics enabling partners, helping partners, being
very focused on some accounts rather than trying to do everything everywhereIn some
way they have become flexible also.
Observes that Oracle in some way has become flexible also. Gives an example that Oracle
is now ready to modify deal structures to win clients.
Observes that Oracle is now listening to their customers and is making changes to their
products based on customer suggestions. Mentions that in the last two years, Oracles
arrogance had gotten the best of them and they had stopped listening to customers. Now
they have toned down.
Also observes that Oracle is investing in certain identified industries and starting to focus
on vertical solutions... Referring to the Acme Packet acquisition, characterizes it as a very
thoughtful and strategic acquisition and adds that it will help Oracle in a very big way.
Thinks that this acquisition will help strengthen its position in the Intelligence Network
space for Retail and Telco.
Database they have been rocking as usual, no doubtsthey are doing well.
They are investing lot on their technology side.
Hasnt seen Oracles hardware picking up a lot.

They are pushing their hardware only when they are winning end-to-end
contracts.
Mentions that Oracle doesnt have a stand-alone story around its server hardware.
Everybody buys HP or IBM.
Based on his conversations with sales reps [in the application software ecosystem], they
are hitting numbers, most of them. Reports that Oracle is also hiring a lot in sales.
Reports that he had a rocking quarter with Oracle in Telco and enterprise.
Oracles challenge is that they are still not able to transform themselves into a B2C
company, they are still a great B2B company.the world has changedThere is zero work
I am doing with Oracle on Cloud and Cloud-enabled software and applications.
Referring to standalone hardware, they [Oracle] are nowhere near HP in terms of

performanceand the moment you see the integrated story, IBM kills them.
I am not very optimistic on Oracle over 5 years.
Opines that in the next three years, the players who are not commercially flexible will
have a tough timeMicrosoft and Oracle needs to learn that. Indicates that enterprise IT
customers are nowadays more inclined toward a commercially flexible model, even if the
technical quality of the product is not as good.

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Industry contact 4
In the last couple of quarters, observes that at least two established Siebel customers,
fairly large Siebel user base [F500, close to $30B revenue company], are actively looking at
switching out of Siebel to SFDC [salesforce.com].reasons being Siebel is too big, unwieldy,
it takes a lot of time and effort and money to maintain, whereas SFDC is nifty, quick ROI
and so forthIt gets disturbing when enterprise-level customers, who are really large, if
you lose a landscape like that you cant get any further Oracle license revenue from that
particular patch.
Reports that similarly we are seeing a fight like this in the HCM space. Mentions that one
of his large enterprise clients [fairly big consulting house] has decided to replace PeopleSoft
for Workday after looking at the Fusion HCM product. Refers to another customer with a
huge PeopleSoft install that has decided not to upgrade further and is looking seriously at
Workday and a few other SaaS or outsourcing solutions for their HCM and payroll needs.
Opines that the reason for these moves out of Oracle is partly because of Oracles
maintenance cost of 22% of license fees as well as the growing Cloud mandate among IT
directors. Senses that although Oracle also has a Cloud strategy, somehow they are not
making as much mark in the clients mindshare.
Mentions that although he is starting to see some PeopleSoft upgrade related opportunities,
the number of different choices such as PeopleSoft 9.1, 9.2, Fusion HCM, etc. is not adding
up as a compelling proposition for the client to move.
Refers to demand in the Hyperion spacethat is one area that continues to have consistent
demand. Also, seeing opportunities around Oracle E-Business Suite R12 upgrades. Adds
that he is starting to see adoption in Oracle Business Intelligence for reporting.
In the technology stack, refers to consistent adoption and significant demand for
Fusion Middleware across the enterprise to move from a legacy middleware or point-to-
point solutions.
In the hardware space, I have seen Exadata opportunities coming up and characterizes
the demand as moderate to high but a couple of notches below the demand for Fusion
Middleware.
Oracle has become very lenient in its upgrade policiesIt is extending those maintenance
contracts even if maintenance expires [for a discount]. So, senses that clients are not under
any more pressure to renew their support contacts immediately.
Mentions that the change in sales structure that Oracle undertook a year ago is not going
well. Explains that Oracle changed from a vertical model to more of a horizontal model,
focused on selling products rather than selling solutions. Now you have somebody trying
to sell only CRM, somebody trying to sell only ERP, 4 or 5 of these reps are getting involved
in a deal. Thinks that enthusiasm levels are low among sales reps overall but may be a little
better as compared to last quarter.
Hasnt seen any of his clients coming up to him and asking about Oracle Cloud.
Industry contact 5
I think they did okay, especially in the public sector, here in [my region]. Commercial side,
my understanding was they made their numbers for core tech and middleware. Hardware-
wise, unless they had a very small number I dont think they made it.
He detects that nothing has really changed in Q1 from Q4 in terms of business momentum.
He thinks the year started off with promise in June and July, with partner events and good
communication between Oracle reps and partners, but that has changed. The number of
deals partners have is low because Oracle is not passing any deals along, and this is because
Oracle doesnt have a sufficient number of deals.
Observes that Oracle is hiring many new direct reps, and what little business that was, now
has to split up among [more] reps. He indicates that many of Oracles recent direct hires
have very little selling experience, along with even less of a technology background.
Oracle reps do get credit when partners bring in the business, but they get credit based on
a lower revenue number. For example, if the direct rep has permission to sell for 30% off,

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and the partner has permission to sell for 40% off, the rep loses 10 points of revenue toward
their quota.
What were finding is there is a tremendous amount of focus and effort that is going in to
counter both IBM, as well as not only Red Hats subscription model, but some of the things
that VMwares trying to bring to the table around Java development, and other things. All
the Fusion apps, youre not going to be able to buy those anymore. Basically its only going
to be provided in a SaaS environment. Thats what were hearing, whether its true or not,
I dont know, but I see that over the next two or three years. Thats what people are saying.
That its strictly going to be on a subscription basis.
Also hearing that Oracle is trying to provide a model that allows partners to sell a PaaS
solution for whatever it might be.
On Oracles ZFS storage, he notes that its a very good product, But what were finding is
its very difficult, not even the sale, its difficult to get a meeting when youre talking about
Oracle storage outside of an existing Oracle customer. He believes the technology is very
good because ZFS can take advantage of Oracles Hybrid Columnar Compression (HCC)
in its database.
Industry contact 6
The way I see Oracle is it may shrink a little bit and then growits an inevitable journey
in Oracles lifecycle in this period. Thinks that the current phase of slow growth might help
Oracle to re-prioritize and then grow again. It is going to take a refresh strategy.
As compared to the last two quarters, observed more noise, more chatter in the Exadata
side, at least in his customer base. However, he observed minimal chatter in the
applications side.
Based on his conversations with sales executives [in the ERP/CRM ecosystem], mentions
that there is no panic but there is some hustle.
Mentions that Oracle is pushing their Cloud strategy a lot. Also, thinks that people
within Oracles customer base who are very supportive of Oracle are trying to push Oracles
Cloud strategy inside their organizations in a selective way. So, thinks that there some Cloud
discussions that are starting to happen.
Indicates that he doesnt see the growth story in the short term but the soft indicatorsare
getting better.If you had asked me 18 months back, in less than 3 out of 10 discussions
Oracle would have figured in Cloud; I can say with authority and responsibility, that at
least within 7 out of 10 places Oracle Cloud is there in discussions inside enterpriseit is
certainly getting better.we are on the tip of an avalanche here I would say [regarding the
growth of Oracle Cloud].
Talking about the engineered systems, in the first half of the calendar year, I didnt
see much, but this quarter I am seeing opportunities in advanced stagesit is sort of
improving.
Industry contact 7
Havent seen significant changes in the last few monthsNot seeing much slowdown or
much of additional excitement.
Not really seeing any traction in the Cloud area either. Havent seen much different
things happen with Oracle public Cloud service[it] just looks more like a masquerade,
havent seen any customers using it seriously.
Refers to the Oracle-Microsoft announcement but reports that havent seen results of it
just yet.
I fully expect Oracle to have a number of interesting announcements at OpenWorld.

Expects a lot of the conference to rotate around the recently announced Oracle 12C
database.
Refers to a few Exadata projects and a few database appliance projects in the pipeline.
Havent seen a significant increase in activity on the database appliance compared to a year
ago and is slightly disappointed.

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Thinks that the server market is pretty niche for Oracle at the moment and majority of
Oracle applications run on the Intel platform.
Mentions that he noticed some turnover in the higher levels of the Oracle sales organization
in the last fiscal year. Doesnt see Oracle change their sales strategy and still have a very
fragmented sales force.rather than being focused on a single customer solutiontrying
but not as quick as I love to see.
Industry contact 8
When I think of Oracle today, based on my focus, I think of Exadata. I think about its
expanding footprint in my clients and, from what I can tell, in enterprises all over the place.
I think they are riding the wave of appliances.
Thinks that Oracle is doing good in the traditional RDBMS market as well as the newer
NoSQL database market, with their newer offering. Talking about the latter, observes that
Oracle was a little late to the market but they have a good message.
Continues to see a squeezed spending IT spending environment in general among

customers. [Sales] Cycles just seem to be longer and more justifications are required
Organizations continue to struggle trying to just keep the lights on versus thinking
strategically.
Negative Feedback (2) Industry contact 9
The sense I get from quota carriers to execs is that the quarter is going to look pretty much
like first quarters do. In rough terms they dole out about 14% of their quota in Q1.
Operationally, he notes that Oracle has made a bunch of changes, some necessary, some
surprising, and in my opinion, hugely foolish.
He says there are always many changes at the end of May, and in June, but that
this year it seems like there were more changes than usual. Oracle got compensation
plans out and management changes out earlier than in some years past, the
operational feet on the street is a mess.
From a hardware standpoint, many of the senior people have turned over during
the last year. Hardware is still an oozing wound. I dont think theyve that figured
out yet. It may be getting worse. He notes that Oracle tried using an advanced
systems group that they now have gotten rid of. Now Oracle has taken the hardware
sales group so that one set of reps will sell one set of equipment, another group
will sell something else, and a third group will sell something else. Then there is
disk storage in one silo, and tape storage in another. You could have as many as
five people trying to sell you hardware. This is in the broader market, and doesnt
include dedicated account managers that are selling to the F2000. Its the most
fractured field sales structure that Ive seen. The most unnecessarily complex field
sales organization structure Ive seen since I started selling technology in [the 1980s].
He reports that this sort of sales structure is Darwinian because a customer has to
deal with several Oracle reps, each of which fulfill quota only on the products that
they sell. Each of these reps is selling something different. For example, a client might
contact a rep thats selling applications because they want to know more about that
product. If an Oracle Database Appliance (ODA) rep calls on the same customer,
the apps rep will discourage the customer from looking at the ODA, because in the
reps mind, additional dollars spent on hardware mean less the client has to spend
on applications, and therefore less money in the app reps pocket. So instead the rep
will encourage the customer to stay with their existing infrastructure. Then the apps
rep wont want the customer to run a hosted version of the app because his comp
plan might pay him less for that.
He observes that Oracle has carved up most of its field sales territories so that in
some cases Oracle has three times as many reps, but in almost every case at least
one more rep, selling the same thing in a smaller area. Oracle has invested a huge
amount of money in filling positions in enterprise sales positions in his region. He
says its like having five wide receivers in one area of a football field.

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One client is trying to update its BI capabilities. He indicates that in the time hes figuring
out what exactly his client needs, the client has had more than five Oracle reps call them
pitching on several products and solutions. Now this client is using me to fight off
the Oracle reps that are clogging up her hallway. This happens because when partners
register opportunities through PRM (Oracles partner registration management system),
each Oracle rep with something to do with the customer sees the deal, and are like sharks
with blood in the water.
Just met with a VP of a tech distributor over the Oracle business, who reported that Oracle
partners are just quitting because of the channel management.
Believes that Oracle is managing its go-to-market like this because of arrogance and
ignorance. Arrogance, because thats the culture, and thats not news to you Ignorance,
in that I think they live in a bit of a bubble. I really dont think the [Oracle reps] really get
it. They focus on the top 2,000 [accounts], they run around in their jets talking to the guys
that run GE or Raytheon or wherever, but I dont think in terms of the mainstream market,
where the partners had traditionally made a living, I think theyre so clueless.
Reports that some direct Oracle reps are not interested in selling engineered systems because
the sales cycle is longer than 90 days. This creates an opportunity for channel partners to
handle the engineered system sale, and make some money associated with selling services
or other ancillary products. The negative aspect of this is that the Oracle direct reps are all
over the channel partners to sell the engineered systems as fast as possible because the direct
reps are under tremendous pressure to sell as many engineered systems as possible. I still
remain enormously bullish on the technology, I dont think there is any vertically integrated
information management systems technology that is close to what weve got with either
ODA, Exadata, Exalytics, Exalogic, Big Data, I dont think anybodys got a better story.
But this dysfunctional sales structure that theyve got is killing it. So theyre screwing
themselves with whats an otherwise phenomenal product. Notes that it isnt as bad with
the M-Series, T-Series or disk and tape storage.
Getting great traction with ZFS, and it would be more interesting if people knew how to
couple it with their engineered systems story. He recently did a deal with InfiniBand
connectivity between ZFS and Exadata, and noted that the customer is raving about ZFS
and Exadata working together. Its one plus one equals three kind of performance.
Open Source:
One of his large Oracle clients recently made plans to replace their Oracle
infrastructure with Open Source. The maintenance cost alone prompted the
decision to move to Open Source. This will be a gradual move, as theyll move off
of Oracle instead of upgrading when the time comes.
Another client is looking at Postgres instead of engineered systems from Oracle.
Industry contact 10
He observes that Oracle has hired a bunch of new storage reps. He believes that Oracle is
now generating $1B from its storage business. He hasnt sold much in the way of storage
solutions, but its definitely keeping me busy. Hes done a lot of pre-sales work so far.
He believes there is decent momentum in storage, and that did a $1M storage deal with
Oracle.
The hardware business is still tough. Oracle has put so much of their messaging into
engineered systems, but how much of it is actually selling, I dont know. Notes that Exa-
boxes are still largely selling in Oracles largest 2,000 accounts, and less so everywhere else.
I had my worst quarter in probably 3 years, so Im not happy right now.
I heard it was a traditional Oracle [Q1], it wasnt that good. I know there was a lot of rep
turnover. You cant keep track of them effectively. Its clear to me that when youre hiring so
many direct reps, that you dont have much of a channel strategy.
He reports that Oracles channel strategy, and its cloud strategy, is suboptimal. He observes
that the market pace for cloud was set by Amazons EC2. Its an easy, flexible, metering
system. Thinks Oracle is making it difficult to buy cloud service from them because they
require three-year contacts in some instances. Oracle has a lot of infrastructure pieces for the

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cloud, so Why cant Oracle meter out [cloud services] just like the standard and Amazon
has done?
Thinks that the only thing Oracle really knows how to do right now is help their largest
accounts with their unique needs. Oracle is too siloed in terms of how they deliver many
of their products.
I dont think it was a great quarter for Oracle. Im sure they did well on their support
renewals, and all that kind of stuff, but generally speaking I didnt hear about a bunch of
big deals, other than the large storage deal.
Observes that Oracle is seeing increased competition from EMCs Greenplum. There was
an Exadata deal I was engaged on and they went with Greenplum over Exadata. Notes
that the cost point of Greenplum is much lower.

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41 Oracle Partners 1.7% Below Plan in Q1
PRICE: US$32.79
TARGET: US$36.50
12.3x FY14E EPS of $2.95
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY14E EPS US$2.95
FY15E EPS US$3.32
Div (ann) US$0.48
Yield 1.46%
Fiscal Year End May
38
36
34
32
30
28
USD
Source: Bloomberg
CONCLUSI ON
in Q1, a downtick from Q4. While Oracle partners typically come in slightly light in
Q1s, the underperformance is more noticeable this time. On balance, partners expect
Oracle to report revenue below expectations, as 7% expect a beat and 27% expect a miss.
While the survey results don't instill incremental confidence, there are two offsets: 1)
partners expect their own Oracle practices to grow 6.5% this year, inline with our Oracle
software forecast; and 2) the observed pace of business metric is similar to the year-prior
results, perhaps suggesting a fairly stable domestic demand picture. The survey results
suggest Oracle continues to run in a lower gear. We expect choppy results but still think
ORCL shares could offer a couple dollars worth of long term upside based on valuation.
OW, $36.50 PT.
Partner Survey Suggests Ongoing Sluggish Growth Rates in Q1, Perhaps Mid-Single-
Digit Growth For Certain Segments This Year. We surveyed 41 Oracle partners and
on average these partners were 1.7% below plan for their Oracle business in FQ1,
marking a noticeable downtick, as expected, from Q4 but also slightly farther below
plan than in a typical Oracle Q1. Additionally, 29.3% of partners saw a Better pace of
business while only 19.5% saw a Worse pace of business in Q1. This results in a "net-
better" score of 9.8%, which is worse than last quarter, but mildly better than one year
ago. Regarding quarterly expectations, more than three times as many partners expect
Oracle revenue to be below expectations than above expectations, while most partners
(65.9%) expect Oracle to report Q1 revenue in line with expectations. Considering all
the data, in our view, Oracle partners expect a fairly typical Q1 but with a possible
downward bias.

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
8,209.0A 9,113.0A 8,970.0A 10,961.0A 37,253.0A 37,861.5E 4.2x 4.1x
8,475.0 9,455.5 9,334.8 11,515.7 38,780.9 39,472.7 4.0x 4.0x
8,766.1 9,856.1 9,764.6 12,168.3 40,555.2 3.8x NA
0.53A 0.64A 0.65A 0.87A 2.68A 2.79E 12.2x 11.8x
0.56 0.71 0.70 0.97 2.95 3.11 11.1x 10.5x
0.64 0.80 0.79 1.09 3.32 9.9x NA
Non-GAAP EPS

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Sept ember 13, 2013

Exhibit 1

Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY15
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41 53 42 40 41
%of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1% 0.4% 1.1% 1.4% -1.7%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9% 52.9% 42.9% 45.0% 51.2%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4% 7.5% 7.1% 7.5% 19.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3% 32.1% 42.9% 40.0% 9.8%
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8% 13.2% 11.9% 20.0% 7.3%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1% 62.3% 76.2% 60.0% 65.9%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1% 24.5% 11.9% 20.0% 26.8%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3% -11.3% 0.0% 0.0% -19.5%
10.4% 6.5%
9.9% 9.6%
3.0%
4.4%
-0.2%
1.5%
2.5%
1.0%
-1.1%
0.4%
1.1%
1.4%
-1.7%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13
57.0% 57.9%
-5.6%
26.9%
40.0%
42.1%
7.3%
32.1%
42.9%
40.0%
9.8%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
45.5%
60.5%
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-11.3%
0.0% 0.0%
-19.5% -30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Net-Above %

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Deep-Dive Partner Interviews Shed Light on Oracle's Subtle Strengths & Weakness
PRICE: US$34.09
TARGET: US$36.50
12.3x FY14E EPS of $2.97
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.69
FY14E EPS US$2.97
Div (ann) US$0.24
Yield 0.70%
Fiscal Year End May
38
36
34
32
30
28
26
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 14 contacts in the Oracle ecosystem for a
highly detailed, insider's view of current trends and sentiment in the Oracle ecosystem.
Contacts indicated that engineered systems continued to see commercial success in Q4,
and that direct sales reps are now required to sell an Exadata box to reach commission
accelerators or make club. Feedback shows Oracle's technology is unmatched, but the
move to the cloud is weighing on hardware and storage sales. Among our 14 contacts,
most (10) were neutral, 2 were positive and 2 were negative regarding recent trends.
Contacts cited continued difficulty in non-engineered systems hardware, that Oracle
Fusion is still nascent and seemed to be "lacking momentum", and that Q4 was "not a
lot better" than Q3. We expect an inline Q4, and see ORCL as modestly undervalued
LT due to earnings resiliency. OW, $36.50 PT.
Quotable Quotes:
(+) Exadata is doing extremely well now that the concept has been accepted. Theyre
doing pretty well right now with the Oracle Database Appliance.
(+) There is no other company that can deliver what Oracle can from a technology
perspective.
(=) The overall demand environment for Oracle seems stable. I dont think theres a
lot of growth there.
(=) If you talk with technology sales reps, they think they did amazing. They were
having a lot of struggles but they finished well. As it relates to hardware its a mixed
message. Some did well, some didnt.
(=) The engineered systems sales are moving along for them [Oracle]. I dont know
if its stellar, but [reps] are selling them.
(-) If I had to bet, if it was my money, Im going to say theyre probably not a lot
better in the U.S., at least in [my region], than they were in the third quarter.
(-) Partners think pure play hardware and storage businesses will see a consistent
decline across all companies, as the move to the cloud accelerates. Cloud computing
is causing companies to delay or pause their uptake of hardware.
(-) Fusion has been promised, under delivered, lacking momentum at this point.
***SEE PAGES 2-9 FOR DETAILED CHECKS***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0 8,811.0 9,062.0 10,950.0 37,221.0 37,334.0 4.4x 4.4x
8,209.0A 9,113.0A 8,970.0A 11,149.0 37,441.0 38,070.8 4.4x 4.3x
8,475.0 9,476.8 9,356.5 11,734.1 39,042.4 39,735.5 4.2x 4.1x
0.48 0.54 0.62 0.82 2.46 2.61 13.9x 13.1x
0.53A 0.64A 0.65A 0.88 2.69 2.83 12.7x 12.0x
0.59 0.72 0.70 0.97 2.97 3.08 11.5x 11.1x
Non-GAAP EPS

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Sees IT buying trending up. It seems like his clients are engaged with acquiring new
technology, for a number of reasons. We see a lot of companies that are bringing Oracle
technology on board.
One area of strength right now seems to be the enterprise performance management
space, which is the Hyperion product set.
The CX [Customer Experience] products are getting a lot of attention right now
from Oracle clients. Refers to RightNow Technologies, and that it seems to be
doing very well. Clients are very interested in social media technologies.
He believes that this fiscal year Oracle is going to be pushing Fusion very, very
strongly. Theyre hiring people and going to incent the sales force very lucratively
to sell that product. Where a Fusion can replace an existing product, thats what
Oracles going to do. There just seems to be a lot of positive signs at Oracle.
He thinks the engineered systems push has been by the Enterprise Performance
Management (EPM) sales force. These are the sales reps responsible for selling the Hyperion
solution to F500 type companies. Each one of those sales people has a goal of selling one
Exadata box per year. That may not seem like a lot, but for a software sales rep to now have a
hardware dimension to their quota, thats something new. But if you look at that technology
and see that theyve built in Hyperion products into the hardware, and theyve built in Oracle
Business Intelligence (OBI) into the hardware, and just the things that a customer can do
more quickly, faster and cheaper, provides a real competitive differentiation for Oracle.
So that the software reps wont be thrown off or be less efficient in selling hardware, he
thinks that reps are going to sell the solution. The reps are going to sell to the CEO/CFO,
and sell them on the idea that executive management and other users of the data that
can be analyzed using Hyperion on Exadata can pull reports faster, more often and more
quickly because the hardware can crunch the numbers faster, and it can crunch bigger sets of
numbers faster, which allows for faster decision making so the CEO/CFO can make business
decisions in an almost real-time fashion. In the past, if they didnt have that technology, it
might take a long time (such as days or even weeks in some cases), and it may have been
more expensive. As a result certain people were precluded from asking that complex reports
be run. Its more than just reports, too. Its dashboards, mobile capability to express that
knowledge to a mobile device, all of which gives decision-makers the data to make more
accurate decisions and make those decisions faster.
I dont think per-se that an EPM software sales rep necessarily needs to know how the
hardware runs in order to sell it. I think if the software rep can sell the solution, I think they
can sell that product.
He thinks the biggest potential stumbling block is Oracles arrogance. They have a tendency
to throw punches at their competition as a way of positioning themselves. He also thinks
they deal with clients in an arrogant manner, meaning the business processes theyve put
in place to deal with their clients, its a difficult and tedious process to negotiate anything
with Oracle. And that is what is going to get in the way of Oracles business. Quite frankly
even though they make some products which are great, and most of their products are good,
Oracle makes it difficult to do business with them.
Oracle used to have poor management oversight over deals which were getting done, and
then had a difficult time keeping commitments to clients, which harmed the companys
financial standing. They then put in practices to remedy this, which included a hierarchical
process to management decision making. But this has resulted in damage to many partner
and client relationships. He also adds that There is no other company that can deliver what
Oracle can from a technology perspective.
Industry contact 2
What we are seeing to date is, given the breadth of Oracle BI solutions, we do see a firm
pipeline. I do see strong demand and the pipeline has been pretty strong. Definitely its very
positive.
Believes that Oracle is doing more in terms of consolidating its BI and analytics products,
and is doing a better job of messaging the product road map to the client base in terms of
which business problems the products are meant to solve. There used to be a lot of confusion
in terms of where to use which products.

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The acquired BI and Enterprise Performance Management tools are together now. A
firms financial management processes such as monthly close, budgeting, planning and
forecasting, etc. are in Oracle EPM and youre looking at your accounts receivable, payables,
etc. on your BI. What is happening is that all these processes are consolidating and Oracle
is providing a unified set of tools to get end-to-end visibility from forecast to budgets to
actual. This end-to-end visibility is resonating with clients.
Most of the deals hes been part of, hes seen Oracle reps introduce the Exadata and Exalytics
value propositions into the deal. What Ive also heard is of some favorable licensing
agreements if the deal includes both the Exadata and the Exalytics appliances and Oracle
BI software.
Seeing a lot of IT sponsorship of projects related to financial management that focus

on planning, budgeting and forecasting tools. From a marketing perspective hes seen IT
sponsorship for projects relating to integrating social data and social networking with
existing infrastructure.
Mentions that although Oracle has made some good cloud acquisitions such as Taleo,
RightNow and Eloqua, its still kind of a disparate story. Thinks that the customer
perception of Oracle products is that its multiple products singing their own tunes rather
than a single end-to-end application that works seamlessly. You cannot go into a customer
and say that hey, there are three different productsa combination would work for you.
Thats a tough sell. Thinks that it will continue to be challenging for the Oracle sales team
to sell the story of the disparate systems.
Mentions the selling to the business is critical nowadays. Business doesnt care what
technology is behind, whether this is cloud or not cloud. Mentions that businesses have
always been involved in decision making and its not a new phenomenon. Even in the
software development space, it is the business users who frame the requirements and IT
develops that requirement into code. Adds that the key thing that has changed in the
past couple of years is that now business is not only making decisions but also, at times,
overruling IT decisions. Thinks that the increasing power in the hands of business users is
because of several secular trends such as rise of mobility, BYOD, social networks, simplicity
of usage, etc. which are changing the dynamics of engagement between the consumer and
the merchandiser.
Mentions that despite the challenges, they are gaining traction in Taleo and RightNow
simply because they are by themselves pretty good products. Mentions that Oracles sales
team is also being incented to sell as much as cloud applications as possible. They are
definitely pushing it.
Mentions that other than cloud its business as usualno great shakes. People continue to
upgrade their instancesupgrades are happening as usual. Refers to JD Edwards upgrades
and E-Business Suite upgrades to their latest versions which he continues to see.
Mentions that Oracle has been ramping up sales hiring and the focus on new hiring led to
a distraction and slippage in FQ3. Thinks it will take at least two more quarters for the
new hires to be fully in gear and be war ready.
Thinks that Oracle is giving Eloqua some amount of independence and is managing it like
a startup. The organization to enable the partners, specialization, and training and go-to
market, Oracle is managing it as an independent mandate.
Thinks that Oracle will have to be a little speedier in the market and make up for the smaller
accounts lost to competition, if any, with the large ones.
Thinks that their Worldwide Alliances position is still open.
Mentions that Joanne Olson, who replaced Keith Block, and is heading North American
sales for Oracle is very partner friendly.
Thinks that pure play hardware and storage business would see a consistent decline for all
the companies, as the move to the cloud accelerates. Thinks that hardware will be a very
conscious capital expenditure. Today, if a CIO goes and tells [the CEO/CFO] that I need
20 servers for this, the CFO and CEO might just ask him hey, why dont you use Amazon
or why dont you use a cloud application? Is it necessary to have this capital expenditure?
However, highlights a silver lining for Oracle in that customers are increasingly willing
to run Oracle on Oracle. Engineered systems have a good price performance story.

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Although he doesnt think that Oracle will have a runaway success too soon and its a
gradual phenomenon.
Mentions that he is seeing some encouraging growth in Europe, Middle east and Asia
Pacific for his Oracle business.
Industry contact 4
Generally his quarter was mixed. There were some good deals, mostly database software
transactions. He had some success selling the Oracle Database Appliance (ODA) and was
able to build up a pipeline of ZFS deals. When you find the right customers there appears
to be genuine interest in ZFS. For ZFS, you have to find Oracle customers in a storage
refresh that arent totally addicted to EMC or NetApp. The ZFS is sold as an appliance;
its like an ODA just for the storage. It can be deployed and configured in a couple of days.
The Quarter Rack Exadata has a lot of appeal. These are Half Rack Exadatas with half of
it turned off, similar to the IBM P-Series. Oracle has tied its reps commissions to the sales
of Exadata, and a direct rep cannot get into extra accelerators, or club, without selling an
Exadata during the year. This is a handcuff on reps to sell something they may not be good
at or they dont understand the positioning of it very well. Oracle is pushing them hard to
sell the Exadata, but the flip side is that because the can be sold in Quarter Racks or Half
Racks, theyre more affordable.
Some reps he spoke with this quarter did well and others did not. It was a mixed picture.
Some large deals did close, including a $7M or $8M financial services deal.
Seeing a sales reorganization, which includes some management changes, which is pretty
normal. In his region Oracle is increasing the number of direct technology reps by 50%,
which he doesnt appreciate because it doesnt appear to be partner friendly. In the Emerging
Markets Organization (EMO) group a lot of managers left because it was a really
aggressive, difficult environment to exist in. Oracle is tightening territories and hiring more
people.
He spoke with a VP of channels who claimed there were some very partner friendly changes
in the works, however.
Towards the end of his quarter he was told by Oracle that if his approval requests for
discounts werent in by May 10 there would be no more. But as soon as May 20 came, he
continued to ask for discounts and got them pretty quickly. This makes him think that the
quarter was probably not going as well as it could have been.
Industry contact 5
They are not doing very great with direct sales.
Thinks that Oracle is learning the hard way that a partner model is the model in enterprise
software market. We are winning a lot of deals with Oracle. All of a sudden they have
become aggressive [in the partner engagement front]they are starting to realize the value
of partners again. Thinks that Oracle is trying to engage with partners very heavily and
all of a sudden Oracle is providing a lot of training, enablement, certifications etc. They
have become quite active.
Thinks that Oracles sales reps are trying to be a little more humble than they were.and
trying to make things work with partners.
Thinks that Oracle is heavily challenged by SAP on one side and on the other side by IBM
and HP. Thinks HP is doing really good in the market, while IBM is super-performing.
So, all of a sudden Oracle is being challenged at every corner.Oracle demand is really
reducing.
In many big markets, Oracle is challenged to a great extent. For example, mentions that
typically Middle East is a stronghold for Oracle but all of a sudden they look challenged in
that market. SAP is all of a sudden rocking and HP is over performing, over achieving
in the Middle East.
Good part is that they [Oracle] have realized that [their dwindling market position]they
have also realized that their sales aggression is not going to help them fix this problem
What they need is good partners, good deliveryRather than being a dominating sales
team, they are trying to be a customer friendly sales team, all of a sudden. Although he
acknowledges the challenges, he is optimistic about Oracle and thinks it is on track to
recover its position in the market.
He doesnt see a lot of demand in their cloud offerings. Thinks there is good demand for
cloud products offered by HP and IBM. On the infrastructure side, mentions that he is

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seeing huge demand for products from VCE [a company formed by Cisco, EMC and
VMware with investments from Intel] and EMC. Thinks that BMC and CA Cloud lifecycle
management kind of products are doing good as well.
Mentions that the de facto for hardware [servers] has become IBM and HP for large SIs
[system integrators].
Mentions that ORCL is strong on the database side and Fusion Middleware is doing
quite okay. Speaking about strength of Siebel CRM in the Telco vertical, I dont think
anybody has been able to challenge them yetIn Telco, they are rocking.
Mentions that for BI/analytics, Oracle is nowhere in the game. Mentions that IBM
Cognos, EMC Greenplum and HP Vertica and Autonomy are the top players in that space
in the market currently. Mentions that his practice head [with over 1,000 consultants] for
BI/analytics has not even planned for any revenue from Oracle BI.
Based on his conversations with sales reps [in the enterprise application ecosystem], I see
a lot of [redacted] reps desperate.
Mentions that earlier customers used to ask for Oracle. Now, customers are not asking
for Oracle or customers are not telling me that we must work with Oracle.
Industry contact 6
Demand trend for Oracle is almost the sameWe havent seen any spurt, nor any
deteriorationmaintaining the same trajectoryslowly moving. I think they are in the
same trajectory as I saw last quarter.
Mentions that he does see a lot of people on the ground. There is no doubt activities are
improving but doesnt mean deals are getting closed Thinks that deals are getting closed
probably at the same pace as before.
Mentions that Oracles message that it is also a cloud player is slowly being recognized
by customers. Mentions that if four quarters ago anybody referred to Oracle as going
cloud, half the people would not have believed. But now he thinks that the perception is
improvingbut it's still a long way to gothey are really trying hard.
Based on his conversations with sales reps [in the enterprise application ecosystem], thinks
that there is pressure to close deals but it is fairly typical. They are not sleeping, they
are fighting to close deals.
Referred to two Siebel CRM deals which Oracle lost last quarter. They made a fantastic
effort I must tell you. They really tried hard. Sometimes thats the problem with technology.
Your past actually begins to bite you. Mentions that he hadnt seen that type of aggression
six quarters back. Thinks Oracle is beginning to try to defend their turf against the likes
of salesforce.com.
On the ERP side, mentions that upgrades are happening but its a slow moving area.
Thinks that the number of deals in that side of the business is probably less than 30% of
the deals in the CRM side.
From his perspective, the services pipeline is OK...it is not falling down.
International Demand:
Thinks Europe is a still water situationdont see many deals in Europe.
Mentions that the deal swinging continents for Oracle are the Middle East and
APAC.
The Middle East is where Oracle is super strong. Middle East, Oracle is number
one measured by any scale. I can confirm that Middle East they are rocking this
quarter. Mentions that 90% of the sale in Middle East is relationship based.
In APAC Oracle is really fighting hard to come back.
Mentions that Q4 is the first quarter where he has not seen much activity in the integrated
hardware side, but adds that may not be reflective of what Oracle is seeing overall.
Industry contact 7
There are some different things going on thats put Oracle in a bit of a bind in terms of
growing as quickly as they have They can still work the high level relationship. They can
still be the full stack player and have a story there but they are not really best-of-stack in
anything as far as I can tellmaybe PeopleSoft

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Mentions that Fusion has been promised, under delivered, lacking momentum at this
point. Thinks that Oracle is not doing enough to develop partners for Fusion applications.
Its a very confusing strategy and I think clients would like to see more integration.
Mentions that if Fusion kicks in, it could put Oracle in a different growth trajectory.
They are definitely weak in cloud, weak in middleware.
Thinks that Oracles maintenance (renewals/upgrades) business is going to keep them

afloat until they figure out a direction.
They are dragging along Exadata into deals right now trying to build market share. I see it
everywhere but how much of it is paid for I am just not sure. Thinks that it definitely has
great performance and is good for customers who want to go all in on Oracle. Refers to
increasing competition from SAP HANA and Teradata.
Doesnt see the Big Data appliance as much. Thinks that the Big Data appliance is more
of a me too strategy.
Mentions that Oracle seems almost like CA where they have cash cows and they are milking
them. They have grown so much through acquisition; they cant seem to integrate it.
They are abhorred by their clients.
Mentions that he likes what IBM is doing. They are almost doing the polar opposite of
Oracle. They are home growing apps. They are gently moving their clients across the stack
and providing pathways to get into their stack more [as opposed to hard sell strategies of
Oracle].
Mentions that while Oracle is waiting and trying to figure out its direction, cloud providers
are picking up a lot of slack. We are seeing a big pickup in the movement to the cloud.
Industry contact 8
Oracle is still putting a lot of emphasis behind the engineered systems. He used to be
encouraged by the engineered systems opportunity, but Im not encouraged anymore.
Thats because their sales people wont work with partners in those environments They
want to do those direct. Oracle is also hiring people that want to sell direct rather than
work with partners on engineered systems.
The overall demand environment for Oracle seems stable. I dont think theres a lot of
growth there.
If you talk with technology sales reps, they think they did amazing. They were having a lot
of struggles but they finished well. As it relates to hardware its a mixed message. Some
did well, some didnt.
Oracle as a company is focusing more on its Linux business, even though it talks a big
game around Solaris, but it seems to be that where its promoting it is to customers that
are dedicated and strong Solaris users, because Oracle cant beat Red Hat when it comes to
overall visibility in the market as it relates to Open Source. For somebody very comfortable
with a traditional, proprietary Solaris environment in their data center, Oracle continues to
promote that. But if its a customer that might be considering Microsoft, then Oracle will
introduce Oracle Linux to them, including Oracle Virtual Machine (OVM). If a technology
customer is getting upset with the cost, then Oracle does the whole Oracle OVM pitch to
help customers reduce their cost. He believes this is a smart thing, but its not done very well.
At the end of the day, as strong as Oracle Linux might or might not be, overall acceptance
for Open Source is really with Red Hat and not with Oracle. This is a part of the reason
Oracle is struggling with its hardware business (Solaris and x86). Oracles x86 business is
going along with Linux plays, and one of his customers is looking more and more at OVM
and Linux on x86 because it comes at no cost, and theyre happy to continue to use Oracle
in this case. Comparing an Oracle x86, which includes a Linux and OVM license, and a
vendor like Dell or HP, that has Red Hat or Oracle Linux, depending on what youre trying
to do, the Oracle machine will be more price competitive. On a five-year TCO, considering
the cost of maintenance, Oracle comes out cheaper. Thats why Oracle is winning a little bit
more in that business, but theyre still such a small playersingle-digit market share and
not growing.
Industry contact 9
The x86 business is definitely hurting. I dont even play in it because its not worth it.
This is why he thinks Oracle expanded its agreement with Dell to offer Oracle Linux, OVM

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and Enterprise Manager on Dell x86 servers. Market acceptance is not there for SUN x86
Servers running Oracle Linux or OVM.
The engineered systems sales are moving along for them [Oracle]. I dont know if its
stellar, but [reps] are selling them. Oracle Database Appliance sales have been okay. I dont
think its great, but its not sucking wind, either.
The engineered systems are primarily competing against build-your-own solution. A

customer will get servers from someone like Dell or IBM, and theyll attach some sort of
storage and make it work. Theres no real appliance that Exa-systems go up against.
He expects hardware demand to be pretty slow over the next couple of months, although
June has been a good month.
Industry contact 10
Oracle still has a very convoluted way for resellers to sell software, but he primarily
focuses on hardware, selling to both state and federal government.
Sells HP, EMC and Oracle. I think Oracle has a very good product. But that doesnt mean
it has the best sales. Oracle makes it hard for partners to make money. If he sends in one
of his reps to a customer site to assess their data center needs, and then comes up with a
solution, even though the rep likes Oracle products and Oracle products could work well for
the customer, the rep is more inclined to push HP first, or EMC. This is because alternative
compensation plans and partner programs are way better than Oracles program. He also
favors other vendors because he can resell the maintenance, which Oracle does not permit.
Oracles compensation back to the partners is not really something I care for either. You
never know how much money youre making. Youve got to go back to the sales reps to tell
you how much discount you can put on the product and they dictate to you how much profit
you can make. Believes there are too many layers and too much paperwork. Used to sell a
lot more Oracle/SUN than they sell today.
The ODAs are a little easier to sell. We sold a few of those.
Weve seen the [federal] government try to shy away from Oracle on purpose. Weve also
seen the government trying not to renew some of the contracts with [Oracle].
His conversations with sales reps in the hardware ecosystem lead him to believe that they
did okay actually Some of them [deals] did not happen at the end of May like they
wanted to, and sneaked into June, and they [sales reps] did not look too upset about it.
Industry contact 11
The entire public sector is slow. Weve not had a lot of activity. The sequestration at the
federal level is causing much of the spending demand fall-off in Oracle hardware.
Oracle still probably has the best solution, but the engagement process with Oracle is so
incredibly painful, that many customers are finding that [competing vendors] are easier
to deal with.
Sells all Oracle hardware solutions, but does see strength in Exadata and Exalogic. Exadata
is doing extremely well now that the concept has been accepted. Theyre doing pretty well
right now with the Oracle Database Appliance. She also notes that interest is increasing
in the SPARC SuperCluster product set, although there is less demand for single boxes of
the T-Series.
Industry contact 12
Demand environment has been sporadic, consistent with what I mentioned last time.
Mentions that there have been lots of changes in field sales resulting in loss of continuity
and account relationships which will take time to reestablish.
Also refers to some general buyer fatigue among Oracle customers. e.g. - E-Business Suite
customers still getting over or grappling with R12 upgrade, etc.
Thinks that Cloud computing is causing companies to delay or pause their uptake of
hardware. There are many positives within Oracles offerings to help companies become
more efficient. Whether or not momentum can be built around those offerings will be
interesting as next fiscal year rolls forward.
Negative Feedback Industry contact 13
He had a good Q4 and expects that momentum to continue through the year.
But June and July are always interesting. This year Oracle seems to have its act together far
sooner than they did going into Q1 last year. Last year he doesnt think Oracle had comp
plans in peoples hands until Labor Day. This year they actually got them out this week.
I think they learned a lesson last year.

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It also appears that Oracle is going through some major field sales restructuring,
particularly in the mid-market, both on the tech software and hardware side. Theyre trying
to do a better job there where they have underperformed and continue to get kicked around
by the likes of Microsoft, and an increasing number of freeware providers.
Keith Block to salesforce.com:

He was considered a malcontent in general post the SUN acquisition.
His successor, Matt Mills, all the reports from people that roll directly to him, have
been very positive. His own experience with Mills has been very good. Hes much
more channel friendly than Block ever was.
Him ending up at salesforce.com, it reminded me a lot of Ray Lane.
Oracle CRM
Oracle CRM, we wont use it, and they give it to us for free. Its not a big part
of their product strategy.
Because the Oracle CRM business is so small, I guess if Benioff hired Jesus that
would be big news, but its just not that big a deal.
He estimates that 90% of Oracle CRM customers got it for free because they spend
a zillion dollars on other stuff. Its a throw in.
He believes the reseller system supporting Oracle CRM is gone. The attrition is high.
Q4
Oracle came in second on some biggies in his region.
Doesnt think a lot changed from Q3.
Didnt hear about any major wins, but he did hear about a couple of major losses.
He heard about a large database and data warehouse infrastructure platform that
included a substantial security element. This infrastructure deal was lost to EMC
Greenplum. The customer is going with Postgres because its cheap and went with
CA for security.
In his region theyve had an exodus of some of their senior sales reps. Theyre getting
picked off by some interesting startups.
If I had to bet, if it was my money, Im going to say theyre probably not a lot better
in the U.S., at least in [my region], than they were in the third quarter. I think a lot
of the reorganization planning for this year, which theyre way ahead of the curve
on, started in the fourth quarter because it did look pretty [bad] and they knew they
had to make some changes.
Industry contact 14
Recently decided to no longer be an Oracle partner.
The changes that Oracle has made finally became too unattractive for this partner.
Has basically moved to sell a proprietary system now. Currently has a relationship with HP
and Dell. Demand on the commercial side is fairly good for their proprietary engineered
systems. His customers are looking for high-performance computing.
Doesnt see Oracle competing in any of his deals.

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Partners Finished 1.4% Above Plan, Slightly Better than Q3
PRICE: US$34.40
TARGET: US$36.50
12.3x FY14E EPS of $2.97
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.69
FY14E EPS US$2.97
Div (ann) US$0.24
Yield 0.70%
Fiscal Year End May
38
36
34
32
30
28
26
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 40 ORCL partners/resellers and found that they finished 1.4% above plan
in Q4, a very slight uptick relative to last quarter, but still running in a lower gear as
compared to the 2010/2011 timeframe when resellers were 3-6% above plan. For the
other two metrics that we track (pace of business, and Oracle revenue expectations), the
feedback was consistent to ever-so-slightly softer as compared to last quarter, suggesting
a continued slow-growth business environment. Hardware remains a wildcard and we
expect Oracle to deliver an essentially inline Q4, with potential pockets of strength in
acquired Cloud apps and Fusion Middleware. Bottom Line: we don't see materially
different end-markets for Oracle as the data doesn't lean strongly in either direction, but
partners expect an inline quarter from Oracle. OW, $36.50 target.
Partner Survey Suggests Consistent To Very Slightly Improving Conditions in Q4.

We surveyed 40 Oracle partners and on average these partners were 1.4% above plan
for their Oracle business in FQ4, which is a very slight uptick from last quarter.
Additionally, 47.5% of partners saw a Better pace of business while only 7.5% saw
a Worse pace of business in Q4. This results in a "net-better" score of 40%, which is
slightly worse than the last quarter but better than 1H:FY13, suggesting a consistent
business environment. Regarding quarterly expectations, the group is split evenly at
20% between those who expect Oracle to report Q4 revenue above expectations and
those who expect results to be below expectations, while the majority of partners
(60%) expect Oracle to report Q4 revenue in line with expectations. Taken as a whole,
the results indicate an essentially consistent/roughly in-line Q4 environment for Oracle
with a possibility, but not a certainty, of slight improvement in certain sub-segments.
*** DETAILED Data on Page 2***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0 8,811.0 9,062.0 10,950.0 37,221.0 37,334.0 4.4x 4.4x
8,209.0A 9,113.0A 8,970.0A 11,149.0 37,441.0 38,070.8 4.4x 4.3x
8,475.0 9,476.8 9,356.5 11,734.1 39,042.4 39,735.5 4.2x 4.2x
0.48 0.54 0.62 0.82 2.46 2.61 14.0x 13.2x
0.53A 0.64A 0.65A 0.88 2.69 2.83 12.8x 12.2x
0.59 0.72 0.70 0.97 2.97 3.08 11.6x 11.2x
Non-GAAP EPS

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April 2014
J u n e 1 9 , 2 0 1 3
Exhibit 1: Current and Historical Survey Results
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41 53 42 40
% of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1% 0.4% 1.1% 1.4%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9% 52.9% 42.9% 45.0%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4% 7.5% 7.1% 7.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3% 32.1% 42.9% 40.0%
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8% 13.2% 11.9% 20.0%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1% 62.3% 76.2% 60.0%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1% 24.5% 11.9% 20.0%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3% -11.3% 0.0% 0.0%
6.0%
3.0%
4.4%
-0.2%
1.5%
2.5%
1.0%
-1.1%
0.4%
1.1%
1.4%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13
59.0%
57.0% 57.9%
-5.6%
26.9%
40.0%
42.1%
7.3%
32.1%
42.9%
40.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
40.5%
45.5%
60.5%
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-11.3%
0.0% 0.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Net-Above %
Source(All) : Piper Jaffray Research

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April 2014
J u n e 6 , 2 0 1 3
Oracle Partners Are Bullish -- On Workday Financials Closing the Gap
PRICE: US$34.12
TARGET: US$36.50
12.3x FY14E EPS of $2.97
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.69
FY14E EPS US$2.97
Div (ann) US$0.24
Yield 0.70%
Fiscal Year End May
38
36
34
32
30
28
26
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 42 Oracle partners and asked them a simple question: "At what point do
you think Workday Financials will become a serious competitor to Oracle for Enterprise-
Class Financials running in the Cloud?" The results are stunning: 19% think it already
is, 7% say 2013, and 21% say 2014. This totals 47% of Oracle's own partners who
expect WDAY financials to close the gap by next year, and 76% by 2016. Coming from
Oracle's own partner ecosystem, this viewpoint is disturbing because: 1) perception
often becomes reality and could slow down current Oracle Fusion sales cycles; and
2) ORCL cannot afford to surrender its dominance in Financials, which is its crown
jewel among applications and makes the center hold while pulling through database and
middleware sales in a verticalized stack.
Proprietary Survey Data Shows Workday Financials Closing the Gap in Next Few
Years. We surveyed 42 Oracle partners and asked them "At what point do you think
Workday Financials will become a serious competitor to Oracle for Enterprise-Class
Financials running in the Cloud (for Large organizations), and why?" Results show
19% think it already is; 7% say 2013; 21% say 2014; 19% say 2015; 10% say 2016;
0% say 2017; 2% say 2018; 10% say Beyond 2018; and 12% say Never. Boiling it
down, the vast majority (76%) believe WDAY Financials will close the gap in the next
few years, and 24% believe it will take longer or will never fully close the gap. The
data is surprising and non-consensus because thus far Workday only has just over a
dozen small companies live on its Financials product (with no multinationals live to
our knowledge), and because its Financials product is viewed by investors to be fairly
nascent, immature, and unproven at this point.
Supporting Rationale Shows Workday Outmaneuvering Oracle. The bullish

viewpoint on WDAY financials is best summarized by comments such as 1) "Workday
is gaining momentum, hiring a stronger sales force and [Oracle] Fusion is not yet
ready for prime time"; and 2) "[Workday] Financials are still weak but we anticipate
it following a similar path to HR. They are following the PeopleSoft playbook from
years ago - Oracle sees it, but not sure they get it - [they] think they can throw
more sales folks at their development problems, insane." The bearish viewpoint on
WDAY financials is that "they [Workday] have a very, very long way to go with the
functionality of the software. And a longer way to go to get enterprise level clients to
risk moving from the proven Oracle ERP to the relatively unproven Workday." While
we think Workday's Financials need some time to mature, odds are high that WDAY
can indeed close the gap, and the timeframe is a few years, not a decade-plus.
*** CONTINUED on PAGES 2 - 4 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0 8,811.0 9,062.0 10,950.0 37,221.0 37,334.0 4.4x 4.4x
8,209.0A 9,113.0A 8,970.0A 11,149.0 37,441.0 38,070.8 4.4x 4.3x
8,475.0 9,476.8 9,356.5 11,734.1 39,042.4 39,735.5 4.2x 4.1x
0.48 0.54 0.62 0.82 2.46 2.61 13.9x 13.1x
0.53A 0.64A 0.65A 0.88 2.69 2.83 12.7x 12.1x
0.59 0.72 0.70 0.97 2.97 3.08 11.5x 11.1x
Non-GAAP EPS

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April 2014
J u n e 6 , 2 0 1 3
Massive Implications for Software
Landscape
If Oracle's partners are ultimately correct in their expectation that Workday Financials will
become a serious competitor to Oracle in the next few years, then this represents a massive
changing of the guard with ripple effects across the entire software landscape. Financials
is the 'big kahuna" application: every company relies on a Financials package at its core,
as a vehicle for processing daily transactions and producing financial reports, but also as a
central management console, and for business planning and analytics. Financials represent
the center of the chess board; everything else "hangs off of it", like a central nervous system.
The software vendor which controls the Financials system sits in an enviable position of
power for entering adjacent areas such as Human Resources, CRM, vertical applications,
supply chain, manufacturing, and more. In fact, the size of the Financials software market
is estimated at $25B, versus $20B for CRM and $10B for Human Resources. Because of the
centrality, complexity, and sensitivity of Financial applications, Financials has been an area of
high reluctance for large companies to embrace the Cloud. Large companies have uniformly
left their Financials applications running on-premise thus far due to complexity, uptime, and
security concerns. As it relates to Oracle, losing its grip on the Financials segment, in our
view, is much more disturbing than having lost market share in the CRM and HR markets.
It's akin to losing your entire naval fleet, as opposed to just losing a peripheral destroyer. We
think Oracle's historical strength in Financial applications has, in turn, allowed it to build
up a sizable Applications business in adjacencies and verticals, while driving pull-through of
the underlying middleware, database, and sometimes hardware technologies. The Financials,
being the application center of gravity for most organizations, is causing the center to hold, out
across the other application segments and vertically up and down the "red stack". Thus, in our
view it is going to be paramount for Oracle to try to fend off the Workday attack in Financials
- but in the minds of Oracle's own partners, Workday already has a ton of momentum.
Background on WDAY Financials When Workday was founded in 2005 its founders presented a vision for both HR and Finance.
At PeopleSoft, Financials had been an afterthought and was developed 4 years later. While the
HR product evolved very rapidly, today there is a ton of work to be done for Workday to build
out its Financials product in order to sell it to Fortune 500 companies, because Financials is
a much more difficult, complex, and larger product. Workday has stated that it is very, very
heavily investing in development for its Financials product. In March, Workday stated that it
had recently welcomed its 50th Financials customer (in terms of purchases, not in terms of
live deployments), while specifically mentioning the University of Rochester and J.B. Hunt.
There is potentially great value in offering Human Resources and Financials in one unified
system. Workday's "Big Fin" project aims to bring the features of its Financials product into
close parity with the legacy companies (e.g., Oracle and SAP) over time. To date, Workday
has sold its Financials product primarily into the mid-market. Back in March, Workday had
suggested that it was 18 months to 2 years away from being able to sell its Financials product
to Global 2000 companies. Workday has also stated that it believes it is "80% of the way there
on scalability/functionality" with its Financials product, as it is able to address organizations
with up to 10,000 employees. Workday aspires to be able to edit 50 million journal lines by
September of 2014, and 100 million lines one year later. One additional task is making the
product global, and addressing country-specific tax laws and international payments so that it
can be operated by multi-nationals in the US, Europe, and Asia. After Workday has sufficiently
addressed the scalability and global capabilities of its Financials product, it plans to attack
other areas of discrete vertical functionality such as average daily balance and lot-tracking
issues.

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April 2014
J u n e 6 , 2 0 1 3
19%
7%
21%
19%
10%
0%
It Already Is
2013
2014
2015
2016
2017
At what point do you think Workday Financials will become a serious competitor to
Oracle for Enterprise-Class Financials running in the Cloud (for Large organizations),
and why?
0%
2%
10%
12%
0% 5% 10% 15% 20% 25%
2017
2018
Beyond 2018
Never
Supporting Rationale Below we include some of the detailed responses to the question "At what point do you
think Workday Financials will become a serious competitor to Oracle for Enterprise-Class
Financials running in the Cloud, AND WHY?" The responses are grouped by year.
It Already is
It is [already] another option for customers.
EBS [Oracle E-Business Suite] is so complicated to implement and interface into Advanced
Benefits, Payroll, and Talent Management.
Price point.
Because it is maturing.
It does have a strong feature set; a high value proposition for cloud friendly organizations.
Everyone in the industry is saying so.

2013
The [Workday] Financials are still weak but we anticipate it following a similar path to HR.
They are following the PeopleSoft playbook from years ago - Oracle sees it but not sure they
get it - think they can throw more sales folks at their development problems, insane.
Workday has momentum. Customers want to get their applications in the Cloud. I think
that customers have "happy ears" and will listen to whatever Workday is saying because
they want the product to work because they are excited about Workday. The extra sales and
revenue will then help fund the eventual success at Workday.
2014
Oracle's price positions are confusing. One client recently remarked that Oracle sales is like
trying to buy a car from a shady used car dealer. A primary concern is the high cost of
support driven by the price paid for the software. Oracle may be better served to segregate
the software price from the maintenance / support price. Also, due to the nature of business
and staffing, some clients may need a greater level of support than another. The one size
fits all it too arbitrary.
Workday is gaining momentum, hiring a stronger sales force and [Oracle] Fusion is not yet
ready for prime time. Definitely a viable competitor for Fusion Financials unless Oracle gets
some strong customers on board.
Workday has momentum but will take at least a year to become well-known enough to give
Oracle a "serious" run.
Based on their current growth.
Just a guess as they pick up momentum

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April 2014
J u n e 6 , 2 0 1 3
Clients appreciate alternatives to Oracle and will use 2013 to consider options. Workday
Financials will at least slow down the sales cycle and in some cases will cut into the market
share for Oracle.
2015
Workday Financials is still seen as very embryonic and customers are reticent to consider
this as an option until it has some proven success and the required functionality is available.
Still a little ways out in my opinion.
It comes with a clear purpose, whereas OECF in the cloud is another analytics environment
that must be defined and value-established to be a clear solution.
Growing ecosystem with Salesforce.com.
They need some time until the new solution becomes mature and also to add more needed
modules to compare it to Oracle.
Better product.
I think it will take a little while before Fortune 500 companies will put their financial systems
in a SAAS model, but it is coming...
Reluctance from large organizations to move to the cloud.

2016
It will take time for Workday to match Oracle's functionality.
Until it is pushed 100% by Oracle, then it won't get to the top.
It's starting to catch on, but will take a while to catch up to Oracle.
Workday has learned from past mistakes with PeopleSoft financials and aggressively
attacking the SaaS Financial market.
2018
They have a very, very long way to go with the functionality of the software. And a longer
way to go to get enterprise level clients to risk moving from the proven Oracle ERP to the
relatively unproven Workday.
Beyond 2018
I think adoption of cloud based strategies for Enterprise customers is a ways off. Their
requirements, infrastructure, security, compliance, etc. requirements are just too complex
for them to throw the keys over the wall anytime soon. The cloud solutions are going to
have to prove themselves, and it's going to take a few brave adopters to get Enterprise class
customers moving in that direction.
Oracle will continue to adopt best of breed solutions through acquisitions and improve its
standing in the cloud. Being able to meet or exceed SLAs is key to the success of any cloud
application. Oracle has the best software and hardware to meet even the most stringent SLA.
For large organizations especially, they [prefer] mainly to keep their IT [managing] a
majority of the applications, also migrating to new applications without the awareness and
customizations for their needs is not an easy task. It is very tough to comment, if the mindset
will change that soon.
I believe it will take at least 5 years for Workday Financials to be mature enough to compete
with Oracle Enterprise-Class Financials.
Never
Enterprise-Class Financials running in the Cloud are better.
My answer relates to the Czech Republic. Workday Financials is almost not known in the
Czech Republic.
I'm afraid we do not deal in this area and hence have no experience and therefore no view
point on Oracle Financials.
Workday, Inc. We have a Neutral rating on Workday, Inc. (WDAY) with a 12-month price target of $60 based
on 17x EV/CY14E revenue of $665.4M + net cash of $805.8M and 202.5M s/o. Risks to our
price target include outages, security breaches, competition and economic fluctuations

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April 2014
Ma r c h 2 0 , 2 0 1 3
Survey of 42 Oracle Partners Suggests Very Modestly Improving Conditions
PRICE: US$35.69
TARGET: US$36.50
13.6x FY13E EPS of $2.70
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.70
FY14E EPS US$2.97
Div (ann) US$0.24
Yield 0.67%
Fiscal Year End May
38
36
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 42 ORCL partners/resellers and found that they finished 1% above plan
in Q3, a very modest uptick relative to the prior two quarters, but still not as robust as
the 2010/2011 timeframe when resellers were 3-6% above plan. While feedback upticked
modestly across the three core metrics we track (% of plan, pace of business, and Oracle
revenue expectations), possibly suggesting a very slow-moving stabilization/recovery, it
is worth noting that the data now shows 7 consecutive quarters of running in a lower
gear as compared to earlier quarters, which correlates strongly to Oracle's 7-quarter
string of choppier, slower-growth results. Hardware remains a wildcard and we expect
Oracle to deliver an essentially inline Q3, with potential pockets of strength in acquired
Cloud apps and Fusion Middleware. We continue to like Oracle for its resilient earnings
stream while expecting modest-but-positive revenue growth.
Partner Survey Suggests Consistent to Very Modestly Improving Conditions in Q3.

We surveyed 42 Oracle partners and on average these partners were 1.1% above plan
for their Oracle business, which is an uptick from the last couple of quarters but
probably not to a material extent. 50% of partners saw a Better pace of business while
only 7% saw a Worse pace of business in Q3. This results in a "net-better" score of
43%, which is better than the last two quarters and seems to suggest a gradually
improving business environment since Q1. Regarding quarterly expectations, the
group is split evenly at 12% between those who expect Oracle to report Q3 revenue
above expectations and those who expect results to be below expectations, while
the majority of partners (76%) expect Oracle to report Q3 revenue in line with
expectations. Taken as a whole, the results indicate an essentially consistent/roughly
in-line Q3 environment for Oracle with a possibility, but not a certainty, of slight
improvements in certain sub-segments.
" *** DETAILED Data on Page 2 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0 8,811.0 9,062.0 10,950.0 37,221.0 37,334.0 4.7x 4.7x
8,209.0A 9,113.0A 9,341.1 11,480.0 38,143.1 38,989.0 4.6x 4.5x
8,578.0 9,589.7 9,852.8 12,230.0 40,250.5 41,167.0 4.3x 4.2x
0.48 0.54 0.62 0.82 2.46 2.61 14.5x 13.7x
0.53A 0.64A 0.66 0.87 2.70 2.78 13.2x 12.8x
0.56 0.69 0.73 0.99 2.97 3.08 12.0x 11.6x
Non-GAAP EPS

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April 2014
Ma r c h 2 0 , 2 0 1 3
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41 53 42
% of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1% 0.4% 1.1%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9% 52.9% 42.9%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4% 7.5% 7.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3% 32.1% 42.9%
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8% 13.2% 11.9%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1% 62.3% 76.2%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1% 24.5% 11.9%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3% -11.3% 0.0%
2.0%
6.0%
3.0%
4.4%
-0.2%
1.5%
2.5%
1.0%
-1.1%
0.4%
1.1%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
34.0%
59.0%
57.0% 57.9%
-5.6%
26.9%
40.0%
42.1%
7.3%
32.1%
42.9%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
0.0%
40.5%
45.5%
60.5%
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-11.3%
0.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Net-Above %
Price Target We plan to revisit out price target once the company reports its FQ3 earnings.

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April 2014
Ma r c h 2 0 , 2 0 1 3
Deep-Dive Interviews with 8 ORCL Partners: Validation of Integrated Stack
PRICE: US$35.69
TARGET: US$36.50
13.6x FY13E EPS of $2.70
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.70
FY14E EPS US$2.97
Div (ann) US$0.24
Yield 0.67%
Fiscal Year End May
38
36
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 8 contacts in the Oracle ecosystem for the
most comprehensive, in-the-trenches checks, spanning seven pages of content. We
received positive feedback on: 1) the sentiment around Oracle's Q3 performance in
certain segments; 2) the technological superiority of Oracle's engineered systems and the
perception that Oracle is truly making hardware and software work better together; and
3) Oracle's opportunity to sell an integrated stack of products. Contacts were negative
on: 1) hardware in general, while saying the product performance is far better than
the go-to-market strategy; 2) not seeing runaway adoption of Fusion Applications such
as Fusion CRM/Fusion Financials; and 3) transformational investment shifting into
revenue-generating activities such as salesforce.com. We believe expectations for ORCL's
Q3 (Feb.) are likely well-balanced and performance could very gradually improve.
Overweight, $36.50 price target.
Notable quotes:
(+) Exadata actually seems to have really good mindshare.
(+) I tend to think Oracle did do well in the quarter. Its my high-level instinct because
of the body language of reps and whatnot.
(+) Exadata is becoming more of a standard platform. You dont see people
concerned about the novelty of itthe confidence level is high, it seems to work for
many customers.
(=) Although there is some sort of built-in aggression among sales guys, [in the ERP
ecosystem], I dont see them getting desperate to win deals. Looks like they are doing
okay.
(=) Im sure theyre going to do okay [for Q3], but I dont think they blew the doors
off.
(-) Nobody that I do business with in Oracles field sales organization knows how to
sell [Cloud], what to sell or how theyll get [compensated] for selling Cloud.
(-) On the hardware side things have been slow.
*** See pages 2-8 for detailed feedback ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0 8,811.0 9,062.0 10,950.0 37,221.0 37,334.0 4.7x 4.7x
8,209.0A 9,113.0A 9,341.1 11,480.0 38,143.1 38,989.0 4.6x 4.5x
8,578.0 9,589.7 9,852.8 12,230.0 40,250.5 41,167.0 4.3x 4.2x
0.48 0.54 0.62 0.82 2.46 2.61 14.5x 13.7x
0.53A 0.64A 0.66 0.87 2.70 2.78 13.2x 12.8x
0.56 0.69 0.73 0.99 2.97 3.08 12.0x 11.6x
Non-GAAP EPS

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I tend to think Oracle did do well in the quarter. Its my high-level instinct because of the
body language of reps and whatnot.
I had a very, very stellar quarter. A lot of it tied into one big deal, all software related. But
thats not something that happens every quarter.
His pipeline is good. Hes had a lot of success building pipeline around database with ZFS
(Oracles storage product), or database with ODA (Oracle Database Appliance), database
with T-4 Servers. Having a lot of success selling the Red Stack. Oracle is granting good
concessions when a partner is selling the stack versus selling products on a one-off basis.
He has four or five deals lined up for Oracles Q4. He feels his pipeline is very diversified
in terms of deal size.
He thinks the emerging markets group (partners with revenue of up to $75M) in his region
overperformed. He suspects the ZFS group in his region underperformed .
Channel management
The server and storage teams at Oracle seem to be very flexible and work well with
partners.
Matt Mills is making some examples of software sales reps who arent following
Oracle policies and protocol relating to partners, and this is getting noticed.
But the software side is all region-based, which means that whatever the VP of
technology who oversees a certain region says, goes. So if the regional VP wants to
do something a certain way, and its detrimental to the partners, then theres not
much the partners can do about it. Some regions are more partner friendly.
Cloud Offering
Oracle has a cloud offering, but its very immature. Theyve offered Exadata on-
demand infrastructure, where they put an Exadata or Exalogic machine on-site and
turn on cores as the customer wants them. This is similar to what IBM does. Theyre
unlikely to have success with this in the [small or mid-market] market, but maybe
theres a possibility in the [enterprise] market.
Oracle puts out a lot of info about Exadata wins, but I dont see it in the [small or
mid-market] market. My assumption is that its all in the top accounts or enterprise
accounts that Oracle kind of hoards.
Oracle also has the database and storage on demand in the cloud. Its incredibly
primitive and sort of ridiculous. They say for $2,000 a month you can get 50 GB
and broad-band with it and you dont have to pay any licensing or anything. So its
platform as a service. But 50 GB is nothing. Until Oracle can really create a scale
model where they can scale out into terabytes and unlimited instances and these
types of things, its just extremely primitive.
The Oracle cloud solutions arent partner friendly, even though Oracle keeps talking
about it.
They keep saying that theyre going to release a master agreement to partners for
resell but they havent. Its been months. They talked about it at OpenWorld in
September.
The people at Oracle keep saying theyll provide details about how partners can be
paid for selling cloud solutions, but it seems that all Oracle wants is for partners
to refer customers to Oracle for one-time commission. But partners arent going to
give up an infrastructure sale for a small referral fee.
Oracle Storage
I think theres a huge opportunity for Oracle in their storage space. Im seeing
that daily with technologies making the storage database-aware and their database
storage-aware.
One of his colleagues does $120M of Oracle storage revenue a year. But the fact that
Oracle can come in to a NetApp or EMC account that runs a lot of Oracle and can
tell them hey, we can decrease the amount of storage you need to buy by 10x, so
instead of 100 terabytes, 10 terabytes, it gets you better performance, etc. is a very
compelling story, and I dont think the market has really grasped that. But I get it,
and thats why Im building a lot of pipeline around ZFS [storage product].

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He thinks theres a lot of potential for that product. Hes made some big investments,
and he recently had some training on the storage product.
Most partners likely wont resell ZFS because EMC and NetApp are their big
storage products, so that leaves him a lot of opportunity to sell it.
Industry Contact 2
Exadata and the whole engineered systems groups of products at Oracle are substantially
more key to Oracle than he used to think.
It seems as though Oracle has really embraced the concept of the stack, and I think thats
a good thing.
He perceives that more and more across Oracle there is starting to be an understanding
that theres real value in interacting with other parts of the stack both from a development
perspective, which is very much happening, as well as from a solutions presentation
perspective to the customers.
Oracle storage
If you think of tier-1 storage vendors, if youre a CIO and you need to have fault-
level, bank-quality storage that will always work, you would buy that kind of storage
from a tier-1 storage vendor, but you buy only as much of that as you absolutely
need. This would be for financial info, or sales data, or other crown jewels of
information.
This important info that requires tier-1 storage is almost always tied to a database.
What Oracle is doing and what tier-1 storage vendors should be concerned about,
is that Oracle says that if you build your storage in such a way that it is inherently
aware of whats in the database and the database is aware of whats in storage, then
the two can work in conjunction with each other to make sure that all the really
important data is in flash memory (which is what Exadata added with Exadata 3
last year) or actually in memory itself.
If you have 100 terabytes of key data and you can compress that down to 10 terabytes,
and you can buy enough SSD storage to put those 10 terabytes on, then you have
your key data available to you instantaneously.
If you have your key data available to you instantaneously inside of an Exadata,
then all your other data can be stored on tier-2 storage. If you store that in Oracle
ZFS storage, right next to an Exadata, then that storage, the non-critical data, are
available relatively quickly but not instantaneously. Its up to the combination of the
communication of the database, the database storage and the external storage (the
ZFS), to keep feeding into Exadata the key data thats going to be needed.
The effect of that is this: lets say a CIO is considering his storage needs and lets say
his storage requirements are growing at 40% on a y/y basis, and the cost of storage
is dropping maybe 8% per year. That means storage costs will go up 32% per year,
and he needs a way to help control that. Thats the tension an Exadata, particularly
with ZFS, starts to throw at the thinking of a CIO. This directly affects companies
that sell tier-1 storage.
Industry Contact 3
Mentions that he is optimistic on some fronts and not so much on some other fronts.
Mentions that he is optimistic on Oracles investments in a lot of the cloud applications

Taleo, RightNow, Eloqua, SelectMinds, Nimbula, etc. Thinks Oracles cloud investments
are already paying off. In the newer products we are already seeing a lot of traction and
they are doing some aggressive partner enablement.In fact already they may be witnessing
a higher percentage of cloud billings in their pipeline.
Thinks that Oracles strategy of acquiring the cloud players like RightNow, Taleo, Eloqua,
etc. to plug in the weaknesses apparent in the Fusion applications is a very apt one. Because
they already have a market, they already have customers and they are already gaining
traction in those segments, it will only help them [Oracle] up sell Fusion products.

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Thinks that Oracles strategy of pushing Fusion applications to co-exist with existing on-
premise products is contributing to very widespread adoptionnot so much in CRM
that I see, but mainly around HCM. Adds that he doesnt recall a recent head to head
competition of Fusion HCM and Workday.
Mentions that the innovation around Siebel Open UI is a little promising and is gaining
ground. Adds that RightNow is also complementing Siebel from a call center service
perspective. Mentions that if a customer is looking at Service and they are evaluating
RightNow, it is very easy for the rep to go into the account and enlighten the customer about
how Siebel can complement RightNow. Those kinds of conversations are expanding some
[Siebel] sales. Moreover, industry solutions built on top of Siebel also have good traction.
For the overall Fusion Applications group, I am not seeing runaway adoption. Adds that
he hasnt seen great adoption around Fusion CRM and also hasnt seen customers lining up
for end-to-end Fusion Financials. Other laggards in Fusion applications are Supply Chain
Management, or order orchestration, etc.
On the hardware side things have been slow.
Mentions that Oracle might be introducing some new SPARC servers in April and thats
going to fill up some price-performance gap which Oracle currently has in the server
marketwe are looking forward for that.
For Exa systems, we are now seeing increased demand from customers to evaluate
Exa systems. One important thing that is happening is that, and the trend is only
strengthening, customers are asking now to run Oracle on Oracle. Adds that typically, if
a customer has a lot of Oracle applications, and is planning to do a technology refresh, it
is very highly likely that the customer might consider running those Oracle applications
on an Exa-series rather than going for commodity hardware. Increasingly, we are seeing
that trend.
Thinks Big Data is still a very niche market. Mentions that Big Data has three components
variety, velocity and volume. From the point of view of variety, thinks that Big Data
is an application/software story, while from the point of view of volume and velocity its
a hardware story. Thinks Oracle has some references under their belt around Big Data, but
its still a very niche market.
Thinks that a lot of the pipeline for Oracle currently is cloud based pipeline. Also coming
off of last quarter, Oracle had a decent pipeline around industry/vertical applications.
Mentions about some decent deals in the communications and the automotive industry.
Industry Contact 4
Mentions that Oracle has a positive tone. Mentions, They are not so worried about
competition. They are just doing. I dont see them playing unfair to completion. I dont see
them desperate in their pricing mechanism. Thinks that is a very stable story.
Although there is some sort of built in aggression among sales guys, [in the ERP ecosystem],
I dont see them getting desperate to win deals. Looks like they are doing okay.
Mentions that he doesnt see field level aggression in the new additions in the talent
management space. Fusion Apps has takers here and there but dont see the push in
the field against the products acquired through recent acquisitions. Thought they would
aggressively go against Workday, but doesnt see that as of yet. Also, on the UI front and
content manager side, Fatwire, etc., he doesnt see ORCL pushing hard at all.
Mentions that Fusion Middleware is picking up and he knows of a couple of deals that
closed this quarter. Traditional Database and traditional Oracle Apps also seem to be
doing OK.
Mentions the mindshare is high for Exadata. I havent heard anything negative about
Exadata. Very, very few products get that sort of endorsement. It looks like an instant winner
if there is a need in the customer base.
More and more I see customers investing in revenue generating activitiesthats where
most of the transformational investment is going on while the maintenance dollars are
flowing through to vendors such as Oracle and Informatica, etc. Refers to a high tech
company [Brocade], which invested a lot in salesforce.com for Sales Cloud, Service Cloud
and Marketing Cloud in a part of their business and this year they want to extend it to all
lines of business.

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Based on his conversations with 10-12 sales guys [in the ERP ecosystem] in the last month
or so, mentions that he didnt see any anxiety.
Industry Contact 5
Saw a few customers moving in the direction of Fusion Middleware at the end of 2012.
We are chasing one opportunity right now for integration services around Fusion
Middleware. We havent won it yet, but if we did it will probably provide us with at least
12 months worth of work.
Mentions that although Oracle may not have the best technology as compared to TIBCO,
one of the reasons Oracle wins deals is that they are local, they are here. They are just a
little bit more in the market than the TIBCO guys and have more contacts into a company
due to the breadth of their products.
My sense is that they are still really struggling with the integration of the Sun operation in
general, and in particular hardware product technology specifically. When I say integration,
Im not talking technically. I think theyre making great strides in building advantages into
chip technology, platforms that give Oracle a boost to get consistent with the notion of the
advantage that engineered systems offer in general. From a go to market standpoint, I think
theyre still struggling.
Tom Cochrane, who was responsible for US hardware (he was preceded by a Sun employee
who ran hardware right after the merger. Before Cochrane ran US hardware he ran NATO:
North American Technology Operations), announced his resignation two or three months
ago. Hed been moved over to run hardware so that someone else could run the tech software
business.
He doesnt know if the fact that Oracle hasnt announced a successor to Cochrane has
anything to do with Oracles struggle in hardware. The guy who was running the advanced
infrastructure group (AIG)- he left somewhat surprisingly. That whole group was designated
to sell Big Data, Exalytics, Exalogic (everything but Exadata), but they sold nothing in his
region, so far this fiscal year. Ive heard a total of nothing sold.
The whole hardware technology seems to be coming along. The go to market is [screwed]
up.
Oracle has different people selling tape storage than disk storage, and different people
selling Sun platform than selling engineered systems platforms. So if youre the head of IT
at your company, and really excited about this notion of vertical integration, Red Stack, top
to bottom, youre going to have to talk to 10 to 15 Oracle sales people, if youre dealing
with Oracle directly. The alternative is dealing with a partner who has all or most of the
Red Stack in their Oracle certification.
The advantages built into chip technology in the T Series, the M Series thats coming, are
fantastic. The upgrades and improvements to the new ODA [Oracle Database Appliance]
version announced [recently], that is very exciting, the things that ODA can do.
Oracle continues to get better, in my view, in the integration of their technologies, and
building in advantages that [drive] the Oracle investment that people are making, but
their go to market strategy is a mess, in my view.
The blessing for resellers is it lets him to go to a CIO and allow the CIO to deal with one
or two people rather than 10 to 15 people.
Whats interesting is that the Oracle reps compete with each other. For example the guy
selling Exadata doesnt get compensated for selling storage. So if the storage sales rep comes
in after the Exadata rep, the Exadata rep is going to try to kick him to the curb if the
customer has an incumbent storage vendor and doesnt want to spend a lot of money on
storage. The Exadata rep will figure out how to make NetApp or EMC work with Exadata
at the expense of letting the storage guy come in and risk cannibalizing his sale.
Oracle is shutting down its advanced infrastructure group, which will happen by the end
of this year.

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Oracle is saying it wont make big changes in the comp plan, but theyll probably change
who gets to sell what, in May. "Well continue to see a fair amount of turnover."
If this partner is putting a package together for a particular prospect or customer, and he
wants discounts, he has to go through one discount group for everything related to the
Exadata and the software that runs on the Exadata. If he has storage built into the proposal,
he has to go through a whole different set of documentation and a whole different set of
people to get a discount for storage. Oracle hasnt even integrated stuff in the back office.
Its frustrating for channel partners.
However, his company is getting quality at-bats with engineered systems and the
technology is holding up great.
The equipment is really great and the systems are fantastic.
Were doing more with their gear. Were selling a ton of their storage gear, their ZFS. Their
storage gear is great. The price point is excellent.
Their [Oracle's] gear is really good. The testing that were doing on it is fantastic. The
results, which are just black and white, you cant make this up.
Storage
ZFS is a bigger opportunity than people think. His sales guys attended a competency
training event and they are jazzed about selling ZFS. The high compression
technology and the other features, along with the [discounted] price point, make
him think ZFS is a huge opportunity.
The price point on the Eighth Rack versus a Quarter or Half Rack is pretty
substantial. When you couple an Eighth Rack with a ZFS box, you get much better
utility and at a far lower price, than having to sell the same guy a quarter or a Half
Rack.
One of his clients was looking at a Quarter or a Half Rack. And when he introduced
ZFS as a platform for development and testing, and attached it to an Eighth Rack,
the TCO to his client was about half what it would have been if he sold them a
Quarter Rack tied to an incumbent vendor, like well-known tier-1 storage vendors.
From a performance standpoint, 1+1 = 3, and from a cost standpoint, 1+1 = 0.5.
So, when some Oracle reps are only focusing on selling a single product, they ignore
the benefits the customer can get when products are bundled. You have to look at
the whole picture.
Q3
He believes that North American Technology sales had an okay quarter.
The emerging markets organization in his region is not doing well (<$75M in
revenue). Theres a lot of turnover there. The ODA business has slowed down,
possibly because of a pause ahead of the new ODA that was introduced in early
March.
Has not heard good things about applications, particularly Siebel and E-Business
Suite.
Outside his region Oracle is doing great in other parts of the country. Theyre doing
great in Europe. Theyre doing well enough in places so that if theyre crummy in
one region, they can have an OK quarter.
Expects hardware to be flat or down for the quarter. Im sure theyre going to do
okay, but I dont think they blew the doors off.
Economy
Thinks the economy is still squishy and budgets were still being worked on during
Oracles Q3. Budgets for companies with calendar year ends are just in place now.
Oracle also had some new products, including the ODA or X-3 of Exadata.
Engineered systems competitors

He thinks the competitors have now all bought an Oracle engineered system, and
have had it for a while to be able to figure out how to beat Oracle. As the engineered
systems mature, and IBM, HP, Dell, etc., theyre getting better at competing against
Oracles engineered systems.
Oracle Cloud offerings

Nobody, nobody that I do business with in Oracles field sales organization knows
how to sell, what to sell or how theyll get [compensated] for selling Cloud. They
dont have a clue.

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Oracle hasnt even told its own people.
One of Oracles resellers does a lot of off-premise hosted service and cant get paid
for it. They have to sell the Oracle gear the old-fashioned way and set up a service
contract with whoever is providing the hosting support.
Outlook
Hes very bullish on his own opportunity.
Expects to have a particularly solid year in engineered systems, data storage and
data warehouse and retrieval management space.
We are selling a T-4 here and there and an M Series unit here and there.
Sold an Oracle storage facility to a customer that refused to upgrade for the last
decade, but they liked what they saw from Oracle so much. He expects to make a
lot more storage sales.
Industry Contact 7
Mentions that in the last three months, our growth slowed down in general. Adds that
the slow growth of his Oracle business may not have a strong correlation to Oracles sales
in Q3, but definitely has some.
Talking about the pipeline, their [Oracles] road ahead seems to be good and shiny.
Thinks people are more and more getting interested in the database-as-a-service for public
cloud deployments. Has seen some implementations. Thinks down the road, it will get
more popular and will get more attention as the product becomes more mature.
Seeing increased activity around the security options of the database software. In general,
security seems to be an area where companies are paying more attention. Refers to tools
like database firewall, data masking etc.
Hasnt seen a significant change from Oracles side in the hardware space.
Mentions that Exadata is becoming more of a standard platform. You dont see people
concerned about the novelty of itthe confidence level is high, it seems to work for many
customers. Adds that I dont see significant change in the Exadata market between now
and half a year ago but as compared to last quarter, thinks there is more activity and
pressure among sales guys although that could be seasonal. Given Q3/Q4 are Oracles
strongest quarters, I do expect this quarter to be more deals of course.
Mentions that the new release of the Oracle Database appliance should spark some
interest as it addresses one of the biggest customer concerns storage expand-ability. Now
they have expandable storage. Thats sort of really the number one concern of any prospects
we have worked with around database appliance before. Thinks that the new version was
announced in the first week of March 2013.
Likes Oracles acquisition of Xsigo (network virtualization). Oracle had pretty much any
component of enterprise data center except the networking part. Adds that the integration
of the technology into the Oracle stack will be key. Thinks its a direct competition to Cisco
Nexus.
Mentions that the 12C database is in the beta stage and not GA yet. Lots of interest around
the newer features which are quite significant in terms of how they change their enterprise
deployments of Oracle database. Thinks it will set a new database consolidation paradigm
for Oracle customers but since the changes are significant, he thinks it is likely going to take
a while for big customers to adopt it.
Industry Contact 8
Mentions that he continues to see a reshuffling of Oracles internal sales force all across
their software organization. Because of the retooling of their internal sales, you see a lot
of attrition and turnoverthat means that in the field the engagement has changed as the
direct sales have changed. Adds that it can have marginal impact on earnings.
Mentions that BI has gone more into a prime position instead of a supporting position
where in and of itself it can stand on its own leg. Adds that Oracle has dramatically
increased the sales force focused solely on BI and is now holding them to quotas. Thinks

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that its a big shift for Oracle since they didnt consider BI as a direct-sales play for the
longest time and was always considered as an add-on.
It appears that they are very clear around being more channel centric in the future.
Mentions that demand for middleware services has been extremely good and has been
the highest growth area for his business. Adds that he is not sure if the momentum indicates
increasing net new license sales or people taking it off-the shelf and saying what I do with
it.
Seeing very strong demand for BI but ERP not so much.
Thinks that E-Business Suite clients are wrestling with the migration to Oracle R12.
Has heard that JD Edwards has very strong momentum because of a recent overhauling
of its user interface which he qualifies as a step function.
Doesnt see too much traction around the Fusion applications. Thinks Oracle is mainly
targeting its installed base. Its a co-existence strategyyou may be get onesy-twosy here
and there but there is not going to be mass exodus over to Fusion apps. Adds that business
today wants to be nimble and react to acquisition faster and so forth and the Fusion apps
and the underlying technology can help them do that. There is a gap that can be filled with
that and I think its a matter of people getting their heads around it.
Thinks sales of Exa-systems is lagging behind where they needed to bethat doesnt
mean that they are not moving boxes. Exadata actually seems to have really good
mindshare. The trend toward the cloud and just trying to understand the value of the
infrastructure dollar capitalization definitely cause some concern or some consternation as
to why customers should buy that [Exa-box].
Mentions that he sees some of the top guys leaving the company. Adds that its easy to lose
top sales guys with disruptive companies like Salesforce and Workday popping up.
Mentioned that he had a good, healthy year in 2012. Adds that this year started off a little
slow in January but people are back at it.
Thinks that based on spending patterns he sees the economy is not booming but its heading
in the right direction.

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April 2014
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10 Pages of Detailed Checks with Oracle Partners Reveal Dynamics in Motion
PRICE: US$32.32
TARGET: US$36.50
13.6x FY13E EPS of $2.68
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.68
FY14E EPS US$2.87
Div (ann) US$0.24
Yield 0.74%
Fiscal Year End May
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 11 contacts in the Oracle ecosystem for
investors in search of the most comprehensive forward-looking checks, spanning ten
pages of content. We received positive feedback on 1) Oracle's critical role in Big
Data projects and infrastructure; 2) the continued success of Exadata and the Oracle
Database Appliance (ODA); and 3) Oracle's potential ability to remain a leader in its
application markets despite disruptive technology entrants. Contacts were negative on
1) hardware in general while citing slower-than-expected sales of non-Exadata and non-
ODA engineered systems; 2) continued uncertainty around the economy and US "fiscal
cliff"; and 3) sales turnover. We believe expectations for ORCL's Q2 (Nov.) have come
down, and would note the easier Q2 growth comparisons. Overweight, $36.50 price
target.
Notable Quotes:
(+) Its the wrong perception in the market that Workday is blowing away any Oracle
business or Salesforce is blowing away Oracle CRM business. They are definitely
nibbling at it, they are definitely gnawing at it but its not destroying the core base
of Oracle.
(+) From our perspective as an infrastructure player, I know that theres going to be
activity around big data, with Oracle, in the new year. I know that.
(=) I dont see it [the market] improving, but I dont necessarily see leading indicators
that its getting worse.
(-) Theres a ton of reps that have left (in his region), people that have been there for
10 years are going to little startups and whatnot because the quotas are too big and
the territories are too small and the product sets to sell are too limited.
(-) The fear factor [related to the fiscal cliff] is as big a deal as anything else that Ive
seen in ages.
(-) Oracle, their quarter that just ended was not good in the hardware business. In
fact it was worse than not good. This quarter (FQ3) is looking worse.
**See pages 2-10 for Detailed Feedback**
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0A 8,811.0A 9,062.0A 10,950.0A 37,221.0A 37,339.0E 4.3x 4.3x
8,209.0A 9,118.0 9,370.0 11,489.0 38,186.0 39,033.0 4.2x 4.1x
8,578.0 9,596.0 9,884.0 12,240.0 40,298.0 4.0x NA
0.48A 0.54A 0.62A 0.82A 2.46A 2.60E 13.1x 12.4x
0.53A 0.62 0.66 0.87 2.68 2.71 12.1x 11.9x
0.53 0.66 0.72 0.97 2.87 11.3x NA
Non-GAAP EPS

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Seeing an uptick in demand for engineered systems in North America, Europe and emerging
geographies.
Customers are adopting either because they are considering a technology refresh
around high performance machines or are trying to create a private cloud and trying
to consolidate data warehouses. We have seen a lot of interest there.
Seeing demand around Exalogic as well, but mainly around Exadata.
Has sold at least 4 engineered systems belonging to different industries telecom,
retail, and financial services. There is definitely a lot of interest from retail,
financial services.we are pretty optimistic that we will do a lot more in
Engineered systems next year.
Hasnt seen a lot of demand for Exalytics in his customer base. But had heard that
Oracle has more than 200 customers in Exalytics.
Thinks demand in applications is pretty steady.

Mentions that interest in Fusion applications, especially in the Human Capital
Management (HCM) area is increasing. There is definitely an uptick here
PeopleSoft customers and Oracle HCM [customers] want to adopt the co-existence
strategy.
Seeing some interest in the newer acquisitions such as RightNow and Taleo.
Doesnt think PeopleSoft is getting destroyed because of Workday, but acknowledges
Workday as a definite threat.
For Middleware and Database, its business as usual and doesnt see any specific trend
to comment on.
Thinks that the announcement around the Oracle Public Cloud was a big announcement at
OpenWorld. Oracle also announced that partners can sell Oracle Public Cloud, but thinks
it will take some time to be clear how to engage the partners, and they [Oracle] are just
starting the talks around that. Mentions that Oracle is planning to come out with Oracle
Cloud World, a series of marketing road shows focused on the Oracle Public Cloud, to start
from early next year.
Based on his conversations with the sales guys [in the ERP ecosystem], thinks that the
quarter was definitely looking good and adds that conversations were very positive.
However, adds that first two quarters are generally slow for Oracle and sales guys start
committing to the numbers in Q3 and Q4. For his Oracle practice, the quarter was decent
and nothing out of the blue but expects relatively healthy business closures happening
in the next quarter. We see a lot of conversations that might close in Q3.
Mentions that he sees a couple of really large deals in the pipeline, in the applications arena
which could close in Q3.
Would bet his money on the Fusion applications in the HCM and the CRM area. Thinks
that the Siebel market is quite stagnant. Mentions that ERP is also quite heavily
penetrated and only upgrades are happening with no new significant fresh purchases.
Mentions that customers who dont have heavy customizations attached to their PeopleSoft
setup, those customers do tend to get wowed by the fact that they can have something like
Workday up and running pretty fast. But whenever the customers have unique processes
and are heavily customized, they resist switching vendors. Also mentions that Workday
is not available in all currencies as of now, unlike PeopleSoft. So whenever its a larger
customer and is on the deep end of the pool, its easier for us to migrate that customer or
at least have a conversation to either an upgrade or to adopt Fusion HCM.
Its the wrong perception in the market that Workday is blowing away any Oracle business
or Salesforce is blowing away Oracle CRM business. They are definitely nibbling at it, they
are definitely gnawing at it but its not destroying the core base of Oracle.
Mentions that the Oracle sales organization is changing now from a CTO or IT centric
organization to a CEO or CFO centric organization.
Today, Oracle doesnt talk about CRM. They talk about customer experience. Oracle is
pitching that now with all the acquisitions (RightNow, Collective Intellect, Vitrue, Inquira
and ATG) it has all the components for 360 degree customer experience integration.
Overall they are talking about customer experience management across all industries.
Mentions that Oracle is driving the customer to adopt the complete suite.

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Thinks that the recent Instantis acquisition is a good one, as it will further expand their
cloud portfolio and extend project management capabilities to business users such as a CIO
or a CTO, who can now use Instantis out-of-the-box cloud based project management
capabilities and leave the use of heavy project management tools such as Primavera for more
complex Engineering projects, etc.
Explaining Oracles 12C database, mentions that while public clouds such as Workday
and Salesforce.com do multi-tenancy at the application level, for the 12C database the
partitioning is done at the database level. Multi-tenancy starts at the database level itself
and not at the application level.
Thinks that Big Data is a big opportunity for Oracle

Mentions that Oracle is working with Hadoop distribution companies like
Cloudera.
Today Oracle has got some good tools to manage the Big Data issue.
Talks about Endeca and adds that it is a data discovery tool. It can read and
collect data in an unstructured format from sources such as smart meters,
social sites, blogs, RSS feeds or any distributed enterprise networks. Adds
that it can organize that data, channel it through a Hadoop cluster and feed it
into Exadata machines where the data can be compressed etc. Thats where
RDBMSs play a role.
Also they have what they call the Big Data Connectors to transfer big data
from point A to point B.
Also, Oracle claims to achieve security at the database level which is very
meaningful to somebody who is dabbling with Big Data in the financial
services sector or healthcare sector.
Thinks that Oracles Big Data architecture is very solid.
Enterprises today are only dabbling with proof of concepts on Big Data. Its only
the large internet companies like Amazon, Facebook or LinkedIn, who have adopted
Big Data in a big way.
Exadata X3 machines and Big Data appliances would co-exist with a Hadoop
cluster to process the flow of Big Data.
Industry Contact 2
Mentions that FQ2 looks like a subdued quarter for Oracle, when compared to last year
as well as last quarter. Surprisingly we are not seeing many large deals for this quarter.
Mentions that he is not seeing the normal budget flush that usually happens in Nov/Dec
time frame.
Seeing Oracle in many meetingsI dont see desperation. Mentions that he is not seeing
the sales guys [in the ERP ecosystem] as worried. I didnt see any panic.
I am not doubting that there is no slowdownthere is a certain slowdown. Is it a panic like

situation for Oracle? I dont know but I didnt see panicthey were somewhat subdued
but panic is not the word.
Thinks that Oracle has sort of become an evenly laid out player now. He doesnt see any
specific uptick for any specific area among the various Oracle apps.
Exadata pickup is really good. He knows of two deals that have happened in FQ2. Thinks
that Exadata clearly has momentum and Oracle is able to maintain that momentum. I
do think Exadata can maintain a good momentum for a few more quarters if left to itself
on its own.
Thinks that the combination of two things is affecting enterprise software players today.
Thinks that in the enterprise software space, the luxury of doing many large multi-
million dollar deals for on-premise licenses is slowly diminishing, unless a new
software category is created. That is very, very clear. Acknowledges that the
reason behind this shift, to a smaller degree, is the emergence of the cloud, but
more importantly there is a certain amount of saturation that is happening inside
enterprises for large software adoption from mega vendors such as Oracle. Adds
that most of the sales are now incremental, in terms of upgrades or addition of a
new module etc., and there is seldom a fresh new sale thats happening.

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Moreover, people are perpetually developing a cautious sentiment influenced by
either imminent economic slowdown in the US or European worries etc. So, there
is a general fear that if it slows down, are we over committingpeople want to
take measured steps.
Mentions that the top three things he would bet his money on inside Oracle for the long
haul are Business Intelligence, Middleware and the database. Database is not going to go
away for a long time.
Thinks that TIBCO does really well when discretionary investments are on the rise, but
when the overall investment cycle begins to get subdued products such as TIBCO and
Pegasystems are the first to get affected. Thinks TIBCO is a great company with some solid
products supporting some mission critical processes, but I do believe their best days are
gone."
Thinks Oracle is a little bit isolated from a slowdown in IT spending, at least for a couple
of quarters, because its a broader base...they have got geographical mixthe channels
are well developedbecause of the size and scale and range they have got the capability to
weather some storms for one or two quarters.
He did a small survey across his top 25 customers and found that there is unanimity that
if 2013 is like 2012 there will be more investments, but if 2013 starts with poorer sentiment
then its [the investment environment] going to be a little subdued.
The conversations that we are having in Europe, they dont indicate pessimism and
anxiety as compared to a year ago. There is a certain amount of stability in Europe, I can
assure you that.
Thinks that in general for IT spending, Europe is coming back and Asia Pacific is doing
reasonably well. So, thinks that the only uncertainty as of now is the fiscal cliff and if an
honorable/healthy resolution can be reached, it could trigger a huge turnaround in terms
of sentiment in the market.
Industry Contact 3
Current trends:
I know people are anxious to know if companies are pulling back the reigns. What
I would have to say is I havent noticed any slowdown. If anything its business as
usual.
Were signing business just as we always do and were not seeing the slowdown at
this point.
Oracle is putting a lot of effort behind the cloud, such as CX RightNow. Theyre
investing heavily in this space.
Oracle is doing a lot of marketing across the country and meetings in various cities
on CX RightNow. Oracle reps are bringing their customers and prospects to those
meetings.
Mobility is doing well.
Master Data Management (MDM) has been doing very well. MDM saw 300% y/y
growth in his region and continues to be a very popular edge product for Oracle.
BI applications continue to perform quite well.
Enterprise Performance Management (EPM), even when the economy takes a
plunge, tends to still do OK. This is because EPM is what you use to manage the
business. When things arent going well and you need to cut costs, you need to have
better analytics and reporting, and thats what EPM is all about.
Engineered Systems
The technology and BI reps at Oracle are pushing Exalytics. I know that theyre
being quite successful with that. Exalytics is hot.
Oracles Big Data Appliance, Exalytics and Exadata are all performing well.
Outlook
I dont see it [the market] improving, but I dont necessarily see leading indicators
that its getting worse.

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When things are deteriorating, hell hear from CIOs and CFOs and theyll just tell
him theyre not doing anything next year. Come back and see us later. Were
definitely not hearing that kind of message.
I dont see anything that would cause me to be super optimistic, but Im not seeing
the leading indicators that things are going to get worse. Id say right now its
business as usual until we see or hear something different.
CIO conference:
He recently attended a CIO conference where the mood was just like it is during a
normal spending environment.
CIOs have projects they want to pursue over the next couple of years, related to the
areas he mentioned earlier (CX RightNow, Mobility, BI, etc.).
At least from our perspective, our services growth has slightly slowed down. Services
generally lag license sales by about a quarter.
Has heard speculation that Oracles engineered systems sales have been below expectations
last quarter.
Although he sees a lot of activity around the engineered systems, thinks that
engineered systems sales perhaps are not as aggressive as Oracle would like it to
be. I believe there are some programs to get back to those expectations. There
needs to be some hard work done to hit those.
Thinks Exadata sales are stable and growing well.
Some of the newer ones [engineered systems] are not being as actively sold.
Exalogic specifically, dont see that catching up. Also, the Big Data Appliance is
lagging.
Thinks Oracle Database Appliance traction is picking up. We have more and
more activity. We actually resold quite a bit of those and have done quite a
few implementations as well. Thinks that its getting reasonably known across
Oracles customer base and thats driving a lot of traction.
I think the licensing piece [Oracle software] is going reasonably well. I couldnt distinguish
any specific areas [of slowdown]. I dont see hardware pieces picking up as some expect,
unfortunately. Looks like the storage [specifically the ZFS systems] is pretty active [in terms
of conversations and customer interest].
Hasnt seen Oracles cloud services becoming a huge success yet.
Database - The new database 12C is not generally available. Have heard that it will be
available sometime in the first quarter next year. Thinks that the significance of the change
in the database is comparable to the introduction of Oracle RAC. Its actually quite a big
change for Oracle architecture itself and enables customers to do things more efficiently
than before. Thinks it will take some time to become mainstream, but in a couple of years
it will change how customers think about consolidating the database layer.
Big Data Theme

Thinks that the initial measures taken by companies to tackle the Big Data problem
are resulting in more data ending up in the Oracle databases. Customers, still in the
end shovel their data into the data warehouses because thats where the analytical
tools are mature, etc.
So, he thinks that on a short to midterm timeframe Big Data is an opportunity for
Oracle.
Thinks that the native Big Data analytical tools are still not mature and are far from
being stable and reliable as compared to traditional BI tools.
Long term, thinks that some of the Big Data technologies might become mature
enough to start replacing Oracle technology. I dont think we are quite there yet.
Adds that Oracle is a very strong data company and explosion of data is very
favorable for Oracle. They just need to make sure that they take advantage of it.
Thinks that there are some worries among sales guys [in the ERP ecosystem] around
engineered systems sales in general.

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Seeing more customers wanting to close business currently, in the Nov-December time
frame.
Industry Contact 5
In the ERP/CRM area, seeing mostly upgrades and very little net new deals.
Fusion Applications
There is beginning to be interest in the next generation around Fusion
applications.
Most of them [Oracle customers] still, quite frankly, consider it vaporware. Adds
that people are getting comfortable as and when they see it working but are unsure
of adoption. Customers are trying to decide - should we be on the bleeding edge
or should we wait a while?
Adds that its still a net positive since now he is definitely seeing a lot of inquiries
as compared to a year ago. Interest is good, that means Oracle can be in the play,
a little bit.
Thinks customers want to see the HCM module more than the CRM module.
Thinks that CRM is Oracles biggest challenge in terms of price points and just
the install base of Salesforce.
Adds that one advantage is Fusion applications are easy to integrate with other
applications like Oracle Financials or PeopleSoft, etc. Salesforce is not easy to
integrate with other things in his opinion.
Engineered Systems
We did influence a couple of deals, like a 5 box Exalytics deal with one customer
and so forth.
Thinks that the sales are very situational and scenario driven.
Mentions that as companies are coming to the point of hardware refreshes, they are
looking at cloud options and thats causing them to balk.
Oracle sales people have done a good job in probably certain accounts, but on a
broad base thinks that people are cautious in investing into these systems and want
to first exhaust the investigation of the cloud options.
Thinks that another thing thats hindering the growth of engineered systems is the
cost associated with it. Some people just look at that versus industry standard
hardwarethat means they are not understanding what an engineered system is
that message needs to be clarified.
Fusion Middleware
We are seeing adoption for the first timethats the fastest growing practice we
have.
Thats not just WebLogic middlewareor BI foundation I am talking about
BPM, SOAwhere they are integrating things; they are trying to drive efficiencies
in the business process.
Once customers get a flavor of it, its growing like wildfire.
Whats surprising to me is how quickly one business user gets it and then they share
it with others and then demand just spikes.
Thinks that the new generation of the Business Process Execution Language (BPEL)
is much more powerful in terms of what it can do to show the immediate impact to
the user. Its not coding stuff, its much easier.
That allows them [Oracle] to go in and do rapid development and show them
[customers] some simulations that they couldnt do before. Mentions that before
they would try to explain to customers what they could do, but now they can show
them.
Thinks that Oracle is charging for it although might bundle it at times.
Thinks that Oracle is taking share from TIBCO.
Conversations with sales reps [in the ERP ecosystem]

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Thinks that sales reps [in the ERP ecosystem] are exhibiting cautious optimism in
some places, while a tougher environment in areas such as BI, where Oracle had
a recent sales reorganization.
Thinks that Analytics in general is very hot right now and it continues to be one
of the top priorities of companies. Adds that Oracle has a whole new sales force
behind it.
Mentions that a big upgrade cycle is going on now on the ERP side and thinks it will last
for another couple of years.
Thinks people are trying to reduce spendthey are not buying lot of new technology
what they are asking us to do...is help them optimize their IT organization through
outsourcing or off-shoring or combination of thereof to make them more cost effective.
Industry Contact 6
License sales have been holding steady for him; hes up about 8% y/y in database license
sales.
Hasnt seen any evidence of spending delays or project pullbacks.
Regarding sales reps and their November quarter performance, the response has been
mixed. Id say some did rather well and others were off their mark.
Hasnt done much in the way of Exadata sales. Oracle seems to really want to control that
space.
Its too early to tell if the Exadata one-eighth rack will be successful, but its possible.
The initial surge and success of the T-4 server has leveled off.
Industry Contact 7
He sees a continuation of the trend of weakness in hardware.
Things are flat on the server side. X86 certainly is going through a difficult patch. The lower-
margin companies like Dell are taking this business. On the higher end x86 systems, theres
a play there for sure.
The x86 systems have so much compute power nowadays that people can get more life out of
them. The compute demand for servers is not as great. The upgrade cycle has been around
three years, but now people are squeezing more out of those systems.
Also, when business is down, the computing requirements arent rising, and then servers
arent taxed as hard. When transactions arent doubling or tripling every year the compute
requirements arent doubling or tripling every year.
Some strength has come from Oracle Database Appliances (ODA). I think theyre starting
to gain some traction.
Theres a small uptick in Exadata solutions.
Hes reorienting his company to focus on Big Data solutions. It used to be great to be a
hardware reseller five or six years ago, but thats no longer the case.
This business reorientation to focus on Big Data solutions will revolve around SharePoint
and Oracles database.
His local software contact did very well.
Government vertical feedback also sounded successful.

Industry Contact 8
Most of his projects have moved to SQL database projects; he doesnt do that much with
Oracle.
Small business SQL is chipping away at Oracles share, and possibly at medium-sized
business.
This is a function of both price and the large number of developers who are familiar with
Microsoft.
Many of his projects are need-based, but he doesnt view demand as being too bad. There
is still activity out there.

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Two biggest announcements at Oracle OpenWorld (OOW) were Oracle 12c and Exadata 3.
There was an upgrade of core technology, and it added muscle to Oracles cloud story.
His technical experts believe that 12c makes it easier to deploy, more malleable and more
secure in a cloud environment.
The biggest part of the Exadata 3 is that you can get that in an eighth of a rack.
Cloud:
Its safe to say most folks in the channel arent figuring to really piggyback on any
cloud computing story with any energy real soon. When you think about it, resellers
like us make a living selling Oracle stuff at relatively decent margins, and we make
money ensuring that that stuff works.
Its a little fuzzy trying to figure out what it means when we walk into a customer
and start to talk about off-premise computing. Whos going to sell what to whom?
Whos going to buy what form where? Whos responsible for making it all work?
Im guessing the outfits that offer off-premise hosted services are thrilled at having
a better database technology they can offer. But for those of us who are traditional
IT resellers and experts, its not clear.
Its not clear how 12c is going to play out, but it is substantially better. It includes
features that will be attractive for those looking to locate data in other places.
To the best of his knowledge, the amount of business Oracle will do in cloud will
be pretty small.
Exadata
X3 has more horsepower and comes with a different configuration. Its pretty neat.
It also narrows the gap between the ODA, which is limited in terms of memory and
other technical capacity.
By lowering the Exadata configuration to an eighth of a rack and pricing
accordingly, by the time you look at three or four ODAs, which gives you eight
processors, youre at about the point where you could be seriously considering or
looking at the leap to an Exadata. So theyve closed what was a pretty perceptible
gap in their engineered systems strategy.
Demand
If the market leading up to the election and post election hadnt gone dark, I think
wed have more prospects in general.
We had a very soft calendar third and calendar fourth quarter.
Weve seen an overall slowdown in general. A lot of people in the SMB market
which we service, which are companies between $20M and $200M, and we service
some that are between $200M and $1B, but not many, our sweet spot is probably
$200 to $500M business. They have shut down.
If customers had money left to spend, theyre sitting on it. Some are waiting for the
fiscal cliff, some are in the government food chain.
He has seen a substantial constriction in spending.
Several of his large customers are not spending money.
One large customer is paying his firm for cleanup work so they can spend less on
technology in 2013.
The fear factor [related to the fiscal cliff] is as big a deal as anything else that Ive
seen in ages.
The November quarter is just as bad or worse than the August quarter.
Industry Contact 10
Organizational improvements
OpenWorld was a much better event for him this year than it was two years ago,
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New executive positions at Oracle have improved the channel, although there are
still challenges. Field management still needs some fixing.
Channel management is still the best its been since Sun was acquired.
Demand environment
If youd asked me that question (regarding demand) a month ago I would have had
a different answer.
A month ago I would have been much more upbeat than I am right now.
His field reps have been experiencing weakness for a couple of months. Around
elections he has always seen a slowdown, for whatever reason, so he expected some
slowness, but it hasnt picked back up yet.
Banks in Canada, which had arguably good earnings reports, are slow in spending
money. Theyre not afraid to tell their suppliers too bad, find another customer.
Those banks are sitting on their cash waiting to see what happens with the US fiscal
cliff.
The largest corporations in the world are afraid of whats going on in Europe and
in the US economy.
He thinks, however, his business is gangbusters in comparison to the businesses
of some of his competitors and suppliers. These are both hardware and software
vendors and resellers.
Oracle, their quarter that just ended was not good in the hardware business. In fact
it was worse than not good. This quarter (FQ3) is looking worse.
November was awful. They were expecting November to be much better than it
was because its usually a big month for Oracle. A lot of customers spend money in
November because December becomes too difficult.
Not only was November bad, but Im talking to some of the Oracle reps and theyre
asking me if I have a job. There are a few field reps who havent sold a stitch of
anything since June first. Two quarters with nothing.
BI, Big Data, Cloud, Disaster Recovery:

He is finding a lot of interest is around BI and discovery, but theres no big activity
yet.
From our perspective as an infrastructure player, I know that theres going to be
activity around big data, with Oracle, in the new year. I know that.
Customers eventually have to spend the money. You cant stay stagnant.
There is also a lot of hesitancy because of the whole cloud play. Theres confusion
because of what some of the vendors have said about cloud. IBM is trying to do
things in cloud. Obviously Oracle too.
Disaster Recovery (DR) is going to be completely different in the next five years. "No
one will have a DR site anymore. Youre either going to have 2 or 3 or more live data
centers, or youre going to be using someone elses public cloud as your remote site.
Thats where everything is moving. Because of that the technology hasnt caught up,
meaning data latency."
Oracle and everyone else is pushing large databases or large application
infrastructures, they all talk about the fact that they take care of those things, but
you lose data along the way.
The cost of higher performance networking has to come down a little more. Its still
too expensive, because as the data grows, you need more bandwidth.
The next step in storage: customers are starting to look more at sold state drives
(SSD) versus hard disk drives (HDD). The cost of a high-performance HDD today,
and the number of those drives that you need to get the performance you might
be looking for in a large DB environment, becomes cost prohibitive using HDD
versus SSD. SSD has eclipsed the threshold where its less expensive to put in a high
performance environment using SSD than it is to us HDD because of the number
of HDDs that you need.
These technology dynamics are creating uncertainties, too.
His business
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His customers had not been spending heavily recently, and are spending more money
now because they eventually have to spend money.
Hes also picked up a lot of new customers because some of his competitors have
gone away.
Industry Contact 11
Recent trends
Believes Oracle got a decent number of deals done early in the quarter.
Overall there was lower demand in Oracles FQ2 because of the election, but the
fiscal cliff has been a cause of other spending delays.
Theres been huge turnover among Oracle sales reps. Theres a ton of reps that have
left (in his region), people that have been there for 10 years are going to little start
ups and whatnot because the quotas are too big and the territories are too small and
the product sets to sell are too limited.
There are few reps that now have $7 million or $8 million quotas and theyve never
done that in one year before.
Some successful reps, rather than leave Oracle, have moved internally to sell other
products, such as Fusion or engineered systems, where they have a much smaller
number to go after.
The new comp plans didnt come out until August. He believes that some sale reps
saw their new quotas and didnt believe theyd make them, and therefore earn less
than the year before. These reps are looking for greener pastures.
I think the turnover thing is pretty big. When you have reps that are successful that
have realized I cant make this number, Im going to move to a new position or
leave. Thats a telling sign.
Outlook
He has some decent 7-figure deals lined up for the next couple of quarters.
Is my pipeline good for next year? It is good. Is it good for the end of this year?
Not as much.
A few VARs he knows are doing well on the consulting side, but having a very
difficult time selling engineered systems and other normal hardware.
Challenges Oracle is facing

The challenge is finding the prospects for engineered systems, even though the
concept of engineered systems is well received.
The reality is when companies are looking for a Big Data solution, Oracle might
suggest a half-rack Big Data box for $600,000. A competitor then says it can string
together 20, $3,000 servers, get Hadoop for free, and get half the performance of
Oracles Big Data appliance for 10% of the price. Oracles value proposition isnt
as good.
Oracle came out with an eighth of a rack for Exadata, that makes it more
competitive to replace P-series and I-series from IBM, but is just clueless in the
NoSQL market.
He was critical of Oracles on-demand database services for offering so little storage, at
50GB per month. Believes that Amazon.coms Web Services are more economical. The only
people using 50GB are tiny little start ups or a really tiny e-business suite installation.
Why is there a limit? I dont understand it.
Even 1 TB of storage is very small. Big accounts need dozens of TBs of storage, so
its possible Oracle is trying not to compete with its on-premise business.
Oracle doesnt have good answers around why online storage is so little.
Believes that so far, very few people are buying into the Oracle cloud.
After OOW he thought hed be able to resell the Oracle cloud solutions, but that is not the
case. There is only a small referral fee, which isnt a very good incentive.
The Oracle reps are being told that if they sell an on-demand deal around technology, they
only get compensated for the first year. So its to the detriment of a rep to sell Oracles cloud
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Survey of 53 Oracle Partners Suggests Consistent Conditions
PRICE: US$31.61
TARGET: US$36.50
13.6x FY13E EPS of $2.68
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.68
FY14E EPS US$2.87
Div (ann) US$0.24
Yield 0.76%
Fiscal Year End May
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 53 ORCL partners/resellers and found that they finished slightly above plan
(+0.4%) in Q2, a slight uptick from last quarter but not materially different than the
last several quarters. The time series chart of our survey results suggests the tone of
business fell off in late 2011 and continues to operate in a lower gear; this correlates
strongly with Oracle's recent string of choppier, slower-growth results. The good news is
that easier comparisons have arrived, and even with consistent/unexciting conditions as
suggested by our partner survey, we think ORCL might begin to show a modest uptick
in its growth rate while remaining in single digit territory. Feedback suggests ORCL is
slowly turning the corner with its Cloud offerings and continuing growth in Engineered
Systems. We continue to like Oracle for its strong and resilient earnings stream while
expecting modest-but-positive revenue growth. Overweight, $36.50 target.
Partner Survey Suggests Consistent Conditions in Q2. We surveyed 53 Oracle partners

and on average these partners were essentially flat (+0.4% above plan) for their Oracle
business, which is an uptick from last quarter but not materially different than the
last several quarters. In terms of the pace of business observed by the ecosystem, a
sequential improvement was detected, but it was roughly in line with seasonal norms
and is to be expected in a fiscal Q2. Regarding quarterly expectations, the majority
of partners (62%) expect Oracle to report Q2 revenue in line with expectations,
versus 13% that expect results above expectations and 25% that expect results below
expectations. Taken as a whole, the results indicate an essentially consistent/roughly
in-line Q2 environment for Oracle.
Single Biggest Trend in Oracle Ecosystem? We also asked partners "What is the single
biggest trend you are seeing in the Oracle ecosystem in recent months, in terms
of product adoption or customer purchasing behavior?" Feedback most commonly
centered on Cloud and Engineered systems. Below are a few quotable quotes:
"Oracle Cloud Offerings are coming in a big way, and I feel that is the trend
that will rule the market for the next few years."
"Many folks are now looking seriously at investing in the Oracle Engineered
Systems story. Oracle's investment in these solutions and the marketing of them
is finally paying dividends."
"Major focus on slowing down Workday."
" *** DETAILED Data and More Quotes from Page 2-4***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0A 8,811.0A 9,062.0A 10,950.0A 37,221.0A 37,339.0E 4.2x 4.2x
8,209.0A 9,118.0 9,370.0 11,489.0 38,186.0 39,033.0 4.1x 4.0x
8,578.0 9,596.0 9,884.0 12,240.0 40,298.0 3.9x NA
0.48A 0.54A 0.62A 0.82A 2.46A 2.60E 12.8x 12.2x
0.53A 0.62 0.66 0.87 2.68 2.71 11.8x 11.7x
0.53 0.66 0.72 0.97 2.87 11.0x NA
Non-GAAP EPS

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Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41 53
% of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1% 0.4%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9% 52.9%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4% 7.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3% 32.1%
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8% 13.2%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1% 62.3%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1% 24.5%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3% -11.3%
3.0%
2.0%
6.0%
3.0%
4.4%
-0.2%
1.5%
2.5%
1.0%
-1.1%
0.4%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
77.0%
34.0%
59.0%
57.0% 57.9%
-5.6%
26.9%
40.0%
42.1%
7.3%
32.1%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
32.5%
0.0%
40.5%
45.5%
60.5%
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-11.3%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
ORCL Partners, ORCL Revenue Expectation, Net-
Above %
Exhibit 2: Cloud Related Quotes
Oracle Cloud Offerings are coming in a big way and I feel that is the trend that will rule
the market for the next few years.
I would say that Oracle continues to do a good job of developing cloud solutions which will
help enterprise organizations manage "Big Data."
Continued growth of SaaS products, increased integration needs. New competition from
open source products like Hadoop.
Customers seriously considering SaaS for HR and even core financials.
Customers are talking cloud. They want to limit IT spend and be able to budget for projects
that make them stronger. Many are doing this through cloud offerings, which is allowing
them to project costs while still maintaining the security and infrastructure required to be
a top player in their industry.
Hesitation to purchase based on developing cloud service options and information.

Exhibit 2: Engineered Systems
Related Quotes
Clients are split between those seeking Cloud solutions vs. those desiring the purchase of
a souped-up box. This makes it a challenge for Oracle's sales force as they need to balance
the two strategies.
Many folks are now looking seriously at investing in the Oracle Engineered Systems story.
Oracle's investment in these solutions and the marketing of them is finally paying dividends.

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Moving from a traditional software suite & applications company to a software

applications, OS and Hardware Appliance company. This will help Oracle sell more to the
customer by packaging all of these components in their deals.
Definitely seeing traditional Sun customers come back in the fold a bit, or at least move
off their current gear and consider Oracle-Sun again. Also, the Oracle Database Appliance
seems to be continually in the mix as opposed to smaller 2-node RAC cluster configurations.
Finally, I think there are a lot of customers sitting on a lot of cash, and now - whether their
preferred candidate won or lost - they are going to have to spend some.
It seems that every company has an Exadata!

Exhibit 3: Economy Related Quotes
It seems to be gaining momentum as they see the fiscal budget getting better.
More confidence in the economy is resulting in larger sales.
Have seen renewed enthusiasm for Oracle products and technologies and willingness to
upgrade to take advantage of new integrations and features. Fears about the economy are
starting to permeate IT budgets for 2013.
Purchasing decisions are being delayed due to the economic outlook in Europe.
Purchasing decisions are being put on hold due to economic uncertainty.
Economy hasn't picked up yet so buying hasn't increased.

Exhibit 4: Other Quotes
Major focus on slowing down Workday.
More focus on analytics.
So many products from Oracle that there is no focus from sales team. Since we primarily
sell ERP, regardless of platform, this makes it tough for us.
Oracle E-Business Suite R12 Upgrades are continuing.
More services opportunities, worries about application whole life expectancy due to pace
of technology change.
Release 12.
The trend seems to be about the same level of demand.
Not seeing any trends - business is generally flat.
Still an Oracle direct sale, sales are into large enterprise, not in the enterprise or broad
market.
I sell to S&L customers. The biggest buying trend is transactions that are either very small
or very large purchases. The $150-350k purchases just do not seem to be there as much as
they used to be.
We are seeing trends in middleware upgrade processes and Identity Governance.
No significant inroad has been made.
Resistance against Oracle - seen as the BIG monster - not always wanting to work with
clients to achieve a solution - want to sell product only.
Back to basics: R12 upgrades. Customers are putting their decisions on hold, and when they
do release them for bid are taking 3x longer to make a decision and are squeezing vendors
and playing them off each other for the best rock bottom price.
Demand for ADF
CRM, Big Data
Growing, gaining momentum.
The IT spend dollars are continuing to be difficult to come by. Customer see Oracle as
expensive and are almost always looking at lower cost alternatives or ways to minimize
exposure to Oracle.
Upgrading their current environment.
Existing Oracle customers are more prone to buying additional Oracle software during
upgrades, reimplementations, etc ...
We have seen an uptick in EPM and Security product interest.
Customers are continuing to loosen up their restrictive purchasing habits. 2013 should be a
much better year for Oracle and other vendors.

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Clients are definitely interested in getting compliance systems and processes cleaned up.
HFM opportunities are increasing. OBIEE implementations are queued up for 2013.
Reliability.
They are not making big investment nor big cuts.
JD Edwards movement to the 9's has continued to be strong and has been building speed in
the past few months as many clients budget for end of life product of world A7.3.
I think they are in a stabilizing mood.


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Biggest Area of Interest At Oracle OpenWorld Surprises Us
PRICE: US$31.82
TARGET: US$36.50
13.6x FY13E EPS of $2.68
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.68
FY14E EPS US$2.87
Div (ann) US$0.24
Yield 0.75%
Fiscal Year End May
36
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 24 partners and customers at Oracle OpenWorld and were surprised to
find that among all the product announcements Oracle made this week, customers
and partners were most interested in or impressed with Oracle's cloud related
announcements (mentioned by 38%), which include hosted Oracle applications and
cloud computing capabilities. We also asked customers and partners how well Oracle is
maintaining its relevance/advantage in the database market in light of interest in non-
relational databases and other market dynamics. A healthy 92% of those surveyed said
that Oracle is either increasing or maintaining its edge in the database market. This
reinforces the viewpoints from our June 2012 CIO survey results in which 56% of CIOs
with annual IT budgets >$250M said that Oracle is the best positioned vendor to meet
their evolving future database needs. Overweight, $36.50 price target.
Cloud Announcements are Most Compelling. We were surprised that partners and
customers found Oracle's cloud-related announcements the most compelling. The
rationale varied widely, from the typical expectation of saving money by using a cloud-
based application versus an on-premise application, to the cloud solving disaster
recovery problems, to partners being able to offer more choices to their customers.
One contact feels that because Oracle owns the servers and the infrastructure, it should
technically be able to support a cloud architecture better than others. Among other
product announcements viewed as interesting or impressive, 13% mentioned the next
generation of the Exadata machine, X3. 13% also mentioned Oracle Database 12c,
specifically for the ability to use multiple "pluggable" databases that reside within a
single database container. On the negative side of the ledger, 33% of those we surveyed
were not particularly compelled by any new product announcement.
Oracle To Remain the Dominant Database Vendor. 92% of the partners and
customers we spoke with said that Oracle is either increasing or maintaining its
relevance/advantage in the database market. This reflects the view of our June 2012
CIO survey results, in which 56% of CIOs with annual IT budgets >$250M said that
Oracle is the best positioned vendor to meet their evolving future database needs,
ranking Oracle first within that segment. In our view, the feedback suggests Oracle's
database business should remain more stable and resilient, and more able to keep pace
with growth of the broader database market, than investors currently expect.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0A 8,811.0A 9,062.0A 10,950.0A 37,221.0A 37,339.0E 4.2x 4.2x
8,209.0A 9,118.0 9,370.0 11,489.0 38,186.0 39,033.0 4.1x 4.0x
8,578.0 9,596.0 9,884.0 12,240.0 40,298.0 3.9x
0.48A 0.54A 0.62A 0.82A 2.46A 2.60E 12.9x 12.2x
0.53A 0.62 0.66 0.87 2.68 2.71 11.9x 11.7x
0.53 0.66 0.72 0.97 2.87 11.1x
Non-GAAP EPS

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Exhibit 1: Which Oracle Product Announcement is Most Interesting or Compelling?
33%
38%
20%
25%
30%
35%
40%
f
R
e
s
p
o
n
s
e
s
13% 13%
4%
0%
5%
10%
15%
NA 12c X3 Cloud Everything
%
o
Exhibit 2: Is Oracle's Database Maintaining, Increasing or Decreasing its Advantage/Relevance?
75%
30%
40%
50%
60%
70%
80%
o
f
R
e
s
p
o
n
s
e
s
17%
8%
0%
10%
20%
30%
Maintaining Increasing Decreasing
%
o

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Exhibit 3
Source: Piper Jaffray CIO Survey, June 2012

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Survey of 41 Oracle Partners Suggests Unexciting Near-Term Trends
PRICE: US$32.78
TARGET: US$36.50
13.6x FY13E EPS of $2.68
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY13E EPS US$2.68
FY14E EPS US$2.87
Div (ann) US$0.24
Yield 0.73%
Fiscal Year End May
36
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
in Q1, a modest downtick as compared to the prior four quarters. With ORCL shares
up nearly 30% since mid-May and investors ignoring or looking through seasonal
Q1 risks, we see potential for a near-term sell-off, but sense a better setup for Q2
and beyond. Growth rates could improve in Q2 based upon easier comps, movement
toward hardware stabilization/recovery, the phase of the Fusion product cycle, and sales
force hires becoming more productive. For now, the onset of a more sluggish spending
environment, which emerged in our survey results 5 quarters ago, remains visibly evident
with no improvement. Partners were 2% to 6% above plan in FY2011, while only 0.7%
above plan on average the last 5 quarters. Long term, we continue to like ORCL for its
defensiveness. Raising PT to $36.50.
Partner Survey Suggests an Inline / Unexciting Q1. We surveyed 41 Oracle partners

and on average these partners were 1.1% below plan for their Oracle business, which
is the softest performance in any FQ1 in the last three years and is a downtick from the
prior four quarters. We acknowledge that survey results are an imperfect indicator in
a Q1 environment in which an unknown amount of revenue flows over from Q4 and is
undetectable to most members of the ecosystem. In terms of quarterly expectations,
the majority of partners (73%) expect Oracle to report Q1 revenue in line with
expectations, versus 10% that expect results above expectations and 17% that expect
results below expectations. Taken as a whole, the results indicate an essentially in-line/
unexciting Q1 environment for Oracle. Please refer to Exhibit 1 for more details.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0A 8,811.0A 9,062.0A 10,950.0A 37,221.0A 37,597.0E 4.4x 4.4x
8,447.0 9,138.0 9,526.0 11,577.0 38,689.0 39,541.0 4.3x 4.2x
8,823.0 9,614.0 10,044.0 12,331.0 40,812.0 4.0x
0.48A 0.54A 0.62A 0.82A 2.46A 2.59E 13.3x 12.7x
0.55 0.60 0.67 0.86 2.68 2.73 12.2x 12.0x
0.56 0.64 0.72 0.95 2.87 11.4x
Non-GAAP EPS

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Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12
Q1:FY10 Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2: FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13
# of Respondents: 43 45 45 43 44 37 33 38 36 41 45 38 41
% of Plan: 1.6% -1.0% -2.0% 3.0% 2.0% 6.0% 3.0% 4.4% -0.2% 1.5% 2.5% 1.0% -1.1%
Same 35.0% 29.0% 18.0% 19.0% 30.0% 35.0% 25.0% 36.9% 50.0% 43.9% 28.8% 36.9% 43.9%
Worse Pace of Biz 28.0% 14.0% 24.0% 2.0% 18.0% 3.0% 9.0% 2.6% 27.8% 14.6% 15.6% 10.5% 24.4%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 9.0% 43.0% 34.0% 77.0% 34.0% 59.0% 57.0% 57.9% -5.6% 26.9% 40.0% 42.1% 7.3%
Above Expectations N/A 22.2% 20.0% 39.5% 22.7% 45.9% 45.5% 65.8% 16.7% 31.7% 8.9% 18.4% 9.8%
Inline N/A 57.8% 60.0% 53.5% 54.6% 48.7% 54.5% 28.9% 63.9% 58.5% 62.2% 52.7% 73.1%
Below Expectations N/A 20.0% 20.0% 7.0% 22.7% 5.4% 0.0% 5.3% 19.4% 9.8% 28.9% 28.9% 17.1%
TOTAL 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 2.2% 0.0% 32.5% 0.0% 40.5% 45.5% 60.5% -2.7% 21.9% -20.0% -10.5% -7.3%
-2.0%
3.0%
2.0%
6.0%
3.0%
4.4%
-0.2%
1.5%
2.5%
1.0%
-1.1%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
34.0%
77.0%
34.0%
59.0%
57.0% 57.9%
-5.6%
26.9%
40.0%
42.1%
7.3%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
0.0%
32.5%
0.0%
40.5%
45.5%
60.5%
-2.7%
21.9%
-20.0%
-10.5%
-7.3%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
ORCL Partners, ORCL Revenue Expectation, Net-
Above %
Price Target We have increased our price target from $33 (12.5x FY13 EPS) to $36.50, based on 13.6x
FY2013 EPS of $2.68. Our higher multiple is due to higher comp group multiples.

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Deep-Dive Discussions Shed Light on Engineered Systems, Sales Re-Org
PRICE: US$32.78
TARGET: US$36.50
13.6x FY13E EPS of $2.68
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$36.50
FY13E EPS US$2.68
FY14E EPS US$2.87
Div (ann) US$0.24
Yield 0.73%
Fiscal Year End May
36
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 9 contacts in the Oracle ecosystem for investors
in search of the most comprehensive forward-looking checks, spanning 7 pages of
content. On the positive side of the ledger: 1) Oracle is definitely taking share in
middleware; 2) the company is benefiting from good demand for HCM applications; 3)
both conversations and pipeline around Fusion applications are starting to pick up; and
4) most contacts believe in the ultimate success of engineered systems. On the neutral
to negative side: 1) sources indicate ORCL conducted a sales reorganization, wherein
reps now focus on technologies instead of verticals; 2) Feedback is mixed on overall Q1
performance; and 3) sales turnover reportedly continues. We continue to like ORCL for
its defensiveness and see a better setup in Q2 and beyond. Overweight, $36.50 price
target.
Notable Feedback
Physically, the possibility of a story theyve put together is staggering. I just havent
seen them put the strategy together.
People are getting more aggressive, more focused around Fusion.
HCM applications are seeing the most demand, both in Fusion and PeopleSoft.
For certain buyers, the migration to an engineered systems strategy is very appealing:
"Those who have suffered from a heterogeneous tower of Babel kind of experience,
theyre easy to convince."
**Detailed checks on pages 2-8**
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0A 8,811.0A 9,062.0A 10,950.0A 37,221.0A 37,597.0E 4.4x 4.4x
8,447.0 9,138.0 9,526.0 11,577.0 38,689.0 39,541.0 4.3x 4.2x
8,823.0 9,614.0 10,044.0 12,331.0 40,812.0 4.0x
0.48A 0.54A 0.62A 0.82A 2.46A 2.59E 13.3x 12.7x
0.55 0.60 0.67 0.86 2.68 2.73 12.2x 12.0x
0.56 0.64 0.72 0.95 2.87 11.4x
Non-GAAP EPS

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Industry Contact 1
Thinks that the reorganization of Oracle has settled down. Adds that the reorganization
started in the beginning of FQ1 and continued until the middle of the quarter. Explains that
previously a product-specific sales rep was also managing various verticals. For example,-
there will be xyz CRM sales person and he would be managing say 5 auto companies,
and there would be Regional VPs who would manage all these application specific guys in
a vertical. Now, they (sales teams and partner business managers) have been aligned pillar
wise. Explains that pillar wise refers to a horizontal structure based on different product
lines as compared to the earlier structure which was broken down based on industries.
So, now there is a line managing only ERP, there is a line managing Human Capital
Management (HCM), consisting of PeopleSoft, Fusion HCM and Taleo. Now, there is a
team that manages CRM only and within CRM they have broken it down into sales and
service automation.
They want to bring focus around pillars rather than industries in general mainly to
neutralize threats from new companies such as salesforce.com.
Thinks that the reorganization is definitely a wise thing to do mainly because increasingly
business users are becoming part of the IT decisions. For example, for an HCM sale, its
the HR head, the compensation head, are the people who are involved in large part of the
decision making process. The conversation is not IT, but the deep end of: what processes
are you arranging for me, how are you going to help my global workforceso when those
conversations happen, you have to really go deep into functionality Thinks that for a
product vendor, this is a better structure to add focus since the first sell of the product is
really a horizontal sell. Thinks that its a great move and a message to the competition.
Seeing a lot of Fusion conversations develop and a lot of pipeline develop. Thinks that
people are getting more aggressive, more focused around Fusion.
Thinks the HCM applications are seeing the most demand, both in Fusion and
PeopleSoft.
Mentions that Siebel CRM is getting a few new components like the Siebel open UI, which
will make this application quite mobile. Thinks that Oracle has broken down the CRM
teams into sales and services and is focusing on each separately to make a sale. Previously,
if a customer wants CRM they would try to sell the entire heavy thing; thats like using
cannon to kill an ant and thats where salesforce.com would walk away with projects.
Thinks that the recent acquisitions of InQuira, ATG, RightNow and Collective Intellect are
creating a suite of products with which Oracle will target the entire customer experience
management area. They have a complete suite of products right from customer ordering
into Siebel, to commerce through ATG, call center capabilities through RightNow, social
capabilities with Collective intellect and Vitrue. Thinks that OpenWorld will have a whole
separate day dedicated to customer experience management.
Exadata is going great guns. Have seen multiple conversations develop around Exadata.
In fact we have invested in an Exadata lab just to capture this market [globally]. Thinks
that customers are thinking about data consolidations and lot of opportunities around data
warehousing. So, there is quite a bit of movement we see around Exadata.
Thinks Oracle is coming out with a new Database Oracle 12C, where c stands for cloud.
Also might see Oracle public cloud, which is similar to Amazon EC2, announced
as General Availability. they have everything therethey have compute capability
applications Java over the cloud to build applications on the cloud and deploy over cloud,
they have storage, document management capabilities.
Thinks sales guys [in the Oracle ecosystem] are excited coming off the quarter. Thinks they
are beating their numbers and the pipeline looks good.
In fact, we have seen a lot of good pipeline come up globally. Europe still remains a little
laggard but see an uptick in APAC and Middle East, Latin America. North America is
doing good. People are talking about technology refresh, application refresh, getting new
HCM, evaluating CRM.

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Also, thinks that sales cycle is coming downpeople are trying to make decisions a little
faster than they used to do two quarters ago.
Few general trends he is seeing:

Technology refresh around Data and thats where Exadata is getting pulled in.
Lot of talk around the workforce workforce productivity, usability. And so
HCM is gaining quite a bit of momentum.
Overall adoption of cloud increasing.
Industry contact 2
Q1
He made his quota.
There was a lot of last-minute activity in the quarter.
What Oracle has done, very masterfully, is theyve made the quotas so big that even a quota
miss by sales guys will allow them to meet their revenue estimate.
Heard that Oracle let some Q4 software business slip into Q1.
Oracle has a healthy management of revenue.
He sold a few ODAs and a few T-4s, which he hadnt sold before. Theres a lot of people
who like the product. Its definitely been a good product. But its more expensive than the
competition. Its about loyalty of old Solaris people who like Solaris.
Lost an Exadata deal to a niche data warehouse solution, and absolutely lost on price.
Exadatas are good solutions for large shops but dont make a lot of sense for smaller
shops.
My gut instinct is that Oracles gonna do okay. Is it going to be a blowout? No. Will the
hardware sales be soft? I would speculate yes. Would software be soft? I would say it would
probably outperform just because they held orders over and Q1 is always low expectations.
Q1 sales reorganization
There was a lot of sales turnover in Q1, like usual.
Sales reps saw a 10-15% increase in sales quotas and a reduction in the number of products
they can sell.
Theyre breaking the regions into smaller groups.
Oracle created siloed, overlay groups to only sell specific products.
The server and storage group was separated, so the server guys cant sell storage, and vice
versa.
The database group is just selling database, they dont get compensated on BI anymore.
This doesnt impact a partner that much, but it does impact the customers. For example
if someone has a data warehouse project and theyre looking for BI tools, you now have
to bring in multiple Oracle sales reps to collaborate on the deal. This is disruptive because
theyre all fighting for capital for the project.
Oracle did a Fusion upgrade on internal mappings of which direct sales reps own which
account, but they still dont have it figured out.
This means that the direct sales guys with adjacent territories may be overlapping or calling
on the same customers and not know it.
Sometimes leads are coming into the wrong people.

Channel
Oracle hasnt done anything to change channel policies.
When a partner registers a deal, sometimes Oracle will just go after it.
This is disruptive, but all partners can do sometimes is put their hands up if Oracle goes
after their business.
One thing that might improve, though, is the stringent requirement for being Oracle
certified. Partners usually must be certified annually, but they may move to every other year,
which would benefit the channel.

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Oracle is rolling up channel hardware and software technology to the same person, so that
hardware and software are no longer in their own silos. This means that when a partner
puts in a technology request for hardware and software, one person gets the request rather
than two separate people. This is a positive thing for partners.
Salesforce.com
We use salesforce. I love it. Its an awesome product.
On the Oracle side, to be honest with you, I think salesforce is just a much better offering
than Siebel On Demand or Oracle On Demand. It moves quicker and you can do a lot more
things quicker. I think its a lot more flexible.
"You dont really talk about SOA projects when youre talking about salesforce because
someone has created some widget that does all the communication for you.
Salesforce actively steals Oracles sales people all day long. Every quarter one person of
every team ends up there or VMware.
Industry Contact 3
Recent demand
The summer has been very slow.
[Oracle's] first quarter, from an engineered systems standpoint was very light.
I dont think we did any engineered systems at all in Oracles first quarter. Thats not
surprising.
Thinks only about 15% of Oracles annual quota is attached to Q1.

Outlook
From an engineered systems standpoint the strategy is still relatively new in the
marketplace. I think Oracle, and certainly [we] are doing a lot of educating. Were still
doing what we used to call in the old days missionary work, getting people smart about and
comfortable with the notion of engineered systems, and the all-in-one red stack Oracle
proposition. I think its taken longer to, and this is a term that Oracle uses, socialize that
concept than maybe anybody expected.
As people in the marketplace warm up to an all-in-one engineered systems strategy or idea,

I think well do better. As the market get smarter and we get smarter at servicing the market,
we should be getting even stronger. I think it will snowball. I honestly think the engineered
systems model will snowball. Not just for Oracle. I think it will snowball for Oracle.
The primary reservation is the all eggs in one basket reservation.
Hes promoting the idea that its better to have one throat to choke than to have to worry
about scrambling to get five vendors who are mostly pointing fingers at each other to
organize around a problem.
While the one throat to choke notion or calling one number is good, its just one number.
There are IT execs who dont want to have all eggs in one basket. They need to be convinced
that thats not a bad strategy.
IT execs who have struggled with EMC pointing fingers and Brocade pointing fingers
at HP pointing fingers at 'you pick it' are jumping at the notion of engineered systems,
particularly if they have an Oracle database or an Oracle technology standard. So there are
folks for whom the migration to an engineered systems strategy is terrific Those who have
suffered from a heterogeneous tower of Babel kind of experience, theyre easy to convince.
The guys who have not had those problems like the idea of being able to play IBM off of
HP off of Oracle off of Dell, are a little tougher nuts to crack.

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Performance
Sites where hes deployed Exadata and ODA, he is meeting or exceeding both [customer]
expectations and even our own evaluation results.
In a production environment the results arent always expected to be as good as in a clinical

evaluation, but thats not the case. The performance measured in terms of processing speed,
system uptime all of thats working without a hitch.
In terms of performance weve been thrilled

Fusion
Fusion is like Sasquatch. Im not sure that it even exists.
Admittedly doesnt do a lot of Fusion, but Fusion in his opinion, is still a concept.
Its probably closer than its ever been, though.

Partners
Oracle has formed an elite strategic partner group this year.
This group really separates the elite partners, at least in North America, from the herd.
This gives these partners more visibility and access to more people at Oracle.
Channel
Oracles interest in channel sales has only exponentially increased.
Thats really, really good.
Oracles investment in the channel should increase, and theyre going to try to do more and
more business through the channel. Theyre going to increase their direct sales, but with
some new recent hires they view or value the channel a lot more.
The new head of North American sales, Matt Mills, was put in recently. He reports to Mark
Hurd, and Hurd is a big advocate of the channel.
Industry contact 4
Engineered systems
His company sells engineered systems which compete against Oracle, and sales in general
are exceeding expectations. Oracle customers are buying these engineered systems. In other
words, his company is loading Oracle software onto its own hardware and having a lot of
success selling its own engineered systems.
Oracle OpenWorld
It will be very interesting to see the marketing message and products coming out of
OpenWorld.
Presumably there will be a new generation of the database, which would be a really big
deal.
Thinks theyre going to announce 12c, for cloud.
If they do that it will be a sizeable part of the show and what the implications of a cloud-
oriented database are.
Oracles Strategy
Oracle continues to double-down on Exadata. What I dont see them doing is creating a
coherent marketing message around all the Exa-products. That I have to say, given Oracles
prowess in marketing, is actually pretty surprising. I would have thought by now, four years
into it, they would have created an Exa-strategy.
He hopes Oracle would reinvigorate Exadata, since it hasnt received major tweaks in the
four years its been on the market.
What Oracle should do is put together a strategy that says we are building the future for
you. Here it is. Its converged systems.

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The systems need to talk to each other. They need to virtualize across each other. They
need a database, and it shouldnt matter where the data is. It shouldnt matter where the
application is. What should matter is that it all comes together much more quickly, much
more easily, much less expensively, much more efficiently.
Im not getting the sense that thats the marketing message theyre putting together, and
quite frankly Im stunned.
If someone were to get such a message from Oracle and then decide to just move their
applications to the cloud, then Oracles answer is fine, lets be your cloud.
It doesnt matter what question you ask them, Oracle has an answer for it, and a product
to sell you.
What they dont have is a strategy.
Oracle has managed services. They have a cloud solution. You can buy your Oracle Fusion
by the drinkby the user by the month.
They have cloud data systems to give you all the storage and servers you want to use, either
for you internal or external cloud. They can do that for you.
They could clearly provide you with all the ERP systems you could possibly want, along
with any database you could want. They can provide you the hardware to run it on.
Physically, the possibility of a story theyve put together is staggering. I just havent seen
them put the strategy together.
Exadatas influence
In the larger scheme of things, Exadata hit at the point where companies are starting to
look at their IT costs, data centers of the future and cloud. They began asking, what are the
implications of that. And what are the implications of big data, and unstructured data. And
what are the implications of the cost of energy, and the size of these systems. All of these
questions were hitting at one time and then Exadata shows up and accelerate the asking
of these questions. History will still decide if Exadata is the Apple Newton or the Apple
iPad. Is it 15 years ahead of its time or is it the thing that will capture the market. The jury
is still out.
Industry contact 5
Fusion
Theres definitely a lot of inquiry and interest.
Its still a little premature because Oracles marketing engine hasnt kicked in.
Q1
Its about as normal as he would expect.
Its been a pretty typical Q1.

Middleware
Oracle is definitely taking share from TIBCO in middleware. Hes seeing an upturn in
middleware.
Oracle is winning because of the evolution and maturity of the platform and the
applications.
Everyone wants to rationalize their operating systems, middleware, etc. If youve got two
or three Oracle application, like it or not, its going to be a WebLogic future.
Youve got to have the WebLogic container to run the applications. Do you want a whole
new container in IBM or TIBCO or somebody else? Probably not. Its more contracts, more
skill sets, more training, more support. Oracle has a very complete stack on the middleware
side.
Were even replacing IBM.
You can make a very good argument that IBM is a better container for middleware. But
when 12.2 comes out for EBS (Oracle E-Business Suite) it will run only on WebLogic.
WebLogic will compete very favorably versus IBM and why have two application suites?
He suspects this is Oracles strategy.

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Industry contact 6
Thinks that Siebel, BI and the Database are doing very strong in the market. They remain
leaders.
Exadata and Exalogic are doing good. Thinks that it's come a long way in the past year
and now there is good acceptance in the market for the [Exa-Systems].
In Europe, they are improvingthey have significantly improved over the last one year.
Oracle business has grown less than 10%, in the last fiscal year (ending March). Seeing lots
of growth in areas like CA, BMC, EMC; HP we are doing extremely well; relative to these
companies, growth in the Oracle business is very average.
Thinks ORCL might be setting themselves up for classic trouble. Thinks Oracle wants
to make inroads into services. In doing so, thinks that Oracle is encroaching upon the
business of some of the larger services partners in a few verticals, especially Telecom. As a
result they have disrupted lot of partners. Heard that one of the largest Indian consulting
companies summoned Oracle that if they dont stop, the partner will stop doing Oracle
implementations. Mentions that since Oracles software needs third party help to install
and fine tune, if Oracle tries to compete with their partners in any formand if partners
start to distance themselves from Oracle, I think it will be a big hit to Oracle. Mentions
that some of Oracles competitors are taking advantage of this growing discomfort among
partners and getting them signed up to push competitive products.
Industry contact 7
Thinks, In the last few months there has been a quite a bit of change in Oracle internally.
Thinks that there has been a little bit of a waiting moment or pause around figuring
out what is next and how is it going to affect the partner relationships.
There was a little bit of a slowdown in the June / July timeframe but August / September
picking back up. The momentum of growth picked up where we expected it to be. Puts
us back on track for 60% growth y/y [annual] even though he had an aggressive internal
forecast for the year. Thinks that the lull was more seasonal and was quite independent
of the sales structure changes. Thinks that the slowdown in June / July may not be reflective
of Oracles business.
More data warehouse and consolidation projects.
Had a few Exadata implementations, have assisted a few partners with POCs as well.
Thinks that the momentum was a little stronger compared to last quarter.
There is basically a change coming in the Oracle database.

Industry contact 8
Hardware business
Im sure that Oracle is seeing a substantial increase, but were not.
His Oracle sales are down considerably.
He also resells Dell, and does a lot of Dell business.
Dell has embraced the channel theres been a lot of things that Dell has stepped up to
the plate with.
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Industry contact 9
This quarter looks like a colorless quarter... Hasnt heard anything significant.
Software business I wont be surprised if there is an under-achievement
Hardware business (Exa Systems) There also I think they are little behind the curve
Normally I hear 5-6 deals, which means 50-60 deals might have happened in the market
overall. But didnt hear of any deals in FQ1.
Thinks that Oracle is revitalizing their strategy around Siebel CRM they [Oracle] are
reconsidering their sales, putting additional dollars in the CRM side and the internal
messaging on CRM is getting a little more bold.
They [Oracle] is clearly #1 in middleware, there is no doubt about that. In fact, IBM has
lost some momentum there.
Many oracle [sales] stalwarts are moving out of oracle and joining other companies like
salesforce.com. Seeing more and more of that nowadays.

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Enterprise Software
ORCL Shines Among Database Vendors in Part 5 of our CIO Survey
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Related Companies: Share Price:
AMZN 223.04
GOOG 607.57
ORCL 29.32
RI SKS
Competition, Economic Fluctuations,
Rapid Technological Change, Survey
Bias
CONCLUSI ON
$60 Billion in annual IT spending, and asked them which vendor is best positioned to
meet the evolving future database needs of their IT organization. For CIOs with IT
budgets greater than $250M, ORCL is the number one database vendor, selected by
56% of CIOs. IBM and MSFT follow, selected by 44% and 41% of CIOs, respectively.
These results provide a moment of clarity amidst the hype surrounding new database
technologies (HANA, in-memory, unstructured, Hadoop, Big Data, etc). The bottom
line is: ORCL will maintain its database leadership position, contrary to current investor
thinking, and thus there is more growth left in Oracle's database business than the street
perceives. Furthermore, the relational database is an integral component for the future,
as the top 3 ranked vendors are all RDB providers.
Survey Data Positive For Relational Database Vendors. We surveyed 105 CIOs of
large and mid-sized organizations responsible for more than $60 billion in annual
IT spending, and asked them to select which vendor is best positioned to meet the
evolving future database needs of their IT organization. ORCL, IBM and MSFT (each
predominantly a provider of relational databases) were the top three responses among
large IT organizations, mentioned by 56%, 44% and 41% of CIOs, respectively. SAP
was mentioned by 26% of CIOs, Google and Teradata 15% each, HP and Amazon
7%each , and Hadoop and SAS 4%.
ORCL to Maintain Dominance, and Other Departures from Current Consensus

Thinking. Many investors currently believe that Oracle is being left behind in the
database industry, as the world migrates away from the traditional relational database
and onto newer technologies such as in-memory databases (e.g., SAP's HANA),
unstructured data (e.g., Hadoop), and Big Data appliances (e.g., IBM Netezza). We
are respectful of the new technologies and believe some of these vendors will succeed
and grow rapidly. However, we note that consensus thinking is demonstrably wrong in
several key areas: 1) ORCL will maintain its dominance of the database industry, per
our CIO survey data; 2) the relational database will remain crucial, as described above;
and 3) Oracle can be a top Big Data vendor, as described below. The charts on page 2
show that the emerging on-premise database vendors do have some mindshare (SAP,
Teradata, Hadoop, etc.) and that Cloud alternatives are being recognized (Google,
Amazon). That said, for CIOs of large organizations with large IT budgets, which
truly move the needle on spending, ORCL will maintain its dominance.
As a Reminder, Oracle Also a Top Big Data Vendor. On June 20, we highlighted Big
Data vendors in our CIO survey. Big Data is becoming a key interest area due to the
rapid explosion of data volumes, and a multitude of vendors are attempting to position
themselves as Big Data plays. To filter out the hype around big data, we surveyed
105 CIOs of large and mid-sized organizations responsible for more than $60 billion
in annual IT spending, and asked them to name the vendors they will rely on for
their "Big Data" initiatives. MSFT ranks #1, mentioned by 32% of CIOs, followed by
ORCL with 30%, and IBM with 29%. The mentions drop off to 12% for SAP, 10%
for EMC, 7% for HP, 6% for DELL and Teradata (TDC), 5% for Apache/Hadoop,
3% for CSCO / NTAP / SYMC, and 2% each for AMZN / CRM / GOOG / Meditech /
MSTR / VMW .

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Exhibit 1: Data Base Vendors (Based on Number of Mentions) -Filtered for IT Budget >$250M
Source: Piper Jaffray June 2012 CIO Survey
Exhibit 2: Data Base Vendors (Based on Number of Mentions)
Source: Piper Jaffray June 2012 CIO Survey. "Other" responses included Rocket, GreenPlum, and HCIS.

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Exhibit 3: Big Data Mindshare Leaders
Source: Piper Jaffray June 2012 CIO Survey
Rating, PT & Risks We rate shares of Oracle (ORCL) at Overweight with a $33 price target based on 12.5x
FY13E EPS of $2.68. Risks include macroeconomic outlook, integration of acquisitions, and
competition.

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Oracle Hardware Success? It's Not Expected, But There Are Some Believers
PRICE: US$28.17
TARGET: US$33.00
12.5x FY13E EPS of $2.68
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$33.00
FY13E EPS US$2.68
FY14E EPS US$2.87
Div (ann) US$0.24
Yield 0.85%
Fiscal Year End May
36
34
32
30
28
26
24
USD
Source: Bloomberg
CONCLUSI ON
We spoke to seven contacts in the Oracle/Sun ecosystem, specifically seeking out
hardware partners, and polling for their opinions on the ultimate success of Oracle's
hardware business, which we think is a key trigger for ORCL shares. There is still some
skepticism, but there are some believers emerging. The T4 server line is unrecognized
by investors, but seeing very strong demand. Signals in the distributor channel look
more positive for FY13. We asked partners if engineered systems would be successful
and compensate for hardware revenue declines and one responded Its not a question
of if, its a question of when. We are not predicting smooth sailing ahead for Oracle
in hardware, but want to highlight proprietary feedback showing Oracle's underlying
progress in the hardware business. We continue to believe ORCL is attractively valued
and is factoring in an unfavorable outlook. Overweight, $33 price target.
Hardware Partners Embracing Software Likely to See Success. One of our contacts
who has been in the hardware business for more than 20 years, recently hired a
"software guy" for the first time. In his dealing with Oracle, he says Oracle made
it clear that if he focuses on the software he'll do very well with Oracle. Another
one of our contacts pointed to traditional Sun resellers having a harder time selling
engineered systems versus software partners, but that "The good Sun resellers are
being helped a ton by Oracle." One contact noted that "Oracles channel operation
is much less mature, much less sophisticated than their competitors. The last three
years or so, under [new leadership], theyve come an awfully long way [with their
channel strategy]. But they are playing catch up." As such, we think Oracle still has
work to do operationally with its channel, but is gradually making some unrecognized
improvements.
Skepticism Remains, and Stabilization Could Take Time. We continued to hear some
skepticism from the channel on Oracle's hardware business. One of our contacts
mentioned that he's "maintaining, getting a lot of repeat business," but not selling
Oracle to new customers. We asked another if Oracle can be successful with its
hardware business, and he responded, "It depends on what they do." and "Oracle
could come back, but it isn't going to happen overnight." We generally found that
traditional hardware resellers not choosing to make Oracle software a part of their
customer offerings, or not developing resources to sell integrated appliances, are
making less money with Oracle and are sometimes choosing to resell other (non-
Oracle) platforms. SEE PAGES 2-7 FOR DETAILED CHECKS
Note: price reflects close on June 28, 2012.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
8,398.0A 8,811.0A 9,062.0A 10,950.0A 37,221.0A 37,597.0E 3.8x 3.8x
8,447.0 9,138.0 9,526.0 11,577.0 38,689.0 39,541.0 3.7x 3.6x
8,823.0 9,614.0 10,044.0 12,331.0 40,812.0 3.5x
0.48A 0.54A 0.62A 0.82A 2.46A 2.59E 11.5x 10.9x
0.55 0.60 0.67 0.86 2.68 2.73 10.5x 10.3x
0.56 0.64 0.72 0.95 2.87 9.8x
Non-GAAP EPS

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Detailed Channel Feedback Industry contact 1 (positive)
The engineered system is where Oracle is going

If Mark Hurd is to be believed, this integration of hardware and software, if its not
primary, its certainly central to Oracles technology strategy.
Thinks Oracle is convinced they have a real edge over anyone in the database world,
Microsoft and SAP included.
The amount of investment that Oracle is making in its engineered systems is pretty
important.
Oracle did what Sun couldnt

Oracle accomplished what Sun failed to do with the T and M series.
Hardware has been so commoditized and all the performance improvements are
incremental.
Its hard for server hardware vendors to get a jump on one another.
The opportunity for exponential performance improvement, be it speed, database
handling, response times, reliability, is very, very tough, and tough to make money
at.
So what Oracle is doing is saying is one plus one equals three. This means
hardware and software together should yield an exponential result and give the Sun
technology an advantage that HP cant duplicate, that IBM cant duplicate.
Oracle is probably going to upset everyone thats making equipment, toward which
Oracle had previously been agnostic up until the Sun acquisition.
Now Oracle wants the equipment that runs the Oracle database and other software
to be superior in how it runs Oracle software. Thats scary for their competitors.
Early stages for integrated appliances

Oracle is very early in its integrated appliances development.
I think the brain trust at Oracle is great.
The management knows what challenges theyll face as they enter terrain
dominated by the HPs, the IBMs of the world, and others. Its going to be tough.
What Oracle is trying to do makes an airline merger look like a piece of cake.
You have very, very different cultures and so much reeducation thats required.
Operationally and administratively its been really tough.
The advances theyve made in terms of getting the technology to work together
harmoniously are ahead of where they are operationally.
That whole engineered systems strategy is rock solid.
Until they get sorted out operationally, theyre not firing on all cylinders.
The channel, with partners who are way smaller and nimbler than Oracle, and has
hardware and software competency under one roof, can send one team of two people
out that can talk engineered systems. At Oracle, you still need three or four people
to get the whole thing straight when selling an engineered system.
Why is Oracle taking so long to sharpen its channel strategy?

A good example is a mid-market CIO forum he recently attended.
The attending companies were between all between $50 and $500 million in revenue.
All of them are Microsoft users, all SQL users, and just sold completely on Microsoft
and have been working with Microsoft technology partners since forever.
Where was Oracle 20 years ago when these $500 million companies were $50 million
companies?

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The Oracle reps never called on them and Oracle didnt have a channel strategy. So
Oracles channel operation is much less mature, much less sophisticated than their
competitors. The last three years or so, under [new leadership], theyve come an
awfully long way [with their channel strategy]. But they are playing catch up.
Small partners with two or three employees, who did nothing but Oracle service
contract renewals, are getting thrown out.
Oracle has decided that theyre not worth the cost of maintaining them.
The other smaller resellers that are getting killed are Sun resellers who did nothing
but send someone out in a car with a catalog of Sun equipment in their briefcase
and theyd sit down and try to sell Sun products. They didnt have to own anything,
they didnt have to carry inventory, but they just had to sell Sun stuff and Sun would
ship directly to the end user and it was a piece of cake to run a business that way.
Those days are gone.
At the low end, those guys are getting killed.
The pure Oracle hardware resellers that moved a ton of Sun product, unless they
get smart around Oracle software, thats all they're going to do. Theyre just going
to sell a lot of hardware and not make a lot of money, and then theyre going to sell
something else because they can make more money that way, if they dont want to
sell Oracle software.
A new guy at Oracle is focused on enabling some of the really important Sun resellers
to be able to do more with the Sun product.
On the ultimate success of the engineered systems strategy, Its not a question of
if, its a question of when.
Channel is improving
Selling the software is a trickier thing to learn than selling the hardware.
Software resellers had the advantage in selling engineered systems over the Sun
resellers.
Its a steeper hill for [hardware resellers] to climb in selling integrated appliances.
The good Sun resellers are being helped a ton by Oracle.
Industry contact 2 (positive)
T-Series
Demand for the T-4 is about as strong as Ive ever seen demand for any Sun machine
in the 22 years that Ive been selling them.
This is hugely because of the refresh, and very much because of pent-up demand.
When Oracle came out with the T-1 and T-2, those machines were pretty good.
They had multi-core chips which could be used to run various things that would
take advantage of the performance and thread count per core.
Unfortunately in the database world these werent good machines, so vendors still
had to sell the traditional SPARC chips. As time went by with these machines, thats
when Sun signed on with Fujitsu in a JV, and developed what became the M-class
servers.
Those M-class servers ran databases very well and were a good evolution from the
older machines.
There was a lot of hype around T-2 servers but there werent a lot of differences
from T-1.
T-3 was an improvement, but the floating point performance per core still wasnt
quite what customers were expecting, so M-series machines continued to be a
popular box.
This all changed with T-4.
The T-4 chip delivered what Sun originally intended to deliver with Rock, which was
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Sun then moved all of their efforts to T-4, which delivered much better floating
point performance per core, in addition to multi-thread performance. Floating point
performance is extremely important in database environments.
T-4 took off like a rocket when it was finally released.
Oracle still has the M-series machines, and some people say the JV with Fujitsu
will slowly die, but he isnt sure. All he knows is that I havent sold an M-class
machine since the T-4 was introduced. about 8 or 9 months ago.
Engineered systems
The hardware is such a minor component.
For example take the Oracle Database Appliance (ODA), the hardware sales teams
at Oracle still get paid for that machine, but they dont get paid for the licenses on it.
The software sales force gets paid for everything. The actual hardware that the
software runs on is 10% of the value of the ODA.
This is similar with Exadata, although not quite as skewed. But its probably four
or five to one, each software dollar for each hardware dollar youre getting.
Exalytics, even though its a hardware-based server based on an Intel machine, was
developed to take advantage of TimesTen, the in-memory database.
The engineered systems are really more of a software play than a hardware play.
Oracle Driving Software via Hardware

Hes done hardware for more than two decades, but recently hired a software guy
for the first time.
He did this because what is being communicated to him by Oracle is that if he
focuses on software hell do very well with Oracle. If all you want to do is sell
hardware, youll have a tough time if youre not selling any of the software licenses
to go along with that.
What Oracle is doing, in my opinion, is migrating everything that they to do to
focus around how to drive more software license sales.
He thinks that Mark Hurd has seen an incredible rise in engineered systems and
the associated software, and has become a software believer.
The ODA is not as popular as Oracle expected it to be.
Has a customer that is going to replace between six and eight full racks of servers,
at two sites. These will be replaced by two, half racks per site, of T-4 servers. These
clients will get better performance and better license value.
Another thing Oracle has done is change the way licensing is sold, in particular on
their pieces of hardware. The core counts on a T-4 chip are very different than the
core counts on an M-class, but more importantly theyre very different from the core
count on a P-series server from IBM. So to license the same machine from IBM and
get the same performance as a T-series from Oracle is going to cost significantly
more money.
When you put together all these pieces, you get a better understanding of Oracles
strategy.
So, there is increased interest in Oracle engineered systems, very much so on the
engineered systems and very much so on the T-series.
Theres less interest around the disk product, but that will take Oracle a while to
grow, or regain share, in that market.
Every one of the other vendors, IBM, Cisco, HP, or Hitachi, are all touting Exadata
killers.
So if someone is out there trying to sell an Exadata killer, it means that theyre
concerned about the hardware that Oracle has come out with.
Compensation schemes at Oracle

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They compensate their hardware people for hardware only.
They compensate their software people in multiple segments.
Oracle could have 50 different software people fighting for a piece of the budget at
one customer.
Oracle also only compensates their channel hardware reps for sales to the broader
market, not the Global 2000 that Oracle is targeting directly.
Thinks Oracle is struggling on how to deal with channel partners that deal with the
Global 2000 customers.
Thinks this is also affecting sales and creating a lot of confusion.
Many VARs dont even waste their time with Oracle anymore.
One of his colleagues has basically flipped his entire UNIX business to IBM T-Series.
When he goes to conferences, he sees fewer and fewer of his old friends from the
Sun days.
This is another thing Oracle is struggling with.
If you talk to large, Oracle end-user customers (such as most any large bank in the
U.S.), which traditionally dealt with channel partners, youll find that as long as
the Oracle end-user reps who are dealing with the end-user customers recognize the
value of the partner, the customer is happy. If not, the customer is not very happy.
Hes finding a lot of these scenarios where the customer isnt happy.
One of the top VPs on the channel side from the hardware business left a week ago,
on his own accord.
Still thinks maintenance prices for hardware are higher than the market, and theres
too much rigidity in the system.
He likes that Oracle has lately done a better job of listening to both channel and
distribution partners.
When he talks with the senior people at his distributor, they tell him that not only
have they seen improvement, but theyre seeing very positive signs about F2013.
Industry contact 3 (positive)
Hardware demand
[Demand] on the database appliance has been excellent.
Its a perfect solution for a medium-sized business that needs a rock-solid Oracle
environment.
In the established accounts, sales of the T-series servers are fine. Once people know
the T-series and understand the capabilities of it, they dont change. The technology
of the servers, for those specific accounts, far exceeds anything else they can get.
Just being able to use Solaris virtualized, you can set up all kinds of different
virtualization environments under those servers more granular than you can with,
say an Intel system.
Virtualization is done via Solaris LDOMs [Logical Domains] and containers.
Once a customer gets a T-4 in their hands, they see the capabilities of it, and they
generally look to continue with it or even buy more right away.
The challenge is getting [new] customers to go to the [T-series]. As far as net new
accounts going and buying T-4s, yeah were not seeing much of that, which is too
bad.
Doesnt sell any Exadata, but believes that Exadata has done well among oil and
gas exploration companies.
Can integrated Oracle appliances make up for revenue declines due to abandoning lower
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Yes. I think absolutely.
Believes that integrating all of their software stack into more of an appliance makes
a lot more sense than trying to build and architect something yourself.
The main point on the integrated appliances is the software licensing, especially on
the ODA.
It makes total sense. It has 24 cores and if you want to license that you only have
to license two cores.
If you put a 24-core HP box in, and you want to run Oracle on it, youve got to run
24 Oracle licenses.
Oracle is utilizing their ability on the licensing side to make their products more
financially acceptable.
Industry contact 4 (neutral)
Was a 100% Sun shop before the acquisition.

Oracle is no longer the main driver of their business.
Now its probably around low-double digits as a percentage of his revenue.
As far as Oracle sales are concerned, hes maintaining, getting a lot of repeat
business.
Not really selling Oracle into new customers.
Biggest trend hes seeing is customers getting the most out of their existing storage
capabilities without having to expand.
Industry contact 5 (neutral)
Just became an Oracle partner when they acquired Pillar.
Sells SAN storage products.
Performance has been disappointing, he thinks due to the economy.
Not seeing a revenue decline, but not seeing growth, either. "We're holding our own."
Industry contact 6 (negative)
Tough going
Oracle makes it so difficult for partners to get involved with the sales process.
Can Oracle bring back the hardware business? It depends on what they do.
Theres a lot of bad taste within the Federal Government sector on how they were
treated by Oracle.
Oracle was very arrogant and felt it could dictate product strategy to the Federal
Government, but no one tells the Federal Government what to do.
Oracle could come back, but it isnt going to happen overnight.
An Oracle comeback might depend on what HP does related to their downsizing
it could allow Oracle to gain some ground. But if HP is strictly focused on
making additional inroads into the enterprise, it could force Oracle further out of
the picture.
Systems Integrators
One area where Oracle didnt do well with Sun was with the SIs, like Lockheed,
Northrop Grumman, CSC, SAIC, etc.
Sun had a good product and it would function very well. Even though the upfront
investment for the SIs was high, Sun performed well throughout the project.
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Enterprise-level products from HP have caught the SIs attention over the last 18
months because of the direction Sun was going.
Hardware channel relationship

There was some nuance of channel that Oracle didnt get when they went direct with
some of their largest customers.
The SIs preferred to work with partners, but Oracle made a lot of that business
direct.
The reason SIs preferred to work with partners is because they dont like to deal
with major vendors directly.
The partners acted as an intermediary between the vendors and the SIs.
For example, the SIs have no desire to have their engineers, at $75 an hour, be pulled
off of a project and sit on the phone with Oracle tech support if something goes
wrong. Instead, the SIs could pay the partners $25 or $30 an hour to interface with
Oracle tech support.
Is Oracle doing things to improve its channel relationship?

There are highs and lows.
Sometimes Oracle does things to make you think its on the right track, and
sometimes it does the opposite.
After a while you get to the point of frustration.
But Oracle is getting better at what theyre doing. Theyre not making as many
mistakes.
Industry contact 7 (negative)
Can integrated appliances make up for the revenue decline in general purpose hardware?
I actually dont see it from a revenue perspective for sure. From a profit perspective,
maybe. I think theyre going to have to get to the point where they dominate that
market, and I dont hear that from anybody.
If somehow Oracle can tip the scales, and he thinks maybe they already have, so
that the licensing is cheaper on an Oracle platform versus others, this may help drive
sales. He just hasnt seen any real life examples of this.
Pillar
Has a customer trying to migrate from an end-of-lifed Sun storage product to the
new Pillar technology.
It remains to be seen how financially neutral Oracle will make this transition for
his client.
His client is upset because a month after he bought his Sun storage, he learned
Oracle would no longer support it.
Oracle wasnt able to give a good answer about how much the transition would cost.
His channel contact believes that Oracle is not as likely to provide a good deal for
small and mid-market customers who want to migrate to Pillar as Oracle would for
a larger enterprise.
This is an example of Oracle not providing consistent messaging to the customer.
Oracle sales reps inability to make solid commitments has disenchanted customers.

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Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Price Tgt -- $33.00
FY12E Rev (mil) -- $37,460.0
FY13E Rev (mil) -- $39,396.0
FY12E EPS -- $2.35
FY13E EPS -- $2.50
Price $29.76
52 Week High $36.50
52 Week Low $24.72
14x FY12E EPS of $2.35
Div (ann) $0.24
Yield: 0.81%
Fiscal Year End: May
Rev (mil) 2011A 2012E 2013E
Aug $7,588.0A $8,398.0A $8,807.0E
Nov $8,649.0A $8,811.0A $9,243.0E
Feb $8,807.0A $9,007.0E $9,470.0E
May $10,806.0A $11,244.0E $11,876.0E
FY $35,850.0A $37,460.0E $39,396.0E
CY $36,822.0E $38,301.0E --
FY RM 4.3x 4.1x 3.9x
CY RM 4.2x 4.0x --
EPS 2011A 2012E 2013E
Aug $0.42A $0.48A $0.54E
Nov $0.51A $0.54A $0.55E
Feb $0.54A $0.56E $0.59E
May $0.75A $0.76E $0.81E
FY $2.23A $2.35E $2.50E
CY $2.31E $2.42E --
FY P/E 13.3x 12.7x 11.9x
CY P/E 12.9x 12.3x --
Non-GAAP EPS
Oracle Corporation (ORCL $29.76)
Overweight
Detailed Interviews with ORCL Partners Reveal
Pockets of Strength & Weakness
CONCLUSION:
We conducted detailed checks with nine contacts in the Oracle ecosystem, and
four were positive coming off Q3, four were neutral and one was negative. Our
contacts highlighted a muted IT spending environment with more maintenance
spending versus new projects. On the positive side of the ledger, Exadata and Fusion
Middleware show tangible signs of traction. Core applications are growing, but the
growth rate has "plateaued" apart from Hyperion, due to the impact of SaaS vendors.
General-purpose Sun servers are sliding. We believe Oracle is in a state of transition as
it moves to engineered systems and introduces Fusion applications. One contact stated
I can definitely confirm Exadata traction and another said I do hear a lot of positive
things about their T Series, the newest Sun Server. We still expect "unexciting" total
growth rates, but think Q2 could mark a near-term nadir for sales performance. OW,
33 PT.
Detailed checks:
Positive
Industry Contact 1
Business this year, as compared to last year growth is twice as fast. Its obviously
positive. Grew 40% last year and this year plans to grow 70% and so far we are
on track. From his business perspective, however Jan-Apr have always been the
more active months.
Thinks the financial situation for firms is better and people are spending more.
Hiring is more and more Oracle related jobs opening up.
Exadata is adding to the mix, but not the bulk of the revenue. Has done about 5
implementations since October and doing several Exadata implementations. From
what he sees, thinks Exadata traction has been very good last quarter.
Seeing a broad based demand in the software segment.
Thinks that Fusion Apps are ready and GA, but will not take off in the shorter term-
not next quarter not next year, it will take a while. Thinks Oracle is not selling
the Fusion Apps as an immediate replacement sell, but slowly pushing it into its
install base so that firms adopt module by module.
The main message from Oracle towards the partner channel is that they are relying
on their partners more now to position their engineered systems. Exadata came
out about a year ago and now they have a whole portfolio of these engineered
systems Exadata, Exalogic, Exalytics, Oracle Database Appliance. Oracle wants
its partner ecosystem to sell and implement this bigger portfolio of engineered
systems. <continued on pages 2 to 6>
Overweight, $33 = 14x FY12 EPS estimate of $2.35

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Detailed checks continued
Oracle Database Appliance
Oracle Database Appliance is the only engineered system that is not typically sold by the direct sales force and is entirely for the
ecosystem to sell. It is a partner play.
Saw some eagerness and activity around that system last quarter, but thinks it's taking longer than it should for people to make a
decision to buy such an inexpensive product.
Thinks there is excess inventory among the distributors.
The base price is $50K, which is the hardware cost all-in.
Has the unique capability of switching on as many cores as someone would like to use. There are total of 24 cores and they can be
enabled in pairs. So, one can license it for as little as $47k. Software would cost an additional about $50K.
Thinks that the discounting is same as in any hardware that Oracle sells (around 17%). Had an initial discounting program that added
a few extra points which is no longer there.
Industry contact 2
Growing Oracle practice +25% annually.
Witnessed a slowdown in the later part of CY2011 but now I think things are back on the table.
Has seen quite a few changes in Oracle over the last couple of years.
Verticalization Strategy
Field teams and field setup are talking more industry now. Their [Oracles] IBU (Industrial Business Unit) teams are talking about
end-to-end processes in industry." This is a significant change from selling a generic horizontal packaged application to a vertical as
compared to selling a custom solution designed to solve a particular business problem specific to the vertical. Thinks that the change
to be more vertically oriented was driven by a number of acquisitions that strengthened Oracles presence in a particular vertical as
well as by competitive pressure. Historically, the Accentures and Deloittes of the world used to customize such apps for the vertical,
but now Oracle itself is getting into the game. One example is how ORCL modified the Siebel product into a warranty management
system for the auto industry.
Exa-Stack Strategy
I think that is an exciting market. But thinks it is new for partners. Seeing a lot of opportunities from customers who are undergoing a
technology refresh cycle as they try to evaluate new technologies and move towards a private cloud model. It is an evolving world and
thinks it is difficult to give a view how it will pan out in the next few years. Thinks that it will take some time to be a real success story.
Cloud Computing Strategy
Feels that Oracle lost out on initial momentum of the cloud segment to companies like Workday, Salesforce.com and SuccessFactors.
Now they are trying to get into the game with the Taleo acquisition. Also, thinks that Fusion now is a much more stable product
and ORCL is aggressive with the Fusion HCM product.
Products
Thinks that the usual suspects like the E-business Suite, Siebel and PeopleSoft - they are growing but sort of plateaued growth.
Thinks that products like Siebel are a winner when evaluated on deep functional expertise. But SaaS wins over this functional expertise
because of the cost savings associated with it as well as due to the ability to be up and running in a short duration of time.
Thinks that Oracle is seeing a lot of growth in the Enterprise Performance Management (EPM) or the Hyperion Suite. Has heard people
referring to 70% growth in North America alone for that product category.
Thinks that Oracle is also seeing good growth in the supply chain suite.
Now seeing some credible momentum around the Fusion Applications. They are much more enabled now to talk about Fusion. The
tool is generally available and the customer can see and feel the product. Also, partners are much more knowledgeable now. Thinks that
Oracle has done some work educating the customer over the last year. Thinks that Oracle is not advocating a full fledged rip and replace
with Fusion applications, but are educating the customers that they can now start adopting the Fusion apps on a per module basis. For
example, customers can now get Fusion HCM which can co-exist with the PeopleSoft instance, if they are already using one. Later the
customers would have a choice of continuing with the PeopleSoft roadmap or add other Fusion App components, based on their needs.
Oracle Fusion is doing very good. In fact, if you look at the market, there are no people available for Oracle Fusion. BMC is replacing
WebMethods with Oracle Fusion. Thinks that should be a big deal. However, also adds that Oracle is giving away stuff. If an ERP
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Thinks that the [sales contacts in the database/applications ecosystem] are excited. I would go long Oracle.
Industry contact 3
Demand
Seeing a substantial increase in activity.
Theres a lot of work related to upgrades.
There are some new implementations, but mostly upgrades .
Seeing core ERP projects, and some additional work, and increase in activity, in edge products like CRM and BI.
Competitive landscape
On the CRM side salesforce.com is a force, and he sees them in every deal he does.
Hasnt seen a lot of NetSuite or other SaaS on the ERP side, but a lot more customers are talking and asking about it.
Thinks that the day is very close where hell start competing against SaaS companies more regularly.
A lot of customers are asking for hosted types of offering, although not necessarily SaaS, just to have hardware and software located
off site and managed by someone else.
Fusion
Not a lot to talk about.
Even though Fusion is GA its still kind of controlled.
Not to a point where hes able to talk to customers about Fusion at a level of detail where he can recommend it in specific situations.
Industry contact 4
Oracle, in particular over the course of last year-and-a-half or two are making some really good inroads with Fusion Middleware
because they are just giving it away as part of their bundling strategy. Another reason for Oracles success in the space is that their
tools have matured especially their mainline Business Process Management (BPM) tools Fusion BPM and Fusion BPE (Business
Process Execution) are very, very good products.
Neutral
Industry Contact 5
Front End
Doesnt see Oracle in any leads in the content and portal management side.
They are trying to push the CMS solution, especially the FatWire solution.
FatWire is a stellar acquisition for Oracle. Knew the company for a decade and thinks that it was doing spectacularly well before
Oracle bought them.
Expected Oracle to turbo charge FatWire sales efforts, but havent seen anything to that effect. Still, doesnt see substantial traction
in that space from Oracle.
Expects FatWire to still boost their reputation and sales in this space but early indications are note there yet.
Middleware Space
Fusion area I think they are doing OK.
For existing Oracle customers, it is a very, very powerful story and nobody thinks twice. By and large people are comfortable moving
into Oracle Fusion Middleware.
Also there is a good reputation from the BEA acquisition which was a solid product so, Middleware they are muscling in pretty well.
Applications
Core apps we dont see much

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But has seen some reasonable uptick in niche apps such as the Supply Chain application Oracle Transportation Management.
Doesnt see any $100M GE bought Oracle type of deals any more. Those are all big news we used to hear in the past. I dont see
that happening now and they are all going for the incremental revenue.
The most glaring thing Oracle is simply losing all the Siebel customers left, right and center. Doesnt think that they are even
putting up a fight and dont know why that is. If you look at the functionality, Siebel is very rich
Thinks that there is some movement in the Fusion Apps side. It's not substantial and it is not a complete washout. See some marginal
uptick.
Hardware
Although doesnt directly deal with hardware sales, I can definitely confirm Exadata traction. Exadata the way they engineered,
they engineered with software in mind first. So I would think its a pure Oracle product against being influenced by Suns technology.
Other than Exadata, doesnt think that hardware has picked up at all. Thinks that they are losing somewhat to the storage vendors.
Sales
I can see there is a lot more discipline. I can definitely say they are a very formidable sales forcethat impression is only getting
strengthened and it's not getting diluted.
Can confirm that there is more seriousness toward channel partners.
Does talk to [sales personnel in the database/applications ecosystem]. Oracle looks comfortabledidnt get an impression that they
are struggling, in any of the transactions.
Industry contact 6
A lot of reps didnt hit their numbers. Generally speaking, a lot of people didnt do well.
A lot of areas didnt do very well. He knows of one area with a $2M quota that only closed $200k of business.
I would be stunned if [Oracle] hit their number.
It wasnt just hardware, it was software. They didnt sell a lot of software.
Heard theres a hiring freeze at Oracle in sales [please note that we have not heard this and we disagree with this statement].
Oracle has gone to a really direct model, and as theyve done this the hardware just crashed. When Oracle pulled the support renewals
from the partners and went to the direct model that Oracle is used to, partners fled and now theyre selling other stuff to other people.
The ODAs (Oracle Database Appliances) are effectively a loss leaderthey get into an environment and disrupt HP, Dell, NetApp
and EMC, but Oracle hasnt figured out how to sell it convincingly.
Thinks Oracle is struggling with how to deal with software on-demand when it comes to database licensing.
Oracle is trying to protect its turf, but technology changes, and you cant protect your turf all day long or you get eaten alive.
He does think they have some great technology. The Exalytics, the pre-built BI package, theyre licensing it really cheaply, and its
cost effective, and it makes a whole lot of sense.
I do hear a lot of positive things about their T Series.
His business has a decent pipeline.

Industry contact 7
Stills sees spending flat. People are starting, sadly enough, to hold their breath again.
I think the IT folks are just wanting to stabilize, and there arent any big projects going on right now."
Recently attended Oracle applications user group meeting, and everyone is just sort of stabilizing.
There were more than 200 people there, and the prevailing conversation was Were okay where we are right now.
Thinks purchasing is going to be flat.

Fusion
The new name for Fusion is fizzle because there isnt any bang to it. No one is doing any technology changes to take advantage
of Fusion.
There arent any new applications that have hit the street.

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The PeopleSoft application is pretty stable at version 9.1, R12 is pretty much used by everyone right now and its a pretty easy upgrade
to R12.
Industry contact 8
Clients always complain about the cost of Oracle, and look for reasons to reduce their overall expenditures of Oracle.
They havent been able to do this completely, but with the advent of virtualization theyve been able to further leverage their Oracle
business.
For some small companies, an Oracle license costs almost as much as an employee.
It gives you a platform to grow from. The feedback hes heard is that the storage is a limiting factor, and they bundle the storage with
it. The storage needs are outgrowing what is coming with the system.
Its kind of a way for Oracle being able to, in my opinion, get some Sun product to go along with their database sales.
Sales reps in the broader database / applications ecosystem:
Theyre not jumping up and down.
I think theyre struggling to get to their numbers this year.
"The first quarter of this year, on a calendar basis, youre starting to see things push out a little bit.
Negative
Industry contact 9
What we see is real challenges in the engineered systems space and real weak market acceptance of new products.
I think the market is skeptical of those large, monolithic, siloed [deployments].
80% of his customers have unstructured data, and Oracle would like to make them fit into their definition of database, but the markets
moving a different direction.
Have you heard the term cloud washing? Make what you have fit. Now were hearing the term big data washing. Were not seeing
strong acceptance of what [Oracles] bringing to market.
In new products, Exalytics is really looking for use cases. Exalogic has some penetration, but Oracle took the low hanging fruit from
big customers with big budgets. The next step is wider acceptance in the marketplace, but acceptance is very tepid. All the easy
[deals] have been done.
The placements were seeing are subsidized. Were not seeing referenceable penetration.
Exadata has some niche markets where it does do well.
The new directions and new growth wont come from Microsoft and Oracle. Theyll come from newly emerging companies that are
becoming extremely cost-efficient methods of handling new streams of data, and the analytics behind it.
It wont be the big, monolithic, million-dollar installations.
Many customers are still questioning if Oracle can make a play on the hardware side.
Its been some time now since the acquisition.
If Oracle drops below 5% share in the hardware market, people arent going to believe thats a viable way to invest.
Theres a very tepid response. Weve got no traction.
Oracle is requiring that you install enterprise-level software and the long tail is enterprise software maintenance.
The initial $50k acquisition of the hardware entails about $250k worth of software and maintenance to go with it.
The ODA was supposed to be push-button but people dont want spend $300k on push-button. Customers want to be able to configure
it, lay out the disks, etc., for that kind of money.
Biggest Oracle Competitor

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Oracle is very, very strong and dominant in applications.
In the database sector Oracle will be unseated by the up-and-comers, the Greenplums, the open sourcers.
The existing Oracle database environments will stay, but the growth is all going to be in the new technologies, like unstructured data.
Thats where all the new projects are headed.
Hardware
"It looks like Oracle will drop under 5% total market share in hardware and you cant convince anyone to invest in that."
"We dont have a single customer expanding their Sun hardware base. Theyre all moving off the platform.
It no longer matters which hardware platform they standardize on. Its going out of the data center.
A lot of it is going to salesforce.com and Workday.
The platform has been so commoditized.
There are specific use cases where engineered systems make sense, but thats low-hanging fruit that has been picked already.
The engineered systems argument isnt getting traction.
Customers can do the same thing with open source and commodity hardware.
They can offload it to the cloud in salesforce.
There are just more nimble, more efficient, cost effective ways of doing those new projects. So new projects are going away for Oracle.
People have to maintain Oracle. Its too costly to totally replace it, but theres not growth there.
Customers dont really enjoy doing business with Oracle. Its not fun. Thats an intangible, but it does affect sales.
Investment Thesis
Oracle is the world's second largest software company (behind Microsoft), with more than $35B in annual revenue. Its offerings span
servers and storage, relational database management systems, middleware, and a broad range of applications including enterprise resource
planning (ERP), customer relationship management (CRM), and supply chain management (SCM). We believe the software industry
is a game of scale, meaning that the largest vendors can develop new products at a lower cost per customer due to their large global
customer bases and their ability to leverage the rest of their corporate infrastructure including brand, general and administrative facilities,
and adjacent software components. For this reason, the very largest software vendors enjoy the highest profit margins.
We also believe the software industry, like most other industries, will consolidate as it matures, as thousands of global software vendors
are acquired or go out of business to form a "big three" industry structure that is dominated by a small number of very large vendors.
As such, we remain optimistic about Oracle's aggressive acquisition strategy, which we describe as an "earnings arbitrage": Because of
its massive scale, Oracle can acquire companies with 10%-20% operating margins, strip out costs, and rapidly realize 40% operating
margins for the acquisition target. Furthermore, a slower global economy may drive equity prices lower, affording Oracle the opportunity
to acquire more accretively. We see plenty of future opportunity, as we identify at least 50 publicly traded software companies with
$300M-$6B in revenue which we believe Oracle could acquire.

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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705
Piper Jaffray & Co.

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706
Piper Jaffray & Co.

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703
Piper Jaffray & Co.

OR A C L E C OR P OR A T I ON (ORCL - $29.74)
Overweight

Detailed Survey of 45 Oracle Partners Suggests a Business Model in
Transition, But Probably a Better Q3 Software Performance

We conducted detailed interviews with 45 contacts in the Oracle ecosystem to gain a better
understanding of long-term business trends and the pace of business in Q3 (Feb). This
report provides a detailed analysis of the results. Net net, Oracles partners are not yet sold
on the companys Cloud Computing strategy; see sporadic signs of traction for Exadata
and the Oracle Database Appliance; suspect the Fusion applications product cycle will on
balance slightly soften Oracles results in CY12; and yet they observed a better pace of
business for the domestic software segment in Q3 (Feb), which is the largest chunk of the
business. Consistent with our Q2 preview, we still expect unexciting aggregate growth
rates for now, due to the slide in general-purpose Sun server sales.

Key Points
Partners Not Buying Oracles Cloud Computing Strategy. 47% of the partners have not
observed Oracles Cloud Computing strategy gaining traction with customers, while
only 38% have observed some limited traction. Issues include mixed messages,
concerns about Oracle being late with the strategy, a perception that Oracle is
trailing in Cloud, and this being a tough row to hoe because there are so many
competitors.
Fusion Applications Product Cycle Viewed as Neutral to a Slight Headwind in 2012.
53% of the partners believe that the Fusion product cycle will hurt Oracles software
license revenue in 2012, primarily because customers will pause to evaluate the Fusion
applications and/or evaluate alternatives. Viewpoints are fairly evenly split on this
topic, as 47% of partners see a net benefit in 2012 due to increased upgrade purchasing
activity.
Seeing Some Exadata and Oracle Database Appliance in the Field. 29% of the partners
we surveyed indicated either very strong demand or moderate customer demand for the
Exadata database machine, followed closely by the much lower-priced Oracle Database
Appliance. The other 5 engineered systems dont appear to be drumming up as much
interest. One partner stated that Exadata and Exalogic are great for nerdy IT Directors
of large companies. Oracle's installed base is mostly unaffected. In our view, the jury is
still out and it is too early to declare either victory or defeat for Oracles engineered
systems strategy.
Performance Versus Plan Improves in Q3. On average, partners were 2.5% above plan.
This compares to 1.5% above plan last quarter and 3% above plan in the quarter ending
February 2011. The feedback wasnt unilaterally positive in terms of expectations for
Q3 (perhaps reflecting some concerns about the hardware business volatility or
European conditions), but on balance the feedback leans positive, in our view.
Overweight Rating. We maintain our Overweight rating on ORCL shares due to its
positive results in our most recent CIO survey. Our price target of $33 is based on 14x
FY12E EPS of $2.35.
Risks: Macroeconomic outlook, integration of acquisitions, and competition.

March 2012

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ORACLE PARTNERS BUSI NESS PERFORMANCE - AS A %
OF PLAN

The chart above shows that 49% of the Oracle partners we surveyed were above plan
for the February quarter, while 29% were at plan. Only 22% of the partners were
below plan for the quarter.
On a blended average basis, partners were 2.5% above plan for Q3.

Exhibit 1
PARTNERS BUSI NESS PERFORMANCE - AS A % OF PLAN

Key Takeaways from
the Chart Above
6.7%
4.4%
11.1%
28.9%
24.4%
22.2%
2.2%
0.0% 10.0% 20.0% 30.0% 40.0%
More than 20% BELOW plan
11% to 20% BELOW plan
0% to 10% BELOW plan
At plan
0% to 10% OVER plan
11% to 20% OVER plan
More than 20% OVER plan
In The Most Recent Quarter (i.e., December/January/February), How Did
Your Organization Perform Versus Its Internal Plan For Oracle Business?

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April 2014

The chart above shows that on average, surveyed Oracle partners came in 2.5% above
plan for the February quarter versus 1.5% above plan in the prior quarter.
We are encouraged to see the sequential improvement in performance in Q3 (Feb), but
note that partner performance still isnt off to the races, as performance versus plan
typically reached a higher level during mid-2010 through mid-2011, sometimes reaching
4% to 6% above plan.
Exhibit 2
PARTNERS BUSI NESS PERFORMANCE - % OF PLAN ( TI ME SERI ES)

Key Takeaways from
the Chart Above
1.6%
-1.0%
-2.0%
3.0%
2.0%
6.0%
3.0%
4.4%
-0.2%
1.5%
2.5%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%

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April 2014

ORACLE PARTNERS OBSERVED PACE OF BUSI NESS

The chart above clearly shows that majority (56%) of the Oracle partners we surveyed
characterize the pace of business as Better in Q3 (Feb), while only 16% of the partners
characterize it as Worse.
This marks an improvement when compared to the data gathered last quarter, when
only 42% of the Oracle partners surveyed characterized the pace of business as Better
while 15% of the partners sensed a Worse pace of business.

Exhibit 3
PACE OF BUSI NESS

Key Takeaways from
the Chart Above

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April 2014

The chart above depicts a time series of our survey data during the last three years.
The data is depicted on a Net basis, i.e. starting with the mix of partners who observed
a Better pace of business, and subtracting the mix of partners who observed a Worse
pace of business.
The chart shows an uptick in Q3 (Feb), but the feedback is still more muted than it was
for most of mid-2010 through mid-2011, when the Net-Better pace of business scores
often reached 57-77%.

Exhibit 4
PACE OF BUSI NESS, NET- BETTER % ( TI ME SERI ES)
Key Takeaways from
the Charts Above
9.0%
43.0%
34.0%
77.0%
34.0%
59.0%
57.0%
59.0%
-5.6%
26.9%
40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%

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April 2014

ORACLE S FI SCAL THI RD QUARTER REBOUND /NO
REBOUND EXPECTATI ONS PARTNER ECOSYSTEM
PERSPECTI VE

The chart above provides an additional viewpoint regarding Oracles fiscal third
quarter (ending February 2012), from the perspective of the 45 partners we surveyed.
Although a majority (53%) of the partners believe that Oracles sales performance
probably didnt rebound in the third quarter following a very weak Q2 performance, it
is important to note that the mix of partners thinking the opposite is trailing very
closely behind (48%). Net net, in our view, if nearly half of Oracles partners observed
a performance rebound in Q3, its probably an encouraging sign.
We provide some examples of qualitative feedback from partners below. Clearly,
partners carry a wide range of conflicting viewpoints due to substantial variability in
demand based on regions and products. For example, while one partner saw his
customers loosen up in terms of budgets, a different partner saw deals being pushed
from Q3 to Q4 due to tightening of budgets.

Exhibit 5
ORACLE S FQ3 EXPECTATI ONS

Key Takeaways from
the Chart Above
13%
53%
48%
0% 10% 20% 30% 40% 50% 60%
Dont Know
No
Yes
Did You See Any Indications That Oracle's Sales Performance
Rebounded During Q3 (Dec/Jan/Feb)?

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April 2014

Exhibit 6
ORACLE S FQ3 EXPECTATI ONS REBOUND OR NO REBOUND? QUALI TATI VE FEEDBACK

Yes. We have received leads on cloud based computing.
Regroup and respond would be the watchword.
About the same as before.
We didn't see a pickup until calendar Q1.
Yes more customers requirements coming from market.
We finished on target, but it seemed like twice the amount of work to get things moving from sales start to finish.
Oracle clients are mostly unfunded and will continue to have extremely limited or non-existent budgets for the
foreseeable future.
More interest in Exadata and ODM.
Same strategy as before.
Much more customer and lead activity and a few deals closed.
More resale opportunities.
Yes
Yes, modest rebound. Our customer base is proceeding with projects that have been on hold for the past year.
No, these are traditionally slow months of the year.
It will rebound a little, but they will struggle in the apps area as WorkDay continues to win deals as customers evaluate
all players during their Fusion Applications upgrade process.
How would I know?
Yes - still good demand in some accounts.
I saw more movement and action taken. Not sure if I can pinpoint it, but Q2 seemed like people were going through the
motions. I didn't see any real urgency to close deals towards the end of the quarter. I think coming around to the new
year, clients are usually on a better track to evaluate and purchase licenses, but in the past have seen more incentives
from Oracle sales teams to close quicker.
No.
Not enough intel to form an opinion.
No, I believe now more than ever Oracle customers are pushing purchases to Oracles fiscal year end for the deepest
disparate discounts.
In the EPM [Enterprise Performance Management] space, we still see a strong commitment to Oracle products and a
desire to take advantage of the Fusion features which offer a net value add. Implementation costs remain high; and
budgets are tight; so technologies such as Exadata/Exalogic remain out of reach for many organizations even though
they may desire the performance gains available from those products.
None
Interest seems to be picking up.
Not really in our sector.
No.
I believe that we will get back to growth.
None in the Federal space.
Sales stayed flat from Q2.
No.


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April 2014

Exhibit 7
ORACLE S FQ3 REBOUND EXPECTATI ONS - ADDI TI ONAL FEEDBACK, CONTD.

Overall we saw variation by regions, not necessarily by products. A large number of clients were delaying making
purchase decisions in Q2 and pushed them to Q3 [Feb]. There are also a good percentage of clients purposely delaying
purchases until Q4 [May] to get the perceived "Best Price".
No.
None whatsoever.
No.
I don't have a relevant comment to make as my exposure to customer opinions or ones in the community are not a lot.
It looks like customers are starting to loosen up and there is less uncertainty.
Customer demand is coming back and still we see challenges coming from Oracle's end that the discounts from
competitors such as SAP are tough to beat and Oracle does not want to provide further discounts. This is causing lost
deals purely based on pricing against SAP.
NA
Frankly no. In most deals we have been involved in, decisions are being postponed. I still believe customers are cautious
to spend money and only do so when a clear ROI has been identified.
Seeing demand for services.
Yes, intense focus of the direct sales force, and much more engagement with partners like us to get wider and deeper
coverage of the market. The realignment in the beginning of the fiscal year caused the pipeline to dry up and now the
focus on filling the pipe and accelerating the deals is happening now that reps have their territories and are working
towards their numbers.
Yes--clients are typically distracted in Nov and Dec with Thanksgiving and Christmas holidays. We are seeing more
projects moving forward now that we are into February and March.
No. Oracle is still trying to figure out what happened. But they haven't solved it yet. They will, but not for another Q or
2.
Oracle sales very busy with sales cycles
No.


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April 2014

The charts above depict partner expectations for Oracles quarterly revenue
performance.
The majority (62%) of the partners view FQ3 as an in-line quarter.
However, the net-negative Q3 revenue expectation is the one area of near-term caution
from the partners perspective. We think two factors are at work here. First,
psychologically, people tend to extrapolate the most recent trend unwittingly, and
Oracle missed expectations in Q2. Second, partners are aware that the hardware
business has been coming in shy of expectations, and may suspect some ongoing
hardware softness.
Exhibit 8
ORACLE S THI RD QUARTER REVENUE EXPECTATI ONS

Exhibit 9
ORACLE S QUARTERLY REVENUE EXPECTATI ONS, NET- ABOVE %
( TI ME SERI ES)

Key Takeaways from
the Charts Above
2.2%
0.0%
32.5%
0.0%
40.5%
45.5%
60.5%
-2.7%
21.9%
-20.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%

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April 2014

ORACLE S FQ2 RESULTS I N RETROSPECT

The results of this question are clearly somewhat disconcerting, as 48% of Oracle
partners believe that the competitive landscape shifted rapidly in Q2, and that tough
times will continue for Oracle.
However, we note that Oracle was viewed as a critical mega-vendor for the future and
a 2012 share gainer in our recent CIO survey. We think our CIO survey holds more
water and carries greater long-term implications when compared to this shorter-term
and potentially more emotional response from partners coming off of a weak Oracle
quarter. Studies show that people tend to overstate the importance of very recent
events (for example, the world will never be the same after the 9/11 terrorist attacks,
and a perceived near-certainty of additional bombings on US soil during 2001/2002)
while losing sight of the longer-term trend line. In our view, it is certainly possible that
Oracles partners are falling into this trap to a certain extent.
Furthermore, a good chunk of Oracle partners cited temporary factors to explain the
Q2 miss, including mis-execution and a temporary dip in customer demand.
Listed below are some additional comments on the same questions.

Exhibit 10
POST- MORTEM ANALYSI S OF ORACLE' S Q2 RESULTS

Key Takeaways from
the Chart Above
47.5%
42.5%
27.5%
27.5%
0.0% 20.0% 40.0% 60.0%
The competitive landscape
shifted rapidly, and tough times
will continue for Oracle
Oracle's "Engineered Systems"
strategy (e.g., Exadata/Exalogic)
caused distractions
Oracle simply mis-executed,
temporarily for a quarter
Customer demand temporarily
dropped in the month of November
In Retrospect, What Do You Think Went Wrong With Oracle's Q2 (Sept/Oct/Nov)
Quarterly Results, Which Fell Significantly Short Of Expectations?

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April 2014

Exhibit 11
POST- MORTEM ANALYSI S OF ORACLE S FQ2 - ADDI TI ONAL FEEDBACK

Oracle fusion apps created slowdown in the upgrade requirements.
By telling the marketplace to not upgrade to EBS [Oracle E-Business Suite] R12, it is a big mistake.

Perception is that Oracle is becoming more difficult to deal with. Existing Oracle customers are starting to look for
other solutions.
Customers are evaluating many of the Oracle solutions.
Oracle message to the market is a complex one and needs to be simplified. Too many products.
Exadata and Exalogic are great for nerdy IT Directors of large companies. Oracle's installed base is mostly unaffected.
Too much internal realignment early in the fiscal year caused a drop in pipelined opportunities, which affected sales in
the following quarter.

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April 2014

ORACLE S CLOUD COMPUTI NG STRATEGY

The chart above shows that a big portion (47%) of partners have not yet seen Oracles
Cloud Computing strategy starting to gain traction. While its still early for this
strategy, issues include mixed messages, Oracle being late with the strategy, a
perception that Oracle is trailing in Cloud, and this being a tough row to hoe
because there are so many competitors.
Although slow to start, as highlighted by the other 38% partners who have seen some
traction, Oracle is slowly mobilizing its firepower in this space, especially with the
general availability of its Fusion Applications and the acquisitions of RightNow and
Taleo. Still, most partners are confused by the strategy thus far, and see only slow
progress while thinking it will be a hard sell.
Listed below is the detailed partner commentary about their experience with Oracles
Cloud Computing strategy.
Exhibit 12
ORACLE S CLOUD COMPUTI NG STRATEGY

Key Takeaways from
the Chart Above
15.6%
46.7%
37.8%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Dont Know
No
Yes
Is Oracle's "Cloud Computing" strategy starting to gain
traction with customers, and WHY or WHY NOT?

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April 2014

Exhibit 13
ORACLE S CLOUD COMPUTI NG STRATEGY POSI TI VE COMMENTS ( 1 7)

Yes. We are receiving enquiries from the customers from all the regions covered by us, and they are very eager to go
with cloud based computing.
Consumers are a bit weary of the cloud, but slowly adapting to it and seeing it as the future.
Yes new economic model which will fly.
Customers are more accepting of the Cloud concept.
Yes. Convenient. Ease of use.
Yes, but slowly.
It is gaining traction, but most customers still not sure how this strategy can benefit their operations.
There's some confusion out there now with the Fusion applications actually being available. I think customers are
taking a little more time to make decisions on their best options. Oracle is on the right track here when it comes to
cloud computing and needs to stay on the right path.
In very few customers that I have spoken with.
Yes, but only in the sense that customers are starting to inquire about it in an effort to become more informed. We have
seen no sincere movement toward cloud computing from an Oracle Application point of view.
I believe so, and you see competitors like HP starting to follow suit.
It will gain attention. It may help sales, but there is still some evangelism to do. In the highly regulated industry, security
continues to be a concern.
Oracle's Cloud Computing is gaining traction as clients are struggling to secure and retain IT talent with the necessary
skill sets to manage these environments. In addition, clients are intimidated to move these complex environments onto a
cloud themselves without the endorsement of their vendor.
I believe it is getting traction. I am getting asked more question from our clients and based on the last Cloud event in
London, there is certainly more interest.
Yes - because customers are starting to see the value in not taking up space with unnecessary infrastructure.
The cloud computing strategy is definitely gaining traction and we are seeing more customers enquiring about it. In our
markets, the "control on the data" concept still holds true and it's changing with time. This year we will be able to close
some deals purely based on cloud model.
It is very slowing getting some traction. Too early to tell if this will be a trend or not. Customers are intrigued with the
idea, but have heavily invested in infrastructure so it is a bit of a hard sell.


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April 2014

Exhibit 14
ORACLE S CLOUD COMPUTI NG STRATEGY - NEGATI VE COMMENTS ( 21 )

Tough row to hoe. Oracle is trailing in Cloud and clients are not sure that the market needs Oracle's offering here,
plenty of other choices and Oracle is not first to mind when looking to make Cloud move.
Still too early for the majority of customers to decide on Cloud Computing.
The only thing we've really seen with customers is the Amazon cloud piece.
Most Agencies are not ready for Oracle Cloud Computing.
Not gaining traction because there are so many competitors.
It is not, because the strategy continues to change. Once they have a solid marketing story it should start to gain
traction.
No, I do not think it is gaining traction... I'm concerned about this strategy being late. Fusion Apps do not appear to be
a good bet for cloud computing, the recent acquisition was late, other vendors are gaining momentum. It is time for
Oracle to fix this.
It is complicated and a pain in the ass. Most people dont even know who to go to, to figure out pricing.
It will be several cycles before Oracle users are ready to move to cloud computing due to the large amount of legacy
hardware/software investments most firms have made.
No [Siebel] On Demand is the only one we have contact with and it is not scalable nor is it technically sufficiently
reliable at this stage.
I haven't heard people talk about it much.
The Federal market is lagging commercial in Cloud acceptance.
The Cloud is gaining traction, however Oracle is behind every other OEM due to the limited to NO cloud pricing for
their technology stack. With no utility pricing it will be extremely hard for Oracle to compete.
Oracle's Cloud Computing strategy is not gaining traction since customers are confused by the mixed messages from
Oracle.
No. Oracle's Cloud Computing Strategy is unclear. This campaign is very late and customers are confused as to what
links Oracle and the Cloud.
I believe most customers still do not understand Oracle's Cloud Computing strategy. Most customers associate Cloud
Computing with a SaaS model. From an applications perspective, Oracle makes it clear that Siebel is available as SaaS.
However most are not aware that other applications can be available in a SaaS solutions as well, albeit sometimes
through business partners.
Cloud in general is growing. People still believe that Oracle's strategy is somewhat vapor ware.
The Oracle cloud strategy isn't gaining a lot of traction yet, at least not from what we are seeing in our region. More
customers seem to be adopting the private cloud concept now, both with engineered systems and blade/storage farms.
No. Customers don't know what Oracle's strategy is. And simple things like the Database offering for the cloud are just
a webpage (Oracle's cloud based implementation of slideware).
Haven't seen evidence of increased deals or sales cycles.
It's too limited. Too many exceptions. Oracle seems like they are protecting their base and not staking any risks.


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Exhibit 15
ORACLE S CLOUD COMPUTI NG STRATEGY NEUTRAL COMMENTS ( 7)

Faster delivery of functionality than normal procedure.
Doesn't matter in small companies, so no comment.
Don't know.
Not sure?
Cloud is very topical and people want to hear about your approach and solutions for it.


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April 2014

DEMAND TRENDS FUSI ON APPLI CATI ONS

The chart above evaluates the anticipated impact of Oracles Fusion Applications
product cycle on Oracles 2012 license revenue from the perspective of the partners.
A slight majority (53%) of the partners believe that the Fusion product cycle will hurt
Oracles software license revenue in 2012 as the evaluation of the new products will
presumably extend sales cycles. However, the mix of negative comments (53%) is not
significant enough to derive a clear conclusion, in our view.
A decent mix of partners (47%) believes that the Fusion Product cycle will help Oracle
boost its software license sales in 2012 as it will drive incremental spending activity by
customers.
Listed below are some additional comments by partners with respect to this question.

Exhibit 16
ORACLE FUSI ON APPLI CATI ONS
Key Takeaways from
the Charts Above
46.7%
53.3%
40.0% 45.0% 50.0% 55.0%
The Fusion application product cycle will HELP Oracle's
applications software license sales in 2012 because it will
drive incremental customer spending activity for
upgrades/migrations
The Fusion application product cycle will HURT Oracle's
applications software license sales in 2012 because
customers will pause to evaluate Fusion applications and/or
consider alternatives.
Based On Your Conversations With Customers And Prospects, Do You Think The Oracle Fusion
Applications Product Cycle Will Help Or Hurt Oracle's Applications Software License Sales In 2012?

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April 2014

Exhibit 17
DEMAND TRENDS FUSI ON APPLI CATI ONS, ADDI TI ONAL FEEDBACK

Not familiar.
I don't think Fusion will have any impact on my business in 2012. So neither applies.
Not sure
Fusion continues to create confusion
Fusion is still new in our market and it may be able to change the sales numbers at the latter half of the year, but it is
very difficult to predict at this time.
There will be a learning curve and this will slow down the sales cycle.


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April 2014

DEMAND TRENDS ORACLE ENGI NEERED SYSTEMS

Exhibit 18
ORACLE ENGI NEERED SYSTEMS

Exhibit 19
ORACLE ENGI NEERED SYSTEMS

0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Exadata
Database
Machine
Oracle
Database
Appliance
Oracle Big Data
Appliance
Exalogic Elastic
Cloud
Sparc
SuperCluster T4
Exalytics In-
Memory
Machine
Sun ZFS Storage
Appliance
No Demand Little Demand Moderate Demand Very Strong Demand
How much customer demand are you seeing for the various Oracle "Engineered Systems"?

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April 2014

The charts above depict customer interest in Oracles engineered systems. Not
surprisingly, customers are most interested in Oracles Exadata database machine,
which has been in the marketplace the longest. 29% of partners we surveyed indicated
either very strong demand or moderate demand from their customers for the Exadata
database machine.
Partners are seeing the Oracle Database Appliance, or ODA, nearly as frequently as
Exadata. Although ODA hasnt been on the market as long as other systems such as
Exadata or Exalogic, it does present a much lower price point: approximately $50,000
for the hardware, with the ability to scale up the number of cores with database
licenses from two to 24, for a pay-as-you-go licensing model. This price tiering may
explain the higher level of customer interest.
The feedback on Oracles engineered systems doesnt suggest resoundingly broad-based
strength in our view, as even the strongest products (Exadata and ODA) are only rated
at 2 on a scale of 1 to 4. We think most of the technical evaluations have been solid,
but its still early innings for the engineered systems strategy, and most of the systems
are more like Ferraris than Toyota Camrys, meaning that they really arent intended to
be high volume mass-market purchases which would be visible to partners on a daily
basis.

Key Takeaways from
the Charts Above

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SURVEY DEOMGRAPHI C I NFORMATI ON

We surveyed 45 partners in the ORCL ecosystem with the majority of the respondents in
the Americas and 15% overseas.

Exhibit 20
GEOGRAPHI C MI X

Americas
84.4%
Europe/
Middle
East/
Af rica
13.3%
Af rica
2.2%

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April 2014

Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

R A L L Y S OF T WA R E (RALY - $19.32)
Overweight

A Cloud-Based Engine Powering the Software Economy; Initiating w/OW

We are initiating coverage of Rally Software with an Overweight rating and $23 price
target. Rally provides cloud-based software for managing Agile software development.
Rally is being viewed as the thought leader and market share leader in this market due
to its robust, modern, high-end product aimed at large enterprises. We forecast
subscription revenue growth above 30% for the next two years and believe our forecasts
may prove conservative. Software is becoming globally more critical to a broadening
array of industries as complex software code gets embedded into new realms such as
tractors, elevators, automobiles, and electronics. This, in turn, is causing Agile software
development to become a competitive necessity, and we believe this sustainable tailwind
and potential for upside will drive RALY shares higher over time.

The High-End Leader in Cloud-Based Agile Software Development. Rallys customer
list spans 34 of the F100, including logos such as GE Healthcare, John Deere, Autodesk,
Cisco, Sony, and Northrop Grumman. Each of these companies employs software
developers, and they need to manage the software development lifecycle to make these
developers more productive, accelerate their pace of innovation, and reduce the software
defect rate. Rallys product manages all the tasks, schedules, and timelines so that
software is developed more rapidly and efficiently. Rallys accelerating momentum with
the largest Enterprise accounts signals its arrival as the high-end leader in cloud-based
Agile software development.

Strong Growth Trajectory for Revenue and Paid Seats. Rally has delivered a 50%
revenue CAGR over the past four years, and a 55% CAGR for paid seats, which now
total 168,000. We believe Rally intends to materially ramp its hiring of quota-carrying
sales representatives this fiscal year, and if successful, this could lift revenue growth
rates above our forecast in future years.

Uniquely Powerful Land & Expand Trends. Many enterprise software companies cite
their land & expand strategy, but Rally provides compelling granular data. For
example, across Rallys 15 largest customers, the average first seat order was 143 seats
and has now expanded to 3,936 seats, representing a triple-digit seat CAGR for every
one of the top 15 accounts. This suggests a very positive customer experience is driving a
nearly-viral adoption pattern, foreshadowing a solid growth foundation into the future.

Risks & Limitations. We note the following factors: 1) while the TAM offers a solid
multi-year growth runway at an estimated 8M global seat opportunity, it is not likely to
be as open-ended as the global HR or ERP software markets, for example. 2)
Calculated billings growth will fluctuate widely, wont always tell the whole story, and
is likely to decelerate in Q1; and 3) Rally derives a small portion of its revenue (roughly
10%) from perpetual licenses, which can drive occasional quarterly variances.

Risks: Billingss fluctuations, competition, ongoing operating losses, macro economy.

NOTE: The following pages are an excerpt from the RALY Initiation report.

May 2013

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April 2014


We engaged in detailed discussions with several of Rallys customers as part of our due
diligence process. The following section provides key takeaways from the conversations
and consists of detailed feedback from Rally customers. Below we highlight notable
feedback, which we believe depicts customer perceptions of Rally:

Rally has bread and butter type of stuff we couldnt live without Those types of
things are probably core to any of these systems, but with Rally, it does it exceedingly
well.

We feel like the service level [of Rally] has been extremely good.

It would be very difficult [to switch off of Rally]. The primary data thats in that
system that makes it difficult for us to even think about is all of our QA. All of our test
pieces are in there. All the test executions are in the system, and just a lot of history, if
we need to go back and research something, its still there. Also, theres not a real
compelling reason to do it [switch systems].

A customer started with the Unlimited Edition because they wanted one source of
truth for our data.

One customer likes Agile because its a process that development teams actually get
excited about.

The morale boost [because of Agile development] is pretty amazing once they
[developers] start working together as a team.

Everyone saw the benefits of moving to Agile, and what a tool like Rally could bring
with that day-to-day insight and visibility into whats going on with your projects.

Rally is always available. Thats one of the reasons why I keep them on the list. When
youre using it daily and the teams are using the product daily to manage their projects
and their tasks are less than a day long, so theyve got to be in there [the Rally
application] everyday, you cant have a product that goes down.

My Rally clients internally will line up to shoot me if I pull Rally out.

We did evaluate a different number of different tools and ultimately we found
Rally to be the best choice for a number of reasons in terms of both functionality,
relationship with the company and the price point.

Theres no way we could be as successful as we are on this project with some of the
previous tools that we had used.

Our investment in Rally right now, in terms of getting all of our data, all of our
backlog into the Rally environment, it would be prohibitive and probably represent a
fairly major setback for our team if we had to somehow move to some other tool.

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April 2014

You can make hand made cars by yourself all day using Jira if you wanted to, but if
you actually wanted to run an assembly line like Ford, you couldnt do that with Jira.

There was a measureable decrease in cycle time as well as the actual delivery time.

The number of defects went down as well. So the quality went up or the number of
defects went down. I dont have the number but it was pretty noticeable, enough that
executives were able even notice a difference.

If we raise an issue or a bug we always get an answer or solution within 24 hours.

The tool in and of itself actually helps you in the iteration process.

What we typically find with some of the vendors is that they take your existing tool
set and they try to convince you that it can do Agile/Scrum. And although it can, its
almost like trying to put a square peg in a round hole sometimes. The Rally tool
started with this as their core vision and was built based on that. And that was one of
the things that led us to Rally four years ago when we started buying just a couple of
seats to the point where it is today.

I can tell you, beyond a shadow of a doubt, our relationshipwith Rally is a very
strong and a very positive one.

I can assure you that there is nothing on my radar screen right now that would suggest
to me that I will back down in using Rally at this point.

Agile, in general, will continue to be more and more utilized. For example, my own
portfolio, which we do software development onwe are putting everything towards
AgileAnd in some cases I am using RTC and I am using Rally.

If you really look at the benefits of it [Agile], there is a couple of key things In
theory, you are going to get closer to the mark than a traditional waterfall approach
because if you really do it well, there is a lot more participation really from your end
customer and client in that process, certainly from an IT perspective that helps us.
From a product perspective, it gets you a lot closer to the product
management/engineering conversations fasterfrom a pure sort of performance
perspective, it really gives you a good way to measure your throughput and to know if
you are really getting most out of your development teams.

I think Rally, in terms of, sort of its products, its delivery and its been going in the
right direction and we like that and like the conversations we have with them and all
their support.

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Exhibit 6
CUSTOMER 1 : A TECHNOLOGY COMPANY

Background and
use of Rally
This company started in 2000 as an accounts payable system for commercial real estate. Its still their flagship product. In
2006, the process they were using to develop that product was shifted from a waterfall process to an Agile approach.
When they made this shift they were looking for tools that would help them manage that process.
They tried a few tools that were free at the time, or were community supported, but none of them had the functionality that
they needed. They also compared the tools against one of Rallys competitors, VersionOne.
They just really liked the product, and essentially started using it for their development processes in 2006 or 2007.
They havent switched or considered switching off of Rally, except at one point when they considered moving to an in-house
solution. But the fact that Rally is there working all the time and being updated without us having to be concerned about it is
too compelling a reason to consider pulling it in house.
So weve been, I would say, a pretty happy customer since 2006.

Services
Also uses Rally for consulting. Theyve sent employees to some of Rallys Agile training programs, and theyve had a coach
come on site to train a large group of team members. Theyve recently sent a handful of managers to Rally training.
They expect to consume more of Rallys services this year than ever.
They look to Rally to figure out best practices for their processes as well. Rally provided a lot of content on not only how to
use their product, but how to be a better Agile development group.
If somebody asked me where to get coaching for consulting on processes, I would definitely refer them to Rally.
Used a lot of coaching in the beginning, and has used coaching services twice recently due to increased complexity in their
organization. As they grow and transform they want to make sure theyre doing a tune up on their processes.
Not likely to use services every year, though.

Do you still use
any waterfall
development
methodology?
No, theyre 100% Agile now. Currently has about 30 users on Enterprise Edition. He only runs R&D, but the services team
runs Rally to manage some of their projects, which would consist of additional seats.
They have their own internal optimizations, but try and do everything by the book.
Product management group has been trying to figure out a product strategic long-term requirements gathering, something
that would facilitate communication with customers that would tie into Rally. However theyve struggled to find anything
that is as good as Rally, so this gets managed outside of any system.

Other Platforms
The primary sticking point was at the time VersionOne did not have a cloud-based offering.
They also considered an in-house Microsoft product because the expense of Rally was starting to climb. They were going
from five or six users to 30.
When they looked at the internal product, what it would take to get it up and running, and then manage it, they did a rough
cost analysis and realized they would eventually have to hire someone to manage it. So, the expense was justifiable with Rally.
They had to go through their own internal process to know if they were going to get what they were paying for.

Depth and
functionality of
platform
Rally has bread and butter type of stuff we couldnt live without. They can plan releases, move around cards or items that
they want to use for a release from one iteration to the next to get an idea of what a release plan looks like. Those types of
things are probably core to any of these systems, but with Rally, it does it exceedingly well.
Some of the features that were layered in at the enterprise level they use on a daily basis are the APIs. The QA team coul d not
do their jobs without the QA features in Rally. They keep all their test cases in Rally. They have a lot of automated tests of
their platform and the QA teams uses the APIs to actually insert data into Rally so they can keep track of all their code test
runs.
They also tie some of the information from Rally, via the APIs, into a Google Docs spreadsheet so that management can run
reports without having to have a Rally login.

Increasing
number of
users on Rally
There havent been any issues in growing the number of users on Rally.
One thing which has been pleasant is visibility into any issues they log with Rally. If they log something with Rally they get a
notification when it gets fixed.
We feel like the service level [of Rally] has been extremely good.

Reporting an d
Analytics
Theres a lot of customization that can be done on the reporting. His only complaint is that a less sophisticated user wont be
able to figure out how to get exactly what they want out of Rally in terms of reports. It does take some time to sit down and
figure out how to put some of the reports together, but theyre very powerful once theyre set up.

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CUSTOMER 1 : A TECHNOLOGY COMPANY, CONTI NUED

Contract terms
On a six-month renewal contract, and pays six months in advance.
They pay about $35 per user per month.
They pay a little bit more for their QA people.
Theyll probably add seven to 12 engineers in the near-term, and theyll each use Rally.
At some point theyll look for a tiered pricing adjustment.

Difficulty of
switching off of
Rally
It would be very difficult. The primary data thats in that system that makes it difficult for us to even think about is all of our
QA. All of our test pieces are in there. All the test executions are in the system, and just a lot of history, if we need to go back
and research something, its still there.
Also, theres not a real compelling reason to do it [switch systems].
It would be difficult to sanction a project to convert it when there are no real problems with the service or the product.

Where could
Rally improve?
What they would like to see is a way for the product managers to build their strategy out to interact more with the customers.
Their customers have great market feedback, and if Rally could help them figure out how to capture that feedback, and then
start to produce features in Rally and break that into work items, and see all that tied together, they would have by far one of
the best offerings out there.
Theyve had a few instances where Rally released a new product version and something didnt work right, but nothing could
be classified as major. These issues are generally resolved fairly quickly.

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Exhibit 7
CUSTOMER 2: A FI NANCI AL SERVI CES COMPANY

Background
Has been in software development for about 30 years. She has run almost every area of product development as far as product
management goes: development teams, quality assurance, documentation, configuration management, etc.
Moved into a role where she pulled together business processes for companies about 12 years ago. She worked for a company
that had made several acquisitions and they needed to have an aligned process across the board.
She now only focuses on business processes for software development companies. Has also worked with some hardware
companies.
Wherever she is working, she goes into companies to organize an overall business process for how they create their product
and then rolls out Agile methods underneath those processes.

When did you
first begin using
Rally?
First got involved with Rally 10 years ago at a prior company that required better processes to show what they were doing
internally.
During that time they needed to know what was going on and have better control over the scope of releases and how much
they were getting done in order to keep their customer base.
They had two teams: one that looked at the best way to get trained putting in Agile methods, and another team that looked at
the best tool to use to track that data. Both teams ended up coming up with Rally.
They did security testing even before they began a proof of concept. An in-house security team runs security scanning on all
existing products, and that team did a review of Rally.
At all of the companies shes worked for, shes come up with requirements based on users, and what they would want in a
software tool. At each of her four companies Rally was the tool they chose.
At her current employer she tested Rally against traditional Agile competitors (VersionOne and Planview), and larger
companies like HP and Microsoft.
They signed a three year contract with Rally to have everyone in the product development team use the tool. Now theyre also
rolling it out to their professional services organization.
The tool is all SaaS-based, which is what they were specifically looking for.

What did you
start with?
Started with the Unlimited Edition because they wanted one source of truth for our data. They wanted traceability, quality
modules and test cases all in one place.
They found that internally they could use some of Rallys other tools, like Idea Manager, to manage inputs from application
teams a lot more easily.

Pricing
Pricing is always a consideration.
Atlassian didnt scale to the size that we needed. With them not being a SaaS model we would have had to set up our own
internal servers. The servers, they said, with the number of people we wanted to put on the tool, we would have had to have
replicated servers around the world, servers talking to each other. They couldnt have the performance that we needed or
wanted. They couldnt guarantee the type of support. There were different reasons why we excluded both Jira and
VersionOne that became more important than money. In todays day and age thats saying something.
They started with 750 seats, and at the end of their three-year contract they expect to have 900 seats. This may need to be
expanded, however, based on how many people from the professional services organization move onto the tool.

Customer
Service
Sales has been great.
Rally also brought in a technical account manager. He is excellent at helping how to get the tools set up to meet the needs of
the current company.
You have to take the process and make it work for the personality of the company and the data that the executives want to
run the business, but you need to have the tools working to get that data out. So [our rep] was very good from a services
perspective.
She likes that Rally provides one person to go to for her needs.

What did you
use before
Rally?
This is part of a move to more Agile methods. Theyre doing somewhat of a hybrid method by creating a process that includes
some upfront design.
They used to use HP Quality Center, but it was used inconsistently throughout the organization.
They really wanted a single tool with all of their data in it. They gathered requirements and ended up with a cross-functional
team that represented all areas of the organization. They ended up with over 400 requirements.
They pulled in the requirements to do RFPs, RFIs and several demos and ended up choosing Rally.

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CUSTOMER 2: A FI NANCI AL SERVI CES COMPANY, CONTI NUED

Implementation
/ Deployment
She likes Agile because its a process that development teams actually get excited about.
Once a developer starts reading about it they realize it was created by development teams for development teams.
Agile is very different in that it changes how a developer does his job on a day-to-day basis. The morale boost [because of
Agile development] is pretty amazing once they [developers] start working together as a team.
She hasnt yet rolled out Rally to every single team. One of their largest teams was a proof of concept team. They typically roll
out teams one at a time and get them the training that they need to make sure the team is functional on Rally before
implementing Rally with another team. Theyve set up internal groups that can help teams that are new to Rally.

Upper
management
support of Rally
Part of the process was getting the executive team educated on what Agile is, what did it mean to them, and how did they
need to change their expectations.
At the time they purchased Rally the CTO had experience being an executive at a company that had previously used Rally, so
she supported Rally. Some VPs right under the CTO did not have experience with Agile and Rally, so were more tentative
about embracing Rally.
Everyone saw the benefits of moving to Agile, and what a tool like Rally could bring with that day-to-day insight and
visibility into whats going on with your projects.

ROI
The team thats been on Rally the longest, their first proof of concept team, is able to show, iteration over iteration, an
advance in the amount of work theyre getting done. Their velocity is improving.
They have yet to hit a maximum velocity of work for this team, so she knows were getting more productivity there.
Some metrics are showing improvements, such as their definition of done and being able to track defects. Theyve taught
managers how to see if defects are coming in from certain areas and how to fix the coding.
Working with management on how to see errors and how to correct such errors.

Areas for
improvement
I like that theyre continuing to get into portfolio management.
I would like to see reporting at the subscription level rather than at the workspace level so that you can have people in
separate workspaces and have teams in separate work spaces and have different types of projects in different workspaces but
get overall portfolio management done at the subscription level if you need that.
Rally is always available. Thats one of the reasons why I keep them on the list. When youre using it daily and the teams are
using the product daily to manage their projects and their tasks are less than a day long, so theyve got to be in there [the Rally
application] everyday, you cant have a product that goes down.

Expanded use
of Rally
She was surprised at how quickly they got their professional services group onto Rally so quickly. It seems that the
professional services organization was able to see the value of Rally just as quickly as the product development teams did.
They could expand among the professional services organization which would cause them to buy more Rally licenses.

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Exhibit 8
CUSTOMER 3 : A TECHNOLOGY COMPANY

Background
R&D manager at a large technology company.
This company is working on a large software project that involves well over 100 people, and chose to use a Scrum Agile
development model. A key necessity was getting the right sort of tool for the project.
When they first began working on the project, while they were forming the approach and building the teams, there was a wide
range of tools that they used. There were free tools, spreadsheets and whiteboards.
This didnt work very well for a couple of reasons: One, not having a consistent tool across the program was just a killer
because theres so many interdependencies in the scale of the project we have that we had to make sure that every single
person across the entire program had visibility into what was going on, whether it was in their own team or something
remotely being done in India.
The second was that any of the tools that we were using didnt have the capability that we were really looking for. We did
evaluate a different number of different tools and ultimately we found Rally to be the best choice for a number of reasons in
terms of both functionality, relationship with the company and the price point.
Rally allows them to see whats going on at any point in time. They can track progress, how close they are to completing a
particular release, etc.
This project is for developing software for external sales to customers. Customers buying this software would be large
enterprises to manage their data centers.
There are multiple groups within this organization that use Rally. This group started in April of 2011.

Scale
The big challenge is being able to scale. Independent of what tool youre using we found that Scrum is just a beautiful
methodology for working within a small team. Its just a great approach. When you start scaling then it becomes a problem in
many, many dimensions.
Theres no way we could be as successful as we are on this project with some of the previous tools that we had used.
Rally scales very well and works across multiple geographies and they use the tool 24 hours a day across all of their teams.
There are other groups within their company also using Rally for multiple large projects.

Most appealing
functionality
One thing they saw that was very valuable was the fact that it was a hosted solution.
The fact that Rally was designed with scalability in mind was another attractive aspect of Rally.
This organization gave Rally a list of requirements and Rally was able to demonstrate competency in each of the requested
areas.
You can also do things like add customized reports and extract information to create different views.

Other vendors
The Scrum methodology is gaining momentum. Theres a significant increase in volume of traffic among user groups and
message boards regarding Scrum vendors.

Agile growth
His group was a first adopter of Rally at his company. Since that time his companys IT department has picked up an entire
environment for Rally and has made it available to other teams. Both smaller teams and teams just as large use Rally.

Contract
They have a monthly user cost, and is billed annually in advance.
They have a front-end to the contract itself, so internally they just go to the IT department and request additional licenses as
needed. They only need to manage how the IT department cross charges back into their department.

Reliability
I have yet to try to log in where I couldnt.
Rally is good about notifying users of planned downtime or upgrades, which usually take place during off-peak hours.

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Ease of use
Hes a daily user and, his organization was able to get a couple of hundred people up and running on it in a matter of two
days of training. This consisted of three different classes over two days. Each person probably got a couple of hours of
training. Rally did a small amount of initial training. Rally also provided some Scrum master training.
Developers are using Rally day to day. Product owners, which are really the voice of the customer, add new features and
functionality to be implemented on a daily basis. His day-to-day operations as Scrum master means he keeps track of
everything in the backlog, making sure things are getting completed at appropriate rates, making sure red flags are dealt with,
etc. Rally provides collaboration in multiple areas.
The company executives use Rally. The custom reports tell them how fast theyre moving towards a particular release and
how likely they are to meet milestones.

ROI
Theyre not yet in a position to measure ROI, but I know that if we hadnt done it, wed be nowhere near where we are right
now. Just the way it automates facilitating communication between the teams. Theres no question where you go for the
definitive answer about whos doing what when we all know we go to the same place.
End user developer processes are made very easy on Rally. It does not make it difficult for them to keep track of their
activities.

Custom apps
Not using too many of Rallys prebuilt apps.
They created a custom report generator that gathers the velocity data and makes projections on how long projects will take to
complete.

Future with
Rally
They plan to continue using Rally, but if their company decided as a whole to change tools, he doesnt really have a choice but
to do what his company says. However, they have never seen this happen with development tools like Rally.
Otherwise they absolutely expect to use Rally for the foreseeable future.
Our investment in Rally right now, in terms of getting all of our data, all of our backlog into the Rally environment, it would
be prohibitive and probably represent a fairly major setback for our team if we had to somehow move to some other tool.

Room for
improvement
Theyve put in a few support and feature requests, and within an hour they get an email response.
So far, no complaints at all.

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Exhibit 9
CUSTOMER 4: A CONSUMER ELECTRONI CS COMPANY

Background
Has been with his current company for 18 months and he was responsible for introducing Rally. At his previous employer he
used VersionOne, a Rally competitor. When he came to his new employer he was very familiar with what VersionOne could
and couldnt do, but it gave him a chance to take another look at Rally, which was eventually implemented in one of three
company software business units. His unit currently has 80 hosted Unlimited Edition licenses, and his unit has about 250
people.

Why did you
choose Rally?
About 3.5 years ago, at his previous employer, he looked at Rally and VersionOne, but went with VersionOne based on more
features. He used it for about two years, and then wanted to look at something else at his new employer.
During that two year period in which he used VersionOne, In my opinion Rally had done enough things that they passed
VersionOne in functionality.
There were a couple of things that I found much better [about Rally]: I thought it was more intuitive. It was easier to
understand and explain to somebody about how to use it. I also thought that the basic dashboards and screens were more
intuitive. And then the other thing was that I thought it was much, much better at actual management reporting. Maybe
VersionOne has been updated since then, but VersionOne wasnt really capable of generating an actual report. It would only
export things into Excel.

Use of Rally
Before Rally they used wiki pages, Excel spreadsheets, Jira, email, etc. It was just a mess. Product management couldnt tell
what was happening to their stories. They never got status updates. Product owners never wrote test cases. Rally is one view
of the information.
They use Rally for planning because of its top down hierarchical view, and then the Scrum team synchronizes the story to
Jira, only because its easier to not have people switch out of Jira, so the development team stays in Jira. Theres integration
from Rally into Jira, and from Jira to Rally. They then are able to push the stories and test cases into quality control. The
tests that are run in quality control can be rolled back into Rally.
He uses some of Rallys portfolio management capabilities. Its one of the reasons I give to people why were using
something other than just Jira.
Its not possible to stop using Rally in his organization.

Other use of
Rally within the
company
In the last couple of months one of the other business units has started a Rally trial with 20 licenses, and has about 250 total
people. He expects them to eventually adopt Rally.
The third unit is considering Rally, but hasnt adopted plans for a trial yet. Not sure if this group will adopt it because it has
some constraints that sometimes require them to work in a waterfall way.
The desire in the organization is to use some sort of Agile development, but theres not a consistent set of best practices.

Other software
The whole company uses Jira as a default tracking system. Jira is great for a small Scrum team that doesnt need to work with
any other Scrum teams. But its absolutely not useable for an environment where Scrum teams feed into a bigger product.
You can make hand-made cars by yourself all day using Jira if you wanted to, but if you actually wanted to run an assembly
line like Ford, you couldnt do that with Jira.
They also use Jira/Greenhopper and MKS for Agile development.
HP Quality Center is used for testing.

ROI
There was a measureable decrease in cycle time as well as the actual delivery time.
His department used to name the feature releases for the month in which they were intended to be release, but he stopped that
because it was embarrassing doing the April release in July.
After they started using Rally, they were still months off on their projects, but by the end of the year the last release was on
time.
The number of defects went down as well. So the quality went up or the number of defects went down. I dont have the
number but it was pretty noticeable, enough that executives were able even notice a difference.

Areas of
weakness
If he has a high level feature and wants to show someone how it goes down several levels, he cant do that without showing
different areas that have a limited view.
The integrations are okay with Jira but we still have problems with them. They [Rally] tell us what were doing is not best
practice.

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CUSTOMER 4: A CONSUMER ELECTRONI CS COMPANY, CONTI NUED

Customer
service
If we raise an issue or a bug we always get an answer or solution within 24 hours.
He speaks with the account manager quite often

Custom apps
Hasnt developed any custom apps, but he uses some prebuilt ones. He likes that hes able to customize those applications.

Usage patterns
Most of the product managers and product owners are living in the application. Some of his project managers are using it at
least hourly or daily. The testers are probably also living in the application. Theyre logged in eight hours a day.
Other project managers with very small teams and are able to do what they want in Jira may only look in Rally once every
couple of days; they can do their simple Scrum in Jira.
Developers might need to look and see how the stories they have in a sprint fit the bigger picture, but this only happens every
week or two.

Value of the
product
The actual user profile is not part of the pricing. He has licenses of the Unlimited version, but it doesnt matter if I give it
[license] to a developer or to a product manager, they still pay the same price.
For everybody other than developers I think the pricing is great. Theres a lot of value they can get from it. The part that
makes me continue to have to use Jira is that to pay to convert the developers out of Jira and start using Rally would cost me
a lot more money. And right now theres not much extra value for developers because they have tasks and stories, and most of
them can do what they need to do with Jira and theyre not really willing to switch. If there was a pricing war just for
developers, I would love to get them all out of Jira.
If there were a price for a developer that was cheaper, he could get his developers out of Jira.

What adds the
most value
Jira/Greenhopper doesnt add really any value, to be honest. The Scrum team could use a white board with sticky notes and
get the same job done.
The thing thats adding the most value right now is what Rally is calling the high assurance reporting.

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Exhibit 10
CUSTOMER 5 : A LARGE WI RELESS CARRI ER

Role and
responsibilities
Been with the company for 30 years, of which 22 years have been IT focused.
Relationship
with Rally
Got serious about Agile methodologies about four years ago with an initial and predominant focus around mobile application
development.
Currently, he is the leader and overall sponsor of rolling out Agile across the IT fabric of his company. We are now at the
initial stages of expanding the Agile framework into the broader fabric across many of our client organizations.
In the last four years, he was introduced to Rally and has been playing with the Rally folks and quite frankly, not only the use
of their tool but also with a lot of the background that they have with this technology.

What prompted
you to look into
Agile and what
were you using
before?
Started looking into Agile about the time when Apple came out with the iPhone and the SDK [software development kit] set.
What we began to learn quicklywas that its very opportunistic in this type of world [mobile app space] to do a lot more
collaboration and iteration.
Thinks that such a characteristic about development in the mobile app space was mainly because of the infancy in the
underlying technology and in the manner in which these applications are integrated and distributed across customer segments.
Based on the sheer velocity of the development cycle for mobile apps, it was pretty clear to see that going after this type of
development initially in a waterfall approach would not even allow you the opportunity to get the application developed and
deployed before its already been outdated.
His team spent some time looking at the various Agile methodologies such as extreme programming, lean, or Scrum based.
Elected to go the Scrum based route.
Mentions that it was a very informal and innovative opportunity in building some smaller applications. Traditionally,
we are bound within IT to follow some pretty standard processes around software development because of our interest in
wanting to assure the quality of our deliverables. So, had to work in a renegade approach to break down some of the
barriers. Mentions that the internal clients who were interested in expansion of the capabilities into the mobile space, such as
marketing and network clients, were focused on quicker to market and collaborating and being product owners of this.
So, initially practiced Agile in the mobile space and then expanded into the services segment.

Thoughts about
Rally
The tool in and of itself actually helps you in the iteration process.
Its really a good tool that helps facilitate Agile/Scrum as opposed to people just having to learn it from scratch..it helps you
track; it helps you determine whether you are actually delivering in the level and the cadence you are looking for; is the velocity
of your iterations improving to a level that you want; it is pretty much an end-to-end tool.
Has been using it for some of their smaller to medium sized projects.
As we build that momentum, we are commissioned by our CIO to take it and turn it into more of an eventual standard for
IT within the company. Began that effort late last year or early December.
They have developed their own internal training program a three-day program. The last count is, we have already trained
1,400 people, with a goal, it looks like by early next year, of about 2,500 people in the methodology itself.
And of course, we continue to use and purchase Rally licenses as appropriate as people begin to spin up projects and use Agile
as their methodology for these projects.
My expectation here is that this momentum at least for our company and IT will continue. It will become a mainstay for what
we are doing. With any luck, we will expand this across broader parts of [the company], but again, [while] maintaining the
waterfall approach that we have today, but also augmenting or complementing that with what we are doing with Agile
Scrum.
Referring to the support from his CIO in practicing Agile, in his [CIOs] interest of wanting to help show support and get this
movement heading in the right direction, he has allowed me to fund projects that IT is interested in doing in partnership with
the client community to help the teams practice Agile. The commitment from our CIO is quite impressive.
Already working with three client organizations to be trained on Agile. This is building enough momentum that its going to
require some pretty solid tooling in the future for us to be able to not only develop the software but to be able to manage it in
an Agile manner. Thats where tools like Rally come to play for us.

Which version
of Rally are you
using and is it
all SaaS based
subscription
model?
Mentions that all the licenses he has are for the software that is run in their cloud infrastructure environment.
Doesnt recall the total number of seats purchased at this point in time but estimates it as 1,000-1,500 seats.
Mentions that his expectation is that as his organization approaches close to 3,000 seats, he will pursue an Enterprise License
Agreement [ELA].
At this point in time, thinks that Rally is going to be the tool for which he will pursue an Enterprise license. However, adds
two years from now that could be different. Dont know. Because these tools do change.


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CUSTOMER 5 : A LARGE WI RELESS CARRI ER, CONTI NUED

RFP Process
During the RFP process, looked at some tools from IBM, some open source tooling. Thinks that he had about five companies
as part of the final bake-off.

Criteria for
Selecting Rally
Flexibility in the tool
The ease of use in the tool, the UI factoring
The ability for us to be able to do some level of integration with some of our back end systems
The metrics and the reporting out of the tool were very good.
The support that Rally was providing behind the tool was very good.
Their ability to take some of our suggestions and incorporate them into the tool set were very good.
One of the key things for me, that I made very clear to my assessment team that I was working with, is that they cannot select
the product that wasnt originally designed with Agile/Scrum in mind. What we typically find with some of the vendors is
that they take your existing tool set and they try to convince you that it can do Agile/Scrum. And although it can, its almost
like trying to put a square peg in a round hole sometimes. The Rally tool started with this as their core vision and was built
based on that. And that was one of the things that led us to Rally four years ago when we started buying just a couple of seats
to the point where it is today.
Mentions that for his firm, he has a lot of tools in-house including some homegrown tools and some tools based on the
waterfall model. So, the question will be how Rally would integrate with these tools to be able to do a hybrid project, at least
during the time of transition as the software development efforts across the organization as a whole moves towards
Agile/Scrum.
I will anticipate, Rally will be here for quite some time

Has Rally
offered any
training
program,
consulting
services or
coaching
services?
We have used their consulting services for Agile coach training, although in a very limited basis relative to the three-day
training program referenced previously. The training was not just about Agile but its about how Agile fits into the fabric of
the embedded infrastructure that we have today.
We have allowed two or three Rally folks to sit in virtually every one of our training sessions so far this year. And they
provide feedback, they consult with us afterwards to improve the program, they will actually stand up and help answer
questions that people may have. They are active members of our team. However, Rally was not used for formal training of
the employees.
Mentions that there are talks underway to make Rally part of a broader opportunity across the various subsidiaries of his
company.

Areas of pain
that need
improvements
Based on his conversations with the team responsible for Rallys ongoing operational evaluation, they continue to be very
pleased with the support that we get from that company.
Very rarely, as a matter of fact I am trying to think the last we had an issue with them that had to be escalated to me and quite
frankly I cant even remember a time this year when thats been the case.
I can tell you, beyond a shadow of a doubt, our relationshipwith Rally is a very strong and a very positive one.

Would you
continue to
renew with
Rally?
I can tell you that I am not going to be taking any steps backward when it comes to our partnership with Rally.
The only thing I can see at this point is subsequent further opportunities to grow the relationship, in not only the use of the
tool but also the use of their resources.
I can assure you that there is nothing on my radar screen right now that would suggest to me that I will back down in using
Rally at this point.

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Exhibit 11
CUSTOMER 6: A LARGE NETWORK EQUI PMENT MANUFACTURER

Role and
responsibilities
Senior Director of Engineering & IT, i.e. IT function that supports all sorts of product engineering groups.
Relationship
with Rally
Rally is a core part of how software development gets done in a number of our product families.
Mentions that the relationship with Rally started three to four years ago when a couple of the product families within the
company were moving to more Agile software development frameworks and selected Rally as a SaaS solution.
As the various product groups engaged themselves and as the other groups saw the benefits of Agile, the Rally user base
continued to grow. Mentions that the growth continued organically until about two years ago, at which time they had about
5,000 users on the Rally platform, which is around 20% of all of the R&D professionals within the company, when the
company decided to manage it more enterprise wide.
Currently using the full Enterprise suite.

Other solutions
used
There is waterfall within the company as well, but we also use other Agile solutions.
Refers to Rational Team Concert [RTC]. That one has certain capabilities around source control and source protection that
Rally doesnt have within their suite.
If you took concentric circles and kind of overlaid them, there are some similarities and there are some differences where they
are entirely different. Thats sort of an ongoing battle, I guess, in the marketplace as to how those conversations play out.
Mentions that they also have a little bit of MKS which is part of RTCs portfolio, which also has some Agile capabilities. But
we are not using MKS for Agile and using it as more of a traditional application framework.
There is no integration between Rational and Rally. Its effective to have both of them in the enterprise because we can
actually move the ball a little faster and a little further with both them through those partnerships.
In some areas, uses Rational for waterfall development.
It's kind of product family specificand I think you can find this in most product companiesif the products been around
for maybe a couple of years, generally the people in the engineering function are more Agile centric versus if the product
lineage is a lot longer, they tend to be more waterfall centricthese lineages and methodologies have gradually progressed over
time.

Agile Adoption
within the
organization

Agile, in general, will continue to be more and more utilized. For example, my own portfolio, which we do software
development onwe are putting everything towards AgileAnd in some cases I am using RTC and I am using Rally.
But it's very product family centricalso geo centric as well.
Software practices across the world vary based on just really what people are taught in their university. There is not yet, sort
of a consistent, norm across say, a Bangalore team, to a China team, to an Eastern European team, to a North American team.
Their practices are all different.
We tend to try and create sort of baselines and then gradually bring everybodys competencies around the methodology to the
same place.
If you really look at the benefits of it [Agile], there are a couple of key things In theory, you are going to get closer to the
mark than a traditional waterfall approach because if you really do it well, there is a lot more participation really from your
end customer and client in that process, certainly from an IT perspective that helps us. From a product perspective, it gets you
a lot closer to the product management/engineering conversations fasterfrom a pure sort of performance perspective, it
really gives you a good way to measure your throughput and to know if you are really getting most out of your development
teams.

ROI Analysis
Hasnt done any ROI analysis in the context of Rally.

Who else did
you consider
and why did
you choose
Rally?
There was never really an enterprise evaluation done. It was an organic growth path.
When we sat down and did sort of a cursory look across the market place that organic growth that had occurred was pointing
to ok we are still kind of in the right direction. Mentions that he also does a lot of benchmarking with peers and thinks that
the firm is in a sweet spot with Rally and RTC as the tools they are using.
I think the thing thats going to hinder maybe Agile software development, is going to be the cost of change to really do it
wellcould be too high initially and so that may slow some of the changes. Its got a lot of hype right now. But the benefits are
definitely there and making the change is important for any business to get better throughput quality.

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CUSTOMER 6: A LARGE NETWORK EQUI PMENT MANUFACTURER, CONTI NUED

Extent of usage
of Rallys
platform
If you look at why it [Rally] grew organically, because its simple to project manage the requirements through to the
execution through to the test and the output. Those are some of the core bits of functionalities that are definitely, consistently
practiced everywhere.
If I look at all my numbers in terms of adoption, Rally is growing faster as compared to any other solutions being used
within the organization.
As we start to do the integrations with the rest of the major systems inside of engineering, that is where we will start to, I
think, affect the adoption patterns we see across some of the other suites. For example, if you are working on embedded
systems or operating system types of platforms, build integration and automatic regression type forms that go along that type
of software development, it may be better to go down the RTC route because of its tie-in into [other systems]it's all
embedded inside of itversus in the Rally case, you are going to have to create some integrations and maintain those
integrations
Their [Rally and RTC] adoption will probably level out and be similar but it will be more product centric based on the
integrations we do.
Mass abandonment of Rally by a team - the only time I have seen those changes occur is when there is a dramatic product line
shift inside of our own company, where they say ok, that product is going to be EOLed (end-of-lifed) or end of sale and that
development team is no longer working on that stuff. I have really seen that once and that was last year when we did our
change in our own product portfolio within the company. The restructuring that occurred as a result of that we dropped for a
period of time but then as people landed in a new product family, they came right back up to it. So, it had a momentary, about
six-month, dip but it picked backed up again. Mentions that such blips could happen within a software development
organization.

Pros and cons of
Rallys offering
Positivereally easily to get on board.
Rally has been very responsive to us as a company. We had to sort of rattle their cage a little bit in the last nine months just
around their feature throughput to us and started using Rally to manage his relationship with Rally, feedback, performance
etc. That worked out quite well. So pretty positive on that front.
On the other sidewe recently just had an outage. They had to switch from one data center to another data centerAs an IT
guy I always go I am glad you had some level of resiliency but honestly we should never have an outage, period. Mentions
that Rally is looking at it very seriously to make sure that doesnt happen again.

Future spending
with Rally
I think I see stabilization probably in the next year to two years. We will kind of hit a ceiling. We are probably one of their
largest customerswe will probably hit that ceiling because ofsome of our own divergence and how the methodologies,
waterfall vs. Agile play out.
Also, my ambition is to continue to put RTC into the mix to keep everybody at the table really working hard for each others
business and RTC gives me some of that leverage.
My Rally clients internally will line up to shoot me if I pull Rally out.
Over time, the simpler you can make it for the engineer and the more integrations you can do with the two to just make their
life easier, that plays out over any particular brand. Right now, Rally is kind of in the lead spot. I think they will, sort of, stay
there if they keep that principle of easy and fast in their portfolio. If they start to get a little too dispersed, trying to cover too
many things across the entire sort of product lifecycle, they may lose what made them successful to begin with. Simple, fast,
easy access, get it done thats what engineers want.
Thinks that Rally goes beyond software development. I believe we even have some segment of our company thats using it
in a business development conversation as well. So, Agile itself could become a process, a change process, completely beyond
software development.
I am certainly going to push it because I think its a great way to really get teams to just put it on the table and prioritize and
then track their execution.

How hard it
would be to
switch from
Rallys platform
to another
offering?
Technically, its not that difficult. It is just the question of if the cost of that change is really in the benefit of the company. I
have got to change people, in terms of use of the system; I have got to move the information across and I have got to retrain
them
Thinks that at this point his option would be IBM Rational only if he would switch off of Rally. If I went to a third solution, I
am pretty much dispersing my portfolio too much.

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CUSTOMER 6: A LARGE NETWORK EQUI PMENT MANUFACTURER, CONTI NUED

Overall level of
satisfaction
I think Rally, in terms of, sort of its products, its delivery and its been going in the right direction and we like that and like
the conversations we have with them and all their support.
If you look at a company like Salesforce, they are a couple of years ahead in terms of their business cycle around what they
want to be and how are they going to make money off of that. Rally has been successful, hugely to this place and they are
making some of the strategic bets, for example, going upstream into the whole portfolio management spacebut it still
sometimes feels like guys, you are still not thinking long term enough with usI think we had to spend some time educating
them around what a long term thing feels like, smells likeI think they got it.
They are going through some growing pains a little bit and they are trying to figure out how to be more strategic and we are
trying to help them head in that direction. Its certainly a new ideology for them with respect to how to be a better partner with
key suppliers based on interactions with them, during our negotiations right now on the renewaland we have done a lot of
these over the years and I can definitely tell that conceptually they are struggling in certain areas.
I think they are going to get there. They keep growing and the key thing to be successful in this space is how they get
everybody on the same page. They are growing pretty well, they are adding people but how do you keep that same sort of
philosophy and culture and level of maturity in the conversations is to me the thing that they got to keep focusing on.
Net of it a healthy Rally is good for us. So we are definitely interested in keep going on that path with themwe like them.

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Exhibit 12
CUSTOMER 7 : A LEADI NG BUSI NESS NEWS AND I NFORMATI ON ORGANI ZATI ON

Role and
responsibilities
Director of program portfolio management. Responsible for the delivery of all technology based programs and projects.

Relationship
with Rally
Mentions that in 2008, started a large program or work to rebuild, replatform, redesign the consumer facing website.
We were quite heavily down an Agile route but we were running lots of things off spreadsheets. So, wanted to implement a
tool to manage the process.
We went through a selection process back then, and we chose Rally.
Since then, we have continued to use it and grow its usage to a point where this year he signed up for the entire Rally tool
including the portfolio management and the defect tracking capabilities.

RFP Process-
Why did you
choose Rally?
He was not involved in the process but thinks the firm looked at Mingle from ThoughtWorks and Jira from Atlassian.
I think at the time Rally had was the best fit for our requirements. Mentions that Jiras capabilities were not as vast as the
firm needed it to be.
Mentions that he accesses Rally via the cloud and pays an amount per month per seat.
[We] have just started using the Unlimited edition...within the last month or so.

Do you use
other tools to
manage your
software
development
process?
Mentions that the firm uses tools to manage software development but nothing to manage the tracking of software
development. Refers to source control systems, development tools. Majority of our actual tracking of our development
processis done in Rally. Mentions that there are a few exceptions related to third party vendors he works with, who use
their own tools to track software development.
Never ended up using Jira, although uses some aspects of Atlassians software.

Number of
Rally users
currently. How
has that
changed over
time?
Mentions that he has got around 350 seats currently. And thats gradually grown as our development [teams] has grown over
the years. Doesnt remember the initial level of seats at which the relationship started.
Mentions that Rally is used more widely across the company and so its not just development staff that has it. Its used for
project management, product management as well as used by product owners from various aspects of the business.
Its where we maintain all the backlog for our work.
Mentions that he accesses Rally via the cloud.
Thinks that the renewal is at the end of the year. The thinking at the moment - I am not looking to move away.

What
functionalities
do you use the
most and which
functionalities
dont you use?
We use it to track all our user stories in; we use it to track all the tasks within those user stories; we use it for release
planning;We are using some add-ons and tools around Kanbandifferent boards and representation of the work in progress
using that; We also use it to track the defects against the work.
What we will be using going forward is some of the things in the unlimited edition. Mentions the intent to use portfolio
management so that we can achieve roll up of what we are doing from each different program and get the holistic view of
everything thats going on.

So far, what is
your view on
Rallys portfolio
management
capabilities?
So far we are reasonably happy with it.
Mentioned that Rally set up a sandbox environment for his firm for a couple of months. So, we played with it. And signed
the deal when they were satisfied.
Slowly migrating each program to Rally and keeping tight control to have a consistent deployment across various teams.
Mentions that he has up to 50 projects going on in the firm at a given time. So, without a tool like Rally, there wasnt a
holistic view of everything that was going on.

Does Rally lack
any
functionality
that you feel is
important?
Everything we need is kind of there...nothing significant.
Mentions that there is some functionality Rally is missing in the portfolio manager view, about which he is in discussion with
Rally currently.
Mentions that Rally seemed reasonably responsive to his suggestions and he expects to see the new functionality later this
year.
Mentions that one of the frustrations he had when moving to the Unlimited edition was the fact that Unlimited didnt mean
unlimited seatswhich is very disappointinga part of the reason for taking the portfolio tool was so that it can be used
widely across the business and we could give it to more members who then can just duck in and out...whereas youve got to
pay a license for themlike $35/month/person.

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CUSTOMER 7: A LEADI NG BUSI NESS NEWS AND I NFORMATI ON ORGANI ZATI ON,
CONTI NUED

Have you used
any pre-built
Rally apps or
developed any
custom apps
using the Rally
platform?
Hasnt done any custom apps but has used some pre-built apps such as Kanban boards, etc.
As far as I know, we didnt have problems with it.

Any areas you
think Rally
could do better?
As per the product, there are just some of the problems with the portfolio manager that we would like to see corrected quite
quicklyThey do seem to be willing to let us in on the roadmap. And they want us to [give] feedback... they seem to be quite
willing and open for those discussions.
As the companyjust the rigidity in their pricing model and structureis very inflexiblevery, very inflexible You cant
have an unlimited license until you get to 1,000 users, which doesnt apply for us. 350 users isnt big enough for them to grant
you. Its a quite huge step to get to, before you get to that point. [Where you can upgrade to unlimited users].
It [the application] has been pretty robust and stable.its been very stable. Havent experience any downtime.

Level of
satisfaction
around Rallys
support and
services
I havent got any complaints. I think we get responses back very quickly when we raise problems or issues. So, actually from
that perspective, no complaints at all.

What do you
think are Rallys
key strengths
and
weaknesses?
For satisfaction level, I will say for products very satisfied.
To migrate away from this would be quite an effort. I dont know if it would be worth it for us because we have a lot invested
in it. There is no real benefit for us moving away. If somebody else comes into the market at a fraction of the price, maybe
we will consider it, but at the moment we are not looking to do that.
They understand Agile, they understand what we are doing. They seem to be willing to listen to how we are trying to do
things and how we are trying to shape things up. So, I think as an organization, they are very good.
Thinking about using some of the training provided by Rally for the portfolio manager piece.
Overall, happy with them, happy with the product. More flexibility in the licensing model [not pricing] will be beneficial.

Measuring the
success of Rally
On a qualitative measure...the adoption was relatively simpleWe have got the majority of our projects and programs
working in Rally in a reasonably consistent manner. Teams know where the information is, they know how it works. So, its
not a barrier to us doing things. Its just a part of the day to day job and the workflow. Thinks it compares reasonably
favorably to other products in the space.
Satisfaction with the product is probably reasonably goodDevelopers will just go in there, do tasks [and] not really think
too much about it which is a good thing. There is nothing standing in the way, its not taking too long for them to [operate
Rally]. Its just part of their job where they go and update the tasks, see whats going on, see their boards, see the roadmaps.
Mentions that it does bring us some benefits related to collaboration among overseas teams. The traditional approach is
having everything on a wall. That wouldnt work with overseas teams. That obviously has huge collaboration benefits.

Is there any
scenario where
a development
organization
wouldnt want
to use Rally?
Cant think of anything. Nothing really in particular where it might not be necessary for them.
[maybe] for a very small organization where everybody is in, literally one room or very small area where they dont need to
[have the] overhead of something quite this heavyweight to collaborate across teams.

How much time
a day does
somebody
spend in Rally?
It depends on the role.
Developers probably spendabout 10 minutes per day just going updating things. Most of our teams will have physical
boards as well up on the wall.
Probably, some of the Scrum masters and program managers will spend more time in there defining the storiescreating
all the tasks.
I would say, probably, per person average probably no more than half an hour a day.


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Exhibit 13
CUSTOMER 8: A GLOBAL I T I NFRASTRUCTURE COMPANY

Role and
responsibilities
In an IT/Engineering operational role. Been with the company for 15 years.

Relationship
with Rally
A couple of years back, my focus then was to run a small group with an Agile process, which was not something that we did
much of in this division.
In order to do that, he researched a bunch of tools, starting with the free ones, starting with the ones we had.
Mentions that the firm was using Excel, VersionOne and ScrumWorks. Also looked at free tools such as Jira and GreenHopper
from Atlassian. He looked at each one of them and tried them against a distributed team.
The reason I voted for Rally, and my senior director at the time agreed with me, was based on its model, its feed, its flexibility
and integrations.
Mentions that Rally is an enabler in helping teams and different groups within the division to work together help them
adopt the Agile process.
Has been using Rallys platform for about two years now.
Has users in the order of hundreds right now.

What were you
looking for in a
platform, prior
to choosing
Rally?
I was looking for something that was fast, given that everybody is distributedeverybody is in different continents, even
across the United States. So, it needed to be fast, it needed to be flexible.
I was also very interested in the traceability capabilities, i.e. I want to be able to go from requirement all the way down to a
change over to a defect to a build and all [within] the context. And that is something that the object model of the platform
gives you in a very nice way.
Mentions that he first ran into Rally at an Agile event in Boston and the sales guy showed him the tool live on a demo server.
It was much faster than even what we had in-house for VersionOne. For VersionOne, I personally hate all the pop up
windows.
So, the model was good, the speed was good. Flexibility and traceability was what I really liked.

Has Rally
completely
replaced
VersionOne?
Mentions that VersionOne was never in his domain and he is in a different division from the people who are using it.
It would have been easy for me to just jump on their VersionOne instance, but we decided to go our way. And we have been
happy with that decision ever since.
Will that [Rally replacing VersionOne completely] happenI dont knowI think its quite possible.
Its got to be tons better or tons cheaper or both in order to displace something that is already in production.

Is Rally
growing?
In my division its growing. We are definitely on a growth curve. Its a key piece of what I am working on now.

How dependent
are the users of
Rally on it?
They are dependent to the point that there will be a major disruption if they stopped using it. But they are not so dependent
that they couldnt switch to some old means of doing work and still get their work done.
It is definitely an efficiency enablerit also promotes a different way of thinking.
We are just at a point where we have moved beyond sporadic groups and we are doing something in a more organized way.

Agile adoption
within the
organization
I think in the industry in general, its growing in importance and we are no different in that regard.
Mentions that he heard somebody say that its going to be as common as object oriented programmingI actually believe
that.
It will be state of the art in software development, whether its my organization or any organization or any industry. I
personally believe itThats my working assumption.
I see the whole industry; I see the resumes that are coming in, the jobs that are out there. Agile is a big part of it in a lot of
regards.

Who are the
main users of
Rally, software
developers or
business users
as well?
Mentions that business users such as product managers and program managers are eager to look at a tool such as Rally.
Because again it goes to traceability that they have never hadSo, yes, I see a lot of business users.
Dont see anybody in functions such as sales using Rally and doesnt think that they have any use of it other than the ability to
feed requirements. Once they [Rally] catch a hold of the ability to that, that [sales using Rally] may start happening but not
right now.
Some of the things that someone can do as a business user are -enhance collaboration, enhance requirements management,
prioritization, risk assessment, etc.

Contract with
Rally
Using the SaaS delivery model and pays a subscription fee.
Using the Unlimited edition as of now.

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CUSTOMER 8: A GLOBAL I T I NFRASTRUCTURE COMPANY, CONTI NUED

Do the
capabilities and
functionality
meet your
needs? Any
improvements?
For the most part yes. I can make stuff work.
Mentions that one of the capabilities he desires is to have a workflow engine. A workflow can support the whole business
from soup to nuts.
I do think they have to watch out for price because even if they are better than everybody you cant be many times more
expensive than the next people.a lot of people just look at cost. Thinks that VersionOne is the next closest competitor to
Rally. But I think that Rally has leapfrogged them in terms of portfolio management piece. Not to say that they [VersionOne]
are not smart people and they cant figure it out.

Overall
satisfaction
Their technical support stafftheir technical sales staff has been phenomenal. So, based on them I have to say highly
satisfied.
No platform is perfect, no model is perfect but because they are so anxious to work with us we make progress every time. So,
I have to say highly satisfied, overall.

Will your
contract
materially
change in future
periods?
I think it could potentially get larger. Mentions that the subscription is up for renewal in a few months and thinks it will be
negotiated at a higher level than me this time.

Have you used
any pre-built
Rally apps or
developed any
custom apps
using the Rally
platform?

Hasnt used or deployed an app.
Has written his own integration via the API.
Has also used some custom apps or shared apps from other people. I do think that the app repository that they have is good. I
wouldnt call it iTunes yet but there are 60-70 custom apps which you can just grab.
Thinks that the model allows people to create apps and share apps with each other. Open API is critical these days. I think its
very good.

Have you ever
tried their
training or
consulting
services?
Did use Rallys coaching solutions recently. I call it satisfactory. Its working.

Are users using
Agile methods
more satisfied
than those using
a waterfall
model?
I believe its true.

As compared to
the Rallys value
prop, could they
do a 10-20%
price increase?
They are already more expensive than someone like VersionOne.
Any price increase will make my effort a lot harder.

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Ma r c h 2 0 , 2 0 1 4
Red Hat Inc. (RHT) Overweight
RHT Partners 1% Above Plan, Consistent With Past Q4s; OpenStack Percolates
PRICE: US$58.24
TARGET: US$62.00
18x our FY15E OCF of $3.09 +$6.59 net
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$62.00
FY14E EPS US$1.47
FY15E EPS US$1.59
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 44 RHT resellers and found that they finished 0.9% above plan for Q4
(Feb.), slightly below last quarter's outperformance but essentially inline with the Q4
outperformance range of 0.2%-1.7% in the last 4 years. While our survey data overall
was more mixed than the unusually strong Q3 survey feedback, and we think FY15
guidance will be largely inline with consensus, Q4 still appears to be in "normal"
territory. More important, in our view, is the fact that partners rate OpenStack as
carrying the strongest momentum of all Red Hat products, with the strongest numerical
feedback we've seen for any Red Hat product in recent years. We continue to think RHT
shares should respond favorably to inline results/guidance, as we expect RHT to emerge
as a leading OpenStack provider within 12-18 months. Overweight, $62 target.
Partners finish 0.9% above plan in Q4. Partners we surveyed finished 0.9% above
plan for Q4 (Feb), as compared to 2.5% above plan in Q3 (Oct) and 1.2% above plan
in Q4 (Feb) of last year. Although the outperformance is slightly below that of the
prior quarter, it is essentially inline with the outperformance range of 0.2%-1.7% for
Q4s in the last 4 years. The observed pace of business reported as Better dropped
slightly to 27.3% from 33.3% last quarter. Furthermore, the observed pace of business
reported as Worse ticked up, with 13.6% reporting Worse versus 6.7% last quarter,
for a Net-Better score of 13.7%, down from 26.6% last quarter. The pace of Unix
to Linux migrations also deteriorated to a Net-Faster score of 9.1%, as compared to
11.1% last quarter, although looking back across the time series, the downtick in Q4
seems seasonal. On the bright side, expectations for Red Hat's bookings up-ticked
from inline territory last quarter, to a positive expectation this quarter. Furthermore,
partners maintained their growth expectations for their Red Hat practice in the
current/upcoming year, hanging onto double-digit growth territory.
Partners see strong Red Hat OpenStack product momentum. We asked partners to
rate several key Red Hat products in terms of their momentum within their bases of
customers and prospects (5 = significantly gaining momentum, 1 = significantly losing
momentum). See chart on page 3. In aggregate, partners rated Red Hat OpenStack
at 3.68, disproportionately ahead of other products such as Red Hat Enterprise
Virtualization [RHEV] (3.41), CloudForms (3.27) and OpenShift (3.25). While Red
Hat OpenStack will clearly take time to develop into a meaningful driver, and at this
stage partners are mostly seeing pilots and RFPs, it's hard to ignore OpenStack rating
higher than any other Red Hat product in the recent history of our survey work. For
Red Hat, OpenStack might be like a big, far-off tidal wave on the horizon: it hasn't
fully arrived yet, but partners are sensing it and recognizing that it could become a
very powerful wave by the time it reaches shore. ***Continued on pages 2 and 3***
Competition, execution on open source strategy, and macroeconomic fluctuations.
Red Hat provides Linux, JBoss, and other open source software solutions.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
May Aug Nov Feb FY CY FY RM CY RM
314.7 322.6 343.6 347.9 1,328.8 1,482.1 8.4x 7.5x
363.3A 374.4A 396.5A 397.7 1,531.9 1,685.2 7.3x 6.6x
409.1 425.9 452.6 458.3 1,745.8 6.4x NA
May Aug Nov Feb FY CY FY P/E CY P/E
0.30 0.28 0.29 0.36 1.23 1.46 47.3x 39.9x
0.32A 0.35A 0.42A 0.37 1.47 1.54 39.6x 37.8x
0.33 0.38 0.45 0.42 1.59 36.6x NA

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April 2014
Ma r c h 2 0 , 2 0 1 4
Quotable Quotes from Deep Dive
Check
We had a really good year last year with Red Hatnearly doubled our number of
transactionshad a couple really big deals.
We are seeing some actual concrete steps taken [with respect to OpenShift and
CloudForms]people looking at the cloud stuff and people starting to buy OpenShift.
I wouldnt say it [FQ4] was anything spectacular one way or the other. I didnt get a big
sense that people were in a panic mode or anything like that but then again they werent
real excited as if they crushed it or anything like that.
Exhibit 1:Current and Historical Survey Results
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14 Q3:FY14 Q4:FY14
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50 52 47 37 46 45 44
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2% 0.7% 1.2% -0.1% -0.3% 2.5% 0.9%
Unix to Linux Migration Pace:
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0% 23.1% 21.3% 21.6% 17.4% 20.0% 25.0%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0% 63.4% 63.8% 67.6% 69.6% 71.1% 59.1%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0% 13.5% 14.9% 10.8% 13.0% 8.9% 15.9%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0% 9.6% 6.4% 10.8% 4.4% 11.1% 9.1%
Better Pace of Biz 36.0% 35.0% 38.6% 33.3% 30.6% 37.0% 18.0% 33.3% 29.2% 20.0% 35.8% 28.0% 22.0% 34.6% 29.8% 16.2% 23.9% 33.3% 27.3%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0% 55.8% 66.0% 75.7% 60.9% 60.0% 59.1%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0% 9.6% 4.3% 8.1% 15.2% 6.7% 13.6%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0% 25.0% 25.5% 8.1% 8.7% 26.6% 13.7%
Expectation for RHT Bookings:
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0% 7.7% 19.1% 16.2% 10.9% 8.9% 11.4%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0% 80.8% 70.2% 75.7% 73.9% 82.2% 79.5%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0% 11.5% 10.6% 8.1% 15.2% 8.9% 9.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0% -3.8% 8.5% 8.1% -4.3% 0.0% 2.3%
Expected Growth in Red Hat
Practice, Excluding Top 10%/Bottom 10% Outliers
4.5% 14.0% 14.0%
5.9% 10.1% 10.3%
-0.1%
1.5%
1.7%
-0.4%
1.2%
0.7%
1.2%
-0.1%
-0.3%
2.5%
0.9%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
RHT Partners as % of Plan
16.7%
4.0%
28.3%
16.0%
14.0%
25.0% 25.5%
8.1%
8.7%
26.6%
13.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
RHT Partners Pace of Business Net-Better %
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-3.8%
8.5% 8.1%
-4.3%
0.0%
2.3%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
RHT Partners, RHT Bookings Expectation,
Net-Above %
16.6%
12.0%
18.8%
0.0%
18.0%
9.6%
6.4%
10.8%
4.4%
11.1%
9.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
UNIX-to-Linux Migration Pace, Net-Faster %

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April 2014
De c e mb e r 1 7 , 2 0 1 3
Deep Dive Partner Interviews Suggest Possibility of OpenStack Halo Effect
PRICE: US$47.54
TARGET: US$53.00
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$53.00
FY14E EPS US$1.38
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with three key contacts in the Red Hat ecosystem reflect a positive-
leaning opinion on current business trends and the groundwork Red Hat is laying for
future growth with OpenStack, storage and virtualization. One contact is bullish on Red
Hat's technical competency versus VMware in managing a hybrid cloud environment.
Another observes that Red Hat's efforts in OpenStack and its Platform-as-a-service
offering are driving "a whole lot of interest and a whole lot of opportunity in accounts we
do business with." As noted in our reseller survey, we continue to think RHT can show
a gentle recovery in billings growth, particularly in Q4 (Feb), and think shares would
respond favorably to inline results as we expect RHT to emerge as a leading OpenStack
provider within 12-18 months. Overweight, $53 target.
Notable Quotes:
(+) One partner observes that Red Hats whole push around OpenStack, and now
PaaS, its going to drive a whole lot of interest and a whole lot of opportunity in
accounts we do business with. Plus its opening up doors for us in areas that we would
have otherwise not had access to. Theres no question that Red Hat is still a very strong
growth factor in our business.
(+) Regarding Red Hats most recent quarter, I think they did well. Thats what Im
hearing. Not great, well. They certainly hit their numbers and they probably surpassed
them in some places...
(+) Customers in the US that are picking a new distribution or asking for my advice
or my companys advice are usually getting told that RHEL probably has a brighter
future [versus SuSE Linux].
(+) What Oracle would tell you about their level of success [with Oracle Linux] and
what I see in the market place probably vary significantly.
(-) Were doing okay with Red Hat in terms of our partnerships with them. Were
selling about on pace as we expect in terms of volume, which is down from last year,
but everyone expected that.
***Detailed feedback on pages 2-3***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,467.4E 6.8x 6.2x
363.3A 374.4A 381.9 395.7 1,515.2 1,679.2 6.0x 5.4x
420.4 428.2 434.9 453.5 1,737.1 5.2x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.38E 38.7x 34.4x
0.32A 0.35A 0.35 0.36 1.38 1.52 34.4x 31.3x
0.38 0.39 0.38 0.40 1.56 30.5x NA

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April 2014
De c e mb e r 1 7 , 2 0 1 3
He observes that Red Hats whole push around OpenStack, and now PaaS, its going to
drive a whole lot of interest and a whole lot of opportunity in accounts we do business with.
Plus its opening up doors for us in areas that we would have otherwise not had access to.
Theres no question that Red Hat is still a very strong growth factor in our business. He
reports that his Red Hat business has tripled in the last year. It was skewed by a large deal,
but would still double without that deal.
He does a lot of business with banks, telcos and conglomerates. Red Hat has become a very
interesting alternative for them to their existing Unix infrastructure. One of his customers
had 300 servers all running Solaris and its going to be consolidated into half a rack of servers
running RHEL. One of the biggest insurance companies in his region, who he thought was
Oracle end to end, has asked him for a proof of concept with Red Hat. Hes getting brought
into more and more opportunities.
He reports that Cisco, which is starting to see more competition from VMware, is very
interested in what his firm can do for them on the Red Hat platform.
Regarding Red Hats most recent quarter, I think they did well. Thats what Im hearing.
Not great, well. They certainly hit their numbers and they probably surpassed them in some
places. I know we did well last quarter as a partner. I assume that is the case for the rest of
the organization because of what Im hearing from some of [my contacts].
He believes that once Red Hat rolls out all of its platforms, its biggest challenge will be how
to support them. What this is doing is its opening up huge doors for partners. Red Hat
needs partners to deliver.
Industry contact 2
I think Red Hat storage is going to compete with the major [storage] vendors as time goes
on. It offers similar functionality with the freedom from hardware vendor lock in.
You can take hardware from multiple vendors through the RHEL and Red Hat storage
overlays on that hardware, create a storage ecosystem of your own choosing with commodity
off-the-shelf hardware. Its meant to compete with the big boys, whether its HP, EMC, what
have you.
He considers Red Hat the market leader and has considered Red Hat as such for most
of his career, and I dont see that dwindling in the next 12 months or even several years
out. He observes Red Hat has been ahead of the bell curve in every aspect of development,
productization of Open Source technologies, supporting Open Source technologies and
actually having real-world usable solutions around technology and is better, more scalable
and easier to use than other vendors hands down.
He observes that Red Hats products, like OpenStack and CloudForms, are geared at
managing a hybrid cloud where you can have multiple hypervisors, public and private cloud
usage all under a single dashboard. From that perspective, he believes Red Hat has VMware
beat in a lot of aspects. He thinks that Amazon Web Services is more of a threat to a vendor
like VMware rather than Red Hat.
Were doing okay with Red Hat in terms of our partnerships with them. Were selling
about on pace as we expect in terms of volume, which is down from last year, but everyone
expected that. He believes that as a firm theyre more or less winning because theyre flat
in infrastructure sales, which he perceives as a significant win given the market.
He explains that Oracle Linux is repackaged Red Hat Linux. Oracle engineers take the
software sources that Red Hat is required to distribute by copyright law under their licenses
and recompile it. They dont give Red Hat anything for that. It would be reasonable to
say that Oracle makes minimal changes. In the market in general Oracle, for their own
embedding purposes, is the largest consumer of Oracle Linux. Hes aware of one customer,
which is currently using Oracle products, and has decided to use Oracles Linux distribution

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April 2014
De c e mb e r 1 7 , 2 0 1 3
instead of using RHEL, based in their opinion on Oracles level of support. He believes that
Oracle has not yet had notable success in selling to the market.
Oracle is among the less successful of the [Linux distributions] that desire to be
commercial. What Oracle would tell you about their level of success and what I see in the
marketplace probably vary significantly.
RHEL is the market Linux leader in the US, and youd be hard pressed to find a metric in
which they [Red Hat] were not a leader in the commercial sense. SUSE Linux has a non-
trivial US market share, which would be substantially larger than Oracle Linux and smaller
than RHEL in the US. He believes SUSEs share is larger than RHEL in Europe. What RHEL
has over SUSE at this point is good stewardship over Linux.
Customers in the US that are picking a new distribution or asking for my advice or my
companys advice are usually getting told that RHEL probably has a brighter future. SUSE
isnt going away, but Attachmate doesnt take their Linux business as seriously because its
one line of business that theyre not particularly betting the farm on versus Red Hat.
He observes that the choice of Microsoft over an open platform seems to be dictated by the
ISVs. So if theres a Microsoft-only ISV and someone in the shop likes it, then that will be the
platform of choice. SQL Server is still a fairly large contender because of ISV support. Hes
seen more and more ISVs produce Linux versions of their software and have their Windows
Server software connect to Open Source databases like MySQL which can then run on any
platform, and a lot of people choose to run that on Linux.
Maturity of Linux Developer base:

He explains that if youre going to hire an average developer in a Linux capacity,
there are soft skills that are hard to measure that have a lower density in people that
are a minimally qualified candidate for a Linux job. You may interview 100 people
for that Linux developer job and find that all of them are technically qualified,
but maybe five of them or fewer understand how enterprise computing actually
works from a requirements standpoint, from a change management standpoint and
from an integration with business standpoint. If you interviewed 100 minimally
qualified mainframe programmers or OS 400 programmers or any commercial
Unix programmer, the percentage that understand how enterprise computing really
works will be much higher, maybe 25 out of 100 versus only five for Linux. Some
of that has to do with the age of the applicant, but a lot of it has to do with the
fact that the barrier to entry for developing on those platforms is much higher. You
either need a lot of money or have to have had a job already. To develop on Linux
is very easy and inexpensive. You can develop in Linux on a home PC and think
you understand, but you dont have the tempering that comes from a job and doing
real work. This used to be the case with Windows administrators: there were many
people who could operate an interface but not really understand how something
works. To the credit of Microsoft and its certification programs, it has cultivated
its developer base so that the density of technically qualified job candidates is much
higher, much like with the older platforms (mainframe, UNIX, etc). There are many
good Linux developers, but the instance of developers that arent yet ripe is fairly
high among Linux developers versus older platforms.

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April 2014
De c e mb e r 1 2 , 2 0 1 3
45 Red Hat Resellers Finished 2.5% Above Plan for Q3
PRICE: US$46.15
TARGET: US$53.00
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$53.00
FY14E EPS US$1.38
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 45 RHT resellers and found that they finished 2.5% above plan for Q3
(Nov.), noticeably better than in any of the prior 8 quarters. In fact, our survey data
improved sequentially across all 5 key metrics we track, suggesting a better pace of
Unix-to-Linux migrations and a slightly better trajectory across the ecosystem as a
whole. Prior to Q2's earnings report, we noted that our RHT reseller survey was
"not encouraging across the metrics we track"; in contrast, Q3 feedback is modestly
encouraging. While we are slightly disappointed that CIO feedback on Red Hat is not
improving in our year-end CIO survey, we continue to think RHT can show a gentle
recovery in billings growth, particularly in Q4 (Feb), and think shares would respond
favorably to inline results as we expect RHT to emerge as a leading OpenStack provider
within 12-18 months. Overweight, $53 target.
Partners Finish 2.5% Above Plan in Q3. Partners we surveyed finished 2.5% above plan
for Q3 (Nov), as compared to 0.3% below plan in Q2 (Aug) and 0.7% above plan in Q3
(Nov) of last year. In our experience thus far, Red Hat resellers have almost always been
within 1.5% of their plan on average, so this quarter's result is noticeably constructive.
The observed pace of business reported as Better improved to 33.3%, up from 23.9%
last quarter. Furthermore, the observed pace of business reported as Worse declined,
with 6.7% reporting Worse versus 15.2% last quarter, for a Net-Better score of 26.6%,
up from 8.7% last quarter. The pace of Unix to Linux migrations improved to a Net-
Faster score of 11.1%, which is above any of the prior four quarters. Expectations for
Red Hat's bookings upticked from slightly negative territory last quarter, to an in-line
expectation this quarter.
***Continued on pages 2-3***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,467.4E 6.6x 6.0x
363.3A 374.4A 381.9 395.7 1,515.2 1,679.2 5.8x 5.3x
420.4 428.2 434.9 453.5 1,737.1 5.1x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.38E 37.5x 33.4x
0.32A 0.35A 0.35 0.36 1.38 1.52 33.4x 30.4x
0.38 0.39 0.38 0.40 1.56 29.6x NA

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April 2014
De c e mb e r 1 2 , 2 0 1 3
Exhibit 1 Current and Historical Survey Results
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14 Q3:FY14
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50 52 47 37 46 45
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2% 0.7% 1.2% -0.1% -0.3% 2.5%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0% 23.1% 21.3% 21.6% 17.4% 20.0%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0% 63.4% 63.8% 67.6% 69.6% 71.1%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0% 13.5% 14.9% 10.8% 13.0% 8.9%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0% 9.6% 6.4% 10.8% 4.4% 11.1%
Better Pace of Biz 36.0% 35.0% 38.6% 33.3% 30.6% 37.0% 18.0% 33.3% 29.2% 20.0% 35.8% 28.0% 22.0% 34.6% 29.8% 16.2% 23.9% 33.3%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0% 55.8% 66.0% 75.7% 60.9% 60.0%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0% 9.6% 4.3% 8.1% 15.2% 6.7%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.1% 100.0% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0% 25.0% 25.5% 8.1% 8.7% 26.6%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0% 7.7% 19.1% 16.2% 10.9% 8.9%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0% 80.8% 70.2% 75.7% 73.9% 82.2%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0% 11.5% 10.6% 8.1% 15.2% 8.9%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0% -3.8% 8.5% 8.1% -4.3% 0.0%
14.0%
10.1% 5.9%
4.5%
1.5%
-0.1%
1.5%
1.7%
-0.4%
1.2%
0.7%
1.2%
-0.1%
-0.3%
2.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
26.2%
16.7%
4.0%
28.3%
16.0%
14.0%
25.0% 25.5%
8.1%
8.7%
26.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-3.8%
8.5% 8.1%
-4.3%
0.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
RHT Partners, RHT Bookings Expectation, Net-
Above %
21.4%
16.6%
12.0%
18.8%
0.0%
18.0%
9.6%
6.4%
10.8%
4.4%
11.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Source: Piper Jaffray research.
Recap of Prior Survey Results
Relating to OpenStack Opportunity
Our Prior Survey Showed that RHT is in Pole Position to Become the Dominant OpenStack
Provider. In a prior survey, we asked 46 Red Hat partners to identify the vendors they believe
have the best chance of becoming a dominant provider of an OpenStack distribution with
enterprise-class OpenStack support. Partners overwhelmingly indicated that Red Hat has
the best chance, with 76% selecting Red Hat. The next closest vendor, IBM, was selected
by 41% of the partners, followed by 39% for Rackspace and smaller amounts for other
vendors. This response is a critical measure of Red Hat's positioning because the majority
of the Red Hat partners covered in our survey are also responsible for selling and providing
services for other vendors and technology, thus their opinion of Red Hat in this matter is
weighed against the merits and positioning of familiar vendors. We fully recognize that
there is no reason to view the Red Hat Linux OpenStack Platform as a material contributor
to bookings or revenue in the next 12+ months (as the company has clearly stated many
times) and it will take time to ramp. OpenStack is a complex emerging set of technologies
ranging across processing, storage, and networking; it will take time for the technologies to
harden and for mainstream corporate adoption to take root, as was the case with Linux.
That said, we do think OpenStack presents the potential for formation of a new, multi-
billion dollar market over time and as such, it will be important to track Red Hat's progress
with OpenStack milestones.

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April 2014
De c e mb e r 1 2 , 2 0 1 3
Potential Mitigating Factors 1) We still dont see RHT as a 20%+ multi-year grower, although we think its growth
trajectory will be good for a $1.5B on-premise software business; 2) Our FY15 Rev forecast,
+14.6% y/y, is slightly ahead of consensus; 3) Recent issues for Teradata, Citrix, IBM,
and QlikTech havent helped instill confidence in the growth trajectories for on-premise
infrastructure software and technology companies; and 4) our own CIO survey data has not
yet turned the corner and paints a mixed picture for adoption of Red Hat products. Despite
these potential mitigating factors, we feel risk outweighs reward at current levels.

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April 2014
No v e mb e r 1 3 , 2 0 1 3
Upgrading to Overweight: Survey Shows RHT in Pole Position to Dominate OpenStack
PRICE: US$44.60
TARGET: US$53.00
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral Overweight
FY14E EPS US$1.38
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We are upgrading RHT shares to OW and lifting our price target to $53 for four primary
reasons. First, our latest survey work shows that Red Hat is in pole position to become
the dominant OpenStack provider, ranking well ahead of IBM and Rackspace in what
we view as the most Linux-like opportunity Red Hat has seen in a decade. Second, we
expect RHT's Services revenue growth to accelerate toward 20% next year as it builds out
support for OpenStack. Third, our mid-quarter checks suggest RHT's billings growth
could pick up toward the low teens in the next two quarters. Fourth, RHT shares have
underperformed versus the S&P 500 by 20 percentage points in the last 7 weeks, resulting
in a depressed cash flow multiple of 13x heading into a three-quarter period of easy
billings comps. Overweight rating, $53 price target.
Our Latest Survey Shows that RHT is in Pole Position to Become the Dominant
OpenStack Provider. We asked 46 Red Hat partners to identify the vendors they believe
have the best chance of becoming a dominant provider of an OpenStack distribution
with enterprise-class OpenStack support. Partners overwhelmingly indicated that Red
Hat has the best chance, with 76% selecting Red Hat. The next closest vendor,
IBM, was selected by 41% of the partners, followed by 39% for Rackspace and
smaller amounts for other vendors. This response is a critical measure of Red Hat's
positioning because the majority of the Red Hat partners covered in our survey are also
responsible for selling and providing services for other vendors and technology, thus
their opinion of Red Hat in this matter is weighed against the merits and positioning
of familiar vendors. We fully recognize that there is no reason to view the Red Hat
Linux OpenStack Platform as a material contributor to bookings or revenue in the
next 12+ months (as the company has clearly stated many times) and it will take
time to ramp. OpenStack is a complex emerging set of technologies ranging across
processing, storage, and networking; it will take time for the technologies to harden
and for mainstream corporate adoption to take root, as was the case with Linux.
***Continued on pages 2-4***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,467.4E 6.4x 5.8x
363.3A 374.4A 381.9 395.7 1,515.2 1,679.2 5.6x 5.1x
420.4 428.2 434.9 453.5 1,737.1 4.9x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.38E 36.3x 32.3x
0.32A 0.35A 0.35 0.36 1.38 1.52 32.3x 29.3x
0.38 0.39 0.38 0.40 1.56 28.6x NA

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April 2014
No v e mb e r 1 3 , 2 0 1 3
Additional Detail
That said, we believe OpenStack is the most Linux-like opportunity Red Hat has seen in a
decade, with much bigger revenue potential than JBoss or RHEV or Gluster. It is possible
that OpenStack is where Linux was 10 years ago: immature but advancing quickly, and with
a desire for someone to take leadership by developing a strong distribution. OpenStack
has global backing and global interest, and a very large number of companies have gotten
behind OpenStack very quickly. Additional support for Red Hat has come from Cisco, which
has publicly said that it's backing the Red Hat distribution of OpenStack. As evidence of the
interest, a Google search for OpenStack yields 8.6 million results, compared to 3.8 million
for JBoss and 1.2M for Red Hat Storage, and nearly matching the 9.7 million results for
Hadoop. We believe Red Hat is very interested and very involved in OpenStack, as it has been
supporting OpenStack for over two years, well before its involvement became official. It was
also the #1 contributor to both the Grizzly release (April 2013) and Havana release (October
2013). We fully believe Red Hat intends to become the number one player in OpenStack. If
Red Hat is currently perceived to be in pole position to become the dominant OpenStack
distribution, and it continues to be the top (or a top) contributor to the OpenStack releases,
and it also successfully leverages the certifications built into RHEL, then it should be
possible for Red Hat to become the #1 player in OpenStack. And if OpenStack develops into
one of the top-3 or top-5 disruptive growth waves in the software industry (along with Cloud
Computing, Big Data / Hadoop, Software-Defined Networking, etc.), it might be reasonable
to expect investors to position into the emerging winners somewhat ahead of the realization
of revenues. As background on OpenStack, it is a global collaboration of developers and
cloud computing technologists working together to build an open source platform for public
and private cloud computing. OpenStack was founded by NASA and Rackspace and is
currently used by commercial and non-commercial organizations alike. OpenStack seeks to
be easy to implement, scalable and feature rich. Just like Linux, OpenStack is freely available
for any entity or individual to run it, build on it or submit changes back to the project.
Services Growth Should Accelerate Next Year. The relative slowness in Services revenue
growth, up only 8% in FY14 versus roughly 15% growth for Subscription revenue, was
largely intentional as Red Hat offloaded services business to partners, but has certainly
created a drag on billings growth and revenue growth in recent quarters. Contacts suggest
that Red Hat will be building out a consulting organization to support the demand it sees
for OpenStack. We estimate services revenue to be a tailwind next year and could grow as
much as 18-20%, driven partly by OpenStack services as well as the release of RHEL 7 (beta
in February and GA in Aug or later). We think this shift is largely unanticipated by the street
as of now; for instance, even in our own model, we project only 12% growth in services
revenue in FY15. An acceleration to 20% would equate to roughly an extra point of total
revenue and billings growth admittedly not a game-changing event, but each point helps,
and more importantly in this case, any acceleration in Services growth could be interpreted
as a leading indicator of OpenStack adoption and success.
Potential Pickup in Billings Growth in 2H. Based on our mid-quarter checks and discussions
with industry contacts, we are incrementally inclined to believe that billings growth could
have troughed in Q2 (at +8% y/y) and could start to improve in the back half of this fiscal
year (i.e., November and February quarters) toward a low-teens growth rate. If correct, we
believe this effect would be more noticeable in Q4 (Feb) due to a particularly easy y/y billings
comparison of only +9%. RHT shares largely trade based on the trend in billings growth,
and if the recent trend of deceleration, from mid/high teens down to about 8% in the past 6
quarters, can stabilize or begin to uptick toward the low teens in the coming quarters, then
we think RHT shares would accordingly reverse their trend of recent underperformance and
begin to outperform. Admittedly, we will wait to conduct and analyze our quarterly Red
Hat reseller survey in mid December, before drawing any firm conclusions about billings
growth. However, the triggers we would look for to identify a modest improvement in
billings growth would be: 1) getting Red Hat Storage and OpenShift incrementally off the
ground; 2) potential for slight improvement in Europe; 3) the possibility that Red Hats
Federal Government results, which improved sequentially in Q2 but didnt produce much y/
y growth, could begin to gain traction; and 4) the possibility that the business has become
slightly more back-end-loaded over the years, leading to a better performance in Q3/Q4.

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April 2014
No v e mb e r 1 3 , 2 0 1 3
RHT Selloff Overdone Amidst Broader Market Strength. RHT shares have sold off more
sharply than we expected, falling 16% since the day it reported Q2 earnings (Sept 23rd),
while the S&P 500 index has moved 4% higher during the same period. Accordingly, RHTs
EV/FTM OCF multiple has dropped from 17.6x to 13.3x during the same period. That
drop, from a high-teens to a very low-teens multiple, significantly alters the shape of the
risk/reward curve for RHT shares, in our view. For the past 12-18 months we have stated
our belief that RHT shares would likely see support in the $40s, but we didnt expect RHT
shares to underperform as much as they have in the past 6 weeks or to reach a 13.3x cash
flow multiple at this point in time. In our view, it is surprising to see RHT shares at this
juncture trading at roughly a market multiple of cash flow (i.e. the S&P 500 currently trades
at 15x projected 2014 earnings), considering Red Hats largely-recurring, high-gross-margin
subscription revenue stream, plus the potential catalysts outlined above.
Easy Billings Comps Begin in Q4. In our view, the setup for RHT shares could become
further sweetened by at least three quarters of easing billings comps starting in Q4 FY14
(Feb). While Red Hat has recently been comping billings growth rates of 15-16%, the comps
are expected ease to 9% in Q4 (Feb-14), 12% in Q1 (May-14), and 8% in Q2 (August-14).
Potential Mitigating Factors. 1) We still dont see RHT as a 20%+ multi-year grower,
although we think its growth trajectory will be good for a $1.5B on-premise software
business; 2) Our FY15 Rev forecast, +14.6% y/y, is slightly ahead of consensus; 3) Recent
issues for Teradata, Citrix, IBM, and QlikTech havent helped instill confidence in the
growth trajectories for on-premise infrastructure software and technology companies; and
4) our own RHT reseller survey data hasnt turned the corner yet, as it has gradually
downticked in sync with RHTs recent deceleration in billings growth. Despite these
potential mitigating factors, we feel risk outweighs reward at current levels.
Exhibit 1: Potential Enterprise Class OpenStack Support Provider
76%
41%
39%
24%
17%
17%
Red Hat
IBM
Rackspace
Cisco
Ubuntu / Canonical
HP
Which company(s) do you think have the best chance of becoming
the dominant provider of an OpenStack distribution with
enterprise-class OpenStack support?
13%
4%
4%
4%
4%
0% 10% 20% 30% 40% 50% 60% 70% 80%
StackOps
Mirantis
Attachmate / Novell SuSE
Cloudscaling
Other
Price Target $53 = 15x (was 14x) our FY15E OCF of $3.09 +$6.74 net cash/ share.
Our higher multiple is based on the catalysts outlined above.

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April 2014
S e p t e mb e r 2 2 , 2 0 1 3
Deep-Dive Partner Interviews Show Ramping Interest in OpenShift, CloudForms
PRICE: US$53.22
TARGET: US$59.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$59.00
FY14E EPS US$1.33
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
60
58
56
54
52
50
48
46
44
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive conversations with four key RHT partners suggest a similar overall tone
of business in Q2, with a couple of decent-sized Government transactions, while Red
Hat is funneling its development efforts into the right long-term growth vectors. Our
survey work and partner interviews continue to suggest a fairly in-line quarter. Bright
spots include strength in the JBoss middleware stack as well as some of RHT's nascent
offerings. One partner noted that OpenShift, Red Hat's Platform-as-a-Service offering,
is "really starting to pick up" while another added that Cloudforms shows promise as
a mechanism for insulating against cloud platform lock-in. Although we don't foresee
an incremental top line catalyst yet, we maintain our constructive long-term outlook
and expect RHT to emerge as a leading OpenStack provider within 12-18 months. OW,
$59 PT.
Notable Quotes:
(+) Things are really starting to pick up with OpenShift....Customers we are talking
to havent looked at Red Hat in the past, they are just now looking into itWe have
more and more clients talking about it"
(+) We have lot of deals in the pipe and we are adding more and more every month.
(=) I think OpenStack is going to be the next big thing for them [Red Hat].
(=) Their virtualization product is continuing to harden and get better with
time...Their storage product is still slow
(-) One partner reports that " [Red Hat's] channel organization didnt quite get to
their number
*** Detailed Feedback on Pages 2-5 ***
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,467.5E 7.7x 7.0x
363.3A 371.5 384.8 399.6 1,519.2 1,686.1 6.8x 6.1x
423.6 428.0 434.9 461.5 1,748.1 5.9x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.34E 43.3x 39.7x
0.32A 0.32 0.34 0.35 1.33 1.48 40.0x 36.0x
0.37 0.38 0.38 0.43 1.56 34.1x NA

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April 2014
S e p t e mb e r 2 2 , 2 0 1 3
Detailed Positive Feedback (1) Industry Contact 1
I think Red Hat is back on the rails.
I think this last quarter, their second quarter that just ended, was very strong. Very, very
strong.
He was recently involved in a $3M government healthcare agency deal in his region for
compliance. Hes finding that there is a lot of Linux in play in the data center, more so than
there was a year ago, for sure, but definitely more so than we even expected by this point.
Hes noticing that many applications that have been in testing and development stages
over the last year or so are starting to go into production. Any enterprise account or
government public sector account has compliance requirements, meaning they need some
kind of support around the infrastructure. The only two Linux subscriptions that actually
have a maintenance program around them are Oracle and Red Hat:
Nobody is going to go to Oracle if theyre running another version of the OS
because thats a step back, because Oracles running a previous release of the Linux
kernel.
Also mentions that Attachmate (which acquired Novell) is not having a lot of success
with SUSE (Novell's Linux Distro), so Red Hat becomes the default.
Red Hat is primed right now for some huge growth as a result of compliance
requirements. And were uncovering needs every day.
[One big retailer] in [his region] is throwing out all proprietary Unix and replacing it all
with Red Hats stack. Notes that the retailer has a new, forward-thinking CTO.
He believes that Red Hat is making progress towards improving Glusters mainstream
viability. He expects Gluster to be incorporated into RHEL 7, but doesnt have specific
knowledge. But he notes that The largest Red Hat storage deal that Ive heard of is $130,000
in licensing.
[Gluster] is an important part of the bigger picture. Thats why I see Red Hat evolving it
from where its at. As a standalone product theres very little value outside of media and
entertainment at this point, that Ive seen. People are using it for DR (Disaster Recovery),
theyre using it for different pieces, like to go to AWS [Amazon Web Services]. He thinks
senior people at Red Hat have recognized this and they brought in a new hire on the
development side to take charge of Glusters future.
Detailed Neutral Feedback (2) Industry Contact 2
Based on his conversations with a few sales reps [in the enterprise Linux ecosystem], thinks
that a lot of the reps at the end of this past quarter, at least the ones that I've always been
talking to on the commercial side, have been really scratching for deals to get in. Refers to
one instance where a rep offered standard pricing for premium support to get the deal in.
Qualifies that he didnt get the impression that they are having like a horrible quarter, I
dont think they are blowing it out of the water either. Sensed a higher tone of desperation
this quarter as compared to last quarter.
Based on his conversations with customers, thinks that Red Hat is on the cusp with
OpenShift [Red Hat's product for Platform-as-a-Service]:
Things are really starting to pick up with OpenShift. Thinks that Red Hat is on
the verge of expanding sales in that area.
Customers we are talking to havent looked at Red Hat in the past, they are just
now looking into itWe have more and more clients talking about it.
Refers to a potential opportunity with a F500 software company, who is planning
to use OpenShift PaaS [Platform as a Service].
Indicates that there is an online option as well as an enterprise option. The online
option is pretty cheap and is mainly for small deployments. So, for people starting
out, he estimates that an average deal would be $15-20k, while the sky is the limit
for bigger deployments. The momentum is just picking up I definitely see a big
momentum shift in that direction.

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April 2014
S e p t e mb e r 2 2 , 2 0 1 3
Mentions that customers are talking less about Red Hat Enterprise Linux, and more about
the JBoss stack and newer offerings like OpenShift.
Refers to CloudForms as the other product with a lot of potential. Explains that firms
dont like to keep all their workloads in a single public cloud such as Amazon or RackSpace
etc. because of the fear of getting locked in. CloudForms gives customers the ability to move
application workloads from one public cloud provider to another.
Refers to a few new product cycles in the JBoss stack in the next few months, which are
rewrites and are major updates."
Observes that Red Hat is coming out with a new product called BPMS [Business Process
Management System] in November, which is essentially the Polymita acquisition and is
going to be twice as much as the BRMS [Business Rules Management System] platform.
Mentions that BPMS will be attractive to firms that need both rules management as well as
process management (business activity monitoring etc.)
Thinks JBosss performance is incrementally increasing and that Red Hat did better in
that space in Q2 as compared to a few quarters before. However, doesnt think they blew
it out of the water but appreciably better.
Thinks Red Hat is diverting a lot of its resources into the OpenStack initiative, as opposed to
focusing on products like RHEV. Havent seen much marketing around RHEV and havent
heard Red Hat talking about it very much.
Havent heard many inquiries around OpenStack at this point in time.
Talking about large deals, refers to a 7-figure government deal to close in September.
Mentioned that Red Hat had a pricing change on all its product lines effective September
1
st
. Adds that it was a two pronged initiative 1) they raised list prices by 10% and 2) they
changed the discount structure to the partners such that Red Hat would have much better
margins for average deals.
We have lot of deals in the pipe and we are adding more and more every month. As
compared to the same time last year, thinks the momentum feels betterdefinitely better.
Industry Contact 3
Based on his conversations with peers and reps [in the enterprise Linux ecosystem], their
channel organization didnt quite get to their number but thinks that they had an incredibly
high quota from corporate. Their goals and their quotas, the sales teams and the channel
teams are continually +30-40% y/y growth. Reports that the government channel team
did decent but I believe they missed their quota.
Referring to the direct sales reps [in the enterprise Linux ecosystem], points out that the
sentiment depends on who you talk to and how big is their quota. Some of the reps [in the
enterprise Linux ecosystem] he speaks with are looking nicely toward that [annual quota]
number.
Observes that the momentum is continuing with RHEL and is being supported by the
whole data center modernization play.Unix to Linux migrations. Observes that RHEL
is still a vast total addressable market for them and they are not anywhere near finished
with that.
Their Virtualization product is continuing to harden and get better with time.
Their Storage product is still slow and sluggish adoption as compared to Red Hats
expectations.
Their middleware offering is continuing to chug alongIt's not IBM WebSphere or

WebLogic from a market share perspective[but] from a technical perspective, from a
product capabilities perspective, it leads the way. They are doing a lot of really cool things
to help their customers migrate and continue to transition to the cloud. They are fitted
perfectly for that [the migration to public clouds].
In terms of sales, he ranks the products as RHEL, Middleware/JBoss, RHEV and Storage.
Mentions that the cloud offering is an exclusive channel offering at this point in time.

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April 2014
S e p t e mb e r 2 2 , 2 0 1 3
Reports that his Red Hat practice closed the second largest deal in the quarter, a large 7-
figure deal.
I think OpenStack is going to be the next big thing for them [Red Hat]. Notes that
OpenStack positions Red Hat extremely well to allow their customers to build private
clouds.
Mentions that the pipeline is looking goodits strong and its going to continue to grow
I foresee great things in the next six months for Red Hat.
Notes that Red Hats public sector team still needs to learn how to adapt and grow
intoother verticals within the public sector world such as State & Local, municipalities,
education (although they have a decent presence in higher Ed). Reports that Red Hats
government business today is mainly sustained by a tremendous federal government book
of business.
Reported that he had a good quarter, was above his internal plan and is on track to do 25%
y/y growth for the year equivalent to Red Hats fiscal.
Detailed Negative Feedback (1) Industry Contact 4
We didnt see anything last quarterwe are not seeing any new opportunitiessome of
the ones we had fell out at a pretty normal rate.. they are not losing or winning more than
they should be compared to the competitorsnot seeing net new going on with them right
nowRHEL [Red Hat Enterprise Linux], nothing new
Reports that he is seeing a lot more customers playing with Microsoft HyperVwe are not
hearing [anybody] even talk about RHEV [Red Hat Enterprise Virtualization] anymore.
Mentions that he had many customers kicking tires on RHEV in the last six months prior
but now they are all spinning their resources on HyperV.
Based on his conversations with his peers in his company who also deal with Red Hat, there
is nothing in their pipeline that they are aware of right now thats Red Hat relatedneither
said Red Hat is hot and none of them said they are seeing a lot of interest..nothing.
Remembers seeing something related to a price increase regarding Red Hat.

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April 2014
S e p t e mb e r 1 3 , 2 0 1 3
46 Red Hat Partners 0.3% Below Plan in Q2; Expect Improvement in US Federal
PRICE: US$52.85
TARGET: US$59.00
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$59.00
FY14E EPS US$1.33
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 46 RHT resellers and found that they finished 0.3% below plan for Q2
(Aug), lower than last year, and slightly softer than the 0.1% below plan performance
in Q1 (May). While the data in aggregate is not encouraging across the four metrics
we track, we think RHT's Q2 performance in the Federal Government sector will be
materially better than it was in Q1. We see billings growth in a holding pattern at 10-16%
growth for now and don't foresee an incremental top line catalyst yet, while we expect
RHT to emerge as a leading OpenStack provider within 12-18 months. OW, $59 PT.
Partners Finish 0.3% Below Plan in Q2. Partners we surveyed finished 0.3% below
plan for Q2 (Aug), as compared to 0.1% below plan in Q1 (May) and 1.2% above plan
in Q2 (Aug) of last year. The observed pace of business reported as Better improved
to 23.9%, up from 16.2% last quarter. But the observed pace of business reported as
worse deteriorated, with 15.2% reporting Worse versus 8.1% last quarter, for a Net-
Better score of 8.7%, barely up from 8.1% last quarter. The pace of Unix to Linux
migrations stood at its second lowest level of a Net-Faster score of 4.4%, which is
meaningfully lower than the last several years. Expectations for Red Hat's bookings
declined in FQ2, with 4.3% of partners (net) expecting bookings below expectations,
versus 8.1% (net) of partners expecting bookings above expectations last quarter.
*** DETAILED Survey Data on page 2***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,467.5E 7.7x 7.0x
363.3A 371.5 384.8 399.6 1,519.2 1,686.1 6.7x 6.0x
423.6 428.0 434.9 461.5 1,748.1 5.8x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.34E 43.0x 39.4x
0.32A 0.32 0.34 0.35 1.33 1.48 39.7x 35.7x
0.37 0.38 0.38 0.43 1.56 33.9x NA

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April 2014
Sept ember 13 , 2013

Exhibit 1

Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14 Q2:FY14
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50 52 47 37 46
%of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2% 0.7% 1.2% -0.1% -0.3%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0% 23.1% 21.3% 21.6% 17.4%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0% 63.4% 63.8% 67.6% 69.6%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0% 13.5% 14.9% 10.8% 13.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0% 9.6% 6.4% 10.8% 4.4%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0% 55.8% 66.0% 75.7% 60.9%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0% 9.6% 4.3% 8.1% 15.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.1% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0% 25.0% 25.5% 8.1% 8.7%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0% 7.7% 19.1% 16.2% 10.9%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0% 80.8% 70.2% 75.7% 73.9%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0% 11.5% 10.6% 8.1% 15.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0% -3.8% 8.5% 8.1% -4.3%
5.9%
4.5%
1.5% 1.5%
-0.1%
1.5%
1.7%
-0.4%
1.2%
0.7%
1.2%
-0.1%
-0.3%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
14.0%
26.2%
16.7%
4.0%
28.3%
16.0%
14.0%
25.0%
25.5%
8.1%
8.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-3.8%
8.5% 8.1%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
RHT Partners, RHT Bookings Expectation,
Net-Above %
22.0%
21.4%
16.6%
12.0%
18.8%
0.0%
18.0%
9.6%
6.4%
10.8%
4.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%

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April 2014
J u n e 1 9 , 2 0 1 3
RHT Partners Finished 0.1% Below Plan for Q1, Possibly A Soft Patch
PRICE: US$46.63
TARGET: US$59.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$59.00
FY14E EPS US$1.33
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 37 RHT resellers and found that they finished 0.1% below plan for Q1
(May), slightly better y/y against an easy comparison, but softer than the 1.2% above
plan performance in Q4 (Feb). The data downticked for 3 of the 4 major metrics we
track, perhaps not surprisingly given: 1) widespread softness across a broad swath of
mid/large-cap software, particularly on-premise infrastructure software; and 2) the lack
of a major product cycle for Red Hat as RHEL 6 is in its later stages and RHEV/Storage
are too nascent to move the needle quite yet. That said, in our view the survey metrics
are down-ticking softly rather than severely. Although the data supports the possibility
of a choppy Q1 performance, we think growth and sentiment can improve in 2H:FY14
due to multiple catalysts. OW, $59 PT.
Partners Finish 0.1% Below Plan in Q1. Partners we surveyed finished 0.1% below
plan for Q1 (May), as compared to 1.2% above plan in Q4 (Feb). On a y/y basis, the
performance is a slight improvement (against a very easy comparison, as the year-prior
quarter was a soft quarter) although it continues to run in a lower gear as compared
to Q1s in the prior two years. We estimate that the data will translate into roughly
9-14% billings growth for RHT in Q1 (May), with a gradual improvement in billings
through FY14 as comparisons ease.
Worse Pace of Business But Better Unix-to-Linux Migrations. 16% of partners we

surveyed saw a Better pace of business while only 8% saw a Worse pace of business in
Q1 (May). This results in a "net-better" score of 8%, which is materially worse than
last quarter's "net-better" score of 25.5% and below the normal range of 14-30% for
prior quarters, excluding the Q3 (Nov) outlier. On the bright side, the magnitude of
the Net-faster pace of Unix to Linux migrations accelerated in Q1 (May), bucking the
trend observed in the last couple of quarters. In Q1 (May), 22% of partners saw a
Faster pace of UNIX to Linux migrations as compared to 21% in Q4 (Feb) and 23%
in Q3 (Nov), while 11% saw a slower pace as compared to 15% last quarter and 14%
in the quarter before. The migration pace result is consistent with our year-end CIO
survey, which showed a strengthening of Linux intentions and a deceleration in Unix
intentions.
*** DETAILED Survey Data on page 2***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,463.2E 6.8x 6.2x
358.8 368.8 387.8 401.7 1,517.1 1,683.3 6.0x 5.4x
418.3 424.9 438.3 464.0 1,745.5 5.2x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.34E 37.9x 34.8x
0.31 0.32 0.35 0.35 1.33 1.50 35.1x 31.1x
0.41 0.37 0.37 0.42 1.56 29.9x NA

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April 2014
J u n e 1 9 , 2 0 1 3
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13 Q1:FY14
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50 52 47 37
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2% 0.7% 1.2% -0.1%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0% 23.1% 21.3% 21.6%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0% 63.4% 63.8% 67.6%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0% 13.5% 14.9% 10.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0% 9.6% 6.4% 10.8%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0% 55.8% 66.0% 75.7%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0% 9.6% 4.3% 8.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.1% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0% 25.0% 25.5% 8.1%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0% 7.7% 19.1% 16.2%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0% 80.8% 70.2% 75.7%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0% 11.5% 10.6% 8.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0% -3.8% 8.5% 8.1%
0.9%
1.5% 1.5%
-0.1%
1.5%
1.7%
-0.4%
1.2%
0.7%
1.2%
-0.1%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
28.3%
14.0%
26.2%
16.7%
4.0%
28.3%
16.0%
14.0%
25.0%
25.5%
8.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-3.8%
8.5% 8.1%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Above %
26.1%
22.0%
21.4%
16.6%
12.0%
18.8%
0.0%
18.0%
9.6%
6.4%
10.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%

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April 2014
J u n e 1 8 , 2 0 1 3
Deep Dive Checks Suggest A Softer Q1, Might Be Priced In
PRICE: US$45.68
TARGET: US$59.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$59.00
FY14E EPS US$1.33
FY15E EPS US$1.56
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive conversations with 5 key RHT partners suggest Q1 might have been a
soft spot for RHT, but that Q2 will likely make up for it. We see Q1 billings growth at
9-14%, plus or minus due to an unknown mix of 3-year upfront billing terms. Despite
the possibility of a choppy Q1 performance, we continue to see good odds that RHT
shares will bottom in the $40s, and think growth and sentiment can improve in 2H:FY14
due to multiple catalysts: 1) the billing of off-balance sheet deferred revenue; 2) buildup
toward the release of an OpenStack product; and 3) upcoming release of RHEL 7. Net/
net partners exhibited a muted tone for Red Hat's Q1 results, but still show confidence
in the pipeline for Q2 and the rest of the year. OW, $59 PT.
Notable Quotes:
(=) One partner thinks demand for Red Hat Enterprise Linux [RHEL] is pretty flat
and is not seeing anyone growing their Linux footprint at all.
(=) Middleware strength is great but it is "slow moving."
(=) RHEV continues to not be as fast growing.but they [Red hat] are seeing
snippets of success.
(-) Havent seen as much traction with Storage over the last year as we would have
wanted to.
(-) Their first quarter as far as I understand was not what they were expecting. At
least from our perspective, their second quarter will more than make up for that."
(+) Pipeline looks solidI am not at all worried about Q2 and really the rest of the
year.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
314.7A 322.6A 343.6A 347.9A 1,328.8A 1,463.2E 6.7x 6.1x
358.8 368.8 387.8 401.7 1,517.1 1,683.3 5.9x 5.3x
418.3 424.9 438.3 464.0 1,745.5 5.1x NA
0.30A 0.28A 0.29A 0.36A 1.23A 1.34E 37.1x 34.1x
0.31 0.32 0.35 0.35 1.33 1.50 34.3x 30.5x
0.41 0.37 0.37 0.42 1.56 29.3x NA

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April 2014
J u n e 1 8 , 2 0 1 3
Detailed Neutral Feedback (2) Industry Contact 1
I think that there is [demand for RHEV], I wouldnt say a lot because its still fairly new.
Theres a lot of options out there. But its definitely one of the ones that I see that at least
pop-up in conversations with customers.
If customers are already asking about RHEV, they tend to proceed with the Red Hat
portfolio.
Red Hat is usually competing with VMware.
OpenShift (Red Hat's Platform-as-a-Service offering) also comes up a lot in discussions.
Hasnt seen slowness in IT spending in general.

Industry Contact 2
Thinks that the demand for Red Hat Enterprise Linux [RHEL] is pretty flat and is not
seeing anyone growing their Linux footprint at all.
Thinks that one factor that is hampering the growth in RHEL is the time it takes for
independent Software vendors [ISV] (especially for industry specific applications) to port
an application to Linux. Mentions that ISVs typically create an application for Windows
platform and then it takes a few months to a year or more for the same application to be
ported into Linux.
Mentions that he is seeing a lot of High Performance Computing customers using more
CentOS instances, since they are free, and less Red Hat instances. Mentions that he has
several clients that may have 10,000 machines all running CentOS and only a couple of
machines will be running Red Hat. Mentions that CentOS is an exact clone of Red Hat and
is the same code as Red Hat, except without the support and hence it's free. Mentions that
typically the companies running CentOS are the companies that dont need support and
have got their own staff who are good with Linux.
Mentions that he is seeing some interest around Red Hat Enterprise Virtualization [RHEV].
However, mentions that Microsoft has changed its licensing policy around HyperV, which
is enticing people to look at it seriously.
Mentions that with Windows Server 2012, if you run HyperV, they give you
unlimited VMs [virtual machines] that you can run on top of that to run Windows
on, with the total license cost of around $800 per license. Mentions that, on the
other hand, VMware costs $2k per socket (i.e. $4k-$8k for a typical server), on top
of which one would have to license each individual instance of Windows, which
could be about $500 per instance. So, hypothetically, if one is running 50 VMs, a
VMware strategy would cost about $20k-$25k in Microsoft license on top of the
$4000 VMware license.
Thinks that Microsoft finally figured out how to get traction with its virtualization
product and it seems to be working.
Mentions that over the course of last year, he saw more and more customers
becoming aware of the Microsoft licensing and is starting to see customers actively
testing it.
Mentions that RHEV cant do the licenses as Microsoft is doing it and hence cant
play in that space.
He is not seeing much of JBoss either.
He has seen Gluster around a lot but hasnt seen anyone pay for it. Mentions that he has
seen lot of customers trying to get Gluster to work and then they give up and become
good prospects for IBMs General Parallel File System [GPFS], which is similar to Gluster.
I see a lot more GPFS in High Performance Computing where Gluster is supposed to do
very well.
Mentions that although Red Hat is a small part of the overall business, I think everything
we are doing right now is behind plan. I dont think anything we are doing is on plan.
In general, his perception of the sentiment of sales reps [in the enterprise Linux ecosystem]
- they are not starvingthey are still picking up lunchI havent seen changes or any kind
of particular desperation one way or the other.
Detailed Negative Feedback (3) Industry Contact 3
Based on his conversations with sales reps [in the enterprise Linux ecosystem], thinks that
Red Hats Q1 wasnt as good as they had expected.

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April 2014
J u n e 1 8 , 2 0 1 3
Mentions that a lot of the reps were giving incentives to bring in renewals early.
Mentions that it was like a formal effort from the management [to] extend
discounts to people to get them to bring deals in before the end of the quarter.
And, I talked to some of the distributors and they were saying they didnt do as well
as they normally do with their Red Hat business.
But our business did really well. Mentions that his business has been picking up
and estimates a growth of 15-20% y/y. In 2013, we should probably do over 50%
better than last year in terms of product sales.
His impression is that the Red Hats direct sales force is still in a state of transition from
having to sell only Red Hat Enterprise Linux [RHEL] to now having to sell a much broader
portfolio of products.
Mentions that doing a JBoss sale is not as straightforward as a RHEL sale and
it takes time and some business expertise as well. The reps at Red Hat dont
necessarily get the difference between the operating system sale and a middleware
sale.
Mentions that a middleware sales takes longer, you cant pressure someone into
buying a middleware solution like you can in an Operating systems sale, need to
add training and mentoring with the sale a lot of the time and its not as transactional
as an operating system sale.
Thinks that based on the number of transactions, Red Hats JBoss sales is
minuscule as compared to the RHEL sales. Thinks that going forward Red Hat
might not allow resellers to sell JBoss unless they partnered with a specialized
reseller.
Additionally, mentions that as people are moving to more distributed and component
based architecturethe operating system isnt as big of a concern, especially with the [move
to ] cloud and the move to platform as a service...
Mentions that Red Hat changed the name of the JBoss community version's name to
WildFly. The reason they did that was because there were a lot of people [clients] who were
confused [between the community version and the enterprise version].
Agrees with the statement that the demand for Red Hat products continues to be there but
the sales execution around the newer products could be a little softer than expected.
Mentions that Arun Oberoi, EVP of global sales and services is more channels friendly.
Pipeline We have some big deals [plus million dollars] in the pipelineI havent heard
of any real gigantic deals closingI know they have some stuff queued up [for the next
quarter].
He is excited about the JBoss Enterprise Application Platform 6 (EAP 6)/Application Server
7 (AS7), which he thinks might be launched in the Boston Summit. It's great technology,
looks really well [in terms of user interface], it's fast, it's modular, people get excited about
it. Mentions that EAP6/AS7 will be embedded in the SOA platform 6 as the container
for the applications. I know 4-5 large customers right now that are waiting for that new
platform to come out so that they can use the same container that they have been using for
their regular Java Applications.
Mentions that a lot of the FuseSource customers are looking at Red Hat SOA platform 6
as well.
Also, thinks that Red Hat will be out with a new Business Rules Management platform
which will integrate the Polymita acquisition. Mentions that the integration will add a nice
front endlot of drag and drop stuffit's really easy to usereport generationbusiness
activity monitoring Refers to a conference he attended recently where a lot of clients
who are planning to get off of similar software from IBM or Oracle were asking a lot of
questions about it.
Mentions that storage is still being sold in a limited distribution model and only certain
resellers can resell it.
Industry Contact 4
Based on his conversations with sales reps [in the enterprise Linux ecosystem], thinks that
they were a little light from a goals perspective. Thinks that Red Hat pulled in a lot of
business into Q4, which resulted in a lighter Q1. Adds that Red Hat sets aggressive goals
and its possible that every now and then reps wont be meeting them.

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J u n e 1 8 , 2 0 1 3
Our Q1 wasnt as great as we wanted it to be, but it was still a great quarter. Mentions
that his Red Hat business was at about 95% of plan. Thinks that everybody was in really
the same boat. I talked to a number of partners that had a great quarter, because they
had the one or two big deals that are out thereand then you talk to other partners that
had just tremendous Q4s for Red Hat and they were down a little bit [for Q1].
Products mix for his business 80% Red Hat Enterprise Linux [RHEL], 10-15% JBoss
(middleware) and rest 5% - Red Hat Enterprise Virtualization [RHEV] and Storage.
RHEL still leads the way.
Middleware strength is great. But mentions that there is continuous competition from
IBM WebSphere and Oracles Weblogic. The technology is there, developers love it,
obviously its the open source modelbut it is slow moving mainly because it is expensive
as compared to the other Red Hat products. Mentions that there are some large middleware
opportunities in the pipeline.
Havent seen as much traction with Storage over the last year as we would have wanted
to. Mentions that lot of it has to do with the lack of technical expertise in selling Gluster.
It is just very technologically advanced.you need technical people to be able to sell, and
also more importantly implement and manage and run that product. Mentions that there
are only a handful of partners that can do it. Thinks that Red Hat is just not in a position
to scale that product at this point.
RHEV continues to not be as fast growing.but they are seeing snippets of success.
Mentions that at this point in time Red Hat is not looking to rip and replace VMware servers
but more trying to co-exist with VMware and prove a point to the customer that RHEV can
be as effective as VMware. Once that point is made than we can go in and say ok, let's
decommission these servers and let's move those production servers over to RHEV and all
of a sudden, 2-3 years from now you have got 50% of that big time enterprise customers
virtualization environments running on RHEV. Thats the goal.
Pipeline looks solidI am not at all worried about Q2 and really the rest of the year.
Mentions that he is hearing that Red Hat might change their entire partner model to more of
an Authorization Model, where partners would need more authorization / specializations
to sell different parts of the stack within their solution set. So, more specialized partner
eco-system.
Talking about the state, local and education [SLED] sector, thinks that there is a
tremendous amount of whitespace out there that they are not even touching, they are not
even sniffing. Thinks that there is a lot of Greenfield opportunity that they can go after
in this sector. Thinks SLED is currently about 5% of Red Hats public sector business, rest
being all federal opportunities.
Industry Contact 5
In speaking with some senior people at Red Hat as to where he should put his sales efforts,
they indicated that he needs to focus on everything but storage. He was told to focus on
Open Stack, RHEL, RHEV, JBoss, etc. Theres a firm belief that theres a problem [with
Gluster] at very much a technical level, and as a result of that they are basically boxing in
everything into use case environments. In other words, if theres not an existing use case,
lets put this inside of a box and create a use case for what youre looking to do, if this makes
sense.
Gluster is a file system, thats what it is. At its heart its a humongous file system that is
very flexible and offers a lot of openness so that you can do a lot of things with it. His own
staff has had trouble doing some things with Gluster that Red Hat said they should be able
to do, and in some cases theyve been able to do great things with Gluster. He brought this
up to someone else at Red Hat and they talked completely around the topic. He was told
to not apply Gluster to a database or OLTP environment because its not going to work.
Thats not what its designed for. But if you deploy it into the right environmentyou can
create for basically a fraction of the price of traditional storage from IBM, HDS [Hitachi
Data System], etcthe storage that you need for whatever the requirement is and you can
also still deploy it for...a somewhat larger fraction of the cost of some of the new players
entering the market like Nimble and others.
With the right use cases customers are very happy with Gluster. I met two of them at the
show, both of them, biggest fans of Gluster youll ever meet. Biggest fans of Red Hat Storage
youll ever meet. Huge fans. Talked to Pandora Radio, huge fan. Perfect environment. Big
media customers. One of them was a Telco utility with a big data project where he needed

R
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J u n e 1 8 , 2 0 1 3
to have 10 TB of space, which really means he needed about 100 TB of space. When he
went to his IT group and said I need 10 TB of storage. They came back to him with a cost
that was 3x his project budget. He came in under budget in the end by using [Gluster] and
doing some other stuff. Open Source, its it. So Red Hat has done a good thing by acquiring
Gluster for that environment.
He refers to NetApp sales reps he knew 15 and 20 years ago who drove around their cars
with a filer in the trunk. They would go to a customer and talk to a systems administrator
and look for problems, or look for areas where they were having troubles. The rep would
then offer the filer, for free, no questions asked. Then the rep installed it into the rack and
nine times out of 10 that filer would never leave. Thats what Red Hat has to do. Thats
what we as partners have to do with Red Hat.
He agrees that there are problems at a technical level with Gluster. Today Gluster does not
provide what people are expecting, such as replication features, all of the stuff that storage
guys are used to. Youre not going to sell this to a storage guy. Ever. The only storage guy
thats going to buy this is a storage guy that used to be a system administrator and really
is still a system administrator.
Eventually their storage product will evolve into something that will become critical as
part of these OpenStack deployments.
Their first quarter as far as I understand was not what they were expecting. At least from
our perspective, their second quarter will more than make up for that."

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April 2014
Ma r c h 2 7 , 2 0 1 3
Deep-Dive Checks Highlight Steady Traction Across Products
PRICE: US$49.25
TARGET: US$57.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$57.00
FY13E EPS US$1.16
FY14E EPS US$1.36
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive conversations with a couple of key RHT partners provide a window into
the demand trends driving the RHT ecosystem. Key Takeaways: 1) Partners continue
to see steady Linux trends and early traction in Storage, while JBoss seems to be
driving a migration wave off of proprietary closed systems, including early interest for
the FuseSource product acquired by RHT earlier in the year; and 2) These particular
partners are disappointed in recent RHEV virtualization demand, although they expect
better traction in FY14. We think investors are expecting and pricing in some softness in
the wake of ORCL/TIBX shortfalls, and we note that RHT has finally reached the lower
end of our expected 15-25x OCF trading range, creating a better LT upside scenario as
RHT capitalizes on the move to hybrid cloud architectures. Overweight, $57 target.
Notable Quotes:
(+) RHEL "has been, is and will continue to be their go-to bread and butter product.
(+) We sold some really big deals that were JBoss relatedwe are seeing a lot of
people transition and migrate from IBM WebSphere/ [Oracle] WebLogic to JBoss.
(+) Based on his conversations with sales reps [in the Open Source ecosystem], thinks
that there were not too many reps that were below 100% of their plan. Also adds that
the quotas have been going up and as a result the reps are still hitting their numbers
but they are not blowing their numbers out, as much as they have been in the recent
past.
(-) A pain point and a struggle is still RHEV [Red Hat Enterprise Virtualization]it
hasnt garnered as much interest as they had hoped.
(-) Mentions that Red Hat is also doing a lot of reshuffling the way the sales teams
are organized, mainly on the commercial side.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7 281.3 290.0 297.0 1,133.1 1,277.9 8.5x 7.5x
314.7A 322.6A 343.6A 347.3 1,328.2 1,465.6 7.3x 6.6x
358.8 368.8 390.7 404.1 1,522.4 1,688.9 6.3x 5.7x
0.24 0.29 0.28 0.29 1.10 1.16 44.8x 42.5x
0.30A 0.28A 0.29A 0.29 1.16 1.28 42.5x 38.5x
0.30 0.32 0.36 0.37 1.36 1.53 36.2x 32.2x

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April 2014
Ma r c h 2 7 , 2 0 1 3
Detailed Positive Feedback (2) Industry Contact 1
Things are great in the Red Hat world
Categorizes RHEL [Red Hat Enterprise Linux], Middleware and Storage as the top three
product lines in terms of momentum seen during Q4.
RHEL "has been, is and will continue to be their go-to bread and butter product. Thinks
that demand in the cloud market from an infrastructure play will continue to drive the
demand momentum associated with RHEL.
Thinks Middleware is growing a lot and expects it to continue in FY2014. We sold some
really big deals that were JBoss relatedwe are seeing a lot of people transition and migrate
from IBM WebSphere/ [Oracle] WebLogic to JBoss
Starting to see Storage take off a little bit. Mentions that Storage is still sold in a controlled
manner. I think this year its really going to show a year where storage is going to break-
in and going to be double-digit percentage of my businessWe see questions and requests
about Storage all the time.
A pain point and a struggle is still RHEV [Red Hat Enterprise Virtualization]it hasnt
garnered as much interest as they had hoped. Seeing customers use RHEV in conjunction
with VMware but it's much slower [adoption] than what Red Hat thought. Thinks its
going to be big for FY14 for sure, based on some things that Red Hat has done around
RHEV in the last few quarters.
Thinks that both Platform-as-a-Service and Infrastructure-as-a-Service are getting a lot of

traction in terms of discussions. Thinks that a Red Hat OpenStack solution will be entered
in the channel later this year.
Thinks that Red Hat is increasingly making a complete solution sell working in
conjunction with their partners. Instead of just having a really big RHEL deal with a little
bit of JBoss, they have really big RHEL deals with a lot of JBoss and a lot of Storage. Our
top two or three largest deals last quarter were full blown Red Hat product suite. It wasnt
90% RHEL, 5% Storage and 5% JBoss. It was 60% RHEL, 30% JBoss, and 10% Storage.
It was a good mix.
Deal Commentary
We had a number of larger dealswe had a couple over $2-3 millionwe definitely
had a larger amount [5-8 deals] of 7-figure deals this past quarter than we ever had
in any quarter last yearthere were a number of deals that were within the $500,000
to $1 million range.
Our average [Red Hat] deal size is certainly growing. We are not seeing as many
$10,000 deals as we used to see. We are seeing a number of $20, $30, $40, $50k deals
compared to quarters past.
Thinks that the increase in deal sizes is mainly due to the success of Red Hats land
and expand strategy.
Mentions that a couple of the million dollar plus deals were competing with Oracle,
a couple of them are new data centers' hardware refresh and a couple of them are
big time 3-year renewals.
Thinks that some of the products acquired in FY2013 like Gluster, FuseSource, ManageIQ
etc. will help Red Hat expand even more into not necessarily current customers but new
customers. Thinks that Red Hat has a lot of potential to mine the customer base of these
acquisitions.
"We had our best quarter ever, we had our best month in February. Estimates a y/y growth
of 30-35%.
Based on his conversations with sales reps [in the Open Source ecosystem], thinks that there
were not too many reps that were below 100% of their plan. Also adds that the quotas
have been going up and as a result the reps are still hitting their numbers but they are not
blowing their numbers out, as much as they have been in the recent past.
Mentions that JBoss is a 6-12 months sales cycle.
Thinks that Red Hat is extremely top heavy with the business [government] when it comes
to Fed vs. SLED [State and Local Gov't and Education] and thinks that such a mix is not
sustainable in the long run. Thinks that SLED is a big focal point for them in FY14.

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April 2014
Ma r c h 2 7 , 2 0 1 3
Industry Contact 2
His Red Hat practice [focused mainly around JBoss] saw a good increase from last year.
Saw growth of 15-20% y/y, including renewals.
Saw a lot of people interested in the Fuse product. Mentions that Red Hat is starting
to integrate them into the rest of the middleware stack. Mentions that many customers
working in verticals such as Manufacturing, Retail, Financial Institutions, that have a lot of
distributed systems who would ordinarily implement a service oriented architecture, they
are really looking at Fuse because its more lightweight, it could be distributed out to the
edge of the enterprisethats really complementing the middleware product very well.
Thinks that Red Hat is engaging a lot with them around the Platform-as-a-Service side.
They are trying to get their messaging down on that and tie in Red Hat Storage.
Referring to Virtualization, thinks that Red Hat has lost that battle in many ways. He is
not seeing much traction.
Based on the way Red Hat is selling Storage and how they are carefully selecting the partners
who can sell Storage, he doubts that maybe Storage is ready for prime-time.
Not aware of any particular mega deals signed in Q4.
Thinks that Red Hat is also tweaking their partner model in terms of incentives. Mentions
that Red Hat is paying a few points of extra margin to partners who add additional value
to a deal or relationship.
Based on his conversations with sales reps [in the Open Source ecosystem], I didnt get the
feeling this quarter like I have some in the past that they were really struggling or getting
lot of pressure to bring in deals early. Thinks that, in general, other partners also had a
good quarter.
Mentions that Red Hat is also doing a lot of reshuffling the way the sales teams are
organized, mainly on the commercial side. Adds that some of the partner sales reps have
been moved to named accounts while some of the inside sales reps are being organized under
the channel director to make them more partner focused.

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April 2014
Ma r c h 2 6 , 2 0 1 3
Results & Guidance Unlikely to Excite; Reducing Target; Undervalued LT
PRICE: US$48.99
TARGET: US$57.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
FY13E EPS US$1.16
FY14E EPS US$1.36
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
USD
Source: Bloomberg
CONCLUSI ON
We surveyed 47 RHT resellers and found that they finished 1.2% above plan for Q4,
similar to the most recent results, but running in a lower gear as compared to the last two
Q4s, as the data downticked y/y against all 4 metrics we track. While certain elements
of the survey suggest fairly consistent end-market demand, the observed pace of Unix-
to-Linux migrations downticked again. Checks suggest softer Government spending
(RHT's top vertical) with "discussion of projects being scaled back and sense of urgency
waning." We suspect off-balance sheet backlog will be a more important consideration
than usual if customers elected to hold onto cash amidst uncertainty. We continue to
expect margin guidance below consensus. The good news is: RHT has finally reached
the lower end of our expected 15-25x OCF trading range as ORCL/TIBX-driven fears
mount, creating a better LT upside scenario. Overweight; price target from $65 to $57.
Partners 1.2% Above Plan in Q4. Partners we surveyed finished 1.2% above plan for
Q4, not materially different than the 0.7% outperformance in Q3, but running in a
lower gear as compared to the last two Q4s. We think it will translate into roughly
low to mid teens billings growth for RHT in Q4, with a wider than normal range of
outcomes as a function of year-end multi-year billing activity.
Normal Pace of Business But Slowing Unix-to-Linux Migrations. 30% of partners

saw a Better pace of business while only 4% saw a Worse pace of business in Q4. This
results in a "net-better" score of 26%, which is slightly better than last quarter and
within the normal range of 14-30% for prior quarters, excluding the Q3:FY12 outlier.
Additionally, in aggregate, although partners continue to observe a Net-faster pace of
Unix to Linux migrations, the magnitude in the last couple of quarters is decelerating.
In Q4, only 21% of partners saw a Faster pace of UNIX to Linux migrations as
compared to 23% in Q3 and 30% in Q2, while 15% saw a slower pace as compared
to 14% last quarter and 12 % in the quarter before. The migration pace result is
inconsistent with our year-end CIO survey, which showed a strengthening of Linux
intentions and a deceleration in Unix intentions, and we do not yet know how to
interpret this divergence apart from the possibility that large IT organizations are
simply in more of a holding pattern based upon macroeconomic uncertainty, rather
than pushing forward with high-ROI projects at the normal pace.
*** DETAILED Survey Data on page 2 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7 281.3 290.0 297.0 1,133.1 1,277.9 8.5x 7.5x
314.7A 322.6A 343.6A 347.3 1,328.2 1,465.6 7.2x 6.5x
358.8 368.8 390.7 404.1 1,522.4 1,688.9 6.3x 5.7x
0.24 0.29 0.28 0.29 1.10 1.16 44.5x 42.2x
0.30A 0.28A 0.29A 0.29 1.16 1.28 42.2x 38.3x
0.30 0.32 0.36 0.37 1.36 1.53 36.0x 32.0x

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Ma r c h 2 6 , 2 0 1 3
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13 Q4:FY13
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50 52 47
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2% 0.7% 1.2%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0% 23.1% 21.3%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0% 63.4% 63.8%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0% 13.5% 14.9%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0% 9.6% 6.4%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0% 55.8% 66.0%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0% 9.6% 4.3%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.1%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0% 25.0% 25.5%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0% 7.7% 19.1%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0% 80.8% 70.2%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0% 11.5% 10.6%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0% -3.8% 8.5%
1.3%
0.9%
1.5% 1.5%
-0.1%
1.5%
1.7%
-0.4%
1.2%
0.7%
1.2%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
16.3%
28.3%
14.0%
26.2%
16.7%
4.0%
28.3%
16.0%
14.0%
25.0%
25.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
-8.1%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-3.8%
8.5%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Above %
16.3%
26.1%
22.0%
21.4%
16.6%
12.0%
18.8%
0.0%
18.0%
9.6%
6.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Price Target Change Our price target of $57 (was $65) is based on 19x (was 22x) FY14 OCF of $2.62/sh plus $6.90
net cash per share. The lower multiple reflects a lower peer group multiple.

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April 2014
J a n u a r y 9 , 2 0 1 3
On the Road with Red Hat: Confidence in Core Linux, Hybrid Cloud Opportunity
PRICE: US$54.58
TARGET: US$65.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$65.00
FY13E EPS US$1.16
FY14E EPS US$1.36
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
USD
Source: Bloomberg
CONCLUSI ON
We hosted RHT CFO Charlie Peters and VP of Investor Relations Tom McCallum in
investor meetings. Key takeaways: 1) the company exuded confidence in the growth
runway for its core RHEL operating system business because of the opportunity to take
share from Microsoft, and expects to see good, steady, solid, predictable growth; 2)
RHTs growth has been largely decoupled from server growth due to the move from
CPU-based to socket-based pricing; 3) RHT expects the world to gravitate toward
open hybrid cloud architectures, advantaging RHT because it is one of the only major
software vendors which powers both public and private clouds; 4) the storage market
(i.e. Gluster) could conceivably become larger than the Virtualization market over time;
and 5) RHT sounded noncommittal on margin expansion for FY14 as it goes for growth
and expansion of TAM. We reaffirm RHT as one of our top long term picks.
Confident in Linux Growth Runway. RHT expressed confidence in the future growth
trajectory of its core Linux business (which we estimate at 70-80% of revenue) due to
several factors. First, the Unix market remains an easy target because it is an older
installed base, and remains a multi-billion-dollar opportunity. Second, in the last few
years what RHT is seeing and pushing is a Windows to Linux conversion opportunity.
Linux simply doesnt get hacked the way Windows does, and doesnt tend to suffer
from downtime like Windows does. This is partly a result of the fact that there are
constantly so many eyes on Linux code, due to its open-source nature, that its hard to
make a change without many people noticing. Note that we first surfaced the idea of
an emerging Windows opportunity several years ago, and that our RHT reseller survey
work continues to show steady progress. RHT also noted that IDCs estimates show
Linux will add another 5 points of share through 2017, while other operating systems
are expected to lose market share. Finally, we remind investors that our proprietary
CIO survey series has consistently shown that Linux should be the fastest server OS
share gainer, followed closely by Windows, while Unix and Mainframe operating
systems appear to be very clear share-losers.
Decoupling from Server Growth; Beneficial to Multi-Year Growth Trajectory. With

the release of RHEL 6 in November 2010, Red Hat changed how it prices the OS.
RHEL 4 had 3 price points, and RHEL 5 had 2 price points. With RHEL 6, Red Hat
disaggregated some of the technology and made it more like a Chinese-style menu.
More importantly, it made the pricing more dependent on the particular hardware
being used to support the OS. Customers were upgrading their hardware, and instead
of adding new servers in a linear fashion, they were able to get the same compute
power out of one machine, as they previously realized from 3 or 4 machines. Most of
the older machines were 2-socket machines. <continued on pages 2-3>
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7 281.3 290.0 297.0 1,133.1 1,277.9 9.4x 8.4x
314.7A 322.6A 343.6A 347.3 1,328.2 1,465.6 8.0x 7.3x
358.8 368.8 390.7 404.1 1,522.4 1,688.9 7.0x 6.3x
0.24 0.29 0.28 0.29 1.10 1.16 49.6x 47.1x
0.30A 0.28A 0.29A 0.29 1.16 1.28 47.1x 42.6x
0.30 0.32 0.36 0.37 1.36 1.53 40.1x 35.7x

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April 2014
J a n u a r y 9 , 2 0 1 3
Going forward, if the customer sticks with 2-socket machines, then its pricing doesnt change.
If the customer upgrades a machine to 4-socket, the pricing for RHEL would double. We have
two important beliefs about this change. First, it didnt cause an immediate surge in business
when RHEL 6 was released. Pricing only changes when customers renew, AND when they
upgrade their hardware. For many customers, this wouldnt happen until 3 or 6 years have
passed. So, the impact is positive, but it blends in over time due to the subscription model.
Second, RHT estimates that 65-70 percent of its accounts are still on 2-socket machines. Thus,
the theory that the pricing uplift has already come and gone doesnt seem to hold any water.
If anything, the pricing change probably drives a gentle and steady multi-year tailwind.
Gravitation Toward Open/Hybrid Clouds. It has been steadily sinking in with investors
that workloads are moving to the Cloud. It is easy to deduce that this creates a very strong
tailwind for pure multi-tenant SaaS providers such as Salesforce.com and Workday, and
casts a shadow over pure on-premise software providers such as Symantec and Computer
Associates. However, what does it mean for software that runs on-premise, but is also a
key foundational element of both public and private clouds? Red Hat envisions a future
in which organizations dont just move to public clouds, but rather, move to open/hybrid
environments, using open source software within both public and private clouds. Based
upon the findings of our proprietary CIO survey series, which showed in December 2011
that private clouds were commanding attention, we agree with this assessment. The good
news for Red Hat is that it has intelligently positioned to ride both waves. First, it can
sell its OS and middleware offerings to public cloud providers such as Rackspace and
Salesforce.com. Second, it can sell Red Hat instances within the public cloud in what we
call a pass-through model; Amazons AWS is one example. A startup company can spin-up
an OS in Amazon, using Red Hat like a utility. The startup will pay Amazon, and Amazon
will pay Red Hat. Third, Red Hat benefits from the construction of private clouds. Most
large companies are virtualizing and modernizing their data centers to become a scalable
pool of shared resources.
Storage: Nascent and Small, but Big Long Term Opportunity. Red Hat still refers to its
Virtualization and Storage offerings as nascent and small. In our view, the company is going
out of its way to ensure that it doesnt over-sell the near-term business opportunity. For
example, it noted that it hasnt seen any 7-figure deals for its storage product (i.e. Gluster)
yet, although it has seen 6-figure storage transactions. It also described Gluster as a more
divergent acquisition track than many of its other recent tuck-ins which fold into the
middleware business. That said, Red Hat did also note that it is investigating whether it
might see an OEM opportunity for its storage product, via OEMs such as HP, IBM, or
Dell. Additionally, in the very long run, the company believes that the storage market could
conceivably become bigger than the virtualization market over time. Thus, while its very
nascent and small in scale, the very long run opportunity in software-defined storage is
quite large for Red Hat.
TAM Now Exceeds $50B. In adding up the operating system market, the middleware
market, the storage market, and the virtualization market, Red Hat noted that it now faces a
total market exceeding $50B. Red Hat could probably update that number (and increase it)
based upon a few recent small acquisitions it has made. On the one hand, we are generally
hesitant to get overly excited about expansion of TAM pronouncements. You could make
a pair of windshield wipers by hand, sell them to your buddy for $10, and then declare
that you now participate in the $50B global market for automotive parts. How meaningful
would that statement really be? How many technology companies have ever reached a scale
that is even 1/10th of their self-proclaimed addressable market size? On the other hand, we
see a difference for Red Hat and think the TAM is worth considering. Our CIO surveys,
reseller surveys, and customer surveys all paint a uniquely positive picture for RHT, and
have for years. Its open source business model is innovative and disruptive. Its revenue scale,
growth rate, and cash flow generation create a very rare combination. Its ability to enter
multiple, very large infrastructure software markets and drive a rare price/performance
equation has been repeatedly borne out. Thus, we think its reasonable to take Red Hats
TAM observations more seriously than one usually would.

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April 2014
J a n u a r y 9 , 2 0 1 3
Fiscal Cliff Resolution: No Material Impact Either Way. We dont believe the timing or
nature of the US Fiscal Cliff resolution was any different than Red Hat or its customers
expected. It does not appear that Red Hat experienced any surge in bookings in the days
following the announcement on January 1, 2013. The company reported a reasonably good
November quarter, and it now hopes that the Fiscal Cliff is a blip and wont have much
impact on the business. Based on a couple of discussions with other software companies in
recent days, we believe this is the prevalent viewpoint.
OpenStack to Become Monetizable Opportunity. Investors asked whether OpenStack

represents competition or partnership. The most likely answer is both. OpenStack was
started by NASA and Rackspace. For a while, Rackspace was controlling the open source
project, and it apparently didnt have much collaborative traction in that form. We believe
Red Hat, and possibly others, suggested that Rackspace put OpenStack into a foundation.
When it did so, Red Hat, IBM, and others announced that they were joining that foundation.
Today we believe Red Hat is the #2 contributor to OpenStack. Currently Red Hat doesnt
charge anything and doesnt offer support for OpenStack. However, it clearly stated that it
intends to have a commercial OpenStack product sold via subscription, just as it does today
with RHEL. It is looking for a code base that it can lock down, as it does with RHEL, and
then update it regularly. It is probably too early to tell how meaningful this will be, but we
look for Red Hat to have a monetizable OpenStack offering in less than 12 months.
Indirect Mix Could Rise to 70%. Red Hats Indirect channel mix has risen fairly steadily
from ~50% in 2008, to 60-65% in the past year. The company noted that it has reset its
goal to 70% indirect / 30% direct, and stated that this is a very reasonable objective. We
have a few thoughts about this. First, the shift toward channel business should be good news
for margins as Red Hat doesnt have to carry the cost of a direct selling team. Second, the
shift toward channel business can help to create a broader and more sustaining ecosystem,
as a larger array of partners will be levered to Red Hats success. Third, the shift toward
channel business might create greater cash flow consistency, as we believe essentially all
long term channel contracts will be billed upfront, whereas there is room to negotiate
for customers who go direct. Fourth, the mix shift increases the value of our proprietary
Red Hat reseller survey, which we believe is the single most valuable resource available to
investors for understanding the trend and inner workings of the Red Hat ecosystem.

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April 2014
De c e mb e r 2 0 , 2 0 1 2
Deep-Dive Checks Highlight Positive JBoss and Early Storage Traction
PRICE: US$52.20
TARGET: US$64.50
24.7x our FY13E OCF of $2.34 +$6.75 net
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$64.50
FY13E EPS US$1.16
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive conversations with a handful of key RHT partners provide a window
into the demand trends driving the RHT ecosystem. Key Takeaways: 1) Red Hat Storage
(Gluster) is seeing early traction, even in the current closed distribution model and
partners are very optimistic about its potential going forward; and 2) JBoss adoption
continues to broaden and is driven by a wave of middleware strategy refresh initiatives.
Many companies are using JBoss to modernize their middleware architecture and make
it flexible enough to embrace cloud or mobility in the future. We are cautious on Q4
revenue guidance, as RHT typically guides Q4 sequentially flattish, but would buy on
weakness because we continue to believe RHT can grow double digits as it plays into the
secular trends of cloud computing, open source, virtualization and unstructured data.
Overweight, $64.50 target.
Notable Quotes:
(+) I think in the next couple of years you are really going to see the uptick in storage
and thats really going to take them into that $3 to $4 to $5B range in the next 3-4
years, if you ask me.
(+) We are getting some pretty big names, well known firms that are adopting
[JBoss].
(+) We actually had the best quarter we ever had from Red Hat sales. We had the
best month November.
(=) I dont know if they had any really big ones [deals] this last quarter. They
maintained pretty decent [deals] million dollars here, million dollars there.
(-) It [Red Hat Enterprise Virtualization] has not taken off in the marketplace as
much as they would have wanted it to.
(-) "I think there is a fair deal of uncertainty on the government sideI dont think
it's stopping them from proceeding as usual, but they are just staying really cautious.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,270.8E 9.0x 8.0x
314.7A 322.6A 336.5 348.4 1,322.3 1,462.4 7.7x 7.0x
356.1 368.8 389.1 405.5 1,519.5 6.7x NA
0.24A 0.29A 0.28A 0.29A 1.10A 1.15E 47.5x 45.4x
0.30A 0.28A 0.28 0.30 1.16 1.31 45.0x 39.8x
0.33 0.32 0.36 0.37 1.38 37.8x NA

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Detailed Positive Feedback (4)
Industry Contact 1
Mentioned that RHEL [Red Hat Enterprise Linux] continues to lead the way in
terms of sales.
Mentions that the storage product didnt completely get off the ground like they
wanted to. Adds that it is still a closed distribution model and because of that there
is not a ton of demand. Although the beauty of storage is that its an expensive
product. So, for the little bit of demand thats out there, it does relate and equate
to decent revenue.
Thinks that Red Hat is going to really ramp up their storage sales along with help
from hardware and integration partners. Because it is more of an expensive product
than the RHEL product or the RHEV [Red Hat Enterprise Virtualization]product,
you dont have to necessarily sell a lot of units to see a lot of revenue. I think in
the next couple of years you are really going to see the uptick in storage and thats
really going to take them into that $3 to $4 to $5B range in the next 3-4 years, if
you ask me.
Thinks that RHEV [Red Hat Enterprise Virtualization] has been a bit up and
down. Thinks that a lot of that is not necessarily reflective of demand at the end-
user level. A vendor really needs to market and actively sell their products against
what their competition is doing. It [RHEV] has not taken off in the marketplace
as much as they would have wanted it to.
Thinks that the recent release of RHEV 3.1 is going to help Red Hat because it
really fills in the gaps, what a lot of those high-end users were wanting to see, and
the technology basically emulates that of VMwares vSphere. Thinks Red Hat has
functional parity with VMware vSphere with the new release.
Seeing an uptick in middleware. Adds that like storage, JBoss is also an expensive
product and every JBoss deal is a decent-sized opportunity. Thinks JBoss is a great
product and it leads the market from a technology perspective. Thinks that
Middleware is an extremely technical sale.
This next two and a half months is going to be great for everybody. Thinks that
Red Hat will have another great year and can grow [as much as] 30-40%. However,
adds that for Red Hat, it's going to be hard to sustain 30-40% growth y/y without
these emerging products such as JBoss, Storage, RHEV and Cloud.
We actually had the best quarter we ever had from Red Hat sales. We had the best
month November. His red Hat practice grew 30+% last quarter. He is forecasting
at 30-40% growth for next fiscal year. If we do a couple of things right in the next
couple of months in particular, we could double our business for sure.
Estimates that RHEL is about 80% of his Red Hat sales followed by JBoss at 10-15%
and the rest being other new technologies. They are going to finish their fiscal year
strong with their bread and butter. I think it's going to tend to lead to a much
more diversified Red Hat FY14.
It's interesting depending on who you talk to. You talk to partners, they are like -
this is our best quarter ever. But his conversations with other contacts reveal that
we missed a little bit. You forget that they set such high quotas and goals for
themselves. Explains that even if a sales rep makes 90-95% instead of 100-120% of
his quota which grew 40% y/y, the company can still grow +30% y/y. Mentions that
partners have more realistic goals. From an upper level management perspective
and executive level, they are killing it.
I dont know if they had any really big ones [deals] this last quarter. They
maintained pretty decent [deals] million dollars here, million dollars there.
Thinks that Red Hat had a really big deal in FQ2 in the 8-figure range. We definitely
have closed a number of 7-figure plus deals.
I am not going to say that people are not nervous about spending. We are still
seeing some pain points around fiscal cliff and whats going to happen next.
Thinks that any spending cuts will not affect Red Hat's renewal business, which he
thinks is extremely resilient. Thinks that the spending slowdown could be a reason
why they [the channel sales guys] potentially didnt hit the astronomical growth
numbers of 40+%.

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They have a proven method that for every dollar spent today on Red Hat, it equals
about a dollar twenty to a dollar thirty tomorrow.
Government business Acknowledges that the fiscal cliff worries would have more
effect in the government sector but adds that he would guess "they had a pretty
strong quarter in that sector.
Industry Contact 2
Thinks RHEL [Red Hat Enterprise Linux] business is very consistent. Wouldnt say
saw an uptick in RHEL but I wouldnt say it chopped-off either.
Mentions that Red Hat middleware is slowly but steadily picking up steam.
Closed two large all-JBoss deals with a cumulative size of $400k at the end of
November. We are getting some pretty big names, well known firms that are
adopting. Both of these firms wanted to move to next generation middleware
architecture and finally chose JBoss. Thinks the move is inspired by the need to
adopt open standards and to design architecture flexible enough to embrace cloud
or mobility in the future, if need be.
Thinks that the acquisition of FuseSource was a big move by Red Hat. Mentions
that a lot of customers are sending requests for pricing for FuseSource, but Red Hat
still has it under special bid and it is not a part of their official price list. A lot of
people are interested in what Fuse is going to bring to the table.
Mentions that adopting a middleware platform is a pretty involved decision and
involves a longer sales cycle. Adds that a JBoss deal could start small and then over
maybe a year grow to a couple of million dollars as the customer adds different
modules. Talks about an $11M deal signed a few quarters ago. Mentions that the
deals involving a revamping of the middleware architecture can become really big
in a short time frame.
Thinks that JBoss is a viable alternative to TIBCO, WebSphere or WebLogic.
Thinks RHEV [Red Hat Enterprise Virtualization] is an area where Red Hat has
some potential to do more transactional and short term stuff.
Thinks Gluster [Red Hat Storage] is going to be a good sell. Mentions that Gluster
with RHEV could be a very strong product. If you spin up a Red Hat virtual
machine and if Gluster is on it, its like you are automatically expanding your storage
capacity just like spinning up another nodeI think thats going to be a big piece
and they can capitalize on it.
Had a great quarter [for his business] last quarter, particularly last month. Some
of the bigger deals on the JBoss side closed.We crushed it. Estimates that his
growth in the middleware side is well over 100%. Thinks that [his middleware
practice] can grow another 100% next year.
Mentions that Red Hat is incenting the reps more to use partners for professional
services as compared to a year ago.
Mentions that the sales guys [In the open source ecosystem] he interacts with are
generally happy recently. I dont get the same sense as I got last quarter where
they were scrambling to bring in every last deal..Seems like the pressure eased a little
bit.
Hasnt seen any slowdown in business, at least on the commercial side.
Met with a government client last week who had some net new Red Hat subscription
requirements but they kept tempering their statement by saying that we are not
sure where our funding situation is going to be with the fiscal cliffI think there is
a fair deal of uncertainty on the government sideI dont think it's stopping them
from proceeding as usual but they are just staying really cautious Thinks that if
the US goes over the fiscal cliff then a lot of funding will get cut across the board
for the various agencies.
Industry Contact 3
Thinks that as customers rethink their strategy to move into the cloud, they are
considering Red Hat Enterprise Linux Server as well as RHEV [Red Hat Enterprise

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Virtualization]. People are definitely moving into that direction and finding a lot
more cost savings than going into a VMware route.
RHEV has been picking up. Its actually getting more popular.
Talking about rip-and-replacement RHEV against VMware deals Its already
happening in some sectorspeople are trying to be a little more cost effective in
new environmentsyes we are seeing that.
Mentions that the sales guys [In the open source ecosystem] he interacts with are
pretty happy recently.
Hasnt seen any slowdown in IT spending at all and he is definitely on plan.
Industry Contact 4
Demand
The bad economy, so to speak, has actually been good for Red Hat. A lot
of our customers, and not just our customers, but people in all industries,
are looking to save on costs. Theyre looking to move from higher-priced
operating systems, like Solaris, which is free, but the infrastructure for it is
very expensive. Theyre looking to move down to commodity based servers
running RHEL.
This trend has continued as Red Hat has come out with more software
options, like its virtualization platform, which is a big cost savings over
VMware.
Three or four years ago no one would have ever thought of running Oracle
on Red Hat. Even if its not in their critical production environment, theyll
run it in QA or testing and development.
As RHEL matures and Oracles Solaris pricing models prove more costly, the
move to RHEL from Solaris has improved.
He has good customer references for those looking to run Oracle on Red Hat.
Red Hat Enterprise Virtualization [RHEV]
RHEV didnt take off as fast as they thought it would, but word is now
really getting around on that.
With the latest release, RHEV has closed some of the functionality gap with
VMware.
Conversations with Sales [reps in the Open Source ecosystem]
Spoke with his master distributor yesterday, and she said that Red Hat was
the biggest gainer among the products they distribute, overtaking Microsoft
and Check Point.
Detailed Neutral Feedback (1)
Industry Contact 5
Red Hat Enterprise Virtualization [RHEV]
Demand has been slow for RHEV. Its been a very uphill battle.
Youre going up against a Goliath in VMware thats tried, tested and true.
Red Hat needs to be considered an enterprise level virtualization hypervisor
and its just getting it in peoples hands and getting them comfortable with
it.
Hes leveraging RHEV by presenting it as an augmentation. He goes into a
customer and does an analysis to determine what portion of their virtualized
environment could come off of VMware and onto RHEV.
An orchestration layer makes the hypervisor agnostic to the end user. Once
the end user really doesnt know what theyre using, the business can then
drive down costs by using another virtualization solution. All the major
manufacturers provide an orchestration solution: Dell, HP, VMware, Citrix,
etc.
At shops with a couple of hundred VMs, Red Hat might be able to make
a small dent in market share there, but the largest enterprises running
thousands of virtual images is where Red Hat needs to be to take market
share. But these large enterprises first have to make an investment in an

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orchestration layer so they can automate their environment to be hypervisor
agnostic.
Gap between RHEV and VMware
Looking at any software packages, every business demands different features.
Obviously VMware has been on the block longer so theyve been able to
accommodate more customers and thus build in more features.
He estimates Red Hat has 40-50% of VMwares capabilities.
When selling RHEV he finds it unnecessary to compare it directly to
VMware. Hes not trying to say RHEV will do everything a customer wants
for all their virtualization needs, but [RHEV] is going to do everything you
need done for X amount of your environment.
If the customer is already on an ELA [Enterprise License Agreement] with
VMware, thats even tougher.
VMware customers that havent gone to an ELA, who are still paying a ton of
money, and are maybe in a different business unit, are the low hanging fruit.
Its almost like youre trying to augment their test/dev environment right
now and trying to get into some lower level applications to go on their
production, but people wont even put tier-one apps on Hyper-V, and thats
been around longer than RHEV.
The biggest thing that helps a solution provider is getting case studies,
reference customers and reference architectures. Red Hat hasnt really
provided this yet.

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RHT Partners Finish Q3 0.7% Above Plan, Suggests Inline Quarter
PRICE: US$52.20
TARGET: US$64.50
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$64.50
FY13E EPS US$1.16
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We conducted a global survey of 52 RHT resellers and found that they finished 0.7%
above plan for Q3, fairly consistent with the Q2 survey results (+1.2% above plan).
Survey results in aggregate suggest consistent end-markets, as the observed pace of
business up-ticked while the pace of Unix-to-Linux migrations offset this by down-
ticking. Additionally, our detailed discussions about RHEV show partners still view
VMware as king, but as RHEV matures customers are more willing to consider it, as
the product is rapidly improving and becoming more viable. While we characterize the
survey results as only inline and fairly consistent, we note that the setup improves for
RHT entering FY13 due to easier billings comps after the February quarter. We continue
to believe RHT is one of the best plays into the secular trends of cloud computing, open-
source, virtualization and unstructured data. Overweight, $64.50 target.
Partners 0.7% Above Plan in Q3. Partners we surveyed finished 0.7% above plan
for Q3, suggesting slight but arguably immaterial deterioration compared to 1.2%
outperformance in Q2, and inline with our expectation amidst the recent string of
dismal tech results. We think it will translate into roughly mid-teens billings growth
for RHT in Q3, inline with consensus. The survey results for percent of plan, which
have held a tight range of -0.5% to +1.7% for the past three years, underscore the
steady and resilient nature of purchasing patterns through the diversified Red Hat
distribution channel, in our view.
More Normal Pace of Business and Unix-to-Linux Migrations. 35% of partners

saw a Better pace of business while only 10% saw a Worse pace of business in Q3.
This results in a "net-better" score of 25%, which is better than last quarter and
within the normal range of 14-30% for prior quarters, excluding the Q3:FY12 outlier.
Additionally, in aggregate, partners continue to observe a Net-faster pace of Unix to
Linux migrations, but to a smaller degree in Q3. In Q3, 23% of partners saw a Faster
pace of UNIX to Linux migrations as compared to 30% in Q2, while 14% saw a slower
pace as compared to 12% last quarter.
Red Hat Enterprise Virtualization (RHEV) Adoption. We also asked partners to

provide any viewpoints they have relating to customer acceptance and adoption
rates for RHEV. Feedback shows that while VMware continues to dominate the
market, RHT customers are becoming more open to considering it as an option in
their server environment as RHEV continues to narrow the functionality gap (but
certainly isn't all the way there yet) and provides a lower cost alternative.
*** DETAILED Survey Data and Feedback on pages 2-4 ***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,270.8E 9.0x 8.0x
314.7A 322.6A 336.5 348.4 1,322.3 1,462.4 7.7x 7.0x
356.1 368.8 389.1 405.5 1,519.5 6.7x NA
0.24A 0.29A 0.28A 0.29A 1.10A 1.15E 47.5x 45.4x
0.30A 0.28A 0.28 0.30 1.16 1.31 45.0x 39.8x
0.33 0.32 0.36 0.37 1.38 37.8x NA

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Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13 Q3:FY13
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50 52
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2% 0.7%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0% 23.1%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0% 63.4%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0% 13.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0% 9.6%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0% 55.8%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0% 9.6%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0% 25.0%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0% 7.7%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0% 80.8%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0% 11.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0% -3.8%
0.7%
1.3%
0.9%
1.5% 1.5%
-0.1%
1.5%
1.7%
-0.4%
1.2%
0.7%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
17.7%
16.3%
28.3%
14.0%
26.2%
16.7%
4.0%
28.3%
16.0%
14.0%
25.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
11.1%
-8.1%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-3.8%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Above %
28.9%
16.3%
26.1%
22.0%
21.4%
16.6%
12.0%
18.8%
0.0%
18.0%
9.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Exhibit 2: Positive Comments
Regarding RHEV Adoption.
As RHEV matures, customers are becoming more open to discussing it as an option for their
server environment. They see that it is only getting better and is no longer a new, immature
solution. I have many customers starting to test RHEV more seriously and seeing it as a
real competitor to VMware.
I think that, as users discover that indeed RHEV matches the functionality of VMware, the
adoption rate will drastically increase in the next couple of years.
Clients are increasingly seeing it as a viable, customizable, more affordable alternative.
We are seeing more customers open to discussions around RHEV. Some are putting this into
labs and testing environments to see how it compares to other virtualization products.
The majority of my customers are on a VMware platform, however, due to the licensing
changes in VMware, some are considering RHEV as a viable alternative.
We've seen major customers adopt RHEV and it seems to have gone well for them. We can
safely tell other customers that our software will work well for them if they have/switch to
RHEV. VMware and Microsoft are dominant, but it's good Red Hat provides an alternative.
Customers continue to show interest in moving to Red Hat based virtualization for their
requirements.
Customers are interested in this product because of the price, but RHEV isn't [as] mature
(for instance, its management console only works with Internet Explorer!!!) [as] VMware
vSphere.
RHEV clearly aligns with the virtualization and on-demand trends; the more packaged the
offering, the easier it is for customers to accept and adopt.
RHEV is gaining some momentum, but it is a very low priced product. My belief is that the
sales reps and marketing have shifted their focus elsewhere in order to hit quotas, etc.

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If RHEV is accessible for more cloud environments, this gives us bigger opportunity to
convince customers to use it.
Exhibit 3: Neutral Comments
Customers are willing to consider alternatives to VMware. However, the existing VMware
users do push back because they feel threatened. It's not so much about technology, but
influencing a few to "take a risk." Many people don't want to rock the boat.
Red Hat needs more "at bats" to be successful. The product usually sticks when evaluated.
As companies leverage multiple hypervisors in the environment, Red Hat should see an
uptick in business, however Microsoft is coming on strong.
Promoting VM [virtual machine] standalone is becoming an obsolete tactic. Heavy

emphasis is required to adopt cloud by guiding what workload can be migrated to cloud as
well as how to effectively manage the environment.
We don't use RHEV and some customers do. I can't say more than that. Our product does
not use virtualization.
OK acceptance within Red Hat's existing ecosystem; others looking/experimenting; given

the penetration of competitive offerings, it will take time.
It [RHEV] will be accepted as an alternative to VMware and Citrix Xen, but could struggle
to go against Microsoft-based companies who use Hyper-V.
VMware is still hard to beat. But I feel that people are starting to look at other alternatives.
As with all of the virtualization technologies the hypervisor and some of the surrounding
technologies are becoming commoditized. While existing Red Hat customers continue to
be interested in RHEV, there has not been a huge swing from VMware and others to RHEV
and I don't expect there will be.
There are a plethora of virtualization platforms available, so the ones that have solid
support, e.g. RHEV, VMware, MSFT, and a good rep will solidify their position. Since they
all provide the same major capabilities, it is the fine details where one will take share from
another.
RHEV is so much better than Microsoft's offering, but VMware is still the king.
We have no one on staff who is trained to support RHEV.
They [customers] are satisfied with the solutions.
We eventually see the day where all servers will be running a hypervisor underneath several
OS instances.
I think so far it has been OK, I think Red Hat anticipated more acceptance.
Increasing trend toward virtualization.

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Exhibit 4: Negative Comments
Customer acceptance of RHEV seems slow compared to other virtualization platforms such
as Hyper-V and VMware due to a lack of marketing and brand recognition.
If RHEV can get a strong IaaS distribution channel it will survive, but in the Enterprise,
that battle has already been won by VMware.
VMware is still king with Citrix competing in the VDI space. RHEV isn't taken seriously as
an option by the customers. There is also a limited ecosystem around it. Things like backup
tools and 3rd party programs are always written for VMware first and HyperV 2nd, RHEV
rarely.
We have not yet had requests for RHEV from our clients. In almost every case, our clients
use ESXi [VMware] for virtualizing their datacenter. We really have not had anyone express
interest in RHEV at this current time. It's either ESXi, Hyper-V [Microsoft], or OpenStack
[Rackspace] which is gaining customer interest.
Need stronger messaging and marketing (in non-Red Hat specific terms). The key players
(VMware, Wyse, etc) have stronger brand recognition in this space.
We do not come across these opportunities or inquires very much. Primarily they already
have virtualization in place.
We have seen zero demand for this platform from our customer base.
Our clients are still most focused on VMware for virtualization.
Red Hat has to be more focused on the security.
No clients have requested RHEV. Most clients are only familiar with VMware and Xen.
Not seeing it much. VMware seems to have a stronghold.
Again, not seeing Red Hat in SMB market.
Inhibited by concerns around administration.


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Survey of 50 Resellers Suggests More Normal Q2
PRICE: US$58.62
TARGET: US$64.50
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY13E EPS US$1.18
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
* Price as of the close June 18, 2012
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We conducted a global survey of 50 RHT resellers and found that they finished
1.2% above plan for Q2, marking a rebound from our abnormally weak Q1 survey
results (0.4% below plan) which accurately foreshadowed a soft quarter and guidance
reduction. The observed pace of Unix-to-Linux migrations, a key business driver for
RHT, also rebounded from an anomalously weak Q1 into more-normal territory for
Q2. While we are encouraged by the return to more-normal reseller survey results,
we note that 1) the data suggests relative health, not raw strength; 2) due to the
choppy macroeconomic climate and tough comps, we still expect FY13 will be a year
of decelerating billings growth; and 3) RHT shares are currently trading at 25x EV/
FTM OCF, at the high end of our anticipated 15-25x range. Maintain Overweight due
to exposure to favorable secular trends;PT to $64.50 on higher comp group multiples.
Partners 1.2% Above Plan in Q2. Partners we surveyed finished 1.2% above plan for
Q2, an improvement from 0.4% below plan in Q1. We characterize this as a "more
normal" result for Red Hat, and think it will translate into roughly mid-teens billings
growth for RHT in Q2, inline with the consensus expectation of 15% y/y billings
growth. The survey results, which have held a tight range of -0.5% to +1.7% for the
past three years, underscore the steady and resilient nature of purchasing patterns
through the diversified Red Hat distribution channel, in our view.
More Normal Pace of Business and Unix-to-Linux Migrations. 22% of partners saw
a Better pace of business while only 8% saw a Worse pace of business in Q2. This
results in a "net-better" score of 14%, which is essentially within the normal range
of Q1 results over the past several years, as the prior two Q1s came in at 16-17%
net-better. Additionally, in aggregate, partners observe a faster pace of Unix to
Linux migrations, rebounding from the highly unusual Q1 results. 30% of partners
saw a Faster pace of UNIX to Linux migrations, while 12% saw a slower pace.
*** CONTINUED on Page 2 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,274.0E 10.1x 9.0x
314.7A 321.1 341.2 354.8 1,331.8 1,472.4 8.6x 7.8x
356.1 367.1 394.5 412.8 1,530.4 7.5x
0.24A 0.29A 0.28A 0.29A 1.10A 1.16E 53.3x 50.5x
0.30A 0.28 0.30 0.31 1.18 1.30 49.7x 45.1x
0.32 0.30 0.37 0.39 1.38 42.5x

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Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13 Q2:FY13
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50 50
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4% 1.2%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0% 30.0%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0% 58.0%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0% 12.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0% 18.0%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0% 70.0%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0% 8.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0% 14.0%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0% 8.0%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0% 74.0%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0% 18.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0% -10.0%
0.2%
0.7%
1.3%
0.9%
1.5% 1.5%
-0.1%
1.5%
1.7%
-0.4%
1.2%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
27.2%
17.7%
16.3%
28.3%
14.0%
26.2%
16.7%
4.0%
28.3%
16.0%
14.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
9.1%
11.1%
-8.1%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Above %
18.1%
28.9%
16.3%
26.1%
22.0% 21.4%
16.6%
12.0%
18.8%
0.0%
18.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Change in Price Target We have increased our price target from $63 to $64.5, based on 25.6x (was 25x) FY13E OCF
plus net cash. Higher multiple reflects higher peer group multiple.

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Detailed Partner Discussions Uncover RHEV and Storage Subtleties
PRICE: US$58.62
TARGET: US$64.50
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$64.50
FY13E EPS US$1.18
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
35
USD
Source: Bloomberg
CONCLUSI ON
We interviewed a couple of key Red Hat partners to provide deeper insights into real-
time demand trends driving the RHT ecosystem forward. Key Takeaways: 1) RHEV is
seeing traction begin to build, but contributions are limited by its low price point, as
evidenced by a recent transaction in which $30-40K worth of RHEV replaced $200-250K
worth of VMware; 2) Red Hat Storage Server (Gluster), on the other hand, presents
a much higher average order size and is a very technologically advanced product, thus
capable of contributing meaningfully to RHT bookings within roughly a year; and 3)
sources believe Red Hat recently closed a $4-$5M JBoss transaction with a division of
the US Armed Forces. We continue to believe RHT is one of the best plays into the
secular trends of cloud computing, open source, virtualization and unstructured data.
Overweight, $64.50 target.
*** Detailed Feedback is Provided on Pages 2-3 of this Note ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,274.0E 10.1x 9.0x
314.7A 321.1 341.2 354.8 1,331.8 1,472.4 8.6x 7.8x
356.1 367.1 394.5 412.8 1,530.4 7.5x
0.24A 0.29A 0.28A 0.29A 1.10A 1.16E 53.3x 50.5x
0.30A 0.28 0.30 0.31 1.18 1.30 49.7x 45.1x
0.32 0.30 0.37 0.39 1.38 42.5x

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Detailed Partner Feedback

Things are great. People continue to get drawn to the subscription model of Red
Hat Enterprise Linux (RHEL).
Red Hat Enterprise Virtualization (RHEV):
Starting to see some traction with Red Hat Enterprise Virtualization.
Thinks Red Hat is facing the same challenge going after VMware, which they
faced 15 years ago going against Microsoft. Thinks that although RHEV is
not moving as fast as some people would like it to, estimates the growth to
accelerate in the next 6-18 months.
Thinks that the beauty of RHEV is that it allows Red Hat to cross sell and
up sell RHEL.
Thinks it is slow building and the needle is not moving nearly as quickly
as they would like to see it. Thinks it has to do with the positioning of the
product and the story behind it.
Mentions that although the spend on RHEV is increasing within customers,
it's not enough to move the needle yet because it is very inexpensive. Mentions
that RHEV sells for a few thousand dollars while VMware would cost in the
magnitude of a few hundred thousand dollars.
Had a deal a few weeks ago which was a fairly large RHEV deal, which
resulted in $30-40K worth of RHEV replacing $200-250K worth of VMware
and it was just about an entire rip and replace. Thinks we will see more
of such deals but it will be slow moving though because of the low price
point of RHEV. Thinks that in a customer it could take more than two years
to go from 90% VMware / 10% Red Hat to 60% VMware / 40% Red Hat.
Storage (Products acquired from the Gluster acquisition)
Mentions that currently, its a closed distribution model as of now with one
distributor and about 10 authorized partners to sell storage. Expects it to
open to other partners by the end of Red Hats fiscal year.
It is a very technologically advanced product and they [Red Hat] got to have
partners that are willing to invest the time, money and energy in learning
and selling the product.
Thinks that the storage market is 3-4x the market of RHEL.
I think they are really going to grow in the storage marketand we are
going to see tremendous success.
Seeing a little bit of business for sure but adds that its a little early to tell.
Thinks that Red Hat is not going after the EMCs and NetApps of the world,
but against the much more niche players like HP Autonomy for example.
Thinks that the opportunity lies in organizations such as law firms, ad
agencies, etc. which have lots of files that are completely unstructured and
completely sporadic and put them into certain pockets of data that are easily
accessible through Red Hat storage.
Thinks that, down the road, with the storage product, Red Hat will try to
move into the Big Data opportunity no doubt about it.
Mentions that average order size of storage is more expensive than RHEL
or RHEV. So, thinks that we should see Red Hat bookings accelerate as the
storage product becomes mainstream. But I dont think we are really going
to see the growth until the middle of their next [fiscal] yearas soon as we
sell some of it the revenue is going to be through the roof because it is more
expensive.
JBoss
Thinks Red Hat has a revitalized attitude around JBossa revitalized
momentum internally to sell that product.
Mentions that its a much more expensive product [relative to RHEL and
RHEV].
I do foresee large growth in this space.
Estimates in his business, currently JBoss constitutes single digit (6-8%)
percentage of the total Red Hat revenue (75-80% still being RHEL while the

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rest being JBoss, services, storage and RHEV). But I would imagine that
doubles in the next 6-12 months, I really dowe are seeing a spike in that.
Their biggest thing right now is obviously the move to cloud the cloud
infrastructure. And in building out a cloud infrastructureyou need an OS, you
need a virtualization strategy, you need a middleware stack in order for applications
to run and finally you need storage. They have all four of them they have the
complete solution. Thinks that in Red Hats FY13 2H, we are really going to move
to a cloud positioning or cloud offering for customers and partners alike. Thinks
that the cloud positioning will help the RHEV product.
Mentions that he has high hopes for growth of his Red Hat business for 2012.
Internal plan estimates 150% y/y growth.
Mentions that Red Hat's partner community in the last 12-18 months has gone from
around 400-500 partners to about 1000 partners.
Sales Chatter
I think they are doing strong.
Thinks that they actually came through because of some big deals [million
dollar opportunities] coming in at the last minute and they hit their
numbers. His personal guess is that They actually ended up having a great
Q2 for Channel sales.
When their (Red Hats) numbers come out [his hope is that] you will see
great success in Q2.
Saw a statistics that said that Red Hat is present in some form in the IT environment
of over 90% of Fortune 500 companies.

Red Hat Enterprise Linux [RHEL] sales, in terms of net new sales, seem to be
tapering offthe renewals are keeping up, some of them are growing.
On the middleware side, it's [demand] definitely growingtransactions are,
strangely enough I would say are kind of remaining flat, but the deal sizes are going
up. More people are looking at middleware Java application integration, PaaS.
The most interest I am seeing is probably around the virtualization product as a
VMware alternative.
Thinks that the demand for the storage product is too early to tell and is under
a closed distribution model.
Sees a lot of people interested in in-memory data grids or caching. Talks about the
Infinispan project, which is the community version of JBoss Enterprise Data Grid
just like Fedora is the community version of RHEL.
Less confident on the PaaS offering, thats just a bunch of products bundled
together. But thinks that Red Hat will do well in that because of the open
standards and alignment with industry standards, cost savings and lack of
vendor lock in.
But on the infrastructure side, I think thats the most interesting piece because
they are kind of positioning it as a cloud broker. Say, you have an Amazon EC2
deployment and you have a Rackspace deployment and you have a private cloud
deployment, in order for them not to be in silos you have to have a broker to manage
the interaction between different cloud providers and this would be for really large
enterprise obviously. Thats an area where they will do really well.
Sales Chatter
His sense is that the commercial side could have come up a little short from
where they expected to be, based on business trends. Not sure about the
government side though.
Thinks that reps were scrambling to get whatever they can - Some of the reps
were asking about deals, which normally they wouldnt be asking about.
Thinks Red Hat closed a big [armed forces] deal of the magnitude of $4-5M, a JBoss
deal.

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Red Hat Stack - A Compelling Alternative For The Data Center
PRICE: US$55.84
TARGET: US$63.00
cash/ share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$63.00
FY13E EPS US$1.18
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
We attended the Red Hat Summit in Boston last week and walked away incrementally
positive on RHT's long-term outlook. Our conversations with a handful of customers
and about a dozen partners highlight that Red Hat Enterprise Virtualization (RHEV)
is "taking off." Partners specifically mentioned that some of the federal government
agencies are taking a serious look at RHEV. Regarding the Red Hat Storage product
(Gluster), partners sound bullish on its long-term potential and mentioned that Red Hat
is working toward a storage reference architecture with Mellanox, Intel and Cisco, which
could become the standard for cloud storage. We continue to believe RHT is one of the
best plays into the secular trends of cloud computing, open-source, virtualization and
unstructured data. We would take advantage of any pullbacks to patiently accumulate
shares, with a 12-month horizon. Reiterate Overweight, $63 target.
Key Points:
Conversations with Red Hat customers highlight growing interest in Red Hat
Enterprise Virtualization (RHEV). Customers indicated that cost and the importance
of having a choice in the virtualization space are driving their decision to look at
RHEV. Conversations with partners highlight growing optimism around RHEV as
well. Partners mentioned that RHEV is a "game changer" and added that it is "gaining
traction" and "taking-off." One of the partners mentioned that some of the federal
government agencies are taking a serious look at RHEV.
Customers like the idea of software-based storage which can leverage commodity
hardware (Gluster) and would like to check it out but are cognizant of the time and
investment that will be required to make the product fully enterprise-ready. Partners
associated with Red Hat Storage are bullish about the technology. Partners indicated
that although Red Hat Storage is currently being used for specialized use cases, It has
a very strong potential to leverage the Big Data trend. Partners also mentioned that
Red Hat Storage is being considered by the government for storing geo-spatial images.
One partner mentioned that Red Hat is working with Mellanox, Intel, and Cisco to
define a reference architecture so that clients can use commodity hardware and put
Red Hat storage over it to create a NAS (Network Attached Storage) system at a much
lower cost.
*** CONTINUED On Page 2-4: Detailed Checks***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,274.0E 9.7x 8.6x
314.7A 321.1 341.2 354.8 1,331.8 1,472.4 8.2x 7.4x
356.1 367.1 394.5 412.8 1,530.4 7.1x
0.24A 0.29A 0.28A 0.29A 1.10A 1.16E 50.8x 48.1x
0.30A 0.28 0.30 0.31 1.18 1.30 47.3x 43.0x
0.32 0.30 0.37 0.39 1.38 40.5x

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Announcements in the Conference
Red Hat Enhances its Positioning Into Enterprise Cloud Computing with PaaS And IaaS
Solution: Last week, Red Hat introduced an enterprise Platform-as-a-Service (PaaS) offering
along with a hybrid Infrastructure-as-a-service (IaaS) offering to deepen its footprint in
enterprise cloud computing. The PaaS offering will allow enterprise customers to provide
a pre-configured, auto-scaling, and self-managing application platform in the cloud for
their developers to easily develop, deploy, and run their applications. Customers now can
build on-premise, cloud or hybrid PaaS environments for their developers. The Hybrid
IaaS offering will allow Red Hat enterprise customers to deploy and manage hybrid cloud
solutions. Both products will be available later this summer. We believe these two solutions
strengthen Red Hat's position in Enterprise IT and make it attractive to a large number of
companies that are struggling to leverage the benefits of the cloud computing model in their
IT departments.
Red Hat Storage Unveiled: Red Hat also announced the availability of Red Hat Storage,
which is a scale-out network-attached storage (NAS) software solution that can be used
with commodity hardware. It can be deployed in a private cloud environment or in a public
cloud environment such as Amazon Web Services. Red Hat mentioned at the analyst day
that it is seeing a tremendous amount of early interest in the product from its customers.
Detailed Customer Feedback Customer 1
Uses Red Hat Enterprise Linux (RHEL) and JBoss extensively.
Considering Red Hat Enterprise Virtualization (RHEV). Has a VMware installation but
wants another option. Might pull the trigger in about a year. Will start with a small install
and see. Likes what he sees in the conference.
Also thinks the open shift PaaS platform makes sense. He has developers all over the nation
and so a consistent private cloud would make sense to increase consistency and ability to
move apps around.
Not interested in Red Hat Storage/ Gluster as of now as he has major investments in SANs
(Storage Area Network).
Customer 2
Uses the RHEL OS extensively.
Also uses VMware extensively. About 60% virtualized.
Main goal in coming to the conference is to have a serious look at RHEV. Wants to play
around and maybe make a move a year or so after. Concerned about VMware and its erratic
decision to increase price. "Who is to stop VMware from doing something like that again
in a few years?"
Red Hat Storage/Gluster - Likes the idea but will never put a production system on it. Not
as of now at least. Will take a few years.
Overall, likes the direction of Red Hat.

Customer 3
Health insurance company.
Looking to get RHEV. Mainly because of cost.
Uses VMware extensively. 80% virtualized in AIX and around 60% virtualized in Windows.
Has around 1,200 Virtual Machines.
Thinks the main hurdle to get more of Red Hat is people issues.
Would like to make inroads into Red Hat gradually.

Customer 4
Uses JBoss on SUSE Linux. It's a hosted environment.
Is looking around and likes what he sees, but doesn't think he will buy anything.

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Detailed Partner Feedback (Red Hat
Enterprise Virtualization and Red
Hat Storage)
Industry Contact 1
Thinks Red Hat Enterprise Virtualization (RHEV) is doing well in the market, especially
the new version.
Some of the federal players are taking a good look at it.
Red Hat Storage (Gluster) is being considered by the government for geo-spatial images.
Thinks images, audio and video content are a sweet spot for Red Hat Storage/Gluster
product.
Industry Contact 2
Seeing some good traction on Red Hat Enterprise Virtualization (RHEV).
"The audience is mainly the Linux guys. You can't go to a Windows VMware guy and try
to sell RHEV, that won't happen."
Very optimistic about RHEV.
Received the pricing on Red Hat Storage a couple of months ago and thinks it is pretty new
to make any conclusions.
RHEL continues to see traction.

Industry Contact 3
Sounds very bullish on Red Hat Storage.
Mentioned that Red Hat Storage/GlusterFS is used a lot currently in niche areas like seismic
data, bio-informatics, etc. Also used by Pandora, Limelight Networks and Netflix.
Thinks that Gluster has a lot of opportunity to ride the unstructured data area. Thinks that
Red Hat is working with Mellanox, Intel, and Cisco to define a reference architecture so
that clients can use commodity hardware and put Red Hat storage over it to create a NAS
(Network Attached Storage) system at a much lower cost. Thinks costly SAN (Storage Area
Network) systems will go away eventually.
Thinks that the next version of Red Hat Storage will also have the capability to store virtual
machines, which are essentially just files. VMware steers customers today to EMC SAN
systems.
Thinks the next step is Red Hat moving towards Big Data storage where GlusterFS could
be used in the Hadoop stack. Already has extensions plugging on to the Hadoop stack.
Industry Contact 4
Working closely with Red Hat along Virtualization and Storage. Thinks that Ethernet
connectivity over TCP/IP is expanding at a rapid pace. There is already 10GBE (10 Gigabit
ethernet) and 40GBE. Thinks continuous innovation will further drive ethernet connectivity.
Mentions that the 10 GBE is already giving throughput equal to 8 GB fibre channel. So,
essentially SAN systems are facing a big threat. They will go away soon.
Industry Contact 5
Thinks that Red Hat Enterprise Virtualization (RHEV) is "enterprise ready."
Thinks that last year in the Red Hat summit there was some buzz in the RHEV sessions,
but there were no questions asked. This year the RHEV focused rooms are full and people
are asking some good questions. So, thinks that momentum is building up.
His company started supporting RHEV since early 2012 and provides level 2 and level 3
support for the same. Mentions that he is seeing some good traction.
With respect to Red Hat Storage, thinks that Red Hat is "on to something", especially to
take advantage of the explosion of the unstructured data.
Industry Contact 6
Thinks that Red Hat Enterprise Virtualization (RHEV) is a "game changer." It has the
fastest performance in terms of I/O functions among its competitors.
Seeing a lot of traction.

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Industry Contact 7
Thinks Red Hat Enterprise Virtualization (RHEV) adoption is slow but "coming up" and
"gaining traction."
Industry Contact 8
Has only a handful of Red Hat Enterprise Virtualization (RHEV) customers but thinks it's
"taking off." Still a long way to go to catch up to VMware.
Industry Contact 9
Thinks that Red Hat has a compelling solution since they own the OS layer and may be used
in lab environments and among hosting start ups, but would be very difficult to compete
against VMware.
Thinks the one place they can "catch fire" is if they start pushing the product in Financials,
which has a good Linux base.
Thinks that Red Hat's Virtual Desktop capabilities are not yet mature.
Industry Contact 10
Thinks that 97% of the participants in this conference using virtualization are pure VMware
customers and around 2% RHEV customers. Also, the RHEV customers are probably also
VMware running in their data centers.
Thinks "RHEV will have their niche ... it will grow" but will take time. Also sees a good
chunk of [Microsoft] Hyper-v.
Detailed Partner Feedback (JBoss) Industry Contact 11
Seeing a lot of migrations to JBoss, mainly from [IBM] WebSphere and [Oracle BEA]
WebLogic.
Thinks JBoss is a mainstream product now.
Mentioned that Sprint last year went all-in with JBoss (not yet live). Also Best Buy has a
large JBoss implementation.
Thinks will continue to see the migration momentum.
Thinks that JBoss is faster than competition and the new Enterprise Application Platform
version is even better.
Thinks that the FuseSource and ActiveMQ acquisitions make a lot of sense, as Red Hat
creates a strong end-to-end middleware offering.

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Survey of 50 Resellers Suggests Less-Robust Q1
PRICE: US$56.56
TARGET: US$63.00
cash/ share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$63.00
FY13E EPS US$1.17
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
We conducted a global survey of 50 Red Hat partners and found that in aggregate they
finished 0.4% below plan for Q1. Whereas our Q4 (Feb) survey results were the strongest
we had seen in years, Q1 results send a more muted picture, which we think will be
reflected in slower billings growth. Resellers see a consistent pace of UNIX to Linux
migrations, which should drive double-digit growth, but is a downtick from past survey
results. While we expect revenue upside and good overall growth rates, we believe Q1
billings could lack the explosiveness seen in Q4, as the European macroeconomic climate
has likely degraded in recent months and FX impact is creating an incremental revenue
headwind. However, the long-term outlook remains favorable, as our CIO survey work
shows RHT should continue to gain share and Linux could be the fastest-growing Server
OS in 2012. Maintain Overweight, $63 target.
Partners 0.4% Below Plan in Q1. Partners we surveyed finished 0.4% below plan for
Q1, a downtick from 1.7% above plan in Q4. The results, which have held a tight
range of -0.5% to +1.7% for the past three years, underscore the steady and resilient
nature of purchasing patterns through the diversified Red Hat distribution channel,
in our view.
Less-Robust Feedback, But Evidence Still Suggests Share Gains. For the first time,
partners were evenly split on the pace of UNIX to Linux migrations. In the past, On a
net basis, they had consistently reported a faster migration pace. One of our contacts
noted that "UNIX to Linux migrations are starting to hit the most difficult back end,
which is much slower business cycle than the types of migrations we have seen. Also,
IBM is [putting] a lot of emphasis in positioning its UNIX to defend against Linux,
which slows us down." That said, other contacts still see a healthy pace of migrations
from HP-UX and Sun Solaris onto RHEL, and we note that a consistent pace of UNIX
to Linux migrations is still a very good pace.
Billings Growth Should Decelerate, But Remain in Double Digit Growth. Billings grew
31% y/y last quarter, and consensus calls for roughly 18-19% billings growth in Q1.
We think this growth rate should prove to be achievable, as we see a potential range
of 17-26%, although it appears unlikely that billings growth would return to the 31%
level from Q4.
*** CONTINUED on Page 2 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,277.1E 9.8x 8.7x
310.0 326.7 343.4 356.5 1,336.6 1,477.4 8.3x 7.5x
350.8 373.2 396.9 414.7 1,535.6 7.2x
0.24A 0.29A 0.28A 0.29A 1.10A 1.15E 51.4x 49.2x
0.26 0.28 0.31 0.31 1.17 1.30 48.3x 43.5x
0.30 0.32 0.37 0.39 1.38 41.0x

R
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April 2014
J u n e 1 9 , 2 0 1 2
Billings Growth Trend Net/Net, we think FY13 should be a year of decelerating billings growth for RHT, because 1)
the company is coming off of a stellar year with 28% billings growth in FY11, creating a tough
comp; 2) macroeconomic factors, particularly in Europe, should create a slower pace of IT
budget growth this year; and 3) FX impact, while subject to change, should transition from a
modest revenue tailwind to a modest revenue headwind. That said, our current expectation is
that billings growth will decelerate but remain at a healthy level indicative of ongoing market
share gains.
Reasons For Long-Term Optimism,
Belief in RHT as a Core Holding
Longer term, we continue to believe RHT is favorably positioned into the secular trends of
cloud computing, open source, virtualization and unstructured data, and should continue
gaining market share. The company is investing heavily in R&D, facilities and broader
infrastructure to support ongoing growth at well-above-market rates. We believe this year for
RHT is all about building out its storage offering (Gluster), and the key question at a high
level is whether Storage is the next frontier for open source software. RHT's business model
centers on delivering 3x the functionality for 1/3 the cost (or thereabouts), and there is no
question that storage is a big market to pursue. Regarding the Virtualization market, our
reseller survey work continues to show that RHEV is seeing healthy traction and carries very
strong momentum relative to most other Red Hat product offerings. Finally, Red Hat's newer
offerings including its OpenShift Platform-as-a-Service (PaaS) product and CloudForms (a
hybrid cloud-management framework) continue to evolve, and will likely take center-stage at
the upcoming Red Hat Summit in Boston. Net/Net, based on RHT's favorable positioning
at the confluence of several secular growth trends, and its aggressive investments to fuel new
product initiatives, we believe investors should view RHT shares as a core long-term growth
holding.
*** CONTINUED on the Next Page - Current and Historical Survey Results ***

R
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April 2014
J u n e 1 9 , 2 0 1 2
Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12 Q1:FY13
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53 50
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7% -0.4%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5% 18.0%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8% 64.0%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7% 18.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8% 0.0%
Better Pace of Biz 36.0% 35.0% 38.6% 33.3% 30.6% 37.0% 18.0% 33.3% 29.2% 20.0% 35.8% 28.0%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7% 60.0%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5% 12.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3% 16.0%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0% 12.0%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5% 70.0%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5% 18.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5% -6.0%
-0.3%
0.2%
0.7%
1.3%
0.9%
1.5% 1.5%
-0.1%
1.5%
1.7%
-0.4%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
30.0%
27.2%
17.7%
16.3%
28.3%
14.0%
26.2%
16.7%
4.0%
28.3%
16.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
9.1%
11.1%
-8.1%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-6.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Above %
35.0%
18.1%
28.9%
16.3%
26.1%
22.0% 21.4%
16.6%
12.0%
18.8%
0.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%

R
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April 2014
Ma y 2 3 , 2 0 1 2
Mid-Quarter Checks and Analysis Focus on Softer Europe, Exchange Rates
PRICE: US$56.32
TARGET: US$63.00
$63 price target = 25x our FY13E OCF of
$2.26 +$6.27 net cash/share
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$63.00
FY13E EPS US$1.17
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Feb
65
60
55
50
45
40
35
30
USD
Source: Bloomberg
CONCLUSI ON
We spoke with RHT management last week and conducted a round of checks with
industry contacts. On the positive side of the ledger, we believe this year will be all
about building out RHT's storage offering to address an incremental opportunity set,
and we believe plans to hire about 1,000 people, versus 800 last year, are solidly on
track. Conversely, we believe Q1 (May) billings could lack the explosiveness seen in
Q4 (Feb); that the macroeconomic climate has degraded since RHT issued guidance
in March; and that the company should be monitoring exchange rates and European
spending conditions as FY13 progresses. While billings growth should decelerate this
year, we continue to believe RHT is favorably positioned into the secular trends of cloud
computing, open source, virtualization and unstructured data, and should continue
gaining market share. Maintain Overweight, $63 target.
Storage Investments, Hiring Plans Solidly On Track. Red Hat sees a large market
opportunity in unstructured data storage, and feels that no vendor has developed a
good "all-software" offering in that area. An all-software unstructured data storage
offering should be a strategic asset because it could be used both on-premise and in
the cloud much more efficiently than an appliance. Gluster, which RHT acquired in
October of 2011, had great technology, but it needed to be cleaned up and reworked
for large-scale commercial usage. The product is listed on RHT's web site, but its sales
teams aren't pushing it in any meaningful way yet, and the effective launch should
occur in the second half of the year. Based on what we heard, hiring plans are on track
at this point, and RHT has a number of big facilities projects underway, so the pace
of investment should continue to support ongoing long term market share gains.
We Model Billings Deceleration in FY13 Due to Tough Comps, European Headwinds,

and Adverse FX Impact. At a high level, we think Q1 (May) billings could lack
the explosiveness seen in Q4, in which billings grew 31% y/y and widely exceeded
consensus expectations. This expectation is partially due to the seasonally-ingrained
pattern driven by sales commission plans which ramp in Q4. Additionally, we think
the macroeconomic climate has changed since RHT last reported earnings in March,
based upon results and commentary from Cisco, SAP, Informatica, Infosys, Symantec,
Riverbed, Dell and others, plus incremental concerns about the European debt crisis.
FX fluctuations present another headwind, as the weakening of the Euro/Dollar to
1.28 is now below RHT's FY13 guidance assumption of 1.33, and this would create
an incremental drag of 2.5% on Q1 billings growth. The bottom line is that we think
it is appropriate to model billings deceleration for FY13, with less opportunity for
outsized upside surprises unless macroeconomic factors improve from here.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
264.7A 281.3A 290.0A 297.0A 1,133.1A 1,277.1E 9.7x 8.6x
310.0 326.7 343.4 356.5 1,336.6 1,477.4 8.3x 7.5x
350.8 373.2 396.9 414.7 1,535.6 7.2x
0.24A 0.29A 0.28A 0.29A 1.10A 1.15E 51.2x 49.0x
0.26 0.28 0.31 0.31 1.17 1.30 48.1x 43.3x
0.30 0.32 0.37 0.39 1.38 40.8x

R
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April 2014
March 27, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Price Tgt -- $59.00
FY12E Rev (mil) -- $1,126.2
FY13E Rev (mil) -- $1,285.0
FY12E EPS -- $1.08
FY13E EPS -- $1.11
Price $53.13
52 Week High $53.42
52 Week Low $31.77
$59 price target = 28x our FY12E OCF of
$1.88 +$6.07 net cash/share
Yield: 0.00%
Fiscal Year End: Feb
Rev (mil) 2011A 2012E 2013E
May $209.1A $264.7A $298.9E
Aug $219.8A $281.3A $315.4E
Nov $235.6A $290.0A $334.3E
Feb $244.8A $290.1E $336.4E
FY $909.3A $1,126.2E $1,285.0E
CY $1,080.9A $1,238.7E $1,421.4E
FY RM 11.5x 9.3x 8.1x
CY RM 9.7x 8.4x 7.3x
EPS 2011A 2012E 2013E
May $0.18A $0.24A $0.24E
Aug $0.19A $0.29A $0.27E
Nov $0.20A $0.28A $0.31E
Feb $0.26A $0.26E $0.28E
FY $0.83A $1.08E $1.11E
CY $1.08E $1.09E $1.23E
FY P/E 64.0x 49.2x 47.9x
CY P/E 49.2x 48.7x 43.2x
Red Hat Inc. (RHT $53.13)
Overweight
53 Red Hat Resellers 1.7% Above Plan for Q4;
Expect Ongoing Market Share Gains
CONCLUSION:
We conducted a global survey of 53 Red Hat partners and found that in aggregate
they finished 1.7% above plan for Q4, a slight improvement versus Q3. Resellers see
a faster pace of UNIX to Linux migrations, which drives RHT's core RHEL business.
Partners also observed a better pace of business and show more optimism in RHT's
ability to exceed expectations than in prior quarters. We are unsure of the near-term
setup because billings growth should decelerate on a very tough comparison, tough
billings comps continue for two more quarters and consensus may prove slightly too
high on margins for FY13. However, the long term outlook remains favorable, as our
CIO survey work shows RHT should continue to gain share and Linux could be the
fastest-growing Server OS in 2012. Reiterate Overweight, $59 target.
Partners 1.7% Above Plan in Q4. Partners we surveyed finished 1.7% above
plan for Q4, an improvement from 1.5% above plan in Q3, and marking the best
performance in recent years, albeit partners were 1.5% above plan three times in
recent history. The results, which have held a tight range of -0.5% to +1.7% for the
past three years, underscore the steady and resilient nature of purchasing patterns
through the diversified Red Hat distribution channel, in our view.
Better Pace of Business, More Optimism. 36% of partners saw a Better pace of
business while only 8% saw a Worse pace of business in Q4. On a net basis, this
is better feedback than we had seen for the prior four quarters, likely reflecting
a slightly healthier domestic economy in recent months. Additionally, 25% of
partners saw a Faster pace of UNIX to Linux migrations, while only 6% saw a
slower pace. On a net basis, this is better feedback on UNIX to Linux migrations
than in the prior two quarters. Finally, on a net basis, RHT partners and resellers
expect Red Hat to exceed bookings expectations, also an uptick versus the prior
three quarters.
Tough Billings Comp Should Drive Billings Deceleration. Billings grew 23% y/y
last quarter, and the growth comparison is 11 points tougher in Q4 (a 31% year-prior
comp versus a 20% year-prior comp in Q3). As such, consensus calls for 15-16%
billings growth in Q4. We think this growth rate will probe to be achievable, and
possibly with an upside bias, but it is unclear to us that Q4 billings growth can match
Q3's 23%, and it appears unlikely to return to the 28-31% range of the prior three
quarters. Because the tough billings comps will persist in Q1 and Q2, we suspect
billings growth will run below prior peak levels for a couple/few quarters, but then
again it is possible that Q4 will mark the trough for billings growth.
CONTINUED on Page 2.
OW, $59 price target = 28x our FY12E OCF of $1.88 +$6.07 net cash/share.

R
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April 2014
March 27, 2012
Near-Term Setup Lacks Clarity; FY13 Operating Margins: Clarifying the Impact of Gluster. On a near-term basis, we expect
investors to respond to: 1) RHT's Q4 billings growth rate (consensus is +15-16% y/y); 2) Revenue guidance for Q1:FY13 and
preliminary Full Year FY13 revenue guidance; 3) Cash Flow guidance for FY13 (consensus is roughly $410-$415M, up 10-11% y/y;
and 4) to a lesser extent, margin & EPS guidance for FY13. As stated earlier, we think RHT should be able to meet or slightly exceed
Q4 billings consensus based on our partner survey results. Regarding the top line, we think RHT should be able to guide at least inline
with the consensus of $1.30B revenue for FY13, which represents a growth rate of 15% y/y. Last year at this time, RHT guided to a
range of 15-18% revenue growth, albeit with a better FX trend at this time a year ago as the Euro/Dollar was 1.42 and rising versus
1.33 and gradually down-trending this year. We also don't foresee any material issues for RHT's initiation of FY13 OCF guidance. On
the one hand, OCF can now grow more inline with operating income (which has been growing rapidly) because there is now less of a
drag on interest income; on the other hand, OCF is also partly a function of the Operating Margin, and RHT has previously indicated
that it will invest heavily in Gluster in FY13. Net/Net, we still think RHT should be able to guide at least inline with 10-11% y/y OCF
growth in FY13. Finally, regarding margins and EPS guidance: we do not think the Street has correctly digested RHT's messaging
with respect to operating margins for FY13. Back in October when RHT acquired Gluster, it stated that operating margins were likely
to decline by 150bps in FY13 due to ramped discretionary investments into Gluster, and this equated to 24.2% PF operating margin for
FY13. The Street temporarily modeled this correctly, but since then Red Hat reported upside to results, and the street rolled-forward
the Q3 margin upside into FY13, but we think Red Hat had intended to guide to a fixed target of 24.2% for FY13, rather than a moving-
target of 150bps lower than wherever FY12 was destined to end up. Net/Net, we think the Street is slightly too aggressive on operating
margins for FY13, to the tune of roughly $0.03 EPS, but this shouldn't be a primary focus at this point and it is unclear to us whether
this will ultimately matter when RHT reports its Q4 results.
Market Share Gains Likely to Continue. As a reminder, our Q4:2011 CIO survey showed RHT as one of the top share gainers for
2012 and Linux as the fastest-growing Server OS. 2012 could be a slightly slower-growth year for IT spending (although that outlook
seems to be improving), but RHT is poised to gain market share.
Q2:FY10 Q3:FY10 Q4:FY10 Q1:FY11 Q2:FY11 Q3:FY11 Q4:FY11 Q1:FY12 Q2:FY12 Q3:FY12 Q4:FY12
# of Respondents: 25 40 44 45 49 46 50 42 48 50 53
% of Plan: -0.5% -0.3% 0.2% 0.7% 1.3% 0.9% 1.5% 1.5% -0.1% 1.5% 1.7%
Faster 20.0% 37.5% 29.5% 37.8% 20.4% 30.4% 28.0% 26.2% 20.8% 22.0% 24.5%
Same 80.0% 60.0% 59.1% 53.3% 75.5% 65.3% 66.0% 69.0% 75.0% 68.0% 69.8%
Slower 0.0% 2.5% 11.4% 8.9% 4.1% 4.3% 6.0% 4.8% 4.2% 10.0% 5.7%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 20.0% 35.0% 18.1% 28.9% 16.3% 26.1% 22.0% 21.4% 16.6% 12.0% 18.8%
Better Pace of Biz 36.0% 35.0% 38.6% 33.3% 30.6% 37.0% 18.0% 33.3% 29.2% 20.0% 35.8%
Same 48.0% 60.0% 50.0% 51.1% 55.1% 54.3% 78.0% 59.6% 58.3% 64.0% 56.7%
Worse Pace of Biz 16.0% 5.0% 11.4% 15.6% 14.3% 8.7% 4.0% 7.1% 12.5% 16.0% 7.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 20.0% 30.0% 27.2% 17.7% 16.3% 28.3% 14.0% 26.2% 16.7% 4.0% 28.3%
Above Expectations 18.2% 26.7% 4.1% 19.6% 16.0% 14.3% 12.5% 4.0% 17.0%
Inline 72.7% 57.7% 83.7% 71.7% 82.0% 69.0% 79.2% 84.0% 75.5%
Below Expectations 9.1% 15.6% 12.2% 8.7% 2.0% 16.7% 8.3% 12.0% 7.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 9.1% 11.1% -8.1% 10.9% 14.0% -2.4% 4.2% -8.0% 9.5%
-0.5%
-0.3%
0.2%
0.7%
1.3%
0.9%
1.5% 1.5%
-0.1%
1.5%
1.7%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
20.0%
30.0%
27.2%
17.7%
16.3%
28.3%
14.0%
26.2%
16.7%
4.0%
28.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
9.1%
11.1%
-8.1%
10.9%
14.0%
-2.4%
4.2%
-8.0%
9.5%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Above %
20.0%
35.0%
18.1%
28.9%
16.3%
26.1%
22.0% 21.4%
16.6%
12.0%
18.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%

R
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April 2014
Fe b r u a r y 1 3 , 2 0 1 4
inContact, Inc. (SAAS) Overweight
Partners Upbeat on Software Bookings/Pipeline, Strategic Elevation of inContact
PRICE: US$8.83
TARGET: US$12.00
5.7x CY14 Software Rev + 1.5x CY14
Telecom Rev + net Cash, 55.3M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$12.00
FY13E EPS US$(0.10)
FY14E EPS US$(0.10)
Yield 0.00%
Fiscal Year End Dec
10
9
8
7
6
5
USD
Source: Bloomberg
CONCLUSI ON
We interviewed three key contacts in the inContact ecosystem to capture the most
comprehensive perspective on the company's business trends. Several elements stood
out from our conversations: 1) Multiple contacts mentioned that they believe inContact
ended Q4 strongly; 2) Contacts are equally excited about the opportunity for continued
success in 2014; 3) A contact reported that the new head of sales Bill Robinson has
done such an amazing job of changing the culture to be more scalable. Contacts
also noted a reduction in turnover, interpreting that to mean sales reps are more
successfully achieving quotas; and 4) We learned that inContact is turning over some
pre-implementation, implementation and then post-implementation support projects
to key providers so it can focus on larger deals and conduct implementations more
quickly. We like inContact's competitive position and believe this will continue to
translate into share appreciation of SAAS. OW, $12 PT.
Notable Quotes:
(+) From everything that I have heard, I know [reps in the cloud contact center
ecosystem] had a great quarter.
(+) They [inContact] have created the intellectual property to embed an agent
console inside of salesforce.com so that the call center agents dont have to work on
two separate platforms.
(+) 2014 is definitely going to be a good yearI am excited about it.
(+) Seeing inContact is being much more aggressive and in a strong position in the
market.
(+) The sales team has really made a shift from being more of a technology sales
culture to more of a relationship sales cultureselling the experience relationship and
the full breadth of the platform.
(+) We are looking at pretty big growth in implementation activity indicating the
strong demand in inContacts end market.
Security breach, outages, FCC regulations, renewal rates, exposure to IT spending
trends, international expansion.
inContact is a provider of cloud-based contact center solutions which allow its
customers to improve contact center call routing, self-service and agent optimization.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
25.7 26.2 27.9 30.7 110.5 4.4x
31.6A 31.1A 32.2A 34.3 129.3 3.8x
36.9 37.9 39.1 41.5 155.4 3.1x
(0.03) (0.03) (0.01) 0.00 (0.07) NM
(0.01)A (0.02)A (0.02)A (0.05) (0.10) NM
(0.03) (0.03) (0.02) (0.02) (0.10) NM

S
A
A
S
April 2014
Fe b r u a r y 1 3 , 2 0 1 4
From everything that I have heard, I know [reps in the cloud contact center ecosystem] had
a great quarter. Obviously theres a lag; just because [sales] reps booked it doesnt mean
its revenue today. But [inContact and the broader cloud contact center ecosystem] had a
great sales quarter.
He reports that some of inContacts channel revenue is just kicking in and is a result of
channel building they have been doing over the last year.
Competition
If someone has decided theyre moving to the cloud, the biggest competitors are Five9 and
Interactive Intelligence.
He does not believe that inContact is worried about Five9.
He notes that sometimes employees rotate among these three vendors, and even go back
and forth. Hes spoken to a few employees that left inContact, went to Five9 and have since
gone back inContact. The feedback from one of his contacts is that inContact has nothing
to worry about. From a technology standpoint [Five9s] place is a total house of cards and
its falling apart more and more every day.
Interactive Intelligence challenges inContact a little more only because their premise-based
solutions are second-to none and it demos extremely well. What occurs is that Interactive
Intelligence will demo their premise-based solutions and then they try and get their cloud
solution into the mix.
He believes their cloud is not as good as inContacts solution. He notes that the Interactive
Intelligence cloud solution is more like a hosted premise solution. Interactive Intelligence
uses Amazon cloud for its connectivity model, which is not as good as inContacts network.
Interactive Intelligence also requires the customer to put some equipment on site for the
cloud solution, and this is required for providing some translation back through the Amazon
cloud.
Industry contact 2
From her perspective, Q4 ended strong.
Professional services inside of inContact is very busy right now.
Indicates that inContact is slowly starting to get some word of mouth publicity and referrals
from their own customers. Its amazing to see the speed that I think its gaining from the
ability to expand.
They [inContact] have created the intellectual property to embed an agent console inside of
salesforce.com so that the call center agents dont have to work on two separate platforms.
Thinks the integration was done in Q4 and is available on AppExchange. There are a lot
of [salesforce.com] clients that use those tools and so it just kind of locks them in a little bit
stronger having those two talk to each other.
Refers to an integration of inContacts agent console into Zendesks CRM as well to be

released in Q1, very similar to the integration with salesforce.com.
Talking about deals, she refers to a large entertainment company that closed in Q4. Also
thinks there was some traction in public sector especially at the state level, including State
of Georgia and State of New York, with seat counts in the hundreds.
Mentions that the largest deal in inContacts history is fully implemented now and is up
and runningthat was very successful. Thinks that revenue should start flowing in from
that deal.
Indicates that inContact is starting to launch an ecosystem of partners to help it with

implementation and customizations. Thats a big push this year.
Absolutely expects the large deals signed in 2013 to start contributing to revenue in 2014.
I think their ability to expand their ecosystem to involve other vendorsto implement
new accounts more quickly and get them turned up with a higher touch, thats just going
to make that monthly revenue come in quicker.
From her perspective of the end market demand, 2014 is definitely going to be a good
yearI am excited about it.

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Based on her conversations with a few sales reps [in the cloud contact center ecosystem],
they were very excited and thinks that they are absolutely making their numbers in Q4.
Everyone made their numbers that I know.
[EVP of Sales] Bill Robinson has done such an amazing job of changing the culture to be
more scalable.
Talking about Verizon, thinks they are still kicking and bringing in business. Hasnt heard
anything about the Siemens relationship.
Industry contact 3
Talking about the general market, the cloud vs. premise conversation is happening much
moreThere is a greater demand for more information and more accessible context around
how to leverage existing technology with an overlay of inContact or Five9 or I3 or any of
the cloud capabilities. Adds that most of the conversations have been also more around
what the platform can do rather than just what the contact management, ACD or the dialer
functions can do.
more often than not inContact is rising to the top in more of those conversations from
a capability perspective.I wouldnt say they are slam-dunking everything, but one thing
they are very good at and are getting better at is talking about the overall platform value
Seeing inContact is being much more aggressive and in a strong position in the market.
Adds that inContact has very little, if any implementation fees that are hidden in enabling
the various capabilities within the platform. They [inContact] are really enabling the
business teams to become faster, more nimble, and more cost effective or more value
generating for their clients.
Speculates that within the next one to two budgeting cycles some of the larger players
will start to go toward the all-cloud route and give up their already depreciated premise
based equipment.
Talking about large deals in Q4, refers to the expansion of a previously signed deal with a
large retailer, multiple hundreds in terms of seat count.
Reports that inContact is starting to position their support organization around bringing
in certified implementation partners for their small to mid-sized deals Thinks
that inContact has already started to turn over some of the pre-implementation,
implementation and then post-implementation support projects to a couple of key
providers that are good in the space. Thinks that this move will allow inContact to focus
a little bit more directly on their larger clients and have more resources readily available for
larger deals.
We are looking at pretty big growth in implementation activity indicating the strong
demand in inContacts end market. We know that the demand is there, we know their
product and their value in the market are starting to be talked about more.
Based on his conversations with a few sales reps [in the cloud contact center eco-system],
thinks that the sales team has really made a shift from being more of a technology sales
culture to more of a relationship sales cultureselling the experience relationship and the
full breadth of the platform. Thinks that inContacts sales organization has become a
little more mature and more well versed inhow to talk about the hybrid solution or the
switch from premise to cloud versus just having the numbers and having the it just makes
sense attitude. They are doing much more of a better job telling the story and being a
relationship organization.
Adds that he has not seen a lot of turnover in the sales organization which indicates to him
that the sales reps are doing well in terms of meeting their quota.
Talking about the strength of the pipeline, characterizes it as a 4 on a scale of 1-5, 5 being
the strongest. Refers to a couple of 200 to 400 seat deals and couple even bigger than that.
Also refers to a very large hospitality opportunity.
Reports that inContact is pulling in some of their best relationship managers to focus on
the Siemens and Verizon relationships.
Has heard that Five9 had some problems last quarter with some of their retail clients in
overextending their cloud capability and their bandwidth. Explains that the way Five9 has
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other clients that werent necessarily in the retail holiday cycle. I think they are struggling
a little bit internally and they have lost a lot of accounts.
Has also heard from his sources that Interactive Intelligence is giving up the seat price to
be competitive but then baking in a lot of hidden costs. Thinks that the companies that
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Channel Feedback Shows Bookings Momentum; Still Expect Choppy Top Line
PRICE: US$7.59
TARGET: US$12.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$12.00
FY13E EPS US$(0.11)
FY14E EPS US$(0.10)
Yield 0.00%
Fiscal Year End Dec
Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13
10
9
8
7
6
5
4
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with five key contacts in the inContact ecosystem to
provide a unique level of insight into its business dynamics. Key takeaways include: 1)
inContact is clearly closing larger deals than it has historically, in the 1,000-2,000 seat
range and with multinational blue-chip firms - beneficial to bookings, but a temporary
drag on revenue due to elongated deployments; 2) the deal pipeline feels good for Q4 even
despite a minor drag during the government shutdown; and 3) the Verizon relationship
continues to thrive as one contact thinks Verizon "brought in more business in the third
quarter than they did in the last two quarters." We believe inContact's business has good
bookings momentum. While we reaffirm our cautious near-term revenue stance as larger
deals should temporarily push out software revenue recognition, we like SAAS over a
12-month time horizon. OW, $12 PT.
Notable quotes
September was really good now that we are in October, its probably going to be
very strong until the holidaysand then start strong again in JanuaryJust doesnt
seem like people are slowing down.
I know that theyve [inContact] restructured their sales organization, and in my

opinion its much more effective now.
I think Verizon has brought in more business in the third quarter than they did in the
last two quarters, thats what I heardso, they are doing a lot better.
inContacts user conference was very, very good and very well attended. I think from
what I heard they might have doubled the attendees from the year before. A portion
of the hotel was busy all the time. Overall I thought it was excellent.
Regarding his pipeline, We have a couple [of deals] that are over 1,000 [seats]. We
also have a few that are global one of which has eight locations.
Demand, overall, has really increased both within customers but also within agents
and people that are call center consultants.
** CONTINUED on Pages 2 - 4 **
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
25.7 26.2 27.9 30.7 110.5 3.7x
31.6A 31.1A 32.5 35.2 130.4 3.2x
37.1 37.7 40.4 44.1 159.3 2.6x
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(0.01)A (0.02)A (0.04) (0.05) (0.11) NM
(0.03) (0.04) (0.02) 0.00 (0.10) NM

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Positive feedback (5) Industry contact 1
They are starting to shift the mindset around customer experience I think what they are
starting to do is that they are starting to equate how companies can leverage the cloud and
leverage their platform to do more than just take calls, take emails or chatthis is a material
way to change customer experience for the better Thats a big shift in my opinion around
not just the marketing message, but thats actually the philosophy that they have taken pretty
strongly to heart. Detected the same as a pervasive message in the recent inContact user
conference.
Talking about increasing demand, we have been involved [with inContact] in more
conversations with larger clients and potential clients than they traditionally have. So, they
are talking about 1,000-2,000 seat deals now versus the 200-400 [which used to be their
larger implementations].
Mentions that large big box retailers in the Midwest such as Best Buy and Target along with
many small- to medium-sized e-tailers are taking a hard look at cloud-based contact center
capabilities, and inContact is in the mix.
Thinks that the inContact solution is much more cohesive now and they can even provide
a cloud-based PBX solution.
I am seeing bigger deals or more integrated deals than just a 10-50 seat pilot.
Refers to a deal that they signed in Q3 which he thinks is definitely the biggest one that
they have with a seat count of 1,000-2,000 at least to start with and may be bigger than
that.
Heard that inContact is currently implementing a big retailer that has over 500 locations and
are starting with 50 locations with inContact. The implementation is going really well.
Reports that inContact is doing 250-300 implementations a year now. [Could represent each
implementation site]
Based on his conversations with sales reps [in the cloud based contact center solution
ecosystem], I know they are feeling optimistic coming off the quarter. They have done
a good job in bringing software sales expertise versus just a traditional telephony based
expertise.
Reports that inContact has separated out their account executives based on size of
opportunities [0-50 seats and 50 and above]. There is a little bit of chunkiness around
handing off and who does what, but I think they have figured that out.
Observed that Siemens changed the name of the contact center portion of their business and
speculates that it might be thinking about spinning off that unit. I think they are probably
trying to dissolve a little bit of the brand of Siemens being just a hardware and technology
provider versus inContact. Thinks that the rebranding could give them the ability to have
a different kind of conversation with potential clients.
Industry contact 2
Reports that the recent user conference was bigger and better than I ever expected... Lot
of good energylot of positive energythere were a lot of prospects there.
ecosystem], senses that for the third quarter, seems like all the numbers were metI know
they have just hired up and so they are growing the team.
Thinks that an important focus for inContact is in turning up all the new business, and
thinks that would be catching up in Q4 and Q1 of 2014. So, if they implement all the sales
that they have made, its probably the first quarter of 2014 is going to be a great revenue
number, I would think.
Talking about big deals in the quarter, I think the big one that they did bring in, came from
[a competitor]. Thinks its more than 1,000 seats and could be between 1,200-1,500 seats.
Among some of the deals closed in Q3 that stand out, in her opinion, are Wells Fargo and
Blue Cross/Blue Shield.
Thinks that the pipeline should be strong going into Q4. September was really good
now that we are in October, its probably going to be very strong until the holidaysand
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Refers to having noticed a little bit of a drag in sales cycles for the two weeks when
government was shut down. Thinks that such events definitely have an impact in decision
making.
Absolutely thinks that there are deals in the pipeline in the >1,000 seat level. Mentions
that inContact is focusing most of its field sales effort on such deals. They [field sales
organization] are really pushing hundreds and thousands of seatsand inside sales is
handling more of the hundreds.
Indicates that the implementation of the deals is critical and needs to be rock solid and they
realize that...thats the important thing. Hasnt heard of anything negative as it regards to
implementation, but has actually heard just the oppositeseems like everything is going
really well.
I think Verizon has brought in more business in the third quarter than they did in the last
two quarters, thats what I heardso, they are doing a lot better. Hasnt heard anything
about Siemens and thinks they have been very quiet.
Industry contact 3
Demand, overall, has really increased both within customers but also within agents and
people that are call center consultants. Adds that consultants who were focused on on-
premise PBX-based solutions are now looking at cloud-based call center solutions such as
inContact.
inContacts sweet spot is still in the mid market butWe have had some very significant
companies look at it [inContacts solution]. Explains that these customers are the ones that
have 40-50 call center sites and a couple of hundred thousands in telecom spend a month.
Mentions that he is ramping out our efforts in this [cloud based contact center] arena.
Explains that he has added a few other solutions such as Five9 to the list of vendors he works
with although his major focus is on inContact.
In terms of capabilities, they [inContact] are currently far ahead of the others. However,
adds that inContact is not for the lower end of the market where customers are more price
sensitive and dont really need all the bells and whistles that inContact offers.
Refers to a decent size deal that would have billed about $80K per month which got pushed
into Q4 [about 400 seats and hopes that it will grow from there]. Hasnt heard of any other
large deals closed in Q3.
ecosystem], thinks that sales reps are pretty excited about what they have been able to do
the private word is that they have done really well and had great success. Caveats that most
of his interactions are in the channel side. They [Channel sales reps in the cloud based
contact center solution ecosystem] feel really good because I think the channel has become
an important part of the company.
Talking about the Verizon relationship, I hear that it's doing very well...It lends credibility
to inContact, the fact that they have got the Verizon name not only attached to it but
attached to it and doing wellI think there is a ton of excitement around thatI have heard
probably as much about that as anything.
Talking about the new outbound dialer, we have been hearing about their outbound dialer
for a long time it has kind of become a running joke on my side about the number of times
that they have tried a dialer and have said that they are going to solve it the feedback I
am getting is that this time they really have [solved it].All the word on it and my person
who went to the event was really impressed with itwe are excited to implement it.
Expresses a concern that inContact has been trying to monetize their professional services
which has upset a few customers.As they brought in more and more software people
that are used to having professional services to be a profit center, has hurt the perception of
our customers in dealing with inContact and has created some customer service issues.

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Industry contact 4
Reports that inContacts user conference was very, very good and very well attended. I
think from what I heard they might have doubled the attendees from the year before. A
portion of the hotel was busy all the time. Overall I thought it was excellent.
Notes that his bigger clients are now faced with what to do with their legacy or on-premise
systems. Large customers are all at this point looking at cloud solutions as an alternative
to legacy systems like Avaya or Nortel.
The biggest challenge that he sees is that IT people are grappling with loss of control of their
environment, as well as security concerns. This is similar to the scenario several years ago
of on-premise CRM system users replacing incumbents like Siebel. inContact addresses
[these issues] extremely well. Weve had their security officers on calls with our clients and
after its over the clients feel very good about it.
Thinks the recent acquisition of Echopass by Genesys was done out of necessity. "All the
big [legacy vendors] are going to have to get into the cloud, just like Interactive Intelligence
had to. They were a premise-based solution and now theyre in the cloud. You either build
it or you buy it.
Thinks the success of the Echopass acquisition by Genesys really depends on how the
acquisition is project managed. Do they have the wherewithal, the core competency to
integrate while at the same time retaining their customers?
I know that theyve [inContact] restructured their sales organization, and in my opinion
its much more effective now. Thinks that the sales management team in the past was
spread very thin, and now they have some regional top-notch VPs that have really strong
teams. Many of the inside sales reps have been moved to outside sales and relocated to their
respective areas. He indicates that the inContact sales reps are much more accommodating
to customer needs than many of their competitors.
Regarding his pipeline: We have a couple [of deals] that are over 1,000 [seats]. We also have
a few that are global one of which has eight locations. Notes the global deals are in the
500-600 range, which is still a good size.
Industry contact 5
Were seeing [inContacts] solution be accepted more by the environment and were having
good success with it.
He reports hes had success selling to both large and small-seat contact center environments,
even with customers starting up a call center environment.

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inContact Partner Deep Dive: Activity Strong, But Pipeline Stronger
PRICE: US$9.13
TARGET: US$12.00
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY13E Rev (mil) US$136.2 US$135.1
FY14E Rev (mil) US$157.9 US$159.0
FY13E EPS US$(0.12)
FY14E EPS US$(0.12)
Yield 0.00%
Fiscal Year End Dec
10
9
8
7
6
5
4
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with six sources in the inContact ecosystem to
paint a detailed view of current business trends. Key takeaways: 1) inContact is closing
larger deals, and one contact noted the difference that I have seen in the last six
monthsthey are bringing in the bigger companies; 2) Two contacts commented on
inContact's efforts to add more channel partners: Theyre being pretty aggressive about
that [expansion]; and 3) The Verizon partnership appears to be "on fire" while the
Siemens partnership continues to move along, albeit more slowly than Verizon. While
we believe the stock will be driven by strength in software bookings, we are mildly
decreasing our revenue forecast for Q3 as larger deals take longer to ramp and become
recognized as revenue. We are buyers of SAAS and believe current bookings strength will
flow through and benefit revenue growth in 2014. Reiterate OW, PT to $12.
Notable Quotes:
Definitely the big deals keep coming in and I think thats the difference that I have
seen in the last six monthsthey are bringing in the bigger companies.
From a pipeline perspective things are looking really good.
It [the growth of one partner's practice] seems to be pretty related to the growth
that I think the company [inContact] is seeing overall and certainly with the prospects
coming through, it hasnt slowed down at all.
...Their Social strategy has been crazy aggressive in the last year, which I think has
helped them, not in the traditional way of weve put up the social flag like everyone
else but theyve actually made it part of their offering.
The Verizon partnership is reportedly on fire, quite honestly. Verizon is getting the
concept of the cloud a lot better, so theyre selling it a lot more efficiently and bringing
inContact into a lot more deals.
When the BPOs are taking a serious look, then you know that they [inContact] must
have a full breadth of services because BPOs want a full suite of services that they can
offer to their clients.
YEAR
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2013E
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REVENUE (US$ m)
25.7 26.2 27.9 30.7 110.5 4.4x
31.6A 31.9 33.2 38.3 135.1 3.6x
36.9 37.3 39.7 45.0 159.0 3.1x
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(0.04) (0.05) (0.03) 0.00 (0.12) NM

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Detailed Feedback Industry contact 1
inContact recently announced a large BPO selected their solution. When the BPOs are
taking a serious look then you know that they [inContact] must have a full breadth of
services because BPOs want a full suite of services that they can offer to their clients.
He believes that as inContact moves up market, he thinks they will run into other
vendors more frequently. Avaya is now advertising its own cloud-based platform. Interactive
Intelligence, which was all premise-based, has a cloud offering. He thinks that inContact
will eventually run into those larger vendors now offering a cloud solution. He notes this
wont happen right away, because their pipeline is probably more mid-sized companies.
And I would think that these premise-based company pipelines are companies that are
currently using their solution but looking to move to the cloud. So I think that their pipelines
probably arent bumping up against each other yet.
He reports that inContact is still probably mostly competing with Five9, and occasionally
solutions like CosmoCom, which is a product owned by Enghouse, based in the UK.
CosmoCom partners with AT&T. A company called CSG hosts the solution for AT&T.
Many companies are trying to enter this on-demand contact center solution market. He just
saw an IVR (Interactive Voice Response) company come out with a hosted contact center
solution. Everybody is just trying to get into it at this point and the future will be who has
the most robust solution and offers the most services for the value.
inContact came out of the gate as the leader in what Ill call the mid-market, and I believe
theyre still the leader in the mid-market. Echopass is viewed as the leader in the F1000
market and this is where he believes larger players like Avaya and AT&T want to play,
competing against Echopass. [Note that Piper Jaffray does not frequently come across
Echopass as an inContact competitor]. The closest competitor that he hears to inContact is
Five9. There are also BPOs trying to offer their own platforms in the cloud. Its a wide open
market and I think right now its still a land grab. I think inContact was smart by hiring
all these sales people. More feet on the street is going to be better for them. The channel
manager that he works with at inContact is very aggressive. She stays in contact with us all
the time. Thats a good thing. The more we know the better we can market their services.
Regarding Q2, they [contacts in cloud-based contact center ecosystem] feel good about
it. He notes there are a lot of new people and new territories, and that will take time, but
the activity is very strong. The pipeline is stronger.
Buyers of contact center solutions look like theyre ready to start looking again, whereas
they hunkered down for a period of time.
The one thing that Interactive Intelligence has is a company called Latitude, which is
a collections company, and its integrated into their platform. inContact doesnt go for
receivables management at this point.
Industry contact 2
inContact installations have ranged from a few dozen up to several hundred at a health
care provider which is using inContact for debt collection and billing. It started off small
but grew to 400 very quickly. He has looked at working with other vendors, but no formal
partnerships. Hes looked at all of inContacts competitors, and inContact seems to work
best for his customers.
A couple of installations have been alongside salesforce.com, but none with Oracle
RightNow so far. inContact plays well with salesforce.com.
The whole executive team at inContact is very focused on usability, and I think their
platform is extremely comprehensive.
From a growth strategy and from a new customer perspective, theyve got the traditional
long-distance provider root but what theyve continued to build and add on from a
partner and from a capability perspective is creating a platform thats pay for what you use,
turn it on turn it off when you want to, end-to-end contact management, not just from a
taking calls perspective, but for workforce management, social, etc. Their social strategy has
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way of weve put up the social flag like everyone else but theyve actually made it part of
their offering.
Their platform is so easy to turn up and down different levels of their capability, that as a
consultant in the space, we can offer that as a very simple starting point. Customers learn
about what they could improve and leverage from their traditional contact center processes
by being able to easily test inContact.
He generally stays technology agnostic, but if a clients growth strategy and capability call
for improvement of disparate, premise-based contact center applications, you can have a
really simple conversation to open their eyes to what could be, and then its really easy to
spin up a test environment and have them do the bake-off and most of the time [inContact]
wins.
The outlook for inContact is favorable because its very relevant, meaning inContact can
compete well in a 5-seat contact center as well as in a thousand seat or greater contact center.
Industry contact 3
Based on the momentum of her inContact practice and the demand in the market, she thinks
that inContact will have another great quarter. Thinks that inContact just continues
to shine, the morale is good there and everyone seems to be pretty excited about whats
happening.
Reports that definitely the big deals keep coming in and I think thats the difference that I
have seen in the last six monthsthey are bringing in the bigger companies. Reports that
inContact has signed deals with some large healthcare companies recently.
Based on her conversations with sales reps [in the cloud based contact center solutions
ecosystem], absolutely thinks that they are feeling happy coming off the quarter. They
have got a great, solid teamthat was the changing of the guard and bringing some new
energy. They all seem to be doing really well and working well together. Refers to a few
people who had left the business and now came back.
Thinks that inContact is also working on aggressively bringing in more and more channel
partners.
Verizon versus Siemens relationship: I know that there is a lot of energy going into Verizon
right now and I think thats probably the more successful of the two.
Indicates that her inContact practice was definitely above plan. Adds that it [the growth
of her practice] seems to be pretty related to the growth that I think the company [inContact]
is seeing overall and certainly with the prospects coming through, it hasnt slowed down
at all.
Mentions that she is pretty optimistic about the 2H pipeline yes, amazingly enough
sometimes it can slow down in the 3rd quarter, but I dont see anything really slowing down,
at least not yet.so far it's been a great year.
Industry contact 4
Although starting from a smaller base, he estimates the cloud contact center market is
growing in high teens, early twenties percentage, whereas the overall contact center
market is growing at around 4-6%.
We are generally pretty pleased with our relationship with inContact. We are seeing
momentum in the market building.
Indicates that he is seeing good traction while selling to both installed base as well as new
logos. Categorizes inContacts close rates in the cloud contact center market as high.
Mentions that he is seeing significant double digit pipeline growth and seeing good
growth in terms of deals closedThe pipeline and the revenue is growing very nicelyfeel
very positive [about the September ending quarter]
On the competitive front, indicates that he sees Five9 from time to time. Mentions that
he hasnt seen Genesys in deals around cloud based solutions. Also refers to LiveOps, as a
company which is out there in the cloud based contact center space but he hasnt seen them
either in deal bake offs. Mentions that Interactive Intelligence is dedicated hosting and
doesnt see them in pure play cloud deals.

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Industry contact 5
Observes that things are going really well. Its still early in Q3 but things are looking very
promising. From a pipeline perspective things are looking really good.
He believes that the Siemens partnership is going really well, and the relationship is still
strong, but the Verizon partnership is on fire, quite honestly. Verizon is getting the concept
of the cloud a lot better, so theyre selling it a lot more efficiently and bringing inContact
into a lot more deals.
Reports that Verizon closed a deal with a large contact center solutions provider, and has
helped out with a couple of deals that are over $100K in [monthly recurring revenue.]
Notes that Verizon has been getting inContact into a lot more deals, and vice versa,
especially at the enterprise level, and Verizon is more frequently bringing on bigger deals.
Industry contact 6
Sees the momentum that inContact has is continuing. His firm is starting to do a lot more
with inContact than they have in the past. One factor driving this was a large project they
did with inContact.
The market overall for cloud-based contact center solutions is growing, with room for
multiple vendors.
I get the sense theyre [inContact] doing pretty well.
I know that theyre really working on building out their solution by creating a partner
ecosystem. Theyre being pretty aggressive about that [expansion].
Price Target $12, 6.6x (was 5.3x) CY13 Software Rev + 1.5x CY13 Telecom Rev + net Cash, 53.6M s/o.
Higher multiple reflects higher peer group multiple.

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On The Road with inContact: Expect Solid Bookings and Aggressive Hiring
PRICE: US$7.95
TARGET: US$10.00
5.3x CY13 Software Rev + 1.5x CY13 Telecom
Rev + net Cash, 53.6M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$10.00
FY13E EPS US$(0.12)
FY14E EPS US$(0.12)
Yield 0.00%
Fiscal Year End Dec
10
9
8
7
6
5
4
USD
Source: Bloomberg
CONCLUSI ON
We recently hosted inContact CFO, Greg Ayers, in two days worth of investor meetings
and conducted checks. Key Takeaways: 1) We expect strong bookings growth of 25-45%,
with a bias toward the upper half of that range, in Q2-Q4 as SAAS moves up-market;
2) Sales headcount, currently at 38, could rise as high as 50 by year-end; 3) the 13.2
release due in September enhances inContact's outbound dialing capabilities, potentially
improving its competitive position; and 4) while we are bullish on bookings trends,
our one area of caution is that larger deals are driving longer deployment timeframes,
likely causing Q2/Q3 top line to be tight or slightly light, but driving growth well above
consensus in 2014. The accelerated momentum validates our belief that inContact is at
the forefront of an opportunity to transform the way software is consumed by contact
centers worldwide. Reiterate Overweight rating, $10 PT.
Expect Solid Bookings Growth Next Several Quarters. inContact grew bookings by
roughly 28% in 2012. In Q1 bookings grew 51% y/y. Exiting Q1, we believe the
company's expected bookings growth range ratcheted slightly higher, from a range of
20-40% to a new range of 25-45%. We believe this increased range will prove very
achievable during the rest of 2013, with a bias toward the upper half of that range. The
bookings bullishness is being driven by: 1) recent improvements in sales management
and the caliber of quota-carrying sales personnel; 2) continued adoption of cloud-
based contact center products; 3) proof-points in inContact's ability to move up-
market; 4) the possibility of a stronger outbound dialer product due in September (we
estimated inContact is 85% inbound-based historically); and 5) continued/increasing
channels contribution, as Verizon is firing on all cylinders and Siemens may be on the
cusp of reaching a minimal level of competency. Most important among these factors,
in our opinion, is the recent trend wherein inContact is closing larger transactions
with larger organizations.
Aggressive Sales Hiring Foreshadows Sustained High Growth Rates into 2014.
inContact's quota-carrying sales headcount has increased from 27 as of September
2012, to 38 exiting Q1 (an increase of 41%), and could move as high as 50 by the end
of the year. If this aggressive hiring pace is successfully achieved, it would represent
a remarkable increase of 85% in about 15 months. On top of that, we believe the
recently-incoming sales talent has generally been of a higher caliber of individual than
the company previously employed. Recent hires not only built pipeline rapidly, but in
many cases they actually brought pipeline in with them.
***CONTINUED ON PAGE 2***
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25.7 26.2 27.9 30.7 110.5 3.9x
31.6A 31.9 34.1 38.5 136.2 3.1x
36.6 37.0 39.6 44.7 157.9 2.7x
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Additional Detail The bottom line is that the rapid pace of hiring reflects a bullish assessment of the global
opportunity. That opportunity is, in turn, being driven by call centers receiving a larger
portion of organizational budgets, due to the negative implications of poor customer service
in a world where tweets and facebook posts can reach hundreds of thousands of people
instantaneously, plus potentially a technology refresh cycle accelerating because consumers
are interacting more via new channels such as text, chat, smartphones, etc. As a reminder, we
believe only 20% of contact centers today can handle anything other than a phone call. The
optimization of payroll dollars is also important, and in many cases, inContact's customers
have realized cost savings, in terms of payroll dollars, in excess of the monthly fee that they pay
to inContact - and that is in addition to realizing the ability to improve customer satisfaction
levels.
Outbound Dialer Product Will be Greatly Enhanced. Today, we believe 85% of inContact's
customers are principally inbound facilities (i.e., responding to and optimizing inbound
customer communications). However, there is an argument to be made that certain portions
of the outbound market (which is principally aimed at proactive sales prospecting and
fundraising) are growing more rapidly. To address this opportunity, inContact is hard at
work to enhance its outbound dialer and narrow the competitive gap. The 13.2 release, due
in September, will include a number of important enhancements to the outbound dialer
and hopefully improve win rates for inContact. Many contact centers are blended facilities
which handle both inbound and outbound calls, and thus it's beneficial to be able to address
both varieties fairly seamlessly.
Larger Deals Driving Revenue Lag. Typically if inContact closed a deal in Q1, it would
"turn it up" (i.e. deploy the product and get it live) during Q2, and it would thus begin to
produce revenue in Q3. However, as inContact has reported unexpected bookings strength
in Q1 driven by a wave of large deals (ASPs up 60% y/y and closure of a 5,000-seat deal
among others), it has become apparent that these larger transactions take longer to deploy.
Generally, the larger transactions will produce at least an additional quarter lag between
when they are booked and when they turn into revenue. In this case, a large transaction
booked in Q1 would not begin to produce revenue in Q3; it would begin to produce revenue
in Q4 or the following Q1. Our understanding is that this is not a reflection of inadequate
services staffing on the part of inContact; rather, it is essentially unavoidable tasks on the
part of the customers, including integration and customization work on a larger scale and
amidst a more complex environment. The bottom line is, we think the bookings strength and
up-market success are very good problems to have even if they end up temporarily causing
sub-seasonal sequential growth in Q2/Q3, possibly below our/consensus revenue forecasts.
In our view, the revenue contribution is a matter of "when, not if". inContact is different than
many of its SaaS peers in that it provides good transparency into its new bookings trends
and "same-store-sales" growth within its existing customer base. For example, many other
SaaS companies simply do not comment on their new bookings, except by occasionally
cherry-picking an unusually strong bookings quarter to describe it as "very strong" or
to occasionally cite a y/y bookings growth estimate on the rare occasions when it is an
unusually strong number. In contrast, inContact quantifies its new bookings growth each
and every quarter and also its software revenue retention each and every quarter, and takes
it a step further by also quantifying the "same-store-sales" growth (i.e. the utilization of
software services by existing customers) each and every quarter. Because of this, we believe
it is reasonable for inContact shares to trade on its reported bookings growth (not solely,
but as a key consideration) more so than on its reported subscription revenue growth. Net/
Net, we are not currently adjusting our model but we offer the following expectations: 1)
Q2 revenue is likely to be tight, or perhaps very slightly below consensus due to the large-
deal-lag dynamic; 2) Q3 revenue consensus is likely to move lower; 3) Q4 sequential revenue
growth is likely to be unusually strong; 4) currently we believe inContact can still achieve its
annual software revenue guidance of $71-$73M despite this phenomenon; and 5) the large-
deal trend positions inContact to grow well above our 25% forecast for software revenue
in 2014.

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inContact Checks Suggest Solid Business Momentum
PRICE: US$7.50
TARGET: US$10.00
5.3x CY13 Software Rev + 1.5x CY13 Telecom
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$10.00
FY13E EPS US$(0.13)
FY14E EPS US$(0.13)
Yield 0.00%
Fiscal Year End Dec
* Price as of the close February 14, 2013
9
8
7
6
5
4
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with eight industry contacts in the inContact
ecosystem and come away with continued confidence in inContact's strong market
demand. Key takeaways: 1) industry contacts cite healthy business trends and
inContact's ability to disrupt and displace incumbent, on-premise vendors; 2) large
deal activity in the 800-900 seat range sounds promising, with sporadic chatter of
multi-thousand-seat engagements in the pipeline; 3) sales reps in the cloud contact
center ecosystem sound happy and excited coming off Q1; and 4) inContact has hired
aggressively in sales the last 6 months with "lots of new names in the system." At 2.6x EV/
FTM sales, we believe inContact still represents good value and an excellent opportunity
to become involved in a SaaS business growing at 31% in 2013. Reiterate OW, $10 PT.
Notable feedback
Demand for hosted solutions is pretty strong. Across the board demand is pretty
strong.
I definitely see the growthI think the company overall has gotten better and better.
Based on one partner's conversations with sales reps [in the contact center ecosystem],
thinks they are happy and eager and excited coming off of Q1.
From a sales headcount perspective, he is seeing a lot of new names in the system.
Thinks inContact is doing much better in the market as compared to the other vendor
he works with. They have a lot more visibility and more history.
[inContact has] upped its head count significantly in the last six months Id say.
From my understanding things are going well. Its [Siemens] continuing to ramp. I
know its a large process to get them [Siemens] up to speed on how to sell inContact
because they come from a premise world. Its a bit of a jump and a transition but from
what I understand its going well.
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25.7 26.2 27.9 30.7 110.5 3.6x
30.3 32.6 34.1 38.5 135.5 3.0x
35.2 37.8 39.6 44.7 157.2 2.5x
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Positive feedback Industry contact 1
Did a broad study of contact center solutions including Five9, inContact, Cisco, Avaya and
some other small boutique firms. Thinks that the legacy vendors such as Cisco, Avaya, and
Genesys dont even come in close in comparison to the capabilities that inContact has on
a pay per drink basis.
Talking about the selling point of inContact: From a small to medium sized company
perspective, its a lot easier of a conversation to have as far as why to invest in a lot of
hardware when you can leverage a very stable network, and something that you will be able
to grow into if you need Workforce Management, or if you need Quality Monitoring, or if
you would like to spin up a survey and then spin it back down. So, thats really appealing
and thats been very, very successful
Thinks inContact has a really strong engineering team that works really well with clients
and they have got their process down as far as integration is concerned.
Just from our small company perspective, we have got six active clients right now, out of
which four are actively pursuing and asking about the suite that inContact has. Mentions
that these are all high growth companies that are looking for more flexibility than what they
are getting from their current legacy call center infrastructure.
Our demand has gone up based on [inContact] sales teams across the country asking for
our perspective. Thinks that inContact is leveraging a better organizational structure for
its sales team. Thinks that the sales people with traditional legacy telephony backgrounds
have either left the company or have changed their perspective around how they should sell
the platform.
Thinks that demand is high and is just about having the right conversations at the right
time.
Thinks that the main challenge for Siemens is integrating a cloud software-as-a-service
type contact management system within their hardware structure.
From a sales headcount perspective, he is seeing a lot of new names in the system. I know
they made some pretty significant changes about a year ago in their sales organization from
the top down and now I think they are hitting a stride.
Industry contact 2
I definitely see the growthI think the company overall has gotten better and better.
Comparing it from a year ago to today, I think they are very stable.
The biggest value that I see is their uptime and their product line.
Thinks that inContacts product line is like a full suite of services with multi-channel
support. The reporting is amazing. Its very transparent.
Mentions that when she compares the various competitors in the industry, inContact
definitely has the highest uptime. Adds that the only time she had some issues with
uptime was during the hurricane on the East Coast. They certainly got it up and running
during that, kind of, pretty insecure time. Thats been the only downtime that we have
experienced.
Mentions that she likes inContacts strategy to round out the suite by bringing in partners
that provide other solutions such as workforce optimization, echo customer surveys, etc.
We have over 50 clients that all have customized solutions, and we are able to fill all those
needs with one product.
Mentions that inContact is very easy to integrate with any cloud based application like
Salesforce, Zendesk, etc.
Based on her conversations with sales guys [in the contact center ecosystem], thinks they
are happy and eager and excited coming off of Q1. They are always touching base,
reaching out. They are very positive and anything I need they are there for me.
Thinks that Verizon is a stronger partner for inContact as compared to Siemens.
Mentions that inContact was working on a deal with a very large outsourced call center
(contact center has as many as 5,000 agents, wouldn't all necessarily move to inContact).
Mentions that she is not sure if they closed it in Q1, but they were on the verge of closing
that deal.
Thinks that there is competitive pricing pressure in the market, especially in the small to
mid range accounts. I know that companies like [a private competitor] are offering some
very low pricing and maybe some free trials. But again, you get what you pay for right?
Comparatively speaking, they dont support the customers like inContact does.

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Industry contact 3
Why is inContact better than some of its on-demand competitors?

A lot of it comes down to inContacts infrastructure, security and uptime reliability.
Data centers in Dallas and Los Angeles usually run at 40% capacity, and theyre
hot-swappable so if something happens in LA the Dallas data center takes
over. This guarantees them to have a 99.99% uptime SLA, which is contractually
guaranteed. Believes that this is something [a private competitor] doesnt have. Not
too sure about ININs SLA on their hosted product.
ININ will start out a lot of their customers on a hosted version and then push them
to a premise model which is where they started out as a company.
Believes that [a private competitor] is VoIP only, and inContact is essentially phone
agnostic. inContact can connect through T-1s, SIP trunking, MPLS, VoIP, or just a
standard telephone line. So that gives inContact an edge versus a VoIP-only solution.
Because inContact still resells long distance to software users, inContact usually get
long distance rates more cheaply than most companies can find, so thats another
value add.
Recent hiring
[inContact has] upped its head count significantly in the last six months Id say.
Siemens and Verizon

The partnerships are getting continually better. Everything I hear is indirectly from
channel managers and updates from the sales team. From my understanding things
are going well. Its continuing to ramp. I know its a large process to get them
[Siemens] up to speed on how to sell inContact because they come from a premise
world. Its a bit of a jump and a transition, but from what I understand its going
well.
Industry contact 4
Thinks that the demand environment hasnt changed much compared to a year ago.
Thinks that demand is growing a little bit but not astronomically. There is not a ton of
customers asking for it, but when we get in and consultatively sell to those customers, we
uncover the need.
Thinks inContact is doing much better in the market as compared to the other vendor he
works with. They have a lot more visibility and more history.
Based on his conversations with sales guys [in the contact center ecosystem], I believe they
are doing OK.
Anecdotally speaking, I believe that the Siemens relationship is a big disappointment and
the Verizon is, in their [inContacts] minds, a successful relationship.
Industry contact 5
The most recent time he spoke to his reps in the contact center software ecosystem, they
were very bullish at the time.
Demand for hosted solutions is pretty strong. Across the board demand is pretty strong.
It seems like a lot of [new] contact centers want to [start up] with as little infrastructure as
possible, and I think with inContact, Five9, those kind of solutions, you can set up contact
centers pretty easily.
Demand for CRM solutions is also holding up fairly well.
He was tangentially involved in a very large deal, and it was getting very close to closing in
the middle of Q1, but not 100% certain that it did. It was for between 800 and 900 seats.
It was a very good-sized deal.
Industry contact 6
Recently released new APIs for the latest version of their application that was released in
February. One of his clients was commenting on how much better the new platform is in
terms of the call processing, and is very happy with it.

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Both Siemens and Verizon were at a conference speaking about the new partnership that
exists between inContact and SoCoCare, which is a social media platform. It will be resold
as part of the inContact suite. Its going to be a really good thing because of SoCoCares
platform.
Were getting a lot of interest in the kinds of integrated agent desktop stuff we do, and how
that ties together with the platforms like inContact to deliver a cloud-based solution. There
seems to be a lot of interest in the market, and if we can put that together with the social
[aspect] I think its a pretty interesting story.
His company builds solutions on the Force.com platform and partners with inContact for
their IVR (interactive voice response) and ACD (automatic call distribution) capabilities.
If one of his customers is looking for a hosted solution they reach out to partners like
inContact and Twilio. So, they go with either inContact or Twilio, depending on what the
client is willing to pay and the kind of solution they need.
Lets say a customer wants to implement a CRM solution. If that customer is also looking
for a full-blown telephone system, then his company ropes in partners like Cisco, Avaya,
inContact or Twilio.
His partnerships with inContact and Twilio are more specific to the cost, because they are
more affordable solutions. inContact is much more affordable versus Avaya or Cisco, and
thats why we end up recommending them.
For a completely VoIP solution they usually recommend Twilio.
He did a proof of concept with Genesys to look at their hosted solution. When he compares
that proof of concept with proofs of concept with inContact, they were pretty similar, but
inContact has a few more features, like workforce management.
Also, inContact is cheaper. The Genesys hosted solution runs in the range of $125-$150/
user/month. inContact is closer to $100/user/month.
His customer base is mostly SMB, and refers many of them to Twilio, which is cheaper for
customers handling about half the volume (3-4 hours of an 8-hour shift) of calls of a typical
contact center. If its a contact center where agents are on the phone for a full shift (8 hours),
then inContact is the less expensive option.
Twilio and inContact are the only two partners he usually recommends because the telecom
cost of Genesys and Cisco are so much. He charges $75/user/month for his CRM system,
so adding $150 a month for a contact center solution makes it very expensive.
Industry contact 8
His consulting group works a lot with contact center clients, and much of his work involves
implementation of the Service Cloud from salesforce.com.
Works with inContact on salesforce.com implementations, and he gets brought in during

the tail end of deals.
Often his clients, from a telephony perspective, theyll have their telephony in place already.
But on occasion, roughly 5% of the time, this consulting partner will get asked for cloud
telephony solutions. His consulting firm will recommend one of three vendors: inContact,
Live Ops or Five9. These are three of the leaders.
inContact is really strong for inbound calling. Five9 is a little stronger on outbound. Live
Ops is really good if you also want to outsource some of your resources.
He has worked with two inContact clients over the past year, and both implementations
have gone really well. They were very smooth implementations. The customers seem to
be happy.
Where he is in deal cycles he doesnt get a lot of deal referrals, and he thought he would. This
is because a customer looking at something like Service Cloud doesnt usually purchase a
telephony solution at the same time. Sometimes its already decided upon.
All the SaaS contact center vendors work fairly seamlessly with salesforce.com.

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Partners Highlight Momentum at inContact; Reiterate OW, $9 Target
PRICE: US$5.60
TARGET: US$9.00
Telecom Rev + net Cash, 53M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$9.00
FY12E EPS US$(0.10)
FY13E EPS US$(0.13)
Yield 0.00%
Fiscal Year End Dec
* Price as of the close November 1, 2012
7.5
7
6.5
6
5.5
5
4.5
4
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with five contacts in the inContact ecosystem and
walk away incrementally more confident in business trends. Key Points: 1) business
momentum remains strong and pipelines are healthy; 2) partners state that "everybody
is moving to the cloud"... "everywhere we operate we see it taking off"; 3) inContact's
customer references and strength of its relationship with salesforce.com are enabling it
to capture more than its fair share of business; and 4) sales headcount recently hit 37, up
from 27 exiting Q3, suggesting strong growth plans for 2013. At less than 2x revenue, we
think SAAS shares are pricing in 10% software growth in 2013, whereas we model 31%
growth, and we think our forecast is achievable. Reiterate Overweight rating and $9 PT.
Notable Feedback
Everything Ive heard is that theyre accelerating their business wins and getting to
a very healthy rate of business acquisition. I think their partners are part of that
momentum.
We had a great year with them [inContact].
I think we got through the point where people said is it really going to fly? to the
point that a lot of people are looking at it very seriously. I think for inContact, and
for us, its a very good business to be in.
Everybody says they integrate with salesforce, but if youre already a salesforce shop
and youre looking at a set of contact center solutions, if inContact is in the mix,
youre going with inContact every time over [the competition].
everybody is moving to the cloud and if you apply that you can figure which
vendors out there are making headway.
For a large scale, highly deployed solution, I think inContact has to be at the top of
peoples lists as someone to look at for SaaS contact center telephony.
Everywhere we operate we see it [cloud contact center solution] taking off.

YEAR
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25.7A 26.2A 27.9A 29.1 108.8 2.4x
30.0 31.3 32.7 35.1 129.1 2.0x
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Detailed Partner Feedback Industry Contact 1
We had a great year with them [inContact].
I think that the ecosystem that theyve built and what theyre doing is right on the money.
Being a cloud computing company and having success in the contact center happens much
more than in the past.
Pricing remains in the $100 to $200 range per user per month, and pricing has held steady
for cloud-based contact center solutions. We havent seen any pushback.
The TCO on the deals is just there.
There are always competitors offering applications, but nobody has the references and the
integration with salesforce.com the way that inContact does it.
Everybody says they integrate with salesforce, but if youre already a salesforce shop and
youre looking at a set of contact center solutions, if inContact is in the mix, youre going
with inContact every time over [the competition].
A lot of growth is enterprises that have embraced salesforce.com and theyre pushing that
right on down to the contact center.
Industry Contact 2
inContact certainly seems to be the market leader.
Vendor preference on contact center solutions vary by customer, its really all across the
board. However, inContact appeals to a wide variety of customer sizes, from small to very
large.
The more sophisticated the customer is, the more likely theyll be to go with inContact.
This is because of both inContact's reputation and product functionality.
Most recently met with his sales rep [in the SaaS-based contact center ecosystem] and it
sounded like they had a very strong pipeline.
Customers are getting savvier and want to move away from a patchwork of solutions and
move to a more holistic integrated solution. This is the way the market is moving.
Customers havent complained that the economy is inhibiting their purchase intentions.
Industry Contact 3
General
From a SaaS perspective, inContact has probably the best platform.
A competitor like Five9 is a more low-end product.
Cisco is thinking about the SaaS market, but their real focus is premise-based
solutions. Theyve got a long ways to go before they have something you would
really think about from a SaaS perspective.
For a large scale, highly deployed solution, I think inContact has to be at the top
of peoples lists as someone to look at for SaaS contact center telephony.
Premise-based competitors have to build, buy or partner with SaaS solutions
because thats where the market is headed.
Business momentum
Everything Ive heard is that theyre accelerating their business wins and getting
to a very healthy rate of business acquisition. I think their partners are part of that
momentum.
Telecom business
When inContact sells a deal they traditionally include their telecom services as part
of the deal.
Small and mid-sized customers are more likely to buy telecom along with the SaaS
product. Large-scale clients typically have pretty good deals that theyve already cut
with telecom providers.
Industry Contact 4
Everywhere we operate we see it [cloud contact center solutions] taking off.

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I think we got through the point where people said is it really going to fly? to the point
that a lot of people are looking at it very seriously. I think for inContact, and for us, its a
very good business to be in.
Competition
The premise-based competitors are struggling to offer a cloud solution.
Avaya doesnt have a decent hosted solution that I can see. Cisco, we never come
across. And we dont worry about them anyway. They [Cisco] have a very high cost.
For them [Cisco] to get into a hosted marketplace, its a tough one for them. Its very
price competitive. Its a tough market to be in.
Many customers, when they go out to tender for a deal theyve normally made up
their mind what they want to do.
Salesforce.com integration
For many people its critical to have salesforce.com integration.
But if you want to do high-volume inbound and outbound, then it might not be the
best product for the purpose.
If youre a big dialer vendor, many of them will feel obliged to have a salesforce.com
connector.
There are many, many dialers with a salesforce.com connector because thats the
only way they can do business.
Outlook
If I were a large company like Avaya I would probably worry about it [2013 outlook].
When youre a small vendor you go around picking up business all over the place.
You dont worry about the size of the marketplace, you just dont have to.
A lot of the good growth is coming from some of the emerging countires, and the
markets in the U.S. and U.K. are ok.
Industry Contact 5
Regarding inContacts success everybody is moving to the cloud and if you apply that
you can figure which vendors out there are making headway.

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Meetings and Checks Show Solid Momentum for inContact
PRICE: US$6.24
TARGET: US$9.00
4.5x CY Software Rev + 1.5x CY13 Telecom
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$9.00
FY12E EPS US$(0.15)
FY13E EPS US$(0.16)
Yield 0.00%
Fiscal Year End Dec
8
7
6
5
4
3
USD
Source: Bloomberg
CONCLUSI ON
We reiterate our Overweight rating and $9 target on SAAS shares following meetings
with management and partners at inContact's user conference. Key takeaways: 1)
conference attendance grew 40% y/y, suggesting inContact's mindshare is pulling away
from the pack; 2) the Q4 pipeline appears to be in very good shape; 3) the company is
beginning to see momentum with its Siemens and Verizon reseller relationships; and 4)
inContact isn't demand-constrained currently, and its single most important challenge is
adding enough sales reps that understand the larger selling strategy. Overall, we believe
SAAS is sitting atop a market wave that will be sustainable and could drive 20-40%
software bookings growth on a multi-quarter horizon. We expect shares to outperform
as investors begin to recognize the transformation of the business and financial model.
Nexus of Forces Changing the Customer Experience Forever. Data shows that only
one-third of all brands deliver a positive customer experience. This is a problem
because 89% of customers will leave if they have a bad experience. Furthermore, 79%
of customers who share complaints about poor customer experiences online had their
complaints ignored. Against this backdrop, the proliferation of channels for customer
interaction is gaining momentum and appears irreversible at this point. Specifically,
the voice channel (telephone) is growing very slowly, but SMS text, social media, online
chat, speech recognition, web self service (i.e. allowing a customer to resolve his or
her own request on the web site without human interaction), and email channels are
all growing rapidly. In the next 3 to 5 years, we believe it will become imperative for
businesses to cover all of these channels cohesively and consistently, and that most
businesses will pursue a cloud-based software solution such as inContact's.
Home Agent Trend Intensifying. Industry data shows that the home agent market
(i.e. allowing call center agents to work from home) will double by 2015. Companies
that have deployed home agents as part of their contact center strategy have ended
up with half the turnover and twice the employee satisfaction level, while obtaining
more mature and specialized skill-sets. The problem is that traditional on-premise call
center software struggles to coordinate the flow of communication across a dispersed
workforce. This opens up an incremental opportunity for inContact as its cloud-based
universal queue engine is proven to perform solidly across a home agent network.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
21.3 21.7 22.2 23.8 89.1 3.1x
25.7A 26.2A 26.4 29.1 107.4 2.6x
30.2 31.4 31.7 35.1 128.4 2.2x
(0.02) (0.05) (0.06) (0.06) (0.19) NM
(0.03)A (0.03)A (0.06) (0.04) (0.15) NM
(0.03) (0.03) (0.04) (0.06) (0.16) NM

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Oc t o b e r 1 6 , 2 0 1 2
Powerful Trends Driving Investment
in Modernization of Customer
Service Software.
Longer term, we believe several powerful trends are combining to fuel an accelerated wave
of investment in modernization of customer service software. These include: 1) customer
demand for mobile/social/multi-channel interaction, beyond traditional voice; 2) distributed
contact center work forces, which necessitate cloud-based software; and 3) increasing
importance of customer service to business executives.

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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705
Piper Jaffray & Co.

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706
Piper Jaffray & Co.

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703
Piper Jaffray & Co.

inContact, Inc. (SAAS - $6.32)
Overweight

Doing to Call Centers What salesforce.com Did to CRM; Initiating with
Overweight, $9 PT

We are initiating coverage of inContact (SAAS) with an Overweight rating and $9 price
target. inContact is a leader in cloud-based contact center software solutions. Feedback
shows inContact has become the premier player in the space based on its size, expertise,
growth, and technology portfolio. Industry contacts sense momentum and runway for the
cloud software portion of inContacts business, and we expect shares to outperform as
investors begin to recognize the transformation of the business and financial model.

inContact is Doing for Contact Centers what Salesforce.com Did to CRM. inContact
enjoys a first-mover advantage for its cloud-based contact center offering, which went
live in 2005. Traditional on-premise competitors such as Avaya and Genesys grew up in
a different era, and are saddled with outdated and vulnerable technology as call centers
begin to move to the cloud. We expect inContacts software revenue to grow rapidly as
it disrupts the status quo in much the same way that salesforce.com disrupted the CRM
market.

Has Momentum and Runway as Growth Rates Are Pulling Away from the Pack. Our
partner feedback shows momentum and runway for inContacts software business,
which is half of total revenue and accelerated to 40% bookings growth in Q2:12.
Multiple partners referenced a very healthy build in pipelines, which should foreshadow
sustained software growth rates of 20-40%+, in our view. Due to its telecom heritage,
we think investors are largely unaware of the high-growth SaaS business embedded
within inContact, and that increasing awareness can drive shares higher.

Recent Partnerships, Accelerated Sales Hiring Should Drive Software Growth. In 2H:11,
premier global players including Siemens and Verizon entered into reseller agreements
as they recognized inContacts increasing momentum and unique technology assets.
Checks suggest those relationships will imminently begin to drive material revenue
contributions. Combined with an anticipated 25% increase in quota-carrying sales reps
in 2H:12 (from 32 to roughly 40), inContact will realize materially higher distribution
capacity heading into 2013.

Powerful Trends Driving Investment in Modernization of Customer Service Software.
Longer term, we believe several powerful trends are combining to fuel an accelerated
wave of investment in modernization of customer service software. These include: 1)
customer demand for mobile/social/multi-channel interaction, beyond traditional voice;
2) distributed contact center workforces, which necessitate cloud-based software; and 3)
increasing importance of customer service to business executives.

Risks: Security breach, outages, FCC regulations, renewal rates, exposure to IT spending

NOTE: The following pages are an excerpt from the SAAS Initiation report.

September 2012

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PARTNER DUE DI LI GENCE SESSI ONS

We engaged in detailed discussions with a few of inContacts partners as part of our due
diligence process to understand their opinion on the company. The following section
provides key takeaways from the conversations and consists of feedback, our interpretation
and analysis, and information gathered from other inputs.

Exhibit 3
PARTNER #1

Overview
inContacts differentiation is bringing satisfaction to their clients.
There are a lot of people who are comfortable with on-premise contact center solutions, but the flexibility and scalability
of the cloud make it so appealing.
inContacts competition is complacency and territorial, onerous people who want to hold onto their job and spend CapEx.
inContact is doing to Call Centers what Salesforce did to CRM
A CIO, CTO that doesnt really care, knows he has his butt on the line for customer satisfaction or for some report card
on how the contact center is doing because it affects sales. He or she [who is running the call center], if they really
understand the difference between inContact and a premise-based solution, theyre going to put something with
inContact.
[inContacts] product has gotten better than I thought it would get.
inContact is about being a platform. They can integrate someone like RightNow or salesforce.com right into their
environment. RightNow and Salesforce are people that bring inContact to the table.

Key
Differentiators
Using inContact you could theoretically work from anywhere.
One of his largest clients is an inContact customer and their HQ flooded because of hurricane Isaac. But theyre working
because inContact is in play. They still have all their IT guys and a big Cisco call manager, but Cisco isnt doing much for
them right now because theyre underwater and their guys dont go to the office. Theyre all working remotely.
Some airlines have remote booking agents. Agents at home who might be dealing with a crying child when a call comes in,
and if they dont answer it right away, the call can be routed to another remote agent immediately. You can log in or log
out in an on-demand environment. This is what inContact allows you to do.
One key thing about inContact is the fact that theyve been around a long time doing just this business. The fact that
theyve been around for a long time means in the beginning they made lots of mistakes. They were able to recognize those
mistakes and build accordingly. Its positioned them to be a very solid solution compared to others.
The biggest thing about them that separates them from others, its not about the product in a box. It really is a platform.
For us, we leverage them different than just selling a contact center product. We take the tools in their network and it gives
us basically a sandbox that we can build on the fly solutions for customers literally in a day or a few hours. We just tap
into the network thats already there, listen to the customers problems and solve the problem. In the same day we roll it
out and were in production. You dont have to go through that whole lifecycle of looking at equipment, how long will it
take to invest, find an expert to run it
inContact can deal with a very high spike in a seasonal environment or a project-based challenge better than anybody else.
Its because of the platform. Truly they own their own network and infrastructure; its all proprietary. They can dial that
up or dial it down as they need to.
Thinks that the market has embraced the cloud but their competitors dont have the infrastructure that inContact built
over the years. inContact, in our opinion, [is] the platform [that] is going to win.

Client Success
Weve never lost a client in 12 years with inContact. [Customers] dont go away.
Has a client thats a $4B company that was recently acquired. The buyer thought they were going to rip out inContact.
Once they dug into it they realized they might actually want to expand inContacts footprint.
Source: Piper Jaffray Partner Due Diligence

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Exhibit 4
PARTNER #1 , CONT D.

Competition
Theres no leader in this space. Theres a lot of little niche guys.
There are a lot of companies that can do outbound telesales. Anybody in their basement can build a dialer, but to build a
platform that can handle predictive dialing is different.
On the inbound side, no one really competes with them that has a stable network behind the sizzle of the front end sales.
Avaya has a good at-home agent.
No one is integrated with salesforce. No one is even close. Everyones way behind where [inContact is] with their
partnership with salesforce.
The cloud by itself has its own pains. From an infrastructure perspective its a lot of trial and error. inContact is at the
point of cloning. They have nine clusters. Theyre doing the same thing well over and over.
You can have a really good, redundant cluster as a competitor, but when you go from one cluster to another cluster where
you have to scale back and forth and do things across clusters, thats when you start running into all kinds of issues that
you have to experience before you discover them.
Concerns inContact has to continue to evolve their distribution channel.


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Exhibit 5
PARTNER #2

Overview
Acts as the middle-man between organizations and third-party contact centers. Provides advisory services to organizations
to outsource their company contact center. Works with 175 outsourced contact centers globally.
For outsourcers, most of the large facilities are around 1,000 seats give or take 200. Typically has a general manager
responsible for managing the business. Medium-tier players will build out 300-500 seats in a contact center.
For a brand those numbers could be larger. Total contact center agents globally should be well into millions.
The Philippines has overtaken India as the largest per capita call center country and hiring 35k per month.
There are 4k outsourced call center companies in the worldthats not just locations, thats companies. This includes
every mom and pop agency thats out there.

About
inContact
inContact aggregates all the information from the various channels.
Also, it provides an intelligent routing tool with a lot of tools dictating how the calls should be routed. For example, high
value customers may be routed to US and others may be routed overseas.

How did you
come about
inContact?
Customer profiles were changing with the advent of mobility and social networking.
He was looking for more than phone and IVR (Integrated Voice Response) solutions and more of a multi-channel solution.
Also, was looking for inbound solutions with outbound capabilities.
Most of the other vendors had an outbound platform that became inbound over time. Also others were mostly hosted
solutions.
Some other vendors evaluated: EchoPass, LiveVox, and Five9. Echopass: went after Fortune 100 companies. It was the
Rolls Royce of cloud computing. Clients were looking for more value for money. LiveVox and Five9 started as
outbound platforms and evolved into inbound.

Why choose to
partner with
inContact?
The main reasons came down to 1) inContact was a pure cloud solution; 2) it started as an inbound platform and
evolved into outbound; 3) Its ecosystem was best positioned to deliver the functionality he was looking for; 4) Also, it was
financially strong and was putting profits back into R&D.

How does it
work?
Typically its a web based solution, collocated in multiple facilities.
Agent signs in through the internet.
You could be on a cell phone, a VoIP phone and you could be anywhere in the world and conduct business as a contact
center agent.
inContact would push the application and the call to the appropriate agent. In many cases the agents will have a DID
(Direct Inward Dialing).

Competition
Definitely going to take capital investments for the larger players to catch up.
Also, by looking in that [cloud] direction, they will cannibalize their revenue from license and maintenance fees.
They are looking at it as - yes we have to get in the game but we are not sure how deep we should be in the water.
A Cloud solution like inContact is around $125-$225 per seat per month. An FTE (Full Time Equivalent) in a call center
works 173 hours per month. Thats $1 per hour in cost per FTE. This is a lot less expensive than supporting Avaya, Nortel
etc. Avaya is a 7-figure purchase, and then charges 15-20% maintenance.
There is obviously a reason why Siemens and Verizon partnered with inContact.
inContact competes with a company called CosmoCom in Europe.

InContact vs.
Salesforce.com
or RightNow
(Oracle)
inContact is basically providing the engine. It provides the ability to have customers contact their company.
Salesforce and RightNow are mainly into CRM (Customer Relationship Management) tools where you are keeping track
of the relationships with the customers.
The CRM players are a part of inContacts ecosystem. inContact is the execution piece between the contact center agents
and the CRM companies.

inContacts
Business
Momentum
inContact certainly has runway and they have momentum.
The number of referrals in 2012 is much higher than 2011.
Also, inContact is expanding their sales organization and culling out those who are underperforming.
Our pipeline is stronger in the 300-500 seat opportunities, some taking longer than I wish but still in discussion.
Who is the
buyer ?
Single seller inside a call center. Sells to the general manager. Supervisor takes care of everything.
Cost of
Switching for
customer
Creation of the ecosystem can create exit barriers.
Also, a switch will take long time. A client is coming off of Avaya and will take around 15 months to be fully functional in
inContact.

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Exhibit 6
PARTNER #3

Overview
Seeking cloud solution to augment premise-based solution.

How did you
come about
inContact?
Did some analysis to understand if cloud could be a differentiator for his business. Came to the conclusion that it was a
key element that we need to get involved with because it was growing. Also found that competitors didnt have a cloud
offering. So there was an opportunity to differentiate ourselves and get ahead of the market.
On-premise based solutions are built very differently from a cloud-based solution in that they are not necessarily
architected to work the best in the cloud and there would be a considerable amount of work needed to be done.
Met a lot of companies. Shortlisted two vendors inContact and one other.

Why choose to
partner with
inContact?
Every time we did due diligence we kept coming back to inContact for a lot of different reasons 1)Size that they have
in terms of number of customers; 2)the expertise that they have; 3)the growth that they have; 4)the actual portfolio
itself and the infrastructure behind it and how well thought out it is and 5)the expertise around, not only the cloud but
carrier [as well].
One of the things that you find difficult in the cloud world, especially if you are dealing with voice which is very
different, for example for somebody like salesforce.com which is really an application in the cloud, is the ability to have
real time voice combined with the application and to route calls at the same time in a reliable fashion with good
qualitythats actually one of the unique value propositions that inContact has that we found when we started to look
at the competition is that background of them being a carrier at one point
Again comparing it to the other competitors at that time that were out there, we kept coming back to [inContact] this
(inContact) is a premier player in this space and they had it figured out and they are doing a great job.
inContact used to sell to small customers with a single site with 15-20 agents. Now, they sell to customers with multiple
sites, which is the sweet spot for a cloud contact center solution. The cloud allows the ability to monitor multiple sites
and allows efficient call routing between sites. Also, on-premise solutions create data silos.

How has the
Relationship
Gone So far?
inContact team has been fantastic.
No disappointment from the due diligence we did in terms of the expectations around the product and the delivery of the
product and the expertise of the company. None at all.

Opportunities
- Geographic
Mix
Preliminary due diligence had revealed that the North America market was much more mature with bigger opportunities.
Around the globe, the contact center business is largest in North America anyway and also cloud acceptance is the
biggest in North America.
Now of course, we are seeing larger corporations, not just business units, accepting [cloud contact center solutions].

About
inContact
Executive
Management
Team
During due diligence was very impressed with a very, very strong executive team. We were very impressed.
Management has been more than responsive and more than accommodating.


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Exhibit 7
PARTNER #3 , CONT D.

Competition
Competitors are into two camps - Traditional on-premise and Cloud vendors.
Traditional on-premise players can be further divided into 1) communication players with a portfolio of phones,
hardware, communication platform, Unified communications and contact center solutions and 2) Pure play
communications players.
Two biggest players in the first bucket among traditional on-premise players Cisco and Avaya. Still, they have not made
inroads into cloud. Avaya made some announcements that they should have a product in 2013, but I think they are still
struggling to figure out how to make it work. Avaya has a lot of debt ($4-5B) and switching to a subscription model with
a cloud offering not only cannibalizes their on-promise solutions but they will also have to forego the upfront hefty license
fees. Cisco really doesnt have an offering.
Pure play communications players are Genesys or Interactive Intelligence. Genesys is like the Cadillac of the
solutionsthey are dabbling in [cloud] but mostly going through large partners [like EchoPass]. They are targeting the
very high end as Genesys is a very expensive solution and not really architected well for the cloud. Interactive Intelligence
has made inroads into the cloud and are the one to watch. They are growing very fast and the inContact team is running
into them on a regular basis. They have good momentum but one of the challenges they have is that they still
physically need hardware onsite.
In the pure cloud space, the biggest company inContact runs into is a company called Five9 which probably has around
125 employees vs. inContacts 400. Their product isnt as feature rich from a functionality perspectivethey dont seem
to have the backend infrastructure, the redundancy built in but they are good marketers and they make a lot of noise.
Also, Five9 recently signed a contract with NICE, which is a competitor to Verint to have a competitive offering to
inContact. But that product is not yet available in the cloud and they are still working on it.
InContact seems to be winning a lot more than they are losing. Their strength is that they are so focusedthey know
what it takes to do contact center in the cloud and to do it well and they bring a lot of expertise. I continue to be
impressed with their sales peoplethey seem to have a very good team.


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TIBCO Software (TIBX) Neutral
TIBCO Deep Dives Checks Show Muted Expectations
PRICE: US$21.82
TARGET: US$22.00
18x FY14 EPS of $1.18 + $1.23 net cash per
share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$22.00
FY14E EPS US$1.18
FY15E EPS US$1.36
Yield 0.00%
Fiscal Year End Nov
28
26
24
22
20
18
16
USD
Source: Bloomberg
CONCLUSI ON
We spoke with six key contacts in the TIBCO ecosystem to provide a consolidated view
into TIBCO's current business trends. The majority of feedback was neutral and our
key observations are as follows: 1) The overall trajectory of TIBCO "has been very
consistent from the previous quarters"; 2) Commentary about Spotfire was mixed, with
one contact citing "good wins" against IBM and another not "[seeing] Spotfire too much
anymore"; and 3) Contacts cited that although they see healthy competition from the
likes of Tableau and QlikView, TIBCO is maintaining its technological positioning in
the market. We believe expectations for Q1 are low, and the company will have an easier
comparison going into Q2. Little good news is baked into the stock. While we don't see
a near term catalyst or reason to be bullish on Q1, the risk/reward at these levels appears
mildly favorable. Neutral, $22 PT.
Notable Quotes:
(+) One thing I have seen is Spotfire has had some good wins even above IBM.
(+) One partner indicates that he is very bullish about his TIBCO practice. There
are so many implementations out there that are in processthere is just an enormous
amount of work to do.
(=) The trend with TIBCO has been very consistent from the previous quarters
There is nothing that stood out in terms of new large initiatives leveraging TIBCO.
(=) A partner mentions that most of the new demand is around Spotfire,
BusinessEvents and to some extent in the BPM platform. The challenge with these
products is that their value proposition is better only if you have a TIBCO ecosystem
underneath it...
(=) Data visualization is definitely becoming hot, but were not really getting too
many leads from TIBCO lately.
(-) Very quiet quarter for TIBCO.
(-) On complex event processing, I saw the latest hype cycle and it is coming down
the curve.
Competition, macroeconomic fluctuations, Financial Services exposure.
TIBCO Software Inc. is a provider of infrastructure software solutions.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
Feb May Aug Nov FY CY FY RM CY RM
237.8 245.8 270.9 315.5 1,070.0 1,070.0 3.4x 3.4x
251.3 264.3 296.4 358.5 1,170.5 1,170.5 3.1x 3.1x
264.6 282.3 321.9 399.3 1,268.2 1,268.2 2.9x 2.9x
Feb May Aug Nov FY CY FY P/E CY P/E
0.18 0.18 0.28 0.42 1.06 1.06 20.6x 20.6x
0.18 0.20 0.30 0.49 1.18 1.18 18.5x 18.5x
0.19 0.22 0.35 0.60 1.36 1.36 16.0x 16.0x

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Still sees core SOA initiatives and opines that the reason for that is as companies look
at the things that they want to do with their data, whether its a big data problem or an
analytics problem, they often go back and realize that the foundation isnt there. Without
an effective SOA strategywithout that integration layer being robust, they just cant get
there from here. Talking about a potential opportunity, refers to a conglomerate with about
30 companies in their corporate family, which have no common unified integration strategy
as of now and has been operating on silos. Thinks such opportunities are still out there.
Whenever a company signs on to TIBCO, they are buying into the TIBCO vision of
the event-enabled enterprise. Indicates that such initiatives are 3-5 year roadmaps that
start with getting the integration house in order, then getting something like Master Data
Management, and then deploying the BPM product which then finally would lead to event
processing.
Mentions that he is seeing customers increasingly going the cloud route and looking for a
cloud alternative for anything new they are buying. Thinks that the challenge for TIBCO is
that right now TIBCO has a cloud bus, but most of the rest of the products are not available
as Software-as-a-Service. Adds that customers dont want to just buy the cloud bus, but
also want to buy all the adjacent products in the cloud to create a robust cloud integration
framework, and thats a challenge for TIBCO. Observes that the fast workaround to the
challenge is that some partners are providing a hosted model to customers and TIBCO is
coming up with a subscription based pricing model to emulate a SaaS offering for its on
premise products. Competitors like Mulesoft have a leg up from the standpoint that they
are in the cloud already.
Mentions that historically TIBCO has been a direct sales-focused company and their
channels strategy was never a focus. That stance is starting to change a little bit, although
still very sales oriented. Reports that TIBCO now has a new VP of indirect sales strategy.
Also, adds that there have also been some changes in the sales compensation of the sales
force. those things are cracking the door a little bit to better cooperation with partners
both in terms of sales pursuits as well offloading integration services to partners so that
TIBCOs direct sales reps have more time to focus on the next sale. Observed the changes
beginning last summer.
Observes more TIBCO services opportunities in the market, but thinks that may not be
indicative of a pervasive trend and that it could be attributable to increased focus and
marketing efforts by his organization. I have a bigger pipeline of services opportunities,
much larger than we ever had before.
Indicates that he is very bullish about his TIBCO practice. There are so many
implementations out there that are in processthere is just an enormous amount of work
to do.
Thinks TIBCO is starting to realize that using its own professional services organization
to provide implementation services has been a scalability limitation for them. Adds that
the faster the implementation of the first product, the sooner the client will purchase the
next product. Thinks that sales people have a little more liberty now to bring in a partner
without impacting their commissions.
Refers to half a dozen really nice deals [revenue ranging from high 6-figure to low to mid
7-figure] where TIBCO is a finalist.
Based on his conversations with sales reps [in the Enterprise application integration
ecosystem], sales people are always panicked at the end of the quarter but he didnt see
any excessive panicking this quarter as compared to the last quarter. Also, thinks that the
sales reorg is largely over.
Adds that TIBCO is moving away from master license agreements and moving more into a
drawdown type of scenario [pay-as-you go]. Indicates thats pretty attractive to customers.
Indicates that he doesnt understand TIBCOs marketing strategy around Spotfire. Refers
to a conference he went to recently where all of Spotfires competitors attended, but TIBCO
was nowhere to be seen. Thinks that product line requires a robust marketing strategy and
a robust channel strategy and TIBCO hasnt figured out how to do channels yet.

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Industry contact 2
The trend with TIBCO has been very consistent from the previous quartersThere is
nothing that stood out in terms of new large initiatives leveraging TIBCO.
Thinks TIBCO had a bit of realignment in their sales and alliances organization in the last
6 months based on the changes among his counterparts in TIBCOs alliances organization.
Mentions that most of the new demand is around Spotfire, BusinessEvents and to some
extent in the BPM platform. The challenge with these products is that their value
proposition is better only if you have a TIBCO ecosystem underneath it. Other than
Spotfire, Business Events or BPM will not be an entry point for TIBCO generally. It will
be an upsell point and might even double the value of enterprise licenses in a particular
account if not more. However, customers buying TIBCO BPM when the underlying SOA
platform is not TIBCO based, those scenarios are far and fewvery few actually.
Thinks that TIBCOs new business momentum lags the business traction among its existing
customers.
Competitively, notices that Oracle and IBM have made a lot of advances in the core SOA
integration space. We see them more often than TIBCOThat has been a consistent
trend something that is not changing.
Adds that he is seeing increased consolidation of technologies and standardization into

one of the vendors IBM or Oracle. Notices that in the last nine months, clients are
more and more looking at a single vendor providing a broader stack. However, adds that
most customers are happy with TIBCO and their existing TIBCO infrastructure...its not
a stronger product that is making the case to migrate away [from TIBCO]. Explains that a
trigger point for a migration could be something like an Oracle ERP implementation which
pushes the client toward consolidation on Oracle. Refers to an energy utilities company
which has IBM and TIBCO and although they are not having any problems with their
TIBCO infrastructure, they are looking at a consolidation strategy and will have to rule out
one. Notices that the number of times customers are moving away from TIBCO due to such
consolidations is definitely going up in the past few quarters.
In the BPM area, explains that there were two top players Pegasystems and Lombardi.
Lombardi got acquired by IBM and hence has now become a part of an IBM stack play. That
has improved TIBCOs positioning and reduced the competition for TIBCO BPM although
TIBCO BPM is a notch or two behind in terms of capability with respect to Pega or
Lombardi. Adds that TIBCO BPMs fate is tied with the underlying TIBCO infrastructure
and their ability to go and grab non-TIBCO customers is still low.
Hasnt seen a considerable increase in traction among customers around cloud integration
initiatives. I havent come across TIBCO in a lot of conversations around cloud based
integration. Refers to having come across names like Mulesoft more often than TIBCO.
Opines that the relevance of an enterprise service bus reduces in a cloud-heavy world, since
the cloud vendors expose strong APIs to connect to it or provide native integration into
some other cloud applications.
Industry contact 3
Data visualization is definitely becoming hot, but were not really getting too many leads
from TIBCO lately. He doesnt know whether its really because of internal staffing changes
at TIBCO, which is the message he receives when he asks TIBCO about leads.
TIBCO has been starting up with more marketing campaigns in a box (so partners can
host their own webinars) because the company realizes it needs to do much more marketing
that in did in the past.
He opines that TIBCOs technology is keeping pace with its competitors. The one thing
that we find is that the competition at least on the data visualization side doesnt have the
predictive analytics which [TIBCO] has.
On complex event processing (CEP), I saw the latest hype cycle and it is coming down the
curve. The focus seems to have shifted to something else.

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On overall software demand for data vendors, 2014 may actually be a transition year. A
large number of people may actually be more inclined to go with cloud-based services, like
Informatica [Cloud].
Industry contact 4
Working less on TIBCO and focusing on IBM.
One thing I have seen is Spotfire has had some good wins even above IBM. Mentions
that IBM doesnt have a good integrated platform in the BI analytics area and is not able to
market a convincing story as compared to TIBCO on Spotfire.
However, seeing increasing competition from Tableau and QlikView in customers
who are looking to get a BI analytics solution in the cloud.
Mentions that he continues to see challenges among sales reps to sell into the cloud
theme, for both IBM and TIBCO. Thinks sales rep compensation is structured and
aligned such that they go for more licensing based sales than cloud based sales.
Thinks that there is a growing demand for cloud based analytics in the mid-market
segment.
Like IBM, he is hearing TIBCO talk a lot about how to integrate in the cloud rather than
how can you use my products effectively in the cloud.
On the BusinessEvents side of things, mentions that he is competing a lot with OpenSpirit,
although he thinks that the Oil and Gas market is still a couple of years behind and is still
using custom-made Microsoft technologies.
Not seeing much activity in the core SOA space with respect to TIBCO.
Industry contact 5
Hasnt had as much interaction with TIBCO.
Spotfire: It seems to be between Tableau and QlikView now. ...I dont see Spotfire too much
anymore.
Seems like enterprises are getting more and more decentralized and losing central control
over things. Its becoming hard to justify the bigger things like Data warehouses, ESBs
(Enterprise Service Bus) and things like that. Whatever is in place is staying in placebut I
dont see a lot of new stuff in the ESB world. I am certainly not wasting my time on it.
Very quiet quarter for TIBCO. Adds that normally he sees six to seven new opportunities
during the quarter, somehow this quarter was very quiet. He did see a few incremental
opportunities.
Generally, Spotfire is a conversation starter for TIBCO but he didnt see much of it last
quarter.
Adds that TIBCO is positioning LogLogic as a machine-to-machine conversation solution.
Thinks IT spending in general is coming back, but doesnt think that it has hit the peak
as of yet.

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Deep-Dive Checks with Tibco Partners Uncover Some Large Deal Successes
PRICE: US$24.42
TARGET: US$26.00
share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
FY13E EPS US$1.03
FY14E EPS US$1.22
Yield 0.00%
Fiscal Year End Nov
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
Our deep-dive interviews with 7 key Tibco partners suggest a better pace of business
in Q3 (August), likely including a $5-$10M transaction with a domestic wireless
telecommunications provider and a couple of mid-seven figure wins in Europe. The
apparent improvement is related to: 1) greater stability and a reasonable level of
alignment in the sales organization, following a period of disruption driven by leadership
changes; and 2) a healthier mix of tooling that includes newer Tibco technologies for
sophisticated types of data processing. While contacts still suggest Tibco's end-markets
remain competitive and movement of workloads into the Cloud isn't benefiting Tibco,
we think better field stability has yielded firmer large and mid-sized deal success and
could drive an improving overall performance in Q3. Raising target to $26 to reflect
improving sales execution.
Notable Quotes:
(+) We are seeing an uptick as compared to the previous quarters. We are in the
middle of a couple of pretty large deals right now.
(+) My gut tells me that they are cutting pretty decent deals to people just based on
the uptick in frequency that I see.
(+) We never had a pipeline like we have right nowour pipeline is pretty deep.
(+) TIBCO seems to be doing good. This quarter was pretty good. The guy who
I work with [over various reps in the enterprise application integration ecosystem]
actually said I made my quota and Im getting promoted.
(+) TIBCO this quarter is showing reasonable amount of growthit is showing

better strength than what we have seen in the first half of the year.
(+) Referring to the sales organization, I can see some stability now.I think they
are all sort of settled downthere is a reasonable alignment internally.
(-) "...the movement of workloads into the cloud is impacting TIBCO."
(-) Observes that IBM is encroaching on TIBCO in a big way and attributes that to
[IBMs] Stack is more complete and their BPM offering is stronger I think.
YEAR
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225.7 247.4 255.0 296.5 1,024.6 1,024.6 4.0x 4.0x
237.8A 245.8A 261.8 326.2 1,071.6 1,071.6 3.8x 3.8x
252.0 264.3 289.3 366.3 1,172.0 1,172.0 3.5x 3.5x
0.20 0.26 0.27 0.42 1.15 1.15 21.2x 21.2x
0.18A 0.18A 0.22 0.44 1.03 1.03 23.7x 23.7x
0.20 0.20 0.27 0.54 1.22 1.22 20.0x 20.0x

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We are seeing an uptick as compared to the previous quarters. We are in the middle of a
couple of pretty large deals right now. Further explains that the couple of large enterprise
deals he is working on are a combination of the traditional core platform along with the
newer tools. Estimates these to be at least $3-5M in license deals.
This is probably the first quarter where I have seen a healthier mix of tooling that includes
some of this newer stuff that they have been investing a lot of money inhave seen deals
with significant ActiveSpaces componentBusiness Events or the CEP [Complex Event
Processing] stack is almost by default, at this point, considered core [which was not as
prevalent last year]for the first time ever I am starting to see the BPM stack show up in
a few places where they have traditionally lost that battle very regularly [to Pegasystems,
Lombardi, IBM, Appian].
Reports that he has heard about a couple of pretty significant wins in the BPM stack
over competitors that traditionally TIBCO had a hard time againsthave seen a couple of
wins against Pega recently which are very few and far between.
The deal mix is a lot of retailand a lot of insurance but not seeing as much banking as
traditionally seen with respect to TIBCO.
Thinks that some of the traction is because the market is overall good and some of it is a
byproduct of TIBCO being a relatively large shop at this point, I think, they can do some
interesting things with bundling [at least as compared to some of the pure play companies].
Adds that he doesnt think TIBCO could stand on its own on the BPM side of things
against competitors such as Pega or Appian. Observes that in situations where its a bigger
buy where customers are looking for core and BPM or core and BPM and CEP, then they
[TIBCO] end up looking pretty tempting.
My gut tells me that they are cutting pretty decent deals to people just based on the uptick
in frequency that I see.
By inference from the uptick in activity, senses a stability in the sales organization as
compared to the couple of previous quarters. Absolutely detects a better sentiment among
the sales reps [in the Enterprise Application Integration space].
Reports that LogLogic had a pretty healthy pipeline of leads from prior to acquisition,
although he doesnt know how that pipeline looks now. Mentions that if he was running
that organization, he would have focused on the Foresight and Proginet legacy customers.
Those are really [good] products and the upside is pretty significant in how you could get
to the TIBCO core from those.but that is not what I am seeing.
Detects a lot of push for Spotfire. Reports that the Spotfire organization is still run as
a separate unit with its own dedicated sales force. Things are so demarcated that if you
want to work with Spotfire you would need a special partnership. Thinks thats the wrong
strategy.
Competition:
There is a significant and more concerted push by IBM and Oracle on one side
customers who are little bit more technically savvy [are] starting to look at the
JBosss [a Red Hat product] of the worldlicensing cost is significantly lower...the
push from the JBoss side or the open source side is probably more prevalent than
I have ever seen it before.
Overall there is not much change in scene in terms of competition: In the core he
sees IBM, TIBCO and a little bit of WebMethods; On the BPM side, sees a lot
of Pega, a lot of WebSphere BPM and more and more Appian. [Thinks Appian
is the fastest growing most interesting name in that space]; In the CEP true-rules
based world, it's Fair Isaac and IBM ILOG. etc.
Pipeline: We never had a pipeline like we have right nowour pipeline is pretty deep.
Reports that his practice grew 20% y/y last year and plans to do the same or better this
year as well. Although he had a weak start, thinks will come on top by the end of the
year. Had 15-20 closes in the last 3-4 weeks.

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Industry contact 2
Looks like their sales issues are behind them. The current sales management structure is
in place and control now.
Observes that there is a lot of rigor in expanding [globally].there is rigor, there is push.
They are focusing all of a sudden in solution building as compared to selling point
products.:
Observes that TIBCO is having discussions with SIs to create vertical solutions
around the TIBCO platform. Reports that this is a change I have seen in TIBCO
in the last three months, for the first time.
Observes that TIBCO is allocating technical managers with goals and KRAs to
enable partners to build solutions.
Reports that TIBCOs channel alliance executives KRAs [Key Result Area] have
also been modified from only license revenue focus to building solutions with
partners. They are carrying now some quota, qualitative measurements to develop
solutionsTheir tone change is notable.
Explains that there will be two types of business models for solutions. One is a
managed services model where the SI will buy TIBCO licenses and will sell a service
to the end customers in a hosted environment and for every new sale will pay TIBCO
a portion of its revenue. The other model will be an on-premise installation, where
TIBCO will have to sell its platform directly to the end customer.
It is a new revenue stream and it will build. Mentions that PegaSystems did a
similar move successfully.
Refers to a good win with a major telecom operator in America, it is between $5-10M.
Reports that TIBCO is also pushing heavily their capital markets platform. Observes that
TIBCO is getting a lot of traction in the product in Americas but not in Europe, which
could be because of his focus.
Based on his conversations with sales reps [in the enterprise application integration
ecosystem], they are feeling good but they know that the world has changed. Talking
about the enterprise IT market in general, every sales guy in every company including me
is worried. The market is no more predictable and every day is a new day. Discretionary
spend is in extreme pressure[For] new technologies, people are not looking at 5 year deals
[anymore]. Now, they are looking at 3 year dealsThis is the same problem Oracle is facing
where are those sticky revenue deals?
Mentions that he has a good pipeline, although that might not be indicative of the
industry in general, and the challenge is closure3-4 months sales cycles have gone to 6-7
months and whatever was closing in 6 months have now gone to a year.customers are
playing too safe.
Industry contact 3
Lately seeing TIBCO more in the Oil and Gas vertical with their OpenSpirit solution. Its
a pretty interesting solutionthey are making some good penetration in that spacethat
is a good space open for changes because its a Microsoft .NET and SAP dominated space.
Reports that he has seen pretty good traction especially in their workflow BPM [product]
[Spotfire] also has a decent amount of buzz around it.
Now everybody is jumping into the EDA [Event Driven Architecture] stack and they have
done a good job in marketing themselves as an EDA companythey have a first mover's
advantage [in that space].
Has seen some good traction across IBMs cloud integration products but hasnt seen
TIBCO come up in any cloud conversations.
Detects a positive sentiment among the few sales reps [in the Enterprise Application
Integration space] he interacts with. They sounded much more positive to me [as compared
to last quarter].
Has heard about a couple of decent deals that TIBCO has won in the quarter. Has also
heard about a couple of competitive wins against IBM, less than $500k deals. Thinks that
those are good entry level deals.

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Mentions that many enterprise software companies are facing sales turnover where senior
execs are leaving for cloud companies and are being replaced by new, less experienced
people. Workday and salesforce.com have been the biggest winners of all this, [for] at least
the ones I know. Reports that a couple of TIBCO guys have gone to Pega.
Explains that companies like Pega have an advantage in the selling game as compared to
TIBCO or IBM because their [Pegas] messaging is based on the solution rather than the
infrastructure which allows them to position the products to the business rather than IT,
resulting in a shorter sales cycle. Mentions that IT elongates the sales cycles.
Explains that while competing with IBM, TIBCO has a steeper hill to climb because of
IBMs ability to bundle deals as well as to offer incentives such as a 0% financing, if needed.
Positive Feedback (5), Contd. Industry contact 4
For his services component, TIBCO this quarter is showing a reasonable amount of
growthit is showing better strength than what we have seen in the first half of the year.
Indicates that the switching cost for TIBCOs existing customers using their core integration
platform is high and hence they are starting to look at additional TIBCO products to
complement the platform. Indicates that the expansion opportunities are reasonable in
size.
Seeing traction in the data visualization space [Spotfire]. Observes that TIBCO customers
in the Banking and Financial Services vertical are starting to experiment with Spotfire.
Observes some spotty messages around enterprise of things coming from TIBCO
internally referring to an infrastructure layer touching every part of the enterprise, including
sensors, etc.
I think there is growth, but it is not that humongous growth which helps them to remain
healthy and remain in the race, but is not going to propel them to leadership positions.
ecosystem], this quarter looks reasonably OK because I dont see any panic.
Referring to the sales organization, I can see some stability now.I think they are all sort
of settled downthere is a reasonable alignment internally.
Referring to the pipeline, its a little better for the second half.
Industry contact 5
TIBCO seems to be doing good. This quarter was pretty good. The guy who I work with
[over various reps in the enterprise application integration ecosystem] actually said I made
my quota and Im getting promoted.
He reports that his actual deal closures were a little light because of slowness in his region,
but also observes that his regions seems to be an exception.
But, hes seeing a pickup of activity around services. Positions such as data architects, and
similar roles, are getting a lot more traction. Im having a little bit of a challenge finding
[people] resources. That tells me that people are starting to do projects.
He doesnt see that much traction with big data projects. The interest is there but people
dont have budgets to do that.
Trend is pretty similar and in fact its in the same direction as we were seeing over the last
few quarters now.
Highlights increasing competition from Oracle and IBM in a big way.:

We are seeing customers leaning toward TIBCO only when there is an installed
base and they are looking to upgrade with additional components.
However, The inertia to move away from TIBCO is not there that much, unlike
lets say a competing product such as Software AG.

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The competition from Oracle and IBM is likely to be faced by all middleware
[vendors]; I think TIBCO is faring the best as far as guarding its incumbent base.
Observes seeing lesser and lesser of TIBCO net new deals, especially when it comes to
only integration. That is one trend that is quite clear across the board.
Came across a couple of opportunities in the Communications vertical where the Business
Events and the BPM capabilities are being looked at very seriously. Thinks that TIBCO
is doing better in these areas.
Refers to a couple of European Telcos getting into good sized deals [definitely mid
7-figures] with TIBCO around their [ActiveMatrix] BPM offering and some of their
frameworks.
ecosystem], I havent seen much bombastic euphoria of any sorts. In terms of better
business traction in the quarter for TIBCO, he would choose Europe as compared to US.
Starting to see increasing focus from TIBCO on the services piece especially in the newer
tools such as ActiveMatrix BPM etc.
I think the pipeline is average for TIBCO and thinks that Oracle has a stronger pipeline
as compared to TIBCO, in the middleware space.
Sees strong competition from Pegasystems in the BPM space and not much in the Business
Events space. Notices that Pega has better win rates in Financial Services, while TIBCO
wins the majority of the time in Communications and Retail sector.
Hasnt seen any discussions among customers related to TIBCO integration bus between
clouds.
Thinks that the movement of the workloads to the cloud will impact integration companies
like TIBCO, but doesnt think that the impact will be felt at least for the next few quarters.
More broadly, speculates that the question of the relevance of an enterprise service bus in a
very, very cloud heavy environment could surface among customers soon. Recently saw an
instance of a similar discussion with a client of his, where the client is using TIBCO only
for the messaging piece (EMS) and not for the broader orchestration layer since they have
been moving a lot of workloads to the cloud. Mentions that as applications become more
and more integration savvy on their own, the middleware layer is likely to become thinner.
Our business has picked up a little bit in terms of Spotfire and TIBCO MDM.
Reports that he is impressed by the purchase of StreamBase. I think thats a leading

complex event processing solution[and] makes a lot of sense for TIBCO. Notes this
acquisition could raise the profile of TIBCOs real time solutions.
Based on his conversation with some of the sales reps [in the enterprise application
integration ecosystem], they are experiencing some challenges at getting things moving
and integrating their product lines. Observes that Tibbr, Spotfire and also MDM are still
independent of the core business and the sales force is challenged in selling that stuff.
Some of the competition is strong in terms of IBM, SAP and Oracle. Observes that IBM
is encroaching on TIBCO in a big way and attributes that to [IBMs] Stack is more
complete and their BPM offering is stronger I think.
Big deals I havent come across any that are going TIBCOs way necessarily. Caveats his
comments saying that his visibility of deals could be [limited by] his ancillary focus on
TIBCO.
I think everybody is challenged right now to deliver good year over year [growth]. I think
TIBCO, seemingly, [and] this is just a hunch but, may be challenged again [this quarter]
not bullish on it.
Notes that the movement of workloads into the cloud is impacting TIBCO. Thats why I
think whats very challenging about TIBCO is their lack of a cloud strategy, although he
does acknowledge that there is something around that they released recently.
Price Target $26 = 20x (was 16x) FY14 EPS of $1.22 + $1.16 net cash per share. Higher multiple reflects
improved sales execution.

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Deep Dive Partner Checks Show SpotFire Strength, Pricing/Competitive Issues
PRICE: US$21.38
TARGET: US$20.00
share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$20.00
FY13E EPS US$1.12
FY14E EPS US$1.26
Yield 0.00%
Fiscal Year End Nov
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
We spoke at length with 13 key partners in TIBCO's ecosystem to provide an exhaustive
window into the competitive battle for real-time infrastructure software. While many
partners characterized the business as "stable" or "steady" as it goes and we think the
execution cycle might have turned the corner in pockets of the U.S., other partners
referred to a "slight downtick" in the pace of activity. Partners pointed out continued
competitive challenges in the core SOA space from the likes of IBM and ORCL and
referred to TIBX's relatively high pricing as a typical reason for the fallout; certain
partners think TIBX has a pricing issue on their hands. Conversely, SpotFire momentum
sounds very strong, as training classes are full. We see better results relative to guidance
in Q2, but don't expect a return to strong/sustainable license growth against this
competitive backdrop. Neutral, $20 PT.
Notable Feedback
(+) Most of the TIBCO wins that I have seen over the last quarter or two have been
on the other parts [BPM, Business Events (BE), and Spotfire].
(+) I think they are getting back on track. I am tepidly optimistic about TIBCO.
(+) "Spotfire, with its predictive analytics, actually happens to be a better combination
for visualization as compared to QlikTech or even Tableau.
(=) They are definitely closing dealsit's just that they [the deals] are taking longer
and they are smaller.
(-) Would rate Q2 as flat at bestflat to a minimal downtick with respect to the last
quarter. I wouldnt expect a bullish quarter [as compared to Q1].
(-) I have seen less of TIBCO in the past quarter than the quarter before.
(-) TIBCO is facing tighter and tighter competition from the likes of ORCL and
IBM in the core SOA space across almost all the verticals.
*** Detailed Feedback on Pages 2-6***
YEAR
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2014E
REVENUE (US$ m)
225.7 247.4 255.0 296.5 1,024.6 1,024.6 3.5x 3.5x
237.8A 250.5 271.6 333.0 1,092.9 1,092.9 3.3x 3.3x
252.0 269.3 300.3 374.1 1,195.7 1,195.7 3.0x 3.0x
0.20 0.26 0.27 0.42 1.15 1.15 18.6x 18.6x
0.18A 0.19 0.27 0.47 1.12 1.12 19.1x 19.1x
0.20 0.22 0.31 0.53 1.26 1.26 17.0x 17.0x

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Positive Comments from Industry
Contacts (1)
Industry Contact 1 (BI/Spotfire)
Ive seen a significant lead flow [deals coming to him] through TIBCO.
From the lead flow I can tell that there is significant interest in the TIBCO/Spotfire side
of things.
Hes currently only doing Spotfire. His customers have a significant interest in data
visualization. Spotfire, with its predictive analytics, actually happens to be a better
combination for visualization as compared to QlikTech or even Tableau. Believes that
Tableau has a very good product in terms of visualization, but its limitation is that it doesnt
have any predictive analytics, and their products are still departmental.
He likes Spotfire because its the only product that has an integration with R, an open source
machine language for statistical servers. TIBCO Enterprise Runtime for R allows you to
actually scale your R implementation. Spotfire has an enterprise focus, so there is ample
security in place, and it can be rolled out enterprise-wide as opposed to just in a department
or on a desktop solution from QlikTech or Tableau.
IBM competes with its Cognos Workspace, but it is nowhere near what Spotfire is.
Verticals most likely to use Spotfire are oil and natural gas, healthcare and life sciences, and
anyone with a Big Data project.
Tech spending is fairly active, so I would actually rate it in a normal state today. Particularly
in the data visualization space there is significant demand.
Neutral Comments from Industry
Contacts (6)
Industry Contact 2
I think they are getting back on track. I am tepidly optimistic about TIBCO.
Mentions that ActiveMatrix BPM, BusinessWorks and BusinessEvents are still strong in
terms of demand. Thinks that BPM remains their leading product and they are pushing
BusinessEvents recently, pretty strongly. Thinks that Spotfire, Tibbr and MDM might
have settled down a bit in terms of interest.
I think the market is moving their way. Mentions that the government sector is picking
up in the area of real time event processing. We will see if that translates favorably for
TIBCO. Mentions that telecom is also doing a lot more in that area.
They are definitely closing dealsit's just that they [the deals] are taking longer and they
are smaller. Thinks that the macro economy has affected them.
Thinks TIBCO is seeing strong demand overseas. Thinks that Europe has been strong for
TIBCO as well as for few other enterprise software players.
Thinks TIBCO is getting more into consulting, which is interesting, different.
Thinks that the StreamBase Systems acquisition is very interesting. I have thought
very highly of StreamBase in terms of their event processing capabilities. Thinks that the
technology fits in nicely in TIBCOs portfolio. I think it will allow them to do a whole lot
more with their real time events that they are touching, not just moving them but maybe
doing some deeper processing. Thinks that StreamBase has a few hundred employees.
Thinks that with respect to the sales restructuring, not much of that has kind of trickled
out to the field. Thinks that they have done a good job regarding the restructuring.
Mentions that not being able to provide a full stack has probably hurt TIBCO in different
ways.
Refers to IBM and Oracle on the competitive front. I see IBM getting really strong in the
space of BPM. Mentions that a bigger player like IBM or Oracle also plays a lot around
vertical solutions as compared to TIBCO. Thinks that it has been a challenge for TIBCO
they havent gone into real solutions, they are more of a product sale. IBM and Oracle
can provide a full stack, whereas TIBCO cannot.
Industry Contact 3
Works with a select number of customers. Since last quarter, he has picked up two new
customers A large retailer and another large company in the gambling industry.
Thinks that the demand is steady as it goes.
In his customer base, there is a lot going on in terms of just the normal systems integration,
SOA services space. There are still a lot of large projects kicking up around systems
integration and services development with BusinessWorks, traditional messaging .
Mentions that the ActiveSpace is also getting some traction.
Mentions that some of his clients are looking closely at Business Events and Complex Event
Processing, but havent seen real projects really take off in those areas.

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Industry Contact 4
Mentions that a few bright spots are that existing customers of TIBCO are really happy
with the product performance, services have improved a lot, the alliances team seems to
be very active and TIBCO is increasing its focus on building vertical solutions, which is
a welcome change.
Thinks that demand for TIBCOs BPM product is stable in the market.
Mentions that TIBCO is becoming very aggressive with respect to partner enablement and
is focusing more on partners of late. Adds that TIBCO has strengthened their alliance
team, they are continuously calling large SIs [system integrators] and are pushing hard.
Mentions that last year they were all on their own but now they are engaging [partners]
well.
Thinks that some of the segments are doing well. His Banking and Financial services group
is quite interested in TIBCO these days. I think they are covering their ground [in
banking and financial services] very well now.
Talking about the Telco segment, mentions that usually he used to get 3-4 good leads around
TIBCO, but last quarter was quiet.
Mentions that the challenge with TIBCO is that the big players are singing an integrated
story these days and I dont think TIBCO has an end to end integrated story.
He hasnt come across any big deals related to TIBCO.
Feels that there is nothing new that is coming out of TIBCO.
ecosystem], alliance guys are happy Mentions that the UK, Europe sales teams [in the
enterprise application integration ecosystem] look really desperate [even for small deals].
Industry Contact 5
Mentions that from his perspective TIBCO business is stable.
Based on the number of deals he is involved with TIBCO, no specific deterioration nor any
specific uptick, its almost the same. He is seeing the same number of deals that I have seen
last quarter. He is seeing a mix of 2:1, between core integration and data visualization/
Spotfire and that has been consistent for two quarters for his TIBCO practice.
ecosystem], mentions that he has not seen any pressure but then again he has not spoken
to them toward the end of the quarter.
Also, thinks that the restructuring in TIBCO is happening in pocketsit's not that top
to bottom everything is changing. So, thinks that it does not appear to be much of a big
deal, at least as of now.
Industry Contact 6
Moving away from TIBCO from a reseller point of view and focusing more on IBM.
Mentions that from a reseller point of view IBM benefits him a lot better than TIBCO in
terms of return on investment. Mentions that IBM is also helping in co-branding and is
providing 3/4th of the marketing cost.
Seeing TIBCO on the competitive front head to head with IBM.
Mentions that from his perspective which could be biased, overall IBM is winning more
over TIBCO, although that might differ based on industries. Also, adds that TIBCO is
winning more where the customer is purely looking for broker capabilities. So, their legacy
product suite is definitely doing pretty good. They are definitely winning more around
that. Mentions that he is seeing more IBM wins when the customer is looking for more
extended capabilities.
He is aware of a few deals that TIBCO has closed in the mid-west. Mentions that sporadic
big deals such as Wells Fargo moving a lot of their stuff out of Software AG to TIBCO
[deal probably about 8 months old] are happening in the market.
Industry Contact 7
Mentions that demand for TIBCO products is stable. Core products [ActiveMatrix
BusinessWorks (BW) and Enterprise Message Service (EMS)] are still pretty good
Mentions that some new standards and zero configuration architecture related to enterprise
messaging are coming up in the market. And unless TIBCO implements those new protocols
and standards into their products, there could be some setbacks in the EMS space.

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Although they do see sporadic business around Complex Event Processing [CEP], thinks
that it is no longer the hot technology and that the buzzword has moved on to Big Data
this year.
Mentions that Big Data with Spotfire has been really, really key for TIBCOa lot of
successful implementations last year. A lot of people use Spotfire in combination with Big
Data sowe are seeing pretty good traction on that side.
Havent seen much traction in the couple of integrated hardware systems released by TIBCO.
Negative Comments from Industry
Contacts (5)
Industry Contact 8
The trend that I am seeing is that they are getting beaten up in the market [especially in
the small to mid-sized market] pretty bad. From his perspective, the deals are scarce, very
scarce. Doesnt know if its a temporary blip or what is causing it but Its been very quiet.
Mentions that it could be a regional thing as well.
In the last three to six months, overall [across the enterprise and SMB market], we are
seeing a slowdown in deals. I think the slowdown started about six months ago and the
last three have been really quiet. Deals are tough to come by.
Thinks that TIBCO has a major pricing issue on their hands. We have been in the
middle of a few deals with them and we lost, I think, in the finals three or four times
in a row purely on pricing. Mentions that the list prices are comparable with some of
their competition, but the discount rates and the level of flexibility in pricing is way more
prevalent in TIBCO's competition. Thinks that their strategy that they used to attack the
enterprise market doesnt translate well at all in the small-medium sized market. And I
think in that space [SMB], especially, they are just getting bludgeoned right now.
Thinks that deals around Complex Event Processing etc. are not working. Mentions that
what people are buying right now are solutions that are built using these tools that address
particular vertical problems. Very few of our customers are buying platform. Adds that if
customers are buying platform software, they are not doing it from TIBCO. Mentions
that clients are more inclined in buying platforms from the big shops SAP, ORCL, IBM,
and MSFT. They [TIBCO] are getting bludgeoned from that perspective as well.
I see a lot more specialty deals. Refers to a company called Appian. Thinks that they are
probably the most innovative in terms of how they position integration of BPM solutions.
Mentions that Appians deal pace at this point is on par if not faster than what Pegasystems
is capable of doing.
Mentions that he was in conversation with a few of the reps in the vertical specialty teams
[in the enterprise application integration] ecosystem, it was pretty quiet, unusually so.
Thinks that some of the shake-ups in the sales organization are reverberating through the
organization. Mentions that in his region TIBCO probably let go half a dozen people in
the last three months. Half of our [regional] contacts are gone. Thinks that regional level
leadership took a hit, probably as a result of the sales restructuring efforts.
Pipeline: From what I can see, it doesnt look good at all.
Mentions that, in general, he is seeing a real uptick in the streaming side of Complex Event
Processing in the last three months. Mentions that a lot of these deals started coming from
the Department of Defense but now they are spreading across Telecom, energy etc. Most of
these are with IBM. Refers to a couple of pretty big projects about to start all of which is
with IBM because they are figuring out a way how to bundle [these products] in their major
ELAs. We are not seeing TIBCO in any of those deals.
Industry Contact 9
Mentions that TIBCO is facing tighter and tighter competition from the likes of ORCL
and IBM in the core SOA space across almost all the verticals. We havent seen the trend
changing or slowing down at all.
Thinks that TIBCO doesnt seem to have that halo around themselves for their core
integration and SOA space, for sure. Adds that although TIBCO is not completely
dethroned from its leadership position in this space, customers are not seeing the clear
differential between TIBCO and its competitors. Thinks that Oracle is single handedly
giving a lot of competition to TIBCO to the point that it might be a targeted attack by
Oracle.

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For the core integration/SOA space, thinks that TIBCOs relatively high pricing as compared
to that offered by Oracle or IBM is working against them. Also, adds that the technology
gap is reducing quite a bit. Mentions that from a technical capability standpoint, if TIBCO
is a 9/10, Oracle SOA is only a 8 or 7.5 and customers dont mind that difference if Oracle
gives them a sweet deal. Mentions that Oracle is playing the catch-up game very well and
the suite is getting more and more mature. Refers to a major Telco, which is always known
to have TIBCO in SOA is looking strongly at Oracle despite Oracle giving them pain.
Thinks that companies with a mature TIBCO presence coming up for renewals are likely to
look at alternatives, especially when a big ERP vendor such as an SAP or Oracle is breathing
down their throats.
Most of the TIBCO wins that I have seen over the last quarter or two have been on
the other parts [BPM, Business Events (BE), and Spotfire]. He has come across a number
of BPM and BE deals. Mentions that all the major airlines continue to consider TIBCO
as a strong player on the events and BPM side and not so much on the integration side.
Thinks that for each of the airlines using TIBCO, he thinks that the core integration stack
is probably non-TIBCO. Refers to one large airline that is looking to leverage TIBCO more,
especially in the Complex Event Processing space.
He hasnt come across any big enterprise signing a large deal with TIBCO in Q2 (May
2013). He is seeing some medium size deals.
Based on his visibility of the market traction for TIBCO, he would rate Q2 as flat at best
flat to a minimal downtick with respect to the last quarter. I wouldnt expect a bullish
quarter [as compared to Q1].
Across his portfolio of companies in verticals such as energy, utilities, telco and media, I
dont think in any of these companies I have seen TIBCO on the upswing for the last two
quarters. He would be surprised if any other partner is seeing something different.
ecosystem], I havent seen extreme bullishness or outreach like lets say three quarters ago.
Pipeline: Out of his large deal pipeline, he is not seeing a major TIBCO deal. Most of
the large deal pipeline in the SOA/BPM space would involve adopting a new product or
migrating to a new product. And in both of these cases, I would say, Oracle and IBM
are definitely looking strong. The only thing he sees in the pipeline regarding TIBCO is
existing TIBCO customers here and there expanding their TIBCO presence a little bit.
Industry Contact 10
We havent seen a whole lot of activity around TIBCO in general...[beyond the previously
existing projects.]
I havent seen any definitive movement in a product necessarily...maybe a little more BPM
kind of work.
We are seeing traction in the Spotfire area. That continues to be a pretty active area of
interest. His firm does a lot of training on Spotfire. Our classes remain busy and full.
Refers to having seen Oracle and Software AG as part of the competitive landscape.
Based on his intermittent conversations with direct sales reps and the channel managers [in
the enterprise application integration ecosystem], his impression is - I think that they are
concernedI dont think they did as well as they would have liked.
Industry Contact 11
Weve seen demand weaken a bit in the federal space where we have a significant presence,
mainly due to the cost of TIBCO solution compared to other products. Its not necessarily
a functionality issue.
In the commercial space, in the U.S., he thinks its been difficult for TIBCO. But he
also believes that in general the last quarter wasnt a good quarter for technology in the
U.S. The international business in Asia Pacific is stronger than its been in the past, and
hes seen a couple of good-sized deals close there. He hasnt seen people abandoning, or
failing to grow their TIBCO environments in Europe, but he just hasnt seen as many new
opportunities as in the past.
Competitor Splunk is on fire. [Splunk] has got a good platform and it is growing in its
adoption.
Industry Contact 12

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Recently lost a bake-off to IBMs WebSphere based on price. The customer believed that
TIBCO and IBM were largely neck-and-neck on functionality, ease-of-use, etc., but the
TIBCO direct rep didnt initially provide a quote the customer thought was compelling.
Believes the customer would have gone with TIBCO had they initially offered a more
compelling quote. TIBCO kind of shot themselves in the foot with that one. They could
have had it.
Lately not many people are really at this point looking at MDM, things like that, that
TIBCO is offering. I just havent seen it in a while. TIBCO was a big push, and all of a sudden
it just kind of died out I just dont see the end users or the customers looking for it.
Even the TIBCO customers shes worked with in the past that are have decided to either
not go with or theyve decided to go on a different avenue or that piece is being put on hold.
Industry Contact 13
I have seen less of TIBCO in the past quarter than the quarter before.
Does not know of any net new deals, doesnt know what their focus is his territory.
We have trained some of our TIBCO resources on other technologies because there is work
with the other integration technologies.
Have not had any recent conversations with TIBCO personnel.

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Deep Dive Interviews with 9 Key Partners: Stable Engine in a Transition Period
PRICE: US$23.30
TARGET: US$24.00
share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$24.00
FY13E EPS US$1.20
FY14E EPS US$1.38
Yield 0.00%
Fiscal Year End Nov
40
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with 9 key partners in the TIBCO ecosystem indicate fairly steady
business momentum for TIBCO's FQ1. Several contacts observed a "slight uptick" to
a fairly consistent demand environment for TIBCO, with pockets of strength around
Complex Event Processing and Spotfire. Although contacts highlighted increased
traction within TIBCO's installed base and referred to a few expansions including a
potential expansion deal with HP, the sentiment regarding net new deals remained
muted. Many contacts also referred to an increasingly competitive environment,
highlighting vendors such as IBM, ORCL and Pegasystems. We continue to see a low
to high $20s range for TIBX shares and suspect slipped license revenue from Q4 aided
Q1. We suspect that CC license revenue growth could have bottomed last quarter, with
easier comps going forward but we don't expect license revenue to completely run away
during the transition period. Neutral, $24 PT.
Notable Feedback
(+) Overall, I think they are doing OKit will be an even story, low growth story.
(+) "People who are their top producers [in the middleware ecosystem] are doing well."
(+) In all the emerging spaces [like Spotfire, CEP, etc], TIBCO has something to offer.
So, they are able to, sort of, open a conversation and in most of those conversations
TIBCO is able to sign a deal.
(=) "They [TIBCO] had some musical chair activity taking place at the higher echelons
of sales."
(=) Thinks that TIBCO has a solid platform but competition is high. Competitors
mentioned the most - IBM, ORCL and PEGA.
(-) "One thing that I have noticed is that the typical talk that usually you hear on the
street around mega deals has been non-existent...I havent heard anything in a while."
(-) It's a year of transition for them.

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
225.7 247.4 255.0 296.5 1,024.6 1,024.6 3.8x 3.8x
241.4 265.3 279.5 339.8 1,126.0 1,126.0 3.5x 3.5x
256.1 285.2 309.1 382.0 1,232.4 1,232.4 3.2x 3.2x
0.20 0.26 0.27 0.42 1.15 1.15 20.3x 20.3x
0.17 0.25 0.30 0.49 1.20 1.20 19.4x 19.4x
0.21 0.28 0.34 0.54 1.38 1.38 16.9x 16.9x

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Industry Contact 1
From his perspective, we are seeing a fairly consistent uptick [in TIBCO activity] that kind
of started a couple of quarters ago.
We saw a very significant push towards the end of their last fiscal year, which is pretty
typical but then at the end of the calendar year, just after their fiscal year was over, there
was a very pronounced overhead time. Thinks a lot of that has to do with the internal
restructuring that TIBCO is doing. They [TIBCO] had some musical chair activity taking
place at the higher echelons of salesthey have a new person leading sales. The person who
ran sales in central is no longer there, somebody else has taken that over. Thinks that some
of it is just the time for changes and some of it is they are just addressing some issues
that they had over a number of periods of time. Thinks its too early to tell if the changes
are for better or for worse.
A lot of people that we worked with have been moved around over the course of the last 6
weeks or so. So, I think there is a lot of trepidation, at least in the central region as to where
people stand.People who are their top producers [in the middleware ecosystem] are doing
wellI dont know how the average sales guy [in the middleware ecosystem] is doing.
Based on his visibility in the region east of Mississippi, one thing that I have noticed is
that the typical talk that usually you hear on the street around mega deals has been non-
existent...I havent heard anything in a while. Also, havent heard any mega deals in the
making.
I can tell you Canada has been very quiet for a while and Midwest has been very quiet.
Mentions that in the 2

nd
half of 2012, TIBCO lost some [3/4 good sized deals] deals that
they shouldnt have lost to Software AG, after maybe 5 years of not losing to SoftwareAG...
and every one of those was lost in pricing.
Thinks that the fundamental issue as an organization for TIBCO is that it doesnt know
how to do small or medium sized deals. If its not huge and very complicated, either their
pricing or their attitude or both are not such that they can close deals.if somebody comes
in and says, for example, WebMethods is offering me a comparable thing for $100k less,
almost every time they will lose that deal.
Mentions that in a large environment, he is not seeing a head to head competition with
Oracle Fusion Middleware or IBM WebSphere. I am not seeing them doing outright pure-
play middleware deals against the big boys. Adds, he is seeing TIBCO deals in places where
the customer has already eliminated ORCL or IBM for various reasons. Also, he is not seeing
TIBCO dislodging IBM in a large company.
Thinks that TIBCO is still doing a fair bit of business in their core infrastructure stack,
BusinessWorks related.
According to him, thinks that TIBCOs growth path is going to be a three fold combination
of
Spotfire,
Their Foresight product that primarily enables B2B. I think they can mine the
Foresight legacy client base pretty well,
And the easiest path for expansion for them is their legacy Proginet. Thinks there
is a significant opportunity there. The sales pitch to sell existing TIBCO customers
Proginet tools is very easy from an up sell perspective. And mining legacy Proginet
customers to sell TIBCO infrastructure tools is not that hard either.
Thinks that TIBCO put unnecessarily a lot of emphasis on Complex Event Processing
(CEP). The market is not ready for full blown CEP. Thinks that the problems that CEP
can solve today are not nearly as prevalent as the vendors would like it to be.
In the BPM space, mentions that he is seeing a lot of Pegasystems, period. We are not
seeing a lot of TIBCO BPM at all. Also starting to see IBM (Lombardi). Doesnt think
there are too many ActiveMatrix BPM installs in the market.
Seeing a lot of Fusion [Middleware]. Thinks Oracle is pushing Fusion as a part of large
ELAs. At large we are seeing more velocity with WebSphere process server suite than we are
with Fusion. Acknowledges that his view could be skewed because of his healthcare and
financial services focus. Hasnt seen any WebSphere displacements across his client roster.
Has seen some market share degradation for WebMethods (SoftwareAG) but thinks that
its not uncommon.

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They [TIBCO] are slowly changing how they work with 3

rd
parties primarily from a sales,
technical pre-sales perspective. Thinks that the changes are evident in terms of better
information sharing, at least the beginnings of a better understanding of how to attack
customers who are not hugealso in terms of passing leads our way [for software resell
purposes]. We have seen a lot better traction in that regard [in the last 6 months] than
has ever been the case before. Thinks that TIBCO is starting to understand that they need
a live ecosystem of partners around them and that they need the extra feet on the street
from a sales standpoint.
Adds that TIBCO has been running the Value Added Reseller (VAR) program for over a
couple of years now but only now it is starting to get to the point where the leads are
frequent, repeatable and meaningful enough for us to act on.
Industry Contact 2
Thinks that the activity level seems to have slightly improved as compared to last quarter.
Mentions that TIBCO has an uncanny ability of balancing itself across quarters. For the
last two months thinks TIBCO is slightly picking up momentum again. Its a very steady
company and their portfolio gives them some leverage here and there. I am seeing them
more in the last few months actually.
Thinks that the new sales [manager] is shaking up things and TIBCO is re-skinning on
the sales front.
I am seeing TIBCO for the last 10 years, one quarter they are down [in terms of activity
level] and next quarter they are up.
Thinks that the excitement among the existing customers is evident in the Complex Event
Processing (CEP) and the BI (Spotfire) space.
Think EAI (enterprise application integration) is not a great space, it will keep growing
like an ORCL database.
TIBCO is mining their account base very well. In all the emerging spaces [like Spotfire,
CEP etc], TIBCO has something to offer. So, they are able to, sort of, open a conversation
and in most of those conversations TIBCO is able to sign a deal.
For an existing TIBCO customer, he thinks that there is a very little incentive to look at an
outside BPM (Business Process Management) story. For example TIBCO and Pegasystems
wont be in the same customer base for sure. Unless they get rid of TIBCO entirely, it will
be very difficult for them to embrace a new BPM product. So, in a way its a customer lock-
in that they have.
Based on his conversation with the sales guys [in the enterprise application integration
ecosystem], mentions that there is a general happiness and he didnt notice any anxious
faces during the end of the quarter. He further added that based on his conversations, I
didnt get an impression that they are going to have a bad quarter again.
Doesnt think TIBCO has a compelling story to get new business [net new customers].
They have got reasonably fine new product extensions or new product additions which
they are trying to pitch to their existing customer base. So, he thinks net new customer
business is muted.
Based on how TIBCO is executing, thinks that TIBCOs strategy is to continue innovation
and sell new product extensions to the existing base rather than to go and get net new
business. For example, he mentions that for products like Tibbr they dont seem to be
aggressively pursuing new sales.
Thinks that there are some good hidden jewels in TIBCOs portfolio, like LogLogic.
Overall, I think they are doing OKit will be an even story, low growth story. Mentions
that TIBCO should be assessed on a running four-quarter basis and not necessarily on a
single quarter. They look like a safe bet so to say.
Industry Contact 3
There is some noise about HP expanding "big time" with TIBCO.

Industry Contact 4

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TIBCO demand is definitely consistent with respect to previous quarters. They continue
to be a major player in the middleware space.
Consistent growth in TIBCOs bread-and-butter SOA space

Based on his client interactions, I dont see them [TIBCO] having a spurt [in the
core SOA space]across the verticals as compared to what Pegasystems saw in the
last two of the last four years. We havent seen a spurt in new logo openings or
things like that.
This quarter again we came across a couple of customers where they are looking
at evaluating a middleware platform, an EAI [Enterprise Application Integration]
platform from scratch and they seem to be zeroing in on the IBMs and the Oracles
of the world. Thinks that TIBCO has a strong positioning in the SOA/EAI space
but despite that companies are looking at moving to the mega vendors in the space
mainly because of the ability of these vendors to do bundle pricing to sweeten the
deal and also because of the C-Suite contacts of these big vendors. Technically
those platforms might not be as mature or as strong as TIBCO but they have a
tremendous advantage.
Some excitement in the newer areas (Business Events, Spotfire, BPM)

Thinks that there is however some excitement across TIBCOs non bread and
butter areas such as BusinessEvents, Spotfire and ActiveMatrix BPM. Thinks that
these products are positioning TIBCO well.
Refers to a cable vendor that renewed its license for TIBCO and bought a whole
bunch of stuff that they didnt have. When I talk to this customer, they seem to
think that TIBCO can play a great transformational role in BusinessEvents or in
Analytics spaceTheir focus on this year and next is to leverage TIBCO as much
as possible on the transformational side using it for Complex Event Processing,
using it for decision making, using it for BPM or analytics. That is a trend we have
definitely seen go up in the last couple of quarters. Thats what TIBCO definitely
has gotten right.
Also refers to an Airline acquiring these new-age products even though it uses
IBM on the integration side. I can think of another couple [companies] that I came
across within this quarter.
Doesnt know the exact timing of the deals and wouldnt be surprised if at least one
of these is 7-figure deal.
Mentions that TIBCO is focusing more recently on Industry frameworks. Mentions that
TIBCO is trying to position a build-from-scratch framework in the telecom space. Thinks
that they might have a similar offering in Energy supported by the acquisition of OpenSpirit.
They [TIBCO] are trying to expand their functional footprint and sell the concept that
your applications can be built in TIBCO. So your order management functionality or your
order processing or provisioning functionality for a Telco.can run on a TIBCO product
itself rather than you building it or buying an ERP. Mentions that he is aware of two or
three instances where this strategy hasnt been successful. Thinks TIBCO is competing with
Pegasystems and Oracle in that space.
Based on his conversations with sales reps [in the middleware ecosystem], thinks that they
typically sound optimistic.
Hasnt seen any major shake up in the sales organization due to the latest leadership
changes.
Mentions that Progress Software and Pegasystems have a fair bit of overlap now, especially
in the newer platforms, the newer product suites that TIBCO is focusing on. Thinks
that the competitors might have stronger offerings than TIBCO in the BPM/Business rules
space, however TIBCO as a complete package is better positioned because of the ability
to leverage the SOA capabilities.
Industry Contact 5
Thinks there is a slight uptick as compared to last quarter in the TIBCO business
thats visible to him. While I am not always seeing decisions made, I am seeing more
conversations and more companies saying we are evaluating this area or what TIBCO
does is interesting, let's talk more; but they are not making decisions yet.

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They [reps in the middleware ecosystem] did tell me thatits a year of transition for
themThey are focusing on just heads down execution, in their words, and I think that
means closing deals and doing projectsas opposed to blue sky new product development
kind of work. Thinks the transition of the sales leadership could be part of it. I think they
are going through a self analysis right now.
Based on his conversations with his TIBCO clients, thinks there is a challenge on the part
of clients to move to the newest TIBCO products. Some of our conversations are around
how do we keep using some of the older outdated products like iProcess and their old
messaging platform, those kind of things. I am not seeing a whole lot of hey let's move into
this new BusinessEvents world or MDM. Adds that maybe TIBCO is keeping all those
opportunities to themselves and hence it's not visible to him. Thinks that the value may
not be fully established yet in these new technologies.
Talking about competition in the space, mentions ORCL, IBM and Mulesoft. Both IBM
and ORCL benefit from the pull through from the other products that they have out there.
Would characterize TIBCO as more of a stable engine going through a transition period as
opposed to TIBCO losing share to competitors. I think TIBCO is a stable company with a
good product stack that is really in a lot of ways a more simplified product stack than some
of the other competitors.I think they are a well integrated product stack as any other
stack out there. Its still viable.
Has heard some discussions about a deal with a cruise line brand which he thinks is a
multi-million dollar software deal, certainly think it was a 7 [figure deal], dont think it was
8 [figure deal]
Thinks that TIBCO is growing its own Professional Services group and thats affecting the
growth of his services business.
Industry Contact 6
General
The CEP space and SOA space seem strong in embedded systems.
Some customers are concerned that the messaging products from TIBCO are too
expensive. Its not a question of quality or performance, its a question of pricing and
value. There are customers, including government customers, who have moved away
from TIBCO. Some other customers wouldnt consider TIBCO solutions because
of the cost. He doesnt know if the pricing is catching up with TIBCO.
Government customers are moving to other vendors or technologies, like Java
Messaging from JBoss. JBoss competes with TIBCO EMS (Enterprise Messaging
Service).
TIBCO recently had a good-sized win with BusinessWorks and EMS; its an
enterprise service bus project for a large, global satellite radio company. Deal is in
the millions.
There are no new competitors, but WebSphere MQ from IBM remains their biggest
competitor in messaging and business integration. In the business integration space
TIBCO is pretty well lodged in there.
Spotfire and Tibbr

The biggest Informatica overlap is in business intelligence. Spotfire competes most
with Informatica. Spotfire has been growing. I think thats been a bright spot for
TIBCO.
Also believes that Tibbr is doing well for them.
LogLogic versus Splunk

LogLogic is a competitor to Splunk, and Splunk is just killing everybody else off
in that space.
LogLogic was a check-the-box acquisition, he doesnt think it was a very good
acquisition for TIBCO.
He sells Splunk to his customers, which means hes going to end up competing with
them [LogLogic / TIBCO] and absolutely crushing them. TIBCO will be mad at
us, but their customers will be happy.
He brings in all the operational and business metrics into Splunk. Splunk has a
JMS (Java Messaging Service) listener that listens to the actual messages and allows
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driving reasons for them [TIBCO] to pick up LogLogic because in order to properly
understand and manage large TIBCO environments you need a way to pull in, index
and access the log data. I think that was a driving reason for them [TIBCO] to
pick them [LogLogic] up, but the customers dont want to use it. Most of the big
customers have investments in Splunk.
The concept in enterprise management is that you have frameworks from various
vendors, such as IBM, BMC, Quest, etc., that have the ability to subscribe to or
collect data, and then analyze that data and let you know if theres a problem. You
can visualize the data. You can receive alerts when theres a problem. The thing is,
the data-set that LogLogic collects is typically the one thats either exposed by the
application, or its some finite data set thats defined by the manufacturer. Splunk,
on the other hand, accesses logs and other data streams, and they claim, and its
mostly true, that if you can enable all the logging you need to get the data, then really
what theyre looking at is a definitive record of transactions in the environment. The
interesting thing is that a user is not limited to the knowledge modules that BMC
builds, or the plug-ins that HP builds to collect data. Anything that can spit out
an XML data stream, or that has an API, or that has a log file, you can bring that
data into Splunk. So when something goes bump in the night, the more data you
feed into Splunk the better chance you have of figuring our whats wrong in your
environment. You can also feed business data into Splunk. You can record business
data with operational data. Splunk can handle huge, huge amounts of data, so its
not just an enterprise systems management tool, its an operational management
tool, its almost a BI tool, and to a small extent it crosses into Spotfires space. Its
pretty easy to develop applications on their platform. Splunk licenses through how
much you index daily. If you look at who their customers are, its a whos who.
Industry Contact 7
Our TIBCO business is good. It's growing a little bit but I am not seeing any net new
TIBCO deals and I am not seeing any net new TIBCO logos or customers [at least in his
region]. Mentions that his TIBCO business is growing because of ongoing work (upgrades)
with existing customers mainly. So, he is not seeing many net new license sales in his
geography.
Hasnt seen or heard of any CEP (Complex Events Processing) deals that closed last quarter
but have seen some interest. Its more traditional ESB and if it's new licenses it's because
the customer is expanding their environment and they've got to buy a couple of more server
licenses or what have you. Thinks that there is relatively more activity around Spotfire.
As compared to Q4, I think they [TIBCO] are doing less, less license business. From
a services standpoint, he estimates that his TIBCO business probably grew about 7%
sequentially.
Based on his conversations with sales reps [in the middleware ecosystem], a couple of guys
he spoke to - they seem to be doing OK but thinks that they are not selling net new deals
in his geography.
Hasnt seen any major shake up in the sales organization under the new sales leadership
yet but it might be coming.
Wont go as far as to claim that TIBCO is losing share to ORCL or IBM. We have only seen
one customer commit to turning off TIBCO. They made that decision [to move to Fusion
Middleware] a year and a half ago, but they still haven't turned it off.
His concern toward TIBCO is that you can't be a software company and not winning new
customers. Adds that maybe they are seeing big deals somewhere else and those deals
are not visible to him.
Industry Contact 8
Thinks that TIBCO is struggling in Telecom. Pegasystems is eating them left right center in
telecom, mainly around BPM. AT&T hates them, VZ hates thembecause they are very
closedas a result what is happening is that many large Telcos want the software providers
to be open so that they can develop, deploy and manage the solutions built on the platform.
BPM space is becoming very hot. Every customer of mine wants to work on BPM now.
Every customer wants to do platform based services. However, thinks that TIBCO is not
riding this wave.

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I am talking to ten of my tier-1 Telco account owners and I am trying to push TIBCO
[BPM] through them. They are all saying my end customer is not ready to go to TIBCO
and they are rather happy with Pegasystems, Oracle or with IBM. Thinks the main reason
is that TIBCO is very closed, not friendly, not open, trying to be acting smart, trying to
make a lot of revenue in services which no customer likes.
Mentions that he is not seeing any traction for other TIBCO products as well.
Not in Americas at all.
Mentions that there are a couple of good deals in Europe. Thinks TIBCO is
going good in Vodafone. But not seeing too much activity among his marquee
customers.
Thinks TIBCO will be thrown-out from one or two global telecom providers very
soon.
Mentions that now TIBCO has solid competition in the market in everything that they
do. Thinks that TIBCO is losing the silver-lining. Thinks competitors like Casewise,
Pegasystems, etc. are very agile, very strong and very flexible.
My experience with TIBCO in the last 4-5 months has not been great. Zero [net new]
deals. Trying to save two to three deals. Customers replacing them. My TIBCO practice is
worried.
TIBCO professional services (PS) are a painful business unit to deal with. Completely lost.
Completely messed up. Not in-sync with their sales. Thinks that TIBCO PS dont care
whether they [TIBCO] as a business are getting benefited or notand try to make sure they
hold on to their revenuedont care for customer satisfaction.
Heard that TIBCO got into the finals for a big deal with Reliance Communications ($2B
telecom company in India).
Thinks that TIBCO products are good. I have used TIBCO, I have used Casewise, I have
used Pegasystems, I have used IBMProduct is not an issue. It's how you deal, how you
pitch, how you manage customers, how you manage customer expectations and how you
show value to the customer. Thinks that TIBCO is failing in effectively pitching the value
proposition of its products.
Mentions that he is not seeing any requirements from customers around Spotfire or
Complex Event Processing.
Oracle is going strongSiebel CRM (Customer Relationship Management) is rocking.

Every one of my customers wants to go to Siebel CRM these days. Thinks there is a
war going on in the market between Siebel CRM and SFDC and all others are losing the
ground, in Telco at least. Oracle has consolidated CRM very wellI would say, 15 of
top 20 Telcos must have settled down with Oracle Siebel CRM. Vodafone group entirely
gone [with Oracle]; BT [British Telecom] gone; Telefonica, MTN, Verizon so many have
migrated and settled with Siebel CRM now. Thinks SFDC is doing great in the market
in the online [cloud] space they are going to rock. Thinks that Telcos still dont want to
get their data out of their cloud and want to control their hosting environment. They host
Siebel CRM in data centers, they give login-passwords to users and it works like SFDC for
their usersSFDCs advantage of no infrastructure is of no attraction to Telcos today.
Acknowledges that Siebel CRM is not that UI friendly but once configured it is good
enough.
Industry Contact 9
Haven't seen much action lately other than the one client I haveeven there it has slowed
down a bit. Have proposed TIBCO to a client, a huge company in the hospitality sector,
but the client hasnt decided yet."
Haven't come across that many leads for TIBCO lately. In the last couple of quarters,
we haven't seen any company saying 'yes we are moving ahead with the TIBCO
implementation.' Lately, he has been focusing on Big Data.
Thinks that TIBCO has a solid platform but competition is high. Thinks that Oracle is
pushing its middleware product quite a bit and is bidding everybody out.

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Checks Show Good Early Interest for New Appliances, Good License Setup
PRICE: US$29.94
TARGET: US$30.00
19x FY13 EPS of $1.36+ $3.99 net cash per
share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$30.00
FY12E EPS US$1.19
FY13E EPS US$1.36
Yield 0.00%
Fiscal Year End Nov
36
34
32
30
28
26
24
22
20
USD
Source: Bloomberg
CONCLUSI ON
We spoke with contacts in the TIBX ecosystem and found that pre-release demand for
its new EMS appliance (unveiled just last week) is encouraging. For example, sources
indicate that at least one government customer immediately wanted 50 appliances
after the product was introduced. Unlike Tibco's first appliance, the P7500, the EMS
appliance should address a wider audience, and received a strong round of applause at
the Tibco user conference last week. Additionally, contacts believe TIBX entered Q4
with healthy pipelines, good activity levels, and that it has not yet seen any weakness
in training/education revenues, as a few other vendors have mentioned. Guidance calls
for potentially stronger CC license revenue growth in Q4. We like TIBCO's long term
positioning but remain on the sidelines due to valuation.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
185.3 216.4 229.0 289.5 920.2 920.2 5.5x 5.5x
225.7A 247.4A 255.0A 318.1 1,046.1 1,046.1 4.8x 4.8x
256.3 279.8 286.3 358.9 1,181.3 1,181.3 4.3x 4.3x
0.16 0.21 0.23 0.42 1.01 1.01 29.6x 29.6x
0.20A 0.26A 0.27A 0.46 1.19 1.19 25.2x 25.2x
0.25 0.30 0.30 0.51 1.36 1.36 22.0x 22.0x

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TIBCO Checks Highlight Steady Momentum
PRICE: US$30.47
TARGET: US$30.00
21.5x FY12 EPS of $1.22 + $3.82 net cash
per share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$30.00
FY12E EPS US$1.22
FY13E EPS US$1.40
Yield 0.00%
Fiscal Year End Nov
36
34
32
30
28
26
24
22
20
USD
Source: Bloomberg
CONCLUSI ON
Out of the 8 key contacts we spoke to in the TIBCO ecosystem, most are fairly
positive on TIBCO's current business momentum. Contacts characterized TIBCO as a
"steady engine" and referred to seeing an "uptick in activity" in FQ3. While commenting
on healthy deal traction, multiple contacts reported a large deal in recent months
with Apple around Complex Event Processing (CEP). Contacts also referred to a
"rocking" sales performance in Europe. Negative feedback centered around competition
in middleware from Oracle and IBM, which has made it a more challenging selling
environment in certain cases. Contacts also indicated potentially muted growth activity
in North America, perhaps relating to the sales leadership transition. We suspect that CC
license revenue growth could have bottomed mid-year, with easier comps going forward.
However, we remain on the sidelines due to valuation, $30 PT.
Notable Feedback
"You wont see a home-run with TIBCO, its a steady engine.
There has been an uptick in activitypipeline seems to be more robust than it has
beenhad better closing rates
CEP [complex event processing] stuff is really catching fire.
TIBCO sales have been rocking in Europe, I think. They are doing extremely good
in Europe.
We havent seen great traction with TIBCO in North America in the way we have
seen in Europe, Africa, Middle East, India. Also havent seen too much traction
in Eastern Asia which is Japan, Australia, New ZealandSingapore, Hong Kong,
China, in other words all of Asia minus South-Asia.
For technical evaluations, [TIBCO] product suite is still considered strongprobably

a notch above IBM and Oracle but mentions that Oracle or IBM have the muscle
power to price [competing middleware products] better, to support it better, to cross-
sell/up-sell it better and thats what they are leveraging on.
Seeing Software AG a lot lately and from what I have seen they are driving down
price points.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
185.3 216.4 229.0 289.5 920.2 920.2 5.6x 5.6x
225.7A 247.4A 260.1 327.9 1,061.0 1,061.0 4.9x 4.9x
256.3 279.8 292.5 370.1 1,198.7 1,198.7 4.3x 4.3x
0.16 0.21 0.23 0.42 1.01 1.01 30.2x 30.2x
0.20A 0.26A 0.28 0.49 1.22 1.22 25.0x 25.0x
0.24 0.29 0.32 0.55 1.40 1.40 21.8x 21.8x

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Industry contact 1
There has been an uptick in activity pipeline seems to be more robust than it has been
had better closing rates.
There seems to be a lot of renewed emphasis in mining existing accounts and to doing
up sells.
Thinks TIBCOs channel organization is starting to produce some things for the partners.
To the best of his knowledge, he doesnt think that the North American infrastructure sales
head, who was recently let go, has been replaced but doesnt think that the departure has
created any disruption in the sales activity.
Thinks that TIBCO is starting to run to drive business through some of the, in my opinion,
better acquisitions that they have done. Seeing a lot of activity in the Spotfire customer
base and thinks it would be similar if not better going into the Foresight and Proginet
customer base.
Mentions that there is a lot of buzz about LogLogic and TIBCO is talking about it a lot.
We are probably going to be over planprobably going to do better than plan for the year.
Mentions that communication with TIBCO has been richer and deeper than it has
historically been and that has to do with some internal changes that they [TIBCO] have
implemented in terms of joint selling works with partners and things along those lines. They
have been more engaging and more forthcoming than they historically have been. Thinks
that the change he is experiencing has been primarily in FQ3.
In his personal opinion, TIBCOs woes in North America, highlighted in the last earnings
call, were because of two things:
They have reached a certain size where going after their traditional market is not
enoughso they cant go after the top 15 Oil companies, the top 20 banks and the
top 20 manufacturers. That doesnt work anymore they are too big and they have
saturated some of that market plus there is competitive pressure. So they need to go
down market in order to grow and they dont know how to do down market they
dont know how to do the SMB business at all.
The product portfolio has gotten large enough that some specialization/
segmentation across the sales force has to take place eventually and they havent
done that either. With TIBCOs existing sales model, he thinks that it will be pretty
hard to expand within clients by selling different parts of the product portfolio to
different groups.
Aware of a few big [7-figure] deals pretty advanced in the sales cycle and a few that are little
bit further out.
Industry contact 2
I have made TIBCO middleware by default the first choice middleware when promoting
among clients. Earlier, few years back, you had to go in and convince customers that
TIBCO is also a good product. Now, customers have accepted TIBCO as a player.
TIBCO sales have been rocking in Europe, I think. They are doing extremely good in
Europe.
We havent seen great traction with TIBCO in North America in the way we have seen in
Europe, Africa, Middle East, India. Also havent seen too much traction in Eastern Asia
which is Japan, Australia, New ZealandSingapore, Hong Kong, China, in other words
all of Asia minus South-Asia.
[TIBCO] remains king of the middleware market. They are extremely good in middleware
and they continue that.
In the BPM (Business Process Management) market, thinks that the older product was stable
but the new ActiveMatrix BPM is not yet stable, like any new product. Thinks TIBCO
is pushing it very heavily. [TIBCO] BPM is very flexible, that is what I like while other
BPMs are more vertical specific.
Has heard about a big BPM deal in Europe in the telecom sector, probably +$1 million.
Thinks TIBCO needs to hire more sales guys in Europe.
TIBCO business has grown 100%, in the last fiscal year (ending March), off of a small base.
Has doubled number of dedicated TIBCO resources from 100 to around 200 in the last 9

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months and would like to grow it to 400-500 people in the next 18 months. Mentions that it
depends on how TIBCO keeps up with their growth. The demand is there I am hopeful.
Thinks that TIBCO has not ramped up their support and services organization to the
required level to keep pace with sales. Its a good problem to be in. Thinks that it can be
solved by relying on partners but in that case they will have to invest a lot in developing
the partner capabilities, training them on new productsI dont see them doing all that.
I know TIBCO has entered in Apple. Thinks that the deal is big but doesnt know the
number, if it was a $7, $8 or $10M deal [or the timing].
Thinks that in TIBCOs price segment and size, Pegasystems is doing good.
Industry contact 3
Seeing good traction, implementations and wins, in TIBCO in sectors like Energy and
Financial Services, where they have a good footprint. In general, he has noticed more
traction in Retail and logistics.
From the perspective of his own business, he is not seeing an uptick with respect to TIBCO
and thinks that the sales guys who work with him (in the TIBCO ecosystem) are probably
not beating their numbers.
Definitely seeing customers considering the stack vendors increasingly ahead of TIBCO.
One of the reasons he is hearing more often nowadays behind the decision of
customers to standardize on vendors like Oracle and IBM is because customers
are not sure about TIBCOs longevity as an independent company. Has seen this
in many cases including a couple of big retailers as well as recently with a cable
company.
Customers are also inclined to stack vendors due to the range of the products that
they can offer which TIBCO cannot bring to market.
For technical evaluations, [TIBCO] product suite is still considered strongprobably a

notch above IBM and Oracle but mentions that Oracle or IBM have the muscle power
to price [competing middleware products] better, to support it better, to cross-sell/up-sell it
better and thats what they are leveraging on.
Thinks Oracle middleware is very, very visible on the radar and almost everybody is
talking about Oracle middleware. Mentions Oracle as the most formidable competition
to TIBCO.
In Apple, TIBCO was shortlisted ahead of other BPM players. Thinks that the Apple deal
has closed and is probably in the implementation phase. Given the size of Apple, mentions
that he wont be surprised if its a high 7-figure or low 8-fgure deal, although there might
be a long term component associated with the contract and the upfront licensing may not
capture the entire value of the deal.
Industry contact 4
CEP [complex event processing] stuff is really catching fire.
Thinks that traditional core SOA infrastructure business is declining while the newer
technologies like Spotfire, MDM, etc. are picking up. Has also heard that Tibbr is slowly
catching on.
Believes that many companies are rapidly standardizing on the larger vendors such as Oracle
and IBM for middleware. Those who have Oracle backend are tending to move towards
Fusion. Mentions that Fusion middleware for Oracle is really catching on. Thinks that
every Oracle shop is tending to move towards Fusion middleware. Believes that Oracle is
giving the license away for free.
TIBCO-Apple deal: They (Apple) are doing that (implementing TIBCO) in a big way.
Thinks it is in the CEP space and Apple is implementing it on an enterprise level. Thinks
it should be at least a 7-figure deal.
Industry contact 5
One of his clients is doing an enterprise wide implementation of TIBCO.

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Mentions that TIBCO expertise is becoming very difficult to find. Have seen an increase of
20% in salaries of TIBCO resources in the last year. He has 110 positions open and he cant
find any people. So, he is moving work offshore. Demand is there but supply is not there.
Based on his business pipeline, mentions that for the next foreseeable 18 months I can tell
that demand [for TIBCO resources] is going to be definitely high.
Working on the initial stages of a large project currently and he is proposing TIBCO to the
client. If TIBCO wins, he thinks it will be a very big deal but it could take 3-6 months
time to close.
Just started working on salesforce.com opportunities with 15-20 people. We see big
demand for salesforce.
Industry contact 6
Thinks that the TIBCO North American Infrastructure sales head has been replaced.
We havent seen a lot of net new deals in the last quarter. However, mentions that he
is hiring TIBCO professionals and continuing to do work with existing clients. Seeing
continued extension of existing projects or new projects coming on indicating more
expansion within existing clients than net new deals.
Thinks that there was a little bit of a lull during June/July, which is partly seasonal, but
now he is scrambling to get resources for projects. Was below plan which is normal
seasonality just that this season it was a little bit lower than what we had thought. We
could see that work was there, it was just delayed.
Seeing a lot more interest with Spotfire mostly from existing customers. Has facilitated
two demos and deeper discussions around Spotfire in the last 30 days. Hasnt seen any
Complex Event Processing deals come down yet although he thinks that TIBCO is in active
discussions with some clients in the area.
Mentions that TIBCO is changing their sales strategy a bit in his geography. Previously,
TIBCO guys would fly out, sell the deal, and get out. But now TIBCO is encouraging sales
guys to stay in the territory for more time to farm that account and to find ways to go
wider and deeper. Thinks that this new strategy to farm [the account] as opposed to
hunt and kill is promising and will lead to expansion within clients.
Does see a lot of standardization of the platform happening, mostly towards Oracle
Middleware. Mentions that one of the customers showing interest on Spotfire is actually
migrating away from TIBCO and into Fusion Middleware, a decision made a year-and-a-
half ago and he thinks it will take another year and a half to completely turn off TIBCO
BusinessWorks.
Thinks sales guys [in the TIBCO ecosystem] are positive for the rest of the year.
Thinks Oracle is hammering their middleware stuff but adds that Fusion middleware
has long ways to go before it's truly is a cohesive product.
Industry contact 7
Qualifies his TIBCO business as not a high growth but in a steady state. Nothing
spectacular but healthy momentum. You wont see a home-run with TIBCO, its a steady
engine. Thinks that TIBCOs overall growth profile cant get better than what it is right
now but it will always be in a healthy zone.
Mentions that some of the sales investments are beginning to show up.
Thinks that there is some momentum around Spotfire being pushed internally to cross-sell
into existing accounts.
Thinks sales guys have been very aggressive and doesnt think there is any let-up in terms
of sales-cycles in NA in light of the leadership transition.
Doesnt see any more significant SOA deals. Maybe one or two here and there. Earlier if
there were 10 deals in the market, TIBCO would grab 3-4. Now it has come down to 1-2.
Thinks Oracle is getting stronger in the middleware space while IBM is holding steady.
Mentions that for established accounts it is very difficult to move out of one infrastructure
to another infrastructure have not seen many cases where this has happened.

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Thinks that the main driver is the Data Visualization and BI. Also, think that TIBCO is
trying hard to push Tibbr in the market. Doesnt think that TIBCO closed any significant
business with respect to LogLogic in the last three months.
Industry contact 8
Mentions that there are a couple of competitive TIBCO deals that are being pursued right
now. Doesnt think that they are all that big as they are channel deals. Thinks that the larger
accounts are handled by TIBCO reps as part of their Target Account List (TAL).
Thinks that TIBCO software revenue in the US might have declined in FQ2 y/y.
Has not heard if the NA sales chief has been replaced.
Seeing Software AG a lot lately and from what I have seen they are driving down
price points. Thinks that they might be squeezing TIBCO in US. Mentions a pretty
recent deal that TIBCO lost to Software AG at a big Insurance company. [The insurance
company] liked TIBCO better but they just couldnt justify the cost difference. So, thinks
that TIBCO might be under some price pressure in US.

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Detailed Checks Show TIBCO is a "Steady Animal" in the U.S.
PRICE: US$26.69
TARGET: US$30.00
share
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$30.00
FY12E EPS US$1.16
FY13E EPS US$1.33
Yield 0.00%
Fiscal Year End Nov
40
35
30
25
20
15
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with nine contacts in the TIBCO ecosystem result in four pages
of detailed and proprietary feedback. Commentary suggests business trends in North
America are no different than in the prior couple of quarters, with TIBCO described as a
"steady animal" and seeing a good volume of small to mid-sized transactions. One of our
European contacts reported some new logos and a 7-figure transaction, ironically fueled
by austerity measures driving process transformation. Others sense TIBCO performing
well but against a backdrop of "project approval cycles and decision making are not at its
best", "cautiousness in spending" and "a little quieter in terms of net new large deals." We
are encouraged by the overall consistent tone of the business, pullback in the shares and
cushion from LogLogic, but would remain on the sidelines given the decelerating license
revenue guidance and muted global macro-economic environment. Neutral, $30 PT.
Noteworthy Feedback
Contacts referred to a number of "small or medium sized deals ($400-$800k)" along

with a couple of large 7-figure deals, out of which one is an enterprise-wide platform
implementation in HP.
Partners sense that sales contacts are executing well on the big push coming from
management to up-sell new features and products into existing accounts, but have
heard about challenges faced by sales contacts in finding "net new deals."
Certain contacts described TIBCO as "a steady animal" and "not slowing down, not
accelerating". Others sense that "project approval cycles and decision making are not
at its best", "cautiousness in spending" and "a little quieter in terms of net new large
deals."
Contacts referred to a couple of new logos, along with a 7-figure deal, recently
closed by TIBCO in Europe, ironically fueled by austerity measures driving process
transformation and cost cutting initiatives in the region.
One contact indicated that the emergence of mobility has disrupted the existing SOA
architecture and is driving a SOA architecture refresh cycle.
***CONTINUED On Page 2: Detailed Comments***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
185.3 216.4 229.0 289.5 920.2 920.2 5.0x 5.0x
225.7A 241.9 253.9 315.2 1,036.6 1,036.6 4.4x 4.4x
256.3 267.5 283.7 345.2 1,152.7 1,152.7 4.0x 4.0x
0.16 0.21 0.23 0.42 1.01 1.01 26.4x 26.4x
0.20A 0.23 0.27 0.47 1.16 1.16 23.0x 23.0x
0.24 0.26 0.31 0.51 1.33 1.33 20.1x 20.1x

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There is a fairly significant ramp up in activity [actual sales and client inquiries]. The sales
pipeline looks fairly robust.
Starting to see an uptick in demand for implementation services and thinks that the
growth in the TIBCO services business y/y should accelerate, more than last year's growth
rate of 10-15%, as the pipeline converts. The lag between implementation services and
license sale is minimal- They usually start right away [after the license deal closes].
One thing that he noticed last quarter which he hadnt seen so much before their
(TIBCOs) tendency to go a bit further down market than they historically have been.
Thinks that TIBCO is going for the SMB market and thinks it will take some time for them
to be successful in that market since they are not used to selling down-market.
TIBCO is still primarily viewed as an infrastructure plumbing company by the customers.

Hasnt seen a BPM sale yet. Has seen activity around MDM couple of sales. Seeing a
fair bit of activity in the B2B side Active Exchange Suite.
Doesnt think he has seen any large deals in the last couple of months, but have seen a lot
of what I would consider small or medium sized deals [$400-800K].
Sales contacts [in the middleware ecosystem] seem fairly upbeat about how they are
doing.
Has seen some clients push projects further down the timeline in Europe but hasnt seen that
in North America. Europe has been fairly negative across the board for about a year now.
In NA, we are not seeing contraction from a budget or a demand perspective at this point.
Expects Systems integration business segment in his organization to grow 20-25% this
year. The segment is comprised of TIBCO, followed by ORCL and IBM and recently
beginning to see a significant uptick of WebMethods' Suite from Software AG.
TIBCO traction continues.
Thinks that they have been aggressive in the sales cycle in a couple of accounts he has been
working on, and that has helped TIBCO to win over the competition.
Thinks TIBCO closed a deal last quarter with one of the major retailers in TX and won
over IBM and Software AG. I really give credit to the TIBCO sales team for taking the deal
because it wasnt an easy deal to crack since the client had previous relationships with both
SoftwareAG and IBM. Thinks that deal could have been around $250-300K for the license
fees but believes that there will be very good opportunity to expand.
Has seen a lot of standardization happening mainly around IBM, ORCL and SAP. Thinks
SAP Process Integration's latest version has a lot of improvements as compared to the
previous versions, especially around the EDI (Electronic data interchange) framework.
Currently, two of his customers are standardizing into SAP and away from SoftwareAG. He
hasnt seen any of his customers rip out TIBCO for another vendor at this time.
Thinks that sales contacts [in the middleware ecosystem] sound happy coming off of the
quarter. However, there is a bit of confusion around the positioning of a few of the newer
acquired products.
There is a big push coming from management to up sell new features and products into
existing accounts. Thinks that message has been executed well by the sales force and there
is definitely a lot of cross-sells and up-sells. However, thinks that he keeps hearing about
challenges in terms of net new deals.
If anybody is thinking about CEP (Complex Event Processing), definitely TIBCO is one
of the players customers want to talk to. The other major player in the CEP space is IBM.
Thinks that ORCLs technology in this space is not that mature. TIBCO definitely has a
good technology in this space and is much easier to configure and use. Thinks that Spotfire
is more of an add-on solution, and clients dont think of TIBCO when they think of analytics
tools.
Thinks that SharePoint is helping MSFT gain traction. Also, thinks that the latest
middleware stack is an improvement.

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Global TIBCO SI skewed toward Telecom.
Over the last few quarters, seeing very good SOA traction and it's increasing all the time.
On the SOA side, tier 1 and tier 2 clients like TIBCO. I see all tier 1s actively considering
them when it comes to SOA products. But mentions that some of the newer products are
not doing well, at least in his client base.
Thinks that Tibcos middleware offering is a very robust and solid product and is at par
if not better than the IBM middleware offerings. Thinks that Oracles middleware is not as
good as TIBCO or IBM, but Oracles aggressive sales execution helps it to push the product
and compete with the likes of TIBCO.
Has seen some Business Optimization engagements recently, but thinks the products are
not trouble free.
TIBCO practice is growing 5-10%.
With respect to interaction with customers, thinks that TIBCO is still very transactional.
Thinks they have a strong sales organization but not so strong service and delivery
organization, especially around the newer products.
Mentions that they (TIBCO) are focusing a lot for new logos in Europe and that they have
won a few new logos recently. Thinks that the austerity measures in Europe are driving a lot
of process transformations and cost savings initiatives and platform independent companies
with relatively lower TCO solutions like TIBCO should benefit from that.
Mentions a pretty recent large deal won in Europe which has not gone live yet. In that
deal, they (TIBCO) have sold everything they can sell to a Telco. Thinks it can be easily
above a million dollars.
Mentions that the discontinuation of support for HP Itanium by Oracle can potentially help
hardware independent vendors like TIBCO, especially in tough times when people tend to
increase system efficiency.
Has seen the TIBCO portfolio around the energy sector pick up traction in the non-
traditional areas, e.g. some of the new product lines like Complex Event Processing (CEP),
Spotfire and OpenSpirit (which is a middleware product TIBCO acquired which specializes
in geophysical data integration). Is also seeing some good traction in the Retail and Logistics
industry as well as some traction in Telecom.
Growth rate of the TIBCO portfolio would be around 10% y/y.
Has heard about a very large deal, probably closed last quarter, in TIBCO CEP for one
of the top manufacturers in the country in the consumer goods space. From a licensing
perspective, he wouldn't be surprised if its a 7-figure deal.
Sales contacts [in the Middleware ecosystem] are generally upbeat. Dont see a negative
outlook for sure.
Overall, thinks TIBCO is doing well in the market. They are taking their game up one
notch for sure. Thinks that TIBCO is realizing that they need to compete in the non-
traditional areas and thats showing in their sales focus and showing in the pursuits that
they are going after."
Thinks that the project approval cycles, the decision making is definitely not at its express
best. Seeing this in US companies as well as in European based companies. I wouldnt take
it to the level of a downturn kind of an outlook, however there is definitely cautiousness
in spending.
Growth in the TIBCO practice is holding steady. It has been continuing the same momentum
for the past few quarters. Nothing to say that it is slowing down but there is simply nothing
to say that it is accelerating a lot. Thinks thats a good sign with respect to the slowdown
seen by companies like Pegasystems. TIBCO is a not a roaring animal, but a very steady
animal in terms of growth. He proposed TIBCO in 2-3 accounts last quarter.

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Thinks that there is lot of traction with Spotfire. Considers TIBCO to be more or less an
established player" on the Complex Event Processing (CEP) side. Thinks that CEP was an
area TIBCO was trying to muscle-in 4-5 years back but now they have a certain standing
there, no doubt about that.
LogLogic
Heard from a high level contact that LogLogic failed to grow in the last two to
three quarters and was facing some challenges to grow the top line. So, he feels that
TIBCO might have bought LogLogic at a very cheap valuation.
LogLogic collects all the IP centric signals and TIBCO basically collects all the data
centric signals. Thinks it is an excellent acquisition. It will be an addition to their
event based framework and will enhance the real-time event processing capabilities.
Example of LogLogic use case Comcast has a lot of set top boxes in homes.
Comcast continuously transfers a lot of IP signals back and forth between its central
servers and the set top box. LogLogic can sit on the central server and do a pattern
matching on these signals and can find out if a pattern looks suspicious and if
something is going wrong there.
Thinks it will differentiate TIBCO much better in the specific deals that they go
after.
Thinks that HP did a very large (likely 7-figure) deal with TIBCO. He heard about it last
quarter and so he thinks it most likely closed last quarter. Has heard that its an enterprise-
wide platform deal.
We hear TIBCO sporadically firing here and there. A quantum jump for a point play
like TIBCO is not going to happen. They will continue to hold on to what they have and
they will continue to grow steadily.
Thinks that TIBCO is definitely competing with partners on services.

Thinks that it has been a little quieter in the last few months in terms of net new large deals.
There has been some upgrade activity. Hasnt heard them lose any deals either.
Overall TIBCO services business still continues to grow and he is still continuing to invest
in it. Growing probably in the 7-10% range y/y.
Mentions one deal in a government agency in North America.

The government year end is March 31
st
in this zone, and so this particular agency
had a windfall of cash.
They acquired 5 new technologies out of which INFA took down two, TIBCO
took down one, with the rest being IBM, Cognos and OpenText. Thinks that
according to list price they might be each a 7-figure deal, but mentions that they
were discounted heavily, probably at least 50% across the board.
The INFA deal would have done 40% of that rep's year. Estimates the INFA deal
to be over a million because he got two of the RFPs. The TIBCO deal was for the
Enterprise Service Bus (ESB) and estimates it to be $250K-500K.
We definitely believe that they (TIBCO) are more interested in their own services than
ours.Our gut feel is that they probably have some offshore model that they are using.
Thinks that the few sales contacts [in the middleware ecosystem] he talks to regularly will
hit their numbers. Also, TIBCO hired a new rep in the region recently which also shows
that there is demand in the region.
Thinks that the same INFA sales contact who won the deal in the government agency is
working on a couple of more deals. Thinks that there is a lot of buzz among clients around
INFA. Thinks that it was worthwhile to go to Informatica World. INFA practice is also
growing 7-10% range.
Has a few pursuits under way where clients are using INFA as the data migration tool and
using Oracle Fusion Middleware/SOA suite to act as the ESB/middleware layer. These are
mostly ORCL shops. Fusion middleware clients have increased from one client last year to
3 clients at present. Thinks that the Fusion Middleware is heavily discounted by Oracle.

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Not doing a whole lot new with TIBCO since they have to compete with TIBCO
Professional Services group (PSG). Mentions that TIBCO is growing their PSG very
aggressively and are bundling professional services in the deal, which takes business away
from the partners.
Thinks that the incentive structure is not attractive for the channel partners or within
TIBCO, which is creating some inefficiency within the TIBCO sales organization.
Among channels, TIBCO is pushing a VAR program to allow channel partners
to resell its products. However, he thinks that the incentives are not aligned. In a
recent deal he recommended TIBCO to one of his existing customers and TIBCO
won. However, he didnt get any compensation from the reseller program because
the client was part of TIBCOs target client list. Additionally, TIBCO bundled
professional services in the deal and so he didnt get any services opportunity as
well. So, he thinks that incentives are not aligned perfectly for the channel partners
to try to sell the products.
He thinks there are some organizational inefficiencies created within the TIBCO
sales organization internally because of the incentive structures as well. As per his
knowledge, a TIBCO channel rep gets paid when a channel partner resells a product.
But if a partner resells a product in a target account list, the field sales rep gets paid
and the channel rep gets nothing. So, the channel reps have no incentive to let the
field reps know about an opportunity with a client in the target account list and vice-
versa. The target account list is the list of accounts for the field reps to go against.
Thinks that ORCL and IBM incentives are well aligned with the channel partners.
Overall, they (TIBCO) seem to be doing pretty well. Has heard that quite a few deals
closed but doesnt think these are large deals. Reps I have talked to are happy about them,
but they are not big enough to move the needle.
Mentions that TIBCO is pushing Tibbr a lot as an enterprise social networking platform.
They are forming an entire sales teamfocused exclusively on Tibbr.
Estimates that overall his practice is probably growing at 5-10%. Thinks that there is growth
in some new solution areas like Complex Event Processing (CEP), Spotfire, Silver Fabric ,etc.
Thinks that TIBCO is putting a lot of emphasis and focus on the larger SIs to bring more
business to them and are not competing for services with them as much as they are with
the small- to mid-tier partners.
Based on anecdotal information, thinks that there is an emerging IT spending slowdown in

Italy and Spain. Not seeing anything in the US in fact in US I have seen more activity
in general.
Thinks that TIBCO might be doing some large POCs with one of the big consumer
electronics companies.
Industry Contact 9 (Negative)
Works with big fortune 100 clients and doesnt see TIBCO often. Most of his clients have
standardized on IBM/Oracle as a middleware platform. Has one client in TIBCO today and
they are planning to move to a BEA/ORCL environment. Thinks that big players like MSFT,
ORCL, and IBM have existing enterprise license arrangements with the big companies and
so get preference when upgrading the SOA infrastructure. If they (clients) got TIBCO and
it's working they are not going to rip it out but if a company is looking to build a new
infrastructure, TIBCO is going to have a hard time selling new licenses in an environment
where MSFT, ORCL, IBM and SAP are continuously improving their middleware product
and their overall stack.
Thinks that the emergence of mobility has disrupted the existing SOA architecture and is
driving an SOA architecture refresh cycle. Seeing companies rip out these SOA architectures
that they built 10-12 years ago to build new ones in order to do mobile applications.

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Thinks that businesses may be standardizing on MSFT more than IBM and ORCL because
of the success of SharePoint and SQL Server as low cost alternatives. Thinks that MSFTs
middleware stack has improved a lot as well. Their CRM package is now pretty darn hot
and pretty good. All my clients are buying MSFT software.
Definitely doing a lot with INFA. Only concern is who is going to buy them. Thinks both
TDC and INFA are solid companies.

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Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Change in Price Target
Rating -- Neutral
Price Tgt $25.00 $29.00
FY12E Rev (mil) -- $1,032.5
FY13E Rev (mil) -- $1,147.9
FY12E EPS -- $1.15
FY13E EPS -- $1.33
Price $31.51
52 Week High $32.20
52 Week Low $18.43
share
Yield: 0.00%
Fiscal Year End: Nov
Rev (mil) 2011A 2012E 2013E
Feb $185.3A $222.4E $252.4E
May $216.4A $241.0E $266.5E
Aug $229.0A $253.9E $283.7E
Nov $289.5A $315.2E $345.2E
FY $920.2A $1,032.5E $1,147.9E
CY $920.2A $1,032.5E $1,147.9E
FY RM 5.9x 5.3x 4.7x
CY RM 5.9x 5.3x 4.7x
EPS 2011A 2012E 2013E
Feb $0.16A $0.19E $0.24E
May $0.21A $0.23E $0.26E
Aug $0.23A $0.27E $0.31E
Nov $0.42A $0.46E $0.51E
FY $1.01A $1.15E $1.33E
CY $1.01A $1.15E $1.33E
FY P/E 31.2x 27.4x 23.7x
CY P/E 31.2x 27.4x 23.7x
TIBCO Software (TIBX $31.51)
Neutral
Checks Suggest Consistent/Positive Tone of
Business
CONCLUSION:
We spoke with seven contacts in the TIBX ecosystem. Feedback suggests that TIBX is
seeing steady/consistent demand drivers, and overall feedback on the tone of business
is slightly positive. Areas of strength include TIBX's customer loyalty platform in the
Retail and Gaming verticals and rapidly-maturing products such as TIBX's MDM,
CEP and Analytics offerings. Conversely, bundling and account control tactics by
IBM and ORCL are driving "fierce competition" in the core SOA space, and the
newest release of SAP's PI is also being seen in the field. Although the checks suggest
upside potential, we suspect that some amount of upside may already be priced into
the shares. Raising target from $25 to $29 to reflect higher peer group multiples.
Checks Indicate Positive Momentum. Our checks with contacts in the Tibco
ecosystem indicate good positive momentum in fiscal Q1. Several contacts
mentioned that they are seeing an uptick in demand for Tibco Services and also
indicated that overall demand is trending up year over year. Partners also indicated
that TIBCO continues to close big deals and specifically referred to Home Depot,
Macy's and a large Blue Chip energy company. Referring to their conversations
with sales contacts in the industry, partners added that they "are all very positive
about the deals that they have got going" and that "...they are closing deals." Please
refer to page 2 for detailed comments.
New Products Driving Deals: In terms of products, continued demand for some
of the newer products such as BusinessEvents, which is a part of Complex Events
Processing (CEP), and Master Data management (MDM) came up regularly in our
conversations. Regarding the CEP products, partners mentioned that it is resonating
well in the retail, financial services and gaming verticals: they have got a good
story around that and it is selling. Partners also mentioned that many TIBCO
products are now reaching a stable mature stage, which coupled with their good
messaging, is poised to help TIBCO compete. Specifically, partners referred to the
MDM product which seems to be picking up some traction.
Increasing Competition and Vendor Consolidation Leading to Pricing

Pressure. A few partners mentioned that the competition is fierce in the SOA space.
Partners also indicated that there is increasing vendor consolidation going on in
the enterprise software space such that there are only a couple of core enterprise
development platforms within the company. In such circumstances, TIBCO is at
a disadvantage as compared to ORCL or IBM, since the latter can use effective
bundling strategies to win deals. One partner mentioned that TIBCO is finally
succumbing to competitive pressure and is starting to discount its products.
Neutral, $29 PT (was $25) based on 24x (was 20x) our FY12 EPS of $1.15 + $1.79
net cash per share. Higher multiple reflects higher peer group multiple of 24-25x, up
from the low 20s.

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Detailed Feedback
Seeing kind of an uptick in both net new customers and existing customers. Existing customers are looking outside of TIBCO
Professional Services Group for services.
Competition:
We are seeing a lot of interest in TIBCO and they are doing really well competitively. Thinks that TIBCO is able to position
themselves well against IBM even though IBM has come up with some good features in the middleware stack lately.
It is pretty unusual to see un-plugs since once you are running it [a middleware stack] it is pretty expensive to switch.
Seeing Software AG come back and seeing more in recent deal bake-offs.
Seeing demand for both core SOA products as well as the new TIBCO products.
Hearing about a few Business Events projects. Thinks Macys and Home Depot signed some deals around that technology with
TIBCO. Thinks that TIBCOs customer loyalty features around Business Events are resonating well with Retail clients as well
as gaming and casinos. They have got a good story around that, and it is selling.
Seeing more MDM [Master Data Management] deals lately. Doesnt know how big the deals are, but they are winning
some deals in that field.
Thinks the Business Optimization space is really growing for them.
Thinks that SOA is probably flat y/y but adds that TIBCO is consistently making the shortlist and winning more deals when
compared historically, even though he thinks other vendors like IBM are doing well in the SOA space.
Havent heard anything that sounds negative and also havent heard anybody jumping up and down with joy. Expects TIBCO to
produce at least in-line results.
Thinks that there is good room for growth.

Dont see other companies position their products the way TIBCO is positioning theirs.
Thinks that TIBCO is very good at selling their products and the sales reps know a lot about their products as compared to
someone like IBM, who allows a generalist to sell.
Also, thinks that many TIBCO products have now matured. Gives the example of MDM and says it was hard to use initially
and now its a very nice product.
Also, thinks that TIBCO is more willing now to discount their software due to increasing competition. Thinks that TIBCO has
a long-standing reputation for being more on the expensive side.
Industry Contact 2 (Positive - Had been negative in the prior two quarters)
Have seen some good movement with my customers, especially around complex event processing (CEP). It is more around preliminary
interest.
Our TIBCO practice has been consistent y/y and the reason for us is that, as a company we have aligned more resources on IBM as
that side of the business is growing much faster.
But in general demand for TIBCO is growing as well, but not at the same pace as IBM.
Competition from Mega vendors is increasing.

SAP: "Another challenge I see going forward will be at SAP customers, since the new release of SAP PI (Process Integration)
has a lot more capabilities. Last week I did a workshop for an SAP customer who was considering TIBCO, but once we did
the cost/benefit analysis and he already own SAP PI... It was more cost effective to upgrade the SAP PI to address 90% of the
business needs. Still SAP PI's [Process Integration] missing piece was CEP."
IBM: Sheer scale and ability to sell to C-Suite matters, but they have done a good job of consolidating all the smaller products
they purchased in the last few years and integrating them into a really comprehensive end to end solution from BPM all the
way to messaging. Also Blueworks Live (IBM's cloud based business process modeler) is giving them very good visibility
into the business users.
So, mega vendors are all catching up in terms of technology, and that will be biggest challenge for both TIBCO and
WebMethods.
Thinks that the traditional space where TIBCO started at this point is fairly commoditized. However, some of the new areas (such as
Complex Event Processing, Analytics and visualization etc.) that they have broadened into, both by organic growth or by acquisitions
are more interesting in terms of future growth. The large install base also helps. Another area of potential growth is the true Business

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Process Management, where they have some new tools which are better than what they have had historically, and so they may end
up having some growth in that space as well.
Have grown moderately and not aggressively in this space over the course of the last three years. 2011 over 2010 was probably
10-15% growth y/y.
I think the demand is increasing. The demand for the higher end of Services that we supply is increasing mildly, I would say. More
commodity based services are increasing more rapidly, but there are some significant pricing pressures for those.
Thinks competition is fierce in the SOA space. The bigger vendors with a broader portfolio of products use a bundling tactic in which
they give some stuff away. Oracle, in particular over the course of the last year and a half or two, are making some really good inroads
with Fusion because they are just giving it away as part of their bundling strategy. Another reason for Oracles success in the space is
that their tools have matured especially their mainline Business Process Management (BPM) tools Fusion BPM and Fusion BPE
(Business Process Execution) are very very good products. We do have several initiatives where they are replacing TIBCO which
historically havent been the case; historically TIBCO replaces others.
Thinks that there is a lot of vendor consolidation happening and clients are standardizing on a couple of core development platforms.
In that world its very difficult to be a pure play, which TIBCO is still considered to be. Thinks TIBCO is at a disadvantage when
it comes to bundling and picking platforms. From the perspective of an Enterprise class platform, customers consider TIBCO as a
second or a third tier vendor after ORCL, IBM and MSFT in Tier 1 and maybe SAP in Tier 2. They [TIBCO] are certainly a best
of breed in what they do.
From a pure technical perspective, would put TIBCO at the top from a broad SOA platform perspective. The answer is more nuanced
for particular verticals. In terms of what traditionally would be considered middleware, they probably are still the best overall solution
out there. Where things get a little bit muddier is when you get into specific areas within that, although even then the answer will
change just a little bit.
Interacts with [sales representatives in the real-time event-enabled software market] regularly. I know that they are closing deals.
Has heard about some interesting deals, but doesn't offer details.
Havent seen a lot of increase in traction in TIBCO in this space.
Currently, dont see TIBCO as a super aggressive sales force. TIBCO was much more aggressive 5 years ago than it is today. Thinks
that part of the reason could be the critical mass of customers they have already accumulated. So they dont need to be as aggressive
as somebody like a Pegasystems. Another reason is that they have expanded into a large line of services, which they can now cross
sell into their install base. In other words, traction around new customer acquisition is muted from his point of view.
Thinks that leveraging the partner network for selling is not that great at TIBCO. They do use partners for cross-selling and upselling
TIBCO though.
Based on his conversations with other alliance partners, thinks that TIBCO does seem to have been cutting big deals from time to time.
Technical superiority of TIBCO still exists and people are going to realize that. But thinks that TIBCO might have to rethink the
strategy 2-3 years down the line about how much some of the new product lines away from their core are helping TIBCO to compete
with IBM and ORCL.
Thinks that TIBCO almost always has SOA in the mix, even if the deal is led by the new products. Heard about a blue-chip energy
customer within the last quarter, who is an out and out Software AG and SAP shop, who got attracted to a very niche product that
TIBCO acquired which is very different from its core offering. The customer ended up buying TIBCO and they ended up buying not
just the niche functionality of TIBCO but the rest of the TIBCO suite also, which is very ideal for TIBCO. Thinks that TIBCO is
leveraging some of its new products to do such deals with some new customers.
Guesses that her TIBCO practice probably grew between 10-20% last quarter y/y.
Interacts with [sales representatives in the real-time event-enabled software market]. We hear positive comments about their recent
performance.
Thinks that most of the large new business is in the retail and logistics area as well as financial services. Thinks that TIBCO should
have a decent quarter.
Thinks that TIBCO is at a disadvantage since it doesnt have an end-to-end product stack like Oracle or IBM who can provide
anything from middleware, integration, business process management, to data solutions to servers etc. These vendors are able to bundle
middleware with other products and get it out the door. Thinks organizations dont see TIBCO as a stack vendor, and they bracket
TIBCO as the leader of integration products. TIBCO is trying hard to modify its reputation from a best-of-breed vendor to more of a
broader middleware platform provider. For a new prospect where there are no touch points, TIBCO almost always gets shortlisted
in RFPs only as an integration middleware vendor and not as a top-of-the-line Business Process Management Product, or top-of-the-
line Cloud product or some of the new services.
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Thinks that [sales representatives in the real-time event-enabled software market] are more active in his geography. Knows one guy who
was working with three deals. One was an expansion within existing clients adding a couple of modules, which he thinks might have
closed last quarter. The other deal is a Complex Event Processing deal, which he doesnt think will close before calendar Q3 of 2012.
For his own business, sees a decent pipeline for the balance of this year. Certainly there seems to be interest in their product in the
marketplace. Grew the middleware practice (headcount) by 10% in calendar Q1 2012.
Has a positive feeling about the quarter. Talking to the [sales representatives in the real-time event-enabled software market], they
are all very positive about the deals that they have got going. I think they are doing OK or little bit better than OK.
Thinks that BPM is getting some more interest in the market he plays in.
His team didnt do many TIBCO deals in the past quarter. They seem to be ticking along as far as I can tell.
The Core TIBCO practice is doing reasonably well, but haven't heard about any big deals or any drastic cuts in the team. Assume that
they are doing fairly steady. Most of the TIBCO work is in the financial services and retail area.
Thinks, in general, nobody is focused on an integration pure play. Thinks that integration is only going to be in the context of some
broader project. Also a lot of consolidation is happening in the industry. If a company is an ORCL shop, then the chances are they
would be using ORCL Fusion as the middleware. And that's what we are seeing a lot of actually - lot of Oracle shops are moving to
Oracle Fusion. With SAP, people are using their Process Integration (PI) tool.
Unless somebody is already on TIBCO, such as the financial services guys, new [customers] are not going to adopt TIBCO, is my
point, unless they have some CIO or CIO adviser that is very technically savvy and wants to acquire best of breed and stuff like that.
BMC is working to SOA-enable their organization.
Complex Event Processing It's like the Swiss army knife right now and there are very few people who know how to [use it] and
what to do with it. Requires lot of consulting. Thinks that TIBCO would have to make some specific solutions out of it Vertical or
Horizontal. Lots of use-cases in financial services. It is too much effort to set that up with out any specific pre-built solution available.
Industry Contact 7 (Negative)
As far as incremental revenue is concerned, TIBCO is a company whose haydays are over if you ask me.
They did very well in the core EAI space and were considered the leaders in the Complex Event Processing space. Although they have
a good analytics solution, these are me too activities and doesnt give them any substantial differentiation.
Consolidations are happening in the enterprise software space and larger players are beginning to muscle in more."
"Dont see any significant traction on TIBCO. Does see pockets here and there, mainly because existing customers continue to invest.
Deals where TIBCO was not considered for the initial RFP but still it managed to secure the opportunity, such deals are coming
down if you ask me.
It will be a miracle if TIBCO continues to hold on to its current spot of strength. Thinks it might be possible, but may require TIBCO
to spend an unusual amount of resources to do that.
Thinks TIBCO is trying hard to retain the edge. Thinks it will help them to maintain their current position.
There install base is good. Thinks that at any point in time, 50-60% of their revenue is covered and its only the smaller portion
they have to fight for every year.
I am really talking about Qualitative wins, wins they can be proud of in two or three years down the line. Are they happening now?
that we dont see much.
Company Description
TIBCO Software provides real-time infrastructure (i.e., business integration, business process management and business optimization)
software solutions and services. The company's products enable businesses to identify, message, manage, run, route, analyze, integrate
and automate their IT operations. TIBCO's applications are built on a service-oriented architecture (SOA), which allows interactions
with most solutions and services regardless of the hardware, operating system and code. The company primarily targets customers in the
financial services, telecommunications, manufacturing, logistics, energy, government and healthcare verticals.

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Ultimate Software Group (ULTI) Neutral
Deep-Dive Checks Highlight Continued Robust Demand Environment
PRICE: US$153.03
TARGET: US$124.00
7x EV/CY14E Rev of $500.4M, net cash
$87.9M, 28.9M shares
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
FY13E EPS US$1.41
FY14E EPS US$1.77
Yield 0.00%
Fiscal Year End Dec
160
150
140
130
120
110
100
90
80
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with four key contacts in Ultimate's partner ecosystem highlight
continued strong traction in Q3. Contacts characterized the demand environment as
"good" and "increasing" with a constant theme of "overflow of work" for most of these
implementation partners. One contact qualified the deal flow activity as a lot of middle
of the pack type of deals [2,000-10,000 seat deals]. Contacts also encountered Workday
in "a couple of deals here and there" but pointed to a good win rate by Ultimate against
Workday, especially when the client is not looking for global HR capabilities. While
in aggregate the feedback reflects both the continued success of ULTI and the strong
secular momentum behind SaaS HR solutions, we believe that near-term risk-reward is
fairly balanced for ULTI at 9.6x EV/FTM sales. Neutral; PT from $115 to $124.
Notable Feedback (Detailed Feedback on Page 2-3)
(+)I think it was another good quarter for everybodymy impression is things are
continuing to go well.
(+) Definitely 3rd and 4th quarter [current] I have seen an increase in requestsand
especially requests for additional modules.
(+) "...the big constant thing is the overflow of work from a conversion standpoint,
implementation and even existing customers that have projects.
(+) A contact mentions that he hasnt heard of any super large deal in the quarter
but a lot of middle of the pack type of deals [2,000-10,000 seat deals]
(+) [Seeing Workday] in a couple of deals here and there, but Ultimate keeps winning
the deals.
(=) I know Ultimate is making a very strong push to convert those [On-premise
clients] with lots of incentives and lot of kinds of pressureI think they [on-premise
clients] are being receptive to that
Increasing PT to $124
We are increasing our PT to $124 (7x EV/CY14E revenue) from $115 (6.5x EV/CY14E
revenue). Our higher PT multiple reflects a higher peer group multiple.
Risks include macro fluctuations, competition and service interruption.
Ultimate is a software provider of payroll and workforce management solutions.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
78.3 79.2 82.6 92.2 332.3 13.3x
97.9A 97.5A 103.1 111.2 409.7 10.8x
119.3 119.1 126.1 135.9 500.4 8.8x
0.13 0.21 0.29 0.38 1.01 NM
0.32A 0.34A 0.38 0.38 1.41 NM
0.43 0.43 0.43 0.48 1.77 86.5x
We display Non-GAAP EPS

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Detailed Positive Feedback From
Industry Contact 1
Based on the business momentum he is seeing with his own business and the ecosystem, I
think it was another good quarter for everybodymy impression is things are continuing
to go well.
Adds that he saw increasing demand for his services and we have got a really strong
pipeline going forward. Also, seeing some demand from larger clients.
Reports that the large deal he heard about was the deal with a large American managed
healthcare company, although he is not sure of the timing of the deal.
Based on his conversations with sales reps [in the SaaS HCM ecosystem], I think sales guys
are having a good yearthe ones I talk to seem to be on target making their numbers.
Adds that in general he hasnt heard anything negative.
Seeing Workday not any more than we have in the past. Mentions that Workday typically
wins the deals where clients are ex-PeopleSoft shops and who are looking for global cloud-
based solutions. Ultimate wins the deals where clients are looking for a best-of-breed HRIS
solution. Thinks that Workday is winning some of the global HCM deals from Oracle and
SAP with the promise of delivering on it.
Talking about Ultimates on-premise customers, I know Ultimate is making a very strong
push to convert those with lots of incentives and lot of kinds of pressureI think they
[on-premise clients] are being receptive to that Mentions that from his experience of
handling a handful of these clients who bought Ultimate in the 90s when it was only a payroll
solution, a lot of them really havent fully understood the value of not only SaaS but also
the expanded UltiPro foot print So, thinks its a big opportunity for Ultimate to resell
their clients on the value of UltiPro as a fully functional HRIS suite rather than just being
a payroll-only module. Thinks that the conversions would be incremental to their business,
if not already in the forecasts.
Industry Contact 2
Definitely 3
rd
and 4
th
quarter [current] I have seen an increase in requestsand especially
requests for additional modules. Mentions that many clients are asking for and installing
additional modules such as Time & Labor, Recruiting and Onboarding.
Havent heard any super large deal in the quarter but a lot of middle of the pack type
of deals [2,000-10,000 seat deals].
Based on his conversations with sales reps [in the SaaS HCM ecosystem], sounds like
they are happy and optimistic coming off the quarter. They are definitely staying busy.
Based on the amount of implementation work starting in Q4, thinks that Q3 had good sales
activity.
Talking about the pipeline, right now it's looking pretty gooda little bit above what we
projectedits been good for us thus far this year.
Referring to the transition of customers from on-premise version to SaaS version, he has
seen two customers leave Ultimate while two more are staying on and transitioning into
the SaaS version. Its kind of been an even mix. Senses that Ultimate is providing better
features to retain these customers and accommodate their requests.
Thinks that Ultimates consulting services have a slight backlog, but nothing abnormal.
Have seen Workday in a couple of deals this year and they [Workday] were way too
expensive, in both instances. Adds that Ultimate won both the deals.
Industry Contact 3
Definitely demand is therethey [Ultimate] have got way more than they can handlethe
big constant thing is the overflow of work from a conversion standpoint, implementation
and even existing customers that have projects.
Seeing similar strong traction in Enterprise as well as Workplace.
Based on his conversations with sales reps [in the SaaS HCM ecosystem], thinks that sales
reps are happy and excited coming off the quarter. I have heard a lot of good news. They
are all excitedI hear things are well over there.
Observes that Ultimate is hiring a lot of people trying to keep up with the demand. He works
with a lot of Ultimate employees and I always get a new name that I have not heard before.

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April 2014
Oc t o b e r 2 9 , 2 0 1 3
Mentions that he was ahead of plan for Q3 and is forecasting 15% growth for the year.
We dont have a lot of resources at our endand if I did it [the growth] will be more we
try to keep it lean. Mentions that he has got more business than he can handle and adds
I am booked through January.
Knows of a couple of on-premise Ultimate customers who are moving to other platforms.
Mentions that he hasnt seen a big influx yet and thinks most customers should be making
a decision in Q1 or Q2 of 2014.
[Seeing Workday] in a couple of deals here and there, but Ultimate keeps winning the
deals. Compares Workdays payroll module to Ultimates payroll module 15 years ago.
Acknowledges that Workday is smart in terms of its engineering prowess.
Industry Contact 4
Would very much so characterize the demand as increasing y/y.
Refers to a 2,000 seat deal signed in Q3 that she is working to implement currently.
Based on her conversations with sales reps [in the SaaS HCM ecosystem], indicates that she
thinks reps are happy and optimistic coming off the quarter. We have been approached by
Ultimate to take on more implementations and work. We just dont have the capacity to do
it. So, I think there is an over abundance of work out there.
Talking about the pipeline, we are completely at capacitywe are still getting calls directly
from Ultimate software asking if we have resources available and we dont.
Indicates that her Ultimate practice has been above plan for Q3 and she expects the practice
to grow 40% y/y in 2013 as compared to 2012. We had to add more resources and we had
to staff upvery busy and no signs of slowing any time soon I am anticipating a great
fourth quarter and a first quarter next year as well.

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April 2014
J u l y 3 0 , 2 0 1 3
Checks Indicate Robust Q2 Demand Environment
PRICE: US$130.87
TARGET: US$115.00
6.4x EV/CY14E Rev of $500.4M, net cash
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY13E EPS US$1.40
FY14E EPS US$1.77
Yield 0.00%
Fiscal Year End Dec
140
130
120
110
100
90
80
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with three key contacts in Ultimate's partner ecosystem highlight a
robust Q2 demand environment. Contacts characterized the quarter as "good" to "very
good" and added that demand has picked up since Q1. Partners sense a robust deal
environment with a number of large deals in the offing, including a few deals with
greater than 50k seats. Sources also mentioned that although they come across Workday
every now and then, they think Ultimate stacks up really well competitively. While
in aggregate the feedback reflects both the continued success of ULTI and the strong
secular momentum behind SaaS HR solutions, we believe that near-term risk-reward is
fairly balanced for ULTI at 8.6x EV/FTM sales with a likelihood of mildly good-but-
decelerating recurring revenue growth as 2013 progresses. Neutral; $115 PT, up from $90.
Notable Feedback (detailed feedback on page 2)
(+) My impression is things are very much on track with what their [Ultimates] goals
are and what their stated growth objectives are.
(+) Q2 was very good with stable consistent demand and more than I can
handle.
(+) "We are busier than ever looking for folks [Ultimate resources].
(+) One source mentions that the pipeline is goodhear lot of good things. Thinks
that there are some good sized deals [in excess of 50,000 employees] in the pipeline.
(+) There is a good strong pipeline heading into the 2

nd
half.
(=) On the competitive front, a partner mentions that he runs into Workday every
now and then. Thinks Ultimate stacks up really well competitively.
(-) One contact senses that 50% of Ultimates older on-premise enterprise clients
might be leaving Ultimate within the next 18 months, as Ultimate plans to discontinue
supporting the on-premise version after Dec 2014.
Increasing PT to $115
We are increasing our PT to $115 (6.4x EV/CY14E revenue) from $90 (6.1x EV/CY13E
revenue. Our higher PT multiple reflects the roll forward to a CY14 basis and a higher
peer group multiple.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
78.3 79.2 82.6 92.2 332.3 11.3x
97.9A 97.4 102.2 112.0 409.5 9.2x
119.3 119.2 125.1 136.8 500.4 7.5x
0.13 0.21 0.29 0.38 1.01 NM
0.32A 0.30 0.35 0.42 1.40 93.5x
0.42 0.42 0.43 0.50 1.77 73.9x

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Industry Contact 1
I think its been a good quarter. All our business is steady and growing.
Based on business momentum, my impression is things are very much on track with what
their [Ultimates] goals are and what their stated growth objectives are.
Mentions that Ultimate was working on at least a couple of big [7-figure plus] deals but
not sure about the timing of the deals. They [Ultimate] have been doing quite well at the
upper end of the market.... Word on the street is that they have got some good things to
talk about. However, within his Ultimate practice there was no deal in Q2 that stood out
size wise.
Based on his conversations with sales reps [in the SaaS HCM ecosystem], thinks reps are
very happy. I think they had a good quarter.
On the competitive front, mentions that he runs into Workday every now and then.
Thinks Ultimate stacks up really well competitively.
Havent seen or heard much about the new SaaS HCM alternatives from the ADPs and
the Ceridians of the world. Mentions that there is a lot of skepticism in the market about
companies such as ADP and Ceridian and their ability to develop software. Both have a
long track record of failed product launches.
Pipeline They [Ultimate] are very optimistic, we are very optimistic. There is a good
strong pipeline heading into the second half. Mentions that based on his conversations with
sales teams [in the SaaS HCM ecosystem], they all feel really good about it [the pipeline].
Industry Contact 2
Thinks Q2 was very good with stable consistent demand and more than I can handle.
Mentions that the traction is still on both sides [Enterprise and Workplace].
Mentions that the pipeline is goodhear lot of good things. Thinks that there are some
good sized deals [in excess of 50,000 employees] in the pipeline.
Thinks second half should be really strong.
He was right on track in Q2.
Thinks that Ultimates older on-premise enterprise clients will be making a decision in the
next 18 months whether to move on to Ultimates hosted solution or to move on to some
other solution like PeopleSoft. Mentions that he is already getting calls about that. Estimates
that there are a couple of hundred Ultimate clients who are using the on-premise solution
as of now. Thinks that its going to be a 50-50 split, with 50% of the clients leaving Ultimate,
but believes that some of the clients who plan to leave Ultimate might come back if Ultimate
cuts a deal with them.
Seeing Workday the same number of times as last quarter. Thinks that there is a lot of noise
about Workday hiring a lot of consultants.
Industry Contact 3
Things are going well. We see a lot of interest. Lots of demand. We are busier than ever
looking for folks. Thinks that demand has picked up as compared to Q1.
Indicating pipeline, mentions that things are starting to pick up looking forward toward
the year end.
Have seen a few large deals [7-figure] signed in the quarter.
Doesnt run into Workday a whole lot.
Based on his conversations with sales reps [in the SaaS HCM ecosystem], thinks they are
happy coming off of Q2.

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April 2014
Ap r i l 3 0 , 2 0 1 3
Encouraging Checks Indicate Good Deal Activity, ERP Replacements
PRICE: US$96.08
TARGET: US$90.00
6.1x EV/CY 2013 Rev of $410.0M, net cash
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$90.00
FY13E EPS US$1.39
FY14E EPS US$1.77
Yield 0.00%
Fiscal Year End Dec
110
105
100
95
90
85
80
75
70
USD
Source: Bloomberg
CONCLUSI ON
We spoke with contacts in the Ultimate ecosystem who painted a detailed picture of
the Q1 demand environment. Our contacts see "continuing" strong and broad based
demand for ULTI solutions, stating that it has been "spread across the spectrum" of
industries. Contacts also indicate a robust deal environment with a number of large
deals in the offing, including two deals with greater than 30k seats, of which one
might have been closed in Q1. Contacts also refer to continued share gains against
ADP and strong competition against the HR elements of mature ERP products such
as PeopleSoft/Oracle. Although the feedback overall reflects both the success of ULTI
and the continued strong secular momentum behind SaaS HR solutions, we continue
to believe that near-term risk-reward is fairly balanced for ULTI at 6.5x EV/FTM sales
with a likelihood of mildly decelerating recurring revenue growth as 2013 progresses.
Neutral, $90 PT.
Notable Feedback
(+) I see the demand continuing.
(+) [Demand has] been all overIts been manufacturing, its been financial services,
its been education, health servicesit's spread across the spectrum.
(+) I think they are well positioned in the marketplace to grow leaps and bounds.
(+) We are at various stages of contract negotiations on about three or four more
[deals]2,000-8,000 employees.
(+) I think those organizations [ADP/Ceridian] are behind the curve in their SaaS
offering.I think it's going to take them a while.
(+) One partner just signed a 30,000 employee deal with a company in the Education
vertical, with a go live date of Q1 of 2014. Estimates it to be a couple million dollars
in total. Replaced two ERP systems PeopleSoft and Oracle. Thinks Workday might
have been in the mix early on in the bake-off, but didn't make it to the finals.
(-) Anybody who is a non-hosted clienthas to make a decision by the end of 2014
to either go to SaaS or to basically not be on the system.
***Detailed Feedback on pages 2 & 3***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
78.3 79.2 82.6 92.2 332.3 8.3x
98.1 98.4 101.9 111.6 410.0 6.7x
119.6 120.4 124.8 136.4 501.1 5.5x
0.13 0.21 0.29 0.38 1.01 95.1x
0.28 0.32 0.34 0.45 1.39 69.1x
0.42 0.41 0.40 0.53 1.77 54.3x

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Industry Contact 1
Thinks that the demand is across the board. Its been all overIts been manufacturing,
its been financial services, its been education, health servicesit's spread across the
spectrum.
Refers to a number of deals in his Ultimate Software practice that clearly highlight strong
traction for Ultimate Software:
Just signed a 30,000 employee deal with a company in the Education vertical, with
a go live date of Q1 of 2014. Estimates it to be a couple million dollars in total.
Replaced two ERP systems PeopleSoft and Oracle. Thinks Workday might have
been in the mix early on in the bake-off, but didn't make it to the finals.
For deals signed in Q2, refers to another deal with a company of 2,500 employees,
which is a spin-off from a large publicly held company.
For deals signed in Q1, refers to a 4,000 seat deal in the health services vertical and
another deal of 2,000 seats.
We are at various stages of contract negotiations on about three or four more
[deals]2,000-8,000 employees. We are growing
Thinks that Ultimate might have closed another 30k-40k seat deal in Q1 that he had heard
was coming to closure.
Our biggest market is unhappy ADP clients or people who are coming off a dead ERP
solution that they had for 10-15 years and dont want to go through rolling out another one.
We are finding a lot of people are running on dated versions of PeopleSoft/Oracle

and not wanting to go through the process of migrating either to another ERP solution or
upgrading the current oneits almost as much pain. They are looking for a quick solution
that they can turn on fairly quickly. Mentions that many such clients are replacing the
core benefits, payroll and HR part of the ERP with ULTI. Lets bring PeopleSoft financials
current and will discard the rest and run UltiPro.
Based on his conversations with sales people [in the cloud based payroll ecosystem] and the
momentum in the business he is seeing, think sales reps are happy coming off the quarter.
Regarding Workday, we are not running to the finish line looking over our shoulders.
Thinks currently Workday doesnt have a native payroll module.
Industry Contact 2
I see the demand continuing.
I think they are well positioned in the marketplace to grow leaps and bounds. Thinks
Ultimates core HR payroll is very strong.
Sentiment of sales reps [in the cloud based payroll ecosystem] coming off of Q1: Absolutely,
those guys have been thrilled about results [in general]. Thinks Ultimate will show a very
good growth pattern in the next year or two.
Competition:
It is very few and far between that we will run into Workday. Its usually on the
much larger engagements.
In the mid-market space, we see ADP and their variety of solutions pretty
regularly. PeopleSoft we run into pretty regularly.
In the small market space, runs into players like Paycor.
Referring to ADP and Ceridian, those companies have piecemeal-ed their solutions
together through acquisitions and different platforms and it never really felt like a
unified system. Whereas Ultimate has made big strides to deliver one unified single
system that handles all of your HCM needs. Refers to a deal he is working on where
the client is using six different systems from ADP that we are going to be able to
roll into one, just Ultimates platform. I think those organizations are behind the
curve in their SaaS offering.I think it's going to take them a while.
We were ahead of budget for Q1 and so far ahead of budget for our entire fiscal year [ending
June]. So, far we are ahead of all our budgets and projections.
I think they [Ultimate Software] are definitely on the right track and have a lot to look
forward to.
Industry Contact 3
Mentions that he sees a higher level of demand as compared to a year ago.

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Ap r i l 3 0 , 2 0 1 3
Thinks that he will be above his internal forecasts for 2013. We have received more requests
this year than last year.
Mentions that he is seeing a trend where Ultimates existing clients are adding more
modules.
Refers to a couple of new deals he is working on, including one with around 7k employees.
Based on the increased number of implementation requests he has received from Ultimate
so far this year, thinks that Ultimate is seeing a robust increase in deal activity.
Mentions that Ultimate Software is doing away with theirnon-hosted [i.e. on premise]
clients. Anybody who is a non-hosted clienthas to make a decision by the end of 2014
to either go to SaaS or to basically not be on the system.
Thinks it makes sense from an operational standpoint, as he thinks its difficult for
Ultimate software to support clients who are not hosted by them. I would make the
assumption that there are going to be some clients that would have to leave Ultimate
Software when that time comes.
Based on his conversations, two clients have decided to leave while another two have
decided to move to SaaS. So, its kind of even.
Over the long haul, I am assuming if they keep about half of their [currently
on premise] clients they will maintain at a minimum the same revenue, because
obviously once you go to SaaS then you are paying a subscription model and that
subscription model is a lot more than what they are getting just from support on
the non-hosted clients.
Thinks that although the number of customers using the on-premise solution is less
as compared to the number of SaaS customers, the companies who are on-premise
are relatively larger [in terms of employees] than most of their current customers.
Thinks that the move will also lower Ultimates operating margin profile, because
I dont know if they would let go of any employees, but they certainly wouldnt
hire new support staff since their [on-premise customers moved on to SaaS] support
model would fall into line with what they [Ultimate] are doing with all their other
clients.
Competition:
Mentions that Workdays payroll module is not as good as Ultimates. Some people
are starting to see that and [hence] they tend to shy away from it.
Continues to see a consistent trend where clients start with UltiPro but as they
become big enough such that they need additional configurations to support their
processes, they move on to PeopleSoft. Thinks that some of Ultimates clients who
might not want to go the SaaS route, might move to PeopleSoft
Kronos has started to push their HR/Payroll module out to their existing clients.
Adds that Kronoss current customer pool is enormous and a large number of
companies use their time and attendance system.

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April 2014
Fe b r u a r y 5 , 2 0 1 3
Partner Interviews Highlight Good Opportunity Set, Changing Industry Dynamics
PRICE: US$99.75
TARGET: US$90.00
6.1x EV/CY 2013 Rev of $410.0M, net cash
$77.8, 28.5M shares
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$90.00
FY12E EPS US$1.03
FY13E EPS US$1.43
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
We spoke with three contacts in the Ultimate ecosystem who painted a detailed picture
of the Q4 demand environment. Our contacts see strong demand for ULTI solutions,
stating that The growth is definitely still there..." and "there is a lot of demand." This
feedback reflects both the success of ULTI and the continued secular momentum behind
SaaS HR solutions. During our checks we picked up evidence that "the market is starting
to see [many] more options within SaaS which are changing the industry dynamics.
Contacts cited new technology from Ceridian, Workday, ADP and Oracle, and saw many
"go-lives" over the past year with these vendors. We don't believe that in the near-term
Ultimate is in danger of surrendering its leadership position in the mid-market, but based
on sales and earnings trends, we believe ULTI is fairly valued at 7.1x EV/FTM sales.
Neutral, $90 PT.
Notable Feedback
(+) The growth is definitely still thereour demand to support and work with and
implement Ultimate Software is continuing to increase.
(+) We havent had any pipeline generation in a couple of years because there is
enough demand [from Ultimate as well as other consulting firms selling Ultimate] to
keep us busy.
(+) I think the demand is going way upthere is a lot of demand. They have got a
lot of traction. I think they are having trouble keeping up with it.
(+) There are a lot of customers that are lining up to get their services...which is
good, really good.
(+) ... I have more work than I can handle. Pipeline is good. Got a lot of work.
Everybody is busy and nobody is on the bench.
(=) I hear noise that they [Workday and Ultimate] are always neck-and-neck in the
sales cycles in terms of what the client agrees to buy. They are always ones in the last
running. I am sure Ultimate loses to them at some point in time as well.
(=) There is a lot of new technology entering the market. ADP has come out with
Vantage, Ceridian has come up with DayForce, Oracle has launched Fusion HCM.
So, the market is starting to see much more options within SaaS.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
64.5 64.2 67.8 72.7 269.2 10.6x
78.3A 79.2A 82.6A 91.2 331.2 8.6x
96.8 98.0 102.8 112.4 410.0 6.9x
0.10 0.14 0.18 0.24 0.65 NM
0.13A 0.21A 0.29A 0.40 1.03 96.8x
0.32 0.32 0.34 0.44 1.43 69.8x

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Fe b r u a r y 5 , 2 0 1 3
We havent had any pipeline generation in a couple of years because there is enough demand
[from Ultimate as well as other consulting firms selling Ultimate] to keep us busy.
Its going good...its [Ultimate] a solid company. Thinks that Ultimate is able to maintain
a small company culture despite the growth.
His firms performance above our expectations in Q4 and so far in the first quarter
we are above expectations as well. We have got as many clients as we brought on at the
end of the fourth quarter [which] we are already working on to bring on at the end of the
first quarter, which is kind of unusual. Adds that he will be bringing more companies and
relatively large companies live on UltiPro in Q1 2013 as compared to Q1 2012. Adds that
its an indication for Ultimates business that the past fourth quarter was better than the
previous fourth quarter.
Based on conversations with the sales reps [in the SaaS HRIS/Payroll ecosystem], thinks at
least one-third of them made their numbers for Q4.
Competition
Hasnt seen ADPs new software in the market. Doesnt think its an integrated HRIS
platform.
Saw Workday in a deal where Ultimate won mainly because Workday doesnt have
an integrated HRIS and Payroll solution. Mentions that the client didnt want to
have a separate Payroll vendor and HR benefits vendor. I think thats going to be
a stumbling block for them in the near future until they figure out how to connect
the dots.
Refers to several large deals that Ultimate did last year, but is unsure of the timing of those
deals.
He is very optimistic about 2013 and plans to double his business.
Mentions that the public sector is looking at reducing cost by privatizing some aspects of
their HR management and Ultimate might have signed some deals there.
Industry Contact 2
I think the demand is going way upthere is a lot of demand. They have got a lot of
traction. I think they are having trouble keeping up with it.
There are a lot of customers that are lining up to get their services...which is good, really
good.
Seeing the demand both in Workplace as well as in Enterprise.
Based on his conversations with the sales reps [in the SaaS HRIS/ Payroll ecosystem],
absolutely they are pumped up coming out of Q4, raving for 2013they are excited.
He is very optimistic about his business prospects going into 2013 -Yes, very much so. I
have more work than I can handle. Pipeline is good. Got a lot of work. Everybody is busy
and nobody is on the bench.
Mentions that he didnt see any slowdown in the last 6 months. People are spending
money.
Competition
Seeing Workday in the market and thinks Workday could eat into Ultimates
business a few years down the line.
I hear noise that they are always neck-and-neck in the sales cycles in terms of what
the client agrees to buy. They are always ones in the last running. I am sure Ultimate
loses to them at some point in time as well.
Thinks that Workday is building its own payroll system. They are building their
own; they are putting their own engine together.

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Fe b r u a r y 5 , 2 0 1 3
The growth is definitely still thereour demand to support and work with and implement
Ultimate Software is continuing to increase.
Primarily works with the Enterprise product, but getting more and more with Workplace
as well.
Based on his conversations with sales guys [in the SaaS HCM ecosystem], thinks that some
of the reps might have fallen short of their 2012 numbers. But adds that even those reps see
a very strong pipeline and prospects going into 2013.
Although not sure of the timing of the deal, thinks that there were some deals signed recently
with more than 20K users.
Competition
Mentions that There is a lot of new technology entering the market. ADP has
come out with Vantage, Ceridian has come up with its DayForce product, Oracle
has launched Fusion HCM. So, the market is starting to see much more options
within SaaS.
Thinks that the dynamics [in the market] are starting to change.
Thinks that ADP and Ceridian will be able to defend their ground against ULTI with
the new SaaS offerings - I think they are alreadythey are demoing well ...they
are winning deals. Has heard that many companies are going live now with Oracle
Fusion and Ceridian while ADP Vantage started going live last year.
Whats good for Ultimate is that they got out there early on as a pioneer, so they
were more advanced on the development side. Thinks that competition could get
pretty fierce in this market.
Highlights that each solution, however, has its own strengths. One might be
stronger in global, the other stronger in HR. There is certainly no perfect system
out there.
Thinks that Workday is probably stronger and global amongst the lot.

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April 2014
Oc t o b e r 3 0 , 2 0 1 2
Detailed Checks Show Large Client Traction, Healthy Trends, Workday on Horizon
PRICE: US$96.93
TARGET: US$90.00
6.8x EV/FTM Rev of $364.6M, net cash
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY12E EPS US$1.04
FY13E EPS US$1.42
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
50
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with four key contacts in ULTI's ecosystem highlight a healthy and
consistent Q3/year-end environment, partly assisted by typical end-of-year seasonality
associated with the payroll industry. Key points: 1) contacts suggest activity is absolutely
going strong and "don't anticipate it slowing down at all"; 2) ULTI is acquiring
larger clients and is successfully crossing the 10,000-employee sweet spot with greater
regularity; 3) ongoing demand is driven by organizational desire to eliminate paper
from all HR-related tasks with a universal, integrated tool; and 4) Workday is in the
mix more often while ADP and Ceridian have rolled out SaaS-type products, which
may eventually reduce their customer churn rates. In our view, ULTI is executing well
to produce strong and steady recurring revenue growth and enjoys a good reputation
with payroll administrators, but is fairly valued based on its cash flow and earnings
production. Neutral rating; price target form $80 to $90 on higher multiple.
Noteworthy Feedback
Demand is absolutely going strong and "dont anticipate it slowing down at all.
Regarding the performance of sales reps [in the SaaS payroll ecosystem], I dont think
any of them are looking at missing their number for this quarter [Q3] or for the year
I think they are all in pretty good shapethey are all doing pretty well.
Ultimate is acquiring larger clients and has breached their sweet spot of clients with
10,000 employees "more frequently [recently] than they have in the past".
Workday has been definitely in the mix. They (Workday) have been gaining a lot
of momentumcertainly something we are keeping an eye on. Ultimate Softwares
payroll system is, at least at this point in time, by far better than Workdays but thats
not to say they [Workday] cant catch up.
One contact thinks that both ADP and Ceridian have come up with something new
and SaaS model type and believes that their [ADPs/Ceridians] client retention may
begin to increase if they begin to upgrade their customers. But thinks its too early
to really validate that dynamic.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
64.5 64.2 67.8 72.7 269.2 10.2x
78.3A 79.2A 83.7 91.6 332.7 8.2x
93.8 95.6 101.0 110.1 400.5 6.8x
0.10 0.14 0.18 0.24 0.65 NM
0.13A 0.21A 0.28 0.41 1.04 93.2x
0.28 0.32 0.36 0.46 1.42 68.3x

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Oc t o b e r 3 0 , 2 0 1 2
Detailed Feedback Industry Contact 1
Demand is absolutely going strong.
Businesses are looking to eliminate/mitigate paperand many business are still operating
in that environment whether it's paper around onboarding the new employee, whether it's
paper around the annual open enrollment period, whether it's paper around performance
management/succession planning.
Whats nice about the Ultimate software product is that its a universal tool. Its all
connectedIt's not a la carte vendors that are being built-in and integrated, that creates
challenges.
Thinks that the expansion of Ultimate into the lower mid-market with their Workplace
product has done great things for them, not only from the point of growing the client
base but also from a brand recognition perspective. More businesses are now seeing their
name, and they do a fantastic job around branding.
From the product standpoint is the momentum there and is it going to continue? We see
it, absolutely. I dont anticipate it slowing down at all.
In the Enterprise space, they (Ultimate) are acquiring larger clients. Mentions that
although Ultimates sweet spot is still in organizations up to 10,000 employees, I think they
have breached that more frequently [recently] than they have in the pastThey have been
able to bring in some larger clients in the ballpark of 80-100K employees.
Conversations with sales reps [in the SaaS payroll ecosystem] - From a sales standpoint,
the information that they are sharing with me is that its been very good for them. They
are writing/riding business. Mentions that ULTI has shut down January 1 go lives, which
in his opinion speaks to the amount of volume Ultimate is dealing with through the end
of the year.
Thinks that Workday is emerging as a competitor and is running alongside and telling a
similar story. However, thinks that Workday doesnt have a Payroll module or at least it's
not as strong as what Ultimate is.
Mentions Ultimate competes head to head with ADP. They have been taking a chunk out
of ADP. Much of what they (ADP) have sold in the past has been just a bunch of systems
that are disparate that have an ADP skin on it, but its a lot of integration and a lot of
connectivity that has to go on behind the scenes.
Was slightly above plan for his Ultimate practice.

Industry Contact 2
In Q3, there is a little bit more demand if we compare y/yWe have seen a minimal increase
but it's still an increase in the amount of people requesting UltiPro.
Mentions that for HRMS systems, Q3 and Q4 are the busiest quarters because
organizations want these systems to be up and running before the New Year starts.
Sales reps [in the SaaS Payroll ecosystem] sound excited coming off Q3 I believe so
It does sound like they (ULTI) are gaining momentumwe do see an increase in sales of
new implementations.
Heard that ULTI was working with [a leading manufacturer of agricultural machinery] in
Q3. That was a recent larger implementation that they were doing.
Internal Plan Was pretty much right on target for Q3 for both new and existing business.
Competition
Mentions that the two main competitors losing share to Ultimate are ADP and
Ceridian.
Thinks that both ADP and Ceridian have come up with something new and SaaS
model type and believes that their [ADPs/Ceridians] client retention may begin
to increase if they begin to upgrade their customers. But thinks its too early to
really validate that dynamic.
Workday:
Thinks Workday has been definitely in the mix. They (Workday) have
been gaining a lot of momentumcertainly something we are keeping an
eye on.

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Oc t o b e r 3 0 , 2 0 1 2
His understanding is that Workday does have a payroll system but its
very basic and minimal. I think thats where they lag and thats where
Ultimate software still outshines them.
Ultimate Softwares payroll system is, at least at this point in time, by far
better than Workdays, but thats not to say they (Workday) cant catch up.
For the overall core HRIS, I think Ultimate software still has a little bit of a
lead from a usability and a company usage standpoint.
Thinks that there always has been a healthy mix of new implementation and people that are
often leaving Ultimate Software. The main reason why a customer would leave Ultimate is
acquisition, and most of the time the transition is to a more global system with the capability
to do financials, like PeopleSoft. There is definitely more coming in than they are leaving,
somewhere in the ratio of 70/30 from his perspective.
Industry Contact 3
Thinks demand is still going strong in Q3.
We are probably twice what we had planned, 100% over plan. Has added 20 employees
in the last two quarters. We are getting more selective in who we engage with to handle
the surge in demand. We are not saying no yet but estimates that he will reach capacity
sometime next year in terms of ability to throughput new client acquisitions. Mentions that
he doesnt have a marketing campaign thats working and it is all word of mouth.
Between new clients and the existing clients, the proportion is roughly the same but they
both doubled in the last two quarters.
From conversations with Sales reps [in the SaaS Payroll ecosystem] I dont think any of
them are looking at missing their number for this quarter (Q3) or for the yearI think they
are all in pretty good shapethey are all doing pretty well.
I know they signed one big deal in Kansas. Mentions that it was a BPO which was
changing technology platforms. Thinks they have in excess of a 100K employees. Thinks
that it may have been a Q1/Q2 deal, but not sure.
Competition
Workday Doesnt think Workday is a threat to Ultimate. They dont have a payroll
platform although they are a good global HR system. Thinks that a third-party is
providing the payroll capability for Workday and its not properly integrated. Short
term I dont see them as a threat.
ADP/Ceridian Doesnt think ADP/Ceridians new cloud products are a threat to
Ultimate either. Every one of our clients is a former ADP or Ceridian client except
one, who came off PeopleSoft. Mentions that he doesnt remember the last time
he competed with Ceridian. Mentions that ADP is the main competitor and in the
situations when ADP has been in the mix competing, Ultimate has won the business
70-80% of the time.
Workday, ADP, Ceridian - none of these are serious threats to UltiPro or our
business, I think.
Industry Contact 4
We see some good growth. We are increasing customer base.
Thinks demand is strong and growing as compared to last quarter as well as when compared
to last year.
Thinks that he was above plan last quarter. We are doing good business with them and
they are adding clients.
Price Target Price target increase to $90 based on 6.8x (was 6.0x) EV/FTM rev, net cash of $68.8M and
28.3M shares outstanding. Higher multiple based on higher peer group multiple.

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April 24, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Change in Recommendation
Rating Underweight Neutral
Price Tgt $50.00 $65.00
FY12E Rev (mil) -- $332.0
FY13E Rev (mil) -- $400.0
FY12E EPS -- $1.01
FY13E EPS -- $1.39
Price $69.38
52 Week High $75.00
52 Week Low $43.28
5.3x EV/FTM Rev
Yield: 0.00%
Rev (mil) 2011A 2012E 2013E
Mar $64.5A $76.6E $92.0E
Jun $64.2A $79.0E $95.4E
Sep $67.8A $83.9E $101.4E
Dec $72.7A $92.5E $111.1E
FY $269.2A $332.0E $400.0E
CY $269.2A $332.0E $400.0E
FY RM 7.2x 5.8x 4.8x
CY RM 7.2x 5.8x 4.8x
EPS 2011A 2012E 2013E
Mar $0.10A $0.12E $0.24E
Jun $0.14A $0.21E $0.31E
Sep $0.18A $0.28E $0.36E
Dec $0.24A $0.40E $0.47E
FY $0.65A $1.01E $1.39E
CY $0.65A $1.01E $1.39E
FY P/E NM 68.7x 49.9x
CY P/E NM 68.7x 49.9x
Ultimate Software Group (ULTI $69.38)
Neutral
Upgrading ULTI to N; Incremental Comfort in
2H:12 Acceleration
CONCLUSION:
We are upgrading ULTI shares to Neutral from Underweight. Since July of 2009,
ULTI shares have appreciated materially, but have actually underperformed our SaaS
coverage list by 50 percentage points. Moving forward, we expect ULTI shares can
perform better relative to the peer group based on the following: 1) strong checks for
the second consecutive quarter, including a transaction with over 100,000 seats in the
pipeline; 2) incremental comfort that Q1:12 will mark a trough for ULTI's recurring
revenue growth at roughly 18%, with potential to accelerate to 30% by year-end; 3)
the impending IPO of Workday, which could drive incremental interest in the HR
software market with ULTI as a primary comp; and 4) the accelerated M&A wave
in the Cloud Computing market, driving 5 SaaS acquisitions in the past 7 months.
Raising target to $65 to reflect increased confidence in multi-year growth trajectory.
Our conversations with a couple of key contacts in the ULTI ecosystem suggest a
robust Q1 demand environment. Contacts observed a very healthy pace of business
in Q1 and struggled to procure enough staff to keep pace with demand as their
major bottleneck against growth. Contacts experienced broad-based demand driven
by both Enterprise and Workplace (SMB) deals. We believe sales teams are hitting
their numbers and that the pipeline continues to grow. As evidence of the pipeline
growth, our checks turned up a large deal in excess of 100,000 seats in the works,
possibly for later in 2012.
Detailed Feedback
Used to partner with Lawson but migrated from Lawson to Ultimate about 5 years
ago. Best decision we ever made.
Seeing an out of this world demand trend. "Its a good company, they have got a
great culture, they have got great leadershipthey have got, I think, the [strongest]
solution for mid-market and above in terms of a complete HRIS package. If I was
not running my own company, I would go work for Ultimate.
Q1 performance We are ahead of plan. We are a small company. We grew 100%

last year and almost by July [2012] we will grow another 100% over what we did
previously. We cant find people fast enough and thats probably one bottleneck
we have got...
*** Continued On Page 2***

Neutral (was Underweight), $65, price target based 5.3x (was 4x) EV/FTM revenue
(rev. estimate of $332M, net cash of $53.4M, 27.8M shares). Higher multiple reflects
higher peer group multiple.

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April 24, 2012
Thinks that ULTI has been cranking at capacity. I know that for the last year or two they have been pretty much right at their ability
to onboard clients that they are selling. They are pushing the envelope at least in the last three years, thats been consistent. They are
selling as much businesses as they can turn on. Mentions that ULTI is encouraging implementation partners to build extra capacity,
just in case, to help them during surge periods.
From the perspective of his business, he thinks ULTI did pretty well in Q1. We are doing more business than we can handle.
Competition with Workday Mentions that he has been in competition with Workday about 4-5 times in the last couple of years or so,
and have only lost once. In his opinion, They dont have a good payroll module. Also he doesnt think that the HR/Benefits modules
are as good as UltiPro, although the recent Piper Jaffray HRIS managers survey suggests the opposite.
Demand is definitely trending up. Thinks customers are excited about ULTIs offerings. I hear a lot of good things.
Has seen a good mix of both Workplace and Enterprise business across the board. Sees a lot of demand for their Workplace clientele.
Thinks that ULTI is working on a large deal with a Tennessee-based company with upwards of 100,000 employees. Its a large one,
a very large one.
Sales chatter I hear a lot of positive things. Has heard that the pipeline looks good. Thinks that the sales guys are hitting their quotas
and doesnt see any turnover at all.
Has mixed feelings about ULTI's Partners for Life program. Thinks its a good gesture, but suspects that the quality is as good as an
all-you-can-eat buffet as compared to an ala-carte menu. Doesnt think new customers would make a decision based on the program.
Also, has heard from customers that it is more of a self paced learning or remote type session and a lot of customers complain about
that. Customers want more interaction.
Thinks that the customers are really happy about the SaaS model.
Has heard that Workday is competing with ULTI, but hasn't seen them in the deals he is associated with. Thinks that a couple of people
from ULTI left for Workday.
The Open Enrollment piece is fully .NET [Microsoft's modern technologies] now, like the rest of the modules. It was based on ASP
(Active Server Pages, older Microsoft server-side script engine technologies) before. Thinks that ULTI had been working on it for years.
About Workday Has heard a lot of good things about Workday. I think they have something good going. They have a nice team
and they are moving towards something great. He thinks that Workday is where ULTI was 8 or 9 years ago.
Exhibit 1: Stock Performance of Covered Cloud Computing Growth Companies
since Conversion to Relative-to-Coverage Rating System
Price Price Percent
Ticker Company Name 7/1/2009 4/23/2012 Change
TIBX TIBCO Software Inc. $7.38 $33.50 354%
SFSF SuccessFactors $9.27 $40.00 331%
N NetSuite Inc. $11.31 $48.66 330%
CRM salesforce.com, inc $38.91 $156.90 303%
RNOW RightNow $11.72 $43.00 267%
INFA Informatica Corporation $17.20 $50.94 196%
RHT Red Hat, Inc. $20.63 $60.55 194%
ULTI The Ultimate Software Group, $24.56 $71.10 189%
KNXA Kenexa Corp. $11.85 $30.77 160%
CNQR Concur Technologies, Inc. $32.06 $55.71 74%
AVERAGE: 240%
Source: Piper Jaffray Research, Yahoo! Finance, Capital IQ
Investment Thesis
Ultimate Software is a leading on demand software provider of payroll and talent management solutions. The company's flagship product
"UltiPro" automates the payroll processing for companies of all sizes. UltiPro also comes in five different talent management applications
(recruiting, time and attendance, performance management, learning management and tax filing) that address the human resource
challenges of managing an employee's lifecycle from recruiting to hiring to learning to evaluating to compensating to terminating.
Customers use UltiPro to analyze trends, quickly access critical information and improve overall efficiencies by streamlining payroll and

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April 24, 2012
talent management processes. According to Forrester Research, personnel-related costs (i.e., salary and wages, bonuses, and benefits)
represent 40-60% of the total expenditures of most businesses.
Based on our research, the ability to reduce costs while improving employee efficiency leads to a relatively quick payback and significant
ROI for most Ultimate deployments. According to our customer conversations, if you include headcount reductions, elimination of
service bureau fees and efficiency gains, a significant ROI can be obtained within 1-2 years. Lastly, we believe the company enjoys
reasonably high barriers to entry, as there are more than 14,000 local tax jurisdictions in the U.S. that change frequently, and the Fair
Labor Standards Act (FLSA) regulates minimum wage, overtime, equitable pay, record keeping, and other labor laws for employees.
As an employer, it is mandatory to follow these state and federal laws, and many of these regulations are quite complex. In addition to
providing FLSA and Sarbanes-Oxley compliance, we consider payroll a mission critical application as most employees appreciate being
paid on time. Our Neutral rating is based on a balanced 12-month risk reward.

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April 2014
February 7, 2012
Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
Rating -- Underweight
Price Tgt -- $47.00
FY11E Rev (mil) -- $269.2
FY12E Rev (mil) -- $330.6
FY11E EPS -- $0.67
FY12E EPS -- $1.04
Price $67.80
52 Week High $71.97
52 Week Low $43.28
4x EV/FTM Rev
Yield: NM
Rev (mil) 2010A 2011E 2012E
Mar $55.7A $64.5A $78.6E
Jun $54.7A $64.2A $79.0E
Sep $57.0A $67.8A $83.4E
Dec $60.4A $72.7E $89.6E
FY $227.8A $269.2E $330.6E
CY $227.8A $269.2E $330.6E
FY RM 8.2x 7.0x 5.7x
CY RM 8.2x 7.0x 5.7x
EPS 2010A 2011E 2012E
Mar $0.09A $0.10A $0.21E
Jun $0.09A $0.14A $0.23E
Sep $0.13A $0.18A $0.28E
Dec $0.17A $0.25E $0.31E
FY $0.47A $0.67E $1.04E
CY $0.47A $0.67E $1.04E
FY P/E NM NM 65.2x
CY P/E NM NM 65.2x
Ultimate Software Group (ULTI $67.80)
Underweight
Checks Indicate Healthy Demand Environment
Boosted By Typical Seasonality
CONCLUSION:
Our conversations with 4 contacts in ULTI's ecosystem portray a robust year-end
demand environment. Contacts observed a healthy pace of business for UltiPro
in Q4, partly driven by typical end of the year seasonality associated with the
payroll industry. Contacts also indicated that the demand was broad-based and was
driven by both Enterprise and Workplace (SMB) deals. While the preponderance of
feedback indicated positive trends, contacts also perceived a degrading support level,
highlighted a disconnect between core and ancillary products, and also mentioned that
on-premise licenses continue to comprise a meaningful portion of their existing client
base. In our view, ULTI is executing well to produce strong and steady recurring
revenue growth and enjoys a good reputation with payroll administrators, but is
overvalued based on its cash flow and earnings production and relative to its low
gross margins. Underweight, $47 price target.
Detailed Feedback
Ultimates practice constitutes a pretty good size of the overall business for
the firm. Does both implementations of Enterprise as well as Workplace
products.
Have done many many many hundreds of implementations to date. Last
year alone, they did numerous workplace and enterprise implementations.
I probably turned down a very substantial amount of work over the last
six months due to capacity constraints.
Thinks demand for ULTI is extremely high and exploding from his
perspective. Saw a lot of demand in Q4 of last year because most of the
companies want their new payroll systems to go live on January 1
st
. Expects
growth of 30-40% this year if he can add staff.
Thinks that there is demand both in enterprise and workplace. Mentions
that there were some very large enterprise implementation in 2011.
Based on what he can see, he thinks that [sales reps in the SaaS payroll
ecosystem] should be doing pretty well.
*** Continued On Page 2***
Underweight, $47, price target based 4x EV/FTM Revenue (rev. estimate of $314M,
net cash of $50.3M, 27.7M shares).

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February 7, 2012
Detailed Feedback, Cont'd.
Caters to both new and existing clients for both workplace and enterprise. Majority of his firm's business is UltiPro implementation
and consulting.
In Q4, from my perspective demand was very high. His business grew 30% y/y in Q4 2011. The demand in Q4 is always high due
to the seasonality of the payroll industry, but it was higher this year. Thinks that the demand was very broad based.
Thinks that WorkDay is years away from where Ultimate is today.
Thinks UltiPro is a great product from the usability and scalability standpoint. I think it is one of the best products in the industry,
without any bias towards the company. Thinks their support team has expanded many fold.
Improvements needed If you had asked me three years ago, I would have given you a laundry list. If you ask me now, its a lot less.
They have ramped up. They have lot of good resources in place.
Thinks that ULTIs support has improved many times although mentions that they have an outbound support model (where the customer
calls, leaves a message, and somebody calls back) and they are trying to get away from it. Used to be that customers would had to
talk to different reps each time. But now they have processes in place to follow up on a case and talk to the same rep etc. It has
gotten much better.
Dont frequently interact with [sales reps on the SaaS payroll ecosystem] but thinks that ULTI is doing pretty good. I keep hearing
that they have got more work than they can handle.
Help implement the product and also support existing clients on the product to roll out additional functionality, help integrate people
coming from M&A into the system, provides custom training etc.
From her perspective, thinks that demand in Q4 increased dramatically as compared to a year ago. In Q4, she was at full capacity
and had to turn down work. We just didnt have the amount of resources to handle the requests coming in. She has resources to do
[another vendor's] implementation and consulting and other products as well but Ultimate has kept us so busy that really in the past
year that's all we have done. Thats all we had time to do. One of the factors for the surge in demand in Q4 is the typical seasonality
since people want to go live with their payroll systems in the beginning of the year.
Have more than Quadrupled the staff in 2011 from a year ago.
Working on a couple of large implementations that would go live in the middle of 2012. Thinks that enterprise is driving their business
as compared to the workplace, as it drives more profit margins as well.
A lot of times, they are brought in during the sales cycle since many clients want to talk about implementation before they sign a
contract. Typically, right after the signing of the contract they get a call to do the implementation.
Negatives about ULTI

What has dramatically gone down hill over the years is their support level
Also, there is a disconnect between their core product and their ancillary product. In particular, their payment service seems
to be very disconnected from UltiPro and those people dont know anything about the software, even though they are a part
of the same company. Clients sense that.
Havent spoken to [sales contacts in the SaaS payroll ecosystem] lately but from her perspective would assume ULTI is doing pretty
good.
Thinks that ULTI is still engaged in the on-premise business. It is still a big component of their existing client base. Thinks that they
sell licenses if the client demands it, but are moving towards SaaS as their bread and butter business.
Thinks that the demand in 2011 was significant. Thinks that companies were more open with their purchasing last year.
Investment Thesis
Ultimate Software is a leading on demand software provider of payroll and talent management solutions. The company's flagship product
"UltiPro" automates the payroll processing for companies of all sizes. UltiPro also comes in five different talent management applications
(recruiting, time and attendance, performance management, learning management and tax filing) that address the human resource
challenges of managing an employee's lifecycle from recruiting to hiring to learning to evaluating to compensating to terminating.
Customers use UltiPro to analyze trends, quickly access critical information and improve overall efficiencies by streamlining payroll and
talent management processes. According to Forrester Research, personnel-related costs (i.e., salary and wages, bonuses, and benefits)
represent 40-60% of the total expenditures of most businesses.

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February 7, 2012
Based on our research, the ability to reduce costs while improving employee efficiency leads to a relatively quick payback and significant
ROI for most Ultimate deployments. According to our customer conversations, if you include headcount reductions, elimination of
service bureau fees and efficiency gains, a significant ROI can be obtained within 1-2 years. Lastly, we believe the company enjoys
reasonably high barriers to entry, as there are more than 14,000 local tax jurisdictions in the U.S. that change frequently, and the Fair
Labor Standards Act (FLSA) regulates minimum wage, overtime, equitable pay, record keeping, and other labor laws for employees.
As an employer, it is mandatory to follow these state and federal laws, and many of these regulations are quite complex. In addition to
providing FLSA and Sarbanes-Oxley compliance, we consider payroll a mission critical application as most employees appreciate being
paid on time. We maintain an Underweight rating on ULTI primarily due to valuation.

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J a n u a r y 2 8 , 2 0 1 4
VMware, Inc. (VMW) Neutral
37 VMW Resellers 2.1% Above Plan, Inline with Q3, Better Americas vs Europe
PRICE: US$93.11
TARGET: US$99.00
25.2x 2014E EPS of $3.92
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$99.00
FY13E EPS US$3.38
FY14E EPS US$3.92
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
We conducted a global survey of 37 VMW resellers and found that they finished 2.1%
above plan for Q4, in line with last quarter but slightly below the historical Q4 norm of
4% above plan. The reseller feedback is a bit more mixed than we expected, but does
not alter our fundamentally positive stance on VMW, as resellers seem to have shuffled
a couple points worth of growth out of 2013 and into 2014. Perhaps this correlates to
our deep-dive conversations with two key VMware partners, one in the US and another
in Europe, who highlighted a better North American demand environment as compared
to some European regions where partners "struggled" to close ELA deals by year-end,
causing a few deals to be pushed out. Net/net, although the reseller feedback did not
convey additional excitement, we like the direction of the company. Neutral, $99 PT.
Partners 2.1% Above Plan in Q4, In Line with Q3. The 37 partners we surveyed
finished 2.1% above their internal plan for Q4, inline with +2.2% outperformance
in Q3, although marking a modest downtick from the +4% levels in previous
Q4s. VMware will be reporting Q4 against a backdrop of well-telegraphed
Enterprise choppiness in emerging markets, and may not be immune from the global
macroeconomic dynamics causing these oscillations; however, based on the reseller
survey results and our deep-dive checks, we believe VMware saw a good North
American demand environment in Q4. While VMware already preannounced its
intent to acquire AirWatch and some high-level Q4 results, and already updated its
2014 guidance to reflect the acquisition of AirWatch, it has not disclosed its Q4
bookings disaggregation and we believe investors would like to see a mid-teens growth
figure for license bookings.
Quotable Quotes
(+) We have booked the highest this quarter [in terms of revenue]Its our
best quarter ever in the history of the VMware relationship.
(+) Strong pipelinethings are not slowing down"
(-) "[Sales reps in the virtualization ecosystem] did obviously well [in the
Nordics region -UK, Ireland, Benelux and Scandinavia] but in the traditional
bigger region of central Europe that means Germany, AustriaRussia and
Eastern countriesthey have really struggledI dont think they met their
quarterthats just a suspicion. ***CONTINUED on Pages 2-3 ***
Potential slower growth in core business, customer concentration, competition.
A leading provider of server virtualization software, management and security tools.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 8.8x
1,191.5A 1,243.1A 1,289.0A 1,480.2 5,203.7 7.7x
1,345.8 1,422.6 1,479.9 1,745.5 5,993.8 6.7x
0.66 0.68 0.70 0.81 2.85 32.7x
0.74A 0.79A 0.84A 1.01 3.38 27.5x
0.84 0.92 0.95 1.21 3.92 23.8x

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J a n u a r y 2 8 , 2 0 1 4
Server Virtualization Activity
Downticked
Of the VMware resellers we surveyed, 24% saw a "faster" pace of activity for customers
virtualizing servers, compared to 33% last quarter, while 11% saw a "slower" pace of
virtualization compared to 12% last quarter. This results in a "net-faster" pace of customer
virtualization of 14%, down from 21% last quarter.
Adoption Of Management
Offerings And License Bookings
Expectations Improved
Resellers seeing increasing adoption of VMW's management offerings ticked up for the third
consecutive quarter with 73% of resellers seeing an increase in adoption and 27% not seeing
increased adoption, compared to 70% and 30% last quarter, respectively. This results in a "net-
yes" score for increasing adoption of management offerings of 46% in Q4 versus 39% in Q3.
Finally, the percentage of respondents expecting VMW license bookings above expectations
jumped to 30% in Q4, up from 12% last quarter.
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q1:13 Q2:13 Q3:13 Q4:13
# of Respondents: 39 39 33 44 47 33 33 33 37
% of Plan: 4.0% 5.1% 3.1% 1.7% 4.1% 1.2% 0.6% 2.2% 2.1%
Pace of Customers Virtualizing Servers:
Faster 46.2% 54.5% 27.3% 27.7% 36.4% 24.2% 33.3% 24.3%
Same 53.8% 39.4% 65.9% 70.2% 57.6% 60.6% 54.5% 64.9%
Slower 0.0% 6.1% 6.8% 2.1% 6.1% 15.2% 12.1% 10.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0% 100.0%
Net-Faster % 46.2% 48.4% 20.5% 25.6% 30.3% 9.0% 21.2% 13.5%
Better Pace of Biz 46.2% 42.4% 25.0% 51.1% 33.3% 30.3% 42.4% 37.8%
Same 48.7% 45.5% 65.9% 40.4% 54.5% 54.5% 42.4% 48.7%
Worse Pace of Biz 5.1% 12.1% 9.1% 8.5% 12.1% 15.2% 15.2% 13.5%
TOTAL 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0% 100.0%
Net-Better % 41.1% 30.3% 15.9% 42.6% 21.2% 15.1% 27.2% 24.3%
Expectation for VMW License Bookings:
Above Expectations 41.0% 24.2% 25.0% 27.7% 9.1% 3.0% 12.1% 29.7%
Inline 53.9% 63.7% 68.2% 70.2% 69.7% 84.8% 69.7% 59.5%
Below Expectations 5.1% 12.1% 6.8% 2.1% 21.2% 12.1% 18.2% 10.8%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0%
Net-Above % 35.9% 12.1% 18.2% 25.6% -12.1% -9.1% -6.1% 18.9%
Increasing Adoption of VMW Mgmt Offerings?
Yes 71.8% 69.7% 72.7% 70.2% 57.6% 60.6% 69.7% 73.0%
No 28.2% 30.3% 27.3% 29.8% 42.4% 39.4% 30.3% 27.0%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Yes % 43.6% 39.4% 45.4% 40.4% 15.2% 21.2% 39.4% 46.0%
Expected Growth in VMW
18.9% 22.3%
15.9% 18.2%
5.1%
3.1%
1.7%
4.1%
1.2%
0.6%
2.2% 2.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
VMW Partners Performance as % of Plan
41.1%
30.3%
15.9%
42.6%
21.2%
15.1%
27.2%
24.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
VMW Partners Pace of Business Net-Better %
35.9%
12.1%
18.2%
25.6%
-12.1%
-9.1%
-6.1%
18.9%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
VMW Partners, VMW Bookings Expectation,
Net-Above %
46.2%
48.4%
20.5%
25.6%
30.3%
9.0%
21.2%
13.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Server Virtualization Pace, Net-Faster %
71.8%
69.7%
72.7%
70.2%
57.6%
60.6%
69.7%
73.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
VMW Partners, Increasing Adoption of Mgmt
Offerings, % Saying Yes

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April 2014
J a n u a r y 2 8 , 2 0 1 4
We have booked the highest this quarter [in terms of revenue]Its our best quarter ever
in the history of the VMware relationship.
Mentions that he is not quite certain why the demand was so high, as the margins stayed
intact and he was not giving away margins to increase volume. From our vantage point,
things are looking great.
Mentions that the product mix has not been tremendously different from what it has been
in the past. vSphere primarily.there wasnt any one category, other than the vSphere that
was extraordinarily high [relative to past]. Also, refers to a few ELA deals.
Talking about big deals, refers to a low 7-figure VDI deal that included the VMware Horizon
Suite.
Strong pipelinethings are not slowing downseems like its not just a flashseems like
we are hitting an uptick.
Thinks that the performance could be unique to his firm.

Negative Feedback (1) Industry Contact 2 (Europe)
Mentions that Q4 was an okay quarterbut there have been an increasing number of
projects which have been basically slipped into next year.
Adds that the transaction business (up to $100k) was stable and surprisingly good.
However, mentions that his organization struggled a bit at the bigger accounts (ELA
accounts of $250k and above), at least in Central/Eastern Europe and a few ELA deals
slipped into 2014 from Q1. Observes that this was consistent with some of the other partners
in the region as well as for other sales reps [in the virtualization ecosystem].
Thinks that the main reasons behind the slips are longer sales cyclesinvestment stops
further exploration or proof of concepts. Refers to a ~$4M deal that was pushed out due
to organizational issues at the clients side as there were at least 4 countries involved. Refers
to another transaction above $4m in the public sector that got pushed.
Based on his conversations with sales reps [in the virtualization ecosystem], they did
obviously well in the Nordics region (UK, Ireland, Benelux and Scandinavia) and they
are not complaining but in the traditional bigger region of central Europe that means
Germany, AustriaRussia and Eastern countriesthey have really struggledI dont think
they met their quarterthats just a suspicion.
Speculates that because labor is expensive in the Nordics region, companies in this area
prefer automation and so they are more receptive toward management and automation tools
unlike the more conservative areas like Germany.
For Q4, reports that his VMware practice didnt meet the internal target (by about 12-15%)
from a revenue standpoint but might have done pretty good from a margin perspective,
since the transaction business has higher margin than the ELA business for partners.
Among the deals pushed out, there were vCenter operations manager deals along with a few
End User computing deals. Acknowledges that the push by VMware to encourage partners
not to sell naked vSphere licenses and to bundle it with management and automation tools
is substantially lengthening the sales cycles. Adds that typically in a large company, the
virtualization team and the team managing the virtual environment are separate, which
increases the time it takes to sell such an ELA. Also, most of the time the customers might
already be using a management tool from some other vendor and it takes time to convince
the customer to move to VMware.
Reports that public sector is doing well in Europe and has heard about a lot of enterprise
license agreements (7-digits) being signed in Q4. Also thinks VMware is doing well in
certain other verticals like banking. Thinks that VMware missed a few bigger ones in the
automotive and insurance sector and these are pushed out to 2014.
Absolutely thinks that VMware is taking share from CTXS. Mentions that they not only
hired people from CTXS at the executive level, but also did so in the field as well as in the
technical areas. The guys I am speaking with at least in EMEA, they are all ex-CTXS
almost 2/3rds of them...They are really taking away market share from CTXS. Adds
that VMware also has a better incentive structure from a margin standpoint for partners,
especially in the End User Computing space as compared to CTXS.

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April 2014
Oc t o b e r 2 1 , 2 0 1 3
Deep Dive Partner Interviews Suggest US On Track, Soft Europe
PRICE: US$81.43
TARGET: US$87.00
22.5x 2014E EPS of $3.85
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
Price Tgt US$87.00
FY13E EPS US$3.41
FY14E EPS US$3.85
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
Our thorough interviews with six key contacts in the VMware ecosystem highlight a
positively biased Q3 North America demand environment. Key Positive Takeaways are:
1) Resellers were generally on plan, with a sizable North American reseller significantly
above plan for Q3; 2) seeing "bigger uptick" in ELA opportunities with incrementally
bigger size; and 3) observed a good pace of conversations for End-User Computing. On
the other side of the ledger, a few areas of caution highlighted by the partners are 1)
European business could be behind expectations in Q3; 2) net-new license activity was
softer than renewals; and 3) Operations management is not doing as well as some of the
partners would have expected it to. Net/net, although we continue to think VMware is
undergoing a transition, we note a favorable ELA setup going into the 2H of the year
and remain cautiously optimistic on the stock. Neutral, $87 PT.
Notable Quotes:
(+) We are seeing a lot bigger uptick in opportunities there (ELA Consolidations)
than we have historically seen in previous years. Partner indicates that the ELAs that
are getting renewed are definitely bigger as compared to their original size and are
a minimum of 1.5x the original contract.
(+) In general, End User Computing is getting more interest than we have seen in
the past.
(+) NSX [Software Defined Networking], we definitely hear a lot about...everybody

seems to be interested in that topic these days."
(=) We are seeing more of existing customers upgrading or consolidatingwe are

not seeing a huge uptick in net new customers, per se.
(-) One contact indicates that the vCenter operations manager is not doing as well
as he would have expected it to. Talking about the management suite from VMware,
the offering is strong [but] the technology is a bit complex for people.
(-) I have a feeling, just a feeling that they (European sales reps in the server
virtualization ecosystem) have been short this time, behind expectationsbut not that
far away.*** CONTINUED on Pages 2-5***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 7.6x
1,191.5A 1,243.1A 1,293.9 1,493.1 5,221.6 6.7x
1,366.9 1,424.4 1,482.4 1,706.5 5,980.2 5.9x
0.66 0.68 0.70 0.81 2.85 28.6x
0.74A 0.79A 0.83 1.01 3.41 23.9x
0.95 0.89 0.91 1.11 3.85 21.2x

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April 2014
Oc t o b e r 2 1 , 2 0 1 3
Our Q3 finished up fairly strongWe finished at 150% of plan.
Stronger performance in US vs. Canadanot seeing the performance in Canada but US

clearly made up the difference plus more for us for the overall business.
Seeing a lot of traction in customers consolidating licenses into ELAs [Enterprise License
Agreements]. We are seeing a lot bigger uptick in opportunities there than we have
historically seen in previous years.
Refers to an uptick in customers moving to the vCloud Suite. Adds that the traction in
vSOM [vSphere + Operations Management Bundle] adoption is mixed and his business is
largely impacted positively by the uptick in ELAs and vCloud Suite.
Indicates that the vCenter operations manager is not doing as well as he would have
expected it to.
Talking about demand in the end-user computing space, its been stablehasnt been any
major increase in that business thus far, although a part of it could be related to the strategy
of his firm.
NSX [Software Defined Networking], we definitely hear a lot aboutI think thats
where our customers are wanting to meet with us on a regular basis right nowI think
its the biggest topicIt's nothing that you can sell, but it's definitely starting a lot of
conversationseverybody seems to be interested in that topic these days.
Based on his conversations with sales reps [in the server virtualization ecosystem], thinks
that some of them are happy coming off the quarter...Canadian ones are not as happy
(because the whole Canadian business is down), US ones are OKas a general statement,
I would say they are pretty happy with the compensation right now, for the most part.
Expects sales reps to be beating their number in Q3, at least in the US. Reports that VMware
changed the sales model slightly from a focus on particular regions to a focus on the size
of the opportunity.
Talking about big (> 7-figure) deals, refers to a renewal agreement with a internet security
company and a Talent Management Company.
Speaking about the pipeline, it looks pretty positive but adds that it's pretty early to tell
how it is going to finish off in the next couple of months.
Coming into the year, his plan was for 16% y/y growth in VMware licenses, but now he
expects to beat that and come somewhere close to 20%.
We are seeing more of existing customers upgrading or consolidatingwe are not seeing
a huge uptick in net new customers, per-se.
Industry Contact 2
Demand for vSphere has been steady. We are seeing a lot of growth around their VDI
[Virtual Desktop Infrastructure] solution. We have a healthcare (customer) thats really big
with [VDI]. Also notes that BYOD [Bring Your Own Device] has been a driver of VDI.
Hard to know an exact number, but estimates that growth has been in the 20% to 30%
range year-over-year.
Recently became part of VMwares lighthouse program, which allows certain partners in the
community so resell VMwares VCHS [vCloud Hybrid Service] solution. Has been ramping
very fast to sell VCHS.
Observes that Most definitely there is a lot of room for VMware to grow. We are constantly
bringing in new account executives, acquiring new accounts. There are a lot of companies
out there looking to virtualize, but havent really gone on with cloud as a big solution, but
virtualization will help them get there.
Companies not yet embracing virtualization cite budget constraints as a barrier.
Reports that VMware has traditionally done ELAs direct, but that partners are closing them,
and she is working on a couple of them this quarter.
VMware has not yet allowed partners to resell NSX, but expects it to be available through
the channel in Q2 or Q3 of 2014.
Seeing about 10% y/y growth in Q3 for VMware vSphere licenses. Not a great increase but
it's better than flat.vSOM, not so much (demand)thats been flat.

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April 2014
Oc t o b e r 2 1 , 2 0 1 3
Talking about End User computing, we are definitely seeing an uptick, not in sales yet, but
we are seeing an uptick in requests. Mentions that he is seeing more and more requests
from partners and end-users to advocate about the end-user computing space. Also, seeing
an uptick in assessment services (that range from desktop strategy assessments to whole
data center and virtualization strategy assessments) offered by his firm. We have not seen
an uptick in salesthose requests have not translated as of yet to an increase in volume for
the VMware Horizon suite. Thinks that the mobility component and security is really
driving the interest in end user computing. In general, end user computing is getting more
interest than we have seen in the past.
Talking about the buzz around NSX, absolutely noneI have just not seen any statistics
on uptick in requests or sales.
Also indicates that he has not received even a single request around the Software Defined
Networking concept. I mean its really wrapped around vSOM. A big chunk of it is that.
We do see requests specifically to the management layer, but not a strategy around the
software defined data center (SDDC).It is very early. Mentions that there has not been
any industry analysis around the SDDC concept and there are no IDC/Gartner reports
available yet. Senses that resellers and other VMware partners are looking to get a pulse
about the evangelization of the concept from the broader base of technology companies,
including IBM, HP and Cisco. Its not happening yet.
Based on his conversations with sales reps [in the server virtualization ecosystem], I would
say, overall yes, they are happy coming off the quarter. Senses from his conversations that
overall, it's been a good quarterI think from interest, from what I have seen, I would
classify the last quarter as definitely a positive move with VMware, just because of the more
interest we have got going into the quarter.
Pipeline going into Q4 is definitely soft but he is maintaining a cautious optimism

stance. Adds that opportunities in the healthcare sector are taking longer to close. Also, has
a cautious tone around sales from end-user computing. Not hiring more resources around
end user computing but also not letting anybody go. Projecting 10% license growth for the
year.
On the competitive front:

There is a big push on the Citrix sidegood news is we are seeing a lot more on the
VMware side.every assessment that we do is a comparison to Citrix, every one.
Mentions that his Microsoft practice on the virtualization side tends to be flat
and havent seen any uptick in sales or interest or assessments that could drive future
pipeline.
Industry Contact 4
I would say in my experience theres a pretty good demand for (VMware). My region is
not a huge market compared to some, but most companies I deal with are already using
VMware.
Regarding competitive offerings, she notes that anyone looking for a virtualization solution
is still pretty much looking to VMware.
Penetration remains high among large and medium-sized companies, although small
business are not highly penetrated. Small businesses (virtualizing anywhere from 15 to 25
servers) want to virtualize their data centers, but VMware is costly for them.
Regarding Q3, she notes that sales reps [in the data center infrastructure ecosystem] did
okay.
Industry Contact 5
From a renewals perspective, we are seeing good traction. So, year over year renewal is
fairly strongAt least that aspect of the business is performing well.
Mentions that New license sales are not as strong as we would like it to be.
The VDI story gets tied with BYOD and mobility quite a bit.Mobility is really the driver
of pulling VDI along and not the other way around. Highlights that a lot of his sales reps
are getting pulled into deals with a mobility angle as it relates to VDI and indicates that
Citrix has an upper hand over VMware, when it comes to mobility around VDI. Citrix
with the acquisition of Zenprise is able to offer more of an end to end portfolio conversation.

V
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April 2014
Oc t o b e r 2 1 , 2 0 1 3
VMware with the Horizon stack is kind of missing the MDM [Mobile Device Management]
component to it. Thats something that they (VMware) need to address in order to make it
more compelling of an offering. Adds that CIOs today are looking for a single stack that
offers everything.
Talking about the management suite from VMware, the offering is strong but the
technology is a bit complex for people. Refers to an enterprise client who is currently
looking at a competitors product although they have already acquired vCloud director.
When you go through the 30 day trial periodit is very compelling, the amount of
management that you can overlay or oversee in the environment...it is very good. The
complexity of rolling it out and managing on a day to day basis is what gets people hung-
up. Highlights VMTurbo as having a bit more traction among the various competitive
products in the marketplace as something that could be deployed very quickly while
handling about 80% of the capabilities of a vCloud director.
Has a wait and see approach toward NSX. Thinks that, at the earliest, it will be ready
by 2015 for the enterprise market in general. Thinks that the buzz currently is meant to
get people thinking about it and maybe start putting out pilots together for 2014 with the
idea of really buying in 2015.
Talking about the pipeline, indicates that its pretty similar to what he saw in Q3. Renewal
business is fairly strongits kind of ho-hum for usnew license I dont see a lot of
opportunities right nowthere are couple of interesting View [VMwares VDI offering]
opportunities but it is pretty small compared to what we are seeing on the Citrix side.
In Q3, his VMware practice was behind plan. Simply because of the fact that we are not
generating new business that we had originally plannedRenewal is OKOverall, the
business picture is not as rosy.
On the competitive front, mentions that he had heard a lot of buzz around MSFT at the
beginning of the year and he is not hearing a lot currently; thinks that the play with MSFT
now is with the Windows 7 migration. From his conversations with some other partners at
a MSFT conference recently, he heard the MSFT is growing the business aggressively in the
HyperV platform and that the next plan of attack is to go after the operations management
space.
Negative Feedback (1) Industry Contact 6 (Europe)
We basically landed on the dot100%, not more, not less.
Based on his conversations with sales reps [in the server virtualization ecosystem], there
had been a few deals where they have not been willing to give in to the pressure from the
customer for more discount. So, senses that a few deals slipped away in Q3 into Q4. Adds
that its a function of half-yearly targets and mostly the year is back-end loaded across the
two half year segments. Reports that he saw such cases in three regions in EMEA and so
thinks that EMEA sales could be slightly below. I have a feeling, just a feeling that they
have been short this time, behind expectationsbut not that far away.
Mentions that VMware wants its partners to sell vSOM rather than naked vSphere. Of
course we have sold more at the enterprise (as compared to past quarters) but did not
come to the level that VMware expected of us. Mentions that many VMware clients in
EMEA already use a management tool and its quite a lengthy sales cycle to replace an
existing management tool with VMwares. However, adds that the customers who have been
sold a vSOM package are happy because its quite simple compared to the competitors
(referring to Microsoft)So, they really like that and they are really using that instead of
the competitor product.
Talking about the End User Computing area, it's gaining speedwe are doing an almost
similar number of VMware end-user computing projects as compared to the number of
Citrix projects, despite being one of the biggest Citrix partnersthere is definitely some
interest out there.
Reports that Windows XP extended support is expiring in April 2014, after which there will
be no more critical updates and no more bug fixing available for that platform. There
are a number of customers out there who are still relying on XP. They have to migrate
somehow. Adds that previously, customers used to rely on only Microsoft or Citrix tools
for such migrations but now they are asking actually even for VMware. Notices that

V
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April 2014
Oc t o b e r 2 1 , 2 0 1 3
VMware has managed to that desktop end user computing department of the customer
and they are really getting tractionand they have a really comprehensive story.
We have 7-digits dollar deals (ELAs) in the pipeline and we are quite confident that we
can sign those.
Among the ELAs closed in the quarter, the portion of renewals in the installed base was
even bigger than the portion of net new licensesthere is an increasing share of the installed
base with an ELA. Indicates that the ELAs that are getting renewed is definitely bigger
as compared to their original size and is a minimum of 1.5x the original contract.
For the first time, he has sold some cloud ELAs to some service providers under the VSPP
[VMware Service Provider Program]. Explains that service providers in the program have
been pushing VMware to provide 3-5 years of price stability since their contracts with the
end customers are even longer. As a result now VMware is increasingly signing 3-year
ELAs with these service providers, at least in Europe, instead of signing one-year deals. He
has sold 3-4 of such ELAs last quarter in several countries and there are a few more in the
pipeline. Reports that these ELAs are in the higher 6-figure category.
Talking about the pipeline, mentions that this quarter (ending December) should be the
strongest quarter.
Havent heard much from Citrix and thinks they are not much of a competition for
VMware. Adds that Microsoft is pushing into the mid-market and there is a slight sliver in
the enterprise accounts that are using a multi-hypervisor environment, including HyperV,
ESX and even KVM. The overwhelming majority of the bigger customers are still relying
on VMware (However) for the SMB market the story is different since customers are
more subject to cost sensitivity.
Mentions that VMware doesn't have a partner model as of now around NSX (Software
Defined Networking). We don't know if its yet proven for the real world.
After the NSA scandal in the US, thinks the EMEA market is quite skeptical of keeping data
in the public cloud and hence doesnt have an optimistic view about the adoption of the
VMware hybrid cloud offering in the near term.

V
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April 2014
Oc t o b e r 2 1 , 2 0 1 3
33 VMW Resellers 2.2% Above Plan, Marking An Improvement
PRICE: US$81.43
TARGET: US$87.00
22.5x 2014E EPS of $3.85
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$87.00
FY13E EPS US$3.41
FY14E EPS US$3.85
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
We conducted a global survey of 33 VMW resellers and found that the feedback
improved sequentially, albeit modestly, across all five metrics we track, supporting
expectations for an uptick in revenue growth. Specifically, resellers finished 2.2% above
plan for Q3, modestly up from 0.6% above plan in Q2 and better than the 1.7%
outperformance in Q3:12. Also, on balance partners observed a slightly better pace
of business in Q3, and a slightly faster pace of activity for customers virtualizing
servers. Although still running in a lower gear as compared to 2011-2012 (when resellers
were sometimes 4-5% above plan), in aggregate the survey results suggest a slight
improvement in trajectory, with North American resellers performing on track. We
remain Neutral.
Partners 2.2% Above Plan in Q3, Marking an Uptick. The 33 partners we surveyed
finished 2.2% above their internal plan for Q3, marking a modest improvement from
+0.6% in Q2, and better than the +1.7% outperformance in Q3:12. We also note
that 42% of partners saw a "better" pace of business while 15% saw a "worse" pace
of business in Q3, compared to 30% and 15%, respectively, in Q2 - suggesting an
improved Q3 demand environment. VMware will be reporting Q3 against a backdrop
of several shortfalls for on-premise Enterprise technology vendors in APAC, and
may not be immune from the global macroeconomic dynamics causing these results;
however, based on the reseller survey results and our deep-dive checks, we believe
VMware saw a good North American demand environement in Q3. 88% of the
resellers we surveyed are based in North America.
Server Virtualization Activity and Adoption of Management Offerings Improve. Of

the VMware resellers we surveyed, 33% saw a "faster" pace of activity for customers
virtualizing servers, compared to 24% last quarter, while 12% saw a "slower" pace
of virtualization compared to 15% last quarter. This results in a "net-faster" pace of
customer virtualization of 21%, up from 9% last quarter. Resellers seeing increasing
adoption of VMW's management offerings also ticked up for the second consecutive
quarter with 70% of resellers seeing an increase in adoption and 30% not seeing
increased adoption, compared to 61% and 39% last quarter, respectively. This results
in a "net-yes" score for increasing adoption of management offerings of 39% in Q3
versus 21% in Q2. Finally, the percentage of respondents expecting VMW license
bookings above expectations jumped to 12% in Q3 modestly up from 3% last quarter.
***Historical Survey Data on Page 2 ***

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 7.6x
1,191.5A 1,243.1A 1,293.9 1,493.1 5,221.6 6.7x
1,366.9 1,424.4 1,482.4 1,706.5 5,980.2 5.9x
0.66 0.68 0.70 0.81 2.85 28.6x
0.74A 0.79A 0.83 1.01 3.41 23.9x
0.95 0.89 0.91 1.11 3.85 21.2x

V
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April 2014
Oc t o b e r 2 1 , 2 0 1 3
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q1:13 Q2:13 Q3:13
# of Respondents: 39 39 33 44 47 33 33 33
% of Plan: 4.0% 5.1% 3.1% 1.7% 4.1% 1.2% 0.6% 2.2%
Faster 46.2% 54.5% 27.3% 27.7% 36.4% 24.2% 33.3%
Same 53.8% 39.4% 65.9% 70.2% 57.6% 60.6% 54.5%
Slower 0.0% 6.1% 6.8% 2.1% 6.1% 15.2% 12.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0%
Net-Faster % 46.2% 48.4% 20.5% 25.6% 30.3% 9.0% 21.2%
Better Pace of Biz 46.2% 42.4% 25.0% 51.1% 33.3% 30.3% 42.4%
Same 48.7% 45.5% 65.9% 40.4% 54.5% 54.5% 42.4%
Worse Pace of Biz 5.1% 12.1% 9.1% 8.5% 12.1% 15.2% 15.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 99.9% 100.0% 100.0%
Net-Better % 41.1% 30.3% 15.9% 42.6% 21.2% 15.1% 27.2%
Above Expectations 41.0% 24.2% 25.0% 27.7% 9.1% 3.0% 12.1%
Inline 53.9% 63.7% 68.2% 70.2% 69.7% 84.8% 69.7%
Below Expectations 5.1% 12.1% 6.8% 2.1% 21.2% 12.1% 18.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% 100.0%
Net-Above % 35.9% 12.1% 18.2% 25.6% -12.1% -9.1% -6.1%
Yes 71.8% 69.7% 72.7% 70.2% 57.6% 60.6% 69.7%
No 28.2% 30.3% 27.3% 29.8% 42.4% 39.4% 30.3%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Yes % 43.6% 39.4% 45.4% 40.4% 15.2% 21.2% 39.4%
18.9% 22.3%
15.9% 18.2%
4.0%
5.1%
3.1%
1.7%
4.1%
1.2%
0.6%
2.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
41.1%
30.3%
15.9%
42.6%
21.2%
15.1%
27.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
35.9%
12.1%
18.2%
25.6%
-12.1%
-9.1%
-6.1%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
Net-Above %
46.2%
48.4%
20.5%
25.6%
30.3%
9.0%
21.2%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
71.8%
69.7%
72.7%
70.2%
57.6%
60.6%
69.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
VMW Partners, Increasing Adoption of Mgmt
Offerings, % Saying Yes

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April 2014
S e p t e mb e r 4 , 2 0 1 3
VMware Partners Optimistic about the Software Defined Data Center
PRICE: US$84.63
TARGET: US$87.00
22.5x 2014E EPS of $3.85
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY13E EPS US$3.41
FY14E EPS US$3.85
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
Last week we spoke with 10 VMW partners at VMware's VMworld user conference
and produced three key takeaways: 1) while the software defined data center "doesn't
work now" and it will take time to generate traction, VMW's core NSX (software
defined networking) and vSAN (software defined storage) products are described as
"very strong" and "disruptive;" 2) VMware View traction has started "exploding,"
now reaching 3.5 to 4 million seats, as the user experience has largely closed the gap
versus Citrix; and 3) VMW's Hybrid Cloud service is viewed as a defensive move
against Amazon and OpenStack. Net/Net, the tone from VMware partners seems more
constructive long-term and we are raising our price target from $84 to $87 to reflect this.
Notable Commentary:
"This is the hardest act for VMware. In hindsight, server virtualization was easy.
VMware is no longer selling point products. It's selling a philosophy, and that's hard
to do."
"In the data center today, clients want to decrease the provisioning time and at the
same time reduce IT cost. NSX (Software defined networking) would allow clients to
make network connections programmatically."
"The high penetration that VMware has achieved until now is absolutely key to the
SDDC strategy. They have their foot in at a lot of places and that will help them to
start the conversations to broaden the platform."
"vSAN (Software defined storage) and NSX provide virtualization in the orchestration
layer. It will allow to create a coherent orchestration layer across the various vendors
in the network topology."
"VMware NSX is a very strong product. Way ahead of its competitors."

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 7.9x
1,191.5A 1,243.1A 1,293.9 1,493.1 5,221.6 7.0x
1,366.9 1,424.4 1,482.4 1,706.5 5,980.2 6.1x
0.66 0.68 0.70 0.81 2.85 29.7x
0.74A 0.79A 0.83 1.01 3.41 24.8x
0.95 0.89 0.91 1.11 3.85 22.0x

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April 2014
S e p t e mb e r 4 , 2 0 1 3
"This is the hardest act for VMware. In hindsight, server virtualization was easy. VMware
is no longer selling point products. It's selling a philosophy, and that's hard to do."
"The conversations with end users are going to be difficult and sales reps and resellers would
need to be trained to make end-users realize the need for the Software Defined Data Center
(SDDC). People don't want to change things which are not broken. So, it [VMW] would
require a skillset to convince people as to why they need NSX (software defined networking
based on the acquisition of Nicira) or vSAN (VMW's solution for software defined storage
including the acquisition of Virsto)."
"SDDC makes a lot of sense and is the only direction VMware could have gone. However, it
could be a little ahead of its time. For example, not many clients view network provisioning
as a bottleneck, although that most certainly will be at one point in time. So, the trick is
how VMware or resellers would make the end users see the need for the SDDC concept."
"In the data center today, clients want to decrease the provisioning time and at the same time
reduce IT cost. NSX would allow clients to make network connections programmatically.
Historically, all the physical ports were not connected and data centers would have network
guys who would need to connect it physically or write machine code to make the connection.
Now, all ports are physically connected to everything but still you need network guys to
switch on/off the ports. NSX will further reduce network staff by giving the ability to spin
up virtual connections in real time. So, it's mainly a staff cost reduction. You would still
need the cables and the hardware switches etc."
"Will give VMware a couple of years to evaluate the traction of SDDC. VMware is hoping
it sees the same traction in NSX as it did with ESX. "
"Resellers make 1% or less on margin by selling vSphere. Resellers try to make up for
that by selling hardware and services that attach with VMware. VMware no longer talks
about these attach rates. Thinks that resellers are hoping to see higher attach rates with the
SDDC concept, and hence are excited. It will all depend on consistent and well thought-
out messaging. "
"VMware understands that the right messaging is important to sell the philosophy. They
realize that they would need to invest in their channel to get this thing rolling. "
"The high penetration that VMware has achieved until now is absolutely key to the SDDC
strategy. They have their foot in at a lot of places, and that will help them to start the
conversations to broaden the platform. "
"The Horizon suite (End User Computing) was also ahead of its time. It took some time
to gain momentum and it actually declined before it started exploding, especially when the
enterprises started thinking about the proliferation of devices and the Bring-Your-Own-
Device trend."
Industry Contact 2
"Software Defined Data Center (SDDC) doesn't work now. VMwares different acquisitions
dont mesh together now. But they will. Give it two years. "
"VMware NSX is a very strong product. Way ahead of its competitors. It's a big threat for
Cisco. "
"vSAN and NSX provide virtualization in the orchestration layer. It will allow customers to
create a coherent orchestration layer across the various vendors in the network topology."
Industry Contact 3
The contact doesn't think networking hardware will be commoditized by NSX. Instead
there is a chance for the hardware vendors to innovate.
Gives the example of Google Maps - It gives the route from point A to point B but to get
information about which route is crowded etc., one would need to have sensors on the road.
Similarly, the network vendors can innovate to provide more information to the NSX layer
for it to optimize the network orchestration more intelligently.
Industry Contact 4
"The concept of SDDC is nothing new."

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April 2014
S e p t e mb e r 4 , 2 0 1 3
NSX is more of virtualization of the orchestration layer than anything. Don't know if NSX
will be a threat to incumbent vendors like Cisco."
Industry Contact 5
"vSAN is truly disruptive to the hardware storage vendors."
"It will give 70% of the enterprises a much cheaper way to handle storage and will
commoditize the storage hardware layer, including incumbent vendors like EMC."
"EMC validated the threat from software defined storage by buying ScaleIO, which is the
software layer and does something similar to vSAN."
Industry Contact 6
"vSAN is VMW's own flavor of virtual storage that should integrate much better in their
environment and fall under the VMW tool management umbrella."
Industry Contact 7
"VMware has sold between 3.5 and 4m seats of View [VMware's solution for desktop and
application virtualization]. "
Seeing a "good uptick" in View.

Industry Contact 8
"The prior complaint about View was that the user experience was of a much lower quality
than Citrix, but VMware has largely closed that gap."
Industry Contact 9
"vCHS (VMware Hybrid Cloud Service) is VMware's move against OpenStack and Amazon
AWS."
Industry Contact 10
"We're all still very early in virtualization, given workload growth and number of public
sector entities still running in non-virtualized environments."
Price Target Change Raising price target to $87 (was $83) = 22.5x (was 21.5x) 2014E EPS of $3.85. Higher
multiple reflects higher peer group multiple.

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April 2014
J u l y 2 2 , 2 0 1 3
33 VMW Resellers 0.6% Above Plan
PRICE: US$70.63
TARGET: US$83.00
22x 2014E EPS of $3.76
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$83.00
FY13E EPS US$3.35
FY14E EPS US$3.76
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
deteriorated y/y across all five metrics we track, suggesting a slightly less-robust Q2
environment. Specifically, resellers finished 0.6% above plan for Q2, down from 1.2%
above plan in Q1 and well below the 3.1% outperformance in Q2:12. Additionally,
52% of resellers believe the recent ORCL/MSFT Hyper-V agreement will adversely
impact VMW in the future. In aggregate the survey results suggest that the combination
of incremental vSphere saturation and increasing competitive threats along with
softer enterprise spending trends, especially in APAC, are gradually creating top line
deceleration. That said, VMW shares have been shellacked, expectations are low, and
near-term results could be driven more heavily by the favorable ELA renewal cycle via
direct sales rather than the reseller channel. The stock could see a short term relief rally
if VMW meets its Q2 numbers. Neutral, $83 PT.
Partners 0.6% Above Plan in Q2, Marking a Downtick. The 33 partners we surveyed
finished 0.6% above their internal plan for Q2, showing a very minor decline from
+1.2% in Q1, and significant downtick from the +3.1% outperformance in Q2:12.
We note that 30% of partners saw a "better" pace of business while 15% saw a "worse"
pace of business in Q2, compared to 33% and 12%, respectively, in Q1 - suggesting
a slightly slower Q2 environment. VMware will be reporting Q2 against a backdrop
of numerous shortfalls for on-premise Enterprise technology vendors, and may not
be immune from the global macroeconomic dynamics causing these results; however,
even despite the softness evident in our reseller survey, we believe expectations are
likely sufficiently low for VMW's Q2.
Server Virtualization Activity Deteriorates, Expectations for Management Offerings

Adoption Improve. Of the VMware resellers we surveyed, 24% saw a "faster" pace of
activity for customers virtualizing servers, compared to 36% last quarter, while 15%
saw a "slower" pace of virtualization compared to 6% last quarter. This results in
a "net-faster" pace of customer virtualization of 9%, down from 30% last quarter.
Resellers seeing increasing adoption of VMW's management offerings ticked up
slightly with 61% of resellers seeing an increase in adoption and 39% not seeing
increased adoption, compared to 58% and 42% last quarter, respectively. This results
in a "net-yes" score for increasing adoption of management offerings of 21% in Q2
versus 15% in Q1. Finally, the percentage of respondents expecting VMW license
bookings above expectations fell to 3% in Q2 from 9% last quarter, the lowest level
since we began our survey.
***Please see page three for detailed charts and graphs***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 6.6x
1,191.5A 1,236.4 1,293.9 1,493.1 5,214.8 5.9x
1,366.9 1,416.7 1,482.4 1,706.5 5,972.5 5.1x
0.66 0.68 0.70 0.81 2.85 24.8x
0.74A 0.79 0.82 1.00 3.35 21.1x
0.93 0.87 0.88 1.08 3.76 18.8x

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April 2014
J u l y 2 2 , 2 0 1 3
Implications of Microsoft-Oracle
Partnership
Recently Oracle and Microsoft announced a series of partnerships, including the ability to
run Java, the Oracle Database and Oracle WebLogic Server, on Microsoft Windows Server
Hyper-V, and receive full support from Oracle. We discussed this announcement with VMW's
resellers and found that 52% think that this partnership will negatively impact VMware in the
next 12 months, while 33% think the partnership will have no negative impact on VMware.
We didn't expect this many VMW partners would think the announcement would have an
impact. The following charts and tables summarize the results.

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April 2014
J ul y 22, 2013

Exhibit 1
CURRENT AND HISTORICAL SURVEY RESULTS

Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13
Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q1:13 Q2:13
# of Respondents: 39 39 33 44 47 33 33
%of Plan: 4.0% 5.1% 3.1% 1.7% 4.1% 1.2% 0.6%
Faster 46.2% 54.5% 27.3% 27.7% 36.4% 24.2%
Same 53.8% 39.4% 65.9% 70.2% 57.6% 60.6%
Slower 0.0% 6.1% 6.8% 2.1% 6.1% 15.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 99.9% 100.0%
Net-Faster % 46.2% 48.4% 20.5% 25.6% 30.3% 9.0%
Better Pace of Biz 46.2% 42.4% 25.0% 51.1% 33.3% 30.3%
Same 48.7% 45.5% 65.9% 40.4% 54.5% 54.5%
Worse Pace of Biz 5.1% 12.1% 9.1% 8.5% 12.1% 15.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 99.9% 100.0%
Net-Better % 41.1% 30.3% 15.9% 42.6% 21.2% 15.1%
Above Expectations 41.0% 24.2% 25.0% 27.7% 9.1% 3.0%
Inline 53.9% 63.7% 68.2% 70.2% 69.7% 84.8%
Below Expectations 5.1% 12.1% 6.8% 2.1% 21.2% 12.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 99.9%
Net-Above % 35.9% 12.1% 18.2% 25.6% -12.1% -9.1%
Yes 71.8% 69.7% 72.7% 70.2% 57.6% 60.6%
No 28.2% 30.3% 27.3% 29.8% 42.4% 39.4%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Yes % 43.6% 39.4% 45.4% 40.4% 15.2% 21.2%
4.0%
5.1%
3.1%
1.7%
4.1%
1.2%
0.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
41.1%
30.3%
15.9%
42.6%
21.2%
15.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
35.9%
12.1%
18.2%
25.6%
-12.1%
-9.1%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
VMW Partners, VMW Bookings
Expectation, Net-Above %
46.2%
48.4%
20.5%
25.6%
30.3%
9.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
71.8%
69.7%
72.7%
70.2%
57.6%
60.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
VMW Partners, Increasing Adoption of
Mgmt Offerings, % Saying Yes

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April 2014
J ul y 22, 2013

Exhibit 2
RECENTLY ORACLE AND MICROSOFT ANNOUNCED A SERIES OF PARTNERSHIPS, INCLUDING THE ABILITY TO
RUN JAVA, THE ORACLE DATABASE AND ORACLE WEBLOGIC SERVER, ON MICROSOFT WINDOWS SERVER
HYPER-V, AND RECEIVE FULL SUPPORT FROM ORACLE. IN YOUR OPINION, WILL THIS PARTNERSHIP BETWEEN
ORACLE AND MICROSOFT NEGATIVELY IMPACT VMWARE IN THE NEXT 12 MONTHS?

6%
9%
33%
52%
0% 10% 20% 30% 40% 50% 60%
Dont know
Maybe
No
Yes

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April 2014
J ul y 22, 2013

Exhibit 3
Yes, this partnership between Oracle and Microsoft negatively impacts VMware in the next 12 months
Yes. It increases a competitive alternative to VMware and both Microsoft and Oracle have large installed bases of customers.
VMware is a superior solution/offering than MSFT/Oracle, but nonetheless, the competition will increase.
Yes
Yes - there is significant pressure from Hyper-V with customers on ELA's with Microsoft. Whilst we are not seeing massive swings or
take up of Hyper-V yet. Every blocker that is removed has potential of impacting VMware's ability to protect the install base.
Yes - we have had many customers ask for oracle and have always stayed away because of licensing and support.
Yes
Yes considering Oracle's dominance in the enterprise DB market.
Yes - significant medium and long term risk. VMware you need to get same with Oracle.
Yes, Oracle's lack of outright support for VMware has caused issues in the past.
Yes by making it easier to deploy on Hyper-V.
Yes. VMware needs to get the same figured out ASAP. If VMware had this, there would be no competition.
Yes
Yes. We do have several clients running Oracle databases looking to virtualize in the next 12 months. This partnership offers an
appealing virtualization option besides our standard VMware offering.
Yes but not much
Yes I believe this will hurt VMware because it shows that Hyper-V is continuing to gain traction and has the ability to support more
applications. Most of our clients don't use Oracle so it shouldn't affect our virtualization business but it shows that Hyper-V is a
suitable platform in many environments.
Yes. With increasing pressure on delivery with fewer resources this will appeal to organisations under stress.
Yes, if nothing else, it can delay decisions in process.
Yes, Microsoft is gaining momentum even though their software ecosystem is not yet as rich as that of VMware

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April 2014
J ul y 22, 2013

Exhibit 4
No, this partnership between Oracle and Microsoft doesnt negatively impact VMware in the next 12 months
No, not for our business. We have very little demand for Oracle.
No, my customer base has discounted Oracle as a reliable vendor. They'll use Java as a platform to run their platform, but they don't
think of Oracle as the organization behind it.
No, Oracle and MS may get into an old fashioned blaming argument if these technologies cause customer support or productivity
issues, as I have observed in the past.
No, not yet. It does however help validate Hyper-V for customers, which could have an impact down the road.
No, I think that Oracle admitting that their software will run on a virtualized platform is an endorsement of all hyper-visor platforms.
Their partnership with Microsoft is just marketing.
No. Hyper-V still got to develop a lot to become an enterprise virtualization solution. Most enterprises still see Hyper-V as another
OS platform rather than virtualization. After all, most customer dont want to run Oracle databases on Windows Server (so this
applies to VMware as well). Overall this should not cause big impact to VMware.
No - do not have enough customers using Oracle to measure this.
Not a major deterring factor. There are equally enough documentation and support from Channel Partners of Oracle successfully
running on a VMware environment.
No - Oracle has burned bridges
No
No, I don't see this as an affecting issue with our clients anyway.
Exhibit 5
Maybe / Dont know Responses
There is a possibility that Hyper-V based workloads will become more dominant.
Potentially in the near future but in the long run I don't think it will have a major effect
It's possible, but that only provides a portion of the overall puzzle. One of our customers who leverages us for disaster recovery is
deploying 7 Oracle modules made a decision to move from a custom private cloud (that they built and are very happy with) to an
integrated VCE Vblock solution. When I asked why a savvy IT team would do this, the Director said that support for Oracle was a
nightmare and that he had to license every blade for VMware, MS, RHEL, and Oracle, which was already costly, but maintaining
support was very difficult and VCE guaranteed it for the next 5yrs. This seems to support your argument, however, when I asked if
they would ever consider MS for the hypervisor and answer was simple, VMware works and we have standardized on it due to the
mission critical nature of our business. To this I asked what about public cloud for non-mission critical workloads, dev, test, qa, etc.
He said MS gives them Azure credits and they barely use them. At some point Hyper-V will be 'good enough', especially considering
the costs, but we just aren't seeing mid market companies adopt it. It will be interesting to see how this develops but still finds it
hard to rationalize currently.
Unsure
I cannot state an opinion about this.

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April 2014
J u l y 2 3 , 2 0 1 3
Deep Dive Partner Interviews Suggest Business On Track, Good ELA Activity
PRICE: US$69.90
TARGET: US$83.00
22x 2014E EPS of $3.76
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$83.00
FY13E EPS US$3.35
FY14E EPS US$3.76
Yield 0.00%
Fiscal Year End Dec
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
We conducted thorough interviews with four key contacts in the VMware ecosystem to
capture a detailed picture of current company dynamics. Whereas our reseller survey
suggested a muted tone of business, our deeper discussions with larger-scale resellers
were more positive than we expected in 4 key areas: 1) business generally tracked to plan
in Q2, with some sizable resellers growing comfortably in double-digits YTD; 2) positive
commentary regarding funnels for 2H; 3) surprising suggestions of relative health in
Europe's three largest economies; and 4) a good pace of ELA conversations. While the
overhang of several headwinds remains (looming threat of Microsoft encroachment,
unclear traction for non-vShpere products, no tangible Nicira products to sell today), the
tone from key resellers is more constructive relative to very depressed investor sentiment,
and we think VMW shares could stage a relief rally on in-line results. Neutral, $83 PT.
Notable Quotes:
(+) After coming off a decent quarter, I feel pretty good going into the second half...
(+) VMware is winning more and more deals in desktop virtualization...
(+) One reseller mentions that he feels positive going into Q3: the pipeline is there.
Seeing a lot of business conversations around Enterprise License Agreements (ELA),

especially with respect to consolidation of licenses
(=) I still see growth for VMware but I think its really slowing down.
(=) Nicira Another cool story, but not a lot of information, nothing that we can
sell today.
(-) Microsoft is trying to win the bigger customers where they can realize a reference
story and they are stepping in quite heavily.
(-) Year-to-date, its been a real struggle trying to sell the newest suite of products,
referring to vCenter operations management. they [VMware] should be fearful of
Microsoft because we are getting a lot more inquiries about doing pilots and POCs
(proofs of concept) on Microsoft Hyper-V and Systems Center. So thats the dark
cloud on the horizon for them.
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 6.6x
1,191.5A 1,236.4 1,293.9 1,493.1 5,214.8 5.8x
1,366.9 1,416.7 1,482.4 1,706.5 5,972.5 5.1x
0.66 0.68 0.70 0.81 2.85 24.5x
0.74A 0.79 0.82 1.00 3.35 20.9x
0.93 0.87 0.88 1.08 3.76 18.6x

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April 2014
J u l y 2 3 , 2 0 1 3
Mentions that he had a slightly weaker Q1 than expected but Q2 was quite successful
for us. Mentioned that his VMware practice was able to beat the expected y/y growth rates
in Q2 set internally as well as the growth expectations set in agreements with VMware. Was
able to generate mid-teens y/y growth in the 1H: 2013 as compared to 1H: 2012
New [license] business is quite stable and so is the renewals business.
Mentions that he is seeing increased competition on the renewals side from Microsoft.
Microsoft is trying to win the bigger customers where they can realize a reference story
and they are stepping in quite heavily. Mentions that he was surprised to see that Microsoft
knows exactly when the contract expires and they are stepping in 60 days in advance.
They [Microsoft] are focusing really on the price at the moment and they are pumping
resources, at least into the bigger customers. They want to have the lighthouse projects
at the moment. Mentions that overwhelmingly, a majority of customers are sticking with
VMware although there are some incidents where customers implement Microsoft for some
less critical workloads. The only negative impact is that the conversations are lengthening
the renewals cycle for VMware.
Mentions that for the new license part of the business during Q2, the bulk of business
continued to be vSphere. Adds that he was slightly disappointed by the level of business
around the management tools but we did much better in the end-user computing space.
Mentions that the Horizon Suite was quite interesting for his customers.
Mentions that he was surprised to see many Citrix customers approach his firm for an
assessment of VMwares desktop virtualization products. Thinks this trend is increasing
more and more. Mentions that from a new business perspective, VMware is winning
more and more deals in desktop virtualization and adds that VMware solutions are more
rewarding for partners like him in terms of margin. Mentions that his company is increasing
the number of VMware resources in this space.
Based on his conversations with a few sales reps [in the server virtualization ecosystem],
thinks that they are doing quite well and they are achieving their quota. Refers to a few
instances where a few Account Managers [in the server virtualization ecosystem] told him
that OK, if the deals are not coming yet then, no problem. Thats the very first time I
am hearing that from some account managers [in the server virtualization ecosystem]. So,
overall he thinks that sales reps are doing quite OK.
Also refers to some local VMware customer events across Europe that VMware organizes
periodically focused on the Software Defined Data Center and End User Computing.
Normally they are struggling a lot, through the countries, to fill that event. This time they
didnt have any problem. Mentions that most of the places they are fully sold out. Mentions
that VMware is attributing the success of the events to the interesting end-user computing
product set.
Mentions that Europe overall is healthy, especially Germany, UK, France and Netherlands.
However, the southern European countries are still performing at a lower level than
expected.
From the point of view of the pipeline, in terms of the new as well as up sell opportunities
identified so far, its quite stable.
Hasnt heard anything about Nicira.

Industry Contact 2
Overall VMware performance is on track according to our plan year to date
No particular product jumping out in terms of demand and is standard business as usual.
Seeing a lot of business conversations around Enterprise License Agreements (ELA),

especially with respect to consolidation of licenses. This is the largest ELA quarter for us
and signed handful of 7-figure ELAs in the quarter. Mentions that most of these ELAs were
around vCloud Suite. Thats more of a licensing play than a new product or innovation play
for VMware. Mentions that when customers consolidate the various licenses for VMware
products into one ELA / vCloud Suite license, they get more economies of scale and more

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buying power against VMware, which results in larger discounts. In this quarter thats
where we saw a lot of our business come from.
The expectations that vCenter Operations Manager or the management tools are leading
the charge for them, we are not seeing that from our perspective today. Mentions that its
the same with end user computing and his business declined in that space.
Hasnt seen much traction around Microsoft competitively.
Based on his conversations with sales reps [in the server virtualization ecosystem], mentions
that US reps are feeling pretty good, while the Canadian business is struggling a little
bit.
Mentions that he feels positive going into Q3: the pipeline is there. After coming off
a decent quarter, I feel pretty good going into the second half, but adds that it could be a
function of his VMware business which is typically weighted more toward the 2H.
Mentions that he is seeing a little bit of change in terms of how VMware is attacking
the mid-market or SMB space and the way VMware is setting up its sales organization. For
example, having this rep cover 30 accountsor this territory, they are kind of doing like a
hand-offOnce the deal gets to a certain size it gets handed off to another person[and
so on]. Mentions that he is struggling with that kind of a structure in terms of developing
relationships in the field. Mentions that customers also find it difficult to deal with different
people and it slows down the sales process. Saw the change take effect predominantly in
the last quarter.
Seeing still very strong demand for VMware products. I still see growth for VMware but
I think its really slowing down.
However, she is seeing a few existing VMware clients increasingly looking at Microsoft.
Thinks that the increasing perception among clients is that Microsoft is kind of catching up
here in terms of functionality and it is less costly. I think originally they would have kind
of leaned toward VMware, but I think this time they are looking really hard at Microsoft.
Has heard customers say that VMware is priced too high, they are little too arrogant and
we really want to see what Hyper-V can bring [to the table].
Thinks that the success in the adoption of Microsoft as compared to VMware also depends
on what customers are taking advantage of. If they [customers] are going into production,
and they are using Ops Manager and some of the other features that VMware has built in,
then no, Hyper-V is not going to be able to meet those needs. But if they are in production
and they are not using some of the additional capabilities then perhapsit [moving to
Hyper-V] is a good way to do it.
Mentions that VMware is really pushing for no naked vSphere and bundling vSphere with
management tools. They are trying to sell up the stack a bit.
Mentions that from a Q2 perspective, her VMware practice is a little ahead of plan. Based
on the sales funnel that she is seeing, she feels good about the 2H.
Seeing a lot more interest around the End-user computing products.
I am not sure they [VMware] have done as much as they could to really educate customers
around the value of some of the additional things they offer in their stack. I think people
are still kind of grabbing onto vCenter and vSphere.
Agrees that management tools are not picking up traction. Mentions that traditionally
VMware went to market with the management tools through the hardware vendors, like
HP and IBM, who would in turn give a lot of discounts to customers around those tools.
Hence, a lot of VMware clients already have some kind of management tools, which comes
with the physical servers. Mentions that some of the management tools from HP could even
manage a hybrid virtualization environment.
Thinks that sales reps [in the server virtualization ecosystem] are generally upbeat but
doesnt know if that could be extrapolated to understand the performance in the quarter.
Refers to a couple of pretty large [7-figure] public sector deals which might or might not
have closed in Q2.
Thinks that VMware is becoming difficult to work with for various reasons. Highlights
one instance relating to the change in process to get a Not For Resale (NFR) licenses [used
by channel partners in test environments, for staging proofs of concept, etc. but not for

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anything that directly produces revenue]. Mentions that VMware stopped issuing an invoice
for these and instead changed the fulfillment system to accept a credit card or PayPal or wire
transfer. None of these ways are really great ways for a global publicly traded company.
Traditionally, the partners could print it off the website and VMware would send an invoice
later. Mentions that thousands of these licenses are used in labs globally and each costs
$5-8K. Also, after putting the order in, they were not given the license until the end of
the quarter. Also, thinks that VMware is off- shoring many of the processes to offshore
locations, making it harder to deal with.
Mentions that his VMware practice has been flat y/y, with a majority of the revenue coming
from renewals. Mentions that he was below his plan for Q2. Adds that there are a lot
of dark clouds on the horizon for VMware. He is finding it difficult to sell additional
products into the existing clientele. Also mentions that this quarter didnt have any big
renewals, but a bunch of low run-rate renewals.
Mentions that vSphere renewal is where we expected it [to be], is still fairly strong and
clients are not giving too much of a second thought on renewing. But adds that they
[VMware] should be fearful of Microsoft because we are getting a lot more inquiries about
doing Pilots and POCs (proofs of concept) on Microsoft Hyper-V and Systems Center. So
thats the dark cloud on the horizon for them. He has also not seen any net new licenses
as well.
For his clients doing POCs for Microsofts virtualization technology, thinks that it will
be a slow migration off of VMware. You will see those being deployed at R&D
departments for Test/Dev and /or branch operations and then will slowly eat into the core.
Mentions that he has seen VMware clients deploying Microsoft technologies in branches
or subsidiaries and peripheral services but hasnt seen any complete rip and replacement
of VMware. He doesnt think Microsoft will eat into the VMware core deployments any
time soon mainly for two reasons: 1) Lack of proven use cases running Microsoft for critical
workloads and hence potential difficulty in troubleshooting any issues that may arise, unlike
VMware which has a ton of resources online, and 2) Liquidating well-trained VMware
professionals within corporate IT who have been trained over many years to effectively
service a VMware environment. For instance, you might be very comfortable today in your
IT department with vMotion because you have been doing it for many years. But Microsoft
you might not [have]. What if some tricky instance comes up where really you cant even
Google it because no one has even experienced it. Thats really the fear. Its [Microsoft]
somewhat unproven.
Year-to-date, its been a real struggle trying to sell the newest suite of products, referring to
vCenter Operations Management. Mentions that with respect to management tools, clients
seem to be hesitant to spend and are more in a show me mode. Typically clients already
own some kind of management tools that could handle some of the VM management use-
cases. Also, thinks that clients find it easier to acquire Microsoft System Center as the
management tool, since most of the enterprises have Microsoft Enterprise Agreements in
place. Mentions that he had some early successes in previous quarters in selling management
tools into some early adopters of technology, but now its getting tougher.
Referring to the End-User Computing [EUC], They are in a tough battle with Citrix
right now.We are seeing more and more [demand] for Citrix than for VMware. Thinks
Citrix has done a great job in marketing themselves in the EUC space and desktop
virtualization in general. Mentions that Citrix has been successful in using their strength
in XenApp to make clients upgrade to XenDesktop. They have migrated a bunch of their
customers to XenDesktop and in the process have generated enough wave in the market for
XenDesktop.We are finding a lot more work for XenDesktop than for View or Horizon
(VMware). Adds that VMware is strong in certain verticals in EUC such as Education,
healthcare and government. But a majority of our corporate plays of late have been around
Citrix.
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Dynamic Ops That might be ahead of its time. There have been some
conversations [with clients about it] but nothing concrete. It is a cool technology.
Nicira Another cool story, but not a lot of information, nothing that we can sell
today.

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Deep-Dive Partner Interviews Highlight Challenges, Silver Linings for VMW
PRICE: US$72.46
TARGET: US$90.00
14x EV/2013E OCF of $5.77/sh + Net cash
of $9.65/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$90.00
FY13E EPS US$3.22
FY14E EPS US$3.63
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
We conducted detailed interviews with five key contacts in the VMware ecosystem,
and they highlighted several challenges and some silver linings for VMware. Our
main takeaways are 1) market saturation of vShpere still remains VMware's primary
headwind; 2) we picked up indications that virtual desktop is seeing more traction,
including a $4M win in Europe; 3) VMware's management tools have seen some success,
but can face uphill battles as these products often compete with VMware's ecosystem;
and 4) Microsoft is gaining traction in cost-concious environments, but the largest
VMware competitor remains Cloud applications. Overall, we think VMW's surprisingly
cautious Q1 guidance probably embedded an appropriate level of conservatism to
account for the weak string of on-premise software results in recent weeks, and that
guidance won't change materially. Neutral, $90 PT.
Notable feedback
(+) Multiple partners noted sizable wins for VMware View (desktop virtualization)
including a $4M win in Europe, as VMW ups the ante versus Citrix.
(+) We do still see a very strong VMware market. I would say of all virtualization
initiatives, from desktop initiatives, to server consolidation to management to cloud,
I would say the majority are still VMware.
(=) Regarding Nicira, partners indicate that VMware has not really finished
incorporating the technology into its stack and that it will probably be available for
go-to market in the second half of 2014.
(=) VMware is choosing to compete directly with its ecosystem [in Management
offerings], which is not usually a good idea, but it may be necessary in order to grow
their business.
(-) We are finding conversations along the lines of Cloud why would I even bother
to virtualize my infrastructure when I am thinking of moving my infrastructure to the
cloud?
(-) Theyre [VMware] not gaining market share through the hypervisor; theres quite
a bit of saturation.
(-) We are seeing a retraction of demand.

YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 6.8x
1,186.1 1,279.5 1,324.5 1,526.9 5,317.1 5.9x
1,360.7 1,465.1 1,518.2 1,745.9 6,089.9 5.2x
0.66 0.68 0.70 0.81 2.85 25.4x
0.69 0.76 0.80 0.97 3.22 22.5x
0.85 0.87 0.85 1.05 3.63 20.0x

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Positive feedback (2) Industry contact 1
Mentions that he had a nice finish to the fiscal year (calendar Q1 is the last quarter for his
firm) and was even slightly beyond our expectations. Adds that for the whole fiscal year,
however, he was slightly behind our expectations. But if you just focus on Q1 [calendar]
a really good one and stronger than calendar Q1 of 2012.
Product momentum
Mentions that vSphere continues to be the cash cow and the management tools have
been growing a lot as well. Majority of the revenue is coming from vSphere plus
management. On the other hand we also closed some nice deals.
Refers to the biggest VMware desktop deal closed in Q1 in EMEA worth over
$4M. Thinks that VMware is starting to eat into Citrixs market share, mainly in
Central Europe. Adds that a lot of organizations are starting to talk about VMware
and VMware is more active as compared to Citrix. Overall, the VMware story
is quite good. Adds that VMware has had quite a few new people come in and
most of them are from Citrix, I have to admit. They are targeting the market,
starting from the SMB, corporate space and up to the major accounts. Thinks that
VMware will have maximum success in the SMB space or the upper SMB space up
to 1,000-2,000 seats among corporations or from the public sector.
Even the Horizon story is quite compelling and we had lot of good conversations.
Not really seeing much traction in the vCloud Suite. There are some POCs that
are going on.
Thinks the pipeline going forward is looking good especially in the end user computing
space.
Based on his conversations with sales representatives [in the server virtualization
ecosystem], thinks that Q1 wasbetter than expected and its really, really going well
for VMware overall.
Thinks that the pain points are around the transactional business that goes up to $50K.
But in general it seems to be that it was a really good Q1 for VMware. Transactional
volume mainly refers to the non-ELA business of VMware thats not coming from the named
accounts of VMware but from the so-called general business. It is the business realized
through the Advantage Plus module of VMware through normal deal registration and could
be a bundle of View or could be some vSphere. Mentions that the Essentials bundle is
going quite well for the smaller customers because its a good value but its just an entry
point. The larger portion of the transactional revenue comes from the SMB segment where
customers are price sensitive. Mentions that Citrix is there in the market which seems to
be retreating a bit, but there is also Microsoft and Microsoft is targeting the SMB market
quite heavily. Mentions that Microsoft is targeting customers exactly on the date when
VMware renewal is due. Thinks that a majority of customers still stick to VMware during
renewals.
Mentions that the general movement from VMware from vCenter Ops [management] is
not as easy as VMware had expected and hence is taking longer.
Looking at the lower tiered applications, an overwhelming majority of, at least what I see,
90% plus, are still going with VMware as the hypervisor provider.
Industry contact 2
Thinks that the three main focus areas for VMware in 2013 are:
End-User Computing: Highly focused around the Horizon solution suite
Hybrid Cloud
Software Defined Data Center: Software defined data center is the path that will
lead to the other two.
Once the clients, sort of, made the migration to virtualize their servers, then it's about
expanding that concept into storage and other components that can be virtualized through
that path, which will eventually lead them to kind of a hybrid cloud approach and then once
the infrastructure pieces are in place, then that should expand the whole end user computing
component.

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Mentions that in general, the end user computing/desktop virtualization piece still takes
more of a complex sale, though longer lifecycle in terms of the opportunity as opposed to
selling server virtualization, which is more of a velocity play at this point in time.
From our vantage point, we are seeing an increase in [demand for] end-user computing but
for the most part, what I would say is that, kind of in line with the market, we are still seeing
a majority of business coming from their traditional infrastructure server virtualization
offering.
Seeing increase of awareness and increase of interest around the Horizon suite and the
data protection piece, but I wouldnt say anything, at this point, substantial. However,
thinks that these areas should see substantial growth in 2013.
Overall, kind of a general statement, VMware continues to grow in the market from my
point of view. I think there are still tremendous opportunities that we are seeing coming
through, even in their core offering and he remains optimistic for the rest of the year.
Neutral feedback (2) Industry contact 3
Q1
His contacts in the infrastructure ecosystem point to a mixed bag for Q1: its feast
or famine.
General demand
We do still see a very strong VMware market. I would say of all virtualization
initiatives, from desktop initiatives, to server consolidation to management to cloud,
I would say the majority are still VMware.
Typically operates in healthcare, utilities and government/education. Does work in
SMB, commercial and some enterprise. Sees less demand in education, but thats
only because education customers dont require a lot of the availability of the
hypervisor in a lot of situations that they see. Education customers tend to run
VMware in the data center, but at remote sites, where theres only one server and
not an expectation of high availability, so it might not make sense to use VMware.
Competition
In enterprise operations, Microsoft is at least two years behind the top functionality
of VMware Enterprise Plus.
But Microsoft isnt the biggest threat. The biggest competitor to VMware is Cloud.
This would be cloud applications, not IaaS (infrastructure as a service), which will
never be hosted by a client. I would deem that [cloud applications] as the number
one competitor to server-based computing and consolidation, whether it be on-
premise or off-premise/cloud. That is the number one competitor.
Doesnt see Hyper-V supplanting VMware, only digging away in cost-sensitive
environments. True cloud applications, like salesforce.com, that would be the real
competitor.
He believes that the cost of storage, and not just the capacity, but the performance of
storage, will factor in quite substantially. Not Hyper-V specifically, but the Windows
Server 2012 operating system offers competitive storage optimization, so that in
conjunction with offering Hyper-V for free will likely supplant more and more
VMware installations as its maturity increases.
When people say private cloud, its not a true private cloud. A cloud implies
elasticity where I can grow or shrink on demand, and a private cloud does not offer
the ability to shrink. The ability to simply leverage salesforce.com (for example)
as required is likely the biggest competitor to any hypervisor, which would include
VMware.
OpenStack
At a very high level, its a set of technologies, like VMware and Cisco, or FlexPod, or
Vblock, its a set of technologies that together work in a specified fashion supported
by the respective vendors. In this case OpenStack leverages open source technologies
as the glue securing these technologies together.

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OpenStack is not necessarily good or bad for VMware, although it does compete
directly with some of VMwares product stack, but its not a VMware replacement.
A high-level example would be that someone could use the Xen Hypervisor in their
OpenStack deployment, or the VMware hypervisor in their OpenStack deployment.
At the end of the day it really depends what type of features and functionality Im
looking at from the sum of all the different parts. So is it good or bad for VMware
would really depend not on the vertical leveraging it, but it would be often either the
service provider or if were dipping into big data, what type of business requirement
or application would the OpenStack cluster be applied to.
So a question for every business to ask is twofold: Is OpenStack with my third-
party service provider an advantage to me, or if this would be done in house to
solve a specific business problem, what business problem do I have and which set of
technologies would offer me either the best bang for the buck or what would offer
the best solution to that business problem?
Anything that would sell one of VMwares products would technically be good for
VMware, but something that competes with VMwares management stack would
be a bad thing.
Management tools
Today VMware is pushing their vCloud Director in order to gain market share.
Theyre [VMware] not gaining market share through the hypervisor; theres quite
a bit of saturation.
A while ago VMware was clubbing customers over the head in getting them to
purchase their Management tools. But VMware has taken a step back and evaluated
their situation, and he sees a much softer sell but VMware is largely hopeful about
the prospect. Hopeful isnt to say not confident, but its also not saying VMware is
confident with this approach.
VMwares stability in the hypervisor space will determine, especially among
enterprise clients, if their management stack continues to grow. Some of the pricing
is out of touch, especially when the management stack costs more than the sum of
all the individual infrastructure pieces together.
I think there will be some leveling [of prices] that will need to happen in order to
[drive] some more adoption [of the management tools.]
VMware is choosing to compete directly with its ecosystem, which is not usually a
good idea, but it may be necessary in order to grow their business. Refers to backup
management, dashboards with analytics offerings, etc.
Industry contact 4
We are seeing a retraction of demand.
However, thinks that VMware is in a state of flux. Thinks that VMware is no longer the
game in play and is facing competition at all levels.
Based on his conversations with the mid-market sales team [in the server virtualization
ecosystem], at a very high level, they seem to be doing well, at least thats what they are
telling us. They are finding a lot of conversations, whether they are actually closing that
is different.
For large enterprises:
Thinks that VMware is facing a lot of competition from Microsoft. Thinks that clients are
increasingly including Microsoft during VMwares ELA renewal conversations, primarily
to get better pricing leverage. However, thinks that the win rates have not really wavered
and been pretty consistent for VMware. At the enterprise level, they just go through the
song and dancethats why we are not necessarily seeing a lot of Microsoft wins, but it
does drag out the sales cycles a little longer. You have a couple of extra conversations now.
Adds that a lot of the clients, at the end of the day, are very loyal to VMware.and are
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Also, mentions that VMware is focusing partners not to do a naked vSphere sale and are
asking partners to couple vSphere with Management tools. Its not an easy sell because
most enterprisesare fairly complex with their virtual environmentthey already have
something in place. So, you are looking to replace. Refers to already existing solutions like
that from Veeam for backup and recovery, etc. that VMware management tools are trying
to replace. Adds that VMware is in a way hurting some of their partners and are looking
to capture some of that share. In the past, they were happy to be just a sole virtualization
hypervisor company. Now they realize that the street is demanding them to grow and they
need to eat up and down the stack.
In the SMB area:

They have been chasing and going after SMB pretty hard. Thinks that SMB is
VMwares greenfield opportunity right now.
Mentions in the SMB space, based on his experience, infrastructure conversations
are not natural right now. We can get appointments for BYOD [bring your own
device] - no problem; we can get appointments to talk about cloud no problem;
but as soon as you talk about virtualization of infrastructure building out private
cloud/hybrid cloud - not getting a quick acceptance of the meeting request. Thinks
that it could be a geographical difference.
We are finding conversations along the lines of Cloud why would I even bother
to virtualize my infrastructure when I am thinking of moving my infrastructure to
the cloud? Mentions that such conversations are making it difficult to sell the
VMware story. Adds that VMwares stop-gap measure against such conversations
is the program that they announced with Rackspace recently where clients can buy
computing cycle credits through VMware, which is really powered by Rackspace
at the back end. That way, you can buy a cloud and deploy a cloud immediately,
meanwhile its guaranteed to work with VMware in the future, in case the clients
want to host it on premise later.
Mentions that VMware moved their former VP of sales to focus specifically on SMB
sometime last year.
Thinks VMware is playing catch-up to Citrix. Most opportunities we find today are
more interested in the Citrix story than the VMware story. Refers to one municipality in
his region, which deployed VMware desktop virtualization but has now come back and
looking at Citrix instead. Seeing some traction in education.
Regarding Nicira, based on his conversations with VMware, thinks that VMware has not
really finished incorporating the technology into its stack and that it will probably be
available for go-to market in the second half of 2014.
Was behind plan for Q1 and realistically, we will be very happy if we can repeat
2012. (They achieved around 28-30% y/y growth in 2012, that included one big ELA.)
Mentions that Microsoft has been aggressive in capitalizing on every single opportunity
they have. Mentions that Microsoft is moving beyond the Hyper-V message and are now
talking about System Center and how that stacks up against the vCenter Ops product suite.
From a VMware perspective, it is going to be a very interesting transitory year for this
year. At the SMB level, you are bowling out with AWS for that infrastructure dollar; at the
end user level, they are trying to catch up to Citrix for EUC [end user computing]; and on
the pure hypervisor level at the enterprise, you are fighting with proving every single day
why customers should continue to spend more money on VMware platform [rather] than
moving to Microsoft. Its a challenge right now to really position and sell VMware.
Negative feedback (1) Industry contact 5
Seeing growing interest in the Software Defined Data Center. More specifically, mentions
that the vCenter management suite has seen sales pick up".
Talking about softness in the vSphere license sales, this quarter they are not trending as
they did last quarter."
Mentions that his entire VMware practice is up about 10% from last year which is not
what we projected; so that is lower than what we would like to see as far as y/y trends."

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Regarding the vCloud Suite, mentions that he is seeing a lot of questions, not a lot of
salesa lot of inquiries.
VMware Viewthose are definitely up. Our VMware View licensing, certainly up quarter-
over-quarter. We are seeing an uptick pretty much all over fromBYOD, product lines pretty
much everything when it comes to desktopits picking uptrending up, absolutely.
Based on his conversations with sales reps [in the server virtualization ecosystem] typically
in the central U.S. region, I dont think they are meeting their projected numbers, especially
on the vCenter side.
Talking about interesting deals, he refers to a VMware desktop deal in an East Coast
hospital. They were looking at accelerating their desktop deployment. It was pretty large
somewhere around over 1,000 seats. Thinks that the full project had somewhere close
to 6,000 concurrent licenses for VMware View. Mentions that in total it was a $15M
opportunity, including hardware, servers, networking, etc. Thinks that about 2% of the deal
is a close estimate of VMwares share.
Pipeline is stronglots and lots of deals out there, just trying to get them to close is the
hardest part.
Mentions that a lot of opportunities in Q1 got pushed into Q2.
Majority of them are just uncertainty about the economy, around healthcare,
budgets, etc.
Thinks that another reason that people are not signing off on projects could be
to better understand how the new acquisitions VMware has done in the last 6
monthshow those are going to impact the concept and the idea behind Software
Defined Data Center. Thinks there is a general uncertainty around are they going
to have a completely new reference architecture things like that.
Mentions that he has seen a number of reps in the sales side as well as back office being
moved around as part of restructuring within VMware.
Price Target We will evaluate our price target after VMW reports its Q1 earnings on Tuesday afternoon.

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33 VMW Resellers 1.2% Above Plan: Overlaying a Downtick vs. Conservative Guide
PRICE: US$73.79
TARGET: US$90.00
of $9.65/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$90.00
FY13E EPS US$3.22
FY14E EPS US$3.63
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
60
USD
Source: Bloomberg
CONCLUSI ON
deteriorated mildly y/y across four of the five metrics we track, suggesting a slightly
less-robust Q1 environment. In aggregate the resellers finished 1.2% above plan for Q1,
down from 4.1% above plan in Q4 (as expected coming off the seasonally strong Q4) and
more on par with the 1.7% above plan result from Q3:12. In aggregate the survey results,
in combination with our qualitative checks published on Monday, suggest that the
combination of incremental vSphere saturation and softer Enterprise spending trends
are gradually creating top line deceleration. While our work doesn't suggest improving
fundamentals, we believe VMW set an unusually low bar when it issued cautious Q1
guidance, we sense low expectations and expect no material change to forecasts. Neutral,
$90 PT.
Partners 1.2% Above Plan in Q1, Marking a Downtick. The 33 partners we surveyed
finished 1.2% above their internal plan for Q1, showing a significant decline from Q4
of 4.1% (as expected), and more on par with the 1.7% above plan result from Q3:12.
We note that 33% of partners saw a "better" pace of business while 12% saw a "worse"
pace of business in Q1, compared to 51% and 9%, respectively, in Q4 - suggesting a
seasonally slower Q1 environment as expected. VMware will be reporting Q1 against
a backdrop of numerous shortfalls for on-premise Enterprise technology vendors, and
may not be immune from the macroeconomic dynamics causing these results; however,
we believe expectations are likely sufficiently low for VMW's Q1 based on uniquely
cautious guidance issued in January.
Server Virtualization Activity Improves for Second Consecutive Quarter, Expectations

for Management Offerings Adoption Deteriorate. Of the VMware resellers we
surveyed, 36% saw a "faster" pace of activity of customers virtualizing servers,
compared to 28% last quarter, while 6% saw a "slower" pace of virtualization
compared to 2% last quarter. This results in a "net-faster" pace of customer
virtualization of 30%, up from 26% last quarter, but running in a lower gear compared
to a year ago. We saw a large decline in resellers seeing increasing adoption of
management offerings, with 58% of resellers seeing an increase in adoption and 42%
not seeing increased adoption, compared to 70% and 30% last quarter, respectively.
This results in a "net-yes" score for increasing adoption of management offerings of
15% in Q1 versus 40% in Q4. Finally, the percentage of respondents expecting VMW
license bookings above expectations fell to 9% in Q1 from 28% last quarter, the lowest
level since we began our survey.
***Please see page two for detailed charts and graphs***
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
1,055.2 1,123.0 1,133.7 1,293.2 4,605.0 6.9x
1,186.1 1,279.5 1,324.5 1,526.9 5,317.1 6.0x
1,360.7 1,465.1 1,518.2 1,745.9 6,089.9 5.2x
0.66 0.68 0.70 0.81 2.85 25.9x
0.69 0.76 0.80 0.97 3.22 22.9x
0.85 0.87 0.85 1.05 3.63 20.3x

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Ap r i l 2 3 , 2 0 1 3
Current and Historical Survey Results
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q1:13
# of Respondents: 39 39 33 44 47 33
% of Plan: 4.0% 5.1% 3.1% 1.7% 4.1% 1.2%
Faster 46.2% 54.5% 27.3% 27.7% 36.4%
Same 53.8% 39.4% 65.9% 70.2% 57.6%
Slower 0.0% 6.1% 6.8% 2.1% 6.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Faster % 46.2% 48.4% 20.5% 25.6% 30.3%
Better Pace of Biz 46.2% 42.4% 25.0% 51.1% 33.3%
Same 48.7% 45.5% 65.9% 40.4% 54.6%
Worse Pace of Biz 5.1% 12.1% 9.1% 8.5% 12.1%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Better % 41.1% 30.3% 15.9% 42.6% 21.2%
Above Expectations 41.0% 24.2% 25.0% 27.7% 9.1%
Inline 53.9% 63.7% 68.2% 70.2% 69.7%
Below Expectations 5.1% 12.1% 6.8% 2.1% 21.2%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Above % 35.9% 12.1% 18.2% 25.6% -12.1%
Yes 71.8% 69.7% 72.7% 70.2% 57.6%
No 28.2% 30.3% 27.3% 29.8% 42.4%
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
Net-Yes % 43.6% 39.4% 45.4% 40.4% 15.2%
4.0%
5.1%
3.1%
1.7%
4.1%
1.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
41.1%
30.3%
15.9%
42.6%
21.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
35.9%
12.1%
18.2%
25.6%
-12.1%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
Net-Above %
46.2%
48.4%
20.5%
25.6%
30.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
71.8%
69.7%
72.7%
70.2%
57.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
VMW Partners, Increasing Adoption of
Mgmt Offerings, % Saying Yes
Sources for all charts and tables: Piper Jaffray research
Price Target We will evaluate our price target after VMW reports its Q1 earnings on Tuesday afternoon.

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April 2014
J a n u a r y 2 4 , 2 0 1 3
VMware, Inc. (VMW) Overweight
Deep-Dive Interviews Highlight Good Q4 Activity, Desktop Strength, Nicira Slow
PRICE: US$95.70
TARGET: US$105.00
17.5x EV/2013E OCF of $5.46/sh + Net
cash of $9.10/sh
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$105.00
FY12E EPS US$2.83
FY13E EPS US$3.07
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 7 key contacts in the VMware ecosystem and
compiled 4 pages of detailed proprietary feedback. Key takeaways: 1(+) demand seemed
to increase with better activity levels in the final weeks of December; 2(+) VDI and
mid-sized businesses were called out as areas of strength, while customers are beginning
to virtualize tier 1 applications; 3(+) ELA activity strengthened; 4(-) business came
from renewals and existing clients much more than new customers, a result of high
penetration; 5(-) partners don't see Nicira adoption, as network virtualization is stuck
at an evangelical phase and will take time. We foresee a good normal Q4 aided slightly
by the tailwind from the "ELA Echo-Boom" but don't expect electrifying guidance.
Maintain OW rating.
Noteworthy Feedback
(+) vSphere is still the cash cow. "[The engagement level in Q4] was much higher
than previous quarter. Definitely an uptick in activity and desire from clients.
(+) Virtual Desktop Infrastructure is going gangbusters. The average transactions

are increasing more than they ever diddefinitely saw an uptick in actual sales in the
last two quarters. Our Citrix specialists have been surprised by the maturity level
of VMware desktop products.
(+) The large ELA negotiations, all kind of came through to fruition in the last two
weeks of the quarter.
(+) What we are seeing is that the migration from VMware to System Center
[Microsoft] is not as pronounced as some of the pundits had expectedthere is a fair
amount of loyalty [among VMware clients].
(-) Within our customer base, we didnt get any traction [around Nicira].
(-) Uptake in [his region] for vCloud [Suite] has not been as fast as we would like.
Certainly we have had conversations but real selling of vCloud Suite has been muted.
*** DETAILED Feedback in pages 2-5***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 11.0x
1,055.2A 1,123.0A 1,133.7A 1,268.9 4,580.8 9.1x
1,239.1 1,306.3 1,321.1 1,475.8 5,342.3 7.8x
0.48 0.55 0.53 0.62 2.17 44.1x
0.66A 0.68A 0.70A 0.79 2.83 33.8x
0.71 0.73 0.75 0.88 3.07 31.2x

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April 2014
J a n u a r y 2 4 , 2 0 1 3
Industry Contact 1
He had a fairly strong Q4 overall and was able to close a significant amount of deals.
However, he didnt hit his plan for the quarter, which he thinks was pretty aggressive to
begin with at 20% y/y growth. Very strong growth overalldefinitely double digita
respectable finish for the year.
Saw some traction in the vCloud Suite initiative. We didnt see substantial traction, but it
did help the business grow overall.
Also, added that he saw typical budget flush activity in Q4. The large ELA negotiations,
all kind of came through to fruition in the last two weeks of the quarter.
Highlights a lot of traction in the end-user computing area. The average transactions are
increasing more than they ever diddefinitely saw an uptick in actual sales in the last two
quarters.
Based on his conversations with sales representatives [in the virtualization ecosystem],
coming off of Q4 they feel great but for the full year, especially for the guys in Canada,
it was not one of their easier years because one of the major federal vehicles was disabled
this year. They didnt hit plan in Canada in aggregate. But in the US, the conversation
is totally different. I feel a lot more positive conversations in the US.
Big Deals: Thinks that VMW closed a pretty substantial 7-figure deal with a large
financial institution in Canada. Also highlights another 7-figure deal in the US. Thinks that
these deals involved large negotiations that included vCloud Suite.
Mentions that in Q2 VMware moved some of the margins available to a partner sales rep
from the front-end (before the transaction) to the back-end (after the transaction completed,
takes 90-120 days) and so most of the partner reps are not seeing the profitability upfront
when selling VMware products as compared to selling products from some other vendors,
which is distracting them from focusing on VMware sales. Thinks that this could be a major
concern going forward since a majority of VMware business is partner driven.
Mentions that Microsoft applications seem to be a good portion of the conversations

currently, mainly around SQL, SharePoint and Exchange.
Industry Contact 2
Saw a renewed interest in core vSphere among clients in Q4.

The engagement level was much higher than the previous quarter. Definitely an
uptick in activity and desire from clients.
Thinks its a function of increasing workloads and higher consolidation of VMs on
servers.
Thinks that virtualization of tier 1 apps could also add to the trend, but doesnt
think its the sole driver. We definitely have those [select clients wanting to virtualize
tier 1 apps] taking place, but not like everyone is suddenly saying hey, I want to
virtualize tier 1.
Also, for later 2012 and early 2013, what we are seeing is that the migration from VMware
to System Center [Microsoft] is not as pronounced as some of the pundits had expected
there is a fair amount of loyalty [among VMware clients].
Thinks that the elimination of the vRAM limitation did help and removed a lot of
confusion among clients. That generated some good will.
Thinks that VMware customers are a lot more loyal and lot more sticky than
Microsoft would have thought.
Mentions that the new Microsoft Hyper-V and the System Center is very good and
in some respectsits actually better. But thinks that the marginal improvements
and the new features [in the Microsoft products] are not too compelling to take on
the risk of changing [vendors].
Uptake in [his region] for vCloud [Suite] has not been as fast as we would like. Certainly
we have had conversations but real selling of vCloud Suite has been muted.
Hasnt seen any client asking for Nicira yet. Thinks its still in the evangelization stage and
would take 2-3 years to really drive adoption and move the needle.
For sure sees a steady uptick in the management tools. Thinks that as the virtual
environment becomes complex with clients running 1000s of VMs, the demand for
management tools will continue to increase. There is no way that they [clients] can
continue to track and manage VMs via a spreadsheet approach.

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J a n u a r y 2 4 , 2 0 1 3
Mentions that VDI [Virtual Desktop Infrastructure] is going gangbusters. This is going
to be a good year for [VMware] Viewthis is going to be a great year for Citrix.
Thinks that Citrix is doing better than VMware in the corporate space while Education,
Healthcare and Municipal sectors are fairly View-centric.
One of the largest financial institutions in his region recently signed a deal in Q4 that could
range from 7-figures to an 8-figure number.
Based on his conversations with sales representatives [in the virtualization ecosystem],
thinks that they are happy coming off of Q4. They did have a good quarter.
We actually had a decent Q4 and was above plan.

Industry Contact 3
Mentions that the demand trend continues, mainly driven by a lot of data center
transformation work. Thinks that core virtualization technology is pretty much saturated
and more of a commodity at this point.
Seeing the growth mainly in the areas of managing private clouds and desktop
virtualization.
Hasn't seen much traction around the vCloud Suite yet.
Closed a couple of large deals at the end of last year and people [sales reps in the
virtualization ecosystem] were pretty happy about that. Qualifies these as significant
deals.
Thinks that as a whole for the year, her VMware practice trended above plan.
Mentions that she is a little concerned with the CTO leaving the company. Thinks thats
going to be real interesting to see where their [VMwares] product direction goes and how
all that affects it [VMware]. Thinks that the CTO was a major voice after the co-founders
left the company and the departure of the CTO will create a void in terms of the need of
leader with a strong technology vision.
Competition
Doesnt see much competition from Microsoft in the core vSphere and vCenter
products. Microsoft doesnt have the functionality and the features that VMware
does.
We are seeing competition in virtual desktop [from Citrix] and some of the cloud
management stack [mainly from CA, BMC etc. who offers tools to manage hybrid
virtualization environments].
Industry Contact 4
Mentions that demand for virtualization product, both server and desktop, is increasing.
We have definitely seen an increase in demand.
Thinks that the vCloud initiative has a lot of traction and continues to gain interest among
clients who are at the mature stage of their virtualization build-out. Adds that clients have an
initial virtualization build-out ramp-up period of 6-9 months, after which they are typically
ready to have vCloud Suite conversations.
Thinks that Nicira wont be a 2013 story.
Based on his conversations with sales reps [in the virtualization ecosystem], they had a
very successful yeardefinitely a lot of optimism going into 2013.
He was definitely on plan for Q4 for a majority of his goals.

Industry Contact 5
On customers virtualizing tier 1 applications:

I think theyre actually starting to do that [ virtualize tier 1 applications]. I have a
lot of customers moving their SAP over to VMware.
Theres a big push from VMware to virtualize tier 1 applications. VMware has had
a big influence on getting tier 1 applications virtualized.
Believes that the sales reps [in the virtualization ecosystem] met their quota or exceeded
it in Q4. His company met its Q4 quota.
Corporate customers seem to be sticking with VMware because of the services, but theres
still the general hey this is really expensive stuff kind of thing going on with his customers.
So I could see some of them switching over to Microsoft.

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April 2014
J a n u a r y 2 4 , 2 0 1 3
Some corporate clients are looking at Hyper-V, but mostly theyre still starting with
testing and development.
[Microsoft Windows] Server 2012 is more feature rich and comparable to vSphere.
Corporate buying patterns havent changed, and theyre continually evaluating if theyre on
the correct course with their virtualization roadmap.
Industry Contact 6
Q4 buying behavior?
Did the fiscal cliff impact buying behavior? Not much. No.
Most business came from renewals and existing clients rather than net new clients.
vCenter Operations Manager has been growing in popularity. The growth hasnt
been enormous, but its been enough to notice.
Since mid Q3 VMware has been putting a lot of effort into growing vCenter.
VMware has come out with aggressive pricing due to bundling.
Customers who arent big management types are calling to ask about vCenter
because the pricing seems attractive.
Its approaching the right amount of publicity and incentives.
New customers:
Most traction for new business is coming from mid-sized customers.
Mid-sized customers, up to this point, have been leery to make the jump for the
budget thats required to virtualize.
His clients are finally stepping up and spending.
One of his customers went from 300 to 1,400 employees over the last couple of years,
and they had been holding off on big, platform-wide technology changes. But now
VMware has repackaged its offering and is offering price incentives. His customer
decided to virtualize in July 2012, and their major question was which vendor they
should trust. Finally decided on VMware versus Microsoft.
The comfort level of mid-sized business is starting to match up with the pricing and
bundling. You dont have to go out and a-la-carte every single chunk to make it a
turnkey virtualization package. The bundling now seems to be more appealing to
mid-sized businesses."
Trend to Virtualize Tier One Applications:

The trend has been increased willingness to investigate for quite some time.
For a while these tier 1 applications have received more attention from VMware.
VMware has done some specific marketing around apps in those environments.
The case studies are there. For the people whove been looking at virtualizing tier 1
applications, its not a question of VMware credibility anymore, its just does the
budget or business cycle permit? Its not a question of Is this the right choice?
its now just when, and for how much?
He knows of some good early adopters in the oil and gas vertical.
Oil and gas has two sides to their business: the corporate side and production
side.
In some of their facilities they have some reasonably significant IT
operations. Their IT operations are all tied to a historian-type database.
The historian sits on top of a database.
Hes actually having small conversations around virtualizing the field
production database. So if one considers a SQL-based ERP system a tier 1
application, then these production databases for the oil and gas companies
would be even a tier above that.
Oil and gas companies protect that with their very lives, and discussions
of should we virtualize these things? are becoming more and more popular.
These guys measure their revenue in thousands of dollars per minute, and

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they cannot have any downtime. The interest from this vertical has really
grown in the last six months.
Competition:
People are certainly looking at Hyper-V from Microsoft, but when I translate that
back into sales dollars, its not showing up at this point.
Microsoft has come back with some pretty good answers when he poses questions
to Microsoft from customers. It seems like Microsoft is trying to stand up and be
recognized in a competitive way.
Industry Contact 7 (Europe)
Q4 was quite okaywe almost managed to meet the overall expectations for the year.
However, adds that it was a little light as compared to Q4 a year ago. Mentions that in Q4
2012 he signed a few 7-figure deals above $1m but no deals above $2M, unlike a year ago.
Mentions that a few deals in the public sector got pushed from December to January.
Mentions that he is doing a lot of proof of concepts around the vCloud Suite, but admits
that its a longer sales cycle.
vSphere is still the cash cow.
Mentions that network virtualization hasnt been a topic of discussion among clients at
all. Within our customer base, we didnt get any traction [around Nicira]. Mentions that
VMware has yet to integrate Nicira into its product set.
Thinks desktop virtualization is definitely on the uprise.

Mentions that he is talking to a lot of VMware clients regarding desktop
virtualization, application virtualization and also around the Mirage product.
Thinks that Mirage has been pushed heavily into the market.
Thinks VMware desktop products are quite mature. Our Citrix specialists have
been surprised by the maturity level of VMware desktop products.
Adds that Citrix misbehaved lately and reduced a lot of rebates and hence many
partners are focusing on VMware.
Thinks that Citrixs share in the public sector is shrinking and there has been a lot
of movement of employees, even on a technical level, from Citrix to VMware.
Thinks that based on traction among VMware products, desktop virtualization or end user
computing would rank in the 2
nd
position after vSphere followed by vCenter Operations.
Mentions that for SMB customers, Microsoft is still a topic of discussion, but for bigger
customers, its unlikely that they will choose Microsoft.
Thinks that the existing customers are increasing their virtualization level. Mentions that
customers are moving from virtualizing administrative servers to virtualizing critical servers
in the production environment.
Based on his conversations with European sales reps [in the cloud infrastructure ecosystem],
they are a little behind the expectations.
Mentions that in general, at the moment, Europe is doing fine and there are no evident
incremental IT budget constraints, at least in the commercial sector. However, adds that
if there is any major bad news it could affect the demand environment. Mentions that the
UK is doing really good - UK is still the second biggest market for VMware .they are
taking off.

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J a n u a r y 1 8 , 2 0 1 3
47 VMware Resellers 4.1% Above Plan for Q4, Better than Q3
PRICE: US$95.36
TARGET: US$105.00
17.5x EV/2013E OCF of $5.46/sh + Net
cash of $9.10/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY12E EPS US$2.83
FY13E EPS US$3.07
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
improved across all four metrics we track, as compared to last quarter. In aggregate the
resellers finished 4.1% above plan for Q4, marking a significant uptick from 1.7% above
plan in Q3 and fairly consistent with 4.0% above plan in Q4 2011. In aggregate, the
survey results suggest a better Q4 environment domestically, perhaps driven by the recent
pricing change and the reversal of the ELA renewal headwind in Q4. That said, our
overseas checks (50% of business) are limited and we don't expect electrifying guidance,
given the high penetration of vSphere and infrequency of net-new large transactions.
In our view the current premium valuation on VMW creates a fairly balanced ST risk/
reward profile, but better upside considering a LT horizon (12 months) as the "ELA
Echo-Boom" plays out.
Partners 4.1% Above Plan in Q4, Better Optimism Level. Partners we surveyed
finished 4.1% above their internal plan for Q4, marking a significant uptick from
1.7% above plan in Q3. Also, 51% of partners saw a better pace of business while
only 8.5% saw a worse pace of business in Q4. Although we do not have extensive
historical data to compare against, the data suggests improving business momentum
and increasing optimism across VMW's broad ecosystem. We are mindful that Q4:12
should represent the first quarter to enjoy a modest tailwind from what we call the
"ELA Echo-Boom" 3 year cycle, which has acted as a headwind on license revenue
growth in recent years. This could prove to be an important dynamic as it is related to
license revenue growth, but in our view the larger drivers remain: vSphere penetration
rates, the competitive environment, and success in selling adjacencies.
Server Virtualization Activity Upticks, but Still Below Levels of 6-12 Months Prior.
Among the VMW resellers we surveyed, only 28% see a "Faster" pace of activity for
customers virtualizing their server environments, 70% see "The Same" pace while
2% see a "Slower" pace of activity. This marks a slight sequential improvement, but
still lags below the Virtualization activity levels observed in Q1 and Q2 2012. Clearly,
an increasing number of partners are seeing "The Same" pace of activity rather than
"Faster" activity, potentially a reflection of the high vSphere penetration rates.
***Continues on Page 2, Charts and Detailed Comments on Pages 3-5***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 11.0x
1,055.2A 1,123.0A 1,133.7A 1,268.9 4,580.8 9.0x
1,239.1 1,306.3 1,321.1 1,475.8 5,342.3 7.7x
0.48 0.55 0.53 0.62 2.17 43.9x
0.66A 0.68A 0.70A 0.79 2.83 33.7x
0.71 0.73 0.75 0.88 3.07 31.1x

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J a n u a r y 1 8 , 2 0 1 3
Competitors Closing In - MSFT,
CTXS, RHT, OpenStack.
As we spoke with partners we asked them, "Please describe whether you observe any
competitors, such as Microsoft, Citrix or Red Hat, either closing the competitive gap versus
VMware or falling farther behind?". Although many partners highlighted that VMware
continues to lead the virtualization market, they referred to Microsoft as "slowly closing the
[competitive] gap" with their latest hyper-V and Systems Center tools. Partners also referred
to "continued customer interest in Hyper-V" and highlighted Microsoft 's push into the mid
market. In the desktop virtualization space, partners also referred to Citrix as a "real threat"
and added that "Citrix is garnering more mindshare". Red Hat and OpenStack also came up
multiple times, indicating growing interest in Open Source options.
Adoption of Management Offering
Downticked Slightly.
Our survey suggests that the adoption of VMW's management offerings as observed by the
partners downticked slightly in Q4, but is still within the very tight bounds seen during the last
four quarters, indicating a fairly consistent trend. Among the VMW partners we surveyed,
70% of the partners agreed that adoption of VMW's management offerings is increasing, as
compared to 73% last quarter.
Price Target Change We are increasing our price target from $105 to $96. The higher price target multiple (to 17.5x
from 16x) reflects a higher peer group multiple.

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J anuar y 1 8, 2013

Exhibit 1
CURRENT AND HISTORICAL SURVEY RESULTS

Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
Q4:11 Q1:12 Q2:12 Q3:12 Q4:12
# of Respondents: 39 39 33 44 47
%of Plan: 4.0% 5.1% 3.1% 1.7% 4.1%
Faster 46.2% 54.5% 27.3% 27.7%
Same 53.8% 39.4% 65.9% 70.2%
Slower 0.0% 6.1% 6.8% 2.1%
TOTAL 100.0% 100.0% 100.0% 100.0%
Net-Faster % 46.2% 48.4% 20.5% 25.6%
Better Pace of Biz 46.2% 42.4% 25.0% 51.1%
Same 48.7% 45.5% 65.9% 40.4%
Worse Pace of Biz 5.1% 12.1% 9.1% 8.5%
TOTAL 100.0% 100.0% 100.0% 100.0%
Net-Better % 41.1% 30.3% 15.9% 42.6%
Above Expectations 41.0% 24.2% 25.0% 27.7%
Inline 53.9% 63.7% 68.2% 70.2%
Below Expectations 5.1% 12.1% 6.8% 2.1%
TOTAL 100.0% 100.0% 100.0% 100.0%
Net-Above % 35.9% 12.1% 18.2% 25.6%
Yes 71.8% 69.7% 72.7% 70.2%
No 28.2% 30.3% 27.3% 29.8%
TOTAL 100.0% 100.0% 100.0% 100.0%
Net-Yes % 43.6% 39.4% 45.4% 40.4%
4.0%
5.1%
3.1%
1.7%
4.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
41.1%
30.3%
15.9%
42.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
35.9%
12.1%
18.2%
25.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
VMW Partners, VMW Bookings
Expectation, Net-Above %
46.2%
48.4%
20.5%
25.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%

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J anuar y 1 8, 2013

Exhibit 2
IN A FEW BRIEF SENTENCES, PLEASE DESCRIBE WHETHER YOU OBSERVE ANY COMPETITORS, SUCH AS
MICROSOFT, CITRIX OR RED HAT, EITHER CLOSING THE COMPETITIVE GAP VERSUS VMWARE OR FALLING
FARTHER BEHIND? (PLEASE BE AS DETAILED AS POSSIBLE IN A FEW BRIEF SENTENCES)

vCloud suite has moved VMware forward, however there are still issues where customers have legacy implementations using other
vendors technologies where they want to migrate over time. VMware appears to be all in (or not).
VMware is the dominant vendor no doubt. We hear about Microsoft and Red Hat from time to time, but not a threat.
VMware is still in the lead. But Citrix on the Desktop Solution is doing well.
They continue to push, but with VMware's strong lead not sure regarding progress.
We do not see competition gaining ground in our market space. We sell VMware 100% of the time we virtualize customers
environments.
We see VMware continuing to lead innovation and adoption for server compute. We see Citrix continuing to lead the VDI front.
We are finding that most of our customers who have Intel-based systems have standardized on VMware, so there is little net-new
business. However, we are also seeing these customers move to cloud environments, thus degrading the base.
Microsoft closing the gap through increased integration and bundling of their product range with new tech releases associated with
Windows 2012 and System Centre suite offerings. Citrix who?
I believe Microsoft with their 2012 server release is creating the impression that their product is at feature and density parity (or
close enough) with VMware and less expensive through Microsoft marketing and sales activities. The unfortunate part is that even
though this is not true, I feel the public perception is buying it more and more.
Microsoft has [made] a concerted effort to close the gap with SC2012 [Systems Center 2012] and the ecosystem around it. Citrix has
a clear cloud strategy that leads its virtualization to new places in the market. Microsoft is clearly gaining momentum faster in the
mainstream. Red Hat is popular in service providers and very technical houses.
We believe that MS [Microsoft] provides an appropriate alternative to VMware in SMB and Mid-Market accounts as well as in dual
vendor strategies within Enterprise accounts looking to mitigate cost in certain workloads. We see no strengthening of Citrix or Red
Hat in the Data Center virtualization. We do not see VMware shrinking yet, although growth has slowed.
Microsoft has 2012 and its getting good coverage, since it is free will be an option in the future.
Slowly closing the gap. Especially Microsoft.
Microsoft is closing the gap slightly with server 2012, Citrix is maintaining.
I see Microsoft making some strides in the market.
Microsoft is just starting to nibble away at the feature set of VMware by offering similar functionality in Hyper-V 2012.
There is continued customer interest in Hyper-V, however no major migrations. Open source offerings such as Open or CloudStack
have peaked some interest as well.
We have seen MS [Microsoft] creep into the small business sector, but we do not do much business there so its hard to quantify.
Microsoft has managed to create the impression that Hyper-V is a cheaper solution than VMware and there hasnt been a campaign
from VMware highlighting the fact that the Microsoft system centre costs will rapidly turn the cost tables in favor of VMware.
Microsoft made a strong push with the latest feature set of Hyper-V, but VMware caught up with them in the latest upgrade round.
Seeing Microsoft Hyper-V penetration in all MS [Microsoft] shops.
Microsoft seems to be gaining a bit of momentum in the space. Enterprises are beginning to look for a strong #2 to keep VMware
honest on pricing.
Microsoft is the only real competition at the hypervisor level, and they have ramped up a lot. The lack of tools and ecosystem still
keeps them below VMware.
Microsoft seems to be making a bigger effort to compete in server virtualization. Citrix seems the same.
Microsoft is starting to fine tune their message within the SMB Space, but also in the Mid Market space and have seen some recent
strides from Microsoft to put extra emphasis in this market.
Microsoft is very aggressive and is working hard to close the gap. I see Citrix and Red Hat falling farther behind.


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April 2014
J anuar y 1 8, 2013

Exhibit 2, Continued.
IN A FEW BRIEF SENTENCES, PLEASE DESCRIBE WHETHER YOU OBSERVE ANY COMPETITORS, SUCH AS
MICROSOFT, CITRIX OR RED HAT, EITHER CLOSING THE COMPETITIVE GAP VERSUS VMWARE OR FALLING
FARTHER BEHIND? (PLEASE BE AS DETAILED AS POSSIBLE IN A FEW BRIEF SENTENCES), CONTINUED

Microsoft is being considered at the Management level.
I believe this will be a fight between VMware and Microsoft. Microsoft is gaining ground but still well behind. Citrix appears to
be falling behind while we see nothing of Red Hat.
Hyper-V [Microsofts hypervisor], without a doubt, is gaining momentum but, technologically, it's still quite easy to sell around
Hyper-V.
I see Red Hat making more aggression than in the past toward giving VMware a run for their money. I recently read an article
where they said that was their intent. Citrix continues to make progress but is more silent in my view.
Red Hat seems to be gaining some market share with partnerships with Cisco and NetApp in the unified computing space (i.e.
FlexPod) This may or may not be competitive because it may be the Linux offering from Red Hat that is the basis of the
partnerships.
I am seeing more and more customers look to Citrix or Red Hat for non-mission critical workloads.
We are seeing an increase in Citrix business, but VMware continues to grow as well...tells us the market opportunity continues
to grow.
Citrix is garnering more mindshare in the VDI [Virtual Desktop Infrastructure] space
VMware owns 90% of the server virtualization market; the real threat comes from Citrix in the desktop space.
Citrix XenDesktop seems to still be the leader in our patch for VDI [Virtual Desktop Infrastructure]; however, View [VMwares
VDI solution] is gaining momentum, and we believe will continue to rise.
VMware is significantly ahead in terms of the underlying core virtualization, but Citrix appears to still be ahead in desktop
delivery and in orchestration of Cloud Computing with their Cloud Stack platform
Citrix chasing on VDI [Virtual Desktop Infrastructure] and Microsoft surely with Windows 2008 on the server platform for Mid
sized enterprises
While VMware has the lion's share of the market, OpenStack seems to be generating the most industry buzz.
Open Stack seems to be gaining marketing presence.
We have encountered a lot of potential clients asking if we offer an OpenStack based cloud product more than in the past.
All of these competitors are definitely closing the gap on VMware. VMware continues to struggle to understand the Channel
business. Many times they are losing out on the entire stack conversations while they work on their individual licensing.
I see the competitors to VMware catching up to VMware in the core virtualization space, being able to virtualize a server is
almost a commodity business at this point. I see VMware maintaining or even pulling away from competitors with their
management tools.
See them [VMwares competitors] in the conversation more and more because of the strict policies around ELA's.
Competition is definitely gaining traction. Not sure if they are closing the gap yet.
VMware needs to blend their VSPP model with their infrastructure model. I cannot stand having to track two separate suppliers
(VMware and VSPP Supplier for the same software!). I do not have the same contractual headaches with MS [Microsoft] and
Citrix as I do with VMware from an admin perspective.
Staying the same.


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April 2014
Oc t o b e r 2 3 , 2 0 1 2
Deep-Dive Interviews: VMW Limping Across the Q3 Finish Line, and TGIQ4
PRICE: US$83.36
TARGET: US$101.00
of $11.27/sh
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Overweight
Price Tgt US$101.00
FY12E EPS US$2.70
FY13E EPS US$3.08
Yield 0.00%
Fiscal Year End Dec
* Price as of the close August 27, 2012
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 6 key contacts in the VMware ecosystem,
producing 4 pages of intensely detailed proprietary feedback. Key takeaways: 1(=) one
source believes that VMWs DMRs (its top 10 resellers, comprising as much as 70% of
revenue) hit their internal plan for Q3, although we suspect this was a reduced target
versus Q2 and was barely eked out; 2(-) feedback suggests direct sales reps in the U.S. are
not as excited as in the past coming off Q3 and that they were probably light in Europe
while fighting for every deal; 3(+) the elimination of vRAM pricing is a helpful move,
while feedback on the Q4 pipeline is broadly more positive than we expected. We foresee
an unexciting Q3 and do not see immediate near-term catalysts, but hold out some hope
for a better Q4 setup. Maintain OW rating.
Noteworthy Feedback
(-) One reseller who was below plan for calendar Q3: Might have to do with
electionsthere are a lot of nervous peoplethere is not a lot of buyingtechnology
trends are down.
(-) Regarding the management tools, one reseller says we have realized that the sales
cycles are longer than the usual vSphere cycles. Mentions that the larger customers
are benchmarking not only the functionalities of the management solutions but also
the pricing with that of the CAs and BMCs of the world. In general, Expansion into
products other than the core Virtualization are not a "Slam dunk".
(-) Regarding Virtualizing the network: what slows down a lot of those sales is
that those teams have always been separate. So when you talk about a converged
infrastructure, companies just arent organized that way yet. You have a networking
team, you have a DBA team, you have an infrastructure team.
(+) VMware's vision around the Software Defined Data Center is a "good one"
and "...is much further ahead than any competition have done by farits better
articulated than Microsoft's.
(+) BYOD (Bring Your Own Device) is stimulating a "tremendous amount of

discussion" around the End User Computing area.
(+) Feedback on the pricing change, whereby VMW removed the vRAM limitation
from its licensing contracts Is great. It was causing more harm than good. ***
DETAILED Feedback in pages 2-5***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 9.6x
1,055.2A 1,123.0A 1,124.1 1,268.9 4,571.1 7.9x
1,253.6 1,333.9 1,337.7 1,507.0 5,432.2 6.7x
0.48 0.55 0.53 0.62 2.17 38.4x
0.66A 0.68A 0.64 0.73 2.70 30.9x
0.71 0.74 0.73 0.89 3.08 27.1x

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April 2014
Oc t o b e r 2 3 , 2 0 1 2
Industry Contact 1 (North America)
Thinks that the DMRs [Direct Marketing Resellers] hit plan overall. However, his
business was a little lighter than expected and he did not hit his internal goal or the VMW
goal. So, we are probably one of the underperforming ones relative to the pack[his sense
is that] the overall group hit plan butwe didnt hit plan particularly. Explains that DMR
means Direct Marketing Resellers and refers to the top 10 resellers that represent about
70% of license sales for VMware.
Mentions that most of the activity he sees is still around vSphere.
Also, mentions that he is starting to see some customer engagements around the vCloud
Suite [an integrated cloud infrastructure solution introduced in VMWorld 2012] and has
seen activity pick up. They [VMware customers] like the VMware product, its the
licensing that becomes an issue and vCloud Suite just provides an easier licensing model
for customersand they can migrate a lot of the licenses in that model.thats why its
starting a lot of great conversations."
Thinks that the pricing change, as a part of which VMware removed the vRAM limitation
from its licensing contracts, is great. It was causing more harm than good. Thinks that
the vRAM limitations didnt bring much incremental revenue for VMware and probably
impacted about 0.2% of their customer base. It [vRAM] became more of a hindrance
in their [VMware's] sales process as customers had to forecast their future vRAM
requirements, which was a difficult task.
Thinks the channel team [in the VMware ecosystem] definitely hit their numbers, but not
too sure about the regional field reps [in the VMware ecosystem] .
SMB still seems to be the fastest growing segment right now.
Have had a lot of six figure deals but not 7- or 8-figure deals in the last six months.
Definitely working on a few but not yet closed
Have seen little bit of an uptick in, not necessarily sales but activity around the desktop
virtualization product
Seeing demand and a lot of interest for vCenter Operations and a bit of an uptick for
vCloud Director.
Thinks that DynamicOps (a recent VMware acquisition) can be very promising in FY13
and FY14 although it is a bit under the radar as of now. Thinks that it is a deviation from the
past. VMware is used to bringing out products that reinforce the existing VMware product
line; although with DynamicOps they are moving into supporting multi-hypervisor and
multi-platform environments and not just the VMware platform. We havent sold it yet, nor
have we deployed one yet, but we already have fielded a couple of questions from enterprise
clients. Thinks its an exciting step forward from a cloud building perspective.
Thinks Nicira (another recent VMware acquisition) is a cooler talk at this time and
there are a lot of questions to be answered. Everyone is waiting for the acquisition to be
productized".
Had a decent Q3. Exceeded his internal plan to the tune of 30-40%. Allows him to catch
up on some of the shortfall he saw at the start of the year when some of his clients delayed
their purchasing decision which finally got flushed through in Q3. Thinks that he will be
on plan for the year with 25% y/y growth in the VMware practice. Working on a couple
of big deals in the pipeline.
Clients are coming back and buying additional licenses for vSphere, which is a bit of
a surprise as they had anticipated a transition to Microsoft HyperV. Mentions that the
transition is taking place at the low end of the workloads (test/dev environments, print
servers etc.) while clients are looking at virtualizing critical tier 1 apps with VMware. Thinks
that by selling vSphere licenses to virtualize critical tier 1 apps, VMware is for sure making
up for more than what it is losing to Microsoft at the low end.
Mentions that one of his clients, a major financial institution in North America, renewed
an ELA at a level higher than the initial contract. This deal has the potential to be pretty
large; we are talking about anything from 7-figures to 8-figures depending on what they
deploy in the next three years. It [the deal] talks to the strength of the VMware brand
at the enterprise level. I can assure you that Microsoft was in there pitching the new
HyperV 3 and the systems operations feature.

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April 2014
Oc t o b e r 2 3 , 2 0 1 2
Thinks that Microsoft can take share only in the SMB space and the low end virtualization
practices.
Have heard that VMwares SMB business is also growing fast.
Had lunch with one of the sales managers [in the virtualization software ecosystem] in his
region and for Q3 they were looking at exceeding the plan not meeting but really how
much they are going to exceed plan for this quarterso obviously they were having a good
quarter themselves. He was genuinely excited about the current quarter that they were
about to finish.
Thinks that VMwares vision around the Software Defined Data Center (SDDC) is a very
good one. Thinks that with the arsenal of products that VMware has, it is best positioned
to articulate this vision. I think that particular vision is much further ahead than any
competition has done by farits better articulated than Microsoft. Thinks that the key
[for VMware] is to market it [the SDDC vision] well in FY13 and FY14once people hear
it selling, it is going to be easy.
On the end user computing front, at least in our practice we are not seeing as much traction
with VMware as it is with Citrix. Thinks Citrix is a bit more focused. Having said that,
thinks the VMware end user computing business is growing and clients continue to buy
View licenses. Seeing particular traction around specific verticals. Thinks Healthcare and
Government seem to have better attach rates.
Since we had a relatively weak Q2, I have to say, it really has taken off in the last quarter
the forecast is looking good. Overall, Q3 was significantly better than Q2and the
forecast and the pipeline is quite okay.
Mentions that in Q2 many customers delayed their purchasing plans so that they could
evaluate Microsofts new offerings. In the end, most of them [customers] have decided to
go along with VMwareand have placed their orders that we missed in Q2.
Thinks that VMware faced some challenges in Q2, Q3 will be OK and for Q4 we ar
e
all confident.
Referring to an announcement VMware made to the partner ecosystem in March of this

year, mentions that VMware set out a world-wide goal of license bookings growth of
15-20% for the year for the partners. However, he has set an internal goal for 25-30%
license bookings growth. Mentions that 25% is quite ambitious while 15-25% might be
possible.
Mentions that vSphere business is still going well.
Regarding the management tools, we have realized that the sales cycles are longer than the
usual vSphere cycles.
Mentions that customers, the larger ones, are benchmarking not only the
functionalities of the management solutions but also the pricing with that of the
CAs and BMCs of the world. I have to say that VMW has some problems to match
the pricing expectation of the customer regarding the management tool (vCenter
Operations Manager).
Some of the larger customers have also identified some shortcomings in the
functionality of vCenter Ops which they want to be squared out before making the
purchasing decision.
But nevertheless in the SMB market its going well.
The new vCloud Suite makes it absolutely easier, especially the upgrades [to the
management products]makes it easier for us to consult the customer from the licensing
side. Mentions that it is gaining more and more importance.
Conversations with sales reps [in the virtualization or VMware ecosystem in EMEA]
Thinks they were light in Q3. Absolutely, that was my perception. Reps have been
quite nervous in the last quarter. They were fighting for every deal
Now they are back to normal
I just spoke to a few guys during VMworld and they mentioned to me that they
have never experienced such a good forecast for the rest of the quarter as in this
year and they have been with VMware for more than four yearsthey are quite
positive it seems. They are quite confident that they have a good forecastand
thats coming from all the three big regions in EMEA [France, UK and Germany]

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April 2014
Oc t o b e r 2 3 , 2 0 1 2
Heard that Greece was performing quite good but on the other hand they might
be struggling in Spain at the moment.
Have been working on a $4M ELA which has been pushed out to the next quarter but did
at least few million dollar ELAs in Q3. Also heard that VMware's top 5 partners have
signed some multi-million dollar ELAs in the last quarter, especially in the UK.
Thinks that pushing the Software Defined Data Center (SDDC) might be quite a smart
move. Thinks that the SDDC, which is basically referring to private cloud, will resonate
with most of our customers since most of the European companies are not open to the
idea of public clouds and moving their data off campus.
With respect to Microsoft, I think VMware has managed to gain the trust from the
customerwhile Microsoft did quite the opposite. Mentioned that Microsoft announced
some functionality which was not included in the final release. They [Microsoft] are
basically buying time and trying to postpone that a little bitseems they are still
engineering their product. Mentioned that although most of his clients chose VMware
after evaluating Microsofts new line-up, there are a few who chose to move away from
VMware. Its never for technology reasons; its mostly a pricing issue. Mentions that
introducing vCloud Suite is a first step to basically make the two offerings more
comparable from a pricing standpoint.
Mentions that the number of deals closed in Q3 was higher than Q2 but overall dollar
numbers will probably be flat since there was an ELA in the mix last quarter and no ELAs
this quarter.
Our August was kind of slow .September came back very well. Also mentioned that
business has picked up in the first few weeks of October.
About VMwares Q3 - My feeling is that it was probably a little flatI think business
is picking up. Mentions that VMware is doing more and more line extensions which is
good but some of the newer products that they are pushing are not any more a slam-
dunk. A lot of them require proof-of-concepts and the sales cycles are longer. All the low
hanging fruit is gone.
Was about on plan in Q3. I think this quarter we are going to do better.
For 2012, thinks his VMware services practice can grow more than 20%. However, mentions
that it might not be reflective of VMwares growth since his firm can generate a lot of
implementation revenue by implementing Zimbra in the academic market, but the licensing
revenue in the academic market for VMware is low.
We are seeing some more View, less vSphere.
Mentions that since August VMware is trying to push vCenter Ops with every upgrade.
With respect to Data Recovery, mentions that many clients are debating between having
their own DR site using something like the Site Recovery manager from VMware or backing
everything up in the cloud.
Based on his limited interactions, thinks that sales reps [in the virtualization or VMware
ecosystem] are feeling pretty good coming off the quarter.
Mentions that one opportunity for VMware, now that there is no vRAM limitation, is to
introduce a turnkey solution in the SMB space to do vSphere and View together.
Mentions that VMware has reduced the deal registration limit for resellers at the low end
to $6k from $10k. Believes that it will be more worthwhile for channel partners to focus on
pushing more VMware into the SMB space.

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April 2014
Oc t o b e r 2 3 , 2 0 1 2
Clients are well on their way to 80-90% server virtualization, but theyre far behind on VDI
[virtual desktop infrastructure]. This virtualization penetration level is across enterprise
customers. They also have big public sector customers. SMBs are still running everything
on physical machines.
A lot of companies are doing investigations around VDI but not too many people have
pulled the trigger. This is largely based on the upfront costs, like hardware, storage and all
the licensing costs.
VDI was supposed to be a main focus three years ago, but its taken a lot of time to even
get some sales cycles to close.
They are also involved in a lot of disaster recovery opportunities.
The virtualization management tools are still definitely available as a sale, and will be a
focus for the next few years.
It isnt just VMW offering management tools, but several competitors. HP and IBM are
coming out with their own tools, which are hypervisor agnostic.
Her large clients do have their databases virtualized and are moving to virtualize their ERP
systems.
VMware has SMB-branded products that make virtualization cost effective. Their
Essentials kit is a good start. Youre limited to three hosts and two processors, but for most
SMBs thats a really good starting point. You can also buy per-incident support rather than
a maintenance contract.
Our local reps did really well this quarter. There is still opportunity out there, but its
focusing on disaster recovery and having those management tools discussions, and focusing
on the cloud, like vCloud Director. People are interested in hosted applications for the
ability to grow and shrink, and for applications that arent that important to a business.
Theres a lot of interest out there for virtualizing storage. Virtualizing the network continues
to come up in conversations. What were finding is what slows down a lot of those
sales is that those teams have always been separate. So when you talk about a converged
infrastructure, companies just arent organized that way yet. You have a networking team,
you have a DBA team, you have an infrastructure team.
I think just with the way hardware is going, too, the convergence of everything is making
companies have to take a step back and really look at whats the most cost-effective and best
way to manage their infrastructure, because it was always just siloed.
Continue to see demand for the ESX product line.
Seeing a tremendous amount of discussion at the end user level around VDI [Virtual
Desktop Infrastructure] in certain industries such as retail and healthcare. Talks about the
BYOD [Bring Your Own Device] wave, which is stimulating these conversations.
Was below plan for calendar Q3. Might have to do with electionsthere are a lot of
nervous peoplethere is not a lot of buyingtechnology trends are down. For the year,
projections are definitely upward inclined.
Thinks that sales reps [in the VMware ecosystem] are not as excited as in the past.
However, thinks that it is regional and mentions that East coast folks are a little more
enthusiastic than west coast folks.
From a strategy perspective, believes that the top VMware resellers are looking at VMware
as an increasingly commodity market. As we are getting more into VDI, we are seeing the
partners just making less and less because margins have eroded and VDI is in fact becoming
more commoditized.
Thinks partners are getting excited from the services perspective however, with still a lot
of server assessments, desktop assessments and gradually moving towards Data Center
assessments. Services seem to be what has more people excited, while the technology itself
is just seen on the softer side as the margins erode and deal sizes continue to be smaller as
compared to the days of server consolidations.

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Oc t o b e r 2 3 , 2 0 1 2
Thinks that the trend towards virtualizing critical tier 1 apps is being delayed by a build
vs. buy decision. Once you virtualize them, the server in itself doesnt really matter if you
have them in your data center or not. So a lot of the assessments, when it comes to critical
apps ERPs, you really start getting into: why do we need a data center? Why are we not
utilizing Rackspace and other areas for our server farm?
Seeing an uptick in Network Virtualization. Also storage has been going crazy.
Thinks that growth would eventually get to the heydays with the help of the Management
and the End User computing tools. Believes that the world is moving towards a time when
nobody would care about servers or applications as long as they have access to it anytime,
anywhere and on any device of their choice.
Thinks that Microsoft System Center and VMware vCenter have really caught the
attention of some complex enterprise type environments with thousands of nodes to
manage. Havent necessarily seen the same with smaller 100-server type environments.
Thinks Microsoft is gaining market share because they are starting out from zero on the
System Center side or the management side. Believes that vCenter has got the lions share
and most people would say that VMware vCenter is the most robust.

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Oc t o b e r 1 6 , 2 0 1 2
44 VMware Resellers 1.7% Above Plan for Q3, Meaningful Downtick from Q2
PRICE: US$87.93
TARGET: US$101.00
of $11.27/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY12E EPS US$2.70
FY13E EPS US$3.08
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
downticked noticeably across 3 of the 4 metrics we track. In aggregate the resellers
finished 1.7% above plan for Q3, still in positive territory but a significant downtick as
compared to 3-5% above plan in prior quarters. Only 25% of partners observed a better
pace of business in Q3, as compared to 42% in Q2. The quantitative feedback also shows
more muted feedback on the pace of server virtualization activity among customers. In
aggregate, the survey results could foreshadow an unexciting growth environment for
now. In our view the current premium valuation on VMW creates a fairly balanced ST
risk/reward profile, but better upside considering a LT horizon due to the ELA renewal
cycle. Maintain OW; price target to $101 from $104.
Partners 1.7% Above Plan in Q3, Declining Optimism Level. Partners we surveyed
finished 1.7% above their internal plan for Q3, marking a downtick from 3.1%
above plan in Q2 2012. Although still in positive territory, it represents the second
consecutive downtick in plan outperformance in the last two quarters. Also, only 25%
of partners saw a better pace of business while 9% saw a worse pace of business
in Q3. Although we do not have extensive historical data to compare against, the
data clearly suggests unexciting business momentum for now, and reflects somewhat
muted optimism across VMW's broad ecosystem. We are mindful that Q3:12 should
represent the last inning (or trough) of what we call the "ELA Echo-Boom" 3 year
cycle, which has caused a headwind on license revenue growth, and this trend should
reverse starting in Q4. This could be an important dynamic as it related to license
revenue growth, but in our view the larger drivers remain: vSphere penetration rates,
the competitive environment, and success in selling adjacencies.
Slower Pace of Server Virtualization Activity Observed. Among the VMW resellers
we surveyed, only 27% see a "Faster" pace of activity for customers virtualizing their
server environments, 66% see "The Same" pace while 7% see a "Slower" pace of
activity. This compares to 55% observing a "Faster" pace of business, 39% observing
"The Same" pace of business and 6% observing a "Slower " pace of business last
quarter.
Increasing Adoption of Management Offering. On a more positive note, partners

highlighted that adoption of VMW's management offerings is upticking. Among the
VMW partners we surveyed, 73% of the partners agreed that adoption of VMW's
management offerings is increasing, as compared to 70% last quarter. *** Charts in
Exhibit 1 on Page 2***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 10.1x
1,055.2A 1,123.0A 1,124.1 1,268.9 4,571.1 8.4x
1,253.6 1,333.9 1,337.7 1,507.0 5,432.2 7.0x
0.48 0.55 0.53 0.62 2.17 40.5x
0.66A 0.68A 0.64 0.73 2.70 32.6x
0.71 0.74 0.73 0.89 3.08 28.5x

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Oc t o b e r 1 6 , 2 0 1 2
Dec-11 Mar-12 Jun-12 Sep-12
Q4:11 Q1:12 Q2:12 Q3:12
# of Respondents: 39 39 33 44
% of Plan: 4.0% 5.1% 3.1% 1.7%
Faster 46.2% 54.5% 27.3%
Same 53.8% 39.4% 65.9%
Slower 0.0% 6.1% 6.8%
TOTAL 100.0% 100.0% 100.0%
Net-Faster % 46.2% 48.4% 20.5%
Better Pace of Biz 46.2% 42.4% 25.0%
Same 48.7% 45.5% 65.9%
Worse Pace of Biz 5.1% 12.1% 9.1%
TOTAL 100.0% 100.0% 100.0%
Net-Better % 41.1% 30.3% 15.9%
Above Expectations 41.0% 24.2% 25.0%
Inline 53.9% 63.7% 68.2%
Below Expectations 5.1% 12.1% 6.8%
TOTAL 100.0% 100.0% 100.0%
Net-Above % 35.9% 12.1% 18.2%
Yes 71.8% 69.7% 72.7%
No 28.2% 30.3% 27.3%
TOTAL 100.0% 100.0% 100.0%
Net-Yes % 43.6% 39.4% 45.4%
4.0%
5.1%
3.1%
1.7%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
VMW Partners as % of Plan
41.1%
30.3%
15.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
35.9%
12.1%
18.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Net-Above %
46.2%
48.4%
20.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Price Target Change We are trimming our price target from $104 to $101. The lower price target multiple (from
16.4x to 16x) reflects a lower peer group multiple.

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April 2014
S e p t e mb e r 6 , 2 0 1 2
VMware Partners See Future Beyond vSphere, But Timing Uncertain
PRICE: US$89.09
TARGET: US$104.00
16.5x EV/2013E OCF of $5.61/sh + Net
cash of $11.27/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$104.00
FY12E EPS US$2.70
FY13E EPS US$3.08
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
In the past week we spoke with 24 contacts in the VMware ecosystem, of which 75%
conveyed a generally favorable outlook on VMware and its ability to build a significant
presence outside of core server virtualization, such as in the Software Defined Data
Center (SDDC) market. Feedback like "They nailed the server virtualization space;
they are going to nail the [SDDC]" suggest many partners are confident in VMware's
ability to generate meaningful revenue beyond vSphere. The other 25% of these contacts
either do not expect a near-term rebound in growth, think adjacencies don't generate
enough real business to turn the tide, or see market acceptance as an immediate hurdle
that VMware must overcome before gaining more traction outside of vSphere. We
believe VMware will eventually muscle its way beyond server virtualization into adjacent
markets, but think it will take time. OW, $104 PT.
Highlights From Partner Conversations:
The software defined data center (SDDC) is a great concept and resonates with clients.
Microsoft came to the party a little late. One source doesn't think that Microsoft will
ever be able to catch up.
The application development space for VMware is really going to take off.
"The stuff thats left [to virtualize] is the harder and slower stuff like tier one, ERP,
SAP, etc. That doesnt mean its a bad time to be a VMware rep. Its still a good time.
Just more complicated projects."
It's not about the capex, it's about the opex. Everybody wants to reduce labor costs.
Virtualizing storage is facing the same hurdles as virtualizing tier one apps, but it is
getting traction.
If anyone can do for the network what VMware did for servers, it's VMware. They
already do many of the things required for a virtualized network.
VMware is the 800 pound gorilla, but not as innovative as they used to be. OpenStack
and CloudStack (Citrix from cloud.com acquisition) could present a threat to
VMware over time, even in the high end enterprise, where customers have resources
to support it.
***Continued on page 2***
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 10.3x
1,055.2A 1,123.0A 1,124.1 1,268.9 4,571.1 8.5x
1,253.6 1,333.9 1,337.7 1,507.0 5,432.2 7.1x
0.48 0.55 0.53 0.62 2.17 41.1x
0.66A 0.68A 0.64 0.73 2.70 33.0x
0.71 0.74 0.73 0.89 3.08 28.9x

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April 2014
S e p t e mb e r 6 , 2 0 1 2
Positive / Optimistic Partner
Feedback
Contact 1
Instead of provisioning new hardware connectivity, etc., an environment will be up in a
couple of clicks.
Contact 2
Seeing a lot of business critical systems moving into VMware environment.
Thinks the SDDC makes sense. The benefits may outweigh the little amount of performance
degradation due to an all software environment.
Contact 3
Thinks that the application development space of VMware is really going to take off. With
high server virtualization penetration, one of the key areas of growth will be development on
the VMware platform to create apps that are more efficient and optimized for the platform.
Contact 4
Has been growing significantly. Thinks that the growth will continue.
Microsoft came to the party a little late. Doesn't think that Microsoft will ever be able to
catch up.
Contact 5
SDDC Its a logical evolution. Thinks they are extending the magic to the data center.
They nailed the server virtualization space; they are going to nail this.
Saw a very cool demo in the keynote today where an admin was able to upgrade a PC from
Windows XP to Windows 7 in the background while the end user continued to use the PC.
Contact 6
Many vendors are talking about the SDDC. The buzz is that Cisco is in trouble because all
the engineers and expertise are going to the hypervisor level, and that Cisco's products will
decline in relevance.
VMware will be the winning platform in the SDDC.

Contact 7
Seeing a broad adoption of View. Thinks that the market share of View is on par with Citrix
today and the overall pie is growing.
Contact 8
No, you dont really find multi-thousand server unvirtualized environments too much
anymore. It depends on the age of the system. For older servers, a lot of it is not virtualized.
They buy new servers and virtualize it.
Contact 9
Agrees that virtualized server market is pretty saturated.
Thinks that the growth is going to come from View. Seeing a lot of View uptake, especially
around two main themes BYOD (bring your own device) and Windows 7 upgrades.
Companies are too bogged down by their current environments to handle any of these trends
and are turning to View.
Too early to talk about SDDC.

Contact 10
Once in a while you find thousands of servers to virtualize. But mostly the low hanging
fruit is gone.
Sure [x86 server workloads] are 60% virtualized, but if you take out the web 2.0 guys like
eBay, it might be closer to 35%. Roughly.
The stuff thats left [to virtualize] is the harder and slower stuff like tier one, ERP, SAP,
etc. That doesnt mean its a bad time to be a VMware rep. Its still a good time. Just more
complicated projects.

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April 2014
S e p t e mb e r 6 , 2 0 1 2
Contact 11
Believes in the SDDC. The value is moving to the hypervisor. Many parts of the data center
are commoditized.
Contact 12
VMware hypervisors are the fastest.

Contact 13
It's not about the CapEx, it's about the OpEx. Everybody wants to reduce labor costs.
We've always been able to virtualize. We could virtualize servers on the mainframe. x86 was
just the largest opportunity to virtualize.
Management and security are real improvements to server automation.
Enterprises have all done server virtualization and now want to reduce OpEx.
Contact 14
Virtualizing storage is facing the same hurdles as virtualizing tier one apps, but it is getting
traction.
Contact 15
For as long as virtualization and cloud have been around, they're still brand new.
This is because so many vendors are trying to do so many things. The technology changes
so quickly.
It would be easy for VMware to virtualize storage or a network or anything they wanted to.
Contact 16
What you want are boxes in your data center that know nothing and do nothing.
It's so much easier to manage something when it's virtualized.
You'll be able to provision a network as easily as a server, and that's what you want.
He does see VMware's rapid expansion into new areas as potentially problematic, as going
too wide too quickly will cause execution problems.
Contact 17
If anyone can do for the network what VMware did for servers, it's VMware. They already
do many of the things required for a virtualized network.
Contact 18
Given what VMware has done with VDI, VMware is not a long way off technologically
from a SDDC. There is an attitude shift that has to take place, like when we went from
mainframe to client-server.
Cautious Partner Feedback Contact 19
Loves VMware and sells a ton of it, but is concerned about the future with penetration
increasing. Hes in an observation mode.
Three years ago the environment was different. The adoption in the last three years has been
way more than anybody expected.
Not sure if the adjacencies can really turn the tide. Seeing a lot of RFPs but not real business.
People want to do all the cool stuff but a lot of time it doesn't make sense and it falls apart.
Contact 20
No, we dont ever see 2,000 server environments that need to be virtualized. That has been
done already.
What we do see is, people working on stuff that has already been virtualized. They buy a
faster server, migrate off the old server, and run 13 or 14 guests per host.
Yes they canceled vRAM pricing, but it is still priced per core. If they say it is priced per
CPU, it is essentially being priced per core.
Yes, it feels like they could be reaching a slower point in their growth curve.

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April 2014
S e p t e mb e r 6 , 2 0 1 2
Contact 21
vFabric is all about staying in sync with the buzzwords from Gartner group. The latest
buzzword is cloud.
Contact 22
VMware is the 800 pound gorilla, but not as innovative as they used to be. OpenStack and
CloudStack (Citrix from cloud.com acquisition) could present a threat to VMware over
time. Even at the high end enterprise, where they have resources to support it.
Yes, VMware cant live forever on just stacking up VMs. That is commoditizing over time.
They will have to get vFabric and other areas going.
But the problem is, infrastructure guys don't want to deal with that. It is a whole different
world and different audience when you are talking about dealing with app developers and
whatnot.
Contact 23
Thinks SDDC will have a very slow adoption in the enterprise level.
Thinks SMBs don't get it at all.

Contact 24
Most of VMware's ideas for products are stolen. VMware has benefited from ideas from
Terremark.

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April 2014
S e p t e mb e r 6 , 2 0 1 2
VMware Partners See Future Beyond vSphere, But Timing Uncertain
PRICE: US$89.09
TARGET: US$104.00
16.5x EV/2013E OCF of $5.61/sh + Net
cash of $11.27/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$104.00
FY12E EPS US$2.70
FY13E EPS US$3.08
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
In the past week we spoke with 24 contacts in the VMware ecosystem, of which 75%
conveyed a generally favorable outlook on VMware and its ability to build a significant
presence outside of core server virtualization, such as in the Software Defined Data
Center (SDDC) market. Feedback like "They nailed the server virtualization space;
they are going to nail the [SDDC]" suggest many partners are confident in VMware's
ability to generate meaningful revenue beyond vSphere. The other 25% of these contacts
either do not expect a near-term rebound in growth, think adjacencies don't generate
enough real business to turn the tide, or see market acceptance as an immediate hurdle
that VMware must overcome before gaining more traction outside of vSphere. We
believe VMware will eventually muscle its way beyond server virtualization into adjacent
markets, but think it will take time. OW, $104 PT.
Highlights From Partner Conversations:
Microsoft came to the party a little late. One source doesn't think that Microsoft will
ever be able to catch up.
The application development space for VMware is really going to take off.
"The stuff thats left [to virtualize] is the harder and slower stuff like tier one, ERP,
SAP, etc. That doesnt mean its a bad time to be a VMware rep. Its still a good time.
Just more complicated projects."
It's not about the capex, it's about the opex. Everybody wants to reduce labor costs.
Virtualizing storage is facing the same hurdles as virtualizing tier one apps, but it is
getting traction.
If anyone can do for the network what VMware did for servers, it's VMware. They
already do many of the things required for a virtualized network.
VMware is the 800 pound gorilla, but not as innovative as they used to be. OpenStack
and CloudStack (Citrix from cloud.com acquisition) could present a threat to
VMware over time, even in the high end enterprise, where customers have resources
to support it.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 10.3x
1,055.2A 1,123.0A 1,124.1 1,268.9 4,571.1 8.5x
1,253.6 1,333.9 1,337.7 1,507.0 5,432.2 7.1x
0.48 0.55 0.53 0.62 2.17 41.1x
0.66A 0.68A 0.64 0.73 2.70 33.0x
0.71 0.74 0.73 0.89 3.08 28.9x

V
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April 2014
S e p t e mb e r 6 , 2 0 1 2
Positive / Optimistic Partner
Feedback
Contact 1
Instead of provisioning new hardware connectivity, etc., an environment will be up in a
couple of clicks.
Contact 2
Seeing a lot of business critical systems moving into VMware environment.
Thinks the SDDC makes sense. The benefits may outweigh the little amount of performance
degradation due to an all software environment.
Contact 3
Thinks that the application development space of VMware is really going to take off. With
high server virtualization penetration, one of the key areas of growth will be development on
the VMware platform to create apps that are more efficient and optimized for the platform.
Contact 4
Has been growing significantly. Thinks that the growth will continue.
Microsoft came to the party a little late. Doesn't think that Microsoft will ever be able to
catch up.
Contact 5
SDDC Its a logical evolution. Thinks they are extending the magic to the data center.
They nailed the server virtualization space; they are going to nail this.
Saw a very cool demo in the keynote today where an admin was able to upgrade a PC from
Windows XP to Windows 7 in the background while the end user continued to use the PC.
Contact 6
Many vendors are talking about the SDDC. The buzz is that Cisco is in trouble because all
the engineers and expertise are going to the hypervisor level, and that Cisco's products will
decline in relevance.
VMware will be the winning platform in the SDDC.

Contact 7
Seeing a broad adoption of View. Thinks that the market share of View is on par with Citrix
today and the overall pie is growing.
Contact 8
No, you dont really find multi-thousand server unvirtualized environments too much
anymore. It depends on the age of the system. For older servers, a lot of it is not virtualized.
They buy new servers and virtualize it.
Contact 9
Agrees that virtualized server market is pretty saturated.
Thinks that the growth is going to come from View. Seeing a lot of View uptake, especially
around two main themes BYOD (bring your own device) and Windows 7 upgrades.
Companies are too bogged down by their current environments to handle any of these trends
and are turning to View.
Too early to talk about SDDC.

Contact 10
Once in a while you find thousands of servers to virtualize. But mostly the low hanging
fruit is gone.
Sure [x86 server workloads] are 60% virtualized, but if you take out the web 2.0 guys like
eBay, it might be closer to 35%. Roughly.
The stuff thats left [to virtualize] is the harder and slower stuff like tier one, ERP, SAP,
etc. That doesnt mean its a bad time to be a VMware rep. Its still a good time. Just more
complicated projects.

V
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W
April 2014
S e p t e mb e r 6 , 2 0 1 2
Contact 11
Believes in the SDDC. The value is moving to the hypervisor. Many parts of the data center
are commoditized.
Contact 12
VMware hypervisors are the fastest.

Contact 13
It's not about the CapEx, it's about the OpEx. Everybody wants to reduce labor costs.
We've always been able to virtualize. We could virtualize servers on the mainframe. x86 was
just the largest opportunity to virtualize.
Management and security are real improvements to server automation.
Enterprises have all done server virtualization and now want to reduce OpEx.
Contact 14
Virtualizing storage is facing the same hurdles as virtualizing tier one apps, but it is getting
traction.
Contact 15
For as long as virtualization and cloud have been around, they're still brand new.
This is because so many vendors are trying to do so many things. The technology changes
so quickly.
It would be easy for VMware to virtualize storage or a network or anything they wanted to.
Contact 16
What you want are boxes in your data center that know nothing and do nothing.
It's so much easier to manage something when it's virtualized.
You'll be able to provision a network as easily as a server, and that's what you want.
He does see VMware's rapid expansion into new areas as potentially problematic, as going
too wide too quickly will cause execution problems.
Contact 17
If anyone can do for the network what VMware did for servers, it's VMware. They already
do many of the things required for a virtualized network.
Contact 18
Given what VMware has done with VDI, VMware is not a long way off technologically
from a SDDC. There is an attitude shift that has to take place, like when we went from
mainframe to client-server.
Cautious Partner Feedback Contact 19
Loves VMware and sells a ton of it, but is concerned about the future with penetration
increasing. Hes in an observation mode.
Three years ago the environment was different. The adoption in the last three years has been
way more than anybody expected.
Not sure if the adjacencies can really turn the tide. Seeing a lot of RFPs but not real business.
People want to do all the cool stuff but a lot of time it doesn't make sense and it falls apart.
Contact 20
No, we dont ever see 2,000 server environments that need to be virtualized. That has been
done already.
What we do see is, people working on stuff that has already been virtualized. They buy a
faster server, migrate off the old server, and run 13 or 14 guests per host.
Yes they canceled vRAM pricing, but it is still priced per core. If they say it is priced per
CPU, it is essentially being priced per core.
Yes, it feels like they could be reaching a slower point in their growth curve.

V
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W
April 2014
S e p t e mb e r 6 , 2 0 1 2
Contact 21
vFabric is all about staying in sync with the buzzwords from Gartner group. The latest
buzzword is cloud.
Contact 22
VMware is the 800 pound gorilla, but not as innovative as they used to be. OpenStack and
CloudStack (Citrix from cloud.com acquisition) could present a threat to VMware over
time. Even at the high end enterprise, where they have resources to support it.
Yes, VMware cant live forever on just stacking up VMs. That is commoditizing over time.
They will have to get vFabric and other areas going.
But the problem is, infrastructure guys don't want to deal with that. It is a whole different
world and different audience when you are talking about dealing with app developers and
whatnot.
Contact 23
Thinks SDDC will have a very slow adoption in the enterprise level.
Thinks SMBs don't get it at all.

Contact 24
Most of VMware's ideas for products are stolen. VMware has benefited from ideas from
Terremark.

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April 2014
J u l y 2 0 , 2 0 1 2
Global Survey of 33 Resellers: Positive But Decelerating
PRICE: US$92.76
TARGET: US$112.00
17.8x EV/ 2013 OFC of $5.68/sh + Net cash
of $11.02/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
FY12E EPS US$2.68
FY13E EPS US$3.06
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
We conducted a global survey of 33 VMW resellers and in aggregate they finished 3.1%
above plan for Q2, a downtick from 5.1% above plan in Q1. The broader feedback
is positive but decelerating: 12% saw a worse pace of business, versus 5% in Q1, and
only 24% expect license bookings above expectations, versus 41% in Q1. Based on the
survey data and the difficulty of the Q2 license billings y/y comparison, it would surprise
us if VMW's license growth will return to a high enough growth rate in Q2 to drive
incremental excitement. As such, we think the recent relief rally in VMW shares is mostly
played out, and we trim our price target to $112 from $125. In our view, the current
premium valuation on VMW creates a fairly balanced 3-6 month risk/reward profile,
but better upside considering a 12-month horizon due to favorable secular tailwinds.
Upcoming Q2 earnings report: license results are key driver from here. VMW has
already pre-announced high-level results, showing 1% revenue upside and 125 basis
points of operating margin upside. High-level guidance for 2012 for total revenue
was also slightly raised earlier this week by <1%. VMW shares experienced a relief
rally on the news, up 16% from the $80 level in two days. Because the aggregate
results and guidance are known, the Q2 earnings call on Monday may carry less
weight than usual. However, the revenue mix between license and service revenue is not
yet disclosed, nor are the billings/bookings metrics for Maintenance revenue, License
revenue, and Professional Services. License billings grew 15% y/y in Q1, and the y/y
comparison in Q2 is tougher by 19 points. Considering the likelihood of a choppier
demand environment in Europe, and adverse FX movement, we don't think this
presents a great setup for Q2 license billings growth to drive incremental excitement.
Sentiment has shifted rapidly across the tech landscape, and there is always a chance
of a "not as bad as feared" viewpoint or, due to easing comps in 2H:12, a chance of
"license growth has bottomed and will accelerate from here." However, we see limited
odds of the license trajectory reclaiming the 30% level of the last couple of years, given
the positive but decelerating nature of our reseller survey results.
VMware is a leading provider of server virtualization software, management and
security tools.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 10.7x
1,055.2A 1,109.3 1,133.0 1,268.9 4,566.3 8.8x
1,253.6 1,317.2 1,346.5 1,507.0 5,424.3 7.4x
0.48 0.55 0.53 0.62 2.17 42.7x
0.66A 0.66 0.64 0.72 2.68 34.6x
0.71 0.71 0.74 0.89 3.06 30.3x

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April 2014
J u l y 2 0 , 2 0 1 2
Dec-11 Mar-12 Jun-12
Q4:11 Q1:12 Q2:12
# of Respondents: 39 39 33
% of Plan: 4.0% 5.1% 3.1%
Faster 46.2% 54.5%
Same 53.8% 39.4%
Slower 0.0% 6.1%
TOTAL 100.0% 100.0%
Net-Faster % 46.2% 48.4%
Better Pace of Biz 46.2% 42.4%
Same 48.7% 45.5%
Worse Pace of Biz 5.1% 12.1%
TOTAL 100.0% 100.0%
Net-Better % 41.1% 30.3%
Above Expectations 41.0% 24.2%
Inline 53.9% 63.7%
Below Expectations 5.1% 12.1%
TOTAL 100.0% 100.0%
Net-Above % 35.9% 12.1%
Yes 71.8% 69.7%
No 28.2% 30.3%
TOTAL 100.0% 100.0%
Net-Yes % 43.6% 39.4%
4.0%
5.1%
3.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
VMW Partners as % of Plan
41.1%
30.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
35.9%
12.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Net-Above %
46.2%
48.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%

V
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April 2014
J u l y 2 0 , 2 0 1 2
Deep-Dive VMware Checks Show Strong SMB, Sluggish Enterprise Trends
PRICE: US$92.76
TARGET: US$112.00
20x EV/ 2013 OFC of $5.68/sh + Net cash
of $11.02/sh
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Overweight
Price Tgt US$112.00
FY12E EPS US$2.68
FY13E EPS US$3.06
Yield 0.00%
Fiscal Year End Dec
120
110
100
90
80
70
USD
Source: Bloomberg
CONCLUSI ON
We conducted deep-dive interviews with 7 key contacts in the VMware ecosystem,
producing 6 pages of intensely detailed proprietary feedback. Key takeaways: 1) while
SMB growth is described as "tremendous," Enterprise conditions are seen as a "tougher
slog" because of saturation, as most multi-thousand-server environments have been
virtualized; 2) VMW is having some success targeting Tier 1/Tier 2 workloads, but the
sales cycle is longer because "you are messing with people's comfort zone"; 3) continuous
innovation keeps VMW well ahead of the competition, but MSFT is getting more
aggressive with Hyper-V 3 at the low end. Net/Net, we are cautious on license billings
growth because the velocity of new vSphere deals appears slower. We believe VMwares
market leadership and technological superiority will provide it with a competitive
advantage for the next several years, but do not see immediate incremental near-term
catalysts. Maintain OW rating, $112 PT.
Noteworthy Feedback
The low hanging fruits are gone, at least at the enterprise level." "Gone are the days
that you can walk into a 2,000 server environment and look to virtualize it."
VMware's strategy to sell down market "has been working extremely well" and they
have created an inside sales force to push the same.
"Seeing a lot of momentum, from a conversation and interest perspective" around

adjacent products such as Management tools and the Virtual Desktop product, but
thats where the additional sales are not difficult, but are much longer sales cycles."
"We are tilling some pretty big fields, but it's just taking a while to bring the crop in."
"...migration of critical Tier 1 / Tier 2 apps (like an Oracle database or a Microsoft

Exchange server) into a virtual environment is taking place but its a much longer
sales cycle since you are messing with peoples comfort zone.
VMware's solution beats its competitors "hands down" and "feature wise VMware is
way ahead."
Microsoft is becoming more aggressive: they are entering the market quite heavily, and
"many projects have been postponed" after MSFT announced the release of Hyper-
V 3.
security tools.
YEAR
2011A
2012E
2013E
REVENUE (US$ m)
843.7 921.2 941.9 1,060.3 3,767.1 10.7x
1,055.2A 1,109.3 1,133.0 1,268.9 4,566.3 8.8x
1,253.6 1,317.2 1,346.5 1,507.0 5,424.3 7.4x
0.48 0.55 0.53 0.62 2.17 42.7x
0.66A 0.66 0.64 0.72 2.68 34.6x
0.71 0.71 0.74 0.89 3.06 30.3x

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April 2014
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VMware is our fastest growing and also one of our largest grossing vendors today.
Last quarter (ending June), grew the VMW business 37% y/y (top line growth). Within
that number, a leading indicator is net new licenses, where we are starting the conversations
with customersthat grew 50% y/y.
So, we had a substantial quarter with them. I would say our business is healthy. We
have added resources to support that business as well from a pre-sales and sales executive
standpoint. Last year VMW business grew 33% y/y (CY11 as compared to CY10). So,
its been consistent growth and these are not small numbers Total annual VMW business
would be around [many tens of millions of dollars]. You can see thats a substantial growth
of the business.
Was barely on plan in the June quarter, but thats because he had an aggressive plan. Has
forecasted around 28-30% growth for 2012 as compared to 2011.
Not sure if all the sales guys [in the VMW ecosystem] have hit their plans. On average,
thinks that they are well-performing. Its a bell curve, some have done extremely well.
I know that US is performing extremely well.
The technology is well surpassed its competitor and VMW has a 2-3 year head start.
There is a lot of opportunity out there in the market.
The only challenge is that now they have pretty much saturated the market where they sell."
Thinks VMW has a two-pronged strategy to make up for the saturated markets:
Go downstream in the market. Try to sell the product to the SMBs of the world.
That has been working extremely well.
Sell adjacency products into the mid-market and enterprise space. I dont think
the adoption is going as fast as they would like to in that space. Adjacency products
include the Management tools, View (Desktop Virtualization), the Application
development tools. Was surprised to see strong traction in View last quarter.
The low hanging fruits are gone, at least at the enterprise level. If you want to continue to
sell vSphere license you have to go down marketgone are the days that you can walk into
a 2000 server environment and look to virtualize itnow you are looking at 50-100 servers
a much smaller environment which has not gone virtual yet.
Other than net new deals, everything else is a renewal play or a continuation of your
virtualization practice play or selling additional products play.
The latter basically refers to increasing workloads and moving tier 2/tier 1 systems into a
virtualized environment. Can we look to virtualize your Oracle database or your Exchange
serverthose are the tough conversationsIT is very hesitant to mess with something that
they know is working well today. If you mess up Exchange, everyone knows you messed
up Exchange, but if you mess up some of the peripheral applications some people might be
impacted but your job is never on the line.
Thinks that the migration of critical tier 1/tier 2 apps into a virtual environment is taking
place but its a much longer sales cycle since you are messing with peoples comfort zone.
Mentions that its no longer about convincing someone about the cost savings, but about
convincing someone to take the additional risk to move a critical workload into a virtual
environment.
VMware business performance:

VMware growth has been flat y/y.
Was slightly behind the internal plan last quarter. VMware wants to see more
aggressive growth.
Plan to grow 15-20% y/y for 2012.
We are getting new licenses to offset the licenses that dont want to renew. In the enterprise
level, while VMware is having conversations along the lines of moving critical tier 1/tier 2
workloads into vSphere, at the same time, some clients are trying to realize more savings by
moving less critical testing/development workloads into [Microsoft] Hyper-V from vSphere.
Thats the dynamic nature of the VMware businesses that we are in todayhow do you
continue to up-sell without losing too much at the low end?its a bit of juggling. Thinks
that such dynamics will only happen at the large enterprise level as of now, since enterprises
have the sophistication needed for IT to handle a hybrid virtualization environment. For a

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fairly medium sized company that doesnt have too many IT resources, they prefer to stay
on one standard, no matter what the licensing cost is.
Mentions that some verticals, like Retail, are more prone to switching to new technologies
than others if you can prove that it will result in cheaper IT total cost of ownership.
Mentions that the move out of vSphere for test/dev workloads can also be seen as an
opportunity to sell vCenter Operations management licenses to manage the resulting multi-
hypervisor environment.
Mentions that, for a vSphere sale comparison through the years, average sale dollars have
also gone down as they are moving down market.
Products
We are seeing a lot of momentum, from a conversation and interest perspective
from our clients for vCenter Operations as well as vCloud Director
View is up there. Thinks that depending on the vertical you are attacking and
depending on how much a client has standardized on VMware, View has a very
different conversation to it. Mentions that its an easy sales cycle if it's a company
that has already standardized on VMware, but it's a much tougher sales cycle if
someone has experience using Citrix XenApp. Also, mentions that a View sale is
much easier if the conversation is with a Data Center guy who manages the desktops,
as compared to someone managing the application layer.
Sales contacts in the VMW ecosystem:

Thinks that the SMB group is experiencing a tremendous growththey are happy
and they are engaged.
On the enterprise side its a bit of a tougher slug. Thinks that the Enterprise group
is facing the same challenges in terms of how do I grow my share of wallet while
maintaining the test/dev environmenthow do I sell the VDI against stiffening
competition?
Working on a big deal with a North American Financial Services firm. At the low end it will
be a 7-figure and has the potential to move to 8-figures. It's an enterprise agreement over
3-5 years. Big deals are out therecustomers at the enterprise level still want to standardize
on VMware businessthats the good news.
Thinks that there are four steps to virtualization in a data center

First step is going from a physical to a virtual environment. Thats going to result
in X dollars of saving for youits a proven scenario and if you havent done that
you should do it right away.
Next step to further reduce IT cost in the organization is to look at a multi-
hypervisor environment. To manage such an environment, one would need to
invest in vCenter operations (VMware) or System Center (Microsoft).
Third step is to adopt Cloud. Now that one has optimized the internal
infrastructure, how does one go about reducing cost of new infrastructure? A
common scenario is for seasonality purposes, how can you use the cloud to cater to
the seasonal workloads during the peak period? Now you are looking at a hybrid
cloud-public cloud bursting capability.
At this point you are running a fairly sophisticated IT environment. Now one can
look at a Linux environment in addition to a Windows environment. Thats what
we call a multi-platform environmentin the pain of driving IT cost down, thats
kind of the last step. Thinks that one has to be very comfortable with the skill
set before moving into Linux. Thinks that two things can drive the move to Linux,
either you have a fairly sophisticated IT workforce to handle the move to the Linux
environment, or because you dont have the budget.
Uses VMware as the main platform to provide service to customers. Almost everything we
do is virtualized on VMware. VMware constitutes 75% of the business and pretty much
all of our business growth has been in that area.
Was using [Microsoft] Hyper-V and VMware and eventually migrated the entire
environment into VMware.
Primarily offers vSphere along with vCenter to manage everything along with other tools
like the vCloud Director, Site Recovery Management and vCenter CapacityIQ.

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Have looked at View quite a bit, but dont have any customer interested in it at this point
it's something we are interested in.
All the people who were gung ho about virtualizing and going in that direction have
[already] done that and thinks that poses a challenge for VMware to grow as fast as they
were. Other challenges are growing competition (Microsoft and Citrix), huge investments
in physical machines etc.
In his opinion, VMwares solution beats its competitors hands down. And feature wise
VMware is way ahead. Even within some comparable features [in competitors' products],
those features are not as polished, they are not as smooth and reliable as those features are
within VMware.
Thinks that making inroads in the VDI space would be harder for VMware given Citrix's
lead as well as the presence of some smaller players that have a good product.
Mentions that vSphere is always going to be the core for VMware. Every one of the
products that you would purchase from VMware needs vSphere somehow at the back end,
whether its a management tool managing vSphere or something like View where the idea
is to run VMs with vSphere in the back end.
Thinks that any softness in the incremental new license revenue from vSphere can be offset
by the other adjacent tools. Management tools are a big deal. Thinks that the latest
acquisition of DynamicOps should strengthen their position in terms of managing multi-
hypervisor environments.
Were selling a lot of [VMware].
Growth: Probably up 10-20% y/y
Government data centers keep getting smaller and VMware is responsible for that.
Right now the biggest emphasis is on VMware. The vSphere business has stayed about
static. Just picked up a big deal in an educational organization in the US.
Hasnt seen too much movement yet around the other product lines like vCenter Operations
and Cloud etc.
Starting to see more and more movement to View, but View is a long sales cycle.
Hasnt seen too much demand for separate license sales of the vShield products either.
Thinks thats mainly because competition around security in a virtual desktop environment
has beefed up with players such as Kaspersky and McAfee.
VMware business grew about 30% y/y but quarter over quarter I dont think it grew too
much. Mentions that last quarter was slow, but closed a big enterprise agreement which
helped them exceed their numbers.
Thinks that the velocity of the new deals has slowed down... Mentions that most of the
new deals are line extensions in existing VMware customers and thats where the additional
sales are not difficult but are much longer sales cyclesthats when you are getting into
selling View or some of the other productstesting out the use cases. We are tilling some
pretty big fields but its just taking a while to bring the crop in.
vSphere Thinks its a proven product. If people need it they are going to buy it quickly
you dont have to convince them...thats more of a paper and spreadsheet exercise.
For selling View, clients have to test it out with users before buying. Users have to say - I
can live with this response time or this response time is no good. Also, have to look into
buying thin clients etc. There are lot of moving pieces in some of these newer solutions that
make it more time consuming. I dont think its a macro issue at all.
Thinks the position of Citrix XenApp has been shrunk significantly, but still they have a
good install base. And when you are selling into somebody elses install base, me too is
not good enough; you've got to be better than them. Thinks that Citrix is not winning
too many new accounts. Right now we see View as kind of the top dog in this field, and
Citrix is second and everybody else doesnt really matter. His company was a customer of
Citrix, and they moved from Citrix XenApp to View. Thinks that VMware overestimated
the velocity of adoption of View and thought that it would explode. And it will, but
thinks it will take time. Clients tend to try it out with a few users and go from there.
I just feel that they are running out of low hanging fruitthats kind of the challenge.

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Thinks that VMware has added a big inside sales team to help push products down-market
(for organizations with headcount under 1,000).
Sales contacts in the VMware ecosystem - had some concerns in making their numbers,
especially in certain product linesbecause the sales cycle is becoming longer and more
involved. Not a macro issue though.
VMware is still dependent to a large extent on vSphere as of now. Last year, about 77% of
their VMware business came from vSphere, followed by around 14% from View, followed
by management tools and finally by products such as Zimbra.
Two growth areas identified

Management tools :
That has really taken offits an upsell for our existing VMware/vSphere
customers. Lots of traction in the SMB as well as enterprise space.
We expect a lot of growth. vCenter operations manager is coming in quite
handy to customers as they manage a large number of VMs.
It's not enough to see if they [VMs] are up and runningthey want to see
more details. Adds that vCenter Operations Manager has proven to be a
tool which can fulfill the expectations of the customer.
Customers prefer the management tool for the virtual environment to be
from the same vendor who provides the hypervisor.
Also, vCenter Operations is quite flexible and modular in terms of
integrating into other IT management tools like that of IBM or BMC.
End user computing, mainly referring to View:
Thinks that VMware has managed to take share from Citrix even though
Citrix has been the leader for a long time.
Mentions that VMware is investing a lot in this area, at least in the EMEA
region. Mentions that VMware has brought some View specialists and is also
doing a lot of use cases with partners.
At the moment they have not taken over Citrix, but they are head to head
we expect a lot of growth in the area of end-user-computing, mostly relying
on View and ThinApp.
Thinks Project Horizon would be the next one to focus on, and thinks
that it will be the next killer application or killer solution for VMware.
Mentions that the Horizon application manager (manages provisioning of
applications) along with project Octopus (the enterprise DropBox) etc.
falls under project Horizon, which VMware is working upon. Everything
under the umbrella of project Horizon, thats the part for which our
customers are quite waiting for and has created quite a fuss with the existing
customers.they are proactively asking for those features.
Plans to increase the end user computing share to at least 25% of total
VMware business in 2012 from 14% in 2011. As of now it would be around
18% of total VMware business, and sees a strong pipeline ahead.
Growth
Grew +30% last year in terms of new license. 2012 expecting a growth of 20-25%.
Has not grown as much in the first half of 2012. Estimates single-digit y/y growth
for 1H: 2012. Was slightly below plan in Q2.
But he is quite confident that the second half of the year will accelerate.
Focusing on Public sector in central Europe in Q3 and Q4, as thats the time for IT
budget flush in that sector.
Mentions that there are multi-million dollar ($4-5M) ELAs in the pipeline, which
should be closed by Q4 of this year.
EMEA economic situation

Thinks Spain has been affected quite heavily along with some eastern European
countries. For his business, apart from the Madrid region, all the other regions
are shrinking. Customers are closing down operations they are concentrating in
Madridor consolidating their data centers.

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Thinks that repercussions are quite moderate in the Dutch region consisting of
Germany, Austria and Switzerland.
Couple of dynamics in play other than weak economic environment:

Microsoft is becoming more aggressive
VMware focused on ELAs
Microsoft as a growing challenge

The main challenge this year is around Microsoftthey are entering the market
quite heavily in terms of virtualization and cloud computing.
Mentions that Microsoft is pushing their own Enterprise Agreement for the core
infrastructure into the market.
They are doing quite expensive marketingthey are promising that it is cheaper
than comparable VMware solution and they are repeating that message as a
mantra.
Mentions that many customers have decided to give Microsoft a chance and look at
their solution. Hence, Many, many projects have been postponed after Microsoft
announced that they are releasing Hyper-V 3 and System Center Management quite
soon.
They are investing a lot many events, onsite activities, mailing, account
management teams are promoting the new solutions quite aggressively.
He is a large Microsoft reseller as well, but he thinks that Microsofts virtualization
offering has some shortcomings as compared to VMware and believes that
customers would realize that when they take a deeper look.
Thinks that Microsoft has changed the strategy slightly in terms of communications
with customers and partners.
With customers, Microsoft is no longer claiming that their Hyper-V 3 is better
than VMware vSphere. They are even admitting that VMware might be the better
technology. They are going into the management space and also into the bigger
customers. They are claiming that they can manage not only Hyper-V, but also ESX
[VMware] and other physical machines. Of course they are claiming that they are
cheaper.
To attract more partners, Microsoft is simplifying their licensing model which is
a really big plus. Also, Microsoft has a really good incentive model for partners,
especially around the Microsoft Enterprise agreements. This time they are serious
and they are really incenting their partners to focus on these deals.
VMware focused on ELAs

Thinks that the main priorities set by VMware for this year, at least for Named
Accounts, is ELAs.
"VMware is not interested in daily business.they are accumulating certain
projects to reach the threshold for an ELA VMware is not taking small orders
and trying to convince customers to sign an ELA. They really want to sign ELAs,
they want to lock down the customer technology wise, and they want to seal their
customers before Microsoft comes up with an enterprise agreement.
Conversations with Sales contacts

Mentions that many of his sales guys were behind plan for Q2 but their pipeline
is full.
Chatter from sales guys in the VMware/Virtualization ecosystem
Mixed feedback I have to say.
Some are centuries behind their planothers are quite in linebut no big
overachievers like it was the case usually in the last year.
Some of them managed to get some good results, but there are also some sales guys
who have been quite disappointed in the last weeks in the last quarter.
But they all have quota on ELAs and its hard to achieve an ELA quota.
Thinks that the pipeline looks good and that they are confident.

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Industry Contacts (3), Contd.
Thinks demand is mainly around the vSphere product, although the mix is changing a
bit toward the Cloud products such as vCloud director and the Horizon projects. Thinks
that the Horizon project is going to be one of the biggest propositions and thinks that
the market is craving for solutions like that. A lot of Dutch government clients are very
interested in that proposition.
Guess-timates that the existing clients in Europe will have 80-90% of the servers virtualized
in the next couple of years and that about 40-50% of companies in Europe are VMware
clients.
Mentions that many Microsoft customers are switching back to VMware lately due to lots
of operational problems related to Hyper-V. Also, adds that Microsoft is making a lot of
noise around Hyper-V 3 and that the product is better.
Mentions that there are two reasons to move to Microsoft:

The price tag around VMware products. Also, most of the time clients have an
existing ELA with Microsoft and can use the same license to get hold of the
virtualization products.
Also, the standard Microsoft training certification generally has a virtualization
part to it, and is cheaper than VMware.
Thinks that VMware sales guys are doing well in Europe. Thinks that they are still selling
the hypervisor along with the other additional products.
Thinks that VMware will be have good growth for at least another few years. There are a
lot of companies which are not virtualized right now and that market is growing as well
but at the same time competition is growing. He is also amazed by the level of continuous
innovation in VMware, even in the core vSphere product.
Regions affected most in Europe:

Spain, Greece, Italy, Portugal Most negatively affected.
Germany absolutely not affected.
UK probably not affected.
Holland a little bit maybe.
Turkey is booming.

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Piper Jaffray & Co.
Piper Jaffray & Co.
Piper Jaffray & Co.
Reason for Report:
Company Update
FY12E Rev (mil) -- $4,519.8
FY13E Rev (mil) -- $5,388.2
FY12E EPS -- $2.58
FY13E EPS -- $3.06
Price $109.00
52 Week Low $74.69
20.4x EV/ 2013 OFC of $5.67/sh + Net cash
of $9.42/sh
Yield: 0.00%
Rev (mil) 2011A 2012E 2013E
Mar $843.7A $1,012.9E $1,207.6E
Jun $921.2A $1,105.0E $1,316.1E
Sep $941.9A $1,133.0E $1,351.6E
Dec $1,060.3A $1,268.9E $1,512.9E
FY $3,767.1A $4,519.8E $5,388.2E
CY $3,767.1A $4,519.8E $5,388.2E
FY RM 12.5x 10.4x 8.7x
CY RM 12.5x 10.4x 8.7x
EPS 2011A 2012E 2013E
Mar $0.48A $0.58E $0.65E
Jun $0.55A $0.64E $0.73E
Sep $0.53A $0.64E $0.76E
Dec $0.62A $0.73E $0.91E
FY $2.17A $2.58E $3.06E
CY $2.17A $2.58E $3.06E
FY P/E 50.2x 42.2x 35.6x
CY P/E 50.2x 42.2x 35.6x
VMware, Inc. (VMW $109.00)
Overweight
39 VMware Partners Finished 5% Above Plan for
Q1, Consistent with Q4
CONCLUSION:
We conducted a global survey of 39 VMW partners and found that in aggregate they
finished 5.1% above plan for Q1 2012, an improvement versus 4.0% above plan in
Q4 2011. 46% of partners observed a better pace of business in Q1, while only 5%
saw a worse pace of business. The quantitative feedback also shows a convincingly
faster pace of server virtualization activity among customers. The survey results
suggest VMW carries strong current business momentum and further augments our
view that VMwares market leadership and technological superiority will provide it
with a competitive advantage for the next several years and thwart any threats to
its dominant position. In our view, the current premium valuation on VMW creates
a fairly balanced 3-6 month risk/reward profile, but better upside considering a 12-
month horizon due to powerful secular tailwinds. Reiterate OW, $125 PT.
Partners 5.1% Above Plan in Q1, Healthy Level of Optimism. Partners we

surveyed finished 5.1% above their internal plan for Q1, a slight improvement
from 4.0% above plan in Q4 2011. Also, 46% of partners saw a Better pace
of business while only 5% saw a Worse pace of business in Q1. Additionally,
41% of the partners we surveyed expect VMW to report quarterly bookings that
are above consensus expectations, while only 5% expect disappointing results.
Although we do not have extensive historical data to compare against, the data
clearly suggests VMW carries strong/consistent current business momentum and
reflects high optimism across its broad ecosystem as it continues to dominate the
server virtualization market.
Faster Pace of Server Virtualization Activity Observed. Among the VMW

partners we surveyed, 46% see a "Faster" pace of activity for customers virtualizing
their server environments, 54% see "The Same" pace while 0% see a "Slower" pace
of activity. This robust fundamental feedback correlates nicely to our recent CIO
survey findings, in which CIOs ranked virtualization as the top spending priority
for 2012.
Overweight; PT $125 = 20.4x EV/OCF multiple to 2013 OCF forecast of $5.67/share
+ Net cash of $9.42/share.
security tools.

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April 17, 2012
Exhibit 1: VMW Partners as a % of Plan - Q1 2012
3%
0%
15%
21%
36%
13%
13%
0% 5% 10% 15% 20% 25% 30% 35% 40%
More than 20% below plan
11 to 20% below plan
0 to 10% below plan
At plan
0 to 10% above plan
11 to 20% over plan
More than 20% over plan
In the most recent quarter, how did your organization perform versus its
internal plan for VMware business?
Exhibit 2: VMW Partners as a % of Plan - Q4 2011
0%
5%
8%
28%
41%
10%
8%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
More than 20% below plan
11 to 20% below plan
0 to 10% below plan
At plan
0 to 10% above plan
11 to 20% over plan
More than 20% over plan
For Q4, how did your organization perform versus its internal plan for
VMware business?
Exhibit 3: VMW Partners Pace of Business
5%
49%
46%
0% 10% 20% 30% 40% 50% 60%
Worse
The Same
Better
Considering the broader VMware ecosystem, how would you characterize
the pace of business in the past 3 months versus the prior 3 months?

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April 17, 2012
Exhibit 4: VMW Partners, VMW Bookings Expectations
5%
54%
41%
0% 10% 20% 30% 40% 50% 60%
Below Expectations
Inline with Expectations
Above Expectations
As you consider the broader VMWare ecosystem, would you expect
WMware to report quarterly bookings that are:
Exhibit 5: VMW Partners, Pace of Server Virtualization Activity
0%
54%
46%
0% 10% 20% 30% 40% 50% 60%
Slower
The Same
Faster
In recent months, how would you assess the pace of activity for customers
virtualizing their Server environments?
Exhibit 6: Geographic Mix
5%
15%
79%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Asia-Pacific
Americas
Where is your organization located?
Source (all charts): Piper Jaffray Research

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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

WOR K DA Y (WDAY - $98.16)
Overweight

Never-Before-Seen Workday Customer Survey

We surveyed 68 Workday customers with an emphasis on large and mid-sized
organizations, spanning $250 billion in annual revenue streams and at least 15 industry
sectors to understand Workdays true differentiation and value proposition from the
perspective of Workday customers. Bottom line: Workday's customer satisfaction remains
unparalleled, and customers attribute it largely to WDAY's ease of use and customer-
driven enhancement process. Additionally, in terms of modules likely to be adopted in the
next one to two years, Recruiting steals the show with potential adoption of 69%, while
the adoption of financial management modules was the laggard with potential adoption of
less than 13%.

Unparalleled Customer Satisfaction Levels. Workday's customer satisfaction remains
off the charts, and customers attribute it largely to WDAY's ease of use and customer-
driven enhancement process, which is viewed as a superior next generation business
model. Workday customer satisfaction rates 8.2 out of 10, as compared with a range
of 3.0-8.0 for its competitors or 6.6-7.1 for vendors with a reasonable sample size.

Subtle True Differentiation Factors. Among the factors that truly differentiate
Workday products from competing products in the market: Ease of use and the
cloud model/Low total cost of ownership came in at the top as expected. However,
customers also highlighted a few factors which are less appreciated by investors such
as ability for customers to be self sufficient and less reliant upon traditional IT
organizations to configure and manage the application, ability for customer to
contribute to the design and speed of innovation.

Recruiting Strongest Demand for Potential Adoption. In terms of modules likely to
be adopted in the next one to two years, Recruiting steals the show with potential
adoption of 69%. As a reminder, Recruiting is not yet generally available and is
expected by the end of April (Q1F14.

Financial Management Broad-Based Adoption Still A Few Years Away. Among the
Workday Financial Management modules the only module with a reasonably good
rate of current adoption is the Expense Management module. Also, while only 3% of
customers mentioned Workday as their current primary financial management
application, 23% highlighted that they have already adopted/implemented or they will
adopt/implement Workday Financial Management in the next two to three years. This
suggests a good initial growth curve for Workday Financials and indicates that broad-
based adoption is still a few years away.

Risks: Economic fluctuations, competition, geographic variances vertical
concentration.

April 2014

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Y
April 2014

CUSTOMER SPENDI NG GROWTH I N 5 YEARS

50% of respondents believe their organizations will be spending 1.1-1.5x more than the
current spend on Workday five years from now, while 23% think that the spend with
Workday five years from now could be between 1.5-3x the current spending.

On a blended average basis, existing customers plan to spend at least 38%more on
Workday five years from now. This translates to a 7% CAGR for installed base
spending growth, a respectable same-store-sales trajectory as the installed base
adopts new Workday modules.

Exhibit 1
CUSTOMER SPENDI NG GROWTH

Key Takeaways
From the Chart
Above

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Y
April 2014

WORKDAY S CUSTOMER SATI SFACTI ON LEVELS

On a scale of 1 to 10, Workday customer satisfaction rates an 8.2.

In fact, 90% of Workday customers rated their satisfaction level at 7 or higher.

It would be difficult to find comparable third-party data for other vendors, but we did
compile customer satisfaction levels for 14 HRIS vendors in our March 2012 HRIS
Managers' Survey, and found competitors range from 3.0-8.0, or 6.6-7.1 for vendors
with a reasonable sample size. Thus, Workday's customer satisfaction remains
unparalleled, and customers attribute it largely to WDAY's ease of use and customer-
driven enhancement process, which is viewed as a superior next generation business
model.
Exhibit 2
WORKDAY CUSTOMER SATI SFACTI ON

Key Takeaways
From the Chart
Above

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April 2014

WORKDAY S TECHNOLOGY DI FFERENTI ATI ON
ASSESSMENT

66% of customers surveyed feel that Workday is increasing its technology
differentiation and showing better technology vision in recent months, versus only 1%
who sense the opposite trend. This is a very lopsidedly positive result, in our view.

The bottom line is that competitors are not closing the gap against Workday as it has
pioneered the concept of an object-oriented layer, cloud-based HR combined with
Financials, and has also moved to aggressively roll out Big Data, Recruiting and other
new options.

Exhibit 3
WORKDAY S TECHNOLOGY DI FFERENTI ATI ON

Key Takeaways
From the Chart
Above

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April 2014

WORKDAY S TRUE DI FFERENTI ATI ON

Customers view Ease of use as the largest factor (49% vote) contributing to
Workdays true product differentiation as compared to the competition.

The cloud model and low total cost of ownership (TCO) followed in the second
place (34%) while functionality and pace of innovation came in at the third position
(24%).

Meaningful frequent updates and customer driven enhancements a few qualities
that are lacking for legacy-on-premise vendors were also considered by a lot of
customers as important factors contributing to Workdays true differentiation.

It is interesting to note that only 3% of the respondents considered the pedigree of
Workday as a factor contributing to its true differentiation, although it is probably fair
to expect a very high weight on this factor if this survey was completed by investors.

Please check the next few pages for detailed feedback from respondents.

Exhibit 4
TRUE DI FFERENTI ATI ON FACTORS

Key Takeaways
From the Chart
Above

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Exhibit 5
WORKDAY S TRUE DI FFERENTATI ON ( RAW FEEDBACK)
In your view, what truly differentiates Workday's products versus competing products in the market?

Ease of use, customer driven enhancements, functionality.
I believe Workday's business model differentiates them from their competitors; changes strongly driven by customer
demand and feedback.
Ease of use, features and functional areas all under one "umbrella" reducing the need for integrations, new features and
functions delivered with each release as well as meaningful enhancements.
Cloud based and user interface.
Ease of use.
Ease of use and interface; real time data.
HR's ability to configure functionality versus having IT do it. Multiple annual updates to introduce new functionality.
Initially the SaaS model but now that is common. They are an innovator in HCM and are constantly revamping their
product to meet the needs of customers.
It is very user friendly.
Level of innovation and willingness to listen to customer feedback.
One single architecture built from the ground up. SAP and Oracle grew through acquisition and have many different
architectures under the hood. Total cost of ownership is MUCH lower than competitors, few or no IT resources are
needed to build reports, integrations and configuration of business processes. Workday is hands down the best HCM on
the market.
Ability to leverage Business Process functionality to enable our global workforce.
Cloud platform and intuitive interface.
Homogenous application supporting finance/ HR processes.
All in one suite/module makes entering information and integrations simpler across functional areas.
Extremely intuitive user interface.
Kept up to date and user experience.
Ability for HR to do the configuration and own the tools. Having all customers on the same line of code has
tremendous advantages.
System administrator vs. IT support needed.
Customer centric focus, mobility capability, continuous product improvement and true SaaS cloud offering.
Ease of use and flexibility. It is also key that Workday is continually striving to make the system intuitive and user
friendly.
Flexible, user friendly UI.
The agility and flexibility to configure WD delivered business processes.
Best practices, proper planning, great minds.
Ease of use in client adoption.
Cloud-based with constant upgrades. Great user interface.
The flexibility.

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Exhibit 6
WORKDAY S TRUE DI FFERENTATI ON ( RAW FEEDBACK) CONTD.

Workday designs its product with a strategic goal of ensuring the initial and ongoing success of the customer.
Other vendors often feel their job is done once the sale is made (implementation, patching etc. is "on you").
Workday looks for ways to solve complex business problems with the least amount of technical complexity
possible to allow for the maximum agility as the business world changes. All of Workday's development is planned
upfront with "change in mind" and done in such a way that change (which will come) will have the least impact
possible on the customer, allowing you to spend your time taking advantage of new features, not like some other
vendors who cause you to just spend a lot of time moving things around behind the scenes leaving you in little
better shape than you were in the past, with the only advantage being you now have "official support" from the
vendor for awhile longer.
The implementation process is not solid. Working with a vendor who was just becoming familiar with the product has
been challenging. The timeline to implement the system has been unrealistic.
Usability, relevant and fast product updates. Extent of configuration.
Functionality, cost.
Workday is for the most part simple and intuitive (to use ... and sometimes to admin, but not always!) I think there are
two compelling reasons Workday is growing rapidly: 1. First mover advantage in the paradigm shift to SAAS 2. Dave
and Aneel's compelling story, combined with their deep pockets.
SaaS model, flexible, intuitive, ability for customer to contribute to the design, Workday community.
Interface, self-service.
Usability, flexibility.
The speed of development and customer service.
It is cloud-based.
Consumer-like user experience.
Workday provides no customer support.
Ease of use (once it's set up and implemented) comprehensive product offering on one platform and the power of the
reporting tools.
Ease of use and rapid development, as well as exceptional customer service.
Workday's continuous growth & the ability to have a complete solution (all solutions) in one system. Excellent
Reporting & Analytics Easy to use system.
Easy to use and logical.
Ease of use, single tenant, and amount of customer input Workday solicits.
Great UI.
Diversity of functionality, Ease of use, Speed of innovation, Ability for customers to be self sufficient and less reliant
upon traditional IT organizations to configure and manage the application, Lower total cost of ownership.
The UI and usability.
The technology offers organizations nimble systems with outstanding analytical and trending not available without
major customization in a typical relational database. We provide real time business data that drives our business.
User community influencing product development.
Easy updates to new versions!

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April 2014

Exhibit 7
WORKDAY S TRUE DI FFERENTATI ON ( RAW FEEDBACK) CONTD.

True SaaS. Low total cost of ownership.
Full package integration with pretty straightforward logic in implementation.
Ease of navigation, pace of positive change, the founders and employees, the customer community.
The constant updating of the product and Workday's constant innovating.
Cloud-based. Great user experience. Continuous improvement.
Unified system, ease of use, quick deployment, ability to reconfigure quickly.
SaaS at the core vs. a modification of a legacy system to SaaS.
Ease of use; Outstanding out the box analytics; SaaS model, no upgrade cost.
Single code base and good customer support. True SaaS product built from the ground up that way.
First SaaS player in the HR market with a product that was architected from the ground up as a SaaS solution.
The Workday modern user interface is much more intuitive and easy to use. Unlike traditional ERP products,
Workday provides easy to manage frequent upgrades. Total cost of ownership is less expensive when compared with
Traditional ERP products.
Search and next generation ease of use for end customer.
1. Cloud Platform 2. Pace of innovation 3. Since line of code 4. Agile implementation 5. Product Support 6. Proven
track record of success.
Modern and flexible.
Too many steps to complete a task.
Easy to use, manager intuitive.

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April 2014

REGRETS FOR SWI TCHI NG TO WORKDAY

72% of respondents have no regrets about choosing Workday over any other vendor
for the HCM or Financials needs.

Of the remaining 28%, 12% think that they are unable to speak to this question for
various reasons including not yet live on the system.

The 16% that feel disappointment with Workday cited varied reasons including
integration issues, more international support require etc. Please check the following
few pages where we present the raw feedback.

Exhibit 8
REGRETS ON CHOOSI NG WORKDAY

Key Takeaways
From the Chart
Above

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Exhibit 9
REGRETS/ EXPERI ENCED I SSUES ( RAW FEEDBACK)
In a few brief sentences, please answer this question: Do you have any regrets about switching to Workday, for example any
product functionality gaps or other issues you have experienced?

It is regrettable that full options were not considered prior to adopting 2 separate systems for HR & Payroll.
Would like more customizations Employers can do.
Integration issues.
Having to depend on data sources which do not expose all the required fields for reporting. Support for customization
in UI and help text is lacking. Workday studio is not as mature a product as other development environments are.
Challenging to incorporate into existing enterprise ecosystem from browser policy perspective.
I wasn't on board when we migrated to Workday but I find it very difficult and not user friendly.
International Payroll. Need support for more countries globally.
Workday has a lot of issues with being in a developing phase. Lots of issues come up where updates will cause defects in
other products.
Significant gaps in grant management, financials not as strong as some competitors.
The Workday cost per employee cannot be supported in developing countries. No business case to utilize the product
when utilizing per employee cost model. We can hire very cheap workers to do the work which is being done by
Workday and business case is negative.
We have struggled to leverage more of the functionality of WD due to it not meeting our needs outside of core HR.

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April 2014

Exhibit 10
NO REGRETS ( RAW FEEDBACK)

No regrets. However, we find it challenging to continue to keep up with the ever-evolving technology. Significant
changes that occur 2-3 times/year are difficult to manage and we have fallen way behind in keeping up with the changes.
No regrets. Workday has provided benefit to efficiency in our organization as well as features and functions we were
not able to provide our employees and managers before.
No regrets at all at this time. Am very satisfied with product functionality and user experience.
Overall a great switch for us. However functionality of Compensation and Talent modules is not yet best in class. Does
not offer as much as our older provider (Authoria/PeopleFluent) or someone like Success Factors does. Having the
modules integrated makes up for most of this gap, but it is a hard sell to our individual COEs when Workday is not as
advanced in these areas.
No regrets. Every system has areas for improvement but Workday's management team and pace of innovation is still the
best out there.
I thank the Lord daily that I made the Workday decision. If I could move to their financials I would, but product is not
quite there yet for complex multi-nationals...yet.
There is functionality not met, but nothing that we are superly concerned about.
No regrets; however....we struggle with keeping aligned with each new feature set during upgrades. We don't have the
bandwidth to test or implement; as a result we've fallen behind and have dealt with the drawbacks in functionality.
No regrets what so ever. Workday is the most integral part of our corporate infrastructure.
We have no regrets at all. We went live in 2009 knowing that a few features were not present at that time. However, this
was not a surprise and we had honest discussions with them upfront and knew which items they were already planning
for in the future and which ones they quite likely would not be doing. All of those initial gaps have been filled in
subsequent releases for the items that they said up front they planned on doing.
No regrets in moving. Gap is having an Amazon-only Big Data solution - need to have hosting options or allow
customers to self-host.
I don't think we have any regrets. We like the product a lot and have made great strides in the 2.4 years we've been live.
It is much, much more usable than our previous (PS HR) system. It can at times be difficult to set up new features, and
getting our managers to adopt self-service has been a challenge, but that's not Workday's fault.
No regrets, still new to Workday. Just went live globally a few months ago.
None. The speed of development has kept up with the needs of the organization quite well.
No regrets, but many surprises on some limitations that we did not face on our legacy system.
Absolutely none. This has been the best software decision I have made in my work experience.
No, great product and support.
Not in the HCM and Payroll products.
No as we didn't really have an HRIS system, and Workday was implemented as our first "real" HRIS system.
No regrets at all. While there have been a few instances where we have found gaps in functionality, in most cases we
have found acceptable work-around. And in some cases where the functionality has not been exactly how we wanted, it
forced us to re-evaluate our current process. And in some cases improve them. In other cases we have simply postponed
implementing certain functionality until they got to where we were happy with it.

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April 2014

Exhibit 11
NO REGRETS ( RAW FEEDBACK) CONTD.

Workday's Talent Functionality was a step back; however, the system has been a significant improvement for us overall.
No regrets so far. We have purchased Workday but we haven't implemented the software yet.
We look forward to increased Grants & Effort Reporting functionality. We are quite pleased and would do it all over
again!
No, but I was expecting it to be more intuitive for the end user employees and managers.
No regrets, however procurement and financial reporting needs to be improved.
So far no regrets. Product is still evolving but Workday has aggressive roadmap through the 3 updates a year.
Initially, but not so much now.
None.
No regrets.
No .
No regrets.
None.
No.
Not at all.
No Regrets.
No.
None.
No.
No.
No regrets to date.
No.
No.
No.
No.
None.
None.
No!
None.
Not that Im aware of.

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April 2014

Exhibit 12
NOT YET LI VE OR N/ A ( RAW FEEDBACK)

We will go live with Workday 21. I was looking forward to going live with the user interface on Workday 20. I thought
the "wheel" landing page was very intuitive in Workday 20.
We have not gone live with the system yet so I cannot speak to this.
Too new -- just went live. No regrets yet. Need to work on compensation functionality.
We are in the process of implementing the payroll system. Because we do not have financials, there's no GL to drive it.
This has been a big headache to deal with.
N/A.
The visiting.
N/A.

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April 2014

ADOPTI ON OF WORKDAY PRODUCTS

Not surprisingly, a vast majority of Workdays customers currently use the system for
core Human Capital Management (HCM) functions while a small portion of
customers use the emerging Financial Management products.

Among the Financial Management modules the only module with a reasonably good
rate of current adoption is the Expense Management module.

Additionally, it is surprising to see that in contrast with the low adoption of the
Financial Management products, 40% of the current customers use the Payroll
Product.

57% of the customers also use Workday for Talent Management, which is primarily
Onboarding, Performance and Goal Management and Succession Planning.
Exhibit 13
CURRENTLY USED WORKDAY PRODUCTS

Key Takeaways
From the Chart
Above

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In terms of modules likely to be adopted in the next one to two years, Recruiting steals
the show with potential adoption of 69%. As a reminder, Recruiting is not yet
generally available and is expected by the end of April (Q1F14.

The survey results suggest the biggest growth vectors within Workday's installed base
in the next one to two years will be
o Recruiting (used by 6% today, but could reach 75% in two years),
o Big Data Analytics (used by 3% today, but could reach 27% in two years),
o Accounting & Finance (used by 4% today, but could reach 16% in two years),
o Talent Management (used by 57% today, but could reach 85% in two years),
o Time Tracking (used by 31% today, but could reach 52% in two years), and
o Workforce Planning & Analytics (used by 26% today, but could reach 48% in
two years).
Exhibit 14
WORKDAY PRODUCTS LI KELY TO BE ADOPTED I N THE NEXT 1 - 2
YEARS

Key Takeaways
From The Chart
Above

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April 2014

ADOPTI ON OF FI NANCI AL MANAGEMENT APPLI CATI ON

Exhibit 15
CURRENT PRI MARY FI NANCI AL MANAGEMENT APPLI CATI ON


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April 2014

SAP topped the list (25%adoption) as the primary financial management application
used by the Workday customers, followed by Oracle (19%) and PeopleSoft (13%).

While only 3% of the customers mentioned Workday as their current primary financial
management application, 23% highlighted that they have adopted/implemented or
they will adopt/implement Workday Financial Management in the next 2-3 years. This
suggests a good initial growth curve for Workday Financials.

Exhibit 16
ADOPTI ON OF WORKDAY FI NANCI AL MANAGEMENT I N THE NEXT
2- 3 YEARS

Key Takeaways
From The Charts
Above

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April 2014

Among the 76% of respondents who are unlikely to adopt Workday Financial
Management in the next two to three years, only 18% referred to missing functionality
or scalability as the main reason for their decision.

The other reasons are more secondary in nature such as satisfaction with existing
solution, under contract or other obligation to use another application, high cost of
transition etc.

Please find the raw feedback from respondents in the next couple of pages.
Exhibit 17
UNLI KELY TO ADOPT WORKDAY FI NANCI AL MANAGEMENT I N THE
NEXT 2- 3 YEARS BECAUSE

Key Takeaways
From The Charts
Above

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April 2014

Exhibit 18
YES, LI KELY TO ADOPT WORKDAY FI NANCI AL MANAGEMENT ( RAW FEEDBACK)
Is your organization likely to adopt Workday FINANCIAL MANAGEMENT (i.e. as your core General Ledger) in the next 2-3 years, and
WHY or WHY NOT?

Have had some discussions, but Finance is looking for additional functionality.
When the timing is right and they are ready for Manufacturing companies.
We are moving to a single platform for financials and HCM/Payroll/etc.
Looking to include all in one platform.
Under discussion.
Best in class and integration with HR/payroll.
Exhibit 19
NO, UNLI KELY TO ADOPT WORKDAY FI NANCI AL MANAGEMENT ( RAW FEEDBACK)
WHY or WHY NOT?

Finance team is content with their current set up.
Happy with PeopleSoft.
Can't imagine that we'd move away from SAP. We are a manufacturing company and the operations/finance functions
are all run on SAP.
Finance Department wants to stick with Oracle. We have integrations built which handle the data transfers between
the two systems.
In the process of an SAP enhancement.
Heavy investment in SAP.
Our organization has spent a significant amount of time and money in the current financial management system to
meet the needs of our firm.
Satisfied with Current system; WD system not applicable for large enterprise; No appetite to be a test case for Very
large enterprise.
Already on a platform we are happy with.
Contract with current provider.
We renewed our PeopleSoft Financials contract last year for 3 years. Beyond that is an unknown.
We are tied to SAP.
Current obligations.
Currently using Oracle Financials.
Large Oracle investment and still waiting to see capabilities of Workday financials.
We just chose NetSuite a year or so back.
Heavy investment in legacy financial system.

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April 2014

Exhibit 20
NO, UNLI KELY TO ADOPT WORKDAY FI NANCI AL MANAGEMENT ( RAW FEEDBACK) ,
CONTD.
WHY or WHY NOT?

We use different products around the world. Unless Workday is seen as the leader, unlikely they would switch.
We will continue with Oracle financials for SAP because it suits our manufacturing better than Workday financials. It
would be great if Workday could catch up in the manufacturing space, because then we would implement Workday
financials.
Limited capabilities to support our manufacturing line of business.
Workday financials does not yet support complex local statutory reporting that we require for our European and Latin
American entities. Additionally there are current gaps for the manufacturing financials that we need.
Accounting not sold on the product yet.
The group that manages this has evaluated the Workday Financial Management offering in fairly good detail. At this
time it appears that this module is not focused as much on things unique to people who are in the business of
manufacturing. If that changes they may look again, but not likely right away.
Workday's Financial Management application still has more maturity to gain in this area especially for financial
institutions.
We are slow to adopt new functionality and have very limited internal resources to support.
The view is that financials are not robust enough. I believe that they are but there has to be a visionary that can lead the
charge...we do not have that on the finance side.
No manufacturing, supply chain, PLM capabilities. Need a bigger solution set.
We need more capabilities for manufacturing finance.
It doesn't provide enough functionality that applies to Professional Service firm management.
Actually don't know.
Not sure I am not involved in financial management system decision.
In house, not entirely sure of structure.
We just do not have that on our roadmap. We are a global company and it have other strategic projects planned before
taking that on.
Actually not sure on this, I'm not privy to the finance org's direction.
Not sure if it applies.
Now implementing SAP financials.
Going with another product.
Too many other competing priorities; loyalty; cost of changing.
We have a significant investment in PeopleSoft Financials and have done significant modifications, including
integrations into other systems such as our CRM. It would require significant financial resources to move to another
system.
Maybe, depends on cost and resources to transition, plus timing against company business plan.
Expensive compared to what we use.

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ADOPTI ON OF EXPENSE MANAGEMENT MODULE

Exhibit 21
CURRENT PRI MARY EXPENSE MANAGEMENT APPLI CATI ON

Exhibit 22
LI KELY TO ADOPT WORKDAY EXPENSE MANAGEMENT I N THE NEXT
2- 3 YEARS


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April 2014

Concur topped the list (37%adoption) as the primary Expense Management
application used by Workday customers, significantly ahead of Oracle (9%),
PeopleSoft (6%) or SAP (3%)

While only 19% of the customers mentioned Workday as their current primary
Expense Management application, 39% highlighted that they have
adopted/implemented or they will adopt/implement Workday Expense Management in
the next 2-3 years. This clearly shows that a healthy chunk of Workday customers will
ultimately use Workdays Expense management product.

Of the 62% of the respondents who are unlikely to adopt Workday Expense
Management in the next couple of years, 49%voiced their reasons for their decisions as
shown on the chart above.

19% of the respondents are either happy with the current system or have just
implemented a new one, while another 15% dont know or are not sure at this point in
time.

Interestingly, 9% of the respondents referred to close ties with the existing financial
application (non-Workday) as a reason behind their decision.

Please find the raw feedback from respondents in the next couple of pages.
Key Takeaways
From The Charts
Above
Exhibit 23
UNLI KELY TO ADOPT WORKDAY EXPENSE MANAGEMENT I N THE
NEXT 2- 3 YEARS BECAUSE

Key Takeaways
From The Charts
Above

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April 2014

Exhibit 24
YES, LI KELY TO ADOPT WORKDAY EXPENSE MANAGEMENT ( RAW FEEDBACK)
Is Your Organization Likely to Adopt Workday EXPENSE MANAGEMENT in the Next 2-3 Years?

Easy! Looks awesome & we'd love to have one tool for our employees versus several.
We will be looking at an Expense Management vendor in the future. We began the process this year and looked at
Workday but then put the project on hold for now.
Looking to include all in one platform.
Under evaluation.
Same as above.
Not sure. Decision lies in our Finance department.
Exhibit 25
NO, UNLI KELY TO ADOPT WORKDAY EXPENSE MANAGEMENT ( RAW FEEDBACK)

I don't believe we'll change Concur, but it is possible that we would go with either Workday expense mgmt. or
SAP/Oracle, when we choose our ERP system (which happening right now).
Finance Department wants to stick with Oracle. We have integrations built which handle the data transfers between the
two systems.
Here they consider expenses a part of Financial Management and would likely continue to do that. While our Expense
Management now does not have as many nice features as what Workday has they will likely continue with it due to its
direct link to our current Financial Management system.
I doubt we would take on Workday expenses without also taking on Financials, which is a future unknown. I'd guess
that's unlikely to happen in the next few years though. We have too many large custom applications dependent on finance
and in-house solutions.
No appetite for change. Not applicable for large enterprise.
We just moved to the current system.
We are not currently in planning for replacement.
Contract stipulations will make this move difficult.
Happy with Concur
Not in the budget
We just implemented Concur.
Just implemented Concur
We are tied to SAP
Workday does not seem to be a very popular choice.

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April 2014

Exhibit 26
NO, UNLI KELY TO ADOPT WDAY EXPENSE MGMT ( RAW FEEDBACK) , CONTD.

Coupa is better.
Currently using Oracle Financials.
We like Concur.
We just implemented Concur.
Higher priorities.
Already on a platform we are happy with.
Too expensive.
Concur seems to work well.
Same as above.
Can not say for sure.
Don't know.
Haven't discussed.
Not sure yet.
I do not have an answer for this.
I don't know.
Again, not privy.
Possibly, not sure.
We will most likely leverage the functionality of another solution that is integrated with a Financial package designed
for professional services organizations.

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April 2014

LI MI TATI ONS


from 68 Workday customers distributed across 15 industry sectors is included. Dozens of
very large household names participated in the survey, totaling $250 Billion in revenue.
Customers most commonly had $1B-$5B in revenue, with a few over $20B. The survey also
covered over 1M employees in total, out of Workday's ~6M subscriber base. (exhibit
below).

We surveyed 68 Workday customers with an emphasis on large and mid-sized
organizations. The customers surveyed in total reflects a $250 Billion in annual revenue
stream, spanning at least 15 industry sectors. We believe the survey is useful due to its scale
and focus on larger organizations, but we note at least one limitation: 1) the survey is more
weighted toward North American organizations, with roughly 4% of respondents outside
the Americas.

Our Workday
Surveys
Differentiation
Survey Background
and Limitations
Exhibit 27
CUSTOMER REVENUE


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Exhibit 28
CUSTOMER HEADCOUNT

Exhibit 29


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April 2014

Exhibit 30
I NDUSTRY SECTORS


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Au g u s t 2 7 , 2 0 1 3
Workday, Inc. (WDAY) Neutral
Deep Dive Checks Suggest Workday's Growth & Disruption on Cruise Control
PRICE: US$76.01
TARGET: US$66.00
19x EV/CY14E revenue of $665.4M + net
cash of $805.8M and 202.5M s/o
Mark R. Murphy
Pinjalim Bora
Matthew J. Coss
Rating Neutral
FY14E EPS US$(0.71)
FY15E EPS US$(0.70)
Div (ann) US$0.00
Fiscal Year End Jan
Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13
80
70
60
50
40
30
20
USD
Source: Bloomberg
CONCLUSI ON
Our conversations with 5 large Workday partners bolster our conviction in the multi-
year growth opportunity. Feedback is head-turning in the following areas: 1) the deal
pipeline is described as "immense", with Workday "included in a tremendous number
of software selections right now"; 2) WDAY is telling partners that it plans to move
ORCL and SAP out of the way in the Financials market, and partners believe that
Workday should be able to sell to companies with >25,000 employees within a year;
3) Partners observe Payroll and Expense becoming frequently-adopted SKUs, noting a
75K seat Payroll deployment while seeing "many replacements of Ultimate Software for
Workday Payroll" and "many replacements of Concur for Workday Expense." While
Workday sits at the confluence of a powerful cloud movement and aging ERP systems
ripe for replacement, we continue to struggle with the valuation at 28x EV/FTM revenue.
Neutral, PT to $66.
Noteworthy Feedback
(+) We are seeing a lot of folks buying into Workday Payroll as well. We are certainly
seeing some of the folks who had adopted HCM now move toward a Financials
deployment.
(+) Over the last twelve months, they have really built out their sales capacity from
a Financials perspective...18 months ago, they had 4 people selling Financialstoday
they probably have 25 folks or so.
(+) Workday management is reportedly telling partners that 'Financials is the next
big thing for us' that they are out to move SAP and Oracle out of the way in that
business, and some of the deals that are coming around in the pipeline are big enough
to lend credibility to those talks.
(+) "It [the pipeline] consecutively grows every quarter, it's not going down... there are
very, very, very large deals.the pipeline looks immense.the largest Payroll [deal to
date] is being deployed now, 75,000 employees, multi countrythere are very, very big
deals in the [HCM] pipeline.
(=) The slight challenge that they are having [which is] elongating their sales cycles a
little bit, is that Oracle Fusion is coming in and making a lot of noise...They [Oracle]
are making people pause, they are making people look at the pricing because it's very
attractiveso it's causing a delay in the cycle.
Workday is a leading provider of enterprise cloud-based applications for human capital
management (HCM), payroll, financial management, time tracking, procurement and
employee expense management.
YEAR
2013A
2014E
2015E
REVENUE (US$ m)
56.8A 62.7A 72.6A 81.5A 273.7A 444.4E 56.2x 34.6x
91.6A 99.5 115.9 137.4 444.4 665.4 34.6x 23.1x
141.8 149.7 170.9 203.2 665.4 23.1x NA
(0.16)A (0.19)A (0.15)A (0.16)A (0.65)A (0.71)E NM NM
(0.15)A (0.18) (0.19) (0.19) (0.71) (0.70) NM NM
(0.22) (0.19) (0.18) (0.11) (0.70) NM NA

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Detailed Positive Checks (5) Industry Contact 1
Observes that there is still a resource constraint in the ecosystem to provide deployment
services and keep up with Workdays rapid growth. Adds that services around Workday
continue to grow at an incredibly fast pace.
Mentions that Workday is emphasizing Financials and are going back to the existing
HCM client base and selling into them. There is a lot of progress
Also, seeing a lot of progress in the educational and government sectors.
Mentions that PeopleSoft actually never made a dent in Financials, and it was about an 80-20
mix between HCM and Financials. What they are telling us is that Workday Financials is
going to be the dominant player that PeopleSoft never was. Mentions that the Financials
module is getting to a point where it is very functional, but still lacks a little bit of breadth.
Thinks that at this point Workday Financials is feasible for companies such as a services
company etc., but not a manufacturing type company. Thinks that they have around 45
clients live on Workday Financials as of now.
Mentions that the Workday HCM product is agnostic to languagemultiple language,

multi currency [and] natively global, but the Financials module is currently only based
on US GAAP, and so it will take some time to move on to European financials or jump to
inflationary financials like they have in Latin America.
Observes that there are very, very, very large deals. the pipeline looks immense.the
largest payroll [deal to date] is being deployed now, 75,000 employees, multi countrythere
are very, very big deals in the [HCM] pipeline.
Doesnt see Ultimate Software as a serious competitor in the long run. Thinks that Ultimate
has a size limitation on the companies that they can tackle.
Comparing PeopleSoft during its heydays [1999-2000] and Workday, mentions that
PeopleSoft had a manufacturing module (inventory) and their Financials were a little more
developedbut in terms of functionality, ease of use, global capabilities, and ability to sell
to the large global international corporationsWorkday is light years ahead. Thinks that
in most of the modules, Workday is ahead of even the current version of Oracle/PeopleSoft.
Mentions that Workday management is telling partners that Financials is the next big thing
for us that they are out to move SAP and Oracle out of the way in that business and some
of the deals that are coming around in the pipeline are big enough to lend credibility to
those talks.
Industry Contact 2
Seeing that as they are moving up market, the deals are getting more complex. Mentions
that he is seeing more larger deals and more deals that include various components of
the platform [HCM, Payroll, Performance etc.] as opposed to only the core HCM module,
especially in the non profit, education and government sector.
Mentions that he has seen a big push in add-on activity among existing customers, i.e.
existing customers trying to adopt newer modules such as time-tracking or payroll etc., a
move toward increasing the stickiness of the platform. People arent getting on and then
saying I want to be done, they are getting on and saying OK, well now how do I take
advantage of your stack. I like it, what do I do next.
Seeing some good traction in financial services and technology firms. Regionally, seeing
better traction in the West and the North-East, as compared to South-East. Mentions that
South-East is slower to adopt technology, but when they do, the deals tend to be big.
Mentions that Financials is becoming much more attractive now because of continuous
investments that they have made in Financials. I think they are seeing much more traction
there, you will start seeing it in the services industry most likely, where they dont have to go
compete against a fully embedded supply chain system like SAP. Mentions that Workday
Financials will be a much harder sell in the manufacturing vertical at this point in time.
Mentions that Workday has their own Payroll modules for US and Canada, although they
do partner for taxes etc.
Talking about Ultimate Software as a competitor to Workday Payroll, mentions that its
mainly on the retail side. Retail runs on tight margins, and Ultimate comes in cheaper...In a
purely cost-run situation, Ultimate will win out. But we have beat Ultimate multiple times.
When HR is strategic and they get it, Workday will win.

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Regarding Expense Management, admits that Concur has more features than Workday
Expense. However, believes that the unified [Workday] platform is a bigger sale, especially
[when compared to] something like Expense or Time [Tracking]. Expense more-so, because
its not a value-add component; its a data component that people need to have.
Referring to big deals, mentions a company with 30k seats and another one with 50k seats.
Also references a company with 150k seats in the pipeline. Adds that the biggest deals might
have longer sales cycles. The mid market space is tearing it up right now.
Thinks that Rising, Workdays annual user conference, is going to be a big boon to the
business momentum. Everybody does a ton of business at Rising.
Mentions that the current sweet spot for Workdays Financial module is around the
5,000-10,000 user accounts. Believes that Workday should be able to sell to companies with
>25,000 employees by this time next year.
Comparing to PeopleSoft, on the HR side they [Workday] blow PeopleSoft away...their

UI is second to none. Adds that Workday gets detracted from deals where clients have a
highly customized PeopleSoft environment, although the client may not be using most of
the customizations done. So, there is an educational component to such opportunities. On
the financials side, there is like one or two things [specific to] each industry that Workday
hasnt met yet, that they are working on meeting now."
Industry Contact 3
Seeing continued strength in HCM [Human Capital Management]. Mentions that Payroll
is becoming an important SKU. We are seeing a lot of folks buying into Workday Payroll
as well.
We are certainly seeing some of the folks who had adopted HCM now move toward a
Financials deployment.
Seeing Financials being deployed more so in the higher-Ed and non-profit space at this
point in time than commercial. Also, adds that in these sectors, seeing more of that
platform play [HCM, Financials, Payroll and Expense] pick up, which could be because of
Workdays good functionality around grants and fund accounting.
Mentions that now Workday has a different sales organization focused on Financials. Over
the last twelve months, they have really built out their sales capacity from a Financials
perspective...18 months ago, they had 4 people selling financialstoday they probably have
25 folks or so.
Thinks that the Financials module has reached around 85-90% functional parity with
respect to other legacy incumbent solutions. Thinks that Workday will be selling it to larger
companies by next year.
We think they had a pretty good quarter as well as how it translates into our business
There is no doubt that they are selling to, and being very successful selling into, much larger
organizations [based on the brands that they have added]. However, mentions that last
quarter [FQ2] a few deals didnt get signed that they expected to sign and have been pushed
out a little bit.
Highlights that the slight challenge that they are having [which is] elongating their sales
cycles a little bit, is that Oracle Fusion is coming in and making a lot of noise... They
[Oracle] are making people pause, they are making people look at the pricing because it's
very attractiveso it's causing a delay in the cycle. But he is pretty confident that in the
end the deals will come to Workday, once the folks get past the excitement and the smoke
associated with Fusion and realize the difference in the functionalities. In the end, we are
not seeing many wins by Fusion at all. Had seen some such delays last quarter as well.
Mentions that he has seen SAP/SuccessFactors wins over Workday. those are
predominantly in environments that are already SAP shopsSAP is doing a good job of
getting them to buy into this idea that its actually all integrated, but it's not.
Talking about big deals, refers to a large American bank holding company which was a
decent size deal.
His Workday practice is growing 75% y/y.
Among his clients, has seen Workday mostly replacing PeopleSoft and other legacy systems
like Infor (Infinium HCM), and Integral Systems.
Seeing many replacements of Ultimate Software for Workday Payroll. We are replacing
Ultimate in cases where organizations are expanding globally, which most are.

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Seeing many replacements of Concur for Workday Expense. "We have gone in and replaced
Concur in a lot of cases[but] we are never going to replace Concur unless we have got the
core HCM Workday in there Expense is such a cheap add-on from a SKU standpoint, if
somebody is buying Workday it's almost a no-brainer. Has replaced Concur in some high
tech companies in the west, a financial institution in Chicago, telecom group in Dallas, etc.
Thinks that although Concur will have some functional advantages from a best of breed
standpoint, Workday has narrowed the gap largely.
Talking about the pipeline, it consecutively grows every quarter, it's not going down.
Industry Contact 4
Observes that the Public Sector has picked up a lotseeing a lot of counties, universities
as well going for Workdaynot just HR, they are going for Financials also. Mentions that
universities and educational institutions tend to buy the entire package.
Thinks that demand is picking up in Europe as well. Notices that Workday is investing a
lot in Europe, in alliances and sales teams both.
Havent heard of any new Financials wins in the larger F500 client tier. Senses that it will
take at least 3-4 quarters for sure for the Financials product to become enterprise F500
ready and to reach parity with respect to product functionalities with the legacy incumbent
solutions for larger customers.
From a marketing message point of view, observes that Workday has started talking about
Unified HR & Finance as a solution as compared to Unified HR before.
Mentions that the Big Data Analytics tool is already out in the market as part of the
Workday 20 release. Suspects that AIG has done some work with Workday in this area,
as Workday is using AIG as a case study in some of the presentations to talk about the
analytics tool.
Mentions that Recruitment is scheduled to be released in March 2014.
Competition:
Believes that Ultimate is giving good competition to Workday in the mid-market
space with companies that have 5K-7K employees. Thinks Ultimates GUI is pretty
decent, although not as good as WDAY and also Ultimate has a good customer
service organization.
Observes SAP going very strong in their market...closing tons of deals. Thinks
that the competitive landscape is changing. Unlike last year, when WDAY was
cruising at maybe 140 mph, now obviously I am sure with these guys [SAP] coming
in it slowed down little bit. Reports that SAP is trying to integrate SuccessFactors'
Employee Central module with the larger SAP suite and some 200-300 SAP
consultants are already working on this integration. Thinks SAP is investing a lot
in that area. Mentions that SAP is also bundling its in-memory computing and
analytics capabilities in the mix. So, obviously they are bundling all these stories
together and creating a good pitch. Furthermore, reminds about SAPs ability to
play the licensing game if it pitches to existing SAP customers.
Also, With Salesforce and Oracle dancing together, the equation has also changed
now. However, observes that Fusion HCM is not doing that great. Mentions
that despite Oracle trying to give away the licenses at dirt cheap prices, customers
are not willing to even attend those demos. Thinks that their [Oracle's Fusion]
product itself has lots of challenges [System Integrators] are bleeding in their
implementationsJust a fancy little GUI with lack of functionality doesnt really
make that system solid.
Industry Contact 5
Theres growing demand for it [Workday]...Its taken off on the East Coast and the West
Coast, the West coast first. The demand is increasing in the Midwest.
They [Workday] are included in a tremendous number of software selections right now.
Weve been involved with a couple of our clients that use a traditional site-based ERP and
when are faced with an upgrade, theyre asking the question - should we be looking at some
other solutions because were on this upgrade treadmill? He has helped his clients take a

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five-year TCO view of an Oracle versus a cloud solution from Workday. I just see demand
increasing over time.
PeopleSoft added distribution and manufacturing, but says Workday is not interested in
these areas. But its got a very strong product in HR, and is growing in Finance. Once they
have a strong reputation in Finance I think its really going to take off.
When Workday Financials were released, he believes it started as a four or five, regarding
functionality, on a scale of one to ten, ten being the best, but by now I think its up to an
eight.
He believes the whole concept underlying Workday Financials is that the whole GL structure
is different, and is a paradigm shift from a traditional system. Its way more flexible,
whereas once you set a GL structure in Oracle, lets say, youre kind of locked in, if you will.
Theres some flexibility, but not a lot. He thinks that once potential customers understand
that, its actually a big selling point to Workday Financials.
In his region he believes companies are less willing to give up their investment in on-premise
Financial systems, but thats changing....Its just a natural progression to get your ERP out
there [in the cloud].
He observes that Workday is extremely strict on data security. Any consultants doing
Workday projects have to have an encrypted hard drive, they have to follow strict protocol
regarding how any sensitive data is stored or transmitted, etc. Its actually a very good
thing and [Workday] is building a good story around it, too.
Price Target Raising price target to $66 (was $60) = 19x (was 17x) CY 14E revenue of $665.4M + net

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Detailed Feedback Shows Pace of Development Unparalleled in HR Industry
PRICE: US$68.49
TARGET: US$60.00
16.5x EV/CY14E revenue of $665.5M + net
cash of $790.3M and 196.3M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
FY14E EPS US$(0.76)
FY15E EPS US$(0.71)
Div (ann) US$0.00
Fiscal Year End Jan
Oct-12 Dec-12 Feb-13 Apr-13
80
70
60
50
40
30
20
USD
Source: Bloomberg
CONCLUSI ON
We spoke with a couple of contacts in the Workday ecosystem and walk away with
consistent conviction in the companys multi-year growth opportunity. The most
important feedback is that WDAY is outpacing the entire HR industry with its pace
of product development. A key partner stated that he has never seen one product stay
ahead of the market and with less competition for as long as Workday has. The rapid
pace of development causes our contacts to believe that WDAY will eventually close the
functionality gap with software mega-vendors, even in Financials. One of our contacts
highlighted that two US states are working through RFPs for Workday. While we believe
that Workday is at the confluence of a powerful cloud movement and ageing ERP systems
ripe for replacement, we continue to struggle with the valuation at 28x EV/FTM revenue.
Neutral, PT to $60.
Industry Contact 1
HCM continues to become more robust, and they will expand next with a recruiting
module to be available in 2014, built from the ground up. There was a lot of demand
for that. Theres more activity in technology from a recruiting perspective than
many other areas of HCM. Workdays platform lends itself to working through newer
recruiting technologies, like video interviewing.
Believes that Workday has been making big pushes in EMEA, Australia and in some
Asian countries.
I think theyre planning on it [being as successful in financials as they have been in

HR]. Its like anything else, you cant possibly introduce a product and have it all
there. However the platform is what sells it, the workflow capabilities sell it. Just like
Workday did in HCM seven years ago, all the functionality wasnt there, thats why
there are updates every four months. Will the functionality be there in financials?
Sure. I would imagine its going to follow the same trajectory that HCM does. That
is that theres going to be a certain marketplace thats willing to go for it and then as
it gets more robust, more and more will.
***Continued on Page 2***

YEAR
2013A
2014E
2015E
REVENUE (US$ m)
56.8A 62.7A 72.6A 81.5A 273.7A 445.0E 49.1x 30.2x
87.3 99.5 117.3 140.2 444.4 665.2 30.3x 20.2x
135.4 149.7 173.0 207.4 665.5 20.2x NA
(0.16)A (0.19)A (0.15)A (0.16)A (0.65)A (0.81)E NM NM
(0.19) (0.18) (0.19) (0.19) (0.76) (0.61) NM NM
(0.24) (0.20) (0.17) (0.10) (0.71) NM NA

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Detailed checks, continued
Guesses that most Workday HCM buyers, if they had Oracle or SAP financials, they stayed
with them. But I would say that thats probably something that will eventually change
too. A lot of it depends on the culture of the company, are they risk averse or willing to
take that jump into the financials? Financials is the backbone so you want it to be strong.
But it cant possibly be as robust as a system thats been out there for 20 years in terms of
functionality, but will it eventually be? Sure.
The big differentiator is the pace of development. In the cloud, in SaaS, it is amazing how
quickly they make these changes compared to the typical HCM upgrades in the traditional
on-premise platforms.
Youre getting major functionality every four months, I mean big, big differences. That
pace is a challenge for clients and vendors alike because people are not used to moving at
that pace.
In Workdays seven or so years in HCM they have outpaced just about everyone in terms of
development. Workday caught everyone with their pants down.
Has never seen one product stay ahead of the market and with less competition for as long
as Workday has. Usually as soon as something is introduced, within a year and certainly
two, you see a lot of competition, e.g. in recruiting or performance management. Its easier
to get into niche markets.
Ultimate is a good product but its not a global HCM. They can give you visibility outside
of the US, but in terms of clients, globalization, the true global functionality of the system
is not there. Its still a very strong product for the right market. We have clients that have
replaced Ultimate with Workday.
Industry Contact 2
Two US states are working through RFPs. One is about ready to finalize its RFP process.
The other hasnt changed its HR systems for 40 years, so theyre writing up a proposal to
take to their legislature saying that their state needs to do something differently with the
HR system.
The City of Orlando, Florida recently moved to Workday, as did Pierce County, Washington.
Orlando used to use JD Edwards.
Workday makes it very easy to bring functionality wish-lists to light through a customer
voting system. Nothing like this existed with JD Edwards.
Creighton University was close to signing a Workday contact, but got a new college
president so had to basically start over.
Theres still a little nervousness about the cloud versus on-premise among state CIOs.
Most people find it [expense reimbursement] very easy to use.

Price Target Raising price target to $60 (was $51) = 16.5x (was 14x) CY 14E revenue of $665.5M + net

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Material Beat and Raise Expected; Disruptive Potential Offset By High Valuation
PRICE: US$64.54
TARGET: US$51.00
14x EV/CY14E revenue of $665.2M + net
cash of $797.4M and 198M s/o
Mark R. Murphy
Matthew J. Coss
Pinjalim Bora
Rating Neutral
Price Tgt US$51.00
FY13E EPS US$(0.69)
FY14E EPS US$(0.81)
Div (ann) US$0.00
Fiscal Year End Jan
Oct-12 Dec-12 Feb-13
70
60
50
40
30
20
USD
Source: Bloomberg
CONCLUSI ON
Workday will report its fiscal fourth quarter after the close on Thursday and we expect
the company to materially beat consensus estimates for revenue and billings and provide
revenue guidance well above consensus expectations. This note includes proprietary
feedback from our HR software contacts, which highlights current industry thinking
about Workday. We admire Workday for its incredible growth, the mindshare it has
gained among HR executives in a relatively short period of time, and that it has been
successful in disrupting incumbent HR software vendors. We believe, however, that
WDAY's current valuation reflects an unusually far-off horizon embedding a multi-
multi-year 100% growth trajectory and assured ownership of Cloud-based Financials,
and therefore do not recommend investors become involved at current levels in front of
the IPO lockup expiration. Neutral, $51 target.
Industry Feedback:
Industry Contact 1
Believes Workday has a great pedigree to rest its name against. Thinks they are still
focused on much larger customers as compared to NetSuite.
From a technical perspective, he doesnt think that the Workday financial product
is fully baked.
I am going to give it about two years and then I think around that time you are
Industry Contact 2
Thinks that Workday had territory realignment in the enterprise sales side, where sales
executives were given new sales reps and new accounts were set up.
A contact of his [in the HR sales ecosystem] needs just one deal to make his number
just the size of those deals is much bigger.
Its clear that they [Workday] will be successful, the question is where will they put
their imprint."
YEAR
2012A
2013E
2014E
REVENUE (US$ m)
24.7A 30.1A 36.5A 43.2A 134.4A 270.8E 95.1x 47.2x
56.8A 62.7A 72.6A 78.7 270.8 445.0 47.2x 28.7x
90.1 98.9 119.2 136.7 445.0 665.2 28.7x 19.2x
(0.14)A (0.18)A (0.17)A (0.20)A (0.68)A (0.69)E NM NM
(0.16)A (0.19)A (0.15)A (0.20) (0.69) (0.81) NM NM
(0.21) (0.22) (0.20) (0.18) (0.81) (0.61) NM NM

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Industry feedback, continued Industry Contact 3
Thinks that Workday Financials is still a work-in-progress. They are not fully, fully
capable.
Adds that Workday also has truly taken a different approach to financials. Explains that
there are different ways to group and categorize accounts into account numbers and there
are different departments, classes etc as attributes. Workday has something called tagging,
its differentSo, if you are going to put in Workday and you are going to get the most
out of that solution, you have to think differently and innovate differently around your
financial processes, which some organizations are aware of and capable of doing and other
organizations arent. Thinks that Workday has to educate the market to show the value
prop.
Hasnt seen Workday at all in any of the deals in his sector [does NetSuite deals]. Talks
about a company which is deploying Workday HCM but NetSuite Financials. That is a
maturity of functionality issue more than anything. Also, suspects that Workday might be
more expensive than NetSuite.
Industry Contact 4
Hes seeing Workday in the market and thinks Workday could eat into Ultimates business
a few years down the line.
I hear noise that they [Workday and Ultimate] are always neck-and-neck in the sales cycles
in terms of what the client agrees to buy. They are always ones in the last running. I am sure
Ultimate loses to them at some point in time as well.
Industry Contact 5
Thinks that Workday is probably stronger and global amongst the lot of competitors
which include ADP, Ceridian, Ultimate and Oracle.
Industry Contact 6
Workday is in larger deals (compared to NetSuite) and primarily deals that are driven from
the HR and financials side.
Industry Contact 7
Weve run into it [Workday] a couple of times but I wouldnt say that its very high on our
competition list [does NetSuite deals]. We run into a lot of other vendors before we run into
them [Workday].
Industry Contact 8
One of Workdays HR customers is having trouble with a Workday Financials installation.

They started with an HR component and hes still not sure if the customer is 100% on the
financials yet.
It has not been a smooth path in terms of getting to Workday Financials and HR
combined.

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Mark Murphy
Senior Analyst
Enterprise Software
415 616-1705

Matthew Coss
Research Analyst
Enterprise Software
415 616-1706

Pinjalim Bora
Research Analyst
Enterprise Software
415 616-1703

WOR K DA Y (WDAY - $50.82)
Neutral

Initiating w/ Neutral; Massive Potential to Transform HR, and
Massive Valuation

We are initiating coverage of Workday (WDAY) with a Neutral rating and $49 price
target. We are very bullish on WDAYs growth potential, and we back up this
viewpoint with our proprietary survey of HRIS managers, which outlines a path for
Workday to quintuple its market share in the course of the next 3 to 5 years. However,
while we believe WDAYs multi-year growth trajectory will place it in a rare echelon,
we caution investors that the current valuation on WDAY shares is even rarer. At 25.3x
EV/FTM revenue versus 9.1x for its peer group of ultra-high-growth SaaS companies,
WDAY is the most expensive software stock we can recall since the dot-com bubble of
1999/2000. We think consensus forecasts are conservative and acknowledge that
WDAY might grow into this multiple in the coming years, but prefer to manage risk by
waiting for a better entry point, perhaps driven by the IPO lockup expiration or broader
market conditions.

Convincing Mastery of Cloud-Based Core HR, Still Early in Financials. We believe that
in enterprise application software, CRM, HR Management and Financials are among
the very largest markets. Workday already claims over 350 customers, mostly for its HR
Management products, and to a lesser extent for its Financial applications. Because
Workdays product offering is designed to support the largest and most complex
organizations, it has begun taking market share, and is well-prepared to continue taking
market share, from leading on-premise application vendors over the next decade. We
do not question the fact that Workdays HR product can scale to the largest
organizations in the world (for example, 200,000 employees with one customer), but we
see little evidence that its Financials product can do so, with only 30 logos and no
bellwether F500 names on that list, to our knowledge. WDAY has the credibility,
relationships, and development talent to make it happen, in our view, but we would not
guarantee overnight success in cloud-based, enterprise-grade Financials.

PJC Survey Work Shows Workday is a Standout in the Eyes of CIOs, #1 Share Gainer
for HR Managers. In our January 2012 CIO survey, we asked 109 CIOs an open-ended
question: Please name 2 or 3 standout small or mid-sized software vendors that are
impressing you with their technology, vision, and value-add to your organization.
Workday received the second highest number of mentions, after VMware. In our March
2012 survey of 125 Human Resource Information Systems (HRIS) managers, Workday
topped the list in terms of vendor satisfaction level, rating 8.8 out of 10, and ranked as
the top future share gainer, potentially leaping from 3.2% share today to 17.6% in 3 to 5
years. Qualitative feedback included responses such as Workday works as we designed
it to, configurable, one platform and globally applicable and praise for the user
experience, strong reporting tool, leading edge program support, SaaS model.
Workday has generated a ton of buzz in the industry and we expect it to grow very
rapidly.

Risks: Outages, security breaches, competition and ecnomic fluctations.

NOTE: The following pages are an excerpt from the WDAY Initiation report.

November 2012

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We engaged in detailed discussions with a few of Workdays customers as part of our due
diligence process. The following section provides key takeaways from the conversations
and consists of detailed feedback from Workday customers. Below we highlight notable
feedback, which we believe depicts customer sentiment around Workday:

for the amount of complexity from us, really the only SaaS solution robust
enough was Workday.

We have 31 integrations for HR And the integrations are no big deal.

I mean he [Dave Duffield] gets it, he knows it, he understands it, and he hires top
talent to be able to develop it.

I cant tell you of one person I havent enjoyed dealing with at Workday. The
service side is amazing.

The product [financials] is completely different than when I signed up in 2009.
Theyve added a tremendous amount of functionality.

To have that [CRM] linked with financial is very difficult. It makes much more
sense to have HR and finance, which is usually under the same umbrella in
companies, so you have the decision control and a lot of intermingling of data. It
just makes sense.

Once they [Workday] offered up what they were trying to accomplish, it was our
opinion that they were so far ahead of anybody at that time, back in 2006.

Ive told our controller that if she were to go with Workday financials that all the
managers in the company would consider her a rock star.

We basically have one guy who maintains our integrations. And he doesnt do
anything with them except the three times a year we upgrade. Theyre almost
maintenance free.

Its the leader of next-generation software in the ERP arena. Their customer
service is second-to-none. Its actually head-and-shoulders above everybody.

Theyre typically very quick to get back with answers, and the right answers. No
complaints there.

Up to this point, their customer service and the relationship weve had with them
has been fantastic compared to other systems we work with.

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Exhibit 8
CUSTOMER #1
A Higher-Education Institution
Use of
Workday
Using Workday for HR and administrative systems.
When we were getting ready to do HR, and we did a full-blown RFP evaluation with big committees, bake-offs, the whole nine
yards. We had a system we put in place, Integral, which is a Dave Duffield system we put in place in 1991. Weve basically
maxed out the capacity. Theres very little in terms of what we have in place for disaster recovery and business continuity.
There were very few Cobol programmers left in the world that could change code for us.
Will probably do financials in 2013.
What we found very quickly was that in the SaaS market place there were very few who could handle the type of complexity
that we had. Were not a large employer but we have a very complex research institution. We have faculty that have multiple
jobs, pay spread of 9 over 12 and research grants where a certain percent of a salary could be charged to a certain grant, etc. So
for the amount of complexity from us, really the only SaaS solution robust enough was Workday.
Then we said, what do we want to think about? Obviously we have a very old legacy system in place. There are good and bad
things about that. We didnt have a good foundation like workflows, routing and hierarchies. We said were going to have to
do a major revamp of our business processes. And so what we said was Workday, although you cant customize it as a
solution, because everyones on the same version, it is highly configurable.

What, Exactly,
is an HRIS?
HR is the people information. Its all the information about you. When you get hired, your grade, salary, title, department,
hours per week you work, everything about you as an employee. Then theres payroll, so its taking that information and
saying this person is an exempt employee on the monthly payroll with these benefits, youre hourly, or you work this many
hours of regular pay, this many hours of double time, this many hours of whatever. So thats the payroll piece.
So a lot of people have an HR system but they dont run payroll off their HR system. They use ADP, whatever. So HR is your
core employee information and everything about you, but it doesnt pay the pay. HR is also personal information, your
emergency contact, education, experience. Its kind of like a profile about you.
Its more than just a database. Youve got to run reports. Youve got Federal Government reporting on EEO, so you have to
include your bio-demographic information. You run a lot of reports like head count, governmental reporting, workforce
analysis, workforce planning.
But then theres payroll that says I get paid a salary, Im just using round numbers of $100,000 per year, I get paid on a monthly
basis, I have these deductions, I have these withholdings. Then there are benefits that say Im in the two-person Blue Cross plan
and I pay $150/month. Im in the dental plan with this and my retirement contribution is this. So thats benefits.
Then theres what they call absence, its kind of like time off, sick and vacation, holidays, family medical leave, state parental
leave act. Its all that absence and balance tracking. Then theres employee self service. You can change the information you
own home address, emergency contact, phone numbers. Then theres manager self-service.
So what of this is in PeopleSoft? All of it. All of its in PeopleSoft.

Pricing
Pricing is per employee per month. We had to do a census to figure out who would be in it. We have what they call contingent
workers. Theyre clinical faculty who are paid by another source, but that do work on behalf of the university, but they need
privileges and services and they actually perform some duties, so those are like the non-paid faculty who work in the hospitals
and associated health care centers. We basically did a census of how many W-2s did we run, how many non-resident aliens did
we have, how many temporary workers, how many contingent workers.
Pricing per employee depends on the type of worker in the system. Contingent workers, because you dont deliver benefits or
pay, and youre not going to set up talent or career for them, theyre just placeholders in the system. So it ranges from a low of,
Im pretty sure it ranges from $2 to $12 or $14 per person per month. A full employee who needs benefits and were deploying
everything on will be on the higher side and a contingent worker, for whom we really only need base information in the system,
will be on the lower side.
Contract length is for either eight or 10 years, with annual escalations built in for inflation. The contract covers over 10,000
employees.

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Exhibit 9

Ability to
Integrate with
Other Vendors
On the back end we had a lot of integrations. But they have a lot of pre-built integrations, for example we do gross to net for
our payroll, but then we pass the file to ADP. ADP prints our checks and our advices of deposit. Were going to stay with ADP,
but were going do the gross to net through Workday instead of Integral. Well do the online pay stubs through Workday.
We have an LMS for employee training and were going to go with one of their preferred partners, Cornerstone. They have
prebuilt integration. We kind of looked at the application and its pretty good. Same thing with applicant tracking. We have
people administration, their preferred partner is Taleo, so were going look at replacing that and then integrating with the
prebuilt Workday integration.
We have 31 integrations for HR, 50 for finance. Some are two way, like our student system banner is a two-way integration.
All of our retirement carriers are two-way integrations. Our health insurance and dental carriers are two-way integrations, the
banks, the payroll, ADP, ATS. And the integrations are no big deal.

Workday is the
Best
Youve got the reputation of Dave Duffield, okay. Not only did he build PeopleSoft, he built the system were on right now
that weve had working since 1991, that if we could find people who could keep it running, we would probably keep it running.
I mean he gets it, he knows it, he understands it, and he hires top talent to be able to develop it.
Other companies we looked at, these other solutions couldnt hold a candle to the complexity, maybe they can handle a large
community college that runs one payroll, we run 12 payrolls a month. We had one faculty member whos charged to 15
different accounts. We have employees who hold 7-10 jobs. Those other places just pale in comparison.
I talked to some of these other SaaS solutions but they cant even come close to doing what we need them to do.

Highly
Configurable
People are saying, well why dont you go with PeopleSoft or Oracle? we dont want to be locked into, the second you can
customize, our folks are going to make us customize, then were going to be handcuffed to those customization, our upgrades
are going to be heavy lifting. Here we say the beauty of it is, everybody is on the same version of the application; you cant
customize it. Thats making this much easier, because you know while its highly configurable, were saying to these people,
well you want that little nuance, guess what, we cant do it. And so every upgrade is going to be quick and seamless, and
were not going to need teams of consultants, and all this extra time and effort and cost.
A customization is a change to the base code. A configuration is not a change to the base code. Its just how you deploy it. The
other thing is that were all on the same version, so when we need support we call up and say we have a problem with this, or
we have a question with this. They dont have to ask which version were on. They can just answer the question.
Right now a lot of the PeopleSoft groups dont want to upgrade because its so much heavy lifting. Its just so hard. Its almost
like a rip and replace to do an upgrade because theyre so heavily customized. If someone is going to troubleshoot with you,
they need to know what version youre on, what customization, youve done. With this were all on the same version and weve
done no customizations.

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Exhibit 10
CUSTOMER #2
A Software-as-a-Service Company
Use of
Workday
We primarily purchased it for the financial portion. We have locations here in the U.S. But we have a European office and we
have an Indian office. We looked at something SaaS-based to eventually get every office on the same platform, which was
obviously very attractive. The other thing is my CEO has a good relationship with Dave Duffield.
I have the U.S. and Europe on Workday, and consolidating. We have a lot of statutory issues in Bangalore. I will be working on
that in the next two years, but right now I have a third-party accounting company in Bangalore. I am putting month-end
results on Workday, so I dont have the detailed source-level documents in Workday. But I do have the month-end results so I
can use Workday to consolidate results. I converted to Workday in 2009, so its been a runway to get to this point.

Why did you
select
Workday?
We rolled out NetSuite in 2007, used it for two years, and then converted to Workday in 2009
When I started here in 2006, they were on QuickBooks, which is not an unusual story. We converted from QuickBooks to
NetSuite. Partially we were still interested in Workday but honestly their financial system just wasnt available in the market
yet. So we converted to NetSuite, very easy to convert, all the data there. Workday is built for service companies and NetSuite
is built for traditional accounting. Theres lots of inventory, things that Ive never dealt with. If you wanted to push NetSuite
worldwide, I felt it was clunky, from being able to convert financials into other currencies. I also had some service issues with
NetSuite at the time. They were going through a growth spurt and when you sell software-as-a-service you expect a service
part. I feel like I got the sales part and not the service part.
NetSuite is a good, solid product and there were some synergies. When I kind of expressed some displeasure with NetSuite, my
CEO, you know, seeing that Workday is never going to have a supply chain component, obviously were trying to look at our
companies for the future and see if there are any synergies there. We share many of the same customers.

Pricing
The pricing model for NetSuite didnt necessarily work for me. And Im not sure how Workday prices today, but when I did it,
it was sort of an all-you-can-eat pricing model. NetSuite was a pricing model where you paid so much per license, and felt that
if I had a manager who was logging in once a quarter to look at results, and Im paying the same amount for an accountant
whos living in it for 8 hours a day, it was really hard for me to stomach, and when I ran the numbers, it just didnt make sense.
Our Workday license is based on revenue and number of employee records. I do think that has changed. I think I was literally
their very first financials customer. I dont know what their pricing is now, but mine steps up based on certain tiers, a
combination of revenue and number of employees.
I do want to emphasize that it has been several years now, so I do think their pricing model has changed. I cant speak to what
pricing is today.
We dont do a per seat license for our company. You start looking at the dollars for someone whos logging in four times a
year. And to go back, thats the other reason NetSuite wasnt going to work. We werent going to get the value if we didnt
change to their CRM. Theyre CRM front based, and were entrenched in Salesforce. I had no desire or bandwidth to change
the company from Salesforce to NetSuite CRM. CRM is often in the sales marketing purview, and accounting doesnt control
it. Well Workday is HR and finance, and those two going together makes a lot more sense.

Plans to use
Workday for
HR
We use [HR] very primitively. Were looking at rolling it our more extensively. Were probably on the small end for company
size to be managing a Workday type system.
I use [Workday HR] for head count and salary review to be able to know whos making what, and track increase, etc. But Im
not doing a lot of the sophisticated work force management that I know a lot of Workday customers use it for. Thats their
kind of ball of yarn, so to speak, seeing the PeopleSoft background. We use Workday and a combination of Excel spreadsheets
for our HR system of record.
We actually are getting quotes form consultants right now to come in and help us [roll out more HR functionality]. Financials
is my first priority for obvious reasons. As the organization has grown, and were bringing on a higher level HR team, that will
be their first and primary task, so I would say in the next year.

Did you go
straight from
NetSuite to
Workday?
We looked at a couple (solutions). We looked at Microsofts product, and I cant remember the name of it now. I have to be
honest, we didnt do an extensive review, because my CEO knows Dave Duffield. I kept calling Workday asking when their
financial product would be done. So I didnt do an extensive search and elimination process. We knew we wanted to use the
Workday product.
Workdays culture is very much like ours at this company. I cant tell you of one person I havent enjoyed dealing with at
Workday. The service side is amazing. I love their customer support portal. I put a case in and I get a response in, at the most,
two hours. I have to tell you I think their service side is stellar.


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Exhibit 11

So Workday is
better than
NetSuite?
NetSuite is a great company, great product, but definitely a sales machine. I spoke to people over there more after I terminated
than when I was a customer. I think they have a good, solid product, I like the sales team over there, but again when youre
purchasing SaaS its not the old shrink-wrap model where once you send it out the door youre done. You expect the service
piece a little bit.

Integrations
with Workday
I have not done that yet. The next one I will do is probably with my bank, but were in the process of possibly changing banks,
so I havent pursued that yet. Integration is supposed to be their real key point. I will be in the next six months actually trying
to integrate Workday with our system because part of our revenue model is a transaction based model. So Id like our system to
speak to Workday to create the invoices and the billing and all that, so that will probably be my first integration. Im going to
start out with the hardest one possible.

Complaints
with
Workday?
Their niche is really HR. Financials is kind of a new area for them. The product is completely different than when I signed up
in 2009. Theyve added a tremendous amount of functionality. Its got some places that you know, clearly they need to go a
little deeper. When I rolled out in Germany I had tremendous problem with being able to track VAT the way I need to. Theres
just not the functionality in the system and the reporting there, that is required by many agencies. Germany is the most
stringent, so there, I started with the worst country you could possibly start with. I would say theyve got some work to do in
financials to make it really robust. I think theres a lot of functionality, but a lot of that functionality isnt as deep as it needs to
be.
Now that being said I have no problem expressing my concerns. With a quarterly release they do a tremendous amount of
upgrading in each release, and they listen to their customers. I feel like some of the things Ive logged have definitely been
listened to and have been included in releases. For NetSuite that was an issue. It was a baked product and you were really too
far down the line to have any input.
I think there are some frustrations with it. I think they really need to understand closing down months. Ive had this discussion
with them about when youre closing a month, you often have to open up the whole month. This is getting really technical into
accounting, but theres a lot of opportunity when you open a month for invoices to move from one month to another, and
thats really frustrating from an audit perspective. I know theyre working on it. Its things like that. Things to really fine tune
it and make it a solid accounting system.

Could
Workday be a
force in
financials?
I think so. Theyre working hard on finance. Theyre making a big push trying to get more customers on, because I think they
think the more customers they have the better feedback they have for the direction of the product. And I also think they have a
nice spot because theyre not, as far as I know, and this could have changed in the last couple years when Ive not been looking,
having HR and finance together, that I think is a big, big positive, because with service companies your inventory is your
employees. Having the two together and being able to do employee cost and worker expense and all that is really, really
powerful. I think a lot of the growth in the service company sector, companies are going to see that as value.
Like I said that was really one of the biggest pieces moving away from NetSuite. I dont have control over the CRM database.
Thats sales and marketing thing. To have that linked with financial is very difficult. It makes much more sense to have HR
and finance, which is usually under the same umbrella in companies, so you have the decision control and a lot of
intermingling of data. It just makes sense.

How do you
provide
feedback to
Workday?
They use Salesforce and [Workday] integrates very easy with Salesforce. As a customer theres a support link and you go in and
you log a case. At first I was resistant because I wanted to pick up the phone. But Ive really been converted. They have easy
dropdowns to select your issue, then you can write out your question, and attach examples, and submit it. They get back to
you in a couple of hours and tell you either were looking into it, or heres what you need to do, or you know what, this is
something we need to look at for the next release. Its nice because you have a history of every case youve logged, and you can
go in and find it. They go in and update the status of something so I know if its been resolved, or theyre waiting for me to
come back with additional information. And then when its a bug, they typically get those into the next release, and they let me
know. I used to want to pick up the phone, but Ive really been converted, probably because they are so responsive I dont feel
like Im sending an email to nowhere and its never coming back.
The other platform they have is the Workday Community where you can log a brain storm, such as hey, Id like to see this in
the product. Then other people in the community can vote on it. I think they kind of look at the votes and see kind of what
people are looking for to be put in the next release. The customer portal is definitely Salesforce. The Community looks like
something that Workday maintains. Its nice, you can talk to other users through the Community, its sort of a Workday
Facebook kind of thing. I dont have a ton of time to spend on it, but its very useful if you have time to go out and research
things. My team uses it.

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Exhibit 12
CUSTOMER #3
A Food Manufacturing Company
Use of Workday
We use it for our core HR, for benefits, for payroll, for some safety data as well, and we also use it for talent management.
Core HR and talent management includes compensation and grades and all that stuff as well. Basically those are the primary
key pieces that were using.
We have about 6,000 employees and roughly 5,000 of them are accessing the system at least every week. Within the span of a
month its well over 5,000. All but maybe a couple hundred stubborn people are accessing the application over the course of a
month.
Really by virtue of the fact that its HR and that it includes employee self service, which includes everything from managing
their own contact information and banking by people looking at their pay slips, thats why basically everyone is using it.
We signed a contract in December of 2006. That was the month their first two customers went live. We are a very early
adopter. Now we didnt go live for two years. The reason for that was they didnt have a payroll product when we signed the
contract, and they asked us if we would be willing to partner with them to develop U.S. payroll, which obviously we gladly
did. So thats how kind of transpired. Once U.S. payroll was ready we went live.

Why did you
select Workday?
We were with PeopleSoft for 14 years prior to going live with Workday. We were actually a fairly early adopter of PeopleSoft.
We were about their 125th customer and we were a little concerned about the rising costs of upgrades in the latter years. Also,
we were concerned about the deteriorating relationship that occurred once Oracle took over.
I think we were also concerned where the technology was headed, from its apparent stagnation and some of the open-ended
questions with the buyout of Oracle, and where and how that might be rolled into Fusion, and what that would be. Only
now, here we are five years later, and just now is it [Fusion] coming a little bit to life.

Did you look at
alternate
solutions?
Its kind of interesting. At the time we were very interested in our ability to have employee and manager self-service. We were
somewhat interested and intrigued by going to the web, although it wasnt really initially what was driving us. Once they
[Workday] offered up what they were trying to accomplish, it was our opinion that they were so far ahead of anybody at that
time, back in 2006. In fact there was nobody out there doing what they were doing yet, and they were brand new. Now that
came with it some risk on our part, but we felt it was calculated risk because we were going with Dave Duffield and a team of
experts who were proven in four other startups before, and PeopleSoft was a resounding success. So we felt like it was a
calculated risk.
I dont think any other vendor made it to a serious contender stage once Workday was in the picture. There were people that
were evaluated, like ADP.
We looked at ADP, we talked to Ultimate briefly, we talked to Lawson back at that time, and all of them were in the very
early stages when Workday contacted us. Obviously we were keeping up with what Dave was doing. He had this Website
called Daves Next Move, and we followed it religiously. We were thinking if hes going to come out with an HR product,
were going to find out what hes doing. As soon as they contacted us they knew that we were hitting their website, that
multiple people from our company were hitting their website. They asked us if we would be interested in talking; well of
course we were. It was like love at first sight, almost. Once we went into serious discussions with Workday and saw what they
were doing, I realized just how far ahead they were of the other [vendors] at the time. Although I think Ultimate and
SuccessFactors have come a long way since then, they couldnt have held a candle to what Workday was doing. It was
significantly different at the time.

Pricing
Were not going to share our specific pricing, but they set it up per employee per month, and we pay on a quarterly basis.
There was a time I thought they were targeting $10/head/month for the entire HCM benefits suite. I dont think that includes
payroll or financials. We dont use financials.

Competitiveness
of the financial
product
Without having used the product, we can only comment on our impression from what weve seen at user conferences, etc. But
I would speculate that its going to give them, even the big names, a run for their money. I think its just now this year,
Workday is publicly saying that theyre ready for the large customers now.
Weve actually talked to them a little bit and weve been on Oracle for many, many years. When Workday came to us and
asked Are you willing to do this? our finance people had already agreed to an upgrade to Oracle. If we would have done it,
we would have been going with it [Workday financials] about this time, at the earliest. I think the fact remains that what Ive
seen of the financials product is almost like where Workday was back with HCM 5 years ago. Theyre doing something
around employee and manager self-service, and the ability to have embedded analytics, and to have real-time transactions
taking place. Ive told our controller that if she were to go with Workday financials that all the managers in the company
would consider her a rock star.
I think he [my colleague] is right. Kind of like when they started with HR several years ago, we were the big fish at the time
with 6,000 employees. They werent looking for larger customers until they got up and running and they could start bringing
companies like Flextronics with a couple hundred thousand employees and more. Ill expect the same thing to happen with
financials. They intentionally have been keeping it small, but I think its going to explode.
Financials is going to cause them to be able to take on the whole ERP arena, which will put them at a different level. Quite
frankly I know of three or four companies that are very close to signing, that are really large potential customers.

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Exhibit 13

Integrations
with Workday
We have about 55 integrations, which doesnt necessarily mean separate systems. And probably 40+ or 50+ outside points
that were going to. Some of those are inbound as well. Those are a combination of Workday delivered integrations, that are
already configured, and examples of those would be our integration to TalentLink, Charles Schwab which is inbound for our
401(k). These are already configured, you go and plug in a few specifics to configure it for your company, but they support it
and upgrade it. On a larger picture they have a whole Workday benefits network for benefits provider integration. We dont
use most of that because were pretty unique. Were self-insured and self administered, so we dont have a lot of those touch
points that other customers might. But the rest of it is internal and external integrations. We touch a lot of our in-house
systems, obviously sending stuff to financials, A/P, various systems for transportation, and weve found these custom
integration easy to do, to answer your question about how easy it is.
Integrations is one of their strong points. We dont spend much time maintaining them, theyre easy to get set up and going,
and we really dont have any trouble with them. They run, they do their thing.
We basically have one guy who maintains our integrations. And he doesnt do anything with them except the three times a
year we upgrade. Theyre almost maintenance free.

How difficult
would it be to
switch to
another vendor?
I think it would be pretty easy to rip off Workday. If we were to choose another vendor to go with, like anything, you have to
go through the process of converting your data to another system, and thats just a lot of work for anybody. Are you asking,
could we get our data out, etc.?
They provide multiple ways through web services, public web service APIs, and other ways, even thought we dont host data
on our servers, we could extract that into whatever kind of software format, or import into some other database if we felt like
it. Like he [my colleague] said, it would be a chore, is the same way it was a chore going from PeopleSoft to Workday, because
you have to redefine your maps, the fields and where they go to, its just a huge undertaking for anybody.
Part of our contract with Workday is if anything were to happen that they were to go out of business or anything like that,
they will give us all of our data, or access to their system for a period of time for us to be able to make that decision.

Conclusion on
Workday
Its the leader of next-generation software in the ERP arena. Their customer service is second-to-none. Its actually head-and-
shoulders above everybody.

Biggest
Complaint
I want recruiting. They know that and I probably have repeated that mantra from day one, and its going to come somewhere
in the future. Its just that there are other things that are higher priority, and we understood that going in. Thats why we
contracted with TalentLink because we had to have something in the absence of recruiting when we went to Workday.
TalentLink is going to serve a very useful purpose for us, but I would absolutely drool over a recruiting product within thei r
domain.

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Exhibit 14
CUSTOMER #4
A Healthcare Company
Use of Workday
We really just use the HCM function, or module. We use it to maintain all our employee related information from comp, to
benefits, location, reporting structure, we use it to manage promotions, transfers, compensation adjustments, and those types
of things. We use it for benefits, open enrollment. Were not using it for payroll. Were not using the finance module at thi s
point. Were starting to really use the talent management module within the system. Weve used that a little bit this year, and
next year well look into using a lot more of that.
We have self-service installed for our team members. So they use it during benefits open enrollment, for example. So
conceptually we had all 1,800 members making changes to their benefits. If they want to they can make any changes for life
events throughout the year for benefits, if they want to change things like their direct deposit or W-4s for payroll perspective,
their address, things like that. Theyre all in Workday and they can make changes by themselves. This flows through to
payroll or the appropriate system or benefits carrier. This is a long way to say all 1,800 team members are actively using the
system. Probably not every day, but theyre in there at least once a year.

Experience with
Workday
Its actually been really great. Theyre typically very quick to get back with answers, and the right answers. No complaints
there. The other thing thats really nice about them is their quarterly upgrades, and theyre really proactive about getting input
from their clients about what should be in those upgrades. You feel like as a customer you really have a say in where theyre
focusing their time.

Best aspect of
Workday
I think overall the system, and this sounds counterintuitive, is somewhat basic, but it has an incredible amount of
functionality. When I say basic, its in the context of being able to configure it. You dont have to have a super skilled IT
person that needs to know code, because theyve built a system thats very easily configurable by an average person without
that IT technical knowledge. Somehow theyve been able to do that and still give you an incredible amount of flexibility on
how you configure it. Its the same system for every organization thats using it. But what I have set up in my system can be
significantly different than [our competitor] right now the road, but ultimately were on the exact same platform. Thats been
a great thing to have, thats its a common platform, you feel like you can still customize it, but you dont have all the
complications that come with customizing a software package.

Needs
improvement
From a customer support perspective, theyve been great, so no complaints there. From a system perspective, its not as
intuitive as Id like. So if you think of Microsoft Office, you can jump in there and their software seems to be pretty intuitive
and logical from an end user perspective of knowing where to go to use the basics of the software. I find that Workday, based
on feedback from our users is that its not quite as intuitive as you think it would be. Even the next upgrade thats coming out,
theyve improved the ease of use on how to get around the organization. It kind of looks like fluff, but when you get in there
and use it, it really makes a difference. So theyve taken something thats kind of annoying to use, and appears in this next
upgrade, after doing the testing, that theyve brought it to the next level. So now they have a tool that was useful and difficult
to use, and made it something easy to use.

Ease of
Integrations
It really depends. One of the nice things about Workday if theres a new integration point, maybe because a carrier has a new
benefit plan and you need to come up with an integration, after a customer sets up the integration, Workday will then share
the integration with its entire customer base. You still have to make some tweaks so the integration works, but each customer
doesnt have to spend the money to make that integration work from scratch.
We do have some in-house integrations, but we used a consultant to help set these up. But we havent had to do any of these
since Ive been involved.

Can Workday
to anything
better?
As far as improving, theres nothing that comes to mind. Up to this point, their customer service and the relationship weve
had with them has been fantastic compared to other systems we work with. Im sure theres things they can do to improve,
but I feel like as their customer right now, thats theres nothing thats a burning desire that says I really need this from them,
and they need to fix it tomorrow. I could say that about some of the other software packages Im using.

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April 2014
Important Research Disclosures
Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target.
Each box represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the
first Note written during the past three years.
Legend:
I: Initiating Coverage
R: Resuming Coverage
T: Transferring Coverage
D: Discontinuing Coverage
S: Suspending Coverage
OW: Overweight
N: Neutral
UW: Underweight
NA: Not Available
UR: Under Review
Distribution of Ratings/IB Services
Piper Jaffray
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [OW]
354 60.00 86 24.29
HOLD [N]
215 36.44 21 9.77
SELL [UW]
21 3.56 0 0.00

Note: Distribution of Ratings/IB Services shows the number of companies currently in each rating category from which Piper Jaffray and its
affiliates received compensation for investment banking services within the past 12 months. FINRA rules require disclosure of which ratings
most closely correspond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or sell, but
instead represent recommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with hold and
Underweight with sell. See Stock Rating definitions below.
Important Research Disclosures
Analyst Certification Mark R. Murphy, Sr. Research Analyst
Analyst Certification Matthew J. Coss, Research Analyst
Analyst Certification Pinjalim Bora, Research Analyst
The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my
compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.
Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.
Complete disclosure information, price charts and ratings distributions on companies covered by Piper Jaffray Equity Research can be found on the Piper
Jaffray website: http://piperjaffray.com/researchdisclosures or by writing to Piper Jaffray, Equity Research Department, 800 Nicollet Mall, Minneapolis,
MN 55402
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Rating Definitions
Stock Ratings: Piper Jaffray ratings are indicators of expected total return (price appreciation plus dividend) within the next 12 months.
At times analysts may specify a different investment horizon or may include additional investment time horizons for specific stocks.
Stock performance is measured relative to the group of stocks covered by each analyst. Lists of the stocks covered by each are available
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methodologies and may contradict the opinions contained in fundamental research reports.
Overweight (OW): Anticipated to outperform relative to the median of the group of stocks covered by the analyst.
Neutral (N): Anticipated to perform in line relative to the median of the group of stocks covered by the analyst.
Underweight (UW): Anticipated to underperform relative to the median of the group of stocks covered by the analyst.
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Other Important Information
The material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and
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I N V E S T M E N T R E S E A R C H

CLOUD- SPLOSI ON:

Cornerstone OnDemand (CSOD): Overweight with a $57PT (13.5x EV/2014E revenue of

PowerReviews Acquisition Viewed to be Positive for the Industry. During our

Longboard Media Appealing to Customers. We believe the acquisition of Longboard

Probably Trading Below Long-Term Intrinsic Value. We believe that at 2.2x,

Potential Disruption From DOJ Lawsuit Could Eventually Weigh On Guidance. We

Been working with Concur for a long, long time.

Sells both Concur and GetThere.

Concur winning much more frequently than GetThere.

Concur salespeople turn over like theres no tomorrow.

The economy in general is improving and corporate travel is responding in kind.

Thinks corporate travel continues to firm up and strengthen.

2012 wont grow 30%, but it will be quite good.

Infrastructure doesnt keep pace with demand for service.

Majority of accounts showed good growth in 2011.

Last couple months of year, corporate travel slows down significantly.

Some accounts were flat but a few of them were up.

Phone volume has increased so far this year.

(+) Based on conversations with a number of salesforce.com system integrators (SIs)

(=) Marketing Cloud to me is cloudyits still somewhat nebulous...***SEE PAGES

Senses that salesforce.com is approaching a bought-not-sold phase, i.e. a phase where

Marketing Cloud to me is cloudyits still somewhat nebulous. Buddy Media is pretty

Talking about expansion of existing deals, refers to a large American semiconductor

Overall seeing continued strong demand.

Thinks that the NSA-Snowden issue is pushing companies, including salesforce.com,

Thinks that the platform is starting to become interesting to IT organizations as

As far as Salesforce goes its full speed ahead.

Feels confident about the pipeline.

Everything looks up and up.

Salesforce1 is a big thing right now.

He highlights that plenty of opportunity remains for salesforce.coms Sales Cloud as a

He mentions that a lot of companies are under-utilizing their current salesforce.com

Indicates that the pipeline is looking good.

Survey of 50 CRM Partners PRIOR to Dreamforce. We asked partners "In your

Quotable Quotes Regarding Mobility: 1) "Mobile is key to the future of cloud

(+) "Seeing a lot of conversations around mobility."

(=) "Salesforce1 is old wine in a new bottle".

We do Salesforce only. Growing 30%

Their CRM practice will grow 50% next year hopefully.

Also a lot of deals in Service Cloud.

Seeing a lot of conversations around mobility.

Deal sizes vary from 5k seats to smaller.

Implementing at a large British telco at present. Signed implementation contract in June.

Seeing some "net-new to salesforce" customers in this Dreamforce.

50 people in this salesforce practice, goal is to double that in next 12 months.

"We see a lot of pipeline."

We built an app on Salesforce1, for Salesforce.

This firm is growing at about 35% a year.

Thinks Salesforce communities are going to be interesting. "This is really something to

Seeing a lot of customers coming up and asking about mobility.

This is the most significant Dreamforce in the last 4 years.

Salesforce1 is "old wine in a new bottle."

Seeing traction in all the clouds. Stressed Platform traction.

Europe is starting to pick up pace as well.

(+) I think they [salesforce.com] had a very good third quarter.

(+) Salesforce is going from strength to strength

(+) Were expecting to [quintuple revenue] in the next two years.

(=) No change in the pipeline I havent heard anything negative.

Salesforce is going from strength to strength Mentions that there is a groundswell of

I just see a really good continuing momentum.

Regarding salesforce.coms competitive position, I think theyre still innovative. I think

Demand is still very high.

I think they [salesforce.com] had a very good third quarter.

See Page 2 for Detailed Tables and Charts

SEE PAGES 2-9 FOR DETAILED CHECKS