Seven Forces Reshaping Enterprise Software

1. MARCH 2019 Supporting analyses Sesh Iyer, Bernd Schlotter, Roger Premo, Thomas Reichert, Michael Ruessmann, Pranay Ahlawat, Christopher Detzel, Deepak Ayyagari, Diego Chojkier, M.R. Rangaswami, Bruce Fram Seven Forces Reshaping Enterprise Software

2. 1 Copyright©2019byBostonConsultingGroup.Allrightsreserved. "Seven Forces Reshaping Enterprise Software" available at https://www.bcg.com/p ublications/2019/seven- forces-reshaping- enterprise-software.aspx Published: March 25, 2019 The enterprise software industry is being transformed by substantial investor capital, Cloud 2.0, artificial intelligence, data protection, preferred platforms, and a talent shortage, leading stakeholders of all kinds to make big changes, and big choices This document provides supporting data for BCG's and Sand Hill Group's report on "Seven Forces Reshaping Enterprise Software"

6. 5 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Enterprise software is continuing to attract capital—2018 was a big year with ~150B in VC and PE investments Fundraising for tech is continuing to be attractive, dry powder is at all time highs Multiples and average check sizes in private markets have gone up across deal types More money, bigger investments and higher valuations • Total PE/VC investments more than doubled in last five years • Growth investing and large buyouts continues to see momentum with emergence of mega funds in tech—Visa, Thoma Bravo and Silver Lake together raised 27B in ‘17, 12B in ‘162 • Certain pockets like AI, Blockchain and IoT getting aggressive funding Dry Powder increased 77% since 2014, driven partially by non-traditional investors … Enterprise software continues to be an attractive space for investors … … and big increases in revenue multiples and check sizes across deal types 15.2x 9.6x 5.7x 2014 20162015 3.0x 2017 2018 11.5x 7.6x 9.2x 3.3x 11.4x 7.9x 3.5x 11.5x 8.4x 4.2x 12.6x Median revenue multiples for enterprise software1 Total PE/VC investments in software companies ($B)1 2322 36 12 17 36 9 2014 65 2015 56 14 27 2016 49 16 2017 20 59 2018 62 71 96 89 145 +24% CAGR Dry powder ($B)1 • PE valuations have nearly doubled in the past four years, providing investors with a path to high returns via multiple expansion 1. Pitch Book – '14-'18, based on all deals closed 2014-2018 whose target was an application software company, by funds that invest 50% or more in enterprise software; Assumes 20% of cash + short term investments could be used towards ent. software investments. Corporate VC dry powder references all funds with 25% or more of investments in enterprise software; PE deal types considered: LBOs, management-buyouts, management-buy ins, add-on, secondary buyout, public to private, growth/expansion, principle investor, IPO, recapitalization, corporate divestiture, asset acquisition, and acquisition financing Source: 2."Thoma Bravo sets a fundraising record," Lynne Marek, Chicago Business, 2019, https://www.chicagobusiness.com/finance-banking/thoma-bravo-sets-fundraising-record Pitchbook, BCG analysis 4 4 4 6 10 18 10 10 2014 3 2015 8 17 13 2016 10 11 2017 14 2018 Median check sizes ($M)1 46 84 44 17 2014 2018 84 150 +77% • VC, PE, and "Big tech" funding has grown at a rate of 15% pa • Angel Investor dry powder not measured but expected to grow, too • Comprehensive data on the rising significance of non- traditional megafunds increasing available capital, e.g., Softbank Vision Fund, is not available, but also expected to grow VC (early + late) PE3 "Big Tech" & Corp. VC2VC (early) VC (late) 1Big Investments We are unable to disaggregate early and late stage VC funding 21 22 5

7. 6 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Companies choosing to stay private much longer, driving up add-ons and buy-outs, new pockets of value creation in China and India Despite some high profile enterprise software IPOs (e.g., Zuora and Slack), abundance of capital means enterprise software companies are choosing to stay private longer As investors are looking for ways to put more money to work, there has been an increase in number of add- on and buyout deals (e.g., recent take-private deals of Apptio by Vista and Ellie Mae by Thoma Bravo) We are starting to see value creation and growth of unicorns outside the US/Europe/Aus – particularly in China and India Increased capital access, better recent private returns resulting in companies staying private longer … -2 2 0 4 Aggregate annual gains, $B 2005 2010 2015 2018 Public gain Private gain 17 13 20172014 20182015 2016 23 1110 Total number of enterprise software IPOs1 Private vs. public returns2 2015 Med. add-on deal size, $M 219 Add-on buyout deal count 35.1 2014 215 42.5 273 26.7 2016 400 45.0 445 2017 57.5 2018 607 665 20152014 2016 2017 2018 376 383 446 +15% • IPOs have continued to go down, with a slight bump in 2018 • Private company returns have out paced public company returns in 2017 and 2018 Number of buyouts1 … and the need to put more capital to work by PE/VC resulting in an increase1 in rollup and buyout activity Number of add-on deals1 • Number of add-on deals have doubled in last five years • Number of buyouts have increased to 650+ vs 350+ in 2015 Note: IPO count refers to all offerings of companies with US HQs classified as software information technology companies, Unicorns includes B2C and B2B Source: BCG analysis 1. Pitchbook, 2014-2018, based on firms that invest 50%+ in software; 2. "New Goldman Sachs research suggests companies are better off skipping IPOs and staying private — a rare development that's preceded both the financial crisis and tech bubble," Rebecca Ungarino, Markts Insider, 2019, https://markets.businessinsider.com/news/stocks/private-versus-public-company-trends- flashing-warning-sign-goldman-sachs-2019-2-1027956708; 3. "Meet the unicorn class of 2018," Andy White, et al, Pitchbook, 2018, https://pitchbook.com/news/articles/unicorn-class-of-2018 and https://pitchbook.com/news/articles/unicorn-class-of-2019 (accessed Mar 7, 2019); 4. "Why Chinese tech stocks are getting hammered," Sherisse Pham, CNN Business, 2018, https://money.cnn.com/2018/08/17/technology/chinese-tech-stocks/index.html; 5. Capital IQ evaluations of Chinese tech companies; 6. "Winter is coming for China’s private equity as market rout slashes start-up firms’ valuations," Laure He, South China Morning Post, 2018, https://www.scmp.com/business/companies/article/2171182/winter-coming-chinas-private-equity-market-rout- slashes-start 1Big Investments Wealth creation starting to happen in emerging markets, but there are indications of markets getting overheated, esp. China… ‘18 and ‘19 unicorns by HQ location, % 3 18 70 6 1 4 2 30% of unicorn companies are from emerging markets Chinese tech stocks dipped ~12% in 20184 • Starting 2019 fund raising for startups in China have become harder, valuations have fallen by 50%+ for some tech startups -50 -90 -17 -27 -53 -33 -44 Secoo Zhongan Online Qudian PPDAI SSLJ Sogou Zhicheng Technology Yixin -39 Stock change since IPO, % 6 Other AsiaChina India LATAM Middle East US/Euro/AUS 6

8. 7 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Industry investment has more than doubled in since 2014 2014 ($62B total invested) 2018 ($145B total invested) Note: 2104 data n=1,055 enterprise SW companies (representative); 2018 data n=1,474 enterprise SW companies (representative). Each node represents a company, with the size of the circle reflecting the funding amount. Tight clusters represent a high commonalities between companies, while isolated clusters represent niche technologies. Investment includes VC and PE funding. Percentages reflect the share of total investment in each function Source: BCG analysis. Digital Sales & Marketing (19%) AI (10%) Cloud (22%) Cybersecurity (12%) IoT / Robotics (11%) Human Capital Mgmt. (4%) Blockchain (1%) FinTech (2%) Other (19%) Digital Sales & Marketing (6%) Human Capital Mgmt. (6%) Other (24%) AI (18%) Cloud (11%) Cybersecurity (22%) IoT / Robotics (8%) Blockchain (2%) FinTech (4%) Blockchain 8.4x Fintech 5.7x Cybersecurity 5.2x AI 4.7x Human Capital Mgmt. 4.0x Other 3.4x IoT / Robotics 2.0x Cloud 1.4x Digital Sales & Marketing 0.8x Market 2.3x Growth in $ invested, '14 – '18 Gained share Lost share Big Investments 1

9. 8 Copyright©2019byBostonConsultingGroup.Allrightsreserved. As we move to Cloud 2.0, deriving value from hybrid and multi- cloud becomes the imperative for most enterprises Increasing percent of cloud workloads1 31 10 152 79 27 74 2016 2020 111 262 17% Workloads (M) 35% 30% 18% 2016 39% 19% 16% 26% 825 2020 Public Cloud Private cloud Hybrid cloud On premise 1,795 Total cloud revenues ($B)2 Cloud strategy for enterprise customers3 • We are seeing increased cloud penetration even in some regulated industries like healthcare and utilities • Three out of four enterprises will be private and hybrid • One of out five will be public only How many clouds do enterprises use or plan to use • Nine out of ten customers are going to invest in more than one cloud • Several reasons for having multiple clouds. E.g., best of breed functionality, managing vendor lock-in, application/data architecture, location, cost, etc. IaaS PaaS SaaS 11 6 247 2016 2020 17 10 306 264 333 Systems software Hardware On-prem 51% 19% 27% 17% 2020 plan5 5+ 72% 9% Current state4 Unsure6% 3 to 4 1 to 2 Total cloud workloads: 74% Workloads moving to cloud—both public and private, resulting in rapid growth … … even regulated industries moving to cloud; majority of enterprises being hybrid … … and most enterprises looking to invest in multiple clouds Traditional on premise workloads are rapidly moving to public and private clouds, with large developer ecosystems forming around hyperscale CSPs Public cloud market is continuing to grow rapidly— already 65B, growing to ~110B in next two years Private cloud seeing rapid growth—projected to grow to 27B by 2020 We are also seeing increased adoption of cloud in regulated industries like utilities, healthcare and FI Despite the growth in public, hybrid and multi- cloud will be the reality for most large enterprises in the short-medium term—50-75% enterprises being hybrid and 90%+ invested in more than one cloud 1."Cloud Vision 2020: The Future of the Cloud Study," Logic Monitor, https://www.logicmonitor.com/resource/the-future-of-the-cloud-a-cloud-influencers-survey/; 2. IaaS and PaaS from UBS, SaaS, hardware and systems software for private cloud from IDC. Total on-prem software from Gartner. On-prem does not include private cloud systems software; 3. "Building trust in a Cloudy Sky," McAfee, 2017, https://www.mcafee.com/enterprise/en-us/assets/executive-summaries/es-building-trust-cloudy-sky.pdf; 4. 2017: State of Enterprise Multi-Cloud, Cloudify, 2017, https://cloudify.co/2017-state-of-enterprise-multi-cloud-report/; 5. "Worldwide Whole Cloud Forecast, 2017–2021," IDC, 2017, https://www.idc.com/getdoc.jsp?containerId=US43215817 Public Cloud Private Cloud 26% Software and technology 18% 54% 21% 9% Education 19% 26% Engineering 27% 15%30% 56% 56%Finance (Excluding insurance) 18%54%29%Government 19% 24% 13% 50%26%Healthcare 73%18% 58% Insurance 62% 16% 23% 65%Manufacturing Retail,transport, and logistics 25%17%Media and Entertainment 66%21% 28%56%16%Service (Including hotel and leisure) 59%20% 50%Telecommunications 21%18% Utilities (Energy, oil and gas, water and power Private only Hybrid Public only Which type of cloud architecture is your organization currently using? (Grouped by industry) Cloud 2.0 2 8

10. 9 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Massive work to be done as enterprises move to Cloud 2.0 Companies investing heavily as interoperability and DevOps become critical enablers Whitespaces in Hybrid Multi-Cloud DevOps • APM and dev tools for serverless • Multi-cloud orchestration and management • Distributed security and IAM • DevOps for data pipelines and versioning • Focus on new digital and cloud developers Banking Cloud Stocks 343 Financial 156 462 eCommerce 519 Data 216 Payments 170 573 Analytics 949 211 Messaging 512159 223 147Mobile 144 956 611 553 321 389 464 Total APIs, 2014-192 iPaaS market ($B)3 0.6 20182016 2017 2019 2020 1.1 1.6 2.2 2.8 +45% 7 31 12 21 29 Respondents (%) Don’t know Not adopting Adopting for project teams Adopting company wide Adopting for BUs DevOps investments in enterprise4 • API economy is continuing to accelerate • Integration platforms a critical enabler; forecasted to grow 45%+ CAGR Cloud 2.0 2 Cloud market turning into a AWS + MSFT Duopoly because of (1) economies of scale (2) network effects of ecosystem and developers and (3) feature lead because of higher R&D budget, customer feedback. This is having downstream decision impact on MSPs, enterprise cloud customers, software vendors. Given the hybrid and multi- cloud reality, integration has become an imperative – APIs and iPaaS markets are seeing aggressive growth The focus and priorities need to shift from being “on the cloud” to being “cloud native” to fully unlock the cloud value proposition— invest in Automation, DevOps, Serverless and Containers 1. UBS 2. "Research shows interest in providing APIs still high," Wendell Santos, ProgrammableWeb, 2018, https://www.programmableweb.com/news/research-shows-interest-providing-apis-still- high/research/2018/02/23; 3. Gartner; 4. "New DevOps Trends: 2016 State of the Cloud Survey enterprise survey," Kim Weins, Right Scale, 2016, https://www.rightscale.com/blog/cloud-industry- insights/new-devops-trends-2016-state-cloud-survey; BCG research and analysis Public cloud market is evolving to be heavily concentrated with economies of scale at play Interoperability, APIs, security and integration middleware markets becoming critical To unlock full value prop companies investing in DevOps and re-architect to be cloud native • Microsoft Azure and AWS projected together to take ~60% of the market by 2020, top six cloud vendors to take 90%+ • MSPs, customers and platform players need to evaluate the economic and roadmap implications of a duopolistic market e.g., pricing power Of companies exploring cloud native development Of new apps over next 12 months to be cloud native Of existing cloud apps will be rebuilt as cloud native 66% 55% 25% Growth of native application development 79 87 2018 2019E (%)($B) 73 69 59 2016 34 2017 93 2020E 23 51 101 Combined market share Other IaaS market share breakdown by year1 9 13,000 13,500 17,000 19,000 21,110 2019 11,000 20162014 20182015 2017 1.92x API categories have grown up to ~3x in 20172 # of APIs thru '17 # of APIs added in '17

11. 10 Copyright©2019byBostonConsultingGroup.Allrightsreserved. AI and big data front and center to digital transformations Driving ~40% of all spend, but early days in realizing material value • Of the $1.7T digital transformation market, 40% of initiatives expected to drive AI initiatives Investments in AI will continue to grow as it plays a crucial role in companies' digital transformation efforts Across industries AI is becoming a strategic imperative with 92%, increasing the spending on AI in 2019 vs 2018. TMT, Consumer, Financial and Healthcare most expectant Yet, only one in five AI adopters have realized significant value today. Pioneers are struggling with skills/gaps and more passive adopters struggling without a clear strategy and well- identified use case 18% % of companies with strong adoption of AI and are considering AI at scale3 % of adopters who are in early experimentation and yet to find big value3 72% What gets in the way of AI adoption?3 72% 18% 0 25 7550 100 Competing investment priorities Attracting, acquiring, and Developing the right AI talent Security concerns resulting from AI adoption Cultural resistance to AI approaches Limited or no general tech. capabilities (e.g., analytics, data, IT) Lack of leadership support for AI initiatives Unclear or no business case for AI applications Passives Pioneers % of respondents ranking the selection as a top three barrier 92% 88% 12% 8% Pace of investment in AI is increasing Sense of urgency to invest in AI Yes No Nine out of ten companies are increasing pace of investment in AI and Big Data2 Expectations highest in 4 industries3 … TMT HealthcareFin. Serv.Consumer …and lowest in 3 industries3 Public sector IndustrialEnergy 1,020 680 Spend on digital transformation Est. AI and data spend Other digital spend 1,700 40% of digital transformation efforts are AI and big data based Estimated 2019 spending on global digital transformation efforts ($B)1 3AI Pioneers Note: Survey respondents include C-executives from 65 companies (74% Financial Services, 17% Healthcare, 9% other) 1. BCG analysis; 2. "Big Data and AI Executive Survey 2019," NewVantage Partners, 2019, https://newvantage.com/wp-content/uploads/2018/12/Big-Data-Executive-Survey-2019-Findings- Updated-010219-1.pdf; 3. Artificial intelligence in business gets real," MIT Sloan Management Review and BCG Henderson Institute, 2018, https://sloanreview.mit.edu/projects/artificial- intelligence-in-business-gets-real/ AI and data is at the heart of the digital transformation efforts … … with a major uptick in number of companies investing in AI across verticals … … but only 1 out of 4 of companies adopting AI realize the value proposition … 10

12. 11 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Pioneers leading with revenue use-cases vs. costs; customers investing in data as a strategic asset and an AI at scale model 1. "Artificial intelligence in business gets real," MIT Sloan Management Review and BCG Henderson Institute, 2018, https://sloanreview.mit.edu/projects/artificial-intelligence-in-business-gets- real/ 2. "The 2018 Global Data Management Benchmark Report," Experian Data Quality, 2018, https://www.edq.com/resources/data-management-whitepapers/2018-global-data-management- benchmark-report/ • Many companies expect AI to change their business model, but Pioneers are significantly more likely to have a plan to address AI • Passives need five years to catch up to where Pioneers are today in developing an AI at scale operating model • Within businesses applying AI, initiatives are revenue- focused; Pioneers are especially focused on top line growth through AI • Revenue use-cases span industries and horizontals, e.g., – Marketing, sales and personalization – Pricing optimization – New products e.g., NLP, cybersecurity, medical diagnostics • Cost-cutting use cases include: – Process Automation – Predictive maintenance – Customer support – Supply chain optimization 85% 57% 90% Passives 39% Pioneers Developing a strategy for AI is urgent We have a strategy for using AI in our organization Managers’ views on the importance of developing an AI strategy (% agree)1 AI vendors targeting revenue-increasing solutions across a variety of industries Best of breed companies build robust data management and governance capabilities and elevate data to be a leadership topic Full AI value proposition only realized through having a clear AI strategy and broader AI at scale transformation Planned data management projects (%)2 Managers who experienced/expect a business model transformation from AI implementation (% agree)1 63% 81% 19% PioneersPassives 37% Cost reduction Revenue Increase Companies leveraging AI for revenue increases vs. cost reduction (%)1 51%52% 75% In the past 3 years In the next 5 years 15% Analytics 36 Data integration Data migration Data governance Master data management Data preparation Holistic data quality Data cleansing Data enrichment Single customer view 38 34 28 50 38 24 46 32 19 35 27 26 35 18 31 30 19 30 25 2017 2018 Passives Pioneers 3 Users targeting revenue point solutions for specific industries Companies investing in robust data mgmt. capabilities, making data a leadership priority … … and focus on a broader business process transformation to fully realize the AI at scale value proposition AI Pioneers • Data is foundational to building AI capabilities • Companies continuing to aggressively invest in data integration, migration and MDM capabilities • Data Governance is emerging as a big theme 11

13. 12 Copyright©2019byBostonConsultingGroup.Allrightsreserved. As Digital drives Tech spend, business functions and digital natives disrupt the B2B purchasing game Note: New spend includes SW licenses, first-year SaaS subscriptions, new mobile apps, new custom SW, tech consulting services, and tech systems integration services 1. Cloud, enterprise SW to drive global IT spending increase, Gartner, 2019, BCG analysis 2. "C-Suite Tech Purchasing Patterns," Andrew Bartels, Forrester, 2017, https://www.forrester.com/report/CSuite+Tech+Purchasing+Patterns/-/E-RES137313 3. "B2B Report Millennials," Merit, 2017, https://madewithmerit.com/reports/Millennial_B2B-Report- Merit.pdf 4. "The Changing Face of B2B Marketing," Kelsey Snyder, Google, 2015, https://www.thinkwithgoogle.com/consumer-insights/the-changing-face-b2b-marketing/ Digital driving investments in 2019 with cloud SW spend growing 17.5% B2B buyer base moves to millennials and behaviors are anchored in digital ways of working Business-led buying of software is becoming more of a norm with 30% of buying led by the business % of millennials involved in product or service purchase decision-making % of are the sole decision maker 34% 73% 46% % of all B2B researchers are millenials 42% % of all B2B researchers use a mobile device during the B2B purchasing process • Digital by default • Mobile matters • Social savvy and video is key 63% % using LinkedIn 224 Communication services 1,493 1,099 724 228 231 2019 IT services Devices Software - Cloud Software - Other Data center systems 4,000 1.3% 4.7% 4.1% 1.6% 17.5% 1% • Spending on enterprise SW forecast to jump 8.5% • Cloud computing infrastructure and applications forecast to jump 17.5% 3.2% 6 5 5 5 4 4 2 10 CAGR 2012-18 14 12 11 • ~60% of buying coming from the business functions 4End-User Power Spending on enterprise SW to grow faster than any other category driven by Digital1 IT still owns the lions share of spend, but buying shifting to be business-driven2 NextGen of B2B buyer base and behavior changing3,4 3… 7… 12 Total projected spending on global enterprise IT, 2019, $M Forecasted growth from 2018 Overall

14. 13 Copyright©2019byBostonConsultingGroup.Allrightsreserved. • Engagement increases with project size; higher touch needed for larger projects, due to complexity Engagement model of business with internal IT and SW vendors changes CIO has a seat at the table and SW vendors engage digitally across full lifecycle 1. "State of the CIO, 2018: IT-business alignment (finally) gets real, CIO, 2018," https://www.cio.com/article/3250845/state-of-the-cio-2018-it-business-alignment-finally-gets-real.html 2. BCG research and analysis; 3. "The Digital Evolution in B2B Marketing," CEB, 2012, https://www.cebglobal.com/content/dam/cebglobal/us/EN/best-practices-decision-support/marketing- communications/pdfs/CEB-Mktg-B2B-Digital-Evolution.pdf 4. "State of Pipeline Marketing," Bizbible, 2017 5. "Findings on customer success benchmarks," BCG, 2018, https://www.gainsight.com/pulse/2018/recap/assets/pdfs/BCG%20Findings%20on%20Customer%20Success%20Benchmarks.pdf, 6. Open jobs found by searching for "Customer Success Manager" on Indeed.com, 2019, http://www.indeed.com Digital pre-sale engagement and marketing expected to grow2 Digital has elevated CIOs driving more business and IT collaboration/cooperation1 Post-sale adoption and renewal enabled by CSMs • Digital self-service expanding as a new means for engagement • Digital marketing strategies have the greatest impact on revenue for ~40% of marketers from across all industries • A table stakes to win in subscription based businesses • Companies are rapidly adopting CSM to drive deep customer engagement • Role of CIO changes as the technology function transforms into a critical digital enabler for the business • CIO creates the digital foundation using cloud services Open CSM positions in the US6 270k 4… 3… % of IT leaders actively engaging with business to use technology can alter the business % of CIOs describe their role as transformational or strategic % of LOB that see consider IT as a strategic advisor 37% ~40% 49% • Develop product and services with the business • CIOs ensure powerful governance and steering capabilities Land Deploy Adopt Expand 80 18 Renew 61 65 70 CSM Main ExecutorCSM Contributor Where are CSMs involved?5 6… % of companies changing the reporting structure of CSM to the CEO or Head of Sales 63% 7… % of companies providing all of Customer Success for free 75% Internal CIO engagement moves to ensuring powerful governance and steering, as well as to integrate with the business functions Digital has become an increasingly critical part of the software sales process. The average buyer gets 60% of the way through the sales journey before the first live interaction with a company. The other factor impacting the relationship between a software vendor and a buyer is the growth of as a service subscription economy. Vendors now have to focus on buyers across the lifetime and are ramping up post- sale, online-based customer management 4End-User Power 4 10.0% 7.9% Content marketing 11.4% Word-of-mouth referrals SEO Email marketing 18.6% Conference / trade show Paid search 10.4% 9.3% 4 of the top 6 marketing activities with greatest impact on revenue are digital, based on survey respondents 57% progress through the sales journey before the average buyer's first live interaction with a vendor 3 CSMs primarily focus on post- sale aspects of the client relationship 13

15. 14 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Data privacy is a board level topic driven by global data regulation and awareness caused by breaches Data regulation is tightening globally with GDPR being most prominent example Number of breaches doubled since 2014 while average breach exposed more than 3x as many files 3 out of 4 data losses caused by people, processes, and organizational failures (vs. inadequate security technology) Limited 39 Data protection regulation and enforcement (no. of countries) 22 44 Strong Moderate $38B• >40% of surveyed companies have “Strong” data protection and enforcement— more than half driven by GDPR • “Limited” data protection mostly in emerging countries— some working on tightening regulations (e.g., India) EU General Data Protection Regulation, 2018 (+ additional member adjustments) Robust Limited regulation, Draft bill expecting to be established 2019 India Limited • Number of breaches doubled since 2014 while 3x as much data exposed in the average breach No. of records exposed, globally, B 2014 2018 1.1 5.1+364% No. of recorded data breaches, globally 6,500 2014 2018 3,014 +116% e.g., Aadhaar (1.1B) and Exactis (340M) 3 USA Patchwork of state and national laws, e.g., California: Consumer Privacy Act, 2018 Strong 382 226 238 322 146 2017 16 21 Accidental publication IT configuration Implementing security products Malicious insider Physical loss Phising Inadequate security technoloy Organizational, process and people failures 72% Security technology28% No. of records lost, M 5Data Protection Data regulation globally is tightening … 1 … while threat of data breaches doubled since 2014 … 2 … 72% of breaches caused by people, processes, organizational failures4 Note: "Strong" combines "heavy" and "robust" categories from DLA Piper report Source: 1. Data Protection, DLA Piper, https://www.dlapiperdataprotection.com/; 2. "2014 Data Breaches – A Billion Exposed Records – A New All Time High," RiskBasedSecurity, 2015; https://www.riskbasedsecurity.com/2015/02/2014-data-breaches-a-billion-exposed-records-a-new-all-time-high/; "Over 6,500 Data Breaches and More Than 5 Billion Records Exposed in 2018," RiskBasedSecurity, 2019, https://www.riskbasedsecurity.com/2019/02/over-6500-data-breaches-and-more-than-5-billion-records-exposed-in-2018/; 3. "Data Breaches 2018: The 20 Biggest Breaches of the Year," Dashlane blog, 2019, https://blog.dashlane.com/data-breaches-2018/; 4. "Building a Cyberresilient Organization," Stefan Deutscher, et al, BCG, 2017, https://www.bcg.com/publications/2017/technology-digital-building-a-cyberresilient-organization.aspx 14

16. 15 Copyright©2019byBostonConsultingGroup.Allrightsreserved. A top 5 CIO topic in many companies now … vendors re-engineering solutions and building new offerings to address pain points Data is top of mind for CIOs, leading to spend increase but there are no clear best practices To ensure location of data storage is compliant and include "data by design" principles in product development – requiring high investments which is creating headwinds for expansion - especially for small and mid-sized software companies New opportunities and high growth in security point solutions – DSPs needed to integrate holistic solutions Data is top of mind for CIOs … Explosive growth in new data privacy offerings • 4x of number of privacy tech vendors in 1.5 years • Market is highly fragmented – 35% vendors offer one solution – ~20% offer >3 offerings • No vendor offers fully integrated solution • Opportunity for Digital Service Providers (SI and advisory services) to integrate holistic solutions No. of privacy technology vendors5 • Spend on privacy likely to increase – CIOs will benefit from best practices to manage data privacy and holistic solutions • Headwinds for Enterprise SaaS companies to expand geographically due to high investments required – especially for small and mid-sized players Note: Cloud services spending on data centers only available for North America; NA is home to ~60% of data centers - extrapolated accordingly Source: 1. "CIOs and the data security dilemma," Alastair Broom, GDPR Report, 2019, https://gdpr.report/news/2019/01/14/cios-and-the-data-security-dilemma/; 2. "Big Data and AI Executive Survey 2019," NewVantage Partners, 2019, https://newvantage.com/wp-content/uploads/2018/12/Big-Data-Executive-Survey-2019-Findings-Updated-010219-1.pdf; 3. Data center information retrieved from companies' websites; 4. "Google, Amazon and Microsoft cloud businesses helped more than double spending on data centers last year," Rani Molla, Recode, 2018, https://www.recode.net/2018/3/15/17124300/google-amazon-microsoft-cloud-200-percent-jump-data-center-acquisitions; 5. "2018 Privacy Tech Vendor Report," IAPP, 2018, https://iapp.org/media/pdf/resource_center/2018-Privacy-Tech-Vendor-Report.pdf CIOs' 2019 data priorities (%)2 Data privacy is a key pain point for CIOs1 As a result, CIOs prioritize data privacy… 99% Data Privacy Cyber Security 94% Data Ethics 56% 55% 34% 10% 9-105-6 1%0% 1-2 7-83-4 No. of product offered per vendor6 44 0 200 Q1 2018 Q3 Q3Q1 2017 Q2 Q4 Q2 193 4.4x ~$35B 5Data Protection 54% Of CIOs believe that data breaches are main security threat … and vendors (re-)engineering solutions to comply (“privacy by design”) ServiceNow opened 2 data centers in Germany to drive EMEA expansion Vendors investing in complying with location of physical data storage …3 Product development to adopt privacy mindset and to engineer specific product features that address privacy issues “privacy by design” … Significant investments required to comply for vendors • E.g., California (SB 327): Requires IoT devices to include one or more "reasonable security features.” worldwide investment in data centers by cloud players in 20174 No. of cloud players' EU data centers: 5 (2 new since 2017) 4 (1 more in 2021) 8 (6 more announced) 15

17. 16 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Broad set of ecosystems with different focuses and capabilities1 The rise of dynamic, multi-company systems as a new way to organizing economic activity2 Preferred Platforms 6 1. “The importance of collaboration in a connected world”, Nikolaus Lang, WEF, 2019, https://www.weforum.org/agenda/2019/01/how-collaboration-is-the-modern-company-s-secret-weapon/ 2. The Myths and Realities of Business Ecosystems, Jack Fuller, MIT Sloan Management Review, 2019, https://sloanreview.mit.edu/article/the-myths-and-realities-of-business-ecosystems/ • Core SW product with functionality extended by growing number of complementors (100+) • Example – MS dynamics • Solution extensions/Add-ins – Customer service – Field service – Finance and Ops SW product + partnerships - extend, implement, sell - • Core SW product • Number of partners, mostly implementation, resellers • Example – CA AgileCentral Traditional SW product - engineer high quality product - • Foundational arch. and core functionality • Marketplace • Thousands of complementors with services • Millions of developers • Example – SaaS (SalesForce) – Open Source (RedHat) Platform - connect complementors, low friction- • Platform of platforms • Potentially tens of thousands of complementors with services • Multiple platforms available • Millions of developers • Emerging super platforms – AWS, Azure • Platform partners – E.g., Watson, C3 Super platform - integrate platforms - Focus ComplementorsInternal Product Digital Capabilities

18. 17 Copyright©2019byBostonConsultingGroup.Allrightsreserved. • E.g., SalesForce • Platform owners commit to treat all ecosystem participants fairly and facilitate the economic success of complementors • Traditional boundaries are blurred Platform value creation using ecosystems becomes the new logic for competition While orchestrators have limited control, careful governance and deliberate plays – that balance what is good for the company vs. third parties, end-users, the industry - are critical. Practice is racing ahead of theory, and pioneers who can crack the code will be greatly advantaged Strong ecosystems create sizeable value for vendors and the ecosystem1 Ecosystem builds on community to increase value … large number of contributors and users create substantial value • Customers consistently cite MSFT ELA as key driver of cloud trial/adoption (license portability, flexible true-up, clear discount entitlements) • Evangelize and build champions (e.g., hero developers) • Investment in Azure – DevOps, Open Source, going beyond Windows and VSTS, multiple regions • E.g., Github ($7.5B), RedHat ($34B) • Being externally oriented and to deploy indirect influence • Solve developer painpoints (GitHub faster than alternatives; adds many features on top of the original functionality) • Continue to lower barriers of entry (AWS) • Understand developer community deeply (e.g., Microsoft with developers specific GTM) Ecosystem builds on existing incumbency … but with targeted actions3 3 32 8 Total economic value 1 1 48 8 56 SaaS License Professional Services App Exchange Other 100 33 8 Estimated developer counts (in M)2 Ecosystems build on automating all operating decisions4 • Alibaba transformed decision making in four steps – “Datafy” every customer exchange – “Software” every activity – Get data flowing – Apply the algorithms • In 2017, during Alibaba’s biggest sales day, the chatbot handled 95% of customer questions Cloud Mobile dev. Dev tools/C ollab 4.0 Facebook 1.4 GitHub Xamarin StackOverflow Twilio 6.8 Apple Android Tencent RedHat AWS 2.0 Salesforce Alibaba Azure Google 31.0 13.3 20.0 6.5 3.0 2.0 8.0 5.4 2.5 1.0 3 5 10 0 1 2 3 0 5 10 # of developers using Azure, M 2016 1.5 Azure revenue, $B 1.9 2017 2.5 2018 3 revenue, $B No of developers, M 4.9 15.5 0 30 10 20 40 2014 $B 2015 2016 2017 2018 8.4 39.9 Revenue $B EBITDA $B Preferred Platforms 6 1. BCG analysis based on data from Bernstein on SFDC core revenue, based on Gartner estimate of 1.5x license revenue for SI and 3rd party developers, based on IDC estimates, Bernstein for Force.com enabling licenses, based on estimate from ex-employee interviews and SFDC presentations for ISV royalties, and partner share of app sales based on Veeva 2. Developer count: Android, AWS, Azure, and Google calculated based on results of 2018 Stack Overflow Developer survey and IDC estimates on total developers; additional developer estimates provided from homepages for GitHub, Stack Overflow, Facebook, Alibaba, and Salesforce, and the following news sources: https://realmoney.thestreet.com/articles/10/29/2018/ibm-picks-much-needed-developer-talent-34-billion-red-hat-deal; https://siliconangle.com/2019/01/16/red-hats-shareholders-greenlight-34b-acquisition- ibm/; https://www.altexsoft.com/blog/mobile/pros-and-cons-of-xamarin-vs-native/; https://investors.twilio.com/home/default.aspx; http://open.qq.com/eng/; https://techcrunch.com/2018/06/04/app-store-hits-20m- registered-developers-at-100b-in-revenues-500m-visitors-per-week/; 3. IDC data for number of Azure developers in 2017-2018; estimated 2016 based on growth rate 4. "Alibaba and the Future of Business", Ming Zeng, HBR, 2018, https://hbr.org/2018/09/alibaba-and-the-future-of-business This does not include all services and is missing the broader ISV ecosystem built on SFDC platform e.g., Gainsight and Veeva Total economic value Value captured by ecosystem Value captured by SFDC

19. 18 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Customers, SW providers engage on multiple platforms, ecosystems The future will see the spread of ecosystems; companies co-evolving in temporary clusters of semifluid relationships spanning traditional industry boundaries Preferred Platforms 6 1. App and customer count from each platform's website and app marketplace, https://expandedramblings.com/index.php/amazon-web-services-statistics-facts/, https://azuremarketplace.microsoft.com/en-us/marketplace/apps?filters=partners&page=1 , https://s1.q4cdn.com/454432842/files/doc_financials/2017/Salesforce-FY-2017-Annual-Report.PDF, https://www.sap.com/documents/2017/04/4666ecdd-b67c-0010-82c7-eda71af511fa.html, http://www.oracle.com/us/corporate/oracle-fact-sheet-079219.pdf; 2. BCG estimates 3. IDC survey, CloudView, 2018, n=5740 4. IDC FutureScape: Worldwide Cloud 2019 Predictions, 2018 5. The Myths and Realities of Business Ecosystems, Jack Fuller, Michael Jacobides, Martin Reeves, MIT Sloan Management Review, 2019, https://sloanreview.mit.edu/article/the-myths-and- realities-of-business-ecosystems/ 100s of thousands customers locked into platforms1 Verticalization emerging as a value driver3 Organizations need new ways of thinking about from an ecosystems perspective5 ObservationsImplications • Providers leverage advantage by expanding marketplaces to accommodate more 3rd party solutions and become relevant across the stack • Support integration into other cloud solutions • Top 4 clouds will be the destination for 80% of workloads2 • Two verticalization models evolving – From scratch: Industry specific from the bottoms up with a common set of shared features with fewer customizations (E.g., Veeva in Life Sciences) – On top of horizontal platform: Anchored on standardizing or pooling data leveraging the platform across many processes substituting certain modules with industry specific workflows where necessary (E.g., Vlocity in Comms, Energy, Health, Public, Financial Services and Insurance) • Early stage of life cycle with no clear winners yet • By 2022, more spend on Vertical SaaS, excluding desktop and employee productivity, than horizontal SaaS4 • 150K+ customers • 3K+ apps • 425K+ customers • 1.75K+ apps • 430K+ customers • 2K+ apps • Dynamic: Based on a co-evolutionary vs. static relationships and capacities • Collaborative: Driven by novel product combos with complementary offerings • Influence based: Shaped by influence rather than full ownership or control • Indirect: Profits from system transactions or cross- subsidies, as often monetization occurs indirectly • Emergent: Generates and embraces unanticipated shifts, reversals, and unintended consequences • Network oriented: Involves overlapping networks vs. discrete/linear value chains • Externally focused: Focuses on activities beyond individual company borders • Shift to ecosystems challenges the very idea of “industry” from the industrial revolution — a discrete set of broadly similar players competing to produce a common end product in a vertically integrated fashion • Adopt an ecosystems perspective and consider the specific strategic choices we face, based on our particular situation, aspirations, and capacities • 1M+ customers • 4K+ services • 500K+ customers • 6k+ apps 45% 35% 45% 40% 55% 55% 40% 30% 60% 30% 50% 35% 505 Communications Accommodation and Food services Construction Financial Services Media and Entertainment Current adoption Planned adoption in 24 months Retail Technolog Vendors Healthcare Utilities Oil and Gas Life Sciences Education Government Whole sale Distribution Manufacturing Platform driven ecosystems emerging as a new way to organizing economic activity A new logic for competition Customers and SW providers engage on multiple platforms and play in several ecosystems The future will likely see the further spread of ecosystems with companies co-evolving in temporary clusters of semifluid relationships spanning traditional industry boundaries 18

20. 19 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Significant growth in tech skill needs … with thousands of open positions to be filled Existing employees lacking critical hard tech skills4 Employees want new ways to work and engage5,6,7 The tech talent pool is experiencing a demand-supply gap for critical skills, while employees prioritize non-financial incentives • Tech jobs growing not only in most top US hubs, but also in cities not traditionally associated with tech • Currently there are >100K open postings for top six emerging jobs in US • Customer success managers a huge open gap %ofsurveyrespondents 68 65 64 64 62 62 61 61 Master data mgmt Mobile apps 41 Big data 42 Cybersecurity Data science Cloud Computing Analytics Web development 43 42 51 45 39 38 • Significant tech skill gaps in the existing workforce against employer demand Employee: Proficiency level of skill Employer: High demand for skill in organization • Empowered talent starting to broadly value non-traditional rewards and incentives Four trends emerge from multiple talent surveys: Working with purpose • Meaning in and impact from work • 75% are 3x more likely to work for a company with purpose Permanent flexibility • 51% employees want more flexibility • Value good work-life balance • 3% companies are Flex leaders Open to move • 67% of digital experts would relocate outside their home country for work Curating the work experience • Effective and relevant day-to-day work experience • Digital from the inside out in collaboration, learning, and predictive analytics digital tools -4 13 17 59 24 LA Boston Chicago DC Dallas NY Denver Seattle SF/bay area Atlanta Charlotte -1 11 15 19 31 35 Growth of tech jobs in US tech hubs, % change 2012-172 Open postings for emerging jobs in US tech hubs (Feb 2019, K)3 3SRE Full stack dev CSM ML engineer 7 5 Data scientist Blockchain dev 6 12 33 2018 growth rate of emerging jobs in US (multiple of previous year’s requirements)1 Open postings for emerging jobs in US (Feb 2019, K)3 16 6 14 270 22 1 Hiring Hell 7 1. LinkedIn 2018 Emerging Jobs Report, 2018, https://economicgraph.linkedin.com/research/linkedin-2018-emerging-jobs-report 2. Scoring Tech Talent in North America 2018, CBRE, 2018, https://mapping.cbre.com/maps/Scoring-Tech-Talent-2018/Analyzer/ 3. Searches for each position, nationally and per city, on Indeed.com, 2019, http://www.indeed.com 4. The Digital Talent Gap, Jerome Buvet, et al, CapGemini/LinkedIn, 2017, https://www.capgemini.com/wp-content/uploads/2017/10/report_the-digital-talent-gap_final.pdf 5. Global talent trends 2018 study, Mercer, 2018 6. Decoding Digital Talent, Rainer Strack, et al, BCG, 2019, https://www.bcg.com/en-us/publications/2018/decoding-global-talent.aspx 7. Global talent trends 2019, Mercer, 2019, https://www.mercer.com/our-thinking/career/global-talent-hr-trends.html

21. 20 Copyright©2019byBostonConsultingGroup.Allrightsreserved. We're in the middle of a major talent transition Focus and discipline in reskilling, broader employee propositions, and leveraging specialized hubs • Corporate leaders to invest more on training and development while help engaging with the broader community on "education to all" Established task force to identify new emerging technologies and created a skills map curricula3 of global companies have strategies for reskilling digital competencies442% of roles filled by internal candidates for employers with best in class programs5 • Purpose, diversity and offering flexibility becoming table stakes to attract and retain talent … on industry level: Example initiatives …on enterprise level Purpose6: Leading B2B SW companies have purpose-driven campaigns, others to catch up 98% of companies have diversity programs Only 25% of females and minorities benefit from these programs Diversity8: Need to address the gender gap Offering flexibility4 Top 20 B2B companies 20 select mid sized players7 of senior executives say a top priority is addressing work-life balance issues, including flexible work schedules 30% 2018 70% 15% 20142014 100% 2018 • Expert hubs become critical when planning workforce and location strategies Green cities ranked in the 30 most attractive cities for digital experts10 B2B specializations per tech hub9 1 1 LA 3 Boston SanFrancisco 3 NewYork 3 Mumbai Seattle TelAviv Chicago HongKong London Berlin 3 Paris Moscow Prague Beijing Bengaluru 1 Delhi 6 5 1 4 3 3 2 1 3 2 AI Fintech Cybersecurity Adtech Robotics Agtech United States IndiaEurope China Initiative to host reskilling content on one platform to serve 1M workers1,2 7Hiring Hell 1. "Five insights from Davos on the Future of Work," Lynda Gratton, MIT Sloan Management Review, 2019, https://sloanreview.mit.edu/article/five-insights-from-davos-on-the-future-of-work/; 2. "1 million workers targeted in Tech-reskilling drive," WEF, 2018, https://www.weforum.org/press/2018/01/1-million-workers-targeted-in-tech-reskilling-drive/ 3. https://futureskills.nasscom.in 4. Global talent trends 2018 study, Mercer, 2018, https://www.mercer.com/content/dam/mercer/attachments/global/webcasts/gl-2018-pdf-global-talent-trends-study-us-canada.pdf 5. BCG analysis 6. Bright House research and analysis 7. B2B SW companies with ($2-700M+ revenue), Brighthouse analysis 8. Fixing the flawed approach to diversity, Matt Krentz, et al, BCG, 2019, https://www.bcg.com/publications/2019/fixing-the-flawed-approach-to-diversity.aspx 9. Global Startup Ecosystem Report 2018, 2018, Startup Genome, https://startupgenome.com/reports/2018/GSER-2018-v1.1.pdf 10. Decoding Digital Talent, Rainer Strack, et al, BCG, 2019, https://www.bcg.com/en-us/publications/2018/decoding-global- talent.aspx Broad and fast re-skilling is vital Broader employee value propositions - purpose, diversity, and flexibility - Specialized tech hubs - for emerging skills - 30- 40% 49% Demand-supply gap for critical skills get bigger. Three key mechanisms to respond: • Close talent gaps by reskilling current employees • Attract and retain talent by offering employees things that they want and value – Redesigning employee value proposition – Addressing the gender gap in technology jobs • Focusing on specialized hubs for new talent needs 20

23. 22 Copyright©2019byBostonConsultingGroup.Allrightsreserved. The 7 next wave enterprise software trends to watch These will become even more important in the next 3-5 years Companies need to start planning for the impact of these trends Blockchain • Emergence of standards and regulation • Use cases being developed, e.g. in fintech or supply chain • Better feasibility e.g. tooling and frameworks 5G, Edge, and IoT • Growth of sensor and data leading and increased need for computation at edge • 5G removing bandwidth barriers – unlocking new use- cases and edge applications Interfaces • New ways of interacting (via voice, VR, AR, …) • Vertical specific use cases emerging, eg in field service • Broad B2B rollout expected to follow B2C breakthrough AI Hardware accelerators • Rapid growth of deep learning • Increased training & inference computation • Growth of AI focused ASICs, FPGAs and GPUs DevSecOps • Growth of containerization, serverless and increasing release velocity • Push for security testing early on the dev lifecycle • Integration & automation of security testing/monitoring Quantum computing • Very high information density • Standards and ecosystems yet to evolve • Newly enabled use cases will evolve in e.g. material sciences, pharma, finance Digital Twins • Virtual representation of a physical object • Use cases e.g. in construction, industrial, health care, etc. • Enables better business outcomes when integrated with other software/ analytics 22

25. 24 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Authors Sesh Iyer Boston Consulting Group Senior Partner and Managing Director iyer.sesh@bcg.com Bernd Schlotter Boston Consulting Group Senior Partner and Managing Director schlotter.bernd@bcg.com Roger Premo Boston Consulting Group Partner and Managing Director premo.roger@bcg.com Thomas Reichert Boston Consulting Group Global leader of DigitalBCG reichert.thomas@bcg.com Michael Ruessmann Boston Consulting Group Senior Partner and Managing Director ruessmann.michael@bcg.com Pranay Ahlawat Boston Consulting Group Principal ahlawat.pranay@bcg.com Christopher Detzel Boston Consulting Group Principal detzel.christopher@bcg.com Deepak Ayyagari Boston Consulting Group Associate Director ayyagari.deepak@bcg.com Diego Chojkier Boston Consulting Group Consultant chojkier.diego@bcg.com M.R. Rangaswami Sand Hill Group Founder mr@sandhill.com Bruce Fram bruce@sandhill.com

26. 25 Copyright©2019byBostonConsultingGroup.Allrightsreserved. Experts, contributors, and support Experts Contributors Knowledge team Writing and production support Philip Evans Santosh Raghunath Sonny Ali Michelle Rafter Derek Kennedy Kali Samuel Stella Su Alex Perez Vikas Taneja Josh Wasserman Noriko Hasehawa Katherine Andrews Max Hong Towsif Ahasan Gary Callahan Rishi Varma Marco Albonico Siobhan Donovan Shaveen Garg Kim Friedman Simon Bamberger Abby Garland Hady Farag Gina Goldstein Hrishi Hrishikesh Sean Hourihan Florian Schmieg Shannon Nardi Becky Frederick

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