Russ Hertzberg Vice President, Technology Solutions

1. Rapid Growth for
Eastern European
Software Development Service Providers
in North American Markets
September 15, 2012
Russ Hertzberg
Vice President, Technology Solutions

2. Agenda
• Selected Market Growth Highlights
• Key Growth Factors:
– Roll Ups and Consolidations in the Independent Software
Vendor (ISV) Space
– Enterprise Marketplace
– Professional Investors and Early or Mid Stage Technology
Companies
– Social Networks
• Conclusions

3. Selected Growth Highlights…US + EMEA and
WorldWide

4. Fast Growth Eastern European Providers vs.
Total Market
Top Two Eastern European Total Market
• Recent IPO
• Largest Dev Center in
Belarus
• 5 Year CAGR Revenue
Growth of 31%

5. Fast Growth Eastern European Providers vs.
Total Market
Top Two Eastern European Total Market
• Recent IPO
• Largest Dev Center in Belarus
• 5 Year CAGR for Revenue of
31%
• Privately Held
• Largest Dev Center in L’viv
Ukraine
• 3 Year CAGR for Revenue of
40%

6. Growth Factor #1: Industry Roll Ups
• A Rollup (also "Roll-up" or "Roll up")
is a technique used by investors
where multiple small companies in
the same market are acquired and
merged. The principal aim of a rollup
is to reduce costs through economies
of scale.
• Rollups may also have the effect of
increasing the valuation the business
can command as it acquires greater
scale. Rollups may also help
rationalize competition in crowded
and fragmented markets, where
there are often many small
participants but room for only a few
to succeed in the long run.
• http://en.wikipedia.org/wiki/Rollup

7. Case #1: Systems and Network Management
• 11 Acquisitions from
2007 to 2012
• # of Unique Products in
Solution Portfolio = over
500
• Ranked 20th Largest ISV
in the World
• Annual Revenue in 2011
of US Dollars 2.1 Billion

8. Case #2: Enterprise Content Management
• 12 Acquisitions from
2007 to 2012
• # of Unique Products in
Solution Portfolio = over
1000
• Ranked 38th Largest ISV
in the World
• Annual Revenue in 2011
of US Dollars 1.03
Billion

9. What Happens to Roll Up ISVs During and After
Serial Acquisitions
• Acquired Business Cost
Reduction
• Acquired Business
Product Ownership and
Technical Leadership
Exits (Key People Leave)
• Code Gets Old
• Product Lines Overlap
• Product Lines Need to
be Integrated

10. The Advantages of Top Eastern European Software
Providers Working For Large US ISV Roll Ups
• Lower Costs
• Higher Developer
Morale and Motivation
• Modern Methods
• Current Skills

11. The Advantages of Top Eastern European Software
Providers Working For Large US ISV Roll Ups
• Lower Costs
• Higher Developer
Morale and Motivation Better
Performance
• Modern Methods
• Current Skills

12. Enterprise Marketplace
• The Recovery in North American
Business is Taking Hold Slowly
after a Severe Recession
• Financial Services is Now a
Smaller Vertical
• Healthcare IT Spending Has Been
Jump Started by Government
Incentives
• Media and Telecomm is Always
Becoming More Technology
Intensive
• Technology Enabling any Line
of Business is Often an
Effective Competitive Strategy

13. Enterprise Marketplace: No Shortage of Opportunities
to Implement & Operate Technology More Successfully
• Slow Moving ERP
Implementations
• Workflow and BPM for
Content Management
• Network Security
• Mobility
• Data Center Efficiency,
Private Cloud
• Hybrid SaaS

14. The Enterprise Opportunity
• Large, Slower Moving IT
Service Providers Like IBM and
Accenture Have Large Market
Share
• Premium Pricing is Common
• Technology Neutral Service
Providers Have an Advantage
• Large Providers Have
Incumbent Reputations Which
are Not Always Helpful
• Large Providers can be
Outperformed and at Much
Lower Prices

15. Professional Investors and Early or Mid Stage
Technology Companies
• Three Active Classes of Professional
Investors:
– Private Equity
– Venture Capital
– Angels
• An Early Stage Technology Company:
– Less Than 3 Years Old. Shipping
Product, Some Customers, Some
Revenue
• A Mid Stage Company:
– 4 to 10 Years Old. Several Rounds of
Funding. Facing Growth Pressure
from Investors

16. Professional Investors Have Lot’s of Money to
Invest (and Make) in Big Data, SaaS, and Mobile
• Big Data: 1.15 Billion US Dollars in
Roughly 100 Deals over the Last 12
Months
• Mobile: 4 Billion US Dollars Raised in
First 6 Months of 2012 on 479 Deals
• SaaS: Expensive Acquisitions in the
Last 6 Months…
– SAP Acquires Success Factors for
$3.4 Billion
– Oracle Acquires RightNow
Technologies ($1.5 Billion) and
Taleo ($1.9 Billion)

17. Case #1: Mid Stage Provider Making Large Investment in Next
Gen Software Service Because the Original Business is Stagnant
• Original Product and Services
Business Serves a Declining
Large Law Firm Market
• Disappointed Investors Have
Replaced Sr. Mgmt. Several
Times
• Derivatives of the Core
Technology Concept Drive a
Vision for a New B to C
Software Service
• The Service is a Pure SaaS
Model Running on AWS

18. Case #2: Early Stage Ecommerce Provider
• A Round Funding Received
(Venture Capital)
• Specialty Ecommerce
Provider
• 8 Instances Running in AWS
• Need Dev Ops Experts Every
Month at X Hours Per
Month Min
• 24 x7 On Call Dev Ops
During Selected Times of
the Year
• Starting Mobile
Development

19. Case #3: Very Early Stage Social Travel Network
• Angel and Founder
Funded
• Creating Minimum
Viable Product
• SaaS Backend
• Native iOS Application

20. Social Networks…Making the World a Much
Smaller Place…with More Communities
• Global Personal
Business Networks
• Worldwide Recruiting
and Hiring
• Interest Group
Affiliation
• Prospect Decision
Maker Profiling
• Inbound Marketing

21. Conclusions
• Leading Eastern European Software Development Service
Providers are Gaining Market Share vs. Rest of World
• Consolidation of Providers within Eastern Europe Has
Already Started
• Some of the Biggest and Best Known ISVs and Technology
Companies Entrust Critical Product Lines to Leading Eastern
European Providers
• The Enterprise North American Market is Still Dominated
by Expensive and Slow Moving Brand Name Providers

22. Contacts and Questions?
US Headquarters Europe Headquarters
12800 University Drive, Suite 250 52 V. Velykoho Str.
Fort Myers, FL 33907, USA Lviv 79053, Ukraine
Main Tel: 239-690-3111 Tel: +380-32-240-9090
Main Fax: 239-690-3116 Fax: +380-32-240-9080
E-mail: rhert@softserveinc.com E-mail: info@softserveinc.com
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