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Russ Hertzberg Vice President, Technology Solutions
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Rapid Growth for Eastern European
Software Development Service Providers in North American Markets
September 15, 2012
Russ Hertzberg Vice President, Technology Solutions
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
Selected Growth Highlights…US + EMEA and WorldWide
Fast Growth Eastern European Providers vs. Total Market
Top Two Eastern European
• Recent IPO
• Largest Dev Center in Belarus
• 5 Year CAGR Revenue Growth of 31%
Total Market
Fast Growth Eastern European Providers vs. Total Market
Top Two Eastern European
• 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%
Total Market
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
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
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
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
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
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
Better Performance
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
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
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
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
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)
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
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
Case #3: Very Early Stage Social Travel Network
• Angel and Founder Funded
• Creating Minimum Viable Product
• SaaS Backend
• Native iOS Application
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
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
Thank You!
www.softserveinc.com
Copyright © 2010 SoftServe, Inc.
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