© 2007

SaaS Government 2007

INPUT Federal IT Forecast and the Software Market

James KrouseDirector, Market AnalysisINPUT

January 18, 2007

© 2007

INPUT Fcst4%

Federal IT Budget, FY 1989 – FY 2011

Source: OMB, INPUT

Historical CAGRsPeak: 1998-2003

12%

$0

$10

$20

$30

$40

$50

$60

$70

$80

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Fiscal Year

Fe

de

ral

IT B

ud

ge

t ($

Bil

lio

ns) Total Federal

Civilian

Defense

© 2007

Federal IT Budget-Spending Trend

Percent Change -- IT Budget Request to Actual IT Spending

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%F

Y 1

994

FY

199

5

FY

199

6

FY

199

7

FY

199

8

FY

199

9

FY

200

0

FY

200

1

FY

20

02

FY

200

3

FY

200

4

FY

200

5

FY

200

6*

Per

cen

t C

han

ge

© 2007

Federal IT Market Drivers

• Election year yields slow appropriations

• Many non-DHS and non-DoD elements expected to be sacrificed

• Deficit will still be a major priority and IT budget force in 2008

Tighter control over spending

Budget pressure outside of priorities

• Administration still following the President’s Management Agenda

• Homeland Security/Defense Transformation are still priorities

© 2007

INPUT’s Federal IT ForecastFY 2006 – FY 2011

75.4 76.380.3

84.588.8

93.4

80.576.1

72.067.9

64.063.3

0102030405060708090

100

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Fed

eral

IT

Bu

dg

et (

$ B

illi

on

s)

Total IT Budget -- 4.4% CAGRContracted Portion -- 5.0% CAGR

© 2007

Key Issues to Watch in 2007

Market Slow Down – Haves and Have Nots

Move to Vehicles Affecting Competition

Failure in IT Projects Suppressing Growth

Continuing Budget Pressure

OMB Lines of Business – Issue or Distraction?

Impact of Elections

© 2007 7

Federal Software Market Forecast and Developments

© 2006

© 2007 8

Software Market Influencers

OMB’s influence is actively impacting agency budgets and plans• Business plans driving budgeting• Measurement and Performance

Government increasingly acting like private sectorBudget pressure will continue to increaseUse of Enterprise-wide purchasing vehiclesOutsourcing continues to change spending patterns

© 2007

Federal IT Forecast – FY 2006-FY 2011 Software Market

Total Software Products Market

2

0.7

0.4

2.4

0.9

0.5

1.8

2.3

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

Civilian Defense Intel Other

Mar

ket

Siz

e ($

B)

FY 2006

FY 2011

© 2007

Federal IT Forecast – FY 2006-FY 2011 Software Market Components

Software Products Market Components

3.2

3.9

1.7

2.1

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

FY 2006 FY 2011

Ma

rke

t S

ize

($

B)

ApplicationsSoftw areSystemsSoftw are

© 2007

Software Market Changes

Less outright purchase of Software

Active review of COTS where purchase necessary

Custom Software failing Cost Vs. Benefit

Less outright purchase of hardware

Absorbing hardware depreciation questioned

All = Less Traditional Integration Contracts

© 2007

Major Integration Contracts Fading

18.4

13.6

9.4

10.6

7.5

5.6

13

17

11

76

10

0

2

4

6

8

10

12

14

16

18

20

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

To

tal

Va

lue

of

Aw

ard

s (

$B

)

0

2

4

6

8

10

12

14

16

18

Nu

mb

er

of

Aw

ard

s

Award Value

# of Awards

© 2007

Software Market Conclusions

Continued growth between 4% and 5% annually

Gravitation away from Purchase and Build

Evolution of Service-oriented Market

- Service Oriented Architectures

- Software as a Service

Service Transformation similar to private sector

Lines of Business

© 2007 14

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