WEBINAR The 2016 To 2017 US Tech Market Outlook Andrew Bartels, Vice President, Principal Analyst May 5, 2016. Call in at 12:55 p.m. Eastern time

Agenda: four themes for this webinar Above-average growth for the US tech market, with consulting and SI services doing well thanks to widening SaaS adoption BT priorities will be growth engines for tech spending, especially in the US. Cloud and analytics will make software and services the fastest-growing tech categories in 2017. More reasons for optimism than for pessimism for the US

Theme 1 for US tech market outlook No. 1: Above-average growth for the US tech market, with consulting and SI services doing well

How our US forecasts have evolved WE HAVE LOWERED OUR 2016 TECH MARKET OUTLOOK DUE TO ECONOMIC UNCERTAINTY AND THE FASTER-THAN-EXPECTED ADOPTION OF CLOUD Forrester’s forecasts for US tech spending growth in 2016 and 2017 Forrester's forecasts for US BT tech spending in 2016 and 2017 N/A N/A N/A N/A *Forrester forecast

Absence of federal budget shocks means smoother growth path for US economy in 2016 US real GDP and GDP deflator (Percentage change from prior quarter at annualized rate) Federal government shutdown, October 2013 Fears of “fiscal cliff” not resolved until January 2013 Federal debt-ceiling crisis of July 2011 Source: US Bureau of Economic Analysis, “Gross Domestic Product: Third Quarter 2015 (Second Estimate); Corporate Profits: Third Quarter 2015,” November 24, 2015 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm) *Forrester assumptions

US tech spending will rise by 4.3% in 2016 after a 5.3% gain in 2015 5.1% 4.3% 5.3% 4.5% $1,526 3.0% $1,453 $1,392 $1,322 $1,265 $1,228 US$ billions Source: US Department of Commerce for 2011 to 2014 for computers and peripherals, communications equipment, and software; US Census Bureau for tech consulting services and tech outsourcing for 2011 to 2014; US Bureau of Labor Statistics for CIO staff spending; and Forrester Research for these items in 2015 to 2016 *Forrester forecast

Tech categories ranked by highest yearly growth rate in the US US growth shifted from outsourcing services in 2004 to 2010 to consulting, software, and staff from 2015 to 2017 Tech categories ranked by highest yearly growth rate in the US (Percentage change from prior year in US dollars) Tech category  2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2017* Computers and peripheral equipment 8% 1% -4% -10% 4% -9% 3% -3% -1% Communications equipment 11% -17% 0% 6% 2% Software -2% 9% 7% 5% Tech consulting services 10% Tech outsourcing 15% 19% Telecom services -14% -6% CIO staff salaries and benefits Total US tech 4.0% 8.1% 4.5% -3.7% 6.1% 5.0% 5.6% 3.0% 5.3% 4.3% Source: US Department of Commerce for 2011 to 2014 for computers and peripherals, communications equipment, and software; US Census Bureau for tech consulting services and tech outsourcing for 2011 to 2014; US Bureau of Labor Statistics for CIO staff spending; and Forrester Research for these items in 2015 to 2016 Highest Second highest Third highest Middle Third lowest Second lowest Lowest *Forrester forecast

Software and services dynamics in US market The 5% growth in software in 2015 and 2016 results from flat license and maintenance fee spending offsetting 20%+ growth in SaaS subscription fees. A significant part of SaaS subscription fees is now coming from SaaS replacing on-premises software, as opposed to SaaS as a complement to existing software. SaaS as a replacement has much higher SI multiples than SaaS as a complement. As a result, growth in tech consulting and SI services will outpace software growth in 2016. But by 2017, the underlying strong growth in SaaS will show up in the software growth numbers.

Theme 2 for US tech market outlook No. 2: BT priorities will be growth engines for tech spending, especially in the US.

How Forrester looks at tech spending Forrester terms: Business technology (BT) is technology for firms to win, serve, and retain customers. Information technology (IT) is technology to support business operations and to cut costs. New project spending (25% to 30%) creates new capabilities. Tech MOOSE is 70% to 75% of tech budget to maintain and operate organization, systems, and equipment. BT new project BT MOOSE IT MOOSE IT new project

Business technology: Top technologies in the BT agenda include customer life-cycle solutions and the engagement platform Source: “Top Technologies For Your BT Agenda” Forrester report

Business technology will be 33% of US tech spending in 2017 5.1% 4.3% 5.3% 4.5% $1,526 3.0% $1,453 $1,392 $1,322 $1,265 $1,228 US$ billions Source: Forrester Research, Inc. *Forrester forecast *Forrester forecast

US tech spending by focus (US$ billions) But business technology will be a larger share of new tech spending in 2016 US tech spending by focus (US$ billions) $1,453 $1,033 $420 *Forrester forecast

US tech spending by business focus (Percentage change from prior year) And spending on business technology will grow faster than spending on IT US tech spending by business focus (Percentage change from prior year) *Forrester forecast

New project spending in US will outpace tech MOOSE in 2016 and 2017 Total MOOSE spending 6.7% 3.4% 4.3% 4.8% 3.7% 4.4% Total new project spending 9.8% 2.0% 5.3% 6.5% 6.0% 6.9% Total tech spending 7.6% 3.0% 4.5% 5.1% *Forrester forecast

US BT tech MOOSE will grow much more rapidly than IT MOOSE *Forrester forecast

Theme 3 for US tech market outlook No. 3: Cloud and analytics will make software and services the fastest-growing tech categories.

US software by major product (US$ billions) US software market, 2016 US software by major product (US$ billions) *Forrester forecast

In software, growth is shifting from middleware to process apps and mobile apps Growth from prior year 2013 2014 2015 2016* 2017* Operating systems 3% -8% -1% 0% 2% Storage management 5% 1% Database management systems 6% IT management tools 7% 4% Security -4% App servers and integration Application development tools Desktop applications 10% -17% -3% -2% Information management applications 8% 9% 11% Enterprise process applications Enterprise vertical applications Mobile applications built by contractors and consultants 101% 62% 50% 17% Other custom applications built by contractors and consultants -41% 18% *Forrester forecast

US business applications by type of product in 2016* (US$ billions) In business apps, BI, CRM, FMS, HRMS, and vertical apps are biggest categories US business applications by type of product in 2016* (US$ billions) *Forrester forecast

US business applications by type of product (US$ billions) In business apps, SaaS subscription revenues close in on combined license and maintenance by 2017 $163 US business applications by type of product (US$ billions) $150 $141 $135 $128 $119 *Forrester forecast

US tech consulting and SI market, 2012 to 2017 — SI work is bigger, with SaaS-related growth starting to dominate growth US tech consulting and systems integration services market (US$ billions) 8.1% 7.6% 6.7% $246 5.2% $228 2.8% $212 $199 $189 $184 8% 8% 9% 8% *Forrester forecast

BT consulting and SI will be more than half of US tech services purchases in 2016 8.1% 7.6% 6.7% $246 5.2% 2.8% $228 $212 $199 $189 $184 US$ billions Source: Forrester Research, Inc. *Forrester forecast *Forrester forecast

US computer equipment purchases, 2016 and 2017 Peripherals 2% 5% 3% -4% -3% Storage -10% -1% 4% Tablets 51% 14% 11% 1% PCs 0% -5% -2% Servers 13% -9% Total computer equipment purchases *Forrester forecast

US outsourcing services purchases, 2016 and 2017 Hardware support and maintenance 4% 3% -6% -5% -4% 2% Other IT outsourcing 1% 0% 6% Cloud platform services (IaaS) 117% 79% 64% 52% 42% 40% Infrastructure outsourcing 12% -1% Hosting 10% 8% Application outsourcing and management 13% 7% 5% *Forrester forecast

US telecommunications services purchases, 2016 and 2017 Wireline 3% -1% 7% -2% 2% Wireless 18% 8% 6% 5% Other 11% 25% 17% Total telecom services 8.4% 0.9% 8.0% 3.8% 2.8% 3.5% *Forrester forecast

US CIO organization staff spending, 2016 and 2017 US business and government spending on CIO staff 2012 2013 2014 2015 2016* 2017* Number of US CIO department staff (thousands) 2,339 2,395 2,452 2,539 2,627 2,722 Average US CIO department staff salary (US$ thousands) $83.4 $84.7 $87.1 $89.6 $91.0 $92.6 US CIO staff salary costs (US$ billions) $195 $203 $214 $227 $239 $252 US CIO staff benefits and other employee costs (US$ billions) $57 $59 $63 $68 $72 $76 Total CIO staff spending (US$ billions) $262 $277 $295 $311 $328 Percentage change 2012 2013 2014 2015 2016* 2017* Number of US CIO department staff 4% 2% 3% Average US CIO department staff salary US CIO staff salary costs 7% 5% 6% US CIO staff benefits and other employee costs Total CIO staff spending 7.2% 3.9% 5.5% 6.7% 5.3% 5.6% *Forrester forecast

Theme 4 for US tech market outlook No. 4: More reasons for optimism than pessimism about US 2016 tech market outlook

Positives and negatives for US economy Job growth and falling unemployment Low oil and energy costs boost consumer spending. Federal government spending is not contracting. Housing sector is still growing despite threat of higher interest rates. Negatives Strong US dollar is hurting US exports and earnings of multinationals. Energy sector is cutting back. Slow growth in Europe, Asia, and Latin America is hurting US exports. Potential for banking crisis in Asia or Europe due to bad energy- related loans, which spreads to US Threat of Federal Reserve tightening too much

Recommendations for CIOs In US, prospects for steady, moderate growth in 2016 will allow CIOs to increase their tech spending. CIOs should prioritize investments that support the BT agenda. Cloud computing and mobility create opportunities to change the economics and agility of tech management. Analytics and big data create opportunities for CIOs’ organizations to help transform the business. Weak demand for IT agenda creates opportunities to save. Because of a weak demand for PCs, servers, network gear, middleware software, mature apps, and outsourcing, now will be a good time to negotiate big savings in new or existing systems. Focus on driving down tech MOOSE costs to create room for new BT MOOSE.

Andrew Bartels +1 516-869-0128 abartels@forrester.com