Sample Business Plan Professo

PROFESSO JANUARY 2001 BUSINESS PLAN CONFIDENTIAL INFORMATION Proposed New Capital Required [ $10,000,000 / Second Round iS / IS II II _, %_ • _% LETTER FROM THE FOUND_I_[_S r S s SS 11 • s • s r " iI :! i¢ , lI ', xx x xx x x "_x .. •,, •x •• •x • _'•x Six years ago, Patrice Gtlyot founded Int_rnetlve LLC a successfut,New York-base_.Web development I x • firm, where he rccog_zed early-on that,he could incr6ase customer retention, enhance 'sales, and create recurring revenge'streams by providin_ his 150+ clients with Web ho_ting solutions• Pati_e . realized • . . I I . . that the proc¢ss of buying the serwc_e from several p_viders and dealing wlth hundreds of ihV.olces significa_ly impacted the company's productivity a_d bottom line. In addition, he was unable _o.brand these j_c_'vices under the InternetiJ(e name. It was thegnthat Patrice saw a'l_eed for management tool_,and bupd'led Internet solutions that Could enable his coml_any to operate more'efficiently. Patrice developed. ,the idea for a software platfor_ interface that could ehable him to offer Inte_et hosting services by "'. • • I . • ,-" ..•• selling and branding the cap,_eity from other service providers. Pro fesso is ad,outgrowth experience. / , ,, I I of this ". -, • • _ Jn J 998_Christophe_Arxq_a joined Patrice.t.cLatkLsign_ma_t financial, and strateg,,-,expertence,and," .alortg. ......... " with our colleague Step,fiane Lescure, a French entrepreneur with strong M&A and ¢_arketing experience, we officially founded l_rofesso. Our goal was to deve_lop and leverage this software l_latform, SAM, to offer hosting servic_I to small and medium-sized entorpnses' CSMEs") seeking to establish an e-commerce " • • I . presence. To dffferentmte our offering for key SME needs, we added ChckPay, an e-payment gateway/ merchant account/offering. To date, we provide ovcr,,700 SMEs with apphcauon managed servic_ division generated close to $1.5 million in revenues in 2000. Soon, we recqgnized an even greater opportunity. O_r team determined serwces_ and this "., that SAM. our core te,chnology, could have _emendous value for service providers arid other companies seeking to create and _nanage network-biased application offerings. With few comp}ehensive management tools available for dompanies targeting,SMEs, we created our software product uni_ to co-exist with our managed services busifitess, and we hired'an experienced CTO who built a team of highly talented software engineers. Beginning in', Janua_ 2000, we have dedicated the bulk of our ener_gy and resources to this endeavor. ', • t I iI I _ Beg'ause Professo originally began as a service provkler, our team has been able to tailor SAM (now , AlbpStreamer) to create maximum value for service prbviders. We released AppStreamer version 1.3 for , n[twork-based service providers in November 2000, a]tISPCon in San Jose. Version 2.0, which we target ', ,'for release in Q2 2001 will include Service Provider _9 rku P Language (SPML) our own derivative of ' " " , ....XML, to enable rapid, automated integration of new and legacy a ppl"icat_ons. , ,' /' ,' ,' / ,' Comments from clients, world-leading service providers, data center operators, and hardware ', ', ', ', ,, ', manufacturers affirm that AppStreamer is emerging a_ the most comprehensive platform for the efficient integration, delivery and management ofnetwork-basl:d applications for SMEs. With much passion and enthusiasm, we see tremendous opportunity in the ra fidly changing global software industry, and we have assembled an experienced team of seasoned entrepre aeurs, technologists, and financial experts to execute on our vision. Christophe J. Arroyo Co-Founder. Chairman Patrice D. Guyot Co-Founder. CEO & President Stephane Lescure Co-Founder, Executive Vice President of Operations and International Development January 2001 <.c-3 Professo. Inc., Confidential Information 2001 Founder's Letter [ no. 2 TABLE i. ii. iii. iv. v. vi. vii. viii. ix. x, xi. xii. xiii. xiv. xv. xvi. xvii. OF CONTENTS Executive Summary Financial Summary Investment Considerations 4 6 7 8 9 14 15 17 18 21 26 29 32 33 34 37 42 Company History Industry Background Value Proposition Company Strategy Target Customer Products & Services Technology Sales & Marketing Competition Key Challenges Additional Opportunities Management Financials Appendix a & b. Sales Rollout Schedules c, Competitive Matrix & Organization CONFIDENTIALITY STATEMENT This confidentialBusiness Plan(the "Business Plan")is being furnished byProfesso. Inc. (together with its fullyowned subsidiaries Professo LLC, ClickPayLLC,)("Professo," or "the Company") to a limited number of investors in consideration of their interest in making an investment in the Company. This Business Plan in not to be reproduced, distributed or used, in whole or in part, for any other purposeor made available to anyone not directly involved with the decision to invest in the Company. By accepting this Business Plan, the recipient understands that it is confidential information. It has been prepared for informationpurposes onlyand deliveredwith the express understandingthat the recipient willuse itonly for the purpo_ set forth above, and not in any way that is to the competitive advantage of the recipient or affiliates of the recipient. The recipient agrees to hold in confidence and not possess or use (except to evaluate within the United States the proposed investment or strategic business relationship) or disclose any of the proprietary information contained herein except information that (a) is in the public domain through no action or fault of the recipient, (b) was properly known to the recipient, without restriction, priortodisclosureby Company,or (e) wasproperlydisclosedtothe recipientby anotherperson withoutrestriction. In no wayare any rightsto the informationherein containedbeing licensedtoor otherwise grantedto the recipient. CONTACT Christophe J. Arroyo Chairman and President PROFESSO One Wall Street Court New York, NY 10005 T 212.514.6644 x.244 / F 212.514.8089 Email carroyo@professo.com January 2001 © 2001 Prqfesso. Inc., Confidential [aformation Table of Contents ] no. 3 , i EXECUTIVE SUMMARY Business Description Professo is an Intcrnet infrastructure software company focusing on automating BSS and OSS for network-based service providers targeting small and mediumsize enterprises ("SMEs"): telecommunications carriers, Internet, Hosting and Application Service Providers ("ISPs", "HSPs" and "ASPs"), lnternet destination sites, portals. Our flagship product AppStreamer is an end-to-end software platform that automates critical business and operation processes, including the creation, customization, provisioning and billing of service packages associated with multi-level marketing capabilities. For network-based service providers, integrating, managing, and billing for the growing variety of applications that SMEs want to access online is a highly inefficient, manual task. These service providers are also experiencing a dramatic increase in demand from clients for their applications to be hosted on managed, dedicated servers. To meet these needs, service providers must have the ability to customize their offering packages. Unable to accomplish this customization, service providers are limited in their ability to attract a critical mass of customers. Network-based service providers are in need of a solution that will help to increase customer retention, create new revenue sources, and increase operational efficiencies while leveraging, not overhauling, their existing infrastructure. Hence, there is an opportunity to offer an automated, end-toend software solution that provides flexibility to service providers and enables them to streamline the integration, delivery, and management of networkbased applications. Opportunity Strategy We intend to become a premier infrastructure software provider for the efficient integration, delivery, and management of network-based applications to SMEs. Our company strategy will be carried out in three phases, the first of which has already been completed. • Phase 1Hosting serviceprovider. Built software architecture based on open standards. Developed initialversions of SAM (now AppStreamer). LaunchedClickPay, Professo's comprehensive e-payment solution. Acquired close to 1,000 SME customers through channel partners. Acquired keen understandingof service providers"operational and technology needs. Forged key industry relationships. Phase 2Software provider. Completeddevelopment of AppStreamerversion 1.3. Evolve AppStreamerfrom C++ and Perl architectureto version 2.0, based on JavaandXML, for launch Q2 2001. CompleteXML derivative, called Service ProviderMarkupLanguage ("SPML"). Rollout software offering to tiered target customer groups. Develop partnerships with hardwaremanufacturersandtheirVARs Develop relationships with key systems integrators. Phase 3Corporate ASP Enabler and additional opportunities. Bundle AppStreamerwithin single-purpose appliances. ExpandAppStreamerfor largein-house corporate ASPs. Offer AppStreamerto ISVs on an OEM basis. Add proprietary applications to Appstreamer offering • • January 2001 _32001 Professo.bw., ConfidentialInfomaation Executive Summary no. 4 t i Target Customer The AppStreamer software product is currently designed for network-based service providers who offer or seek to offer SMEs application services based on the ASP model using managed, dedicated servers whether they are ISPs, HSPs or ASPs. Our Managed Seiwices offering is designed for "Virtual Service Providers" (Independent Software Vendors, Service Resellers such as Web design firms, Independents Sales Organizations, and some banks) that seek to offer Internet services or software via the ASP model, yet lack the time, resources, or operational capacity to establish their own data center. Products & Services Software Product: AppStreamer is a software platform that automates all of the network-based service provider's critical business processes, including streamlining application integration, accounting and billing to customer accounts, account management, sales and marketing, and customer service. Managed Services: AppStreamer is installed and running on servers in our own data center in order to provide a full service delivery platform for Virtual Service Providers to create and manage their own network-based services for SMEs on a remote basis. ClickPay, our e-payment gateway and merchant account application, is a key component addition of this offering. Technology AppStreamer technology provides a degree of flexibility unparalleled in service provider platform support. This flexibility extends from provisioning and billing for any application, anywhere, anytime, to the ease of development and extensibility of the software system itself. AppStreamer uses our Service Provider Markup Language ("SPML"), a language capable of defining software behavior and a means of expressing, storing, and transmitting provisioning requirements. Value Proposition Our value proposition is our ability to: • Add simplicity and efficiency to the management of service providers" complex business processes; • Significantly cut service providers' operational and technology costs; • Enhance service providers' customer acquisition and retention effort; • Protect service providers from changing technology; • Play a key role in each step of the application delivery process; and, • Enable companies seeking to offer service via the ASP model to open new revenue streams. Senior Management Team Name Current Position Previous Experience Management Team ChristopheJ. Arroyo Co-Founder, hairman& BanqueParibas,Bain& Co. C President Patrice D. Guyot RichardAIpert StephaneLescure VenkatYerram Gagan Bht,tani Co-Founder& CEO VP Engineering Internetive(Founder),NJ Instituteof Tcch NEC Research,Boston University,llarvard University FontaineCRYSTAL(Founder) Co-Founder EVP of & Operations& Int'l Dev. VP Infrastructure Merrill Lynch, SalomonSmith Barney, Services Nortcl Ron Rogozinski 1 VP, Business Lucent Technologies, Oracle, llewlett Development & Product Packard, Digital Equipment Corp. Marketing Corporate Controller KPMG, Ernst & Young, Deloine & Touche Executive Summary no. 5 January 2001 I I ¢70001 Profi'sso. h_c., Confidential Information 2 i ] FINANCIAL SUMMARY Current Financing We have raised $5.5 million to date from a variety of sources, including: • • • • • $830,000 seed round from the three co-founders ($470,000 in equity capital and $360,000 in loan between October 1998 and June 1999); $1,650,000 first round led by Mars Capital in October 1999; $520,000 convertible promissory note in July 2000; $1,000,000 secured convertible promissory note in October 2000; $1,500,000 convertible promissory note from the Rothschild Trust in December 2000. Proposed New Capital Requirements We require $ I0 million in investment capital. Use of Proceeds We are seeking investment capital in order to: • • Further strengthen our engineering and technical support staff; Attract an experienced Executive Vice President of Sales & Marketing to oversee and accelerate the development of our software sales team; Upgrade technical equipment; and, General working capital purposes. • • Revenue Streams Our revenues are coming from the following sources: • Software product sales to network-based service providers, including traditional telecommunications carriers, Application Service Providers ("ASPs"), Internet Service Providers ("ISPs"), Internet access providers, Internet destination sites and portals, and Hosting Service Providers ("HSPs"); and, Managed Services Sales to Internct Service Resellers, Independent Sales Organizations, Virtual Service Providers, and Independent Software Vendors. • Financial Snapshot 1999 (in thousands) Total Revenue Gross Profit Operating Expensees R&D expenses Manketingand communication Sales and businessdevelopment Customer Service General and Administrative Total OperatingExpenses Incomefrom Operations(EBITDA) Net Income(Loss) $ Margins 2000E Margins 200IE Margins 2002E Margins 2003E MargiRs $ 197 159 sty; $ 1,487 869 :,w; $ 4,522 3,205 7/"; $ 14,129 11,852 ,we; $ 34,473 31,134 9o,"a 265 544 358 1,167 (1,008) (1,126) 135",; o_4 277% o,_ i,v.'*,; s,_.m _,',lr ,',_t $ 1,523 1,326 1,120 3,968 (3,099) (3,495) /o.'_ o;_ _,9% o_, _"o _'6zo; ,',',_t ,,,'._t $ 2,080 1,208 1,545 648 1,659 7,140 (3,935) (4,105) 46*_ 27.,; 34:; /,t_; 3:e; t_,vo_ ,v,_t ,v._ $ 3,297 1,976 4,577 1,411 2,881 14,141 (2,290) (2,836) .'_,._ 1.1% .¢:._; tt_e; :o_ too-_ ,'_'._f ,',:it $ 4,900 2,947 9,694 2,767 4,050 24,358 6,776 5,738 /,1o= o*,_ .'_.*; ,v_; i."_ ,"1"._ co°; i;'_; January 2001 ¢) 2001 Professo. hJc.,Confidential Information I Financial Summ,'lry no. 6 i ;I INVESTMENT CONSIDERATIONS Professo Investment Considerations Proven technology. We successfully implemented our AppStreamer technology to grow our own hosting scrviccs business. Now we are marketing the management platform as a software product that enables network-based service providers to automate the integration, delivery, management, and billing of Internet-based applications for SMEs. Strong market need. Network-based service providers targeting SMEs worldwide are experiencing significant difficulty acquiring customers. Their customers are demanding more unique pricing packages and the integration of more discreet applications. These companies currently lack the flexible infrastructure and management tools that we can provide to enable them to operate more efficiently and boost their customer acquisition efforts. The market for ASP infrastructure is expected to grow from $500 million in 2000 to over $3.6 billion in 2004. Experienced and driven management team. In Phase 1 of our strategic development, we successfully built our hosting services business to generate $1.5 million in revenues in 2000, from approximately 700 clients. We have assembled a strong team of Intcrnet entrepreneurs, finance and strategy experts, and technologists. We have a clear vision of the opportunity that lies ahead and are focused on the core tactics we must execute to achieve this vision. Scaleable offering. We decline our AppStreamer solution in three versions, to meet the needs of small, medium, and large-scale networkbased service providers. In addition, our Managed Services offering allows companies to provide applications via the ASP model without having to purchase AppStreamer or invest their resources in a data center facility. We anticipate that growing service providers will reinvest in AppStreamer products as their subscriber-bases grow. Proceeds to be used primarily for commercial product rollout, not product development. AppStreamer 1.3 has already been released within the marketplace, and we arc targeting Q2 2001 for rcleasc of version 2.0. Our challenge today is to meet and service the strong interest that we are receiving from top service providers, hardware manufacturers and data centers. Our IT team represents close to 50% of our workforce and we intend to use proceeds to aggressively build our sales and marketing effort. We do not anticipate requiring additional rounds of funding to achieve our Phase 2goals. We believe that the $10 million proposed funding will carry us through to profitability in early 2002 for our goals in Phase 2. Phase 2 provides us with tremendous opportunities given the growing infrastructure needs of network based service providers. We think that even a relative success of this Phase 2 is likely to create high value for Professo shareholders. To fully achieve the expandability of our business model, we may seek additional funding to exploit additional opportunities we envision for Phase 3. January 2001 ©2001Profi, sso. hw.,Confidentiallnformation I investment Considerations [ no. 7 i • COMPANY HISTORY Founded Gro_th In October 1998 by Christophe Arroyo, Patrice Guyot and St6phane Lescure. We currently have a team of 40 employees in New York City and Saint Etienne, France, with a split of about 28 in New York and 12 in Saint-Etienne. The IT team in France is responsible for the development and support of our 1.3 version. Accomplishments Listed below are the accomplishments Fall 1998 that we have achieved since inception: Began operations as a service provider for companies that resell Internet services under their own name Began development of SAM management system. Opened data center. Began SAM beta testing. Created ClickPay payment gateway/merchant account unit to offer solution for SMEs worldwide. Released SAM 1.0. Transferred 150 hosting customers to the SAM platform. Signed CliekPay distribution agreement with Kleline/Banque Paribas. Signed reseller agreements with first ten service providers. French ISP Internaute transformed by transferring data center. to a Virtual ISP, Winter 1999 Spring 1999 Summer 1999 250 hosting clients to the Professo Fall 1999 Launched SAM 2.0 and ClickPay Payment Gateway at Fall Internet World in New York City. Formed global partnership hosting account. with Open Market. Signed 500 th unit based on sales of accounts. Integrated into Multiaetive Miva shopping carts. Winter 2000 Launched software product SAM to ISPs. 100 ClickPay ClickPay payment gateway Software's EC Builder and CTO Ajit Naidu hired. Spriug 2000 Acquired intellectual property rights to Kleline technology from Banque Paribas for FRF I. Formed partnership between CliekPay and Worldpay, as a banking partner. Renamed Professo proprietary software from SAM to AppStreamer. Began development of AppStreamcr 1.3 (C++) in France and AppStreamer 2.0 in the United States (Java XML). Growth of engineering team to 45% of workforce. Launched AppStreamer 1.3 at Internet World NY Fall 2000 Winter 2000 3 test clients of Appstreamer 1.3 within one month of launch. Signed distribution agreement with system integrators in Brazil and France. January 2001 ,_ 2001 Profi'sso. hw., Confidential Information Industry Background no. 8 INDUSTRY BACKGROUND Opportunity Today, network-based service providers offering applications to small and medium-sized enterprises ("SMEs") via the Application Service Provider ("ASP") model do not have a complete, end-to-end management platform solution. Integrating, managing, and billing for the growing variety of applications that SMEs want to access online is a highly inefficient, manual task. These service providers are also experiencing a dramatic increase in demand from clients for their applications to be hosted on managed, dedicated servers. To meet these needs, service providers must have the ability to customize their offering packages. Unable to accomplish this customization, service providers are limited in their ability to attract a critical mass of customers. Network-based service providers are in need of a solution that will help to increase customer retention, create new revenue sources, and increase operational efficiencies while leveraging, not overhauling, their existing infrastructure. Hence, there is an opportunity to offer an automated, end-to-end solution that provides flexibility to service providers, and enables them to streamline the integration, delivery, and management of network-based applications. Industry Definition The industry for it!frastructure so/hvarefor network-based service providers is defined as the development and implementation of software that enables network-based service providers to deliver and manage third party applications hosted in a central location for use by multiple end-users. Network-based service providers include traditional telecommunications carriers, Application Service Providers ("ASPs"), Internet Service Providers ("ISPs"), Internet access providers, Internet destination sites and portals, and Hosting Service Providers ("HSPs"). These data service-oriented players require software-based systems, equipment, and computer programs to monitor and administer their back-end infrastructure for application deployment, service quality management, order management, customer care and billing, directory management, and security. Infrastructure software for network-based service providers is analogous to the telecommunications industry's Operations Support Systems ("OSS") - the automated management systems that support telecommunications network operations such as billing customers, processing orders, provisioning new services, and testing lines. January 2001 © 2001 ProJesso. hw., Confidential Infomlation __ Industry Background no. 9 Q Size & Projected Growth While estimates vary greatly, all reports state that there will be continued growth in network-based services for SMEs as well as for the support systems to deliver these services. • Growth in SMEs utilizing network-based services. United States SMEs (1 to 1,000 employees) accounted for 47% of Webbased spending in 1999, totaling approximately $36 billion. I SMEs are forecasted to account for 55% of Web-based spending in 2003, totaling approximately SI39 billion.2 Forrester Research projects the market for application hosting alone will reach $11.3 billion in 2003, with SMEs to be responsible for over 90% of the spending. 3 Growth in applications being offered via ASP model. By 2003, Forrester Research predicts the software market to grow to $20.6 billion, with 25% of this to be spent on ASP-based offerings. 4 Despite some consolidation among network based service providers, the number of lSPs continues to grow. Cahners InStat Group states that the number of US based ISPs will increase 36% from 5,775 in 1999 to 7,785 ISPs this year.5 ISPs in Western Europe now total 4,000, up 33% from last year. 6 • Growth in the infrastructure needs of network-based service providers. The ASP infrastructure market, which includes the application deployment platform, order management and provisioning, customer care and billing, and service quality management, is expected to grow from S500 million in 2000 to over $3.6 billion in 2004. 7 Growth in application hosting on dedicated, managed servers. Driven primarily by SMEs, managed hosting services are expected to receive approximately $1 billion of the overall $2 billion spent in the United States web hosting market in 2000, and will comprise an estimated $11 billion share of the $19 billion market in 2004. 8 Strong demand for infrastructure software beyond the United States. Following the United States" lead, network-based service providers are emerging internationally. In 1999, North America accounted for 65% of all ASP revenue. In 2004, the North America region is forecast to represent only 45% of ASP revenue, with Europe expected to represent 32%. 9 • • • • i International Data Corporation IT Forecaster, "Small Businesses Making Large Footprints On the Web,'"June 13, 2000. 2 IBID 3 JC Bradford & Co., "ASPs, The Net's Next Killer App," at www.aspisland.com. 4 Forbes ASAP,"Knocked on their ASPs," May 29, 2000. 5 ISPWorld, "National ISPs Will Dominate U.S. Market," September 26, 2000. Analysys, "European ISP Market Evolving Rapidly," May 15, 2000. 7 Gerard Klauer Mattison &Co., Inc. ASP Services and Infrastructure, April 2000, pg. 26. 8 Forrester Research, "Hosting's Movin' On Up," May 2000. '_Garmer Group's Dataquest, "ASP Market to Surpass $25 billion in 2004," August I I, 2000. January 2001 ¢_3001 Professo. Inc., Confidcntial Information 2 / Industry Background / no. 10 J. I Current Industry Explanation The infrastructure software industry has emerged to help the growing variety of network-based service providers better manage their backoffice responsibilities. Currently, the majority of ISPs and ASPs have pieced together their infrastructure by writing their own tools in-house or integrating products from a variety of best-of-breed infrastructure suppliers, with specialties in service activation, service quality management, infrastructure management, and billing. The ASP is responsible for maintaining and providing access to software applications and housing customer data on its servers from a central data center, enabling individual businesses to avoid the costs of hiring staff, purchasing software, and managing IT services in-house. Applications available to end-user businesses include e-commerce storefront enablers, customer relations management ("CRM") and sales automation solutions, enterprise resource planning ("ERP") tools, personal productivity, collaborative applications, and publicity and promotional services. Thousands of companies have entered this space during the last 24 months, many seeing an opportunity in the rapidly changing software business, and others fearful of the consequences of not adapting to the new model. Beyond the pure-play ASP model, companies that have declared themselves "ASPs" include ISPs seeking to offer additional services, IT consulting and systems integrators, independent software vendors ("ISVs"), hardware companies, and telecom companies. ASPs may offer a comprehensive suite of integrated applications that fit a wide range of companies' needs or simply offer targeted applications for use by specific companies within niche markets. The ASP must provide clients with reliable, on-demand access to appropriate, up-to-date, quality applications, while simultaneously monitoring, metering, and billing for their use. ASP operations rely on the successful execution of the following activities: • • • • • • • • • • Customer adoption and retention; Rapid service deployment; Customized service packaging; Application service provisioning (the allocation of resources); Usage tracking; Invoicing and billing; Monitor and control service quality: Maintaining security; Customer management and support; and, Scalability. It is believed that the ASPs that can leverage strong operational tools to streamline and improve business processes will achieve a decisive competitive advantage. Jaguar2001 2001o sohcl I industIBackg no l, Key Industry Trends Research suggests that the following trends will impact the evolution of the infrastructure software industry for network-based service providers: • Growth in SMEs using hosted applications. Fueled by cost savings, reduced up-front investment, ability to access enterprise-class applications and the persistent shortage of IT labor, SMEs are expected to increasingly embrace the ASP model. GrowthinapplicationsthatwillbeofferedviatheASP model Market forces will dictate that all applications be offered via the ASP model. Independent software vendors not offering applications via an ASP will find themselves behind the curve and will struggle to catch up as businesses of all sizes and unique needs demand network-based access. Service providers offer more bundled solutions, driving partnerships, consolidation, and transition of lSPs to the ASP model Seizing the opportunity driven by end-users seeking more services available online, the ASP model is the next logical step for ISP hosting companies with efficient networks, e-commerce expertise, and software download experience. The small and medium-sized service providers who lack significant resources will turn to management tools and virtual offerings to help streamline their businesses. • SAlEs will demand access to simple applications via ASP. Current ASPs" customer acquisition frustrations stem from their offerings based on high-end software applications- suitable for large corporations but too complex for most businesses. To meet the needs of SMEs- who will represent 6.34 million of the 6.36 million United States businesses predicted to utilize Internet services by 2004 - ASPs will be forced to make simpler applications targeted to SMEs available online. Strong demand for dedicated server options, fueled by SMEs. SMEs are driving a major shift away from traditional shared and collocated service offerings to managed services that will predominately be based on dedicated servers. Serviceproviders will need ways to distinguish themselves from the clutter. With estimates ranging from 300 to 500 ASPs in existence today, over 8,000 ISPs in the US alone, and thousands of additional vendors and service providers who have announced ASP intentions, tomorrow's providers will need solutions to deliver flexible and differentiated services, deploy applications rapidly, monitor and control service quality levels, scale and streamline operations, maximize security, and minimize the total cost of ASP operations. Strong growth internationally for infrastructure ASPs. Outside the United States, network-based providers for service • • • • • providers are rapidly emerging, yet many must contend with weaker, more unreliable infrastructure. Hence, many arc building new infrastructure from scratch. January 2001 _ 2001 Pr_#,sso, Inc., Confidcntial Information Industry Background no. 12 j tl Limitations of Current Industry Practices Today's network-based limitations, including: • • service providers encounter the following Highly manual processes create excessive inefficiencies. Complex, cumbersome, and expensive management tools. No specific offering in the marketplace designed specifically for service providers focused on SMEs. Few management platforms available for service providers offering customers managed dedicated servers. Few tools available that help ISPs transition to the ASP model. Current players are best-of-breed specialists in individual tools, while no company offers a complete, end-to-end management solution at a reasonable price. No solution offers multi-level marketing capabilities. Most management platforms are English languagc-centric, offering limited localized products that translate to different languages. - • Lack of end-to-end management OSS for service providers solutions automating BSS and Service providers have had to write their own management tools that are now ill-prepared to help them transition from an ISP to an ASP business model The only working alternative has been to combine best-ofbreed solutions by integrating the different elements (provisioning, network management, CRM, billing...) with the help of systems integrators. Only very few Tier l providers have the financial resources to combine software solutions such as Siebel, Portal Software, Tivoli and make work them togcther after lengthy integration by world class systems integrators such as Cap Gemini or Accenture ($I020m project overall). • Achieving significant customer volume is a challenge. Hard to scale offerings for diverse, fickle range of potential target customers. Unable to offer customized packages. pricing and applications Wide range of customers demand hundreds of disparate applications from varying sources. • Difficulty managing, integrating, and evolving platforms due to use of discreet, non-compatible applications. Constantly changing technologies and software versions make it difficult for service providers to commit to single technologies before having to upgrade. January 2001 © 2001 Professo. hw., Confidential Infomaation [ Industry Background I no. 13 VALUE PROPOSITION Value Proposition Our value proposition • is our ability to: of service Add Mmplicity and efficiency to the management providers' complex business processes. Enable end-to-end automation of all critical ASP business processes. Streamline transactions and vendors. with customers, business partners, • Significantly cut service providers' technology costs. operational and Minimal integration skills/labor necessary to add and maintain new applications. Enable simple transition to virtual service provider ("VSP") model from facilities-based model. Transfer customer service and maintenance customers. • Enhance retention service providers' effort. customer acquisition tasks to and Significantly cut time-to-market for new services. Introduce creativity of offering and custom pricing based on target customer needs. Simple customer self-care. Enable multilevel marketing. • Protect service providers from changing technology. Enable easy application integration with our own openstandard XML derivative, Service Provider Markup Language (SPML). delivery • Play a key role in each step of the application process. Useful, simple solution manages, monitors, and facilitates transactions between data centers, master service providers, virtual service providers, independent software vendors, and end-users. • Enable companies seeking to offer service via the ASP model to open new revenue streams. Enable independent software vendors (ISVs) to offer their product via ASP channel. Enable service providers to create vertical markets for distribution based on multilevel marketing capabilities. January 2001 I © 2001 Professo, Inc., Confidential Information Value Proposition no. 14 COMPANY STRATEGY Strategic Overview We intend to become a premier infrastructure software provider for the efficient integration, delivery, and management of network-based applications to SMEs. As such, we have undertaken a proprietary and systematic approach to expanding our business. Our company strategy will be carried out in three phases, the first of which has already been completed. • Phase I/Hosting service provider. Our motivation for the development of Phase 1 was driven by the co-founders" experience acquired in the Web development business, primarily to address Web developers' need for automated tools to sell and manage Web hosting clients. Our goal in this phase was to develop the strong skill-set, unique technology and key relationships to execute our vision within this space. During Phase 1, we achieved the following: Built software architecture based on open standards. Developed initial versions of SAM (now AppStreamer) software for use in hosting and e-commerce services through Professo's own data centers. Launched ClickPay, Professo's comprehensive e-payment solution for SMEs, achieving over 150 merchant clients from 22 countries, and processing approximately $2.5 million in transaction volumes monthly. Acquired close to 1,000 SME customers through channel partners. Acquired keen understanding of service provider's operational and technology needs. Forged key industry relationships. • Phase 2/Softwareprovider. After accomplishing our milestones set forth in Phase I, we planned and initiated Phase 2 in January 2000. We chose to focus on marketing our proprietary technology to other service providers, noting the rising trend in companies seeking to implement an ASP model, and the largely unmet need for a complete management platform. Hence, we established our software product unit to coexist alongside the managed services unit. Capital raised will support our execution of the following activities: Completed development of AppStreamer version 1.3 as a software platform to enable and automate end-to-end ASP business processes. Launched at ISPCon 2000. Complete development of AppStreamer from C++ and Perl architecture to version 2.0, based on Java and XML, for launch Q2 2001. Complete XML derivative, called Service Provider Markup Language ("SPML"), to enable easy integration of applications. To be released Q2 2001. January 2001 [ © 2001 Professo, Inc., Confidential Information Strategy no. 15 J I Rollout software offering to tiered target customer groups. Migrate managed services data center away from Professo. Develop partnerships with hardware manufacturers value-added resellers (VARs) to offer AppStreamer bundled within their appliances. Develop relationships with key systems integrators. and • Phase 3Corporate ASP Enabler and additional opportunities. After we have completely accomplished our goals in Phase 2, we will explore the following opportunities to further leverage our technology: Bundle AppStreamer within single-purpose for vertical markets. appliances Expand AppStreamer capabilities and marketing effort to offer a version for large corporate ASPs. Offer AppStreamer to ISVs on an OEM basis so they may market a complete, branded ASP solution to their own customers as a software offering. Add additional proprietary applications. We view AppStreamer as the foundation that will enable us to establish a captive audience of SMEs. While we intend to remain application agnostic for the near term, we envision the future ability to add proprietary applications that would compliment a service provider's offering to SMEs and create additional revenue streams for us. January 2001 (t:3 2001 Professo, hw., Confidential Information Strategy l no. 16 J TARGET CUSTOMI_ Target Customer Overview We are distributing our Appstreamer software technology by offering a product to facilities-based service providers managing a data center and by offering it as a managed comprehensive service to companies that seek to offer web-based services without carrying the cost of infrastructure (virtual service providers). The AppStreamer software product is most useful to service providers owning data centers operating managed, dedicated servers. This target group includes most facilities-based service providers managing a data center: traditional telecommunications carriers, ISPs, Internet access providers, ASPs, Internct destination sites or portals, and HSPs. We segment our target customers in the following tiers: • Tier 1 Service Providers. Consist of the largest and most well-known network-based service providers in the world. Among this group, we see significant opportunity outside the US, where the large-scale service providers generally lack comprehensive management tools or reliable infrastructure. In Europe, these Tier 1 service providers are recognizing that their current infrastructure is incapable of supporting their growth. In Asia and Latin America, green field networkbased service providers are just emerging and struggling to grow. These companies must manage multiple applications, several servers, and multiple data centers simultaneously. Tier 2 Service Providers. Consist of mid-size service Software Products Target Customers • providers with considerably fewer resources than Tier 1 providers. They cannot afford to build custom made infrastructure composed of best-of-breed solutions. Tier 2 providers" infrastructure is generally not fully evolved and many are currently seeking methods to streamline operations and boost customer acquisition. They often manage servers simultaneously and offer some choice in applications. • Tier 3 Service Providers. Consist of small-deployment providers that may offer only one application and may be running one server. These providers are seeking ways to distinguish themselves from larger operators, yet enjoy greater flexibility. Managed Services Target Customers Our Managed Services offering is designed for "'Virtual Service Providers" - that seek to offer Internet services or software via the ASP model, yet lack the time, resources, or operational capacity to establish their own data center. This group includes companies such as Independent Software Vendors ("ISVs") Service Resellers such as Web development firms or office supplies companies, Independent Sales Organizations ("ISOs"), some financial institutions (banks, savings and loans organizations and payment processors) and utilities. January 2001 I © 2001 Professo, Inc., Confidential Information Target Customer no. 17 PRODUCTS & SERVICES Products & Services Overview Our offering is available in two distinct formats: • • St_ware Products, and Managed Services. SOFTWARE PRODUCTS We offer service providers a complete, automated solution for creating customized application packages and provisioning service for new customers. Our flagship product, AppStreamer, is a software platform that automates all of the service provider's critical business processes, including streamlining accounting and billing to customer accounts, account management (such as upgrades and modifications), sales and Appstreamer marketing, and customer service. AppStreamer is a localized solution, at present available in German, Spanish, French, and English languages. Additional languages including Portuguese and Italian will follow in 2001. The following graphics illustrate how AppStreamer can be used to automate business processes for players throughout the network-basec service provider value chain: January 2001 (t32001 Pro_,sso. hw., Confidential Information [ Technology no. 18 Key components of the complete AppStreamer platform include: • • • • Foundation Service. This includes core services, such as authentication, session management, logging, and configuration. Customer Care Module. Automates customer management through all stages from registration to tracking to billing. Resource Module. Automates subscriber management, usage tracking, and service rating. Services Module. Manages customer analysis and enables modification of service, pricing, and policies to meet customer demands. Provisioning Module. Automates the allocation and management of resources for new customer accounts, and fully integrates with billing module. Reporting Module. Provides business intelligence by collecting and reporting information and manages site analysis. Billing Module. Automatically manages the invoicing and billing of services, and is integrated with payment processor and merchant account for credit card processing. Presentation Module. Manages presentation layer and display of content in HTML, XML, or WML. • • • • Appstreamer includes all the business components that are necessary for service providers to run their business and offer customer selfservice tools to their clients. As indicated before, the combination of best-of-breed solutions integrated through a custom made platform can achieve the same objectives and probably offer more functionalities. However, we consider that only 20% of the features are necessary when it comes to servicing SMEs. Appstreamer components include these essential features and is an end-to-end solution that constitutes a great alternative to the combination of best-of-breed solutions. Appstreamer also saves service providers considerable integration time and money (Appstreamer is at least 90% cheaper than best-of-breed combination). • Appstreamer can be deployed in 3 ways: Single-Server (single-box) Solution. Designed for service providers selling managed services via dedicated servers to a small-scale base of customers. Software (on CD ROM) and Appliance (pre-packaged on ready-to-use servers by hardware providers and value-added resellers) versions are offered. Single-Server (single-box) Manager Solution. Also designed for service providers selling managed service via dedicated servers. Offers a central control manager for facilities-based providers managing multiple single-servers, each running AppStreamer. Also available as software or as an appliance. Enterprise Solution. Designed for high scalability and availability. Supports higher-end solutions. Deployed on a centra server to manage the service provider's entire installation using distributed agents based on our SPML technology. The Enterprist solution can be integrated with other legacy systems at the service provider's facility. • • January 2001 © 2001 Professo. hlc., Confidential Information Technology l no. 19 i I Even though we focus on developing and selling a software platform (AppStreamcr) and intend to remain application agnostic, we have developed a payment gateway software to help service providers complete their offering to SMEs. ClickPay payment gateway software ClickPay is our turnkey global e-payment software application, designed to enable service providers to offer a critical e-commerce solution for SMEs who wish to establish a presence online. ClickPay is integrated into some of the most commonly used software solutions for SMEs including Miva, ecBuilder, and Shopsite by Open Market. MANAGED SERVICES Our Managed Services offering employs AppStreame r to enable Virtual Service Providers to create and manage their own networkbased services for SMEs on a remote basis, instead of purchasing and maintaining AppStreamer at their own facility. AppStreamer is installed and running on servers in our own data center in order to provide a full service delivery platform for Virtual Service Providers. We remain open to integrating any application within the Managed Services platform. ClickPay is also offered as part of our Managed Services package in conjunction with thc opening of merchant accounts. The ClickPay online payment system resides on our secure servers, with the following capabilities: • establish merchant accounts (via partnerships with banks); • secure payment processing; • virtual terminals for offline orders; • virtual wallets for micro payments; and, • multi-currency and multi-language support. Clickpay Service Professo domain registration service. Professo is an accredited registrar with the Internet Corporation for Assigned Names and Numbers ("ICANN"), providing us access to the main domain name database administered by Network Solutions. This enables all AppStreamer users to connect to Professo's domain service and register domain names, eliminating the tedious and lengthy registration of new or transfer domains via a third party. January 2001 I .© 2001 Prt_'sso, Inc., Confidential Information Technology no. 20 i i TECHNOLOGY Vision and Motivation In the foreseeable future, independent software vendors (ISVs), security and storage suppliers, and other network-based service providers will sell their products and services in much the same way as telecommunications services are sold today. End users, through local providers with whom they maintain established credit relationships, will request use of software or services, employ them, and be billed periodically by those local providers. The goal of AppStreamer technology is to provide the infrastructure that makes this possible. The current AppStreamer product line exploits several technologies built around the Java 2 Enterprise Edition (J2EE) platform. Data persistence, consistency, transaction management, failover, connection pooling, the communication substrate and load balancing are handled by the application server or Java Bean container. This frees Professo to concentrate on the business logic, which is encoded as Enterprise Java Beans. Any task needed to meet any provisioning requirement is completed by an individual agent residing in a runtime environment on the machine where that specific provisioning occurs. Infrastructure Architecture Ap_Sgrearr_er Infrastructure Architecture ................ NtCCatiOfl Strategy mr ............... "': " " ,, _tadata m ...... • " ," Temp|ate_. , " _,Macro_,, , _h'}_i'¢ i nter " _" " _nten_ I ,n_o_a,hza_lon Appl/l:aglor Ser_£r ASP Mtddleware "J_.._ Caching :_. 2...i_ ::.Z.L...'JI_L ........ .:. g Resource Pooling _ Poodng _ no g Session Management .... ConneCtion Pooling E3B Containers Application Management _4essaQ;_g & Workflaw Message _Persistent ) Rules . Event | Roles & )_ Queues _iMessages )[Engine II . [ ..J.._JI .................. l_ Management .|| Processes Respositories Data _n_ This diagram describes the layered, modularized architecture in which AppStreamer runs. Encapsulating and stratifying the AppStreamcr architecture and deploying it in the J2EE environment facilitates rapid development, free of ripple effects commonly seen when modifications are made. Provisioning with agents in this environment and communicating with them in SPML, the Service Provider Markup Language, offers a degree of flexibility impossible with more traditional technologies and architectures. January 2000 _ 2001 Professo. Inc., Confidential Infonnation Technology, I no. 21 Business Architecture The User Services, Business Support Systems, and Operations Support that AppStreamcr provides, as well as their place in the structure of a complete service offering, are shown in the diagram below. AppStreamer's functionality is highlighted. Service Creation & Execution $LA Hanaoernent Service Provider Markup Language (SPML) SPML, an instance of XML, defines a grammar that enables expression of the interactions, processes, requirements, and provisioning semantics of network-based services. SPML intends to provide a common framework for articulating the tasks of Service Providers in a standardized grammar, enabling and simplifying the integration of new services into the AppStreamer platform and into any SPML-enabled server. SPML objectives include 1- Embrace and extend existing and emerging industry standards 2- Provide a grammar for expressing system provisioning requirements 3- Encapsulate specifications of message interfaces and interaction models of network services to support the coordination, processing, and provisioning of services on the lnternet 4- Include interface and protocol grammars to enable extension of existing and emerging Web service interfaces and protocols January 2000 _ ©2001Professo. bw.,Confidentiallnfonnation 1 Technolo_ no. 22 5- Specify interaction models for software systems to provide business-level transactions that coordinate the processing of multiple distributed network services 6- Allow a multiplicity of input mechanisms, understand, human readable form in an easy-to- 7- Define and control the behavior of software provisioning agents. This ability will be defined as a subset of SPML that will remain proprietary to Professo. The public SPML proposal will be submitted to one or several standards bodies that may include the W3C, OASIS (Organization for the Advancement of Structured Information Standards) and/or the IETF (lnternet Engineering Task Force). For more information on SPML, please visit www.spml.org As the above diagram shows, input to AppStreamer can be through a Web-based graphical interface, a Web-enabled cell phone or PDA, or directly, from an SPML provisioning descriptor file. The SPML provisioning descriptor file defines all actions necessary to satisfy provisioning requirements. AppStreamer agents' required actions, which may be arbitrary and hitherto unknown to the agents or to the system, is defined in SPML and is provided to the agents dynamically. The description of an entire provisioning requirement, as well as the communication between the agent daemon and the provisioning agents will be in SPML. The definitions, syntax, and semantics of the subset of SPML used internally by the system do not become part of the publicly promulgated standard. January 2000 © 2001 Professo, h_c., Confidential Infonnation I Technology no. 23 Two capabilities of SPML are particularly powerful. First, in the internally used subset, is the dynamic definition of agent behavior. AppStreamer's provisioning agents receive and understand both behavior descriptions and input data dynamically. Dynamic behavior definition empowers the agents to perform actions necessary to provision any service the system is capable of delivering without modification to the AppStreamer code. A corollary of this is the second ability AppStreamer agents have, provisioning for arbitrary applications. AppStreamer provision for, track, and bill arbitrary third-party applications. An ISV can channel its offerings through any SPML-enabled server, simply by making a network-aware application and its corresponding SPML provisioning descriptor publicly available. The ISV's SPML descriptor include billing information, including that needed by the local provider to determine charges to the end user. Provisioning for the application or service (security, storage, bandwidth, etc.), use tracking, billing, invoicing, and payment tracking is handled automatically by the SPML server. Enterprise Deployment The high-level configuration of a typical AppStreamer Enterprise deployment is shown in the diagram below. As with a service provider implementation, communication with AppStreamer can be from many sources, including an SPML descriptor file (not show in this diagram). | XML Cllent _._" Mobile Client WAP/WFIL tIP Unlike a service provider implementation, however, AppStreamer Enterprise will be custom tailored to the needs of individual clients by Professo Professional Services. Adapters may be included for various best-of-breed applications as required by customers. These adapters will make available the full functionality of AppStreamer with a customer's applications of choice, regardless of industry sector. January 2000 © 2001 Professo. Inc., Confidential Information Tcchnolo_ I no. 24 AppStreamer technology provides a degree of flexibility unparalleled in service provider platform support. This flexibility extends from provisioning and billing for any application, anywhere, any time, to ease of development and extensibility of the software system itself. The use of generic software agents, a language capable of defining software behavior, and a means of expressing, storing, and transmitting provisioning requirements afford AppStreamer a clear competitive advantage over other service provider infrastructure tools. ClickPay Architecture Internet standards have presented e-commerce developers with the most widely used format today, CGI. With the ClickPay CGI Gateway, SSL transactions can be posted to our server and will receive an immediate response from our systems. By posting a properly formatted URL a returning web page with an approval code and a transaction reference number will appear. Any developer can create server side software in their preferred language, ASP, CGI, PERL, or Java, which calls an SSL post to our CGI gateway and then listens for the response. The ClickPay lntcrnet Gateway operates on the basis that a merchant initially instructs the gateway to perform an operation on his/her behalf. Assuming that the initial operation is successful, the gateway returns information that the merchant must use for all subsequent operations for the transaction in question. The gateway manages the "transaction state" on behalf of the merchant. The merchant moves the transaction between the various possible states using the API. Intellectual Property We have filed applications in the Trademark office for AppStreamer. SPML will be developed and distributcd to the development community as open-source. In Spring 2000, we acquired the rights to the ClickPay API, which was developed by Kleline, a subsidiary of Banque Paribas. We also own an additional patent for push technology software that is not immediately relevant to AppStreamer. We regard our intellectual property as critical to our success, and rely upon patent, trademark, copyright, and trade secret laws in the United States and other jurisdictions to protect our proprietary rights. In addition, we protect our proprietary rights and trade secrets through the use of confidentiality agreements with employees, consultants, and advisors. January 2000 ] © 2001 Professo. Inc., Confidential Information Technologs' no. 25 SALES & MARKETING Sales & Marketing Overview We view sales and marketing as a critical component to our success. As such, we want to attract a senior software sales manager to function as our Executive Vice President of Sales and Marketing, who will be responsible for the development of our global software product sales team. Sales Strategy Our sales strategy is two-fold, with two sales units- one dedicated to software product sales and one dedicated to managed services sales. To date, we have initiated a global sales effort with teams located in New York City and Saint Etienne, France. Further, to establish a presence in Latin America, we are exploring the opportunity to have one full-time sales person stationed in Brazil, working in conjunction with a professional services firm with which we have engaged in a strategic relationship (PC Solutions). We will implement this same approach to enter other key global markets as well. Software Product Sales. In the United States, our initial efforts focus primarily on sales of the AppStreamer Single-Server (single-box) Solution, Single-Server (single-box) Manager and Enterprise Solutions to Tier 2 & 3 service providers. As we grow and establish more credibility among target customers, we will expand our efforts to incorporate sales of the Enterprise Solution to Tier I service providers. Internationally, we are focusing our initial efforts on selling the Enterprise Solution to Tier 1 service providers, where emerging service providers are building new and more reliable infrastructure to support their growth. Please see Appendix A for a schedule of estimated rollout dates for software product sales to each Tier. Our software product sales effort will focus on providing AppStreamcr to service providers through the following tactics: • • • Direct sales to service providers: Indirect channel sales through OEM partnerships with hardware manufacturers and VARs; Distribution partnerships with ISVs that want to create dedicated appliances, such as an e-commerce appliance, and sell them under their own brand name; and, Indirect sales through partnerships with systems integrators that will promote and integrate our products. • Managed Services Sales. Managed services sales is achieved through partnerships with ISVs, Independent Sales Organizations ("ISOs"), payment processors, banks, and portals that wish to offer applications or other Internet-based services via the ASP model. To date, Managed Services sales have focused on medium-sized ISVs and some ISOs. The Managed Services sales force is composed of five professionals who were responsible for sales during Phase 1. Please see Appendix B for a rollout schedule for the Managed Services sales effort. January 2001 [ © 2001 Professo. bw., Confidential Information Sales & Marketing no. 26 1 II Marketing Strategy We will undertake a marketing campaign designed to generate brand awareness and promote our reputation among our target customer base. To date, we have already initiated the following ongoing marketing tactics: • • • • Launched new Professo Web site featuring AppStreamer; Developed AppStreamer data sheets and brochures for each target partner; Exhibited at leading industry conferences, such as Fall lnternet World and ISPCon (November 2000); Disseminated controlled press releases and other media relations activities. marketing activities include: Prospective • • • Targeted advertising in industry trade magazines; and, Targeted mailings and seminars with key application partners. Pre and post-trade show outreach to targeted lists of potential customers. Strategic Alliances We will build and leverage strategic alliances with leading organizations to enhance the overall AppStreamer and Managed Services offerings and boost penetration of its target markets. Key strategic • alliances include: Multi Active Software. Multi Active Software Inc. is a leading worldwide developer of innovative sales, customer management and lnternet commerce solutions. Multiactive's products are currently used worldwide by an installed user base estimated to be in excess of one million users. Multi Active Software is the first major software company to have chosen Appstreamer in July 2000 as the technology foundation for the ASP offering of their award-winning store-front software EC Builder. Multi-Active Software has earmarked a $150,000 marketing budget to launch the EC Builder ASP offering at Las Vegas Comdex in November 2000. Mira. Miva Corporation is a leading provider of e-commerce software to small and medium-sized businesses. Known as the "'high velocity ccommerce company," Miva offers two easy to use e-commerce solutions: Miva Merchant, a complete storefront system and Miva Order, a payment processing connected order form. These solutions are used by tens of thousands of developers and merchants and hundreds of hosting partners and business portals. Miva and Professo are joining forces to offer a fully integrated turnkey e-commerce solution to be marketed jointly to large financial institutions, major office supplies retail chains and tier 2 and tier 3 network-based service providers. • January 2001 © 2001 Professo. Inc., Confidential Infomaation Sales & Marketing no. 27 • InteglON. ION Computer Systems is a supplier of e-business servers and Intcrnet appliances. ION Computer Systems is one the largest VARs in the tri-state area for systems and networks from leading manufacturers such as Intel Corp. ION Computer Systems is a member of our hardware partner program. In connection with lntel, they pre-install AppStreamer on lntel based hardware products and distribute them through their sales channels as a "service provider in-a-box" solution. Open Market. Open Market has chosen ClickPay as its payment gateway solution of choice for SMEs. Clickpay is integrated in all versions of Shopsite and available to Open Market's roster of service providers around the world in order to create a seamless experience for merchants signing on with ISPs. Open Market is the market-share leader in lnternet commerce software with more than 30,000 merchant licenses sold worldwide. Among Open Market's distinguished roster of global customers are many of the most popular domains on the Web, including Lycos.com, AOL.com, and the Wall Street Journal Interactive Edition; major industrials such as Acer, lngram Micro, and Siemens; and 10 of the world's top 13 national telephone companies. • January 2001 _3 2001 Professo. hlc., Confidential Intbnnation Sales & Marketing [ no. 28 L l COMPETITION Competitive Overview The infrastructure software industry for network-based service providers consists of many companies, although approximately four dominate the space. Service provider infrastructure software players continue to be heavily funded while still evolving their offerings and target markets. Still in its early stages as an industry, the competitive landscape is far from concretely defined. Company Positioning We distinguish comprehensive ourselves from our competition by providing a turnkey end-to-end ASP solution. In an examination of our direct competition, we hold a unique position in our focus on the dedicated server market for SMEs. Our key competitive advantage is SPML, our XML derivative, which adds unique provisioning capabilities, including an ability to facilitate open integration with legacy and new systems. Other advantages lie in AppStreamer's dedicated server management tools, domain name registration, customer self care, and multilevel marketing capabilities. The ability to provide marketing and packaging flexibility at any point in the service provisioning process, and to accelerate service provider's speed to market for new applications, further distinguishes AppStreamer from our direct competitors' offerings. Finally, unlike some competitors' solutions, Appstreamer is localized in 4 languages and some of its features are accessible from mobile devices. Our direct competitors commonly outsource critical components offering to "best-of-breed" providers. of their Direct Competitors We define our direct competition as those companies that offer platforms to manage the integration, delivery, and provision of service provider back-office operations and applications, The following is a description the companies we view as direct competitors: Software • Platform Providers: Systemsfusion. Founded in 1998, Systemsfusion provides aggregation, distribution, and provisioning management technology to both ISPs and ISVs. Evolutionware delivers service management packages with limited customization capabilities, while their EDeN technology automates delivery and billing of ISV applications to ISPs. Systemsfusion recently closed its Series B round of funding of $9 million, led by InVenture, Inc. of Switzerland. January 2001 © 2001 Prt_'sso, hw., Confidential Infommtion Key Challenges no. 29 • Ensim. Ensim was founded in 1998 and has grown to 135 employees. Ensim offers a hosting operations platform sold as software, as a hosted solution, and bundled within an appliance. Ensim, whose technology and service are targeted at both shared and dedicated servers, has partnered with several software vendors to outsource parts of its platform's functional package, such as its billing protocol through Portal Software. Ensim has raised a total of $81 million from New Enterprise Associates, CMEA, Onset Venture, and other investors. Sphera. Founded in 1998, Sphera has targeted its open HostingDirector platform toward Web hosting providers, ISPs, and ASPs. While the Company offers strong server provisioning technology, it lacks multi-level marketing capabilities and has limited service modeling options and flexibility. Sphera has partnered with Inovaware to provide a large part of its platform architecture. Funding details for Sphera were not available. • January 2001 I © 2001 Professo. hw., Confidential lntbnnation Key Challenges no. 30 t Indirect Competitors The combination of best-of-breed components (Siebel, Peoplesoft, Kenan, Portal Software, Tivoli, Openview for instance) constitute an alternative to comprehensive solutions such as Appstreamer that some Tier 1 providers have chosen to pursue. However, integrating flawlessly these components still represents a significant challenge. It requires to involve sophisticated system integrators such as Cap Gemini or Accenture. Overall these projects can turn out to be very expensive ($5-15m once all the costs are included) and the end-result may not provide value-added features just as customer self-service tools and multi-level marketing capabilities that Appstreamer provides. On the other end, each separate component gives more functions than the equivalent component pre-integrated in Appstrcamer. We strongly believe however that servicing SMEs does not require the most sophisticated tools. Margins per user are low for service providers servicing SMEs.Reaching a high number of users and automating the management process are key profitability factors. Building a state-of-the-art infrastructure costing ten million dollars does not make sense if only 20% of the features are being used. Appstreamer's objective is to provide these 20% necessary features as an off-the-shelf product. It turns to be a much better value proposition to service providers since Appstreamer's cost is 95% cheaper than best-of-breed combinations.However, we recognize that some service providers may have already acquired some of these best-of-breed components and may be reluctant to stop using them. The Appstreamcr open infrastructure allows us to integrate legacy applications and to make sure that the service provider can use Appstreamer as its process management foundation but keep using Portal Software for the billing aspect of it for example. This is of course valid for the other components. As a consequence, we consider our indirect competitors to be those companies offering best-of-breed solutions to service providers' individual infrastructure needs, rather than comprehensive platforms. This group is comprised of several diverse players, including wellfunded startups and high-profile infrastructure providers. We will continue to monitor the activity of companies in the following categories: • Business Systems, including Teleknowledge, Software; Extent, and Portal • • Business Support Systems, including PeopleSoft and Kenan Systems; and, Operations Support Systems, including Bridgewater our direct competitors, and Tivoli. For a matrix comparing C. please see Apt)endix KEY CHALLENGES Key Challenges We recognize that we will encounter the following key challenges as we continue to grow, and are proactively addressing the following issues: Managing growth and establishing internal proeesses. We recognize that the AppStreamer technology can be marketed toward many different players throughout the network-based service value chain. However, we intend to carefully manage growth of our own distribution infrastructure and marketing efforts, to ensure our ability to deliver a top quality product and continuously satisfy customers. Recruiting key technology and sales personneL We anticipate that the labor market for talented labor with technology engineering and sales backgrounds will remain tight. We will maintain a dynamic environment in which employees are exposed to new ideas and experiences by pioneering new technologies and/or managing transactions with clients who are changing the way business is conducted. All employees will continue training and receiving education and will be encouraged to represent our interests at industry events internationally. Establishing a trusted brand. Service providers using AppStreamer will be entrusted with their customers' most critical business applications. We recognize that reliability and security are among the top concerns of service providers implementing new technologies. We will engage in a vigorous marketing effort to establish recognition among target customers for its unique, comprehensive offering, focusing on developing a strong track record to "boast" about satisfied customers. We are also engaged in an effort to establish a network of high profile, reputable partners, such as world-leading software and hardware manufacturers and system integrators, that will help add credibility to the marketing campaign. • Time to market. AppStreamer version 1.3 is commercially available today. AppStreamer version 2.0 is 70% complete and targeted for release Q2 2001. We must continue to execute and accomplish our strategic goals in order to turn our industry vision and technological lead into a significant market leadership position -- prior to the emergence of similar technology. To this end, our senior management team has committed to a focused, strategic product rollout to a tiered list of target customers during Phase 2 of our growth. Moreover, we will continue to adhere to the rigorous milestones we have set for establishing key relationships and the further development of the AppStreamer offering. January 2001 [ © 2001 Professo. Inc., Confidential Information Key Challenges no. 32 a | ADDITIONAL OPPORTUNITIES Selected Additional Opportunities Following the achievement of core strategic goals, we may explore the following additional opportunities: Single-purpose appliance for vertical markets. Seeing a trend among manufacturers toward marketing servers designed only to meet specific needs for individual niche markets, we may seek to create a version of AppStreamer that can be modified to be bundled within such an offering. For example, companies are currently unveiling plans for products, such as e-commerce appliances, DSL appliances, and financial software appliances. OEMAppStreamerfor ISVs. To open additional sources of revenue, we may offer AppStreamer to ISVs on an OEM basis to enable them to market a complete, branded ASP solution to their own customers as a software offering. • AppStreamerfor large corporate networks. We recognize that AppStreamer could benefit global corporations managing proprietary networks. Essentially, AppStreamer would enable IT departments to efficiently manage networks and control resources from one central location with the ability to distribute applications to appropriate employees on an as-needed basis. Add additionalproprietary applications. We view AppStreamer as the foundation that will enable us to establish a captive audience of SMEs. While we intend to remain application agnostic for the near term, we envision the future ability to add additional proprietary applicationssimilar to our ClickPay offering that would compliment a service provider's offering to SMEs and create additional revenue streams for us. • January 2001 c_.2001 Pr_,sso. hw., Confidential Infomaation Additional Opportunities no. 33 , | MANAGEMENT & ORGANIZATION Senior Management Team Our senior management team is composed of the following individuals: • Christophe J. Arroyo, Co-Founder, Chairman, & President Prior to co-founding Professo, Christophe was a senior account manager in the International Equity Research Division of Paribas Capital Markets for four years, focusing on telecommunications and technology industries. His specialization in this area helped him hone his knowledge of the Internet industry, as well as his financial skills. Before moving to New York with Paribas, Christophe was a lead strategic consultant with Bain & Co. in Paris. Christophe earned an MBA from ESSEC in Paris where he was President of a multi-million dollar consulting firm. He also holds a license degree from Paris' Sorbonne University. Patrice D. Guyot, Co-Founder & Chief Executive Officer Prior to founding Professo, Patrice founded and managed a successful New York-based Web design firm, developing a client base of 150. It was during this time that Patrice saw a real need for customer management tools and effectively bundled Internet solutions, leading to the creation of Professo. Patrice has published several technical papers in the area of industrial management and robotics in addition to his thesis on the use of Application Service Providers for the Manufacturing sector. He holds a patent for an Internet advertising and distribution push technology. Patrice earned an M.S. in Industrial Engineering from the New Jersey Institute of Technology. Richard Alpert, VP Engineering and R&D Richard Alpert is responsible for Professo's product design and development, product architecture and guiding the direction of Professo's product line through the introduction and absorption of emerging technologies. Prior to joining Professo, Richard conducted research in multicomputer communication systems and web-based image searching with NEC Research in Princeton. He has taught Computer Science and Mathematics at Boston University and Harvard. Richard holds master's degrees from Tufts (Mathematics), Harvard (Computer Science), and Princeton (Computer Science), and is completing his PhD in Computer Science at Princeton. Stephane Leseure, Co-Founder & EVP of Operations & International Development Stephane oversees Professo's commercial expansion in Europe including our sales and development team in Saint-Etienne. He serves as Secretary of the Board of Directors. Stephane brings to Professo a vast knowledge of the European and global markets, as well as a strong background in direct marketing and sales. Before moving into the technology industry, he founded and successfully managed/developed Fontaine CRYSTAL, a leading water cooler company in southern France. Stephane holds a Master's degree in Marketing and Finance from the Nice Business School (France). • • • I January 2001 I I © 2001 Profi,sso, h,c., Confidential Information I I I Management & Organization no. 34 • Gagan Bhutani, VP, Business Development & Product Marketing Prior to joining Professo, Gagan was a Manager of Business Development in the Cable Communications group at Lucent Technologies. He has 8 years of combined experience in product marketing, management, and development experience at Lucent, Oracle, Hewlett Packard, and Digital Equipment Corporation (now Compaq). Gagan earned an MBA from The Wharton School, an MS in Computer Science from the University of South Carolina, and his BS in Computer Science from Birla Institute of Technology & Science, India. Venkat Yerram, VPof Infrastructure Services Venkat Yerram is responsible for providing network and managed services for Professo and its clients. Prior to joining Professo, he gained 14 years of experience working at Bellcore, Salomon SmithBarney, and Merrill Lynch. There, he consolidated legacy production Unix systems, performed systems and application integration services, built resilient system and network infrastructure services for mission critical applications, and distributed computing services. Venkat has an M.S. in Distributed Information Systems Engineering from Polytechnic University of Westchester. Ron Rogozinski, Corporate Controller Ron, a CPA, spent 6 years at Ernst & Young and Deloitte and Touche in Tel Aviv and culminated as a supervisor and acting manager. Ron gathered significant experience working with Nasdaq listed technology companies, including global firewall software leader Checkpoint Software and push technology software company Backweb. Ron subsequently moved to New York and worked as a senior supervisor at KPMG, where he implemented audit programs for Fortune 500 companies and supervises IPO, 10K, and 10Q, filings for software and Internet companies. Ron has an MBA from Tel Aviv University. In addition to the management team, Professo relies on outside experienced advisors, notably when it comes to major strategic technology decisions: • • • Ajit Naidu, Senior Technology Advisor Ajit Naidu is Managing Director and CTO of the Securities Services Division of Merrill Lynch. Prior to this assignment, Ajit was Director of Enterprise Client Information Architecture & Standards and Vice President of Global Debt Derivatives technology at Merrill Lynch, where he combined his technical and financial expertise to build various largescale global transactional systems leveraging Java and distributed object technology. Prior to Merrill Lynch, Ajit spent three years with Litton lndustries-Poly-Scientific division as head of the New Product Development group. He has also held software development positions at Texas Instruments and Bell-Northern Research. Ajit leads our technology strategic thinking process and is involved in all major decisions on architecture, choice of technology or components, validation of product development decisions, and any other situation where the breadth of his expertise combined with his intimate knowledge of Professo and its field can help Professo make the right technological choices. January2001 J ©2001Prt_,sso, hw.,Confidentiallnforn_ation Organization Management&[ no. 35 Board of Directors Professo's • board of directors is composed of the following individuals. Chairman and CEO of Paribas Andre Levy-Lang,former Former chairman and CEO of Banque Paribas, the third largest European investment bank ( 1990-1999) Sits on Boards of Schlumberger, Research Foundation PhD in Business Administration • Dexia, AGF, and Medical from Stanford University Alexandre Mars, CEO of Mars Capital B V CEO of Mars Capital B.V. Current portfolio companies include BuyCentral, Cyberdeck, Ezlogin, LookThatup, Phonevalley, and Ukibi. • Alan Winters, President of Winters CapitalManagement, LLC One of original investment professionals of the world's largest hedge funds • • • • Christophe in Kingdon Capital, one J. Arroyo, See senior management team team Patrice D. Guyot, See senior management Stephane Lescure, See senior management team Ajit Naidu, See senior advisory team .lanuary 2001 1 [ l ,fD 2001 Professo. hlc., Confidenthl Intbmaation Management & Organization no. 36 REVENUE STRATEGY Professo relies on a classic software revenue model based on a combination of technology licensing rights, number of utilized CPUs or servers and number of IP addresses supported by AppStreamer. The model is tremendously expandable as our revenues are driven not only by the number of clients, but also by the expansion of the Clients' network or users. Profcsso offers service providers a "'pay as you grow" model with lower entry costs than competitive products. Therefore, at a reasonable start-up cost, AppStreamer Single Server solution offers a comprehensive software platform fulfilling the vast majority of the network-based service providers' needs. This allows Professo to capture a larger part of the market, enjoy a higher recurrence of client re-ordering (licensing fees growing in proportion with the service provider' user base) and consequently reach a higher profitability per client. Further, we are actively promoting and technically facilitating the upwards migration path towards enterprise class deployment. We offer service providers three options to acquire the Appstreamer Enterprise software. The first option is based on the number of CPUs used by the service providers. It commonly includes $30,000-$50,000 of technology rights and a cost of $10,000 per additional CPU. Average contracts are between $50,000 and $100,000. This option is adapted to medium-sized service providers running a vast array of servers including shared servers. We also have an offer for service providers focusing on dedicated servers. A CPU based pricing model would be too onerous for them, so we offer a combination of technology rights and monthly costs per server. This offer is quite attractive to service providers who want to "pay as they grow" even though it can end up being more costly to them over the life of the contract. Thirdly, we are targeting Tier 1 providers that have a large amount of different servers with a "carte blanche offer" letting them use Appstreamer on as many servers as they want in a single location. These contracts amount to about $500,000. All our software sales are subject to a 20% maintenance The following table outlines key assumptions financial projections: 2001 Number of single-servers licenses sold Cumulated number of users serviced by Appstreamer Number of enterprise class clients 550 33,000 14 underlying and support fee. our current Software division "Pay as you grow" model Assumptions 2002 1,325 112,500 24 2003 2,200 245,000 42 January 2001 _32001Pro.fe.vso, hzc.,ConfidcntialInfl_rmation I RevcnueStrategy [ no. 37 Note: In these forecasts we have not included any sale of licenses likely to result from potential partnerships we are exploring with hardware manufacturer to bundle AppStreamer on their servers. The ongoing discussions that we have had with some leading software manufacturers indicate interest in cases where at least a minimum of 10,000 boxes (consequently AppStreamer licenses) were to be shipped. Internal research by these hardware vendors suggest that the US market size for 1U and 2U servers would be at least 1 million units. Additional Additional Modules modules (such as languages modules or proprietary and third party fully integrated software applications) and recurrent maintenance fees (20% of any sale) provide extra sources of revenues with high marginal profitability since there are low marketing or production costs associated with them. In support of the software division, Professo has a professional services division that implements, integrates, and installs AppStreamer. These services are billed according to the number of days our engineers spend in our clients' facilities to install our software platform and train the service provider's technicians. Professo will actively seek to promote AppStreamer to leading systems integrators and to outsource these integrations to them. Professo benefits from the trend in end-users, in particular SMEs, requesting that software applications be rented and managed by service providers. Our Managed Services fulfills the needs of the ISVs, ISOs, banks, utilities and other virtual service providers that want to offer nctwork-based applications to their clients while not carrying the cost and burden of the infrastructure. AppStreamer lets them manage their offering on a remote basis while the service is managed by our technicians. In this division, Professo has adopted a service revenue model combining: Professional Services Managed Services division • • • Upfront Fees: Professo charges a moderate upfront fee to set-up the virtual network. Recurring Monthly Fees Per User: Professo charges a monthly fee per server being used and per IP address serviced by Appstreamer such that Professo's revenue increases as its clients' user base expands. Fees Per Transaction: thanks to the Clickpay e-payment gateway application, Professo also captures a margin of approximately 0.5% to I% of each transaction executed by e-commerce enabled sites. Profitability expansion This division enjoys three exponential growth drivers (number of clients, number of users they acquire, and the amount of transactions carried on the users' e-commerce websites) secured by the relative long-term nature of the service contracts. Since the profitability of the service business is largely driven by utilization rate of the data center and of the technical staff, any marginal sales of AppStreamer licenses or increase in transaction volumes translate into extremely high profit margins. ,nuI 200, co2ool, L sol,,ctnfono tion teg RevenueS 1no38 G iI 0 i I_ i o ¢ 41 ,o o o c'4 • 0 o ,..., APPENDIX A Direct Software Sales Rollout Schedule: Q4 2000- QI 2001 Q2 2001- Q3 2001 Tier I _Tier Tier 3_ Tier 1 2 Tier 2 Tier 3 V I.3 SB/Appliance VI.3 Enterprise V2.0 SB/Appliance V2.0 Enterprise X X X Q4 2001 onwards Tier 1 Tier 2 Tier 3 _...' .,_ _'i:),'..X_?..(..,."_X,_,o,;...,"__".;._ _,_,,_ :_: '.................. ...... : ....................... : .... _,:-:.:_,_._.. _:";i_ _ X X _ .:*_,!.:,,.,. _,.....""_ _ :.__.. X X X X X X X X X X X Indirect Software Sales Rollout Schedule: Q3 2000..-.Q1 2001 Q2 2001-- Q3 2001 Q4 2001 onwards ISVs Hardware Sl_.._s ISVs Hardware Sl.___s ISV_...._stlardware Sl.._s • .. ,..,, @?i_.;,,,. ":"_:;"_' _::'.. ,:, ,... •_..._._ .:_.,._..._._,:_.._..,, ,...,,,..:._ X X _,..'_,.._,;:. ...... _ :"; _._ x x X X _:. __,!_'._:, x ""_ x .'," J_i: .'!_ x X VI.3 SB/Appliance .VI.3 Enterprise V2.0 SB/Appliance V2.0 Enterprise APPENDIX B Managed Services Sales Rollout Schedule: Q3 2000QI 2001 x x Q2 2001 Q3 2001 x x X x Q4 2001 onwards x x x x x ISVs ISOs Payment Processors Banks Portals January 2001 © 2001 Prq[esso. hw., Confidential Infi)rmation l Notes no. 42 -, ir APPENDIX C AppStreamer Competitive Matrix: I PROFESSO SERVICE MOI)ELING PROVISIONING - Create & prk'e targeted & sctvice pac'lmges ENSIM XEVO ,. : _..:.... •_i_..., ¢_:._. .¢;_: _:_._: / SYSTEMSFUSION 1 SPHERA ..4.owpocUge,,p._r_a,, - Pu.,hpackages to subscribers . SERVER . PROVISIONING . im . ...._::_ _:_.".; , .." ._y. .: .:._J_?... .._ : ." .._ i '_: .. '@_.:. "_# _ _ _ _ 2 ...... _ _,...._:_..:.::...:.!: :_:.H_..:_:_:_. _ _ _ 1 :;@ 2 _:: _ : i_:_.:::.:".: ...!:_ i. •. .,._!.".',:: :: :: . _ . ". _.. ..e.'::_;: ... .. _ _.,: _:.. 1 - IP Address assigt mcnt & n at agen ent _irl ald, dieolcd ....... ., . .• . . .... 2 .... .:<..., .._;:.:.:.,._ ' ::.": ." Ji_< :_ 1 •::':: :, .',_*_ _ SELF-CAR_ CUSTOMER -Auto-register order/edit services .... -Pavserviceprovidcronl, , CUSTOMER - Subscription - Ih,lpdesk CARE & relationshil_ ..... & trmd,le ticketing gcmcnt .._)@_._ ........... : :_.:. ;._:_i:._Y: ? _.;:!...:.:_!i:i:!;i:.:.if i";:_i_ ? _ _" _.? ._i_ : '_... .. !. • .:: .... ..... ".: : '. _ :!:_i_.:_:. _:_!_:._;:.!_..@ lnovaware , ;.i:_+ _i_7: ".'._" ::_ _)'':""". :?<..." :. . I i.. ::;_ ::;__".... " :": _!_!:: "" • :_>..... " " "• .:.:.' "" .... • s s,2i - ._w oz - Polio_based AUTOMATED • "o u tutoring r ...... t. • • • . :_: :."'.. :_: :._!:: : t_ "_,. "f . . .:.. i•:••• Onyx '::_ "_'''""_" : : ........ "" :_:_J{_:...:, .:;_:: %_"! : i Inovaware . .... ::. :_ _ " .i: :. :.i_i:.iii_:;i. :.;._f. ..... .,,._i: • -Faultdeteetion&SLAmanug management BILLING - .$h_nitoring _ervic_usagc) -&.iwi¢'erating - Invoicing 1 • .__i._:_.,. +,. " _:_'" "_" ".:'.:_'i:_f:":7:::_. 2 .:.. ,.. : :.. _.:._... ;_::.. 'i"_ •..: .. •_...:. _:_.: . ,. • ._..: _ _": _v " , i. "L::.'. • _:_.:. _i'_::" _ " 2.:.. . ....".::=°_...::i:s: ".. " .._!:_i:,_i.k 1 . •.:....:... : . :..,_ . .. _.._"": _;::.". : ••7 ...... ".' . "2 ._. :....: ;:_i_:: Portal Portal :_!..... :..=.:.., ._ ............. _' ...!_ .... _......... _i .__:::.[ . ' . hlovawflrg -MUI,TI 4.EVEL MARKETING Private laheling - Automated marib_p distribution - Multiple busim'ss k'vcls & nudti-t('nancy _ ]:.S.:: ::.:;;:_i..:." :. .. _ 2 ". "" 1 1 1 I :.._ ":" Rating Method: 1 = Fair