January 2015 Independent Technology Research Report

GP BULLHOUND

TECHNOLOGY PREDICTIONS

2015

GP Bullhound – Technology Predictions 2015

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Table of Contents

GP Bullhound Technology Predictions 2015 ..................................................................... 3

A Recap of GP Bullhound’s 2014 Predictions .................................................................... 4

End-to-End Service Disruption Goes Beyond Uber and Airbnb ................................... 6

Internet of Things to Move from Smart to Intelligent .................................................... 7

Major Landscape Changes in the World of Payments ..................................................... 8

3D Printing Moves from Prototyping to End-Products ................................................. 9

New Media Outlets Taking Off ........................................................................................... 10

Continued Emergence of One-Stop Shops in Ad-Tech .................................................. 11

Returned Focus on Customer Long-Term Value in Mobile Gaming ......................... 12

SaaS Adoption Permeates Throughout the Enterprise .................................................. 13

Comprehensive Cybersecurity Protection Will Become the Norm ............................. 14

The Wave of Technology & Product Exits Will be Strong in 2015........................... 15

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GP Bullhound – Technology Predictions 2015

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GP Bullhound Technology Predictions 2015

ALI DAGLI ali.dagli@gpbullhound.com

USA: +1 415 500 6999

ALEC DAFFERNER alec.dafferner@gpbullhound.com

USA: +1 415 986 0168

CHRISTOPHER PARK chris.park@gpbullhound.com

USA: +1 415 200 4281

MATT FINEGOLD matt.finegold@gpbullhound.com

USA: +1 415 767 5507

For the eighth year running, GP Bullhound is publishing its Technology Predictions for the upcoming year. 2014 saw record spending on acquisitions and R&D by publicly listed tech champions. At the same time, we witnessed booming private markets led by VC-backed firms with significant amounts of capital raised at increasing valuations. As we head into 2015, the current investment boom shows every sign of maintaining momentum, and we predict continued long-term economic growth in the global technology sector. Our predictions range from technology-enabled end-to-end service companies disrupting massive industries to Internet of Things devices becoming more intelligent due to software innovations and better data utilization. We also expect to see fundamental changes in the payment industry led by mobile technologies and peer-to-peer payment solutions. In 3D printing, we expect a notable number of new 3D printed products to emerge in end-product applications, such as titanium parts used in Airbus engines, 3D printed dental implants, and wedding cufflinks. In 2015, we expect a larger percentage of Internet users, who are tired of the first iterations of online content, to shift their consumption habits to new digital media outlets, such as Vice and Vox, that offer deeper content with better storytelling and enhanced visuals. In the ad-tech sector, we expect further consolidation via acquisitions of leading pure-play players in the RTB and programmatic buying, mobile, and video sectors. Mobile gaming will continue to take the largest share of total mobile app store revenue, game production values will continue to increase, but the true winners in the space will be the free-to-play companies that master the user retention and monetization hooks through superior gameplay mechanics. Enterprise adoption of SaaS has been an ongoing trend for a while, though on-premise software still represents the vast majority of software used in organizations. Beginning in 2015, we expect global enterprises to increasingly update their procedures and be more serious about adopting SaaS solutions as a whole—in a wide variety of functions of their businesses—and to drive the SaaS industry to new heights. In 2014, we saw a number of cyberattacks on companies such as Sony, Apple and Home Depot. Large companies and governments are now acutely aware of the heightened risk and will respond with substantial increases in security budgets. Lastly, we expect tech M&A and IPO transactions to remain strong in 2015, driven by rich cash balances and the continued appetite of large tech companies to invest in growth sectors.

2015 PREDICTIONS

“END-TO-END SERVICE

DISRUPTION GOES BEYOND

UBER AND AIRBNB”

“INTERNET OF THINGS TO MOVE

FROM SMART TO INTELLIGENT”

“MAJOR LANDSCAPE

CHANGES IN THE WORLD OF

PAYMENTS”

“3D PRINTING MOVES FROM

PROTOTYPING TO END-

PRODUCTS”

“NEW MEDIA OUTLETS TAKING

OFF”

“CONTINUED EMERGENCE OF

ONE-STOP SHOPS

IN AD-TECH”

“RETURNED FOCUS ON

CUSTOMER LONG-TERM VALUE

IN MOBILE GAMING”

“SAAS ADOPTION PERMEATES

THROUGHOUT THE ENTERPRISE”

“COMPREHENSIVE

CYBERSECURITY PROTECTION

WILL BECOME THE NORM”

“THE WAVE OF TECHNOLOGY &

PRODUCT EXITS WILL BE

STRONG IN 2015”

GP Bullhound – Technology Predictions 2015

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A Recap of GP Bullhound’s 2014 Predictions

2014 Predictions

Breakthrough in Indoor

Location,

Communication and

Marketing

Eye-Tracking Reaches

Consumer Masses

Shopping Goes ‘Click

& Mortar’

Smart Machines

Market Taking-Off

The Battle of “Where“

Will Unfold

Social Messaging

Markets Will

Consolidate

Advanced Data

Analytics Climbs to

Top of Corporate

Agenda

Marketplaces Will Go

Vertical

Cloud Storage

Platforms Go

Mainstream

Curved Smartphones

Will Flop in 2014

Before we dig into this year’s exciting list, here’s a brief recap of last

year’s predictions and how we saw their development throughout the

year.

A year ago, we predicted that Indoor Location Communication and

Marketing would break through and 2014 supported this trend. While

less than 1% of the 3.6 million retail stores used beacon technology1, we

saw a number of large retailers leading the way for beacon technology

implementation. For example, Macy’s implemented beacon technology

in nearly 800 stores across the country2, mobile shopping startup

InMarket installed iBeacon technology in over 100 grocery stores3, and

the National Football League used beacon technology during the Super

Bowl4.

Contrary to our prediction, mass consumer applications of Eye-

Tracking technology were still under development in 2014. However,

we expect these applications to hit the market in 2015. Tobii’s first

gaming eye tracking wearable, SteelSeries Sentry, will start shipping in

January 2015 and Pizza Hut is expected to provide a subconscious menu

that tracks eye movement to see what customers are really craving.

Click & Mortar surged in 2014. Well known ecommerce retailers

including Birchbox, Bonobos and Amazon opened their flagship stores.

The store openings were moderately successful as the retailers reached

new customers they otherwise wouldn’t have been able to reach online.

Brick and mortar offerings not only boosted sales, but slashed digital

marketing expenses as well. As we see more and more flagship stores

open, it is evident that brick and mortar still has a place in the retail

market.

Acquisitions in the Smart Machines Market took off in 2014. Google

made the headlines after acquiring Nest for $3.2 billion5 and Dropcam

for $555 million6, while Samsung acquired SmartThings for $200

million7. Internet of Things did not penetrate like we envisioned in

2014, but the previously mentioned acquisitions primed the market to

take a leap in 2015 as large cap companies make strategic moves into

the space. We expect more innovations and investments going forward

driven by precedent exits and the large addressable market opportunity.

Battle of “Where” Will Unfold broadly proved to be correct. Google

Maps remained the leader in the industry with Apple Maps, Nokia Here,

and Microsoft Bing making great strides to catch up. We expect the war

on “where” to continue as map applications develop additional features

on their native apps, such as detailed lane navigation, restaurant

reservations through OpenTable and estimated travel time on Uber.

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1 Businessweek, Aug 2014 2 The Washington Post, Sep 2014 3 The Associated Press, Jan 2014 4 New York Times, Jan 2014 5 Google 10-K, Feb 2014 6 Google 10-Q, Oct 2014 7 USA Today, Aug 2014

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We predicted that the Social Messaging industry would consolidate in

2014 and this proved to be true. Facebook acquired WhatsApp for a

purchase consideration of $19 billion1 and Rakuten acquired Viber for

$900 million2. The vast scale of highly engaged users made these

messengers attractive to strategic partners searching for growth as the

companies had 450 million and 300 million users, respectively, at the

time of acquisitions1.

Widespread adoption of Big Data Analytics came to fruition in 2014.

A survey conducted by Gartner indicated 47% of organizations invested

in big data up from 38% in 2013. With Hortonworks raising $100

million in the public markets and climbing to a $1 billion plus dollar

market cap, we expect a bright future for big data analytics in 20153.

We predicted that Vertical Marketplaces would become category

leaders in 2014. This trend has played out as expected with investors

placing large valuations on the likes of Uber and Airbnb as well as the

acquisition of OpenTable by Priceline for a purchase consideration of

$2.5 billion4. Five years ago, invested capital in marketplaces was evenly

split between vertical and horizontal players, but in 2014, more than

85% of investments were in vertical solution providers5.

Cloud Storage Platforms achieved significant growth in 2014. The

cloud has been adopted, to some degree, by nearly 90% of businesses6.

Companies have reported saving time and money from reducing time

managing IT and deploying fewer internal resources. On the consumer

side, cloud storage has experienced widespread adoption with Dropbox

claiming more than 300 million users, Google Drive 240 million users

and Microsoft OneDrive 250 million users7.

As predicted, Curved Smartphones had disappointing sales in 2014.

Samsung and LG, two of the largest smartphone manufacturers, both

launched curved smartphones in 2013 and weren’t able to attract

consumers due to high price points and lack of perceived value of the

curved design. However, Samsung and LG are continuing to invest in

this space and are expected to launch new curved smartphones, such as

Samsung Edge and LG G Flex 2 in 2015.

1 Facebook 8-K, Feb 2014 2 Rakuten Press Release, Feb 2014 3 Hortonworks Company Filings, Dec 2014 4 Priceline 8-K, Jul 2014 5 SVB Analytics Presentation, Nov 2014 6 PC World, Oct 2014 7 Fortune, Nov 2014

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End-to-End Service Disruption Goes Beyond

Uber and Airbnb

1 Wall Street Journal, Dec 2014 2 Financial Times, Oct 2014 3 First defined by James Slavet at Greylock Partners

2014 was a big year for technology-enabled end-to-end (E2E) service companies. Uber in transportation and Airbnb in lodging became leading tech companies with valuations of $40 billion1 and $13 billion2, respectively. E2E companies focus on delivering an “end-to-end” consumer experience powered by a fusion of software and people to deliver compelling services in the off-line world3. In 2015, we expect the E2E movement to penetrate additional large industries such as retail, real estate, online auctions, home services, and healthcare. New businesses will emerge and a few existing players will start to gain meaningful traction in each market by providing enhanced solutions to consumers as well as significantly improving both seller and buyer experiences instead of selling the services/products in their original forms.

CATEGORIES TO BE IMPACTED

E2E companies sell trust in the branded entity rather than the component parts. Efficiencies and cost savings come from utilization of new technologies and elimination of middlemen with the value shared among the company, the service providers/sellers, and the consumers. Re-invented product, maximized convenience, a wide array of options, varieties of added value (personalization, real-time tracking, quick delivery, etc), and seamless payment options all encourage more transactions. Expanded opportunities for participation by way of ratings, available information, and digital word-of-mouth help to empower customers, and enhance customer satisfaction, leading to greater brand loyalty, forming a positive feedback loop. For example, thredUP, an E2E marketplace of secondhand clothing and accessories, receives assorted goods from sellers, professionally curates the content, and posts items online, providing buyers a premium retail-like experience. Their primary focus is on customer satisfaction, not daily sales. Likewise, Redfin, a tech-powered real estate brokerage firm, has a team of real estate agents, who earn salaries and bonuses based on customer satisfaction not commissions. Enhanced customer and service provide/seller satisfaction is a critical element in E2E marketplaces to drive future profits. Increased adoption of mobile and viral online communities will boost growth in the E2E market. However, it will continue to take time and investment for these companies to gain traction. We therefore do not expect them to scale as quickly as the likes of Instagram and Snapchat due to their capital and operational needs. An IPO will be the most likely exit for successful E2E service companies.

Transportation Lodging Food & Dining Real Estate

Auctions Delivery Care Services Travel Businesses Services

Retail

COMPANIES TO WATCH

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Internet of Things to Move from Smart to Intelligent

The Internet of Things (“IoT”) is currently the most widely used technology buzzword due to its transformational potential and all encompassing, tech-enabled vision. Software innovation and better use of data will be key focus areas for IoT players to drive faster mainstream adoption and build consumer loyalty. Smartphones are key components of IoT and act as a gateway for other IoT devices. Software innovation will start with the mobile apps on our smartphones. We will see new features that add an array of benefits, and lower friction to take weight off of consumers’ shoulders. We expect to see more intelligent context-aware applications that automatically collect data from multiple sources, learn, make recommendations, and, in some instances, take action without requiring input from users. To date, wearable fitness devices such as Jawbone and Fitbit have been mostly about “tracking” and required too much hand holding from consumers to make them “intelligent”. New devices in 2015 will have more intelligent software and features. Wearables will become more useful as the net long-term benefit of ownership increases. Large tech giants such as Apple, Google and Intel will continue to place significant bets in this market. We expect Apple Watch to have strong sales, though relatively lower than previous Apple products. Apple Watch will still be the best selling wearable device this year. Fitbit, the current wearable leader by market share, may start its IPO process in 2015. Successful wearable startups will expand to clothes, shoes, jewelries and headsets in 2015, all connecting to our smartphones. Intelligent headphones will create a whole new sub-category of wearables called “hearables”. 2015 will be about experimenting with a wide range of software applications and services embedded in these devices to see which use cases are most appealing to consumers. IoT companies will continue to invest in new features that address customer pain points such as longer battery life and innovative charging technologies. Despite all the recent hype at CES around the implementation of smart homes, we expect our digital homes and TVs to remain relatively dumb in 2015, and we will continue to rely on separate IP-based boxes such as Roku, Apple TV, and Sonos to stream digital content throughout our homes. Apple, Samsung, Intel, Qualcomm, and other large players will get the community going in more serious ways and investments in IP-enabled appliances and cloud-based digital home software will grow, but significant consumer traction will take place in 2016 and beyond. Possibly very exciting this year, Apple may recapture its "revolutionary" status in announcing its long-awaited re-invention of the television. Drones will be in the headlines again with their sci-fi like capabilities. Powerful software combined with 3D cameras will allow drones to detect and avoid obstacles without any user inputs. In 2015, the FAA is expected to set regulations and grant permission for unmanned aerial vehicles, and initial Amazon PrimeAir “same hour” deliveries may take place in San Francisco. Analytics will be at the forefront as a key driver to gain actionable data from these devices. We will see increased effort and investments on cloud software development to integrate and upload data and perform analytics for what are predicted to be 26 billion IoT devices by 20201.

In 2015, we will begin witnessing the true potential of intelligent IoT devices.

1 Gartner, Mar 2014

COMPANIES TO WATCH

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COMPANIES TO WATCH

Major Landscape Changes in the World of Payments

Mobile technologies and innovative software are causing the biggest landscape changes in payments since the introduction of credit cards in the mid-1950s. In 2015, we will see a rise in alternative mobile payment methods and currencies. Demand for change in terms of ease of use, reduction in fees, and loyalty benefits will be the main driving forces. Consumers have shown they are willing to spend using contactless payments with Starbucks now generating over 15% of their revenue from mobile transactions in U.S. operated stores1. 2015 will be the year that we see an accelerated decline in the physical use of cash and plastic credit cards. Emerging forms of mobile payment solutions will take off in 2015 as merchant and consumer adoption increases. Apple estimates that there are about 220,000 merchants accepting contactless payments out of 3.7 million merchants in the U.S. Despite the current resistance, we expect Apple Pay to launch in Europe in 2015. Competition to be the hardware vendor of choice and increasing traction in mobile payments will force POS companies to subsidize hardware for accepting alternative payments. For example, ShopKeep is offering merchants free Apple Pay-compatible hardware to compete with Square. Companies such as Jumio and iZettle will focus on lowering friction between merchants and consumers. We also expect at least one offline payment giant such as Visa, MasterCard or American Express to acquire an online challenger. Traditional social media companies will enter the payments fray in 2015. Leveraging large user bases, Facebook, Twitter, and Snapchat are expected to integrate payment APIs into their respective platforms. Based on their sheer size, we expect the social media giants to have a leg up in the “one-click payment” and peer-to-peer (P2P) spaces. We expect merchants to start selling products instantly on users’ news feeds. The P2P market is still up for grabs with incumbents Venmo and Square as category leaders. Despite the highly volatile nature of Bitcoin and the challenges faced by its followers, cryptocurrency will remain as an alternative form of payment that is nearly universally accepted. The number of merchants accepting cryptocurrencies has grown exponentially over the past year and with blue chip companies such as Microsoft headlining the effort, we expect to see more companies following suit. We believe at least one major global bank organization will start accepting cryptocurrency for transfers and payments this year. There may also be attempts to create a new, cleaner “bitcoin” using the cryptocurrency model and existing infrastructure. We also expect this disruptive digital block chain mechanism will be applied to other industries, such as art collection where transparency, efficiency and traceable unique identifiers are key components of the business.

EXAMPLES OF MOBILE PAYMENT AND CRYPTOCURRENCY

1 Starbucks Earnings Call, Jul 2014

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COMPANIES TO WATCH

3D Printing Moves from Prototyping to End-Products

2015 will be the year in which a notable numbers of new 3D printed products emerge in end-product applications, such as titanium parts used in Airbus engines, 3D printed dental implants, and incidentals such as wedding cufflinks printed-on-demand. We expect to see an increase in the applications of 3D printed technologies in big, less price-sensitive industries (e.g., healthcare, aviation and automotive) where the products are comprised of fewer parts that are lighter, more versatile, and more durable than conventional manufacturing. 3D printing will start to replace “part no longer available” and “part not in inventory” with the print button. Retail brands, on the other hand, will start to empower consumers by providing a 3D printing element, allowing consumers to create one-of-a-kind products, co-designed by the end users. Customer expansion will be boosted by continued innovation from established vendors. HP’s Multi Jet Fusion and Delta printers have increased productivity to reduce current pain points in 3D printing technology. The introduction of multiple printheads has increased manufacturing speeds by 10x, which is a crucial stepping stone for the industry with products regularly taking hours or even days to print1. Additionally, the price of 3D printers that bring professional features to businesses is expected to decrease to less than $1,000 by 20162. User-friendly design and printing capabilities will be key for mass customization in 3D printing. Innovative design software and 3D scanning devices will provide access to individuals without engineering or computer-aided design (CAD) expertise, spurring further growth in much needed 3D content. For example, Digital Forming empowers independent designers and retail companies to instantly setup an online customization capability. The company’s technology exploits 3D printing capabilities for mass customization without the need for CAD expertise or complex supply chain processes. In addition, HP just launched a 3D scanning desktop workstation.

EXAMPLES OF 3D PRINTING APPLICATIONS

Big players such as HP, Adobe and Autodesk have entered the sector in more serious ways, all working to overcome barriers and at the same time challenge incumbents such as 3D Systems and Stratasys to spur further innovation. In 2014, more than 50 3D printing companies launched or raised money3. We expect sizeable investments from VCs, large cap companies, and online communities (through crowdfunding) to continue to drive the technology forward. Industry innovations in 3D printing in 2015 are expected to lay the groundwork for unprecedented product development with the most significant impact on existing manufacturing companies.

1 HP White Paper, Nov 2014 2 Gartner, Mar 2013 3 Techcrunch, Dec 2014

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COMPANIES TO WATCH

New Media Outlets Taking Off

Millennials have redefined the way the media is being consumed. Social media and mobile phones have boosted viral-focused new media brands such as Buzzfeed by attracting younger audiences with interesting, timely, and humorous content in a visually stimulating format. As millennials mature and demand deeper content, we are starting to see the return of good story-telling and better editorial styles. New media journalism outlets such as Vox, Vice, and Quartz are gaining the trust of readers by offering high quality, curated, and more digestible digital content across multiple devices. These new media outlets go against previous online publishing conventions and focus on more innovative formats (e.g., continuous stream of content vs. static homepage, in-content advertising vs. traditional banner ads). The name of the game in media is no longer captive passive audiences, but instead engaged loyal followers. In 2015, we expect a larger percentage of Internet users, who are tired of the first iterations of online content, to shift their consumption habits to these highly engaging media outlets, and for new media brands to emerge globally. A related trend over the past couple of years has been the emergence of new digital distribution platforms such as YouTube, Instagram, Tumblr, Twitch, Vine, Soundcloud, Medium, and Scribd. These platforms democratized the playing field in content publishing and promoted non-professionals to earn recognition in their verticals, delighting their audience with authentic and compelling content. For example, YouTube star, Pewdiepie, has gained significant fame and generated more than $4 million in ad revenue in 20131, by producing catchy viral content through the medium of games. As these new online celebrities and content creators start to attract massive audiences and generate meaningful revenues, multichannel networks such as Maker Studios and Fullscreen have emerged to move them upstream. Maker Studios signed Pewdiepie under its geek culture and gaming channel Polaris to allow him to focus on creating unique content while the network takes care of production, audience growth, community, advertising, and merchandising. The tastes and inclinations of the younger generation are prompting alterations in the style and delivery of content across the board. The look and feel of 20th century legacy media are morphing into the new parameters of 21st century media. The Atlantic, a 150+ year-old media company, had the foresight to incubate Quartz, acquiring 10 million loyal users in 12 months2. Traditional media companies, previously unimpressed with the modest revenues posted by the first wave of online content, looked elsewhere to invest. Now these giant media companies are taking notice of the significant revenues being generated by the new crop of media outlets. For example, Disney acquired Maker Studios for $950 million and A&E invested $250 million in Vice in 2014. Such moves also present an opportunity to refresh their aging audiences. We therefore expect a surge of global interest in the creation and acquisition of new media brands in 2015.

LANDSCAPE OF NEW MEDIA OUTLETS – SELECTED PLAYERS

New Media Journalism Entertainment Networks New Media Distribution Discovery & Consumption

1 Wall Street Journal, Jun 2014 2 GP Bullhound Estimates

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COMPANIES TO WATCH

Continued Emergence of One-Stop-Shops in Ad-Tech

The number of comprehensive third-party ad-tech service providers will increase in 2015 through acquisitions of pure-play ad-tech companies and agencies. The two main drivers of this trend will be (1) the opportunity for large players (both advertising and non-advertising) to diversify their core revenue streams by expanding into fast growing digital advertising segments, and (2) the need for consolidation in an increasingly fragmented marketplace. As the app-driven world exploded, it paved the way for social networks to enter the third-party advertising sector by leveraging their massive user bases. As data became increasingly critical in ad placement and programmatic buying became the norm, large software and data analytics companies entered the space. With skyrocketing mobile and video advertising spending, telcos, Internet/video content companies, and large advertising agencies are seeing big opportunities and placing serious bets in this sector. As a result of these recent trends, we now have an opportunistic landscape with a much more diverse set of large players, and we expect them to continue investing in the third-party advertising market. Their investments will likely start with the most synergistic areas that can complement and/or enhance their existing strengths. The large players will then continue to acquire companies to fill in product and geographical gaps. A case in point is Facebook, which leveraged its massive audience and added third-party mobile ads into its news feeds. The result was a wild success in which Facebook quickly became the number one player in the mobile user acquisition sector, which we believe generated over $1 billion within 12 months1. Facebook then acquired an app-support company Parse and launched a mobile ad network in order to generate more revenue from third-party app developers. Lastly, Facebook recently acquired an online video ad platform LiveRail to better monetize its video network. Telstra, the largest telecom in Australia, also acquired a video distribution platform, Ooyala, and a year later, now with much larger video content network, acquired video SSP Videoplaza to tap into the vastly growing video ad market. We have seen similar acquisition strategies being used by Comcast, Twitter, and Singtel. Advertisers are looking for more efficient ad platforms and are in favor of consolidation. Publishers are not any different, since they prefer to work with fewer intermediaries to sell their ad inventory. Having invested significant capital in the ad-tech industry, VCs are seeking returns as well. With recent IPOs such as Rocket Fuel and Millennial Media trading below their initial offering pricing, VCs have a strong preference for M&A exits. RTB and programmatic buying, mobile, and video are top priorities for existing and new players in digital advertising. Therefore, we expect pure-play ad-tech players in these sectors to benefit from continued consolidation in 2015.

1 GP Bullhound Estimates

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COMPANIES TO WATCH

Returned Focus on Customer Long-Term Value

in Mobile Gaming

2014 was another strong year for mobile gaming, with gaming apps representing the largest share of revenue for both the App Store and Google Play1. Mobile games have become deeper and more realistic with spectacular graphics and user experience to stand out in the competitive gaming marketplace. In 2015, we expect the quality threshold in game production to continue to increase, but the ultimate winners will be the free-to-play (F2P) games that have the right retention and monetization hooks to capitalize on the long-term value of loyal customers. We expect more than 50% of the current 25 top-grossing games to remain at the top of the charts by the end of the year, driven by the existing games of successful F2P players such as Supercell, King, Machine Zone, Kabam, Glu Games and SGN successfully retaining their users. Strong IPs and brand names, such as Kim Kardashian, are very valuable in attracting targeted users to a game, and have the clout for implementing critical content updates. However, without powerful gameplay mechanisms, IP alone is not enough to maintain long-term franchise success. For example, in the Kardashian game, Glu Mobile created a successful title with power to retain its players. According to CEO Niccolo De Masi: “We had a game engine that we knew would monetize and retain players but we didn’t have Kim’s IP or promotional power. The fit between her fan-base … and our own gameplay and engine has been incredible"2. King’s Candy Crush Soda Saga, a steady top-grossing game, regularly updates content such as expanding the endless map to increase user retention. The game includes many social features to create a virality-based ecosystem in which players compete against friends. We expect to see new community management and in-game hubs becoming important components of user retention strategies in 2015. In addition, more developers will likely embrace cloud-based services such as Fuel and Scientific Revenue to increase user retention and monetization. The companies that have become dominant in the market will seek to add depth and breadth to their product portfolios by entering new genres and, through deeper culturalisation, new international markets. We have already seen the start of this with King's acquisition of mid core studio Nonstop Games and Supercell soft launching a 'Match 3' product. In addition, we expect to see a strong push into mobile from the major console publishers looking to exploit their global IP and AAA development talent. This is already evident in a strong slate of product in soft launch from Ubisoft based around brands such as Assasins Creed. Where these companies don't have sufficient experience and expertise in mobile F2P we expect to see them struggle to gain traction initially. We expect M&A activity to continue in this industry as large gaming companies strive to build a broad and successful gaming portfolio through the acquisitions of talented teams that have the means to develop high-production quality F2P games with the right retention and monetization hooks to maintain long-term top grossing franchises.

MARQUEE GAMES OF LEADING MOBILE GAME PUBLISHERS

Clash of Clans Game of War Kim Kardashian Contest of Champions Supercell MachineZone Glu Kabam

1 App Annie & GP Bullhound Estimates 2 Fast Company, Jul 2104

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COMPANIES TO WATCH

SaaS Adoption Permeates Throughout the

Enterprise

1 Skyhigh Networks Cloud Adoption Report, Q4 2014 2 ZDNet, Sep 14 3 Salesforce 10-Q, Aug 2014

Enterprise SaaS has been acknowledged as a growth sector for years, but adoption has been lagging until now. On-premise software still represents the vast majority of software used in organizations. In 2015, we expect the majority of global enterprises to adopt SaaS solutions throughout the enterprise and drive the industry to new heights. Reducing costs is no longer the sole rationale behind the recent cloud transformation. Employee efficiency and effectiveness along with overall enterprise agility are actually driving the trend. Cloud services enable companies to scale globally and employees to work remotely. Serving the needs of the mobile workforce is becoming increasingly important as employees need to update and share information in real time and take action using their mobile phones. With smartphone adoption at 75% and fewer restrictions on the use of employees’ own devices, enterprises on average use over 800 cloud applications1. However IT departments are aware of only 10% of the applications being used by the employees2. It is clear to managers that adoption of SaaS is increasing productivity and efficiency across organizations and impacting sales and administrative functions as well as core product development. We expect CIOs and IT departments to work closely with their employees in 2015, and enterprises as a whole to further immerse themselves in SaaS applications as they realize the benefits of replacing legacy processes. A recent survey by Dimensional Research, showed that 77% of IT professionals are planning to deploy multiple clouds within the next 12 months. We expect this transformation to take place in the following organizational functions:

1. Product development/testing 2. Business intelligence and analytics 3. Web content/experience management 4. Office functions and collaboration 5. Sales, marketing and customer service 6. Back-office and management, including ERP, supply chain management,

product lifecycle management, enterprise asset management, purchasing, finance, HR

7. Industry-specific process management, including business process management, enterprise content management, and vertical process management (e.g., claim management)

8. Security and privacy 9. IT and data storage

The majority of the large on-premise software giants such as Oracle and SAP realized that there is no going back to client software, and these companies are investing billions to become leaders in the cloud computing service industry by acquiring young, innovative startups that offer features tailored to the new mobile workforce. For example, Salesforce recently acquired RelateIQ, a SaaS provider of relationship intelligence, for $390 million to re-energize their CRM product offering3. 2015 will be the year that enterprises take the next step and fully immerse themselves in cloud applications.

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COMPANIES TO WATCH

Comprehensive Cybersecurity Protection Will

Become the Norm

In 2015, companies will actively build security solutions directly into their applications and adopt comprehensive cybersecurity solutions to protect against data breaches and business disruptions. Endpoint solutions such as firewalls are no longer enough. Applications and data will need to be protected through dynamic application security, multi-factor authentication software and proactive access controls. In response to the threat of cyberattacks, security budgets are expected to increase significantly with double-digit growth in some sectors in 2015. One-third of security decision makers in North America and Europe also viewed privacy as a competitive differentiator to address public concerns and protect consumer data1. In 2015, we expect mass adoption of big data security options and multi-factor authentications such as Authy and Nymi. Gartner estimates that 15% of mobile devices will be accessible biometrically and 20% of regulated data will be encrypted by the end of 2015. Even the large tech giants such as Google are implementing biometric security with products such as Google Wallet.

NEW WAVE OF ADVANCED COMPREHENSIVE PLATFORMS AND AUTHENTICATIONS

The U.S. government is also supporting the development and adoption of cybersecurity by allocating $5 billion for military cyber spending for fiscal year 2015. The government plans on improving security measures to respond to cyber threats that are increasingly targeting U.S. infrastructures2. 2014 put the enterprise at risk with the notable cyberattacks on Apple, Sony and Home Depot. With an increasing amount of vulnerable endpoints that enterprises have on their networks, we will see increased adoption of comprehensive cybersecurity in 2015 including dynamic security options and multi-factor authentications.

1 Forrester, Nov 2014 2 FY 2015 U.S. Government Budget, Mar 2014

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The Wave of Technology & Product Exits Will be

Strong in 2015

1 Pitchbook 2014 Annual M&A Datagraphics, Dec 2014 2 KPMG 2015 M&A Outlook Survey Report, Dec 2014 3 Economist, Dec 2014

2014 was another strong year with global M&A activity exceeding $2.5 trillion, or 15,000 transactions1. As economic conditions improve in many markets and tech companies all over the world look for growth, tech companies will look to put their strong balance sheets to use and we expect to see continued strong M&A activity in 2015. Beyond increasing revenues, the primary driving forces supporting technology deals will be the acquisition of innovative technologies or products, access to IP and/or talent, enhancing new products, the desire to enter into new markets, and the desire to expand existing technology. The key sectors that will witness significant M&A activity are mobile technology, cloud, data analytics, and security2. The technology M&A market is currently led by the Silicon Valley heavyweights such as Apple, Amazon, Facebook, Google and Twitter. “Together these five tech firms now invest more than any single company in the world: more than such energy Leviathans as Gazprom, PetroChina and Exxon, which each invest about $40-50 billion a year”3. Many of the large, technology firms are completing M&A to pursue new speculative technologies. For example, Facebook acquired Oculus VR, a producer of virtual reality headsets for 3D gaming and Google acquired Nest, a home automation company during 2014. Furthermore, the cash on many technology firms’ balance sheets is “largely parked offshore and cannot be brought home without incurring tax, giving an extra incentive to spend it”3. We expect technology companies to continue spending heavily on new products and technologies heading into 2015 in an effort to maintain strong returns on capital. Private equity investors—especially in Europe and Asia—are likely to write bigger checks to finance and buy technology companies, due to the emergence of attractive tech-enabled mavericks and strong tech M&A and IPO markets. According to a survey conducted on over 700 M&A professionals in the U.S., 82% of respondents expect to make at least one acquisition in 2015 and 10% planned to make 11 or more M&A deals for the coming year2. In 2015, we expect major consumer electronics brands such as Samsung and Sony to acquire younger IP-based innovators in the connected ecosystems, such as Roku, Sonos, and Withings. Large Chinese companies will continue investing in western companies, particularly in the mobile and gaming sectors to expand their customer bases and revenue streams. Just last year, Alibaba invested $200 million in mobile messaging company Tango and $120 million in F2P gaming company Kabam. Market demand for one-stop-shops will drive consolidation in the ad-tech and software markets. Large players in these markets will expand their product offerings by acquiring leading pure-play companies in the fast-growing mobile, video, and SaaS markets. In 2015, we predict category leaders such as Uber and Airbnb to have successful IPOs and be more acquisitive with their newly refreshed balance sheets.

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DISCLAIMER

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In the last twelve months, GP Bullhound LLP is or has been engaged as an advisor to and received compensation from the following companies mentioned in this report: Auctionata, Believe Digital, Digital Forming, Klarna, KnC Miner, Metapack, Mobica, Multiposting, Playdemic, PocketMobile, Rakuten, SlimPay, SteelSeries, StickyAds, Tobii, and Zound Industries. For US Persons: This research report is distributed to U.S. persons by GP Bullhound Inc. a broker-dealer registered with the SEC and a member of the FINRA. GP Bullhound Inc. is an affiliate of GP Bullhound LLP. This research report does not provide personalized advice or recommendations of any kind. All investments bear certain material risks that should be considered in consultation with an investors financial, legal and tax advisors. Ali Dagli, Alec Dafferner, Christopher Park, and Matthew Finegold are employees of GP Bullhound Inc. that engages in private placement and mergers and acquisitions advisory activities with clients and counterparties in the Technology sectors.

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Dealmakers in Technology