It may come as no shocker to tech firms across the world. Tech services as an industry has been slowing down. Large enterprises don’t seem to be buying as frequently and fervently as before. Smaller development projects seem to have dried up. Growth estimates (Gartner Q1 2017) to 2020 hint at a 3% CAGR over the next 3 years. At the same time, for the first time in history, the 5 most valuable firms in the world are technology companies. If the logic of stock price being indicative of future earnings, something seems to not add up!
Being someone who has been working with clientele in the tech sector for over a decade, right from the heyday years of 2006, I have had the opportunity to be an insider in the most opportune moments as well as the grimmest. CAGRs of 10-12% seemed to be insufficient to capture an entrepreneur’s imagination. Now it’s at 3%. Is there reason to be worried? Yes and No.
What happened while I was looking?
Between 1995-05, a sizable chunk of the business came from large enterprise development efforts with large organizations starting to implement technology in infrastructure to be able to add efficiencies in operations and to be able to understand their operations better. The big names then were IBM, Oracle and the like.
From 2005-10, the new buzzword was cloud with same big names and adding a few more. Most organizations were switching to a new environment where technology could be located differently and accessed from virtually anywhere. This took some time to develop as organizations started to learn about safety and became more open. Smaller organizations jumped in as now infrastructure costs and setup was virtually eliminated.
In 2010, there was a tiny revolution, albeit quiet – SaaS (I have spoken about this elsewhere too). This picked up over time and exploded the second consumption switched to mobile devices and security became a manageable focus area for a company. The ‘innovators’ and ‘early adopters’ started pouring in. The World’s most innovative wannabes.
In 2015, this further matured. With the evolution of the SaaS business model, companies now began to be able to deploy solutions at virtually pennies on the dollar. A new wave of organizations came swooping in. The early majority. Very quickly, in under 2 years, the late majority jumped in, pulling in the laggards as well as the new buzzword became ‘innovation’. The Bigwigs of industry.
In 2017, this is undergoing an even bigger transformation. Enter AI & ML. Essentially, if it’s a problem that’s been solved before. Consider it solved forever. Imagine self-repairing software. Code that rights more code. Doomsday conspiracies aside, this is going shake things up.
What happened while I was not looking?
While most tech service providers found a new niche, a lot of the infrastructure was being made leaner and more potent. With the client-server models giving way to service-oriented-architecture, the billings initially increase in terms of development time, but start removing redundancies in common requirements across similar organizations. Now development effort was incurred once, but benefits could be shared across the world to every other organization. This removal of duplication and redundancy led to the creation of platforms and development kits which could easily be deployed, logic being if a problem has been solved once, it’s been solved forever.
With SaaS solutions on a SoA model, now businesses could buy by picking and choosing a ready solution and the custom solution development was reduced to incremental. This is the reason that most new tech companies are either or the 2 – Platform or Incrementals. A dynamic tip over of balances.
Evidence, the enterprise market will register 7% CAGR as compared with IT services which will be looking at under 5% over the next 3 years.
You should be worried.
If you are a pure services company or a company with run of the mill development strengths (anchored on cost or labour arbitrage), by building great products, you may have shot ourselves in the proverbial foot. Incremental development effort hardly brings in as much $$$ as new development projects do. But it’s not all bad. While the nature of game has changed, the size of the pie has increased. More and more organizations can afford and are letting in technology into their businesses. There will be more development effort to come your way. But….
You need to step up.
Learn new skills (read technologies).
Learn to sell better (read solution selling).
Learn to price better (read Equity + Revenue).
Remove internal redundancies (read Performance).
You shouldn’t be worried.
If you are product company or a services company with a defined focus (seeping through the DNA of the organization) or in a new age technology specialisation, you are set. This is the time to make merry.
The world is now your oyster. It’s becoming easier for people to find you and for you to find people. There can’t be a better time in history to exist. Your Innovators and Early Adopters are weeks from each other if you have something worthwhile to give the world.
What happens next?
- Security to get all the attention. More instances of security breaches will emerge as data has become the new asset class worth more than the cash flows of a company.
- Debate. The debate of technology taking away jobs will take up a new heat as large companies begin to let go of teams in the advent of better technology and AI/ML.
- Skill-gaps. Education and knowledge building in recent technologies and newer development methodologies.
- Consolidations. Industry-wide consolidation of enterprises will lead to companies merging strengths together and capitalising on higher utilisations and lower costs.
- User Vs. You. Businesses will be keener about user sats as now individual users have more choices and the cost of switchover is low.
- Level-ler playing field. You don’t need to be a mammoth 100,000 work-force to deliver a quality product. A 13-member team at Slack delivered a $Bn giant in under 18 months.
Conclusion: A beginning
Let me quote some Dylan for explaining my thoughts to the point:
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
For the times they are a-changin’
Credits: The Times They Are A-Changin’ - Bob Dylan
If you think your organization is facing a similar set of dilemmas, situations commanding an understanding of Strategic Finance or you know you need to go forward while you’re still ahead, I can be reached on nag[at]prequate.in.