The consulting company, Bain & Company (‘Bain’) released their second annual Technology report recently. The report built on interviews with Business Leaders, Venture Capitalists, Chief Information Officers and Senior Executives offers a forward looking view of the investing trends, the competitive battlegrounds and impact on talent, culture and processes from technology that is shaping the world.
The report identifies 3 main patterns emerging across the technology landscape
- Tech is the main disruptive force now in every sector
- Cloud Computing will have an extraordinary impact in coming years causing an unbeatable edge for those companies already ahead (Apple, Amazon, Facebook, Microsoft, Alibaba, Tencent).
- Geopolitical and regulatory influences on tech companies are more important than before
1. Why does Technology matter?
The first point above establishes that technology is not a sector by itself anymore but a disruptive force in every sector. We know this anecdotally through our lifestyle which is heavily reliant on different gadgets and the report shows that stock market has also been a witness to this also. The report shows that across all sectors companies that have had the most market value growth in last decade have used innovations in technology. From studying the companies who used technology to increase their market value in the last decade, the common patterns that emerge are that all of these companies are;
- Using data and analytics to gain an edge
- Scaling rapidly while owning fewer assets e.g. using cloud
- Using partnerships to add capabilities faster and cheaper than developing them internally
- Investing heavily in tech talent
2. What are the Investing Trends?
The second point in the report looks at the investing trends; venture capital (VC) firms continue to invest heavily in technology and the the total value of technology investments by VC firms in the first quarter of 2021 nearly doubled from the same period in 2020. Tech start-ups accounted for nearly 70% of total venture investments in the first quarter of this year. Three indicators emerge to forecast where we can expect to see more innovations and market growth in future;
- The top two segments generating the most investment are artificial intelligence (AI) and cloud technology which make up 1/3 of all investments now. Within AI, the two sectors receiving the most AI/ML venture funding are transportation and healthcare.
- More than 20% of enterprises have increased their use of horizontal SaaS tools, according to a spending survey of nearly 200 CIOs in North America and Europe. Use of hybrid and multi-cloud environments are becoming more common and tools/companies that allow for seamless environments between these clouds will gain in market value.
- Special purpose chips (like ASIC) will take market share from the general purpose (GP) chips which make up more than 60% of market right now. The leading AI companies will also start to use more custom ASIC chips as already seen with Amazon and Google.
3. What are geopolitical and regulatory concerns in the nexus between Artificial Intelligence and Cloud Service Providers ?
Finally, the geopolitical and regulatory factors are more important in the next decade than the one that just passed because of the growing concentration of Artificial Intelligence and Cloud technology within handful of companies in US and China. China has already started a crackdown and in US also there are growing murmurs within Senate and House of reigning in Tech companies.
CSP or Cloud Service Providers (Amazon, Google, Facebook, Apple, Alibaba, Tencent) have established a competitive edge in AI and this edge will prove even harder to beat in coming years. This is due to a combination of factors; (a) the CSP’s have built the most complex AI models (b) the CSP’s have the largest fleet of AI servers (c) they have the most user data and (d) lastly they have amassed most of the AI talent. The combination of these 4 factors will give them an unbeatable edge such that no other company can come close to their AI superiority in the next decade. The concentration of cloud services and AI skills which is only expected to increase will attract more regulatory scrutiny and influence geopolitical decisions also as countries compete on the AI battlefront for chips and people.