Given the dramatic swings in valuations, government policy and global economic outlook, there is a heightened level of uncertainty among technology executives and investors.
Last year, we started our annual sector book by saying that: “we find it harder to recommend a significant overweight position for technology in the coming 12 months”. This year, we take a step back from forecasting the near term to frame the longer-term by looking at key tech themes.
Technology trends that matter
Below, we highlight five key themes that every technology company must address in their strategic planning agendas, and which ought to form part of the investment framework of all long-term tech investors.
1. New infrastructure
While leaps in infrastructure have been slow historically, some innovations have led to greater economic value creation than others, despite the slow uptake. Currently, we believe we are in the midst of such a leap that will bring about changes dramatic as those that resulted from to the creation of railroads, power grids and telephone networks. This “new” infrastructure consists of:
- Cloud computing that allows for greater flexibility in the use (and the payment for) of IT.
- Edge computing, which will address the negative aspects of centralisation that cloud computing will bring about by moving some of the “decisioning” power to devices that sit closest to the data (smartphones, cars, smart meters, etc).
- 5G networks that unlock the speed and bandwith necessary to deal with the enormous data that will be gathered, generated and used at the edges.
The future roadmaps of technology companies that do not align with this new infrastructure, even partially, are likely to suffer.
2. Ambient computing
Since becoming commonplace, people have either “operated” computers (eg back in the era of mainframes) or “used them (eg what we do with smartphones). However, we believe computers will become an “invisible” part of our life in the future, akin to our experience of motion-sensing light, which uses a simple compute device to perform a task we have to do consciously, thus augmenting our capabilities. This is termed ambient computing and is unlocked by innovations in:
- The internet of things: These connected computational devices are typically limited to a very niche function. Smart meters, LiDAR systems in cars, connected heart-rate sensors, etc are some examples. These devices tend to have communication capabilities (eg WiFi, 5G), energy efficiency (eg smart wearables that last weeks), sensory capabilities (eg 3D environmental sensors) and, increasingly, full-fledged computation capabilities powered by Edge computing.
- Artificial Intelligence: While people seem to have talked about AI forever, some recent innovations have unlocked a revolution. In our Generation 3.0 note where we talk about the impact of machine learning on things such as face recognition and autonomous driving. Not only has AI enabled better interfaces (e.g. voice assistants like Alexa), it has handed over some decision making to computers. From something as complicated as a self-driving car to something as simple as a smart thermostat, the impact is being felt more.
One example of ambient computing, which could add tremendous value at the right cost is the scenario of a goods container that can sense that it has been tampered with or is not in the right storage conditions. However, it is easy to think of more advanced scenarios of ambient computing.
Ambient computing will likely be disruptive to those technology vendors that continue to believe technology should only be something that is “used” or “operated”.
3. Distributed computing coming of age
Solving distributed computing is what has brought about the recent computational leaps, including the internet. However, it took cryptocurrencies to bring distributed computer science to the attention of investors. The one that won the buzzword race is the distributed ledger technology, blockchain. Underneath the hood, it is just another distributed consensus mechanism, like Paxos and Raft.
The initial excitement centred on disintermediation in the most centralised of sectors, finance. We believe the concept of decentralisation of TRUST is likely to find disruption in areas where “trust” is not something well thought through. That said, it still feels like we are on the hype part of the hype-curve, with start-ups focusing on transaction speeds and consensus algorithms to come up with a solution in search of a problem. Nevertheless, this is exactly how major revolutions begin.
We believe technology companies that are not thinking through the implication of distributed computing in the longer run, may expose themselves to becoming technology laggards. While we should continue to view “we are doing blockchain” with a sceptical eye, we should be even more sceptical about those companies that completely disregard the impact of decentralisation of trust.
4. Modularisation of technology
Turning technology solutions intoLego-like building blocks, which can be assembled as you wish, has been a trend for decades. However, having had many false starts where proprietary modularisation standards vied for dominance, we are finally at an age where modularisation can be achieved using open standards. We are likely to hear more and more technology companies mention words like Microservices and Application Programming Interfaces.
Why does this modularisation matter? ERPs are the biggest technology solutions out there. It is well known that many new implementations fail completely (50% according to technologyevaluation.com), and of those that work, many fail to delivery to deliver measurable ROI (90% according to erpfocus.com). This is because customer requirements are miscommunicated, or changed during implementations. The more modularised the system, the easier it is to address such issues around requirements. Modularisation also allows technology companies to better co-exist with competition and increase the chances of a land-and-expand strategy.
Established technology companies that are too late to adopt the latest modularisation methodologies such as Microservices, should best be avoided.
5. Pendulum will swing back to Vertical Industry Specialisation
In the world of technology, we always talk about the new new things, when in reality it is just a return to a past trend. The similarities between the timeshare mainframes and the pay-as-you-use cloud computing is a classic example of this. For some time now, more generic tech giants were dislodging vertically specialised technology providers (eg Google’s entry into areas of healthcare and Microsoft’s progress in retail). Specialist vertical offers are also being consolidated into broader offers (eg Siemens’ software buying spree). Clearly, these trends allow verticals that had seen little technology innovation to embrace innovation from other verticals, thereby disrupt an existing status quo.
After a period of euphoria, customers will inevitably want the technology vendors to speak their language, and understand their DNA. In a world where consumers demand “hyper-personalisation”, without understanding the ins and outs of an industry, it becomes difficult for technology vendors to provide ROI beyond the buzzwords. An example of this evolution is the transition of Salesforce from a standard CRM to a platform on which others are building vertical specific solutions.
Many tech companies are benefiting from an era of one-size-fits-all technologies; we should also lookout for the defensibility of those companies against the emergence of a more specialist vendor.
While many of these topics are not new concepts and were once easy to discard as irrelevant, we believe this is no longer the caseand, in some instances, a lack of focus might bring about an existential crisis. The key take-away is to be wary of technology companies that give away operational gearing with limited thought to incremental R&D.
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