What can you do today to ensure that you are not affected with the tech services industry slowdown
Most valuable 5 firms in the world are technology companies
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 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 Incremental.
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 labor 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.
You shouldn't really
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 specialization, 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.
So what next, you ask?
Let me quote some Dylan to explain thoughts on the right conclusion:
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’
- Bob Dylan
Credits: The Times They Are A-Changin’
I hope that you find this information as a conversation starter with your CXOs. If you would like to have a conversation on how you can achieve this for your organization or need assistance in sourcing good partners, we can be reached on connect[at]prequate.in.