The 5 Pillars of Digital Transformation for Software Companies
1/ Cloud
The use of a public cloud allows a company to reduce or redeploy IT head count while generally moving the infrastructure to more-advanced technology building blocks. This decision then lowers IT costs directly through lower up-front capital expenditures on hardware and lower ongoing maintenance requirements, which then allow for lower IT head count or personnel redeployments. It also results in improved IT performance on many facets, the most important being increased flexibility, faster performance and throughput, and better security.
Amazon Web Services is widely perceived as the leader in public cloud. We see Microsoft's Azure as the only other legitimate competitor, with Alphabet's (GOOGL) Google Cloud Platform a distant third. However, we do think it's possible that over time Google or another competitor will improve its capabilities and expand its footprint to have a truly viable competitive position. We also think the market is enormous and can accommodate three large competitors and perhaps even a couple of smaller competitors.
2/ Workflow and Automation
A great variety of widely used software platforms contain a no-code or low-code feature for creating rules to automate basic and repetitive tasks--and automation helps users work more efficiently, thereby allowing enterprise customers to "do more with less." This can be seen as worker efficiency improvements or cost savings--depending on if the company is redeploying head count elsewhere or hiring less--strict cost savings, or simply increased flexibility, which we tend to view as a driving force in contemporary strategic IT decisions.
We offer Salesforce as leading the charge with its initial salesforce automation, or SFA, solution. SFA advanced customer-relationship-management software to a new level with new features and automation of repetitive tasks, thereby freeing up users to focus on their priorities: selling and generating revenue.
3/ Customer Experience
Customer experience has been well defined with some obvious important competitors, such as Salesforce; it is also rapidly evolving as new tools have emerged, and it helps retain existing revenue streams as well as promote upselling into the installed base. We remind investors that it is significantly cheaper for a software vendor to retain a customer than it is to gather a new customer, which explains the special focus on customer experience.
There is also a modernization element to customer experience, which we view as driven by the need to meet customers where they are. In consumer-facing businesses, this is increasingly online and mobile, and includes not only basic e-commerce, but also customer service by whatever means the customer chooses, be it text message, voice call, Facebook, or chatbot.
We see customer relationship management, marketing, e-commerce, and customer service as organically synergistic and basically extensions of one another, so we combine all of them in our discussion. That said, we expect customer experience software to generate more than $100 billion in annual revenue in a few years.
4/ Artificial Intelligence and Analytics
Data has become the lifeblood of the modern enterprise, with decisions increasingly based on measured information on an expanding set of key performance indicators. Using more sophisticated tools, companies are better equipped to answer questions about their operations and customers. Artificial intelligence, or AI, and analytics tools can be used to help make predictive decisions about what products to show consumers on e-commerce sites, as well as recommend solutions to customer-service situations.
They are not just for powerful platforms. Most companies in our coverage--ranging from large cap to small cap--have some type of AI, machine learning, or analytics available for their users. We think that AI and analytics can be incorporated in other areas, such as automation, SaaS modernization, or even cloud.
Based on our estimates, the AI and analytics software market was approximately $50 billion in 2020, and we expect it to increase to more than $150 billion by 2025.
5/ SaaS Modernization
Software buyers don't just want software-as-a-service delivery: They also want the underlying modernization impact, which ranges from more-intuitive user interfaces, a clean and simplified source code, and better use of application program interfaces, or APIs. On this last point, we stress that we have long heard of software buyers' desire for flexibility and to avoid vendor lock-in. APIs allow applications to interface smoothly and draw on functionality from other vendors. Today, we see software vendors using APIs extensively to deliver flexibility to customers, which ultimately creates better relationships and improves customer retention.
SaaS surged from a 0% share of software delivery in 1999 to a 22% share of the market in 2020--and we see no scenario where SaaS does not stay on this trajectory to eventually become the vast majority of software. As popular as SaaS is, we believe users and providers will continue to consolidate around SaaS delivery until it is nearly all software in use, which may take a couple of decades.
Src: morningstar(dot)com/articles/1065737/the-5-pillars-of-digital-transformation-for-software-companies
1/ Cloud
The use of a public cloud allows a company to reduce or redeploy IT head count while generally moving the infrastructure to more-advanced technology building blocks. This decision then lowers IT costs directly through lower up-front capital expenditures on hardware and lower ongoing maintenance requirements, which then allow for lower IT head count or personnel redeployments. It also results in improved IT performance on many facets, the most important being increased flexibility, faster performance and throughput, and better security.
Amazon Web Services is widely perceived as the leader in public cloud. We see Microsoft's Azure as the only other legitimate competitor, with Alphabet's (GOOGL) Google Cloud Platform a distant third. However, we do think it's possible that over time Google or another competitor will improve its capabilities and expand its footprint to have a truly viable competitive position. We also think the market is enormous and can accommodate three large competitors and perhaps even a couple of smaller competitors.
2/ Workflow and Automation
A great variety of widely used software platforms contain a no-code or low-code feature for creating rules to automate basic and repetitive tasks--and automation helps users work more efficiently, thereby allowing enterprise customers to "do more with less." This can be seen as worker efficiency improvements or cost savings--depending on if the company is redeploying head count elsewhere or hiring less--strict cost savings, or simply increased flexibility, which we tend to view as a driving force in contemporary strategic IT decisions.
We offer Salesforce as leading the charge with its initial salesforce automation, or SFA, solution. SFA advanced customer-relationship-management software to a new level with new features and automation of repetitive tasks, thereby freeing up users to focus on their priorities: selling and generating revenue.
3/ Customer Experience
Customer experience has been well defined with some obvious important competitors, such as Salesforce; it is also rapidly evolving as new tools have emerged, and it helps retain existing revenue streams as well as promote upselling into the installed base. We remind investors that it is significantly cheaper for a software vendor to retain a customer than it is to gather a new customer, which explains the special focus on customer experience.
There is also a modernization element to customer experience, which we view as driven by the need to meet customers where they are. In consumer-facing businesses, this is increasingly online and mobile, and includes not only basic e-commerce, but also customer service by whatever means the customer chooses, be it text message, voice call, Facebook, or chatbot.
We see customer relationship management, marketing, e-commerce, and customer service as organically synergistic and basically extensions of one another, so we combine all of them in our discussion. That said, we expect customer experience software to generate more than $100 billion in annual revenue in a few years.
4/ Artificial Intelligence and Analytics
Data has become the lifeblood of the modern enterprise, with decisions increasingly based on measured information on an expanding set of key performance indicators. Using more sophisticated tools, companies are better equipped to answer questions about their operations and customers. Artificial intelligence, or AI, and analytics tools can be used to help make predictive decisions about what products to show consumers on e-commerce sites, as well as recommend solutions to customer-service situations.
They are not just for powerful platforms. Most companies in our coverage--ranging from large cap to small cap--have some type of AI, machine learning, or analytics available for their users. We think that AI and analytics can be incorporated in other areas, such as automation, SaaS modernization, or even cloud.
Based on our estimates, the AI and analytics software market was approximately $50 billion in 2020, and we expect it to increase to more than $150 billion by 2025.
5/ SaaS Modernization
Software buyers don't just want software-as-a-service delivery: They also want the underlying modernization impact, which ranges from more-intuitive user interfaces, a clean and simplified source code, and better use of application program interfaces, or APIs. On this last point, we stress that we have long heard of software buyers' desire for flexibility and to avoid vendor lock-in. APIs allow applications to interface smoothly and draw on functionality from other vendors. Today, we see software vendors using APIs extensively to deliver flexibility to customers, which ultimately creates better relationships and improves customer retention.
SaaS surged from a 0% share of software delivery in 1999 to a 22% share of the market in 2020--and we see no scenario where SaaS does not stay on this trajectory to eventually become the vast majority of software. As popular as SaaS is, we believe users and providers will continue to consolidate around SaaS delivery until it is nearly all software in use, which may take a couple of decades.
Src: morningstar(dot)com/articles/1065737/the-5-pillars-of-digital-transformation-for-software-companies
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