Not another 2022 trends article; what founders need to know
Now that the fever of 2022 predictions is subsiding, we share our take on these predictions for the fast growing enterprise tech venture.
Do not expect earth-shattering originality in the subjects: instead, we sifted through the predictions — by pundits much smarter than us — to isolate suggestions for your (and our) agenda at the next strategy meeting.
- Does the macro stuff, inflation, the China/US standoff affect us? Yes: your clients are adjusting their budgets.
- The record level of VC funding in Europe means there’s plenty of growth capital, so full throttle on growth, right? No, not right.
- We are a vertical SaaS solution, “the flavour of the month”: this is our year to scale up, right? Maybe, expect to have to answer whether you are a no/low code solution.
- Our SaaS pricing works like clockwork, if it ain’t broke don’t fix it, right? Wrong.
- Do we need a hybrid cloud strategy? Yes, you better think about it.
- 5G has nothing to do with our business, so we’ll focus on what is in front of us if you don’t mind. We don’t mind but 5G has (potentially) a lot to do with your clients.
- We are a data analytics tool used by highly skilled employees for mission critical decisions on [select from: service assurance/sales/techops/talent retention/market sentiment analysis etc.]. Watch our “land and expand strategy” shine in 2022! No, sunshine: you may be “hyperautomated” out of the value chain instead.
- Are we angsting unnecessarily about Web3? Yes, it is not your biggest challenge this year.
30 seconds to cha(lle)nge your (macro) worldview
With growth across mature economies forecast at ~4% in 2022 (down from 5.1% in 2021) and inflation expectations climbing higher across the UK and the US, the clouds are gathering. The new sanctions placed on Chinese companies listed in the US wiped 57% off Alibaba, 27% off Baidu and made DiDi leave the NYSE for the HKEX. The US/China quarrel is screwing up the semiconductor (and rest of the) supply chain (I ordered my whoop band in August and it still hasn’t arrived!).
PREDICTION: Enterprise budgets focus on tested and proven stuff (more spend on fewer solutions). New products that have acquired escape velocity in 2021 will thrive. M&A opportunities will make the big Series B ventures bigger, faster. Watch out for M&A at series A and B, hoovering up less well funded startups. Just because the world is now overflowing with unicorns, the road to that magical badge is still littered with innumerable complete failures interspersed with the occasional $25M-$100M exit, so it is as hard as it has always been to build a unicorn.
The VC gold rush in Europe makes hiring talent tough; and acquiring customers even tougher
VCs invested c.$120bn in Europe in 2021, 3x that the 2020 figure. European founders put it to good use and created $3tn of enterprise value (a 300% increase in 3 years).
PREDICTION: Gold rushes increase the cost of “land for digging” (or cost of customer acquisition) and bring scarcity of “digging tools” (or cost of hiring and retaining talent.) WFH will help with the latter but the former will plague young startups at scale up phase.
EVIDENCE: CAC is up across the board for both B2B and B2C companies as everyone and their granny is having ebooks, paid ads, and most aspects of all the common marketing channels. Both B2B and B2C CACs are up approximately 60% compared to five years ago.
Accelerated by the pandemic, the SaaS market is ballooning and expected to reach $172bn in value in 2022, up from $145b in 2021 (and just $31.4b in 2015). Trying to build a company in this market will feel like a baby trying to drink milk from a firehose. SaaS offerings need to define their positioning with laser sharp focus to win in a crowded market. As enterprises are focusing their budgets on solutions specific to their industry, Vertical Saas products are favoured. Coupled with the fact that developer talent is becoming scarce, SaaS low-code/no-code has become commonplace within the enterprise sector since last year. Companies like OutSystems, Yellow.ai and Pipefy had a big 2021 raising $150m, $80m and $75m respectively off the back of this increased demand.
PREDICTION: This will be the first year that founders will drop from their sales pitches the “why cloud” slide and add slides on “why low code/no code”. There was over $2b investment into Low-Code/No-Code companies in 2021, up from less than $1b of investment in 2020. As 2022 has already reached close to $200m of investment in 1 month, expect 2022 to seal the deal on bifurcation.
SaaS cancels its subscription
In 2020 alone, enterprises wasted $17.6 bn (equivalent to the cost of setting up a new semiconductor plant in Texas) in idle cloud resources. That’s what the enterprises paid for in SaaS/cloud services — for something they did not use. Though the amount of waste per enterprise may be small, certain enterprises will be forced to look elsewhere for optimisations — in two forms: Scale back the internal stack to what is mission critical, or hire experts who can manage the stack efficiently.
PREDICTION: 2 in 3 SaaS enterprise tech companies will adopt a usage-based model in 2022, a massive increase from 1 in 3 in 2020. With that, the “safety” of the subscription models goes out of the window and ARRs will have to be reinterpreted. Strong products will win, weak ones will have nowhere to hide. If industry leading companies operating in all layers of the stack are starting to implement usage-pricing, then there must be some method to the madness. At the infrastructure level, companies like Snowflake, Amazon, Azure, Google. In middleware we have Zapier, Square, Twilio, Plaid. At the application layer Slack, Hubspot, Shopify and Checkr. It’s coming, so get ready…
Adios to (the dominance of) Public Cloud
Most trends for 2022 assume public cloud continuing its dominance. However a closer look will reveal organisations starting to reduce their exposure to the big public clouds, bringing some of their workloads back to a private-cloud infrastructure. Forbes shows the false narrative that the public cloud saves money because a company pays for what it uses only, when in fact companies tend to buy capacity rather than actual time used, while simultaneously locking themselves into contracts that don’t allow them to operate in other cloud environments.
PREDICTION: a) Implementation of Micro Cloud strategies will start to become commonplace for early stage startups. Software like Ubuntu’s MicroStack, which is designed for the edge and small-scale private cloud deployments, allows enterprises to scale their cloud infrastructure as their business scales, saving both time and money.
b) More mature companies will start to implement hybrid/multi cloud strategies. Data that needs to be quickly and frequently accessed can be kept on public AWS or Azure servers and accessed through tools, applications, and dashboards. More sensitive or mission-critical data can be kept on private servers where access can be monitored, and it can be processed using proprietary applications.
“If you’re not living on the edge you’re taking up too much space”- Stephen Hunt
Even with the abundance of hi-spec, smart devices in deployment today, data is still sent to the cloud to be processed. With the promise of 5G’s 10x speed uplift, mobile-first solution providers may be inclined to start rubbing their hands — but this would be too soon. Slow 5G roll out and semiconductor supply chain issues suggest trouble unless data could be processed in situ rather than sending it back to the cloud. Enter edge computing. Edge applications have lower latency and transmission costs, allowing enterprises to benefit faster from the large amount of data created by connected IoT devices. Edge storage, computing, analytics and security is expected to be one of the fastest growing sectors, at +30% CAGR. Companies like Olea and DeepVision have been taking advantage of the sector growth, with both raising $35m rounds in 2021.
PREDICTION: Despite the nascency and complexity of the edge computing market, its skyrocketing growth rate will entice more founders. Horizontal applications will stumble on their Go-To-Market (firehose, baby, milk analogy again), so vertical ones will be favoured (e.g. mobility, consumer/FMCG, healthcare etc.) and just to make things interesting here: by the end of 2025 50% of all data will be created and processed at the edge.
Hyperautomation eats (hyper)inflation
Robotic Process Automation (RPA) gave us excitement (with unicorns like Blue Prism and UiPath riding the wave and raising billions) because they create freedom from menial, mundane and repetitive tasks. With zettabytes of enterprise data and AI, RPAs have evolved into a new beast: hyperautomation. This allows automation of complex workflows and — the interesting bit — decision making. Forecasted to be worth £430bn next year, hyperautomation is increasing the speed of development and deployment of applications, and saving time wasted on tasks like data analysis.
PREDICTIONS: a) hyperautomation will reduce the cost of labour for the enterprise (according to some reports, by 30% by 2024) which will lessen both the inflation and the hiring headaches for the enterprise.
b) Enterprises will change gears on how quickly decisions are made.
c) The white collar workforce will be restructured, junior to middle management will get squeezed out: in 2022 junior trainees will have to learn how to get from ignoramus to senior professionals without entering the marzipan layer.
TL;DR: our jobs (yup, mine, yours, everyone’s who is reading this blog) are now at risk. In fact I am sure that an AI algo, once trained with all the tricky cases of my daily life, would make much better and faster decisions than I do and in a few years could write a better blog than this, too. But then, of course, where would the charm be….?)
Web 3.0 will change precisely nothing for the enterprise
FACT (or fiction depending where you stand on Web 3.0): With Web 3.0, any developer, anywhere can access and work on the same infrastructure previously reserved for well capitalised tech firms. All they need to create their dream app is an idea and a good internet connection (and yes investment, but let’s not kill the dream yet). Code is written, collaborated on, debugged, tested, deployed, and run in distributed infrastructure which in turn removes the current barriers to entry (time and capital) and certainly to scale that young SaaS companies face. Web2.0 is dead, long live Web 3.0 in 2022.
PREDICTION: Not so fast. Neither 2022, nor any other year, will go down as the year of Web 3.0. Dictatorships happen overnight, democracies are built over decades of struggles. If Web3 is the new democratic web as claimed it will take years to displace the super commercialised Web 2.0. Dapps will not enter the enterprise at least for another decade but what may enter the enterprise earlier are the Dapps revenue models that will be up-ending conventional revenue models. This will start in 2022 when we will see the income and usage (%age fee) models becoming the norm (~⅓ of) in enterprise SaaS.
CAVEAT: iPhone appeared 7 years after the term Web 2.0 was coined and turned the latter into a gigantic, virtual shopping mall. It is not inconceivable that a similar consumer gadget will propel Web 3.0 to the mainstream but for that to happen, the device will have to appear in 2022 and operate solely on the “edge”. If you can think of anything, don’t keep it to yourself, we love a good debate!
You hear that Mr. Anderson? That is the sound of inevitability! – Agent Smith, ‘The Matrix’ (1999).