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COVID-19 is Igniting Digital Transformation

Morgan Livermore
May 12, 2020 · 5 min read

Enterprise SaaS has benefitted from the COVID-19 pandemic as companies are forced to transition to the cloud in response.

Author’s Note: where possible, I included background information that is worth a read. Thanks to the other authors for sharing their views and helping me solidify my own.

At the beginning of February 2020, the entire Geodesic team huddled around our boardroom table discussing the coronavirus and what it meant for our team. The infamous Vice article shaming business leaders for banning handshakes hadn’t yet been published. We read the news which dismissed the seriousness of what we now know to be a global pandemic that has forced global travel bans, mass unemployment, and record-level financial stimulus.

As we learned to work remotely, even as a small company, our rapid adoption of new technologies, communication styles, and business processes got me thinking about how other companies must also be responding to COVID-19.

Admittedly, my thinking at the time was that entire workforces at home for 2–3 weeks would cause enough headaches that CIOs would want to make remote work an **option** to limit disruption, and investors would start penalizing companies without a digital resiliency strategy. Cloud infrastructure and software naturally seemed like a net beneficiary purely out of fear of further disruption.

At the beginning of the pandemic, we experienced one of the fastest stock market sell-offs in history as borders closed and business ground to a halt. Since then, we’ve witnessed unemployment claims skyrocketing to record levels and a stimulus package the magnitude of which has never been seen. All this caused by a virus that’s infected 3.6M people globally (that we know about) and impacted significantly more.

Source: CapitalIQ as of 5/7/20.

Despite the initial impact being worse than imagined and unemployment continuing to rise, there are bright spots, including the speed at which companies and organizations of all sides are responding to this “new normal.” The transition to cloud for most companies was inevitable but the expense (deployment costs, total cost of ownership, and downtime) was hard to justify when business was pushing all-time highs for a decade.

It’s still early, with many companies just completing their fiscal Q1s, but we’re getting early looks at just how well the cloud providers are performing in spite of the global shutdown. AWS (~33% growth at $41B run-rate), Azure (~60% growth at $20B run-rate) and GCP (~80% growth at $7B run-rate) now combine for $68B run-rate revenue and are showing no signs of slowing. Satya Nadella, CEO of Microsoft said on the Q3 2020 (March 31, 2020) earnings call “As COVID-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security, we are working alongside customers every day to help them stay open for business in a world of remote everything. There is both immediate surge demand, and systemic, structural changes across all of our solution areas that will define the way we live and work going forward.” We’re already seeing this shift, with the BVP Cloud Index back in a big way, up 27% YTD, despite the drop in March.

“We have seen two years’ worth of digital transformation in two months.”

— Satya Nadella, Microsoft Q3 2020 Earnings Call

Other CEOs are chiming in to support this notion. Aaron Levie, CEO of Box, wrote “[I] spoke with multiple Fortune 500 CIOs in the past 2 days who have been implementing a fundamentally different IT strategy than they would have had a year ago. More cloud. More digital. More automation. Years of IT acceleration being compressed into months” (Levie has some other gems including this). John Dinsdale, a Chief Analyst at Synergy Research Group notes “[The] pandemic is causing some issues for cloud providers, but in uncertain times the public cloud is providing flexibility and a safe haven for enterprises that are struggling to maintain normal operations.” Morgan Stanley did a survey of COOs and CFOs, who list their top priorities for the remainder of 2020. The top response: Maintain investment in tech (54%).

Source: AlphaWise, Morgan Stanley Research.

With C-suite alignment, we should expect further investment in technology, particularly as other new initiatives and investments seem to be slowing for most corporations. What we’ve witnessed since the beginning of shelter-in-place follows closely to what I predicted in March, though it’s occurring months earlier than I thought possible.

Trends that were emerging before the pandemic have accelerated in a matter of months. Companies, reinventing their internal systems and business processes, have prioritized this change; it’s more critical now than ever that they are keeping up with or outpacing the competition. For years, investors tracked the State of Cloud, admiring the stickiness of the recurring revenue model and the agility cloud software can bring to large organizations. COVID-19 seems to be the force behind a step-function acceleration in cloud adoption.

Bessemer Venture Partners: State of Cloud 2020

Salesforce paved the way for cloud; AWS gave everybody the opportunity to build in the cloud; COVID-19 forced adoption. CIOs are being forced to make adjustments on the fly to help their companies survive.

Geodesic has been investing in companies powering digital transformation since day one and will continue to do so, not just because cloud companies can become great businesses, but because of the industries that can be built from there. Companies like JFrog and HashiCorp enable cloud-based IT and application development. Databricks, Imply, DataRobot, Looker, and Thoughtspot are changing the way companies utilize and analyze their data. Companies like UiPath, Workato, and Appzen are automating painful and repetitive business processes that erode efficiency. Tanium and Netskope are reinventing enterprise security. But digital transformation doesn’t stop when companies move to the cloud. The transition to the cloud is the foundation for building companies that don’t just cannibalize incumbents but invent and reimagine industries.

Through all of this, I can’t fight the feeling that we’re on the cusp of not just a new world, but a better one. As technology proliferates from IT to every department and from Silicon Valley across the globe, the possibilities of a digital future are bound only by the limitations of the dreamers and builders. Digital transformation is an innovation bonfire; COVID-19 is gasoline being thrown on top.

I’m Morgan Livermore, one of the Partners at Geodesic Capital. I’d love to hear from you and discuss anything software, fintech, self-driving, or Bay Area sports. Please don’t hesitate to get in touch.

@MorgLiv | LinkedIn

Geodesic Capital

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