Introducing Redpoint’s Software Testing Landscape
Software testing is a large and growing market. It is experiencing Devopsification including increasing automation, expediting time to value, shifting left and right, testing APIs, and streamlining team structures. Additionally, with the rise of mobile and IoT devices there is a push for multi-form factor testing. We categorize ~170 offerings in the space to highlight key players and to clarify how solutions interoperate. Companies have raised ~$700M in venture capital and receive acquisition and PE interest. We believe the software testing market is ripe for disruption and are particularly excited about new solutions that leverage ML and computer vision to improve QA’s workflows.
Based on Marketsandmarkets research, we estimate the application testing software and services market achieved $32 billion in revenue in 2017 and forecast it to grow to almost $70 billion in 2023, a 14% CAGR. Software testing services represent the largest component at over 70%, but it is the slowest growing sub-category at a 13% CAGR. Test automation software accounts for about 24% of the market, while the faster growing API testing market is the most nascent at 1% share.
Devops and multi-device testing represent the two largest market trends. Devops best practices emphasize agile development and automation. Amazon stated that it performs 50 million code releases a year leveraging DevOps. With increased pressure to push code, we predict QA teams will use mechanized test generation and execution embedded in CI/CD pipelines to keep up with shortened software development cycles. With automation, we expect testing to occur more frequently throughout software development.
Testing is shifting left and right. Shifting left allows code to be tested earlier in the life cycle. The practice not only helps catch bugs sooner but also prevents developers from spending time on code that will be found to be erroneous later in the lifecycle. More continuous and rapid testing will increase testing code coverage. While not applicable to all software types, services are well-positioned to shift right, a practice of testing in production environments. By using live production traffic to test a new service prior to its broader release, teams can determine if the new release will cause slower response times or deviations away from CPU and memory consumption. Twitter’s Diffy, A/B testing, blue-green deployments, canary releases, and feature flags (like LaunchDarkly) can facilitate testing in production by routing a small percentage of live traffic to new instances to test functionality.
The movement from monoliths to containers and microservices catalyzes API testing. As noted above, the API testing market is expected to triple over the next six years.
We also observe a movement from dedicated testing teams to testers embedded in development teams. For advanced teams, developers take on more testing responsibilities, which will require even more frictionless and fast testing tools.
With the rise of mobile and IoT devices comes multi-device testing. Consumers’ shift away from desktop and web to mobile requires specialized testing solutions. Gartner forecasts IoT devices will explode from 8.4B in 2017 to 20.4B in 2020. Similar to other client-side software, software running on IoT devices will require the same level of testing to maintain quality and performance.
Our software testing landscape highlights ~170 of the main commercial vendors, startups, and open source projects. The exhibit categorizes offerings across nine domains. The landscape includes over 20 start-ups, approximately 13% of the logos. We estimate that startups that were founded after 2005 and are still operating have raised around $700M. Notable raises include Insight Venture Partners’ $165M Series B investment in Tricentis last summer and OpenView’s $31M investment in Applitools in April, 2018.
Beyond raising venture capital, software testing businesses undergo acquisition and leveraged buy-outs. In early May, Smartbear, itself held by PE firm Francisco Partners, acquired Hiptest. Micro Focus significantly altered the landscape when it acquired HPE’s software business for $8.8B in September 2017. Additional activity over the past two years include Akamai purchasing Soasta for $200M, CA buying Blazemeter for $100M, and Talend acquiring Restlet for an undisclosed amount. PE backs many of the more established vendors including Ranorex (TA Associates), Applause (Vista Equity), Eggplant (Carlyle Group), and Perforce (Clearlake Capital Group). There are clear exit opportunities for start-ups in the space.
Significant advancements in ML and computer vision will produce modern software testing solutions. During our channel checks we often hear it is hard to find and retain high-quality QA talent. ML-based test automation will reduce testers’ test generation and execution burden, improving retention and mitigating headcount loss. Computer vision can be applied to UI testing to ensure more accurate tests and better software quality. Overall, test automation software will help QA teams keep up with the increasingly rapid pace of software development with equivalent or less resources.
The software testing and services space is expected to double over the next six years. The industry is undergoing changes including Devops and multi-device. While an under the radar category, VC interest continues and there is historical precedent for acquisition and PE exits. With the emergence of ML and computer vision, we believe there is an opportunity for a modern software testing company to emerge and transform the industry.