Scale at speed. The Rapacious Global Software Sector is Actually Accelerating
Not only is software eating the world, as Marc Andreessen famously intoned — it is also hoovering up an increasingly large share of the business world’s revenue and profitability.
In 2018 five digital giants — Facebook, Apple, Alibaba, Google and Amazon had a combined market capitalisation of $2 trillion. That grew to $10 trillion three years later.
These businesses — which make their money across social media, search, ecommerce, and services (and in Apple’s case from making hardware as well) — have recast and upended the markets they have pursued.
The adtech engines underpinning Google and Facebook capture up to nine of out ten digital marketing dollars that come into the market. As a result, they have completely disrupted traditional media.
Almost 20 years ago, Apple reinvented music sales and distribution through its iTunes business (before later being disrupted itself by Spotify).
Likewise, it’s the software sitting at the heart of Amazon and Alibaba that redefined what customer experience means in the digital age, while also shaking up the incumbents in the worlds of retail and entertainment.
Yet the most stunning thing about this growth in market capitalisations is that the next generation of software-defined businesses is growing even more quickly. That’s the view of Ray Wang, founder of Constellation Research and author of Digital Giants, Everybody Wants To Rule The World.
In his book, Wang argues that there are five common characteristics in which all of these digital giants excel. They:
1. disintermediate customer account control;
2. grow the biggest networks;
3. compete on data supremacy;
4. win in digital monetisation; and
5. have a long-term mindset.
Crucially, he says, it is not enough to possess even four of these qualities.
“You can’t just do one of these, you can’t just do four of these — you have to execute on five of them to be successful.”
And he stressed that the next generation of digital unicorns have learned their lessons well and are actually improving upon them.
“There is a new group — from Roblox to Starlink, from SpaceX, to Instacart, to what’s happening with GoTo in Indonesia.”
“When you think about Robinhood, they are disintermediating customer account control, they’re building those big networks. They’re also competing on data, they’ve got digital monetisation plans. And guess what? They also can lose hundreds of millions of dollars and their investors don’t care, so long they can achieve escape velocity.”
The era when it might take companies 30 years or more to hit a valuation that would put them on equal terms with the ranks of the Dow Jones 30 or the Fortune 100 is over. Those days have been swept away by two decades of extraordinary growth that began in December 1994 with the launch of the Netscape browser.
Going global
While the first wave of digital giants emerged from the US, the North American monopoly on the idea of scale at speed has long since evaporated. The huge growth in software, and particularly platform-driven businesses, is now a global phenomenon.
In APAC its ranks — all at different levels of maturity — include the likes of Grab, Gojek, Bukalapak and Lazada in Asia and Atlassian, Canva and Afterpay in Australia.
Often the approach is to improve upon a successful US model and modify it for local conditions.
The New Zealand-based Sharesies platform, for instance, exists to democratise investment along the lines of Robinhood. However, it takes a less “gamified” approach.
Sharesies was founded only three years ago, yet already nearly half a million people invest more than US$1bn on its platform. It started in NZ, has expanded into Australia, and has aspirations to go far beyond.
Its demographics suit the region, with its customer base heavily focused on the under 30s who haven’t invested before.
And Australian-founded Afterpay, which helped invent the ‘Buy Now Pay Later’ category globally, demonstrated the kinds of riches on offer to those who can manage through to a successful exit when Square acquired it for US$29bn in August this year.
Billion-dollar babies
That sought-after tag of “unicorn” status — a private company with a billion-dollar valuation — may need to be re-evaluated, since so many companies seem to be achieving it so quickly. Unicorns are supposed to be vanishingly rare.
In the last month alone the moniker has been applied to a host of businesses across the region. Examples include:
Licious, an ecommerce business selling fresh meat and seafood became India’s first direct-to-consumer startup to achieve such status as it seeks to dominate a $40bn market.
Ajaib, an Indonesian stock platform backed by Softbank and Li Ka-shing with a business model also loosely resembling Robinhood, hit the billion-dollar mark after three years. It has already raised $243mn this year, drawing investment from DST Global, Ribbit Capital, ICONIQ Capital and IVP, according to Nikkei Asia.
Singapore minted three new unicorns with shopping marketplace, Carousell; AI fintech, Advance Intelligence Group; and e-commerce logistics platform, Ninja Van all ticking over 10 figures in major raises.
Beyond APAC, Andela recently received $200mn from Softbank. It began in Africa and now has a global reach helping technology businesses construct remote engineering teams. It’s valued at close to $1.5bn.
Facebook achieved unicorn status after six years. Uber got there in just four years. So did TikTok, which stunningly grew from $350mn to $1.9bn in 12 months during 2020.
There are now more than 850 unicorns globally, with 376 having achieved that status just during 2021 – more than one a day. The velocity of growth has changed dramatically in the world of software.