Some Predictions for 2020

Every year, I spend some time over the holidays thinking about the year to come and looking back on the years that have passed. This year is special. In 2010, we were on the precipice of truly seeing what the internet could deliver. 10 years after the dot-com collapse and on the heels of the Great Recession, people were flocking to technology and away from the industries that let them down. Innovators not only saw the opportunity inherent in connecting everything - but also in the foundation to make these connections a reality through high speed wireless, smartphones, and cloud infrastructure.

A decade later, that fervor delivered change unrivaled in modern history. Imagine your life without the supercomputer in your pocket. Imagine navigating the streets of an unknown city without your favorite mapping location’s turn-by-turn directions and real-time traffic. Imagine holiday shopping without your trusted Prime subscription. It’s tough. Looking back on the past 10 years, it’s clear that software increasingly enabled everything we do. But looking forward into the future is a different exercise. 

For that fact, these predictions may be broader than in years past. These predictions are my attempt to be prescient in a decade where the lines between software and industry will fade even further, a decade where regulation and ethics will demand that the “pirates” of industry to become the “navy,” a decade where we will likely see increasing returns accrue to capital and decreasing returns to labor. 

Here goes:

Prediction 1: We’ll see more “Crazy M&A” in a variety of industries.

In 2017, the Walt Disney Company acquired BAMtech (formerly MLB Advanced Media). Disney valued BAMtech at more than $3.75 billion and stated its intention to use the technology platform to launch its own direct to consumer products. With 2019’s launch of Disney+ and the 10M subscribers they generated on Day 1, investors finally grokked the brilliance of the maneuver. Why try to build a platform from scratch when the combination of two assets can quickly yield benefits greater than the whole. I’d argue that the same happened with Amazon’s then “crazy” acquisition of Whole Foods. Amazon used its data, supply chain prowess, and merchandising power to bring Whole Foods from a period of market share decline to market share increases, all while creating urban distribution centers for grocery delivery.

In 2020, I imagine that we’ll see more of these cross-industry combinations emerge. The interplay between eCommerce and logistics, enterprise software and financial services, marketplaces and consumer goods are all simply too high to ignore. If you’re sitting in the C-Suite of a hundred billion dollar firm, you’re thinking about not only who can disrupt you - but you’re starting to think about how your firm could use smaller assets to deliver very differentiated capabilities to your customer base. Whether it’s Amazon acquiring AMC Theaters, Shopify buying FedEx, or any number of wild combinations - M&A is going to be a tool to upend industries that we haven’t been focused on in the technology world.

Prediction 2: Middleware emerges as a “Sexy” space in enterprise software.

Middleware is perhaps the least marketable word in enterprise software. Middleware is the glue that holds two systems together in lieu of more direct integration. In a cloud-to-cloud world of APIs, middleware should lose its value. The bad word that is middleware should disappear from architects’ minds and we should end up in an ideal state of clean connections. 

Except, that’s a pipe dream.

It’s cheaper than ever to build, market, and operate software. The result is that companies have to deal with cluttered landscapes. And the number of potential connections between systems (not to mention custom/home-built systems) is growing exponentially inside our already complex landscapes. Getting to a point where traditional businesses can operate with the agility of digitally native firms requires middleware. It’s why Salesforce bought Mulesoft. It’s why thousands of SAP customers use our CP Integration product. It’s why Tray.io, Workato, and Zapier are seeing exponential growth. It’s why companies like ServiceNow and UI Path are seeing platform adoption to drive integration at the UI layer.

I once heard Jim Koch, the founder of Sam Adams, mention that sales was a dirty word to MBAs. MBAs preferred to talk about marketing and analytics. But, he said, sales is what ultimately got the job done. Middleware is like that in the software industry. While middleware is a dirty word today and “innovators” may not want to talk about it - middleware is going to be integral in the next era of cloud. And I think that we’ll see big traction emerge in the space and potentially some very big funding rounds and exits in 2020.

Prediction 3: Science sees progress in quantum. Business sees nothing.

There is no doubt that we’re making progress in Quantum Computing. Whether you understand the underlying technology or not (I struggle immensely with probabilistic computation), it’s clear that there are smart folks who are driving progress on both the hardware- and software-side of this market.

But scientific progress does not mean commercial value. It was decades from when we started seeing the scientific progress and enthusiasm from the ARPA-Net work to translate into billions of value creation from the internet. Certain applications saw value immediately. But in most cases there was hardware research, infrastructure buildout, and manufacturing challenges that needed to be addressed ahead of mass-adoption. 

My bet, as someone who spends a lot of time studying the tech industry’s history and a fair bit of time grappling with the relative benefits to classical computation, we’re in those early days of Quantum. I think we’re still in the early days of leveraging machine learning and statistical methods on classical computers to drive growth and reduce cost. Outside of very specific problem areas (such as breaking RSA), I don’t imagine the relative advantage of quantum will be high.

In 2020, I imagine the hype will continue to be fueled by consulting firms trying to sell projects and announcements from firms with a stake in Quantum research (Intel, Google, Rigetti, etc.). But we are still in the beginning of a multi-year journey up the hype cycle before the realization sets in that quantum application development is far afield for us.

(The one notable exception I’ll state here is quantum-safe encryption work - which has nothing to do with quantum at all. It’s just a safety precaution should RSA become compromised.)

Prediction 4: Software becomes the loss-leader.

Software is an information industry. The marginal cost of reproducing software in an era of cloud distribution is zero. This typically means that software can’t be priced easily. What you can price for is service distribution. You pay not to operate your software. You pay for continuous updates. You pay for support guarantees. SaaS, at some level, is the software industry’s equivalent to the iTunes store. You get superior service and you pay a premium.

But just like how new business models were applied in an era of iTunes growth to change the game (Pandora with ad-supported internet radio, Spotify with an unlimited catalog on a monthly subscription), we’re seeing the same happen in software. In some cases it’s simply pay-per-use models being applied to traditional subscription industries in a way that aligns customer success with recognized revenue. 

More often, however, we’re seeing companies give software and software delivery away to augment entirely different services. Toast has built an impressive business in the restaurant industry by subsidizing software and monetizing payments. Shopify is delivering commerce solutions to companies of all sizes and monetizing around everything from payments to shipping to warehousing. Signifyd is delivering fraud management software and monetizing via an integrated insurance offering. Software is what differentiates the customer experience. But the software itself is a loss-leader and monetization happens on other outcomes.

In 2020, I believe that we’ll see more companies leverage software as core to delivering value to their customers but monetize against entirely different services. Such a change is enabling the next wave of disruption in technology industries, as high-margin software businesses are typically loath to take on any complicated operational responsibility. Taking on these types of business models will enable more and more disrupters to enter industries, take on specific roles, and then grow their share of wallet.  

Prediction 5: Mobile is king. Everything else is an accessory.

In 2007, Apple introduced the iPhone and ushered in the decade of the smartphone. At the beginning of 2010, Apple was worth about $180 billion. Today, it’s closing in on 1.3 trillion. This staggering growth was driven by the profound impact of mobile computing on the world. It’s no wonder that tech companies and investors alike have been chasing the next computing format for years. 

But year after year, it seems that the next big computing paradigm is revealed as just a flash in the pan. We saw enthusiasm drain out of the AR industry as company after company fizzled. We are seeing plans in VR founder, even with the boldest of backers. Voice is seeing the hype-machine kick into gear, but appears long off as a UX format. 

Why? Mobile is king. It is still the next big computing paradigm. It’s the center of the universe that everything else must engage. It’s the PC in your pocket. You don’t need six of those. You need one. This shouldn’t be surprising. The PC was a dominant format for engaging with software for more than 20 years. Everything else operated within a niche. InternetTV operating systems played a critical role for cable companies, but no one else. Automotive OS systems helped Automotive OEMs provide high quality entertainment, but didn’t displace core platforms. PDAs were accessories that gave business users access to select data when and where they needed it. But the primary engagement mechanism was the PC.

Today, the smartphone is that center of the universe. The single pane of glass that we carry around is convenient, engaging, and has seen UX innovation that makes it even easier to use than ever before. It feels like it was a greed-driven delusion to think that we ushered in an era of mobility and just a half-decade later we’d find the next big computing platform (a delusion driven by the companies that missed the wave for mobile OS).

My prediction is that 2020 will usher in an era where VCs and corporations alike realize that our mobile OS will remain at the core of the next generation of hardware; everything else will be exposed as an accessory, helping us to engage with specific content or measure specific data [1].

The next decade will see quite a bit of change. It will be one that looks quite different to the last. Amazon, Apple, Microsoft, and Google will play increasing roles (as they always do). Legacy industrial players will see fierce competition from integrated digital upstarts and it will force them to adapt (see Disney as a great example). Companies will embark on long-term transformation that not-all will deliver against successfully. Innovation will continue. And above all of this, customers will be better off at the end of the process than they are today - because despite our missteps, we tend to make progress as an industry.

I’m looking forward to watching it play out.

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Author’s note: As we approached this new year, I went through my last three predictions (Here, Here, and Here) [2]. The further back we go, the more prescient the predictions seem. That’s likely attributed to the exponential nature of technological change. What it tells me is that I (like many in our industry) can easily become over-excited about the short term impact. But with the resurgence of Tesla and the rise of Rivian, the deflation/implosion of certain unicorns, the incredible growth of Atlassian, Okta, and Twilio, the downfall of so many AR/VR companies, and the rise of innovation out of the tech giants… I also believe that most of my predictions are playing out in a fairly accurate way over the long run (with a notable exception in my commitment to clean tech on an annual basis). The point is, I hope these predictions serve as good guides for those heading into the next decade with a long view beyond just 2020 in mind.

[1] Openly, I have to give credit to The Expanse for doing a really good job of visualizing how such a system might look. If you haven’t watched, you should.

[2] Having been a bit overwhelmed in the fall of 2017 after our first son was born.