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Three Trends to Watch in the Evolving Software Enterprise Landscape

14 March 2022   |  

The software industry is witnessing monumental shifts that evolve its economics. Like all industry transitions, this change will create both winners and losers. As forces that will reshape the future of business, we are interested in the opportunities made possible by (1) the ubiquity of digitalization, (2) the increased transition to the cloud and (3) the proliferation of artificial intelligence (AI).

Ubiquity of Digitalization

Businesses across every industry are facing competitive pressure to gain insights from the data they generate, enhance the security of that data, automate processes and better manage global supply chains. Software companies that provide solutions to address these needs will have meaningful opportunities for many years to come.

Exhibit 1: Data is Growing in a Hyperbolic Manner

Volume of data/information created, captured, copied and consumed worldwide from 2010 to 2025 (in zettabytes)


*The data was taken from various publications released over several years: Forecast for the years 2018 and 2019 as of 2018; Forecast for 2020 as of May 2021; Forecast for 2021 to 2025 as of March 2021 based on figure for 2020 provided by the source. Figures were rounded to provide a better understanding of the statistic. The figures from 2021 to 2025 were calculated by Statista based on the 2020 forecast figure and the five-year compound annual growth rate (CAGR) of 23 percent provided by the source. The figures prior to 2020 are based on IDC’s forecast from late 2018.

© Statista 2022

Transition to the Cloud

As hardware infrastructure and cloud security concerns are fading, the importance of cloud adoption becomes elevated. Businesses that fail to move to the cloud will increasingly be left with antiquated software features and the likelihood that legacy software will be discontinued. Thus, regardless of the macroeconomic environment, businesses will have to spend on software with rich feature sets to remain competitive.

Exhibit 2: Enterprise Software Spending Forecast (Billions of US Dollars)


To the vendors, cloud models have attractive economics such as benefits of scale, enhanced profitability profiles, high customer lifetime value and recurring revenues. Compared with on-premise software, software as a service (SaaS) solutions tend to promote faster feature innovation and a more seamless rollout of updates without the cumbersome process at the individual client level. This, in turn, provides a better customer experience, increasing customers’ willingness to pay. Additionally, subscription-based models result in recurring revenues with predictability that allow SaaS vendors to better plan for longer-term investments. Lastly, the architecture also makes developing new products easier, which leads to more upsell and cross-sell opportunities that increase revenue and profit growth.

Proliferation of AI

Big data coupled with the rapid conversion to cloud computing have created the conditions for AI to evolve from concept to reality. Once a tool with limited accessibility, AI’s democratization has accelerated its implementation across public and private entities around the world. The ability to act on data-driven insights is fueling innovation across a variety of industries. For example, health care companies are incorporating AI for remote diagnostics and optimized cancer radiation therapies, and financial service companies are using AI to better detect fraud.

AI’s growing prominence in data analytics is evolving the value proposition of software from being a productivity tool to a decision-support tool. This presents exciting opportunities for smaller, more agile enterprise software companies to create disproportional value for their customers, resulting in sustained pricing power for both. Customers’ willingness to pay tends to be directly related to the economic value derived from the product, and this economic value is rising. A richer feature set and the promise of cloud-delivered AI via software means businesses can avoid expensive hardware purchases, lower maintenance and overhead costs, and perform higher value-added services. In addition, switching from one SaaS solution to another is difficult once a business fully integrates it, creating sticky revenue streams for providers.


Regardless of the prevailing risk-on/risk-off environment, technology continues to create value for its customers. Companies that create disproportional value and respect long-term customer relationships should be able to exercise pricing power in a disciplined fashion and be harder to replace. In evaluating how to best capitalize on this optimism, our investment approach continues to be highly nuanced, priced disciplined and focused on company fundamentals.


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