What will 2022 bring in the technology industry? Powerful secular growth trends continue to prevail, driven by digital transformation, cloud computing, cybersecurity, automation, and artificial intelligence/machine learning (AI/ML). These represent a continuation and in some cases an acceleration of dominant themes from 2020 and 2021. COVID-related disruptions also persist and continue to impact demand and go-to-market motions for some areas of the sector, while supply chain constraints are less influential in software and other digital verticals. “Re-opening” will likely be a theme for at least the first six months of the year.
Despite fundamentals that appear as strong as ever, high equity valuation, difficult comps, and rising interest rates suggest returns will be lower than previous years. Fed response likely to be influential in stock market direction. As such, policy could trump thematics and fundamentals for technology investors in 2022. As a result, investing criteria will likely be highly selective, with a focus on reasonable valuations combined with durable long-term growth. With the recent sell off, we expect that investors will start 2022 with “shopping lists” in hand, but’s unclear if growth will recover relative to value in the near term.
Below, we discuss additional trends we expect to see in the technology sector in 2022:
- Cloud computing 2.0: The standardization and maturation of core components and operating models has led to cloud computing adoption en masse for bedrock enterprise applications and the infrastructure stacks that support them. 2022 will be part of a multi-year migration cycle where organizations invest aggressively in this new stack, looking to both hyperscale operators and leading next-generation software vendors.
- Collaboration and the future of work: We are almost two years into a global pandemic, and yet we are all still learning how to best communicate and collaborate with partners, customers, and fellow employees. The return to the office has remained elusive for many companies, and there have been stories galore of workers returning to the office, only to spend the majority of the day once again on Zoom. We expect that in 2022, we will collectively accept that there will be a certain permanence to hybrid world. Companies that are able to lean in and adapt to this new world, with both progressive policies and with technology, will be best positioned to attract and retain the next generation of talent.
- Cybersecurity: Cybersecurity has been at the top of CIO spending intention lists for many years, and there is no evidence that it will slow down in 2022. It may even accelerate, as companies accept that employees may forever be geographically distributed, greatly expanding the surface needing to be protected. Digital transformation and security transformation have become co-dependent, with enterprises increasingly adopting a Zero Trust posture as a best practice for cybersecurity across every component of their networking and software environments. In addition, given the scarcity of labor and resources available to enterprises, security software is likely to leverage AI and ML to help fill void. As the new stack continues to proliferate around a cloud operating model, identity, end-point, network, and application security will continue to require rethinking from existing paradigms.
- Verticalization in SaaS: Some of the best performing SaaS stocks in the last five years have come from vertical software, and we believe the vertical software landscape is one of the healthiest categories in enterprise software. We think the demand for vertical software is growing due to several factors, including: 1) customers in vertical industries demanding more modern solutions to streamline their businesses; 2) the proliferation of the internet, Wi-Fi, and mobile devices, which has enabled more traditional verticals to move to a digital, omni-channel economy; and 3) a desire to harness the value of data within their organizations to make better decisions. We believe the category will remain attractive not only because vertical software companies tend to have more profitable business models versus horizontal software vendors, but also because vertical software can have a winner-take-all dynamic, with very high barriers to entry.
- The next generation analytics and business intelligence stack: We’re in the early innings of a new re-platforming of the analytics stack. Data is the new oil, and companies ingesting every piece of data on a cloud platform is the new normal. But just ingesting data isn’t enough; companies need to be able to make sense of data. Against this backdrop, the ability to drive stack consolidation and deliver an attractive value proposition have become the primary sources of differentiation among vendors, particularly as pricing around the collection and storage of data is being commoditized. While this has been a multi-decade trend, we’re beginning to see the inflection point whereby analytics pervade every business process and every part of the tech stack.
- Customer engagement platforms and customer data platforms: Every investor we talk to wants to learn more about the upcoming CEP and CDP wars. The battle lines are still being drawn, but there were exciting IPOs in 2021 in this space and even more on the way.
- DevOps: DevOps has been a buzzword in tech for almost a decade. It is no longer acceptable for development teams and IT operations teams to be siloed from each other; Success is dependent on cooperation and collaboration. The space remains fragmented, but we expect 2022 to be a year that provides increasing clarity in the category.
Follow the entire ICR 2022 trends series on the ICR Insights blog.
