COVID-19 impacts sets in motion several key trends for enterprises
Future Reimagined: Cloud nine and the four forces of digitalisation
The seminal UBS report on the world beyond COVID-19 (Q-Series Future Reimagined: Propelled to The Thinking Economy) identified six megatrends, the acceleration away from a material and towards an 'intellectual' economy foremost among them. We believe the COVID-19 pandemic is significantly changing the way enterprises use technology. We identify four key themes in this trend of accelerating digitalisation—cloud adoption, remote working, DevOps, and insourcing. Fourteen UBS internet, software and services analysts mapped the impact on subsegments and identified the key beneficiaries. Hyperscale cloud emerges as the key beneficiary.
Zeroing in on key beneficiaries across different software/services segments
The fifth annual cloud survey by UBS Evidence Lab shows 44% of the 850+ respondents expect accelerated cloud adoption post-COVID-19. Internet data centre (IDC) capex trends show China would be a particular beneficiary. Greater acceptance of remote working was validated by UBS Evidence Lab’s Deep Theme Explorer. We expect 24m remote workers in tech by 2024, with over 32m in our upside scenario. This should encourage cloud adoption and drive acceleration in DevOps. We expect DevOps embedded contracts of over US$70bn annually until 2024, with upside of US$100bn. This should lead to faster growth for collaboration tools, cybersecurity and SaaS (software as a service) providers.
Which segments are unlikely to benefit from the changes?
Legacy data-centre and app support are likely to be the subsegments negatively impacted. We expect insourced spend at US$720bn in our base case, a CAGR of 3.8% over 2019-24, which could also put pressure on third-party service providers with greater exposure to legacy tech (including data-centre and offshore providers; we are particularly off-consensus in our negative view on offshore services), increasing pressure on them to invest more in domain-knowledge and higher value-added services that are not typically insourced (such as consulting, AI, and user experience).