>> From theCUBE Studios
in Palo Alto and Boston,
connecting with thought
leaders all around the world,
this is a Cube Conversation.
We've been reporting the COVID pandemic
has created a bifurcated
IT spending outlook.
Legacy on prem infrastructure
in traditional software licensing models,
they're giving away to approaches
that enable more flexibility
in business agility.
Automation initiatives
that reduce human labor,
labor that's not value add,
has really been gaining
traction for the past 18 months.
The pandemic has only accelerated
the focus on such efforts.
And Robotic Process Automation, or RPA,
along with machine intelligence
have been the beneficiaries
relative to other
segments of the IT stack.
Welcome to this week's Wikibon
CUBE Insights powered by ETR.
My name is Dave Vellante,
and in this breaking analysis,
we're going to update you
on the latest demand picture
for the red hot RPA sector.
We'll also focus on two main areas today.
First, we're going to review
the basics of the RPA space
for those that may not be
as familiar with the market.
Next, we'll share with
you the spending data
and outlook in the RPA space from ETR.
And we'll really dig into the COVID impact
on this market segment and take a look
at the competitive outlook.
We're going to pay particular attention
to the leaders in this space,
and then we're going to wrap up.
So let me start with
kind of the RPA basics.
If you're not familiar with RPA
here's what you really need to know.
RPA gained traction by
taking software robots
and pointing them at existing applications
to mimic human behavior
and automate repeatable
and well understood processes,
keyboard behavior, that is.
Now a challenge with
early RPA implementations
is that most customers
chose to point these Bots
at legacy backend office systems.
To open emails and fill
out forms and the like.
So that's great because
it digitizes processes
around legacy systems.
Awesome, ROI.
But the problem is that these bots,
they interact with a user
interface of that application,
and many of these apps,
they really don't have an API.
So any change in data or the interface
breaks the automation down.
Now more recently automations
are interacting to apps through APIs.
That makes them less brittle.
But of course, the quality of APIs,
as you well know, will vary.
So, enter machine intelligence
into the equation.
There's been a lot of discussion
around the intersection
of RPA and AI and that's
allowed organizations
to automate more processes
and do so in a way
that takes an augmentation approach
using things like natural
language processing
or speech recognition and machine learning
to iterate and improve automations.
And this trend holds a lot of promise,
and there's a lot of talk
about it in the marketplace,
particularly in the form of
really trying to understand
which processes to automate
and where the best ROI
can be achieved for organization.
But it's important to note
it's still really early days
with this AI intersection.
Nonetheless, investors,
they're ahead of the game.
They've poured money into this space
as we've been reporting now
for well over a year or two.
UiPath and Automation Anywhere
have raised close to $2 billion
and have been growing very, very rapidly.
We're going to talk more about that.
Existing players like Blue Prism,
they've actually benefited
from the automation tailwind
and other process,
business process players.
Take for example, like Pegasystems,
they started in the early 80s.
They've added RPA to their platform,
as have many others.
By the way, including Microsoft,
who has really been trying to
crack into this market for a while.
In fact, Microsoft just
bought a small company
called Soft Emotive.
And it's really trying
to sure up its RPA game.
But just a quick aside, in our view,
Microsoft, they're well
behind the leaders.
It's going to take years for them
to get where the leaders are today.
But it's Microsoft, so you
don't want to ignore them.
Now the big buzzword
here is hyperautomation.
Evidently it's a term coined by Gartner,
and UiPath has picked
up on this in a big way,
and so has Automation Anywhere.
Now both those companies
are in hypergrowth.
So it plays.
More established companies,
for example Pega,
they look at the term differently.
Of course, their vision is,
RPA is a small portion of their vision.
These established firms,
they want to incorporate their
business process automations
that have been built over
decades into a systems view
of the organization
using existing platforms.
The upstarts, of course,
they want to build from new platforms.
What's really happening
in the marketplace,
and like in many situations
is this emergence
of a hybrid or a quasi-equilibrium.
And we saw this in mainframes.
We certainly saw it in Middleware,
enterprise data warehouses,
and we've seen it in the cloud.
Where most companies don't just throw away
the investments that they've
made in legacy systems,
they're stable, they're operationalized,
and rather what they do is they overlay
the more modern technologies,
and they kind of create
an abstraction layer of their business
that incorporates the old and the new.
But the growth is much, much
higher in the new, as we know,
and that leads me to the TAM,
the Total Available Market.
Let's look at the RPA TAM.
We think the TAM Expansion Opportunity
is pretty substantial.
We put this chart together a while back
that really underscores
that the progression of RPA
from simple Bots automating
back office functions
to really infusing automations
in virtually all applications.
If you expand the definition
beyond RPA software
to the broader automation opportunities,
if you think about it,
this could be much much
larger than depicted here.
Maybe well over $100 billion TAM,
as AI powered automation
becomes fundamental
to every organization in
their operating model.
Anyway, it's a big opportunity.
And the data suggests
that it's growing rapidly.
So let's turn to the data.
Let's look at the spending and
bring ETR into the equation.
So which technologies are
showing new adoptions in tech?
On balance, the tech
sector has done pretty well
despite this pandemic.
At the time of this video
the NASDAQ composite is up
about a point and a half year to date,
and as we know from previous surveys
that heading into 2020
there was a pullback
and a narrowing of new
technology adoptions
as organizations begin to operationalize
their digital initiatives and place bets.
This chart shows new adoptions
across three survey dates.
The gray is April last year.
The blue is January, which
is pre-pandemic, really.
And the survey of more than 1200 IT buyers
is really the latest
one which is the April.
So this survey took place
at the height of the U.S. lockdown,
and you can see, look at RPA.
It's got 22% new adoptions.
What does that mean?
It means that 22% of the
customers in the survey
were planning RPA spend,
they were planning for RPA spend,
are planning new adoptions.
That's a figure that's as high
as machine learning and
artificial intelligence.
And of course, as we've
said, these two technologies
are increasingly playing a role together.
So RPA adoptions, more than containers,
more than video conferencing,
which has had this tailwind from
work from home and more than cloud.
More than mobile device management.
So it's really one of the hottest sectors
in terms of new adoptions.
Now let's look at some
of the players in RPA
and try to really better
understand their positions.
Here's a chart that uses
the two primary metrics
that we've been sharing
over the past year.
Net score, or spending
momentum, is on the y axis,
and market share, which is
a measure of pervasiveness
in the data set is on the x axis.
The chart plots RPA players
in the ETR data set,
and you can see UiPath
and Automation Anywhere,
the two market leaders.
They show both spending
momentum and market awareness.
Then you see Blue Prism
and Pega's in there,
and the rest of the pack.
And I'll say this about Pegasystems.
I recently spoke to
their CEO, Alan Trefler.
He's an amazing self-mad billionaire.
He's got a great business.
Pega really doesn't see itself, anyway,
as an RPA play, I don't either.
RPA is really a small part of their story.
But they're in the data set
and certainly automation related.
So it's worth showing,
but it's a bit of an oranges
and tangerines comparison.
Now, notice in the upper
right of this chart,
you can see that the net
scores are in the green shade.
And there's a little bit of red in there,
but remember, net score
is a simple metric,
sort of like Net Promoter Score, NPS.
It subtracts customer spending
less from those spending more
and nets the difference.
And you can see very,
very strong net scores
for both UiPath and Automation Anywhere.
And I'm going to discuss
that more in a moment.
But there's lots of green in the chart.
And even Pega, as I said, is
really not an RPA specialist,
they got a solid net score.
Now let's look at a time
series of this net score
and the spending momentum.
What we do here is this chart
takes the three leaders,
UiPath, Automation
Anywhere, and Blue Prism,
and it plots their net scores over time.
It goes all the way back
to the January 18 survey.
Now let me make a couple of points here.
UiPath and Automation
Anywhere, 70% plus net scores
is very impressive, and amongst
the highest in the data set.
Even though you see some
of the loss in the momentum
in the UiPath line, in the convergence
with Automation Anywhere,
they're both very, very strong,
and you can see in the upper right,
you can see the Shared N,
which is an indicator of the presence
of the company in the data set.
How many responses out of the 1200 plus.
So you might say, well wait a minute,
UiPath, they had layoffs last fall
and Automation Anywhere
they more recently,
just recently had layoffs.
How can they show such strength?
Well, I'll make a few points here.
First, fast growing companies like this
that have raised nearly
a billion dollars each,
they've got investors to serve
and they're going to course correct
when they feel like there's
some slack in the system.
To me it's not a sign
of fundamental trouble.
Second, both of these companies
are going to continue to invest heavily
on research and development.
UiPath has 60 openings on its website,
mostly in engineering.
Automation Anywhere, they
only have nine openings,
but I would expect both companies
to up their engineering hiring,
especially given the
Microsoft Acquisition today.
Third, remember, this is not an indicator
of the amount of money
spent in absolute dollars.
Rather it looks at
spending momentum of the,
in dollar terms.
As well, if you were to cut
the data by larger companies,
let's say the Fortune 1000
where the average contract
values are higher,
you'd see that UiPath's
net score jumps to 77%,
Automation Anywhere
would drop into the 60s,
and Blue Prism would stay about the same
where it is today.
So let's look, for example,
in the Global 2000s,
so we'll expand that
notion of a Fortune 1000.
Let's go to the Global 2000
where there's more of an end to slice.
And you can see the picture changes
from the overall data sample.
This chart shows the net scores
and the Global 2000 where the ends are
more than 25 responses
across all the three surveys.
Gray is last April, blue is January,
yellow is April 2020.
And you can see the year-on-year decline
and the modest step down
during the COVID lockdown,
which again surveyed in April.
But still, very elevated
net scores for UiPath
and Automation Anywhere and respectable
for the others.
So the point is, COVID has not
really crushed the RPA market.
I mean, if anything, as
witnessed by the new adoptions,
it's maybe, it's certainly
better off than most IT sectors.
Now let's dig into the net scores
of the two leaders a little bit more,
UiPath and Automation Anywhere.
Remember, net score is
a very important metric,
and I want to spend a moment
explaining how we use it.
You see this wheel chart,
this red, green, gray.
It really shows how the net
score method is applied.
Now we've taken the UiPath
example from the April survey.
Net score works by asking buyers
relative to last year,
are you adopting new, that's the 28%?
Are you increasing spend by 6% or greater?
That's 51%.
Are you expecting flat spending?
That's 15%.
Or decrease in spend of 6% or more?
Or finally are you replacing the vendor,
chuckin' 'em out?
So look at this,
you can see for UiPath added up.
79% of respondents expect
to increase spending in 2020
relative to 2019.
Again, remember, this survey was taken
at the height of the COVID-19 lockdown.
Let me show you the data
for Automation Anywhere.
Same exact methodology.
72% of Automation Anywhere customers
planned to spend more.
Only 1% planned to spend
less with zero replacements.
So very strong fundamentals as it relates
to spending momentum for both
UiPath and Automation Anywhere.
Now how has presence, or
what we call market share,
of the data set changing
on a year and year basis?
Well this is a last data
point that I want to show
and it relates to that
metric of market share.
Which again, is the
measure of pervasiveness.
It's calculated by dividing
the number of mentions
of a vendor in a sector by
the total mentions of that sector,
in this case, RPA.
And this chart shows
the year on year change
in customer growth,
comparing market share
from the April 20 survey
with that from the April 19 data.
And you can see the yellow line
at 11% is the sector average.
UiPath has the fastest growth.
Automation Anywhere is growing
faster than the market average,
and Blue Prism is below the average.
Now this looks back to last year.
It'll be interesting to see
how this picture changes
with the next survey
based on what we're seeing
with the net scores which
is a forward looking metric.
All right, let's wrap.
So we're seeing that the bifurcated market
is highlighting that the automation trend
generally is real and that the
RPA drill down specifically
shows us an example in action.
We think that had COVID-19 not hit,
these numbers would actually be higher
by maybe as much as 10%.
But at the near to mid
term we would expect
a pretty fast return to
normal patterns of demand,
if I put normal in air quotes, for RPA.
In fact, we don't expect
a real V-shaped recovery across the board.
But RPA is one of those areas
where we actually may see such a rebound.
The pandemic really underscores the need
to accelerate digital transformations.
RPA, we think is going to be
a central player in that movie
along with AI and cloud.
All right, we have to
leave it there for now,
so remember, these episodes,
they're all available as podcasts,
so all you got to to is search
Breaking Analysis podcasts.
Please subscribe to the series.
Would appreciate that.
And check out ETR.plus for all the data.
I also publish a full report every week
on Wikibon.com, tons
of data there as well,
and siliconangle.com has all the news,
and I publish there.
All right, this is Dave Vellante.
Thanks for watching this
episode of TheCUBE Insights
powered by ETR.
We'll see you next time.
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