Accelerating digital transformation post COVID-19

May 14, 2021 10:22
public cloud spending is forecasted to reach nearly $500 billion by 2023. Photo: Bloomberg

Over the last four years, there has been a massive increase in the amount spent on cloud services - Infrastructure as a Service (IaaS), Software as a Service (SaaS), and Platform as a Service (PaaS). This increase is expected to continue with public cloud spending forecasted to reach nearly $500 billion by 2023, compared to $229 billion in 2019 .

Impact of COVID-19

COVID-19 has forced companies to quickly roll out digital applications and scale up the usage of existing ones. 89 percent of CIOs surveyed in March 2020 by Morgan Stanley said they were accelerating cloud adoption, up from 54 percent the month prior . Customer service, financial analysis, and product development are experiencing the greatest increase in public cloud usage, to align with social distancing measures.

Customers are adopting cloud products at an accelerated rate attempting to benefit from embedded innovations such as data analytics and machine learning. Real-time analytics is becoming a priority as companies try to adjust to new market trends and disruption. This surge of demand has created systemic structural changes that are expected to last well after COVID-192.

AI and Software-as-a-Service

A push towards digital transformation and new pressures due to COVID-19 are reshaping the Software-as-a-Service (SaaS) ecosystem. SaaS companies are embedding AI into their solutions enabling companies to streamline and automate core business
operations and gain efficiencies in back-office functions.

Computational resources used in AI are expected to increase 5x from 2018 to 2023 . SaaS companies leveraging AI extensively in their products can garner competitive advantages in the following 4 ways:

1. Customization
One of the most important rationales for many companies to adopt AI is to improve their customer service. SaaS companies that are using AI effectively find it easier to tailor experiences to the needs and habits of individual users. AI can enhance the natural language abilities of SaaS software; this enables companies to adapt to user behavior without the need for extensive reworking by developers .

2. Support
Support has always been considered a labor-intensive aspect of running software in the cloud. AI is being used to automate the support process by troubleshooting problems and answering any questions customers might have.

3. Analytics
With the rise of automation, digitization, and machine learning, companies are trying to use data to improve their competitive advantage. AI can help implement frictionless workflows and create enhanced digital insights - which are becoming important priorities, particularly in a post-COVID world.

4. Security
As major applications and services migrate to the cloud, security is becoming a growing concern. AI is proving to be the best and most ideally suited technology to address these growing concerns. Using AI and machine learning to automate threat detection, companies can respond to cyber threats more effectively and eliminate the need for human input.

Digital Communication

Team communication & collaboration, content management, and workflow automation are the key markets aligning to change the future landscape of work. COVID has become a catalyst in how work gets done digitally. Immediate solutions like video calling and electronic agreements saw rapid adoption during COVID and other SaaS companies are expected to benefit from the next phase of this digital transformation.

Digitization efforts are not expected to reverse once the world normalizes. As knowledge workers get used to utilizing video meetings and channel-based conversations, going back to regular instant messages becomes unfathomable. AI will also assist in maintaining a competitive advantage in a crowded SaaS market. We believe investors will be rewarded for actively seeking out companies that are capturing the structural changes that are expected to last well after COVID-19.

-- Contact us at [email protected]


Co-portfolio manager, senior research analyst, US technology, Allianz Global Investors