Insights

Covid accelerated the shift toward digital…

The acceleration in digitalization is here to stay and is expanding across industries, growing more powerful in shaping the future of business and consumerism. What was nice to have pre-pandemic, and helpful during the pandemic, will become mandatory post-pandemic. COVID-19 reinforced or in some cases accelerated behavioural shifts and hastened the digital transformation of our economy. Our portfolios entered 2020 benefitting from a number of secular tailwinds, many of which were amplified by the impact of the virus. Companies are increasingly understanding that to remain competitive they must value technology’s strategic importance as a critical component of business, not just as a source of cost efficiencies. As a result, businesses are making the kinds of investments that are likely to ensure the trend’s perpetuation with next generation applications transforming IT budgets globally. Investments include full scale e-commerce capabilities within consumer facing businesses and cloud based operating applications targeting communications across corporate enterprises. Going forward, tech-savvy business models focused in these areas should continue to gain market share over the long term.

During the pandemic, having goods delivered to your home via an e-commerce application or website moved from a nice perk for consumers, to a necessity for both customers and retailers. This dramatically affected brick and mortar stores who had fledgling online offerings, and required them to pivot gradually to build out a full digital presence. This included capabilities to manage inventory across both existing office and new online sales channels, payment applications that could seamlessly work across distribution channels, mobile devices, countries and currencies, and other logistics capabilities that could fulfill orders placed online for shipment or local pickup. An example of this type of company is Adyen, a global digital payments company based in Amsterdam. With its focus on robust technology solutions enabled in part by artificial intelligence, machine learning, and data mining, the company has developed a single, dynamic, reliable, and secure payment platform that supports omni-channel commerce with end-to-end gateway, risk management, and processing services. Adyen’s functionality, scalability, and seamless integration seem to create a distinct and consolidated platform.

Within the enterprise, transferring systems and operating capabilities to the cloud is not a new trend, but it has accelerated as a result of the pandemic. The need for employees to work from home, for systems to be maintained and monitored remotely, re-prioritized IT budgets and drove faster adoption of new technologies. Exciting new cloud-based software applications are enabling enterprises of all sizes too quickly, cheaply, and efficiently find new ways of operating. The providers of these software as services are enabling multi-channel communications, IT systems management, electronic document management, and even new ways to collect, store, and analyse data. Going forward, the use and penetration of these cloud services will likely only further increase. An example of a company that fits well into this theme is Twilio. Its cloud communications platform enables software developers to build, scale, and operate communications functions such as phone calls, text messages, video, and e-mail within their mobile applications through Twilio’s web-service application programming interfaces. We believe Twilio’s cloud capabilities in messaging, voice, and video, position the company for growth as businesses across industries scramble to retool their communications for an environment of social-distancing and restricted mobility.

Next-generation technology has been accelerating for decades; however, we believe Covid sent it into overdrive.

An example of a cloud-based software application that has taken off during COVID-19 is unified communications as a service (UCaaS), a cloud-based communication system that replaces traditional on-premise phone systems with an application that can work from any location and device at a lower total cost of ownership. This is a platform that allows communication with clients or co-workers in multiple formats, whether it be voice, text, email, or video. We expect the UCaaS market to grow 15-20% annually over the next few years to about $50 billion by 2023. Two factors are driving its growth and the displacement of legacy systems: advances in the quality of voice over IP (VoIP) and the needs of a mobile workforce.

Overall, the consumer and digitalization enterprise digitization trend were beneficial to performance in 2020. Amid the unprecedented market environment, fundamentals mattered, and for a lot of these companies, the fundamental acceleration was extraordinary. These companies demonstrated they could deliver goods and services to consumers and businesses in an uninterrupted way. Looking ahead, that structural advantage will continue to widen allowing leading companies to thrive when the economy recovers.

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