Below are 7 predictions about the startup software ecosystem. How many of them do you agree with?
- The tax holiday for repatriation creates one of the most active M&A environments of the past ten years. The repatriation holiday is part of the new tax plan. It permit companies to bring US dollars held abroad (from software sales in other countries) back to the US at a lower tax rate than before. The scale is enormous. Apple could repatriate $252B, Cisco $65B, Google $55B. That cash could be used for dividends, share buy backs and acquisitions. Several landscape altering SaaS acquisitions will come to fruition because of cash availability from repatriation and because there are enough public SaaS companies at scale to add material revenue and market cap to buyers. Some ideas: Google buys Salesforce. Microsoft buys Workday. Oracle buys ServiceNow. There are now 5 publicly traded software companies worth more than $10B, and 19 companies worth between $2.5B and $10B.
- The SaaS fundraising market remains ebullient through 2018 as vibrant M&A and an open IPO window trigger substantial liquidity for shareholders.
- Machine learning fades as a buzzword. A while ago, I pulled up the Redpoint website from a decade ago, when the bios of the partners said things like “I invest in the internet.” Or five years ago, “I invest in mobile.” Just as those trends have become ubiquitous to be implicit, so will machine learning.
- Blockchain in the enterprise takes the reign as the buzzword for 2018. Founders will look to apply the innovation of a distributed and decentralized-trust database in different parts of the ecosystem. In particular, blockchain applications will pop-up in inter-company applications or where network effects are important (payments, security, supply chain).
- The classic open source strategy of the last fifteen years is abandoned because of the competitive threats from infrastructure-as-a-service (IaaS vendors). New licenses may emerge to create some barrier to entry or open source vendors keep proprietary a greater fraction of the code base.
- GDPR becomes an important consideration in most SaaS companies product and sales teams as the European regulation changes lead generation practices and data retention/governance practices in Europe. Similar regulations will be adopted in other regions.
- The industry pendulum switches from fragmentation to consolidation in products as well as companies. Businesses emerge that create opinionated stacks for different functional roles and simplify day-to-day tasks for knowledge workers.
I like writing these lists because they are very likely to be proven wrong in the fullness of time and looking back at them a few years later gives you a sense of what the world felt like back then. Have a great new year, everyone!