Momentum 2017 Technology Outlook: Disruptive Technologies, Emerging Strategies, and Game-Changing Policies
But the U.S. technology industry also faces a number of challenges in 2017 led by the inevitable uncertainties associated with a new presidential administration as well as the increasing need for tech companies to rise above the crowd in a hyper-competitive market.
This report, presented here in four part excerpts and available in its entirety for immediate download, highlights key trends and issues that technology firms in the middle market should be aware of as they plot their growth strategies for 2017.
Part 1 of 4: Game-Changing Policies: The Trump EffectWhile on the campaign trail, President Trump threatened to investigate Amazon for antitrust violations, boycott Apple for not cooperating with the FBI, and even accused Google of trying to rig the election. But was that just empty rhetoric? Can we expect a more tech-friendly Trump administration?
“Tax reform, offshore manufacturing, immigration, international trade. These are all important issues that impact technology companies.” said Asael Meir, Partner and Leader of CohnReznick’s Technology Industry Practice in New York.
Immigration is another hot-button issue. Numerous technology company leaders voiced opposition to Trump's January 27, 2017 executive order temporarily banning immigration from seven countries. Companies such as Facebook have aggressively lobbied Congress to expand the number of high-skilled foreign visas (H1-B visas) awarded each year. But the new administration has drafted a proposed platform that that would make it more expensive for companies to hire foreign workers through the H-1B visa program, according to ComputerWorld. Still, it’s hard to predict what the new administration will ultimately do. While President Trump is staffing his cabinet with hardline immigration opponents, he recently stated that “we need highly skilled people in this country, and if we can’t do it, we’ll get them in.”
Trade policy is another sticking point. President Trump said he would force tech companies to bring their overseas manufacturing operations back to the U.S. The reality is that most U.S. tech companies rely on existing global trade agreements to efficiently manage their international supply chains. Any change to those agreements could make it more expensive for U.S. tech companies to make their products and sell them throughout the world.
Perhaps the silver lining is that the Trump administration could loosen up a series of regulations, which would be a boon to the tech industry. Like many Republicans before him, President Trump believes the economy can grow faster if businesses are free from federal government interference. “This is going to be a president who will be the biggest regulatory reformer since Ronald Reagan,” Stephen Moore, one of Trump’s economic advisers, told the New York Times. “There are just so many regulations that could be eased.”
PART 2 OF 4: DISRUPTIVE TECHNOLOGIES: FUND RAISING IN THE ERA OF VR, AI, AND IOT“Overall, the availability of capital will continue to be strong in 2017,” said Alex Castelli, CohnReznick’s Technology Industry Practice Leader. “If your company is driving revenue and profitable, or moving toward profitability, now is the time to seek growth capital or explore a liquidity event.”
Companies that are likely to see the most success are the ones targeting large and game-changing markets such as virtual reality, artificial intelligence (AI), and the Internet of Things. Investors are attracted to these markets because they offer tremendous upside. But these game-changers also come with greater risk, requiring a longer term investment horizon and larger amounts of capital.
“There is a real concern that deals in 2017 will be more capital intensive ones when compared to venture deals that occurred over the last eight or nine years,” said David Sorin, Partner at McCarter & English and co-head of the firm’s Venture Capital & Emerging Growth Companies Practice. “As a result, there could actually be fewer companies receiving financing, but they will be raising larger amounts this year.”
Another immediate concern is the continued downward pressure on valuations as investor discipline becomes the buzzword over the next year. Whereas previously the mantra in VC circles was revenue and customer growth at all costs, today profitability is paramount. This could make for a more challenging capital raising environment, even when juxtaposed against a growing supply of investor dollars from venture capital and private equity.
A key factor that could impact valuations in 2017 is rising interest rates. One reason for soaring valuations over the past several years has been the participation of non-traditional investors like hedge funds, mutual funds, and other investors that have poured money into tech startups. When interest rates are low, startups offer the best prospect of a big return. But when rates move higher, non-traditional investors flee the tech industry and seek more predictable, less risky returns in fixed income or dividend-paying stocks. This means venture capitalists may have less competition for deals in 2017 and can wait for valuations to move in their favor.
PART 3 OF 4: RESTAURANT TECHNOLOGY PUTS INNOVATION ON THE MENURestaurants have never been huge consumers of technology. However, this is quickly changing as the cost of technology continues to come down and mobile innovations offer establishments the opportunity to transform the way they operate.
“The restaurant business has been so underpowered by technology for so long. But we now have cheap and accessible mobile devices and powerful data networks that are changing the game,” said Abigail Lorden, Brand Director at Hospitality Technology magazine. “The time for pushing innovation into this industry has never been better than it is right now.” Increasingly, restaurant owners are considering technology critical to their success because it helps make their daily operations more efficient. Technology enables them to reduce costs as well as overhead. In fact, 87% of restaurateurs now believe that incorporating more technology into their business will help attract more customers, according to the recent American Express Restaurant Trade Survey.
In 2017, there will be an increased focus not just on technology adoption but on the integration of disparate apps and systems. Currently, the market is flooded with innovative applications that do not connect with each other and do not share their data. That’s why there is increasing demand for an integrated, one-stop-shop solution that can bring all the functionality and customer data together in a single place. “This could actually lead to more consolidation in the restaurant technology space, as the larger providers look to add functionality they don’t yet have,” said Christopher Mahon, a partner at CohnReznick and member of the Firm’s Technology and Hospitality Industry Practices. “We expect to see a greater level of M&A activity in 2017 among the various players.”
PART 4 OF 4: EMERGING STRATEGIES: DIGITAL INNOVATION AND DATA DEMOCRATIZATION
In today’s hyper-competitive market, technology companies must find new ways to differentiate themselves – beyond their product and service offerings. Two ideas that tech firms should consider in 2017 are the use of data analytics to drive operational improvement and leveraging digital innovation to accelerate growth.
Digital Innovation Opens Door to Growth
For all businesses, especially technology businesses, a digital strategy is no longer a nice-to-have; it’s a necessity. “2017 will be the year that companies really start accelerating their digital strategies,” said Paul Gulbin, a managing director with CohnReznick Advisory and leader of the firm’s Digital and Innovation Services. “The leaders in 2017 will be the companies that can quickly build a digital footprint, engage with their customers, and transform their operations.”
Delivering better customer experiences will rightfully become a top business strategy imperative for technology companies. The good news is that companies do not have to boil the ocean to achieve impactful results. The key is to start small, be agile, and move fast. By applying the tenets of agile development— rapid prototyping, continuous feedback, and constant iteration—companies can quickly and cost-effectively put their digital strategy into action.
The Power of Data Democratization
In 2017, data will become more democratized. That means all decision-makers within a technology company will—or should—have access to data analytics tools with which they can make timely, intelligent decisions.
Tech companies are capturing information at a pace and volume never before seen—indeed, never before imagined. Some are differentiating themselves by aggregating masses of information from blog posts, Twitter feeds, and Facebook comments, and then leveraging that data to build a better feature set for their next product release. This approach to analytics enables companies to quickly and accurately build the product features and functionality that will have the greatest impact in the market. Without a data-driven approach to business decisions, this would not be possible.
This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.