Tech-Fueled Growth Poised To Accelerate; Business Strategy Set To Become Tech-Driven Across All Sectors

Technology has cemented itself at the foundation of the global economy over the past decade. Although Covid-19 remains a global threat to economic recovery, extraordinary growth is being fueled by increased and sustained tech-driven innovation.

“Companies that have seen their share prices rise are most often either tech firms or businesses with a tech-led strategy,” said David Crawford, leader of Bain & Company’s Global Technology practice. “Over the last decade, technology has proven itself to be much more than a siloed industry. Instead, tech has become the primary force of disruption and value creation in nearly every industry around the world.”

“Businesses—from ‘born tech’ companies to ‘brick and mortar’—have recognized the outsized benefits of adopting a tech-led strategy in today’s world,” said Anne Hoecker, partner at Bain & Company and head of the firm’s Americas Technology practice. “As we look across the technology landscape, the bottom line is clear: if businesses want to flourish in the current environment, executives must be comfortable with the pace and implications of tech-driven disruption.”

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Bain & Company’s second annual global Technology Report, released today, explores the impact of tech on business, consumers, economies, geopolitics and broader society.

Among the themes explored in the report:

Venture capitalists are doubling down on technology

Technology is reshaping the economy, and it starts with venture capital. In recent years, we have seen a clear trend toward tech companies capturing a growing share of venture funding. Bain’s Startup Investment Cruncher database found that, from 2010 through 2020, tech start-ups took in the majority of venture funding across all deals by independent venture capital (VC) firms and corporate venture capitalists. In the first quarter of this year, tech start-ups accounted for nearly 70% of total venture investments.

Venture investments in technology initially declined by 13% between 2018 and 2020—the first decline of its kind since 2012. But tech venture investments came roaring back during the Covid-19 pandemic, with the total value of tech venture investments doubling in the first quarter of 2021 from the same period in 2020. This is more than twice the growth rate of investments in other sectors. The pandemic fueled this growth by accelerating the shift toward later-stage deals that had been underway for several years, increasing the total value of tech deals in the Series C stage or later by 165% year-over-year in the first quarter of 2021.

Artificial intelligence (AI) and cloud technology are proving to be the primary drivers of venture investment interest. Over the past decade, these two segments of technology have grown more than twice as fast as venture investments in all other sectors, and now make up more than one third of total venture investment in technology.

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US hyperscaler M&A spending has benefited consumers and enriched market dynamics

Hyperscalers, also known as the tech giants, are the leading cloud tools and service providers globally. Seven major hyperscalers currently dominate the tech landscape: Alphabet, Amazon, Apple, Facebook, and Microsoft in the US, and Alibaba and Tencent in China.

The common narrative is that hyperscalers spell the end for competition. However, Bain has found that most big tech acquisitions in the US benefit consumers and do not hamper competition. Rather, over the last fifteen years, hyperscaler M&A activity has proven to contribute to vibrant markets and create immense value for consumers, according to Bain’s analysis.

Hyperscaler M&A activity represents only a small piece of the overall landscape, with hyperscaler M&A accounting for only 5% of total tech start-up exits within the last year. But according to Bain’s research, most big tech acquisitions end up benefiting consumers in at least one of three ways: by reducing pricing, by increasing access to innovation and by improving products overall.

Bain conducted an analysis of the five US hyperscalers over the last fifteen years. The firm’s analysis of all $300 million-plus acquisitions, between 2005 and 2020, found that 72% of US hyperscaler M&A spending created value for consumers.

Big tech acquisitions have not only pressured incumbents to innovate. These acquisitions have increased market fragmentation, fueled greater venture capital investments and spurred competition between the hyperscalers themselves. This set of insights provides another useful perspective for both acquirers and regulators, as they work to ensure these deals continue to create—not destroy—value.

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