The Disruptive Strategist - Learnings from California

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Last month, GAM Investments’ David Goodman and Pieran Maru travelled to California, primarily to attend the 2022 Goldman Sachs Communicopia and Technology Conference, showcasing 220 companies.

23 November 2022

They also joined two bus tours meeting company management and David took a Tesla factory tour, where he met investor relations, toured the manufacturing facility and test drove the model Y and S Plaid (zero to 60mph in 1.9 seconds!). Finding new, re-enforcing old and in some cases re-visiting existing ideas, David outlines several high-level learnings that came out of the trip.

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Business/mission critical software

Markets have long understood the value of recurring revenue income streams. As enterprise transitions to digital, software solutions are becoming mission-critical in nature and vital to the day-to-day operations of a modern organisation. Leading software vendors can raise prices consistently without losing demand, resulting in high and stable margins. It is becoming clear that a number of software companies are now mission critical to their customers, especially in an accelerated digital-first environment.

Mission critical application examples differ among industries, so while an automatic vehicle locating (AVL) app might be mission critical for a taxi or delivery company, a plumbing company which utilises the same software might consider it significant but not vital. A company specific example would be Guidewire. Their software runs all core systems for property and casualty (P&C) insurance, setting premiums for policies, processing claims, and billing customers. Excluding their analytics and other modules, the core InsuranceSuite solutions have only had a single customer churn off in the company’s history (outside of bankruptcies).

The continued rise of omni-commerce

Shoppers making purchases through retailers on multiple channels are often spending more and are more profitable, making omni-channel increasingly critical to success in retail. Point of sale (PoS) transactions, which previously dominated the payments environment, have changed significantly as a result of the Covid-19 outbreak. Omni-channel has become essential for ensuring a seamless integration of online and offline systems to deliver a single perspective of the customer – encompassing end use pick-up points, buy online or collect in store options. Customers are also demanding a continuous experience across multiple devices and touch points – they want the same experience – irrespective of which channel they choose. If you had said 10 years ago that retail shopping would be conducted on phones, social platforms, tablets, interactive kiosks and more, you would have been laughed at. Today, that is exactly what is happening. Omni-commerce is becoming the primary competitive advantage for retailers in a post-Covid world.

Data growth

The necessity to deploy next generation database and analytics infrastructure is being driven by the infinite increase of data. In this context, open source is becoming a potent tool for standardising technology and processes among various cloud vendors. Furthermore, it is possible that integrated artificial intelligence/machine learning (AI/ML) solutions will be included in contemporary applications and infrastructure.

Hybrid working

Demand for next generation platforms that integrate collaborative capabilities with core programmes to boost productivity is being driven by hybrid working. The emphasis is on cooperative enhanced productivity and efficiency, but this can only be done if you have the best tools to begin with. These solutions might provide everything from video conferencing for online meetings, to cloud document storage for managing everyday activities – with all functioning equally as well across mobile devices, desktops and laptops.

Above all, everything should be simple, user-friendly and misunderstanding-free. Regardless of where they are in the organisation, every employee should have the authority to handle the same issue with the appropriate party, then resolve that issue in accordance with a practical workflow.

Platforms

One of the buzzwords throughout the San Francisco visit was the word ‘platform’. Many companies highlighted how they are striving to disrupt their respective area and be the go to ‘platform’. By offering a platform, the user is locked in the ecosystem and is embedded, making it harder to change later in time. This aids net retention rates and allows for easier upsells for their new offerings. Meanwhile the customer benefits from having a framework to connect other apps for easy integration and develop apps cheaper and faster in the future. Platforms are receiving more attention since cloud technology makes it much easier to integrate products. The idea is it becomes simpler to combine different tools and apps onto a single platform.

Microsoft chief commercial officer, Judson Athoff, spoke of how they see a “rich opportunity for customers to use collaborative applications” and went on to describe how Microsoft’s vision of expanding their Teams offering to being a collaborative platform. The value proposition, which has a "best-of-suite" philosophy, is integrated into a low-cost, high-value platform that benefits most, if not all, employees within a business. Microsoft views Teams as a crucial corporate platform rather than a compartmentalised communication tool that may link and enhance remote operations.

Companies with a platform strategy can therefore increase their total available market (TAM), provide customers with more value and are probably more resilient over time. B2B software suppliers from a variety of industries have noted a shift away from discrete solutions, towards a platform strategy. In the meantime, we have seen a growth in cloud native point solution providers over the previous few years, followed by significant M&A activity. The adoption and integration of platform approaches will probably be the main priorities of the following step.

AV (Autonomous Vehicles) and ADAS (Advanced Driver Assisted Systems)

Although the majority of businesses anticipate meaningful restrictions on autonomous driving for at least one to two more years (eg limitations due to geography, weather, or requirements for driver supervision), we frequently heard that AV companies have a better understanding of what is required to scale in the long term and thus believe that the pace of AV/ADAS progress could positively surprise the financial community in the future (many investors are naturally cautious on AV timelines given historical delays).

Our core thesis has always been that the world is experiencing an exponential improvement in computing power, storage and connectivity and these improvements are fuelling innovation, which in turn are disrupting business models across the globe. Our trip enforced the thesis. The current pace of technological advance is unprecedented and shows no signs of slowing.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The securities listed and examples provided were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities mentioned in this material are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.

David Goodman

Investment Manager
My Insights

Pieran Maru

Investment Analyst
My Insights

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