Dear Colleague:

I’m proud to introduce Bain’s second annual global Technology Report.

Although Covid-19 remains a global threat, we’re in a period of extraordinary economic growth. Government stimulus programs and a pent-up desire to “get back to the office” have piqued expectations of growth and innovation. The technology sector has led the way with strong equity values.

Part of that growth story has to do with the extensive and far-reaching penetration of technology in all sectors of the economy. One indication of this is the interest in last year’s report from executives not only in the technology industry, but also in retail, consumer products, industrials, financial services, telecommunications, and more. In response, about half of the initial distribution of this year’s report will include client executives from outside the technology sector.

This year’s report retains last year’s organizing principle built around three themes. The first section, value evolution, takes an analytic view of how equity values and profit pools are developing. The second section offers a general manager’s view of major competitive battlegrounds in the technology sector. The last section showcases innovation that creates advantages through the operations of the enterprise itself, including talent, culture, process, and infrastructure.

As we look across this year’s technology landscape, three broad forces stand out.

1. Technology as an enabler. It’s increasingly clear that technology extends beyond being an industry unto itself; it’s the primary force of disruption in every industry across the globe. This phenomenon turns up empirically in the fact that the largest equity gainers across most sectors of the global economy are either technology companies or enterprises with a tech-led strategy.

2. The next chapters of cloud computing. Our clients know the extraordinary impact that the cloud-based computing model has had over the last two decades.

Looking ahead, this innovation path remains potent in several ways.

The first trend is the continued success of the hyperscalers—Alphabet, Amazon, Apple, Facebook, and Microsoft in the US, and Alibaba and Tencent in China—even as they attract heightened regulatory scrutiny. How best to regulate these businesses is far from clear.

The second cloud trend grabbing general managers’ attention is the growing traction of hybrid and multicloud solutions. Amazon Web Services, Microsoft Azure, and Google Cloud Platform continue to grow as enterprises shift more computing workloads to the public cloud. The next-largest enterprise workloads are more stubbornly located at the edge or on premises, either to provide more control and security, or lower latency. As a result, enterprises are attracted to the hybrid and multicloud models, and leading vendors are using detailed customer segmentation to navigate the growing complexity and better tailor their offerings.

The third cloud trend is the emergence of cloud-native and multicloud infrastructure. After the extraordinary equity growth of the hyperscalers, some of the fastest-growing value creators in the technology industry are a group of software providers that includes Snowflake, Datadog, Cloudflare, and Twilio. These firms were born in the cloud and have the potential to live successfully across public clouds, offering interoperability to their multicloud customers.

The fourth trend is the growing presence of custom and special-purpose silicon processors. We don’t believe this shift signals the end of general-purpose processors, but it has significant implications for silicon developers and manufacturers, cloud service providers, and their customers. 

The last cloud phenomenon showcased this year is the rapid innovation in artificial intelligence spearheaded by large cloud service providers, which are democratizing AI and creating opportunities for all businesses to use it as a competitive advantage.

3. Nonmarket influences. Regulator and geopolitical relations are more consequential than ever. After decades of globalization, several major countries are turning the trajectory toward trade barriers and decoupled economies. The technology sector has found itself at the center of this restructuring. It has forced executives into a high-wire balancing act as they navigate the transition to the decoupled future. Likewise, regulators are tightening their scrutiny of large technology leaders. This includes the landmark action taken by Chinese regulators to rein in the country’s cloud service providers and other tech firms in recent months.

In the context of this new world order, enterprises are trying to make their supply chains more resilient. Covid-19 provided a painful reminder of how many single points of failure had been tolerated for too long. The hard lessons of the global semiconductor shortage have made it clear that defending against future supply chain disruptions will require a more holistic and proactive strategy.

Technology cemented itself at the foundation of the global economy over the past decade. Now, the ingredients are in place to create an explosion of tech-fueled innovation and growth unlike anything we’ve seen before. We at Bain look forward to helping our clients across industries capitalize on the opportunities that lie ahead.