Technology overtook financial services as the world’s largest sector by market capitalisation in 2016. By 2020, there will be nearly 7 connected devices for every person on the planet. Yet there are signs that investors’ interest in tech start-ups are starting to fade. Is this simply a blip or is the honeymoon period finally over?
Technology is arguably the pre-eminent megatrend of our time. It empowers consumers, enables new business models and acts as a change agent in emerging markets. And, it’s also the darling of investors, who have invested billions in disruptive start-ups. But as technology starts to deliver more than consumers seem to want, is the honeymoon period finally over?
Over the past decade, technology has been the force behind industry transformation and financial innovation in emerging markets. By 2020, there will be nearly seven connected devices for every person on the planet. This in part explains why the majority of CEOs in our 19th CEO survey saw investment in technology as crucial for meeting evolving customer expectations and, more recently, 70% of CEOs in our 20th CEO survey said they were concerned with the speed of technological change.
Technology is a magnet to investors, who are pouring billions of dollars into the sector. As a result, technology overtook financial services as the world’s largest sector by market capitalisation in 2016. The top three companies globally are Apple, Alphabet (Google’s parent company) and Microsoft while Facebook ranks fifth. Overall, the market capitalisation of the sector is a hefty US$2,993bn.
With a pipeline of cash on tap, it’s easier than ever for tech start-ups in particular to get off the ground, fuelling transformation, growth and innovation. A point echoed by 60% of CEOs in our 20th CEO Survey who told us that technology had either completely reshaped or had a significant impact on competition in their industry over the past 20 years.
Staggering valuations await the most successful start-ups. Yet there are signs that investors’ appetite for sky-high tech valuations of start-ups are starting to wane – our Global Technology IPO Review recorded a 42% decline in volume and a 68% decline in proceeds compared with the previous year. And, while, huge cash injections into start-ups underpin new ideas (some more viable than others) and new markets, they can also fuel a boom and bust cycle.
With after-taste of the last tech bubble lingering, naturally there’s speculation over whether we’ll see another bubble. Perhaps slowing down of new innovative products (as can be seen with falling smartphone sales) is the biggest concern.
So what will happen next? To date, markets have showed great resilience in confronting a range of challenges from the Eurozone crisis and slowing Chinese growth through to the oil price slump, Brexit and the election of Donald Trump as president of the US. So, while the threat of a stock market correction and a dent in investor and customer psyche may be bona fide, there’s no reason to believe we’ll see the bubble burst any time soon.
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