RPA: Robotic Process Automation. The new target of the Golden Swarm of software VC investors. Sometimes misleadingly known in more refined versions as IPA (Intelligent Process Automation, not warm English beer).
In my view the central strategic question for anyone who owns or collects and manages news and information, educational and professional content, prices or market data relating to business verticals, and commodities is now simply this: when I license data to process automation, what is my expectation of the life of that annuity revenue stream, and how fast do my users connections and market requirement sensitivity decay? Over the past five years we have seen an industry predicated on the automation of mundane clerical work take huge strides into high value workflows. Any doubt around this thought can be clarified by looking at the speed of advance of automated contract construction in the legal services market. The ability to create systems that assemble precedents, check due diligence, create drafts and amend them is as impressive as it is widespread. The fact that many law firms charge as much for signing off on the results as they did for the original work says more for their margins than it does for the process. But that message is the clearest of all: automating process software is expensive, but eventually does wonders for your margins in a world where revenue growth is hard to come by for many.
And, at least initially, RPA systems are greedy eaters of content. Some early players, like Aravo Solutions, became important middlemen for information companies like Thomson Reuters and Wolters Kluwer in creating custom automation for governance, risk and compliance systems. Their successors, productising the workflow market, have been equally enthusiastic about licensing premium content, but unlike their custom predecessors, while they have enjoyed the branded value of the starter content, they have also found that this is less important over time. If the solution works effectively and reduces headcount, that seems to be enough. And over time, systems can become self-sufficient in terms of content, often updating information online or finding open data solutions to diminish licensing costs.
The ten companies in this sector (which included Century Tech as an example of learning as a workflow) that I started to follow three years ago have matured rapidly. Three have become clear market leaders in the past 6 months. Automation Anywhere and UiPath in the US, together with Blue Prism in Europe have begun, from an admittedly low start points, to clock up 100-500%+ annualised revenue growth rates, But a note of caution is needed, and was importantly provided by Dan McCrum writing in the FT on 13 September (https://ftalphaville.ft.com/2018/09/13/1536811200000/The-improbably-profitable–loss-making-Blue-Prism/). He demonstrated that by writing all of its sales costs (mostly through third parties) to fixed administration costs it was able to claim close to 100% ebitda and score a 1.7 billion pound valuation on the London AIM market while revenues were 38 m pounds and losses are still building. UiPath (Revenues $100m, revenue growth 500%, valuation $1 bn) and Automation Anywhere (valuation $1.8 bn) follow a similar trajectory.
All content markets are looking at a future where machines use more content than people, This makes it more important than ever that information is sourced in ways that can be verified, audited, validated and scored. This is not just an "alternative facts" or "fake news" issue – it is about trust in the probity of infrastructures we will have to rely upon. Content owners need to be able to sell trust with content to stay in place in the machine age, at least until we know where the trusted machines are kept. In the meanwhile it will be interesting to see which information, data and analytics companies acquire one of these new software players, or which of these new high value players uses the leverage of that valuation to move on a branded and trusted information source.
Originally published on davidworlock.com On 27th September 2018