Cost synergies and upselling opportunities are driving continued consolidation in the cloud business, says Bank of Ireland’s head of Tech, Media and Telecoms Paul Swift.
In the most recent Sector Development Insights report from the bank, Swift says there is a pattern of increased merger and acquisition activity in the Irish cloud business among managed service providers.
He points out that in the past some providers focused on basic IT functions and providing hardware (desktops etc.), but as much of the business and services have become commoditised and are delivered remotely (over the internet), these operators have sought to acquire other service providers and technologies to remain relevant.
“I think many people may not even know they are engaging with AI applications going about their daily lives”
In many cases, these businesses have ended up being acquired by other larger firms for their customer books/local relationships as opportunities for the larger firms to upsell/cross sell to their customers.
Buoyancy in cloud business
Swift explained that much of the consolidation we are continuing to see in the market at present is driven by cost synergies, upselling opportunities, and the potential to scale and increase enterprise value.
He said we also continuing to see transactions being driven by management buyouts and an increase in management buy-ins with continued buoyancy across the sector as many MSPs continue to assist businesses across every sector in modernising their businesses and digitally transforming.
Swift also pointed to the latest Irish Venture Capital Association figures for Q1 of 2021 that showed funding to Irish tech firms increased 8.9pc to €249.4m. the number of deals increased by 65pc to 74, largely driven by the recovery in early stage funding. Deals in the €1m to €5m category jumped by 84pc to €70.3m, while deals of less than €1m grew by 53pc to €12.9m compared with €8.4m in the same period last year. Of the total funding, software accounted for €46.7m (19pc) and cybersecurity €21.9m (9pc).
In terms of tech trends, Swift said the EU has recently announced the adoption of a landmark legal framework with the aim of making Europe, world-class in the development of secure, human-centred, inclusive, sustainable and trustworthy AI, and the use of it.
He said this new legal framework will guarantee the safety and fundamental rights of people and businesses, while strengthening uptake of AI. It is widely accepted that the potential uses of AI are enormous, but it is not without risks and the approach being taken by the EU is to ensure that where AI is used in Europe; respect for citizens and rules and values of society are protected, preventing unethical uses of the technology. Proportionate and flexible rules will address the specific risks posed by AI systems and set the highest standard worldwide.
Decoding the trends
We caught up with Swift to discuss some of these developments.
As cloud services become more commoditised, has this driven consolidation in the managed service space?
I think consolidation has largely been driven more by companies seeking to acquire more customers or add new capabilities. What we continue to see are traditional ‘break-fix’ type businesses that haven’t evolved their services sufficiently to keep pace with the growth of cloud or having a succession plan in place , being acquired, providing upselling/cross-selling opportunities from the acquirer that is inevitably leading to bundling of a suite of solutions/services, evolving to being sold on a recurring revenue basis over time.
Is it fair to assume that artificial intelligence is going from something that is science fiction to most people to something that is becoming tangible and apparent in the world?
Yes absolutely, I think many people may not even know they are engaging with AI applications going about their daily lives. Some applications of AI that we may use every day include facial recognition to unlock our phones or when typing something and the auto-correct that we use in word processing either automatically corrects words or offers potential sequence of words to add in a sentence.
Similarly, we are now well used to search recommendations being made for us on Netflix etc. Customer service tools have also changed hugely through the deployment of AI where Airlines and Hotel chains have deployed advanced chatbots are able to conduct complex conversations with customers that require specific responses. The customer thinks they are speaking to a human, when in fact its AI.
By John Kennedy (firstname.lastname@example.org)
Published: 31 May 2021