Seventy-five percent of the more than 570 executives recently surveyed by Bain & Company said AI has already met or exceeded their expectations. According to Bain’s fourth annual Global Technology Report, the current generation of AI tools and models could help companies speed up 20% of worker tasks without loss in quality.
While the ease of access to large language model (LLM) application programming interfaces (APIs) has made it relatively easy to demonstrate new AI-powered products, Bain’s survey found that 89% of software companies are already using AI to differentiate their products—15 percentage points higher than other sectors. Early adopters of AI are already seeing results and productivity gains as companies explore new ways to use AI for their businesses, Bain found.
“Innovation is happening quickly, and we are still in early days,” said David Crawford, global head of Bain’s Technology practice. “Three out of four software companies we surveyed believe that early movers will have a sustained advantage that will not level off. Software leaders expect the technology to generate significant opportunities to increase topline growth and customer retention. Our research shows that, in this fast-moving environment, companies that take a wait-and-see approach in terms of AI are at risk of being left behind.”
Oliver Bittner, partner and head of Enterprise Technology & Digital practice at Bain & Company Middle East, said: “With AI transforming nearly every industry worldwide, the Middle East is making significant investments, particularly at a time when the region is accelerating rapidly. These innovative technologies, if employed correctly, can not only change the way we work and live but also present challenges that could disrupt industries in the future. This highlights the need for careful planning to ensure the AI is being utilized effectively.”
Software companies also need to address how the adoption of generative AI by their customers and competitors can impact their core business. Many customer concerns around data protection and access, personally identifiable information, audit trails, prompt grounding with proprietary data, and integration with other machine learning (ML) and automation technologies are served in platform layers, beyond the LLM. The report highlighted that this is the area that software companies can differentiate themselves, leveraging established positions in customer architectures.
Generative AI talent implications
As customers introduce AI into their own processes, job roles are expected to change. Engineering and sales and marketing are among the functions most likely to benefit from AI over the next 18 months. Companies will need more engineering talent for AI and ML, particularly with experience building or integrating LLMs.
Generative AI will change the way companies market and sell their products and services as it enables significant automation across every step of the customer life cycle. In particular, demand and lead generation, digital self-service sales, customer success, and other support activities all have the potential to benefit from the types of automation that generative AI enables.
When it comes to investor appetite, Bain’s report showed that most investors agree that AI will have a significant effect on the tech sector. In fact, investors’ enthusiasm for AI is high, with AI and ML investments leading venture growth in the first half of 2023. However, most investors think that the evolution of the competitive landscape remains to be seen.
To avoid disruption risks, investors must consider both disruption potential and structural barriers in the market. They must also consider whether or not companies own proprietary data could enrich generative AI applications.
“Top funds are not waiting to see how generative AI changes this space. They are biasing toward action to capitalize on the potential of their incumbent software assets,” said Crawford.
Investor perspectives: A buyers’ market is coming for tech assets
Investor sentiment on the broader tech sector, on the other hand, has been lackluster since the third quarter of 2022. With deal volumes and exit values down, a growing backlog of deals, including more than $700 billion of tech assets purchased between 2018 and 2021, has led to longer hold times of tech portfolio companies.
In 2023, nearly half of tech portfolio companies have been held for more than four years, and for the first time since 2012, more than 40% of tech portfolio companies are being held for more than four years. This backlog of long-held portfolio assets is growing more quickly than the record level of dry powder that is holding steady, which will create a buyer’s market when activity picks up.
Investors reward tech companies differently based on a company’s context and point in the life cycle, according to Bain. Some investors are attracted to young, disruptive companies based on their growth potential. As companies and their markets mature, investors expect a mix of growth and returns. Mature companies with a proven track record in stable markets can expect slower growth while their investors are closely focused on profitability.
To maximise value, investor relations strategies of tech companies should change over time as markets mature. Understanding the role between market maturity, investor expectations, and sources of total shareholder returns are essential to deliver shareholder value at every step of the journey.
Post-globalisation: Tech manufacturers diversify supply chains and R&D locations
In another chapter of the tech report, Bain predicts that the global footprint of the technology value chain is likely to look very different, a decade from now. Macroeconomic shocks in the last few years have prompted tech manufacturers to build resilience into their supply chains, primarily by expanding their geographic footprints to new locations in Asia, Europe, and North America, creating more flexibility within their talent pools. This initially led companies to align their supply chains processes, but now these businesses are safeguarding critical business aspects and are getting closer to end markets through diversifying R&D, talent, and innovation hubs.
Some of the other topics discussed in this year’s report include AI and cybersecurity, digital innovation, and intelligent edge.
Brahaim Laaidi, a partner at Bain & Company Middle East, said: “At a time where technology is constantly at our fingertips, Bain & Company’s latest annual Global Technology Report shows the impact of these innovative tools on our daily lives and how they are shaping our business practices. There is no doubt that technology will continue to advance, and we can anticipate the introduction of new technologies in the near future. Therefore, it is important for businesses to not only stay one step ahead and be prepared to embrace these tools but also understand how they will impact their day-to-day operations.”