We've all heard the term "growing the pie" in the context of enlarging an economic opportunity to enrich more people. That kind of pie growth is visible today in the automation & AI space, where swelling revenue streams are accelerating prosperity for software vendors & service providers. This in turn is driving the formation of an automation- & AI-centered business ecosystem which ultimately will have a significant macroeconomic impact on numerous industries. At least that's the prediction of Jay McBain from Forrester research who, perhaps more than anyone else, has devoted himself to studying this ecosystem.
Jay's insights are highly sought after, which is why Channel Partners Magazine named him their 2021 Channel Influencer of the Year. In this episode we catch up with Jay, who shares his vast erudition with us on the mind-boggling number of market opportunities going unmet by automation providers; the biggest disruptions we'll see in the coming years for the automation and AI ecosystem; & why every company is becoming a tech company.
Guy Nadivi: Welcome, everyone. My name is Guy Nadivi and I'm the host of Intelligent Automation Radio. Our guest on today's episode is Jay McBain, Principle Analyst, Channels Partnerships, and Ecosystems at Forrester Research. There's a gold rush in the fields of automation, AI, and digital transformation, but as Jay says, “Not everyone is a bot creator”. Someone's got to be selling shovels and blue jeans to the gold miners, doing the gritty work of automating manual processes. That's where Jay comes in. He views intelligent automation, not from a technology stack perspective, but from a holistic ecosystem viewpoint.
Jay's 360-degree observation of all elements in this fast-growing space and disseminating his insights about it, led to his recently being named 2021 Channel Influencer of the Year by Channel Partners Magazine. They're not the only ones to recognize his valuable opinions though, which is why we've invited him to join us on the podcast and share some insights with our audience as well. Jay, welcome to Intelligent Automation Radio.
Jay McBain: Well, thank you so much for having me. Great to be here.
Guy Nadivi: Jay, I think a lot of our listeners would be very interested to learn what path your career took that eventually led you to be named 2021 Channel Influencer of the Year by Channel Partners Magazine.
Jay McBain: Yeah. I've had a interesting path. I've been in the channel, which you define as 75% of world trade goes indirectly and working with third parties of different types. I started my career with IBM, got to spend 17 years with IBM and Lenovo. Obviously, worked very early on in my early days as we were competing against Kasparov in chess, if you remember, in the mid-90s. Obviously, went to competing on Jeopardy later on in AI and different levels of automation. I actually left and did a startup in AI and automation called Channelize. And we worked in the channel space, connecting the dots between distributors and suppliers and manufacturers and OEMs and driving that business. So, that was fun.
And now for four and a half years, I worked for Forrester. So, I get to wake up every day thinking about the things that wrap around large industries, fast growing industries like this, and try to plumb in some of the details around how this money gets to market, how the money flows, as well as all of the different value that gets added on top of it.
Guy Nadivi: You've recently written that, "Automation has become the number one growth opportunity in the entire industry, with RPA firms growing at 81%." I believe you've also stated that spending on automation has even eclipsed spending on cloud. At Resolve Systems, we talk about something we call the IT automation flywheel, which is a metaphor for the growing momentum automation generates within an enterprise when all the pieces fall into place and the benefits start accumulating. Has automation attained flywheel-like momentum on a macroeconomic level? And if so, is the channel ready to service that flywheel?
Jay McBain: That's a great question. So, I wouldn't put it into flywheel status. I would say that the growth has been phenomenal. The growth has also been on a relatively low base. So, when we talk about the move to cloud, I think most of us have seen Microsoft growing at 51, 51, 50, 49, 48%, quarter on quarter, year on year inside a pandemic. We've seen Google cloud grow at 46. We've seen AWS grow in the 30s. The fact of the matter is the big SaaS companies are also growing somewhere between 20 to 30%. RPA as a specific part of automation has grown at 81, as you mentioned, I will say for most of the channel. And these are people that participate at different parts of the customer's journey, those early parts, especially during a pandemic, when many human-based processes and business logic and workflows broke down.
When not only did we lose the humans who went home, we lost the office environment, which many of these workflows were created around. And the shift went to then automation, not to eliminate humans, but to move humans to more parallel inside every process, inside every part of the organization. So, one of the examples, if you talk about a flywheel is that today, if you look at the software market, which a lot of automation works inside of, the no-code and low-code platforms, these. If you look at a sales force, the lightning bolts and lightning flows, a lot of that will happen inside SaaS tools themselves. And 65% of SaaS is bought outside of IT.
In many companies, the head of marketing spends more money on technology now than the head of technology. So, when I get to flywheel status, I start to think about the 12 buyers across, not only marketing, but sales and operations and finance and HR. I start to think about realigning, reimagining how they drive their departments, how they feed up into the broader infrastructure in the company. And I would say, we're in the early innings, in terms of that flywheel spinning.
Guy Nadivi: Some people might be surprised to learn that despite all of the intelligent automation vendors proliferating out there, up to 64% of the automation ecosystem is actually services which are delivered by providers employing 16 different business models, including MSPs, Consultants, SIs, Digital Agencies, ISVs, etc. If I were coming into the automation market today as a provider of some type, what opportunity would you advise me to focus on that is an unmet demand?
Jay McBain: It's a great question. So, the market is complex. There's a lot of moving parts and let me just explain a few of them. I just went through the 12 different buyers in the lines of business around automation, but obviously, you have CIOs, and CTOs, and CDOs, and CISOs. I mean, there's dozens of different buyers of automation. There's 297 sub-industries that have automation-specific last mile type of opportunities. And so, we're not talking at the vertical level anymore. It's not health care automation. We're talking about a mid-sized clinic with 50 doctor automation, as different than a dentist office, which is different than the automation that a small hospital would do. Health care would have 12 sub industries. So, there's 297 sub-verticals there, that would be opportunities.
Geographic, you look at the different states and provinces inside that health care conversation or the different countries in Europe, Asia Pacific. There's 197 countries. There's a lot of very geographic-specific legislation, regulation, governance, compliance that goes into automation, that provides an opportunity. The different sector, segment, and size of customers and the organizations that you're working in have different levels and depth and breadth in terms of what they're able to do. And then number five, automation itself. Intelligent automation actually breaks down into over a dozen different technologies underneath it in the stack.
So, if I start multiplying those five things together and then add what you just mentioned, managed services versus professional services, what we'll call early-stage architecture and design, versus late stage adoption and deeper integrations, stickiness, etc. If you take all of these variables, I count up about 35 million market opportunities, which is unmet demand in automation. And of all these automation vendors out there, they're not looking for new partners that can do all things to all people, all the time. I haven't met anyone yet that can deliver on 35 million different permutations inside automation.
What they're looking for is people to stick up their hand and say, "Hey, we're experts in mid-size clinics in upstate New York, in front of a marketing buyer with 50 doctors in these areas of automation.” That's the type of relationship, that's the kind of declaration that vendors are looking to hear. And obviously search engines are looking for and marketplaces, everyone's looking for that level of granularity in the go-to market.
Guy Nadivi: You've stated that, "Every company in every industry is becoming a tech company. The offshoot of that is every services company in every industry is becoming a tech services company." Jay, for MSPs and other service providers in the channel, what does that portend for their future competitive landscape?
Jay McBain: Yeah, part of it’s competitive and part of it isn't. What we are moving from though is the end of what we'll call the single throat to choke, or that single trusted advisor that we spent the first 40 years in our industry talking about. We know now that the average customer inside automation may have upwards of five different partners that are adding different value. So, when I talked about all those millions of permutations, when I talk about the different parts of the journey. Early journey, you got the actual transaction of how you're going to invest and provision and procure automation technology, and then long term, every 30 days forever.
So, there's no business model singularly that can handle all of those different things. So, we know today that it's really a partner-to-partner type environment. And so, in terms of future competitive, every dollar of intelligent automation throws out a lot of opportunity, what I call the multiplier. And no company yet, and the first to, I think come close is UiPath, is starting to talk now about the opportunities with partners to go see, let's say a $100,000 automation deal, RPA type deal, and go look at the half million dollars of services that, that kicks out. That's the 64% that you mentioned earlier, and what those are.
The product needs to be implemented and integrated, needs to be customized, it needs to be secured and compliant, obviously, the data and the different elements of automation around it. There's so many services that wrap around every dollar, that we're seeing a huge demand as every company becomes a tech company. We're seeing, and I'll give you a couple of examples, that marketing buyer who's spending more on technology now than the tech buyer, the digital agencies, marketing agencies that have supported this buyer for over 100 years, 78% of them are now tech services companies.
They'll do creative and concierge work, that's what they love to do, but they're leading on their website with their implementation skills, their integration skills. Some of them are getting into bot building and actual development and DevOps and things like that. So, we're seeing some crazy changes. If you get in front of a financial buyer, 81% of accounting and CPA firms, there's 300,000 of them, 81% are now in the tech services game. That's what's on the front of their website. And that's what's so exciting about this market is that it really is a broad market and many different people can bring automation to market. And you don't have to have deep scientific technical skills back in the raised floor server room to be able to do it.
Guy Nadivi: Another leading analyst is telling their customers who purchase outsourcing services, that they should expect their MSP vendor to start automating their service offerings and begin sharing back to the client the benefits of automation in the form of reduced charges. If an MSP doesn't do that, this analyst is effectively telling sourcing executives to go find another MSP that does. How much pressure of this nature are you seeing organizations place on their MSPs?
Jay McBain: Well, I think that this other leading analyst might have been asleep at the switch. Managed services is a 20-year old industry, and we're at a point now where the ceiling price for what most managed services providers as a portfolio bring to market. That price is a $113 per user by the way. We are at a point now where 25% of MSPs lose money, the next 25% struggle to break even. Literally half the market right now is struggling as a business. So, if you're talking about MSPs dropping their price, if you talk about leading MSPs getting more efficient because of automation and reducing those costs, that happened about a decade ago.
And this industry is now facing threat. And automation, by the way, is one of the areas, not in terms of further automating their own businesses, which they have to do, but jumping on this 81% growing opportunity to go help their clients in a different way than they've gone to market in the past. So, I think we are past that stage and now we're at the next stage where MSPs can provide some interesting recurring type services wrapped around intelligent automation.
Guy Nadivi: I've read that one of the concerns holding back some MSPs from moving more aggressively with automation and AI is their fear of cannibalizing their revenue base. In other words, because automation and AI are proving cost effective, it forces MSPs who roll out those technologies to charge less for their offerings at the expense of labor-based services. How are you seeing fear of cannibalization shaping MSP decisions about automation and AI?
Jay McBain: Well, first, I think it's being driven a lot out of the more empowered buyer, in terms of how they want to shape their own workflows and shape their own business. MSPs themselves, the entire managed services market was based on automation. And I worked for a company called Autotask, which was a PSA or professional services automation company, about 11 years ago. The other part of MSP technology stack is called RMM, remote monitoring and management. These are all automation tools at scale that allow an MSP to serve multiple clients more effectively than they would be able to do internally with people on the bench and managing skills and managing the different moving parts.
The idea of outsourcing really worked in 23% of companies, outsource some or all of their IT, and that's 23, which means three quarters of them don't. And I would say that, that was a success story over the last 20 years of automation, and that's continued to drive. I look at all the companies in that space that are working with MSPs, that are part of the MSP's tech stack, and automation of all the new multi-cloud, hybrid cloud world. Automation of every company becoming a tech company, all these things are looking forward what the next 10 years drives for this industry that is growing by double digits.
So, I would say that, are they fear of cannibalization? No, I think that they're more of leaning in to see what other adjacent opportunities that automation can drive for them. And like I said, for half of them, more profitable type of opportunities so they can get back and right up the ship.
Guy Nadivi: Jay, what do you think will be some of the biggest disruptions we'll see in the automation and AI ecosystem over the next one to three years?
Jay McBain: The biggest disruption is actually the breadth of automation and AI. Now that it is the fastest growing area, and suffice to say, we're not really coming out of a pandemic, we don't know exactly where we are in the timeline of the pandemic, but this has accelerated all of these underlying trends. We're seeing a disruption in terms of how buyers work through their journey and how they make decisions, their psychology, their behavior, the different moments inside the journey. That's probably having the biggest disruption, because they're starting to think about automation and AI inside, embedded, or white labeled inside everything they do. They don't see it as a product that you buy through a reseller or you buy through distribution. They're thinking about it now in terms of their business outcome, the problem they have and a layer of the cake to solve it, which I think is fantastic.
You're also seeing, as every company becomes a tech company, every person inside those tech companies. I mentioned those line of business buyers, what I didn't mention is that the head of marketing or the head of HR, the head of finance, they're now spending 51% of their time on tech. So, they've become technologists themselves and whatever they have to do in marketing or HR has become their night job. So, what's interesting here is that you're not dealing with people that don't understand technology, you're dealing with people that are pushing the envelope on that. And for all the other players that are supporting those people, which I said was on average five, it is really an automation and AI story, and we're not selling the hype anymore.
We're not selling this future state. We're actually in conversations and customers are spending money. And we're in the mode now of rethinking customer experience, employee experience, partner experience, all the things that these buyers are looking to solve for using automation.
Guy Nadivi: Jay, for the CIOs, CTOs, and other IT executives listening in, what is the one big must have piece of advice you'd like them to take away from our discussion with regards to purchasing intelligent automation products and services for their organizations?
Jay McBain: Yeah. The one thing that I say is, our world was always local or hyper-local or distributed. It's always the person down the street within five miles of us that were helping us in terms of technology. When I go back to my earlier conversation on 35 million permutations, I would push CIOs and CTOs, IT executives of all types to look for expertise, look for that exact resume that fits what you're trying to do as an outcome, that fits your sub-industry, that fits your geography, that fits your sector size of your company, that fits the elements of the product categories that you need to be successful.
There are, perhaps, instead of millions of partners out there, there could be a handful that carry black belts in what you do. And now we're in a mode, obviously working off Zoom and working much more digitally than ever before. We're not darkening the skies with planes. You're not putting 20, 30 people down the street at a Holiday Inn for six months. You can build an A-team around automation and you can look globally around who has that resume and who has that success story. And it doesn't really involve geography anymore, which is exciting.
Guy Nadivi: All right. Looks I that's all the time we have for on this episode of Intelligent Automation Radio. Jay, I saw you recently wrote that the 2020s will be the decade of the ecosystem, and ecosystem orchestrators can become new trusted advisors, experiencing extraordinary growth. I think that you've orchestrated a new understanding for our audience today, of just how big the opportunity is for automation and AI in the coming years, and I suspect many listeners will become even more motivated to pursue it. Thanks for coming onto the show and sharing your expertise with us.
Jay McBain: Thank you so much for having me.
Guy Nadivi: Jay McBain, Principle Analyst, Channels, Partnerships, and Ecosystems at Forrester Research. Thank you for listening, everyone. And remember, don't hesitate, automate.