The term Unicorns was coined by Venture Capitalist Aileen Lee in 2013
symbolizing the statistical rarity of such successful ventures. However, these
organisations have now become almost commonplace, reaching 220+ in number and
multiplying at incredible speed, a CAGR of 233% to be exact during the last 3
years.
The massive economic scale of the Unicorns club can be understood from their combined net worth which has reached nearly $724 billion USD in 2017, just shy of Netherland's gross domestic product (GDP). If Unicorns were an independent nation, they would form the world's 18th largest economy!!
These organisations, being digitally native, structurally lean and technologically agile have emerged across all industries designing, hacking, and changing products, structures and business models of traditional industries.
The top of the herd is dominated by some of the very big ones including the Uber, Airbnb, Chinese Xiaomi, Didi and China Internet Holdings which are among the fourteen decacorns, a term used for private venture-funded company’s worth over USD $10 billion.
What are they doing with the money? Not a lot, it would seem.
Leveraging our DRAUP platform, we estimated that Unicorns spend on technology reached a massive USD 32 bn, growing exponentially at a rate of 133% YoY during the last 3 years.
Product development and Infrastructure Support are the major spend areas for all Unicorns. Nearly 47 percent of the total technology spend is consolidated on product development, being the key differentiator of superior product experience and growth enabler for Unicorns. Technology spending on digital areas such as Design, Data science and AI are amongst the core focus segments for creating a personalised experience in consumer space and intelligent products in enterprise space.
On the infrastructure-support front, the heavy technology spending is to ensure robust scale that can support a large number of customer transactions, active security requirements and analysing a large dataset of customers, products and other stakeholders within and outside the organisation. However, being born digital, nearly 95 percent of their infrastructure is based on cloud platforms which is reliant on global external vendors. The spending on Cloud hosting, network management and security & maintenance activities is a huge component, comprising of nearly 53 percent of their total technology spend. AWS maintains a significant market share lead, controlling nearly 65% total market among Unicorns. Unicorns such as Snapchat has already announced a contract with AWS for spending USD 1 bn on latter’s cloud services over next 5 years.
How do these hyper scaling organisations put up large technology capability in a short while?
The answer lies within the unconventional route which has been adopted by Unicorns compared to the traditional organisations.
During the growth stage Unicorns rely on infrastructure from 3rd party platforms, open source OS, libraries and other platform providers.
Take the case of Airbnb which has built its backend infrastructure supported by open source nginx platform and used AWS for hosting. It has also developed capabilities through partnerships, acquisitions or acqui-hiring niche solution providers such as Twilio for communication, LocalMind for navigation, Trooly for identity verification etc.
As Unicorns scale, they bring critical capability inhouse in order to provide the users with a seamless experience across the product stack. They also invest in enforcing a comprehensive product control as well as an overarching security, privacy and regulatory compliance.
Many Unicorns such as Uber has invested nearly half a billion on Mapping project to build inhouse capabilities and plans to create its own detailed maps for traffic patterns, pickup location etc. for its autonomous car project. Cloudera is building necessary data centre infrastructure in-house and Airbnb has developed a search and discovery algorithm to search 35k diverse property listing on its website.
As they develop deep expertise in their technology stack, Unicorns sometime opensource their capabilities. Airbnb has already taken a step ahead by open sourcing its AirMapView API to co-innovate and experience data from real world models. Its API enables interactive maps for devices with and without Google Play Services to support multiple native map providers such as Google Maps V2.
Given their openness to work and readiness to scale their existing capacity in emerging areas, Unicorns are good potential segment for Technology Service Providers (TSPs) to collaborate.
So, how should the TSPs leverage this hyper evolving Unicorns ecosystem? Are Unicorns a viable target segment for technology service and solution providers to target?
We have already seen instances where TSPs have partnered with scaled Unicorns. Outsourcing giants such as Wipro has partnered with Uber at its Bangalore based map improvement group. Tata Technology Services has announced plans to work with NextEV and Faraday Future to codevelop battery technology for Electric Vehicles in Bay Area.
But what are the activities where Unicorns need help to develop capabilities?
Most of the Unicorns have small existing development teams focussed on core product activities. These companies face challenges in scaling up their existing workforce and infrastructure set-up to address potential exponential growth. Non-core functions such as Dev-Ops, Customer Support and Q/A are the areas where Unicorns lack capability and leverage third party solution providers to help them scale.
However, TSPs need a proactive sales approach and thinking while planning for collaboration with these hyper evolving companies.
Unicorns needs are dynamic and short lived. Secondly, it has been observed that their decision-making is widely different from traditional organisations. The Product ownership and responsibilities in many Unicorns is distributed across new age stakeholders such as CMOs, CROs, CAOs, CInOs etc., unlike the traditional organisations where decision making is confined to senior stakeholders such as CIOs.
1. TSPs need to be proactive in selling and need to engage early with young Unicorns to offer integration services for scaling latter’s core product capabilities
2. This would require TSPs to develop capability in digital areas to explore new age partnership in segments such as User Experience, API management and integration services etc.
3. Decision makers in Unicorns have diverse roles across emerging markets, products and business segments. TSPs need to establish deep connections with new age stakeholders as compared to restricting engagement with only CIOs
4. Most of the Unicorns does not have global engineering presence. TSPs need to engage through an on-shore delivery model to sell customized services by understanding the technology stack and dependencies of the prospect. This would require deep understanding of the pain points by working closely with the in-house engineering teams.
Many events such as large VC investment, M&A and leadership change are some of the major triggers which could lead to a potential outsourcing requirement for Unicorns. An event such as a senior leadership hiring from a global outsourcing organisation could be a signal for strengthening existing product capability through investment in newer technologies or talent.
Draup’s Signal Processing tracks and interprets subtle and obvious changes in organizations to recommend proactive actionable decisions for long term sales strategy.
The massive economic scale of the Unicorns club can be understood from their combined net worth which has reached nearly $724 billion USD in 2017, just shy of Netherland's gross domestic product (GDP). If Unicorns were an independent nation, they would form the world's 18th largest economy!!
These organisations, being digitally native, structurally lean and technologically agile have emerged across all industries designing, hacking, and changing products, structures and business models of traditional industries.
The top of the herd is dominated by some of the very big ones including the Uber, Airbnb, Chinese Xiaomi, Didi and China Internet Holdings which are among the fourteen decacorns, a term used for private venture-funded company’s worth over USD $10 billion.
What are they doing with the money? Not a lot, it would seem.
Leveraging our DRAUP platform, we estimated that Unicorns spend on technology reached a massive USD 32 bn, growing exponentially at a rate of 133% YoY during the last 3 years.
Product development and Infrastructure Support are the major spend areas for all Unicorns. Nearly 47 percent of the total technology spend is consolidated on product development, being the key differentiator of superior product experience and growth enabler for Unicorns. Technology spending on digital areas such as Design, Data science and AI are amongst the core focus segments for creating a personalised experience in consumer space and intelligent products in enterprise space.
On the infrastructure-support front, the heavy technology spending is to ensure robust scale that can support a large number of customer transactions, active security requirements and analysing a large dataset of customers, products and other stakeholders within and outside the organisation. However, being born digital, nearly 95 percent of their infrastructure is based on cloud platforms which is reliant on global external vendors. The spending on Cloud hosting, network management and security & maintenance activities is a huge component, comprising of nearly 53 percent of their total technology spend. AWS maintains a significant market share lead, controlling nearly 65% total market among Unicorns. Unicorns such as Snapchat has already announced a contract with AWS for spending USD 1 bn on latter’s cloud services over next 5 years.
How do these hyper scaling organisations put up large technology capability in a short while?
The answer lies within the unconventional route which has been adopted by Unicorns compared to the traditional organisations.
During the growth stage Unicorns rely on infrastructure from 3rd party platforms, open source OS, libraries and other platform providers.
Take the case of Airbnb which has built its backend infrastructure supported by open source nginx platform and used AWS for hosting. It has also developed capabilities through partnerships, acquisitions or acqui-hiring niche solution providers such as Twilio for communication, LocalMind for navigation, Trooly for identity verification etc.
As Unicorns scale, they bring critical capability inhouse in order to provide the users with a seamless experience across the product stack. They also invest in enforcing a comprehensive product control as well as an overarching security, privacy and regulatory compliance.
Many Unicorns such as Uber has invested nearly half a billion on Mapping project to build inhouse capabilities and plans to create its own detailed maps for traffic patterns, pickup location etc. for its autonomous car project. Cloudera is building necessary data centre infrastructure in-house and Airbnb has developed a search and discovery algorithm to search 35k diverse property listing on its website.
As they develop deep expertise in their technology stack, Unicorns sometime opensource their capabilities. Airbnb has already taken a step ahead by open sourcing its AirMapView API to co-innovate and experience data from real world models. Its API enables interactive maps for devices with and without Google Play Services to support multiple native map providers such as Google Maps V2.
Given their openness to work and readiness to scale their existing capacity in emerging areas, Unicorns are good potential segment for Technology Service Providers (TSPs) to collaborate.
So, how should the TSPs leverage this hyper evolving Unicorns ecosystem? Are Unicorns a viable target segment for technology service and solution providers to target?
We have already seen instances where TSPs have partnered with scaled Unicorns. Outsourcing giants such as Wipro has partnered with Uber at its Bangalore based map improvement group. Tata Technology Services has announced plans to work with NextEV and Faraday Future to codevelop battery technology for Electric Vehicles in Bay Area.
But what are the activities where Unicorns need help to develop capabilities?
Most of the Unicorns have small existing development teams focussed on core product activities. These companies face challenges in scaling up their existing workforce and infrastructure set-up to address potential exponential growth. Non-core functions such as Dev-Ops, Customer Support and Q/A are the areas where Unicorns lack capability and leverage third party solution providers to help them scale.
However, TSPs need a proactive sales approach and thinking while planning for collaboration with these hyper evolving companies.
Unicorns needs are dynamic and short lived. Secondly, it has been observed that their decision-making is widely different from traditional organisations. The Product ownership and responsibilities in many Unicorns is distributed across new age stakeholders such as CMOs, CROs, CAOs, CInOs etc., unlike the traditional organisations where decision making is confined to senior stakeholders such as CIOs.
1. TSPs need to be proactive in selling and need to engage early with young Unicorns to offer integration services for scaling latter’s core product capabilities
2. This would require TSPs to develop capability in digital areas to explore new age partnership in segments such as User Experience, API management and integration services etc.
3. Decision makers in Unicorns have diverse roles across emerging markets, products and business segments. TSPs need to establish deep connections with new age stakeholders as compared to restricting engagement with only CIOs
4. Most of the Unicorns does not have global engineering presence. TSPs need to engage through an on-shore delivery model to sell customized services by understanding the technology stack and dependencies of the prospect. This would require deep understanding of the pain points by working closely with the in-house engineering teams.
Many events such as large VC investment, M&A and leadership change are some of the major triggers which could lead to a potential outsourcing requirement for Unicorns. An event such as a senior leadership hiring from a global outsourcing organisation could be a signal for strengthening existing product capability through investment in newer technologies or talent.
Draup’s Signal Processing tracks and interprets subtle and obvious changes in organizations to recommend proactive actionable decisions for long term sales strategy.
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