2B Software Disruption Accelerates: A Look into Global Software Unicorns
Consider these trends on the way to the software-led internet transformation: Enterprise software is dominant in the map; Entertainment diversifies; Professional services concentrates on designing.
Internet software is transforming people’s living and enterprises operations in every aspect in current world. Unprecedent innovation and opportunities are born therein. The article identifies today’s internet software and services unicorns and goes on to explore some key trends.
Of the venture-backed internet software and services firms that have become unicorns as of July 31, 2019, EqualOcean found that the median time between their funding time and the day they joined the club was 7.4 years.
Not surprisingly, as the U.S. leads in the overall share of unicorns to date (around 50%), it remains its dominant position in the Internet software and services industry. 41 companies in the unicorn list are from the country among the total 50.
Business-focused software expands into the unicorn ranks
29 to-business (2B) unicorns retained an accumulative valuation of USD 40.68 billion while 14 Entertainment/to-consumer unicorns with USD 29.06 billion valuation in total. The average valuation of Enterprise software firms is USD 1.4 billion, compared to 2C-sector’s average USD 2.07 billion.
Still, Enterprise software companies dominate the unicorn list in terms of count. Team collaboration and Human Resource are the most two popular sectors.
Zenefits, an all-in-one Digital HR platform for small and medium businesses, ranks first in the sector with a high valuation of USD 2 billion. Monday.com (valued at USD 1.9 billion), the newborn unicorn this year, builds a tool that transforms the way teams works together and provides dozens of workflow templates. Salesforce-backed TalkDesk (valued at USD 1 billion) enables enterprises to make customer experience better.
Not too much vertically focused players here, however.
Product design. InVisionApp provides SMBs, design agencies product design tools and allows them to create things for mobile and web platforms.
Marketing & Media. Zeta Global (valued at USD 1.3 billion), Intel Capital-backed Sprinklr (valued at USD 1.8 billion) and MediaMath (valued at USD 1 billion) offer social media technology and solutions to enable brands to acquire customers.
Construction. Procore Technologies (valued at USD 3 billion) provides cloud-based construction management software. Construction firms have begun to embrace the cloud in recent years. It allows construction professionals to access to information and plans while on site. EqualOcean expects more unicorns in this vertical as improvements along the entire Building Information Modeling (BIM) value chain are allowing for optimized designs and workflows through mobile technologies.
Restaurants. Google and Tiger Global-backed Toast (valued at USD 2.7 billion) offers advanced functionality including tableside ordering, quick menu modifications, real-time enterprise reporting, online ordering, and labor management. The restaurant software market is relatively small but is expecting a strong growth. OpenTable (OPEN: NASDAQ) allows users to make online restaurant reservations and read reviews, also works in marketing, CRM and diner analytics. As food delivery startups continue to be popular with some disruptors joined the game (say, Uber), kitchen and back-end need tech upgrades and offer opportunities to optimize.
As software building and shaping the future of technology scene, three types of companies pave the way for that - open-source platform, low-code platform and marketplace. They either let developers have a secure and versatile development environment to create web- and mobile prototypes fast, or accelerate sales of applications.
Open-source software is publicly accessible, which allows developers to exchange code and ideas in a transparent and collaborative fashion. It also enables flexibility for many businesses looking to solve a wide range of problems. One of the most famous open-source firm Github has been acquired by Microsoft for USD 7.5 billion. Red Hat has been acquired by IBM for USD 34 billion. A few similar companies are HashiCorp (valued at USD 1.9 billion), GitLab (valued at USD 1.1 billion).
Low-code platform Outsystem (valued at USD 1 billion), a complete solution for building web applications (not a tool to build frontends or websites), was mentioned as industry leaders in report conduct by Forrester. AppDirect, valued at USD 1.04 billion, aims to connect channels, developers, and customers through its platform to simplify supply chain of cloud subscriptions.
How software changes Entertainment & Professional services
Funding is flowing into the Entertainment and pushing up companies valuations, where we can see more diversified geographical distribution. India welcomed its new unicorn Dream 11 in April, an online fantasy sports service. The firm taps into the world’s largest market for cricket which also has a strong soccer fanbase and expects to have 100 million registered users by the end of 2019. Chinese tech giant Tencent led the USD 100 million Series D round of funding that valued the firm at USD 500 million last September. Paris-born music streaming service Deezer has 14 million monthly active users and is available in over 180 countries, which is valued at USD 1.16 billion. Behind one of the two dominant battle royale games PUBG (the other is Fortnite), its parent company Bluehole is now valued at USD 5 billion.
Tencent has been involved in financings to five unicorns from Gaming and Social media industry that valued at USD 12.3 billion in total. Three in Gaming include Bluehole, Deezer, and also San Francisco-based Discord that specialized in voice, video, and text chat application for gamers; Two in Social media comprise of Zhihu (valued at USD 2.5 billion) - a socialized content platform and also counterpart of Quora (valued at USD 1.8 billion) in China, and Reddit (valued at USD 1.8 billion). Apart from that, one of the most frequent investors in gaming industry Tencent owns shares in game developers Riot Games, Activision Blizzard, Epic Games, and more.
In the Professional services sector, there is an enormous opportunity for internet software to bring structure and efficiency to Designing, a market that consists of websites and photographs. The Accel-backed SaaS firm Squarespace that allows users to create webpages is valued at USD 1.7 billion; Paris-based Meero (valued at USD 1 billion)and Sydney-based Canva (valued at USD 2.5 billion) provide enhanced photography services.
Horizontal or Vertical? Spark Capital analysts Andrew Parker and David Haber looked into marketplace that carves out niches from Craigslist. Though several vertical players like ride-hailing company Uber, online financial platform LendingClub worked out, some vertical players failed. Josh Breinlinger from Jackson Square Ventures thus pointed out that the really big winner in each category is a horizontal platform for the whole category, eg, community, forums, personals, classifieds, etc.
Thumbtack belongs to those “big winners”, an online marketplace that connects millions of people with local professionals for their projects, gains traction from its horizontal strategy targeting at broad job services. 58 Daojia But we see a “smaller” player LegalZoom in the subsector as well. It provides online legal document services and legal plans to families and small businesses.
Note: CB Insights breaks down the internet sector into e-commerce and software and services. Original internet software & services unicorns can be tracked here. From that, EqualOcean eliminated Nxin (Supply chain, logistics, & delivery), Peloton (Health), and Zomato (Supply chain, logistics, & delivery), out of EqualOcean's understanding towards the industries.