Robotic process automation (RPA) has certainly been getting a lot of attention in the last year, with startups, acquisitions and IPOs all coming together in a flurry of market activity. It all seemed to culminate with UiPath’s IPO last month. The company that appeared to come out of nowhere in 2017 eventually had a final private valuation of $35 billion. It then had the audacity to match that at its IPO. A few weeks later, it still has a market cap of over $38 billion in spite of the stock price fluctuating at points.
Was this some kind of peak for the technology or a flash in the pan? Probably not. While it all seemed to come together in the last year with a big increase in attention to automation in general during the pandemic, it’s a market category that has been around for some time.
RPA allows companies to automate a group of highly mundane tasks and have a machine do the work instead of a human. Think of finding an invoice amount in an email, placing the figure in a spreadsheet and sending a Slack message to Accounts Payable. You could have humans do that, or you could do it more quickly and efficiently with a machine. We’re talking mind-numbing work that is well suited to automation.
In 2019, Gartner found RPA was the fastest-growing category in enterprise software. In spite of that, the market is still surprisingly small, with IDC estimates finding it will reach just $2 billion in 2021. That’s pretty tiny for the enterprise, but it shows that there’s plenty of room for this space to grow.
We spoke to five investors to find out more about RPA, and the general consensus was that we are just getting started. While we will continue to see the players at the top of the market — like UiPath, Automation Anywhere and Blue Prism — jockeying for position with the big enterprise vendors and startups, the size and scope of the market has a lot of potential and is likely to keep growing for some time to come.
To learn about all of this, we queried the following investors:
- Mallun Yen, founder and partner, Operator Collective
- Jai Das, partner and president, Sapphire Ventures
- Soma Somasegar, managing director, Madrona Venture Group
- Laela Sturdy, general partner, CapitalG
- Ed Sim, founder and managing partner, Boldstart Ventures
We have seen a range of RPA startups emerge in recent years, with companies like UiPath, Blue Prism and Automation Anywhere leading the way. As the space matures, where do the biggest opportunities remain?
Mallun Yen: One of the fastest-growing categories of software, RPA has been growing at over 60% in recent years, versus 13% for enterprise software generally. But we’ve barely scratched the surface. The COVID-19 pandemic forced companies to shift how they run their business, how they hire and allocate staff.
Given that the workforce will remain at least partially permanently remote, companies recognize that this shift is also permanent, and so they need to make fundamental changes to how they run their businesses. It’s simply suboptimal to hire, train and deploy remote employees to run routine processes, which are prone to, among other things, human error and boredom.
Jai Das: All the companies that you have listed are focused on automating simple repetitive tasks that are performed by humans. These are mostly data entry and data validation jobs. Most of these tasks will be automated in the next couple of years. The new opportunity lies in automating business processes that involve multiple humans and machines within complicated workflow using AI/ML.
Sometimes this is also called process mining. There have been BPM companies in the past that have tried to automate these business processes, but they required a lot of services to implement and maintain these automated processes. AI/ML is providing a way for software to replace all these services.
Soma Somasegar: For all the progress that we have seen in RPA, I think it is still early days. The global demand for RPA market size in terms of revenue was more than $2 billion this past year and is expected to cross $20 billion in the coming decade, growing at a CAGR of more than 30% over the next seven to eight years, according to analysts such as Gartner.
That’s an astounding growth rate in the coming years and is a reflection of how early we are in the RPA journey and how much more is ahead of us. A recent study by Deloitte indicates that up to 50% of the tasks in businesses performed by employees are considered mundane, administrative and labor-intensive. That is just a recipe for a ton of process automation.
There are a lot of opportunities that I see here, including process discovery and mining; process analytics; application of AI to drive effective, more complex workflow automation; and using low code/no code as a way to enable a broader set of people to be able to automate tasks, processes and workflows, to name a few.
Laela Sturdy: We’re a long way from needing to think about the space maturing. In fact, RPA adoption is still in its early infancy when you consider its immense potential. Most companies are only now just beginning to explore the numerous use cases that exist across industries. The more enterprises dip their toes into RPA, the more use cases they envision.
I expect to see market leaders like UiPath continue to innovate rapidly while expanding the breadth and depth of their end-to-end automation platforms. As the technology continues to evolve, we should expect RPA to penetrate even more deeply into the enterprise and to automate increasingly more — and more critical — business processes.
Ed Sim: Most large-scale automation projects require a significant amount of professional services to deliver on the promises, and two areas where I still see opportunity include startups that can bring more intelligence and faster time to value. Examples include process discovery, which can help companies quickly and accurately understand how their business processes work and prioritize what to automate versus just rearchitecting an existing workflow.
Companies like FortressIQ, a portfolio company of Boldstart‘s, are leading the way, using machine vision and AI to create a detailed blueprint of every process across every application for customers like Dentsu and partners like Microsoft. On the time to value side, low-code, no-code platforms that democratize the ability to automate with individuals and citizen developers are just starting to get market adoption and have huge upside. Catalytic, another Boldstart investment, is one to watch as it’s building an impressive client list with companies like Bosch, Mayo Clinic and In-Q-Tel.
We have started to see Microsoft and SAP enter this space recently. Amazon, Salesforce, ServiceNow and Oracle could follow. What are the biggest threats to the RPA startup ecosystem?
Mallen Yen: Threats or opportunities? The fact is, all software companies are going to look toward more RPA in their solutions to provide relief from monotonous, repetitive work. This will enable their customers to reallocate their employees to focus on more critical, and frankly, satisfying work such as relationship building and problem-solving for their customers. We believe that the RPA startup ecosystem is ripe for growth and acquisition and will only heat up in the coming years.
Jai Das: I will argue that all these large companies have always been in this space. ServiceNow is really built on a low-code platform for automating processes. Even UiPath is built on Microsoft’s RPA platform. The success of UiPath (a Sapphire investment at IPO) is really based on its pricing model (based on the number of automated bots) and the company’s ability to partner and leverage SIs like Accenture. I will not be surprised if all the UiPath competitors are acquired by these large software vendors.
Soma Somasegar: It is great to see some of the larger platform providers do more in this space recently. These large companies and new startups in this space validate the huge opportunity ahead and provide a healthy competitive environment to further spur and drive innovation among the RPA companies. Also, this could drive RPA adoption faster across businesses and enterprises.
It will indeed be interesting to see the innovation and progress that some of these larger technology companies might make in the coming years. For now, UiPath and other RPA companies have a first-mover advantage on their side — and it shows in the robustness and the depth and breadth of product offerings and the rapid adoption of RPA by enterprises as evidenced by the growth and scale of companies like UiPath.
Laela Sturdy: It is a very large market, so we will continue to see growing competition and new entrants, all of which are great for the ecosystem. However, it is important to understand that the core RPA technology is difficult to build well. Best-in-breed providers benefit from their focus and experience in the space and will continue to win due to their ability to drive outsized results.
Companies like UiPath have developed incredible in-house talent and benefit from a lead of many years spent building out platforms with significant capabilities in computer vision, UI-based automation, API automation, OCR and unattended/attended automation, among other functions. Newer entrants will struggle to match the functionality, performance and comprehensiveness of the market leaders.
Ed Sim: It’s clear that while the market is huge, as more large-scale vendors have entered via acquisition or building their own, sales cycles are getting longer and downward pricing pressure is starting. Expect to see a wave of consolidation in 2021 and 2022 as everyone fills out their product portfolio to compete with market leader UiPath from the top down and Microsoft and others from the bottom up.
There are some emerging RPA companies looking at highly specialized areas like healthcare. How much of an impact do you think these niche players will have?
Mallen Yen: Hyperfocus on a specific area can be very effective depending on how large the problem is to solve. Healthcare is an area that has been ripe for technology innovation for years and it’s still filled with routine, outdated, manual processes. Insurance, one of my personal favorites, is another. I believe these companies that integrate RPA in their solutions will have great opportunities in the years ahead to grow and become critical to how these industries fundamentally operate.
Jai Das: I think in some large verticals like healthcare, vertical-specific RPAs will be very successful. These verticals are typically complicated and have a lot of regulatory oversight. So the domain knowledge has to be built into the RPA bots. Just like you have Veeva as vertical-specific CRM, there will be a number of very successful vertical-specific RPA companies.
Soma Somasegar: It’s very exciting to see new innovation in RPA. You are going to see companies that deliver horizontal RPA platforms, companies that specialize in automation of certain use cases (call center automation, test automation, etc.), as well as companies that deeply understand the processes and workflows in a specific vertical industry — be it healthcare, financial services, manufacturing and the like.
Each of these have the opportunity to have a large impact in their chosen field of focus. These companies will be value-additive to the ecosystem, driving more adoption in specific verticals and use cases. Larger horizontal RPA plays like UiPath will remain highly relevant both as partnership opportunities and driving broad-scale adoption across enterprises and verticals.
Laela Sturdy: We think RPA is a great example of a truly horizontal technology that can be applied successfully to many industries. Like any enterprise platform, however, automation and RPA are sold as solutions. It’s often effective for companies to package vertical marketing wrappers with core technologies. In this case, that would mean niche players — or the market leaders — wrapping core RPA technology with functionality that addresses specific pain points associated with industries like healthcare and logistics.
We’ll have to see how that plays out. As stated earlier, it’s exceptionally difficult to build RPA technology well, so it’s possible that we’ll see third-party developers partner with market leaders so that they can address niche use cases while leveraging best-in-class technology.
Ed Sim: The market is vast, and there will be room for focused vendors to automate specialized workflows in insurance, finance and healthcare. With focus comes compounding value as these vendors will only get better and smarter as they train their bots on more and more data. Another area for newer vendors is front office automation, where specific integrations and intelligence are needed to drive massive adoption.
Clay.run, a Boldstart portfolio company, has built a DIY spreadsheet that automatically fills itself, initially targeting sales and marketing to automate prospecting and unification of customer data, with bigger plans to use the spreadsheet paradigm to create a whole new generation of programmers.
If the pandemic sped up digital transformation, and RPA is ultimately about adding some automation to legacy processes, as legacy systems begin to get phased out, how does RPA stay relevant over the long haul?
Mallen Yen: Today, RPA still works best for automating routine tasks with legacy systems, and these connection points will remain important to how a business runs regardless of which legacy software solution they are using. That being said, RPA is still in its early days. It will get increasingly relevant and integral as it begins to better utilize artificial intelligence, machine learning, data, analytics, reporting and beyond. You’ll then see it able to perform more sophisticated and complicated tasks, automate knowledge work and provide outputs that will enable more informed decision-making by the enterprise.
Jai Das: There is still a long way to go for enterprises to have completed their digital transformation and move off legacy systems. Once that digital transformation is truly completed, the current cutting-edge companies will have become legacy companies and they will have created processes that will need to be automated. As time goes on, the lines between RPA vendors like UiPath, process-mining companies like Celonis and integration companies like Workato will blur and process automation will become one with application integration. It will be used to tie everything together seamlessly — all the software and humans that help run an enterprise.
Soma Somasegar: For all the acceleration of digital transformation that we have seen in the last year (driven in part by the pandemic environment and the sudden critical need for businesses and people to have to deal with digital-only workflows), as mentioned above, we are just scratching the surface with a lot more to go in the coming decade(s). The goal of RPA is to augment employee work with automation.
Sometimes that is applied to manual tasks from legacy systems, but even now as more streamlined systems get implemented, there continues to be fragmentation, complexity and extensive systems to manage. This brings about work in and of itself — “work about work” so to speak — and so long as this exists, RPA will continue to be both relevant and valuable.
Laela Sturdy: Today we’re barely scraping the surface of the massive opportunity that RPA and end-to-end automation present. Enterprise customer needs are exceedingly diverse, but most have literally thousands of applications and orders of magnitude more processes that can benefit from automation.
Enterprises need an automation platform that will work across this extraordinarily complex landscape, in the cloud and on-prem and with legacy and modern cloud applications. At the same time, they need a platform that is easy-to-use and that presents extensive, end-to-end platform capabilities. Few companies will be able to achieve this task, and those that do will not only remain relevant over the long haul; they’ll emerge as the tech sector’s next truly transformational generational leaders.
Ed Sim: All of the easy net new cloud applications have been built and deployed by the largest global enterprises. That being said, most of the legacy applications have yet to be touched and there is no shortage of opportunity to automate these processes as it will take a decade or more for many of these to be cloud-enabled, if at all. A large number of processes in insurance, for example, still run on decades-old mainframes, and these large corporations are in no rush to change that.