 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Robotic process automation solutions remain one of the most attractive investments for IT buyers. This is despite our overall 2020 IT spending forecast, which remained depressed at minus four to minus 5% for the year. Relative to previous surveys, we do see some softness in traditional RPA strongholds, such as large financial services and big insurance and giant public and privates. But RPA relative to other IT investments remains at the top as a sector with the highest spending momentum, ahead of machine learning, ahead of AI, ahead of containers, and ahead of cloud computing. Hello everyone, this is Dave Vellante and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we want to update you on the latest RPA trends and share fresh ETR data with our community. So let's get right into it with a quick summary. Now as I said, despite our pretty tepid IT spending outlook for the entire year in 2020, demand for RPA software continues to grow at a 60 to 70% clip. Remember, RPA mimics human-computer interactions. It uses software scripts or robots that execute human tasks in a runtime assembly of discrete steps. The practice first became popular for a back office functions, mostly as unattended bots. The pandemic appears to be accelerating front office adoption and this is creating a bit of a schism between front and back office. Digital transformation initiatives in many ways they're going to create the connective tissue between front and back of the house. Now competitive dynamics are heating up. The two emergent leaders, Automation Anywhere and UiPath, are separating from the pack. Large incumbent software vendors like Microsoft, IBM and SAP are entering the market and positioning RPA as a feature. Meanwhile, legacy business process automation players continue to focus on taking their install bases on a broader automation journey. However, all three of these constituents are on a collision course in our view where a deeper automation objective is kind of the North Star. Now there are two material changes to our previous scenario. First, we've expanded our thinking on the RPA TAM and we're extending this toward a broader automation agenda more consistent with buyer goals. In other words, the TAM is much larger than we initially thought and we'll explain why. Second, we no longer see this as a winner take all or even winner take most market. In this segment, we'll look deeper into the leaders and share some new data. In particular, while it appeared in our previous analysis that UiPath was running the table in the market, we see a much more textured competitive dynamic setting up and the data suggests that other players including Automation Anywhere and even some of the larger incumbents will challenge UiPath for leadership in this space. Now as with many developing software markets, the ultimate leader is not crystal clear at this point. Let's talk about the effects of the pandemic. Conventional wisdom really suggests, and by the way, we would agree that the automation mandate has accelerated by several years due to coronavirus. There's three points here. One is that yes, COVID has put digital transformation on the front burner of executives priority lists. Second is automation isn't trivial. So there's a real difference between wanting and achieving. And third, we believe there's another driver for the automation mandate, which will survive a vaccine or herd immunity. And that is the productivity gap. This chart here underscores that point and was brought to our attention by a friend of ours, Dave Michela. Specifically, we've seen a noticeable decline in productivity in the U.S. and EU since, remember the personal productivity boom from the personal computer? The PC and the internet brought forth those trends. And Michela's premise, and we agree, is that in order to solve the grand challenges of the 2020s and beyond automation is going to be necessary. Think about climate change, global competitiveness, aging populations and infrastructure, massive deficits, mass immigration, sustainable food sources, healthcare. These are all going to require huge injections of automation into the system to solve problems associated with these areas. Human labor just isn't the answer. So this in part has influenced our expanded thinking on the total available market. The diagram we're showing here updates our expectations on the TAM for RPA. The first takeaway is that we're envisioning a market for business automation well beyond software bots, which are represented really in the first two layers, that back office and front office divide, if you will. And we see that coming together in the third layer, those two are really going to happen through digital transformation initiatives. But we also envision a massive market for automated decision making and very deep business integration where systems are communicating to each other, system to system, machine to machine, and also making real time decisions on behalf of humans. Sometimes we call that systems of agency. Now I won't go deep into this TAM as it's a bit academic, but suffice it to say this is an enormous market comprising many layers of the tech stack and services stacks. And this represents serious opportunities for multiple players, both vendors and buyers. Okay, let's get a little bit more tactical and look at the spending data, the latest spending data from the ETR survey. The chart we're showing here is one of our favorites and it compares leading RPA vendors on two dimensions. The Y axis is net score or spending momentum. It's a simple metric that for this last survey asked buyers, are you spending more or less in the second half of the year than you had originally planned. Net score is derived by subtracting the lesses from the mores and is really shown in the upper right of this chart. You can see that in the green highlights. Note that the total N in the survey is around 1200. And you can see that the number of responses for each vendor is shown in the upper right in that gray area. We eliminated any RPA vendor that didn't get at least 25 mentions in responses in the survey. And you can see that Automation Anywhere and UiPath have essentially traded positions on the vertical axis, indicating that Automation Anywhere customers expect greater spending momentum with the company than UiPath customers for the second half of this year than they did in the first half. UiPath at 62% net score is still very, very high, but this marks the first time since our reporting that AA has taken the lead ahead of UiPath and net score. And the small arrows show the general direction of their respective momentum over the last couple of surveys and I'll discuss this later on. Now, on this chart, you can also see blue prism and PEGA systems and while they're significantly below Automation Anywhere and UiPath, these are very respectable net scores for more mature players like these. But I don't really consider them RPA specialists. I mean, especially PEGA. I mean, they have an automation play well beyond RPA and have built really an awesome business and in many ways are benefiting from the hype being created by the newbies. I have to say, I'm in awe of the business that Alan Trefler and his team have built. We're talking about a billion dollar company here. They've got a valuation of over nine billion. The stock's near and all time high and they never took a dime of outside capital prior to their IPO, which is just unreal. Oh yeah, one more thing I want to call your attention to. There's Microsoft with Power Automate that kind of crashing the party with a 1.0 product that is making some noise in the marketplace. Now on the Y axis, you can see UiPath has the market share lead. But I want to remind you what this is. Market share is a mention of pervasiveness in the data set in the survey and is calculated by dividing the number of mentions for a vendor in a sector by the total mentions in the survey. So you can see that UiPath has the share of voice lead but it's still under 10% of the total survey base. So lots of room for this market to grow. But I want to make an important note here because UiPath has historically been a collection of point products whereas automation anywhere, their go to market typically involves going to larger accounts and selling this sort of Mongo end to end digital transformation project to the line of business. As I said earlier, these two and other companies are on a collision course because that is the big prize. UiPath has restructured its product and pricing strategy, done some acquisitions to go after this. But it stands to reason that UiPath has a bigger presence in the ETR data set as measured by market share. So it makes sense that automation anywhere, their number one net score position, it makes it even more impressive. Now the other nuance is that ETR tends to be somewhat weighted to the IT side of the house. And although it most certainly picks up line of business spending, there's a bias in the data toward IT. So that means RPA is most likely even stronger in the context of spending initiatives. And it's already number one relative to other sectors. So that's pretty impressive. Now let's look at how net score has changed over time. This chart shows the change in net score or spending momentum for automation anywhere, UiPath, Blue Prism and Pegasystems over the last three survey periods. You see last October, this past April, the height of the lockdown in the US and the most recent July survey. And here you see that automation anywhere is accelerating and taking the lead over UiPath. It is the only one of the chart growing net score. Again, UiPath remains elevated despite the relative decline from previous surveys. The other two, I have to caution you again to Pegasystems for example, and they're killing it in the market. The stock is up nearly 40% year to date. It's over 60% in the last 12 months. So because they're not so RPA only focused and they really are not an IT play per se, the survey data has to be digested in that context. But you do see them coming down from elevated levels last October. Now here's a time series view of that net score. This chart, really what it does is it just extends the timeframe and shows more granularity of survey data back to January, 2018. So we're talking about 11 quarterly survey data points and snapshots here. This really underscores the power of the ETR platform because you can stretch the data over time. And you see automation anywhere overtakes UiPath for the first time since we started capturing the segment. UiPath along with the other shows a noticeable decline in net score in this survey. Except for Microsoft who, you know, they're just showing up, as I said, they're elbowing their way into the marketplace. Now let's take that same sort of time series view, but let's flip to market share. And this next chart shows that other favorite metric that we use all the time is market share or pervasiveness in the data set over a time series. Now remember, this is really mentions as a percent of the total. It's not an indication of spending amount, but it's a data point and we pay attention to this. And you can see how UiPath broke away from the pack. They did this back in October, 2018, and that coincides with their big push on things like events and training. They really have done a good job of building a presence and awareness in the market. I've superimposed in the chart the upper left corner for context that shows net scores in the green and shared N in the gray. It's sorted off of that shared N. So this refers to the number of mentions in the data set for each vendor out of the 1192 total responses. So some of these have small ends. So I'm not going to put too much emphasis on this, except that UiPath escalation is notable and hopefully I've explained that sufficiently. Okay, let's wrap. So we talked about the automation mandate and the COVID wrecking ball effect. But it's more than that. The productivity pressures on the US and EU in particular make it exceedingly difficult to just throw labor at the world's grand problems. So this has opened up an enormous opportunity for technology companies and practitioners to drive automation. You know, we said this during the initial in the early days of the big data era. In fact, Peter Goldmacher had this discussion with us on theCUBE really in the early part of last decade that those companies that can implement automation at the time he was talking about big data are going to be the big, big winners. So it's not just the tech players. Now of course, as we've seen, many of the big tech companies are benefiting from the enormously from the mega automation trend, but the broader set of industries has massive, massive upside. Now what this sets up is a multi-dimensional competitive environment. We have automation anywhere in UiPath battling it out to achieve escape velocity. Automation anywhere just brought in Chris Riley to run and go to market. So you know they're serious. He's a player who understands complex enterprise selling. And now you have UiPath, they're hiring engineers as fast as they can. And the other dimension is a classic battle of best of breed specialists like automation anywhere in UiPath up against the bundlers selling RPA as a feature of their services, Microsoft, IBM, SAP, et cetera. All see automation as a huge opportunity and everyone's going to hop on the bandwagon because this is worth hundreds of billions of dollars, at least. Okay, thanks for watching this episode of theCUBE Insights powered by ETR. Remember all these episodes are available as podcasts wherever you listen. Check it out, we've also put up an archive of all the breaking analysis segments on wikibon.com. There's a link on the menu bar right at the top of the homepage that has all 46 episodes that we've done since inception. I write weekly on that wikibon.com platform and I also publish on siliconangle.com where you can find all the relevant news. And don't forget to check out ETR.plus for all the survey data and analysis. Go there and sign up for a trial of this software. It's awesome. Okay, this is Dave Vellante. Be well and we'll see you next time.