 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. UI Pass' recent $750 million raise at a $35 billion valuation underscores investor enthusiasm for robotic process automation, RPA. And why not? The pandemic has fueled a surge in automation as organizations retool their operations and prepare for a post COVID environment. But look, reasonable people are asking, is this market getting overheated? Welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we'll explore the current trends in the RPA market and try to address the question, is UI Pass value supported by the spending data? How will the RPA market evolve from a total available market perspective and where do some of the other players like Automation Anywhere, PegaSystems and Blue Prism fit? Let's first summarize what's new in RPA since we last reported in the space. We've all beat to death the positive impact that COVID has had on many sectors and RPA is one of the beneficiaries. For most, if not many organizations, if you're not a digital business today, you're out of business. And replacing labor with software is a major factor in the digital transformations that are taking place. Now, UiPath has raised about $2 billion to date and is a value comparable to that of Snowflake at its IPO. Many are predicting that it will in fact be the Snowflake of 2021. Look, I'm optimistic about the future of UiPath, but in my opinion, the operational excellence that Frank Slutman and Mike Scarpellier brought to Snowflake is not nearly as baked as that at UiPath. And that said, the market conditions quite good for UiPath right now. Now, while cost reduction is still the main driver for RPA adoptions, we're seeing more business productivity use cases that point to a broader automation agenda than simply installing some software robots and point applications to eliminate mundane tasks. Rather, we're seeing a much more holistic thinking within organizations in a large part driven by the COVID slap in the face. And given that CEOs have now a green light to make big changes that would have been culturally more difficult pre-pandemic to wit. We're seeing many more centers of excellence pop up around RPA with a more aggressive agenda than we saw pre-COVID. Before COVID, these efforts, they'd be met with a lot more resistance to change than we're seeing today. Now, in the coming decade, we expect two major trends to emerge. One is a move from this search and destroy mentality toward process transformation to more of an automated approach around discovering candidates for automation. Second is low code implementations are likely to lead the rise of the so-called citizen developer. Now, capabilities in this regard today are nascent within most products, but we believe they will improve steadily over the next several years, and lead to the democratization of RPA. So the big question is, are we in an RPA bubble? Or is this really the next big thing? This chart depicts our attempt a while back to assess the total available market for robotic process automation. And there are a few important points here. First, our effort was somewhat narrowly focused on RPA tooling, but we did try to take into account a broader automation agenda across enterprises. We tried to size the move from back office to front office to enterprise-wide automation efforts leading to this buzzword that ultimately Gartner created called hyper automation. Now, when we first published this chart, we got feedback that we were too conservative. And so, we've thought about what could we be missing? And that's depicted there in that red big question mark. We got to do more work on this, but looking at the global automation market, we see a multi-hundred billion dollar opportunity. However, that largely focuses on industrial automation versus replacing human tasks with robots. Process automation is a much smaller piece of that pie. And overall, these larger figures, they also include drones, autonomous vehicles, and other innovations that RPA may or may not address. Is it possible that there's an order of magnitude greater opportunity for RPA than we initially thought? Well, here's another way to look at it. RPA generally is targeted at larger organizations which can justify the investment with faster returns. According to Fortune magazine, the 500 largest companies in the world generate more than 30 trillion in revenue. Is it unreasonable to assume that they could spend 1% of revenue on RPA? We don't think that's crazy, so there very well could be a tam of hundreds of billions of dollars for this market. We would say, however, to attack that opportunity, point RPA tools won't get you there. But automation platforms very well could. In fact, that better be the case because with a $35 billion valuation pre-IPO, UiPath and its peers will need a massive, massive market to justify those investments. So we'll keep digging into that expanded opportunity to see if it holds water. Now, another way to look at the opportunity is to look at the spending data. So let's do that and bring in our ETR friends for that discussion. As we've reported for many quarters now, RPA is one of the top areas in which organizations are investing. And you can see that in this chart here. This graphic shows net score or spending momentum across the ETR taxonomy. And you can see we've highlighted RPA, which along with machine learning slash AI, cloud and containers, lead the pack, the big four momentum leaders. The only four that consistently over the last several quarters show a net score in the survey above that doubted red 40% line. Now remember that net score is a measure of spending velocity based on looking at the percent of customers in the survey that are spending more and subtracting those that are spending less. The calculation is a bit more granular than that, but you get the point. Now, one of the components of net score is new adoptions. And that's part of the spend more equation. And this chart shows that only the new adoptions across that taxonomy in those sectors. And you can see that RPA and machine learning slash AI topped the charts. That yellow line shows the January survey results. You can see these two sectors are well ahead of others in terms of new spending, albeit they are down somewhat from previous quarters a year ago rather, but up from previous quarter. Now here's another look at the data. Let's really drill into the RPA sector and look at those components of net score. What this chart shows is that granularity along with market share for the past nine surveys. And I'll explain that the bright green or that lime green on the bars, that's a new adoptions. The forest green is the percent of customers that are spending more on RPA. That means they're spending more than 5%. The gray depicts flat spending. The pink is spending less meaning less than 5% relative to earlier years and the earlier year. And the bright red is replacing the platform we're chucking it out. And the net score blue line at the top it nets out the lesses from the mores. So you can see very highly elevated for the RPA sector holding firm over time and now even increasing. So very, very positive. Now you see that yellow line at the bottom. That shows so-called market share which depicts the pervasiveness of RPA within the overall survey relative to other sectors. So the steady uptick over time suggests that buyers continue to allocate more and more budget to RPA. So very, very positive signs there because let's face it, the return has been really positive and the mandate for automation thanks to COVID is really staring us in the face. Now let's drill into some of the vendors and see who's winning in the market and maybe who's got less momentum. The chart here shows spending momentum or net score over time for the five companies that we're showing. Now at the top is Power Automate from Microsoft which last year acquired Softomotive and is integrating RPA into its offerings. Microsoft, look, they loom large as we've reported and they're everywhere. So many many sectors and RPA is no different. The reality is that Power Automate is not as mature as products from the leaders in classic Microsoft 1.0 version if you will but they're in the game now and they cannot be taken lightly. We expect Microsoft to steadily improve its functionality and integration with the broader Microsoft portfolio making it an easy choice for many if not most of Microsoft's customers that either want to dabble in RPA or have it as an item in their portfolio. You can see UI path has retaken the lead in net score over rival automation anywhere and is showing a nice uptick from last summer's survey as it has made some acquisitions and is moving toward becoming a platform play versus a product play. We'd also note three factors that favor UI path in the marketplace. First is its simplicity. UI path is probably the easiest to adopt. Second is its emphasis on training and third is the very robust community ecosystem that it's developed. Automation Anywhere's line is under pressure and we think that's because the company essentially had to do a major product refresh and like any install based migration it's going to slow down momentum and create maybe some friction in the marketplace but we think from a competitive standpoint it was absolutely the right move by AA. We got to bite the bullet, invest in the product and grow from there. The company also has a really strong ecosystem, good engineering and we expect continued improvement for automation anywhere going forward. You also see a big uptick for blue prism. It's got a mature product and a strong ecosystem as well and we've seen its momentum pop up and down in the survey over the last several quarters and years but they're clearly a solid player in this market. They don't have the momentum of a UI path or an automation anywhere. They're a smaller company but certainly they're a credible player. Now, PegaSystems is really interesting to us. We don't see them as an RPA player per se. They're much more focused on a broader business process play. They include things like CRM and intelligent automation in their portfolio. RPA is a bundled offering that Pega layers into its broader suite and we like what the company has accomplished. We're going to come back to them in a moment and talk a little bit more about them and their performance but before we do that let's take another look at the competitive landscape. This view is one of our favorites. It's that XY view. So we're plotting net score on the Y axis and market share or the pervasiveness within the survey on the X axis. And you can see UI path is, they're literally off the charts in the upper right there because Microsoft looming large with its very strong presence and fast adoption of Power Automate but Microsoft UI path, automation anywhere in blue prism, they all have shared ends or mentions in the survey of more than 50 and net scores over 50%. So those stand out to us above the rest with UI path as the leader combining both the most significant market momentum and product excellence notwithstanding Microsoft's presence. Again, Microsoft, they're Microsoft and we'd be foolish to minimize their presence in the marketplace. Now again, Pega is in the mix. They've got a respectable 31% net score but again, they're not an RPA specialist and their strategy is paying off in our view. The RPA froth combined with Pega's history, its vision, its solid engineering culture and execution are paying off for the company. As you can see in these charts, so there's charts. So what we're showing here is a graph of Pega's stock price over the last five years. What's most impressive is the strong upward move very, very strong since March of last year. Pega's a billion dollar company been around for a long time but it's growing, it's moving, it's shifting into a subscription model so it's going through that process of communicating that to Wall Street and I think doing a very, very good job of it. As it transitions, it's transitioning to a recurring revenue stream. That's going to have a much more predictable cash flow and profitability impact on the company and you can see its valuation. It's a 12 billion, it's about 12 X revenue. It's significantly lower than UI path's most recent value by a factor of roughly three X but presumably that's due to its slower growth rate but Pega, they got to love this dynamic because the market's coming to them, they've got a mature business that's thriving through a transition to an ARR model with solid growth, strong customer base and a culture of innovation. So really solid job within Pega that management is doing in our opinion. Now let's close by digging into the two pure play leaders UI path and automation. Anywhere we do this quite frequently in these updates and we'll look at the so-called wheel charts for each company. Let's start with UI path. So this is a pie if you will or wheel breakdown of what we described earlier in net score. It's derived from this view by subtracting the reds from the greens. Several things stand out. First, you got a nice chunk of new adoptions at 15% supported by 56% of its customers spending more and only 5% spending less and 0% replacing. So that's a very nice picture. Now let's compare that to automation anywhere and its profile. The chart shows the same picture and even a larger substantially larger of new adoptions. So that perhaps is a function of its new platform resonating with customers. Now automation anywhere's net score is lower than UI paths owing to a much larger portion of the customer base that has flat spending and a slightly higher replacement figure. But both these companies exhibit strong spending patterns in the ETR data. Now we want to share one of the data point that stands out. In its early days, of this relatively new era of RPA, we're still there even though RPA has been around for decades, but the point is that large companies have, they got a lot of divisions with a lot of buying autonomy within those divisions. And as such, you're going to see multiple RPA vendors within the account. So the question here is, okay, how are these accounts doing where they have multiple vendors in the account? What stands out in this chart is UI paths performance in shared accounts. The chart looks at Microsoft Power Automate and automation anywhere accounts. You can see that in the little pull down there in the left hand column. And so it's Microsoft Power Automate and AA accounts that also have UI path installed. And you can see that little cut on UI path there in the upper middle. And there's 149 of those accounts in the ETR dataset this last quarter. And you can see the performance of UI path since COVID hit. This is very encouraging. It speaks to UI path strong, go to market and it's really solid land and expand strategy. So by no means is this game over for the other players but the ETR data continues to support where investors are placing their bets, what customers tell us and anecdotal information within the marketplace. That UI path continues to pave the way for a new wave of growth. A well funded automation anywhere is on its tail and these two continue to vie for leadership and are trying to break out from the pack. We expect public offerings from both companies within the next 12 to 24 months. In fact, as you know probably UI path has filed confidentially to do an IPO and has given a timeframe I think of 12 to 18 months. And they both companies in our view got to get, they got a window of 12 to 24 months to go public prior to Microsoft getting its product act together and getting to a point where it could really cause some disruption to these respective businesses. So anyway, I hope this gives you a good snapshot of how we see the marketplace. How do you see it? Please let me know. You can DM me at dvalante or comment on my LinkedIn post or email me at david.valante at siliconangle.com. Remember I publish each week on wikibon.com and siliconangle.com and don't forget to check out ETR.plus. As well, all these episodes are available on podcasts wherever you listen. Thanks for watching this episode of theCUBE Insights powered by ETR. This is Dave Vellante wishing you well, stay safe and we'll see you next time.