Business Technology

Sunday 21 January 2018

10 themes to light up the tech world in 2016

What will 2016 bring in the world of technology? Will virtual reality finally take over? Which unicorns will go for an IPO? And can teetering Twitter hold off soaring Snapchat? From data privacy and venture capital investment to business broadband rollout in rural regions, 10 themes will shape the year, writes Adrian Weckler

Virtual reality film-makers Lasse Andersen, Emmy and BAFTA award winner Dearbhla Walsh and Mads Damsbo at the Science Gallery in Dublin Photo: Mark Stedman/Photocall Ireland
Virtual reality film-makers Lasse Andersen, Emmy and BAFTA award winner Dearbhla Walsh and Mads Damsbo at the Science Gallery in Dublin Photo: Mark Stedman/Photocall Ireland
Adrian Weckler

Adrian Weckler

1. The tech IPOs to watch for

Last year saw the fewest tech IPOs in six years, as high-growth start-ups such as Airbnb, Dropbox and Uber opted to rely more on the rivers of cash still flowing from private venture capital investors. But companies such as Airbnb, Snapchat and Uber may now be "dragged to IPO", as a recent report from CB Insights put it.

One reason is that interest rates have gone up in the US, providing stronger competition for investors looking to place their money. But financial gravity is another reason.

"There are some companies that may be forced to go public - because their valuations priced them for perfection and their results came in somewhere below perfect," said CB Insights chief executive Anand Sanwal.

"As a result, the private markets may close up on these firms, forcing them to go public. This is something we've not observed before," he concluded.

The report lists 36 companies it expects to consider an IPO this year, including Airbnb, Buzzfeed, Qualtrics, Slack, Snapchat and Uber. It also lists Stripe, the online payments firm founded by Limerick brothers Patrick and John Collison. (From conversations with the Collisons last year, this seems a very unlikely eventuality for 2016.)

Many high-growth tech start-ups dislike IPOs for a range of reasons.

"There are so many downsides," said Aaron Skonnard, founder of $1bn-valued online training service PluralSight, which closed a $135m (€124m) funding round in 2014.

"The private markets look much more compelling right now for a lot of reasons and there's lots capital that's flowing there. There's a lot of chaos in the public markets right now, too. There's a lot of risk, a lot of fear."

Skonnard was speaking to the Irish Independent in November. His company is currently considering an IPO.

Even tech titans have some distaste for being publicly quoted entities. Michael Dell recently described his relief at returning Dell to private ownership, likening his existence as a public company to that of being on a "90-day shot clock" with investors and analysts.

2. Whither Irish start-ups and VC tech investment?

Will 2016 be a golden age of venture capital investment for Irish tech firms or will they face a credit crunch?

There are two conflicting views. On the face of it, VC cash is continuing to flow into Ireland. The most recent figures from the Irish Venture Capital Association claim that small to medium Irish technology firms raised €415m to the end of September 2015, an increase of 32pc on the same period in 2014.

On the other hand, senior Irish VC figures such as DFJ Esprit partner Brian Caulfield warn that tax imbalances and challenges in raising capital from institutional funds could threaten the supply of VC investment into Irish start-ups this year.

Last year, a number of Irish tech firms raised comparatively large fundraising rounds. This included a €38m round for Dublin-based mobile technology company Movidius and €30m for Intercom, the online customer communications firm based in Dublin and San Francisco.

Where they might physically reside looks set to still be a problem. 2015 was an annus horribilis for tech firms looking for office space in Dublin's central business districts, with little or no new space coming onto the market and rents soaring.

With office construction slowly chugging into gear, 2016 should see more space become available in the capital, although demand looks likely to outstrip supply by a considerable margin.

Will 2016 see life outside Dublin when it comes to tech start-ups? Throughout 2015, three quarters of all venture capital investment went to firms based in the capital with the country's largest second city, Cork, seeing just a tiny fraction of Dublin's tech investment activity.

3. Twists and turns in Ireland's rural fibre broadband rollout

This year will determine whether the Government's state-subsidised National Broadband Plan, which promises broadband of at least 30Mbs to every rural home and business in the country, goes ahead as planned.

The Government insists that there is a plan to tender for the taxpayer-funded contract in the coming months, with an award to be made by the end of this year.

However, several risks remain.

The general election could see a new government delay or a row-back on the plan, which is supposed to see 750,000 rural homes and businesses connected to high speed broadband between 2017 and 2020.

Legal challenges are also possible, with the Government currently ignoring stated plans by the country's largest operator, Eir, to expand its own rural broadband network. If Eir does this, the Government cannot roll out state-subsidised broadband in the same areas under EU state intervention rules.

4. The uncertain future of Twitter

While it would be melodramatic to describe 2016 as a 'make or break' year for Twitter, it is likely that the next 12 months could determine whether it continues as an independent company or whether it is bought by a larger rival.

In all, 2015 was a tough year for Twitter. While its revenue grew, its user growth stalled. This led to a considerable fall in the company's share price: investors normally forego the lack of profit in tech firms if user or revenue growth is strong.

But Twitter is now worth just $15.6bn (€14.3bn), down two thirds from its high of $40bn (€36.6bn) a month after it floated in November 2013. (By contrast, Facebook's share price has risen steadily since its 2012 IPO and is now worth $297bn (€272bn), almost three times its debut market cap.)

Underlying its growth plateau, Twitter has two main problems. It is struggling to commercialise its service, with a heavy dependence on ads that are constricted in format and number.

It is also, in the words of chief finance officer Anthony Noto, "too difficult to use" for those outside its existing, dedicated user base. It's hard to dip a toe in, compared to Facebook and Instagram. And it doesn't have the instant social appeal of similarly complicated rivals such as Snapchat.

In response, the company says that it is beefing up its advertising capabilities, targeting non-registered users that happen across Tweets.

It is also hiring more sales people to increase the 100,000 advertisers that already use the service, while opening up self-serving advertising systems too.

But with the company's share price keeping Twitter's market value below $16bn, Twitter could be a takeover target.

The most likely suitor remains Google, which has around $75bn (€69bn) in cash on hand, more than enough buy Twitter.

5. Virtual reality gets set to soar

In 2015, the number of people that had experienced a virtual reality demonstration was tiny. By the end of this year, it is likely to be far greater.

I was an early sceptic about virtual reality. But having seen more and more of its applications and hardware development, I have changed my mind. Whether it is 2016 or 2017, virtual reality is unquestionably one of the big emerging technologies set to influence the landscape in the near future.

Gaming is its first big market, with firms such as Oculus being the focus for several games developers. This will be followed by education and a handful of industrial niches (health, construction and safety training). Adult content is sure to be present, too.

"At some point, VR is going to be more ubiquitous than today's phones," Oculus founder Palmer Luckey recently told the Sunday Independent in an interview.

"The cost is going to come down, the quality is going to go up and the form factor is going to shrink from being a big set of goggles to being more like a pair of sunglasses. Virtual reality is going to become something you either always wear or something that you at least carry around with you all of the time and occasionally use."

Strategically, VR has already made a big impact. Facebook chief technical officer Mike Schroepfer recently told this newspaper that VR is one of the tech giant's three core investments at present.

"We're investing heavily in this," he said.

"We're building a system that gives you a sense of place, of being anywhere you want in the world and then, more importantly, with other people. You're going to be using this in your living room or if in your airplane seat over the Atlantic."

6. Cars get smart

If January's giant Consumer Electronics Show (CES) is anything to go by, connectivity in cars is going to be one of the big themes of 2016.

From synchronisation with iPhones to bespoke apps and in-car wifi, the vehicles we drive are getting significant technological upgrades for passengers. All of the big manufacturers are at it, including Ford, Volkswagen and Toyota.

2016 will also be a year closer to the introduction of self-driving cars, a dream that is looking more and more likely in the near future. Tesla's Elon Musk now says that his company will have a fully self-driving car "within two years", while Mercedes and Ford are at advanced stages of developing the vehicles. Such a self-driving car will be able, we are told, to negotiate cities as well as motorways.

Will we see more electric cars on Irish roads? Despite several models now available and a slight reduction in pricing, electric car sales continue to struggle in Ireland: in the period to December, just 465 were sold here last year (out of 124,603 cars overall).

7. Traditional TV gets dumped in increasing numbers

If current statistical trends from Nielsen and other analysts are borne out, 2016 will see Irish people watch less and less scheduled television.

Regular 9.30pm 'slots' for television shows will be increasingly replaced by 'fragmentation' - a process where ordinary people watch their shows by box set, catch-up service or online streaming facility (such as the likes of Netflix).

This is already quite well established in Irish homes, but as we see more online services, better broadband and more powerful portable devices (such as large smartphones and tablets), it will become even more widespread in Ireland.

Recent research from Comreg reveals 14pc of those who have subscribed to online paid TV services have stopped watching live or scheduled television, while 43pc say that it has caused them to watch less live or scheduled television.

This could be a serious issue for advertisers.

According to Ireland's Television Audience Measurement (TAM) ratings, the average number of commercial spots seen per day on television has fallen by 25pc in two years, from 40 spots to 30 spots among those aged between 15 and 34 and by 26pc among adults aged between 25 and 44.

8. Make or break for Microsoft Mobile

What was supposed to be the big new third mobile ecosystem - or at least something to replace BlackBerrys - looks set to struggle in 2016.

In Ireland, most people who have Windows Mobile phones were either given them as compulsory devices at work or received them as ultra-budget, entry-level smartphones. In other words, they have not succeeded in becoming aspiration handsets to match iPhones, Samsung Galaxy devices or other high-end phones.

A lack of apps remains one of the ecosystem's biggest problems, with some huge gaps (including Snapchat, Gmail, Tinder and others). Some mobile analysts, such as Benedict Evans, speculate that Microsoft may not persist with Windows Mobile for much longer, given its lack of progress.

On the other hand, Microsoft has confirmed that it is working on a major new handset, believed to be a phone version of its impressive Surface tablet hybrid range.

9. Crunch time for Europe and the US on data privacy

The early part of this year could be a decisive one in the ever-rockier relationship between Europe and the US on data privacy.

Months after the European Court of Justice struck down the 'Safe Harbour' EU-US treaty, European leaders will go back to try another agreement with US counterparts that won't fall foul of the European Court's principled objection to US surveillance of EU citizens' personal information.

The Irish Data Protection Commissioner, Helen Dixon, looks set to have a major role in the process. Facebook, Google and other multinational companies likely to be affected by the process are based in Ireland and primarily regulated by Dixon's office.

Observers feel 2016 could also be a landmark year for the regulation of encryption, with the UK government attempting to introduce a law that would weaken secure communications on services such as iMessage and Whatsapp.

10. The rise and rise of Snapchat

While Twitter struggles and Facebook rolls on, Snapchat is tipped to surge in 2016 as it gets its act together with better advertising models.

"They seemed to finally solidify what they're offering to advertisers and tying together the video product, which is very exciting," said MEC media buying agency executive Noah Mallin on a recent conference call discussing trends in internet advertising. For advertisers, Snapchat is "the one to watch in 2016", he said.

In Ireland, Snapchat has around 600,000 users, according to the most recent polling data from Ipsos MRBI. However, most of those people use it every day, often constantly.

The company has a limited ability to sell ads at present, partly because its video outlets are narrow and constricted. The company's founder, Evan Spiegel, has also said that it would not commercialise users' data in the same way that companies such as Facebook or Google do. Snapchat is currently much smaller than Facebook or Twitter, with an estimated 100 million daily users and a projected $100m of revenue for 2015. It is one of the leading contenders to go public this year.

Sunday Indo Business

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