Where Lies the future of the RPA industry

The past two years have certainly been a boon for the robotic process automation (RPA) firms. Filled with hope and hype on the robotization of the workforce, the top 5 private RPA firms[1] raised a combined $1.93B during 2018 and 2019.  The other 90% of automation companies also raised significant funds during these two years, with many as follow on rounds of earlier Series.

Despite the expectations that accompanied the fundraises, cracks started to appear in late 2019 when UiPath conducted a 10% reduction in force. In early 2020 when the COVID-19 pandemic caused many firms to freeze growth or retrench, RPA vendors doubled down with market messaging that a work from home environment made automation more imperative than ever. However, that appears to be far from the case. Most of the automation companies have noticed business slowdowns but what has been more exposing is the level of downsizing many have initiated, albeit quietly.

So why the paradox? Is it that automation has not proved its potential? Far from that. All the firms boast major logos and multiple clients. UiPath claims over 5,000 global enterprises as customers, including 50% of the Fortune Global 500[2]. Softomotive, prior to its Microsoft acquisition, claimed over 9,000 customers[3] and Blue Prism claims over 1,800 customers[4]. But as we start peeling the onion back, we find these customers have only scratched the surface in their automation potential, with little sign of further progress. For example, with market estimated revenues of <$50 million prior to its Microsoft acquisition, Softomotive’s average customer revenue was only ~$5,600. And Blue Prism, which closed FY2019 with revenue up 83% to £101m[5], was generating average customer revenue of only ~£56,000 (~$70,000). And automation firms are having challenges plying their robots deeper into organizations. Why so?

Let’s start with the industry’s ‘benefits of automation’ messaging. Benefits to customers are typically highlighted as reduction in turn-around times, improvements in accuracy and speed, efficiency gains, hours released, lower handle times, and a reduction in errors. The problem? No ROI measurements and a single benefit expressed multiple ways.  For example, reduction in errors could also imply improvement in speed and accuracy due to less rework. Less rework presumably leads to lower handle times which speeds turn-around times.

Next, let’s review the guidance on how customers start their automation journey. The advice is to focus on repetitive manual tasks, high volumes process areas with structured data, and error prone areas. Hackathons or Botathons with business users are seen as a way of surfacing ideas and the concept of the so-called ‘citizen developer’ – that the business user can develop their own bots for their own needs – is promoted alongside.

This approach cannot lead to sustainable results. Low and mid-level line managers buying a few bots for their departments to hand-off the repetitive tasks, and presumably the accompanying error rates, to their digital colleagues for faster more precise execution. The true dollar ROI ends up as a small percentage of a few employees’ salary for the time saving efforts produced by the bot. And this ROI is compromised when the added cost of governing and maintaining the bots is factored. This is hardly the type of stuff that scratches the visibility of the C-suite.

For a low-cost technology trying to move up the price and value chain, this is not the right approach.  RPA has to be positioned more strategically for an enterprise.  For RPA to be an integral part of an enterprise’s technology vision it has to become an integral part of an end-to-end process that incorporates multiple technologies. Post COVID-19, digital transformation initiatives are going to be at the top of the agenda for most executives. Organizations are starting to reimagine their work environments and discuss enablement of a more secure, distributed and efficient workplace that is less reliant on human tasks. This will start with the simplification of processes and the elimination of waste – not the automation of it.

To be part of the discussion, automation firms will need to change their messaging and their market approach. They will want to partner and play side-by-side with Artificial Intelligence, Consumer Experience, Data Analytics and Cloud technologies and the various BPO providers to reimagine business processes and technology stacks. This may mean automation companies build professional services functions or partner more tightly with professional services firms. If automation is to become an integral and important part of the re-imagined process, the benefits will be measured in terms of improved customer experience, better top line growth, cost take-out and ROI. Organizations are coming under severe pressure to deliver on each of these goals.

The past two years witnessed the automation industry sacrifice long-term growth and impact for low ROI contracts to satisfy investor demands for customer acquisition. Increasing average customer revenue size will require engaging higher organizational levels at more strategic discussions that generate meaningful ROI. The true stickiness of the automation industry’s bots, and hence its recurring annuity license stream, lies in this model. Yes, the sales and implementation cycles are longer. But if automation is not at the table during the transformation discussion, it may well be left out of the reimagined process or replaced in the mix by substitute technologies. With the amount of funding raised by all the firms in this industry, there should be adequate runway to truly realize the vision of their automation platforms. Let’s hope the runway doesn’t end with a pothole.

[1] UiPath, Automation Anywhere, Workfusion, Kryon Systems and Antworks

[2] Company website

[3] Company website

[4] Company website

[5] https://finance.yahoo.com/news/blue-prism-revenues-soar-fy2019-080000980.html

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