Muted economic outlooks can’t frighten the technology industry since several megatrends will provide some real momentum by 2022.
A weakening global economy and the Brexit impasse are causing economic forecasts to tumble, but the tech sector is not bothered by any of this. According to a study by economic consultants Deloitte, sales revenue in the industry will rise by more than 20 percent to EUR 280 billion by 2022. That’s good news just when it’s needed. Admittedly, the German technology market has more than doubled since 2000, mainly due to the average annual growth rate of 12.6 percent between 2002 and 2008.
But growth has slowed since then and sales in the sector have increased only moderately over the last few years. Analysts believe that this is due to different levels of development in the two segments “hardware” and “software and services.” For a long time, hardware was responsible for the lion’s share of sales in the industry, but in the meantime the segment has been overtaken by software and services and has been in a state of stagnation for several years. This is because of the general price slump and the competition – especially from Asia. Software and services, on the other hand, are already reaping the benefits and will continue to benefit disproportionately from increasing digitization.
New growth through megatrends
The “good” times since the turn of the century are, to a great extent, due to this. But there has been a general slowdown over the last years. However, a new boom is expected in this area as a result of the three major technology trends “5G and the Internet of Things (IoT),” “analytics and artificial intelligence,” and XaaS (anything as a service).
As-a-service business models are already a lucrative area, not only in the technology sector. They give companies predictable sources of income and also far-reaching insights into their customers’ user behavior. One thing that the three trends have in common is that, as enablers, they send decisive impulses to digital growth segments like Industry 4.0, connected car, smart city or biotech and fintech.
An analysis of 5G and the IoT clearly illustrates their influence. Deloitte has calculated that by 2020 the number of networked objects worldwide will rise to more than 20 billion, with 750 million of these in Germany. Practically all of them are very relevant for the digital growth segments and, consequently, are in the area of convergence between the technology sector and other industries. For instance, many challenging IoT services, such as telemedicine and autonomous driving would not be possible without 5G.
Tech sector as a trailblazer
The tech sector is also a trailblazer in the area of XaaS. Companies are increasingly offering a specified, guaranteed service rather than selling a product just once. Tech companies already have experience in this field, from which they can benefit enormously. XaaS will become more important and be a significant factor in the establishment of innovative technologies.
“AI as a Service,” for example, would make artificial intelligence accessible also to small and medium-sized companies and, thus, make a significant contribution towards its spread. In turn, this will trigger strong growth in the software and services sector.
The effect mechanisms of the three megatrends show how closely the tech sector is connected with other industries such as mechanical engineering – a sector that traditionally stands for Germany’s technological competence.
However, for the predicted burst of growth to trigger a boom, the industry should focus more on software and services, say the Deloitte consultants. The distinct service competence of German tech companies will open up new opportunities in the digitization of processes and business models. But the dynamics can also be used to produce benefits in the hardware area. Especially in the strong margin special hardware business. According to Deloitte, the industry can look forward to a rosy future: By 2022, average annual growth in the German technology sector is expected to be about 5 percent.
More information and the complete study can be downloaded here on the Deloitte website.