Future of RPA: Insights from 5 Investors After UiPath IPO

The Rise of Robotic Process Automation: A Deep Dive

Robotic process automation (RPA) has garnered significant attention recently, evidenced by a surge in startup activity, acquisitions, and initial public offerings. This momentum culminated with UiPath’s IPO last month, a company that rapidly ascended from relative obscurity in 2017 to achieve a private valuation of $35 billion, subsequently matching that figure at its IPO.

Despite stock price fluctuations, UiPath currently maintains a market capitalization exceeding $38 billion. Is this indicative of a peak for the technology, or merely a temporary surge in interest? The latter is more likely.

Understanding the Core of RPA

While increased attention coincided with the pandemic-driven surge in automation, RPA is not a new market category. It has been evolving for some time, offering a solution to automate repetitive, mundane tasks traditionally performed by humans.

Consider the process of extracting an invoice amount from an email, inputting it into a spreadsheet, and notifying Accounts Payable via Slack. This work can be completed by individuals, or it can be executed more rapidly and efficiently through machine automation. RPA excels at handling tasks that are inherently monotonous and well-suited for automated execution.

Market Growth and Potential

In 2019, Gartner identified RPA as the fastest-growing segment within enterprise software. However, the market remains relatively small, with IDC estimating a value of just $2 billion in 2021. This indicates substantial room for expansion within the enterprise landscape.

Insights from five investors suggest that the RPA market is still in its nascent stages. While established players like UiPath, Automation Anywhere, and Blue Prism will continue to compete with larger enterprise vendors and emerging startups, the overall market size presents significant growth potential.

Investor Perspectives on the Future of RPA

Key Insights from Industry Leaders

• Mallun Yen, founder and partner, Operator Collective
• Jai Das, partner and president, Sapphire Ventures
• Soma Somasegar, managing director, Madrona Venture Group
• Laela Sturdy, general partner, CapitalG
• Ed Sim, founder and managing partner, Boldstart Ventures

What opportunities remain as the RPA space matures, considering the emergence of companies like UiPath, Blue Prism, and Automation Anywhere?

Mallun Yen: RPA has experienced growth exceeding 60% in recent years, significantly outpacing the 13% growth rate of enterprise software overall. However, we have only begun to unlock its potential. The shift towards remote work, accelerated by the COVID-19 pandemic, has highlighted the need for fundamental changes in business operations.

Employing and training remote staff for routine processes is inefficient and prone to errors. Automation offers a more effective solution.

Jai Das: Current RPA solutions primarily focus on automating simple, repetitive data entry and validation tasks. These tasks will largely be automated within the next few years. The next wave of opportunity lies in automating complex business processes involving both humans and machines, leveraging artificial intelligence and machine learning.

This is often referred to as process mining. Previous attempts at automating these processes with Business Process Management (BPM) required extensive services for implementation and maintenance. AI/ML offers a way to replace these services with software solutions.

Soma Somasegar: Despite the progress made, RPA remains in its early stages. The global RPA market is projected to exceed $2 billion this past year and surpass $20 billion within the next decade, growing at a compound annual growth rate (CAGR) of over 30% over the next seven to eight years, according to analysts like Gartner.

This remarkable growth rate underscores the early stage of the RPA journey and the vast potential that lies ahead. Deloitte research indicates that up to 50% of tasks performed by employees are mundane, administrative, and labor-intensive, presenting a significant opportunity for process automation.

Opportunities include process discovery and mining, process analytics, the application of AI to drive more complex workflow automation, and the use of low-code/no-code platforms to empower a broader range of individuals to automate tasks and processes.

Laela Sturdy: We are far from witnessing the maturation of this space. RPA adoption is still in its infancy, considering its immense potential. Most companies are only beginning to explore the numerous use cases across various industries. As enterprises experiment with RPA, they uncover even more potential applications.

We anticipate that market leaders like UiPath will continue to innovate and expand the scope of their end-to-end automation platforms. As the technology evolves, RPA will penetrate deeper into the enterprise, automating increasingly critical business processes.

Ed Sim: Many large-scale automation projects require substantial professional services. Opportunities remain for startups that can deliver more intelligence and faster time to value. Process discovery, for example, can help companies quickly identify and prioritize processes for automation, rather than simply rearchitecting existing workflows.

Companies like FortressIQ are leading the way, utilizing machine vision and AI to create detailed blueprints of business processes across various applications. Low-code, no-code platforms that democratize automation are also gaining traction and offer significant upside. Catalytic is a notable example.

The Impact of Major Players Entering the Market

With Microsoft and SAP recently entering the RPA space, and potential entry from Amazon, Salesforce, ServiceNow, and Oracle, what are the biggest threats to the RPA startup ecosystem?

Mallen Yen: These developments should be viewed as opportunities rather than threats. All software companies will likely integrate RPA into their solutions to alleviate monotonous, repetitive work, allowing their customers to reallocate employees to more critical and engaging tasks.

We believe the RPA startup ecosystem is poised for growth and acquisition, and this trend will likely accelerate.

Jai Das: These large companies have always been involved in process automation. ServiceNow, for instance, is built on a low-code platform for automating processes. UiPath’s success is largely attributed to its pricing model (based on the number of automated bots) and its ability to partner with system integrators like Accenture.

We anticipate that many UiPath competitors will be acquired by these larger software vendors.

Soma Somasegar: The entry of larger platform providers validates the significant opportunity within the RPA market and fosters a healthy competitive environment that will drive innovation. This could also accelerate RPA adoption across businesses and enterprises.

It will be interesting to observe the innovation and progress made by these larger technology companies. UiPath and other RPA companies currently hold a first-mover advantage, reflected in the robustness and breadth of their product offerings and the rapid adoption of RPA by enterprises.

Laela Sturdy: The market is vast, and continued competition and new entrants are beneficial. However, building core RPA technology effectively is challenging. Best-in-breed providers will continue to succeed due to their focus, experience, and ability to deliver exceptional results.

Companies like UiPath have invested heavily in talent and have a multi-year lead in developing platforms with capabilities in computer vision, UI-based automation, API automation, OCR, and unattended/attended automation. Newer entrants will struggle to match this functionality and performance.

Ed Sim: As more large-scale vendors enter the market, sales cycles are lengthening and downward pricing pressure is increasing. We expect a wave of consolidation in 2021 and 2022 as companies strive to compete with UiPath and Microsoft.

The Role of Niche RPA Players

With emerging RPA companies focusing on specialized areas like healthcare, what impact do you think these niche players will have?

Mallen Yen: Hyperfocus on a specific area can be highly effective, depending on the size of the problem being addressed. Healthcare, with its outdated and manual processes, is ripe for technology innovation. Insurance is another promising area.

Companies that integrate RPA into their solutions in these sectors will have significant growth opportunities.

Jai Das: Vertical-specific RPAs will likely succeed in large, complex verticals like healthcare, which are subject to significant regulatory oversight. Domain knowledge must be embedded within the RPA bots. Similar to Veeva in CRM, we will see successful vertical-specific RPA companies.

Soma Somasegar: The emergence of new RPA innovations is exciting. We will see companies offering horizontal RPA platforms, those specializing in specific use cases (call center automation, test automation), and those with deep understanding of workflows in specific industries like healthcare, financial services, and manufacturing.

Each of these will have a significant impact, driving adoption in specific verticals and use cases. Larger horizontal RPA players like UiPath will remain relevant as partnership opportunities and drivers of broad-scale adoption.

Laela Sturdy: RPA is a horizontal technology applicable to many industries. However, packaging vertical marketing wrappers with core technologies can be effective. This could involve niche players or market leaders offering functionality that addresses specific pain points in industries like healthcare and logistics.

The difficulty of building RPA technology well may lead to third-party developers partnering with market leaders to address niche use cases while leveraging best-in-class technology.

Ed Sim: The market is vast, and focused vendors will find opportunities to automate specialized workflows in insurance, finance, and healthcare. Focus allows for compounding value as bots are trained on more data. Front office automation, with specific integrations and intelligence, is another area for newer vendors. Clay.run, for example, automates prospecting and customer data unification.

RPA’s Long-Term Relevance in a Changing Landscape

If the pandemic accelerated digital transformation, and RPA automates legacy processes, how does RPA stay relevant as legacy systems are phased out?

Mallen Yen: RPA currently excels at automating routine tasks with legacy systems, and these connection points will remain important. However, RPA is still evolving and will become more relevant as it integrates artificial intelligence, machine learning, data analytics, and reporting, enabling it to perform more sophisticated tasks and support informed decision-making.

Jai Das: Enterprises still have a long way to go in completing their digital transformation and moving off legacy systems. Once this is complete, current cutting-edge companies will become legacy companies, creating new processes that will need automation. The lines between RPA vendors, process-mining companies, and integration companies will blur, resulting in seamless process automation and application integration.

Soma Somasegar: The pandemic accelerated digital transformation, but we are still scratching the surface. RPA’s goal is to augment employee work with automation, whether applied to manual tasks from legacy systems or streamlined systems. Fragmentation and complexity will continue to exist, creating ongoing opportunities for RPA.

Laela Sturdy: We are barely tapping into the massive potential of RPA and end-to-end automation. Enterprises have thousands of applications and processes that can benefit from automation. They need a platform that works across this complex landscape, in the cloud and on-premise, with legacy and modern applications.

Few companies will achieve this, and those that do will become the next generation of transformational tech leaders.

Ed Sim: Most new cloud applications have been built and deployed by large enterprises. However, many legacy applications remain untouched, presenting ongoing opportunities for automation. Many processes in insurance, for example, still run on decades-old mainframes, and these corporations are in no rush to change them.