Enterprise Next: Predictions for 2016

As we reflect on the blockbuster year for enterprise cloud applications in 2015, all of us at Emergence Capital are excited to turn our attention to what’s in store for 2016.  We see a number of promising growth areas (emerging technologies! innovative business models!), and we are seeing companies adjust to the new reality of belt-tightening.   

The good news is that enterprise technology is becoming more interesting every year, in that businesses are benefiting from the combination of cloud based applications, new hardware (e.g. drones, VR) and the compute power that enables sophisticated analytics.    Where is the market headed from here?  Below are 10 enterprise technology trends we see for 2016.

1. Industry vertical cloud solutions (“Industry Cloud”) will be the biggest segment of enterprise technology spending again in 2016.  As my partner Gordon Ritter wrote earlier this year, nearly all verticals are “Uber-vulnerable” to disruption, and there is a window of time for enterprise cloud companies building enabling technology to help the incumbents drive their own innovation by introducing customer-centric technology.
2. Mobile Enterprise Apps will continue picking up steam as deskless workers increasingly use apps that help them become more productive.  We are starting to see how this sector will grow into the $100 billion market that was forecasted by Kevin Spain in his well-read Mobile Enterprise Trends Report. 
3. Employee Engagement & Culture Management applications go mainstream.  Jason Green predicts, “In an environment where talent is the ultimate competitive advantage, companies will have to figure out how to recruit, measure, manage and retain the best talent and a new generation of cloud based applications will enable this transition.”
4. Internet of Things (IoT) applications will show early ROI for companies taking a vertically-focused approach.  While the broader platforms are still developing, emerging use cases will emerge in specific verticals such as manufacturing and healthcare, particularly when blending sensor data with predictive analytics.  Emergence partner Brian Jacobs notes, “2016 is the year when we will see the shift from middleware to specific applications.”
5. Drones will move beyond backyard toys and become a bigger business story in 2016. Kevin Spain notes, “As FAA regulations are finalized, we are going to see increasing number of large corporates spin up drone initiatives, particularly in agriculture, construction and mining.”
6. GreenTech will have a second coming, but under a new moniker: the Natural Resources Cloud.  The influx of new technologies and new resources (e.g., Bill Gates’ multi-billion dollar Clean Energy Fund initiative) will draw in new entrepreneurs, particularly millennials focused on building socially conscious businesses.  My colleague Jake Saper predicts that this time we will see a greater focus on cloud software as the key enabler of viable business models.
7. Freemium 2.0 will emerge in 2016, where applications will be completely free, with monetization happening in the background.  Santi Subotovsky explains, “Revenues will be derived from transactions, enabling companies to give away workflow applications for free. Upsells to premium from free will no longer be the only way to make money for freemium businesses.”
8. Machine Learning, Artificial Intelligence and Natural Language Processing will be the 2016 buzzwords in enterprise cloud, but we will only see value when applied to specific domains.  Gordon Ritter notes, “I’m excited by the impact of sensor data at the word level & tone level, but what matters most is finding teams that understand which questions to ask and which outcomes data to use.”
9. Virtual and augmented reality applications for business use cases will emerge in 2016. According to my colleague Joe Floyd, “The first applications for VR and AR in the enterprise will focus on supporting high value workers such as physicians or high value projects like oil rigs because these are the situations that can justify the high cost of hardware. We predict the proliferation of VR and AR applications into the enterprise will increase as hardware costs decline and enabling software technologies continue to develop.”
10. New learning platforms will help close the skills gap by redefining the campus interviewing and hiring process. John Chen notes, “In 2016, we will see a new set of platforms that partner with companies to provide rich project-based learning experiences that help new grads acquire necessary skills, work in teams, and get exposure to companies.”

As for our thoughts around business trends and venture funding, below are 5 predictions:   

• We will start to see a premium on capital efficiency for private and public companies over the “grow at all costs” mindset of 2015.   
• “Revenue Quality” will become the term du jour for 2016.  We are in the midst of a SaaS echo chamber, with venture backed companies selling predominantly to other VC backed companies.   We’ve seen this movie before in DotCom 1.0, and it didn’t have a happy ending.
• Corporate scandals will come to light.  The availability of capital during bubbles leads to excess and shortcuts, both of which can be problematic. We predict that several scandals will emerge in 2016 showcasing the kind of unsavory behavior that tends to go hand-in-hand with frothy times.
• Corporate shopping sprees will kick in.  We predict more M&A activity in 2016 for enterprise cloud companies. Jason Green notes, “Corporate balance sheets are at all-time high, growth capital is constrained, and the IPO market is tough - large incumbents will be ready to take advantage of this opportunity.”
• An increase in “not started here” investing.  We will see an increasing comfort from Silicon Valley investors investing in non-Silicon Valley companies.  The quality of video collaboration tools has increased thanks to tools like Zoom, and in general there is an increasing comfort with remote employees/offices.  The in-person VC pitch meeting will become less important as Silicon Valley to continues to gain comfort with companies based elsewhere.  Stay tuned for the 2017 prediction where virtual reality takes this to the next level.

Happy new year to all of the fantastic entrepreneurs who are building Enterprise Next!  We are excited to help you build the next wave of enterprise cloud companies.