Bank of Ireland head of Tech, Media and Telecoms Paul Swift provides perspective on the recent job losses in tech and the potential business impact of ChatGPT.
“Despite the geopolitical, inflation and energy crisis over recent months we embark upon 2023 with an optimistic mood, with significant opportunity on the horizon”
2022 Review
Summary
- Technology: Acceleration of technology and digitisation continued across every sector, boosting demand for many different technology solutions and services from various providers. For example, we have seen increasing demand from many retail businesses adopting an omni-channel business model. This has led to a requirement for solutions such as expanded ecommerce capabilities, automation and customer relationship management tools. On the supply side, shortage of available talent was again, the most challenging aspect with some customers resorting to hiring talent from Brazil and South Africa to help meet these demands.
- Media: Ireland’s creative sector also continued its strong performance of recent years. The independent film An Cailín Ciúin, made history by being the first Irish-language film to be nominated for the Oscars in the Best International Feature Film category. This multi-award-winning movie also grossed over €1 million at the box office, which is an extraordinary achievement for an independent film. Banshees of Inisherin too, having been filmed on Inis Mór and Achill Island is not only being tipped as a strong contender for the Oscars, but is already causing a stir among fans wanting to visit the film locations, which will have wider benefits for the hospitality and tourism sector.
- Telecoms: There was also good news for consumers following ComReg’s publication of the winners of the main stage of the Multi Band Spectrum Award (MBSA2) across four valuable spectrum bands. The significance of this announcement is that these bands are suitable for providing 5G and will support more widespread mobile connectivity, while increasing network capacity. The winning bidders were Eir, Imagine, Three and Vodafone. The licences are granted for 19 years, providing operators with the certainty in making long-term investment decisions to support the rollout of 5G services across Ireland. Overall, this is expected to lead to more competition in the market which is great news for consumers and the awarding of these licences was estimated to be worth circa €448 million to the exchequer, so good news all round.
2022 Key Sector Trends
‘Big-tech’ job losses: The spate of recent job losses over Q4 by ‘big-tech’ has served to create anxiety as to whether this can be seen as a correction or a collapse in the sector. It’s important to state that these losses need to be seen in context. Many global software/technology firms sought to shore up their recruitment drive to boost their headcount at a time of unprecedented demand, largely created by the pandemic. This is now looking more like a correction, following many years of continuous growth. For the most part it may see these businesses being back to where they were at the beginning of 2022, in terms of total headcount and simply represents a ‘levelling off’.
Tech-enabled businesses becoming more ubiquitous: Despite the job losses referred to above, indigenous businesses appear to be bucking the trend. Recent data published by Enterprise Ireland confirmed net jobs increased by 5% in 2022. The data showed an increase in employment across Ireland’s indigenous Technology and Services sector grew by 8% last year. ‘High-Tech’ construction and housing grew by 6%; Digital Technology (9%), Climate, Sustainability and ‘Agritech’ by 13% and ‘Fintech’, Financial and Business Services by 6%. While one empathises with anyone that may have lost their job recently, many coming from a technology sector background will invariably have very transferrable skills, allowing them to assimilate into various different roles. Ryanair recently announced 150 technology roles, as well as EY who are seeking to hire 900, many of which are technology related roles. Further evidence demonstrating, increasingly, how even traditional businesses are becoming more technology enabled.
Customers demanding a ‘one-stop-shop’ from technology providers: There was a noticeable increase in market demand over the course of last year to reduce the number of technology suppliers a business might have. Rather than having different suppliers for their outsourced information technology (IT) managed services and cyber-security protection as well as hardware, customers instead have been seeking to slim down the number of providers to just one or two suppliers. The aim of which was to reduce risk and to ensure they had more robust protection of their networks, systems and applications while limiting their potential exposure to cyber threats. Demand for one-stop-shop providers is also feeding into the recent consolidation trend where various managed service providers have sought to acquire operators with complementary service offerings to broader their service suite.
Key activity in the Sector
Tech sector valuations: As we moved through 2022, we began to see more realistic expectations emerging following several years of record valuations being achieved for many Irish businesses. Investors have become more focused on businesses that are EBITDA positive or can demonstrate a pathway to profitability. Growth for growth’s sake is no longer seen as the barometer of success it once was, as access to capital has got tighter. Rather an established differentiated position with a realistic addressable market opportunity and recurring revenue are now in sharp focus as determinants of an investible proposition and a sustainable business.
Expansion of film/tv studio infrastructure: Tara Studios slated to be developed at Borleagh Manor in County Wexford was also given the go-ahead by An Bord Pleanála. This permission cleared the way for construction to commence on what is expected to be one of the largest film production facilities, further boosting Ireland’s growing screen industry infrastructure. It is also expected to have broader positive implications for the local economy in terms of employment, hospitality and potential tourism.
Collapse of FTX and what it means for crypto: The news in early November that Binance were pulling out of the deal to acquire FTX set in train a calamitous chain of events. It wiped out more than $230 billion value out of the crypto economy and shattered investor confidence in cryptocurrencies in the process. The crypto and indeed world-wide financial community has been left pondering how a cryptocurrency exchange platform that managed to rise to the top, (securing $400m in investment and a valuation of $32 billion), could unravel so spectacularly and slip to the bottom, all within three years of having been founded. As more evidence emerges of how FTX spent lots of the money it had raised, paying $210m for naming deal with the major esports brand TSM along with various others, it seems corporate governance practices were either not in place or not being adhered to. Total market capitalisation of the global cryptocurrency market peaked at $2.9 trillion in November 2021. At the end of 2022, it stood at just $798 billion, recording a loss of over $2.1 trillion. With little or no regulation or security for investors, it is perhaps no wonder that some have branded bitcoin and cryptocurrency “the biggest ponzi scheme in human history”. Where to from here? It’s probably high time that some rules were created for crypto, so that assets are properly regulated and protected.
Recent investment in the sector
Last year saw the announcement by Dublin-based Delta Partners that it had launched its new venture capital fund which aimed to invest into 30+ technology start-ups at seed and early-stage in Ireland. Bank of Ireland and Enterprise Ireland are cornerstone investors in this fund along with Fexco and several family offices. Investments so far include:
- Eppione: a Dublin-based global provider of personalised and localised employee benefits, secured €2.5M of additional investment, led by Delta Partners.
- ProMotion, a Dublin-based consumer rewards company closed a €725,000 pre-seed round led by Laidlaw Scholars Venture with participation from Delta Partners. ProMotion Rewards allows consumers to photograph their receipts, complete surveys and enter competitions via a dedicated app, earning points when they participate.
- Dimply: a Dublin-based Fintech closed a €2 million seed round led by Delta Partners. Dimply have created a platform empowers financial services enterprise customers to deliver rich, personalised experiences, based on actionable data insights.
- NoFrixion: a Dublin-based Fintech that is revolutionising business payments, closed a €3.6 million funding round led by Delta Partners and Middlegame Ventures and were joined by Furthr VC. Their mission is to enable money to move instantly – to make it easy to pay and get paid using a proven process called “Experiential Payments”.
- LegitFit: a Cork-based provider of management software for gym providers and fitness studios, closed a €1 million seed round, led by Delta Partners. LegitFit are on a mission to empower fitness entrepreneurs.
- VisionR: A Dublin-based retail insights secured €1.5m in a funding round led by Delta Partners, with backing by Movidius co-founder Sean Mitchell, Amici Ventures and Vincent Nolan. The company aims to give clients in the offline retail industry, online insights.
2023 Outlook
Despite the geopolitical, inflation and energy crisis over recent months we embark upon 2023 with an optimistic mood, with significant opportunity on the horizon. Digitisation will continue as ESG become more into focus, existing and new, emerging technologies will provide the tools for companies of every size and sector to transform their business models to become more efficient and embrace the green agenda.
Technology: Looking ahead for 2023, business customers across the sector remain optimistic for the year ahead. While cognisant of a potential slowdown in the economy that could have a knock-on effect in terms of procurement/acquisition of software and IT services, the mood is positive. The impact of various shocks of recent years caused businesses to adopt a tighter cashflow position, coupled with lean principles. As demand increased significantly for various technologies and applications, they have tended to reap the benefits, borne out by strong cash balances for many companies. Much of the technologies now adopted in various sectors would not be seen as discretionary spend and instead seen as critical to a business’s operations and unlikely to be suspended/replaced in the event of a recession, insulating providers somewhat against a downturn.
From a regulatory standpoint, data privacy will strongly figure this year. May 25th will see the fifth anniversary since GDPR came into force. Businesses should be well informed by now regarding compliance measures and obligations. Large fines that have been imposed on ‘big-tech’ may well be interpreted as a warning to SMEs too, to get their houses in order as we are likely to see more proactive activity regarding GDPR compliance coming from the Data Protection Commissioner’s (DPC) office.
Media: Advertising spending in the Irish market is expected to grow by around 6% to €1.7bn in 2023 according to Magna Global. Digital advertising accounted for 70% of spend last year and is expected to grow by 15% this year, across various platforms such as YouTube and TikTok. Print media advertising was down 2% last year, continuing the trend of recent years and looking ever more ominous. Ireland’s Screen industry continues to go from success to success, with increased government support and new funding to support gaming, animation and immersive storytelling subsectors to support the further growth of Ireland’s creative industry.
Telecoms: We may see cost of living pressure impacting on customers this year that could result in a change in attitudes towards spending on connectivity and content, which could lead to a significant increase in churn propensity. As cyber threats are becoming more prolific, down to the level of the individual, customers will be looking to their service providers to do more to ensure safety and security of their networks to ensure cyber security is top of their agenda. Given the amount of consolidation that has taken place over recent years, we are probably going to see telecoms providers taking a more proactive approach to new product development for enterprise customers, in the areas of cloud services and the Internet of Things (IoT).
Market
Chat GPT – an in-depth review
Having only been launched in late November, it is fair to say that the internet has ‘lit up’ in recent weeks with talk of this latest text-generating technology. Within a week of its launch, it had gathered over one million registered users. It is being heralded as an artificial intelligence (AI) revolution, that could solve lots of our problems and answer many questions. Some are even going as far as suggesting that Google could be put out of business. Why? The difference is Google will provide you with the lists of websites that match your inquiry, ChatGPT will answer your specific question and provide specific content, lists or even instructions on how-to complete a task.
So, what is ChatGPT (v3.5) and how does it work? It is a chatbot (short for chat robot) that has been trained to provide human-like answers to everyday questions and problems, by modelling previously established texts created by humans in order to guide the model towards future behaviour. It uses massive amounts of data and information (used 175 billion parameters and on 570 gigabytes of text) taken from numerous sources from the internet, including internet forums and discussions, to help ChatGPT learn and attain a conversational/human style of responding about endless topics. In essence it has been trained to understand what humans mean when they ask questions.
It has a user-friendly interface, making it simple for someone to pose a question, using natural, everyday language and the chatbot will respond in a conversational style with the answer. Using machine learning, the chatbot then remembers the thread of the conversation and uses previous questions and answers to inform its next responses to inquiries and interactions as it evolves over time.
The purpose of its invention was to understand how humans ask questions and provide truthful and helpful, harmless answers. To this end, it has been programmed specifically to not provide answers to toxic/harmful questions. That said, the creators of this technology, OpenAI (co-founded by Elon Musk), acknowledge that it will sometimes respond to harmful instructions or display biased behaviour. They have deployed the Moderation API to try and defend against certain types of unsafe content, however given it is still in its infancy they concede that they expect to have some false negatives and positives for the moment.
How could businesses potentially use ChatGPT and what for? It can be used in any number of ways where human conversations take place, offering potentially infinite uses for the technology, e.g., hiring and training staff, personalised shopping/customer experiences and even streamlining of processes. Some use cases include:
- Customer care: conversational type, automated responses, where one receives a more personalised reply to their inquiry.
- Journalism: creation of content for news articles, reports and research.
- Branding and marketing: creation of personalised, engaging content, harnessing market research, tailored to specific market niches and segments.
- Personal fitness nutrition: creation of weekly training programs, including exercises, reps, sets and specific advice on when to warm up and cool down and associated meal plans based on the individual.
Caveat: The capabilities and potential of this technology can perhaps appear scary, as it is giving rise to the fear that this will lead to job roles being redefined/lost much sooner. While this is revolutionary technology, it does have limitations as it can only provide answers based on the data it has been trained on. OpenAI acknowledge the technology has limited knowledge of events after 2021. Similarly, it cannot handle nuanced, complex, or sensitive inquiries and does not have the ability to think or act creatively. There are lots of potential ethical implications too as it could result in the spread of fake news or could potentially be used to generate false or misleading information. Academics too recently tested the technology and produced responses to exam questions they say would have resulted in full marks if they were submitted by an undergraduate.
This current model was trained on text. Future models will likely be trained on data from other means, such as images, video and even audio recordings and will enable other broader and diverse capabilities and even greater opportunities. Thus, we could see different versions of ChatGPT trained with data from various different business verticals, providing answers nuanced to different industry problems. The potential is frightening and exciting in equal measure and one wonders, could this be the beginning of the commoditisation of AI for the masses?
For now, the technology is free, however it has been well documented that its creators have referred to the ‘eye-watering’ computing costs, with some estimates of up to $3 million per day. The likelihood is there will be a premium version for business coming on stream before too long.
Cyber Hygiene
Looking ahead given the proliferation of attacks there is a need for SMEs and organisations of every kind to adopt a step-change in terms of focus on cyber-security training and protection. Businesses will need to take a more proactive approach, where appropriate to enhancing the security of their supply-chain. More than 85% of attacks start with the human error, thus requires continuous, ongoing training. According to TechTarget we will see an increase in investment to improve enterprise security posture. This will likely provide further growth opportunities for cybersecurity managed services providers as business seek to shore up security and most importantly have robust security to guard company and customer data.
ESG and Digitisation
As more clarity begins to emerge as to in relation to Sustainable Development Goals, it is inevitable that digitisation will play a central role in helping all sectors meet these goals. Technologies such as AI, Machine Learning and Internet of Things, will become more essential in the day-to-day operations of many industry sectors, specifically in relation to optimisation of operations. Digital transformation will also be used to mitigate the problems such as helping with monitoring and associated attempts to reduce carbon emissions and could also provide solutions around health and safety of employees. Data and the management of same will come into sharp focus as manual processes are no longer fit for purpose. Businesses will need to ensure they are digitising all of their data, enabling transformation to a more efficient, accurate, and consistent system that reduces human error, or a single point of failure. Operational costs can be reduced through digitisation, while removing information silos as data is moved to cloud instead of traditional storage. Having the appropriate technology will help businesses in how they gather ESG data and associated reporting requirements in the time ahead.
Funding activity
Digital transformation continued across every sector 2022 and we expect it will continue to provide growth and expansion opportunities for our technology customers servicing those markets. We look forward to supporting these established businesses as they look to consolidate, grow scale and their market position. Over the last year there has been a marked increase in activity, businesses that have matured in recent years are now seeking to refinance from alternative lenders to reduce their cost of capital and we look forward to working with other similar businesses through the coming year. Likewise, we have supported both existing and new customers investing in their businesses to adequately resource their operations to capitalise on new opportunities and grow new markets.
