United States: Disrupting The Disruptors

Renowned as the disruptors of other industries, information technology (IT) companies are now subject to a dizzying pace of change, driven by the global pervasiveness of their own technologies.

"We've known for a while that the on-premise model has largely been supplanted by the cloud, making all technologies available as a service or everything-as-a-service," said Steve Perkins, technology leader at Grant Thornton LLP. "Reaching new markets has never been so straightforward or as low-cost. Information technology companies are aggressively blurring traditional industry boundaries.

But there are challenges."

While quickly maturing, the global everything-as-a-service (XaaS) market is still forecast to grow at a compound annual growth rate (CAGR) of 38.2% from 2016 to 2020, according to research firm Technavio.1 Storage-as-a-service will be the fastest-growing service segment in the XaaS market, delivering CAGR of more than 40% by 2020. U.S. companies will invest more than $232 billion in internet of things (IoT) hardware, software services, and connectivity in 2016, and IoT revenue is expected to skyrocket by 16.1% to $357 billion by 2019, according to research by International Data Corporation (IDC).2

Shifts of this magnitude significantly disrupt all segments of the industry's value chain. Cloud computing, for example, changes the way software applications and infrastructure are consumed and acquired. There is more elasticity and volatility in demand. IT companies must be able to scale up seamlessly in response to rapidly rising demand. They also need to be able to anticipate when a product or service is reaching maturity and scale down in response by driving efficiency and reducing costs.

Disruptive technologies like these inevitably rewrite the rules of how IT companies grow and compete. New competitors and threats are emerging. Established leaders are seeing revenues from traditional products stagnate and must pivot to new revenue sources, driving new M&A cycles.

Regulatory oversight and scrutiny are growing both domestically and internationally at the same time as IT companies are moving into nontraditional industries. International expansion tests tax and privacy policies here and abroad. As technology becomes ever more ubiquitous and essential in our daily personal and business lives, increased scrutiny is inevitable. Winning companies must redefine their business models, building platform businesses underpinned by strong operational discipline.

Today, several trends are shaping the state of play in the U.S. IT sector: hypercompetition, geopolitical volatility, regulatory and tax scrutiny, and the rise of the platform business.

Hypercompetition exposes new risks

The U.S. IT industry is not for the faint-hearted — competitive intensity is part of its DNA. Increasingly, IT companies are crossing traditional industry boundaries to take on established companies on their home turf, as they have so successfully done in media and retail.

But these moves expose IT companies to new risks. As they invest in moving into new sectors such as automotive, hospitality and transportation, they face entrenched competitors with finely honed capabilities. Suddenly, their core technical prowess isn't enough to succeed. There is a real danger they will stretch their business model and distract leadership, placing capital investments at increased risk.

In some cases, they will also step into heavily regulated markets, such as health care or financial services. This exposes them to significant risk unless they have the capabilities and experience needed to meet the compliance requirements of the sector's policymakers. Established companies in these industry sectors have powerful support bases and won't cede market share quietly.

In addition to battling on new fronts, IT companies need to protect their own borders as established firms in other industries begin to encroach on their territory. A notable example is General Electric's shift to a digital and industrial company. Today, it is a $4 billion software business that is actively working to build and deploy a dominant industrial IoT. According to the Financial Times, this 123-year-old group is investing $1 billion a year to boost its digital capabilities, hiring 1,000 software engineers and data scientists, and setting up a new data analytics center in

San Ramon, Calif.3

To prepare for the risks of expanding into new sectors, IT companies need to map and understand the current regulatory environment and potential future regulatory risks. They also need to carefully evaluate their partnership and acquisition strategy for moving into new sectors. Google, for example, managed the risk of moving into a new sector by buying the mobile wallet technologies and patents from Softcard as part of the technology giant's strategy for the booming mobile payments segment.4

Geopolitical volatility and regulatory and tax scrutiny increase

In the past, U.S. tech companies powered ahead in an environment that could be described as "regulatory lite." They didn't face the same regulatory burden as their peers in other industries, such as utilities or financial services. But this is changing — and fast — as companies grow and expand internationally. A strong signal of this geopolitical volatility was the announcement by the EU's antitrust regulator that Ireland should recoup about $14.5 billion of unpaid taxes accumulated by Apple over a decade.5

On the one hand, reaching international markets has never been so straightforward or as low-cost. Because of new technology platforms, on-demand services, global supply chains and increasing data speed, early-stage IT companies can operate globally from day one.

Expansion is also growing more complex. To succeed with their international ambitions, IT businesses must overcome increasingly complex and diverse legal and regulatory obstacles that differ regionally. Their cloud offerings, for example, rely on the free flow of data across international and other jurisdictional borders. But governments around the world are impeding the free flow of data in the name of protecting privacy. A notable example was the decision of the European Court of Justice to strike out the safe harbor framework in October 2015, which had allowed the likes of Facebook and Google to move data from the EU to the U.S.

As more IT companies become global enterprises, taxation authorities are taking an increasingly critical view of their tax strategies. Where an IT company physically supports, sells and innovates its products often has very little connection with where the products are consumed. IT companies are increasingly at odds with taxing authorities about this fundamental aspect of their business. The Organisation for Economic Co-operation and Development's base erosion and profit shifting initiative, aimed at closing international tax loopholes and establishing where taxes should be paid, is adding complexity. Within U.S. borders, the Supreme Court's reversal of Quill v. North Dakota has increased complexity as local state taxing authorities lay jurisdictional claims to out-of-state transactions.

IT companies need to understand how these regulatory and tax risks affect how they structure their global operations, define their product and service offerings, and manage value chains that span borders. These risks affect multiple aspects of the business — from the partnerships they forge, to how they manage risk, to their brand reputation. Joel Waterfield, Grant Thornton's national managing director for Technology, said, "Information technology companies need to build a detailed view of the tax landscape in all their target markets — understanding where the inconsistencies are, where changes are pending, and what the implications are for compliance and tax reporting."

The rise of the platform business redefines value creation

Fortune favors the brave in the IT industry. In many cases, the winning tech companies are those that can develop the platforms that redefine an existing industry rather than seek incremental improvements. The network effects of aggregator platforms like eBay or social platforms like Facebook have delivered significant value to their creators.

Tomorrow's IT winners will build and orchestrate pervasive and compelling platforms that connect producers and consumers. IT companies that "own" successful platform communities will be able to tap into and monetize user-generated content, creativity and data — the currency of the future for tech companies.

Creating long-term sustainable value requires strong operational discipline and constant vigilance to defend the platform from competitors. It can be easy for a platform business to be commoditized or imitated in different geographic markets. Orchestrators have to have the structures and processes in place to offer a compelling end-to-end customer experience. Given that platform operators learn and evolve based on data, they also need robust approaches to data governance.

IT companies also need to re-evaluate their acquisition strategy in light of their platform ambitions. Perkins said, "Constant prioritization of investments must be made to favor those features most apt to build and sustain customer participation in the platform. Should usability be enhanced? Should throughput be accelerated? Should an end-to-end process be optimized? Should they go deep into a subindustry or functional specialization? IT must address all these questions, with constant customer feedback, an agile approach to development and an obsession with client service."

Success based on clear purpose

U.S. IT companies are justifiably seen as world leaders. However, IT is also an unforgiving segment, where the leaderboard is constantly changing. It's difficult to predict which companies will provide the winning services and products in a cloud-based, open-source era.

What is clear, though, is that success will entail a significant transition into how companies manage competitive risk, growing regulatory and tax scrutiny, and engagement with communities of consumers. By building executive understanding and alignment behind the key strategic themes facing the industry, U.S. IT companies can gain the clarity of purpose required to succeed.


1 Technavio. "Global Anything as a Service Market 2016–2020," May 17, 2016.

2 Shirer, Michael and Torchia, Marcus. "IDC Spending Guide Finds U.S. Organizations Accelerating Their Investment in the Internet of Things as Meaningful Use Cases Find Their Way to Fruition," IDC, June 22, 2016.

3 Crooks, Ed. "General Electric: Post-industrial revolution," Financial Times, Jan. 12, 2016.

4 Mishkin, Sarah. "Google in deal to boost mobile payments; Search group buys technology from Softcard as it takes on Apple Pay," Financial Times, Feb. 23, 2015.

5 Drozdiak, Natalia and Schechner, Sam. "Apple Ordered by EU to Repay $14.5 Billion in Irish Tax Breaks," The Wall Street Journal, Aug. 30, 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.