Australia’s tech sector is making headway on an international level. Learn about the Australia tech outlook and what’s next in the country.
Australia’s technology sector is garnering attention with advancements in artificial intelligence (AI), fintech and cleantech, among other exciting industries.
The country’s characteristically resilient economy — which had not experienced a recession in nearly 30 years prior to the COVID-19 lockdowns — has provided a sturdy backdrop for its growing tech sector. As economies worldwide face uncertainty, Australia’s job market continues to defy global trends.
In fact, in November 2020, Australia added over 90,000 new jobs as coronavirus restrictions were lifted, the Australian Financial Review reported.
Australia tech outlook: Strong international players
In response to Australia’s strong economy, companies at the international scale have been securing a foothold in the country’s markets in recent years.
For instance, Japanese tech conglomerate Softbank (OTC Pink:SFTBY,TSE:9984) began investing in Australia in 2016 through the acquisition of AI and robotics firm ST Solutions. Its flagship robot, Pepper, is designed to greet customers in 21 languages using emotional response analytics. Pepper is at the forefront of Softbank’s robot innovation initiatives.
Similarly, in April 2019, Google (NASDAQ:GOOG) launched its inaugural commercial drone delivery system in North Canberra. The service — called Wing — delivers food, coffee and retail items by drone to residences. Orders are placed through a mobile app.
Some of the biggest names in global tech are also taking positions in Aussie-grown tech startups. In May 2020, Chinese gaming and social media firm Tencent Holdings (OTC Pink:TCHEY,HKEX:0700) bought a 5 percent stake in Australian buy now, pay later company Afterpay (ASX:APT,OTC Pink:AFTPF).
As these large tech companies invest in Australia, Australian unicorns (startups with valuations of more than a billion dollars) have garnered attention. According to CB Insights, there are 528 unicorns globally, and three of those — Canva, Judo Capital and Airwallex — reside in Australia.
Design startup Canva is estimated to be worth US$8.7 billion. It has over 30 million monthly active users, and 85 percent of Fortune 500 companies use its services. In May 2019, it acquired both Pexels and Pixabay, broadening its stock photo subscription model service. After securing US$60 million in funding in late 2020, the company has plans for further acquisitions as it expands globally.
Australia tech outlook: Top tech trends
As mentioned, Australia’s current tech ecosystem is largely underpinned by the country’s advancements in three core sectors: fintech, cleantech and gaming.
According to Deloitte, the fintech sector in Australia is both maturing and scaling at a steady clip, making it ripe for investment. In its Technology Fast 50 2020 report, the firm highlights Half Dome, My Plan Manager and Autoguru as the top technology companies in Australia. For its part, EY reports that 60 percent of Australians use fintech applications, with the adoption rate rising 27 percent since 2017.
When it comes to cryptocurrencies, Australian exchanges CoinJar and Coinspot allow users to buy and sell digital assets. In August 2019, Gemini, the Winklevoss-run exchange, also launched its services in Australia, offering users the ability to exchange bitcoin, bitcoin cash, zcash, litecoin and ether.
Emerging as a leader in the cleantech sector, Australia is making strides in renewable energy technology such as wind and solar power, as well as energy storage. In early 2019, Melbourne began using wind to power 100 percent of its municipal infrastructure, such as universities, town halls and street lights.
In Queensland, Genex Power is planning to begin construction of its 250 megawatt Kidston pumped hydro project in 2021 after securing a government loan of up to AU$610 million.
Meanwhile, as part of a 10 year agreement, members of the Melbourne Renewable Energy Project will purchase 88 gigawatt hours of wind power annually from Pacific Hydro; the deal resulted in the creation of nearly 150 new jobs. According to Fast Company, this new business model has spurred renewable energy contracts from several large corporations in Australia.
As Australia makes formative moves in renewable energy, it is also showing explosive growth in the gaming and esports sectors. According to a PwC report, revenue for Australia’s esports market came to AU$5 billion in 2019, up from AU$1 billion in 2015.
Australia is home to six ASX-listed esports companies: Esports Mogul (ASX:ESH), Emerge Gaming (ASX:EM1), iCandy Interactive (ASX:ICI), Kneomedia (ASX:KNM,OTCQB:KNEOF), MSM (ASX:MSM) and SportsHero (ASX:SHO,OTC Pink:NIROF). Further expanding the esports investment opportunities in Australia, the ASX now has an esports-focused exchange-traded fund (ETF), the VanEck Vectors Video Gaming and Esports ETF (ASX:ESPO). It offers investors broad exposure to the space.
As the esports sector continues to expand, it has attracted international partnerships. In 2018, Riot Games, publisher of League of Legends, partnered with the Australian Football League and brought an esports event to the Margaret Court Arena in Melbourne, a stadium that seats 4,000. In the summer of 2020, Ubisoft Australia extended its partnership with XP Esports Australia for seasons two and three of the XP Women’s League and the new HSL Rainbow Six League.
Australia tech outlook: What’s ahead
Looking ahead, PwC expects the Australian esports market to reach AU$8 billion by 2024. The forecasted growth is attributed to app-based games and esports in a market saturated with smartphone ownership and improved monetisation strategies for increased revenue from mobile games.
Deloitte has made several predictions for the future of tech in Australia. With major sectors such as esports, AI, private 5G and edge computing leading the way into the future, Deloitte states that interoperability with cloud networks will drive tech adoption.
According to the Australian Computer Society, the number of workers in the country’s technology field increased by 6.8 percent between 2018 and 2019 — that represents an annual growth rate that is 1.5 times as fast as the rest of the Australian workforce during the same time period. In addition, another 156,000 jobs in tech will be needed by 2025 to keep up with rising demand.
The capital markets have recognised this growing demand. In mid-2019, ABC News reported that the Australian Securities Exchange was aiming to become an epicentre for tech listings. Over the past few years, it has focused on recruiting more late-stage tech companies to access greater pools of capital.
Underscoring this growth are key economic factors. According to the Organisation for Economic Co-operation and Development (OECD), “Australia has been hit by the coronavirus pandemic less severely than other countries.” The OECD expects real gross domestic product to contract by 3.8 percent in 2020, but it is projected to grow by 3.2 percent in 2021 and 3.1 percent in 2022.
What’s more, the wave of initial public offerings that swept Australia’s tech industry in late 2020 is expected to continue well into 2021. The Australian Financial Review reported that a number of Australian tech companies are on the path towards a “likely listing” for 2021.
Those include buy now, pay later businesses such as Beforepay and Limepay, telecommunications software company ActivePort, marketplace technology firm Marketplacer, fintech company Sniip and diagnostics healthcare technology business Lumos.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.