Pega – Using AI for CRM and Process Automation

There’s a term we often use here on Nanalyze, “pure play”, which refers to the exposure any given stock has to a particular investment theme. Take Illumina for example. They build machines that are used to read genetic information. Since Illumina has around an 80% market share selling their sequencing machines, we can be assured that most companies involved in genetics are using Illumina’s equipment making them a “picks-and-shovels” play on genetics. Since Illumina makes nearly all their money on sequencing machines and consumables, this also makes them a “pure play” for investors who want exposure to the genetics story.

Just because you have a pure-play stock doesn’t mean it will outperform the market, but companies with strong market share don’t have to worry so much about competitors since they usually have the resources to fight them. Another example of a “pure-play” stock with strong market share is Nvidia and their dominance in selling GPUs which are used for artificial intelligence, making them a picks and shovels play as well. In order to assess the “pure play” aspects of a stock for any particular theme, we might ask questions like:

  • What percentage of revenues can be attributed to the theme?
  • Are they a “picks-and-shovels” play on the theme?
  • What sort of market share has the company secured?

While any company can start plastering references to artificial intelligence (AI) in their investor materials, we’re only interested in those companies that are actually generating revenues by using AI. One company we came across recently that’s being looked at as a possible AI stock is a $4.8 billion company called Pegasystems (PEGA). Here’s what they say they do:

We are helping our clients accelerate digital transformation, by realizing high customer engagement and achieving operational excellence, and leveraging our artificial intelligence (AI) and Robotics technology.

Lots of buzzwords being thrown around here from this 4,237 person company, and we see frequent mentions of “AI” and “robotics” throughout their latest financial filings. In this case, the type of robotics that Pegasystems talks about is something we wrote about recently called “Robotic Process Automation” or RPA which shouldn’t be confused with “Business Process Automation” or BPA. Add to this mix something called “Digital Process Automation” or DPA and we’re as confused as you are right now. Here’s how we might simply define all three:

  • Business Process Automation (BPA) – Models a set of business processes that exist today and makes them more efficient for cost reduction purposes
  • Digital Process Automation (DPA) – Ability to take existing business processes and make them digital and automated, preferably without writing much code
  • Robotic Process Automation (RPA) – Automates business processes using AI to “learn” over time as opposed to a set of linear, scripted instructions

Knowing the differences between these concepts isn’t important. What is important is that companies today are obsessively focused on cutting costs, and all three methods above present a way for that to happen. That’s one of the reasons why Pegasystems has been selling the isht out of their software with steady revenue growth over the past decade:

Those revenues come from more than 3,000 customers including the 8 biggest healthcare companies, 6 of the top-10 global banks, and 7 of the top-10 insurance companies. At this point, who cares if they’re using AI. They’re building a software solution that helps save companies money and everyone is buying it. Well, that’s not the entire story. What they’re actually selling is a platform that consists of two main components; customer relationship management (CRM) and Digital Process Automation (DPA):

There’s a real mire of buzzwords on display here like “journey-centric” and “situational layer cake” but under all that is some real substance. They’re selling a competitive CRM system which Gartner rated better than one of the biggest CRM players out there, Salesforce. Then there’s the digital process automation piece which among other things helps to simplify compliance, something we wrote about recently in our article on Digital Reasoning – AI That Understands You. They’re also using robotic process automation (RPA), something they adopted in 2016 with their acquisition of OpenSpan whose RPA solution was running on more than 200,000 desktops at leading global enterprises when they were acquired. A closer look at the latest annual report for Pegasystems also mentions AI as being used in the following areas:

  • Pega Marketing – Uses “predictive AI” to evaluate the context of each customer interaction
  • Pega Sales Automation –  AI guides sales teams through the sales and customer onboarding processes
  • Pega Customer Service – AI-powered virtual assistants

About a month ago, the CEO and Founder of Pega, Alan Trefler, made an appearance on Jim Cramer’s Mad Money show to talk about his company’s work in “digital transformation“. While we won’t hold that against him, the interview did contain some interesting information. Apparently Pega moved into AI “about seven years ago” through an acquisition. A cursory look at Crunchbase shows that he’s probably referring to the acquisition of Chordiant Software back in 2010 for around $160 million. Chordiant was a CRM provider with a “powerful real-time predictive decisioning engine”. That might just be what Pega now refers to as their “Customer Decision Hub”:

The Pega Customer Decision Hub, a centralized, always-on “brain” unleashes the power of predictive analytics, machine learning, and real-time decisioning across our clients’ data, systems, and touchpoints—orchestrating engagement on and across customer interactions channels.

Fancy buzzwords aside, it’s good to see that Pega sees artificial intelligence as the future of RPA, BPA, and DPA, and is making acquisitions to reflect that strategy. There are plenty of other companies out there using AI for CRM, like some of the ones we covered in our articles on 8 Artificial Intelligence Startups Improving CRM and 6 Artificial Intelligence Startups Customizing CRM. At this point if you have a CRM offering that isn’t using AI, your technology is lagging behind your competitors.

So, would Pega be considered a “pure-play” AI stock for retail investors who have few options these days aside from Nvidia? It seems like we’re already at a point where AI is the new electricity, the new oil, the new black. Every company out there should be looking at using AI to create operational efficiencies. If Pega uses AI to add value, then every one of the +3,000 companies that buys their solution can then say they’re now using AI to create value. In the case of Pega, they’re an “enabler” according to the classification that we looked at before in our recent article on Two ETFs for Artificial Intelligence and Robotics. Strangely enough, Pega stock in nowhere to be found in either of the two “AI ETFs” that exist right now which goes to show how conflicted the pundits are when it comes to finding “AI stocks” we should be investing in aside from just buying shares of Google.


The question will soon become which companies out there are not using AI to add value today. Those are the companies that will soon be under-performing the broader market.

Four of the five AI stocks we're holding are SaaS businesses, some selling RPA software. Become a Nanalyze Premium annual member and get immediate access to our entire tech stock portfolio, our catalog of over 360 tech stocks, trade alerts, and much more.

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