UBS Intellectual Capital Artificial Intelligence Is Already Morphing Business Models

 

By Alex Stiehler, Sundeep Gantori, and Kevin Dennean

Artificial intelligence (AI) is more than just robots. It’s a set of tools and programs that makes software smarter in such a way that an outside observer thinks the output is generated by a human. We believe AI will be a significant driver in automation, having far-reaching implications in many industries, ranging from e-commerce to agriculture.

In the most simplistic terms, AI leverages self-learning systems by using multiple tools like data mining, pattern recognition and natural language processing. It operates as a human would when conducting routine tasks such as common-sense reasoning, forming an opinion or social behavior. That said, AI is an umbrella term to cover a confluence of multiple technologies, such as machine learning, which includes deep learning, cognitive computing, natural language processing, neural networks, and so on.

The main business advantage of AI over human intelligence is its high scalability, resulting in significant cost savings. Other benefits include AI's consistency and rule-based programs, which eventually reduce errors (both omission and commission), AI's longevity coupled with continuous improvements, and its ability to document processes.

We believe AI can be divided broadly into three stages: artificial narrow intelligence (ANI), artificial general intelligence (AGI), and artificial super intelligence (ASI). The use cases of AI are manifold as AI-based software will push the limits of automation.

Like a brain, AI powers the traditional sources of automation and robotics, and drives progress of sectors like autonomous vehicles and drones. But as a standalone industry, AI-based software can create significant business opportunities.

Examples include: virtual assistants or chatbots providing expert assistance; robot advisors in the fields of finance, insurance, legal services, media, and journalism; and expert healthcare systems that provide medical diagnosis and assistance. Other benefits include significantly improving efficiencies in research and development (R&D) projects by reducing time to market, optimizing transport and supply chain networks, and improving governance through better decision-making processes.

We believe corporations and governments are realizing the benefits of AI, resulting in increased attention and spending on AI projects. We expect AI-related software revenues to rise from $5 billion in 2015 to $12.5 billion by 2020, growing at an average 20% a year. While the estimate looks conservative, the size represents only the third-party AI software market, with significant spending both on infrastructure and on internal projects. As the industry matures, we should get a better idea on the overall size of the market. Furthermore, third-party software market growth rates should accelerate after 2020 as AI enters the second AGI stage, reaching a sweet spot with use cases and the addressable market expanding sharply.

And some of the technology that we’re already seeing today may have a greater impact as time goes on.

For example, despite the recent mixed performance of 3D printing companies, we think that 3D printing holds promise in the long term, when dramatic benefits may start to arise. In the near term, rather than being applied to mass production, we see opportunities for 3D printers in businesses requiring rapid prototyping and high customization with small production quantities. Wohlers Associates, a leading industry research firm in 3D printing, expects the industry's revenues to grow from around $9.6 billion in 2017 to $21.2 billion in 2020.

Drones, which were initially restricted to military use, slowly expanded to personal use and are now literally taking off for commercial purposes. Also known as unmanned aerial vehicles (UAVs), drones are operated remotely or autonomously and generally carry a video camera to monitor flight. Although drones are still in their infancy, they are being used across industries like manufacturing, utilities, agriculture, film-making, and government organizations at a fraction of the cost of a manned aircraft.

E-commerce and logistics companies are also beginning to experiment with drone technology. Thanks to their autonomous features, drones could be a new tool of industrial automation. For industrial companies, drones could prove handy for aerial inspection surveying, particularly in the oil, gas and mineral exploration and production industries, or for short cargo transport within the factory line, saving significant costs.

Agriculture is another promising industry where drones can be widely used, for example to survey crops and spot irrigation problems. The global drone market, according to Gartner and Bloomberg Intelligence, is expected to grow from $6.1 billion in 2017 to $11.2 billion by 2020, with an average annual growth of 22%. The growth will not only be driven by consumer drones but also commercial drones as demand continues to be strong across industries.

However, despite the advantages of the drone market, we believe safety and other regulatory issues need to be addressed before we can estimate the industry's growth rate. Many governments across the world are in the process of setting up regulations on safety and privacy.

Nevertheless, even with the concerns surrounding some forms of AI such as drones, we think AI is at the center of a new industrial revolution, given its potential to change practices in many industries.

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