What is Happening?
A series of recent news stories and announcements emphasize how the growth of artificial intelligence (AI), especially in IT, makes news and shapes markets and market thinking. Some of the most recent include the following:
Bloomberg reported that Google parent Alphabet is hiring machine learning and AI R&D resources in China. This is despite China’s ongoing ban of the Google search engine. The Chinese government said this summer that it planned to become the world leader in AI by 2030, surpassing the U.S. and India – countries considered the leaders today.
IBM announced it is investing $240 million over the next 10 years into a joint research laboratory with MIT. The MIT–IBM Watson AI Lab will conduct fundamental artificial intelligence (AI) research and seek to advance scientific breakthroughs that unlock the potential of AI. Research will be in AI algorithms, physics of AI, industry applications, and advancing shared prosperity through AI.
Speaking of research, talent, and governments, Russian President Vladimir Putin publicly proclaimed the “colossal opportunities and threats” of AI, and went on to equate superiority in AI technology development with global dominance. Recently, Tesla founder and tech prognosticator Elon Musk took it upon himself to elevate Putin’s claims with another round of declarations about the upcoming horrors of AI. „Competition for AI superiority at national level most likely cause of WW3 imo,“ Musk tweeted this past weekend. His concerns center around governments gaining control of AI technologies and using them in bad ways. This is not Musk’s first warning concerning advanced tech and governments – he also recently asserted that the world should outlaw killer robots.
Meanwhile, TCS is making a unique move by positioning its two-year-old AI product Ignio as a standalone software solution, even branding it independent of corporate TCS. According to the Economic Times, Digitate, a TCS company, leads the marketing and sales initiatives for Ignio. TCS thinks there is higher potential for AI outside of its traditional services engagements. We see similar moves being attempted or considered across large Indian IT service providers, large application providers (e.g., Oracle, Salesforce, SAP, Workday) and large systems integrators.
Why is it Happening?
We see AI as a fundamentally disruptive technology that will have disruptive tendencies beyond other emerging technologies. The events and news indicate to us that that AI technologies and applications will be highly disruptive around the world in government, politics, research, development, and economics.
Governments, academia, and large tech companies appear to agree on the importance of AI, and focus a growing amount of resources and funding to relevant methods and technologies. So, competition between companies and countries to be leaders in emerging tech are natural and will continue. All involved are fighting to hire from a limited skills pool, highlighting a need for training to develop relevant workforces to meet future tech needs.
Also apparent is the misunderstanding of AI capabilities now and future, contributing to uncertainty among potential buyers. As we’ve written, AI evolution is about the distinction between correlation versus causation. The primary objective of AI research today is to develop a form of intelligence that mimics human reasoning, but which is imbued into machines. That goal has many different stakeholders interested in the growing research. Along the path to achieving this goal will be many technological offshoots that range from Systems of Automation and Action to Systems of Intelligence, Understanding and Reasoning.
Systems of Understanding and Reasoning for using AI are still in the lab, yet we are seeing early evidence of a future for Systems of Intelligence, which will be defined by the ability to understand within a real-world context. This capability will allow computers to navigate beyond describing correlation to inferring causation, understanding and reasoning. To reach their full potential, and to approach the levels of disruption expected, AI methods and technologies will be driven by real-world application visionaries, but will be resolved technologically in the labs before being put into production. We don’t see Systems of Reasoning happening anytime soon. Instead we see AI as a decade-long advancement to the more advanced and disruptive goals
For enterprise adoption of AI capabilities, we see a broad spectrum of factors or reasons encouraging and inhibiting adoption, indicating widespread euphoria and uncertainty simultaneously regarding what the tech is and what it can do. These are the very early days of enterprise adoption, implementation, innovation, and adaptation of many forms of automation and AI. Most focus today is still on the technologies (e.g., RPA, autonomics) and techniques (e.g., machine learning, NLP) with relatively rudimentary – but obvious – understandings of the business processes and functions these can help, and how. Furthermore, humans are the teachers in the age of AI, while the IT industry is underestimating the effort required to train its so-called early “self-learning” AI systems.
The TCS Ignio move reflects the market shifts driving changing business models for service providers. ISG sees a clear movement from labor arbitrage-based contracts to models relying on as-a-service, now at contract-value parity with traditional contracts. We expect this kind of shift will be mirrored throughout technology-supply sectors across the world over the coming years.
Net Impact
AI amplifies and accelerates overall business strategy. Even though there are some uncertainties about AI use cases in enterprises, ISG research shows that it is a competitive “must-have” that if not engaged with will result in relatively rapid market marginalization. So, when it comes to AI, most enterprise adoption leaders and influents will leverage the same approaches they always have used to overcome adoption obstacles.
AI applications are under development in many industries, not just military and likely progress will not be in military first. Government support in China, the U.S., India, Russia, and elsewhere is a recognition that AI has a key role in the growth of the technology sector. But most of the advanced efforts and applications are commercial, not public sector.
We think Musk is overstating the risks based on the state of the technologies today and how we expect them to evolve. The Musk future removes the human from the decision-making process, while also giving AI solutions human-like reasoning powers. We don’t think AI is close to the science fiction narratives that Musk and others worry about.
Returning to reality, service providers will pursue their markets with any new tools, even (or especially) with AI. We see clear differences, though, between AI tools developed to augment and replace labor compared to tools under development for predictive and causal applications. The former is the focus of service providers, while the latter are in research and development by the well-known technology providers including Alphabet, Facebook, IBM, and Microsoft.
The trend of service providers offering products is a phenomenon we’ve been tracking. But the spinoff model TCS applies with Ignio is new. While AI is one of the first technologies to be spun off from traditional service companies, it will not be the last. We expect emerging technologies to be the first batch of such direct-to-enterprise software sales by service providers. The shift will add tension to relationships between independent software providers and the IT master brands who typically supply the service providers with solutions. In the case of AI, each of the IT master brands is developing AI technologies. We also expect the ISPs to scale their services teams to reduce reliance on the outsourcing service providers.
When it comes to investing in AI and other emerging technologies now in the (over)hyped part of their lifecycle, enterprises should tread carefully, evaluating claims and requesting use case references. Providers must try and avoid the temptation to promise too much about AI. The entire industry needs to watch out for a coming war – not the WWIII Musk warns about, but one that pits traditional IT providers against independent software providers and master tech brands.
ISG has a good understanding and practical experience of automation and AI in terms of where, why for what and how enterprises (and governments) use them today, and where their potential lies. Look for additional ISG Insights research around this evolving and disruptive space, in terms of the technology evolution, enterprise applications, market hype versus reality, service provider positioning, and global affects.