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Cognitive Technologies in the Technology Sector from Science Fiction Vision to Real-World Value

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Cognitive Technologies in the Technology Sector from Science Fiction Vision to Real-World Value Cognitive technologies in the technology sector From science fiction vision to real-world value A Deloitte series on cognitive technologies Cognitive technologies in the technology sector Acknowledgements The authors would like to thank Elina Ianchulev and Karthik Ramachandran for their contri- butions. In addition, many Deloitte colleagues contributed with their time and industry-specific insight: A special thanks to Andrew Blau and Daniel Byler. Significant research contributions were provided by Deepan Kumar Pathy, Negina Rood, and Prathima Shetty. Additional research support was provided by Gaurav Khetan, Alok Ranjan, Shankar Lakshman, Chandrakala Veerabomma, Amit Kumar Sudrania, Divya Ravichandran, Abhimanyu Singh Yadav, Vasudev Neehar Chinnam, and Gitanjali Venkatesh. For their contributions to the development and review of this article, the authors extend their thanks to John Shumadine, Dr. Preeta Banerjee, Anupam Narula, Sandy Rogers, Junko Kaji, Jon Warshawsky, William Eggers, Kristin Martin, and Lynette DeWitt. Finally, for their integrated media production expertise, special thanks to Troy Bishop and Alok Nookraj Pepakayala. Deloitte offers a broad range of services to clients in all sectors of the technology value chain, from computer hardware and software vendors to networking equipment, semiconductor, and IT services organizations. Read more about our Technology industry practice on www.deloitte.com. From science fiction vision to real-world value About the authors Daniel T. Pereira Daniel Pereira, Deloitte Services LLP, is a market insights manager in technology, media, and tele- communications. Prior to joining Deloitte, Pereira was the managing director and research affiliate on two corporate sponsored research projects at the Massachusetts Institute of Technology and a strategic consultant specializing in cross-sector innovation, business model generation, and lean startup methodologies. David Schatsky David Schatsky, Deloitte LLP, tracks and analyzes emerging technology and business trends, including the growing impact of cognitive technologies, for Deloitte’s leaders and its clients. Before joining Deloitte, Schatsky led two research and advisory firms. He is the author of Signals for Strategists: Sensing Emerging Trends in Business and Technology (RosettaBooks, 2015). Paul Sallomi Paul Sallomi is a partner in Deloitte Tax LLP and the global technology, media, and telecommuni- cations industry leader. He is also the US and Global Technology Sector Leader. In his role with the US member firm, Sallomi helps clients transform their business and operating models to address the emergence of new, disruptive technologies. For nearly 25 years, he has worked with clients in the technology, media, and telecommunications industries to shape and execute options for growth, performance improvement, regulatory compliance, and risk mitigation. Robert (Bob) Dalton Bob Dalton is a principal and 30-year veteran with Deloitte Consulting LLP, where he leads the global relationship with the IBM Corporation. Deloitte and IBM have a complex ecosystem involv- ing a bi-directional client relationship as well as a significant alliance relationship. As part of the alliance relationship, there is a significant focus on business analytics, information management, and cognitive technologies. Deloitte is actively working with the core Watson business unit as well as Watson Health. Cognitive technologies in the technology sector Contents Introduction | 1 Which cognitive technologies are hot? | 3 The tech sector’s big M&A push Why companies embrace cognitive technologies | 5 A path to business model transformation How companies are innovating | 8 Platforms and PaaS Market implications and considerations | 13 Harnessing cognitive technologies | 16 Where to start Endnotes | 18 From science fiction vision to real-world value Introduction RTIFICIAL intelligence is certainly no players—just about every technology subsector Alonger considered science fiction—or a has seen a substantial upsurge of activity in source of expensive R&D efforts with unmet this space. In fact, the race to invest in arti- potential—by major players in the technol- ficial intelligence has been described as “the ogy sector.1 Instead, we are in the midst of latest Silicon Valley arms race.”3 Since 2012, a real-world paradigm shift: the final stages there have been 100 mergers and acquisitions of a decades-long transition from the scien- (M&A) within the technology sector involv- tific discipline known as artificial intelligence ing cognitive technology companies, products, (and its various sub-disciplines) into an array and services.4 And this rush of M&A activity of applied cognitive technologies made more is not the only sign of the industry’s interest. widely available through innovative enterprise Many capabilities that were only just emerging architectures unique to the business culture of a few years ago are now essentially mature and the technology sector. becoming “democratized” and more readily The technology sector’s interest in these available for business applications. As a result, technologies (figure 1)2 has exploded in the last leading companies are using cognitive technol- several years. Networking companies, semi- ogies to enhance their existing products and conductor manufacturers, hardware compa- services, as well as to open up new markets. nies, IT providers, software providers, Internet Figure 1. Widely used cognitive technologies Natural Computer Machine language vision learning processing Speech recognition Optimization Rules- Robotics Planning based systems & scheduling Graphic: Deloitte University Press | DUPress.com 1 Cognitive technologies in the technology sector What is interesting is that the assertive large and midsized technology companies, actions of the sector’s leaders do not mirror as well as next steps for not only technology the wholesale adoption of these technologies sector companies but also technology-enabled across the industry. Many technology sector enterprises in any industry or vertical market companies have yet to turn their attention to that want to further explore cognitive tech- how cognitive technologies are changing their nologies’ potential. sector or how they—or their competitors— • Computer vision: The ability of comput- may be able to implement these technologies ers to identify objects, scenes, and activi- in their strategy or operations. ties in unconstrained (that is, naturalistic) visual environments • Machine learning: The ability of computer systems to improve their performance by Many technology sector exposure to data without the need to follow companies have yet to explicitly programmed instructions • Natural language processing (NLP): The turn their attention to how ability of computers to work with text the way humans do—for instance, extracting cognitive technologies are meaning from text or even generating text that is readable, stylistically natural, and changing their sector or how grammatically correct they—or their competitors— • Speech recognition: The ability to auto- matically and accurately transcribe may be able to implement human speech • Optimization: The ability to automate these technologies in their complex decisions and trade-offs about strategy or operations. limited resources • Planning and scheduling: The ability to automatically devise a sequence of actions to meet goals and observe constraints To help leaders better understand these issues, this report considers three perspec- • Rules-based systems: The ability to use tives. First, we examine recent M&A activity to databases of knowledge and rules to determine which cognitive technology capabil- automate the process of making inferences ities are attracting the most attention. Second, about information through the examples of the IBM Watson • Robotics: The broader field of robotics is Group and Alphabet/Google, we explore how also embracing cognitive technologies to cognitive technologies can transform business create robots that can work alongside, inter- models, helping companies compete in the act with, assist, or entertain people. Such future marketplace. We also focus on the two robots can perform many different tasks main approaches technology companies are in unpredictable environments, integrat- using to pursue marketplace opportunities: ing cognitive technologies such as com- cognitive technology development platforms puter vision and automated planning with and cognitive technology platform-as-a-service tiny, high-performance sensors, actuators, (PaaS) offerings. We conclude with a discus- and hardware. sion of the go-to-market considerations for 2 From science fiction vision to real-world value Which cognitive technologies are hot? The tech sector’s big M&A push OGNITIVE technologies encompass a spikes in robotics company acquisitions in Cdiverse set of capabilities, and the pat- 2013 and machine learning and speech recog- tern of technology companies’ M&A activity nition company acquisitions in 2014 (figure 3). over the last three years reflects this diversity. Further analysis of the announcements for Targeted deals have recently surged, spanning these M&A deals makes it clear that, in the everything from robotics and sensor specialty overwhelming majority of cases, the acquirer’s firms to machine learning and natural lan- intent is to generate new revenue from new guage processing (NLP) companies.5 customers and new markets by improving A close analysis of 100 mergers and product and service innovation. Some com-
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