Transforma Insights recently published our Digital Transformation forecasts. As might be expected, there are lots of big numbers: the revenue opportunity for vendors in DX is huge.
Artificial Intelligence (AI), for example represents a USD1.1tn opportunity over the period from 2020-2030. No doubt many vendors of AI services will see these forecasts and think “I’ll have a piece of that, thank you very much.” But, as ever, it’s not that simple.
The thing is, and as we have seen in the IoT space in recent years, end users don’t buy technologies, they buy solutions. There’s little point trying to sell ‘AI’ to an end user, when actually that end user wants to buy a solution like Video Image Processing (that depends on AI to function).
Based on a quick analysis of our forecast database, it seems that to be able to address 100% of the AI opportunity worldwide, a vendor must also be able to deliver Autonomous Robotic Systems, Data Sharing, Edge Computing, Human Machine Interface, Hyperconnectivity, IoT, Product Lifecyle Management, Robotic Process Automation, and 3D Printing and Additive Manufacturing.
In fact, the following shares of these DX technology groups are accounted for by DX Use Cases that also have an AI element:
So to secure all ‘AI’ revenue, the vendor community must also deliver substantial amounts of ‘non-AI’ revenue too.
The strategy for any vendor in the DX space must therefore be to identify a sweet-spot of DX Use Cases that are well suited to existing (and planned) core technologies and capabilities, and then figure out what other DX technologies are required to deliver those solutions to end users. These technology capabilities can either be built, bought, or secured through partnerships. Of course, there is a valid strategy which is to remain a pure-play (say) AI provider, and just provide market leading AI, but such a strategy would more than likely come at the cost of sacrificing the contracting relationship with an end user … and that road leads to lower margins and risks of being substituted by competing providers. It’s not the best place to be.
Another complexity is caused by different industry verticals having different needs. Sure, the Financial Services industry and the Transportation industry might both benefit from deploying Distributed Ledger (Blockchain) technologies, but implementing a Distributed Ledger based solution to support timely settlement and agreed valuations of exotic derivatives between international counterparties is a very different thing to a Distributed Ledger solution to support farm-to-fork tracking. So our putative DX technology provider will often need vertical domain-specific expertise as well, and he’ll have to build, buy, or partner to secure that as well. Or likely sacrifice the customer relationship.
But there’s also a risk to being too solution-focussed, which is that if a vendor does not offer their core capabilities to market as a vanilla proposition, it is likely that they may lose their competitive edge. Pitching vanilla (say) AI services within the vendor community so that systems integrators can integrate them into client solutions ensures that product functionality can be maintained at a competitive level. Or at least, the AI vendor will very quickly become aware if their solution is no longer competitive in the marketplace. And the RFPs are a useful source of information too.
In truth, the best strategy to adopt might be something of a hybrid: delivering some full solutions to end users in some sectors, whilst offering white-labelled services via channels to other sectors, and providing core DX technical capabilities to the wider vendor community as vanilla products.
I’ve not discussed the geographic dimension to vendor DX strategies in this blog, but it does exist, and it is a significant factor. We’ll explore the impact of geography in future blogs.