AI comes of age

11 May 2018

Artificial intelligence has reached an inflection point and is poised to transform our world

Machines that are capable of thinking and reasoning like humans have been a popular theme in science fiction for decades. But science fiction is now becoming science fact and it seems that Artificial Intelligence (AI) technology is finally coming of age.

With vast improvements in computer processing power, greater investment and growing interest among businesses and the public, AI is at a turning point – and is poised to radically transform the way we live. 

The advent of the steam engine, mass production of goods and the mainstream use of digital technology are held up as key developments in the three previous industrial revolutions. AI will be the fourth – with profound implications for consumers, companies and society. 

Key developments

Early AI systems, which first emerged in 1956, attempted to get machines to mimic basic human reasoning by programming them to follow a set of rules.

But the outcomes were limited. For example, the system allowed computers to display rudimentary intelligence in certain contexts, such as; imitating the rigid process used to investigate the geological potential of a drilling site.

Modern AI technology, however, has progressed through developments in machine learning (ML). This involves algorithms that allow computers to learn from experience through data. In this new world, machines can train themselves to adjust to new facts, and change their actions based on new information.

Deep learning, a subset of machine learning, adds further intelligence. Developers create an artificial neural network that recreates the mechanism of a brain, complete with calculators that simulate the function of neurons.

The result? Software that can perform human capabilities – reasoning, planning, communication and perception – at scale and at low cost. As algorithms and hardware have improved, and further data to train AI systems has become available, more money has flowed into the sector and interest has rapidly grown. The number of Google searches for ‘machine learning’ has jumped six-fold in five years.1

Applications and benefits

Investment and greater awareness have in turn stimulated progress, creating a virtuous circle, with AI set to deliver four key benefits across a wide range of industries.

One is innovation – the development of new products and services, such as voice-controlled devices or autonomous vehicles. Two further benefits are speed and efficiency will help companies do things more quickly and effectively. Finally, there is scalability: AI extends capabilities to new areas or market participants.

The impact of AI will be greatest in areas that rely on data collection. Examples include drug research in the healthcare sector, where AI is being used to synthesise data and offer hypotheses from the thousands of research papers published every day. The aim is to predict how drugs will behave from an earlier stage of testing, reducing the average 12 years a compound takes to reach the market after being discovered.2

In the field of asset management, AI can optimise investment strategy and portfolio construction by analysing data. By automating tasks, it can allow financial service providers to deliver a degree of personalisation and service quality that was previously reserved only for high-net worth clients.

In the retail sector, AI's ability to discern patterns is also creating greater focus and personalisation. For example, four-fifths of films and TV programmes watched on Netflix have been recommended to users by the company’s AI algorithm3. Thanks to AI, one British meal delivery group, Gousto, has managed to get to know its customers’ tastes so well that it has reduced food waste to almost zero4. In supermarkets the figure is typically around 20%.

According to the Economist Intelligence Unit, three-quarters of executives say AI will be “actively implemented” to some extent in their organisations within three years. This implies a huge market for firms offering AI services, and is likely to become a multi-billion-dollar industry by 2020.

UK and global growth

There are almost 400 early-stage AI software companies in the UK, according to recent research by MMC Ventures. Nine out of ten are working on a specific business function or sector, while 10% are concentrating on an AI technology that could be applied across multiple industries5.

The British AI sector is the most dynamic in Europe, and the number of AI firms launched annually in the UK have doubled between 2013 and 20155. Since 2014, a new AI company has emerged every five days. By contrast, there are 490 early-stage AI companies on the continent (excluding the UK), and 1,267 in the US5.

AI start-ups in UK, Europe and USA

AI early-stage companies tend to attract larger capital injections than general start-ups at a similar stage of development, which further illustrates the excitement the industry is generating5.

One way to secure capital is to be taken over by a bigger rival. The deep-pocketed technology giants, notably Google, Apple and Microsoft, have led a wave of consolidation in the sector. Intel, Facebook and Twitter have also been significant acquirers of small AI firms in the past few years6.

Indeed, the major technology players are so struck by the potential of AI that they aren’t simply scooping up the occasional smaller player. AI has now become their primary focus. Alphabet (the owner of Google), Amazon, Apple, Facebook and Microsoft are repositioning to become AI-first organisations.

The past 10 years have been described as ‘mobile-first’, as the smartphone came to dominate our lives. “In the next 10 years we will shift to a world that is AI-first,” says Google’s chief executive Sundar Pichai –  a sign that AI’s time has come7