Analysts See Huge AI Opportunity for Niche ISVs

Any independent software vendor (ISV) looking for growth opportunities in the enterprise needs to take a hard look at artificial intelligence (AI) right now, industry analysts suggest. And for the next few years, at least, the more niche the solution, the better.

"One of the biggest aggregate sources for AI-enhanced products and services acquired by enterprises between 2017 and 2022 will be niche solutions that address one need very well," said John-David Lovelock, research vice president at Gartner, in a statement. "Business executives will drive investment in these products, sourced from thousands of narrowly focused, specialist suppliers with specific AI-enhanced applications."

Lovelock's comments come as part of a Gartner study released in April that projected huge growth for AI over the next few years. Looking at the global business value derived from AI, Gartner projects a total of $1.2 trillion in 2018, which is an increase of 70 percent from 2017. Gartner expects that growth rate to flatten a bit over the next four years, but remain in the double digits with a projected business value of $3.9 trillion in 2022.

Far from representing a reduction in the opportunity, Gartner presents the flattening as more of a pause. Early growth will be fueled by AI in customer experience applications that drive customer growth and retention, with further AI-driven business value coming from using AI to reduce costs, Gartner expects. It's after that, starting in about 2021, that AI will truly change the playing field.

"New revenue will become the dominant source as companies uncover business value in using AI to increase sales of existing products and services, as well as to discover opportunities for new products and services," Lovelock said. "Thus, in the long run, the business value of AI will be about new revenue possibilities."

Some of those long-tail technologies include deep neural networks for data mining, pattern recognition across huge datasets, and decision automation systems that use AI to automate tasks or optimize business processes.

Nearer-term, a lot of the niche ISV opportunities exist in the rush to create virtual agents and chatbots across the enterprise for reducing costs, with agents accounting for nearly half of business value in 2018 in Gartner's model.

Analysts at IDC also see an ISV gold rush in AI. "Interest and awareness of AI is at a fever pitch," said David Schubmehl, a cognitive/AI systems research director at IDC, in a statement in March. "IDC has estimated that by 2019, 40% of digital transformation initiatives will use AI services and by 2021, 75% of enterprise applications will use AI."

While Schubmehl said every industry and every organization should be evaluating AI for business process and go-to-market efficiencies, IDC identifies several verticals where the action is the most intense.

In retail, IDC is looking for firms to spend on the order of $3.4 billion on AI solutions, including automated customer service agents, expert shopping advisers and product recommendations.

The banking industry was an early leader, but is passing the torch to retail this year, IDC's forecasts show. That financial sector spending is set to hit about $3.3 billion and has an emphasis on automated threat intelligence and prevention systems, fraud analysis and investigation, program advisers and recommendation systems.

Other high-spending verticals for 2018 include discrete manufacturing ($2 billion) and health care providers ($1.7 billion).

While there's a Wild West aspect to the opportunities, with many potentially high-impact applications still in the planning stages or even unimagined, IDC made some projections for top AI use cases through 2021. On top, by compound annual growth rate project was public safety and emergency response, which IDC assigned a 75 percent CAGR. Rounding out the top five were pharmaceutical research and discovery, expert shopping advisers and product recommendations, intelligent processing automation, and sales process recommendation.

Posted by Scott Bekker on May 22, 2018