4 areas ripe for making money with AI

Many people, myself included, believe that AI will be the primary catalyst in transforming most industries over the next decade. The question that many people are asking is how to capture the alpha — the active return on investment — associated with artificial intelligence. In this article I will share my belief about where the market opportunities are for today’s investors and entrepreneurs.

Selling the shovels

The path that many startups are taking today is to provide the tools that firms will need to capitalize on the AI marketplace. These range from chatbot frameworks to machine learning engines. Many of these startups are seeking an early exit — and they aren’t being disappointed. Approximately 140 AI companies have been acquired since 2011, with over 40 acquisitions taking place in 2016 alone. A large number of these firms have been acquired by the 800-pound gorillas (Google, Apple, IBM, Microsoft, Amazon, Salesforce, Facebook, etc.) that are engaged in an all-out war to become the leading platform provider of AI solutions for the industry.

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The common denominator across most of the acquired firms is that they are providing a tool for people to build their own solutions rather than seeking to disrupt an industry themselves. Similar to the early days of the internet, when the first market beneficiaries were those that developed internet browsers, we are currently seeing the market reward companies that are selling tools rather than results. This is not that different than any other gold rush, going back to the 1800s when some of the first people to profit from the actual California gold rush were the sellers of picks and shovels.

Taking this one step further, the hardware that enables machine learning platforms has also been a great opportunity for investing, and will likely continue to be so. Nvidia is a prime example of a company that is benefiting from this trend, having seen their stock price climb by over 300 percent over the past year based on increased demand for computational power to support machine learning platforms.

Changing the consumer experience

Looking forward, while there will still likely be many beneficiaries that build and sell AI tools, the next likely source of opportunity lies with the companies that leverage these technologies to transform a consumer’s experience. Just as Amazon capitalized on the power of the internet to let people shop at home, there will likely be a number of companies that leverage the power of machine learning and artificial intelligence to change the paradigm for any number of consumer activities.

One significant opportunity resides in conversational commerce. Companies are in the early days of experimenting with chatbots today, and they are already seeing results. I believe that within the next five years, conversational interactions with technology will overtake today’s messaging platforms (or more likely be incorporated into those platforms). While this might not seem like that big of a deal at first glance, it is a huge step for a customer’s experience. Just as mobile phones allowed us to access the internet everywhere and gave rise to companies such as Uber, conversational technologies will allow us to access technology without having to stare at our phone or tablet and type to get some response. This will change the way in which we engage with technology and likely give rise to any number of new potential experiences.

Another wave of opportunity stems from insight generation. Machine learning is enabling companies to identify trends, answer questions, and process information at a rate that has never before been possible. The internet gave us access to on-demand information, but an AI-first world is going to give us access to on-demand insights. The implications of this are profound and will affect how consumers interact with brands, with each other, and with society at large.

Transforming enterprise businesses

It is easy to just focus on the consumer impacts artificial intelligence will have, but AI will have an equally profound impact on the business-to-business world — specifically in the realm of automating knowledge work. Forrester estimated that roughly 25 percent of the job tasks performed today will be impacted in some fashion by artificial intelligence by 2019. The implication of this is that nearly every business will be changed in some material fashion.

The first opportunity that people tend to focus on when exploring the intersection of AI and business processes is automating work to cut costs. While I like a profitable business as much as the next person, I firmly believe that this is the wrong mindset to have when looking for long-term opportunities to create value. The real opportunities lie in determining how AI can be applied to today’s business models to create a materially better experience that yields a competitive market advantage. Sometimes this will result from performing activities faster or more efficiently; sometimes it will result from having better insights and information; and often it will result from re-examining existing business processes and rethinking them in light of what is now possible with artificial intelligence.

Eliminating artificial constraints

I believe that the creation of new business models resulting from applying AI to existing consumer and business needs will be the greatest source of wealth creation over the coming decade. There have been surprisingly few companies deploying AI capabilities to transform specific business problems, and yet this will likely yield the most meaningful impact on society in the coming years. We have a tendency to view business models as relatively static and accept the constraints that exist as hard and fast boundaries. The reality, however, is that with the advent of AI, many of these boundaries no longer need to exist. Examples include the costs associated with performing specific activities or the time required to analyze something. The companies that realize this and capitalize on it within specific business domains, whether they are incumbents or startups, are likely to be the market leaders of the next decade.

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In summary, we will see a material wave of value creation over the coming years resulting from artificial intelligence. The savvy investors and entrepreneurs will focus on the companies that are using these technologies to change the game and provide a materially improved experience for customers and businesses alike.