EVIDENCE GIVING MEETING #4

All Party Parliamentary Group on Artificial IntelligenceAPPG AI

@BigInnovCentre#appgAI

10 July 20175:30 – 7:00 pm

House Of Commons, Committee Room 9

• How does AI impact new markets and business models, and their formation?

• Trade and commerce• Standards• “Peak stuff” versus activity/contact• Business models• Wealth creation by AI’s intellectual property• Transformation survival (balancing business as usual

vs. rapid innovation)

Main Focus

• Mike Lynch, Founder, Invoke Capital• Martin de Heaver, Director, ORBIT• Husayn Kassai, Co-Founder and CEO, Onfido• David Kelnar, Investment Director and Head of Research,

MMC Ventures• Abhijit Akerkar, Head of Delivery - Bank of the Future Pilot, Lloyd

Banking Group• Michael Aikenhead, Head of Strategic Artificial Intelligence Advisory,

Cognitive Finance Group

Thought Leaders

Mike Lynch, Founder, Invoke Capital

• Creator of the investment fund, Invoke Capital; supported several AI companies such as Luminance, DarkTrace, and Neurence

• Analyzing the landscape, he commented that given his experience as an investor, most UK companies don’t have advanced AI within their business models• 90% don’t have ‘real’ AI capability• 5% have basic AI capability• 5% have ‘real’ or advanced AI capability

• First mover advantage - The space is still not very competitive according to Lynch. The winners will be those who enter markets first.

• Eventually, AI will disrupt all industries - including traditional businesses• There are issues that have to be addressed regarding: explainabilty, ethics, transparency, lack of skills, etc.• Companies need to use strategic data to compete in new and growing markets; they need to learn from data

Martin de Heaver, Director, ORBIT

• Orbit is an observatory for Responsible Research and Innovation (RRI)• Key characteristic of 4IR is its remarkable speed. This is a challenge because stakeholders

have to act strategically in such a fast-paced environment. • De Heaver argued that stakeholders should pay close attention to how the initial stages of a

project are carried out à to ensure social purpose• Stakeholders advised to follow AREA framework:

• To anticipate impact• To reflect on the process• To engage with a variety of stakeholders• To act accordingly

• RRI can provide a macro-analysis lens to understand the interdependence of developing technology

Husayn Kassai, Co-Founder and CEO, Onfido

• Onfido uses machine learning to help businesses digitally verify people’s identities• Kassai argued AI has changed markets across industries

• AI ultimately reduces costs and makes processes more efficient• AI has the ability to bridge economic gaps

• i.e. Onfido helps the financial service by reducing the gap between access and security – it makes financial services accessible to more while at the same time maintaining the transaction’s security

• AI will disrupt traditional markets and business models. Policy makers need to be aware of areas that will be most affected• AI will disrupt the job market. In the short-term, automation will disrupt more traditional jobs then

create new ones. • There is a threat of monopolization as certain companies like Google, Apple, Microsoft, etc. are

dominating the markets. Government needs to provide financial and non-financial support to start ups to compete with MNCs in this environment.

David Kelnar, Investment Director and Head of Research, MMC Ventures

• MMC is a venture capital fund investing in early stage, high growth UK companies• Kelnar has worked on two big projects to understand the UK landscape:• 1. Analysis of 300 software start-ups in the UK

• 4 key findings:• AI activity has increased sharply in the recent years. 60% of all start-ups in the analysis were

founded in the past 36 months.• AI start-ups tend to have a B2B focus – partly due to the access of corporate data• The entrepreneur focus is highly uneven• UK sectors are at early stage (angel investment) compared to the US

• 2. investment framework – 17 success factors for the age of AI• Key factors identified include the data network effect, distance from monoliths, proprietary

algorithms, and ability to obtain and retain talent• Policy makers should address the issue of talent: to support people in building the STEM skills required

from early-stage education

Abhijit Akerkar, Head of Delivery - Bank of the Future Pilot, Lloyd Banking Group (see slides from Anhijit’s presentation in an Appendix)

• Akerkar noted 5 key trends in how AI is impacting markets and business models• 1. Tech giants have made staggering investments to get AI ready for business

• $20-30 billion in 2016 alone• 2. Easy access to AI has provided instant ignition to innovation.

• Over 550 AI start ups have raised $5 billion in funding in 2016 alone• 3. Digital leaders in industries are in the frontier of AI bandwagon

• 20-60% CAGR in spending on AI expected• 4. AI underpins several disruptive business models

• Radical personalization would potentially save $2-10 trillion in healthcare costs globally• 5. UK market is the reservoir of potential waiting to be unleashed

• UK GDP could be up to 10.4% higher in 2030- the equivalent of an additional #232 billion• Policy makers need to decide how these developments will benefit the UK society

Michael Aikenhead, Head of Strategic Artificial Intelligence Advisory, Cognitive Finance Group

• Aikenhead noted we are currently in the 2nd wave of AI that is moving at a very high speed• To predict the impact in business models is an impossible task because the arena is

changing dramatically• Pressures will transform markets and models across industries

• There is a trend towards radical personalization• MNCs such as Amazon, Google, and Apple are gaining more and more power

• Ex. Apple has entered the financial sector through products such as ApplePay• Open banking and digital banks is growing in countries like Germany

• Banks are responding to these changes/pressures at different speeds• US banks so far are the most advance and responsive

Questions and Answers

• 1. How has AI impacted the legal sector and its business models?• Although the legal sector tends to be more resistant to change, we are witnessing business models

change dramatically.• 2. Which type of model is preferable? Vertical or horizontal?

• There are pros and cons in each model but companies need to be clear in which they choose to focus their business on.

• If a company applies a horizontal model, they need to define their strategy in order to distinguish from others in the landscape.

• There is a trend of having horizontal companies with vertical openings.• 3. What does the shift from e-commerce to AI-commerce look like?

• Industries are witnessing a dramatic shift in value creation.• The revolution involves radical personalization – the ability to produce services/products that are

tailored for the consumer.

Key Takeaways

• AI will transform existing markets AND create new markets

• Business models are being transformed across industries:• The main trend is of radical personalization

• Ultimately, AI is making processes more cost-efficient• UK can reap large economic benefits if AI is adapted

in businesses• Policy makers should be conscious of the disruption

in the job market and market competition

www.biginnovationcentre.com

SecretariatAll Party Parliamentary Group on Artificial Intelligence (APPG AI)

Big Innovation Centre appg@biginnovationcentre.com

Ergon House, Horseferry RoadWestminster, London SW1P 2AL

Evidence Meeting 4 -Markets and AI enabled business modelsDiscussion documentJuly 10, 2017

Evidence Meeting 4 - Markets and AI enabled business models

� Tech giants have made staggering investments to get AI ready for business$20-30bn in 2016 alone

� Easy access to AI has provided instant ignition to innovationover 550 AI start ups have raised $5B in funding in 2016 alone

� Digital leaders in industries are in the frontier of AI bandwagon20-60% CAGR in spending on AI expected

� AI underpins several disruptive business modelsRadical personalisation would potentially save $2-10 trillion in healthcare costs globally

� UK market is the reservoir of potential waiting to be unleashedUK GDP could be up to 10.3% higher in 2030 – the equivalent of an additional £232bn

1

2

3

4

5

Abhijit Akerkar, Driving Bank of the Future Pilot @ Lloyds Bank, ex-McKinsey, tech intrapreneur (abhijit.akerkar@deug.co.uk) 1

� Tech giants have made staggering investments to get AI ready for business

1

In 2016, Tech Giants invested

$20-$30bnin artificial intelligence

90% of spend on R&D, 10% on AI acquisitions

Pay-as-you-go access to

� Scalable computing power (using specialised chipsets) and storage

� Machine Learning (ML) and Cognitive applications

� Data services

Free access to open-source deep learning frameworks

Access to data scientists for solving ML problems

AI is ready for business What does this mean for you?Examples

No upfront investment in specialised hardware; buy capacity as demand grows

Convert speech into text at £1.1 per hour with no upfront cost or minimum commitment

Get your ML problem solved by putting it in front of half a million data scientists

Freely access commonly required ML tools from online libraries

Source: McKinsey; Company websites

2Abhijit Akerkar, Driving Bank of the Future Pilot @ Lloyds Bank, ex-McKinsey, tech intrapreneur (abhijit.akerkar@deug.co.uk)

� Easy access to AI has provided instant ignition to innovation

Source: CBInsights

2

Over 550 start ups raised $5B in 2016 alone B2B is experiencing explosive growth

0.6 1.0

2.7 3.1

5.0

2012 2013 2014 2015 2016

160253

364493

658

xxx Number of deals

AI Global Financing, 2012-2016

Over 550 start ups

� US leads in share of deals with 62%; UK at 6.5%

� In nascent stages; only 10% revenue generating

� B2B start ups is the fastest growing category

� Full Stack start ups are disruptors

Crowdsourced hedge fund for ML experts

Made-to-order knitwear manufactured on an industrial scale

Underwriting platform for financial services companies

Platform for accelerated development and design of advanced materials

3Abhijit Akerkar, Driving Bank of the Future Pilot @ Lloyds Bank, ex-McKinsey, tech intrapreneur (abhijit.akerkar@deug.co.uk)

� Digital leaders in industries are in the frontier of AI bandwagon

Source: McKinsey; IDC; Tractica; Markets & Markets; BCC Research; Transparency Market Research

3

AI adoption is greatest among strong digital adopters Industry analysts forecast strong growth

…but uneven growth across sectors

High AI adoption

Medium AI adoption

Low AI adoption

� High tech / telecom� Automotive / assembly� Financial services

� Retail� Media / entertainment� CPG

� Education� Health care� Travel / tourism

20

36

58 58 63

Global spending on AI, CAGR 2016-2020, %

….will hinge on 3 factors

� Technical: Access to structured data, employees with technical skills

� Commercial: Higher benefit for complex businesses whose performance is driven by forecasting, fast and accurate decision making, and personalised customer interactions

� Regulatory: Product liability (especially for automakers), privacy considerations restrict access to data, ethical issues e.g. algorithmic transparency, job security concerns

4Abhijit Akerkar, Driving Bank of the Future Pilot @ Lloyds Bank, ex-McKinsey, tech intrapreneur (abhijit.akerkar@deug.co.uk)

AI underpins several disruptive business models

Source: McKinsey, Financial Times; Business Insider; Company websites

Business impact examples

4

Radical personalisation

�Tailored treatments could save $2-$10tn in healthcare costs globally

�Netflix’s personalised recommendations save revenue worth $1bn annually

Personalised cancer treatment regimens

Adaptive learning system

Customised travel trips

Incisive predictability

�£3.3bn potential savings in UK using AI to provide preventive care and reduce non-elective hospital admissions

�National Grid aims to cut national energy usage by 10%

Fraud detection and prevention

Spot patterns and prevent cybercrime

Predictive maintenance for industrial IoT

Efficient production

�Amazon increased inventory capacity by 50%, and reduced operational cost by 20% by using Kiva robots

�Aircraft maintenance automation can create $5-$15bn of value for the industry annually

Collaborative robots

Analytics platform to increase throughput

AI controlled CNC machines

Start up examples

5Abhijit Akerkar, Driving Bank of the Future Pilot @ Lloyds Bank, ex-McKinsey, tech intrapreneur (abhijit.akerkar@deug.co.uk)

� UK market is the reservoir of potential waiting to be unleashed

Source: PWC

5

UK GDP could be up to 10.3% higher in 2030 – the equivalent of an additional £232bn

0

50

100

150

200

250

2017 2024 2030

£ bn

Labour productivity Personalisation Time Saved Utility

Economic impact of AI on the UK economy

6Abhijit Akerkar, Driving Bank of the Future Pilot @ Lloyds Bank, ex-McKinsey, tech intrapreneur (abhijit.akerkar@deug.co.uk)