Frontier Technology and the Future of Hardware

Only six years ago PayPal co-founder Peter Thiel criticized the venture community for a lack of investment in big ideas, making the ominous proclamation that “innovation is dead.” He encapsulated his disappointment on the progress of technological innovation, saying “we wanted flying cars, instead we got 140 characters.”

Fast forward to 2017, and we are witnessing a renewed focus on the role of hardware in pushing the envelope of technological capabilities. A recent wave of innovation in Frontier Technologies is spurring investment and putting us on the crest of a new era in which artificial-intelligence enabled hardware is poised to disrupt every facet of our lives. As it turns out, flying cars may not be so far off.

The arrival of the Frontier Tech Era

Every 10 to 15 years, a new era of technology emerges made possible by the advancements of the preceding generation. Each new era spawns fresh ideas and businesses, changing our lives in previously unimaginable ways. In 1981 it was the personal computer, in 1994 it was the Internet and in 2007 it was the smartphone, each having a lasting and deeply transformative impact on our daily lives. We believe 2017 is the beginning of the next new era.

Frontier Tech describes new and emerging corners of innovation that are still in R&D or just starting to test the waters with early adopters. By definition, the technologies in this category are always changing, but today’s most promising areas of Frontier Tech include Space, Robotics, Virtual Reality (VR), Augmented Reality (AR), Autonomous Vehicles, Machine Intelligence, Connected Home, Quantified Self and Advanced Manufacturing.

What to expect in 2025

Unlike the software driven mobile era that defined the last decade of innovation and value creation, the Frontier Tech era shows promising signs of a renaissance in hardware innovation.

Most of these technologies likely will take years, if not decades, to reach mass-market adoption. Still, here’s how we envision some of the most promising advancements will evolve by 2025.

· Employer Commuter Benefits will include autonomous vehicles and drone ride sharing services

· Keyboards will be a thing of the past. Microsoft Word will be Microsoft Voice, and desktops will be replaced with virtual reality headsets

· Manufacturing will come back to the US in the form of automation and robotics, not human labor. This will cause near term displacement of low-skilled labor but will ultimately drive more innovation globally as workers evolve to develop new skills

· Commercial flights to Mars will be available for those with an extra $250,000 laying around

· Schools will no longer use textbooks; students won’t read about history, but will relive it via immersive VR experiences in virtual classrooms

How we’re going to get there

None of this would be possible without some key contributions.

1. Low price components. First, the reduction in costs of hardware components as a result of the proliferation of the cell phone industry. The demand for small, high powered mobile phones has continued to push the price for chips and sensors down to historic lows. For example, Planet, a pioneer of nanosatellites, was able to use off-the-shelf cell phone sensors and cameras to create a satellite at a fraction of the cost of the previous generation of satellites.

2. AI advancements. The second major enabler has been advancements in “artificial intelligence” (AI) techniques. For most of the hardware companies in Silicon Valley Bank’s portfolio, the hardware portion of their technology is a sensor that collects data that wasn’t previously measurable. The real magic comes from how your life, business and the world is improved by the information gleaned from this data collection. Without advancements in artificial intelligence, data storage and processing, it would be impossible to make sense of the newly collected data.

3. Computing power. The last innovation needed to push the AI-driven platform into the mainstream is use-specific, device computing. Today, it’s not possible to use cloud connectivity to process the complex algorithms needed for fully autonomous driving and most AI based devices. Chip sets and compute power that can process complex AI on the hardware itself (e.g. autonomous vehicles or connected home devices) are the innovations that will drive this technology forward. As a result, we will continue to see large chip companies like NVIDIA, and a wave of start-ups, looking to solve this problem in 2017.

The Alexa affect

Most Frontier Tech platforms today, including Autonomous Vehicles, VR and AR, Connected Home and Quantified Self, are searching for the perfect user interface. In the case of VR, the question remains: should it be eye-tracking, hand-tracking, hand controller, or some other interface that has yet to be invented? This question is arising in all frontier tech platforms; how will you engage with your self-driving car when it drives you to work?

We have some clues now. Amazon’s connected-home device, Alexa, has pioneered the use of voice as a primary user interface at home, and its success speaks for itself: Alexa devices were in some eight million homes by the end of 2016. Voice-control technology is here to stay as the continuing adoption of Alexa is creating a new generation of users that will only know an interaction with computers through their voices. To highlight the adoption, sales of voice-enabled devices continue to grow at an extraordinary pace[1]:

· 2015–1.7 million shipped

· 2016–6.5 million shipped (382% YoY growth)

· 2017–24.5 million expected to be shipped (377% YoY growth)

As voice-control technology matures in 2017, it will be an increasingly viable and accepted option for consumers to interact effectively with technology. We predict that 2017 will begin to see the emergence of voice technology as the primary operating system in most of these platforms.

Hardware’s recipe for success

The commoditization of hardware has been a continuous theme across industry verticals, from semiconductors to enterprise storage to consumer wearables. Advances in manufacturing such as 3-D printing and advanced robotics only accelerate the time horizon in which a hardware product becomes easily replicable and commoditized. As this takes place, we expect to see pricing of hardware products to fall continuously, pushing the margins of pure hardware businesses to near zero. We expect this increasing commoditization to motivate major changes within hardware business models and drive related software services that ultimately supplant how we live today.

For more information on the hardware practice at SVB and other sectors we serve, visit SVB.com.

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Sources: [1] “The 2017 Voice Report.” VoiceLabs.co. January 15, 2017. Web.

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