Are you ready for the disruption of the electronics industry?
Five forces you need to understand
When looking across all the different industries, few, like the Electronics industry, can claim to be at the core of most disruptions and be the object of major disruptions itself.
Without standardization and virtualization of the computing hardware there would not be cloud computing which is disrupting so many industries, from retail to telecommunication… Without smart phones, sensors and small form factor edge devices there would not be consumer and industrial IoT nor the disruption of traditional industries like transportation, broadcasting, payment and manufacturing.
But while electronics companies were hard at work creating the next generation of computing, communication, medical and industrial automation solutions which are transforming all industries, they are themselves facing disruptive forces that will challenge their business model and ability to survive and thrive.
Platforms transform industry design
The electronics companies have produced tremendous devices and machines that have given the industry a well-deserved reputation for innovation. Electronics companies always rank at the top of the list of companies filing the largest number of patents. Yet, in another sector of that high-tech world, a group of upstarts and relative new-comers have delivered a different form of innovation. It’s driven from a digital-first mentality, connecting crowds of users and assets via platforms, delivering significant value and the ability to monetize transactions. Most of that value is created via the delivery of a service through some sort of electronics device but without having to carry the heavy financial weight of investing in the development, manufacturing, supply chain processes required for these devices to exist. This digital-first group specializes in “asset light” interactions that can be easily personalized and scaled while remaining highly efficient. They stand in sharp contrast to the asset intensive electronics business model, which spans fabs to factories to warehouses, with concomitant supply chains and inventories.
The impact on company valuation is striking with Platform companies benefiting from valuations with a much larger multiple than more traditional electronics companies.
For many of the more traditional “device” electronics companies the pressure remains high to sustain their differentiation through new hardware features and constant new product introductions. Yet it is clear that at the industry level most of the new value creation is migrating towards the delivery of new services and the creation of recurring revenues on top of a common platform and in the context of larger ecosystems and new partnerships.
Virtualization and the AI revolution change the value equation
The emergence of these platforms would not have been possible without massive investment across the high tech sector in the open source software tools that allowed for the standardization and commoditization of the underlying hardware infrastructure. More standardization allowed for more virtualization which made migration of workloads across the cloud continuum easier and cheaper which was a key element behind the explosion of the creation of the data which is behind the massive value creation in high tech (1).
The growth of Artificial Intelligence is making this picture even more complicated. In today’s world a lot of the AI deployments are dependent on the use of complex and dedicated hardware, like GPUs, which limits its adoption to a small number of highly tailored use cases managed by a few deep experts. But we can anticipate the same move towards virtualization of the AI infrastructure that will lower the cost of entry for AI compute platform and render AI to be more prevalent. This will result in even more value accruing to the data and AI based insights creators which possibly will emerge from outside of the more traditional electronics industry. (2)
There is an unmanageable tsunami of IoT devices and data
For a while IoT was almost synonymous to Electronics… Smart Devices were the entry points to most IoT adoption. Smart Home was relying on TVs, cameras, sensors, and home gateways… Industrial IoT was adding a layer of gateway based integration to the legacy OT infrastructure… Nowadays IoT means data, and it also means extending functions and applications to the edge on the so called “serverless computing platform”(3). At the core of IoT there will always be the transformation of a physical process (measurement, movement, temperature, rotation, location) into a digital signal. In fact MEMS and sensor companies have created incredible capability in extremely small devices operating at the edge of physics while delivering massive cost reduction (4). Yet today the main value of IoT is not in connecting and managing one device at a time, it is in the data insights manifesting from the management of a large group of devices.
However, for electronics companies providing the bulk of the devices and technologies used in IoT one new challenge is fast emerging. It is the fact that “ubiquitous cloud connectivity has enabled third parties to insert themselves between the devices and the users, taking over the user relationship.” (5) This may also result in devices being more independent at the edge thus limiting direct monetization opportunity for their OEM. More sophisticated edge devices will mean more AI enabled and “independent” devices resulting in more opportunity for third party business services, possibly leading to most of the value of IoT escaping from the device makers.
The breakneck speed of invention, adoption and optimization
Electronics companies generate an outsized amount of innovation…the key creators of intellectual property are still electronics companies. Increased computing power, massive advances in storage capacity, dramatic miniaturization of sensors, entirely new product categories… and yet very often this leads to a confused and perplexed user community not really appreciating the technological prowess which in their eyes in not necessarily translating into tangible functional improvements. With more differentiating functions delivered through apps and software and with new AI and speech based forms of interaction it is ever more difficult for device makers to really showcase their technological uniqueness… AI needs the best hardware to run but it also makes hardware feel like commodity.
A shifting composition of markets and workers
A couple of years ago a good measure of the digital divide was the access to internet services or the ownership of a smart phone. This divide has greatly narrowed and in some parts of the world smart phone ownership is widely prevalent even when older technologies never reached market saturation. But a new type of digital divide is emerging. The divide that separates the empowered users and customers from those that do not have the digital privilege of having digital services designed to address their most pressing needs and optimized to their profiles. AI and technology biases are coupled with digital privilege. MIT Researcher, Joy Buolamwini, notes that “the next generation of AI is poisoned with bias against dark skin.” When choosing AI partners, it’s important to find ones that develop and enforce policies that root out discrimination. Reducing bias in AI is critical.
It is important for companies to narrow the gap between empowered consumers and those left behind (6).
This is both a risk and an opportunity for electronics companies. In many cases the electronics devices symbolize this digital divide when in most cases they are only the conduit for a service which generates the real divide. Electronics companies have the opportunity to take the lead in combating AI biases by partnering with technology partners committed to ethical AI. Additionally, realizing that some intermediary companies are using data they harvest from AI apps to train their own applications, it’s also important that businesses — especially electronics organizations — take steps to protect their data and have ecosystem partners who respect that.
Coming up next in our Global Electronics Agenda, a look at the impact of these force for the Enterprise, the Market and the Consumer
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Notes:
(2) IBM and AI Hardware — https://www.research.ibm.com/artificial-intelligence/hardware/
(3) Cloud Continuum — https://www-935.ibm.com/services/us/gbs/thoughtleadership/cloudcontinuum/
and
https://videopress.com/v/NEMTZx5x
(4) MEMS Manufacturing — http://memsmanufacturing.com/agenda.html and http://www.systemplus.fr
(5) Life in the AI age — https://medium.com/the-future-of-electronics/life-in-the-ai-age-d20e4fe4d36d
(6) Bias in AI — https://www.research.ibm.com/5-in-5/ai-and-bias/
and
http://www.eweek.com/big-data-and-analytics/ibm-addresses-ai-bias-with-massive-image-archive
