Cognitive technologies in the technology sector

Artificial intelligence is certainly no longer considered science fiction—or a source of expensive R&D efforts with unmet potential—by major players in the technology sector. Instead, we are in the midst of a real-world paradigm shift: the final stages of a decades-long transition from the scientific discipline known as artificial intelligence (and its various sub-disciplines) into an array of applied cognitive technologies made more widely available through innovative enterprise architectures unique to the business culture of the technology sector.

The technology sector’s interest in these technologies has exploded in the last several years. Networking companies, semiconductor manufacturers, hardware companies, IT providers, software providers, Internet players—just about every technology subsector has seen a substantial upsurge of activity in this space. In fact, the race to invest in artificial intelligence has been described as “the latest Silicon Valley arms race.” Since 2012, there have been 100 mergers and acquisitions (M&A) within the technology sector involving cognitive technology companies, products, and services. And this rush of M&A activity is not the only sign of the industry’s interest. Many capabilities that were only just emerging a few years ago are now essentially mature and becoming “democratized” and more readily available for business applications. As a result, leading companies are using cognitive technologies to enhance their existing products and services, as well as to open up new markets.

What is interesting is that the assertive actions of the sector’s leaders do not mirror the wholesale adoption of these technologies across the industry. Many technology sector companies have yet to turn their attention to how cognitive technologies are changing their sector or how they—or their competitors— may be able to implement these technologies in their strategy or operations.

To help leaders better understand these issues, this report considers three perspectives. First, we examine recent M&A activity to determine which cognitive technology capabilities are attracting the most attention. Second, through the examples of the IBM Watson Group and Alphabet/Google, we explore how cognitive technologies can transform business models, helping companies compete in the future marketplace. We also focus on the two main approaches technology companies are using to pursue marketplace opportunities: cognitive technology development platforms and cognitive technology platform-as-a-service (PaaS) offerings. We conclude with a discussion of the go-to-market considerations for large and midsized technology companies, as well as next steps for not only technology sector companies but also technology-enabled enterprises in any industry or vertical market that want to further explore cognitive technologies’ potential.

Why companies embrace cognitive technologies

A path to business model transformation

Why are technology companies pursuing cognitive technologies so aggressively? Research has shown that companies that exhibit superior performance over the long term have two distinctive attributes: They tend to differentiate themselves based on value rather than price, and they seek to grow revenue before cutting costs. Thus a clear implication of our analysis is that by prioritizing substantial investments in cognitive technologies, companies aim to grow revenue by creating value through new or better products or services rather than by cutting costs. Beyond the incentives of greater revenue and market share, however, a deeper reason appears to be that these companies see cognitive technologies as a way to reinvent themselves to more effectively compete in the future—essentially, as a basis for business model transformation.

Indeed, the most striking finding is that technology companies create new business units to increase volume and generate revenue by using cognitive technologies not only for product innovation but also for structural, operations, process, and business model innovation as well. These new units are also designed to transform the architecture of the parent company over time. Such restructuring underlines cognitive technologies’ potential to completely revolutionize the technology sector—and take many vertical industries and markets along.