When does AI become transformative for a business?

There has been a lot of talk about how AI is going to transform our lives. It is an interesting topic, although it can be vague and speculative.

To understand the phase we are currently in, it helps to look back at earlier transformations such as the industrial revolution in the early 1800s or the introduction of the internet in the late 1900s. When the internet became a commodity most people thought it was going to be a game changer, but few really understood how. Start-ups began popping up everywhere and the dot-com bubble got us all very excited. Once the hype passed, we learnt a valuable lesson:

Retail Company + Website ≠ Internet Company

When a retail company builds a website and sells things online, that alone does not turn the retailer into a truly digital company. What defines a true online business is its organization around the things that the internet does really well.

The same rule applies to AI:

Any Company + Deep Learning Technology ≠ AI Company

For a company to fully leverage the value of AI, it must be organized around the things that AI does really well.

Let’s imagine this with the internet giant that is Amazon. Is AI part of its core business? No, the core business of Amazon is selling products. They do however use a lot of AI to enhance their business for search, recommendations, and their personal assistant Alexa.

When will AI transform Amazon’s business?

Amazon’s current business model is shop-then-ship. During the shopping process, Amazon’s AI offers suggestions for items you’ll want to buy. The AI does a reasonable job, let’s say it is right 5% of the time. Considering the millions of items Amazon is shipping this is a significant increase in revenue.

Now imagine that over time Amazon’s AI improves due to the extra data they collect and technological improvements. There will be a turning point when it becomes profitable for Amazon to ship the predicted items directly to the customer, instead of waiting for the customer to place an order (especially considering the current amount of returned items). Allowing the customer to decide on the purchase while they already have the product at home, would transform Amazon’s business model to ship-then-shop.

Price changes everything

A lesson learnt from the industrial revolution is that price changes everything. In the early 1800s, artificial light was 400 times more expensive than it is today. Following the introduction of cheap candles and later even cheaper electric light, artificial light turned into a commodity that we now take for granted. It ushered a new era of society.

We’ve seen the same pattern with the impact of computers on the price of calculation. Until recent history making calculations was an expensive task requiring expert human labor. The invention and commoditization of the electronic computer resulted in the price dropping to near nothing. Today, who thinks about the costs of making a calculation when grabbing a smartphone? The implications of the price drop in arithmetic were unimaginable 50 years ago. Nobody could have imagined that it would, for example, change the taxi business through a platform like Uber. All modern technology is enabled by the low price of arithmetic.

Artificial intelligence will radically change the price of predictions. A prediction is a process of completing partial information. Whether it is used to automate a repetitive task or to find hidden patterns in large amounts of data doesn’t matter. Prediction is the core of every AI task: its price is going to drop and the impact of this is still unimaginable.

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