An Industry In Transition

I understand how easy it is to zoom in on the minutia of the tech industry and examine both the good and the bad under a microscope but I’d like to make a point that requires taking a step back and looking at the bigger picture. With the news and hype cycles what they are, it is understandably easy to miss the forest for the trees. In an effort to keep a pulse on the tech industry at large, I feel that, when we step back and look at the whole picture, we see an industry in transition and clear groundwork being laid for what comes next.

Smartphone Hardware has Run its Course
As Carolina pointed out today as she reflected on Mobile World Congress, smartphone hardware differentiation is nearly impossible. What is clear is the last big push will be around optics, cameras, and sensors. While it is true we will still see some important innovation in these areas, we are undoubtedly nearing the end of major hardware innovations in smartphone hardware. In many ways, the smartphone is where the PC, and possibly the tablet, are as well. Iterative changes will come, but no significant shift is on the horizon which blows the paradigm open.

This is not to say the smartphone may not serve as the underlying foundation for new hardware innovations in things like Augmented Reality or Virtual Reality. It does mean there will become an increased emphasis on software and services experiences. Years ago, I wrote an article called “Our Services Destiny”. My point was based on a tried and true historical viewpoint of the industry which outlines how the value of new markets always starts in hardware. Then, as that hardware innovation slows, the value moves to software. As software matures, the value shifts and ends the cycle in services. This observation had been mostly limited to enterprise case studies. The smartphone is the first market we can now observe and learn from that same dynamic in consumer markets. This a key reason why we are seeing an increase in the software/apps industry from a revenue and value perspective and we are now starting to see the consumer services side of the industry pick up steam. As I look ahead, I am focusing on what consumer services mean for the future and which companies are best poised to own this space in the future.

AI is in its Infancy
Nothing we have in the market today is really “artificial intelligence”. We see some clever algorithms attempting to predict or understand us but these are mere shadows of what the AI experience in the future will be. Taking a big picture view of this market shows us the real work being done today is more machine learning than AI. There is a race to train your network in play at the moment. This requires not just a lot of data but a lot of really good data. I’d argue the vast majority of criticisms we see from companies talking a lot about AI — Amazon, Netflix, Google, and perhaps even Apple to a degree — is due to the lack of really good data. This is something I want to dive deeper into and take a look at the weaknesses in every major company’s AI strategy but right now, these services are attempting to offer me value from how their network (or AI-engine has been trained) and I’m left still baffled by how little they actually know about me.

Part of this has to do with two fundamental pieces of the puzzle which are still being worked out. The first is in semiconductors. As I’ve noted before, we are in the 1980s PC era when it comes to AI chipset technology. It still takes hours or weeks to train a network. The only solution is many many years of silicon architecture advancements which are still yet to come and will not be easy. Semiconductor technology is a mature science and there is no magic revolutionary breakthrough coming which speeds this up. Companies like Intel, Nvidia, AMD, Qualcomm, and even Apple, have their work cut out for them to solve extremely difficult challenges to give software and services companies they computing power they need to deliver instantaneous network training and true AI technologies.

The second piece yet to come is unsupervised learning. Today, most networks are trained with “labeled data”: a human has labeled an image of a dog or a street or a person. Text is, by nature, already labeled but when it comes to teaching computers to see this, it is a major problem. As the industry gets to a point where machines can be trained without human intervention, we will be one step closer to better training and better AI. This is one reason why I found Apple’s first published paper on AI interesting since it speaks to a process of unsupervised learning by using graphics instead of physical images to teach computers.

5G: Important Infrastructure but Years Away
Lastly, 5G will provide desperately needed network capacity to bring so much of what I outlined above, and more, to fruition. We are about six years into the shift to LTE. Qualcomm likes to remind us that network technologies generally live for about 18-20 years and, at about the midway point (ten years in), we tend to see the next evolution trickle out to the market. If this pattern holds, around 2020 we should start to see 5G begin to trickle into the market.

5G will be relevant in many markets beyond computers. Automotive is a key market where we need the kind of network technology 5G will enable. Cars will be processing tremendous amounts of data and balancing onboard and cloud processing to enable features related to autonomy, safety, and more. Services, like AI, and many others will require 5G, given how much they will rely on cloud processing as well.

5G will also bring with it a slew of new connected devices. It may be much more common to see devices which have yet to be connected to the network become connected via the benefits of 5G.

These key things, which are some of the underlying transitions the industry is going through, are critical enablers of what is coming next. The point to take away is how this transition is not over this year, or next year, or probably not even five years from now. I’m not saying exciting things are not going to happen, only to remind our readers to not get caught up in the hype of what is coming next and realize we are years off from that reality. However, with a view of the big picture, we can keep our eyes open as these fundamental changes occur so we are ready.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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