””

News analysis

Artificial intelligence: The next frontier

AI set to reshape the world in the next decade, with Asia at the forefront

While the world has been fixated on following the soap opera of financial markets, a more profound and ubiquitous development has been taking place worldwide - the rapid development in artificial intelligence and the fourth industrial revolution, which we think will mark an endless wave of disruptions.

We believe artificial intelligence (AI) is almost ready for wider adoption by businesses, in turn providing opportunities, but also risks for investors. With corporate longevity already on the decline - according to McKinsey, one in five listed companies in the US may not last beyond the next five years - the integration of AI into business applications will have significant investment implications in the years to come.

Similar to how companies with no core assets could become leaders in their industries today, AI companies have the potential to become tomorrow's industry leaders. As noted by Mr Tom Goodwin of the French media group Havas, who would have imagined just a few years back that the world's largest taxi firm (Uber) would own no vehicles, the world's largest accommodation provider (Airbnb) would operate no rooms, while the world's most valuable media company (Facebook) would create no content?

POISED FOR QUANTUM LEAP

"At some stage… we should have to expect the machines to take control." This quote by Alan Turing in 1951 has been a key guiding principle for data scientists and business leaders who have regularly made tall claims about the advent of AI.

The world's top Go player, Mr Lee Sedol, reviewing his moves after the third match of the Google DeepMind Challenge Match against Google's artificial intelligence program AlphaGo in Seoul in March. The match comprised five games, of which AlphaGo won
The world's top Go player, Mr Lee Sedol, reviewing his moves after the third match of the Google DeepMind Challenge Match against Google's artificial intelligence program AlphaGo in Seoul in March. The match comprised five games, of which AlphaGo won all but the fourth one. PHOTO: REUTERS

With recent advances in deep learning, the topic of AI is once again gathering momentum. Billions of dollars in investments are pouring into this space, and more than 2,500 start-ups globally now have AI as a core part of their business models. Furthermore, headline-grabbing news like Google's AlphaGo defeating the Go world champion, or Baidu's AI personal assistant Duer accepting orders at some KFC restaurants in China are fuelling debate about the pace and merits of AI for mainstream adoption.

AI, essentially a set of tools and programs that make software "smarter" in a way that an outside observer believes the output is generated by a human, will increasingly become a key boardroom topic in our view. It is built on the success of supporting tools like natural language processing, machine learning, neural networks and emotional intelligence.

Thanks to the confluence of multiple factors, like the decreasing cost of computing power, rising cloud adoption, the development of sophisticated big data tools, and significant investments by global tech giants, AI ecosystems have evolved significantly over the past few years, and look poised for another quantum leap in the coming years. Based on our estimates, AI software business revenues alone will grow from US$5 billion (S$6.8 billion) last year to US$12.5 billion in 2020, or roughly 20 per cent average annual growth.

MORE PROS THAN CONS

Beyond traditional automation and robotics, which uses AI, there is an abundance of applications for software-based AI. The range of possibilities is vast - from simple virtual assistants like Google Now or Amazon's Alexa, to complex robot secretaries like Clara, financial services robot advisers, intelligent customer service or retail assistants, expert systems in medical fields that deliver instant results, and business analytics that provide predictive analysis.

Value generation from AI worldwide is in the trillions of dollars - allowing for both cost savings through productivity enhancements and increased opportunities for revenue growth from targeted sales strategies. McKinsey sees AI's impact through the automation of knowledge work to be as high as US$5 trillion to US$7 trillion globally across a wide range of industries.

However, the rise of AI is not without controversy. By automating tasks that rely on analyses, subtle judgments and creative problem solving, AI poses a threat to the knowledge workers industry, which employs over 230 million people globally, or around 9 per cent of the global workforce, according to McKinsey.

In an environment of extreme automation, we believe AI will likely replace low- and mid-skill jobs in industries like legal, insurance, research, IT and financial services. Additionally, entry barriers to industries like autos (due to self-driving) and retail (process automation) are potentially at risk of permanent erosion.

That said, through the long sweep of history, technological advances have always delivered greater prosperity. We think the advent of AI will not reduce the level of employment opportunities, but the type of skills required to prosper will surely change.

Machines will likely work alongside and be directed by humans for years to come. As with any technological change, labour productivity will rise and, with it, increased scope for other creative jobs. Take, for instance, the sharing economy trend, where we believe Asia is ahead of the developed markets in terms of adoption. In the past few years, thanks to innovative sharing apps like Uber and Airbnb, we have seen interesting business models develop in countries like China that have created many new positions in services.

Concerns over a global employment crisis are understandable, given the bout of middle-class anxiety that has been convulsing the political scene globally. Our fundamental beliefs, nonetheless, are that automation will eventually drive innovation and opportunities, and AI adoption will bring more benefits than risks to society.

As for investment opportunities, beneficiaries will include technology companies that provide AI solutions, healthcare and other R&D-intensive industries like aerospace and high-tech engineering where R&D productivity is expected to rise exponentially.

ASIA AT THE FOREFRONT

Unlike in previous industrial revolutions, Asia, being at the forefront of the fourth industrial revolution which is centred on automation and robotics, would likely emerge among global winners. With an early-mover advantage and a vast talent pool in AI, the region is already on a level playing field with many developed markets.

In Singapore, significant progress made by universities like Nanyang Technological University, which already has a sophisticated AI-based robot, is a telling example. Chinese companies, in particular, have made significant investments and progress on furthering AI, including new applications like Xiaoice, a chatbot with 23 interactions per session compared with the about 1.5 interactions of programs like Apple's Siri. And India's strong mathematics and IT services background is attracting global AI-based investments. A strong AI-based ecosystem is well in place in the region, potentially creating significant future economic value for businesses, customers, governments and investors.

AI will reshape the world in the next decade. It will significantly boost productivity and fuel the creation of new high-end positions and other creative jobs. Asia is well-placed to find a balance between both the opportunities and the threats that this new era would present.

  • The writer is Apac regional head at the chief investment office of UBS Wealth Management.
A version of this article appeared in the print edition of The Straits Times on June 06, 2016, with the headline 'Artificial intelligence: The next frontier'. Print Edition | Subscribe