While it’s no surprise to learn that ICT spending continues moving to the 3rd Platform, or that new technologies like AR/VR and cognitive AI continue to deliver double-digit rates of growth during the current early stages of deployment and prototyping, there are many geographic differences in the way that new categories are gaining traction (or not) in different country markets and what this means for the likely economic benefits in the next 5-10 years.
4 Pillars (Cloud, Mobile, Big Data and Analytics, Social) of the 3rd Platform
One aspect of the 3rd Platform model is that new technologies (which IDC calls “innovation accelerators”) are mostly deployed on the four “pillars” of cloud, mobile, BDA (big data and analytics) and social. These pillars create a foundation on which new products such as cognitive AI and IoT can be delivered and leveraged into productivity benefits.
Without the four pillars, investment in new technologies can still provide localized business and productivity benefits (e.g. for manufacturing firms deploying robotics and AR/VR technologies, speeding up the production line or the product prototype phase) but those benefits will be incremental rather than transformative for the economy as a whole.
For example, manufacturing firms in China can achieve direct productivity benefits from deployment of robotic hardware on the assembly line. These “OT” (operational technology) solutions often lie outside the traditional ICT environment, in any case. OT solutions have a direct impact on industrial operations, without expanding beyond those operational benefits.
In other cases, the four pillars are fundamental to enabling a new technology’s full economic value and establishing the ROI. Where cloud investment is lacking, it’s more expensive and takes longer to deploy new software across an organisation. Without BDA, it’s more difficult to extract real-time business value from information, whether that data is coming from a manufacturing assembly line or a stream of credit card transactions.
Many new software categories continue to see the strongest adoption rates in countries which have already invested heavily in the four pillars, and especially cloud. Those cloud investments are themselves dependent on many country-specific factors, like telecom infrastructure. Fast, reliable and ubiquitous broadband is essential to a successful cloud migration. Structural factors also come into play. We find that countries with high levels of software piracy and corruption tend to have lower adoption rates for cloud and new 3rd Platform software.
As a result, some mature economies still hold an advantage when it comes to leveraging the full productivity and economic benefits of the 3rd Platform, even though some headline early deployments (e.g. IoT and robotics) have taken place in emerging economies related to specific use cases.
Global 3rd Platform Spending
In the USA, where cloud and BDA account for about 15% of 3rd Platform ICT spending, cognitive AI is already a $10 billion market. Contrast that with India, where cloud and BDA adoption is much lower and cognitive AI spending was less than $30 million last year. Or Russia, where cognitive AI investments were only $14 million in 2017, compared to $250 million in Germany and $375 million in the UK).
Overall, software made up 10% of 3rd Platform spending in China last year, compared to almost 20% in the USA. But most of that software spend in China is on OT software deployed in manufacturing use cases for IoT and robotics; traditional ‘IT’ software including cognitive AI, analytics and all SaaS/PaaS made up just 2% of China’s 3rd Platform investments in 2017 (compared to 16% in the USA, where OT software accounts for a minority).
While OT software represents a potential opportunity for traditional software vendors seeking to expand their market footprint (and vice-versa), most of the key economic benefits associated with the 3rd Platform are still associated primarily with IT software like analytics, enterprise social and cognitive applications. This means that growth in these categories is likely to be broad-based over a longer time period.
For many emerging markets, there is hope of catching up when it comes to transformative software adoption and usage. Mobile networks could eventually replace fixed-line broadband completely, thus enabling a more rapid deployment of cloud services. BDA and social software will then be faster and less costly to deploy as a result. This may help to enable the development of new local software ecosystems, driving economic expansion into new categories. The untapped potential is enormous.
Until then the 3rd Platform will remain a tale of two markets, fragmented between OT-centric economies where investments are focused on localized productivity benefits which enable cost savings and speed to market, while IT-centric economies will continue to lead in the adoption of transformative technologies which deliver broader economic benefits beyond the assembly line.