Why build it when you can buy it? Analyzing the AI acquisition...

Why build it when you can buy it? Analyzing the AI acquisition appetite

While the business case for artificial intelligence remains to be seen, AI is undoubtedly a hot commodity with many companies looking to M&A to acquire the talent required to build their AI agendas.

Despite the dire predictions of technology visionary Elon Musk, you know artificial intelligence is hot when a company like John Deere throws itself into the AI acquisition fray.

Sure, the farming equipment company has been chasing autonomous navigation for more than 20 years. But its recent $305 million acquisition of Blue River Technology, a California-based startup that uses AI to identify weeds and spray herbicide, marks a decidedly different approach, one that’s in line with the growing volume of acquisitions in the AI sphere by multinational corporations.

Predominantly, the AI acquisition race is mostly being driven by massive tech companies like Google, IBM, Yahoo, Intel, Apple, and Salesforce. Google and Chinese Internet giant Baidu spent between somewhere between $20 billion and $30 billion on AI in 2016, with 10 per cent of that spend specifically on acquisitions, according to CB Insights. Since 2012, over 250 private companies using AI algorithms have been acquired with 37 of those acquisitions taking place in the first quarter of 2017.

Tech companies have been the most ravenous in the sphere, according to a report by McKinsey Global Institute.

“AI adoption outside of the tech sector is at an early, often experimental stage,” says the study, noting that few firms have deployed it at scale. “In our survey of 3,000 AI-aware C-level executives, across 10 countries and 14 sectors, only 20 percent said they currently use any AI-related technology at scale or in a core part of their businesses.”

Simply put, the majority of firms still aren’t sure what the business case or return on AI investment even is. “A review of more than 160 use cases shows that AI was deployed commercially in only 12 percent of cases,” says the report.

But some industries outside the tech sphere are more predisposed to building an AI agenda than others. Part of that strategy is using M&A as a means to acquire talent.

“The pool of true experts in the field is small, and Alibaba, Amazon, Facebook, Google, and other tech giants have hired many of them,” says the McKinsey report. “Companies have adopted M&A as a way to sign up top talent, a practice known as ‘acqui-hiring,’ for sums that typically work out to $5 million to $10 million per person.”

The automotive assembly, telecom, and financial services spheres have all become strong adopters in snapping up AI rather than just building it in-house.

Ford acquired a majority stake in artificial intelligence startup Argo AI for $1 billion in February, and last year General Motors paid $1 billion for self-driving startup Cruise, while Uber bought autonomous trucking company Otto for $680 million.

Telecom giant Qualcomm doubled down on device-focused implementation in August, buying Scyfer, a company affiliated with the University of Amsterdam, focused on machine learning. Networking systems company Cisco bought MindMeld, a conversational interface AI solution, in May for $125 million and last year, Samsung acquired AI assistant Viv – a startup from the creators of Siri – for $215 million.

“Automakers use AI to develop self-driving vehicles and improve operations, for example, while financial services firms are more likely to use it in customer experience-related functions,” says the McKinsey report. “Our case studies in retail, electric utilities, manufacturing, health care, and education highlight AI’s potential to improve forecasting and sourcing, optimize and automate operations, develop targeted marketing and pricing, and enhance the user experience.”

So what does the AI acquisition landscape look like going forward?

“Most of the firms we surveyed expected to increase spending on AI in the coming three years, a finding echoed in other recent surveys,” according to McKinsey.  Three-quarters of the 203 executives surveyed by the Economist said AI would be “actively implemented” in their firms within three years. Further to that, three percent say they’ve already done so.

There’s no question the AI vanguard will be driven by current adopters like the financial services, manufacturing, and tech spheres but don’t expect retail, education and health care to be too far behind in their acquisition sprees.

“After decades of hopes and disappointment, AI is back and could be set to drive profound changes in the global economy,” says the report.

Let’s just hope more multinationals like John Deere acquire the appetite.