Don’t get caught up in the hype
What the data reveals in respect to GenAI impact within our ecosystem
Don’t get caught up in the hype
What the data reveals in respect to GenAI impact within our ecosystem
Given the scope of exciting possibilities offered by generative AI technology, it is little surprise there is so much hype surrounding it.
But let’s be honest. While we are likely all familiar with the Gartner Hype Cycle, it counts for little. Historically, we have always tended to overestimate the speed of change but underestimate the scale of change. And in that regard, this latest ‘techtonic’ shift is no different. Generative AI will bring long-term value. It won’t happen overnight. Right now, the hype has taken over.
Looking back in time, if you had bought Amazon shares at the start of the last Hype Cycle, you would have made 500 times your investment. However, even if you had bought at the apogee of the cycle, you still would have made a 50x return. As David Toms, Director of Research at Hg, remarked during his presentation, “it might have taken longer, but the eventual outcome was far bigger than anyone expected”.
“We are all familiar with the Gartner Hype Cycle… Historically, we always overestimate the speed of change, but we underestimate the scale of change.”
A quick look at the data shows that, in terms of revenues, Nvidia is on course to generate $100 billion from silicon chip sales alone, in 2024.
Data centres, the principal buyers of all that silicon, will start to see some very large revenues on the back of that investment, over the coming years. Furthermore, AI platforms/LLMs have raised approximately $25 billion over the last 12 months with $10 billion of ARR generated by the likes of Microsoft Azure and Amazon Bedrock.
The true scale of impact will be easier to measure in the years to come, as companies refine their co-pilots and find optimal ways to monetise this revolutionary technology. At present, there is limited data, suffice to say that if there was a company generating $1 billion of revenue the world would have heard about it. For now, this is a situation akin to the period 18 months after the smart phone was unveiled: lots of hype but still no killer application.
At Hg, a closer look at the data reveals that 46 companies are actively engaged in GenAI initiatives. This technology is an enabler whose true power will only be as good as the use cases to which GenAI tools are applied.
Real vigour and investment in data and AI foundations will need to be applied to generate true value and operational impact.
That being said, CEOs who are now embarked on their GenAI journey are on track to gain 2 points of margin this year. Based on all the use cases Hg is tracking, this would represent approximately $50 million of EBITDA impact. Hg’s Head of Value Creation, Chris Kindt, told the audience that there have been 35 broad rollouts of R&D co-pilot projects in 2024, leading to 12 to 15% of developer productivity, “but only six companies have changed their staffing plans in response in 2024”.
There is a romantic view that AI will create a catch all technology. This will be a marathon not a sprint and not everyone will even be running the same race: the consumer model does not necessarily apply in the same way as the business model with respect to UI and data governance.
Pilot purgatory
The risk to those who get caught up in the hype is that they find themselves in a constant mode of running co-pilots without achieving any meaningful outcomes. As David Carmona, CTO and VP of strategic incubation for Microsoft, noted, if companies are calling something a pilot maybe that is already a wrong first step.
“Probably I mentioned this last year, the ‘pilot purgatory’. That notion that we see many companies that are in this pilot purgatory forever and don't get out of that. Maybe you don't even need to be in pilot purgatory from the beginning. If you are calling something a pilot, maybe that's already a wrong first step.”
- David Carmona, Microsoft
Co-pilots that are beginning to show positive signs are those focused on customer operations and customer support.
According to Kindt this is where the bigger impact is being seen, with 20% to 30% efficiency gains already being achieved in the co-pilots Hg is tracking.
Not that these co-pilots are only addressing cost. Some $10 million of ARR impact has been observed across three GenAI lead generation projects across the portfolio as the technology helps augment the organisation of prospects and customer databases.
This is where the real opportunity is to drive impact: developing highly specific use cases where the appropriate level of operational focus and transformation is married together with GenAI tools.
Take Litera as an example. In less than 12 months, the legal technology firm has launched a suite of new GenAI features and products into their legal workflow tools. On the back of this, they are aiming for $3 million of ARR, with plenty more to come.
And that’s the key point.
Rather than get caught up in the hype, software leaders have the opportunity to build GenAI solutions that drive value creation for their businesses not over months, or even years, but over decades.
