The widespread adoption of cognitive systems and artificial intelligence (AI) across a wide range of industries is expected to drive worldwide revenues to surge past $47 billion in 2020, according to International Data Corporation (IDC) analysts.

In a recently published spending guide, the market research firm said the market for cognitive/AI solutions will experience a compound annual growth rate (CAGR) of 55.1% over the 2016-2020 forecast period.

"Software developers and end user organisations have already begun the process of embedding and deploying cognitive/artificial intelligence into almost every kind of enterprise application or process," said David Schubmehl, research director, Cognitive Systems and Content Analytics at IDC. "Recent announcements by several large technology vendors and the booming venture capital market for AI start-ups illustrate the need for organisations to be planning and undertaking strategies that incorporate these wide-ranging technologies. Identifying, understanding, and acting on the use cases, technologies and growth opportunities for cognitive/AI systems will be a differentiating factor for most enterprises and the digital disruption caused by these technologies will be significant."

The ability to recognise and respond to data flows using algorithms and rule-based logic enables cognitive/AI systems to automate a broad range of functions across many industries. The use cases that are attracting the most investment in 2016 are automated customer service agents, quality management investigation and recommendation systems, diagnosis and treatment systems, and fraud analysis and investigation. The use cases that will experience the fastest revenue growth over the next five years are public safety and emergency response, pharmaceutical research and discovery, diagnosis and treatment systems, supply and logistics, quality management investigation and recommendation systems, and fleet management.

"Near-term opportunities for cognitive systems are in industries such as banking, securities and investments, and manufacturing," said Jessica Goepfert, program director, Customer Insights and Analysis at IDC. "In these segments, we find a wealth of unstructured data, a desire to harness insights from this information, and an openness to innovative technologies. Furthermore, the value proposition of cognitive systems aligns well with industry executives' chief priorities. For instance, cognitive technologies are being used in the banking industry to detect and combat fraud–consistently a top industry pain point. Meanwhile, in manufacturing, executives cite improving product quality as a top initiative. In this case, cognitive systems recognise and know how to respond to dynamic fluctuations in product specs by adapting the production to stay within quality targets."

The industries that will invest the most in cognitive/AI systems in 2016 are banking and retail, followed by healthcare and discrete manufacturing. Combined, these four industries will generate more than half of all worldwide cognitive/AI revenues in 2016, with banking and retail each delivering nearly $1.5 billion. Healthcare and discrete manufacturing will deliver the greatest revenue growth over the 2016-2020 forecast period, with CAGRs of 69.3% and 61.4%, respectively. Education and process manufacturing will also experience significant growth over the forecast period.

According to IDC analysts, nearly half of all cognitive/AI revenue throughout the forecast will go to software, which includes both cognitive applications (i.e., text and rich media analytics, tagging, searching, machine learning, categorisation, clustering, hypothesis generation, question answering, visualisation, filtering, alerting, and navigation) and cognitive software platforms, which facilitate the development of intelligent, advisory and cognitively enabled solutions. As both the largest and fastest-growing category, cognitive applications spending is forecast to reach $18.2 billion in 2020. Cognitive/AI-related services (business services and IT consulting) represent the second largest revenue category while hardware revenues (primarily from dedicated purchases of servers and storage) will grow nearly as fast as software with five-year CAGRs of more than 60%.

IDC AI spending guide (cr) Figure 1: Cognitive/AI revenues from Asia/Pacific, including Japan, will nearly close the gap with Europe, the Middle East and Africa (EMEA) by 2020. (Source: IDC)

On a geographic basis, North America (the United States and Canada) is by far the largest region for cognitive/AI spending with 2016 revenues approaching $6.2 billion. Europe, the Middle East and Africa (EMEA) will remain the second largest region throughout the forecast, but cognitive/AI revenues from Asia/Pacific including Japan will nearly close the gap with EMEA by 2020.