The figure above shows the top eight early adopter industries as the purple bubbles. The x-axis (horizontal) shows how COVID-19 has affected the forecast (% change) for cumulative 2019–25 AI software revenue from Omdia’s 4Q19 forecast to the current 2Q20 forecast. The y-axis (vertical) shows the current 2019–25 CAGR estimate, and the size of the bubbles indicate the relative size of AI software market.
Forecasting AI is never an easy task, even in the calmest economic times. Then came the COVID-19 pandemic, which upended everything. The effects on the global AI software market in 2020 and beyond are still difficult to measure but will correspond with the severity and duration of the pandemic and its economic effects. These impacts, however, vary widely by industry sector and use case, unexpectedly accelerating AI adoption in some fields.
Early adopters vs. the laggards
Even before the pandemic, industry sectors fell into two AI market groups: the early adopters (the “AI haves”) and the laggards (the “AI have nots”). Of the 23 industries covered by Omdia, the top eight comprise the early adopters and will account for 75% of the cumulative revenue for 2019–25. These include consumer, healthcare, retail, financial services, automotive, telecommunications, business services, and advertising. The industry leaders reflect trends within AI of building a data industrial complex, where massive investment in data centers and hardware infrastructure is required.
Economic effects from the COVID-19 pandemic have widened the dichotomy between early AI adopters and the laggards. Industries that have pioneered AI deployments and have the largest AI investments are continuing to invest in what they view as proven, indispensable technology. Industries that have small investments or concentrated with pilot programs are the most likely to defer AI projects because of the pandemic effects. From recent Omdia end-user survey data (June 2020), business size is also a factor, with large companies more likely to keep investing in AI, while small and medium-sized businesses hold back.
Varying effects across industries
Consider the following disparate impacts of COVID-19 on the AI software market:
- The overriding backdrop of the pandemic is of one of a severe economic downturn, with most firms taking cost-cutting measures, many laying off staff, and some going out of business. Smaller businesses are particularly hard hit. Use cases like recruitment tools, travel management, and legal have been affected. The oil industry, in a meltdown due to oil prices, is also one of the sectors where AI software demand has been more negatively affected.
- The most obvious positive boost is on the healthcare industry (including pharma), which will see an estimated 53% CAGR in global AI software revenue between 2019 and 2025. Over the immediate term, AI spending will be focused on accelerating testing, developing treatments and vaccines, and managing patient care. Over the medium term, healthcare industry players will invest to remedy shortcomings that the COVID-19 crisis has exposed and to prepare for similar future unexpected events. Note that parts of this industry are suffering, not only as hospitals face financial burdens from the outbreak, but also as non-essential procedures and practices within the healthcare system are put on hold.
- A third trend resulting from the lockdowns is the acceleration of digitalization as employees work from home and shoppers stay away from brick-and-mortar in favor of e-commerce. These trends are boosting AI software investment in telecom and IT networks as well as e-commerce customer service, product recommendations, and advertising. With schools closed, lockdown has also prompted increased demand for online, remote education, such as personalized tutoring applications.
- The public sector will see a slight gain over previous forecasts. Though government budgets are constrained, the public sector is focusing AI investments in various COVID-19-related use cases, including the immediate public health management of the crisis. A new use is contact tracing, implemented in China, Singapore, South Korea, and Taiwan and announced in Europe (PEPP) and the US (Google/Apple app development). Another key public sector use case is video surveillance, where is AI not only being used for image identification, but also for heat-sensor analytics.
AI software market growth to continue
Although AI software had begun to permeate the market before the pandemic, AI is still in its initial market adoption phase. The market will continue to experience high growth due to low levels of penetration against the overall software market as users choose intelligence-embedded software over traditional solutions. COVID-19 and the year 2020 will no doubt have more surprises in store for us. And AI developers and vendors will continue to produce tools to help meet the new challenges.
For more information on the current state of the global AI software market, see Omdia’s Artificial Intelligence Software Market Forecasts report.