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Tech Talk: The Coming Convergence of A.I., IoT & Cybersecurity Applications

An exclusive interview with West Monroe Partners and Pepper Hamilton's tech advisors.

Globally, M&A deals fell from 4,326 in 1Q16 to 3,554 in 1Q17, while all of 2016 saw activity drop as well. Mergermarket analysts largely attribute this decline to geopolitical instability. With Brexit, regional conflicts, tepid economic growth, cybersecurity threats and overall global unrest, it isn’t surprising that such events are keeping investors on the sidelines.

But, in an era of turbulence, it is important to remember the age-old lesson: amidst chaos and folly lies great opportunity.

Acquisition opportunities are emerging in companies making amazing technological breakthroughs, ones that hold the promise of propelling mankind into a future reminiscent of a Philip K. Dick novel.

For instance, a Tusla, Oklahoma-based crash sensor maker, ICEdot, is making a device that is built into a helmet. If you fall off your bike and hit your head on the pavement this sensor will send a signal to your phone and call for help. It’ll also work out how severe the crash was based on the impact, and send your GPS coordinates to your designated emergency contact. How about San Francisco-based Lively, which makes watches for the elderly. The pitch: You give your loved-one the watch to wear, then set up sensors around their house to monitor their activity. The sensors can track things like the fridge, which helps you make sure they’re eating regularly; one on the medicine cabinet or box of tablets will alert you if they’ve missed a dose; and one on the bedroom door can let you know they’re getting up in the morning. There’s also a "help" button, which will call the "Lively Care Team" so they can dispatch the emergency services if needed. Or, how about a company called Darktrace. The founders of this mysterious-sounding firm are entering into strategic partnerships with oil and gas and utilities businesses to aid their efforts in fending off hackers, who are looking to leave people in the dark by shutting down a utility's operation or steal information, or both.

These technologies will also reshape your daily routine.

Your "smart" devices will be able to talk to your house (and everything in it), clothes, cars, robo-advisors, doctors and other people and items. A security program will be there every step of the way shielding your information from cyber intruders as it passes from one device to another. Of course, all of this will be supervised and supercharged by a super-smart program, or as the industry would present it, a virtual personal assistant. This is what the coming convergence of artificial intelligence (A.I.), Internet of Things (IoT) and cybersecurity software looks like.

But to find out what commercial applications are presently leading the way, I asked the industry insiders for their take. 

Where A.I. & IoT Will Flourish

"There are going to be very few industries where there is not a significant amount of investment in A.I.," said Erik Brown, Director for Technology and Enterprise Architecture for West Monroe Partners, a Chicago-based business and technology consulting firm. “One of the more mature and prevalent applications is autonomous vehicles,” he added. "Machine learning and deep learning algorithms make machines better at driving than humans," Erik said. "Machines don't get distracted, they can take in more input, act on said inputs and learn as they go."

The market agrees. For the past several months, private companies like Uber and Lyft have publicly mentioned A.I. as a critical part of their business model. Some of the visionaries who founded well-known autonomous vehicle companies also have ambitions of tackling energy usage and climate change – with self-driving transportation as a key variable for solving efficiency equations.

With regard to energy, various startups are developing learning algorithms and sensors to monitor and regulate power usage. "They (Google) reduced their cooling energy consumption by 40% and their overall power use by over 10% by applying machine learning algorithms within their data centers," Erik said. This machine learning is essentially a subset of A.I. At its core, machine learning is about teaching computers to learn by interpreting data from the world, classifying it and adapting from successes and failures, similar to the way the human brain learns. The challenge thus far for software developers is taking a computer's binary "yes" or "no" logic and enhancing an algorithm that allows A.I. to draw insight from non-linear computer processing.

Erik and his colleagues at West Monroe list healthcare, utilities, manufacturing, consumer and specifically home security system businesses as promising areas for A.I. applications.

Sharon Klein, Partner in the Health Sciences Department of Pepper Hamilton, agrees that healthcare and manufacturing businesses will invest vast sums in A.I. over the course of many years.

"I think startups that are focused on producing or helping (legacy) companies utilize artificial intelligence technology and data to improve results will serve as critical investment opportunities," Sharon said. "The trend is to assemble data in a data lake and then mine that data for interesting things. Some data mining is used in drug development for reducing production costs and improving outcomes." 


Markets for Converging Technology Applications

Today, 38% of enterprises are already using A.I., growing to 62% by 2018. Forrester Research is predicting a 300% increase in A.I. investments in 2017 compared to 2016 and IDC believes A.I. will be a USD 47bn market by 2020. 

A lot of discussion around A.I. is centered on the strong possibility that it will result in job loss, especially for responsibilities that can be automated. Uber CTO Kara Swisher has specifically noted that these advancements may possibly eradicate 50% of today's jobs.

Technology induced unemployment has been a theme for centuries, as it's criticized sometimes as a factor of social upheaval and disruption. Ironically, the reverse can be true with social and political disruption acting as agents of change in the technological arena. The latest instruments of war, such as drone technology, are helping political strongman across the globe alter the shape of various nations and shift the balance of power from one hegemon to the next.

However, much like nuclear technology, the industry is finding peaceful, commercial applications for drone technology, which will improve the lives of billions.

"Drone technology, not only its military applications but in commercial utilization has promise, which Amazon and others are harnessing and will continue to be an area of interest in the future," Sharon said.

According to a report commissioned by the Association for Unmanned Vehicle Systems International, 42 types of business operations have requested special permission from the FAA to fly drones, showing the technology’s incredible economic potential. The top in-demand drone business areas are aerial photography, real estate and aerial inspection. Industries using drones coupled with IoT and A.I. include energy, construction and agriculture.

Speaking of agriculture, using A.I., farmers will be able to improve yield and efficiency while on a retail level grocers will learn more about their consumers — and predict their behavior — better than consumers know themselves. To limit energy and waste, farmers will need to know in real time how much fertilizer to apply, and what seed to use and where so they can get the most out of their fields.

Sylvain Charlebois, Dean of the Faculty of Management, Professor in Food Distribution and Policy, for Dalhousie University, wrote that the average food store manager deals with more than 50,000 products — six to eight times more than a few decades ago. To optimize any food retail store, a typical management team must make 1,000 to 1,500 decisions a day. These decisions influence everything from merchandising to assortment strategies. Once you factor in directions from head office, transient customer data and insights, instinctive decision-making is a poor model, particularly in a business environment where margins rarely exceed 2%.

However, Sylvain continues, food retailing is a very traditional sector. Grocers have resisted digital changes for years. The industry is only starting to acknowledge that it can't efficiently manage all the data points it has access to. Particularly when interest in products will vary greatly daily, due to the weather and other factors. Imagine food retailing free of sticker shock. No more sudden appearances of USD 8 heads of cauliflower. With A.I., grocers can set acceptable price ranges for any product, and prices can change by the hour, depending on inventory and demand. Since fresh produce represents about 40% of average food store sales, striking the right balance is key. Course-correcting, items that do not sell could be measured in minutes or hours, rather than days or months. 

Expect to see other A.I. driven pricing strategies employed across all industries at some point. 

Staying within the retail sector, the biggest potential for A.I. is chatbots and virtual assistants. These tools of direct customer engagement will allow for a seamless experience when ordering products. Chatbots have question-answer and recommendation capabilities that make them a highly scalable yet personal sales channel. 

Other efficiencies will emerge from A.I. and IoT in the manufacturing sector for instance. From the enterprise to the plant floor to the loading dock, each point will receive real- time alerts about changes through networked mobile devices, video monitors and human-machine interfaces. The real-time information links back to the entire supply chain, which creates efficiencies in inventory management and improves cash flows. Look at Ford Motor Company. It was recently reported that out of Ford’s 40 vehicle- assembly plants, 25 now use IoT technology to speed up communications. 

Another piece of technology that governments and private enterprises are utilizing is cybersecurity. The goal is to obstruct criminals and rogue nations' reach into the virtual world. Recently, Google's cloud-based Google Docs fell victim to a widespread phishing attack while newly elected French President Emmanuel Macron was also targeted by a similar scheme on the eve of elections. Commercially speaking, the people I talked to said that as companies switch from a singular datacenter to multiple locations (including the cloud) and devices, they will have to defend a lot more vulnerabilities.

"Moving from a single datacenter where you feel like you can protect things in a controlled manner to tens/hundreds of thousands or even millions of devices across multiple data centers (including the cloud), most organizations are going to have to give a lot more thought to appropriate cybersecurity planning," said Michael Amiot, Senior Director for West Monroe Partners' Mergers & Acquisitions practice. "Cybersecurity is simply becoming a cost of doing business today, and costs are going to rise as the risk continues to rise with larger global footprints."

According to Business Insider Intelligence, by 2020 there will be 34 billion connected devices in the world.

"Either way, this concept of a singular data center or a couple of physical data centers you have to protect and own is going to be evolving into distributed sets of assets that you have in the cloud. So you need more intelligence, and I think this is where machine learning kicks in," Michael's colleague, Erik added, discussing the coming convergence among cybersecurity, Internet of Things and A.I. "It's going to be absolutely critical as your network expands. The more end points in your network, the more sensors and the more consumers of your services, where machine learning is going to help identify behaviors that are atypical. User behaviors that are potentially malicious will be escalated. You might have someone trying to get access to information they are not permitted to have or trying to take down your system. So, in this situation, machine learning algorithms are deployed in these increasingly distributed data centers that can provide intelligence that identifies certain behaviors. This intelligence will evolve over time so it can identify something malicious and notify the right people, while also responding and shutting down access to certain agents identified as malicious."

Internet of Things devices and the tons of sensitive data floating on the airwaves have made people's information a mark for hackers. Just recently the Federal Trade Commission (FTC) filed a complaint against Taiwan-based computer networking equipment manufacturer D-Link Corporation alleging that inadequate security measures taken by the company left its wireless routers and Internet cameras vulnerable to hackers and put U.S. consumers' privacy at risk.

"Whether we’re using network connections for wireless pacemakers in the medical device world or utilizing them in connected cars, the fact that we are transmitting personal data over the airways provides great cybersecurity risks," Sharon said. "The regulators have been very consistent in not only bringing enforcement actions when there is a breach of cybersecurity but also when weaknesses in security are detected but not addressed in Internet of Things products.

She mentioned that businesses can access the FTC's Start with Security: A Guide for Business, a document, which you can find here, that lays out 10 best-practice items an organization can implement to reduce the risk of hackers getting control of customers' personal information. It was generated by using feedback from the FTC's 50-plus data security settlements based on its enforcement actions.


More Tech Talk to Follow …

You will have the opportunity to hear Sharon and Michael talk about these issues and many others at the May 11 Mergermarket Technology Forum in San Francisco. You can click here to find out more.

Matt O'Brien Content Editor Mergermarket Group

Follow Matt on Twitter @MattobrienMM or connect with him on LinkedIn.

Matt O'Brien is content editor for Remark, the sponsored events and publications division of Mergermarket Group, overseeing the research and editorial input for events. Matt works with the editors and reporters of Mergermarket Group's various publications to ensure the company delivers industry leading conferences. He has spent nearly 13 years in the news and finance industries. Matt has a political science and international studies BA from Rutgers University.

Matt O'Brien Content Editor Mergermarket Group

Follow Matt on Twitter @MattobrienMM or connect with him on LinkedIn.

Matt O'Brien is content editor for Remark, the sponsored events and publications division of Mergermarket Group, overseeing the research and editorial input for events. Matt works with the editors and reporters of Mergermarket Group's various publications to ensure the company delivers industry leading conferences. He has spent nearly 13 years in the news and finance industries. Matt has a political science and international studies BA from Rutgers University.

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