IDC Sees AI Investment Accelerating

September 1, 2021

Businesses and organizations across all industries are increasing their investment in artificial intelligence (AI) to create competitive advantage through improved customer insight, greater employee efficiency, and accelerated innovation. The new Worldwide Artificial Intelligence Spending Guide from International Data Corporation (IDC) forecasts global spending on AI systems will jump from $85.3 billion in 2021 to more than $204 billion in 2025. The compound annual growth rate (CAGR) for the 2021-2025 period will be 24.5%.

"The disruption through the global pandemic has been unsettling, but it is also serving as a catalyst for innovation, growth, and business transformations," said Ritu Jyoti, group vice president, Artificial Intelligence and Automation Research with IDC's software market research and advisory practice. "Today, AI expertise is focused more on developing commercial applications that optimize efficiencies in existing industries. Acceleration of AI adoption and proliferation of smart, intuitive ML/DL algorithms will spawn the creation of new industries and business segments and overall will trigger new opportunities for business monetization."

Retail and Banking are the two industries that will spend the most on AI solutions over the five-year forecast period with Retail spending growing at a slightly faster rate. Retail AI spending will largely focus on solutions that improve the customer experience through automated customer service and recommendation engines. The Banking industry will allocate much of its AI investment to risk reduction through automated threat intelligence and fraud analysis applications. The third largest industry for AI spending, Discrete Manufacturing, will invest primarily in quality management and automated preventative maintenance solutions. In terms of spending growth, all 19 industries in the Spending Guide are expected to have compound annual growth rates (CAGRs) greater than 20% over the 2021-2025 forecast period.

The two largest use cases in terms of total spending across all industries are Automated Customer Service Agents and Sales Process Recommendation and Automation. Together, these two use cases will account for $15.9 billion or more than 18% of all AI spending this year. While this shows an orientation toward better customer experience across industries, how the solutions are used will vary from industry to industry. For example, Federal and Central Government will use AI solutions to help constituents find the most suitable government service while Retail will focus on helping shoppers to identify additional items to purchase.

The next five use cases were closely bunched at just over $5 billion in spending this year – IT Optimization; Automated Threat Intelligence and Prevention Systems; Program Advisors and Recommendation Systems; Fraud Analysis and Investigation; and Automated Preventative Maintenance. Similar to AI spending by industry, all 27 AI use cases in the Spending Guide are expected to have CAGRs greater than 20% over the five-year forecast period.

"In addition to the customer experience, a lot of AI investment is geared towards improving efficiency. IDC believes these implementations will migrate towards developing and enhancing new business models," said Mike Glennon, senior research manager with IDC's Customer Insights & Analysis team. "New ways of conducting business will fundamentally change how companies interact with their customers and will encourage new players across many industries. We have already seen dramatic changes in retail with companies such as Alibaba and Amazon, and other industries will follow as they discover how they can benefit from changes in how business is done using AI. AI will have an impact in all stages of business, from customer interactions, through supply chain improvements, to new and yet to be thought of services."

“The digitization of business operations has accelerated over the past 18 months leading to an expanded digital footprint exposed to cyber threats. The deluge of digital data is a gold mine for many lines of insurance. Cyber insurance, for example, benefits from insights into the configuration of cloud services or into the deployment of security best practices,” said Rajeev Gupta, CPO and co-founder at Cowbell Cyber. “All aspects of AI - making sense of large amounts of data, machine learning, and advanced algorithms – are helping us redefine how cyber insurance can operate at speed and with precision.”

To put a finer point on the cybersecurity angle, machine learning can be used to enhance the accuracy of sensitive data discovery through named entity recognition (NER) in tools like IRI DarkShield. "You can teach the computer to find patient names within the context of sentences, for example," explained IRI SVP David Friedland. IRI has also demonstrated the use of machine learning to improve diagnostic accuracy based on tissue sample data run through the IRI Voracity provider for the KNIME AI and analytics platform, and intends to leverage AI in the development, orchestration and scaling of Voracity data integration jobs in partnership with DataSwitch. "Opportunities are wide open to use AI software to improve the efficiency of software-related processes themselves," he concluded.

Software will be the leading technology group accounting for more than half of all spending on AI solutions throughout the forecast. The largest areas of investment will be AI Applications and AI Development & Deployment software while AI Lifecycle Software will experience the fastest spending growth with a five-year CAGR of 40.7%. A quarter of all AI spending will go toward Services with IT Services seeing spending totals similar to those for AI Applications. Hardware spending will be dominated by server purchases.

On a geographic basis, the United States will deliver more than half of all AI spending throughout the forecast, led by the Retail and Banking industries. Western Europe will be the second largest geographic region, led by Banking, Retail, and Discrete Manufacturing. China will be the third largest region for AI spending with State/Local Government, Banking, and Process Manufacturing as the leading industries. The strongest spending growth over the five-year forecast will be in Western Europe (26.9% CAGR) and Asia/Pacific (excluding Japan and China) (25.1% CAGR).

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