on June 29, 2018
AI and the Rise of Passenger Economy
According to the Gartner Hype Cycle, or Amara’s Law, humans tend to overestimate the effects of technology in the short run and underestimate them in the long run. Artificial Intelligence is no exception to this rule. Since the early 19th century, Luddites have claimed that new technology poses a direct threat to human jobs. Today too, concerns of the indeterminate power of technology propagate from self-proclaimed futurists to Silicon Valley’s elite – Elon Musk himself has warned of an “AI Apocalypse.”
Defined as human intelligence exhibited by machines, AI is a rather broad term encompassing two primary concepts: machine learning and deep learning, both essentially applying reinforcement learning to problems. Almost every industry will be affected by AI, be it directly or peripherally, and the displacement of human jobs as we know them will become a reality. That does not have to result in an increase in unemployment, however. While robots may be able to perform routinized tasks more efficiently than humans, many operations professionals foresee a cap on their presence and a need for human workers. As for the economic impact of such automation, Intel and Strategy Analytics predict the emergence of the so-called Passenger Economy, a $7 trillion global opportunity – $2 trillion for the US alone – by 2050.
The labor market most penetrated by AI and robotics thus far is manufacturing. Robots excel at routinized tasks, making them ideal for assembly. But for all their improved efficiency, robots serve no purpose if they malfunction and in turn become a liability. Thus, there’s a growing need for management and maintenance of these machines. “Our business model would just fail if these machines didn’t work,” says Graham Deacon, head of automation at Ocado, “We need humans to make sure they don’t break down.” From this insight, it follows that automation proves most efficient earlier in production cycles. Final assembly requires a human to dynamically inspect and potentially make changes to the product, something AI will have trouble with for the foreseeable future. COO of Electrolux, Jan Brockmann said, “We don’t see automation going over 50%.” The Wall Street Journal notes that the companies that have cracked the automation code, so to speak, assign repetitive, precise tasks to machines, freeing humans to undertake high-level creative, problem-solving tasks. This is illustrated particularly well in the manufacturing and food sectors, as well as in billing where spreadsheets can be automated. Thus, as AI displaces menial labor, it creates opportunity in the form of creative and dynamic tasks.
The automotive industry has been particularly affected by AI, both in production and operation. On the operational front, AVs (Autonomous Vehicles) have captured the public eye most vehemently for their use cases in trucking and ride-hailing businesses. The trucking industry, for starters, employs approx. 3.5 million Americans, making it the largest occupation across 29 states. Obviously, a displacement of this magnitude would shake up the US economy – and it’s coming sooner than you might think. Uber has already begun hauling freight in autonomous trucks in Arizona and Colorado. Along with Tesla, Waymo and others, Uber has also been testing AVs for its flagship business – ride hailing. US Taxi and Uber drivers make up a combined million workers whose jobs could be at risk. That said, millions of jobs will arise as ancillary businesses to the new Passenger Economy.
The $7 trillion global economic impact of automation will include verticals such as car-derived data and IT management, as well as an increased demand for mechanics and engineers. As more people use mobility-as-a-service models such as Uber, cars will drive more miles and require further maintenance, soaring demand for mechanics. It’s also important to draw a distinction between career motor vehicle operators and on-the-job drivers such as electricians, plumbers and other service people. The latter category will likely benefit tremendously from decreased transportation costs and will be free to work on billing or preparation during their commutes. This could lead to more profitable work for these workers, rate cuts for consumers, or both. MIT Technology Review even forecasts an emergence of service models marketed toward individuals on their commutes, such as masseuses and nail technicians.
The so-called Passenger Economy doesn’t end with in-car, on-commute services. All of these cars will collect loads of data on just about everything from who you are to where you go to what you do and how often you do it. Combined with data collected from smartphones, social media, our digital profiles will prove quite dense. McKinsey predicts that the car data industry, alone, could be worth as much as $750 million by 2030. The collection, storage and management of this data will be paramount, requiring data analysts and scientists. Similar to the significance of the data itself, the means by which it is collected and integrated with the vehicles via cloud services will result in an IT boom. This will, in turn, demand people to manage these systems.
We’ve already begun to see the first iteration of AVs. Of course, there exist regulatory hurdles, but widespread AVs are inevitable. The technology will be optimized, and legislation will eventually catch up. Clearly, there will be displacement, but there will exist tremendous new labor opportunities. To some degree, it will be up to American workers to adapt – whether that means learning certain vocational skills or exercising unrealized creativity. In the long run – say, past 2050 – there may arise a more dire need for UBI (Universal Basic Income). Zuckerberg and other Silicon Valley titans have been proponents for several years now. Some have even proposed a so-called robot tax, perhaps feeding into the UBI bucket.
Regardless, we should be excited to embrace this new technology and optimize our economy and personal lives around it. The best thing anyone can do is keep an open mind and a willingness to adapt as our global economy undergoes significant changes.**
Supreme Court Ruling Raises the Stakes for eSports
The U.S. Supreme Court ruled to annul the Professional and Amateur Sports Protection Act (PASPA), which prohibited states from authorizing many forms of sports-related gambling. At least 10 states have begun the process of legalization.
Nevada has been the only US state for the past 25 years to legally bet on sports. In 2017, Nevada sportsbooks made $4.8 billion in revenue. Illegal betting in the same period generated over $150 billion, underscoring a huge underground market for sports betting. Most major sports leagues and teams have expressed strong opinions on the issue of sports betting. Surprisingly, none in the major eSports leagues has commented on the Supreme Court ruling given our belief that eSports will be a huge beneficiary of this ruling.
According to consulting firm Narus Advisors roughly $5.5 billion worth of cash and in-game items were wagered on esports titles in 2016, and that number is expected to grow to almost $13 billion by 2020. Notably, according to ESPN, the majority of this betting occurred through the use of in-game items such as betting currency. Also note that this was all done with PASPA in effect. Removing regulation will open the gates to more traditional channels of betting, surely catalyzing further industry growth.
Esports has been growing rapidly over the past several years, and has recently gained particular prominence with Epic Games funnelling $100 million into Fortnite competitions. Aside from gambling, the eSports market is expected to be worth $906 million in 2018, a 38% year/year increase. According to Statista, global esports revenue is said to reach $1.5 billion by 2020, but this is before even factoring in the potential of a few companies to truly skyrocket the industry to widespread popularity. According to Newzoo, an esports research firm, the aggregate global video games market was worth over $109 billion in 2017, implying a tremendous opportunity for the esports market as whole.
Several companies are changing the landscape of esports and how the public views it. PlayVS, an esports league, recently partnered with National Federation of State High School Associations (NFHS) to provide support in building the infrastructure for high school esports, allowing students to play esports on behalf of their school all the way to the state championship level. The NFHS is effectively the NCAA of high school sports, implying a future where even casual gamers – making up more than 65% of the US can have an opportunity to become professionals or even win scholarships to universities. A few dozen universities have varsity esports teams, and some such as NYU offer scholarships for esports scholarships for video game design programs.
As the esports industry continues to experience rapid growth, the obvious question is which companies will benefit. In addition to PlayVS, it’ll be worth keeping an eye on Discord, a device-agnostic voice communication app for gaming which just raised a Series F earlier this year. Its post-valuation is approximately $1.65 billion. Its Series E was led by Index Ventures and participated in by Greylock and Benchmark. Dozens of other companies have taken VC money, and we’ll be following the industry closely to find the next winners.**
Venture Bytes is a monthly insight report highlighting topical ideas, current trends and emerging opportunities in the global technology landscape