Killer app for AI is still years away, says industry analyst

Three is the magic number, or more specifically the amount of time in years before a killer app emerges that helps businesses more usefully use generative AI to drive meaingful producitivty gains.

So says John-David Lovelock, a Distinguished VP Analyst at Gartner, who reckons the tech industry is still ploughing eye-watering sums into datacenter infrastructure that underpins GenAI, but not necessarily the licenses to use it.

"There is spending right now that is being caused by generative AI, but it's not yet on generative AI, he told The Register.

In terms of the market for datacenter systems in Europe, Gartner anticipates that some $50 billion will be forked out in 2024, a year-on-year increase of just over 11 percent. Growth is forecast to slow to 8.7 percent in 2025 to $54.4 billion.

AWS is spending $75 billion, globally, on capital expenditure this year and said last week a chunk of that will be used to build and upgrade datacenter infrastucture. Together with Microsoft and Google, the three largest hyperscalers are expected to fork out $200 billion this year.

Lovelock told us that companies are turning to their IT departments in the expectation of technology helping to achieve growth.

"One of the things that has grabbed CIOs' attention, certainly CEOs' attention, is the idea that generative AI is here. So we have companies that are turning back to IT as a means to help the company grow revenue, but generative AI won't actually be a key component of it. It's really getting systems ready for it."

In terms of PCs, it will certainly become increasingly difficult to avoid devices optimized for generative AI in the coming years, and software makers are more than happy to slap the generative AI label on products as investors seek a return on the billions poured into the technology.

Analysts at Canalys estimate that $20 billion has been spent on generative AI licenses since the start of 2023.

The problem is that, despite the hype surrounding it, there are few essential applications that need AI. Lovelock said: "We don't see the must-have app emerging in the next three years that's going to force people to go out and buy these AI-enabled devices,"

"They're going to be purchased as part of the regular replacement cycle. Generative AI is a technology that is going to be sold, not bought."

Lovelock noted that Microsoft is betting on customers paying for the privilege of GenAI rather than including it in the package.

"Copilot is an outlier," he said. "Microsoft is in a unique situation in the email and authoring space. They are a hugely dominant player, and the market has given them a whole bunch of pricing power. They could theoretically charge anything they wanted for their products.

"Copilot can come out, and they can charge the extra $20 or $40 a month for the product. There's virtually no other market where companies are going to be able to bring out an add-on product with an 80 percent markup on top of it."

Copilot has its detractors, however. While Microsoft has attempted to temper investor expectations, concerns were raised over security, data governance, and compliance.

Lovelock and others, including AI expert Gary Marcus, believe that AI technologies are fast approaching - or are already at - the trough of disillusionment in terms of user expectations, as companies examine the results of proof of concepts and realize the technology is not something that can boost revenues and productivity overnight. Data needs to be cleaned up, and governance must be considered.

"Consultants are doing extremely well in Europe," said Lovelock. "Technology consulting is one of the fastest growing consulting areas."

Lovelock notes that the expectations of what generative AI could do for a company would come down as it becomes clear that the return-on-investment equation cannot balance the costs. "But, as they get it given to them, it becomes embedded, incorporated alongside an add-on to the software that they're already running.

"Generative AI is a thing that has CEOs and CFOs excited about spending on tech. Their need for revenue growth is the reason that they're willing to invest in it. But what the CIO and the rest of the team is going to spend on is mostly not generative AI."

Lovelock pointed to the upgrade wave caused by the impending end of Windows 10 support as dwarfing the direct spend on generative AI.

His advice to CIOs with budget to spend? "Pace yourself."

Almost every software provider that a CIO deals with is likely to bring out a generative AI product in the next year or so. "That's hundreds of options," said Lovelock.

"Putting an ordinal behind all of these things is going to be the biggest thing that CIOs do in 2025."

According to Gartner, spending on Devices in Europe is forecast to grow 6.4 percent year-on-year in 2024 to $134.2 billion, and jump 9.3 percent in 2025 to $146.7 billion.

Spending on software in the region is predicted to expand 11.4 percent in 2024 to $254.5 billion and by 13.2 percent in 2025 to $288 billion. IT Services, Gartner reckons, will grow 6.6 percent this year to $448.6 billion and 9.2 percent next to $490 billion.

Communications Services are estimated to edge up 3 percent in 2024 to $292 billion and 3.6 percent in 2025 to $302 billion. ®