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Not all artificial intelligence products have the same level of disruption, with platform-based AI companies faring significantly better than service-based firms, according to a new report by UK investment bank Peel Hunt.
It found that Alfa, whose products are used by the likes of Lloyds and Santander, is the best positioned for AI disruption because it caters to highly regulated industries that require AI adoption to be phased and cautious. For Alfa, this can result in longer contracts that increase revenues in the long term.
Another advantage for Alfa is the fact that it develops a platform that must be deeply embedded into a customer’s IT systems. Due to the time and financial investment that Alfa customers must make to do this, they’re unlikely to want to adopt an alternative anytime soon, and a cheaper, low-code offering probably won’t be as effective.
Because of this, Alfa can charge higher switching costs to convince customers to stay. But if a customer is adamant on leaving a contract, they’ll be forced to pay a high fee, which provides Alfa with some cover against the financial hit of a major contract loss.
Like Alfa, GBG is a platform-based business that benefits from offering services to clients in industries subject to high levels of compliance and that effectively require platform providers that know what they’re doing. What’s more, there’s a growing need for identity and compliance checks among financial institutions.
But Peel Hunt warns that GBG’s pricing power could come under threat from larger platforms with a growing monpolity entire of the entire onboarding process, including identity and verification, and due to data not being proprietary. Consequently, Peel Hunt ranks GBG’s AI risk score as medium to high.
Many consulting firms are also leveraging AI solutions, with the aim of streamlining project delivery for the clients with whom they work. But AI appears to be a double-edged sword for these firms.
Peel Hunt notes how AI helps consulting firms streamline things like research and testing to get projects done quickly and with fewer resources. This can result in cost savings and higher customer satisfaction.
However, there’s also the risk of consulting firms losing out on billable hours when AI can do things more quickly than humans. That can affect the pricing power of service-based AI companies, which typically have shorter customer contracts than AI platforms.
In its report, Peel Hunt explored the impact this could have on two service-based companies utilising AI: Kainos and Elixirr.
It gave Kainos a medium AI risk score, acknowledging its work with public sector organisations like the UK Government makes it somewhat resilient against the aforementioned risks. But the investment bank still believes Kainos’ pricing power is under some pressure.
Elixirr, on the other hand, fares less well with a high AI disruption risk score. Peel Hunt said the firm has weakened pricing power because the automation of repetitive tasks could result in lost billable hours.
