Tech leaders have been focusing heavily on artificial intelligence (AI) over the last decade. With growing competition in every industry from retail to manufacturing to agriculture, giant corporations are integrating AI into all areas of their operation to keep up with the rest.
However, with a shortage of workers who have experience in applications like machine and deep learning, companies are in a race to acquire some of the top AI startups. Facebook, Amazon, Microsoft, and Google have made several AI acquisitions since 2010 to keep them at the top of the game.
Source: CB Insights
Smaller companies are also targeting AI startups as a way to fill their skill gaps. While at the start of the last decade it was mainly the domain of large tech businesses, AI acquisition is now spreading through traditional SMEs who can see the clear advantages.
Why acquire AI startups?
AI startups offer large corporations skills and technologies they cannot source in-house. With the skill shortage in the field, it makes sense to acquire companies that have already created a solution, rather than attempting to reinvent the wheel. When Facebook or Amazon acquires a startup, it may be a way of securing the best talent and not necessarily due to a desperate need for their product.
For example, in 2019, Facebook snapped up GrokStyle, a visual search startup. The San Francisco company built an app that automatically detects home décor from a photo and then connects directly with the relevant retailers so a customer can make a quick purchase.
The GrokStyle team and technology will be incorporated into the Facebook AI, and potentially within Facebook Marketplace. The company itself no longer exists, showing the acquisition was purely to gain new talent.
Amazon, Google, Apple, and Microsoft have all made similar investments.
Outside of the biggest companies, AI startup acquisition is finding its way into other industries. A key reason for other companies to acquire AI startups is to meet the consumer demand for personalisation.
In choosing acquisition over setting up a partnership, companies are laying down a marker for the competition. Bringing expert AI teams in-house prevents the competition from getting hold of the same technology while ensuring the skills are there for future projects.
Personalisation at scale
Although there is still a reluctance to share data, the success of Amazon, Netflix, and Facebook in providing personalisation and recommendations to consumers has built more trust. The consumer is now able to recognise that in sharing data, they receive better services, products, and offers, for example.
According to Smart Insights, 80% of consumers are willing to share their data if it means a cheaper and easier shopping experience.
Source: https://www.smartinsights.com/
McDonald’s
The global fast-food restaurant chain is investing in AI to drive forward customer-facing functions. The acquisition of startups allows McDonald’s to pull in talent that would otherwise be tough to find. Moreover, skilled AI workers are not looking at the likes of McDonald’s, given they do not have a foundation in technology, as is the case with Google or Facebook.
In 2019, McDonald’s was able to acquire three technology startups. In September 2019, Apprente, which uses AI to help understand drive-thru orders, was purchased to help Mcdonald’s cut down on service times. The long-term vision is for the technology to be built into self-order kiosks and mobile apps.
Following the move, Mcdonald’s was quick to express a desire to grow its presence in Silicon Valley by acquiring even more experts. The Apprente employees are founding members of a new group called McD Tech Labs, a sector of McDonald’s global tech team.
Before Apprente, McDonald’s acquired Dynamic Yield in March 2019, specialising in personalisation and decision logic. The technology changes the drive-thru menu at specific times of the day to increase customer spend.
Before the acquisitions, McDonald’s was lagging behind the competition in order accuracy and service speed. For example, Starbucks and Subway both have successful mobile ordering apps. Purchasing a startup as opposed to building an in-house team enables McDonald’s to catch up quickly.
Nike
In August 2019, Nike announced the acquisition of Celect, a predictive analytics and sensing firm. The move is part of a strategy to be able to serve customers personally on a global scale. The Celect platform provides insights to allow retailers to optimise their inventory by predicting demand for goods.
The Celect team has been brought into the Nike Global Operation Team, with the co-founders consulting with Nike on an ongoing basis.
Nike also acquired Zodiac Metrics in 2018. The consumer analytics firm was brought in to enhance the data capabilities of Nike. Zodiac focuses on customer lifetime value and boosting revenue through retention via offers and recommendations.
Walmart
Walmart has been active in acquisitions over the last decade, buying out various retailers in a bid to keep up with e-commerce retailers like Amazon. In February 2019, Walmart announced the addition of Aspectiva to its growing technology base. The Israeli startup uses AI technology to analyse user-generated content such as product reviews.
Walmart is using the unstructured data and integrating it with shopper browsing behaviour to make suggestions, both online and in-store. The objective is to make shopping experiences more dynamic and visual. In 2018, Walmart acquired a virtual reality startup, Spatialand, emphasising its goal of creating user experiences beyond just completing transactions.
Aspectiva can compare Walmart products to the competition based on user feedback, as well as look at its features to provide product overviews. The whole team is part of the Walmart innovation arm, dedicated to leading the drive in transforming the retail industry.
Mastercard
Towards the end of 2019, Mastercard announced the acquisition of RiskRecon, a startup using public data to create security assessments of organisations. In the financial sector, institutions need to help customers with cybersecurity. RiskRecon gives an objective score of a company’s risk profile.
The CEO of RiskRecon, Kelly White, says that ‘by becoming part of their [Mastercard] team, we have an opportunity to scale our solution and help companies in new industries and geographies take steps to manage their cybersecurity risk.’
Summary
The acquisition of AI startups is set to play a big part in the future of companies. The consumer demand for personalisation is constant, and to meet that organisations will have to source the necessary talent and technology, enabling them to keep up with the competition.
Large enterprises need to take some caution when acquiring startups and deploying them in-house. Part of the reason a startup is so successful is because of access to data, a free reign on creativity and the nurturing of expert resources. It is important not to stifle that process to get the best out of an acquisition. There needs to be a compromise between both parties to make the solution a winning one.
Startup acquisitions will be a theme of the forthcoming decade. As competition intensifies across the e-commerce arena, businesses will be looking to accelerate their offerings. Organisations that fail to join in will find themselves falling behind rapidly.
Disclaimer: The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech and entertainment. Mr. Chalopin is Chairman of Deltec International Group, deltecbankstag.wpengine.com.
The co-author of this text, Robin Trehan, has a bachelor’s degree in economics, a master’s in international business and finance, and an MBA in electronic business. Mr. Trehan is a Senior VP at Deltec International Group, deltecbankstag.wpengine.com.
The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.
