Software robots have become one of the hottest fads in business automation, as a new wave of AI is poised to sweep through the back-office functions of large corporations.
Investors are jumping on the bandwagon — though in its current form, the market may never be big enough to justify the nosebleed valuations for bot start-ups such as UiPath, which recently joined the ranks of highly valued private companies known as unicorns.
Software robots replicate the routine work humans often do in front of computer screens. As software applications have taken over mainline business processes, many back-office workers find themselves filling the gaps between fragmented systems, often acting as the glue in an unthinking information workflow.
“There are a lot of tedious processes that involve taking information from this place and entering into that place,” says Rich Wong, a partner at venture capital firm Accel, which led a $153m investment this week in UiPath, giving the company founded in Bucharest and now headquartered in New York a valuation of $1.1bn.
The rise of the bots promises to bring sweeping changes for cubicle dwellers. Some 4m of these people in the US are likely to see their jobs taken over by the end of 2021, says Craig Le Clair, an analyst at Forrester Research. Each bot can handle the work it would take three or four full-time workers to perform, he says. And at $8,000-$9,000 a year in licensing costs, they are a lot cheaper.
But many automation experts say that the majority of these displaced workers will be kept on. Leslie Willcocks, a professor at the London School of Economics who has studied the technology — known as “robotic process automation” — says most companies use it to automate only the most tedious aspects of back-office jobs, then retain the staff to work alongside the bots doing more interesting things.
“It takes the robot out of the human,” he says.
The bots have evolved out of a set of technologies created for very mundane activities. Headed by Daniel Dines, a Romanian engineer who had worked at Microsoft, UiPath spent nearly a decade going nowhere with a computer vision technology it developed to extract text from online documents — something that turned out to be useful when applied in the emerging world of bots.
It’s tough to compare this to any other industry, It’s a market that’s showing dramatic adoption
Over the past year, many big companies have dipped their toes in the water, testing software robots in one or two back-office areas. UiPath says its number of customers jumped from 100 to 700 last year, and that BMW, Huawei and the Sumitomo Mitsui Banking Corp use its technology. There has been particular interest in Japan, says Mr Dines, given demographic trends that point to a coming shortage of workers.
The UiPath valuation points to a wider interest in RPA software. Automation Anywhere, a private Silicon Valley company that has never raised outside capital, could soon top it. After hiring an experienced chief financial officer last month, it is studying whether to raise “a very large round or go straight to the public market”, says Mihir Shukla, chief executive.
He would not disclose figures but claims that AA is now the industry leader, topping publicly traded UK rival Blue Prism, which reported sales of £24.5m in its last fiscal year. The British company is worth more than £1bn, or a heady 21 times this year’s expected revenues, after a three-fold increase in its shares on London’s Alternative Investment Market over the past year.
Hyper-growth and the potential to become important entry points for AI into business account for the high valuations. UiPath said its recurring revenues jumped eight-fold last year, an acceleration from the six-fold increase the year before. Automation Anywhere claimed subscription revenue growth of 146 per cent.
“It’s tough to compare this to any other industry,” says Bryan Bergin, an analyst at Cowen. “It’s a market that’s showing dramatic adoption.” Backing the RPA companies has also become a rare way to invest directly in AI technology, he adds.
Yet simply taking over routine work like this will not lead to a big enough market to support the high valuations of the bot companies, says Mr Le Clair. The market is likely to be worth $2.9bn in 2022, according to Forrester — more than 10 times what it was in 2016, but still little more than a rounding error in the expected $48.5bn office AI market four years from now.
Their supporters claim that the bots occupy a strategically significant place at the intersection of different corporate software applications, giving them a chance to expand their usefulness. “This is the checkpoint for the data flowing between all the systems,” says Mr Wong of Accel. Applying machine learning to this data could give companies important new insights into their operations, he says.
Projected value of AI office market in 2022
The automation software is also a natural place for bringing other types of AI into companies, says Mr Dines of UiPath. Once a routine task is automated, he says, it often makes sense to “plug in” an AI service from a third party — for instance, using a vision system to analyse signatures as part of a bill-paying process.
Automation Anywhere has deals with IBM and Google to use their AI services to enhance its own software, says Mr Shukla. He points to the example of an unnamed insurance company that has used the company’s bots to automate some of the work of 1,500 people who process new insurance requests, while also tapping into a third-party “cognitive service” to help make underwriting decisions.
Such examples have fuelled investors’ hopes that the bot companies will become important software platforms in their own right as AI invades business. But with most companies still at an early stage in using the basic automation technology, they have much to prove.