Quantum Computing: Paradigm shift or slow death? | Current state (part 1)
We are at an inflection point for the Quantum Computing industry | What steps are needed now?
Quantum computing is failing at delivering the promised paradigm shift. This is not the fault of anyone in our amazing ecosystem, the lack of technological progress or insufficient effort by the community.
This is just the natural maturity point along the development curve up this spooky technology.
We have grown a lot, here the example of my home country, which is - for once - serious about being a global leader in a new technology.
However, I believe that we have reached that inflection point where it becomes necessary to elevate Quantum Computing to the next level, or, potentially suffer dire consequences of QC failing to become the game changer that we all want and believe it to be.
For that three things need to occur. First, we need to get serious about practical, enterprise grade, meaningful use cases. Second, we need to start to adopt best practices when it comes to sales and marketing, startup scaling, and enterprise technology. Third, we need to become a lot smarter about investing. And here I make a very important distinction between investors and investing. The former have become increasingly savvy of the past 12 to 18 months when it comes to sourcing their deal flow, perform due diligence and, ultimately, how they spend their dollars. However, it's an entirely different question when we look at those who receive that capital and now need to invest it themselves to deliver ROI. Here, too, we should rely on best practices and learnings of other industries and teams that have been there before. We are trying invent a new technology, not the wheel… because, bruh, quantum is lit 🔥
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1 - The current state of Quantum Computing
I will first present the current state of Quantum as I perceive it before, in the second part of this article (next week), I explore best practices and offer recommendations on how to address these 3 critical areas.
1a - revenues and sales in Quantum Tech
A little over a year ago we estimated the overall market size in terms of potential revenue at roughly 9 billion USD, based on conservative but optimistic assumptions. Today, based on the data that we collect and the many conversations with a lot of the startups and vendors in our space, we are slightly revising those projections upwards.
Indeed, more and more providers are able to generate revenue, albeit still small and sporadic. Especially research partnerships and long-term client engagements are starting to generate six-figure deals for many startups, and, occasionally, seven figure windfalls for the few. This is fantastic progress made not only on the hardware and software side but an our understanding of how to optimize and leverage to Quantum Tech stack to successfully work with large enterprise customers.
Enterprise revenue and scaling of customers, especially when rooted in ROI assumptions for the client, I still largely absent from our industry.
While this might be normal at this stage of our maturity curve, it is something that has to change fast. Why? For a number of reasons. First, some of us decided to open Pandora's Box and by letting in investors and Boards of Directors, like it or not, we have set one foot into the commercial market and need to play by its rules or vanish. Second, some of us are driving hype. In the media, at conferences, with customers and really any occasion that they get. These bad actors create pressure that we cannot ignore but instead need to manage, both by counteracting it with facts and transparency, as well as by delivering progress. Or, and such is human nature, decision- and policy makers will grow wary of our promises that we fail to deliver on. And, in the non-spooky but capitalistic world of enterprise technology this means revenue and profits.
When we take a look at current revenues from our industry we observe a few trends:
There is still little revenue from hardware and most of it is generated through cloud services
A on premise market is slowly emerging
However, the majority of revenues come from research partnerships, which is a mix of everything including hardware, software and a lot of consulting
Price tags for these agreements tend to run from $50 - 500K, and a few upper bound outliers
Again, I do think this is a success - my thesis here is how do we take the next step, which is a necessary one - but considering the overall state of Quantum Tech is still young, the addressable market in this phase relatively modest and we have been at it, with customers, for a few years now, this is very positive progress.
What I would like to see is innovative solutions and a broader effort to professionalize our go to market channels:
Solution selling to drive significant HW & SW revenues from actual clients
Consolidation of smart tech stacks to focus on specific opportunities
Building professional sales channels and teams; led by coachable founders and c-suit teams
Consulting without fake promises
1b - The current state of use cases
As with sales, we need to innovate when we talk about enterprise grade, scalable and meaningful use cases for Quantum Computing. Personally, I have not seen a truly new or innovative application of QC in a long time… unless you’re into the quantum blockchain, of course. 😠
Consistency in terms of applications is not necessarily bad, working on Quantum Machine Learning, even so we're unsure of its potential speed up and timeline, is certainly a most rewarding and critical undertaking that we must pursue. Yet, at the same time, continuing to hammer the potential impact of new batteries or the optimized routing of a few trucks on the road, without looking at the larger enterprise tech stack, how to integrate with it, required processes changes, and a well defined bottom line impact, does, at the end of the day, more harm than good. If we make Quantum Computing an incremental improvement rather than a paradigm shift it will fail to deliver on its promise and it is our duty to deliver on it without losing ground underneath our feet while still keeping our heads in the clouds.
Here, too, let me reinforce that the state of current use cases is normal considering the maturity of our industry. I am not critiquing current progress, rather hoping to inspire bold next steps, as of today:
The same use cases come up again and again
By far and large we fail to make a business case for them
Customers, on average, start to report fatigue with these applications and progress on them
No new bold, or even crazy use cases have seen the light of day
This might be due to natural limitations of speedup presented by current quantum algorithms - and note, I do not believe this is due to the NISQ era or lacking product performance - or even by the realities of how large enterprises buy new technology (hint: it’s painfully slow and complex).
But, it might also be due to a lack of risk taking by many quantum entrepreneurs, failure to dream big when it comes to applications and too much mental focus on the hard- and software aspects of our solutions.
This is easy for me to write and extremely hard for vendors & startups to change as
Vendors are constrained by business models, executive management, and internal ROI calculations
Startups are limited by the understanding & appetite of their boards of directors and promises made to investors
Universities tend to lack the business orientation of their IP
Governments are pre-occupied with the basic science and national interests
This is a tough nut to crack and it will take a visionary founder to do it. Where are you?
1c - The current state of investments
The year 2020 saw a total of roughly 1 billion USD in private capital invested into the entire Quantum Information Science space. Part of that were two large deals that made up about half of the total number. The overall investment pace for Quantum Tech is still very slow. We will be coming out with a half your tally for this year in a few weeks, but it looks that adjusted for some of the large deals this year (looking at you, SPACs) overall investments by venture capitalists have failed to pick up.
I exclude SPACs in this analysis for two reasons. One, they are so large that they skew the statistics and do not allow for a proper analysis of the trends. Two, they are a relatively new financial phenomena, which has yet to prove its long term viability.
This is not to say that I do not welcome large checks for some QIS founders - I do. We just need to better understand how valuations and exits pan out over time for these new instruments. And, of course, how all that money is going to be spend - we will talk about that further down in this article.
SPACs have received a lot of negative press in the last couple weeks, with a lot of market caps suffering. I think this is a case of you find what you are looking for. Below an analysis that treats SPACs positively - the bigger picture, as so often in life, is nuanced.
SPACs do have an aftertaste of trendy hype that seems to already be turning sour. When speaking to investors, we do still notice a very strong appetite for Quantum Tech and, personally, I believe it is only a matter of time before we will see more Venture Capital deals in our ecosystem, which will put the full year on track to exceed 2020. This is evidenced by the much increased average deal size, which is a symptom of capital continuing to become more sophisticated, and later stage investment rounds. These are evolving from seed and growth stage to a larger number of A and B rounds, follow on investments that naturally come with bigger check sizes. This is a welcome sign of not only a maturing technology but also maturing business opportunities and execution.
If you look at how these investment dollars are being spent, we yet have to see large moves - some of which are in the making and will shake up our industry very soon. What worries me is that out of our many conversations I still do not see cohesive strategies as to how to deliver customer and revenue growth and what that means for sales and marketing, potential acquisitions and an overall quantum stack to service the customer. Cloud is an exception to that - a different ballpark with different rules.
This summer will see a couple of big announcements that will create uproar, hopefully with positive reverberations in our Quantum family. To me this is what excites me, smart brains from various industries and professional services around one table to discuss big picture strategies, the pieces needed to deliver on it, and the teams required to execute on it. This, however, is not yet the norm but the exception - our industry is, largely, still driven by big personalities, a lot of technical and product know-how, and not enough enterprise understanding, strategic thinking and business savviness.
This is especially true when it comes to sales and marketing, which often reminds me of my first few experiments in the startup world over a decade ago, where I was like a flag in the wind, sniffing every trail, following every lead, hiring from impressive resumes but failing to understand my true target audience, its channels to market and the highly focused resources required to deliver on it. It is imperative for our industry to leverage and adapt enterprise sales and marketing best practices, talent and tools if we want to be successful in delivering the Quantum Tech paradigm shift.
And with all that cash from new fancy investors flooding the scene, the same holds true for M&A activity in our sector. We have been involved in some of these conversations, and, so far they still tend to be driven by junior talent, opportunistic hunches, or intuitions rather than well established best practices and senior leadership that combines quantum with business experience. This needs to change and whoever delivers on it will be the next big dog in the Quantum Tech backyard.
Section 1 - summary
From looking at our over 40,000 data points on the ecosystem that we've collected since 2017, to our hundreds of conversations with dozens and dozens of the leading vendors and startups in North America, Europe, Israel as well as Asia and Australia - as well as the input from our local OneQuantum chapters around the globe, conversations with investors, governments and many users - this is what I believe to be the current state of our industry. The rest of this article will focus on an exploration and adaptation of best practices and tools that might help us address these three opportunities as collectively we take the next step in Quantum Tech
Quantum Tech is in great overall shape and next week we will look at possible next steps to ensure it continues to stay in great shape and help deliver on its breakthrough promise.
OneQuantum - the leading global Quantum Tech community organization to provide community, mentoring, career services and projects:
OneQuantum Africa Summit: Farai Mazhandu successfully organized the first Africa Quantum Summit (CLICK HERE FOR SUMMARY) with many thanks to all supporters, sponsors, speakers, and attendees
OneQuantum Nepal: Manish Tapha from IQM is doing a fantastic job educating the local QC community with a series of educational talks about quantum computing CLICK HERE TO REVIEW
OneQuantum India: Chintan Oza launched our new chapter in this crucial market and we are excited about his leadership SIGN UP FOR HIS NEWSLETTER
Women in Quantum: Summit V (our previous one had close to 1,500 signups and 1650K reach on social) will be July 19th and 20th, we are currently finalizing sponsors, agenda and speakers RSVP HERE and contact us for sponsorship options
Mentoring Program with Keysight Technologies: Our mentoring program attracted over 90 mentors and 400 mentees. It is live now and all participants received an email from the MentorcliQ platform to find their mentor match
Career Services: Our career services are gaining steam and we facilitated 5 hires since launch in March | Candidates please send your resume to firstname.lastname@example.org | Employers please contact us if you are looking for talent
Interference Advisors - the leading data provider on the Quantum Tech ecosystem
QIS Data - please contact us for all your data needs on the QIS ecosystem, teaser overview can be found CLICK HERE
Entanglement Capital - an investment fund dedicated to Quantum Tech
We are currently raising our 2021 fund aimed at operating a Quantum Tech accelerator program with a highly experienced partner, for growth stage QIS startups. Interested investors may contact us, as we are still accepting LPs.
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