Last week, I discussed the current status of quantum sensing and quantum computing, along with predictions about when quantum technology will be ready for practical applications. If you missed that article, I recommend giving it a read before proceeding. In summary, quantum sensing is already being used in niche sectors like defense, energy, transportation, and healthcare. The anticipated “Q-Day” when quantum intelligence can break RSA data encryption standards is expected to arrive in 5-10 years, causing significant disruption.
This week, let’s delve into the potential winners in the emerging quantum economy. While it’s still early to pinpoint specific winners, the analysis of how the market might evolve seems promising. Your feedback and insights are always welcome.
The Quantum Business Model
Understanding the probable business models that will emerge around quantum technology is crucial. Quantum computing promises to solve complex problems in minutes that would take years or millennia using classical cloud computing. This capability, known as “quantum advantage,” is projected to be practical within 3-10 years. Once quantum computers achieve petaquop capability (expected in approximately 10 years), we could attain “quantum supremacy,” enabling solutions that are beyond the reach of traditional cloud computing.
Most modern tech platforms operate on a consumption-based model:
• You pay based on cloud computing resources used
• You pay for data transmitted on cellular networks
• SaaS subscription fees based on usage levels
• More usage equals higher costs
However, quantum computing is likely to disrupt this model. Solving a highly complex problem that might cost millions in today’s cloud paradigm could be accomplished in just 20 minutes on a quantum computer. But will customers be willing to pay significantly more for a few extra minutes of computing time? Pricing models based on cost per second or cost per quantum operation might not gain traction.
Recently, I spoke with a startup founder from RIoT’s accelerator program who offered cybersecurity services to clients at a competitive rate. Despite automating his tools to deliver results quickly, he intentionally delayed providing the solution to maintain his pricing and client satisfaction. While quantum computing won’t delay outcomes, it highlights the challenge of implementing consumption-based pricing for quantum technology. I believe a use-case pricing model will be more suitable, akin to how consultants offer expertise repeatedly to different clients.
Quantum computing will be marketed as augmented expertise rather than a conventional technology resource. The hardware itself will be a significant business opportunity, given its complexity and cost. Early quantum hardware companies may resemble the early days of supercomputers, with some focusing on designing, manufacturing, and maintaining quantum computers, while others explore use-case applications for end users.
While vertical integration of hardware and software services is conceivable, I’m skeptical that it will be the prevailing trend, despite substantial investments from major tech firms. The intricate physics and engineering involved in quantum hardware differ significantly from the problem-solving capabilities of quantum computers. Manufacturing companies are likely to focus on hardware, while established tech giants may concentrate on software services. Big tech companies are supporting hardware development but may transition to value-added services once the technology matures, following the IBM model.
Identifying Quantum Market Leaders
Hardware
Quantum hardware comprises various components, with qubits being the core. Different types of qubits exist, and it’s uncertain which will become the industry standard. Notably, companies specializing in quantum sensing hardware are typically not involved in quantum computing hardware development, except for supporting research and testing.
• IBM, Google, and Rigetti focus on superconducting circuits, boasting the largest quantum computer to date (1000 qubits). However, scalability concerns arise as more redundant qubits are required to address coherence issues with this approach.
• Trapped ion qubits are pursued by newcomers like IonQ and Quantinuum, offering potential advantages.
• Microsoft is exploring topological qubits that could offer enhanced stability against decoherence, potentially requiring fewer qubits for effective results.
Aside from qubits, other essential hardware components include control electronics, cryogenic systems, quantum interconnects, measurement apparatus, and quantum-classical interfaces. Some companies are working on complete quantum systems, while others focus on quantum chips and cloud-based services.
Software and Services
The evolution of the software and services market in quantum computing mirrors the trajectory of cloud computing. Major hardware value in cloud computing is captured by semiconductor companies, while leading cloud providers control data centers to manage pricing and service delivery. IBM, a pioneer in computing hardware, opted out of cloud computing to focus on use cases, similar to consulting firms.
IBM’s strategic positioning in quantum software development bodes well for the future services market, as the value will predominantly derive from solving specific use cases. IBM’s Qiskit software platform is open-source, giving it a competitive edge in training future quantum programmers. Other analytics-focused companies like SAS, Palantir, and Snowflake may also venture into quantum services.
Several software and AI analytics companies offer hybrid quantum/classical services through platforms like IBM, Microsoft, or AWS. Examples include Zapata Computing, QC Ware, and Classiq, catering to various industries with quantum solutions.
Emerging Startups
Global Quantum Intelligence is tracking approximately 65 notable startup companies worldwide, with a few making significant strides in the quantum industry. Rigetti, D-Wave, IonQ, Arquit Quantum, and Quantum Computing, Inc., are among the startups showing promise. However, only a couple have strengthened their market position in recent years, indicating the industry’s speculative nature.
Hardware innovation remains crucial for creating value in the quantum sector, requiring substantial capital investment and time before significant revenue materializes. While big tech companies are investing internally, venture capital firms may wait for hardware advancements before making extensive startup investments. Pure quantum services startups are likely to emerge once hardware challenges are addressed, opening up new opportunities.
Stay tuned for next week’s article, where we’ll discuss potential losers in the quantum race, including tech giants vulnerable to disruption. I’ll also share predictions on which country could achieve Quantum Supremacy first, Vegas-style.
