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Home AI

GenAI – what’s really going on in the UK market?

VARs and regional SIs are "not doing as much as you may suspect" on GenAI, Datatonic's David Kress argues

David Kress by David Kress
16 January 2025
in AI, What The Experts Say
David Kress, Datatonic

David Kress, Datatonic

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The recent release of the UK Government’s AI Opportunities Action Plan was a good trigger to sit down and put my thoughts on a page, focusing on the realities of AI adoption, and also on how the UK services industry has been approaching the opportunity for the last year.

Let’s start with how UK firms are addressing the market today. The regional SI and VAR community have broadly embraced Copilot and all have some ChatGPT use cases highlighted on their websites. Many VARs are busy announcing deals with Nvidia or Microsoft. But dig into their organisations and listen to their leaders, and you will hear that for the most part, they are not doing as much as you may suspect. Generally the view is that the wave has yet to hit and 2025 or 2026 will be when the big projects hit. Many are still not leaning into the cloud providers and are building generic capabilities on prem – think “managed ChatGPT”. Significant investments in implementing AI for themselves, or building out experienced teams are rare – lagging really. If you take the same look at enterprises, you will see the opposite – they are deploying AI use cases with great success. 

Use cases spanning back office, employee engagement, customer experience and competitive advantage are being brought into production on a daily basis. Many of these use cases have significant positive financial impact almost immediately. The funds for these projects are rapidly shifting out of IT budgets and being paid for by the business leaders. Global SIs with purpose-built AI practices, as well as specialised consultancy firms, are seeing significant growth at premium margins by delivering solutions across the three large cloud service providers. Experience matters for clients – they are asking for teams who have delivered tangible value, not just teams who know the technology. These projects, in turn, are accelerating data migrations and analytics projects, which is where the significant costs and lengthy projects tend to slow down adoption more broadly. 

And that is where it gets interesting, with experienced experts able to deliver innovative architectures (agents, small language models, etc) to help maintain production and scale deployments. The pace of adoption and change is faster in the GenAI space than for any of the enabling technologies in the past decades. You’ll be hard pressed to understand that if you are not having direct discussions with the clients. Talking about your cloud migration was not a competitive differentiator. The use cases firms like mine are deploying are game changing for clients, and many are under strict confidentiality clauses because of the competitive differentiators they are creating. Services firms who are sitting back waiting, or focusing on the infrastructure only, will soon be playing catchup and are unlikely to be able to maximise the opportunity as adoption becomes even more broad. I suspect this will drive significant M&A activity, but it won’t come cheap. 

Now let’s take a look at how the AI Action Plan may impact the market. On paper, the initiative is brilliant, and indeed the UK has the potential to be a leader in the AI field. Most analysts predict that AI will deliver a 35-40% CAGR over the next decade, and when you add in cloud data platforms, analytics and the other associated technologies the market will be worth well over $2tn by 2030. The UK has a rich history of tech startups, but unfortunately struggles with scaleups or long-term in-country stability. DeepMind, Avast, Icera, Darktrace, ARM – all have blazed trails globally and now are under US ownership. All three of the UK firms in the Forbes 100 were founded in the 19th century – none are tech firms. The FTSE 100 has at best a handful of tech firms, depending on what definition you use for tech firms. Yet at the same time, the UK has more tech startups than almost anywhere other than Silicon Valley. The historically strong sectors such as FinTech, HealthTech and InsurTech are aligned perfectly to take advantage of AI advancements and further disrupt the legacy offerings.

The Government’s plan will likely do a tremendous job of enabling more startups, but doesn’t do a single thing to help the UK retain the value created in the long run. The Rhodes-like scholarship is interesting, but only if those graduates remain in the UK (currently only about 20% of foreign students remain post education). Simply put, the current economic and migration policies are not conducive to long-term value retention. Unfortunately, we are starting to veer into the realm of startup deceleration, with data showing a decline in new business registrations in 2024, and fewer startups securing series A funding. If the UK wants to lead in the era of AI, and if the ambitions in this initiative are to be recognised, core policies must change to enable small businesses to thrive. Speak to any tech entrepreneur and they will all talk about the challenges with the tax system, equity compensation, difficulty of raising capital, high costs of doing business, R&D relief, etc. Every single executive I have spoken with over the last two years is looking for ways to improve value retention by moving more of the business operations out of the UK. Until we collectively address these issues, the UK will continue to excel at creating interesting startups that deliver significant value to foreign economies.

David Kress, Datatonic
David Kress
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David Kress is Chief Revenue Officer at Google data + AI partner Datatonic, a 9x Partner of the Year award winner

  • David Kress
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