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Demystifying robotics:
A drone’s eye view
Ingrid af Sandeberg, Dr. Yingzhi Zhu Ryberg, Petter Kilefors

A high-level perspective of a vital ~$100 billion market
Robotics is transforming businesses and sectors across the globe,
and one of the key drivers of the fourth industrial revolution. There
are already over 30 million active service robots and close to 2 million
industrial ones, numbers that are expected to rise dramaticallythanks to ongoing improvements andprice declines in software and hardware,e.g., sensors and actuators. Enormous
investments from governments (notably
China), sovereign wealth funds, andcompanies such as Softbank’s Vision
Fund have brought the sector to
the forefront of business and public
consciousness.
As robotics moves center stage,understanding its market dynamics
is becoming a business imperative
for more and more industries. Thiscan be difficult for the outsider – to begin with, there is no one
robotics market: traditional industrial robots are a mature sector
with established rules and players and stable growth – while new
segments are emerging fast, with prospects for future technologythat are difficult to predict. Rules are undefined and ethicalimplications yet to be fully understood. The process of definition
and understanding will be a bumpy ride.
Given technology complexity, the fast pace of change and differingbusiness models, understanding the robotics market can be hardfor investors, executives, and customers alike. This article aims toprovide a high-level, “drone’s eye” view of the sector, identifying
some key considerations to help make sound decisions in thischallenging environment.

Robotics is transforming
businesses in multiple
industries across theglobe. Already a $100
billion market, it is
growing rapidly thanks
to improvements
and declining costs
in sensors and AI
software. However,
the robotics sector is
not well understood byexecutives or investors.
This article provides
a primer to explain
market dynamics andthe key considerations
businesses need tofocus on if they are to
successfully embrace theopportunities it offers.

The robotics market: From industrial to personal
It is helpful to segment the robotics market based on two axes –user purpose and application-agnostic value chain components. In
this user-based perspective we include suppliers of software andcomponents, end-user robotics producers and end-user robots.

Service robots

RobotsIntegration

Sensors
Controllers

USD
10 bn
Motion systems

Industrial robots

Components &sub-systems

USD
10 bn

Traditional robots
USD 49.5 bn

USD 0.5 bn
Professional robots

USD 10 bn

Personal robots

USD 10 bn

Collaborative robots

Figure 1: Matrix of the robotics market
Source: Arthur D. Little estimates, 2018

Our matrix shows a vast market that will soon hit $100 billion inrevenues, which can be further organized into sub-segments.
It will be apparent that technology and algorithms may be applicable
across multiple segments. For example, perception systems forautonomous wheelchairs, as well as unmanned demolition andnuclear decommissioning robots, may face similar environmental
challenges. These challenges may include discriminating between
objects to either avoid, shove, or otherwise manipulate, and copingwith artificial lighting, flat/shiny surfaces, etc.

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Traditional industrial robots are sizable with stable, comparatively
low growth rates but good profitability level, largely resulting from acapital-intensive operating model. The industrial co-bot segment isrocketing size-wise thanks to flexibility that enables new applications,as well as its affordability to new segments with smaller customers
attracted by lower capital needs, less demanding integration andmore software-oriented offerings. As in any emerging segment, therisk-reward trade-off is more uncertain than in mature markets. A
recent example of an, according to most observers, attractive-looking
company that fell flat was the pioneering Rethink Robotics.
Professional robots cover many segments, such as surgical robots inhealthcare. The market has high profitability thanks to the specificity
and high-end features. The market benefits from rapid technology
development of components, such as high-precision actuators,
smart sensors and computer vision. Personal robots are increasingly
popular and consumer demand has risen notably in recent years,
but market fragmentation thanks to a plethora of new entrants, andsubsequent price pressure, are eroding margins. In the remainderof this article, we will focus on the end-user-based segments ofindustrial and service robots.

Industrial robots: Moving out of the cage
With $50 billion of revenue, industrial robots represent the largest
segment in the market. It is forecasted to grow at 12 percent
CAGR until 2021, driven by increasing productivity demands anddigitalization trends in manufacturing, such as Industry 4.0, digital
twins, and smart manufacturing.
The sector can be split in two. Traditional robots, known fromproduction lines, have limited interactions with humans and areplaced behind fences or in cages. By contrast, newer, collaborative
robots – “co-bots” – are designed to work safely alongside people.
In general, co-bots have lower costs, weight, and footprints, and arefence-free and easier to program and integrate. However, payload
limits and accuracy are significantly lower compared to those of
traditional industrial robots.

Traditional robots

Industrial robots
Industrial robots are
manufacturing robots,
programmed to perform
industrial functions inprocesses of discrete
industries.

Note: 1) End-of-arm tooling

Traditional robots handle light to heavy
payloads, operate at high speed, and possessa high degree of accuracy and repeatability.
They operate in a wide range of application
areas, such as welding, painting, material
handling, and assembly.

Collaborative robots
Co-bots can work safely alongside humans
without any protective caging. They aredesigned with multiple advanced sensors,
software, and EOAT1 that work together tohelp avoid injuries/damages.

Figure 2: Definition and segmentation of industrial robots

USD 49.5 bn

12%
CAGR18-21

USD 0.5 bn

65%
CAGR18-21

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The rise of the co-bot
Technological development and price declines have driven rapid
growth for industrial robots in three areas:•	
Developing countries are using them to industrialize, satisfying
end users’ desire for cost reduction.
•	
Lower prices enable robotics businesses to target new
segments, such as SMEs, with innovative technologies (e.g.,
co-bots).
•	
Government initiatives, such as “Made in China” and theEU’s “Horizon 2020”, are contributing to greater robotics
investment.
The market is dominated by well-established traditional players suchas ABB, KUKA and FANUC, as shown in Figure 3.

= USD 1bn
50%

FANUC

Average EBITDA

40%
30%

ABB

20%

Yaskawa

KUKA

10%
0%

Kawasaki-10%-2% 0%

2%

4%

6%

8% 10% 12% 14% 16% 18%
CAGR

Note: EBITDA margin of the whole company and CAGR for net sales from robotics from ‘14-’17

Figure 3: Competitors in the industrial robots segment

Co-bots will see the largest growth, albeit from a low, $0.5 billion
base. This sector is projected to grow at 65 percent CAGR until
2021. This is partially due to their lower purchasing price comparedto that of traditional robots, which extends the robotics market
to SMEs. Additionally, as opposed to traditional “co-opetition”, inwhich traditional robot players struggle for power with third-party
integration solution providers, suppliers of co-bots tend to cooperate
more closely with consulting/service-oriented integrators.
Five mutually reinforcing trends underpin the overall growthforecasts for industrial robots:
	Automation/Industry 4.0 is driving demand for agile, collaborative
robots, while the flexibility of the ecosystem enables efficient
adoption. For example, KUKA’s high-precision robot, Agilus,
played against former table-tennis world champion Timo Boll,
which showed the trend towards improved flexibility, speed
and agility.
	Developments in the IoT enable the smartization and connectionof tools, driving adoption in medical and farming.
	Innovations in the field of software and hardware, e.g., sensors,
AI, and lightweight actuators, make performance both affordable
and value generating.
	Declining hardware prices and easier integration make robots
more affordable for SMEs. Automation levels in China are
expected to increase, with the Chinese government investingheavily in robotics.
Case examples
FANUC – Collaboration with system integrators
FANUC specializes in robotic automation for manufacturing.
FANUC offers 100+ industrial robot models with a range of flexible,
application-specific options, handling payloads ranging from 0.5kg up
to 2.3kg, reaching from 0m up to 4.7m, with 2–6 axes. FANUC also
provides an extensive authorized system integrator network, whichhelps customers find and deploy robotic solutions that meet their

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needs in terms of quality, throughput, productivity, and budget. Usinga professional system integrator well versed in FANUC’s productrange can be a key success factor for a user to get maximum returnon their often sizable investment in an industrial robot solution.
ABB – YuMi
ABB’s first range of cobots was introduced
to the market in 2015,
and is named after thecollaboration it enables:
YuMi, for “you and me”.
The dual-arm, small-parts
assembly robot solution
includes flexible hands, parts-feeding systems, camera-based
part location, and state-of-the-art robot control. Thanks to accurate
vision, dexterous grippers, sensitive force control feedback, flexible
software and an easy-to-use programmable interface, YuMi can be
instructed in multiple ways, such as to assemble small parts on an
assembly line, fix part positions, or even serve coffee. Its sensor
set-up enables situational awareness that, paired with built-in safety
features, qualifies it for cage- and fence-free work side-by-side
with humans.

Key considerations for investors and executives
Investors and executives looking to enter the industrial robot market
should focus on these considerations:	
Geography: Technological development and the economic
and political environments strongly affect regional market
attractiveness. For example, 70 percent of robot-related patentapplications between 2014 and 2017 were filed in Japan, the US,
Germany, or South Korea. Add China, and these five countries
account for 75 percent of industrial robot sales. Therefore, thelocation, focus and footprint of a prospective business will be an
important indicator of future performance and growth.

I ndustry: The use and progress of robotics has developed atvarying speeds across industries. In the automotive industry,robotic assembly overtook manual labor in the middle of the 20th
century, with the electronics industry following a few decades
later. However, other sectors, such as food processing, have still
to become as mature. In fact, the effect of robotics on theseindustries promises to deliver a similar transformative impact tothat of the Spinning Jenny on the 18th century textile industry.
Consequently, the characteristics and maturity of the customer
industries being targeted will greatly impact the success ofprospective investments.
 echnology and business offering: Impressive technology
Tcannot fly without a viable business offer. Take Rethink Robotics:
not long ago, its innovative technology was a source of awe
and envy from other players within the co-bot market. However,extraordinary technological features could not be translated into aworkable solution, and the company was forced out of businessin late 2018.
	
Ethical considerations: Industrial robots, especially co-bots,
are bound to make many manual tasks redundant. Investors andexecutives will need to consider what responsibility they have forretraining and/or redeploying affected employees – and to what
extent they are able to stand up to public scrutiny on these topics.

Service robots: Innovation and fragmentation
As the Silicon Valley Robotics Association says, the role of robots
in society is moving from “doing dirty, dull, and dangerous work to
improving lives of ordinary people”, i.e., from industrial to service
robots. While growing from a lower base, the number of industries
in which service robots are popping up is expanding rapidly, with
sub-segments growing quickly. This immaturity means the market isdefined by innovation and fragmentation, and driven by technologicaladvancements combined with increased demand. Continuous
improvement in the performance and flexibility of service robots is
encouraging their widening adoption in new areas such as the home,the education sector, and offices.

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As Figure 4 shows, service robots can be split into professional
and private use.

USD 49.5 bn
Personal robots
This sector includes home, educationand entertainment robots.

21%
CAGR18-21

Service robots
Service robots perform
useful tasks for humans
or equipment (excl.
manufacturing).

Professional robots
Professional service robots can be divided
into different sub-segments: healthcare,
agriculture, defense, logistics (e.g., retail,warehouse), software robots1 (e.g., RPA2,
HFT3) and other (e.g., mining).
Note: 1) Revenue of software robots is not included in the total revenue of professional services.
2) Robotic process automation. 3) High-frequency trading.
Figure 4: Definition and segmentation of service robots

A service robot in every home and office?
In 2018, both the personal and professional service robot segments
were similarly sized, at about $10 billion each. The personal
robot segment growth of CAGR 21 percent is driven by changing
consumer behaviors, in which consumers accept and demand
more solutions to simplify everyday life. On the professional side,
the growth rates differ between sub-segments and industry. For
instance, robotics for handling financial services is growing fasterthan robotics in health care, in which regulations can slow
down growth.
Adoption of professional and personal service robots is being
accelerated by multiple trends, including: eople are increasingly using “virtual assistants” such as Apple’sP
Siri on their smartphones and Amazon Alexa/Google Assistant at
home. For example, Amazon’s Alexa already has a penetration of~20 percent of US households.

USD 0.5 bn

15%
CAGR18-21

 onsumer robots such as vacuum cleaners and lawn mowers areCbecoming default components of smart living and smart homes.
 edical, educational, and logistics robots are rapidly changing
M
traditional business operations.
 upply and demand for autonomous vehicles and drones isS
rapidly increasing.
 he e-commerce boom is stimulating and driving greater adoptionTof logistics robots.
 obotics-as-a-service (RaaS) is increasingly available, whichR
lowers the barriers to entry as robotics systems can now berented on a monthly or quarterly basis, including technicalsupport, real-time monitoring, and other services.
 Robots invest in robots”. The rise of robotics and AI has spurred“
development of exchange traded funds (ETF) investment,
which often leads to robotic systems investing in the sector andtechnology that created them.
Case examples
Fendt – Project Xaver
Agri-tech company Fendt launched the Xaver solution in 2017,
which enabled automated targeted seeding using swarm
technology. Utilizing a swarm of battery-powered, cloud-controlled,
high-precision field robots that collaborate autonomously,
seeding can be performed at exceedingly low cost – for boththe environment and the farmer. With few sensors and a clear
hardware structure, each Xaver is highly reliable and can leverage
the swarm’s collective sensor park. The “modularized” seeding
set-up is scalable and avoids single point of failure, and therobot’s light weight ensures improved safety and negligible
soil compaction.

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Sophia – A physical chatbot?
In 2016 Hong Kong-based Hanson Robotics launched a humanoid
robot named Sophia, which has received extraordinary attention
in media across the world. Sophia can make more than 60 facial
expressions, and is known for her human-like behavior. In 2017
“she” was made a citizen of Saudi Arabia and named UNDP
Innovation Champion. Sophia uses AI, visual data processing,and voice and facial recognition, and is designed to get smarterand ultimately gain social skills. The inventor has said Sophia (ora clone) may be used as a suitable companion for the elderly innursing homes, or to provide customer service.
Pan Capital – The Swedish finance wonder
In less than a decade, Pan Capital, founded by a former manager
at Swedbank, revolutionized the electronic stock market andachieved profits of over 4 billion SEK. It leveraged high-speed
connections, usingsophisticatedalgorithms to makeenormous numbers oftransactions in global
finance markets at
previously unseen
frequencies. In
September 2008, the company traded with more money than
the sum of the entire stock market in Stockholm and received
international recognition, with the CEO of Goldman Sachs flying its
managers to New York to personally thank them for their business.
However, increased competition and stronger regulation eventuallyeroded its profits, which exemplifies the volatile nature of
the business.

Key considerations for investors and executives
Investors and executives looking to enter the service robot market
should focus on these considerations:	Platforms: A high-potential platform enables a diverse customer
base and underpins new applications, such as warehouseautomation platforms that can be applied in different verticals.
Reusability of the underlying platform of a product or technology
is a vital input aspect to executive and investor decisions.
	Hyped segments should give rise to caution: A hot andhyped segment normally receives attention for justified reasons,such as groundbreaking technology or potential for businessdisruption. Still, they are often inhabited or targeted by giant
players, which means you need deep pockets to compete.
The virtual assistant sector is the perfect example – consumers
are eager to adopt these solutions, but the presence of Apple,
Alibaba, Amazon and Google will create obstacles for otheractors looking to build viable businesses.
	Possible calamities and liabilities: When dealing with adelicate and high-stakes field, it is necessary to recognize that
reliability, regulation, and potential liabilities could have crucial
impact on products and companies. Intuitive Surgical’s Da Vinci
Surgical Systems provides a case in point. Its path to both
medical and commercial success seemed to be set until thecompany suddenly found itself having to set aside $100 million
to fight over 80 lawsuits within 22 US states.
	Ethical considerations: AI is fueling improved performancefor service robots, be it medical image analysis to identify tumors
or the smart voice assistant through which you control yourvacuum cleaner and order groceries. The very improvement
stems from the notion of machine learning – i.e., that analgorithm improves its decision-making and actions based ondata from new experiences. Nevertheless, there is a trade-off
between big data and quality-assured data. Executives andinvestors must remain cautious on the quality and use of data,
not only to comply with applicable regulation (such as Europe’s
General Data Protection Regulation – GDPR), but also to avoid
perpetuation of biases.

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Insight for the executive
Interest in the robotics market has never been higher, withexecutives and investors from multiple industries seeing thepotential benefits that innovation in the sector delivers. However, it
is a vast and complex market, partially obscured to many of those
peering in from the outside, looking to enter. Regulatory, legal, andethical concerns must be carefully managed. As these factors, to alarge extent, relate to end-user applications, our matrix can act as astarting point to orient the corporate executive and investor alike:
Making life easier for a corporate executive entering
robotics
	Any corporate executive who has witnessed the start of theIndustry 4.0 revolution realizes the potential of robotics.
	Typically, NPV or payback time is used when contemplating
investments, considering the benefits versus costs of replacing
labor with robots, along with factors such as improved quality
and precision. However, without understanding the context, suchinvestment rules can easily be misleading.
	Understanding the ecosystem of suppliers, software integratorsand end-user robots is key to making the right bets and creating
the right assumptions in business cases. Our matrix provides
guidance.
	Inspiration can be found from robotics companies that practicewhat they preach: hardware manufacturers and software
engineering companies alike are all robotizing their own R&D,
manufacturing and customer support by deploying AI andmachine learning. Use cases include FANUC’s and ABB’s
automated production of industrial manufacturing robots, Kia
seeing a three-fold increase in car sales conversions throughits sales chatbot compared to through its website, and cybersecurity companies using generative adversarial networks (GANs)
to stress test their solutions.

Making life easier for robotics investors – Traders, stock
pickers, and sector bettors alike	An active private or public equity investor in robotics companies
must distinguish between a fascinating technology, a wellmanaged company, and a good investment.
	Timing is key, alongside a fundamental understanding of robotics
ecosystem dynamics, an area on which our matrix and insights
provide guidance.
	A good understanding of the regulatory environment, including
predicting its changes and risk dynamics, is key to success inrobotics markets.
	An investor who believes in the robotics sector, but is lessknowledgeable and confident in picking the winners, has a morepassive option in robotics-focused exchange-traded funds (ETFs).
	Robotics trading, like high-frequency trading or automatedalgorithms for fund management, is improving returns andlowering risks for investors in general, and for knowledgeablerobotics investors in particular.

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Ingrid af Sandeberg
is a Manager in the Oslo and Stockholm offices of Arthur D. Little
and a member of the Automotive & Manufacturing Goods Practice,with a special interest in robotic perception systems.
Dr. Yingzhi Zhu Ryberg
is a Manager and Chinese native located in the Stockholm officeof Arthur D. Little and a member of the Technology & Innovation
Management Practice.
Petter Kilefors
is the Managing Partner of Arthur D. Little in the Nordic region,
former global head of the Strategy & Organization Practice, and amember of the Life Sciences and TIME Practices.