You may have heard that Alibaba has decided to shut down their quantum research team. As reported in this article published by Reuters, about 30 people from the quantum team will be let go and Alibaba will be donating the lab and related equipment to Zhejiang University. It is likely that many of those 30 people will also move to the university. Alibaba has faced financial issues recently and has been undergoing several reorganizations. Alibaba CEO Eddie Wu is conducting strategic reviews to distinguish between core and non-core businesses and it appears that quantum technology did not make the cut.

We do not think that this Alibaba shutdown will be the last one to occur. We track 100’s of software and hardware quantum startups and see many efforts that appear redundant. On the software side we see a trend of quantum software companies initiating “quantum-inspired” projects. As one CEO remarked, “end customers don’t really care how a problem gets solved as long as it just does get solved”. So approaches that can take advantage of innovative classical technology, like GPUs, look attractive for those CEOs looking to achieve some near term revenue. As the quantum hardware gets more capable, its possible some of “quantum-inspired” approaches in the future will be able to migrate to true quantum based solutions, but we will have to see.

On the hardware side, it might not be so easy to switch to something classical. We expect to see an industry consolidation over the next few years as some companies find out that they can’t keep up with ever increasing advances being made by their competitors. Some of those companies will be acquired for their technology, some may be acquired for their employees (sometimes called an aqui-hire), and some companies may shut down altogether.

Like we saw with Alibaba, these events could be precipitated by a external financial event, such as a major recession. The advice we would give to any organizations working on quantum is not to base your business plan on the hope that these external events won’t happen. They probably will occur and will cause a temporary hiccup in funding opportunities or customer adoption rates. But the best companies will find a way through these temporary difficulties and move on to thrive.

Companies need to think about what their differential advantage will be. Many companies we see are betting that they will build a “better mousetrap”. That their technology choice is the best and will surpass any of the current leaders. But not all will succeed. A few companies are pursuing a strategy of targeting different markets or different business models than the others. Companies need to have a good understanding on what are their customer’s needs, what their competitors are doing, and what are the unique strengths within their own company. Some of this understanding they can gain on their own, but it is also helpful to work with external sources, like GQI, that can provide a broader and unbiased view of the state of the whole industry. With this knowledge they can thoughtfully plan a corporate strategy that provides value for their customers, differentiates their company, and achieves ultimate success.

Those who just assume that quantum technology is so revolutionary that it will create a rising tide that will lift all boats, may just find themselves eventually ending up at the bottom of the sea.

November 30, 2023