Podcast with Alex Challans, The Quantum Daily

My guest today is Alex Challans, CEO of The Quantum Daily. Alex and I talk about investment opportunities in the quantum computing market, results from surveys his company conducted and much more.

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‍Yuval Boger (Classiq): Hello Alex and thanks for joining me today.

Alex Challans (The Quantum Daily): Nice to speak to you again, Yuval.

Yuval: So who are you and what do you do?

Alex: My name is Alex Challans, I'm the CEO of The Quantum Daily. Effectively, I run a team of, I think about 11 people now, who are really focused on providing news, information and data on the quantum technology market. I'm not a scientist, I don't have a PhD, I'm probably the least educated person in quantum, but what I used to do is work in the investment space for a number of years in the investment bank and then working with a private equity firm in London. So really what I focused on is the investment side of technology industries.

I got really excited by quantum, I think it's a quite common story that people are captivated by some of the spooky nature of quantum effects and just went really deep on the topic and saw that there really wasn't that much information, this is maybe two years ago, that struck the right balance between science and commercial understanding. So with my business partner, Evan, we decided to set up The Quantum Daily and it's just been fantastic how it's grown since then, and the conversations, like the one I'm having today, it's enabled for me.

Yuval: How large is the community? I think that's the question that everyone is asking, how large is the market and how many people in the world are interested in quantum beyond just the popular science aspects?

Alex: It's a great question. The kind of proxies that we have is, we're seeing 70,000 people a month sometimes looking at our website and there are probably, I would say, about 400 companies who are making something to go into a quantum technology, whether it's a computer or a sensor. At the other end of the market, which is the users, I think we've written down about three to 400 as well, who are interested. So adding all that together with the various people within those companies, within those divisions, it could be in the hundreds of thousands, but with that said, there's quite a few more people than that on our planet, so I think the general awareness of quantum, I'm sure you've sat at dinner tables when everyone's going, "what are you doing? What are you working in? Can you explain that?" I think it's still under the radar.

Yuval: What can you tell me about the growth of the market? So, you're tracking users or views or companies. How does that compare to say a year ago?

Alex: I think anyone who tells you that they know the precise growth rate of the quantum market is probably fibbing, it's really hard to ascertain. Market sizes are effectively the summation of revenue at a current point in time and really the companies that are making material revenue are those who are the suppliers to the quantum technology industry, whether you're selling fridges, whether you're selling software, if you're selling wiring and hardware, those are really the people who are making material, sustainable revenue at the moment. So when you talk to these hardware suppliers, what you're hearing is between 20-30% compounded annual growth rates , which having come from the investment world, where we got excited about 2-4%, is absolutely remarkable.

It's driven by a number of factors. Firstly, you've got this wall of money that's coming from governments, and I think Araceli from Qureca and I looked at this and we came up with about 25, 30 billions of capital, depending on how you count China. That is providing this backstop of funding for all these companies. There's lots of starters coming, getting to this early stage funding out of the labs. You've then got this increasing interest in quantum from venture capitalists. I think this year we had 2.4 billion so far, in October, flowing into the quantum technology space, which is, I think, more than all other years combined over the last 10 years. It's very hard to give you a precise number, but what I can say is this is a very rapidly growing industry where people are very excited about it.

Yuval: If we continue just on the path of market sizing and trends, I know that you guys run your own surveys from time to time, to your distribution list. What can you share with us about some of your recent findings? What do you find that's particularly interesting, that was particularly surprising to you, for instance?

Alex: I think the first thing that stood out, I think 80% of people said that their knowledge of the quantum technology market size simply wasn't good enough, which is precisely why we went and did our own research anyway. I would also say that there was a reasonably low understanding of what a market size was. Demarcating between flows of capital government funding and actual revenue is important. I think the other thing is making, we realize it's actually a really hard thing to do. So the report we put out was quantum computing as a service and the reason we chose that market was there was actually robust metrics you could use. Number one is that some of the cloud computing suppliers like Amazon, and as you had put out pricing information and the number two, we were able to roughly guess the utilization of a quantum computer based on the number of hours and the kind of uptime of a superconducting unit.

So you can't, you know how much you can actually run it for during a day, which gave us some, some stare of what the market could look like today versus in the next 10 years, based on some pretty wide ranging assumptions. But when we looked into that, we were kind of feeling okay, so the infrastructure players are going to be providing, making X billion of revenue by 2025. But is that really the case? Who's going to be making the money in this market? Is it going to be the people who are providing the underlying access to quantum computing? Is it going to be the companies providing the quantum computers themselves, or is it going to be the companies, for example, like Classiq who are providing the application layers and the software and the translators for the quantum computers? I think the answer is everyone, but it's quite difficult to disaggregate which ones are going to do well and who, which, which are going to be growing more rapidly. So unfortunately the answer was, it's a really complex problem, which we're all still kind of working through. I know Bob who you spoke to last week, did a great study with QVC around getting a survey level information.

I think he was very open about it that you've got to be really careful around how you read that data, but let's, let's see what we can find out. As we see some of these public companies having to publish results around revenue and profits.

Yuval: To me, the three areas that you mentioned are interconnected. It's great that the cloud providers can make money and the hardware providers and the software providers, but hardware is useless without software. And if you can't access the hardware on a cloud or some other fashion, then it doesn't matter either. I do want to ask you to put on your investor hat, I mean, not asking for stock picks, but what would you think that are underserved or under-invested areas in quantum right now?

Alex: Yeah, I mean, I'd be running my own venture capital fund effort if I need to the best answer to that. It's a challenge. Where I have been particularly interested and this has become, because I come from a private equity rather than the venture capital space is where there are companies that will do well irrespective of the shape of the market. So at the moment, most of the capital has been from venture companies, choosing a quantum hardware company and investing heavily in one key bits implementation. So you've seen big funding rounds for the likes of PsiQuantum, IonQ, which is through SPAC. And then yesterday Rigetti announced the, the SPAC. These are not bad investments. They've probably very good investments, but they're very high risk in my opinion. So you need to be reasonably sure that you, the qubits implementation that you are backing otherwise has enough IP in it, you know, portfolio, or will survive concurrently with other qubit implementations or will be the leading one.

But that is not a play that I feel massively comfortable with. So where I've been particularly more, more interested is in companies which are providing some missing glue or ingredient. So whether it's providing the connectivity between the end user and the hardware translating user based problems into something that can be implemented, that would always have a place. There's pieces where companies are focused on one aspect of a quantum computer. So for example, most computers are going to have some degree of cooling. So those companies who can do well in the cooling space, but also be agnostic to whether it's a photonic chip or whether it's a superconducting or spin chip are going to do well.

The final point I'd make is more of a kind of operational one is you need to be backing teams that can be very flexible. This market is changing very quickly. You know, next month we could have a new paper comes out with a much better way of doing error correction, and that will change the landscape. So we just need to, I think the teams that can look at how these markets are emerging and jump on things in a rapid way without burning through huge amounts of cash are going to do well.

Yuval: Do you see a shakeout coming in the hardware and the next two years or so? Do you think there are too many hardware providers than the market can truly sustain? I mean, obviously we don't know which one is going to win and which not, but do you envision that yeah, they're going to be 10 different implementations of quantum computers or you think it's going to go down?

Alex: I think naturally it will go down. And I think like in any market, there will be a spate of mergers. The question will be if they're kind of players, which are still technically startups, but really are scale-ups will have sufficiently differentiated technology that they can survive without being acquired by a Google or an IBM or an Amazon. But it's very hard to predict and depends on the arc of the technology. I think there will be a kind of moment in two to three years’ time where for some players, the capital will run out and that will be about the quality of their IP portfolios. And they will likely be acquired. If you look back to the history of classical computing, it's not quite the same because it's, you know, based on the substrate of the chip, there's a Silicon won out in the end, we don't really see Germanium and Silicon and five other different types of chips winning with that said there is enough, there is enough space for, you know, 2, 3, 4, maybe five, five competitors, I think.

Yuval: So hardware aside, what else? We're at the final quarter of the year, and this is sort of prediction time. What would you predict for the quantum market in 2022 or, or even in 2023?

Alex: So number one, the capital flowing into the space will continue to increase. When I first joined this market, we're looking really at seed and series A rounds for now, we've been getting into series D. So I think that's going to happen. There's going to be the mergers as discussed. We've already seen Honeywell Quantum Solutions and Cambridge Quantum. I think there'll be more. I think the main piece that's going to get important is as you get venture backed companies and with venture style boards, depending on the investor type, there's going to be increasing pressure on companies to alter their business models, to manage the potential cash burn. So, you know, you've seen it with a number of companies that are pivoting away from pure hardware to make sure they have some kind of software offering to be perceived as low risk by VCs.

We might start to see more of that. We'll also see an increasing focus on end use cases. Ultimately, if you, if you look at an investor presentation for a SPAC, so for IonQ was the first one where you've got a full investor presentation. The revenue number is predicated on usage of quantum computers, right? And usage of quantum computers is predicated on useful end use cases. You know, there is absolutely lots of end-users experimenting with quantum computers right now, but I haven't heard of anyone consistently using a quantum computer to deliver real business value. It's turned quantum advantages. There will be increasing pressure to go, well, what is the finance application I can do now? Or what is the life sciences application I can do in the next two years? And that's going to create, I think, quite a lot of pressure on the market. I think it's going to split the market into those who are the kind of business people pushing for things to happen as soon as possible, and the scientists who are trying to get things right. I think there's a, I wouldn't say it's a dangerous dynamic. It's kind of how it happens in emerging technologies, but it's one where they will start to create more conflicts of interest for a company. And so, you know, companies will just need to manage how they, how they deal with that.

Yuval: Do you see the market more of a pull market or push market? And let me explain what I mean by that. Do you see that the enterprises are clamoring for quantum solutions? And it's just that the hardware software vendors are not delivering fast enough or do you see a push market where the vendors have, are basically saying, oh, we think that if we build it, they will come. And now I just need to convince a whole bunch of people to start using quantum.

Alex: It's a hundred percent of push market. If you speak to most large corporate end users, you know, every morning they've got to get out of bed and deal with a house on fire, right? Everyone who works in a business in business development, or trying to build, build out a large corporation, there's enough to get on with anyway. You've got to deal with it. Like people asking you about AI, you've got to deal with hitting your sales targets. You've got to deal with all the corporate bureaucracy every day. The last thing you'll be thinking about is, oh, how can I use a quantum computer to slightly optimize my internal process. With that said, that's exactly what it was like in the sixties. There was no one in the sixties asking, can I have a computer that will allow me to send an email across to my colleague because he just hadn't thought about it. You know, you don't ask you, you can't even imagine that you'd be able to do the stuff that we do today. And so the question is right, but defunct, I guess, because, you know, we will only know what we can do once we have useful phones, computers, and, and people just don't know how to think about that yet met myself included.

Yuval: Would you expect in the next one or two years, a major company to say publicly, look, we think that our prospects are much better because we have this cool quantum, unique quantum technologies we developed in house. I mean, you know, Amazon used to say that they've got this fantastic recommendation engine and over time to say, oh, we've got this great logistics network. So something that actually drives their stock value. Do you see quantum as a value driver for large companies, or is that more five, 10 years away?

Alex: I think what will happen is it will be the secret that sits behind a more commercial claim. So I think what will happen, let's say Amazon has got a crazy good quantum computer. Then, the marketing will be, we are able to deliver computational power beyond what you've ever dealt with before. Quantum may be used as a marketing term, but really what people care about is the, is the end use case in the same way that if BMW is, you know, found a quantum computer to make better batteries or understand how the materials that go into their cars better have a wild guess what they're going to be talking about. Sure, they may mention that it's done by a quantum computer, like in the same way that companies mentioned that that innovative machine learning does stuff. But the thing that people will care about is, is the better battery or the better, the better materials.

Yuval: As we get closer to the end of our conversation. I wanted to ask you about the education piece. There clearly is a shortage of people who understand quantum information science, some companies like ours are trying to make it more accessible by not requiring a PhD to write the quantum code. But obviously there are a lot of universities that are opening quantum tracks. Do you think there's a sufficient amount of good educational material? So if someone really wants to get into this industry, they can do it. Or is that still lacking?

Alex: I mean, there's plenty to go. I think over the last two or three years, I've seen some fantastic projects spin up. I know there are a number of organizations - yourself included - that work very hard to make quantum far more accessible. You know, just picking a few names off the top of my head. Like our affiliate Qureca has been running and fantastic courses for people. There are universities now providing master's programs so that there is resource out there. The reality is, is that a lot of people who interact with quantum computers won't need to understand how gate fidelity works or how error correction works. So I think the most important thing beyond education of the kind of pioneering workforce is the abstraction of what we're dealing with. So no one today who is a staff or stack developer can go in and understand the gate operations of a class in the laptop.

It doesn't matter. Why on earth would, they need to spend the time to do that when they have to deal with billions of gates operations? That is how it hopefully will be in quantum computing. And that the early pioneers will have a full understanding of where you need to place a CMOS chip to make sure it operates. But in 10 years’ time, that's going to all be irrelevant. It will all be about what are the use cases that you can get out of this application that you access online in a web browser, and what does it deliver for real world customers? So I think the educational parts there's so much more to go, but in a way that, you know, some of the stuff that we'll be learning over the next five years will quickly, quickly become irrelevant.

Yuval: Alex, how can people get in touch with you to learn more about your work?

Alex: So the easiest way is to actually just email me directly at anyone who takes the time to, you know, introduce themselves and as passionate about the industry, I will take the time to respond. So my email is alex@thequantumdaily.com. If there are people who want to understand more broadly about our business, then we have our contact details on our websites. Broadly, we cover the key news and the space when we provide support or media, we have built a robust data platform, which collects all the open source information into an intelligence engine, which allows people to understand the market. And then when people have specific questions, we can jump in and help on a consulting aspect. And so we're proud to have customers from all over the world working with us. So if any of that's interesting, we're very happy to have a conversation.

Yuval: That's great. Thank you so much for joining me today.

Alex: No, thank you. And thank you for hosting such a fantastic podcast that we need more people like you doing this and making sure people understand the industry, so thank you.