ICYMI: What's The Actual Cash Value Of Data Collection?

Spoiler alert: It's less than data geeks would think but provides enough of an edge to determine long-run success or failure in a number of industries. More after the jump.

From FT Alphaville:

When capitalism wants to data mine you

The idea that data is becoming the new oil is not new. But it might not be getting shouted loud enough.

This week, a Wikileaks data-dump asserted the CIA has weaponised commercial digital vulnerabilities to the extent it can hack into secured messages on your mobile phone, turn your Samsung TV against you and even assassinate you with your own car.

Realistically, secret services have always had the means to do the above. But what makes today’s type of spying so much more sinister are the scales involved. Modern digital tools have dramatically reduced the cost of mass surveillance, and with that the cost-effectiveness of using it against all of us. Ironically, as per the vampire who must be invited in before he can suck the life out of us, it’s us who have opened the door to the snoopers. Modern digital devices are turning out to be the biggest honey pot of all time.

If data is already perceived as being as valuable as oil, how can it be exploited further?And is the CIA really what we should be worried about?

A network of aligned banks, utilities and consumer goods companies has as much scope (if not more) to turn someone into a prisoner (or even a fugitive) in their own home or neighbourhood.
Unlike with the oil market, where we were doing the mining, it’s now us who are being mined.

Small surprise, as Citi’s latest Global Perspectives & Solutions report on ePrivacy and data protection explains, the idea of limitless data exploitation — as per limitless resource exploitation — is encountering stiff resistance.

This poses a dilemma for analysts trying to value this resource. On one hand, data could represent the most significant investment opportunity of all time. On the other, if the social — and potentially revolutionary — kickback has been under-estimated by the data purveyors, it could pose the greatest value threat of all.

As Citi notes, commenters hyping AI and big data could be underplaying and potentially underestimating how difficult it will be to balance society’s desire for ePrivacy and data protection and capitalism’s desire to extract the hell out of it. Regulations such as Europe’s General Data Protection Regulation (GDPR), which becomes binding in EU member states on May 25, 2018, could scupper the biggest of the value opportunities.

From the analysts:

The regulation is a game changer in terms of not only its scope and ambition, but also the significant penalties for non-compliance. According to a survey by the DMA 98% of companies expect to be affected by the GDPR to some degree. The fine for non-compliance will be up to 4% of global annual turnover (sales).

This is a big deal given almost every sector is exploiting data to some extent:...MUCH MORE

As with any asset the initial valuation is simply the difference between the cost of the asset and the net cash flow received and/or the realized selling price when you close out the trade.

That was the pitch by McKinsey in "McKinsey: Monetizing Freely Available Data Worth $3.2-$5.4Trillion per Year". But, it's not as simple as that, if it were everyone would do it and as far as I know right now the most successful example of using free data for tangible cash returns was only the $930 million that Climate Corporation investors received when they sold out to Monsanto.

Climate Corp took free U.S. NWS data and...well here's the intro to the 2016 iteration of the McKinsey post:

This is a repost from 2013 but important because much of what is calling itself innovation is just packaging with a price tag.
See also the next post, "Using Blockchain To Disrupt Uber".

McKinsey: Monetizing Freely Available Data (worth $3.2-$5.4Trillion per year)
Original post:
This is exactly what The Climate Corporation (née Weatherbill) did with U.S. National Weather Service data.
And then, because they couldn't sell the free historical weather data directly, they figured out that building the info into the opacity of various crop insurance products, where TheClimateCorp had the information asymmetry in their favor, was the way to build founder's net worth. Very smart*
From McKinsey & Co:...

Much more important than the direct monetization of big data is the strategic advantage it can bestow over time.
In a winner-take-all economy as in a horse race, small differences in superiority are rewarded all out of proportion to the actual advantage. A top thoroughbred may only be a couple fifths of a second faster than the field but those two lengths over the course of a season can mean triple the earnings for #1 vs. #2.
In commerce the results can be even more dramatic because rather than the 60%/20%/10% purse structure of the racetrack the winning vendor will often get 100% of a customer's business.

This is part of the reason you don't hear about "Nanotechnolgy Companies" despite all the hype 10-15 years ago. Instead of selling "nano" into the marketplace, companies are using nano to gain incremental advantages that will add up, for some, to market dominance in one field or another.

With that in mind go back to the Alphaville piece. It's really good.