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MIT TECHNOLOGY REVIEW CUSTOM Produced in partnership with The Rise of Data Capital “For most companies, their data is their single biggest asset. Many CEOs in the Fortune 500 don’t fully appreciate this fact.” – Andrew W. Lo, Director, MIT Laboratory for Financial Engineering “Computing hardware used to be a capital asset, while data wasn’t thought of as an asset in the same way. Now, hardware is becoming a service people buy in real time, and the lasting asset is the data.” – Erik Brynjolfsson, Director, MIT Initiative on the Digital Economy as retailers can’t enter new markets and security. The pursuit of these Executive Summary without the necessary financing, they characteristics drives the reinvention Data is now a form of capital, on the can’t create new pricing algorithms of enterprise computing into a set of same level as financial capital in terms without the data to feed them. In services that are easier to buy and of generating new digital products nearly all industries, companies are use. Some will be delivered over the and services. This development has in a race to create unique stocks of Internet as public cloud services. implications for every company’s data capital—and ways of using it— Some corporate data centers will be competitive strategy, as well as for before their rivals outmaneuver them. reconfigured as private clouds. Both the computing architecture that Firms that have yet to see data as a raw must work together. supports it. material are at risk. New capabilities based on this new Contrary to conventional wisdom, The vast diversity of data captured architecture, such as data-driven data is not an abundant resource. and the decisions and actions that use tailoring of products and services, will Instead, it is composed of a huge that data require a new computing yield not only radical improvements variety of scarce, often unique, architecture that includes three key in operational effectiveness, but also pieces of captured information. Just characteristics: data equality, liquidity, new sources of competitive advantage. But fraud detection is a cat-and-mouse In fact, many companies that are light Data Capital Creates game: As soon as the bad guys know on physical assets but heavy on data New Value someone is on to them, they try a assets—for instance, Airbnb, Facebook, new angle. Algorithmic detection is and Netflix—have changed the terms In 2013, an international ring of the only way to keep up, and training of competition in their respective cybercriminals attacked one of on mountains of data is the only way industries. While many incumbent the world’s largest online ticket for algorithms to learn the difference companies possess comparably large marketplaces. But they didn’t do between good behavior and bad. Since troves of data, they don’t exploit it anything as obvious as hacking in the 2013 attack, improved algorithmic nearly as well. These companies must and stealing credit card information. policing at the time of purchase has adopt a new mindset, Brynjolfsson Instead, they hijacked legitimate reduced fraud attempts at that ticket says: “They should start thinking of customer accounts using stolen log-in marketplace by 95 percent. data as an asset.” credentials. Then they purchased tickets to sporting and music events In this example, it’s easy to focus on A 2011 study conducted by using the customers’ payment the algorithm as the hero of the story. Brynjolfsson and colleagues at MIT methods, resold those tickets, and But it’s really just an engine; data is and the University of Pennsylvania pocketed the cash. the fuel that makes it run. Without supports the concept of data as a the data, the fraud-detection capability capital asset. Based on surveys of That kind of online theft is big business. cannot exist. Data is as necessary to In 2015, identity fraud affected 13.1 the marketplace as its ticket inventory, million people in the United States the people who manage the business, “Some financial services alone at a cost of $15 billion, according and the money that pays for it all. to Javelin Strategy & Research. Digital companies still don’t seem to thieves are often hard to spot because This simple idea has big implications. understand that they’re sitting they hide in plain sight, masquerading It means that data is now a kind of as legitimate customers while carrying capital, on par with financial and on a gold mine, and that if they out fraudulent transactions. human capital in creating new digital ignore it, the gold mine can just products and services. Enterprises At the time it was breached, the ticket need to pay special attention to data turn into a trash heap. They’re marketplace had nearly 40 million capital, because it’s the source of literally throwing away pearls accounts. How did the company figure much of the added value in the world out which ones were compromised? Its economy. “More and more important of wisdom because nobody is data scientists analyzed eight years of assets in the economy are composed looking at the data.” transaction and customer histories to of bits instead of atoms,” notes Erik identify the anomalies that indicated – Andrew W. Lo, Director, MIT Laboratory Brynjolfsson, director of the MIT for Financial Engineering this scam. Initiative on the Digital Economy. 2 MIT TECHNOLOGY REVIEW CUSTOM + ORACLE nearly 180 large public companies, recorded by social media; purchases, researchers concluded that businesses “Common observations about returns, and reorders held in enterprise that emphasize “data-driven decision the abundance of data are transactional systems. “The challenge making” (DDD) performed highest is embracing this diversity and in terms of output and productivity— misleading. Instead, the issue figuring out how to use it at scale,” says typically “5 to 6 percent higher than is one of variety—the fact that Paul Sonderegger, Oracle’s big data what would be expected, given their strategist. In addition, Sonderegger other investments and information there are enormous amounts says, data capital requires new technology usage,” said the report. of scarce, or even unique, computing infrastructure and deep “Collectively, our results suggest that understanding of how to create DDD capabilities can be modeled as pieces of data.” applications that analyze and use the intangible assets which are valued by – Paul Sonderegger, Big Data Strategist, Oracle information. investors and which increase output and profitability.” Data’s Economic In fact,“for most companies, their data industries have yet to focus on data as is their single biggest asset,” notes an asset. Identity financial economist Andrew W. Lo, For example, Lo says, “some financial To call data a kind of capital isn’t who is Charles E. and Susan T. Harris services companies still don’t seem to metaphorical. It’s literal. In economics, Professor of Finance at the MIT Sloan understand that they’re sitting on a capital is a produced good, as opposed School of Management and director gold mine, and that if they ignore it, to a natural resource, that is necessary of the MIT Laboratory for Financial the gold mine can just turn into a trash for the production of another good or Engineering. But, he notes: “Many heap.” Specifically, some financial- service. Data capital is the recorded CEOs in the Fortune 500 don’t fully services institutions gather, but don’t information necessary to produce a appreciate this fact.” Perceptions about save, valuable demographic data about good or service. And it can have long- the value of data vary widely from their clients and their activities, Lo term value just as physical assets, such industry to industry, says Lo, who is says: “They’re literally throwing away as buildings and equipment, do. “With also a principal investigator at the pearls of wisdom because nobody is data capital, if you know something MIT Computer Science and Artificial looking at the data, and because it’s about your customer or production Intelligence Laboratory. “Uber, taking up space.” process, it might be something that Amazon, eBay—these companies really yields value over the years,” says understand predictive analytics. Big- Data capital encompasses all digital Brynjolfsson, who is also the Schussel box retail stores also understand the data: truck movements captured Family Professor at the MIT Sloan value of their data.” But many other by GPS trackers; “likes” and shares School of Management. Early Attempts to Value Data Capital Percentage of the market value of S&P 500 84% companies that comes from intangible assets, including data and software $8 Possible value of intangible assets, including data, trillion in the United States Sources: Ocean Tomo LLC, 2015 Intangible Asset Market Value Study; The Study; Value Market Asset Intangible 2015 LLC, Ocean Tomo Sources: Journal Street Wall MIT TECHNOLOGY REVIEW CUSTOM + ORACLE 3 Brynjolfsson acknowledges that the substitutable. For instance, you can of competition in established markets, concept of an intangible asset can be substitute one barrel for another. But threatening incumbent market leaders challenging to grasp. “You can’t see a given piece of data, such as a price, many times larger. data the way you can see buildings, and can’t be substituted for another, such people are inevitably biased against as a consumer sentiment score, because In some cases, the changes reverberate things that they can’t see,” he says. “It’s each carries different information. “As well beyond the original markets. a blind spot. But this is something a result, common observations about For example, Lo says, “It may not that is more and more important to the abundance of data are misleading,” be obvious to a bricks-and-mortar the world economy. It’s not visible, but Sonderegger says.

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