Data is now a kind of capital, on par with financial and human capital in creating new digital products and services. Enterprises need to pay special attention to data capital, because it's the source of much of the added value in the world economy. "More and more important assets in the economy are composed of bits instead of atoms," notes Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy.
The Rise of Data Capital
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In fact, many companies that are light on physical assets but heavy on data assets—for instance Airbnb, Facebook, and Netflix—have changed the terms of competition in their respective industries. While many incumbent companies possess comparably large troves of data, they don’t exploit it nearly as well. These companies must adopt a new mindset, Brynjolfsson says: "They should start thinking of data as an asset."
A 2011 study conducted by Brynjolfsson and colleagues at MIT and the University of Pennsylvania supports the concept of data as a capital asset. Based on surveys of nearly 180 large public companies, researchers concluded that businesses that emphasize "data-driven decision making" (DDD) performed highest in terms of output and productivity—typically "5 to 6 percent higher than what would be expected, given their other investments and information technology usage," said the report. "Collectively, our results suggest that DDD capabilities can be modeled as intangible assets which are valued by investors and which increase output and profitability."
Big Data, Bigger Asset
In fact, “for most companies, data is their single biggest asset,” notes financial economist Andrew Lo, who is Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. But, he notes: "Many CEOs in the Fortune 500 don’t fully appreciate this fact.” Perceptions about the value of data vary widely from industry to industry, says Lo, who is also a principal investigator at the MIT Computer Science and Artificial Intelligence Laboratory. ”Uber, Amazon, eBay—these companies really understand predictive analytics. Big-box retail stores also understand the value of their data." But other industries have yet to focus on data as an asset.
For example, Lo says, "some financial services companies still don't seem to understand that they're sitting on a gold mine, and that if they ignore it, the gold mine can just turn into a trash heap." Specifically, some financial-services institutions gather, but don't save, valuable demographic data about their clients and their activities, Lo says: "They're literally throwing away pearls of wisdom because nobody is looking at the data, and because it's taking up space."
Data capital encompasses all digital data: truck movements captured by GPS trackers; "likes" and shares recorded by social media; purchases, returns, and reorders held in enterprise transactional systems. "The challenge is embracing this diversity and figuring out how to use it at scale," says Paul Sonderegger, Oracle's big-data strategist. In addition, Sonderegger says, data capital requires new computing infrastructure and deep understanding of how to create applications that analyze and use the information.
This article is excerpted from our exclusive report, "The Rise of Data Capital." Read the full report to learn more about recognizing and reaping the value of your organization's data assets.