To call data a kind of capital isn’t metaphorical. It’s literal.
In economics, capital is a produced good, as opposed to a natural resource, that is necessary for the production of another good or service. Data capital is the recorded information necessary to produce a good or service. And it can have long-term value just as physical assets, such as buildings and equipment, do. “With data capital, if you know something about your customer or production process, it might be something that yields value over the years,” says Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy.
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Brynjolfsson acknowledges that the concept of an intangible asset can be challenging to grasp. “You can’t see data the way you can see buildings, and people are inevitably biased against things that they can’t see,” he says. “It’s a blind spot. But this is something that is more and more important to the world economy. It’s not visible, but it’s still something that smart managers have to keep an eye on.”
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“Common observations about the abundance of data are misleading. Instead, the issue is one of variety—the fact that there are enormous numbers of scarce, or even unique, pieces of data.” — Paul Sonderegger, Big Data Strategist, Oracle
Data Capital’s Unique Economic Role
However, data capital plays by its own rules. “It shares characteristics with several other kinds of capital, but combines them into a unique mix found nowhere else,” notes Paul Sonderegger, Oracle’s big-data strategist. Ultimately, he says, data is a non-rivalrous, non-fungible experience good:
Non-rivalrous. Capital equipment, such as a truck, for example, can be used by only one person at a time. Economists call this kind of resource “rivalrous.” It’s the same with financial capital. You can invest a dollar in only one opportunity at a time. However, data is different. “A single piece of data can fuel multiple algorithms, analytics, and applications simultaneously,” Sonderegger says.
Non-fungible. True commodities, such as barrels of oil, are fungible, or substitutable. For instance, you can substitute one barrel for another. But a given piece of data, such as a price, can’t be substituted for another, such as a consumer sentiment score, because each carries different information. “As a result, common observations about the abundance of data are misleading,” Sonderegger says. “Instead, the issue is one of variety—the fact that there are enormous numbers of scarce, or even unique, pieces of data.”
An experience good. Experience goods, such as movies or books, are things whose value is realized only after you’ve experienced them. With data, this means you only know its value after you’ve put it to use, Sonderegger says. This is why choosing which movies or books—or data—in which to invest your time, money, and attention always carries with it a degree of uncertainty.
If this all sounds too academic, beware. Seeing data as capital is both highly practical and urgent in real-world business, because it reveals the playbook of potential digital disruptors.
This article is excerpted from our exclusive report, “The Rise of Data Capital.” Read the full report to learn more about how smart use of data assets yields both immediate and long-term value.
