Data – The New Oil

There was a time when oil companies ruled the globe, but black gold is no longer the world’s most valuable resource – it has been been surpassed by data.

The five most valuable companies in the world today – Apple, Amazon, Facebook, Microsoft and Google’s parent company Alphabet – have commodified data and taken over their respective sectors. Their profits are surging. They collectively racked up over $ 25bn in net profit in the first quarter of 2017. Amazon captures half of all dollars spent online in America. Google and Facebook accounted for almost all the revenue growth in digital advertising in America last year. What these big five are selling…or not selling, as in the case of free services like Google or Facebook – is access.

As we use their platforms, the corporate giants are collecting information about every aspect of our lives, our behaviour and our decision-making. All of that data gives them tremendous power. And that power begets more power, and more profit.

Access to such sweeping amounts of data also allows these giants to spot trends early and move on them, which sometimes involves buying up a smaller company before it can become a competitive threat. Infact Google/Alphabet has been using its power to somewhat bully or take over rivals and adjacent businesses at a rate of  almost about one entity per week since 2010. That’s the power of data…anyways, but it’s not just newer or smaller tech companies that are at risk. When Google and Facebook control 88 percent of all new internet advertising, the rest of the internet economy, including things like online journalism and music, are starved for resources. So right now the truth about this new oil is -it’s  crude, unrefined and hard to find as it’s owned by the large corporations.

Concern Area

That’s the irony about the new commodity which spawns a lucrative, fast-growing industry, prompting antitrust regulators to step in to restrain those who control its flow. A century ago, the resource in question was oil. Now similar concerns are being raised by the giants that deal in data, the oil of the digital era.

Such dominance has prompted calls for the tech giants to be broken up, as large oil companies were in the early 20th century. Size alone is not a crime and the success of these giants keep benefitting consumers immensely Few want to live without Google’s search engine, Amazon’s one-day delivery or Facebook’s newsfeed. Nor do these firms raise the alarm when standard antitrust tests are applied. Far from gouging consumers, many of their services are free. Take account of offline rivals, and their market shares look less worrying. And the emergence of upstarts like Snapchat suggests that new entrants can still make waves.

But there is cause for concern. Internet companies control of data gives them enormous power. Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the data economy. A new approach is needed.

That said, what has really changed ? Smartphones and the internet have made data abundant, ubiquitous and far more valuable. Whether you are going for a run, watching TV or even just sitting in traffic, virtually every activity creates a digital trace -more raw material for the data distilleries. As devices from watches to cars connect to the internet, the volume is increasing. Some estimate that a self-driving car will generate 100 gigabytes per second. Meanwhile, artificial intelligence techniques such as machine learning extract more value from data. Algorithms can predict when a customer is ready to buy, a jet-engine needs servicing or a person is at risk of a disease. Industrial giants such as GE and Siemens now sell themselves as data firms.

This abundance of data changes the nature of competition. Technology giants have always benefited from network effects. The more users Facebook signs up, the more attractive signing up becomes for others. With data there are extra network effects. By collecting more data, a firm has more scope to improve its products, which attracts more users, generating even more data, and so on. The more data Tesla gathers from its self-driving cars, the better it can make them at driving themselves – part of the reason the firm, which sold only 25,000 cars in the first quarter, is now worth more than GM, which sold 2.3m. Vast pools of data can thus act as protective moats.

Access to data also protects companies from rivals in another way. The case for being sanguine about competition in the tech industry rests on the potential for incumbents to be blindsided by a startup in a garage or an unexpected technological shift. But both are less likely in the data age. The giants’ surveillance systems span the entire economy – Google can see what people search for, Facebook what they share, Amazon what they buy.

They own app stores and operating systems, and rent out computing power to startups. They have a God’s eye view of activities in their own markets and beyond. They can see when a new product or service gains traction, allowing them to copy it or simply buy the upstart before it becomes too great a threat. Many think Facebook’s $22bn purchase in 2014 of WhatsApp, a messaging app with fewer than 60 employees, falls into this category of ‘shoot-out acquisitions’ that eliminate potential rivals. By providing barriers to entry and early-warning systems, data can stifle competition.

So Who Do You Trust ?

The nature of data makes the antitrust remedies of the past actually less useful. Breaking up a firm like Google into five Googlets would not stop network effects from reasserting themselves. In time, one of them would become dominant again. Possibly a radical rethink is required and as the outlines of a new approach start to become apparent, two ideas stand out.

The first is that antitrust authorities need to move from the industrial era into the 21st century. When considering a merger, for example, they have traditionally used size to determine when to intervene. They now need to take into account the extent of the firms data assets when assessing the impact of deals. The purchase price could also be a signal that an incumbent is buying a nascent threat. On these measures, Facebook’s willingness to pay so much for WhatsApp, which had no revenue to speak of, would have raised red flags. Trustbusters must also become more data-savvy in their analysis of market dynamics, for example by using simulations to hunt for algorithms colluding over prices or to determine how best to promote competition.

The second principle is to loosen the grip that providers of online services have over data and give more control to those who supply them. More transparency would help companies could be forced to reveal to consumers what information they hold and how much money they make from it. Governments could encourage the emergence of new services by opening up more of their own data vaults or managing crucial parts of the data economy as public infrastructure, as India does with its digital-identity system, Aadhaar. They could also mandate the sharing of certain kinds of data, with users consent – an approach Europe is taking in financial services by requiring banks to make customers data accessible to third parties.

Rebooting antitrust for the information age will not be easy. It will entail new risks – more data sharing, for instance, could threaten privacy. But if governments don’t want a data economy dominated by a few giants, they will need to act soon.

Meanwhile in India…

The Indian economy is predicted to grow from $2.5 trillion to over $7 trillion to rank among the top 3 economies in next 10 years. Which simply means that the  fourth industrial revolution, fuelled by connectivity, data and artificial intelligence has begun and the foundational technologies to drive that are mobile internet and cloud computing. Growth in India’s mobile data market is unparallelled in the world. India’s 4G coverage will be larger than it’s 2G coverage in the next 12 months and this will be fuelled by data abundancy within the country. Over the last one year, India has leaped from the 155th position in mobile broadband penetration to being the world’s largest mobile data consuming nation and very soon 130 crore Indians will be able to collaborate directly with one another democratizing economic life like never before.