Friday, May 12, 2017

IS DATA NEW OIL?

The first industrial revolution ram on coal and steam. The second and third were fuelled by oil and computer chips. The forth industrial revolution, experts tell us, will run on data. In anticipation, one wit coined this aphorism: “In God we trust, but others must carry data!”

It is common when a particular commodity becomes very profitable generating a growing industry antitrust regulators step in to control the players. The titans of data such as Alphabet, Amazon, Apple, Facebook and Microsoft will be facing restrictions of some kind of the other, sooner or later. Many feel that they can’t live without Google or Facebook or Microsoft. Looking at this, the regimes in different countries are planning to impose restrictions. Unlike oil companies, these data firms do not seem to be alarmed by this. Old ways of thinking about competition, finalized in the days of oil, will not work now in the ‘data economy’

What has changed?

Smartphones and the internet have led to data riches, making these companies more valuable. Virtually, every activity from the morning jog to TV watching, sitting in traffic can create a digital trace, generating more raw materials for these very same data behemoths. Artificial Intelligence (AI) techniques such as machine learning do data mining effectively to extract value from data. We have been reading about algorithms which can predict when a person is ready to buy, or about a car needs servicing or about warning a person that he is at risk from a disease in the future. Legendry companies like GE and Siemens now project themselves as data firms. The benefits from data usages to customer are real.

The data giants offer “God’s eye view” of activities in their own markets and beyond. They can sense when a new product or services gain traction them to copy it or simply buy the startup which makes it before it grows up to be a threat. Potential rivals thus get eliminated by such “shooting acquisitions”.

The earlier remedy was breaking up the giants as they did with Bell, ATT etc. In mergers, whereas in the past the regulators used size to determine when to intervene, but now they need to take into account the extent of firm’s data assets. The purchaser may be trying to eliminate a nascent threat by buying an incumbent. This explains the astronomical sum paid by Facebook for WhatsApp.

Regulators could insist on more transparency. Governments could encourage the rise of new services by opening up more of their own data banks or managing important parts of the data economy as public infrastructure – just like India’s Aadhaar. Europe is taking an approach of sharing of certain kinds of data with user’s consent. 

Rebooting antitrust for the information edge will be difficult.  It may lead to new risks: more data sharing could threaten privacy. The regulators will have to act wisely and with balance.

[Influenced by a recent article in the Economist]

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Prof. K. K. Krishnan
Chairperson - CCR &
Prof. Centre for Insurance & Risk Management
Birla Institute of Management Technology

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