How to invest in the companies turning Big Data into big profits

Data has been described as the “new oil” for the internet era. With new gushers being located every day, how can investors cash in? Stephen Connolly gives his overview of the sector

As a species, human beings have been producing data for millennia. Yet if you add up all of the data created over that period – from the age of papyrus scrolls to today’s social-media age – almost all of it has been generated in just the last few years. This recent, explosive growth in information reflects the rapid expansion of internet access. Some 60% of the world’s population is now online and every click, search, swipe and stream on computers, mobile phones or other devices is noted somewhere. And the ability to nose around in all this data is incredibly valuable. 

Businesses from retailers and advertisers to banks and insurers all stand to profit significantly if they can refine this real-time knowledge of what billions of people are up to or interested in, to fuel growth. It’s not for nothing that they call this “Big Data” the new oil – and right now the wells are gushing. Only last week, S&P Global, an $80bn US financial data provider, offered $44bn for IHS Markit, another New York-headquartered global business data group, which started life in 2003 in an outbuilding in a garden at a house in St Albans in Hertfordshire. These are large numbers, and even those who might once have dismissed seemingly arcane data as boring or worthless are being forced to take notice: we are now in the age of Big Data.  

Beyond the loyalty card

The oil analogy is generally credited to Clive Humby, a British mathematician who spent his career analysing consumer behaviour and was the brains behind the Tesco Clubcard customer loyalty programme launched in the mid-1990s. The Clubcards record all customer spending data – millions of shoppers, buying many more millions of items daily and weekly – with all of this information coming through in real time. That gives Tesco’s head office a very detailed insight into how individual customers shop, their price sensitivities, their likes and dislikes, which promotions they’re drawn to – the data can be analysed any which way imaginable. In turn, Tesco can use it to win commercial advantage: cutting prices here or dropping products there, say. As Tesco’s chairman and former chief executive Ian MacLaurin said when the Clubcard was launched, according to The Independent, “What scares me about this is that you know more about my customers after three months than I know after 30 years”.

For Humby, who now has an OBE for services to data and UK business, data for any business – not just Tesco – is a raw material. Its economic worth is what can be derived from it, just as oil is changed into “gas, plastic, chemicals, etc., to create a valuable entity that drives profitable activity”. The data mined at Tesco was said to have broken many long-standing assumptions and beliefs about how its customers shopped, prompting new thinking that transformed its fortunes. It wasn’t the only one – air-miles programmes and other shopping loyalty schemes such as Nectar have all influenced sales and marketing. 

Since then, with the advent of the internet, significantly more data reserves have been discovered and greater computer-processing power means analysts can drill more deeply. Go back 25 years and with Clubcard data you could analyse a superstore or a group of them. But now that analysis can stretch to entire populations, engaging in a huge and ever-growing range of activities far beyond the weekly shop. 

Just take a typical 60 seconds online in 2020. In the time it takes to read a few paragraphs here, internet consumers spend $1m; Amazon ships 6,659 packages; users of the WhatsApp messenger service send 41.7 million texts; members of the Linkedin networking site apply for 69,444 jobs; and Netflix subscribers stream a total of 404,444 hours of video. Activity produces data and there are no signs that this exponential growth in volume is slowing. If anything, data generation will accelerate even further. The “Internet of Things (IoT)” promises breakthroughs in hyperconnectivity as devices including cars, household appliances, health-monitoring equipment and security and tracking sensors are digitally hooked-up and communicate with one another, helped by the advent of the faster 5G mobile cellular network with its greater capacity.

So how will this data be used? And how can you profit?

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Writer and commentator Stephen Connolly has worked in banking and asset management for nearly 30 years (sc@plainmoney.co.uk)

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