Data Is The Most Valuable Commodity On EarthJoe McCann
Commodities, such as oil, gold and soybeans, are tangible, real, transportable and tradeable and have been used a means of doing business, hedging risk, investing and even speculating for hundreds of years. Recently though, traditional commodities have experienced lackluster returns for investors whereas a new, intangible and only virtually transportable commodity has soared in popularity: data.
According to the World Economic Forum, data is now its own asset class. Data, or companies exposed to data and the data-driven economy, is now an option for investors to gain exposure to this new asset class similiar to how they may gain exposure to fixed income or traditional commodities.
How has data garnered so much attention over the past few years? The dollars speak for themselves. Let's take a look at data-driven companies and either their market capitalizations, stock price movements (up) or exit pricetags.
Startups' Data-Driven Valuations
Startup Pinterest is valued at a whopping $2.5 billion. Why such a lofty valuation? Well, with any tech company there are a number of factors that go into its valuation, but the trend, as I'll point out with these other tech companies, is they all retain incredibly valuable data sets. Pinterest has created an interest graph, as I wrote about nearly 2 years ago, and has what are effectively personalized storefronts of items people actually want to buy. With 70 million users, that's a solid number of potential customers for retailers and brands. Moreover, the data Pinterest has about its users enables Pinterest to better understand one's brand affinity and even a more robust profile of whom that individual is based solely on their Pinterest usage.
Foursquare has been valued at roughly $600 million since April of 2011 and has seen their valuation be reported as high as $760 million. In 2013, they might do $20 million in revenue. Why are investors still so bullish on Foursquare? The data of course. Foursquare is now selling check-in data to offer ads on other platforms, not to mention the ability for them to compete against Yelp and even Zagat (Google). Many users, including myself, use Foursquare to find restaurants and coffee shops in cities they visit.
Data isn't just a means to sell targeted ads, it is actually a differentiator in the product development lifecycle as well. Just last week, Foursquare announced a new feature for Android users which passively notifies the user of new and/or interesting spots nearby they should checkout or tips their friends have left at nearby locations. Foursquare's product itself is actually getting smarter from the the 32 billion checkins it has collected over the years.
Waze was recently snatched up by Google for $1 billion. Waze a is social mapping network and provides drivers with real time, crowd sourced traffic information. Waze has an ad offering inside their app for retailers and quick serve restaurants such as Taco Bell, but it hasn't been their greatest success metric. So why did Google grab them? The data of course. Google Maps is by far the premier mapping application and platform on the web (and native apps) and incorporating Waze's data into Google Maps makes complete sense, further distancing Google Maps from its competitors and also providing yet another channel for Google to sell ad space. Moreover, you can expect to see Google Maps + Waze directly integrated into vehicles in the coming year as more than 50% of cars shipped globally by 2015 will have internet connections.
Uber recently raised more money than many companies look to capture in an IPO, $362 million in fact (with Google Ventures investing $258 million in the round), putting Uber's valuation at $3.5 billion. Not only does this company have a platform that can radically disrupt fulfillment, shipping and transportation, but they have a treasure trove of data -- from drivers, to users, location, pricing, annual spend, etc.
This list of data-driven startups goes on and on. Snapchat is an $860 million company in less than two years. Instagram was purchased for $1 billion dollars by Facebook (loads of data in those photos). WhatsApp reportedly worth $1 billion. Fab.com valued at $1 billion. Path as well. Tumblr sold to Yahoo for $1 billion. All of these companies have their own respective offerings, but they all have gobs of data.
The Great Commodity Rotation
If we juxtapose the increases of publicly traded tech companies' stock prices with commodity bellweathers you'll see where investors are placing their longer term bets, or at a minimum how the rotation of out traditional commodities and into companies gathering data is upon us.
For example, Amazon, a company that is not even profitable, has seen its stock price hit all time highs this year and the stock is up 250% in five years. What does Amazon have? Loads of data. From the purchase history of their users to hosting a large portion of the internet via Amazon Web Services, Amazon continues to amass data at an alarming rate.
On the other hand, Exxon Mobil, the second largest company by market cap in the world, is up a mere 10% over 5 years, grossly underperforming the S&P 500 (up 30% over the same duration). Exxon Mobil is a company who's largest department is solely focused on tax efficiencies, so had they not had the best of financial engineers on board, their earnings could have been significantly lower. In what business is Exxon Mobil? Oil.
Oil, the commodity, has done even worse than a company like Exxon -- down 59% in the past five years. Considering oil is priced in dollars, one may posit that the hyper inflationary environments the global central banks have put in place have artificially depressed the price of oil, but this isn't in fact the case considering the US Dollar Index has actually strengthened over the past 5 years.
Natural gas? Even worse. Down a bloody 89% in the past five years.
Coal is down 59%. Copper is down 17%.
The only bright spots, pun intended, are the precious metals.
Gold, traditionally a hedge against inflation, has had a nice run over the past 5 years, but over the past 18 months has seen the majority of its gains wiped away. Still up 80% in 5 years is nothing to scoff at, but the trend is clearly lower for gold.
Silver follows gold, for the most part, and is up a hefty 71% as well.
Overall, the interest in traditional commodities and their underlying value from an investment perspective, appears to be shifting.
Companies like LinkedIn are worth $31.5 billion. Facebook, $100 billion. Google, $286 billion. Even Yelp, a company focused on providing user reviews on businesses, is valued at $3.5 billion. What commodity do all these companies have in common? Data.
Netflix: A Data-Driven Success Story
Still not convinced? Let's have a look at one of the largest success stories in big data this year: Netflix.
Netflix decided that trying to craft deals with the old guard of the film industry was limiting at best in terms of wooing more subscribers to Netflix. So in addition to competing with other streaming services for Hollywood's coveted programming, they decided to go over the top and create their own bespoke, exclusive content on Netflix: House of Cards.
House of Cards, an incredible drama series starring Kevin Spacey, has not only received 14 Emmy nominations, but Netflix's stock has rallied an impressive 166% since the House of Cards launch. Subscriber growth also spiked in the first quarter, when House of Cards was released, capturing an additional 2 million subscribers.
To say that House of Cards was a success, even after just one season, would be an understatement. What was Netflix's secret?
Netflix used loads of subscriber usage data, including data points such as how a large number of subscribers favored the director, David Fincher, since so many subscribers watched The Social Network from beginning to end. Moreover, films Kevin Spacey has been a part of have all "done well" according to Netflix.
Put all of these data points together and buying the rights to House of Cards in the US was a seriously hedged bet with loads of upside.
Collective Intelligence Through Connectivity
With the explosion in mobile and wearable devices, the amount of data captured and consequently data reported has grown exponentially over the past few years. As connectivity becomes more pervasive and robust, the intelligence and experiences that become possible from said connectivity will provide the next wave of innovation in computing for the coming years.
Imagine your Nike Fuelband not only measuring how far you ran, but gives you realtime feedback while you're running. If you are training for a marathon, this could be instrumental to over or under training.
Posit sensors collecting data on diabetics and reporting that information back to one's doctor in realtime so the doctor can make a more informed decision for their next visit. Or imagine the ability for a school system to analyze data on their students and push notify parents that an unusual spike in influenza has affected a significant percentage of students so it would be wise not to send Sally to school today. You don't want your child to be unnecessarily sick do you?
Think of travelling and having your apps be more like like prediction engines, prompting you with hotels, restaurants (catered to your dietary restrictions or preferences) and even entertainment options. Or rebooking your meeting at noon because traffic is bad on the 405. Or even better, automatically reroute the driver in your cab because data from a provider like Waze (see above) has determined the most efficient route so you can in fact make your meeting.
All of these innovations and optimizations are driven by data. The next 10 years of innovation will be data-driven. Entrepreneurs and investors have placed their respective bets on what I see as the world's most valuable commodity: data.