A Blog by Jonathan Low


May 1, 2015

If Data Has Value, Pay For It

Before disruption, there is almost always distortion.

Assets are misused, mispriced, misallocated. Which creates misinterpretation of events, trends and their meaning. Those who have benefited from such asymmetric advantages claim that their good fortune flows ineluctably from brilliance and effort.

Those who have studied the matter with a bit more rigor sense something missing in that too facile self-congratulatory spieling. And then they tend to act on the information they have accrued, usually to the disadvantage of the brilliant and effort-evincing.

And so here we are in the knowledge economy. A post-industrial, service-oriented amalgam of new and old where the value of intangibles is increasingly surpassing that of the tangible. Can't find that soft stuff on balance sheets or income statements because we cant agree on how to define it, let alone measure it. But we know it has value, if only because so many clever thieves contrive to steal it. And then, in the breach, we attempt to put a number on the loss, even as we remain incapable of assigning a value to the opportunity.

But this era, in which the the cost of the most basic and valuable raw material remains zero, can not, will not and should not continue. Even if the individuals whose activities remain the source of this treasure remain too cowed or confused to do much about it other than wring their hands over their lost privacy, the fundamental processes that drive economics and finance can not tolerate this sort of dramatic imbalance. Assets must be offset by liabilities. Costs must be paid. To be recognized accurately and productively, opportunities must be fairly valued. And thus, the era of free data is ending, driven by its own success. JL

Julie Meyer comments in the Financial Times:

If the starting point is “they are my data”, then there should be a corresponding accrual for their use in the financial accounts for any business whose model uses them. Data, and the cost of purchasing them, become a “cost of sale;" large, traditional enterprises (should) recognise consumer data rights and proactively value them in their business models.
Hernando de Soto, the Peruvian economist whose work centred on the informal economy and property rights, has much to contribute to the dialogue raging in the so-called developed world about privacy and data.Mr de Soto showed how enabling individuals to own property legally would drive economic prosperity. Many credit him with the surge of wealth creation happening in some parts of Latin America.
Meanwhile, US technology platform companies and the European Union are engaged in an arms race around privacy. The issue is not whether my data are private. We lost that battle a long time ago. As Scott McNealy, the co-founder of Sun Microsystems said: “You have zero privacy . . . get over it.” The issue is over who owns my data and to whom the value accrues.
Google’s use of my data drives their business model and their multibillion-dollar market capitalisation. We get no economic benefit for that beyond free search and online stalking. My bank account does not benefit from its success.
I long thought an entrepreneur would develop a business model to incentivise individuals for the use of their consumer data. I found one such entrepreneur, John Paleomylites, who was running BeatThatQuote, a UK price comparison site that my firm Ariadne Capital advised.
BeatThatQuote was providing cash back deals and discounts. Despite having less than £500,000 of earnings before interest, tax, depreciation and amortisation, it was sold to Google in 2011 for £37.7m, having articulated its strategic value (or threat) to its acquirer. Who says Goliath does not get scared?
The battle is no longer about incentivisation. If we believe that my data — whether related to my finances, telecoms, health, transportation or property — are my data, than their use surely must accrue value to me.
Re-enter Mr de Soto. He changed the world for Peruvian farmers by establishing property rights for them. What if data were established as legal assets for everyone?
Those of us who have had property rights have the ability to build other assets on top of our property assets. If you are still securing your basic needs at the bottom of the pyramid described by the American psychologist Abraham Maslow — a model that features an individual’s survival at the bottom and their self-actualisation at the apex of the pyramid — then you advance more slowly and with less certainty, if at all.
So if data are the new universal assets, instead of arguing about privacy, should we just argue about money?
If the starting point is “they are my data”, then there should be a corresponding accrual for their use in the financial accounts for any business whose model uses them. Data, and the cost of purchasing them, would become a “cost of sale” in transactions.
If a large bank or telecoms group opened up its customer data to start-ups for applications using that data and then sold those applications on, a percentage of the revenue would have to accrue to those customers, or be netted against any other monies they paid in. The value of what is owed to any one individual would be 1/N where N is the size of the customer base used.
At each point in history where power has shifted towards the individual from a hierarchy, power is forcefully taken. There is a net social gain for the common man and woman if their data are valued. Prosperity will rip across society if we set up the right data architecture for business.
The non-technology traditional business — whether retailer, bank, transportation company — has an ace to play. By engaging with entrepreneurs and embracing consumer data as a legal asset of the individual, the incumbents in all traditional industries could deliver singularly spectacular growth.
This is a system-level challenge. A start-up is at best today a car — a revenue-generating algorithm — in need of a highway. What big companies have is distribution, audience and reach. They can be a very smart highway.
The judo move would be for large, traditional enterprises to recognise consumer data rights and proactively value them in their business models.
One can never win by playing by the rules of someone else’s game: you must change the rules of the game. Every successful entrepreneur knows this. It is time for the judo move.


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