Why data has never been ‘the new oil’
It’s become cliché to say that data is the new oil. Maybe it’s a provocative headline, but there is nothing the least bit commodity-like about data.
So, try this quick exercise. Assuming we both know each other, answer these two questions:
- If we each had a gallon of gasoline and I asked you to swap yours for mine, would you do it?
- Now what if I asked you to swap all of your private email with mine. Same answer?
Of course not… Setting aside brand loyalty, octane ratings, and slight variances in cost, a gallon of gas is a gallon of gas, and it’s no different regardless of who your provider is. The same is true for any other commodity or utility.
But in the case of data, you’re not dealing with an undifferentiated commodity. Data is increasingly the single most important differentiator in how companies innovate, serve their customers, and gain insight into their markets. It is the competitive battlefield of the future.
Uber’s vast warehouse of transactional, behavioral, and geographic data is the foundation of its business and Uber’s core differentiator. The same is true of Netflix, whose digital content and the information it holds about the behaviors and preferences of viewers are the company’s crown jewels.
Data is ultimately the most important competitive differentiator. However, if you pay close attention to how companies such as Uber and Netflix are using it, you’ll see that their attitude is not one of minimizing data in order to decrease its volume, but rather gathering as much information as is possible through as many interactions as possible. The assumption being that every piece of data increases in value with each new piece captured.
There’s no doubt that data powers the information economy, but that doesn’t make it a commodity, any more than you would say that cars are a commodity, or fashion accessories, or beer. They are not interchangeable or equivalent. In fact, it is the uniqueness of data that gives it value and drives the profits of the companies that use it.
Data represents knowledge, and if you know the same things that I know, you have no advantage over me. So, it’s worth your while to invest in acquiring knowledge that I don’t have. That’s the opposite of a commodity.
“Gas is gas” and “storage is storage.” But data is not data. Your company’s future rests on the fact that information is becoming increasingly valuable and proprietary, and therefore worth storing in the cloud indefinitely.
The challenge to storing all of this information, however, is that the solutions used by first-generation providers of cloud storage are stuck in an industrial era mindset of scarcity, in which data storage is seen as a cost of doing business that needs to be carefully managed and conserved. But applying the scarcity mindset to the technologies of storage severely limits your ability to differentiate and innovate.
Until recently, most storage strategies have used the fact that the vast majority of corporate revenues have come from a relatively small percentage of their data. Data was seen as a cost of doing business, necessary friction. This is the essence of an industrial age scarcity model.
However, if a business can digitize the long tail of its data assets, it can significantly increase its topline revenues by eliminating data friction. For example, in the case of Amazon, each percentage of the long tail increases Amazon’s overall book revenues by 0.75 percent.
The cost of first-generation cloud storage also creates a hard stop for new technologies such as AI, which requires vast amounts of data. For example, a fully autonomous vehicle generates from 2-20 terabytes per day. At the current cost of first-generation cloud storage solutions that comes to anywhere from US$3.5 to over US$30 million yearly. That sort of economic burden will prevent AI from scaling beyond a curiosity.
The bottom line is that we need to look at a new generation of storage that provides the economic viability needed to shift our thinking, from scarcity to abundance, commodity to differentiator, and from friction to frictionless; in the process creating opportunities for entirely new innovations and business models.
This article was contributed by Tom Koulopoulos, chairman and co-founder of Boston-based Delphi Group, and author of The Bottomless Cloud.
6 February 2023
6 February 2023
6 February 2023