Data is a new economic asset – so how do you create a market for it?
17 January 2013
This is the fourth in a series of blogs that provide an introduction to data, and consider its uses and its impact on the economy. Read yesterday’s blog, on how data drives economic growth, here.
Besides its range of uses to businesses and government (in fact because of it), data is fast becoming a new class of economic asset , something which could be bought and sold for a price. Just like other things that are bought and sold, from petrol to patents, data is something valuable which can, in theory, be traded. Creating a working market for data, which lets people trade it in the same way they might trade shares or money, would bring significant economic benefits. It would provide a new way for people to make money, it would ensure data passes to the people who can make the most valuable use of it, and it would make data itself more valuable.
The idea behind this is simple enough. If a company (or an individual person) owns a piece of data, or a source which generates a stream of data, it ought to be able to sell this data to someone else if it so wishes. That way, companies that use data could acquire more of that valuable data by paying for it, while those who own data could generate revenue from selling it, rather than using it themselves. By creating an effective market, data could become an established asset that is more widely used and also more useful.
However, the idea of a market for data is far from straightforward. Not all data is the same (in the way that money is), and it needs to be clearly defined if people are to have the confidence to spend money on it. Much more seriously, data is often personal, and can be highly sensitive, and in many cases should not be traded at all. An effective market for data, which creates confidence while upholding the security of people’s data, would require clear and trusted rules that everyone can abide by. This section considers what these rules might look like.
What determines the value of data?
One of the key pre-requisites for an effective market for data is a means of valuing the data. At present, it would be very hard for anyone to judge how much they should pay for a given piece of data, partly because there is no easily accessible market price to go on. This challenge is further complicated by the fact that no two pieces of data are the same, and their value will vary widely depending on their context, and rules that govern them, and a host of other factors. Important factors that may be able to influence the value of a given piece of data include:
- Rules on use – what can the data be used for, and what is prohibited? There are likely to be much stricter restrictions on sensitive personal data – such as patient data from clinical trials – and on using data for controversial ends – such as altering insurance premiums;
- Validity – how accurate and trustworthy is the data? Data gathered from social media is likely to be far less reliable than data from machine sensors, for example;
Combinability – how easily can the data be combined with other pieces of data, to offer more insight or broaden its scope? Data often becomes much more valuable when combined with other relevant information;
- Timeliness – can the data be accessed quickly enough to be of use? Some data, such as in-flight data on a jet engine, is needed almost instantaneously, whereas other data is less time sensitive;
- Relevance – does the data cover the issues that you want to measure? The relevance of a given piece of data will vary from one user to the next;
- Legal certainty – how sure are you that the data can be used in the required ways, and that these rules will not change unexpectedly?;
- Exclusivity – is the data exclusive to one firm, or is it available to a wide range of users? Having exclusive access to data will often give the buyer a competitive advantage, which ought to increase its value.
From this list, which is by no means exhaustive, it is clear that valuing data would be a complex task. It is also clear, though, that the rules governing data and its use have a big impact on the value of data. Rules that prohibit certain uses or combinations of data will limit its value, while the degree of clarity and certainty around these rules could also significantly affect value.
Steps towards building a market for data
Given these considerations about rules and value, what steps would be involved in building a formal market for data?
- Define the asset class – as a first step, it is important to define what data is as an asset, and what different types there are. This is an important feature of a market in intangible assets (take intellectual property or paper money as a comparison). Defining different types of data – for instance, what is personal data and what is not – will be important to insulating the market against privacy issues;
- Assign ownership of data – deciding who owns the data, and under what circumstances, is important. If consumers own their own data – and the government’s Midata initiative seems to establish this premise – this will have a major impact on how the market works. This is likely to be a complex process, however; establishing what data is owned, what data should be open to all, and at what point it changes hands is likely to require careful thinking;
- Set clear rules for use, gathering and combination – there must be rules to protect the privacy and security of people’s data, and these rules must be as clear and consistent as possible so that data remains useable. These rules must cover not just who can hold what data, but also how it can be combined with other data and what it can be used for;
- Establish smart regulators – in order to uphold these rules, a market for data will require some kind of regulator. This regulator should be as “smart” as possible, perhaps using data techniques itself to detect misuse. If data does become a major asset for companies, the role of “data auditor”, analogous to accountants, may become widespread;
- Create or facilitate data exchanges – it may be appropriate to create an exchange for trading data, in the same vein as the London Stock Exchange or the Hargreaves proposal for a digital copyright exchange. Government is unlikely to create this data exchange directly, but it may have a role in funding or facilitating its development;
- Provide advice and publicity – once rules have been established, they need to be understood by all players in the market, particularly small businesses and consumers. Helping people and companies to understand the value of data, and the rules on how it can be used, would improve the take-up of a market for data.
These steps towards a market for data are complex and ambitious, and may take many years. However, all of these issues and more would need to be worked through before the full potential of data as an asset could be unleashed.