The first Dutch ship arrived in Japan in the 17th century. It was called De Liefde, meaning love. Its arrival led to such strong links that, between 1639 and 1853, the Netherlands was the only European country allowed to trade with Japan.
This trade was not only in physical goods, but in art, culture and knowledge. This knowledge sharing continues to this present day – in the shape of data.
As a data company, this special historical relationship between both nations sprang to my mind in September, when I was informed that Suburbia had become the first ever Dutch startup to be selected for Fintech Business Camp Tokyo – an accelerator program run by the office of the mayor of Tokyo along with Accenture Japan.
Over the last few months, I have spent a lot of time understanding Tokyo and eating my weight in kashiage and yakiniku. Apart from gaining weight, I have also gained new perspectives into the Japanese market and made many valuable connections within the industry.
Many say it’s not easy for foreign firms to crack the Japanese market because of complex bureaucracy and cultural factors. This is precisely why the support of the Tokyo Metropolitan Government (TMG) and Accenture has been so valuable, in providing us with access to top domestic companies and counseling us on things big and small, including the intricacies of Japanese business etiquette!
We recently concluded the program with a pitch in front of members of TMG, media and some of Japan’s leading companies. We showed how our Amsterdam-based startup is building innovative technology to solve some of the biggest problems facing both data providers and data users. This technology transcends borders – we can process data from anywhere in the world and transform it into a rich source of insights.
Japan is interesting for us for several reasons. There is a growing shift from a cash-focused economy to contactless and payment apps, which will generate a flood of raw data. If collected and structured, properly and safely, this data has tremendous value. The Japanese government has already proposed policies to encourage the sharing of this ‘industrial data’ and companies are beginning to take notice. As the use of alternative data in investment decisions rises rapidly, Japan is uniquely positioned to leverage new data and use it to make better decisions for its large pension funds and asset management industry.
While we have been working with mostly early adopters based in Europe and the US, we are witnessing the global rise of alternative data, especially from the frontlines of great initiatives like the Fintech Business Camp. With four hundred years of history between the Netherlands and Japan, we hope to contribute to four hundred more.
For over the last decade, some of the most successful companies on earth have made their riches by mining user data and selling it to advertisers. The big question is whether this will continue to be a sustainable business model with the ever-mounting scrutiny on data privacy and if not – what’s the alternative?
Many say the Cambridge Analytica scandal sparked a great data awakening by bringing to light the ways in which some companies were amassing and monetizing personal data about their users. As a result, Facebook was recently slapped with a record $5 billion fine and new privacy checks.
This isn’t a problem that is exclusive to the giants of Silicon Valley. In Europe, hefty fines have also recently been meted out to British Airways and Marriott for data breaches. As data protection complaints have doubled year-on-year, regulators will be getting tougher on companies to ensure their compliance with GDPR (General Data Protection Regulation).
Meanwhile, GDPR has driven a global movement as governments outside the EU, from Australia to Brazil, are set to introduce similar data protection regulations.
In addition, GDPR has helped to create greater awareness about data protection among the general public. The European Commission’s March 2019 Eurobarometer survey showed that about 67% of European citizens surveyed know what GDPR is.
The convergence of a compliance culture within organizations, stricter data privacy regulations globally, and consumers becoming more aware of their rights will continue to have a huge impact on businesses that profit from personal data, and even any business which collects it.
The situation demands urgency as the stakes have never been higher. According to a report by Gartner, by 2020, personal data will represent the largest area of privacy risk for 70% of organizations, up from 10% in 2018.
But better privacy for individuals doesn’t mean it’s bad for business. On the contrary, companies can use this opportunity to establish trust with customers while becoming more thoughtful and innovative about their approach to data monetization. For many firms, data monetization has been inextricably linked with the personal data of their customers. However, they could be collecting, generating or archiving other types of non-personal data that could be valuable to certain end users. That is, the alternative data that may even be overlooked by the business generating it.
This data might be structured or unstructured, but new tools and technologies have made it easier to mine and process such data into insights. These insights could serve as timely intelligence to those in other sectors, like economists, analysts or investors looking to identify patterns and trends.
In fact, there are many use cases for such alternative data in the world of investing when every bit of timely information helps to gain an edge. This is where anonymized and aggregated data matters most and personally identifiable information has zero value. What economists and asset managers most want to know is how many soft drinks Coca Cola is selling across Europe this quarter, not whether John Doe bought a Coke.
The growing focus on privacy doesn’t mean data monetization has been taken off the table. Data will always be an important and valuable asset for any organization, but it needs to be harnessed with the full respect of individual rights to privacy.
PSD2: the latest tightening of data regulations will require strategic, operational and infrastructural changes for banks and financial institutions.
Is it an opportunity or a threat though? Judging from current opinion, it appears the financial industry hasn’t quite made up its mind. If there’s anything worse for the sector than a clear and present threat, it’s uncertainty.
In a recent survey conducted by open banking platform Tink, one thing is clear, financial institutions dislike regulation. They named it as the biggest threat to their current business models. With the final PSD2 deadline looming on the horizon, there is little time for firms to get wrapped up in an existential crisis though. Most are soldiering on, despite their doubts, to ensure they can comply with the new directive. They are investing in digitization, greater security and privacy.
However, it’s clear that they need to do more than the bare minimum in order to not only survive, but thrive, in this new ecosystem. For banks, payment service providers (PSPs) and other players, PSD2 unearths an opportunity for them to innovate and compete.
Data should increasingly be viewed as a natural resource like oil. Yes, data is the new oil is a somewhat tiresome cliché, but sitting on an oilfield is not much use unless you have the right tools, infrastructure and capabilities to make something out of it. In that sense, firms need to grapple with how they can turn what is essentially a commodity, into a competitive advantage.
To benefit from the opportunities that will arise from PSD2, there are two key approaches any financial or payments services firms can take in the new landscape:
1. Monetize their data – Increasingly, no one party will have a monopoly on data. This means firms will need to start thinking about how to leverage their distinctive data sets as part of a data monetization strategy – without compromising sensitive personal information.
When it comes to monetizing data, many are enticed by the opportunity, but they may view it as a challenge. They may raise questions over data ownership and privacy.
However, there is great value in anonymized, aggregated information that is used for business or investment insights. In finance, the interest is in identifying broad trends and patterns – the focus is never on the who but the what and how much. That means it’s possible to extract value from this data while preserving privacy.
Outside finance, there are other examples of how sensitive data can be used in a way that benefits the public. For instance, Uber shares anonymized data aggregated from billions of trips taken by its users in order to help urban planning around the world.
Transparent and responsible use of this data can open the door to new revenue streams. Data might not be the core business for many of these firms, but revenue from this can quickly become meaningful as the quantity and quality of data grow over time.
The value of their data can also increase when combined with multiple sources for consumption by third parties.
It can sound counterintuitive to deal with the threat posed by open data by sharing it even more widely. But this allows firms to strengthen existing data and play a more important role in the transactional ecosystem. Payments providers are well-positioned because they have unique insights into both merchants and consumers.
2) Get better customer insights – The changes that will be brought on by PSD2 will show that no incumbent can afford to rest on their laurels. The classic mindset of getting all your financial services from one provider is going to change. Many payment experiences will change and become more seamless.
One hot topic is instant payments. While consumers are the biggest benefactors of this trend, merchants can also benefit from it in a number of ways. Instant payments are data-rich so they can leverage real-time data like never before.
What does this mean for firms in this industry both big and small? Well, it will become more important than ever to convert data to actionable insights. They can use such insights to improve the customer experience, drive loyalty and even introduce better offerings.
This can help incumbents become much more data-driven and customer-centric in their approach, leading to better decision-making. Meanwhile, smaller players that can nimbly respond to these insights can outmaneuver bigger competitors and eat away at their market share.
Ultimately, firms need to tackle PSD2 from a strategic perspective and not just from a compliance perspective. The ones that proactively capitalize on these opportunities can future-proof their business and disrupt, rather than be disrupted.
From early-stage payments fintechs to giant acquirers, every company is asking themselves the same question: “How can we turn our data into dollars?”
After all, most companies these days are to some extent data companies, whether they are aware of it or not. Many businesses try to leverage certain types of data they capture, but there’s also a lot of valuable ‘data exhaust’ they could use without ever sharing any personal or sensitive information. This is known as alternative data and it is being rapidly monetized and shared in the US and Europe.
What is data exhaust?
No, it doesn’t refer to the exhausting nature of big data. (Though there is something to be said about that too!)
Data exhaust refers to the excess data that is generated as a byproduct of a company’s operations. Simply put, it’s all the data the firm might not know what to do with, or might not think is relevant to its core business. This amount is much bigger than you think – Forrester reported that on average, between 60% to 73% of all data within an enterprise goes unused.
However, with advances in IoT, machine learning and artificial intelligence, this rapidly growing volume of exhaust could hold much untapped potential. In fact, this data exhaust could end up being converted into valuable fuel, whether for better decision-making or new ancillary revenue.
Why is data monetization so hard?
Firstly, many firms struggle with what data monetization actually means. Some paths to data monetization are more obvious than others. We’re living in an era when exploiting data for advertising or marketing purposes has become a huge concern. Even when there is no threat to personal privacy, organizations still have to navigate reputational risks if there is even a whiff of data misuse.
Secondly, trying to glean insights from all this raw and unstructured data can be like finding a needle in the haystack. It’s a significant challenge in terms of resources and infrastructure, requiring data expertise that is usually not found in-house.
So what can companies do to tackle this?
Two routes to monetization
These are the two primary paths to data monetization that companies can choose to take, though they are not mutually exclusive. In fact, both paths can intersect and one can lead you down the other:
1) Getting new business insights – This is an internally focused path that may not directly lead to money on the table. But it’s about leveraging data to improve operations or the customer experience. In turn, this could lead to higher profitability or greater efficiencies that result in reduced costs.
Alternative data can yield insights that we may have otherwise not considered. But it’s easier said than done because, as Forbes reports, 87% of executives are still not confident they’re able to leverage all customer data.
But first, every organization needs to take stock of its data assets and figure out which types of data potentially hold value. Then they need to assess whether they have the data management infrastructure, tools and resources to be able to extract value from it.
2) “Externally” monetize data – These days, the mere mention of “selling data” conjures negative reactions. But there are ways of monetizing non-personal data that is aggregated and anonymized. This can be valuable to people you may not be thinking of in ways you might not have imagined.
Opportunities may exist in markets that are new and unfamiliar to the data owner. For instance, firms can open up new revenue streams by selling their data to economists, analysts, investors and any other parties that are seeking to gain new and unique insights.
Raw data by itself can be one-dimensional. It is when data from different companies and sectors is combined and enriched with complementary data sets that real value is created. For instance, a company working with vendors across the country might have data on national beverage sales. It could track these sales and provide additional insights back to the vendors to help them improve sales and promotions. The company could also share this data with beverage brands so they can finetune and optimize marketing by city.
Think about it this way: Doing nothing with your data is the equivalent of keeping all your savings under the mattress. It seems like a safe bet, but it’s outdated and you get zero returns. Data monetization is a smarter investment – it seems daunting at first but if you can find a safe, meaningful use case, your company’s data becomes a revenue driver rather than a sleeping asset.
An industry dominated by a small number of old players, an audience longing for better and the upstarts who broke through big.
Yes, this describes 2018 in data, where traditional heavyweights Thomson Reuters and Bloomberg saw an increasing field of disruptors, but it also reflects, and offers a lot of lessons from, the music industry in 1991.
An industry dominated by a small number of old players, an audience longing for better and the upstarts who broke through big.
For a quick and opinionated history, the friendly vibes of disco and psych-folk in the 70’s were eroded by the W shaped recession, stagflation and an international oil crisis, paving the way for a bleaker, heavier turn in both society and music.
Metallica released their first studio record,Kill ’em All in 1983, but became cultural mastheads with the thrash metal darkness of Master of Puppets in 1986, with the two albums selling a combined 9 million copies in the US alone. This heaviness was supplemented by the second wave of hair metal bands, notably Guns N’ Roses, whose Appetite for Destruction, released in ’87, sold 18 million copies domestically. The rock incumbents were established.
The next few years saw greater bombast, and bigger sales (Metallica’s self titled 1991 record remains their best selling, with almost 17m copies sold in the US), but a waning connection with listeners. Given the choice between heavy metal and hair metal, younger rock fans began to feel the apathy which would define Generation X. Then came KC.
Alternative Rock Conquers the World
Little known label Sub Pop Records in Seattle released Nirvana’s first record, Bleach, in 1989 to middling success. But it was the band’s 1991 release Nevermind on David Geffen’s DGC records which changed the face of 90’s rock, ushering in a raw sound stripped of pretense and even of meaning. Gone were the costumes, the makeup and the arena theatrics, in their place an urgent, hazy sound, inviting the listener to define their own meaning. This was alternative rock.
What is Alternative data? Alternative data is defined as data collected from new sources such as satellites or sensors, or used in new ways
And readers can now probably see the parallels. Alternative data, defined as data collected from new sources such as satellites or sensors, or used in new ways, has been around for a long time, picking up pace in the middle of the last decade. But 2018 was its major label moment, as NASDAQ purchased alternative data pioneer Quandl and almost 400 alternative data providers competed in the space.
Indeed, Quandl’s Alternative Data Conference in February 2019, which Suburbia will be attending, is titled “The race to be first is over”. The question is what comes next, and I believe the music industry has three important lessons for everyone.
1. Expect the Majors to Muscle in
Seattle post-Nirvana saw a flood of attention from major record labels, giving greater attention to bands like Alice in Chains or Pearl Jam. Others were met with less commercial success, like Nirvana precursors the Melvins or Tad. Similarly, Quandl was not the only alternative data provider to be purchased, with 7Park being bought by Vista Equity Partners in December.
In theory this influx of capital benefits everyone, by giving smaller players more resources, the bigger players more market control, and end users easier access to new platforms.
In reality, I see upsides and downsides. The influx of capital has only just begun, and by 2020 expect smart investments to bring today’s alternative data startups to the next level of success. On the downside, there will be major players who overpay to establish presence in a crowded market.
But don’t worry, the incumbents have the money to lose and are not going anywhere – Guns N’ Roses still sell out stadiums, and Bloomberg and Thomson Reuters’ Eikon will remain Wall Street fixtures. They just won’t have the field to themselves anymore.
2. New players will be distributed globally
The Pacific Northwest is considered the birthplace of grunge but by no means its only home. New York’s Gumball came from the opposite coast, The Smashing Pumpkins hailed from Illinois, Bush from across the Atlantic in London and Silverchair across the Pacfic flew the grunge flag in Australia.
Alternative data has similarly been an East Coast play, with Toronoto’s Quandl focusing on the hedge fund crowd in Connecticut and the banks in New York. But there is a growing field internationally, with Eagle Alpha, one of the industry’s earliest and most influential players, based in Ireland and Suburbia headquartered in Amsterdam.
Asia remains under-served, with some firms including IHS Markit having a presence, but the heavy hand of government-linked corporations creates headwinds for independent measurements and verification. Regardless, it is a matter of time before alternative data users and suppliers are truly global.
3. Nothing will be the same
Grunge as a genre began to fade by the mid-90’s, with Nirvana’s last album In Utero released in 1993 and the band dissolving the next year. Mother Love Bone’s tenure was even shorter, breaking apart before their first album was released. Even bands who stayed together changed their sound, with Pearl Jam’s 1996 album No Code turning towards ballads and garage rock.
But the mark of grunge was inedible in music, either directly as Nirvana drummer Dave Grohl’s next band Foo Fighters owned radio rock airways in the mid-90’s, indirectly with Marilyn Manson, getting input on his 1998 record Mechanical Animals from Billy Corgan of the Smashing Pumpkins, and passively in trending pop acts like Halsey, photographed in Nirvana t-shirts and whose 2018 track New Americana mentions Nirvana directly.
Outside of music, filmmaker Gus Van Sant’s mumbling cast were the outsiders raised on grunge, most clearly in his semi-biopic Last Days. In fashion and art, the band’s iconic designs from the yellow smiley face to the swimming baby have been emulated from high fashion brand Lad Musician in Japan to TV’s The Simpsons, and broadly the dividing line between the mainstream and the underground has been blurred.
This last point is crucial when it comes to data. Much like David Geffen’s major label DGC traded with tiny Sub Pop records, traditional releases like government reports or company earnings will become enriched with alternative data, and alternative data suppliers will find themselves collaborating with traditional sources.
Data driven decisions will no longer be the enclave of hedge funds who can afford multiple Bloomberg terminals, or large financial institutions purchasing reports from consultancies.
In a few years the influence of new data will be pervasive across mediums, roles and industries, leading to more accurate measurements and better decisions for everyone. Add that to the enduring legacy of Nirvana.