Is big data a big deal?
‘Big data’ can change the way that capitalism has worked for decades. But it is progress that comes at a price
The ability to capture, process and analyse vast amounts of data has increased exponentially in recent years. "Big data" will not only change how businesses operate in the digital era but will also transform the very nature of capitalism itself. This is the core idea of "Big data" will soon become the yardstick by which we measure the value of goods or services — not price. This is the central thesis of Viktor Mayer-Schönberger, an Oxford University professor, and Thomas Ramge, a technology writer for The Economist magazine, in their new book Reinventing Capitalism in the Age of Big Data.
It may sound like gobbledygook, but it’s actually quite a radical shift because, until now, price has been the main mechanism through which the market determines the value of something.
In their new book, the writers declare that "data-rich markets" will begin to match buyers and sellers. "Data is the new grease for the wheels of the market," they say.
Mayer-Schönberger and Ramge label this new phenomenon "data capitalism", as opposed to the old system of "finance capitalism".
Their prediction is that people will still use money as a store of value and a way to transact, but that "rich data flows" will eventually "replace, or at the very least complement, the informational role of money".
It’s an entirely new view of capitalism. It means established institutions like banks will be forced to compete against "savvy new entrants" that use machine learning and artificial intelligence technologies to exploit an ever-growing mass of information to gain a competitive advantage.
You can already see many of these trends in the economy. Amazon has captured market share by mining enormous data sets and targeting consumers by precisely matching their preferences. Users of Google and Facebook do the same sort of thing, supposedly for free, though they’re actually trading their personal data to advertisers.
In other words, technology has blurred the difference between the market, and the specific firm.
For example, companies such as Uber and Airbnb have disrupted the taxi and hotel industries by creating their own market platforms. Neither holds any hard assets. Rather than owning expensive fleets of vehicles or a chain of hotels, Uber connects passengers to cabs while Airbnb matches guests with vacant rooms.
Interestingly, the book also warns of the danger of big data creating a highly unequal distribution of wealth. For example, the authors argue that once these technology giants achieve a dominant position, they could unfairly entrench their dominance by exploiting "data feedback loops". This is because, as their capacity to harvest data grows more sophisticated, the ability of competitors to challenge their monopoly becomes ever more difficult.
To break this cycle, the authors propose something they call a "progressive data-sharing mandate". This would force a company that controls more than 10% of the market to share a portion of its data with any competitors that request it.
It’s an interesting idea, and the writers believe this is a necessary intervention to preserve the "open, decentralised character of markets" and ensure fair competition.
Of course, how this mechanism would work in practice is unclear. You can’t imagine a company like Google volunteering to share proprietary information. So, it would need to be enforced by governments. Which would be tricky: such heavy-handed regulation would almost certainly fall foul of intellectual property laws and would be nearly impossible to co-ordinate on a global scale.
Though Reinventing Capitalism in the Age of Big Data offers a unique view of the future, it does tend to exaggerate the role of information technology. After all, bigger data doesn’t necessarily mean better data — and those who work with extremely large data sets may have trouble distinguishing the signal from the noise.
Practically, it is also difficult to make the leap from where we are, to the Shangri-La the authors envision. Of course, big data is disrupting old industries and altering the way we do business. But it is difficult to see how money will no longer be the primary basis of economic activity. After all, it is money — and not data — that makes the world go round.