Can you feel the change in the air? We have officially entered the era of big data capitalism. That’s according to Viktor Mayer-Schönberger, Professor of Internet Governance and Regulation at the University of Oxford.
Mayer-Schönberger presented an exciting, if slightly disconcerting view of our times to a packed London auditorium at the 72nd CFA Institute Annual Conference, hosted by CFA Society of the UK.
For centuries, price has been the grease that made the markets function, helping us slide over our entirely human flaws. For centuries, price and money have allowed us to navigate complex markets despite our cognitive inability to simultaneously process multiple sources of information. The deluge of data that should have informed our consumer decisions was conveniently compressed and abstracted into numbers. All we had to do was compare them.
But now big data — and the smart application of it through analytics and machine learning — has disrupted the well-established shortcut of informed consumer choices. When any consumer with Internet access can apply smart tools to match their needs and desires with the right products, price becomes less relevant and is no longer the main decision factor.
Data is the new MVP of markets. In fact, it is so much more than “the new oil.” Rather than a resource waiting to be refined and used, data is the X factor that will transform our economy and its institutions.
So who are the winners and who are the losers in this brave new world? At first glance, the consumers newly empowered with this information would seem to have come out on top, especially the younger ones who have grown up amid this new type of capitalism and the technology that enables it. For this cohort, the exchange of personal data in return for smart searches and product matching feels fair and even.
On the flip side, banks have the most to lose in data-rich markets: With information now, in a sense, unbundled from price, money becomes just another means of payment, thus redefining capital and capitalism itself.
Mayer-Schönberger has a positive take on these developments, describing himself as a “market economy optimist.” It appears that the market is functioning much better than we ever thought it would, and firms are taking note. Smart firms are responding to the omnipresence of data by eliminating hierarchy and introducing competition internally, and there is a renaissance of smaller, more agile firms that act more like market participants themselves.
But a word of caution: As in a planned economy, the resilience and robustness of these data-rich markets are compromised when information is centralized.
Mayer-Schönberger described the domination of superstar firms like Facebook and Amazon as the biggest political challenge since the Industrial Revolution. Here lies the ultimate paradox — and opportunity: Such superstar firms hold most of the data out there, and yet 85% of all the data collected worldwide remains unused.
The power and investment opportunities, therefore, lie not just within data itself, but ultimately with how smart and innovative market players can be about using it.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image courtesy of Harry Richards