Wealth, until about 20 years ago was tethered, officially or unofficially, to a basic formula. With a private company this will be profit and loss, with a public company it will be share price. The real value of a company however came from what it owns or produces. This could be from owning significant numbers of patents on successful products, such as Coca Cola, or owning a considerable amount of a commodity, such as oil, gas or gold, i.e ExxonMobil.
However, this view changed with high valuations given to those who owned relatively intangible products.
Google for instance have few tangible physical assets, they produce systems, but these sit in a virtual world, normally on a computer (although they have begun to move into the physical manufacturing, but with limited success so far). What they do have though is a significant amount of data, which is essentially what their huge value comes from.
They have phones, laptops and smart watches (and briefly flirted with glasses through the Google Glass) but the reality is that the majority of their wealth comes from the data they have and how this can be used to help deliver insights into their customers and more importantly target advertising towards them. It is by far their largest revenue stream, bringing in $59 Billion and making up 89.5% of their overall revenue in 2014.
Then there is Facebook, who have even fewer tangible physical assets than Google and are a considerably younger company, who are expected to bring in $14.7 billion in advertising revenue in 2015. When you compare this to visitor rates amongst other websites, the Daily Mail has around 10% of the number of visitors, yet made only 0.59% in advertising revenue. The difference is simply that Facebook’s ad revenue comes from the in depth insight from their data rather than general banner advertising.
We are seeing companies all over the world who are having the same results, and it shows that data is not only a byproduct of a company or a way for the company to improve their core operations, but are indeed the most valuable assets that they own.
This was shown with the recent Caesars Palace Casino division bankruptcy. The data from their Total Rewards loyalty program has been valued at $1 billion, it is their biggest single asset and through the complexities of the bankruptcy (one division of the company has gone bankrupt whilst the parent company has maintained solvency) creditors have been trying to get their hands on it.
It shows that data is now a genuine currency, it has intrinsic value within itself rather than just being part of the basic operations of a company.
What these also show is that the depth and variety of data is one of the clearest value indicators of the data as if it was the case that simply having basic information about people was indicative of value then list sellers would be billion dollar companies. Having the systems and creating the infrastructure that allows clear and detailed data about customers is what creates real value in data.
For instance, the reason that the Total Rewards loyalty program at Caesars is of such huge value is that they have managed to collect the data on their customer’s as an individual. It includes their gambling habits, annual spend and amount of time spent on the casino floor. It has allowed them to take full advantage and offer data led incentives to high spending customers.
This has not always been to the benefit of these gamblers, as Terrance Watanabe found out after he had a monthly travel allowance of $12,500, inclusive hotel stay and a myriad of other offers. It was because he managed to lose $204 million in one year and bankrupted himself as a result. This may have been to his detriment, but his losses alone ultimately made up around 5% of the entire company’s revenue.
It is clear that data is now a tangible company asset, but one that by itself has no real value. A large dataset that sits untouched and unanalyzed has a smaller value, but can act like an untapped oilfield, when a company comes along that knows how to extract the value from it, that is when it can translate into billion dollar valuations.