Data overtakes oil as the world’s most valuable resource

Data is the new black – an interesting thought for the week.

For the 20th century, oil was the most lucrative industry in the world spawning billionaires, creating wealthy nations from sand, and keeping antitrust regulators on their game. After fleetingly handing the mantle over to telecommunications, a handful of tech giants are now controlling the world’s data, and the eyebrows of regulators.

 Now similar concerns are being raised by the giants that deal in data, the oil of the digital era. These titans—Alphabet (Google’s parent company), Amazon, Apple, Facebook and Microsoft—look unstoppable. They are the five most valuable listed firms in the world. 

Amazon captures half of all dollars spent online in America. Google and Facebook accounted for almost all the revenue growth in digital advertising in America in 2016.

In the old economy this dominance alone was enough for regulators to act, size is not cause for concern on its own. Most customers of these brands are loyal fans happy to share their data as part of their relationship, and far from being a case of price gouging, many of the services offered are both highly valued and free.

Access to data also protects companies from rivals in another way. The case for being sanguine about competition in the tech industry rests on the potential for incumbents to be blindsided by a startup in a garage or an unexpected technological shift. But both are less likely in the data age. The giants’ surveillance systems span the entire economy: Google can see what people search for, Facebook what they share, Amazon what they buy. They own app stores and operating systems, and rent out computing power to startups.

They have a “perfect” activities in their own markets and beyond. They can see when a new product or service gains traction, allowing them to copy it or simply buy the upstart before it becomes too great a threat. Many think Facebook’s $22bn purchase in 2014 of WhatsApp, a messaging app with fewer than 60 employees, falls into this category of “shoot-out acquisitions” that eliminate potential rivals. By providing barriers to entry and early-warning systems, data can stifle competition.

The first is that antitrust authorities need to move from the industrial era into the 21st century. When considering a merger, for example, they have traditionally used size to determine when to intervene. They now need to take into account the extent of firms’ data assets when assessing the impact of deals. The purchase price could also be a signal that an incumbent is buying a nascent threat. On these measures, Facebook’s willingness to pay so much for WhatsApp, which had no revenue to speak of,  would have raised red flags.

Trust-busters must also become more data-savvy in their analysis of market dynamics, for example by using simulations to hunt for algorithms colluding over prices or to determine how best to promote competition (see Free exchange).

The world of business has changed, and the role and relationships with consumers along with it. The old rules and regulations are a construct of a paradigm that no longer exists. Should there be cause for concern from consumers? – for sure, but should we start breaking apart the architects of our this new ‘data economy’ without fully understanding the impact of the monopoly? For me this is a watch (with interest) and hold.