Big Data is arguably the most important asset of the Industrial Age
and Big Tech is eager to leverage it to its maximum potential.
By Michael Megarit.
Here’s Why Big Data is Attracting Investments from Big Tech
For most of his career, Warren Buffet was notorious for avoiding unprofitable technology companies and IPOs.
In 2020, the Oracle of Omaha stunned the investment world by revealing that Berkshire Hathaway invested $735 million in Snowflake, a high-growth but still unprofitable data-warehouse software company.
Granted, the deal was brokered by Todd Combs, CEO of Berkshire-owned Geico, but it proved that even the most “old-school” investors are adapting to the new economy.
Indeed, we are in the midst of the Fourth Industrial Revolution and so-called “Big Data” has become the raw material driving economic activity.
Why is Big Data so important and why are large corporations investing billions in it?
What is Big Data?
Big Data refers to “large data sets that may be analyzed computationally to reveal patterns, trends, and associations, especially relating to human behavior and interactions” that are “too large or too complex to handle, analyze or use with standard methods”.
It has 5 main characteristics, called the “5 V’s of Big Data”:
- Volume: Big Data is often measured in petabytes and exabytes.
- Velocity: The speed at which data is accumulated. In 2000, Google received 32.8 million searches per day; in 2018, it receives 5.6 billion daily searches.
- Variety: Big Data can be structured, semi-structured or unstructured.
- Veracity: The quality of the data collected.
- Value: How useful the data is in decision-making.
Big Data is usually collected from a wide variety of sources, such as:
- RFID readers.
- Social networks.
- Sensor networks,
- Internet text and documents.
- Call registers.
- Internet search indexing.
- Scientific research studies.
- Medical records.
- Military surveillance.
- E-commerce…
- and dozens of other devices and sensors.
As you can imagine, the quantity of data collected on a daily basis is mind-boggling.
For organizations, the challenge lies in processing it quickly and accurately.
The goal is to help leaders make informed decisions in real time.
Why does Big Data matter?
Over the past 20 years, the world has digitized at breakneck speed.
As such, data has become women into every sector and function of the global economy. In fact, most modern economic activity would struggle to perform adequately without it.
Thus, Big Data is more than a resource: it is an information asset.
Now, organizations need to find and mine the valuable data in order to optimize processes and maximize efficiency. Since data inflows are incessant – in some cases, petabytes can be collected in hours or days – it has become impossible for humans to process the information manually.
Strategic consulting firm McKinsey claims that Big Data is essential for businesses to innovate, compete and capture value. For example, their research found that retailers who embrace Big Data can increase their operating margins by 60%.
This finding is applicable to almost every business sector.
In healthcare, sophisticated self-learning AI technology is used to analyze vast pools of semi-structured data. This helps doctors improve diagnosis techniques, prescribe personalized treatments and perform in-depth risk-reward calculations for every patient. Ultimately, this automated, systematic approach reduces human error and improves efficiency.
In finance, AI technology is leveraged to make important financial decisions based on disparate data that often appears disconnected and unrelated. By connecting different information sources, the software helps traders and portfolio managers make better investing decisions. In retail banking, data is used to calculate an individual’s risk of defaulting on their loans.
In the world of digital marketing, data is crucial to understanding customer psychology and preferences. “Data is King” because it helps gain real-time insights, personalized targeting, budget optimization and accurate campaign monitoring, among other things.
We can also mention entertainment.
Netflix, the world’s leading streaming platform, collects data from its 151 million subscribers and analyzes it to identify their preferences and buying patterns. It analyzes customer interaction and response data to a given movie or show: how long it was watched for, the device used, whether or not the show was paused, was the entire show watched, etc. This analysis is then used to recommend movies and TV shows that specific user might enjoy and to craft content that will maximize audience engagement. Netflix claims that more than 75% of viewer activity is based off personalized recommendations.
Clearly, analyzing this much data is a complicated task.
Thus, large corporations regularly acquire innovative data-focused startups rather than finance expensive and risky in-house R&D.
Big Tech Is Investing Massively In Data
Berkshire is far from being the only large corporation interested in data.
Unsurprisingly, Big Tech is also at the forefront of the data revolution.
Companies such as Amazon, Facebook, Google, and Microsoft are heavily dependent on Big Data to grow, innovate and dominate their industries.
In recent years, the Big Four made significant data-focused business acquisitions:
- In 2020, Google acquired data analytics startup Looker for $2.6 billion. This purchase extends Google’s Smart Analytics platform and allows Google to widen its economic moat and outpace its competitors.
Slide: Google
- In 2020, Microsoft purchased ADRM, a leading provider of large-scale industry data models, which are used by large companies worldwide as information blueprints.
- In 2020, Facebook spent a reported $1 billion to acquire Kustomer, a startup that provides agents with better data and a unified picture of users.
- In 2018, Amazon purchased TSO Logic, a cloud migration company, and Sqrrl, a security startup that collects data from gateways, servers and routers to determine potential vulnerabilities.
Other notable data-deals include Adobe’s $4.75 billion acquisition of Marketo, Intuit’s purchases of Origami Logic and OneSaas, and Oracle’s acquisitions of DataFox and DataScience, to name just a few.
These acquisitions are not made on a whim: they are part of these firms’ long-term objective of leveraging data to dominate their respective industries.
Big Data is a really big deal
For corporations, harnessing the power of data offers infinite possibilities.
A few years ago, McDonald’s installed dozens of sensors in its restaurants: from kitchen operations to customer interactions with cashier and automatic kiosks to tracking eye movements on the menu, the company is collecting as much data as possible to increase sales and traffic.
E-commerce companies such as Amazon rely on data to track individual customers’ behaviors and preferences. For example, Amazon uses data to recommend items customers might be interested it. While this appears benign, this feature generates more than one-third of the company’s annual sales.
In manufacturing, sophisticated algorithms analyze data from production lines and suggest ways to cut waste, avoid costly and a times dangerous human intervention and increase output.
In the energy sector, oil companies are leveraging Big Data to create digital oil fields. These state-of-the art facilities combine business process management with digital technologies to automate workflows, maximize productivity, reduce costs and minimize the risks of oil and gas operations.
In every economic sector, Big Data and AI merge to maximize efficiency and profits.
What does this mean for tech entrepreneurs?
The Fourth Industrial Revolution has just begun.
As of January 2021, there are roughly 4.66 million active internet users worldwide.
While this is an impressive figure, it only represents 59.5% of the global population – 40% of the world has yet to connect.
This means that there is still plenty of room for new offerings.
Tech entrepreneurs should embrace this opportunity to develop innovative data-driven products and services that will help businesses understand their customers and satisfy their needs.
About the Author
Michael Megarit is a partner with Cebron Group.
With over 25 years of domestic and international corporate finance experience,
he provides M&A and capital advisory to high-growth technology companies.