Has that label only become a catchy new advertising slogan for companies to showcase their supposedly innovative power? How much do companies really earn or save with data? How do the earnings rate in relation to the expenses for data protection (GDPR), information security as well as for the inevitable IT-infrastructure?
In her Duet interview with Richard Heiler Martínez, corporate finance specialist, Dr Caldarola, author of the recent book Big Data and Law, discusses the bottom line on the corporate earnings from Big Data.
The Statista statistics1 show that Big Data revenue in Germany amounts to €6.4 billion in 2018. Does this revenue level justify the famous statement “data is the new fuel of the 21st century”?
Richard Heiler Martínez: I would not pay too much attention to the 2018 revenue figure of €6.4bn, with regard to Germany, not even to the US$40.8bn which supposedly represents the worldwide revenue derived from Big Data in 2018. Those revenue figures primarily comprise proceeds out of data sales or data usage rights collected by search engines (for real estate, jobs, etc.) big distributors and social media firms, which thereupon sell their collected data to service providers and manufacturers.
Thus, what is not included in those numbers are Big Data revenues directly applied by the data collectors to their own sales or even to the streamlining of their internal processes, the latter of which may provide important cost savings, numbers/figures which do not show up in any statistic, not even in the company’s PyG under any specific heading. Any other explanation could hardly account for the imbalance shown in your introductory chart between revenue (€6.4bn) and loss (€102bn). For this reason, the published revenue figure seems insignificant compared to what it may actually be and what it may become in the very near future.
Another way of appraising Big Data growth is by looking at the volumes of data collected. Back in 2018, the total data volume collected worldwide stood at 33 Zettabytes (highest in Asia, followed by North America and then Western Europe). Many data analysts cautiously predict that this data collection volume could rise to a level of 175 Zettabytes by the end of 2025.
It is not only corporations collecting Big Data, but also governments gathering every kind of data on their subjects. The expression “data, the new fuel of the 21st century” should perhaps not only be understood by looking at revenue figures or data volumes. Big Data is a generic term for defining a gradual but quick process, which may completely change and revolutionize our way of life, our way of production, communication, political system and will eventually affect every aspect of our private life. Though we are still at the very beginning of this process it will quickly become omnipresent. Those forebodings are also illustrated by many charts where the future revenue and collected data volumes exclusively point to an upwards trend, with annual worldwide growth volumes of approximately US$10bn and 40 to 50 zettabytes respectively.
In the coming years, those growth rates will not show a linear but more of an exponential pattern. The reason for this development is simple: It is sustained by the growing digitalization of our daily lives and habits. The two main catalysts for fuelling the growth of Big Data collection and usage in the digital era we are currently living in are the “updateability” and the “connectivity” with which the data is collected, stored, updated and moved around. Those two features, which did not exist in our former analogue era, will be responsible for the exponential growth rates of Big Data in the years to come.
Big Data will gradually seep into all our daily lives. It may perhaps take another 10 to 20 years for this omnipresence to become perceptible. Nevertheless, this is a self-accelerating and self-engendering process which will produce ever greater quantum leaps in improving the control systems over the consumer and/or citizens and, finally, over all of us. Think of what it may become in 100 years. The latter may seem like a very long-time span for a human mind yet, in evolutionary terms, this is just a split second. As soon as Big Data includes the realm of biotechnology, then its power over us can be seen as virtually absolute.
The entities – whether corporations or governments – knowing how to best gather, store, analyse and use the Big Data of people will then be in a position to know people’s preferences, their dreams, their political convictions, their predilection etc. They will, therefore, know which car, which music, which medical treatment or even which political party will best suit them. The dangers inherent to such a process are obvious: People will eventually hand over the “steering wheel” of their lives to a small group of the society that controls gathering, administering and using the Big Data collected on them. The latter is identical to handing over power, influence and money to a small part of society.
A quote when it comes to Big Data is from one of my favourite writers, Yuval Noah Hariri, 21 Lessons of the 21st Century
“Big Data algorithms might create digital dictatorships in which all power is concentrated in the hands of a tiny elite while most people suffer not from exploitation, but from something far worse – irrelevance.”Yuval Noah Hariri
For this reason, it is fair to state that within the next few years Big Data may certainly be deserving of its definition as the “fuel of the 21st century”, not only because of the revenues, but because of its all-encompassing control over us. However, at the moment, it may still be somewhat difficult to identify which portion of an enterprise’s total revenue may be ascribed to its use of Big Data.
Aldous Huxley’s Brave New World of the 1930s may eventually become true. Now is the time for society to reflect on what they want to do with the new technological possibilities as well as where the legal – and perhaps also financial and competitive – barriers should be established to protect the freedom of individuals to avoid dangerous developments within our markets and governments. This discussion cannot be avoided, nor simply placed in the hands of a small group of business lobbyists, nor handed over to some governmental agencies, and most certainly cannot be left to some random sequence of development. This must be an open discussion involving all elements of society.
Some sort of compromise between what is possible and what should be allowed must be found. One aspect of such a compromise represents the aforementioned individual freedom requiring a certain level of protection whereas the other side of this balancing act is represented by the willingness of our companies to develop the skills needed for collecting and using Big Data within a reasonable legal framework. If we put too much emphasis on protecting the individual freedom of people, the skills related to Big Data might end up in countries and foreign corporations with more lax regulations and eventually pushing our own corporations out of this market.
As always, the difficulty lies in finding the golden mean between the two extremes.
Which projects generate this revenue? Which companies produce these revenues? If Big Data is the future to lucrative takings, how are governments able to allocate their national budget if data only partially appears as revenue in financial reporting?
Big Data will affect everything and everyone and will lead to a concentration of industrial and economic power. The big distributors, media companies and manufacturers are already gathering all types of measurable data. Every “click” on the internet and all forms of consumer behaviour are already being amassed and run through algorithms with one overarching aim: Namely, to win and bind the client to their company, product or even political party.
Oracle, Microsoft, SAP, IBM, Amazon, Alibaba, Zalando, any search engine, Google, Facebook, LinkedIn, TikTok and the like are the leading companies dealing in the collection of data. Most of those companies are headquartered in the US and in China, whereas only SAP is headquartered in Germany.
These companies are relatively young businesses. Therefore, it seems that the potential for future revenue generation, or, in other words, the control over the “well” to pump the fuel of the 21st century, is more likely to lie with those younger companies. Older and more traditional companies will have a hard time catching up with these new trends and skills. In fact, it is not unlikely that many of these businesses might indeed disappear during this era of Modern Times and will perhaps regret that they are not watching the famous and ever-popular movie by Charlie Chaplin, but rather are being fully exposed to the inexorable and unforgiving laws of the market.
It is thus fair to assume that US and Chinese companies will play a leading role in the Big Data Market. Europe, unfortunately, is likely to be relegated to the second tier. This admission is a painful one to make, especially if one feels European with every last fibre of one’s being.
Europe’s only answer to this overwhelmingly American and Chinese Big Data domination may well be to merely levy a digital tax which will be regulated by the EU Commission to help pay off some of the unsustainable debt accumulated by certain governments.
According to a study from Bitkom2, the total loss due to IT sabotage, espionage, theft and similar amount in to €102.9bn in Germany alone. According to that same study, the total amount spent on IT-security in Germany amounted to €4.57bn in 2019. GDPR states in Article 83 that the fine due to a breach of the data protection law may cost a company up to 4% of its worldwide turnover. Theoretically, when applying this maximum fine level to the German GDP3, this would result in a theoretical maximum exposure level of €137.42bn (compare Germany’s 2019 GDP which amounted to €3435.74bn) which corelates quite nicely to the actual loss of €102bn4, as mentioned above. On the basis of those figures, do you think that the IT security effort undertaken in Germany has been sufficient, or do you instead think that additional resources should be made available to protect our IT systems in Germany?
Investments in data protection and IT security have always been important and will become even more so – especially after the General Data Protection Regulation (GDPR) came into force, and the concomitant higher fines for data transgressions associated with it. Corporations and government agencies alike are increasingly exposed to hackers trying to illegally acquire their sensitive data.
My impression is that our investment in data security is far too little, compared to what we should be doing. Just looking at the numbers for Germany where the total IT security investment amounted to roughly. €4.6bn in 2019 while the loss suffered by IT security leaks went beyond €100bn, shows that there is still much room for improvement.
With the aid of a statistical method, namely by using the cumulative probability function of a Gaussian normal distribution, I have tried to illustrate that the current European investment in IT security is far too low.
On the basis of the German aggregate numbers for 2019, the result – in no way surprising – shows that the total investment in IT security should have been at least three times higher than the amount actually spent in order to obtain a reasonable, yet still imperfect, security environment.
While this is a very rough and purely statistical estimate which does not consider any qualitative elements concerning the actual expenditure of the funds, such spending analysis should ideally be a bottom-up analysis of qualitative elements, such as training IT specialists as well as listing the best ways to create smart IT devices and software programs to protect the IT infrastructure of the corporations and countries in question. The sum of all those protective measures would give us a valid number.
Currently, with little data available to us, it is not easy to secure an appropriate level of protection. Most companies do not even register their IT security expenditures under a specific rubric. This means they do not even know how much they have actually spent in protecting one of their most valuable assets: their data. Corporate senior management should be made aware of the significance of their IT security and should thus make certain that the necessary internal accounting and controlling procedures have been duly implemented in order to be able to identify what amounts have been spent on what type of IT protection and what gaps and shortcomings still need to be covered.
Besides, in the very near future, our infrastructure, including the supply of basic needs, such as water and electricity and even our structures for traffic control and similar infrastructure systems, will gradually become dependent on “intelligent” devices aimed at optimizing the offer to the constantly fluctuating consumer demand. Imagine what would happen if those systems fell prey to hacker attacks. They would be able to paralyze a whole nation. Thus, as such interconnected “intelligent” devices start supporting our most basic requirements, people will become increasingly aware of the need to establish appropriate IT shields to fend off the inherent dangers.
Thus, upgrading our IT security will become a constant requirement. Unfortunately, the pace with which corporations and government agencies upgrade their IT security systems generally lags behind the speed with which smart hackers enhance their illicit methods.
Have the sources of data already been fully exploited in order to dig up the data treasure? Can data already be given the attribute of cash cows? How many investments in data protection, cybersecurity, IT infrastructure etc. need to be made and how many data need to be managed in order to become profitable? How long will it last to reach the lauded Big Data potential?
All potential data sources are by no means being fully exploited at the moment. There are innumerable different data sources and data combinations. Much of the data needed to gain a complete and clear understanding of what a corporation is looking for may not even have been collected so far, due to legal and technical restrictions. Furthermore, the skills required to read, complement and understand the data may differ greatly from one company to another. The same data may offer a competitive advantage to one company while being of absolutely no use to another one. Thus, we can affirm that Big Data is certainly not a cash cow yet.
However, the ability to gather and use client data will soon be a skill which will be transformed from a “nice to have” to an absolute “must-have” ability as far as companies are concerned. Nobody will ask how much of the corporate total revenue was derived from the use of Big Data since the entire capacity of a business’s ability to generate revenue may soon depend upon its ability to gather, read and employ certain aspects of client data.
How important is Big Data for new innovations of the Western world – especially Germany? Are disruptive innovations nowadays the central – if not the only – approach to raising the GDP?
Yes, they are. Our developed societies are looking for a new type of disruptive innovation to keep on generating growth for their respective populations.
Digitalization may produce this disruptive effect. Paradoxically, it may also be due to digitalization that more people are put out of than into work. Factories, stores and even transportation may be able to operate with fewer staff, turning people into an irrelevant mass possessing only one single use: that of being a mere consumer.
Or will the reverse scenario come to pass: Will digitalization require more people (to be sure, they will be highly specialized and trained) to create, run and improve all this exuberant plethora of IT infrastructure? We will certainly see the result within the next few years.
Another way of creating a disruptive growth effect on the economy may come from the electrification of various means of transportation or integrating green hydrogen in them which in turn leads us away from a combustion engine. This is certainly another interesting topic to be discussed in a further interview.
Until now, we have instead witnessed the Central Banks generating money out of “thin air” in their attempt to keep the wheels of the economy turning and to finance the myopic and irresponsible dealing of many governments trapped in an unsustainable debt. The latter may serve as a prohibitive impediment to the future of the next generations as well as consuming the pensions of this generation in the process. If those inventions do not make their appearance sometime soon, we will be facing very difficult and challenging times indeed.
Richard, thank you for sharing your insights on Big Data and so amply contextualizing the now famous expression “data is the fuel of the 21st century” by expanding and clarifying what actual revenues entail.
Thank you, Cristina, and I look forward to reading your upcoming interviews with recognized experts delving much deeper into this fascinating topic.
1 Dossier Big Data Statista, Release Statista 2020: https://www.statista.com/study/14634/big-data-statista-dossier/
2 Spionage, Sabotage und Datendiebstahl – Wirtschaftsschutz in der vernetzten Welt Studienbericht 2020”: https://www.bitkom.org/sites/default/files/2020 – 02/200211_bitkom_studie_wirtschaftsschutz_2020_final.pdf
3 Gross Domestic Product (GDP) in Germany from 1991 to 2019, Statista 2020: https://de.statista.com/statistik/daten/studie/1251/umfrage/entwicklung-des-bruttoinlandsprodukts-seit-dem-jahr-1991/
4 Mehr als 100 Milliarden Euro Schaden durch Cyberkriminalität, 11. November 2019 https://industrie.de/it-sicherheit/100-milliarden-euro-schaden-cyberkriminalitaet/