Not in the data business? Expect to be out of business within a decade

February 27, 2015

The Economist recently ran an article entitled ‘Upsetting the Apple car‘. It argued that, contrary to common Silicon Valley wisdom, it will be automotive manufacturers, not tech companies like Google and Apple that will build the car of the future. It pointed out that car makers, from Ford to Nissan, are constant innovators themselves, are not afraid of embracing technology, and have the more relevant skillsets to boot (Google is, after all, not used to offering after-sales engineering repairs, factory maintenance and servicing).

While it may be correct to say that technology companies’ in-roads into the automotive industry will not spell the imminent demise of existing car manufacturers, this seems to miss the bigger point: car manufacturers will maintain their lead only if they themselves become technology – or rather data – businesses. This seems to be happening already. For evidence, just look to Ford, which now advertises as many software roles as most mid-sized tech firms.

Spot the value

Increasingly, all businesses will need to be data businesses. The true value of the car of the future is likely to be based much less in its mechanics (as parts become increasingly commoditised) and much more in how intelligently it responds to its surroundings, in other words, how it handles information. What are banks except giant data companies? The fact that the information they store, process and exchange in their acres of server farms happens to be about money is almost incidental. The value they offer their customers comes down to their ability to move that information intelligently, securely and at low cost.

Even the traditional supermarket has long been a data company. Whether or not you use your supermarket’s loyalty card, your purchases are still linked to the credit card you pay with. Revenues are driven by exploiting that information for maximum insight about the customer. (With that in mind, it is mystifying why Tesco is selling off Dunnhumby, the company behind ClubCard, which for years gave it competitive advantage over its peers). Supermarkets will only become more data-driven as increasing numbers of shoppers make their purchases online, where every click can be analysed. And with smart meters expected in every home and business by 2020, energy companies too will become data companies. The winners will be those that leverage the immense amounts of data they collect from connected devices to greatest effect.

There are policy implications to this observation.

For politicians concerned with the future success of the UK economy, they might wish to ask how many of our established industries are ready to become data-driven businesses, capable of competing in a global marketplace packed with thousands of them? How many FTSE 100 companies have a Chief Data Officer at Board level? The government is trying to get its own house in order with searches underway for its first Chief Data Officer (as announced in the Efficiency and Reform Group’s December 2014 plans). It should not be afraid to shout about that fact a little louder.

And as the European Union ploughs on with its General Data Protection Regulation – which could place major restrictions on what companies can and can’t do with consumers’ data – politicians may also wonder whether UK businesses will be able to compete with their counterparts in the US, where there is greater freedom to use data innovatively. The Minister for Digital Industries, Ed Vaizey, MP, was not joking when he said the GDPR would be ‘the most important piece of economic legislation that Europe is likely to pass in the next two years’. He was right because in a digital economy, the real currency is not sterling, euros or dollars, but data. Given that increasingly all businesses are driven by data, it is vital that the next government fully grasps the fact that policies aimed at ‘digital’ or ‘data’ companies will actually impact almost every industry.

Ten years from now, we will, one assumes, all still depend on the core services and products offered by car makers, banks, supermarkets and energy providers. There will still be competition based on price, quality and choice in all those markets. But as competitive advantage increasingly becomes about how companies leverage the data that surrounds their wears, those that don’t realise they are in the data business risk being out of business within the next decade.

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