“The world is more connected than ever, but the nature of its connections has changed in a fundamental way. The amount of cross-border bandwidth that is used has grown 45 times larger since 2005. It is projected to increase by an additional nine times over the next five years as flows of information, searches, communication, video, transactions, and intracompany traffic continue to surge. In addition to transmitting valuable streams of information and ideas in their own right, data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.”
McKinsey Global Institute (2016) Digital Globalization: The New Era of Global Flows
The commercial flow of data within and between platforms, organizations, jurisdictions, and nations has rapidly enabled companies to globally hire, analyze, manufacture, market, and sell in ways that were impossible just a short time ago. From a market standpoint, this connectivity explosion has benefited both companies and consumers alike. Companies — especially small and medium-sized businesses (SMBs) — can achieve massive efficiencies and reach, while consumers can seamlessly obtain better, cheaper products and services from either the other side of town or a world away. Cross-border movement of goods, services, and currencies is almost entirely reliant on this free flow of data, and these data flows represent trillions of dollars. This is the modern data-driven economy.
At Catalyst Research, we view the global economy through this lens, exploring the implications of the data-driven economy for markets, products, and consumers, and laying the foundation for an appreciation of the true value of data in technological innovation, economic success, and global competitiveness. This strategic shift in perspective about the very nature of commerce and markets has already disrupted the thinking, planning, and actions of both business leaders and government lawmakers and regulators. As these stakeholders wrestle with the complex questions of data’s inherent value and the ability of markets to drive both competition and innovation in the digital world, a solid understanding of the inner workings of the data-driven economy will be critical. We’ve dubbed the study of this topic “Data Economics.”
We have just embarked on an interesting study backed by multiple large technology companies to investigate the economic value of access to data through digital tools such as Application Programming Interfaces (APIs) and Software Developer Kits (SDKs). While the companies who release these tools certainly believe they benefit the marketplace, amazingly, nobody at these companies or elsewhere seems to know precisely how they do so. This begs numerous questions at the intersection of innovation and economics. For example, when a new SDK related to virtual reality (VR) is released:
- Are new VR-related startup companies launched to take advantage of it?
- Do existing VR-related companies hire additional people (i.e., create jobs)?
- Is there an increase of venture capital (VC) funding into the VR space?
- Is there an increase in revenue of VR-related companies (new app sales, etc.)?
There are many layers to investigating the answers to such questions. To make things more complicated and realistic, consider that such data-access releases occur from multiple companies (Google, Microsoft, Apple, and many others), sequentially over time (in other words, a VR SDK version 1.0 might be released in April 2016, followed by 2.0 in September 2017, and so on), in various categories (VR, maps, cloud, artificial intelligence (AI), etc.), and across different jurisdictions with different rules about both data and economics (U.S., Canada, UK, EU, India, and so on).
Working with external subject-matter experts who specialize in the intersection of the digital world with industrial economics, our team is explicitly testing the hypothesis that when a significant technology platform does a major release (i.e., an API, SDK, etc.), we can observe and measure a specific and positive economic impact in the marketplace. We are going about this by creating a unique dataset which integrates detailed data about tech platform releases with data about economic impact measures that can be observed as various proxies from tech startup ventures (number of startups created, new startup funding, job creation, and so forth), and then applying statistical and econometrics analyses to it. Overall, the analysis will determine how much economic value a robust marketplace of developer environments generates through access to data.
This type of research on the emerging field of “Data Economics” is not only intellectually stimulating and commercially useful, but also serves larger policy-related and national competitiveness goals of interest to Congress, the Commerce Department’s Digital Economy Leadership Team (DELT) and International Trade Association (ITA), the Office of the U.S. Trade Representative, the Federal Trade Commission (FTC), and others. First, it is helping to develop a national dialogue about how the data economy will power the next generation of innovation to improve individual, national, and global prosperity. Second, the research is yielding a deeper understanding of how the data economy will result in a new set of strategic opportunities and threats for America and its global companies and allies. And finally, our work is educating policymakers, the media, and other stakeholders about the complex and critical issues underlying the future of the economy, innovation, and competitiveness at all levels.
Mark Drapeau is Principal and Chief Research Officer of Catalyst Research.