The Data Paradox - How much is your data worth?
05 March 2019
At our recent client event, aimed at leaders of technology companies, we discussed a broad range of topics including valuing data as an asset class, business transformation through effective pricing and driving value from Intellectual property. At the heart of the discussion was the significance of ‘data’. This is also reflected in our recent CEO Survey - 100% of UK TMT CEOs consider “data about their customers’ and clients’ needs” as the most important data set when making decisions about the long-term success and durability of their business.
Over the last couple of years some of the world’s most successful companies have differentiated themselves from their competitors because they have recognised the value of their data. Whilst they have access to a wealth of data and have managed to create insights, when you review their balance sheets there is a glaring omission; the data assets they hold are not recognised or reported. This is partly due to accounting rules around recognising intangible assets, most of which (including traditional assets such as brands and customer relationships) don’t tend to be capitalised in the normal course of business. This is not because the accounting standards prohibit it. On the contrary, databases are cited as an example of intangible assets and the recognition criteria, certainly under IFRS, are typically met for most data assets in question.
The problem, as I perceive it, is one of measurement. Data assets are inherently difficult to measure.
Firstly, there is a very limited transaction history for data assets. This is a little chicken and egg, as markets will only become more active once investors have better insight over how to price assets.
Secondly, the value of data is contextual and dependent on the particular use case. The concept of fair or market value, however, requires the valuer to look beyond the current use. One could imagine an infinite number of use cases for GPS data for example. This also means that there are instances where copying and selling data sets to other parties might lead to only limited dilution in value to the vendor organisation for its existing use case. Is the value of that data asset therefore the sum of potential transaction proceeds and the economic use of the data for the vendor?
Finally, the regulatory and technological environment around data is changing rapidly. Further laws and regulations restricting the use and therefore potentially curtailing the value of data assets are underway whilst the technologies required to capture, cleanse, combine, curate, analyse, present and store are rapidly evolving making it easier and cheaper to harness the value of raw data.
Any data valuation framework which is likely to use a combination of existing valuation techniques as well as require some innovation will be evolving over the next few years as the market becomes more efficient and mature but that’s not to say that the valuation profession should not attempt to make a start to bring some rigour and consistency to the process. Cooperation and sharing of experience between valuers, enterprises and governments will be critical in this process.
Increasingly, the loudest voices advocating the creation of a data valuation framework are coming from within organisations themselves. CDOs/CIOs argue that it is difficult to manage what you can’t measure. Most companies have made a significant step in the right direction in 2018: at least those compliant with GDPR will have an accurate register of their data assets for the first time which is an important start.
Clearly, data is a critical strategic asset for organisations. If companies get in the habit of valuing their data assets internally they can make better investment decisions around enhancing and protecting them.
If you have any questions or want to learn more about how we can help you measure your data assets, please get in touch.