Software is eating the world -- and selling it back to us as data

"The moneyball-ization of everything" -Alex Izydorczyk

Takeaways

• Alternative data is growing at an astronomical rate, spurred by the growth in apps

• While much of this app-driven growth stems from internal tracking software of companies with long operating histories, the rest of it stems from new, data-intensive industries as well as from social media

• Companies could use alternative data internally to gain an edge in the marketplace, or sell it to financial service firms or even sell it to competitors

The only thing expanding at a faster rate than data is the quantity of memes we’re expected to be aware of. And, if life imitates art, the Big Chungus meme suggests that art can imitate data.

Big Chungus is an obese version of Bugs Bunny, photoshopped off a 1941 Merrie Melodies cartoon cell. He is insatiably hungry, eating non-stop and growing increasingly enormous.

Set aside for a moment the sub-Minecraft quality of the above image. By the time you see in, 9 million viewers will have beaten you to it. And that’s just one YouTube video. He actually makes an appearance in the 2021 Space Jam sequel. Big Chungus is truly eating the world.

And it wouldn’t be possible without the technology to rip the image from an existing work, morph it into a new and unique form, disseminate it via social media and message boards, pushed out to whatever device viewers have in their hands at that moment, then be stored in recipients’ hardware or shared drives.

Tech plays a foundational role in the alternative data space.  Without the proliferation of technology – smart phones, sensors, apps and so on – alternative data simply would not exist.

As Moore’s Law continues to propel technology – which it does, despite current physical barriers, because approaches involving electron spin states and other nanotech – capturing the amount of data being produced is like trying to count the stars in the universe.

And that’s where the Big Chungus of database management software comes in.

Supersizing the order

First, let’s give credit where it’s due. Just like Big Chungus’s creator, the pseudonymous Gary the Taco, acknowledges that the meme is rooted in the greater body of work created by Leon Schlesinger’s animation studio of generations gone by, I also must recognize a debt. The idea that “software is eating the world” is not original with me. No less august a personage as Marc Andreesen came up with that Wall Street Journal headline. In 2011. And it’s still true.

Technology upends industries by offering a better, more efficient, more margin-friendly way of doing business. Along the way, though, the new software that's acquiring more customers and capturing as much information as it can about each of them gains a kind of X-ray vision into the industry that has just upended. Eventually those insights become more valuable than the actual software business itself.

Take Flexport, for example. The freight forwarding and customs brokerage firm was merely a software solution less than a decade ago for American importers who were tired of dealing with endless paperwork at the port. Now Flexport is closing a billion dollar round of fundraising and its CEO is on the cover of magazines due to its work arranging global shipments for retailers and manufacturers by using technology and a web interface that mirrors travel-booking websites. Enter Flexport Capital, a trade credit business which uses the data Flexport gathers on other firms’ shipping volume to set loan terms. This data is used internally, not to inform investors. Still, given that it competes with other financial services firms in providing loans, you can see where the line begins to blur.

Research analysts throughout the financial sector would love to analyze Flexport’s data to understand inventories and order volumes of specific companies. What Apple analyst, for example, wouldn’t love to know about shipping volume for iPhone components?

Any tech-enabled company is theoretically capable of shedding a far richer volume and breadth of data. McKinsey saw this coming via its surveys years ago, and the flywheel has been spinning forward ever since. How much of that data companies choose to share or sell to investors is a case-by-case question. But in the same way that low-touch software solutions are an enticing business model, so too are those software companies going to be compelled to enter the nearly zero-cost, all-margin business of selling the insights they've gathered to willing buyers on Wall Street.

What next?

On a macro basis, such data could yield more robust information than can be found in standard industry benchmarks. The Baltic Dry Index, a primary indicator of shipping demand, calculates average prices along 20 shipping routes. Based on data gathered through member surveys, BDI predicted the 2008 recession, so imagine replacing that with real-time ‘nowcasting’ data from actual shipping market participants.

So this quickly becomes a many-to-many network. Any company with enough tech savvy – that is, every company that’s still in business – can monetize its data to financial institutions, competitors or their own internal, captive alternative data subsidiaries. The data could be interpreted at the firm level or the global level or anywhere in the mezzanine.

The total amount of data created, captured, copied and consumed globally is forecast to increase from 64.2 zettabytes in 2020 to more than 180 zettabytes in 2025.

An IDC white paper commissioned by Seagate Technology points out that this growth is spurred on not only by the increased data produced by these legacy companies, but by the growth of the social media platforms through which all the world can like, follow, comment, rate and review them. There are new, data-intensive industries expanding every day.

“From autonomous cars to humanoid robots and from intelligent personal assistants to smart home devices, the world around us is undergoing a fundamental change, transforming the way we live, work, and play,” according to IDC. “This digital existence, as defined by the sum of all data created, captured, and replicated on our planet in any given year is growing rapidly, and we call it the ‘global datasphere’.”

That datasphere, I imagine, extends beyond the troposphere, stratosphere and ionosphere. In other words, it entirely encompasses the earth. Stated another way, it is eating the world – swallowing it whole in a single gulp. Like Big Chungus.