The Knowledge Exchange / Risk Management / Technology economics: The ‘cost of data’

Technology economics: The ‘cost of data’

Remember the famous presidential election tagline, “It’s the economy, stupid.”

Well, in the world of technology economics, it seems that it is time to update it with, “It’s the data, stupid.”

In the world of IT economics and measurement, a seemingly infinite amount of time has been spent exploring the relationship between IT spending and revenue (and perhaps expense). However, if you start to explore the world of data, and rank sectors by parallel metrics such as TB of data per $1M revenue, TB of data per $1M operating expense, or TB of data per employee, you get the simply astounding perspective as shown in the table below. Banking and financial services is the most data intense sector. You’ll note that this is also true from an operating expense perspective, and almost true from a “TB per employee” perspective, in which banking and financial services are only beaten by media with its high video and audio content – some argue though that this not really data and hence banking and financial services jump back to the top!

Taking a deeper dive

Did you know that, overall, 92 percent of the cost of doing business – the financial services business – is data? This may astound you as you look at your Market Data costs – which for most companies is about 3 percent of Net Revenue – but the data costs here are not just market data. They include all of the costs associated with the acquisition of data – from the markets and your customers and partners, the transmission, distribution, processing and retrieval of data. And this perspective is meant to transcend both the technology (IT) perspective and the operations perspective (the people and plant cost).

The numbers are astounding:

  • Worldwide technology spending will reach an estimated US$4.5T in 2011; that represents 6.3 percent of the global GDP.
  • In the US, technology spending accounted for 23.8 percent of 2011’s GDP, in China it was 9.4 percent and Japan was 8.7 percent. Germany comes in at an estimated 5.5 percent.
  • The Financial Services sector accounts for about 9.2 percent of the global technology spend, or about US$400B. And if you consider just the data related costs – again acquire, store, transmit, distribute, process and retrieve – that accounts for 83 percent or a little more than US$333B for 2011.

Where does the money go?

As Table 2 shows, we know a little about the distribution of the data costs. If this model is even partly true, then the next breakthroughs in the cost structure of the banking and financial services technology economic will likely come about through a focus on the efficiencies of data. These initial numbers tell the story of where the costs are – processing, distribution, delivering and storing. The implied ranking of where the costs are provides a path to opportunity analysis and actions.

It will also be interesting to see how IT and business process outsourcing (BPO) services begin to reshape once the dynamics of such data economics are known. There is evidence of a shift in the consumer marketplace – consider the recent announcement of iCloud … that’s about data costs, isn’t it. In the banking and financial services marketplace perhaps the first evidence of the shift is with Bloomberg’s new enterprise offerings – which go beyond its cornerstone data terminal.

But overall, in the core IT and BPO marketplace, the central organizing principle at the moment is around the technology: co-location, managed services, outsourcing, transaction processing. If the findings of this high-level analysis are correct, the marketplace will likely reshape itself knowing, “It’s the data, stupid!” That will be the message of the new economics of business.

In this new market place, how will your data stack up? Learn what it takes to get your organization to look at data as a corporate asset.

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4 Trackbacks

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