Monday, November 12, 2018

Data - The Newest Natural Resource

When someone starts to speak of natural resources we think of minerals, forests, fields, flocks and herds or water.  A natural resource is anything occurring in nature that can be used for economic gain.  It can be argued that the history of mankind is the history of the acquisition and use of natural resources.  We even refer to different periods in history by the natural resources that dominated innovation in that period, such as “The Bronze Age” or the “The Iron Age.” 

Industries have been created to develop and use natural resources.  The different mining industries, timber industries, and many of the farming industries illustrate that point.  And the control of natural resources is often directly related to the power and significance of a nation-state.  Wars have been fought over the control of oil, minerals, water, and arable land.  Societies and cultures have developed around the management and processing of natural resources.

To say that understanding and managing natural resources is important is an understatement. 

The Data Resource

Let’s look at the definition of a natural resource again.  It is anything occurring in nature that can be used for economic gain.  Most types of data are a description of what is occurring in nature. Let’s compare a typical natural resource to data. Imagine an apple seed that is sown in the ground.  It grows into an apple tree.  That tree then yields bushels of apples, which are regarded as a natural resource when they are harvested.  Similarly, an event occurs in the world around us.  That event creates analog data – sound, movement, scenes, emotions, and reactions among people and things.  That analog data can be digitized and harvested.  It becomes a resource that can be used for economic gain.  And since this resource is representing something that is occurring in nature, it is a natural resource.

Much of our data today is in digital form.  This means the data is a digital representation of the world around us.  It is the digital natural resource.

Consider some of the different types of traditional natural resources.  There are minerals that are mined.  Some are scarce and precious like gold and silver.  Some are much more common, but are processed and used in multiple applications, such as iron or tin.  But generally speaking, there is a finite amount of minerals in one area.  Some of the data natural resources are like that.  The data is buried and must be dug out.  In some cases, there is a limited amount of data when it relates to a unique occurrence.  In other cases, there is a tremendous amount of data that can be used for many different purposes.

Then there are the natural resources associated with agriculture that are labeled as renewables.  These have a growing cycle from seed planting through harvest.  And these natural resources can be fertilized to increase yield.  There are many types of crops and different strains are grown to emphasize different characteristics.  The land can yield multiple harvests as long as it is tended.  With respect to the data resource, the “planting” of IoT sensors or the collection of actions and reactions in digital devices can create an ongoing harvest of data.  And different sensors or data recorders will give different insights into the natural phenomena that is happening.

The Use and Management of Natural Resources

Natural resources are only valuable when they are used.  Oil in the ground that is never pumped creates no value for mankind.  Wild grapes that are never harvested and turned into wine provide no value for mankind.  For the value of a natural resource to be realized, there must be a process to acquire the resource, purify the resource, and apply the resource.  The execution and management of this process creates value.

Let’s use the example of iron ore resource and compare it to the data resource. First, iron is found in many locations, but it is buried.  Likewise, data is being created all the time, but it is often buried.  A geologist discovers a deposit of iron ore based upon his or her knowledge of the surrounding geology and the results of testing.  A data scientist can apply their knowledge to the business or societal circumstances and identify areas where important data can be collected.   The mining company must acquire the mineral rights before they can legally start to mine the iron ore.  And in today’s society, many types of data, especially personally identifiable information requires the consent of those involved before it can be collected and processes.

When the mining company has determined they can legally and economically mine the iron ore, they will open the mine.  There are numerous mining techniques – some very manual and some relying on technology and automation.  The type of mining done will depend upon the location and the expertise and resources available to the mining company.  The parallel with digital data acquisition is obvious.  Once the decision is made to acquire the data, there are many different tools that can be used.  The data acquisition can be done using manual methods, or a digital platform can be used to automatically and systematically collect the data.

The mining company must then ship the iron ore to the processing locations.  This could be by truck, by rail, or by ship.  In the same way, the acquired data must be transmitted to the servers and applications where the data will be processed.  Granted, data transmission is much faster than shipping iron ore.  But it is also much easier to intercept the data and garble the data during transmission.

Once the iron ore reaches the processing operations, it goes through many steps before it is useful for applications and has created economic value.  The iron ore is crushed and heated until it becomes malleable.  The iron must be refined and impurities must be removed.  The iron can then be cast into useful shapes and sizes or combined with other minerals to make new products, such as steel.  Again, there are the similarities with data processing.  The individual data elements are often aggregated into databases.  The data is cleansed to remove noise and false data points.  The resulting databases can then be used for many different applications, and multiple databases can be combined to create new applications.

Opportunities and Risks

By placing digital data into the paradigm of a natural resource, we can use lessons learned from history about the management of natural resources.  This tells us that data management is full of both opportunities and risks.   These opportunities and risks exist for individuals, business entities, and society at large.

First, they exist for the individual.  A person who is a skilled worker or craftsman in an industry that is developing a natural resource is employable, and often has a very good-paying job.  In fact, a culture or society will often develop around that natural resource and additional societal relationships and cultural norms will develop.  This gives the individual a sense of community and purpose.  History has shown us this in agrarian cultures and mining communities we find around the world.  In fact, this effect has been created with respect to digital data in the Silicon Valley culture.  Continuing to consider the individual, if a culture develops based upon a natural resource and an individual does not participate or rejects the use of the natural resource, they will likely be ostracized by their culture.  One other point - when a new natural resource, or at least a new deposit of a natural resource, is discovered, a frenzied “get rich quick” atmosphere can develop that is full of charlatans and predators.  Consider the California gold rush of 1849.  While some did get rich, many others were fleeced and destroyed during that time.   That is a word of caution for those individuals who are jumping on the digital transformation bandwagon.  Make sure you are relying on trusted sources.

Next let’s consider business entities.  There are numerous opportunities up and down the value chain of a natural resource.  A company may choose to specialize in one aspect of the value chain and offer its services broadly across the industry.  Or it may attempt to vertically integrate around one application or category or use for that natural resource.  Of course, all the normal aspects of a competitive business environment are present and the need for access to capital, customer engagement, quality products and services and competitive pricing all contribute to the success or failure of a business.  With respect to digital data resource management, the speed and scale of the industry precludes a “wait and see” strategy.  The barriers to entry are low and natural geographical boundaries are meaningless.  There are already many digital giants and entrepreneurial start-ups.  The development of the industry is racing ahead and those who are not embracing digital transformation are shut out from participating in the development of this natural resource. 

Two companies that illustrate viable strategies are Google and Airbnb. Google has chosen to dominate one aspect of the digital data industry—that of searching—and has spread that capability broadly across many applications.  They are dominant within a horizontal slice of the industry.  Airbnb is vertically integrating data management with respect to overnight stays – they are dominating a vertical slice within the industry.  A question you should be asking yourself right now is, “What strategy is my business using to take advantage of this natural resource?”

Finally, there are opportunities and risks for society.  Access to information and data has become a great democratizing influence around the world.  Digital data and information have opened the doors for goods, services, and exposure to ideas and knowledge in virtually every corner of the world.  But with this explosion of data has come the spread of propaganda and censorship and the loss of personal privacy. When one company becomes all-powerful within an industry, it often results in exploitation of customers and aggressive hostility towards new ideas.  Monopolies stifle the development of an industry and culture.  It has been argued that companies like Google and Amazon have too much power and that they should be broken up in the same way that Bell Systems was dismantled during the 1980s.  In addition, when personal private information is in the wrong hands, it can be used to manipulate and intimidate individuals.  The European Union recently took action to address this concern with the imposition of GDPR regulations.  The correct balance point for both of these concerns is still being debated.

Using the paradigm of a natural resource, the development and management of the digital data industry and its impact on society becomes clearer.  It is not just an incremental step in technology advancement.  Rather, it is an organizing element for industries, society, and individuals.  And as with any other natural resource, control of the resource and the ability to process that resource and use it for many applications is a strategy for success.  Whether you are an individual dabbling with digital devices, a corporation that is attempting to participate in the digital data value stream, or a policy maker who wants to leverage the advantages of this natural resources and avoid the risk, you need a strategy for engagement.  You are not in the “Bronze Age” you are in the “Digital Data” age.  Are you making the most of your opportunities?