Data is Eating the World: A New Economy

By GilPress
May 11th, 2017

Data are to this century what oil was to the last one: a driver of growth and change. Flows of data have created new infrastructure, new businesses, new monopolies, new politics and—crucially—new economics. Digital information is unlike any previous resource; it is extracted, refined, valued, bought and sold in different ways. It changes the rules for markets and it demands new approaches from regulators. Many a battle will be fought over who should own, and benefit from, data…

The problem [with personal data] is the opposite to that with corporate data: people give personal data away too readily in return for “free” services. The terms of trade have become the norm almost by accident, says Glen Weyl, an economist at Microsoft Research. After the dotcom bubble burst in the early 2000s, firms badly needed a way to make money. Gathering data for targeted advertising was the quickest fix. Only recently have they realised that data could be turned into any number of AI services.

Whether this makes the trade of data for free services an unfair exchange largely depends on the source of the value of the these services: the data or the algorithms that crunch them? Data, argues Hal Varian, Google’s chief economist, exhibit “decreasing returns to scale”, meaning that each additional piece of data is somewhat less valuable and at some point collecting more does not add anything. What matters more, he says, is the quality of the algorithms that crunch the data and the talent a firm has hired to develop them. Google’s success “is about recipes, not ingredients.”

That may have been true in the early days of online search but seems wrong in the brave new world of AI. Algorithms are increasingly self-teaching—the more and the fresher data they are fed, the better. And marginal returns from data may actually go up as applications multiply, says Mr Weyl.