What is the REAL value of your precious, precious data?
Why your personal information isn't as important as you think
Data Pair – Part 2 Multitudes are getting very excited about what all of this data flowing around the system is worth. If we can know lots and lots about lots and lots of things then obviously that's really valuable, yes?
And to some extent this is even true. We're not just in a bubble here – the more we can do with data these days, the more that data is worth. However, it's worth possibly unpacking how and why data is valuable.
The first thing we need to get away from is some idea of what data “ought” to be worth. Economics is a positive subject, not a normative one. We therefore look at what something is actually worth, not what it ought to be in some parallel universe where the chakras are aligned. This is, to some extent, the point that some of our continental colleagues are missing.
The thinking seems to be that we must protect European information from being sucked up by American corporations because it is valuable and we Europeans should exploit that value. Or even that consumers should not have that value taken from them. This is rather ignoring the point that this information has value only because it is being sucked up by those companies that have the wit and ability to process it. The same data that Amazon sucks up about your buying habits is entirely valueless if sucked up by, say, Waterstones, who wouldn't know how to process it or even what to do with the results if they did.
We cannot therefore say, prima facie, that data or information has “a value”. And we most certainly cannot say that data ought to have such and such a value (OK, we can, but that's metaphysics, not economics or finance).
Value is “value to whom” and that also depends upon the time and place. Knowing the winner of the 3.30 race at Kempton is rather more valuable at 3.15 that day than it is at 3.45 that day. Being able to predict something by processing data is thus perhaps more valuable than knowing as a fact something that has already happened. The value to whom is further important if we consider the gambler and the puritan who insists that betting is for the very devil.
Finally, our value-to-whom depends upon who is the supplier of that information and who is the user of it. Quite obviously there must be a difference of valuation here or there never would be the transfer of that information. This is true of any market: I and John only exchange apples for pears because, at the margin, we think that the last apple/pear we have is worth less than the next pear/apple we will have.
So it is with information and data. A vast number of people think the data about their last book purchase, the most recent online ad they looked at or the web pages they have been visiting is of zero value. A very much smaller number of aggregators of such information think that there's great value in it. So much so that they're willing to spend a few billion dollars here and there to provide a service (like, say, a social media network or a search engine) just to collect that information. It's this difference in valuation that drives the transaction.