Data & Privacy
If data is the new oil, is FAANG the new OPEC?
Data is the new oil, with FAANG acting as the new OPEC. Unlike finite oil, data is non-rivalrous, non-fungible, and constantly growing, concentrating FAANG's market power. Users need control over their data to prevent its exploitation.
-p-500.jpeg)
July 18, 2024
The notion that "data is the new oil," as Clive Humby put it in 2006, has become a popular saying to emphasize the importance of data to the digital economy. In fact, there are a lot of similarities between the oil market and the data economy. The oil market has long been dominated by OPEC (Organization of the Petroleum Exporting Countries), which regulates the price of oil through its national oil companies. In today's digital economy, data has become the most important commodity, and FAANG (Facebook, Apple, Amazon, Netflix, and Google) have similarly cornered the market with exclusive control over the commodity.
How we got here
In the early 20th century, the world witnessed an economic transformation driven by the discovery and exploitation of oil. Black gold, as it was called, became the lifeblood of industrial economies, powering everything from automobiles to factories, heating homes, and even fueling wars. After the initial discovery phase, the market was quickly consolidated into large national institutions that formed OPEC. This allowed these companies to dictate the price of oil and use their market power to generate monopolistic profits. Through their successive expansion and ability to corner the market, they became more and more powerful.
Fast forward to the 21st century and we are in the midst of another commodity driven transformation, but this time the most valuable commodity is data. We live in a world where every interaction, every transaction, every movement creates a piece of data. Smartphones, smart homes, social media, online shopping, and countless other technologies continuously generate vast amounts of personal data about us, adding to your digital footprint every day.
Today, the most profitable companies are those that hold the key to collecting and accessing personal data. Companies like FAANG now represent the largest companies in the world and hold similar power over the rest of the economy. But has FAANG become the new OPEC? To answer this question, we need to look closer at the commodities themselves and the market conditions prevalent in the economy.
How it's going Part 1: The economics of data
Think about oil for a moment. In its crude form, it's not very useful. But once refined, it powers the economy and fuels the profits of many businesses. Similarly, raw data is rarely useful to businesses. It's only when it's processed and analyzed that it becomes valuable information. As a result, an entire industry has been built around collecting, processing, and analyzing personal data. Companies use this refined data to understand customer behavior, predict trends, improve products, and make more informed decisions. Instead of drilling for oil, the most valuable companies are collecting and analyzing personal data. As a result, companies that excel at generating or interpreting data dominate public indexes and the stock market.
But unlike oil, data is not a finite resource. We're not afraid of running out of data. In fact, the amount of data generated is increasing dramatically every year due to more activities and interactions. So, data is not a finite resource, and companies that dominate the ecosystem around it are less vulnerable to competition. There are only very few companies that can generate high quality data. The monopoly built around data is therefore getting worse by the minute, while it is getting harder and harder for their competitors to enter the market. Accordingly, the market built around your personal data has been consolidated in the hands of a few key players like Amazon, Google, Meta, etc.
Moreover, data is non-rivalrous. A data set can be sold to and used by many buyers. While a barrel of oil can only fuel a car once, or a dollar can only be spent once, a dataset can be used for multiple algorithms, analytics, and applications simultaneously. Therefore, data can be sold to different buyers who use the data and resell that data or its insights. Thus, smartphone users can sell their data to hundreds, if not thousands, of companies through this iterative process without ever receiving a single penny for it. This seems unfair from the user's perspective.
Finally, compared to oil, data is not fungible. Fungibility means that one unit of a commodity can be exchanged for another without preference. This is true for a barrel of oil of the same grade or the US dollar, but not for data, where the individual value of the data set can vary enormously. This creates massive disparities that only allow the gatekeepers like FAANG who have the best access to your data to actually monetize it, while others are unable to do so.
Your Facebook or Google data as a single record far exceeds the value of the data your weather app has on you. Similarly, your financial data from last month, detailing all your income, expenses, and balance, is more desirable than data from a year ago. As a result, the applications with the most scale, and generally the most interactions with their users, capture the most value and generate the most valuable data. Again, the companies that do this best are FAANG. If you are curious about the value of your data, we have an extensive blog post on this topic that goes into much more detail.
How it's going Part 2: Data Monopolies
It seems that data is by far the most profitable commodity to own. So where is the crowd of Wall Street redditors looking for overly leveraged structured financial products with fancy sounding names that invest in data as a commodity? They must be missing out on this impressive investment opportunity. Which brings us to the biggest problem with the current data economy. The commodity on which it is built is for the most part not traded on a free market, but is held by a few gatekeepers.
The FAANG are the most prominent of these gatekeepers. So data is a commodity that you have no access to, that is completely controlled by a few companies that capture almost all of the value that is generated with it and have market power. Sounds like the oil market and OPEC to me. In addition, there are three characteristics of the data economy that make this even worse.
First, non-fungibility gives large data collectors a clear advantage. Second, data is a non-rivalrous good, which means that companies can sell it over and over again without sharing in the value created. Third, the fact that data is not a finite resource, but is being created at an increasing rate, gives more power to companies that already have market power, as they create more and more of the commodity from which they derive the most value.
Given these three differences between oil and data, we can see that the data economy is even worse off than the oil market, and that market power will become even more concentrated, with fewer companies holding more data and therefore more economic power.
What's our solution?
To reshape the data economy from the bottom up. Instead of arbitrary government regulation trying to limit the market power of the FAANG, the approach to reshaping the data economy starts with the users of these services. By giving users insight into the different ways their data is used and creates value for other businesses, we give users transparency into the current state of their data economy.
Next, we will enable our users to share their data with trusted sources, fostering an exchange of data between trusted partners that transact only with user consent and in the interests of each individual user. A key difference between the data economy and oil is that the wells for data are not offshore oil platforms, they are in your front yard, or put another way, they are on your smartphone, your smart devices, and all the applications you use. That means you have access to the commodity they need.
The wells for the data are in your control. At Datapods, we believe that it is only fair that you have full control over that wellspring, and that only stakeholders that you specifically want to have your data are allowed to receive it and extract value from it. When the wellsprings of data are in your control, there is no reason to allow FAANG to become as powerful as OPEC.
.png)