Capitalizing on the world's most valuable intangible asset: Data
All entrepreneurs dream of the moment when their startup becomes a unicorn. Every startup craves the unexplainable valuation that is gifted to companies that burn through cash but continue to attract and retain investors. Every employee imagines the moment his company rings the bell at the New York Stock Exchange and his equity stake triples in value in a single day.
The climb to unicorn valuation is shrouded in mystery — and some would say covered in clouds. But one component of unicorn valuation that should be the obsession of every leadership team is the contribution from one of the financial world’s most underreported intangible assets.
The growth of intangible assets on corporate balance sheets
Intangible assets are those that are nonphysical, but identifiable. Examples include patents, copyrights, licensing agreements and even website domains. Intangible assets, with the exception of goodwill, can be bought and sold independently of core business revenue products. Historically, tangible assets, including cash, inventory, investments and even real estate, were the majority of the components of any company’s balance sheet. But I recently discovered a Forbes article that made a dramatic claim: “Intangibles have grown from filling 20% of corporate balance sheets to 80%.” This is a trend that will continue because most companies do not yet include what should be, and what already is for many, one of the most highly valued intangible assets: data.
Warning! Data swamps ahead
In every industry, the value of data is skyrocketing, and it will soon become a common practice to include the value of this intangible asset on every company’s balance sheet. The path to unicorn valuation gets a lot shorter if this invaluable intangible asset is monetized correctly. Collecting massive volumes of data spanning customer information, operations and supply chain, product development and delivery, and financial and industry trends is a key first step. But when that first step leads to a data swamp, that asset becomes a liability, especially in the face of data privacy and regulatory expectations. Architecting a unified and executable strategy — that word executable is very important when companies get distracted by “free” open source software — is the fork in the road between a highly valued intangible asset and high-risk liability. Analyzing the data without limitations on volume, without compromises on speed, and without well-built bridges between data repositories is not easy, but it’s mandatory.
Short-sighted data brokers miss out on major windfalls
Given the challenges of an executable unified analytics strategy, the first thought that many enterprises have when they seek to monetize their data is to sell it. Data brokering is a relatively straightforward way to add a revenue stream and monetize data. But truly data-savvy companies know that selling their most valuable asset is short-term thinking at best. Consider a company like Netflix, which knows so much about what each of us watches, our interests, the timing of our watching, the keywords and genres we search for and so much more. That data is obviously valuable to many other companies, but Netflix knows that using that data to better engage us all as customers, including algorithmic-driven analytics to create personalized recommendations, as well as providing guidance for its own content creation and development decisions, is the most effective way to capitalize on its data.
New revenue-generating services for auto manufacturers
Automobile manufacturers are following the same path. Tesla is leading the way, but companies like GM, Chevrolet, Ford and BMW are not far behind. The volume of data that these manufacturers are collecting today spans every component of their vehicles and every aspect of how and where and when those vehicles are used by customers. This data is easily classified as one of the most highly valued intangible assets when you consider the new services that could — and will! — be created based on this highly personalized data. Imagine a service offered by your automobile manufacturer that provides you, not your insurance provider, with data that shows your safe driving actions, including following speed limits, blinker usage and no heavy braking due to tailgating. This service is now a benefit to customers, not a threat, and it is also a net-new revenue opportunity for the manufacturer.
Increasing shareholder value by monetizing and protecting data
The balance sheet is a very simple concept. Assets minus liabilities equals shareholder value. The bigger the total asset value is, the better — unless the liability is growing as well. Big data can make a big difference on both sides of the balance sheet, but the true industry disruptors know that building the intangible asset valuation of their data puts money in their pockets and drives the greatest market differentiation.
Everyone has patents, licenses, goodwill and the standard intangible assets. But not everyone is taking action to build up what is soon to be the most valuable intangible asset: data. When I consider my own personal investment strategy, I carefully consider the indications that the company whose shares I am evaluating is focusing on both monetizing and protecting their most valuable intangible asset. Smart investors like Warren Buffett, Jeff Bezos and Peter Thiel did exactly that over the last couple of decades and their strategy clearly paid off — and paid out.
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