There’s certainly no lack of data available for modern business owners these days. With 4.4 billion internet users as of mid-2019 – an 83% increase from five years earlier – and 26.6 billion IoT (Internet of Things) connected devices, data is being generated at a record rate. In fact, the amount of data has increased exponentially with 90% of the world’s data being generated between 2016 and 2018.
While using traditional data sources can unearth a lot of information, enterprises can take it one step further and gain hyper-detailed insights with alternative data. It’s just a matter of taking advantage of the right technology and putting insights to use, which has created a lot of opportunities for enterprises.
But to truly get the most out of it, companies need to look beyond traditional data sources for improved operations in order to gain an advantage over their competitors. That’s where alternative data comes in.
This term is open to a certain amount of interpretation, and what exactly constitutes alternative data can vary from industry to industry.
However, Krishna Nathan, CIO of S&P Global, offers a succinct definition: “Alternative data draws from non-traditional data sources so that when you apply analytics to the data, they yield additional insights that complement the information you receive from traditional sources.”
In other words, it’s any data that’s useful and relevant but isn’t something you would utilize in a conventional context.
Alternative data can be generated in a number of ways and from a variety of resources. Everything from search traffic and social media posts to IoT devices and satellite imagery has a potential use.
One example would be an enterprise aggregating thousands of comments and reviews from blogs, social media, and news publications to determine customer sentiment. From there, they could identify their strengths and weaknesses and take measures to improve the customer experience and strengthen their brand reputation.
Another would be a financial lender analyzing satellite imagery of parking lots to determine how much foot traffic a company that is seeking funding receives. For instance, if a company’s parking lot is consistently filled with vehicles, it would likely indicate that they receive a high volume of foot traffic. However, if their parking lot is only sparsely filled with vehicles, it would likely mean less foot traffic.
Or if an enterprise was looking to optimize their product pricing, it could aggregate pricing information from the products of several competitors. They could then use their findings to choose the optimal price point and maximize customer conversions.
There are two main ways enterprises can capitalize on alternative data: using it to improve decision-making, and using it to gain a competitive advantage.
When it comes to decision-making, alternative data enhances the overall “intelligence ecosystem,” where enterprises have access to more comprehensive, all-encompassing information. They can then use it to create a more effective strategy and reduce their risk level by leveraging data that would have previously slipped through the cracks.
And by using alternative data to spot emerging trends, better understand customers, and keep tabs on key competitors, enterprises are able to gain a competitive advantage. In some cases, it can even lead to product and service innovations that put a company head and shoulders above the competition.
Orbital Insight, a geospatial analytics company that uses satellites, drones, balloons, and other types of unmanned aerial vehicles to gather data, was able to produce images of department store chain JC Penney parking lots, which indicated a considerable decline in foot traffic over a five-year period. This correlated with a fall in the value of JC Penney’s stock prices.
As a result, more and more traders are tapping into this type of alternative data to improve investing. “The lure of alternative data sets is largely the potential for an information advantage over the market with regard to investment decisions,” explains the Deloitte Center for Financial Services. "True information advantage has occurred at various times in the history of securities markets, and alternative data seems to be just its most recent manifestation.”
A completely different example involves Tom Farms, an Indiana-based agriculture business. They utilize a variety of alternative data to digitize numerous aspects of the farming process, including real-time data from sensors to monitor irrigation and better control when crops are watered, and to diversify their crops to better protect them against weather and disease.
Their willingness to use data and have it so integrated into the farming process has been a major reason for the success of Tom Farms and has helped them grow from 700 acres in the 1970s to over 20,000 acres today. Then, it may come as no surprise to hear that alternative data is being useful in a myriad of industries.
Luke Fitzpatrick has been published in Forbes, Yahoo! News and Influencive. He is also a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program. You can connect with him on LinkedIn.