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Big Data Investments: Opportunities Behind the Buzz
Big Data’s been called many things: an overhyped IT play, the ultimate invasion of privacy, a buzzword that’s spun off more buzzwords. But despite all of the noise, Big Data investments are on the rise…and show no signs of slowing.
According to IDC estimates, the market for Big Data investments is set to grow from $16.55 billion in 2014 to about $41.52 billion in 2018, a compound annual growth rate of 26.24%.
Before we get into the opportunities in this growing multibillion dollar market, let’s quickly cover what we mean when we say “Big Data”.
Originally, Big Data referred to a dataset that was so large and complex, it had outgrown traditional methods of analysis.
In recent years, the definition of Big Data has broadened. It refers to both a dataset that’s grown beyond the means of traditional analysis, and the technologies implemented to process this data. What’s used to gather, store, analyze, and ultimately offer actionable solutions based on the data.
Today, these complex datasets are growing at a speed that no one anticipated.
Consider this: Since 1992, the world has seen a 20 million fold increase in the amount of data transferred per day.
But what’s remarkable about Big Data isn’t the necessarily quantity of the data — it’s that the tools now exist to put that data to use. Companies making Big Data investments see the potential to offer critical insights into the sectors that drive the global economy. From consumer buying habits, to insights into agriculture, to honing in on trends in age-related degenerative diseases medicine, this data could very literally change the world.
Juan Enriquez, managing director of Excel Medical Ventures, puts it succinctly in today’s video:
“The greatest advancement of our lifetimes was the evolution of how we communicate…going from speaking in a language of ABCs, to a language of 1s and 0s.”
This surge of data, continues Juan, “is generating more wealth than any other single thing in history.”
Luckily for investors, we’re just at the beginning of this trend. More on opportunities for Big Data investments in just a minute. First, a little background…
A Brief History of Big Data
Examining data, making connections and correlations, and order out of chaos is not a new idea. In fact, the first data miner can be traced back 350 years, to a man named John Graunt.
In an effort to better understand Bubonic Plague, Graunt studied 70 years of London’s birth and death statistics. His subsequent book, Natural and Political Observations, is now seen as the beginning of medical statistics.
Fast-forward to 2004. Hurricane Frances is headed straight for the East Coast of Florida — and the area Wal-Marts are preparing for the onslaught of panicked shoppers.
Having just had another major hurricane,“executives decided that the situation offered a great opportunity for one of their newest data-driven weapons, something that the company calls predictive technology,” reported the New York Times.
Based on their data from the last hurricane, each store began stocking their shelves with all the essentials for storm survival. You know, the basics: flashlights, batteries, toilet paper…and strawberry Pop-Tarts?
Turns out, after mining trillions of bytes of shopper history, Wal-Mart discovered that sales of the saccharine breakfast pastry increase significantly ahead of a hurricane – around seven times their normal sales rate. Armed with the information, Wal-Mart stocked accordingly, and as predicted, the Pop-Tarts sold very well.
Wal-Mart was at the forefront of turning data-driven knowledge into profits. A decade ago, most major retailers collected data about their stores and their customers’ shopping behavior – but Wal-Mart collected more data than anyone else.
In 2004, the retail giant had 460 terabytes of data stored at their headquarters. “To put that in perspective,” writes the New York Times, “the Internet has less than half as much data.”
Today, Wal-Mart’s databases contain more than 2.5 petabytes of data.
What’s Driving the Growth of Big Data?
Today, your iPhone becomes obsolete every 12 months, and each new device is “smarter” than the last. And the rise of the “Internet of Things” is just beginning.
The connected devices cover a wide range — everything from wearables, such as Fitbit and smart watches, to home appliances, car electronics, health tracking devices, 3D printers and so on.
Reports from Cisco and Morgan Stanley estimate that within 6 years, there could be between 50 – 75 billion connected “things” online. Nine times more smart devices than there are today.
Our own Ray Blanco puts it in context:
“At a potential of value of $19 trillion, that’s more than double the size of China’s economic boom. It’s triple the size of Japan’s output. It’s even bigger than the whole U.S. economy.
“Imagine taking all of our economic output and demand, along with all the wealth Americans have generated to get here and tacking that onto the global market — in six years’ time.”
As the Internet of Things broadens its reach, so does the data it generates, much of it “unstructured machine data”. In (very) broad strokes, machine data is data generated by applications, servers, network devices, security devices, and other systems in a company. IDC estimates that unstructured (meaning it doesn’t fall into one specific category of data) machine data makes up 90% of the data in today’s organizations.
Not everything flowing into the digital universe is of equal importance. And for those looking to leverage this information, they must first target the high-value data.
There’s a tiny problem: most business don’t have the internal resources to handle, process and analyze machine data. Their existing IT infrastructure just isn’t equipped to tap into this groundswell of information.
The IDC calls this obstacle the “Big Data Gap: information that is untapped, ready for enterprising digital explorers to extract the hidden value in the data.” To overcome it, it will take hard and a significant Big Data investment.”
And that’s where innovative companies saw an opportunity to fill a hole (or in this case, a gap) in the market.
How One Company Aims to Take the Sh Out of IT
One such company is Splunk [SPLK:NASDAQ], one leaders in Big Data for over a decade, who promises to “Take the Sh out of IT”.
As the market for data analytics has evolved, Splunk has shown strong growth and innovation to keep up with demand. In the past three years, they have doubled their customer base to 8,400 (which includes half of the Fortune 100).
When Domino’s Pizza decided to make a Big Data investment to resolve IT issues, they hired Splunk. Right off the bat, the global pizza chain saw over $300,000 in savings by replacing existing technology.
This initial investment quickly led to Domino’s expanding its use throughout their company. The data collected from the entire corporation and their network of over 10,000 franchises brought to light revenue insights on both the business and marketing side.
“In business and marketing, we have just begun scratching the surface of how we can use Splunk Enterprise to make better decisions,” said Russell Turner, manager of site reliability engineering, Domino’s.
Domino’s investment in Big Data is paying off. In 2014, shares were up 51%. Armed with the knowledge it’s gained from Splunk, Domino’s has been focusing more on digital and mobile applications to make it faster and easier for customers to order – while gaining valuable insights to their customer base via machine data.
This focus on technology has helped Domino’s generate approximately 50% of U.S. sales from its digital channels at the end of 2014, as well as reach an estimated run rate of $4 billion annually in global digital sales.
Big Data is Behind Every Sector
Today, Big Data investments are increasing across many different sectors, including government, financial services and healthcare.
A recent study within the industrials and healthcare sectors found that 87% of executives believe that Big Data will have a huge impact on the competitive landscape. In other words, companies not implementing some kind of Big Data initiative have a very real chance of being left behind.
“Big Data is behind every sector,” says Big Data venture capitalist Stamos Venios.
By 2016, the budget for Big Data investments, “will be larger in corporate business development than information technology,” Mr. Venios added, citing data from McKinsey & Company.
Like any rapidly growing emerging market, the Big Data universe has challenges to overcome. Questions of regulation and data security are already rising. Businesses will have to make a significant investment in data infrastructure and IT personnel.
Despite the uncertainty and obstacles the Big Data landscape faces, these technologies and advancements have the potential to grow the economy and impact the world in ways we haven’t even begun to understand.
In an interview for Harvard Magazine, biostatistic professor John Quackenbush puts it simply: “From Kepler using Tycho Brahe’s data to build a heliocentric model of the solar system, to the birth of statistical quantum mechanics, to Darwin’s theory of evolution, to the modern theory of the gene, every major scientific revolution has been driven by one thing, and that is data.”
As the digital universe continues to expand, the most successful Big Data companies will be those that evolve, innovate and anticipate their customers growing needs. And for investors who want to get in on this long-term trend, these are the type of companies to keep your eye on.
for The Daily Reckoning
P.S. Back in 1999, people were questioning the staying-power of tech’s latest buzzword: the “Information Superhighway.”
But where others saw a passing fad, Daily Reckoning founders Bill Bonner and Addison Wiggin saw possibilities – and decided to do a little experiment.
Today, Addison and Bill’s experiment is still going strong. And if you’re one of the 500,000 who subscribe to the Daily Reckoning’s free e-letter, you’re a part of the experiment’s success.
For 15 years, we’ve had the honor and privilege of writing to our subscribers with one big idea. One way you can profit from and make sense of (or at the very least, laugh at) the world of finance, economics and politics.