It is a common cliché to say “Data is Oil”. For those who look at Data from the eyes of Facebook or Google, it is easy to understand why Data is a mouth watering business asset with huge profit prospects. Such data operators can simply discover data from the environment as if we are plucking it from air. They can squeez data like squeezing water out of wet cloth.
But for most of the people in say manufacturing industry, the value of data is an enigma. It is not visible in their operations and if a little bit of data is available, it could be like “Scrap” in the business. The complex nature of data where data can be replicated, transmitted in the speed of light and combined with other data horizontally and vertically to create value products is some thing most manufacturing companies are unable to visualize.
The industry has today heard of Information Technology Act 2000 (ITA 2000) and Personal Data Protection Act of India or PDPAI (Presently in the form of a Bill). Both these legislations talk of what cannot be done with data. Though we recognize that data is useful either as “Personal data” or as “Corporate Data”, laws only speak of the “Donts” rather than “Dos”. The “Dos” if any are in the form of what should be done to avoid the liabilities that arise because of the “Donts”.
It is therefore a pleasant surprise to many that India is contemplating a new regulation called “Non Personal Data Governance Act” which essentially focusses on how to unlock value out of data without infringing either the ITA2000 or the PDPAI. One need not be a Cyber criminal nor a personal data profile creator to unlock value in the data. What this act does is to recognize that after data is segregated into non personal data and personal data, it is possible to further remove the identifiable elements in the personal data and make it “Anonymzied personal data”. This anonymized personal data is also non-personal data and together with other non personal data which may include corporate data and environmental data, can create a “Data Asset” that can bring value to business.
Just as “Data” though “Intangible” can have “Value” if it is considered as “Intellectual Property”, Data which is not personal has value in itself. What we need to innovate is how to convert this residual data into more valuable and marketable data.
In the non-data industry, people have heard about use of Data as a catalytic tool for production in an Industry 4.0 scenario. We have also heard how data flowing through a 3D printing device can create a product by converting data into a physical product by using an appropriate printing material which could be a metallic dust or plastic material.
What many manufacturing entrepreneurs donot know is that just as we take raw material and convert it into finished goods, it is possible to take data as a raw material or a semi finished input and create finished products that are of value. The Facebook and Google are examples of how raw data can be made into valuable products and turn enterprises into globally competitive business entities.
Now it is time for Indian entrepreneurs to understand the potential of “Data” as a “Raw material” and find ways and means of creating appropriate finished goods. This may start as a by-product of the current manufacturing activity but through aggregation techniques could be converted into valuable industry data which can be converted into cash when a “Data Exchange” becomes available after the Non Personal Data Governance Act is passed.
Suppose we have a mango tree growing in our backyard, we may not be able to make full value of the produce because it is seasonal and only one variety of mangoes is available every year in such large quantities that we cannot consume. But we can always find a buyer who purchases mangoes from you and several others and markets it as a separate activity. Similarly some of the data you produce during your production, may be not useful for you. But some body else may find value for the same because he can aggregate it horizontally with similar data gathered from other sources and he may be able to give you value for your data too.
While it may take a couple of years more for this “Data Business” to emerge, we need to start thinking of how we can start recognizing the value of data which is generated in our process.
Though “Data Business” has already been developing within the IT industry, the system of recognizing value for data and how it can be brought into the balance sheet is still not properly resolved by the community. A few attempts of assigning value to data has been made in the field of “Personal Data” for the purpose of conducting surveys for advertising. But this value is mostly used as a one time passing off of information and not to reflect the wealth of an enterprise.
In the days leading to the development of the “Data Exchange” we need to find ways and means of devising a method by which we value different types of data both, personal, and non personal data and devise instruments of transfer of rights so that a complete eco-system is built for data marketing.
If we look at the source of data, there is always a cost of generating “Data”. This could be one way of estimating the value of data and can be used for Cyber Insurance purpose. The same valuation can also be used if the data is to be transferred for consideration. This is the “Actual Cost” or “Replacement Cost” basis for valuing data.
This system can also be used for valuing data which is in different forms in the life cycle just as how we value “Goods in Progress” as a percentage value of the finished goods.
Once we have the finished goods on stock, the valuation can be on a conservative basis the total cost of production with the option of the “Valuation on the market value basis”. Similarly, the finished data (eg a Profile) could be valued at the perceived market value.
Since the market has found a method of valuing the intangibles like the IPR , a similar approach can find a method of valuing data also.
However IPR value is brought to the balance sheet by creating a special reserve which analysts can always discount of they want to. Similarly the personal and non personal data can also be valued and brought into the balance sheet. When a proper Data Exchange is set up in the country for exchange of data, it may be possible to make a reliable valuation of data. Until then it will be difficult for accountants to sign off on a balance sheet where the value of data is shown as an asset.
However, until the accountants come to an agreement on how to value data, we can always use the method of creating a data value on the asset side of the balance sheet and at the same time create a contra entry on the liabilities side to off set the value of the data shown in the asset book.
The advantage of adding such a value would be that in the case of the valuation of the firm as a Going Concern basis for mergers, acquisitions, the value of data becomes recognizable. It will also not escape the eyes of the Banker or even the bankruptcy courts who otherwise tend to always give a zero value for data assets as they did in the case of Net4India insolvency case in India.
The concept of “Valuation of Data” also gives rise to a new professional service of “Data Valuers” who can assign a value to the data holdings of an organization. Such data valuers have to be experts in understanding the laws related to data as well as security of data since they have an impact on the valuation.
This is a new career opportunity that would develop in due course beyond the career opportunities of CISO/Compliance officer developed by ITA 2000 or the DPOs and Data Auditors created by PDPAI.
To fully appreciate the valuation of data, perhaps it would be useful if one also takes a look at “Naavi’s theory of data” which tries to place a structure on how we define data, recognize its evolution during processing and how value can be recognized.
Perhaps the Future is uncertain and it is like passing through a Time warp in space. Once the PDPAI becomes a reality some time in the early part of 2021, we may suddenly find ourselves on the other end of the time warp and emerge into a world unknown but full of new opportunities.
Let us look forward to this world at the other end of the PDPAI warp.
Naavi
Time to start without further delay
The “Fascinating Data Pasture at the other end of the PDPAI Warp” may seem to be a futuristic thought for product manufacturing and related service industry, but I am of the opinion that its time has started long back, but our industries have failed to notice, understand and tap the opportunity at the right moment. As the author states, the IT industry in the sphere of social media etc., are already reaping huge benefits and there is no reason why all other industries should stay behind.
The entities, by not resorting to identifying the data that are generated during their industrial related activity in a purposive manner and by not marketing such useful data with well thought out plans and strategies, have lost much initiatives and openings in making rightful gain out of the useful output that has gone down the drain. In the present day dealings, all Industries in goods and services sector, including MSMEs, are using the digital tools and data route in majority of their functioning. I feel that they now should start identifying the data they generate in such activities in right earnest as it can help them to recover the costs incurred. After recognizing the prospective buyers, they can go for creating appropriate outputs, followed by proper marketing strategy to sell the useful data to the needy. However such transactions are to be subjected to statutory precautions and restrictions of privacy laws. By doing so, the Industries can convert this data as their revenue earning assets without waiting for any “Data Exchange” that is expected to be formed and established. As one cannot forecast the type of establishment that may emerge, it is wise to take necessary initiatives to clinch the benefits of the existing market.
It is opined that, without any further loss of time, this has to be taken up early, as it will open a window in the form of income to the entity without much cost. And by proper managing, it will fetch profits in the long term. This may become a source of regular and continuous income like the Intellectual Properties. Without adopting proper measures to recognize and protect the IPs generated, the MSMEs have incurred huge loss. The fraudulent persons, who copied, counterfeited or pirated such IPs, have flourished at the cost of the rightful owners, who did not think of protecting such rights as they did not visualize the factor that is capable of bringing continuous income to their business. Such situations are already happening in data generated in this sector. Therefore such entities have to understand the present situation and take suitable steps to earn a profit out of their data related activities. Further by marketing such data, it is possible for these suppliers to resort to Valuation on the market value basis which is a fair and realistic approach. But without creating the useful marketable outputs, merely resorting to valuation of data by cost method will serve only the purposes of balance sheet. Therefore it is time to start the entire activity without waiting the new legal measures in the form of privacy and data governing laws could emerge, I truly believe.
– By M G Kodandaram, IRS, Assistant Director (Retired), NACIN.