Putting a price on information: The nascent field of infonomics
Putting a price on information: The nascent field of infonomics
By Linda Tucci
Black gold. Texas Tea. Information is the new oil is one of those catch statements that's now used so often (more than 1.3 million Google search results) and in so many contexts (tech vendors love it) that one might expect infonomics -- the economics of information -- to be a recognized discipline with many disciples.
That information has value certainly comes as no revelation to CIOs -- chief information officers. Or to Facebook, an information company, or to Google, or, for that matter, to The Kroger Co., which is generating $100 million a year in incremental revenue by selling its supermarket point-of-sale data on a subscription basis to consumer packaged goods companies. "This is happening in a lot in the retail industry," Doug Laney, research vice president at Gartner Inc., told me, but the trend is hardly limited to consumer companies.
I would say probably 30% to 40% of my client calls over the last couple of months have been from companies in every industry and government, inquiring how they can package and market the data they collect in a way to generate revenue directly or generate revenue indirectly through favorable terms and conditions or through bartering.
analyst, Gartner Inc.
"I would say probably 30% to 40% of my client calls over the last couple of months have been from companies in every industry and government, inquiring how they can package and market the data they collect in a way to generate revenue directly or generate revenue indirectly through favorable terms and conditions or through bartering," he said.
Laney, who coined the term infonomics in the 1990s, while working on ways to classify information for data warehouses, really started diving into the concept of recognizing information as a corporate asset after 9-11. That's when clients impacted by the terrorist attack sought advice on dealing with the data they lost. "This was before cloud," he reminded me. The companies, some of which lost all their data including backups, submitted claims to insurers for the value of the data destroyed.
"The insurers said, 'Well, wait just a minute, we'll pay you for the value of the hardware you lost but as far as we're concerned, electronic data isn't considered property,'" Laney said. After 9-11, the insurance industry actually changed the language on the general liability policy used by most commercial insurers to explicitly exclude electronic data from coverage, he recently learned. "And when did they do this? A month after!" he said, a hint of outrage in his voice. "Not to be outdone, a couple of years later the accounting profession re-issued Financial Accounting Statement No. 38 to explicitly exclude the capitalization of information on balance sheets."
Many data loss-related lawsuits later, the courts are still split on whether electronic data constitutes property, Laney said. Arguments against contend that electronic data is just the bits and bytes of the electronic arrangement of atoms on a disk. (As if the medium, allowing for fast and wide dissemination of information, doesn't add value to the message!)
The blowback from the insurance industry led Laney to examine the current balance sheet, developed in the late 1930s by the newly-formed U.S. Securities and Exchange Commission, some 15 years before anyone used information technology. Patents and copyrights are capitalizable, but general information is not.
"What is an asset, according to the international accounting standards? It really boils down to three things: an asset is something that is owned and controlled by the organization; it is something that is exchangeable for cash and something that generates probable future economic benefit," he said. "I don't think there's an argument that information does meet that litmus test."
Valuation models at a dataset level, with 'baker's dozen' metrics
The world is behaving as if information were a corporate asset, but infonomics remains a nascent field. "There are dribs and drabs of it outside Gartner," Laney said. A university in the Netherlands offers a program in infonomics. IBM is doing some work on quantifying information so decisions can be made about archiving it.
While companies are eager to monetize their data, valuation is of less interest. "If accountants aren't recognizing information as a corporate asset, why should we? But I make the argument that they shouldn't care what the accountants say. If they are an organization that wants to do more with information, then they'd better be quantifying its value, inventorying, treating it like an asset, applying asset management principles and practices -- or they will be in a poor position to generate maximum value from it," Laney said.
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Gartner has developed a toolkit for establishing value, recommending, for example, that valuation be done at the data set level (e.g., customer database), rather than by individual record and by applying various criteria (completeness, quality, uniqueness). The latter acknowledges that the ubiquity of information is a factor in an organization's ability to generate value from it, Laney said. "A dataset that is more proprietary to a company and not readily available in the marketplace has greater or more intrinsic value."
Gartner isn't the only IT consultancy staking a claim in infonomics. A recent Forrester Research monthly tip for SearchCIO.com by analyst Ed Ferrara argued that chief information security officers need to put a valuation on information if they hope to obtain the security budgets required to keep up with escalating threats.
As for whose job it is to value a company's information asset, that's an open question, Laney said. Information strategy certainly falls within the purview of the CIO, but more companies are giving the job to chief data officer.
"We've gone out and trained some CDOs; the name infonomics may not come up but what they want to know is how to treat information a corporate asset," he said. A CDO at a global financial services company put it this way to him: "We know we stink at information management, but I would like to put some dollar signs on key information assets, so the people who run this company understand how important it is to collect, curate, manage and secure them appropriately."
Let us know what you think about the story; email Linda Tucci, Executive Editor.
08 May 2013