2 ways alternative data will shape our economy beyond the financial industry
From the sharing economy to fueling startups, consumer-driven search engine, eCommerce, and social interaction data sets are setting the stage for new business opportunities
In this article we will discuss:
Moving beyond financial alt data
Alternative data sets have been catching the attention of many professionals in the financial sector including:
- Investment managers
- Loan risk assessors and credit scores analysts
- Equity researchers
- Bond traders
But the applications of alternative data go way beyond the classic financial use cases, offering unique opportunities for those who are willing to embrace new data sources and analysis techniques. From Machine Learning models to consumer sentiment analysis and news monitoring to search engine query tracking, alt data will shed light on the real consumer narrative.
2 ways alt data will shape tomorrow’s economy
The sharing economy
The ‘sharing economy’ which for the purposes of this article includes community-driven internet services that help coordinate the shared benefit of:
Companies like Airbnb, Uber, and Lyft that fall into this category are projected to see a 38% participation rate of adults in the U.S. economy throughout 2021, according to eMarketer research.
The sharing economy is generating data at unprecedented rates a lot of which has yet to be analyzed and capitalized on. Here are some examples of alt data sets which once collected and analyzed could open up new markets for existing expanding companies or new startups:
- Travel/Real estate – Companies may want to collect and analyze data such as ‘what areas people are looking for short term rentals’ on Google. Companies may want to look at social media and see what kinds of posts people have uploaded from vacation rentals and analyze interior design trends and how this is/will be affecting travel accommodation choices.
- Transportation – Many cities in Europe, the Middle East, and North America are seeing new shared transportation options across their cities. From Ofo bicycles and Wind electric scooters to companies like car2go who allow people to rent a car for as little as 10 minutes without the hassle of ownership. Many of these new modes of transport are a product of analyzing alternative data sets such as city transportation routes, transport infrastructure, time and cost paid per bus/train ride, and the like. Identifying something as simple as a lack of parking spaces, the way PinkPark did opened up a new market of renting out private parking spots while people were at work.
Startups by their very nature are structured in a way that disrupts a market in one way or another. But in order to really bring something unique and disruptive to saturated markets, entrepreneurs have to perform in-depth market research. If classic data sets are cross-referenced with alternative data sets, startups can find solid ground for establishing product-market-fit. Here are some alt data sets which can generate actionable insights for startups from their first investment round to product launch:
- Examining your Unique Sales Proposition (USP) – Validating your ideas is important at any stage of developing your business. Alternative data may provide you with crucial information such as aggregating similar solutions in your industry currently being invested in by Venture Capitalists (VCs). Finding other companies trying to solve similar consumer pains can allow you to see who you will be competing against in the future enabling you to tweak your offering for an increased competitive advantage.
- Monitoring Search Engines – Alt data sets derived from search engines can be extremely useful as far as identifying where consumer interest currently lies as well as analyzing current industry leader’s offerings. Once you know what customers are looking for and what they are being offered, you can adapt your marketing strategy, messaging, and pricing packages/special offers to keep pace.
- Learning about your target audience – Getting to know your target audience intimately is extremely important. What is their exact pain point, what solution are you providing and what do their current routines and habits look like. Let’s look at this through the prism of Waze, a startup purchased by Google for upwards of $1 billion. The paint points which they were trying to solve include:
- Information about traffic congestion
- Updates on average traveling times on the roads
But Waze seemingly offers a similar solution to technology developed by Google in house, namely Google maps.
Despite solving many of the same issues – what justified this startup’s valuation and sale price?
- Combining a social interface with a GPS service – Waze is powered by user-generated data that drivers choose to share with their peers ( roadblocks info, speed traps, police, traffic etc). This unique combination of social data combined with real-time mapping created unique value. Leveraging user-generated alt data from social platforms can have a similar effect on recipes, calorie counting, and eCommerce startups, to name a few.
- Creating features based on user behavior and needs – Waze has unique features that Google Maps lacks including the ability to report accidents, police presence, speed cameras, and roadblocks. This idea came to be when Waze founders collected alternative data sets such as customer reviews of other mapping applications. They took user complaints and suggestions and integrated them into their new app, creating value based on real driver pains and needs.
Summing it up
Over the coming years, alt data is set to permeate almost every sector of our economy growing from a meager market size of $1.64 billion in 2020 to a staggering $17.35 billion by 2027.
It will encompass data sets which will open up new windows for:
- Mobile app innovation such as ‘mobile application usage’
- Rethinking the production, delivery, and storage cycles using ‘satellite and weather data’
- Continuing to create alternatives to consumer spending and transactional behavior through ‘credit and debit card transaction data’ and ‘email receipts’
This is merely a fraction of the use cases and types of alternative data which can be collected and analyzed for higher revenue generation and better customer satisfaction. Take a few moments to reflect on which alternative data sets can bring the most value to your corporation at present so that you can start collecting, analyzing, and implementing insights today.