Small is beautiful for data firms

When something is called “big” it usually does not work well for small firms, which make up most of our economy. But big data is different.

Before the internet, companies required not just expensive production plants, but an equally expensive logistics infrastructure to bring content to the doorsteps of consumers. The internet changed this. It was sufficient to have a server connected to the net.

But this did not eliminate steep initial investments. Successful start-ups soon need data centres with tens of thousands of servers. Amazon for example had to invest many millions in technology, almost bankrupting it in its first years.

Contrast this with big-data company, for example. The Seattle-based start-up offers its customers accurate predictions of whether the price of any of tens of thousands consumer products, from cameras to washing machines, is likely to increase or decrease, helping people to make well-timed buying decisions.

To achieve this feat, it is necessary to collect billions of data points from the internet every day and service hundreds of thousands of customers. But such a huge digital imprint does not mean a company has to be equally huge. There can be as few as 30 employees and no need for a data centre. Instead, digital data storage and analysis capacity can be rented.

The quintessential big data start-up can be launched with little cost and, even as it grows to service hundreds of thousands, does not need to make huge investments. It can simply stay small and nimble. All the essential building blocks that used to be very costly can be had on demand and at relatively low price, so employees can remain focused on realising the innovative ideas they have.

With big data, many of the traditional economies of scale and scope vanish. Small firms do not even need to collect their own data. They can often license access to it from other companies that fail to see the value in the data they have. So it is quite likely that big data will provide a rich and fertile ground for a whole generation of small firms that will be financially successful, but deliberately opt to stay small.

Existing small firms, too, can benefit from big data. Until now, their size often limited how much data they could collect, thus reducing the value of their analysis. In the big data age, companies of all proportions will realise that data has value much beyond the primary purpose for which it was collected, but often they will not be able to reap that value themselves. So they’ll permit others to access their data for a fee.

In choosing a suitable licensee, many companies will be wary of having large corporations with access to their data vaults. Small firms in contrast are less of a threat and thus far more likely to be granted access, opening a unique commercial opportunity to them.

So despite its name, in the big data age, small will be remarkably beautiful when it comes to firm size.

Viktor Mayer-Schönberger is the Oxford Internet Institute’s professor of internet governance and regulation, and co-author, with Kenneth Cukier, of Big Data: A Revolution That Will Transform How We Live, Work and Think.