Big data, for all of its value, is inherently dumb. It doesn’t actually do anything unless you know how to use it. What makes Google one of the most valuable brands in the world? It isn’t data; it’s the company’s most closely guarded secret, its algorithms. Consider how Google’s proprietary algorithm in the driverless car functions as the connective tissue that combines the software, data, sensors and physical asset into a true leap forward in transportation.
Or consider high frequency trading: A trader’s unique algorithm drives each decision that generates a higher return than competitors. The algorithm trumps the data that it accesses. The next digital gold rush will be focused on how you do something with data, not just what you do with it. This is the promise of the algorithm economy.
“The next digital gold rush will be focused on how you do something with data.”
Proprietary algorithms that solve specific problems that translate into actions – will be the secret sauce of successful organizations in the future. Algorithms are already all around us. And they promise a brave new world of opportunities: Software that thinks and does. Cognitive software that drives autonomous machine-to-machine interactions. Artificial intelligence.
Today, the opportunities for organizations and technology providers are enormous.
Read related article: The Arrival of Algorithmic Business
Monetize and license proprietary algorithms
For organizations, the opportunity will first center on monetizing their proprietary algorithms by offering licensing to other non-competing organizations. For example, a supply chain company can license its just-in-time logistics algorithms to a refrigerator manufacturer that seeks to partner with a grocery chain to automatically replenish food based on your eating habits. Why invent or slowly develop sophisticated algorithms at huge cost when you can license and implement them quickly at low cost?
“Proprietary algorithms…will be the secret sauce of successful organizations”
For technology providers, a new opportunity exists to develop and sell algorithms that help connect their customers’ existing offerings to others via the internet of things, or a veritable ‘meshternet’ as it will become, differentiating their services in the marketplace. Once media hype increases around initiatives such as the recently announced Google Brillo, a system that allows easy connection between devices, this will undoubtedly become a topic of fevered questioning for CIOs at C -suite meetings. The growth opportunities and benefits of efficiency that exist when inert things can communicate autonomously to take actions without human intervention will be something every CEO and CIO will want to explore.
The algorithm economy
This will inevitably create entirely new markets to buy and sell algorithms, generating significant incremental revenue for existing companies and spawning a new generation of specialist technology start-ups.
Imagine a marketplace where billions of algorithms are available, each one representing a piece of software code that solves a problem or creates a new opportunity from the exponential growth in the internet of things. As apps have revolutionized human to machine interaction, we’ll see the algorithm economy power the next great leap in machine-to-machine evolution.
Products will be defined by the sophistication of their algorithms. Organizations will be valued based not just on their big data, but the algorithms that turn that data into actions and ultimately customer impact. For CEOs it’s a call to focus now on their proprietary algorithms, not just their big data.