Spice Wars — a lesson for our digital economy?

In 1505 a spice war broke out between European rivals Italy and Portugal. The Portuguese had taken a risk on a faster sea route to India using large cargo ships. Not only was their new route faster, their transport capacity outstripped their rivals who were using a combination of boats and camels to transport pepper from the Red Sea to the Mediterranean. By staying at sea all the way to Lisbon the Portuguese avoided taxes imposed by the Sultan of Turkey and when they arrived at their destination, their goods were closer to their markets and cheaper at the point of delivery. The Portuguese plan wasn’t without risks, they had to fight off pirates off the coast of Mombasa. The ensuing spice war was devastating for Venice, it went from pepper exporter to importer in the space of 7 years. It was the turning point as its economy shifted from trade to industry (Steinmetz, G., 2015).

In my previous blog Data is the new global commodity I looked at the increase in data flows as an indicator of global commerce that crosses physical borders in operations, supply and customers. If data truly is our new global commodity then we need to ask who owns it, how is it traded, and how do I protect it from my competitors?

Although 500 years have passed since armadas were duking it out in the Indian Ocean, many of the same ‘ingredients’ of that commodity war remain relevant today. A global stranglehold on the market, increased capacity, increased speed, security of transmission, tax avoidance and the ability to trade in wholesale and retail markets.

Since the late 1990’s when Microsoft was found to be a monopoly

And not just any monopoly, but the very worst kind: one that uses its power to squash would-be rivals before they’re even out of the gate (Time Magazine, A Judge Ordered Microsoft to Split. Here’s Why It’s Still a Single Company)

Tech giants have been finding new and inventive ways to monopolize their markets. In India Facebook’s ‘Free Basics’ product was touted as an altruistic way of bringing ‘baby internet’ to the masses as a way to alleviate poverty, improve education and create jobs (Kuchler, 2016). It turns out they weren’t there for philanthropic purposes. Instead they were spending their core budget on a market grab to hook hundreds of millions of new smartphone users in the early stages of their adoption. Major protest ensued as citizens fought for net neutrality when they realised that the commercial interests of companies like Facebook were not the same as the national interests of India. In coining the term ‘digital colonists’ this sort of practice was described as

Colonialism from an economic perspective is the extraction of raw resources and sale to the consumer without creating a capitalist class in between … they want the raw data from a customer, extracting personal information, and they want to sell their service (Kuchler, 2016)

In terms of vulnerabilities I previously commented on the increasing attack surface area (10 billion internet enabled devices worldwide and growing). As data storage moves to the cloud there are additional issues and complexities of data ownership, jurisdiction, sovereignty and overall security. Whether that be security of physical infrastructure, geo-political stability or security of data transmission. As the Portuguese knew in the 16th Century, Here there be pirates.

But as data collection becomes more ubiquitous, global commerce becomes more reliant on data flows. McKinsey, 2016 asserts that 50% of the world’s traded services are already digitized and approx. 12% of the world’s global goods trade is conducted via international e-commerce. Data is the new black (pepper …. to stretch our analogy). As global players like Facebook, Google and Amazon jockey for position there are other factors that make our data more vulnerable.

The term data mining is an interesting one as it implies excavation or extraction of something precious and in order to find those rare minerals. In order to achieve this, a large mass of material is moved, processed and sifted through. Now we have the means to collect more and more data the effort required to find the gems is considerable.

In order to create highly customized offerings (e.g. Target’s offering based on a “pregnancy prediction score”), a company may need to mine a huge amount (volume) of structure and unstructured (variety) data from multiple sources (complexity). In some cases, this process may also involve the use of high velocity data (Kshetri, 2014)

As companies pull-in and aggregate data from more and more sources we are now seeing the combination of structured data (traditionally presented in rows and columns) with unstructured data (e.g. e-mail messages, word processing documents, videos, photos, audio files, presentations, webpages).

A high variety of information in big data makes it more difficult to detect security breaches, react appropriately or respond to attacks (Kshetri, 2014, pg. 1140)

In its day, the spice trade was the world’s biggest industry: it established and destroyed empires, led to the discovery of new continents, and in many ways helped lay the foundation for the modern world. It was supported by technological innovations such as square-sailed ships armed with heavy artillery; ships with greater storage capacity and navigational improvements. But eventually spices became more common and less valuable. The trade routes were wide open, people had figured out how to transplant spice plants to other parts of the world, and the wealthy monopolies began to crumble.

Companies such as Facebook are in a race to build product to hook customers whose first experience of the internet is on a smartphone (Kuchler, 2016). A ‘gateway app’ if you like. While some free apps can drive advertising revenue, Kuchler notes that these companies also benefit from the network effect

the more people who use an app, the more attractive it becomes, leaving little room for local competition (Kuchler, 2016)

This network effect can transcend borders — adoption of a technology in one country affects adoption in other countries (Miao, 2016). The gold here however is the personal data apps such as Facebook collect about each of us. The data that is aggregated and used to meet our needs before we even know ourselves what those needs might be. The truly global players and tech giants are at a distinct advantage, not only do they have the resources to ‘colonize’ new territories

smaller firms find it more costly to gain from big data, which is likely to produce a lead-lag effect between big and small firms (Kshetri, 2014, pg. 1136)

Next time, the commoditization of data. Just how do you take this new globalized ‘raw material’ and make it ‘value-add’ for different types of usage?

References:

Kshetri, N. (2014). Big data ׳s impact on privacy, security and consumer welfare. Telecommunications Policy, 38(11), 1134–1145.

Kuchler, Hannah (2016), Facebook, Google and the rice to sign up India (2016), Financial Times, 18 March.

McKinsey Global Institute (2016), Digital Globalization: The New Era Of Global Flows.

Miao, M., & Jayakar, K. (2016). Mobile payments in Japan, South Korea and China: Cross-border convergence or divergence of business models? Telecommunications Policy. 40 (2016) 182–196.

Steinmetz, G. (2015). The Richest Man Who Ever Lived: The Life and Times of Jacob Fugger. New York. Simon & Schuster.