Data Is Better Than Oil
“Out of all men that beg for a chance to drill your lots, maybe one in twenty will be oilmen; the rest will be speculators — that’s men trying to get between you and the oilmen — to get some of the money that ought by rights come to you.”
– Daniel Plainview, There Will Be Blood¹
In 2006, the mathematician Clive Humby said “data is the new oil.”² In many ways the statement is true. Data powers the digital economy as much as oil powers the physical economy. Both oil and data are relatively cheap in their rawest form and both are refined into “fuel” for their respective economies. But in several key ways, data is also better than oil.
- Re-use: data is “nonrival”, which means the same data set can be monetized multiple times without diminishing its value; whereas oil is “rival” and can only be used once.
- Refinement: when raw data is refined into fuel — lead generation, predictive algorithms, indices, segments, etc. — it increases >10x in value; whereas when oil is refined from crude into gasoline and other products its value increases only ~2x.
- Extraction: with the new wave of consumer interest in privacy and the corresponding laws (GDPR, CCPA, etc.), consumers can now reclaim their data for free; while oil remains expensive to extract.
- Generation: users can create new data from their actions and decisions in real-time; but oil is a finite resource that takes millions of years to create.
- Self-Sovereign Wealth: personal data can be a form of universal basic equity; extending oil-focused concepts like the Alaska Permanent Fund and Norway’s sovereign wealth fund to a much broader scope of humanity.
Data is Nonrival
“Data is nonrival…[which] leads to increasing returns and implies an important role for market structure and property rights.”³ A non-rival good is something can be consumed or possessed by multiple users simultaneously, without losing any of its value.⁴
This has tremendous implications for the personal data industry. For example, consider US personal credit data. There are 258M adults in the US.⁵ The North American division of Experian, the credit bureau, made $3.5B in revenue in 2021.⁶ That’s $13.57 per adult. Yet, the credit bureaus sell your credit file to banks for less than $1, and in some cases for less than $0.50 (these statistics are based on decades of experience in the personal data business within Friday, and easily verifiable by any executive in banking, lending or card issuance.) And Experian is only one of three major credit bureaus, the others being Equifax and TransUnion. All three bureaus cover the same US adult population. How can three different organizations all sell the same user data, and generate revenue at 10x the unit price? In part, because they can resell the same credit file over and over again.
Refinement & Enrichment
Relative to oil, data gains much more value when refined and enriched.
As of this writing, crude oil is trading at $102.41 per barrel,⁷ and the average price per gallon of gasoline in the US is $4.88⁸. At 42 gallons per barrel, the value of refined gasoline compared to the value of crude oil is roughly 2:1.
As illustrated in the previous section, the total revenue made from your credit data compared to the value of your raw credit file is 13:1. While some of that multiple is made from selling the raw data, the majority of the multiple comes from enriching and productizing that data — direct mail lists, background checks, AI and ML training sets, market research, survey data, trend analysis, segmentations, predictive models, voter drives, fundraising leads, etc.
Of Experian’s $3.5B in North American revenue, only $1.76B is categorized under “Data”; the remaining $1.74B is generated by “Decisioning” and “Consumer Services.” To be clear — all of Experian’s revenue comes from data, but these other business lines represent the productization and enrichment of the raw credit data. Even within the Data category, they “provide marketing data relevant to consumer lifestyles which helps businesses understand their customers better and serve them with tailored products.” Most of the money Experian makes doesn’t come from selling raw data. Rather, in their own words: “We collect, sort and aggregate data from tens of thousands of sources and transform it to provide a range of information services.”⁹
Extraction
Oil is expensive to extract, but collecting your data costs $0.
Thanks to GDPR, CCPA and other privacy laws, most major companies will honor your right to download your own personal data. As of this writing, Facebook, Google, Netflix, Yelp, Spotify, Waze, LinkedIn will honor a data request and let you download your friends, usage history, data assets etc. through their self-service portals. As simple as this seems, it’s quite astounding. You can now reclaim your data for free. It is yours.
Generation
You can also make more of it whenever you like. A simple browser plugin has the ability, should you choose, to log your online behavior and catalog that for you, into a data asset. Your phone has the ability to log your location, for you. In the past, companies like Avast have compromised user trust by collecting that data under the pretense of security, only to turn around and sell it.¹⁰ That data is still extremely valuable — but it is yours, you can control it at all times, and you should earn from what you choose to share.
Self-Sovereign Wealth
As radical as the idea of universal basic income may be, the two closest examples we have are derived from oil revenues. The Alaska Permanent Fund¹¹ distributes annual dividends to Alaskans and Norway’s sovereign wealth fund¹² secures the economic future of Norwegians, from wealth originated in the bounty of their natural resources. These are wonderful resources for the citizens of those governments. But a much larger percentage of the global population has accrued, and nowhas access to, troves of personal data. As the sovereign of your digital self, you should earn from what personal data you choose to share. Implemented at scale, this concept can be a form of basic equity, and is generalizable to a broad scope of humanity.
1. Paul Thomas Anderson, There Will Be Blood. Ghoulardi Film Company. 2007.
2. https://futurescot.com/why-data-is-the-new-oil/
3. Charles I. Jones & Christopher Tonetti, Nonrivalry and the Economics of Data, American Economic Review 2020.
4. What is a Rival Good, Investopia.com.
5. US Census, “Population Under Age 18 Declined Last Decade”, Stella U. Ogunwole, Aug 12, 2021.
6. Experian Annual Report 2021.
7. Crude Oil WTI spot, Marketwatch.com, June 30, 2022.
8. US Retail Gas Price, ycharts.com, July 7, 2022.
9. Experian Annual Report 2021
10. Kate Cox, Avast shutters data-selling subsidiary amid user outrage, Ars Technica, Jan 30 2020
