Warren Buffett is perhaps the most successful value investor history has ever known, period, full stop (and if you struck “perhaps” and “value” from this sentence, it still would be absolutely true). And whether you like Mr. Buffett, love him, or not…he is worth listening to (even if he does not really invest in technology).
Here is why.
Buffett has, in part, created massive amounts of wealth (unparalleled growth in value for him and others) by finding value where others do not, or could not. A great illustration of this is what Buffett calls “cigar butt.” He described this notion in his 1989 Berkshire Hathaway Chairman’s letter this way, “[i]f you buy a stock at a sufficiently low price … that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible. I call this the “cigar butt” approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the ‘bargain purchase’ will make that puff all profit.” His point– there is great value in things that most people do not see any value in at all. For many of these things it is hard to see that value, and even harder to extract that value. Unlocking that value takes insights, vision and deep understanding. So what does that have to do with the market growth and the potential of Big Data, and specific potential of predictive analytics solutions?
Think of it this way.
The Big Data market is already huge and growing, reaching $18.6 billion in 2013, representing a growth rate of 58% over the previous year. This can be broken down into 40% of total revenue in Big Data-related services, 38% in hardware and 22% in software.
There are volumes of data (structured and unstructured) that are becoming available daily. Market Realist notes “IBM states that they create 2.5 quintillion bytes (a quintillion is a one followed by 18 zeros) of data every day and ~90% of the data in the world today has been created in the last two years.”
The internet of things or the internet of me, low cost sensors, mobility and the 2 billion internet-connected smartphones that exist today (projected to grow to 50 billion), will drive more and more data. But does all that data, with more data added every day, create value? Even with tools and dashboards does it help drive value? As InformationWeek’s Jeff Bertolucci states “[d]ata collection on a massive scale is kind of cool, but it also begs the question: Once all of this information is digitized, processed, and analyzed, how does it help us?”
And let’s face it, despite the huge growth in data, vast quantities of data are not being used and estimates are that 95% of enterprises use only between 0.5 – 40 terabytes of data today.
Shanker Ramamurthy, the Global Managing Partner for Business Analytics and Strategy in IBM’s Global Business Services business puts it this way, “[t]here is immense pressure to uncover valuable information from the oceans of data available today. Roughly 74% of respondents to the [IBM] Institute for Business Value survey say that executives will expect new data-driven insights at an accelerating pace over the next 12 to 18 months. It helps to have the right staff in place … [and] a hungry team of data scientists can introduce analytics to the uninitiated.”
Back to Buffett and value. Notwithstanding huge growth potential, data does not equal value. Data and tools do not equal value. Seeing real value in data is hard. Extracting actionable information is harder.
Usable data equals the equivalent of that cigar butt– value in something that was overlooked and seems valueless.
What is the recipe for creating actionable outputs from data (how do you light the cigar butt and have it last for a very long time—maybe longer than any of us can imagine)? I believe it is 3 things:
- Framing the right questions to be solved (not data for data’s sake, but with a specific goal)
- Engines that allow access to technologies without investment in people or software and that are the basis for decision making on central business issues and opportunities
- The data sets that augment current data sets and provide competitive advantages (this makes the cigar butt last a really, really long time)
I also believe that the Holy Grail of these factors is when the outputs are developing predictive and prescriptive analytics that help organizations answer high impact questions – often to solve problems, streamline operations or create growth opportunities.
So yes, Big Data is Big today; will be bigger tomorrow. But for most of us, practical, actionable “cigar butt” value can only be created with the help of those who ask the right questions, can implement the right technologies without huge investment and that can provide the right data sets behind it all.