Turning Big Data Into Big Profits

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Aside from the fact that ‘Big Data’ is about the least inspiring moniker possible for a field that could change the way the world works, it is at least descriptive. As IBM (NYSE: IBM) points out “[e]very day, we create 2.5 quintillion bytes of data — so much that 90% of the data in the world today has been created in the last two years alone.” What this means is that there is a new race underway amongst firms including IBM, Intel (NASDAQ: INTC), EMC (NYSE: EMC), and Brocade (NASDAQ: BRCD) to provide critical new analytics tools to the market. Still in in its infancy, it is premature to pick a winner, meaning gaining diversified exposure to the field has the potential to pay significant rewards over the medium and longer-term.

The Changing Role of Data

Just as cloud computing was the term selected to capture the ethereal nature of non-centralized information storage and processing, Big Data is the term that has been selected to describe the field of analyzing impossibly large data sets. Again, IBM reminds us that “[t]his data comes from everywhere: sensors used to gather climate information, posts to social media sites, digital pictures and videos, purchase transaction records, and cell phone GPS signals to name a few.” As an increasing percentage of our lives are now conducted online, keeping track of our choices has become an increasingly straightforward process.

The purpose of this technology is to give companies an insight into consumer decision making: “Using advanced analytics techniques such as predictive analytics, data mining, statistics, and natural language processing, businesses can study big data to understand the current state of the business and track evolving aspects such as customer behavior.” While the initial applications are obvious, potential uses are hard to fathom for such a young technology.

An Evolving World

In one respect, it is hard to believe that it has taken this long for the field to really emerge. If you have ever assumed that mega corporations conducted detailed studies to understand what marketing approaches might work, how consumers interact with and make decisions about products, and every other subtle piece of minutiae available, before very recently, the tools have simply not been available. Until the rise of Big Data, corporations have largely relied on the judgment and insights of those few individuals who seem to have an innate understanding of human behavior; executive recruiters, corporate strategists and others have made their livings reading people and situations better than those around them. Big Data may change some of that by providing mathematically based proof of what these individuals already know.

While the idea of using buying habits to predict future behavior does not seem like a major advance, considering Big Data in the context of human relationships illustrates how dramatic an impact the technology may have as it develops and becomes more readily available. For example, executive recruiters currently use personality tests as a tool with which to make assessments about their candidates. Test proponents argue that there is statistically significant evidence that they are good predictors of various characteristics. Ultimately, however, responses are self-determined and subject to various biases, including the test takers desire to present him or herself as favorably as possible. Big Data has the potential to remove any of these biases as it relies on a sweeping breadth of information that is collected in unrelated contexts.

Lindsay Elsner, a Healthcare Executive Recruiter with Link Executive Search in Minneapolis, explains: “While the human and relationship aspects of this business will always be central, once this technology filters down to this level, it will be a powerful tool in providing both clients and candidates with statistically meaningful criteria by which to judge each other.”  Applications of this nature are likely years away, but as the technology makes its way from theory to use by the world’s largest companies, and finally to use by companies at all levels, it is easy to see the breadth of the impact that it will have on how we do business.

Putting it to Work

As Big Data tools continue to develop, it is rapidly becoming apparent that this will join cloud computing and social networking as one of the most influential technological advances of the period. While IBM, Intel, EMC and Brocade each bring a different core competency to the pursuit, no single player has emerged as having a significant edge that would justify a specific allocation. Given the lack of dominance, coupled with the solid nature of each these companies, the construction of a diversified Big Data portfolio will likely give you the best exposure on a risk-adjusted basis.

For those who do wish to make such an allocation, it will be important to remain vigilant in monitoring developments in the marketplace, making appropriate portfolio adjustments as things unfold. With that condition in mind, Big Data has the potential to create dramatic moves in the stocks of the companies that emerge at the top of the field. An allocation to a Big Data portfolio is advisable.

Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of EMC, International Business Machines, and Intel. Motley Fool newsletter services recommend International Business Machines and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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