How Alternative Data Became Mainstream

24 Feb 2020 3:07 pm by Mark Dunn

alternative data

Alternative data has attracted the attention of financial services organisations worldwide as they recognised that such data could revolutionise decision making and enhance the efficiency of their businesses. On the heels of this success, data experts anticipated that organisations in other industries would jump on the alternative data bandwagon—and those predictions have begun to come true.

What is alternative data?

While traditional data, such as press releases, financial statements and SEC filings have always played a crucial role in the assessment and interpretation of investment strategies, alternative data opens the possibility to a more interdisciplinary approach for analysing complex circumstances. These alternative data sets are heterogenous by nature and include, among others:

  • news data
  • patents data
  • legal data

Financial services organisations, such as investment firms and hedge funds, are extending their data portfolios to satisfy the demand for greater insights into market trends to inform buy/sell decisions and other strategic priorities—creating an all-out race for relevant, trusted sources for alternative data sets . By harnessing the potential of alternative data, organisations differentiate themselves from market competitors, leading to competitive advantages through an increased understanding of the subject at hand.

Experts predict that the market for alternative data is still at an early stage, with spending estimated at $1.1 billion in 2019, rising to a projected $1.7 billion in 2020 according to a recent MarketWatch article1.

Alternative data suggests alternative approaches

Not surprisingly, companies beyond the financial services industry are beginning to embrace alternative data to capture insights that will enhance their own market positions, assist in risk management and open doors to new opportunities.

Take the hospitality sector, which has been disrupted consumers who can shop for travel, transportation or lodging—any time, any place—thanks to digital trends and technological advances. With most sales shifting to the web, online travel companies have optimized revenues through the evaluation of alternative data sets.

Alternative data enables travel companies to better understand customer preferences and anticipate travel trends. In particular, the increasing connection between personally identifiable information (PII) and the considerable quantity of personal data on the internet, can help the travel industry to establish a comprehensive customer profile to support a more personalized customer experience. Similarly, the online retail industry takes advantage of alternative data to enhance customer engagement and loyalty.

Tapping into the power of alternative data

In the words of Master Yoda, “Do or do not. There is no try!” As the business world moves toward digital next, organisations that are most adept at identifying and using new sources and types of data could gain both operational and competitive advantages.

  • Risk Management: The rise of global supply chains has resulted in a corresponding rise in potentially disruptive events that can lead to reputational and financial risk . Using alternative data generated by satellites and other weather monitoring technology helps organisations see the big picture, anticipate breaks in the supply chain and make appropriate arrangements to mitigate the risk of prolonged disruption.
  • Healthcare: As the saying goes, misery loves company—and social media provides the means to have ‘company’ when people are under the weather. Posts about headaches, nagging coughs or stuffy heads have incredible potential as alternative data.  Increasingly, public health organisations collect anonymised social commentary and geolocation data to detect and predict epidemics, enabling healthcare providers to respond more quickly and effectively when a flu outbreak takes place.
  • PR, Sales & Marketing: Sentiment data gather from news and social commentary is a valuable alternative data source for organisations that want to gauge the effectiveness of PR and marketing campaigns. Likewise, organisations can leverage alternative data to support predictive analytics that pinpoint sales opportunities.
  • Research & Development: In the quest to come up with the next must-have product, corporate data scientists  can leverage alternative data sources—news, social commentary, patents—to identify emerging consumer needs or track competitor activities. This information provides valuable insights to inspire innovative product development.

Alternative data is not a silver bullet. Rather, non-traditional data fills in potential gaps, allowing organisations to gain a more complete perspective of risks and opportunities ahead. One fact is certain: Failing to adapt to new technologies and new sources of insight can have devastating consequences. What data do you need to avoid being left behind in today’s data-driven global economy?

Take the next steps:

1. Read our blog post on How Harnessing Big Data Moves Us Closer to Achieving the UN's SDGs.

2. See what Nexis® Data as a Service has to offer.

Sources:

1. The explosion of ‘alternative’ data gives regular investors access to tools previously employed only by hedge funds. Marketwatch