Remember the famous Presidential election tagline, "It's the economy, stupid"? Well, in the world of technology economics, it seems that it is time to update that to: "It's the data, stupid."
In the field of IT economics and measurement, a seemingly infinite amount of time has been spent exploring the relationship between IT spending and revenue. However, if you start to explore the world of "data" and rank business sectors by parallel metrics such as "Terabytes of Data per $1 Million Revenue," "Terabytes of Data per $1 Million Operating Expense" or "Terabytes of Data per Employee," you get a simply astounding perspective.
As Table 1 (below) shows, banking and financial services is the most "data-intensive" sector from a revenue perspective. This also is true from an operating expense perspective and almost is true from a per-employee perspective, in which the banking and financial services sector is outpaced only by the media industry, which relies heavily on video and audio content (though some argue "content" should not be viewed as "data," and thus financial services jumps back to the top).
Further, if you perform correlations and pattern analysis on the relationship of data intensity to technology costs, it becomes clear that data intensity is a primary driver of technology costs across sectors. This also is supported by the operating expense view and the terabytes-per-employee view (subject to the aforementioned distinction between data and content).
Business Is Built on Data
So let's go off the "deep end" with this discussion ...
It is likely you are familiar with the statement that 71 percent of the Earth's surface is water. But did you know that overall, 92 percent of the cost of business -- the financial services business -- is "data"?
This may astound you as you look at your market data costs -- which, for most companies, are about 3 percent of net revenue. But the data costs here are not just market data -- they are all the costs associated with the acquisition of data (internally as well as from the markets and your customers/partners), the transmission and distribution of data (again, internally as well as to the markets and your customers/partners), the processing of data and the storage/retrieval of data. And these costs transcend both the technology (IT) realm and the operations realm (the people and facilities costs).
The numbers are astounding. Worldwide technology spending in 2011 will reach an estimated $4.5 trillion, representing 6.3 percent of the global gross domestic product (GDP) -- surpassed only by the U.S. at 23.8 percent, China at 9.4 percent and Japan at 8.7 percent. (By the way, Germany comes in at an estimated 5.5 percent.) The financial services sector accounts for about 9.2 percent of that global technology spend, or about $400 billion. The data-related costs -- again, acquisition, distribution, processing, storage, retrieval and delivery -- account for 83 percent of this technology spend, or a little more than $333 billion for 2011.
If this model is even partly true, then the next breakthroughs in the cost structure of the banking and financial services technology economy likely will come about through a focus on the efficiencies of managing data. Table 2 (above) provides insight into where these costs reside and where priorities should lie, and in turn provides a path to opportunity analysis and actions.
Shifting Vendor Focus
It will also be interesting to see how the IT services and business process outsourcing (BPO) marketplace begins to reshape itself once the dynamics of such data economics become popular business metrics. There already is evidence of a shift in how solutions in the consumer marketplace are designed and delivered; consider the recent announcement of iCloud, Apple's new music storage service -- that's about data costs, isn't it? In the banking and financial services marketplace, perhaps the first evidence of the shift is in Bloomberg's new enterprise compliance offering, Bloomberg Vault, a managed service that is tied to Microsoft Office 365's cloud-based risk management solution and that goes beyond Bloomberg's cornerstone data terminal.
But overall, in the core IT and BPO marketplace, the central organizing principle at the moment remains around the technology: colocation, managed services, outsourcing and transaction processing. If the findings of this high-level analysis are correct, however, and it really is all about the data (stupid!), the marketplace likely will reshape itself as part of the new economics of business.