A couple of years ago when "Big Data" was just making headlines, I was asked to consider a CEO position at a big data start-up.
Although I decided not to take the position, the industry changed my perspective on the value of public sentiment. I saw how companies could position that kind of commodity into a huge revenue stream. I became a pioneer investor in the big data frontier and benefited from that early entry. There are a lot more players in the space now and I recommend you look at the companies that are linked heavily to retail and sports gambling. Don't forget to hedge your equity investment with an option chain.
Big data continues to attract a lot of attention from companies and investors around the world.
Strictly defined, the term refers to a collection of information so large that it's difficult, if not impossible, to process with the hardware and software traditionally used for the job. As a result, we need a new set of tools to manage it. But this definition underestimates both the challenge and the opportunity that big data poses for businesses.
Big Data by the Numbers
The rapid growth in the amount of data we're generating (and collecting) is staggering. Consider the following:
- The world creates 2.5 exabytes of data every day (1 exabyte = 1 billion gigabytes). Wal-Mart (NYSE: WMT) alone collects 2.5 petabytes of data an hour from customer transactions (or roughly 50 million filing cabinets' worth);
- 90% of the data that exists today—everything from tweets to readings from electronic sensors in buildings, trucks and weather stations—was created in the last two years alone. The amount of data created in the past 10 years is estimated to be 500 times what was generated throughout the rest of human history;
- The overall big data market is set to grow quickly in the coming years. According to recent figures from research firm Markets and Markets, the industry will be worth a total of $46.34 billion by 2018. That represents a compound annual growth rate of 25.52%;
- Research by IT firm Gartner found that businesses using big data technology outperform the competition by roughly 20%.
Big Data Goes Hollywood
Technological advances have made processing this massive stockpile of information possible at lower cost. As a result, more businesses can use it to unlock previously inaccessible patterns in their data archives and use them to improve efficiency and decision-making, and even launch new products to better match consumer tastes.
For example, Netflix (NasdaqGS: NFLX) collects a wide array of data about its millions of subscribers worldwide, including where they stop, rewind and fast-forward the programs they're watching, the devices they're watching them on, their ratings of the shows they view and the searches they conduct. That's in addition to external data, such as information from social media sites like Twitter and Facebook.
Before it launched its original political series House of Cards, Netflix was able to glean that a significant portion of its users had watched the work of David Fincher, the series' director, from beginning to end (Fincher was also the director of the film The Social Network). It was also able to crunch the numbers on movies starring lead actor Kevin Spacey, as well as the British version of House of Cards. Both of those had drawn positive responses from viewers, as well.
Based on this data from its viewership, Netflix was able to make a number of conclusions about the new series—including that it had a strong chance of being a hit.
Other uses for data analytics include creating coupons targeted at specific customers based on their particular purchasing patterns. Many companies are also tracking and analyzing tweets, status updates and other feedback on social media to develop new products to take advantage of rising trends.
Some Big Data Stocks to Watch
Roughly 80% of the world's data is unstructured, making it more difficult to analyze than information tucked away in databases or other, better-organized formats. That's where data analytics software comes in. Here's a look at two companies with growing presences in the space.
- IBM's (NYSE: IBM) big data products include its big data platform, which consists of applications that let users store and analyze large amounts of information. Other features also include stream computing capability, which lets users analyze data as it comes in and act on it right away.
The company has made a number of acquisitions in the analytics space. Arecent one is U.K.-based Daeja Image Systems. This privately held firm makes software that lets users view documents and images in a range of formats, even if they don't have the application that created the file. That saves time and allows for easier sharing.
Daeja's customers operate in a number of industries, including banking, insurance and health care. Terms of the deal were not disclosed. Through the first three quarters of 2013, IBM's business analytics revenue is up 8% from a year ago.
In its latest quarter, the company's overall revenue was down 4.1%, to $23.7 billion, while earnings before one-time items rose 10%, to $3.99 a share. That beat the consensus forecast of $3.96 a share, though revenue missed the Street's expectation of $24.75 billion.
- NetApp (NasdaqGS: NTAP) sells systems and services that help companies store, manage, protect and archive their data. In the second quarter, the company controlled 13.3% of the external (networked) storage market, up from 13.3% a year ago, according to IT research firm IDC. That's good for second spot, behind market leader EMC Corp. (NYSE: EMC), with 31.3%.
Among the company's products is the Data ONTAP 8 data storage operating system which helps IT departments improve efficiency by making better use of their data storage infrastructure. It also lets them perform maintenance and upgrade software without disrupting company operations.
In NetApp's fiscal 2014 first quarter, which ended July 26, its revenue rose 5.0% from a year earlier, to $1.52 billion. Without one-time items, earnings came in at $0.53, up 26.1% from a year ago and ahead of the $0.49 that the Street was expecting. Revenue missed the consensus forecast of $1.53 billion.