Would you believe me if I said that alternative data helped uncover the health of a country’s economy? Let me tell you how! Apurv Jain, a well-known researcher analyzed 1.2 billion tweets and 830 million web searches by the keywords ‘losing’ or ‘finding’ jobs. With the help of these clues, he could predict the direction in which the US employment was headed. Do you see the power of alternative data? This information would have otherwise been hidden and difficult to extract from traditional sources.
So, where does alternative data come from? Alternative data is gathered from non-traditional sources, which originate from outside the company. Some of the popular ways of collecting alternative data are by analyzing foot traffic data available from WiFi and Bluetooth signals (geolocation), data from surveys or user engagement and reviews on apps, data obtained from social media, and news which helps in sentiment tracking. This data helps in extracting additional and unique insights to optimize decision-making.
So, what’s the hype about alternative data and why should we be using it?
Benefits of alternative data
1. Identifying new opportunities and exploring investment ideas
Alternative data can be advantageous for investors giving them an edge. The insight from this kind of data paints a fuller picture of a company’s long-term prospects. So, investors can gain precise information by analyzing the granular metrics filling the gaps of traditional data sources.
2. Transparency of company performance
The data from traditional company sources is collected almost every 6 months or sometimes on an annual basis. Would you really want to wait that long? Instead, you can easily access alternative data on a daily basis or even in real-time. This gives more transparency and accurate analysis of the current as well as forecasted performance.
3. Building strong ecosystems by additive insights
The biggest benefit of alternative data is unraveling unforeseen visions and different viewpoints with the help of superior data that was otherwise not previously available in the traditional reports. This enables new idea generation, making predictions and greater problem solving skills resulting in improved decision-making.
4. Competitive advantage
With the help of alternative data, it is easy to gain competitive advantage. By going beyond surface-level intelligence, companies get a deeper understanding of accomplishments and why things are playing out the way they are, much of which is overlooked by competitors.
To help you understand better, let’s look at a simple example. Consider low-income countries where it is common to find individuals without a credit history. How would lenders assess the creditworthiness of such individuals? This is where alternative data such as phone bills, rental payments, and other transactions data becomes useful to understand the feasibility to enter a new market.
Let’s look at a more detailed example. Say suppose, a retailer is set for an IPO and claims that he could double the number of existing stores in a specific period of time. How do you assess the retailer’s capability to accomplish this? You may have questions relating to credibility, reasoning and whether you should invest in the IPO. Geospatial analysis, a type of alternative data can make this decision easy and simple for you. How? By looking at all the store locations and competitors in the retailer’s country, a hypothesis can be tested on where the new stores can be built. The information gathered from such a setting can give a deeper understanding of the market and the company’s performance.
The power-packed combination of alternative data with traditional sources of information can give novel inputs and the “real picture” of critical business aspects. If organizations don’t make quick moves to see the potential and capitalize on alternative data, they could be missing out on enriching business insights that their competitors have access to.