July 11, 2019
PUBLISHED BY Bryan Stolle
Digital Oil and Trapped Value are two key concepts we embrace at Wildcat Venture Partners, anchoring our mindset as we seek and evaluate investment opportunities. They define “what” we are seeking, “where” we are seeking it, and “why” we are prospecting in the areas we do.
The terms Digital Oil and Trapped Value are nice catch-phrases, but we are often asked what they actually mean. At least in the context of what we seek as investors.
Simply put, Digital Oil is data. Proprietary data, public data ingested in mass quantities, or a unique combination of the two. Trapped Value is the value that can be released when the Digital Oil is extracted and “refined”, typically with machine learning and/or AI tools and algorithms.
Here is a little more depth on each concept to give you a better sense of what they mean, and how startups can find opportunity and transform it into profit.
Digital oil can be found in many places, but the main categories are:
- Consumer Internet “Digital Exhaust” – Every interaction on the internet, be it surfing for new places to travel, searching for a restaurant, buying new shoes online, or watching YouTube videos leaves a rich trail of information about our behaviors and preferences. Over half the world’s population is on the internet, and over 90% of the populations in developed countries. They create vast amounts of Digital Oil daily.
- Internet of Things (IoT) – There are already billions on Internet of Things (IoT) devices online from smart utility meters, networked industrial controllers and sensors and security cameras, to virtually every smart phone and smart home appliance. It’s estimated there will be over 7 billion such devices producing 14 zettabytes of data on a continuous real-time basis by end of next year. It will dwarf the consumer online Digital Exhaust.
- Corporate/Business databases – These proprietary databases may be the real treasure trove in terms of trapped value. Even more so, when combined with public and internet data, the power to understand and learn how to best serve customers can be game-changing, creating new powerful market entrants who embrace digitization, and destroying those that don’t.
- Public/Government databases – Vast amounts of information contained in government records have come online over the last decade. Some is readily accessible via API’s and batch records. Some is much harder to turn into application and database consumable form. In either case, it can have real value, if the effort is made to extract and refine it.
An entrepreneur’s goal should be to find these valuable sources of information and tap into them to create value from the data. Basically, we look for investment opportunities that will help release vast amounts of value trapped in this digitized information.
Just as pools of oil and gas are often found in places with specific characteristics and conditions, so too is the Trapped Value entrepreneurs should be seeking. Fruitful places to search include:
- Long-standing internal business processes – Much of the enterprise remains poorly automated, either with no meaningful application of IT, or with very antiquated systems and processes. After all, Microsoft Excel is still the most widely used business application, information management and analytics platform. Our partner and well-known author, Geoffrey Moore, likes to call this opportunity the digitization of the enterprise or Digital Transformation (DX).
- Stale or access-challenged commercial data – Only 53% of companies are currently broadly “adopting” AI and Big Data, meaning almost half are nowhere and the other half are still in the throes of the journey. Digitizing all of this digital oil trapped inside of commercial enterprises is a tremendous opportunity and still largely untapped. Just consider all the broad categories where antiquated poorly digitized processes exist, from applying for and delivering loans, to managing stock portfolios, or selling cars.
- Agency models – Agencies exist for one reason and one reason only – to make connections between sellers and buyers, to create a market. But, because there is a lot of complex often arcane information and numerous choices in many marketplaces, we need people (i.e.: agents) to help make sense of it and guide us. They are information specialists who help build connections through their understanding and knowledge of problems, solutions and the markets that serve them. They connect buyers with potential suppliers and help figure out what the buyer really needs and what the supplier really offers, at a fair (one hopes) price. Cloud computing and the affordable AI it enables, now has the scale and power to digitize these complex relationships, buyer requirements and supplier capabilities, creating matches and market transparency in seconds. Travel was one of the very first categories to undergo this digital transformation (DX), but many categories remain virtually untouched.
- Large Pools of Low-Return Spend and Capital – An area that has been undergoing digital transformation (DX) for many years and serves as a highly illustrative example, is media advertising spend. The bulk of ad spend during the 2000 – 2010 period was on broadcast TV and to a lesser extent cable TV, radio and print, despite the fact that “eyeballs” had clearly moved to the web. Placing ads where people weren’t, was usually justified under the “we need reach and the web is too fragmented” rubric.
There was some truth that early Ad-Tech offerings did make aggregating reach, or measuring eyeballs, challenging. Yet, even after that had changed, thanks to Google and many other apps, it was still years before digital advertising spend followed to the channels where people were really spending their time. And when the second internet wave, in the form of social media, came along and aggregated eyeballs in a way not seen before on the web, it still took several years for advertisers to catch up to where people were spending their time.
There are many categories today that are still where media advertising was a decade or two ago, from healthcare to residential leasing to higher education.
By using technology to access large pools of untapped data, entrepreneurs are helping release Trapped Value and disrupt business. From Uber to Amazon and Workday to Marketo and Coupa, we are seeing digitization on a scale that truly makes this round of innovation the 4th Wave of Information Technology.
In Part 2, I will discuss real-world applications and examples of Digital Oil and Trapped Value, as Digital Transformation (DX) sweeps through the business world.
Read the original article on Forbes here.