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Curatia Analysis for Thu, May 30

Alt Data (1 of 2): Growing Traction

Today we’ll survey recent developments in the proliferation of alt data, where an emerging consensus holds that maturing product offerings are recasting a one-time luxury as a necessity.

That growing embrace has spurred efforts to order a rapidly expanding alt-data universe through the launch of platforms engineered to standardize selection and delivery of alt datasets.

Prevalence

In a world where the inexorable logic of order and rationality has overtaken freedom as a guiding principle of social structure, it’s hardly surprising that data is proliferating so fast that we’re having trouble keeping up.

With the amount of digital data worldwide poised to exceed our capacity for talking about it — which tops out in yottabytes (i.e. numbers with 24 zeros) — in the next decade, scientists are scrambling to prevent the next set of numerical prefixes from “becom[ing] the Boaty McBoatface of weights and measures.”

In the finance sector alone, Opimas estimates data scrapes by hedge funds and research firms accounted for one in 20 web page visits last year. Web scrapes are expected to nearly double by 2020 at a total cost of $1.8B, proving that appetite for alt datasets is voracious and growing.

Alt Data Platforms

Amid such proliferation, industry attention has focused on corralling the chaos of unstructured data — scrubbing out irrelevant or low-quality information, plugging in to industry-standard datasets — to extract insights more readily.

With more than 400 separate data providers, those processes have evolved organically and independently — as have the logistics of alt data due diligence, sales and delivery mechanisms.

A gaggle of alt-data platforms has emerged to standardize those processes. Bloomberg splashed down into the space in February, offering access to niche datasets from more than 20 companies. In March, FactSet added real-time data on foot traffic for more than 120 public consumer companies’ US locations from Thasos to its Open:FactSet Marketplace platform.

Coming of Age

Recent media coverage has emphasized how alt data has “matured,” heralding a “coming of age” for the budding industry — a characterization the emergence of alt-data platforms supports.

Already in Q3 2018, alt data was an input in investment decision-making at 79% of financial firms in a survey by Dataminr and WBR Insights. Among non-users, 82% said they planned to use alt data within twelve months — trends Dataminr characterized as moving from “nice” to “need.”

Even in the R&D-challenged asset-management landscape, alt-data budgets have risen 52% in the last year. Nearly half of investment managers participating in a recent Greenwich study said they use alt data, with another quarter planning to do so in the year ahead.

Further penetration of alt data among buy-side firms appears to be linked to the emergence of alt-data platforms among traditional financial data vendors like Bloomberg and FactSet. The study identified the top five sources of alt data as large, integrated market data vendors.

Broader Relevance

Alt data has also shown potential in replacing, revising, and even remaking traditional economic data. The US government’s partial shutdown in early 2019 served as a “marketing bonanza” for providers of alternative agricultural data. Providers of macroeconomic data have also gained traction in places like China, where economists consider government figures less reliable.

Alt data’s penchant for filling in gaps in macroeconomic data and reducing reporting lags has even positioned it as a future replacement for market-moving economic reports like unemployment statistics.

Alt data momentum could carry over into the corporate as well as the economic sphere. After Nasdaq’s December purchase of alt-data platform Quandl, Nasdaq CEO Adena Friedman argued that use cases for alt data extend far beyond trading alpha into the vast realm of corporate strategy and R&D.

Companies are also building alt datasets in the form of sales and usage data whether they intend to or not. “Every company is now a data company,” Quandl chief data officer Abraham Thomas said.

Those dynamics offer the tantalizing prospect of one day converting alt-data marketplaces from “few-to-few” to “all-to-all” sites of information exchange.

Administrative note: There will be no Curatia Analysis tomorrow as we keep cranking on product enhancements. We’ll be back on Monday with a follow-up analysis of the growing complexities that have attended alt data’s growing traction.