Data Monetization: Are You Sitting on a Pile of Money? (part one)

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How often in life do we miss what’s right under our feet? A person, a resource or an opportunity that could change everything?

In May, 1908, a geologist named George Reynolds was prospecting for oil in the desert. Conditions were harsh. “[S]mall pox raged,” wrote one author, “bandits and warlords ruled, water was all but unavailable, and temperatures often soared past 50°C.” The job was taking too long, too, so Reynolds’ superiors ordered him to quit. Clearly, they weren’t going to find anything where they were looking.

Where they were looking was, in fact, Iran. The site of the world’s third-largest crude oil reserves, worth 150 billion barrels every year.

It’s one of the greatest what-ifs in world history. The sprawling Ottoman Empire was situated on top of half the globe’s entire supply of petroleum. The single most valuable store of natural resources ever controlled by a single nation. They just didn’t know they had all that much of it, or that it was all that important. They didn’t monetize it and so, instead of becoming a superpower, the empire outright collapsed.

How often we miss what’s right under our feet!

If only we could see the opportunities that pass us by, the oil just underground. What might happen then?

Enter Qantas Airways. In the late 2000s, the national airline of Australia was teetering on the brink of bankruptcy. Costs were high, and the profit margin on flying was only around 4%. They needed an influx of new revenue, and so they made a bet.

They – an airline company – were going to try to make money without having to fly at all.

How?

“It was a bit of a Hail Mary pass: they decided that they were going to monetize their data.”

-Paul Adams

Consider the position they were in. The majority of the country’s population – nearly every Australian who ever got on a plane–had passed through Qantas’ doors at some point. Many were subscribed to their frequent flyer programme. Qantas possessed some data about a lot of Aussies and a lot about some.

But they weren’t utilizing it. All that data was just sitting on computers, doing nothing in particular.

Qantas simply had to take what they already had and make something of it. And so they began with the obvious–or, at least, what seems obvious today. Since they knew where customers were traveling, they could suggest hotels, restaurants, and events at their destinations. What business wouldn’t pay to be featured to the tourists flying to their location? Further, Qantas could sell the data itself to other businesses. Think of the insights that could be gleaned, the products and services that could be improved if businesses knew more about these travelers.

The result was that, from 2009 to 2018, revenues generated from Qantas’ loyalty programme grew at around seven times the rate of the rest of the business. More to the point: while flying was earning the company a 4.5% EBIT margin, its frequent flyer programme was yielding an average of 24% EBIT margins. Over the past 11 years, the company’s underlying EBIT has been supported by a stable base of revenue from its loyalty business.

As much as it was an airline, they were now a data company.

Qantas had no better data than any other airline, and, in the time since, other airlines have achieved similar feats. In 2020, for example, while flights were downed across the world, American Airlines was offered a 7.5 billion dollar loan as part of the CARES Act. In order to secure such a loan, presumably, an airline needs to offer up collateral in the form of planes, airport slots or equity. American needed none of that. Instead, they fully backed the loan with the data from their “AAdvantage” frequent flyer programme.

You might wonder why a loyalty programme would be worth much at all, let alone 7.5 billion dollars. Yet according to their CFO, Derek Kerr, AAdvantage is actually worth somewhere between 18 and 30 billion. It would be comical if it weren’t true.

Or common. United Airlines, in securing 5 billion from CARES, offered as collateral its own MileagePlus loyalty programme, estimated at 21.9 billion.

“These are brick and mortar companies that have a huge investment in fixed assets. But, actually, the value’s in the data.”

-Paul Adams

It’s a cliche to say that data is “the new oil,” but that doesn’t make the comparison any less accurate. Companies in every industry–travel, e-commerce, you name it–are sitting on vast reserves of potentially valuable information. Left on its own, it’s utterly valueless. If recognised and utilized effectively, it can be the difference between long-term profitability and outright failure. Or worse.

As it was with the Ottomans. By failing to effectively utilize their petroleum reserves, they left the door open for one man, thousands of miles away, to extract that value from right under their feet.

It was 1913, and a continental war was fast approaching. To prepare his Royal Navy, Britain’s First Lord of the Admiralty–a balding, charismatic yet abrasive man–proposed moving from traditional coal fuel to more efficient petroleum. And so he used his government to purchase a controlling share in APOC–the sole company drilling for oil in Persia.

The Ottomans overlooked it, and the British capitalized. The Ottoman Empire went extinct within the decade, Britain won World War I, and the First Lord who negotiated for that oil–one Winston Churchill–is considered one of the greatest military leaders in world history.

History has ebbed and flowed with those who missed, and those who seized what was just under their feet. But how can you discover that value? How can a company transform itself into a Qantas or American Airlines, a Britain instead of an Ottoman Empire?

To find out more, click here for part two in this series.

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