Alternative data can provide insights that traditionally sourced ones can't. Source: Shutterstock

Alternative data can provide insights that traditionally sourced ones can’t. Source: Shutterstock

Breaking free from tradition: it’s time to look towards alternative data

COMPANIES today have massive amounts of data in their possession — its value lies in the business insights it captures.

With artificial intelligence (AI), data can be analyzed to reveal trends and patterns that can optimize performance and help predict business outcomes in various scenarios.

When we think about data, what comes to mind is often financial statements, sales figures, and consumer transactions.

Although exciting in its ability to create insights, this data can’t give a sufficiently complete and timely picture of the current landscape for any organization or market.

Thus, businesses should look for ways to complement traditional data sources with alternative data, which is generated from a variety of sources such as web traffic, social media posts, satellite imagery, and internet of things (IoT) devices.

The finance sector was one of the first to fully embrace and act on the availability of alternative data. It provides solutions for some age-old problems within the financial sector.

For example, it used to be impossible for a financier to run a credit risk assessment if the applicant does not have a credit history to evaluate.

With alternative data, financiers can comb through sources such as utility bills and subscription payments to assess the possibility of having a loan paid back.

This mitigates risks and eliminates the unnecessary waste of time and resources spent on obtaining payments.

Also, to determine if a retailer qualifies for funding, an investor might analyze satellite imagery of parking lots to determine foot traffic. A consistently filled parking lot indicates good foot traffic, and a sparsely filled one would likely mean less foot traffic.

Outside the financial and investment field, many businesses and organizations are also using alternative data to their advantage.

Publicly available data, like those from social media, is now a key influencer of enterprise decisions.

An enterprise might scour the web and aggregate all comments and reviews available to gauge product performance and customer satisfaction. A detailed analysis of these data can help reorient business goals and strategies to optimize performance.

Alternative data sources help paint a more holistic, comprehensive image of the situation and adds value to a business by capturing data that might have otherwise slipped through the cracks.

Also, because it often comes from a third-party source, the risk of a security breach is lower.

When leveraged well, alternative data can give businesses the competitive advantage that they otherwise won’t have.

At the end of the day, alternative data can really help businesses see what is hidden in plain sight and get a full picture of the industry — gaining a competitive edge in the crowded marketplace.