The alternative data market has steadily grown since 1998, as evidenced by the constant increase in alternative data providers.
Another detail that points to the market’s growth is the volume of alternative data full-time employees (FTEs), which has increased by around 450% from 2009 to 2017.
Given the market’s continued upward growth trajectory, it is likely for an increasing number of users to use alternative data in the coming years. But many may still be wondering what is alternative data, exactly?
What Is Alternative Data?
Alternative data is the data investors use to gain insights into potential investments before making their decision. It is most often used by hedge fund managers and other institutional investment professionals employed by investment companies.
Alternative data provides information about a particular company but isn’t published by that company. It’s publicized by other organizations to give readers unique and timely insights into investment opportunities.
Ways Alternative Data Is Generated
Alternative data can be generated in at least three ways.
Alternative Data Generated by Individuals
Most of the data generated by individuals is unstructured and thus hard to process. We each produce massive amounts of data per minute. That data includes our social media interactions (comments, likes, retweets/shares, etc.), product reviews on e-commerce platforms, and search engine trends.
Alternative Data Generated by Business Processes
Unlike individual data, most business data is structured and provides excellent insights for those making financial decisions. Alternative data coming from business processes is also called “exhaust data.” It includes credit card and sales transactions and data that comes from government agencies.
Alternative Data Generated by Sensors
The data generated by sensors is, like individual data, mostly unstructured. Much of this kind of data comes from Internet of Things (IoT) devices. They continuously pick up signals that get transported to other devices. The devices that produce sensor data include closed-circuit television (CCTV) cameras, machines, point-of-sale (PoS) systems, parking lot sensors, and satellite imaging and geolocation devices. It helps companies determine how often a particular store is visited or specific products are shipped to certain locations.
Where Can You Get Alternative Data?
The latest statistics show there are currently more than 400 alternative data providers that, in general, play in the data-as-a-service market. Data-as-a-service comes in the form of software sold that provides data to end-users regardless of their location or relationship with their chosen data provider.
Companies that wish to benefit from alternative data can choose from a myriad of data-as-a-service providers that differ in sources, aggregation techniques, formats, and delivery methods.
Major Alternative Data Types
We named several of the types of alternative data earlier on. Now, let’s take a closer look at each one in greater detail.
Web data includes all information related to web traffic, popular web searches, demographics, and click-through rates. It is helpful to gauge the results of advertising campaigns or website or product popularity. It also gives excellent market research and e-commerce insights.
Social sentiment includes data from social media posts and comments and public reactions to news and product ads. It can come as textual posts and digital images or videos and includes all online interactions between people on social media that help businesses understand current trends and brand virality.
Geolocation data comes from all sorts of electronic devices, especially mobile phones and tablets. It’s used to track people’s physical locations. Apart from Global Positioning System (GPS) signals, it also comes from Wi-Fi or Bluetooth signals. It gives users a significant amount of information when making location-based decisions. With it, companies know where most of their demand comes from, which is helpful when making expansion-related decisions.
Credit Card Transactions
Credit card data helps track retail revenue. It also provides insights on how often users pay their bills, which is excellent for assessing loan payment capability. It is highly accurate and quite insightful but can be expensive to procure.
Other alternative data sources include email receipts, PoS transactions, satellite imagery, and weather systems.
Alternative data, as this post showed, is beneficial for all kinds of businesses. But gathering your own data and storing it in well-structured and sufficiently secured databases is not feasible for most. Accuracy and comprehensiveness could be two of the most significant issues they encounter, making the rise in on-demand services a great solution. Instead of focusing on alternative data crawling, processing, and analysis, organizations can choose the right data-as-a-service or alternative data provider.