How to make a billion dollars from Big Data

Analytics   |   
Published June 9, 2015   |   

Among the new faces making their debut on the Forbes 2015 billionaires list are a growing number who have made their fortunes from Big Data.
These Big Data billionaires are at the top of their game – all of them have built empires on their ability to collect, interpret and use data in ways no one had thought of before.
Most operate in the mainstream consumer markets – where their focus on improving seemingly mundane aspects of everyday life – hailing a cab, or choosing a movie to watch – has proven hugely successful.
Others operate in specialist markets – combating terrorism and financial fraud by providing experts with previously unavailable insights.
So here’s a brief bit about how each one of them has gone about putting big data to work to change the world and turn a profit.
Travis Kalanick, Uber
The college dropout CEO of Uber leads the charge of newcomers into the rich list, with a net worth of $5.3 billion.
The mobile app-based service which connects people needing a ride with a network of drivers ready to get them to their destination may have angered traditional taxi drivers around the world, but that hasn’t stopped it being valued at $41 billion.
Uber stores and monitors data on every journey its users take, and uses it to determine demand, allocate resources and set fares. The company also carries out in-depth analysis of public transport networks in the cities it serves, so it can focus coverage in poorly-served areas and provide links to buses and trains.
Recently Kalanick has claimed that the new UberPool service, which analyzes ride data, to set up car sharing arrangements could cut traffic on the streets of London by a third.
Reed Hastings, Netflix
After a brief stint in the Marine Corps followed by the Peace Corps, Hastings studied computing at Stanford University before forming his first company Pure Software in 1991. Following a public floatation Hastings was made CEO and went on to form Netflix with Marc Randolph, which started out as a DVD-by-mail business. Today, Reed has an estimate net worth of $1 billion and he also sits on the board of directors of Facebook, another company built on big data.
Netflix has been transformed using big data analytics to ‘give people what they want’, as the New York Times put it. The company is analyzing detailed viewing data from their 55+ million subscribers to not only optimize their recommendations but also find the next ‘House of Cards’ blockbuster.
Predicting what you will want to watch next is the primary goal of Netflix’s data strategy. To do this it has employed teams of movie buffs to scour years’ worth of film and TV and tag the common themes they contain. It also regularly runs crowd-sourced contests with million-dollar prizes for anyone who can come up with algorithms that more accurately predict audience viewing habits than its existing ones.
Brian Chesky, AirBnB
The 33-year-old co-founder and CEO of AirB’n’B is said not to have owned his own home since 2010, almost continuously using his own service, which connects travellers with property owners willing to offer short term lets.
24 million bookings have been made in 34,000 cities since the service launched in 2008, meaning that the company has collected a huge amount of data – estimated at half a petabyte – on people’s holiday and traveling habits.
This insight enables them to ensure they concentrate efforts on signing up landlords in popular destinations at peak times, and structure pricing so that the use of their global network of properties is optimized. Proprietary machine learning algorithmsare in place across the network to predict fraudulent transactions before they are processed, and a robust recommendation system allows guests and hosts to rate each other to build trust.
It has also just unveiled Airpal – a user-friendly data analysis platform designed to allow all of its employees, not just those trained in data science, access to all of the company’s information, and tools to query it with.
Chesky and his co-founders – Nathan Blecharczyk and Joe Gebbia – are said to be worth $1.9 billion each.
Vincent Viola, Virtu Financial
Viola founded the high-frequency trading (HFT) specialist Virtu in 2008, and is currently thought to have a net worth of $1.7 billion. His company developed its own proprietary trading algorithms based on big data principles, to trade equities, commodities, currencies and options on international markets. Plans to take the company which made him the first HFT billionaire public were shelved last year but are thought to be back on the table this year.
HFT, which uses algorithms to make thousands of trades, profiting little but often from tiny movements in price, relies heavily on vast datasets culled from the world financial markets. It is said to account for nearly half of all US equities traded, and 60% of futures.
Last year, the company announced that it had only suffered one day of overall trading loss in the previous five years – attributing this success to its real-time risk management strategy and technology.
Evan Spiegel (and Bobby Boggy Murphy), Snapchat
At 24 and 25, Spiegel and Murphy are the youngest newcomers to the rich list. The two met when they were studying at Stanford University and in 2013 they made headlines by turning down a $3 billion offer from Facebook for their social picture sharing app. This turned out to be a good move as the company last month valued itself at up to $19 billion.
Snapchat started with a gimmick – there were lots of picture messaging services but they were the first to spot that not everyone, for whatever reason, might want the pictures they send to friends to remain visible forever. By implementing an automated self-destruct feature they hoped to build trust. There have been a few stumbles but the service has been phenomenally successful.
Since then the product has evolved with the inclusion of data-driven features intended to help users connect with others, and to tell collaborative stories based on shared timelines.
Alexander Karp, Palantir
Karp had help from the CIA with building Palantir, which uses big data algorithms to combat terrorists and financial fraud around the world. Its biggest customer is the US Government, which uses its software to predict everything from the placement of roadside bombs to fraudulent transactions.
Much of its work is naturally veiled in secrecy, but it is widely known that its routines for spotting patterns and anomalies in data which indicate suspicious or fraudulent activity are derived from technology developed by Paypal. Karp’s co-founder at Palantir is Peter Thiel, who also co-founded the online payment service.
Data from DNA databases, surveillance records showing movements, social media data and tip-offs from informants can be drawn together to predict the activities of bad guys, enabling an appropriate response.
A key philosophy of the company is that human intervention is still needed to get the most from data analysis – particularly when you have to think one step ahead of an enemy. To this end, they provide hand-picked expert consultants to work alongside their clients on data projects.
Initially concentrating on security and anti-terrorism for government clients, Palantir now casts its net much wider and offers its services to the financial and pharmaceutical industries.