Real-time data is far more relevant3 min read . Updated: 03 Sep 2020, 12:24 PM IST
The government should realize that innovation will flourish without paternalistic regulations. Provide them the opportunity to grow, and our entrepreneurs will build better mousetraps
As part of a special series for Mint, Parv Kaushik, a student at the National Law School of India University, looks at the importance of data in the context of removing structural bottlenecks to stimulate the digital economy. In the first piece in the series, Kaushik talks about why the government’s role in the growth of our digital economy must be facilitative:
In July 2020, the Kris Gopalakrishnan Committee released its report on a governance framework for Non-Personal Data (NPD). It argued that by regulating NPD we could create an enabling environment for start-ups by giving them greater access to data. It suggests that a first-mover advantage has led to certain platforms collecting vast amounts of data — allowing them to reduce costs, improve services, and capture the market. This has created significant entry barriers for new entrants, necessitating regulatory intervention.
In principle, it is hard to disagree with the objective of removing structural bottlenecks to stimulate the digital economy. However, is growth of the digital economy really being hindered by this concentration of data?
Intuitively, collecting significantly more volumes of data would seem to provide an unassailable advantage to data-based businesses. However, even for these companies, more data does not make them impervious to competition. This is due to three reasons.
First, from a statistical standpoint, there are diminishing returns to data. Eventually, the value added by each additional user’s data rapidly diminishes so much so that a search engine will provide similar results with a dataset of 10,000 user queries as it would with 100,000 user queries. As a result, data companies test their algorithms on only a small subset of their entire dataset. At Google, randomly selecting 0.1% of the dataset was found to be sufficient for analysis.
Second, despite being non-rivalrous, data loses value over time. In order to provide users relevant ads and suggestions, data must be analysed in real-time. Google handles more than 2 trillion searches annually and yet as many as 15% of searches each day are unique. The fact that Google uses separate algorithms to give answers to such queries underscores the importance of constantly developing smarter algorithms.
Third, data is not as scarce as is imagined. Relevant data sets are publicly available to entrepreneurs through data brokers and open data initiatives. To the contrary, a 2018 McKinsey report showed that a lack of clear strategy and skilled personnel to harness data were greater barriers than the availability of data.
The Committee’s view that the access to larger amounts of data precludes competition, fails to understand how competition works in a data driven world. Rather than access to data, it is about creating newer mousetraps. Products that provide a better user experience, will find a space for themselves. When that happens users will switch with negligible switching costs, as was the case with MySpace when Facebook was launched.
A product does not have to ‘kill’ its competition to succeed. Users multi-home, i.e., use several applications simultaneously. We use both Twitter and Facebook. The existence of Amazon does not prevent us from shopping on Myntra or buying groceries from Big Basket.
A year after Instagram, Snapchat came into the market and the new photo sharing experience that it introduced is now its foremost competitor. History is replete with examples where newer products either completely sidelined older ones or co-existed with them, despite starting out with no access to data unlike the industry’s incumbents. Thus, data may not be as important as the Committee perceives it to be.
The Government’s role in the growth of our digital economy must be facilitative.
Structurally, this requires widespread reform in education, rural connectivity, skill development and a range of other sectors. However, there are two specific measures which can be a shot in the arm for digital start-ups.
First, by making government data publicly available in machine-readable formats, entrepreneurs will have access to datasets of which there are no privately held equivalents - such as data on landholdings, soil-health, etc. This, in-and-of itself, can lead to development of new products.
Second, involving start-ups in governance. Government departments can identify needs and challenge entrepreneurs to address them through innovative solutions. Canada involves start-ups in governance - in issues ranging from developing efficient soil-sampling techniques to creating software for smarter processing of Access to Information requests.
Not only does this provide entrepreneurs an avenue to receive funding and test their innovations, it could actually lead to better governance solutions. We can involve entrepreneurs in creating precision agriculture solutions, informing farmers what crops to plant, providing them weather predictions, and appropriate fertilizer use.
The government should realise that innovation will flourish without paternalistic regulations. Provide them the opportunity to grow, and our entrepreneurs will build better mousetraps.