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Value of Data: There's No Such Thing as a Free Lunch in the Digital Economy

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  • Wendy C.Y. LI
  • NIREI Makoto
  • YAMANA Kazufumi

Abstract

The Facebook-Cambridge Analytica data scandal demonstrates that there is no such thing as a free lunch in the digital world. Online platform companies exchange "free" digital goods and services for consumer data, reaping potentially significant economic benefits by monetizing data. The proliferation of "free" digital goods and services pose challenges not only to policymakers who generally rely on prices to indicate a good's value but also to corporate managers and investors who need to know how to value data, a key input of digital goods and services. In this research, we first examine the data activities for seven major types of online platforms based on the underlying business models. We show how online platform companies take steps to create the value of data, and present the data value chain to show the value-added activities involved in each step. We find that online platform companies can vary in the degree of vertical integration in the data value chain, and the variation can determine how they monetize their data and how much economic benefit they can capture. Unlike R&D that may depreciate due to obsolescence, data can produce new values through data fusion, a unique feature that creates unprecedented challenges in measurements. Our initial estimates indicate that data can have enormous value. Online platform companies can capture the most benefit from the data because they create the value of the data and because consumers lack knowledge regarding the value of their own data. As trends such as 5G and the Internet of Things are accelerating the accumulation speed of data types and volume, the valuation of data will have important policy implications for investment, trade, and growth.

Suggested Citation

  • Wendy C.Y. LI & NIREI Makoto & YAMANA Kazufumi, 2019. "Value of Data: There's No Such Thing as a Free Lunch in the Digital Economy," Discussion papers 19022, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:19022
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    Cited by:

    1. J Bayoán Santiago Calderón & Dylan Rassier, 2022. "Valuing the U.S. Data Economy Using Machine Learning and Online Job Postings," BEA Working Papers 0204, Bureau of Economic Analysis.
    2. Oliver Falck & Johannes Koenen, 2020. "Rohstoff „Daten“: Volkswirtschaflicher Nutzen von Datenbereitstellung – eine Bestandsaufnahme," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 113.
    3. Alejandra Bellatin & Stephanie Houle, 2021. "Overlooking the online world: Does mismeasurement of the digital economy explain the productivity slowdown?," Staff Analytical Notes 2021-10, Bank of Canada.
    4. José Bayoán Santiago Calderón & Dylan G. Rassier, 2023. "Valuing the US Data Economy Using Machine Learning and Online Job Postings," NBER Chapters, in: Technology, Productivity, and Economic Growth, National Bureau of Economic Research, Inc.
    5. Cathles, Alison & Nayyar, Gaurav & Rückert, Désirée, 2020. "Digital technologies and firm performance: Evidence from Europe," EIB Working Papers 2020/06, European Investment Bank (EIB).
    6. Zaheer Allam & Simon Elias Bibri & David Jones & Didier Chabaud & Carlos Moreno, 2022. "Unpacking the ‘15-Minute City’ via 6G, IoT, and Digital Twins: Towards a New Narrative for Increasing Urban Efficiency, Resilience, and Sustainability," Post-Print hal-03997414, HAL.
    7. Dr. Cesar R Salas-Guerra, 2021. "Impact of digital economic activity on regional economic growth: A Case study from northern Minas Gerais between 2009 To 2018," Papers 2105.02849, arXiv.org.
    8. Anderton, Robert & Jarvis, Valerie & Labhard, Vincent & Morgan, Julian & Petroulakis, Filippos & Vivian, Lara, 2020. "Virtually everywhere? Digitalisation and the euro area and EU economies," Occasional Paper Series 244, European Central Bank.
    9. Teruel Carrizosa, Mercedes & Coad, Alexander & Domnick, Clemens & Flachenecker, Florian & Harasztosi, Péter & Janiri, Mario Lorenzo & Pál, Rozália, 2021. "The birth of new high growth enterprises: Internationalisation through new digital technologies," EIB Working Papers 2021/02, European Investment Bank (EIB).
    10. Payam Hanafizadeh & Mahdi Barkhordari Firouzabadi & Khuong Minh Vu, 2021. "Insight monetization intermediary platform using recommender systems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 31(2), pages 269-293, June.
    11. Oliver Falck & Johannes Koenen, 2020. "Resource “Data”: Economic Benefits of Data Provision," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(03), pages 31-41, September.
    12. Changhee Lee & Yulseong Kim & Youngran Shin, 2021. "Data Usage and the Legal Stability of Transactions for the Commercial Operation of Autonomous Vessels Based on Digital Ownership in Korean Civil Law," Sustainability, MDPI, vol. 13(15), pages 1-18, July.

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    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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