Your Vogue New Subsidiary: A DataCo

Organizations around the world are starting to recognize that their data holds enormous value beyond its operational application and basic business intelligence. But new strategic approaches are needed to maximize and monetize these data assets. 

One emerging paradigm is the independent "Data Company" or "DataCo" – a separate corporate entity whose sole purpose is to manage and extract greater value from its parent company's data, both internally and externally.

While these corporations have existed for years in industries such as airlines and retail, their prevalence is set to increase as the importance of data continues to grow in the global economy.

According to a new report by the Enterprise Data Management Council, these DataCos are proliferating as the importance of data grows across industries. By separating the data business, organizations can foster innovation, mitigate risk, and generate new revenue streams through external data sharing and advanced analytics. 

The DataCo route has its benefits, but these entities are altricial and present obstacles with regard to structure, regulation, technology, and culture. As the data economy evolves, organizations will consider DataCos as a powerful means of transforming data from a cost center to a profit generator. 

Companies that effectively implement this model stand to gain a competitive edge and unearth long-lost insights within their enormous data stores. To reap these benefits, however, requires the foresight, planning, and dedication to consider data a valuable corporate asset.

A DataCo possesses the following three characteristics:

1. It administers all or a portion of the data assets of its parent company.
2. It operates as an independent entity from its parent company.
3. Its main goal is to maximize the utility of the parent company's data.

DataCos can take various legal forms such as subsidiaries, joint ventures, new companies, etc. However, the separation from the parent provides strategic benefits like the ability to assign a financial value to data, monetize data products, isolate risk, and address regulatory requirements.

While independent, a DataCo remains closely aligned with the parent company's goals. The data itself may reside fully within the DataCo or remain partially with the parent company, depending on factors like risk, regulation, and product development.

Why Create a DataCo?

Organizations establish DataCos for several key reasons:

• Collateralize data: Data can be pledged as security for financing, as some airlines have done with their loyalty programs.
• Monetize data: Data products can be sold externally for additional revenue streams.
• Develop new offerings: A DataCo can create products and services very different from the parent company's core business.
• Assign financial value: Data's value can be quantified on the balance sheet rather than being an intangible asset.
• Manage regulatory risk: Data relevant to regulations can be isolated in the DataCo.
• Limit legal liability: Risk related to data management and products can be contained.
• Share/exchange data: DataCos enable sharing data across organizations and consortiums.
• Provide open data access: Public sector DataCos can share data openly with citizens.

The DataCo Landscape

The EDM Council identified dozens of actual DataCos, and others that meet some of the criteria. Some of the notable DataCos include:

• AAdvantage (American Airlines), SkyMiles (Delta Air Lines), and MileagePlus (United Airlines)
• Checkr
• 84.51° (Kroger)
• Arity (Allstate)
• Blue Health Intelligence (Blue Cross Blue Shield)
• Bureau of Labor Statistics (US Government)
• Dataworks (FedEx)
• Eurostat (European Union)
• GE Digital (General Electric)
• LexisNexis (RELX Group)
• Pelorus Equity Group
• The Weather Company (IBM)
• Optum (UnitedHealth Group)

Most DataCos currently focus on monetizing data products, and for that reason, for-profit entities lead in DataCo adoption, followed by government agencies.

DataCo Considerations

Establishing a DataCo involves addressing considerations across data management, corporate structure, regulations, technology, and operations:

• Data management maturity: Companies may need foundational data governance capabilities before launching a DataCo.
• Primary objectives: The business motivations shape decisions like data scope, ownership structure, and independence level.
• Data products: The value stems from the data itself and adjustments for rights and quality.
• Corporate structure: Options range from wholly owned subsidiaries to joint ventures and tracking stocks.
• Regulations: Rules around data privacy, sharing, sovereignty and operational resilience shape DataCo parameters.
• Technology: Data redundancy, security, storage costs and infrastructure depend on how data is split between the DataCo and parent.
• Operating model: Leadership, organizational design, control protocols and governance processes must align to strategic objectives.

While DataCos offer advantages, they also carry challenges like added data and technology costs, privacy risks, conflicts over prioritization, and data synchronization complexities.

Data Valuation

Data valuation is a crucial factor in the formation of DataCos. By assigning a monetary value to their otherwise additive data, businesses can gain greater insight into the costs and benefits associated with their data. 

Measuring the financial value of data encourages or requires ownership for managing data assets, enables companies to ensure accountability for the continuous increase in the data's value to the company, and enables companies to quantify and justify investment in data acquisition, data quality, and data analytics. In fact, as we saw with some major airlines, the value of your company’s data may even be worth more than the company itself.

Creating a separate DataCo entity can help quantify and express the financial value of data, which is an intangible asset on the balance sheet due to antiquated 1930s-era accounting practices. By isolating the data business, however, companies can designate a measurable value, strengthen data governance, and justify investments to increase the value of data further.

Looking Ahead

As data's role and related regulation continue to expand, more companies are expected to explore DataCos—especially in highly data-driven industries like financial services, technology, communications and healthcare. 

Keys to DataCo success include closely linking it to corporate strategy, mitigating risks, establishing efficient operating models, and instilling a data monetization culture.

With thoughtful planning and alignment to business goals, DataCos can unleash greater value from data assets while optimizing risk management and augmenting foundational capabilities. The DataCo model will likely grow in adoption but requires careful consideration of regulatory, legal, technological, and competitive factors unique to each organization venturing into this arena.