How will your busi­ness be val­ued? Claims for al­go­rithms

Re­search group Gart­ner says that within five years or­gan­i­sa­tions will be val­ued on their in­for­ma­tion port­fo­lios.

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By 2021, the preva­lence of equity an­a­lysts valu­ing or­gan­i­sa­tions' in­for­ma­tion port­fo­lios in valu­ing busi­nesses them­selves will spark for­mal in­ter­nal in­for­ma­tion val­u­a­tion and au­dit­ing prac­tices, ac­cord­ing to Gart­ner, Inc.

In a re­port con­tain­ing a se­ries of pre­dic­tions about the ris­ing im­por­tance of data and an­a­lyt­ics, Gart­ner an­a­lysts said that al­though in­for­ma­tion ar­guably meets the for­mal cri­te­ria of a busi­ness as­set, present-day ac­count­ing prac­tices dis­al­low or­gan­i­sa­tions from cap­i­tal­is­ing it. That is, the value of an or­gan­i­sa­tion's in­for­ma­tion gen­er­ally can­not be found any­where on the bal­ance sheet.

"Even as we are in the midst of the in­for­ma­tion age, in­for­ma­tion sim­ply is not val­ued by those in the val­u­a­tion busi­ness," said Dou­glas Laney, vice pres­i­dent and an­a­lyst at Gart­ner. "How­ever, we be­lieve that, over the next sev­eral years, those in the busi­ness of valu­ing cor­po­rate in­vest­ments, in­clud­ing equity an­a­lysts, will be com­pelled to con­sider a com­pany's wealth of in­for­ma­tion in prop­erly valu­ing the com­pany it­self."

A Gart­ner study showed how com­pa­nies demon­strat­ing "in­for­ma­tion­savvy" be­hav­iour – such as hir­ing a chief data of­fi­cer ( CDO) form­ing data science teams and en­gag­ing in en­ter­prise in­for­ma­tion gov­er­nance – com­mand mar­ket-to-book ra­tios well above the mar­ket av­er­age.

"Any­one prop­erly valu­ing a busi­ness in to­day's in­creas­ingly dig­i­tal world must make note of its data and an­a­lyt­ics ca­pa­bil­i­ties, in­clud­ing the vol­ume, va­ri­ety and qual­ity of its in­for­ma­tion as­sets," Laney said.

Ini­tially, Gart­ner be­lieves equity an­a­lysts and in­sti­tu­tional in­vestors will con­sider only a com­pany's tech­ni­cal data and an­a­lyt­ics ca­pa­bil­i­ties and how its busi­ness model pro­vides a plat­form for cap­tur­ing and lever­ag­ing in­for­ma­tion, not the ac­tual value of its in­for­ma­tion as­sets.

Gart­ner says boards and CEOs should not de­lay in hir­ing or ap­point­ing CDOs to be­gin op­ti­mis­ing the col­lec­tion, gen­er­a­tion, man­age­ment and mon­eti­sa­tion of in­for­ma­tion as­sets be­fore a crit­i­cal mass of equity an­a­lysts starts ask­ing re­lated ques­tions of them. Re­search group Gart­ner also pre­dicts that by 2019, 250,000 patent ap­pli­ca­tions will be filed that in­clude claims for al­go­rithms, a ten­fold in­crease from five years ago.

Al­go­rithm patents can be granted in the US, the EU and many other coun­tries. Not all al­go­rithms can be patented, but many can, even if the rules of ap­pli­ca­tion are not al­ways straight­for­ward.

Ac­cord­ing to a world­wide search on Aulive, nearly 17,000 patents ap­plied for in 2015 men­tioned "al­go­rithm" in the ti­tle or de­scrip­tion, ver­sus 570 in 2000. In­clud­ing those men­tion­ing "al­go­rithm" any­where in the doc­u­ment, there were more than 100,000 ap­pli­ca­tions last year ver­sus 28,000 five years ago.

Gart­ner says at this pace, and con­sid­er­ing the ris­ing in­ter­est in pro­tect­ing al­go­rith­mic IP, by 2020 there could be nearly half a mil­lion patent ap­pli­ca­tions men­tion­ing "al­go­rithm," and more than 25,000 patent ap­pli­ca­tions for al­go­rithms them­selves.

Of the top 40 or­gan­i­sa­tions patent­ing the most al­go­rithms the past five years, 33 are Chi­nese busi­nesses and univer­si­ties. The only west­ern com­pany in the top 10 is IBM at No. 10.

"De­spite their grow­ing im­por­tance, too many great al­go­rithms in en­ter­prise are still left in the shad­ows. Many busi­ness lead­ers don't care too much so long as they 'work,'" said Dou­glas Laney, vice pres­i­dent and an­a­lyst at Gart­ner. "But al­go­rithms can make a great deal of dif­fer­ence. The list of im­por­tant al­go­rithms is end­less. To name just a few: Google's PageRank al­go­rithm, mp3, blockchain and back­prop­a­ga­tion in deep learn­ing."

Gart­ner rec­om­mends that data and an­a­lyt­ics lead­ers work with busi­ness lead­ers and ex­perts to adopt and de­velop method­olo­gies for val­u­at­ing al­go­rithms and as­sess­ing which ones should be patented.

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