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.
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.