Is data the new oil? Yes, if you think about the history of IHS Markit that has been told by Lance Uggla , the Founder of Markit and CEO of IHS Markit. Mr Uggla has been the special guest of the EMF – Executive Master in Finance Leader Series. Andrea Beltratti, EMF Academic Director, asks whether he ever believed that the company he founded in 2003 would become so big and so important in such a short period of time. The answer is straight and candid, like the overall communication style of Lance: “I had a $100 million dream, and when Markit reached the $600 million threshold I sold part of my shares. I never thought it would become so big. It was not the best financial decision, but it gave me a lot of motivation for further growing the company”.
IHS Markit business model
What is the business model of the company? “We use and create lots of data, with information and analyses focused on various industries. We use data enriched by our technological applications and work with our large base of customers, including corporations, governments, institutional investors, legal firms. We help them make the best strategic decisions, to value opportunities, to set policy targets, to make regulation.”
Of course the company has to adapt to an ever changing environment, and this is fully recognized by Mr. Uggla who notices that some ideas that are popular today are actually a transformation of long existing methodologies: “When I started Markit, we dealt with information that we now call data, we used mathematics and statistics which have evolved into data science, and 1 megabyte was regarded as big data.” IHS Markit business model is built around the data value chain. Who manages the value chain? “Customers may certainly internalize all or part of the data value chain, they can collect, clean, process and organize data and work on them to provide analytics. However when they start thinking about things like data protection and cybersecurity, companies realize it is a good idea to use professional services of outside firms. In the future, information companies will increasingly build platforms, organizing data in ways that will be easy to combine with the companies’ internal IT systems”.
“IHS Markit puts together data from various sources and creates value for its clients. Here are a couple of examples. We observe information about demand and supply in the energy sector and use them with our models to generate predictions of future demand and supply and deliver price and trade signals. The creation of platforms is another interesting example. In the private equity space we have a lot of interactions between General Partners and Limited Partners. IHS Markit creates platforms where GPs put data for the benefit of LPs, in such a way that LPs can know their exposure to sectors, firms, currencies. And once you have a platform with data, you can study the data, create indices, do valuation analyses.”
There is a lot of need for these types of platform also in the retail space. Beltratti mentions that typically Italian households maintain checking accounts with several banks, and have troubles getting the whole picture for their portfolios. Is this an example of an opportunity for information companies?
“Yes. IHS Markit owns a company called Carfax, which helps people keep a record of what happens to their cars. Through the company, each owner can generate a history of their car. Such history may be very useful for several activities, for example when you want to sell the car and the buyer wants transparency or when the owner asks for a loan from a bank and the latter wants information about the collateral or when you want to buy insurance and the insurer needs hard evidence to determine pricing”.
A market for data?
Do you believe in the rise of the market for data? There is a general consensus that individuals and companies will be more active in the supply of and demand for data. Is this consensus actually sound? “The real commercial value lies in the interpretation of vast amount of data, i.e. in the expert’s interpretation of the raw data. As an example, IHS Market employs more than 1,000 people to study the energy sector, looking at all activites in this space, like exploration, refining, retail pricing, demand and supply of oil. We use a mix of experts’ opinion and technology to start from the raw data and add value for our customers. I am not sure a market for data will develop in the short run: there is a lot of demand for data and not much supply of it”.
Moreover, according to Beltratti, regulation is potentially disrupting the landscape. New worries about data privacy are pushing policy makers to change the rules of the game. Is this affecting the business model of information companies? “Yes, definitely, any data and information company needs a lot of permissioning. Especially when alternative data are extracted from new sources, there is still some uncertainty about the possibility to legally use the data. Companies need to be really careful about compliance in order to respect all rules and regulations.”
IHS Markit business model
In your website you present your insights about “sectors” and “hot topics”. What are the interesting spots in the world economy? “There are a few. One is the intersection between data science and technology that we have already commented on. Globalization is still a very important trend, with important implications for companies. Globalization is a positive force that allows firms to be inclusive in their business model. For several firms, many people around the world have the right skills, and live in places characterized by very different costs of living. A company in the service sector may therefore employ people from all over the world and create value by being inclusive. Climate change and ESG are a third example of hot topics. ESG is crucial for companies in the energy sector, that have to help achieve a transition towards clean sources of energy. And ESG-conscious investors are key in this picture, as they apply further pressure on companies to act with a long-run vision”.
Opportunities in the real estate market
Private markets are often less transparent than public markets. To the extent that new data and information create transparency, are there particular benefits for information companies that work in private markets? For example, real estate is one of the largest and most important assets around the world (in Italy real estate amounts to 60% of overall wealth). Is private real estate a particularly relevant opportunity? “Yes. And to your considerations let me add an important one: real estate is interesting from the point of view of the competitive structure. In several markets, for example automobile, a handful of players dominate the market. That is not true in real estate, where there is not much concentration of players. This is highly relevant to any project aimed at increasing transparency in the real estate market. In order to increase transparency you need to get data from the most important players, so you have to start from building a consortium of players, that may share their data. Nobody is large enough to have a significant view of the market, and there are huge benefits from sharing data and providing analytics and creating data for better decision-making. In order to make the project successful you need to involve buyers of real estate assets in the project. Investors love transparency as they can get a better picture of fair prices and rents. Second, the ESG argument that has been put forward as a crucial “hot topic” reinforces the need for transparency: buyers want to get the full view of any building they are involved with. Third, regulation is pushing for greater transparency”.
What is the role of leadership? Lance Uggla delivers his thoughts with clarity. “The role of leadership is key: the tone comes from the top”. What are the characteristics of an effective leader? “A good leader needs to choose a few areas and perform very well in those areas, be them customer-centricity or operations. Also, she/ he needs to be a clear and concise communicator, who needs to be honest about how she/ he feels. Thoughts must be delivered with humility and care. A good leader recognizes insights of others as she/ he understands that others may have the best solution for a specific problem”. This advice is totally consistent with the vision and the personality shown during this EMF interview, devoted to a great leader who has turned a $100 million dream into a $ 22 billion reality.
SDA Bocconi School of Management