If oil dominated the last century, data is the leading candidate to dominate this one. An often repeated phrase is that “data is the new oil”. But beyond the simple similarity of being important, is it useful to use oil as an analogy for data? How are they different?

1. Scarce vs. Cumulative

Oil is a scarce resource. Technology innovations related to discovering and processing oil merely help to contain price increases. Data is not just abundant, it is a cumulative resource. Technology innovations lead to a collapse in the cost of collecting and manipulating data, and our new data builds on top of our existing data. Personalization is an obvious application of this idea. To date, companies have mostly used this for targeted content and commerce. Going forward, the bigger opportunity is in areas like personalised learning and medicine.

2. Rival vs. Non-rival

If oil is being used, then the same oil cannot be used somewhere else because it is a rival good. This results in a natural tension about who controls oil. If data is being used, the same data can be used elsewhere because it is a non-rival good. It is up to us to appreciate this difference and embrace the potential. An obvious example is the power of open source. Our Internet would not exist in its current form without the positive impact of open source. It’s also clear that our intellectual property laws have not fully understood the implications of data being a non-rival good.

3. Tangible vs. Intangible

As a tangible product, oil faces high friction, transportation and storage costs. These costs place limits on the applications of oil. As an intangible product, data has much lower friction, transportation and storage costs. The result is a much wider range of applications due to fewer physical restrictions. The exponential growth in content and media is an obvious result of the fact that data is intangible. Less obvious is the transformational opportunity for a globally distributed manufacturing supply chain which would be connected by data rather than the current system of shipping and flying physical goods everywhere.

4. Process vs. Relationships

The lifecycle of oil is defined by process: extraction, refining and distribution. This process is relatively stable and predictable. The lifecycle of data is defined by relationships: with other data, with context and with itself via feedback loops. These relationships are dynamic and uncertain, requiring an entirely different approach to building value. This highlights the difference between complicated and complex systems. Oil and industrial assets benefit from the use of ideas like six sigma to enhance efficiency. Data benefits from the use of technology like deep learning to learn from the data itself, a form of exploration.

5. Linear vs. Non-Linear

A fixed amount of oil results in a predictable amount of output. There is no possibility of non-linear upside surprise. A fixed amount of knowledge can create huge value in a non-linear way. The laws of physics really do limit the benefits we can derive from a given amount of oil. On the contrary, the concept of zero is a core building block supporting our entire digital technology infrastructure. A completely non-linear benefit from a deceptively simple idea.

The Implications

Each of the above differences is valid individually, but taken together they multiply in importance and reflect the emergent nature of systems based on data. While our current oil based system has some features of emergence, the new data based system has vastly more potential for new and unpredictable applications.

To be clear, the impact of these applications is not always going to be good for society, certainly at an individual level, and sometimes at the aggregate level. Even with a much smaller level of emergence, we’ve already seen the damage that our oil based system can leave to our planet.

We should not be blindly following data and need to appreciate that the emergent properties of data make it much more powerful than oil. As data becomes increasingly important, it’s critical to understand the differences between oil and data. To fully enjoy the benefits of data, we need to fundamentally update all of our global ecosystems as soon as possible across business, government, and society. This is not something that can be done by any single person, company, or country. For those interested to build a stronger global ecosystem together, let’s connect and make it happen.

A few years ago I was sitting in a classroom at the London School of Economics debating unemployment with my nobel prize winning professor. The conversation was centered around another LSE nobel prize winner, Ronald Coase, who in 1937 observed in his scholarly paper, The Nature of the Firm, that firms exist in order to reduce transaction costs and take advantage of economies of scale. Barring external forces, firms will tend to grow larger and larger over time. This is the fundamental economic framework powering the world economy since the industrial revolution, driving corporate behaviors such as: corporate structure, the rise of M&A, and 20th century management theory.

A few weeks later, Ronald Coase at 101 years old, would go on a podcast and declare his 80 year old nobel winning thesis obsolete. No longer do you need to scale the size of a firm just to obtain efficiency, with modern technology and today’s demographics, you can capture the same value with much smaller firms. Companies will still grow to be larger over time, however, they won’t grow as large as they have in the past.

Since then I have been thinking deeply about what has broken down Coase’s theory which was the fundamental underpinning of the world economy since the Industrial Revolution. After several years of reflection on this, I have come up with four forces:

• The rise of the freelancer economy
• Millennials’ behaviors and impact
• IoT and lean hardware
• SaaS economics and the democratization of IT

The Rise of the Freelancer Economy

According to a report by Intuit, by 2020 approximately 40 percent of the U.S. workforce will be working as freelancers. Another study predicts 50% by 2025. As more members of the workforce decide to freelance, the number of marketplaces to facilitate them will proliferate. In the past you would hire the reputation of a Brand. Tomorrow freelancers will build a reputation on a marketplace and the marketplaces will build a brand.

This trend will lead to more commodity based and strategic outsourcing. Commodity based outsourcing will consist of outsourcing HR, legal, accounting/finance, manufacturing, and software development. Strategic based outsourcing via the freelancer economy will outsource product development, design, and even management.

Millennials’ Behaviors and Impact

By 2020, Millennials will consist of 20% of the workforce, and by 2025, 75%. Millennials were born mobile and digital; their behaviors will change the way companies interact with their customers as well as how companies interact with their employees. Everything changes from preferred methods of communications (messaging) to marketing (social media) to commerce (mobile first). Traditional management models start to break down with Millennials managing Millennials and selling to Millennials.

IoT and Lean Hardware

At the same time the Millennials are taking over the workforce, we will have 26 billion IoT sensors in production and connected to the internet by 2020. Cheap sensors and widespread availability lead to more big data driven analysis about everything from the lighting in your office, self-driving cars, the temperature of your home, to how your dishwasher runs. Abundant sensors combined with cheaper and small batch manufacturing will drastically change business models, pushing them to be more service oriented. Robotics and AI will eliminate most unskilled jobs, driving employment to be more skilled and knowledge based.

SaaS Economics and the Democratization of IT

While the move to the cloud has already begun, over the next few years, it will be massive. The economics of SaaS software has shifted the decision making power to the line worker from the management and IT. Since you can swiftly deploy cloud-based software within your organization with a free trial, cheap monthly credit card payment, and no physical installation, employees are now making the purchasing decisions, not the IT department. This is breaking down siloed data, enabling remote/distributed teams, and creating more capital efficient companies.

The Next 10 Years

As we enter the post-Industrial era, the dynamics of the firm and the workforce are going to change radically. As the forces that are breaking down Coase’s model only grow stronger, many companies are remaining stagnant. The success of a company no longer depends on growing larger, but now depends on being the optimal size in order to fend off the disruptive smaller companies. Google figured this out when it broke the company into smaller pieces and formed the parent holding company, Alphabet.

The larger this gap between big and optimal sized companies grows, the less chance there is of survival for companies trying to grow by growing bigger, opening up great opportunities for disruptive startup companies. Even more interesting is that this transformation will happen in the next ten years. How tomorrow works is radically different than it is today.