A real options approach to data valuation

Abstract

AbstractValuing data assets presents a significant challenge in the modern business environment, even though it is widely accepted that data have significant value for commercial outcomes. Data are an intangible asset with non-rival characteristics and moreover its future uses may be highly uncertain as the market environment and technology change. In this paper, we propose one practical and flexible solution for valuing business data using well-established real option pricing theory. We discuss how to best select the appropriate proxy for each variable involved. As an illustration of our method, we present a calculation (using only publicly available data) of the initial option value of setting up a supermarket loyalty card scheme for customer data. The value resulting from the calculation is reasonably close to the recently reported realized sales figure for the supermarket data. The easy-to-use tool we propose can serve practitioners as a starting point for strategic decision-making regarding investing in their data assets, even in situations where their use cases are not fully known, and future project outcomes are uncertain.