McKinsey Global Institute published a report Big data: The next frontier for innovation, competition, and productivity that analyzes the state of digital data, how it is used in different domains in both the private and public sectors, and offers suggestions for policy makers. In addition to looking at big data as a whole, the report examines five areas in detail including personal location data.
Real-time location data generated by mobile phones and other devices has created an entirely new set of location-based services from navigation to pricing property and casualty insurance. Personal location data is a new horizontal application domain that includes industry sectors from utilities to insurance to transportation. The growing smart phone market is creating an exponentially growing volume of location-aware data. McKinsey sees this domain as a hotbed of innovation that has the potential to create significant value for consumers. For example, use of real-time traffic information for navigation will create a quantifiable consumer benefit by saving time spent traveling and fuel consumption. McKeinsey expects the economic value these innovations create to far exceed the revenue generated by service providers.
Economic value
Mobile phones with GNSS chips have created a revolution will continue over the next decade. This personal location domain offers the potential for huge new value creation over the next ten years that McKinsey estimates at more than $100 billion/yr (about 0.14% of world GDP) in revenue to service providers and as much as $700 billion/yr (about 1% of world GDP) in value to consumer and business end users. Realizing this value will require investment in technology, infrastructure, and personnel as well as appropriate government action.
McKinsey's detailed analysis of the major applications of personal location data finds that, in ten years’ time, these applications could create value of $100 billion/yr or more for service providers primarily from sales of navigation hardware and revenue from LBS, mobile LBS premiums, and geo-targeted advertising.
McKinsey estimates that by 2020 the benefits (difference between willingness to pay and the cost of applications) that customers, consumers and businesses, will enjoy from location-based applications will reach as as $700 billion/yr. Most of this, about 70 %, will be the consumer benefit from time and fuel saved by using GNSS navigation systems including those with real-time traffic information and mobile LBS applications. The remaining 30 % of the benefits will be through location-enabled applications such as geo-targeted mobile advertising. Smart navigation applications are estimated to provide $500 billion in value to global consumers in time and fuel saved by 2020. Geo-targeted advertising could represent more than 5 percent of total global advertising spending by 2020.
For comparison, a recent study prepared for Google by Oxera Consulting Ltd in the UK estimated global revenues from geospatial products and services to be $150-$270 billion per year. The geospatial industry is estimated to be growing by 13% per year through 2016. These numbers were estimated using a different methodology to McKinsey's. The lower estimate of $150 billion/year was estimated using a bottom-up approach based on the Bloomberg BICS classification of companies worldwide and assumptions about allocating the revenue from companies that provide geospatial in addition to other services such as Trimble. The $270 billion number was estimated by scaling up the US revenue estimated by Boston Consulting Group to come up with a world estimate.
Personal location data
McKinsey includes sources of personal location data that locate an individual to at least within a couple of city blocks in an urban settingin its analysis.
- Credit and debit card payments from cards processed at point-of-sale (POS) terminals and automated teller machines. In 2008, there were 90 billion to 100 billion transactions of this type worldwide.
- Mobile phones - the location of such devices can be triangulated from cell-tower signals. In 2011 there were about 6 billion of these.
- Smartphones with GPS - about 600 million devices in 2010 and the number is growing at about 20 % per year. Many smartphones also have Wi-Fi networking capability, which can be linked to a physical location of a Wi-Fi network.
In the future McKinsey expects indoor location to become more important. They mention Shopkick, which allows merchants to track their customers from when they walk into a store, and Path Intelligence, which can track foot traffic within malls or amusement parks.
McKInsey's research estimates that the global pool of personal location data was at least 1 petabyte in 2009 and that this pool is growing by about 20 % a year.
Location data generated by smartphones is growing at double the average rate of growth for all location data. Asia is the leading region for the generation of personal location data because so many mobile phones are in use there. In 2010 the regions with the largest number of cell phone users were
- China 800 million
- India 650 million
- North America 300 million.
Applications of personal location data
McKInsey has identified three major categories of applications of personal location data.
- Location-based applications and services for individuals including smart routing, automotive telematics, and mobile-phone based location services
- Organizational use of individual personal location data that includes geo-targeted advertising, electronic toll collection, insurance pricing, and emergency response.
- Macro-level use of aggregate location data that includes urban planning and retail business intelligence.
Barriers to use of personal location data
Concerns about privacy and security was identified by McKinsey as a major barrier to future expansion of the use of personal location data. Laws are unclear about who owns that data and how it can be used. McKinsey believes that a policy and legal framework that clearly describes the permissible and prohibited use of these data would be beneficial for all stakeholders.
For policy makers, McKinsey sees that a priority is incentives for innovation are in place including developing an up-to-date framework for intellectual property rules and rights, funding R&D in potential breakthrough areas, and ensuring that the infrastructure, including spectrum policies, is optimal.
Methodology
By looking at the value chain of location-based applications, McKinsey examined both the amount of data generation and the potential to create value. McKInsey estimated the amount of personal location data generated in each category of application orsource device and in different geographic regions using the installed base of devices, usage behavior, and the frequency with which data are generated. To assess the potential value that data can generate, McKinsey estimated the economic value of each application to end users—individual consumers, enterprises, and government organizations.
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