Within five years, organisations will be valued on information portfolios

Published on the 10/02/2017 | Written by Newsdesk

Algorithm patents

Just how valuable is information? According to Gartner, by 2021 the answer will become clear…

That’s because the analyst has said that equity analysts will soon formally value organisations’ information portfolios in valuing businesses themselves. And that will spark formal internal information valuation and auditing practices.

In a statement, Gartner 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, Gartner VP and distinguished analyst. “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 “information-savvy” 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 added.

Initially, Gartner said 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 said 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.

Gartner also said it anticipates 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 U.S., the EU and 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 (named a Gartner Cool Vendor in 2016), 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.

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 Laney. “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 recommended 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.

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