The economic impact of open data: what do we already know?

Open data fuels economic growth. Still, many believe in the theory and ask for the proof.

Recently published reports by Nesta, an innovation-based charity, the Open Data Institute (ODI) and French management consultancy Capgemini add to the evidence.

Examining the effects of the Open Data Challenge Series – a series of challenge prizes run by Nesta and ODI supporting teams to develop products or services using open data – PwC, an international professional services firm, predicts that the programme will result in a potential ten times return (£10, or US$15, for every pound invested over three years), generating up to £10.8m for the United Kingdom economy. Capgemini found that almost 25,000 jobs directly attributed to open data will be created in the European Union between 2016 and 2020.

While economists use terms such as information asymmetry, allocative efficiency and network effects to explain why open data creates returns, others say they reduce friction in transactions and markets operate better in low-friction environments.

Open data can help us make better use of existing resources, create new products and services and enhance global development. Diverse, accurate, timely and accessible data underpin sustainable development initiatives, whether on education, health, poverty reduction or aid spending. When this data is open – free to access, use and share – it can help to measure progress, target programmes, prevent corruption and stimulate growth in developing countries.

A growing body of evidence quantifies the utility of open data and demonstrates its impact in different countries and sectors. Several recent macroeconomic studies have quantified the benefits of open data as a percentage of gross domestic product (GDP) in different regions.

While their methodologies may differ, these studies determine a financial value for similar economic effects of open data such as better consumer decision-making, optimized business operations (including processes and procurement) and maximizing the value obtained from existing and new infrastructure.

McKinsey, an advisory and research firm, found potential benefits amounting to 4.1% of global GDP for data across all sectors. Studies on the value of public sector open data alone found it is worth between 0.4% and 1.5% of an economy’s GDP.

The high potential value of open data has been further proven by microeconomic studies, such as research into the value of Danish address data. The Danish Enterprise and Construction Authority found benefits amounting to around DKr417m (US$68.3 million) in the period between 2005 and 2009 from an investment of just DKr2.5m.

In the United States of America, a study by economists from Colorado State University and the US Geological Survey’s Fort Collins Science Center found that the economic benefit of the United States’ Landsat dataset (comprising satellite imagery of the Earth’s surface) being made openly available was US$ 2.19 billion in 2011.

Agricultural group Monsanto’s buyout of Climate Corp. for US$930 million in 2009 was a tangible demonstration of the value created by that Landsat data. Climate Corp. ingests extensive weather and geological open data to generate 10 trillion simulation data points. It then uses them to accurately underwrite weather insurance for farmers and protect the US$3 trillion global agriculture industry from extreme weather events.

In the UK, a report commissioned by Transport for London estimated the value of the time saved by better-informed passengers at between £15m and £58m have in 2012. Arup, a multinational services firm that specializes in the built environment, published a report stating that publicsector open data could be used to generate between US$720 billion and US$920 billion globally through the development of digital transport applications alone.

Similar to the Monsanto example for agriculture, the ubiquitous Citymapper app helps to demonstrate the economic value predicted for transport. Citymapper currently provides public transport advice in 29 cities and general manager Omid Ashtari has recently said that ‘Citymapper was created [in the UK] because of the existence of open data. It’s the essential backbone of what we’re working on.’

In Spain, a study co-produced by the Ministry of Finance and Public Administration found that at least 150 companies like Citymapper sell products or services using information published through the nation’s data portal, employing around 4,000 people in 2012.

Pew Research demonstrated widespread usage of similar products and services based on open data, finding that at least 84% of Americans with a smartphone have used open data through their phone’s applications.

Research conducted this year by ODI identified 270 companies, large and small, that use, produce or invest in open data in the UK, with a combined annual turnover of over £92 billion, ODI itself has had more than 50 jobs and over £9m generated via its network of startups.

Although case studies provide insight only into those sectors in which open data have been made available, they do reinforce the wider findings of microeconomic and macroeconomic studies and economic theory. We can expect similar proof to appear in more sectors as open data continues to be adopted.

While the figures, methodologies, researchers, countries and motivations involved in understanding its value may vary, the weight of evidence is clear: Open data are helping to fuel innovation and have proven and significant economic impact.