Making “Big Data” more accessible for German SMEs – with a public-private data trustee

_ Yuri Kofner, economist, MIWI Institute for Market Integration and Economic Policy. Munich, 3 July 2021.

“Big data” – its collection and processing – is becoming the most important raw material in the ever-advancing digitization of the economy.

Data services are playing an increasingly central role in business models for industry, and particularly mechanical engineering in Germany.[1] This process is also known as (data) servitization.[2]

However, both the high capital investments required for the adequate processing of big data and the well-known features of digital (platform) markets – network effects, lock-in effects and economies of scale – lead to an ever-increasing monopoly of the digital corporate landscape.

In particular, large vertically integrated corporations that collect data and also operate their own business models for exploitation, often perceive data buyers as possible or actual competitors. In such cases, there are strategic incentives to refrain from selling data in order to make it more difficult for others to enter the market. Transactions and thus market access are made more difficult for smaller players who do not have their own data sources.

German SMEs and start-ups are particularly affected. But it is precisely for this that access to big data is essential, for example to develop own APIs, as well as to train algorithms and let them learn.[3]

For example, Google’s market share in the German search engine market in 2020 was between 86 (desktop) and 97 percent (smartphone).[4] At the same time, Amazon’s share of online retail sales was 34 percent,[5] of retail sales even 53 percent.[6] The business models of both groups are based on and benefit significantly from the collection and processing of huge amounts of data.

This fragmentation of data not only damages competition, since companies in the field of data analysis are effectively prevented from entering the market, but also composite effects, a central positive economic externality of data, are not used efficiently.

For this reason, the correct approach to the question of the right to data sharing between different actors is becoming a central issue for the regulation of the digital economy.[7]

A general disclosure obligation for company data by law would not adequately take into account the different interests and property rights of all actors concerned and thus reduce investment incentives for data producers and processors.

The establishment of a state data authority could fail due to the usual inefficiencies if the state not only formulates the regulatory framework, but also becomes a market player itself. In addition, there is so far little experience on the part of the state with the operation of data centres with real-time access to massive data volumes.

A more effective solution would be to create a data trust as an independent person under private or public law, or as part of a public-private partnership (PPP).

This data trustee would collect, aggregate and process different types of data from public and private-business sources in order to then offer them to domestic companies, especially SMEs – and partly on a commercial basis. Such an idea is proposed, among others, by the ifo Centre for Industrial Organization and New Technologies[8] and the Fraunhofer Institute.[9]

The provision of high-quality processed data or a financial dividend from the income of this data platform could serve as incentives for the voluntary provision of data by the private sector.

In Germany, the Chambers of Commerce and Industry (IHK) could take on this role of (partly commercial) data trustee and platforms. There are already initial experiences in this area from the United Kingdom,[10] as well as in the German mechanical engineering IOT industry[11] and in connection with the verification of personal data.[12]

Policy recommendations

The federal government should advocate the creation of a digital data trustee under the administration of the German Chamber of Commerce and Industry.

  • With the support of the government, the IHK is to collect, aggregate and process different types of data from public and private-business sources in order to then offer them to companies, especially SMEs – partly on a commercial basis. The provision of high-quality processed data or financial dividends from the income from this service could serve as an incentive for the voluntary provision of data to the IHK by the private sector.
  • The Ministry of State for Digitization, the Ministry of Economic Affairs, the ifo Center for Industrial Organization and New Technologies and other relevant actors should be involved in the implementation of this project.
  • Financial support options for this project with funds from the package of measures of the federal government’s digital strategy[13] should to be evaluated.
  • The coordination, compatibility and interoperability of this project with possible more far-reaching projects at EU level would have to be guaranteed in advance and in all phases of implementation.

Notes

[1] Falck O., Lohse T., Alipour J. (2019). Transformation zum Dienstleister und neue Anforderungsprofile in der Industrie. ifo Institut. URL: https://www.ifo.de/publikationen/2019/aufsatz-zeitschrift/transformation-zum-dienstleister-und-neue

[2] Falck O., Koenen J. (2020). Industrielle Digitalwirtschaft – B2B-Plattformen. ifo Institut im Auftrag des Bundesverbands der Deutschen Industrie e.V. URL: https://www.ifo.de/DocDL/Industrielle-Digitalwirtschaft-B2B-Plattformen_0.pdf

[3] Eschenbach S. (2019)- A Second Chance for European SME to Survive the Digital Transformation. University of Applied Sciences for Management and Communications. IIASA workshop presentation. URL: https://iiasa.ac.at/web/home/research/eurasian/11_Digital_transformation_workshop_report.pdf

[4] SEO Summary (2021). Suchmaschinen Marktanteile Deutschland 2020. URL: https://seo-summary.de/suchmaschinen/

[5] Brandt M. (2021). Amazon dominiert den deutschen E-Commerce. Statista. URL: https://de.statista.com/infografik/24822/verteilung-des-onlinehandel-umsatzes-in-deutschland/

[6] Janson M. (2021). Amazon baut Macht im Einzelhandel aus. Statista. URL: https://de.statista.com/infografik/22272/anteil-von-amazon-an-den-einzelhandelsumsaetzen-in-deutschland/

[7]ifo Institut (2018). Big Data als Geschäftsmodell: Wie mit der Macht der Internetfirmen umgehen? URL: https://www.ifo.de/publikationen/2018/zeitschrift-einzelheft/ifo-schnelldienst-102018  

[8] Falck O., Koenen J. (2020). Rohstoff „Daten“: Volkswirtschaftlicher Nutzen von Datenbereitstellung – eine Bestandsaufnahme. ifo Institut mit finanzieller Unterstützung der IHK München und Oberbayern. URL: https://www.ifo.de/DocDL/ifo_Forschungsberichte_113_RohstoffDaten.pdf

[9] Lind H.J., Suckfüll H. (2013). Die Initiative einer Deutschen Daten Treuhand (DEDATE) als Ultima Ratio der persönlichen digitalen Datenwirtschaft (PDD). Fraunhofer Institut. URL: https://www.imw.fraunhofer.de/content/dam/moez/de/documents/Working_Paper/DEDATE-gesamt.pdf

[10] ODI (2019). Data trusts: Lessons from three pilots. Open Data Institute. URL: https://theodi.org/article/odi-data-trusts-report/

[11] ADAMOS (2021). ADAMOS: Die strategische Allianz im Maschinen- und Anlagenbau. URL: https://www.adamos.com/ueber-adamos

[12] Verimi (2021). Über uns. Über Verimi. URL: https://verimi.de/ueber-verimi/

[13] Bundesregierung (2021). Die Digitalstrategie der Bundesregierung. URL: https://www.bundesregierung.de/breg-de/themen/digitalisierung/die-digitalstrategie-der-bundesregierung-1549554

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