If data is now more valuable than oil, and OPEC broke the oil giants, is tech’s OPEC moment upon us?


Clive Humby, mastermind behind the Clubcard loyalty scheme of UK retail giant Tesco, is generally attributed with coining the phrase “Data is the new oil” back in those innocent pre-Cambridge Analytica days of 2006.


Since then the concept has been picked apart and kicked around by those who support it and those who disagree. On the pro-side the argument is essentially that as oil was to the 20th century, the wonder new material that would power so many industries, from transport to chemicals to pharmaceuticals to agriculture, and many a fortune, so in the 21st century data is fulfilling a similar role.


And indeed everyone in pretty much every industry is into data now. Twenty years ago the number of people identifying as ‘Data Scientists’ would likely have fit in one not very large room. Now Harvard Business Review can name it as ‘the sexiest job of the 21st Century’.


On the anti-side meanwhile are a variety of arguments pointing out how data is very very different to oil - most crucially that it isn’t finite, but also things like unlike oil data can be used and re-used and doesn’t cause environmental damage (we’ll just leave Bitcoin mining to one side here).


And of course like in every really good argument, both sides are right. Which means this debate will run and run and never reach a definitive conclusion. Which is fine as that isn’t what this article is about.


Data and oil have so much in common

The question of whether oil and data are analogous is missing the point in my view because what is undoubtedly true is the similarities between the two industries as each has moved from infancy to maturity.


The more you look at them, the more apparent it is just how striking the connections and similarities between the growth of the commercialisation of data today and the oil business over a century earlier are. Understanding these connections and similarities can provide valuable insight to us in truly appreciating the role of data in our current lives and economies and changes we can expect.


In particular the key to unlocking this is looking at how against expectations it was OPEC that completely upended the previously secure and unshakeable world of the oil majors. OPEC made them shadows of their former selves. Looking at the two industries side-by-side - data/tech and oil - it is very clear how there’s now a huge opening for a similar catalyst that could have a similar effect on the big tech companies as OPEC did in its time with the oil giants. In fact it may have already started.


The small print

Before going any further, I would like to clarify a couple of things, some small print if you will. Firstly, history absolutely does not repeat itself. The idea is ridiculous but always maintains a hold on our storytelling minds. We’re all susceptible as it’s fun to think about, but ultimately it’s bunk. It doesn’t happen.


What there are are patterns such as underlying economic and other forces that emerge and remerge over time - for example the basic economic cycle of boom followed by bust will never be eliminated (sorry Gordon). One can mitigate the worst, minimise the downsides, but you can’t stop it any more than you can stop the weather.


Because these patterns and long term forces exist, they do appear and influence events regularly. Spotting them is interesting and useful but the process of identifying them presents a trap. Once one sees a pattern it’s all too easy to overdo things.


That is the second point I need to make here - while the patterns I’m writing about here are interesting and I think highly relevant, we need always to be wary of stretching the analogies too far. We’re identifying patterns here, not making everything happening today an updated version of what went on before. But just because some factors have no historical parallel doesn’t mean there’s nothing to be learned from the past. As the great James Burke once said, “Why should we look to the past in order to prepare for the future? Because there is nowhere else to look.”


So with those health warnings laid out up front, on with our story…


Rockefeller’s world

Like our technology-driven world today, the oil business began in America, specifically in Pennsylvania in the mid-19th century. From the first successful commercial find in 1859 oil rapidly became essential to many areas of life and work, most importantly in lighting and lubricating machinery. The early drillers were almost all young men, often veterans of the American Civil War (1861 to 1865), working in terrible conditions, hoping to strike it rich. Some did, most didn’t as always seems to be the way with early pioneers in any new field. But one man who did become rich, very very very rich, was John D. Rockefeller.


Book-keeper Rockefeller realised early on that the key to the oil industry at that nascent stage wasn’t the tough and dirty business of drilling, but refining. So in 1863 he bought control of a refinery which he then used as a springboard to build his own company, Standard Oil. Using ruthless business practices, in particular secrecy and downright duplicity about his deals, pricing and partnerships, Rockefeller outwitted and destroyed all his competitors.


Within 20 years Standard Oil had monopoly control over the oil business in the US, as well as a vast overseas business. Rockefeller was completely untroubled by state governments, which seemed tiny in comparison to the vast Standard business, and the US federal government was largely impotent at this time as it still had few regulatory powers. Rockefeller and Standard had effectively left the government behind as they forged ahead, creating this brave new world of oil.


However the politicians and public opinion weren’t out of the picture for good. They gradually began to catch up with Rockefeller and Standard Oil. It took a while, but eventually new anti-trust (ie anti-monopoly) laws were passed at both the state and federal levels often directly in response to the power of Standard Oil (and which have remained largely unchanged ever since). Over time people and politicians had begun to have enough of Standard’s monopolistic practices and its minimal taxation, vast profits and general habit of acting as an entity completely independent of governments and their laws. Laws that everyone else had to live under and obey.


Finally the federal government sued Standard using their new anti-trust powers and, in 1911, in the US Supreme Court, Standard Oil lost. Its 30-year monopoly of oil in the United States was over, once and for all. The Supreme Court declared the company had 6 months to break itself up. As this was the Supreme Court, there was no higher court to appeal to. Standard had reached the end of the road.


As it happened this momentous decision came just as the oil industry was being transformed into the business we know today. Specifically oil was becoming much more important than just powering lights or lubricating factory machines. It was now an industrial and domestic fuel, the raw material for the emerging petrochemical industry, and the oil industry’s gasoline (petrol) products were powering the transformational new technologies of cars, trucks, planes and tanks.


Rockefeller had built his fortune, at that point probably the largest ever in modern human history, on a product that had significant, but at that time still limited, uses. Now the uses of oil were expanding almost exponentially and the successors to Rockefeller would be rewarded even more handsomely than Standard ever was.


The Seven Sisters

Standard broke up into 38 different companies, with three in particular becoming three of the so called ‘Seven Sisters’ who would control the oil business for much of the 20th century: Exxon (the former Standard Oil of New Jersey), Mobil (Standard Oil of New York) and Socal (Standard Oil of California which introduced the retail name Chevron in the 1930s). The other four Sisters were the American companies Gulf and Texaco, the Anglo-Dutch Shell (which earlier on had been one of the only international companies to successfully take on Standard outside the US) and BP, originally the Anglo-Persian Oil Company, which until the 1980s was half owned by the UK government.


Briefly, that’s the history of the oil business as it stood for the first decades of the 20th century. Readers will probably have spotted parallels themselves with today’s tech/data companies. For me there are four relevant ones:


1. Born in the USA

The oil industry, like technology today, began as a very American industry. Although they were active internationally right from the start - just like tech - distributing and selling oil everywhere they could, first Standard and then its successors were headquartered in America with American leadership. Shell and BP only emerged as peers of the US giants after the first World War (1914-1918). For the first five decades of the business, the US was the source of most of the world’s oil and the home of the organisations and people who were commercialising it.


Today’s tech giants too were all born and made in America. They are led by American founders and executives (some American-born, others naturalised, but all still American) and their board members are overwhelmingly American. I have absolutely nothing against America or Americans I can assure you, I simply make this point because nationality does matter in terms of how a business starts, grows and develops, and the legal and cultural environment that it operates in and which shape it.


2. An dynamic new industry, benefitting handsomely from the innovations of others

Like tech/data today, oil started off initially serving existing needs better than previous products, specifically in lighting and industrial lubrication. None of the oil companies invented the internal combustion engine, the aeroplane or the petrochemical industry, but as soon as these innovations were established, the oil majors were able to seize the opportunities they created instantly.


Similarly none of today’s tech giants invented the personal computer, the worldwide web or broadband networks for example, but their success and prosperity is built on their ability to capitalise incredibly successfully on the opportunities they together created. (Apple inventing the smartphone is a clear exception to this point, one worthy of much further analysis in due course.)


3. Regulation, or lack of

Because oil and tech were both so new, the legal and regulatory framework around them lagged the business reality for a long time. More on this shortly…


4. Politics

And finally politics. Again more on this shortly, but a key point to make here is that with both oil and tech, while politicians and regulators may have lagged behind in their full understanding of the businesses and the tools they needed to regulate them, that wasn’t because of any lack of appreciation of the momentous potential of these new industries. Quite the contrary.


Plenty of politicians understood right from the start how vital both oil and tech/data would become, often way before public opinion caught up. The question was what to do about it. How to harness these new forces and players? Should they give unquestioning support or take sceptical views and investigate? What balance of control and regulation was the right one to maximise public benefit without killing the companies and the opportunities they offered?


Politicians were aware of many or all of these questions right from the start. But because everything was so new, it took a long time for any kind of consensus to emerge. They needed to see the industries in action first before they could determine how best to deal with them.


It’s these last two areas - regulation and politics - that largely drive the public discussions around today’s big tech companies, just as they did around oil a hundred years ago. The companies themselves in both cases initially had little interest in politics or regulation, and why would they? From their perspectives they are literally creating and building the future. The potential for what they are doing is limitless and they have no time or interest in anything that might hold them back from charging at full speed into this exciting future that they are making and which will improve the lives of countless millions or billions around the world.


The oil companies were the first true multinational firms of the modern age and as such clearly felt that they had left the confines of national governments behind. Nation states were preoccupied with what was going on within their own borders and managing relations with other states. The oil companies however had a global perspective never before seen in private organisations. And most importantly they were providing products to people everywhere that were literally transforming their lives for the better. They were on the right side of history, indeed creating history. You don’t need me to point out the parallels with today’s tech giants.


And I have no interest in criticising those views. We now have a much better understanding of the costs of oil in terms of things like the environmental impact and oil’s influence on international affairs, but there’s no denying how valuable and essential oil products are to our lives.


From transportation to pharmaceuticals, fertilisers to fabrics, all the different forms of plastics we use in so many areas of our lives today as well as countless other sorts of useful and essential things, oil and its products are everywhere. While we are taking more and more steps now to cut back on some of them (eg reducing plastic usage, greater energy efficiency, etc) we’ve all benefited mightily from their existence this far.


The early leaders of the oil industry may have had little or no understanding of the negative effects of their business, but they weren’t wrong to grasp the potential.


Think global, live local

However while the oil companies may have thought and acted globally, and seen themselves as operating beyond national borders, none of us live in a global political entity, then or now. We live in a world of nation states, each with their own needs (ie taxes and spending), politics, people, and so on. It took a long time for the nation states to catch up with the multinational oil companies, regulating and taxing them more tightly for example (and I know many will feel that that process hasn’t gone anything like far enough), but catch up they eventually did.


And they always will, because of those national needs and national politics. We’re seeing the same process play out now with the tech giants, from everything like the new EU Copyright Directive fight, to politicians of all stripes questioning the status quo around the tech giants in areas from taxation to regulation.


I’m not making any predictions about how those twists and turns will play out, merely pointing out that like the oil giants before them, the tech giants will slowly and inexorably find themselves drawn more and more under the sway of national governments whether they like it or not. In their early days the tech companies paid scant attention to the ways of government. Now they have major lobbying set-ups all over the place. Often these efforts are successful in fending off unwanted controls, taxes or some legislation or other, but the direction of travel is clear. Politics and regulation is slowly but relentlessly catching them up.


It can never be any other way for one simple reason. However rich and powerful a company may become, however much its revenues or market cap may appear to rival or even dwarf the GDP of actual nation states, those same actual nation states can send you to actual jail if you break their actual laws. There’s nothing quite like the risk of jail time to force real change in corporate and executive behaviour (see the anti-bribery laws passed in recent years for a real world example).


What this means is that like the oil companies before them, the tech giants are destined from this point onwards to spend more of their time engaging with countries and regulators, fighting for their interests and pushing their points of view. In other words, business and politics as usual.


That’s all very interesting Richard you may say. Thanks for the history lesson. But just what exactly has all got do with OPEC?


OPEC

OPEC is the Organisation of Petroleum Exporting Countries, an international grouping of oil producing countries started in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today it includes 14 countries and ever since the 1970s has had a major (but varying) influence on the price of oil.


However before OPEC it was the Seven Sisters who not only influenced the price of oil but actually controlled it. They were the international oil business, they set the price of oil and that was that. There were various independents (eg Getty Oil) and smaller players (eg Total of France, Eni of Italy) but the Seven Sisters were the ones who set the weather.


They controlled most of the major oil fields in the world (generally in partnership with each other) and collectively they dominated every element of the business, from refining to transport to retailing and yes pricing. The whole lot. Sure they had to take account of market realities and that sort of thing, but nobody had the temerity or ability to get too deep into messing with their business. That was just the way that it was and always had been.


The Seven controlled 85% of the world’s oil reserves. Today, thanks to what OPEC began, the figure is less than 10%. And the Sisters never saw it coming. Actually that’s not true, they could see it, the countries were organising in plain sight. Rather the Seven never considered for a moment how highly vulnerable they were or that the producing countries could ever pull this off. They just didn’t take them seriously enough.


The fundamental weakness that the Seven didn’t realise they had was that while they may have ‘controlled' 85% of the world’s oil at that time, their ownership was much lower. As low as you can get actually. They owned zero per cent. Yes, zero. Which is a long way off 85 per cent.


Ownership of natural resources ultimately vests with countries, those old nation states who control the land (and sea) those resources are found under. The Seven Sisters looked unassailable - including it has to be said to most of OPEC when they started - but in reality they were anything but.


The irony was that the Seven helped bring OPEC into existence. For years they had kept the producing countries, ostensibly their partners but in reality anything but, completely in the dark about the commercial realities of their oil. Pricing was the hidden preserve of the Seven, the Western oil companies. Their real costs were opaque and everything was wrapped in layer upon layer of secretive business practices.


While initially the oil producing companies had been naive and unsophisticated to the ways of the oil world, over time they watched and learned and eventually realised that sure enough the Sisters, as I say ostensibly their partners, had always kept them firmly in the dark, to their serious disadvantage.


More importantly, it was clear they were never going to change. There had been various attempts to shift the balance to a more equitable one, and in some places even revolutions to wrest control of the oil away from the majors - successfully in Mexico, not so in Iran. But overall the Seven Sisters always seemed to come out on top, continuing to call all the shots.


OPEC takes back control

So finally the producers, led primarily by the duo of Venezuela and Iran (friends with shared interests even then, long before either the Islamic Revolution or Hugo Chavez) began to organise as they’d never done before. While this was happening the oil majors completely failed to realise just how profoundly their world was changing. They carried on exactly as they’d always done, setting prices themselves in line with their own priorities and dealing with the countries individually as if OPEC didn’t actually exist.


However OPEC was very real and nothing would ever be the same in the oil business again. It took a few years after OPEC’s founding for the producing countries to effectively collectivise and decide to change things once and for all, but once they did, the dominos fell very quickly.


In a few short years the ability of the Seven to set prices was broken forever by the power of OPEC, and even more distressing (from the companies’ point of view) the producing countries began nationalising the oil operations and assets contained within their own borders. The international oil companies, for so long the masters of this universe, used to almost limitless power and freedom, suddenly found they had considerably less of either. By the 1980s OPEC was the most important force in the oil business and the major oil producers had taken control of their own oil.


The companies, and the publics and political establishments of the big oil consumers (ie the West - the US, Europe, etc) were completely surprised and outraged by this turn of events, by the sudden emergence of OPEC’s power. But they really shouldn’t have been. They really shouldn’t. Because at the end of the day, for the OPEC countries, the oil was theirs. It was theirs. It really was that simple and obvious.


The Seven had to face the horrible truth - it had never ever been ‘their’ oil. The raw material of their business, which they took and did all kinds of clever things with that no-one else could do and which they were the undisputed leaders at doing - the refining process, developing and producing all kinds of highly useful products, etc - the raw material had never ever been theirs. It had only ever been an illusion. By acting like and believing that they had complete control and ownership, they lost them forever.


Of course the oil majors today remain huge and highly profitable enterprises, some of the biggest companies in the world. But they’ve never got back the power they lost once OPEC organised, and they never will.


Lessons for data companies

And therein lies the problem for every company that uses data as a driver for their business - which is most of them these days. From the very biggest tech giants to the smallest startups, the inescapable fact is that just as the Seven Sisters never created or owned the oil they relied on, the tech giants, who have built the biggest businesses around data, don’t create their raw material, that data.


Who does? We do. The data the tech giants use and need, the data that has built their empires, that comes from the activities of people. Their customers/users/members and the actions, choices, decisions and so forth that they, we, take.

OPEC didn’t change anything about how oil was used. It didn’t even end up being as dominant as the Seven Sisters had been in their imperial phases. But it didn’t have to be. By uniting enough of the actual owners of the oil to set the agenda it was able to blow apart once and for all the aura of invincibility and control around the Sisters that everyone previously took for granted. And once that was gone, it was gone for good.


The Sisters couldn’t regain ownership of the oil because they never had it in the first place. And they certainly weren’t going to get it now that absolutely everyone, not just the companies themselves as in the early days, but everyone, knew what the true value of oil was.


As I said at the start, history doesn’t repeat itself, and the analogy can be taken too far - data is not created by sovereign states who can choose to team up together. But it’s not at its core created by the companies who extract most of the value from it either. They collect it and organise and analyse it. But they don’t create it.


The true origins and ownership of data

We’re now starting to see the rumblings of awareness around the true origins of data, an awakening that individuals, the creators of the raw data in the first place, maybe do have some kind of claim on the value their actions are creating. And those individuals remember are citizens - and as adults, voters and frequently tax payers - of nation states. The entities who ultimately have the power to pass laws and put people in prison who break those laws.


It’s still very early days, and it’s not at all clear how this might ultimately play out, but where we’re headed is very clear. The tech companies have been on a very similar trajectory to the oil companies a century earlier: a brand new industry bursts forth and those fortunate enough to be in the right place at the right time are in for the rides of their lives - and potentially make an absolute fortune - creating this new industry. The old rules don’t fit, governments and regulators don’t have the tools or the understanding to know what to do at first, and they don’t want to anyway as they want their enterprises to be the winners in this new game.


The enterprises who do make it see themselves as beyond national borders and governments, business visionaries of the future and not at all interested in the irrelevant industries of the past. But as time passes, as things slowly mature as they always will, those nation state governments and various regulators begin to acquire the knowledge and the desire to rein in these supra-national organisations. So begins a long back-and-forth as the two sides pursue their agendas.


Disruption will always surprise you. That’s why it’s so disruptive

But this back-and-forth between companies and governments and their regulators hides the true disruptive threat. Something that is both on the far out extreme and right at the heart of their business and understanding.


For the major oil companies, in their time the most successful, most dynamic, the richest and most pioneering corporations ever, it was OPEC. A grouping of those they had known and taken for granted for so long. Their ‘partners’ who as it turned out actually owned the most basic of raw materials that the major oil companies depended up. They finally organised and said no more, they were now taking control of their own assets.


Who such a player in data could be I don’t know for sure, but the European Commission certainly seem to be making the most significant steps so far to take control of data away from corporations, from GDPR to the right to be forgotten.

It is still early days. The giants of data are only 10-20 years old, while public awareness of the value and risks of data is arguably less than 5 years old. Political awareness is somewhere in between. But the realisation is there now. With or without the likes of Cambridge Analytica, individuals, people, are slowly but surely becoming aware that data, the fuel of the modern economy, starts with them. And they don’t want to be taken for a ride. Whoever does?


This is a massive change. The likes of the EU’s GDPR, the UK’s Data Protection laws and other regulations are slowly making themselves felt and it’s clear that this is only going to grow and grow. And not to the benefit of big incumbent data companies.


The obligations and requirements of organisations who collect data are becoming ever more stringent. In some cases organisations don’t yet understand the implications of the new laws, what their obligations will be, and how they will need to adapt. But adapt they will, because these are laws with real teeth.


The real change for me however is about much more than the changing legal landscape. As highly significant and important as that is, the real game changer is that this evolving legal landscape has one consistent factor at its core. And that is that the originators of data, that is you and I, people, have fundamental rights about that data and how it is used. Power is inexorably shifting away from those who control and process data towards those who created it in the first place. (Ring any bells from the oil industry?)


And this process is only just beginning. I think we’re are only at the very start our learning curves about our data and its commercial usage. About how data generation starts with people and how those same people have more than a casual right to be involved in what happens to it. They have the right to be at the very centre of how it, their data, is used and how it is monetised.


And if people don’t feel this is happening, that will only make them more and more determined to make sure it does. Just like the OPEC countries concluded about their oil, that after years and years of not being kept at the centre of things by the oil companies, being taken for granted, they needed to take drastic action.


Because don’t forget the ultimate reality here - a tech company can make you have a bad day if things don’t go your way. A country can put you in jail. That’s where the ultimate power in all of this lies. Corporations really should have learned this by now.


One more thing

One final point here. While the balance of power in the oil industry was always going to shift away from the major oil companies and towards the oil producing countries as the business matured and the huge profits to be made in oil became apparent to all, the Seven Sisters could nonetheless have mitigated some of the negative effects of OPEC if they’d gone about things in a more open and cooperative manner. When the producing countries began to wake up to the realities of the oil business, they weren’t trying to change everything, they weren’t after a revolution. They just wanted their fair share.


But the Seven Sisters refused to engage. They had invented and built this industry and they weren’t going to let anyone tell them how to run it. They refused to treat the producing companies seriously, refused to stop being secretive about what they were really up to. They continued in this way right up to the point where the producing countries completely blindsided them by wielding the reality of their ownership of the oil and the Seven lost the right to treat the oil as they wanted to forever.


If only they’d been open and honest form the start, approached the countries as true partners and not always keeping secrets, maybe they wouldn’t only account for 10% of the industry they invented and built. Maybe.


Whether data is the new oil isn’t a question we should spend any time arguing about. Economically data is already more valuable than oil ever was. The reality is the oil industry never saw coming the force that would diminish their power forever, OPEC.


So the question is, will the data industry, the tech titans, do any better than the oil giants did in their time? Will they succeed where the oil industry failed so so badly. Or will history, for once, actually repeat itself?

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