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Welcome to the Algorithm Economy


"The value is not in Big Data [...] Data is inherently dumb. Algorithms are where the real value lies. Algorithms define action", announced Peter Sondergaard, Senior Vice President of Gartner, at the plenary session for the opening of the Gartner Symposium/ITxpo, which was held last month.

During the event, aimed at IT decision-makers, Gartner analysts brought their new credo to the forefront: the Algorithm Economy.

[Source : Gartner] 

Turning data into action 21st century oil is Big Data. But oil is just a thick, unusable porridge until it has been refined as a fuel. Similarly, data is fundamentally stupid. It does not do anything, unless you know how to use it. Big Data needs algorithms. It is what will solve specific problems and turn them into actions. The next rush towards digital gold will focus on how to make something of the data, rather than just what to do with the data. This is the promise of the Algorithm Economy. Today, everyone, or almost everyone, collects, processes and analyses large amounts of data. "If data is all you have to offer, you are you're in trouble", declared Peter Sondergaard.

« On its own, data does not change anything. Only algorithms define actions. »
Peter Sondergaard
Peter Sondergaard invited us to observe how Amazon and Netflix have structured their core business around algorithms which encourage people to stay online and buy more or watch more films, algorithms which have turned user data into actions.

Dynamic algorithms are already used in FinTech startups, and are widely used in the e-health and e-commerce sectors and the manufacturing industry.

Demonstrating one's algorithms

How can companies participate in the Algorithm Economy? The good news is that they already have much of what they need. But they must remember the strengths they already have.

"You must draw up an inventory of your algorithms, identify those which define your key processes, key interactions with your clients. You must then examine the properties of these algorithms, determine which ones must remain private, and which ones you can, or rather must, make public. Algorithms which have value, but which are not critical to the sector in which you operate, you can monetise or even make available free of charge", advised Peter Sondergaard.

"Imagine a marketplace where tens of millions of algorithms are available. 
The algorithm economy will power next great leap in machine-to-machine interaction in the Internet of Things."

Towards the post-app era

Virtual assistants such as Apple Siri, Google Now or Microsoft Cortana are very much on the up. With the development of artificial intelligence technologies such as Machine Learning, agents will become increasingly intelligent and independent.

Gartner predicts that by 2020, these intelligent agents will take care of 40% of interactions. By 2020, Microsoft's strategy will be centred on Cortana rather than Windows.

This is what Gartner defines as the post-app era. The physical and digital worlds will have merged into a web of things, apps and services. In this ambient environment, users will interact with independent agents who will be interfaces with algorithms.

The new role of DSI
Between 2005 and 2015, companies' total expenditure on technologies has increased overall, but the share controlled by IT has decreased from 70% to 58%. By 2017, Gartner even foresees that expenditure on IT will only represent 50% of total expenditure on technologies. IT budgets remain virtually stationary. Thus, world IT budgets only increased 1.5% between 2015 and 2016.

The role of the IT Department has changed, and at the heart of the change is the emergence of a business model centred on algorithms, and centred on the code which defines user actions. Algorithms may range from mere receipts to sophisticated trading algorithms developed by finance companies. In this emerging Algorithm Economy, the IT Department's aim is not merely to influence a coder. It will help define processes and classify them.

For Gartner, the Algorithm Economy will draw on digital innovation and redefine the IT Department's approach to technologies, its leadership and operations. More specifically, it will operate in three fields: the Internet of Things, the IT Department's new agenda, and digital change.

Article written by Pierre Tran.

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