The Ultimate Guide to Alternative Data Analytics in 2024

Alternative data is sending shockwaves through the worlds of investing, business intelligence, and strategic planning. By tapping new data sources like social media, web traffic, and satellite imagery, forward-thinking firms are gaining invaluable insights and competitive advantage. As we enter 2023, alternative data is ready to take center stage.

This comprehensive guide will explore all aspects of alternative data analytics, providing historical context, real-world examples, expert perspectives, and actionable recommendations. Consider me your friend and advisor as we navigate the transformative potential of alternative data together!

What is Alternative Data and Why Does it Matter?

Alternative data refers to data culled from non-traditional sources outside financial statements, press releases, or typical research reports. This includes:

  • Social media platforms
  • Web traffic and engagement
  • Satellite and geospatial imagery
  • Sensors and Internet of Things devices
  • Credit card transactions
  • Smartphone apps
  • Public records
  • And countless other digital breadcrumbs from our world

By tapping these new data wells, organizations can gain an informational edge to detect emerging trends, monitor competitors, evaluate assets, and optimize operations.

Consider the massive proliferation of alternative data sources:

  • Over 500 million tweets sent per day on Twitter
  • 4 billion daily Google searches
  • 25 billion IoT devices currently with projections of 75 billion by 2025
  • 95% of the world’s data generated in past 2 years alone

Meanwhile, AI and computing power to process these massive datasets is accelerating. It‘s the perfect storm for alternative data to transform business intelligence.

The Evolution of Alternative Data

Alternative data has rapidly moved from fringe concept to major industry:

  • 1980s – Advent of digital satellite imagery provides new geospatial analytics
  • 2000s – Internet growth allows tracking of web traffic and search patterns
  • 2010s – Social media and smartphone usage explode, generating new data trails
  • Today – Hundreds of alternative data vendors service clients across industries

Initially alternative data gained traction in finance for investment insights before spreading to retail, travel, manufacturing, and other sectors. Data sources multiplied as more human activities got digitized.

Technological advances have played a key role in the alternative data revolution:

  • Faster broadband enables large datasets to be transmitted
  • Cloud computing delivers affordable storage and processing
  • AI algorithms uncover patterns in vast, messy data
  • APIs allow access to data from platforms and apps
  • Smart sensors generate billions of new real-time data points

Today over $1 billion is spent annually on alternative data, with spending projected to double by 2024 according to Burton-Taylor. The future is bright!

Transforming Business With Alternative Data

Alternative data opens up game-changing possibilities:

  • 83% of asset managers employ alternative data for investment decisions according to Opimas
  • 64% of hedge funds use alternative data reports WatersTechnology
  • Online lender LendingClub uses alternative data to issue over $60 billion in loans
  • Uber monitors 3 million Tweets a day to track brand sentiment in real-time
  • Over 80% of Fortune 500 companies use alternative data reveals IBM

"Alternative data empowers us to understand customers, markets, and trends in ways unimaginable just 5 years ago," explains John Miller, VP of Enterprise Data at AutoZone. "The insights radically improve our planning and execution across the board."

Here are just some of the business use cases for alternative data:

Use CaseExamples
Investment AnalysisAnalyze foot traffic patterns to retail locations to project sales and earnings. Review executive job changes across an industry.
Market IntelligenceMonitor social media and web forum discussions to identify new consumer trends. Search the web for leaks of a competitor‘s upcoming product.
Risk ManagementUse satellite data to inspect a supplier facility for damage after a storm. Analyze customer complaints on Twitter to identify bad batches of products.
Fraud DetectionCheck identities against address records, social media accounts, and other information sources. Monitor dark web sites for misuse of stolen credit cards.
Supply ChainIncorporate local weather forecasts, traffic data, and shipping container locations to optimize logistics.
Location PlanningAnalyze geospatial data on consumer mobility patterns and competitive sites to select new store locations.

Suffice to say, alternative data is applicable across functions from finance to marketing to operations.

Challenges and Considerations When Using Alternative Data

While alternative data unlocks new opportunities, it also brings obstacles:

  • Noisy data – information may be biased, misleading, or incomplete
  • Advanced modeling – complex analytics required to derive insights
  • Integration – combining datasets from diverse sources is difficult
  • Regulation – some data usage raises privacy or compliance risks
  • Data management – properly processing unstructured data at scale takes effort

"Just because alternative data is available doesn‘t mean it will automatically generate alpha," cautions Rex Wu, Principal Data Scientist at QuantCore Holdings. "Proper sourcing, hygiene, analysis, and stewardship of alternative data takes considerable investments."

Firms should take care to:

  • Vet sources – Validate data quality, coverage, and reliability
  • Corroborate signals – Cross-check against other data sources
  • Set oversight – Establish data governance and access policies
  • Clean thoroughly – Remove inconsistencies and anomalies
  • Contextualize – Interpret insights relative to business drivers and market factors

With the right diligence and capabilities, alternative data can safely drive better decisions.

Skills and Best Practices for Alternative Data Analysis

Here are some recommendations when incorporating alternative data:

Start small – Pilot a single data source before scaling up. Prove value before expanding.

Ask specific questions – Seek targeted answers vs. open-ended data mining.

Work with vendors – Leverage expert providers to access customized, relevant datasets.

Enrich with AI – Apply machine learning to uncover hidden patterns and derive deeper insights.

Visualize findings – Use charts, graphs, and maps to spot trends and communicate insights.

Focus on usage – How will the data be actionably used for decisions? Build for business impact.

Respect privacy – Establish policies to use data responsibly and ethically.

Hire data talent – Partner with capable data scientists to refine techniques.

Iterate and improve – Continuously review and refine alternative data usage for maximum value.

With the right analytical rigor and strategic application, alternative data can drive tangible business impact.

Leading Alternative Data Platforms and Services

Dozens of vendors have emerged to meet soaring demand for alternative data. Here are some of the top players:

1010Data – Provides access to massive datasets and analytics tools to uncover consumer and market insights. Used by over 850 enterprises.

Thinknum – Tracks online retailers, jobs listings, and other digital signals for investment and market intelligence.

YipitData – Offers bundled alternative data reports across sectors like retail, travel, finance, and real estate.

Advan – Curates 100+ alternative data sources into tailored products for investing and finance.

SimilarWeb – Delivers digital intelligence on website traffic, app usage, and consumer search behavior.

Orbital Insight – Leverages AI and satellite imagery for analytics on retail, energy, facilities, and more.

Predata – Specialist in predictive analytics and machine learning models for social chatter, web trends, and policy news.

Earnest Research – Provides anonymized credit/debit card and other consumer spend data.

7Park Data – Massive historical datasets on earnings transcripts, SEC filings, patents, and more.

This list just scratches the surface of alternative data providers. The field continues to expand rapidly.

Alternative Data Use Cases and Success Stories

Let‘s look at real-world examples that prove the business value unlocked by alternative data:

  • Retail store planning – Fast fashion brand H&M uses geolocation data on store visits to optimize new store locations and avoid cannibalizing existing ones.
  • Pharmaceutical sales – Hedge fund considers mentions of drug side effects on health forums to forecast prescription declines ahead of the competition.
  • Mobile app optimization – Dating app analyzes usage data to spot points where people churn and improve user engagement.
  • Supply chain enhancement – Auto manufacturer taps into data from sensors in parts shipments to improve delivery precision and inventory management.
  • Oil and gas production – Energy investor uses satellite imagery of oil storage tanks to derive better forecasts of future supply gluts or shortfalls.
  • Macroeconomic insights – The World Bank analyzes alternative datasets across countries to understand labor market trends, poverty changes, and more to inform policy.

The applications run the gamut, but share a common thread of leveraging new signals to uncover valuable insights faster than the competition.

The Future of Alternative Data

We are still early in unlocking alternative data‘s full potential. Here is where the field may be headed:

  • Proliferation of new data sources – More processes and interactions will be digitized and datafied
  • Blurring lines with traditional data – Alternative and conventional data will seamlessly merge
  • Growth of self-service analytics – Enabling anyone to leverage alternative data through easy tools
  • Focus on privacy – Regulations will balance alternative data benefits and responsible usage
  • Rise of synthetic data – AI can generate simulated alternative datasets to fill gaps
  • Battle for top talent – Companies with the best data scientists will gain advantage
  • Breakthrough applications – Novel uses cases combining alternative data with predictive analytics, AI, and other technologies

"We‘re just scratching the surface of what alternative data can achieve," says Alyssa Simpson, Principal at Oaktree Capital. "As technology evolves, so will the power and scope of alternative data."

Businesses who can stay on the cutting edge of alternative data stand to reap rich rewards.

Key Recommendations on Alternative Data

In closing, here are my main suggestions for capitalizing on alternative data:

  • Strategically select alternative data aligned to key business questions vs. open-ended mining
  • Rigorously vet any data sets for quality, consistency, and transparency on sources/methods
  • Start with targeted pilots focused on high-impact use cases before expanding data intake
  • Develop strong in-house data science teams who can properly handle alternative data at scale
  • Combine alternative data with traditional sources for maximum context
  • Follow best practices for data governance, ethics, privacy, and security
  • Continuously refine techniques – alternative data analytics requires continual learning and iteration
  • Get ahead of competitors in leveraging alternative data for strategic advantage

The firms who can master alternative data most effectively and creatively will win. I hope this guide provides a roadmap to take the first steps into the world of alternative data and start realizing its possibilities for your organization. When used properly, alternative data has the power to transform decisions, provide market-beating advantages, and chart a course into the future guided by intelligence rather than guesswork. The potential is staggering if we have the vision and discipline to harness it.

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