Big Data Analytics: Investing in Technology Themes

With big data analytics we can quickly and efficiently comb through a mammoth store of data for many business insights that just keep coming.

There's little debate about which long-term themes should continue to drive technology spending. Cloud computing, Big Data analytics, social media, mobile, the Internet of Things (IoT), and cyber security top the list. In a previous edition of From the Yardarm, we delved into cloud computing (Transition to the Cloud: Do-or-Die Time For Laggards, 12/2014). In this essay, however, we introduce you to Big Data analytics.

Technology forecaster International Data Corporation (IDC) expects the global Big Data technology and services market to reach $16.9 billion in 2015. This would amount to a 39% compounded annual growth rate from 2010's $3.2 billion, and would clock in at seven times the growth pace of the world's overall information and communication market.

What is Big Data?

The term "Big Data" continues to evolve, but think of it as an amount of information so large and complex that it requires advanced tools and methods in order to analyze and interpret it for further use. It can be structured, semi-structured, or unstructured, with the unstructured portion growing fastest. Unstructured data doesn't reside neatly in a database, making it more difficult to cull for business clues. Examples of unstructured data include audio and video files, social media posts, emails, and log data. Imagine what Facebook will do with information gleaned from Instagram, or Google from YouTube, using the developing power of Big Data analytics.

Perhaps one can think about Big Data in a simpler way. In sixth grade science class, we devised experiments to prove or disprove a single hypothesis. With Big Data analytics, however, we can quickly and efficiently comb through a mammoth store of data for many business insights that just keep coming. Of course, another way to define Big Data analytics is to prioritize what its enterprise users do with it. World Wide Technology, Inc. provides an example from the auto insurance industry: In-vehicle sensors can collect real-time, unstructured data on driver behavior, such as miles driven, vehicle speed, etc., that can be compared to archived structured data, such as insurance claims, credit scores, etc., to more accurately estimate customer premiums and manage risk.

Big Data already is here. According to Siemens, we've stored one zettabyte — that's a one with 21 zeros behind it — which is 50 percent more than all the grains of sand on all the beaches on Earth. And the volume of this digital data may increase to 40 zettabytes by 2020, meaning it will more than double every year.

Of the five key industries in the technology sector, International Data Corporation (IDC) expects services and software, followed by storage, to receive the greatest amount of critical Big Data spending globally this year.

Incumbents racing to transition their technologies and business models to meet the Big Data challenge comprise most of Big Data's biggest revenue producers. At number one, IBM serves as a good example. The firm was founded in 1911. Its overall sales are expected to decline both this year and next, despite any Big Data success.

Many Big Data pure plays are upstart companies. San Francisco-based Splunk is one such emerging firm whose sales rank it among Big Data's top 12. Splunk's fiscal year ended January 2015 with 49% sales growth to $451 million. The Wall Street consensus predicts Splunk's revenue will rise another 37% this year to $616 million. Like many fledgling technology companies, Splunk invests aggressively in its business aiming to propel even greater top-line growth and, ultimately, profits and cash flow.

Another intriguing company is Seattle's Tableau Software, which specializes in interactive data visualization. Its unique software product called VizQL turns large data sets into interactive graphicdisplays that help end-users extract meaning and make decisions. Thefirm went public in 2013. Like Splunk, Tableau is growing like a weed in the field of Big Data analytics. In 2014, Tableau's sales rose 78% to $376 million. The consensus estimate is for 50% growth in 2015 to $618 million.

Of course, once a big opportunity like Big Data has been revealed, seemingly everyone jumps on the bandwagon. Even those that offer no solution to this problem will spin it that they saw the trend coming and are poised to capture it. We bet that you'll hear much more about Splunk, Tableau, and Big Data's winners and losers over the next few years.

(As of June 30, 2015)

Security weightings are shown as a percentage of a Fund's total net assets. Amana Income, Amana Developing World, Idaho Tax-Exempt, Saturna Sustainable Bond, Sextant Bond Income, Sextant Core, Sextant International, and Sextant Short-Term Bond Funds did not own any securities of the companies mentioned.

Copyright 2015 Saturna Capital Corporation and/or its affiliates. All rights reserved. Vol. 9 · No. 5

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