Archive for data value

The (Possible) Tax Advantages of Bartering with Information

Posted in information asset management & valuation with tags , , , , , on 2014 Aug 29 by Doug Laney

The (Possible) Tax Advantages of Bartering with Information

As you swipe your loyalty card at the grocery store, the register automatically discounts certain items in your basket as they pass by the scanner. But is it really a discount? Of course the store advertises that you will receive discounts by signing up for and using a loyalty card.  But is it really because you’re loyal? Do you get bigger discounts the more often you shop? Not likely. Perhaps the loyalty card is encouraging loyalty, but heck, you can obtain one from any major grocer. Therefore, it seems there’s something more going on here than just a loyalty-based discount.

In reality, “loyalty-based discount” is code for “free food in exchange information about you and your purchase.” More than your loyalty, grocers and other and merchants with similar programs are after your data.

The Information Economy Matures

Over three decades ago FedEx’s CEO Fred Smith proclaimed that “The information about the package is just as important as the package itself.” Since then, this realization and mindset has swept across every corner of commerce. Recently, we see companies purely in the business of accumulating and selling data with stratospheric valuation multiples. But why should they be the sole purveyors of data? The grocer “loyalty” example has been around for decades, but it’s a B2C (business to customer) model.  Many businesses leaders today are realizing that this model can be extended to B2B (business to business) scenarios as well.

Most notoriously, retailers and, yes, grocers such as Dollar General, RiteAid and Kroger have made certain data sets commercially available to partners, suppliers and others for a fee. Kroger generates an impressive $100M annually in incremental revenue this way. Indeed, businesses in nearly every sector from telecommunications to energy to manufacturing to financial services have sought Gartner’s counsel on forming internal efforts to package, productize, price and promote their own information products. And as you would expect, over the past few years, information marketplaces (e.g. Microsoft Azure, ProgrammableWeb, The Data Exchange, Datatopia, Quandl) have emerged as Ebay-like matchmakers for sellers and buyers of data.  Even Ebay itself has gotten in on the action, with a new category for “information products.”

Not Accounting for What Counts in Information Barter Transactions

But before we get overly excited about and fixated on selling data for cash, let’s get to the real fascinating part: taxation. Yes, taxation. Back to our grocer and you. Remember, you’re trading information about you and your purchase in exchange for free food, not cash. According to generally accepted accounting principles (GAAP), discounted transactions are recorded at the value of the money exchanged, not the cost of goods. Cash is king in these transactions. However, if we presume or demonstrate that the grocer is monetizing the incremental data received by virtue of a personally-identifiable loyalty card being used, then the transaction (or part of it) ostensibly becomes a barter transaction. Stay with me now…

Barter transactions are recorded by both parties based on the value of the good or service received, yet there’s no requirement that both parties perceive the same value for what they’ve received. Here’s the rub: data has no value according to the accounting profession. That’s right, despite what 80% of business executives surveyed by Gartner believe, your a company’s information assets are not assets at all–at least and quite conveniently by neither the accounting profession (e.g. FASB, IFRS, AICPA, IAS) nor government revenue services (e.g. IRS).  Even for companies like ACNielsen and S&P that long have been purveyors of data, and more recent ones like Google, Facebook and Twitter, their vast storehouses of information assets are nowhere to be found on their balance sheets.

Therefore, if you receive information in return for providing any good or service, arguably this value of the transaction for accounting and tax purposes could be recorded as zero or negligible. . Now you may not want to find yourself in a position of arguing this in front of an IRS auditor or tax court, but it’s certainly interesting to note how the everyday grocery transaction is an indicator for what could or should be in store for your data. Regardless the possible tax advantages or not, bartering with or for data unquestionably opens up entirely new avenues of commerce, even for traditional businesses. Welcome to the world of infonomics.

This piece originally appeared, in part, in Forbes:  The Hidden Tax Advantage of Monetizing Your Data

Follow me on Twitter @doug_laney

 

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