Complex Interdependence

by Plotinus

The recent outage of Facebook and its associated services set alarm bells ringing for some. It revealed to many people just how dependent they are on Facebook beyond its immediate social networking elements. In fact, such latent dependence on a single company would in other fields, like investment management for instance, be worthy of a concentration risk disclosure.

This is not the only recent internet incident that has been a cause for concern. Over the last few months, we have seen Fastly’s content-delivery-network glitch and the less impactful Let’s Encrypt expiration scare have effects at two levels, firstly the actual unanticipated loss of services and secondly the broader fear and insecurity created by these problems. This is an indication of the unforeseen risks and dangers that lurk in the background for a society and economy that is increasingly reliant on technology and a tech industry that has largely been left lightly regulated in comparison to other industry sectors.

The above cited cases were significant problems caused by what were in themselves, not overly significant and not so troubling technical issues which were tracible and fixable. From an investor perspective, these incidents should be prompting other thoughts, beyond focusing on the headline grabbing situations (worrying though they may be). We should be looking more broadly, for example, at the vulnerability of complex interdependent relationships which they illustrate.

The savvy investor should try to identify where they have data concentration risk.

There is a temptation to play into the myth that our technology-oriented, data-driven society is the epitome of the enlightened, open society, a blossoming made possible by our access to data. The reality of course is somewhat murkier and less idyllic. The tech industry’s mega players are in an envious position, given the scale of control they wield over vast volumes of data, the fuel powering much of the current tech evolution. Like the technological capability of this era, this is a whole new layer of power concentration, and it requires realistic risk assessment that acknowledges this.

What If It Was Data?

As more investors seek to leverage data to benefit their investment decisions, it is vital that they appreciate the levels of insecurity around that data (over and above the obvious concerns around cybersecurity). Think of a scenario, which was equivalent to Facebook’s service outage, but in data terms. A data glitch (as distinct from a data breach—a cybersecurity issue) is not likely to make the headlines, nor is it likely to cause any kind of break down in service. It would in all probability be something that would pass unnoticed. Big data theory evokes that such an occurrence should not be very consequential, since by casting a very wide net, anomalous data will be easily identified and ignored, as it is diluted by the sheer volume of the data surrounding it. The issue is that the theory cannot account for the potential for complex interdependencies, the possibility that instead of being an identifiable anomaly a data glitch pollutes the data surrounding it.

Additionally, the dawning of the era of data as commodity, has peaked the concerns of governments over who controls data in terms of a) ownership and b) geographical location. This is creating a growing emphasis on data sovereignty. Given the disparate government agendas globally, a push toward establishing data sovereignty brings with it a potential quagmire of future regulatory strictures on data usage.

The savvy investor should try to identify where they have data concentration risk and where possible, seek out investment opportunities where there is some measure of cognizance of data vulnerabilities and data independence, to protect them from this risk.

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