Open Data’s Hidden Value

States and localities can profit from it, and it’s time to start talking about how.
December 2014
Zillow is one example of how localities can profit from open data. Zillow
Tod Newcombe
By Tod Newcombe  |  Columnist

San Francisco has DataSF. Chicago has the Data Portal. New York City has NYC Open Data. Even mid-sized Asheville, N.C., has a digital hub. For more than five years now, states and localities have been leading on open data, allowing the public free and unfettered access to the reams of data they collect on everything from neighborhood crime statistics to restaurant inspections to real-time bus arrivals. What’s driven the open data movement is the idea that government needs to be more transparent. But now, a growing number of experts and policymakers are saying it’s time to shift the conversation about open data away from transparency to economic value.

MORE: Read the rest of the December issue.

Open data’s economic potential is estimated at more than $3 trillion in the global economy, according to a recent report by the consulting firm McKinsey & Co. Government will play a key role in generating that economic activity, concludes the report, and it stands to gain significantly from it through increases in tax revenue, higher revenue from the selling of data, reductions in the costs of government transactions, increases in service efficiency and in the creation of jobs.

One example of how open data has already generated economic value is Zillow, the online real estate marketplace. It was launched less than 10 years ago, and today generates nearly $200 million in annual revenue and employs more than 500 people. Zillow relies extensively on real estate transaction data recorded by county government. So how do states and localities encourage more Zillows?

The answer to that question doesn’t necessary involve creating a formal policy to unlock economic value from data. It has more to do with management. Take Alameda County, Calif., which has been publishing its data for nearly two years. The county follows certain best practices that many experts say are needed if governments hope to turn open data into an economic bonanza.

Alameda Chief Information Officer Tim Dupuis says the county has a process for identifying the most valuable data sets worth publishing and then makes sure the data is kept fresh and easily accessible. Dupuis’ team regularly runs a series of hackathons that have kept the community interested in what can be done with open data. Two internal hackathons for government workers, for instance, generated a number of cost-saving measures, including a new electronic invoicing system that is saving the county $500,000 annually. The county also measures the results of its efforts, so that leaders can see the return on investment.

Analysts say these practices are essential to persuading businesses that open data will have long-term value. Companies need to know they can trust governments to deliver data that will be there five years from now, says Daniel Castro, director of the Center for Data Innovation. “If there’s a budget shortfall, businesses need to know the data won’t be shut off.”

One challenge Dupuis encounters is the fear of failure. What if published data has errors in it? While that hasn’t happened in Alameda yet, experts say it shouldn’t keep governments from pushing ahead with open data initiatives. Start small, they say, and be choosy about which data sets are released to the public, making sure whatever is released is of consistently high value.