Have you used your mobile device or computer today to access something from the Internet today? Maybe you’ve used Google’s search engine to look up some information? Perhaps you’ve logged on to Facebook to stay connected and up-to-date with your friends and family? Could it be, that you’ve logged on to Lazada or Shopee in search of the latest online deals? Or maybe, you have spent some time on Youtube to watch some of your favorite videos?
The Data Explosion
As you can probably see, our lives today has been changed by the use of technology on a pretty deep and fundamental level ranging from how we communicate with each other and even down to how we purchase and consume. A world without these services from the Internet today is simply unimaginable!
One major consequence of this fundamental shift in secular trends is in the explosion of data that is being generated. Based on some statistics as well as projections from Statista, the amount of data created in 2020 is estimated to be around 59 Zettabytes and is forecasted to grow to a size of around 149 Zettabytes by 2024.
Data is the New Oil
As it turns out, this vast amount of data that’s been generated is of tremendous value.
For companies like Facebook Inc. (NASDAQ:FB), every “Like” button that you press or every “Check In” that you make is information about you that enables Facebook to learn about and thereby be able to more effectively target advertisements at you.
For companies like Amazon.com Inc. (NASDAW:AMZN), every click you make when you browse or every item that you have ever bought from them is information about you that enables them to make recommendations for things to buy that increases their likelihood of a successful sale.
While these are but a few examples, it should be obvious why more and more businesses, regardless of industry, are seeing the value in collecting data in all shapes and form. Just as how oil is the fuel that powered the advancements in the industrial age, data is seen as the new oil that will power advancements in the digital and information age.
In order to enable collection of data through software, the key ingredient is of course, a database.
Database – The Fundamental Ingredient
Nearly all modern software that one would interact with today, is connected to and powered in some way by an underlying database. Generally speaking, the database that is connected to the software enables at least 2 things to happen:
- Allows the results of user interaction with a piece of software to be collected and stored.
- Which post you clicked into
- Comments you’ve posted
- What you “like”
- Allows the software to respond dynamically to the user based on stored data.
- Post by your “friends”
- Comments on your post
- Your past timeline
By having this basic understanding, I am sure that you can already visualize how the same type of setup as illustrated above, applies to the various types of software that you are interacting with on a day-to-day basis.
Understanding the Database Market
To explain the various different offerings available in the database market today, we would first need to take a look at what a “traditional” database looks like. Basically, a database in its traditional form is simply a space that is organized into columns and rows. If you are imagining an Excel spreadsheet, you are on the right track. A traditional database is indeed conceptually similar to a very large spreadsheet.
Traditional databases (also known as relational databases) proved to be very useful for the types of data that is generated by traditional software where data is typically generated by the user via specific and guided inputs by the software. Think to when you were asked to fill in a form on the web where you had to input your name, address and etc.
These pieces of data can be stored pretty neatly into a spreadsheet like database. At times, you may hear the term “structured data” and this basically refers to the traditional type of data as described. In short, when you hear this term, just think of data types that can fit neatly into a spreadsheet.
However, when you think about it, it should be clear that the types of data that one can generate goes far beyond that of structured data. Just think about the various photos you’ve uploaded or even the comment / conversation you’ve had on a friend’s social media page.
These kinds of data are free-form and would not be possible to be stored neatly into a structured database. Thus, to facilitate the collection and processing of these types of “unstructured data”, newer database technologies have been made available. As it turns out, the vast majority of data that’s being generated by our digital activities, is classified as unstructured data. Various estimates, such as this one by Forbes, believes that number is upwards of 80%.
Why Should I Care About Database Technologies as an Investor?
The narrative provided here hopes to establish a few key secular trends that forms the investment thesis for this segment:
- Data of all forms that is being generated through digital activities is growing. Given increasing and accelerating digitalization, we can expect this growth trajectory to persist
- A database is an absolute prerequisite in the pursuit of data collection and analysis via software. In other words most, if not all, modern software will be attached to a database in some way or form
- As digitalization continues apace, it is likely that the software market will also grow. Alongside that, the database market will grow in tandem
Based on information provided by Research and Markets, the industry is expected to nearly triple from US$79 billion to nearly US$200 billion by 2030.
Furthermore, as you can imagine, a database as a product, is by its nature very sticky. Once an organization starts putting stuff into a database, it is very likely they will continue to do so and thereby making the database more entrenched.
Considering the thesis, as an investor, the database could therefore, potentially be an attractive space for employing a “picks-and-shovels” investment play.
How Can I Start Investing in Database Technology?
One way to approach investment in the Database Technology space is to take a look at the leading products in the space. Based on the results drawn DB-Engines, the top 10 most popular database products as of February 2021 are as follows:
Among the structured (relational) databases, Oracle Corporation (NYSE: ORCL) who owns both Oracle and MySQL is leading the pack. Among the unstructured (non-relational) databases, MongoDB Inc. (NASDAQ:MDB) would be ranking the highest.
Other publicly traded companies that have database offerings in the top 10 include the likes of Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corporation (NYSE:IBM) and Elastic NV (NYSE:ESTC).
Although we have discussed about the rapid growth of unstructured data. Please do not misunderstand that perhaps structured databases could become obsolete. Instead, I would encourage one to see structured and unstructured database technology as complimentary as they are built to tackle different dimensions of the same problem. Some things are always better to be solved with a structured database (i.e. transactional data in a bank), whereas others with an unstructured database (i.e. a chat log with a banking officer).
Keeping this in view, a basket approach to investing in this space may be a decent way to start.
In Summary
Admittedly, tech investing can often be pretty complex. However, once in a while, obvious investment opportunities that is supported by visible and well understood secular trends can emerge; as demonstrated here in the case of database technologies.
I would encourage would-be investors with a good investment time-horizon to take a closer look into this segment as it does seem like it is one that is shaping up to have a pretty long-tailed opportunity.
Disclosure: The author owns shares of Microsoft Corporation (Ticker: MSFT), Amazon.com Inc. (Ticker: AMZN) and MongoDB Inc. (Ticker: MDB). Investors should conduct their own due diligence before engaging in any buying / selling of any of the shares mentioned.
Data centres are the new banks haha.