What is alternative data?

Alternative data is a specific type of external data that’s complex, unique, unstructured and unexplored (the cool, mysterious data🔮).

Alternative data originated in the finance industry when hedge funds started using non-financial information such as rental payments and utility bills to estimate the lending risk of an individual. It revolutionized the financial industry and is now being used by other industries to gain an edge over their competition.

Examples of alternative data are satellite data, location data, financial transactions, online browsing activity, social media posts, product reviews and online purchase histories.

According to a recent report by AlternativeData.org and BattleFin, alternative data buyers consider credit/debit card data, web data and sentiment to be the most important categories of alternative data.

Alternative data is often considered big data, which means it’s incredibly complex and cannot be handled by traditional data systems.

How can you collect alternative data?

Alternative data can be collected by web scraping (data gathered by scouring public websites) or from licensed vendors.

Several firms specializing in web scraping collect alternative data sets and offer it to businesses for a fee.

Examples of alternative data sources. Image courtesy: Cloudera

Why is alternative data important?

Alternative data is considered to be revolutionary because it can help organizations extract unseen patterns and hidden trends that can help them make better decisions and give them an edge over their competition.

While alternative data has been primarily used by hedge funds, the rise of big data technologies is making it more popular with other sectors. As a result, more organizations can tap into the potential of alternative data to derive useful insights.

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