Gartner: Data is dumb, welcome to the algorithmic economy

CIOs must embrace the 'algorithmic economy' now because algorithms will be a major driver in the future of business.

That's the message Gartner has been preaching this week at the Gartner Symposium/ITxpo, where attendees have heard that in the new digital age, algorithms are key.

According to Gartner, worldwide IT spending will surpass US$3.6 trillion in 2016 – a 1.5% increase from 2015, driven by digital business and an environment driven by a connected world.

The analyst firm is predicting spending on the internet of things hardware will exceed US$2.5 million every minute in 2016 and in five years, one million new devices will come online every hour, with those interconnections creating billions of new relationships.

Peter Sondergaard, Gartner senior vice president and global head of research, says those relationships are not driven solely by data, but algorithms.

"Data is inherently dumb," Sondergaard says. "It doesn't actually do anything unless you know how to use it; how to act with it.

"Algorithms are where the real value lies. Algorithms define action. Dynamic algorithms are the core of new customer interactions.

Sondergaard cited examples including Amazon's recommendation algorithm which keeps customers engaged and buying; Netflix's dynamic algorithm – built through crowdsourcing – which keeps people watching; and the Waze algorithm that directs thousands of independent cars on the road.

"The algorithmic economy will power the next great leap in machine-to-machine evolution in the internet of things," Sondergaard says. "Products and services will be defined by the sophistication of their algorithms and services. Organisations will be valued, not just on their big data, but the algorithms that turn that data into actions, and ultimately impact customers.