Big data, big deal?

The speed at which we produce data is staggering. Just in the time it takes to read this article, more than one billion emails will be sent globally, over 240 hours of video will be uploaded to YouTube and more than $1.5 million will be processed in online transactions.

A recent IBM report claims that about 90% of the data in existence today was created in the last two years. Whether a person is buying a pack of gum, visiting the doctor or sending a spreadsheet to a colleague, every single electronic transaction leaves a trail of information to be stored and scrutinized. The challenge for business is extracting value from these vast datasets, which have become so unwieldy they are almost impossible to use.

This is where big data comes in. While the "big data" concept isn't novel, the ability to interpret large quantities of information in real-time - also known as predictive analysis - is. That companies might finally be able to process, and therefore monetize, the terabytes of data generated by day-to-day human activity has been the source of considerable excitement in the last two years.

Accel Partners became arguably the most prominent venture capital firm in the space by creating the world's first big data fund in November 2011.

"The way I think about it is that it is a commitment to entrepreneurs who are committed to the space and ready to transform early stage and growth companies within the big data ecosystem," Jake Flomenberg, a principal at Accel, told the Global Big Data Conference in San Deigo last August. "I really think this where we are going to see the next generation of multi- billion dollar companies."

The fund, which has a corpus of $100 million, has so far made six investments. One of the early beneficiaries was ScaleArc, whose flagship product, ScaleArciDB, is a piece of software that helps solve big data scaling issues that plague on-demand software providers. Last week, Accel led a Series C round of funding worth $12.3 million. ScaleArc is headquartered in Silicon Valley but was founded by Mumbai entrepreneur Varun Singh and has operations in India.

Logical evolution

India is an obvious hub for this burgeoning sector and big data firms are springing up all over the place. To most this appears to be a natural evolution for a country where the IT-related knowledge process outsourcing (KPO) and business processing outsourcing (BPO) industries have proliferated for well over a decade and are likely to continue to flourish.

According to AVCJ Research, India's IT sector received more than $1.5 billion of private equity and venture capital last year, accounting for 22.7% of all PE investment in the country. While there are few statistics on the nascent big data sector, India's IT products and services sector, under which both IT outsourcing services and big data can be categorized, is rising rapidly. Over the last four years investment has grown tenfold.

One of the standout transactions from 2012 was Mu Sigma's $108 million Series D round led by General Atlantic and Sequoia Capital. The company, which previously received funding from Sequoia and FTV Capital, has 1,500 analytics professionals at its main delivery center in Bangalore who provide big data services to a number of Fortune 500 clients. Mu Sigma was set up in 2004 and posted revenue growth of 886% between 2008 and 2010.

While big data is often associated with internet giants such as Google or Facebook, in reality its potential cuts across a vast array of sectors that generate a large amount of electronic information, ranging from healthcare to finance to retail. It follows then that the data needs businesses in this space satisfy can be numerous and complex. Big data can be divided into three sub-sectors: infrastructure, analytics (Mu Sigma) and applications, also known as platforms (ScaleArc). Put simply, these three sub-sectors focus on how massive data sets are stored, how they are understood, and how they are applied.

"Big data is at such an infant stage right now that everything you need for 20 years from now still has to be built," says Anil Kaul, CEO of AbsolutData, an analytical big data firm. It counts retail, consumer goods, technology and hospitality companies from the US, Europe and Asia among its clients. Last August, the firm received $20 million from Fidelity Growth Partners.

Kaul believes VCs will have a big role to play in the industry's development. "Whether it is investments in the technology, the applications built onto those technologies or investment into companies like ours, which essentially provides analytics services on top of that big data, venture capital will be important."

Like many big data professionals, Kaul is an analyst by training. He graduated with a PhD in marketing analytics before going on to work in finance and then joining management consultancy McKinsey & Company, before eventually helping set up AbsolutData in Gurgaon.

The company has offices in San Francisco, Los Angeles, New York, Chicago and Gurgaon. Following the general trend, AbsolutData has now moved its headquarters to Silicon Valley but a large part of its operations remain in India. "The market is the US, so we decided to be headquartered in the US to be close to our customers", says Kaul. "But the talent is still in India."

A talent issue

So far India has been the answer to big data's human resource problems, which are not insignificant. A report by the McKinsey Global institute, the research arm of the consulting firm, projects that US companies will need 49,000 data scientists and other 1.5 million data literate managers by 2018. The same report also reveals this talent pool will fall short by 140,000-190,000 professionals.

This demand is also part of the reason why one quarter of the more than $2 billion private equity and venture capital investors committed to big data in 2011 went to companies that have connections with India, according to Thomson Reuters.

In this way, the success of India's BPO, KPO and IT industries has turned it into a breeding ground for new services. Kaul notes that participants in these established areas have already realized the big data boom will lead to a tremendous shortage of talent. But he argues that, although big data in part derives from BPO, the reason India has emerged as a hotbed is the availability of world-class analytics professionals, not cost reduction.

On this issue, however, there is no consensus. "I would not agree that is a matter of India having skills," says Mohan Kumar, an executive director with Norwest Venture Partners in Mumbai, adding that the US, not India, is the dominant force in platform development. While there are Indian companies involved in the big data application segment - Manthan Systems and Capillary Technologies, each of which received $15 million in Series A funding from investors including Norwest - they are the exception rather than the rule.

"There are areas where you can't automate the process and you will need data scientists, those with a background in mathematics, who will go through all the data and build the models," Kumar says. "That is where I think India has an advantage, because of its KPO industry which has been going on for years. Big data is an evolution of that, but I don't think India has the monopoly. There is no reason why tomorrow people in China can't start doing it."

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• Accel Partners