Data leaders at Latin America’s tech ‘unicorns’ are in a unique position. Young companies often have data in their bones but lack the budget for truly innovative data projects. Meanwhile, established enterprises have the resources for data initiatives, but are stubborn and resistant to change. Unicorns represent the best of both worlds.
A unicorn is any privately held company with a valuation that exceeds $1 billion. Cash rich, digital natives such as Brazilian ‘neo bank’ Nubank, ride hailing app 99 and Colombian delivery service Rappi are perfectly positioned to disrupt markets across the region.
“Rappi and some other big unicorns in Latin America are starting to disrupt more traditional business,” explains Alejandro Bahnsen, Rappi’s VP Artificial Intelligence. “That is going to make the traditional businesses understand that they really need to get on board.”
“I think that we in Latin America didn’t have that before,” he adds. “You cannot really say that there have been that many successful data-driven companies in the past.”
With Latin America’s big data and analytics market expected to generate $8.5 billion by 2023, it’s clear that this change is coming. But that figure is still a drop in the ocean compared to the market’s present-day valuation of more than $56 billion in the US.
For Bahnsen, the historic absence of these disruptive data innovators explains why Latin America has lagged behind countries like the US when it comes to data innovation.
“Once more companies like Rappi start appearing, that is going to make [everything] change very quickly” – Alejandro Bahnsen, VP Artificial Intelligence, Rappi
“It’s not that traditional companies in the US are more willing to change,” he says. “It’s just that they realized faster that they needed to, otherwise they would be out of business. Up to a point, we need that to happen in Latin America, and I think that is going to happen very soon.”
“If you look at Latin America holistically, I think what is preventing [companies] from moving forwards with this is really market economics,” adds Joao Barbosa, CIO LatAm at GE Healthcare. “Uncertainty in the market restrains investment in those technologies a little bit.”
Despite these uncertainties, change is coming to Latin America. The region’s largest tech company is online marketplace and auction site Mercado Libre, which floated on the NASDAQ in 2007 and is now worth $31.5 billion.
Today, dozens of fast-growing tech companies are following in Mercado Libre’s footsteps. What separates these companies from the established giants that came before them is their ability to understand and harness the power of the data they collect.
Four Ways Rappi Harnesses the Power of Data
Rappi is one of the fastest growing unicorns in Latin America. This puts the company in an enviable position. It’s collecting a vast amount of data from its network of couriers, merchants and customers – and Bahnsen’s job is to make sense of it all.
“You can think of Rappi as a three-way marketplace,” he says. “We’re looking to integrate data science in most of our decision-making. I can tell you that right now I’ve been focusing on how to implement a lot of data science-driven growth strategies.”
“We end up having a lot of information, to the point of understanding the traffic patterns in most Latin American cities” – Alejandro Bahnsen, VP Artificial Intelligence, Rappi
Rappi uses data to optimize all levels of its business – from using data models to understand and stimulate customer demand to incentivizing couriers to provide their services at the right places and times.
“Recommendation systems are of course another area, and it’s one you can expect data scientists to add a lot of value,” he adds. “Any datapoint that you can get from a customer, how can we use that in order to hyper personalize the application for that particular customer?”
At the same time, Rappi uses data to inform its expansion strategy. The company uses data science to identify factors that improve its chances of success when moving into new cities and uses these insights to decide where to go next.
Enterprises Are Waking Up to the Power of Data
Tech unicorns may prove to be the wakeup call the region’s business community needs. But that’s not to say that no Latin American enterprises have embraced the power of data and analytics.
Mexican banking group Banorte hired José A Murillo from Banco de Mexico six years ago to be its first Chief Analytics Officer. Since then, Murillo’s analytics unit has generated more than 200 times its cost.
“To 2018, the analytics business unit yielded more than $2 billion in profits for the bank,” he says. “It’s largely credited as one of the culprits of why Banorte has been able to leapfrog its international competitors.”
“I think experimentation is really important. That’s the only way companies can learn and become much better through time” – José A Murillo, CAO, Banorte
Banorte understands how data can be used to enhance business performance. Murillo’s team splits its time between projects that contribute directly to the bottom line, those that improve company decision-making and those which promote data literacy and culture.
Much like Bahnsen, Murillo puts his success in part down to his ability to align Banorte’s data strategy with the business’ wider objectives.
“You need to be able to do these small-scale experiments and small-scale pilots that, if successful, you scale them up,” he concludes. “That’s something that I’m really proud about at Banorte – that it’s changed its mindset so that it’s embracing this experimentation culture.”
In this way, Murillo has vastly improved Banorte’s profitability. His story is proof that even giant financial institutions can embrace data and analytics culture if they choose to.
As Latin America’s tech unicorns continue to grow and multiply, more traditionally minded companies in the region will be faced with a choice. They can embrace data and analytics, as Banorte has. Or, they can watch as more innovative companies turn up to steal their lunch.