Key Points
- The investment theme of digital transformation presents a diverse landscape of investment opportunities.
- A key element of digital transformation that is gaining momentum is real-time pricing, in which businesses adjust their pricing dynamically in ever-shorter intervals.
- Implementing real-time pricing requires an advanced data infrastructure and systems capable of rapid data processing to facilitate immediate pricing updates.
- Real-time pricing is transforming the advertising, utilities and transportation industries.
Thematic research is one of the key inputs available to Newton’s active-equity investment approach. Our research seeks to identify and assess new themes, and it considers the duration of existing themes and evaluates how they progress and relate to one another.
Digital transformation is a theme that resides at the intersection of the internet of things, big data, cloud computing and artificial intelligence. An intriguing segment of digital transformation currently gaining momentum is the growing adoption of real-time pricing. While various methods of dynamic pricing have been used for most of human history, real-time pricing takes this further by allowing businesses to adjust prices in shorter intervals and employ a growing number of market inputs.
What Does it Take to Get Real
Whether used for e-commerce, ride sharing, advertisement pricing or any other of its many use cases, implementing real-time pricing at scale requires several enabling technologies. Performing data intake across a variety of sources, properly adjusting pricing and redeploying updated prices in real time requires an effective, modernized data infrastructure. The first component of this technology stack involves devices capable of capturing and processing data signals at the edge. These devices can range in complexity from simple barcode scanners tracking product inventories to smartphones in the hands of rideshare drivers transmitting location and traffic-pattern data. Importantly, collecting and storing data from disparate sources requires unstructured database systems that can handle a greater variety of data formats than their structured counterparts. Finally, a modern data stack should be capable of moving data in real time, in contrast with legacy batch-processing systems, to ensure that pricing updates are directly and instantaneously responsive to factor changes.
Adoption Trends
As we look to the technology companies that enable these modern capabilities, it’s important to also consider new industries that are now capable of executing real-time pricing. Three key areas that serve as examples of the transformational potential of real-time dynamic pricing are advertising, utilities and transportation. In advertising, increased scrutiny of return on advertising spending and more intense competition for share of spending has led to a greater emphasis on measuring ad effectiveness. As conversion systems get better at attributing customer purchases to engagement with specific ads, we expect ad inventory pricing to be more value-driven and dynamically respond to periods of higher and lower engagement. In the utilities sector, we believe that the power-supply issues caused by the continuous construction of data centers may prompt power companies to increase electricity costs during peak times. This approach aims to lower peak consumption, and the resultant capacity needed to support it. In transportation, we see the ridesharing industry as an example for aviation and public transport. Real-time analysis of ticket demand, crowd sizes, price checking, and other related factors could better allow transportation companies to flexibly spread capacity and adjust pricing to best serve demand.
At Newton, we continue to invest in leading companies who are at the forefront of either delivering innovation in real-time pricing or are beneficiaries of its application. We also consider the implications of its adoption from a sustainability perspective.
Authors
Robert C Zeuthen
Head of secular pod, portfolio manager
Shivam Kollur
Research analyst, Equity Research team
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