The Latest Sure-Fire Economic Indicator? Traffic
Want a sure-fire economic indicator? Forget the Dow Jones Industrial Average, and head out on the highway.
"When we first slipped into recession in 2008, we saw traffic congestion drop 30 percent across the country," said Jim Bak, senior marketing manager at INRIX, a traffic analysis firm in Kirkland, Wash. "Up until then, congestion was getting worse year-over-year." Then suddenly, Bak said, "things fell off a cliff."
Fuel prices rose, people stopped spending money, and unemployment skyrocketed. "If people aren't going to work, or out to dinner and movies, it means businesses aren't shipping product," Bak said. The following year, traffic stayed flat, then rose 2 percent in 2010, only to dive 28 percent in 2011 as the recovery lost steam.
"So goes traffic, and so goes the economy," Bak said.
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Yet INRIX didn't set out to gather this all-important data. It stumbled onto it. That makes it one of those lucky and smart companies that saw an opportunity, pivoted, and — voila — added additional revenue streams.
Founded in 2005, INRIX started its business by compiling real-time geo-location data from 100 million vehicles in North America and Europe. The data come from car companies such as BMW, Ford Motor, and Toyota Motor, as well as from commercial fleets such as taxis and delivery vans. It also collects data from individual drivers' mobile phone GPS apps.
Stirring this information together with historic traffic trends, weather, event planning, and other secret sauce ingredients, INRIX sells its data to GPS manufacturers, state and municipal transportation departments, and automakers who use it in their proprietary navigation systems.
It's a tidy little business — but now, a deluge of data and smarter algorithm-writing have made INRIX a whole lot bigger. Today, the company is branching into economic forecasting; selling data to hedge funds and other financial services companies; advertising; and real estate.
"The company is essentially a product that leads to another product," said Kenneth Cukier, co-author of "Big Data: A Revolution That Will Transform How We Live, Work, and Think." "That's what INRIX's value is."
Cukier said INRIX sets an example for companies using Big Data to expand their businesses.
On March 12, the company is rolling out a new service with Windermere Real Estate which will give potential home buyers a way to calculate commute times between their office and a prospective new home.
"Everyone else out there — and this includes every real estate site on the planet — relies on drive time data, but drive time is just a function of distance and speed limit. Without traffic it's useless," said York Baur, CEO of Windermere Solutions, the technology arm of Windermere Real Estate.
Baur described the INRIX tool as "uncannily accurate." Using drive time data, his commute from Issaquah, Wash., to downtown Seattle is supposed to be 28 minutes. But it's more like a "brutal" 55 minutes at the height of the morning rush — which, Baur said, the INRIX tool captured in depressing detail.
"Real estate," said INRIX's Jim Bak, "has become a revenue outcome for us."
Another accidental success for INRIX came from the financial services industry. About 18 months ago, Bak got a call from a hedge fund manager who wanted to buy a dump of traffic data from around a big box retailer's stores in the last quarter of 2011; he also wanted comparison statistics from the year earlier and the prior quarter. In 2012, the same firm was back for the same data.
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Bak said the firm uses the data as a proxy for the retailer's sales, which the fund can use to trade the company's shares before its quarterly earnings announcements.
INRIX is also branching into advertising, selling traffic data to billboard owners and advertisers which show how many cars pass a particular billboard in an hour or a day, and how fast the cars are traveling as they pass by.
Bak said INRIX doesn't yet know how it will monetize its traffic-economic correlation data, though the company is talking to various outlets.
What INRIX does know, however, is what traffic patterns tell them.
And the news isn't good in Europe, where Portugal, Spain, France, Italy, and the U.K. all saw 30 percent to 40 percent traffic drops in the last couple years.
"It's only continuing to get worse," Bak said. According to 2012 data, Portugal's traffic is down 64 percent from 2011; Spain's is down 58 percent; and Italy's, 36 percent. Now, he said, even Germany is down 20 percent.
How about the U.S.? After dropping 22 percent in 2012 vs. 2011, traffic congestion has rebounded in 2013 and is up 2 percent so far this year. In fact, traffic congestion is up for three consecutive months (December 2012 to February 2013) for the first time in more than two years.
So the next time you're sitting in stop and go traffic, consider Bak's analysis: "The stop and go economy we've been experiencing for the last two years is finally turning a corner."