The perennial question here in Silicon Valley is: where’s the money? Given the techie culture here, this question usually gets translated into: what’s the next breakthrough technology? Let me suggest that’s the wrong way to frame the question. If you want to know where’s the money, then follow the data and don’t get distracted by the technology.
Sure, technology is a key enabler of data capture, aggregation, and analytics, but the providers of this technology will not capture the vast bulk of the value – it will be those who have access to this data and, most importantly, those who can creatively find ways to generate economic value from this data. There’s no question that technology is dramatically expanding the ability to capture increasingly rich data in real-time – just look at the rapid spread of sensors and networks in the Internet of Things technology that are making the invisible visible at scale.
Growing gap between actual and potential value creation
But the real question is: what are we doing with that data to create economic value? The answer is: not much. There's a rapidly growing gap between the potential economic value of the data being captured and the actual economic value created. An even better question, therefore, is what could we be doing with that data?
There’s a growing meme that data is the new oil. That’s the wrong way to think about it. Data is not the new oil; it’s the new solar. The problem with the oil metaphor is that oil is a fixed stock of resource that depletes over time. The most productive way to think of data and its economic value is as a flow, not a fixed stock, and it’s a flow that refreshes over time. Most importantly, like solar energy, it’s a flow that we’ve only just begun to understand in terms of how to harness its economic potential. As I’ve discussed elsewhere, flows will beat stocks in terms of value creation.
Given the significant and growing gap between economic value potential and actual economic value captured, there’s a substantial opportunity for disruption across a broad range of industries and markets as some companies find more creative ways to close that gap. That’s why I advise executives to follow the data and to challenge core assumptions about where the economic value could be. Those who do this will carve out very profitable leadership positions in rapidly growing markets.
The rest of this blog post will focus on some of the key principles that will form the basis for disruptive data-driven strategies.
Break down the data silos
Data increases in value as it integrates with other data in rich flows with feedback loops. Silos block this from happening, yet more and more of the data being generated is captured in technology and business silos.
If we just see a small slice of data, we are unlikely to have as much insight as when we can look at data holistically. The more of the context we can see, the more understanding we can develop about what is going on and, most importantly, what is likely to happen and what the participants will need to achieve even more impact. The value is in the whole, not the slice.
Here’s an example. I see you searching online for a medication for diabetes. That’s interesting, but it becomes even more useful if I know that it’s your father that was diagnosed with diabetes. That becomes even more meaningful if I understand that the diabetes is interfering with your father’s job and that he is facing the prospect of a significant erosion of income. If I also know that you have been supported by your father as you pursue a new start-up opportunity, that gives me even more insight into your context.
It also helps if I have real-time feedback loops that help me to see that the medication you found online was prescribed but is not helping to address your father’s symptoms.
The point is: context matters and context is fractal and evolving. The more I know about you as an individual, the more helpful I can be. I can be even more helpful if I understand the broader contexts you operate in: your family and friends, your work, and your community. And I can be most helpful if I can see how your context is evolving and the impact that your actions are having in these various contexts.
But there’s also another level of data integration. If I just see you and your context, I can’t be as helpful to you as I could be if I had visibility into a lot of people. Then I could start to see patterns emerging in terms of what kinds of actions yielded what kinds of results in what kinds of environments. With that broader visibility, I could have much greater insight into the actions that would give you the greatest impact in your specific context.
Those who can find a way to break down the data silos and create more integrated views of evolving contexts for many will be the ones who can create the most value for their stakeholders.
One of the keys to creating and capturing economic value from data is to harness what Matt Turck has described as “data network effects.” Data becomes more valuable as it connects with more data. Silos create a barrier to growing the economic value of that data.
Shift the focus of data value
If you look at how companies today are using data, it’s narrowly self-centered and short-term. It’s all about me today. The focus is on two things: using data to drive greater efficiency of internal operations or using data to more effectively target prospects in the marketplace.
I certainly don’t want to minimize the value of applying data for this purpose, but my question to executives is: is that all there is? Isn’t there far more economic value locked in the data that hasn’t yet been realized?
What’s missing is the opportunity to develop far more insight into context that can help to drive much greater value creation, rather than just improving the efficiency of existing operations. To see opportunities for value creation, one must be able to read rapidly evolving contexts in richer and richer ways.
Start with our customers. How much do we know about how they are actually using our products and services? Even more importantly, how much do we know about whether they are achieving what they wanted to achieve when they first sought out our products and services? This is the real potential of the Internet of Things as it begins to make the invisible visible at scale in real time.
Data can give us much richer insight into these questions and help us to spot new opportunities to add value around the products and services that we offer in the marketplace. Data feedback loops can also help us to redesign our products and services to deliver even more value in the first place. And, guess what? If we start to do that, customers will start to seek us out, because word will spread that we are adding so much value in the customer context.
And, let’s look inside our company. Rather than just looking at ways to reduce costs further, how about harnessing data that can give us more insight into ways to add more value by re-thinking our operations to address the unmet needs of others, whether they are our customers, members of our business ecosystem or simply other employees within our company? Data can become a catalyst to increase awareness of opportunities to add value, rather than simply delivering current value more cost-effectively.
Once again, data feedback loops also become a powerful way to test and evolve new approaches to add value as we can get much richer and more real time insight into the impact of our actions. It’s not just about redesigning our products and services, but redesigning the ways we act on a daily basis to deliver more value. By harnessing data more effectively, we can learn faster about the approaches that have the greatest potential to increase value.
Evolve new data driven business models
I’ve addressed the opportunity to evolve new, and much more powerful, business models before. As a key driver of economic value, data becomes a catalyst for new, disruptive business models that will challenge incumbents wedded to older, more limited business models.
There are several dimensions of potential evolution. First, data can be used to shift the payment model from upfront payment to payment based on usage and ultimately payment based upon impact achieved. Second, data itself can become a significant new revenue stream that over time may dwarf the revenue and profit generated from underlying products and services. Data can be delivered to help customers and users better understand their current context, then to help them anticipate future events and, finally to advise them on what actions to take to increase impact given those future events. Finally, data can also be used to more effectively identify and mobilize third parties to add value to customers given a richer understanding of the customer’s context.
But that’s not the ultimate disruptive potential of data in terms of business models. As I’ve already written, there’s a growing potential for disruption of the conventional, advertising-driven business models used by many companies today. In their place, we could see new business models that actually ask customers to pay for value received. The most promising manifestation of these business models is something that I call the “trusted advisor” business model, covered in this previous post and in my Net Worth book.
Cultivate customer trust
We live in a world where customer trust in all of our institutions is eroding globally. In that kind of environment, customers are going to be less and less willing to share data about themselves. On the other hand, if companies can more tangibly demonstrate how they are using data about us to deliver more tailored value to us to help us achieve more of what we are trying to accomplish, these companies are likely to gain privileged access to more and more data about us. We’ll be happy to share data if we feel that the company will use this data to add value for us and that the company will prevent access to that data by others who may not be as well-intentioned.
If I’m right that data will increasingly become the driver of economic value creation, then companies that have this kind of privileged access to data will thrive and marginalize the companies that are wedded to traditional ways of accessing and using data. If you want to know who will make the most money, focus on who owns the data and who has privileged access to data.
If you want to know where the money will be, follow the data. Data isn’t static and it will move over time to those who can find ways to generate more economic value from the data. Data wants to be valuable.
Therefore, if you want to know where the money will be, look for those who are trying to break down data silos rather than hide behind them. Also, look for those who are harnessing to data to find new ways to increase impact and value creation for the users and those who are developing innovative new business models enabled by data. But, most important of all, look for those who are cultivating customer trust so that they can get access to more data rather than those who are abusing data for short-term gain.
Just remember one thing. Customers are using data too. They are using data about providers much more aggressively to find the providers of products and services that can truly meet their rapidly evolving needs. Companies need to find ways to harness the economic value of data to understand and serve evolving customer needs or they will become increasingly sidelined.
Rather than thinking about customers as the “targets” for push driven marketing “campaigns,” we need to find ways to cross the table and sit next to our customers, using data in ways that will pull them to seek us out. We need to harness The Power of Pull. Data will determine who wins and who loses.