Venture Capitalist at Theory

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2 minute read / Sep 19, 2012 /

Data isn’t a business model - it’s much more important

The throwaway line in pitches these days is “we’ll sell our data.” Most of the time, this notion is wrong.

Data is the most valuable outcome of building a successful product. It’s the insight, the secret, the keys to the kingdom. Don’t sell the keys to the kingdom.

Data provides economies of scale and insights used to develop huge barriers to entry and it should be kept within an organization. Internal data use is the path to building a huge business.

For example, imagine if Google had sold user click data. The company would be worth a tiny fraction of its $160B market cap. Or had Facebook sold its graph? Or had Amazon sold customer purchase data? Each would have peddled any hope of large scale success for a nickel.

Data is a moat. For Google, clickstreams are the richest data set for improving search. Google has the lion’s share of queries (67%) which means Google can use the best data to keep improving their search. It’s the same story for ads. Whoever shows the most ads, drives the most clicks, will have more data and better performing ad systems.

This is no different for retailers. The biggest merchants (Amazon, Walmart) have the best purchase stream data which means they can make the best product recommendations (not to mention benefit from economies of scale in the supply chain). McKinsey estimates retailers can improve margin by 60% with the right data.

It’s rare that technology differentiates companies. Today, insights, execution and institutional knowledge define the winners - data defines the winners. So, keep your data. Use it to build insights and erect huge barriers to entry. Selling data, even for millions of dollars, is selling the business short.

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