Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Friday, January 04, 2008

Data is a Commodity, or How Not to Revolutionize...

2007 was a non-event. Nothing much happened in the mediascape, and next-gen media plays were lame, lamer, and lamest.

Despite the hype, just think for a moment about the numbers. Facebook achieved a huge valuation - but created very little value. Google pioneered almost no new revenue streams. Yahoo went from ailing to terminally ill. And mass media, of course, continued it's long spiral into deeper and deeper strategy decay.

The challenges for media in 2008 remain the same as in 2007.

But there's a deeper question

Why the malaise?

Fundamentally, because decision-makers are failing to understand next-gen industry economics.

Here's a nice example. Everyone's discussing what seems to be a foregone conclusion: that data's the valuable thing, so who own the data? But no real insight seems to be generated by this discussion - because the premise is erroneous.

This is an old question. We discussed it at USV Sessions two years ago - I think it was phrased, "What's the value of data in an open world". And even then, little insight was generated.

It's the wrong question. Data isn't the valuable.

In fact, data's a commodity. We're drowning in data.

Think about it this way: the lower the cost of interaction, by definition, the more abundant data is - because every interaction creates reams of data. More data is created tomorrow than was created yesterday. And so on.

What is valuable are the things that create data: markets, networks, and communities.

Google isn't revolutionizing media because it "owns the data". Rather, it's because Google uses markets and networks to massively amplify the flow of data relative to competitors. Even when Google opens up more and more data - and make no mistake, it will - it will still realize an advantage because

When we look at things this way, the picture changes.

The way we're discussing media is still focused on exclusion - "it's their service, they own you". That's inaccurate. In fact, what's strategically critical aren't the costs of exclusion, but the costs of inclusion.

Success isn't determined by how hard I can exclude you from scraping your data - but how effectively and efficiently I can help you share/use/reuse/hack/etc it.

Let me try and put it more simple. Data is inherently valueless in the edgeconomy, because it's infinitely replicable. Any structure seeking to limit access to data will simply be too radically inefficient for the market to bear in the medium-long run. So a massconomy strategy of "owning" a massive stock of data is destined to crash and burn.

Rather, what is valuable is being plugged into (and plugging others into) the right flows of data. That's what Google does. You ask, I bid - flows. It's what Facebook refuses to do.

And it's a small example of why media - in 2007, even new media - sucks.

We can't reinvent industries if we don't think more deeply about their economics.

There are other reasons too - the most egregious being the tiny, slmost pitiably small scope of vision of today's so-called revolutionaries - which I'll discuss in turn.

-- umair // 12:53 PM // 6 comments


I agree. Data has no intrinsic value in and of itself. The value arrives when there is other data and functionality to do stuff with all the data.

I go into it a bit longer in this post.

Hope you've been keeping well Umair.
// Blogger Simon Cast // 1:25 PM

What I don't get about this is how the free flow of data is beneficial for a firm that isn't an ad network like Google and can't claim any front end real-estate at the edges. Umair, you have stated that value creation happens at the front end, so if a firm like Facebook starts exporting data, wouldn't that simply turn them into one of your much maligned "infrastructure" plays? In other words, why is being the Brightcove (a lame video infrastructure play) of data strategically valuable for Facebook?
// Anonymous Zack // 9:42 PM

oh and btw can u finish this sentence please: "Even when Google opens up more and more data - and make no mistake, it will - it will still realize an advantage because"

// Anonymous Zack // 9:54 PM

Zack and Umair:

Successful businesses in the new media must learn to monetize flow rather than inventory. Existing flow monetization relies on meters, subscriptions, and subsidies. It would be interesting to decompose these and see how well they can serve media markets.
// Blogger Vada // 12:12 AM

Is data commodity or strategic asset?
For me the answer is simple - It depends on the “TYPE of data”.

User data is a strategic asset. User data is the foundation of any consumer internet service. For example, yahoo have a chief data officer that represents data as a strategic asset at the executive level.

On the other hand, financial data of a public company is now a commodity,thanks to the digital revolution and the web.

Umair, I disagree with your point that all data is commodity.
// Anonymous // 5:32 AM

i think you are on to something here Umair.

it's time for another USV sessions and i think the escalating value of markets, networks, and communities would be an interesting topic.
// Blogger rightbacktoyou // 1:01 AM
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