Creating a Moat Through Data
With all of the hype around big data, it’s important to keep in mind that not all data is created equal. A data moat is the competitive advantage you hold against other businesses based on your proprietary data set.
Whether you’re a startup or a multi-million dollar company, you need to know how to talk about data, and more importantly, how to use it. With all of the hype around big data, it’s important to keep in mind that not all data is created equal.
A data moat is the competitive advantage you hold against other businesses based on your proprietary data set. If you’re looking to build a sustainable and profitable business, you need to have strong and defensive moats around your company. Some of the greatest and most widely known companies are defended by extremely powerful data moats. For example, Facebook, Google, and Microsoft all have moats that were constructed on the bases of economies of scale and network effects.
Benefits of a Strong Data Moat
Once you create a strong moat through collected data, it can help your business survive through major platform shifts. However, surviving and flourishing through a platform shift is not the same thing. This is important to keep in mind, as businesses are currently experiencing a major change with applications moving to the cloud and being consumed on mobile. If you don’t have a strong data moat, such dramatic changes can render your moat, and your data, useless. Your company needs to be able to recognize and react when an industry-wide transformation is underway, otherwise, you leave the door wide open for your competition to pass you by.
An example to keep in mind regarding how weak data can affect your company is the gigantic amount of backlash Apple experienced with the introduction of iOS 6. The problem was not within the software, but within the data used to create their Maps app. While it debuted new features, like turn-by-turn directions and flyover, it also had disappearing towns, airports that didn’t exist, and streets that popped up out of nowhere. The issues were so severe that Maps even had its own parody account on Twitter.
The software was impressive, but the data was rendered useless because it was generated at too rapid a scale and was deemed far inferior to its competitor, Google Maps. Apple weathered the storm, thanks to brand loyalty and a surplus of work to correct the pre-existing data and collect new data within the software.
Qualities of a Strong Data Moat
A lot can be used to measure how strong your data moat is and how effective the data will be to propel your business past your competitors. While some may think it all depends on whether the data set is “public data” or “proprietary data”, much more goes into it than that. Ask yourself how accessible your data is, how quickly it can be accessed, the size of the data set, and how much money is needed to acquire it. It’s also important to consider if the data is unique and how many attributes can be described within the data set.
If these qualities are possessed, your data set could have the potential to be bought. For instance, it’s not uncommon for a startup technology company to be bought. Whether it’s because of the actual product they created, the skill set their team holds, or the data that their application is generating, some startups are bought more for their data set than their product. Although not a startup, an example of an acquired data set is when Microsoft purchased LinkedIn in 2016, giving them access to more than 433 million members and a social graph unlike any other.
How to Use Your Data Moat
No matter the industry or market, you’ll likely face the battle of moving from “old moats”, the sources of the data, to a “new moat”, which is what you do with the data. Depending on the type of data collected, you’ll be able to upsell customers, automatically respond to support tickets, sustain the happiness of your employees, and even identify and correct holes within your security. If the data within your moat is strong, it will inhibit your competitors from stealing your market share.
It isn’t about how much data is within your moat, but how you are able to use it to your advantage. The raw data you collect isn’t nearly as valuable as the data that is employed to solve a pain point. We see this in public markets, as businesses like Netflix and Facebook have built products powered by data, algorithms, and machine learning to extract value from the information that is collected. This is evident in the way that Netflix can recommend movies based on what you’ve recently watched, or how Facebook can tag friends for you in photos automatically.
Build a Data Moat with Egen
At Egen, we know that it’s easier than ever to build software, but that in turn makes it difficult to build a defensible software business. Because of this, it’s now more important than ever that your data moat give you the competitive advantage. To quote Warren Buffet, “In business, I look for economic castles protected by unbreachable ‘moats’”. Ensuring your business has an unbreachable moat will depend on whether your data will decay in value over time or if it is evergreen.
It is in your company’s best interest to obtain evergreen data that will be useful for the long haul so that the moat you create through data can sustain your business and protect from potential advancements from the competition. Let the experts at Egen help you create an unbreachable moat that can deliver rewards not just to investors, but also to consumers. A truly defensive data moat is more than just a large amount of data, but also components that are fresh and have value. Contact us today to get started.