What Makes Data Valuable: The Truth About Data Network Effects

With AI/ML technologies making the leap in recent years, the seductive illusion of data has only grown. More Founders are falling prey to the idea we had at Tickle: the phantom value and defensibility of data. Collecting data is easy now, but turning that exhaust into value is not trivial. Further, a world of abundant data, it’s getting harder to d... See more

Data Isn’t Always Valuable

Data embedding is the idea that by holding more and more of your clients’/users’ data, the harder you are to remove, and that gives you some defensibility.

In practice, most of the valuable insights you will glean from a scaled-up dataset in a particular domain will come early on. More data just confirms those insights. Further, the number of insights that will matter enough for customers to pay you or choose you over other providers is typically small. So data scale can give you these early 1-3 key i... See more

Many Founders have a fantasy that data will be an ongoing insight engine — that as they collect more and more data, they will get more and more insights that will give their startup an ongoing advantage.

Data Scale Can Give Your Startup Some Defensibility

6. Customer PerceptionThe customer may not be able to perceive the difference — or value the difference — between you and the competitor. Your data advantage is not an effective advantage in the market, even if it is an advantage. It’s not doing the work of making you more defensible.

5. Data Is Central to Customer ValueNetflix’s core product value, it turns out, is content licensing and content production. Recently, they have even dropped the long tail of titles they used to match you to. The data network effect they thought they had turned out to be peripheral to the real value of the product.

Founders overestimate the point of diminishing returns for data in their own market category. The asymptote is usually not that high — perhaps thousands or even hundreds of data points are often enough to get 90% of the product experience value.

4. Asymptotic (Diminishing) Value of More Data