What Makes Data Valuable: The Truth About Data Network Effects

1. Data CaptureIn general, however, you want to try and design your product to collect data automatically to:

• Be the place the data is generated, if you can, like Waze does.


• Reduce cycle time and thereby put distance between you and potential competitors.


• Reduce marginal cost of data by avoiding the expenses and operational complexity of collecting th

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Data is not inherently valuable. Most data doesn’t produce a real data network effect, and most data network effects aren’t that powerful even once established. Consider the idea that your data strategy, in terms of value creation, is overrated. It can be powerful, but it’s typically not.

3. Data ThresholdHow much data do you need to make your product valuable to users? How hard is it to get that dataset — or a dataset like it? If you need a lot of data that is hard to get, that creates a barrier to others competing with you in the future... most Founders overestimate how unique and valuable their dataset is. 

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

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.

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

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.

Data Scale Can Give Your Startup Some Defensibility

Data network effects can be built and data can be used to create defensibility. So how do you actually do it? There are at least three broad approaches to using data to give your product an advantage.1. Data network effects2. Data scale3. Data embedding