What Makes Data Valuable: The Truth About Data Network Effects

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.

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

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 Isn’t Always Valuable

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. 

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

Data Scale Can Give Your Startup Some Defensibility

2. Product ValueIt’s easy to collect data to make product improvements or find one or two key insights from a data set. These add value, but it’s not a network effect... With a true data network effect, you see direct, constant increases in product value with new usage and thus new data.

4. Asymptotic (Diminishing) Value of More Data

Data Network Effects, 6 Elements