Data has become big business, but we are likely seeing just the tip of an enormous digital revenue stream. The Direct Marketing Association (DMA), a US trade organisation, estimates that data-driven marketing added some US$156bn to the US economy in 2012 alone.
Digital leaders in financial services, marketing, advertising and web search have blazed a revenue-generating trail built on data. Traditional businesses have long considered data as a key asset to support process control, optimisation and performance reporting. However, faced with the task of delivering earnings growth in a sluggish market environment, they cannot afford to ignore the upside that data-driven dollars will offer.
Examples of making data pay
Airbnb is aggressively building its offer to business customers. In order to displace long-standing relationships with the world’s major hotel chains, they have armed themselves with data.
For example, data that shows:
- the location, cost and likely availability of a range of accommodation listings across the country, just where and when it is needed, that will address a corporation’s distinct criteria;
- a population of Hosts who meet certain benchmarks of quality and responsiveness to Guests within this listing portfolio;
- the rate and severity of complaints and/or incidents across the portfolio of relevant listings and the profile of positive feedback.
How the data pays
What happens when you add up all this data? You get a massive economic opportunity to potentially double the existing global revenue of Airbnb, which according to a 2015 report by US investment bank Piper Jaffray, was on track to cross the half-billion mark, to about $675 million by the end of the same year. And it enables Airbnb to easily prove the business case to prospective corporate customers and reassure them that all aspects of their duty of care to employees, as well as their comfort and convenience, can be fully addressed.
5 ways to make data pay
Data-driven dollars can be derived in various forms, each of which requires a different level of IT capability, data sourcing, degree of customer trust, and investment in data security and integrity:
- Leveraging data in your own business and to enable your workforce—such as a hospital better managing its asset utilisation by tracking wheelchairs and hospital beds;
- Providing data-enabled services to your customers, enabling them to achieve better risk management, cost reductions or to improve the customer experience—such as a logistics company offering environmental monitoring of sensitive, high value cargo;
- Selling your data to third parties, such as weather data that could be gathered by an electricity utility via sensors installed across its transmission network;
- Selling the patterns and insights in your data, which can be derived from sophisticated analytics applications, to enable financial services providers to exploit known propensity to purchase specific products among distinct customer segments;
- Selling data-analytics tools, heuristics or algorithms that have been developed, tested and proven to create value, as in the case of sophisticated risk-rating tools for insurance companies.
Capturing these data-driven dollars calls for significant investment in the capabilities required to collect, store, curate, secure, analyse and productise your data (and additional data you may choose to buy). This will include IoT (Internet of Things) solutions, machine learning, cloud data storage, sophisticated data analytics and security. The challenge for many traditional organisations is that this investment will be in addition to ongoing calls for renewal of physical and operational infrastructure.
However, a recent report by The Economist Intelligence Unit, The Business of Data, based on a cross-industry survey of 476 executives based largely in North America, Europe and Asia, shows the race is on globally to turn data directly into cold, hard cash:
- Almost 60% of organisations are already generating revenue from their data and will continue to do so;
- 83% say data are used to make existing products and services more profitable;
- Only one-third claim to be “very effective” about transparency with customers and how they use their data.
Obviously the ongoing data breaches being experienced by high-profile, digitally savvy players remind us we cannot take data-driven dollars for granted. Data security, encryption, privacy, residency and compliance require enormous attention.
But unless you want to be left behind, growing nowhere in the physical world, you must turn your attention to the upside of data-driven dollars. Failure to do so will risk customers leaving you for someone who is leveraging data to improve their experience and add value to their business, and your board holding you accountable for squandering data-driven growth opportunities.