New Data Economy
Information has ruled the world since the time immemorial, especially when having information first – whether news, business insight or knowledge of a rewarding investment – led to a business advantage. The real difference in the 3rd digital revolution is the new data economy, creating a new and more powerful role for Information Technology through greater understanding of customers and access to customers. In former times the role of IT was seen as a cost center supporting certain automatable transactions. In today’s digital world, data from business and personal users is starting to produce change in the real world – and changing the role of IT from business supporting, to business enabling and sometimes business driving.
We all feel this disruptive change every day in our private lives when we use the services and pay with our data. This has now moved from the B2C experience - such as when we consume a free search service like Google and are fed with adverts - to the B2B side as businesses look to exploit more data from their business customers. The interesting part is that this kind of business doesn’t follow bricks and mortar economic reasoning when it comes to pricing or competition, instead the Data Economy is by far better described by the multi-sided market theory where the demand curve is influenced by two or more independent sides of the market.
In a multi-sided market, one side of the market can subsidize the other side whilst remaining profitable overall. This model can therefore enable prices below marginal costs on one side of the market, making utopists (reference Jeremy Rifkin, 2014) dream of a zero marginal cost society. Competitors with no subsidizing capability perceive this as unfair because companies that have the capabilities to exploit both sides of the market have an advantage over those that cannot and can use this to grab greater market share. This means that all companies need to better understand the two-sided market profit function ? = (P1-C1) * D1(P1,Q2) + (P2-C2) * D2(P2,Q1) (where P is the price, C is the cost, D is the demand curve, Q is the quantity and the subscript i=1,2 indicates the market side) and do not mistake the indexing of Q as a typo. Even if new technology enables the data owner to control their privacy, finding fair business rules will remain a challenge in the coming years as the new business models become more concrete and this may yet become a matter of antitrust law.
The digital world creates more business models that are purely driven by data and information. It is the predominant source of new business services not only in our daily digital lives as consumers, but it will become the predominant source of new services and models for B2B business too. This changes IT from its business supporting role into a business enabling role, or even business creation role, supported by different commercial models compared to established industries. Crucially, it is time even for established industries to understand the new commercial models: not accepting and adopting them into their own businesses will result in simply perceiving the competition as unfair rather than adapting to compete, which is not a strategy to survive.