Big Data, Big Brands: The Data Network Effect Takes Hold

What do Amazon, Netflix and Tesla have in common? They’re all data-driven companies that rely heavily on analytics. They might even be accurately described as a data company serving retail, a data company serving media and a data company serving transportation. They are each a force to be reckoned with, leveraging the power of data to re-imagine entire industries.

So, what makes them so good at it? While the business models of these companies all differ to some extent, they are compelling and defensible because they each have the data network effect at their core.

The data network effect refers to a growth cycle in which data is used to acquire customers who, in turn, create more data, that is then used to improve services and attract more customers. This represents the new growth model for organizations, large and small, in the ecommerce world and elsewhere. The smart companies are using that data to inform investment in their operations to build defensible business models, to deliver more effectively on their promises to customers and, of course, to reinvest in their data operations.

Amazon, for example, passed Volkswagen AG late last year to become the world’s biggest corporate spender on R&D, with over $17 billion spent in the last 12 months alone. This has been directed at harnessing data and AI-driven applications through capturing, synthesizing, predicting, nudging and developing intelligence around rapid real-time flows of large unstructured data.

Netflix provides a perfect example of the data network effect. More than 100 million members stream over 125 million hours of content every day, resulting in a data warehouse over 60 petabytes in size. This data includes everything from information on when viewers pause or fast-forward, how long they stick with a show, where they watch, when they watch, and much more. All of this gets fed into algorithms that ultimately can help Netflix make more accurate suggestions, keep viewers watching longer and produce content that will be more likely to succeed.

Tesla, meanwhile, uses sensor data to gather information about its products in action. According to some estimates, a connected car can generate as much as 100 gigabytes of data per second. Tesla is using this to build on its autonomous driving capabilities and to deliver more personalized service to drivers.

All these efforts, however, would be hollow without the people behind them, which is why these enormous brands strive to cultivate cultures that facilitate the data network effect. Culture defines a company, and a successful data operation must be set up to allow for testing, learning and failure.

Amazon, Netflix, Tesla and the like are demonstrating that data has been and will continue to be the driver of growth and change in the future. The secret behind the world’s biggest brands is hardly a secret any more, and will create significant shifts in value capture for companies. The data network effect is the new growth model for business – fill it with the right people, culture and resources to be in the running with the world’s business heavyweights.

Mihir Kittur is co-founder and chief commercial officer at Ugam

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