With the IPO for Snapchat coming up fast it is easy to question why its valuation is over $20bn. It is easy to question why Facebook spent a cool $1bn on Instagram. How did Apple, with its launch of the iPhone in 2007, wrestle over 90% of the profits in the mobile phone industry away from the big five (Samsung, Nokia, Motorola, LG and Sony Ericsson) in just 8 years?
When we look at technology that has disrupted traditional markets, how has Uber dominated the taxi industry? How did Airbnb book around 80 million overnight stays in 2015, and yet it doesn’t own a single hotel?
What is it that powers AI algorithms, giving them the tools to perfect, to ‘learn’, how to recognise beauty from a photograph?
Data is all around us, especially in the social media and other apps that we use daily. It is created when we buy, when we use services, when we take photos, and when we share an update.
Successful CEOs know that the value their businesses create today is not about what products they make, it’s the data they have. In fact some businesses even don’t create physical products any more. They create marketplaces, like Amazon or ebay, which attract users and consumers to interact. All these interactions create data, create value for the business.
So where do we see the value of data? Well, firstly we can go back to the Snapchat IPO. Whilst numerous news outlets think the $20bn+ valuation is crazy, it will still run into the billions. Snapchat are not giving away any voting rights with these shares in the company. Investors will purely be buying into the value the business holds, and what is that value? The data it holds around its users, how they use the platform, where they are, and who they are (their demographic information).
Facebook’s acquisition of Instagram is another example of this. Whilst Instagram has begun to monetise, with advertising in the app, its $1bn price tag reflected the value of its platform and users. The platform created a place for content producers to post lovely filtered images of their latest meal. This brought on board consumers, who wanted to see these images and interact with the people who have produced them. Its community and the data it holds about them gave it value.
Sangeet Choudary, author of Platform Revolution and Platform Scale, writes about this shift and the new value of data on his website, platformed.info.
He writes about this new focus. He sees it as a shift in business models. The traditional model for businesses was always a pipeline. You make a product, market it, sell it to make a profit. All the value flows one way down the pipeline. The value of the business lies in the margin of profit made from each transaction.
He notes that businesses are now moving to platform models. This model brings together producers and consumers to interact together on a platform. The value created is then two-fold. There are the interactions on the platform – buying and selling in the case of ebay – as well as the data that is being created by all these interactions.
And businesses are happy to show us the value of their data. In a recent tongue in cheek advertising campaign Spotify took user information and made it into a series of ads for the platform. Their value is not just delivering music to music lovers, it is in the data they have about people’s listening habits.
As Choudary notes, this shift is not just for digital businesses. Platform models can be applied where companies are selling physical products. Let’s go back to the example of Apple again, and their launch of the iPhone.
The iPhone is a physical product but the business model behind it is a platform. The iPhone and its operating system were not just a pipeline, a product, they were a gateway to a platform. As Choudary and his co-authors explain in the Harvard Business Review:
It imagined them as a way to connect participants in two-sided markets—app developers on one side and app users on the other—generating value for both groups.
This platform model took Apple from no presence in the mobile phone market at launch, to a 92% share in 2015. As the article notes, this sent its competitors, large entrenched businesses, into freefall because they didn’t see the shift to a platform-based business model.
So what does this shift mean for you and your business? At any stage of THE STRATEGY JOURNEY®, value matters. Whether you are thinking about your Mission and Values, drilling into what you are offering for your customers, or looking at whether to pivot or scale, the value of what you are creating matters.
Data is increasingly valuable, and it would be a mistake to ignore that, when you are planning your strategy journey for your business or project. As Choudary has shown, you can build a platform business model for a pipeline business, and it is a smart decision to do so. Looking at your business model and seeing where you can apply platform principles and maximise data gives you an edge.
By turning data into an asset for your business, you can increase its valuation, just as Instagram, Uber and Snapchat have done. You can even start to think about how you can trade that data like a currency or commodity.
This is just a quick look and introduction to a topic that touches on all of the 5 steps of the STRATEGY JOURNEY®. Data has changed how we build value into businesses and it is vital to have an understanding of that when planning your own business and strategy journey. I will be coming back to this topic on the blog in order to look at more of the trends and challenges building a data-driven business can throw up.
You can read more about The Race for Data Supremacy in THE STRATEGY JOURNEY® book by Julie Choo coming out in November 2018.
Julie Choo is lead author of THE STRATEGY JOURNEY book (Coming in June/July 2019) and the founder of STRATABILITY ACADEMY. She speaks regularly at numerous tech, careers and entrepreneur events globally. Julie continues to consult at large Fortune 500 companies, Global Banks and tech start-ups. As a lover of all things strategic, she is a keen Formula One fan who named her dog, Kimi (after Raikkonnen), and follows football – favourite club changes based on where she calls home.