The Value of Customer Data
Lots of people think that customer data and especially if you have a lot of it, is very valuable and can even provide a
(sustainable) competitive advantage.
And of course certain companies offering various software tools for collecting and/or analyzing customer data try to convince you of just that.
However customer data is not always valuable. And even if it is, there are conditions that determine to what extent that is the case, how long the value might last, and if the data might represent a competitive advantage or even a sustainable one. Hagiu and Wright describe 7 practical questions to assess these conditions:
1. How much value is added by customer data relative to the standalone value of the offering? The more, the better.
2. How quickly does the marginal value of data-enabled learning drop off? How quickly is the point reached where additional customer data is no longer valuable? The slower that is the case, the better.
3. How fast does the relevance of the user data depreciate?
4. Is the data proprietary - meaning it can't be purchased from other sources, easily copied, or reverse-engineered?
5. How hard is it to imitate product improvements that are based on customer data?
6. Does the data from one user help improve the product for the same user or for others? The former might make existing customers more sticky, the latter might help to attract new customers.
7. How fast can the insights from user data be incorporated into products?
I recommend reading this excellent no-nonsense article if you're interested to learn more about each question.
Source: Andrei Hagiu and Julian Wright, "When Data Creates Competitive Advantage", HBR Jan. 2020, pp. 94-101.
