But wait, what is a data product and its impact?
A data product is a cash-generating product or service — usually manifests in mobile and desktop apps — that interfaces with users, collects data during the process, continuously refine the data, and enhance future services with automated decisioning algorithms.
A user can be a customer or a staff. Data can be information captured from users, operations, systems, and vendors; it also includes all the derived data (i.e., customer segmentation data by combining user and operation data). Automatic decisioning algorithms are rule-based, basic analytics, and advanced Machine Learning (ML) that takes in data and outputs something that users can see and react to. All three elements must work together to generate cash (revenue or cost-saving) for the company by providing more services to users or selling data to others.
With data products, we created a “data supply chain” that’s built on richness, completeness, and quality of user data:
Similar to the coffee industry, users create and supply the data as Data Producers (coffee bean farmers). Companies harvest user data with data products, then refine and re-sell it to downstream data buyers. Value is generated, exchanged, and circulated throughout the data supply chain.
Why is data product a big deal?
Companies with data products dominate. In the last 10 years, companies that focus on data products or use data products to complement their existing offerings have taken over the market.
More importantly, Intangible Assets’ growth has outpaced traditional assets, such as offices, equipment, and people. Data is one of the key elements of Intangible Assets among Brand, Patent, Relationship.
Data product creates flywheels of value. At the top companies, data products generate not only cash but also more and better data. This allows companies to compound the growth of user acquisition and activities, revenue, and Intangible Assets.
Data product brings resilience. Most companies, if not all, are experiencing the impact of COVID. In just a few months, data product companies (in blue) bounced back and kept growing while others (in red) are still suffering.
What’s shaping the future of the data supply chain?
Two megatrends are impacting how businesses will (and must) work in the near future. One being privacy, and another is economic stress and accelerated digitization due to COVID-19. Both trends may disrupt how data product companies operate and create opportunities for other companies to leapfrog.
Privacy awakening. The largest countries and markets across the world are imposing more and stricter privacy laws. In the EU, we have GDPR; in China, we have PRC Cyber Security Law; in the US, we have the California Consumer Privacy Act (CCPA); in Canada, the government is passing Digital Charter Implementation Act (DCIA) — once passed, companies will be fined 5% of global revenue if they aren’t compliant.
In addition to top-down privacy regulations, average users are more aware and sensitive to how companies manage their data. The recent WhatsApp data privacy backlash is a strong indicator of the increasing expectation of (and confusion about) privacy.
COVID pinch and push. COVID is pausing our movements, transactions, and the economy. Many companies are facing cash crunches. Without government support, which won’t last forever, many companies might only have 2–3 months of cash runway according to a Deloitte analysis. As a result, preserving cash and discovering new opportunities to prolong the cash runway has become the top priority.
Half-jokingly, COVID has replaced CTOs and became the strongest champion of digital transformation across the world. This means companies are launching more data products faster. Isn’t this a good thing? Yes, but it also means companies are becoming more critically dependent on data products in the future. So, companies must do it right and adapt to the new expectations.
Connecting the dots: The privacy and COVID trends are likely to impact all participants in the Data Supply Chain. How the data ecosystem work in the future will be very different.
How the future might be different? Firstly, average users are likely to be more selective about companies, data products, and what data they share. This will limit the supply of data that fuels the rest of the data ecosystem. Secondly, data products have new privacy requirements to meet. This will require re-designing and development to continue to operate legally. Lastly, in some cases, companies may not be able to run certain high-performing algorithms due to privacy requirements and the missing data they used to collect. This means diminished offering to and value from downstream data consumers.
What can we do? From companies’ standpoint, data product and its incentive structure are the two factors within control to service, to adapt, to stay relevant, to compete, and to leapfrog.