Can You Over-Monetize?

To avoid accusations of commercial blasphemy, I am going to pose this as a question, not a statement: can you over-monetize a data product?

Consider the online real estate listings databases. There are lots of them, all engaged in a fierce battle to the death. They make their money selling listing upgrades to real estate agents, a hotly competitive and demanding group. The product they are selling is homes that can easily cost $1 million and more, with very sizable commission dollars at stake. In such a high ticket and fiercely competitive market, would you want to junk up the user experience with irrelevant advertising, and annoy your real estate agent customers by distracting users from the listings they are paying to enhance? The answer appears to be yes.

Several of these sites have now been designed to display programmatic ads. With all it takes to attract a live buyer to your site, do you really want to risk that buyer clicking on an ad for a local car dealer and leaving your site entirely? Do you want to intersperse listings of homes with ads for mortgages when your primary source of revenue is real estate agents who badly want your site visitors to look at their listings?

You know the saying: real estate is all about “location, location, location.” Does it make sense then that when a potential buyer clicks on a map icon to see where a home is located, she is presented with a map cluttered with logos indicating the location of nearby State Farm insurance offices? Does anyone buy a house based on proximity to an insurance agent? Doubtless someone thought this was a clever marketing gambit, but it distracts, confuses and possibly annoys the potential buyer.

The photo slideshows that are the critical core of each home listing are now increasingly cluttered with advertising. If I was a real estate agent paying to upgrade a listing only to find it was chock full of ads, I’d be furious. I want prospects looking at pictures for the home I am selling, not distracted or annoyed by irrelevant advertising from third parties.

A lot of this comes down to the degradation of the user experience. But in some cases, it’s an even bigger issue: it’s a problem of the data publisher forgetting who they are serving and in some cases, why they are even in business. A little bit of incremental revenue can sometimes have a very high cost attached. And the guiding rule of all things online remains the same: just because you can, doesn’t mean you should.

Get it Right ... Or Else!

Why is data getting so much attention these days? Why is it such a good business? Why is it so profitable? Well, there are numerous reasons, but the one I’d like to highlight today is that increasingly, data matters.

What do I mean by that? Simply that data, to a degree you don’t see with other forms of content, gets relied on to make serious decisions, some of which have significant, business, economic and personal impact. Some people (many of them rich data publishers) have understood this for a long time. For others, this insight is a new one. And one consequence of data’s growing importance is that it is increasingly the focus of lawmakers. Consider just a few examples:

In a true "only in Hollywood" moment, the state of California now has a law that says data providers cannot publish the ages of people in the entertainment industry. Yes, actors have long been skittish about putting their ages out there, but in the old days, they simply lied about their ages. Now, they have the force of law behind them. The ostensible purpose of this law is to help prevent age discrimination, however, the law also specifically includes everyone in the videogame industry as well, so go figure.

Across the pond, UK financial regulators have taken Morningstar, the mutual funds data company to court. Its offense? A number of the funds to which it gave high ratings ended up under-performing relative to their benchmarks. Apparently your predictions are now required to always be accurate. Of course, if Morningstar could identify top-performing funds with 100% accuracy, my strong recommendation to Morningstar would be to get out of the data business and into the investing business, pronto.

We also have the example of health insurance company physician directories. Every health plan publishes a directory of participating physicians, and in many cases, these directories are woefully inaccurate. Examples abound of plan directories with physicians who have left the plan, moved offices (sometimes hundreds of miles away), retired and even died. This would be just another everyday annoyance except for the fact that many people select their health plans, and spend thousands of dollars, based on the network of physicians a health plan claims to offer. The federal government has stepped in on this one, and not to be outdone, California (surprise!) has its own legislation covering physician directories.

These examples are just the tip of the iceberg. Consider all the various laws around credit data, for example.

Back to my original point, all these rules and laws simply illustrate that data at its core is all about helping people to identify, select, assess and decide. And as databases proliferate, so does their influence and impact. There is power in data, which is why, increasingly, data producers are being held to higher standards of quality and accuracy. While painful for some, in the aggregate, good data is good for all of us.

Not All Datasets Are Good Datasets

As someone who has been a long-time proponent of data, it is intriguing to see the number of new start-ups that have revenue models based partially – sometime entirely – on the sale of data, even though they are not data publishers in the conventional sense. Rather, they are seeking to monetize data they are collecting incidentally in the course of other activities.

A fashion website or app, for example, might realize that by tracking what new fashions its users viewed the most, they were collecting valuable intelligence that could be sold to fashion manufacturers. The early players in this area usually did, in fact, have valuable and readily saleable data collections and they had in fact identified an important new revenue stream.

But now “data” is transforming into a buzz-term, up there with “the cloud” and “social.” Purported data opportunities are being used to mask weak business models because everyone these days knows “it’s all about the data.” Just as start-ups these days feel compelled to be in the cloud and have a strong social component, so too do they now need a data opportunity.

Not every new business can create value from the incidental data it generates. Those that do represent the exception, not the rule.  Here are a few reasons why these data opportunities may not be as strong as the entrepreneurs behind them would like to believe:

1. You generate too little data. While everyone talks about quality data, there is still a quantity aspect as well. Even for things as valuable as sales leads, most companies will turn up their noses at them if you can’t deliver a certain volume of leads regularly and dependably. Depending on the data itch you’re trying to scratch, 100,000 or even a million users may not cut it.

2. You generate too much data. Having the most data about something can be as much a burden as an opportunity. Think Twitter. Everyone “knows” that the huge collective stream of consciousness that its  users generate is enormously valuable, but extracting that value is very complex and expensive, and much of the final output still represents conjecture and surmise.

3. You don’t really know much about the data you’ve got. I’ve been in numerous meetings where the issue on the table was, “we’ve got tons of data, but we’re not sure how to monetize it.” This situation naturally calls for advanced TAPITS (There’s A Pony in There Somewhere) analysis to assess value. More times than not, the chosen solution is simply to sell the raw data and hope that the buyer can find value. Of course, when you sell data by the ton, you have to charge for it by the ton too. It’s just not that valuable if the buyer needs to do all the thinking and all the work.

4. A sample of none. Online businesses want lots of traffic and lots of users, the more the merrier. This is good for business generally, but not necessarily great from a data perspective. If your user base is too disparate, the aggregate insights from the data they generate may not be all that valuable. And if your user base is largely anonymous, good luck with that.

5. Buy me a drink first. Many times, an online company is in possession of extremely detailed and valuable data. Unfortunately, this typically means that these data can only be had by violating the trust if not the privacy of the user. It’s even more complicated if the company built its business with a strong privacy policy that prohibits it from ever selling all this valuable information.

6.  Exclusive insights. These days, if you said you have “near-real-time insight into bus station storage locker utilization rates” it will be automatically assumed that you've tapped a huge data opportunity. Every bus station certainly needs this information, bus lines probably have a use for it, there’s probably a government market, some hedge funds will want it and there might even be a consumer opportunity as well – think of an app that shows you available storage lockers nationwide! But in reality, every market is not a viable data market. The market might be too small, marginally profitable, too localized or too consolidated. It is absolutely possible to have data that nobody cares about or that too few people care about to create a meaningful revenue stream.

7. Competition. Your data may indeed be valuable, but chances are, you don’t have the full picture. This means your data is less valuable than a company that can supply the full picture. That means the market for your data may be the one company that knows more about the market than you do. Yes, there’s revenue to be had in this case, but you won’t get rich.

8. Raw data follies. Typically, companies trying to sell the data they collect incidentally want to sell the data, get the money, and get back to their core business activities. But if you don’t clean and organize your data, you’re leaving lots of money on the table. And if you decided to get serious about your data, you’re moving into a different business, one you probably don’t understand very well.

I could keep going, but hopefully you get the point: the chances that the incidental data you generate from some other business activities are valuable is pretty low. And even if you have valuable data, getting maximum value from it generally demands getting a lot more serious about your data, which starts to move you into a totally different business.

Data's Brave New World

The ACLU has just released a report highlighting the growing relationship between law enforcement agencies and a Chicago-based company called Geofeedia. In a nutshell, Geofeedia is apparently marketing to law enforcement agencies a crowd surveillance tool that mixes geolocation with social media sentiment analysis.

This illustrates the gray area we operate in as data providers, especially those of us dealing with consumer data. Things that are perfectly legal may be seen by others as unethical and inappropriate. And, perhaps ironically, the power and pervasiveness of social media means that reputational risk becomes an outsized area of concern for those of us who deal in data.

On the one hand, Geofeedia is simply aggregating and analyzing information that individuals have voluntarily and publicly posted on various social media platforms. On the other hand, its particular application for these data can be seen to be chilling to lawful speech, dissent and free assembly. And as noted earlier, the law lags far behind these new technologies, and thus provides little guidance.

Facebook reacted to the ACLU report by quickly severing ties with Geofeedia. It understands that anything that creates even the slightest hesitancy to use its platform is detrimental to its own business. Instagram suspended Geofeedia as well. Even Twitter, which we have previously noted seems content to be a datastream for others to monetize, has suspended Geofeedia from commercial access to its data.

As we have noted, it’s difficult to come down on one side or the other in this issue. As a data producer, I think that aggregating and analyzing publicly available data is generally a beneficial activity. Indeed, what Geofeedia is doing is conceptually not all that different than the many social sentiment analysis companies selling aggregated insights to hedge funds seeking early warning on news and emerging trends. Yet at the same time, even if Geofeedia was working with the best of intentions, the optics of its product offering should have received greater attention. And that’s the lesson here for data publishers: just because you can do something doesn’t always mean you should do it. Perception has become as important as reality. Don’t let ignorance or arrogance crater your products or your entire business. Keep firmly in mind at all times that, especially when it comes to data, optics do matter.

Should Governments Sell Data?

Under the broad label of “open data,” governments around the world are opening up increasing numbers of fascinating and often valuable datasets to public access, in many cases, via API.
 
As a recent article in Network World notes, London makes nearly 500 datasets available, and even smaller cities in the UK like Leeds make hundreds of datasets available as well. Perhaps most interesting of all is the initiative by the city of Copenhagen, called City Data Exchange, which takes open data in two important new directions. First, it intends to charge for its data, and second, it is also offering relevant databases from for-profit data producers, also for a fee.

The US has not been a leader in the open data movement, though more government data comes online on almost a daily basis now. Typically, the model in the US is that government data made available to the public is made available for free. That makes sense, since it was gathered at taxpayer expense and should therefore be made available for free – keeping the “free” in Freedom of Information if you will.
 
But when you think about it, there may be some merit to governments charging reasonable fees to access public datasets. Simply put, it forces governments to treat their data and the people using their data with more professionalism and respect. I’ve been involved in several promising projects that were to be based on government databases that suddenly disappeared because funding was cut, or the person who was responsible for the initiative left the agency and wasn’t replaced. It’s great to have a business based on free government data – until it isn’t. You are at the mercy of an organization that collects data its own way, for its own purposes, and only for as long as it feels it needs to collect it. Putting a revenue stream behind a dataset starts to change that dynamic.
 
Also of interest is Copenhagen’s plan to be a reseller of private databases. On the one hand, I celebrate the innovation and progressive thinking in this move. On the other hand, it feels backwards to me. If there is a commercial database that complements a government-created database, I think it makes a lot more sense for the commercial database publisher to resell the government data alongside its own. After all, it has the larger financial incentive, it has the staff that really understands data, and it has the marketing and sales capability the government lacks. Government entities are not well positioned to sell their own data, much less someone else’s data, and the better they get at it, the more likely they will cross the line and start competing with private business.
 
Government is a great source of data, though historically it has been a somewhat undependable source of data. Perhaps putting some modest revenue around it could improve that situation. But moving into the business of selling commercial data products, however well intentioned, is a bridge too far. There are too many specialized skills involved that government entities don’t have and shouldn’t develop.

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DiscoverOrg is a leading global sales and marketing intelligence tool used by over 2,000 companies to accelerate growth. DiscoverOrg’s solutions provide a constant stream of accurate and actionable company, contact, and buying intelligence that can be used to find, connect with, and sell to target buyers more effectively. CMO, Katie Ballard, dsays, “We believe accurate data is the foundation to faster revenue growth. You can’t make good decisions without it. How are you going to grow if you don’t have accurate data to build your sales and marketing strategy on? DiscoverOrg offers the most accurate, actionable, and integrated sales and marketing intelligence—covering contact, company, org charts, buying triggers, and predictive purchase data—that allows our customers to generate more leads, set more meetings, and close more deals.  One of the reasons that the data is so accurate is that we have a team of 150 in-house researchers that verifies every single piece of data in our platform.  We work mostly with technology, staffing, marketing, and consulting firms. Our clients run the gamut from the biggest brands and companies down to startups, and about 80% fall into technology (including hardware, software, information security, etc…), 10% in staffing, and 10% in the other industries.”
 
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