Making money from data

Data... The new gold. The new oil. The world’s most valuable resource.  With a build-up like this, it is no wonder many companies are now trying to leverage and monetize the data they hold.

But is the reality living up to the hype? The answer is yes… and no.

No, because data in and of itself has no inherent value. It is effectively valueless unless it is used to generate a commercial outcome. For example, merely having a customer database is no good if you have no product to sell them.   Worse still, interpreted inaccurately, mismanaged or misapplied, data can do more harm than good and can quickly become a major source of company risk.  For example, if you collect consumer data and are hacked, or if you end up using the data for a purpose that legally you are not entitled to, you will have a major issue on your hands.

On the other hand when data is managed correctly it can be extremely valuable. The key is to monetize the data via a business model that produces a commercial outcome that in turn generates value either directly for you – or for a third party that is prepared to pay you for that value.

The following is a good case study of effectively leveraging of data. Our client was a pharmaceutical company who had developed a new drug.  The company had been told that the new drug could not be effectively protected so margins would be difficult to support and were advised to price low. EverEdge was brought in to help the management team assess whether there were other ways that it could protect its investment in the drug. 

Working alongside the management team we recognized that the company’s significant data holdings were a key barrier to entry. We developed a strategy that combined this data with an existing patent filing and regulatory approval – all of which were individually weak, but when combined together the elements produced a strong position that was difficult to copy. The key to the success however was the data, as this was a resource that would take years to replicate.

The result: the drug was very hard to copy, which allowed the company to price it at a premium.  The product had a highly successful launch and provided our client with significant revenue and more importantly earnings growth. The company’s market capitalization increased from $50 million to $350 million over five years primarily on the back of this product’s high margins and highlighting how valuable data can be when leveraged correctly.

So how can you make money from data?

Today, with more than 87% of company value being driven by intangible assets (including not just data but brands, software code and confidential information), these assets are critical to long term company growth and represent major potential value.   

This includes data, which is now a core business asset. However, when it comes to monetizing data, many companies erroneously see data as an IT issue and approach it from a technical challenge perspective. In fact data monetization is actually an asset utilization issue. Data is like any other asset owned by the business - if you want to successfully convert it into value you need to develop a business case that carefully calculates not just the potential return, but also the costs and risks involved.

For example, if a company owned a vacant plot of land, no-one in their right mind would decide to develop the land (monetize the asset) without first working out what the potential return from the development is likely to be, the costs of the development and the risks involved. Data is no different, yet we see many companies fail to construct a business case that addresses these simple factors – instead they charge off to try and monetize their data and face the inevitable cost over runs, disappointing returns and risks that come home to roost. 

Assessing the business case

So how can companies make a business case around data monetization? The first step in this process is to fully understand the business context and economic returns the data will generate. To do this, Board and management teams need to establish:

1. Strategy: what is the business case for leveraging the data, including: 

o   What data is being – or could potentially be – generated by your company?

o   What are the ways in which you (or third parties) could potentially make money from this data? i.e. what business model will you use to generate value?

o   How much it will cost to bring the data to a point where you are able to make money from it? 

2. Valuation: a professional assessment of the likely value of your data, including:  

o   How much economic value will your data potentially generate if implement this strategy?

3. Risk: an assessment of the risks associated with monetizing your data, including:  

o   What are the legal, technical and reputational risks associated with this strategy and business model proposed to utilize your data? For instance did you collect the data for purpose “A” but need to use it for purpose “B” – this could well not be permitted under law.

In short, the fundamental rules of business still apply. To avoid a financial and legal quagmire, it is critical that companies build a business case for each data end case and establish the likely ROI and risks prior to rushing off to the IT team to “start making money”. 

If this is done, you are much more likely to uncover the value of the potential data goldmine you are sitting on.