Wouldn’t it be amazing to always have the most up to date information? What if you could monitor and predict what was going to happen before it actually happened?
I’ve realized recently that it is possible to build a business that gives you a magical crystal ball into the future.
Wouldn’t we all like to know when businesses, particulary SMB’s, begin to recover from the current Covid crisis? As a result of how their businesses are structured, both Clearbanc and Shopify have extremely high amounts of data, that lets them monitor trends in small businesses that normally only banks would be able to realize.
This information gives these two companies an edge that lets them move quickly and make better decisions than competitors who don’t have that information.
How did they get to this point?
Both companies built data collection and aggregation into their core product offerings. In return for access to data, they provide their customers with value they would not be able to derive independently. At Shopify, this takes the form of tracking website traffic, sales, and customer information on behalf of the merchant.
It is critical that the data being collected on customers is providing them value, otherwise these customers will stop providing it or using the platform.
What Happens When You Misuse Data
Today’s most relevant example of the misuse of customer data is Amazon. Shopify was able to carve out a significant chunk of the e-commerce space because Amazon did not let their merchants view and control their own data.
Amazon sellers did not know how often customers were repeat customers, who was buying their products, and could not monetize them with retargeting campaigns or email lists. These sellers lost control of their brand.
Adding insult to injury, it has been discovered in recent years that Amazon has started to launch their own private label brands. Think Amazon Basics.
They would find the best selling products by their sellers, then do the production and manufacturing themselves, promoting their products over their sellers.
It’s easy to see why sellers would like to avoid Amazon and control their own destiny when their own data is being used against them.
Both employ data science divisions who can make sense of all that information.
Data as a Competitive Moat
When it’s easier than ever to code something and copy other people’s code, how do you maintain a competitive advantage?
Just look at Facebook ripping off Snapchat’s stories and adding it into Instagram. It was incredibly successful.
Features can be copied. Data can build a moat
IMO there are two key pillars to this “moat”.
The first is time. If you have been operating for a year, it takes an incredibly long time for your competitor to amass the same amount of data. Meanwhile, you continue to race ahead, gathering increasing amounts of data. It will take them years to catch up, unless they figure out a way to collect useful data 2x faster than you can.
The second pillar is scale. The more data you have the more useful it is to you. Think about it like this. What is more useful? Your personal information or the personal information of 10 people? How about a million people?
With the latter, I can identify trends, demographic data, and start to train machine learning models that optimize my product and drive more revenue. By gathering more data, you can build a competitive moat by improving the processes that drive revenue, making them a magnitude better than your competitors.
Food for thought as you brainstorm your next billion dollar business idea 🙂