Friday, May 29, 2015
Is Big Data the Eyeballs of the Dot-Com Era?
Remember the halcyon days of the Dot-Com era? A frothy stock market, venture capital money flowing like water and famous sock puppets characterized the exuberance of the day. One company (Boo.com) spent $188 million in just six months to create an online fashion store. And 16 start-ups spent over $2 million each for a 30 second advertising slot during Superbowl XXXIV to crow of their existence. But, all of the money didn’t matter – the mantra was all about capturing “eyeballs.”
The business theory of the day was that if you could get people to your website (the eyeballs) then somehow the money would come gushing in. You were a heretic if you questioned how that would happen. Eyeballs were a very monetizable item, so the more of them the better. Of course, we know what happened. The Dot-Com era came to a crashing end when the market finally realized that these companies really needed to have a viable business model, rather than waiting for the eyeball prophecy to be fulfilled.
I can’t help wondering if the exuberance, and some might say blind faith, in big Data is similar to some of the fallacies of the Dot-Com era? Much of the Big Data mantra is all about creating and collecting as much data as possible because it has to be valuable. The more of it you have, the more value you can create.
Don’t get me wrong. There is huge business and social value to be derived from Big Data. There are numerous examples in medicine, education, business and government where data analytics has added huge value to the services and customer experience. There countless opportunities to use data analytics to drive ever new sources of value. The thing that I am challenging is the belief that by collecting huge amounts of data that it can be directly monetized – or turned into money.
Mobile users, public Wi-Fi, smart city deployments and user-centric applications are generating huge amounts of data. Typically, huge streams of personal data like location, preferences, application usage, and device type are being generated by these uses. The operators of these services believe that they are now sitting on a goldmine. Their dream is to turn this valuable personal data into mounds of cash by selling it to advertisers and others who want to better reach and target end users. There seems to be great excitement and expectations about how much this data is worth. Many business cases now seem to use data monetization as a kind of “Factor X” to justify otherwise questionable business cases.
Like the eyeballs of the Dot-Com era, data monetization is all about advertising. Advertising is a well-known business with well-established governing business principles. At its simplest, advertising is a function of the ability to target a customer times the number of advertising impressions, or potential customers, that you can reach. For example, a golf club manufacturer is willing to pay more to advertise to an avid golf player than the general public. This is why big data is so valuable. Personal information like location, device and app usage can be used to provide a much better target customer than general mass advertising.
We looked at the potential value of this data in considerable detail for a prospective large smart city deployment. We discovered that we could definitely make money by selling the data generated on our smart city network, but it wasn’t that different than traditional advertising models. Our proposed digital signage solutions generated roughly the same revenue as traditional billboards on the sides of bus shelters. Similarly, pushing ads to mobile user devices generated marginally more advertising revenue than handing out flyers to pedestrians. In total, we calculated that we could generate roughly $1.5 million in new annual advertising revenues. To put this in perspective, that is just 5 percent of the total revenues that could be generated from delivering the total smart city solution. The data can definitely be monetization, but it is unlikely to generate the mounds of cash that is eagerly expected from many operators.
As with Dot-Com eyeballs, once the hype and the naïve assumptions are wiped away, there is no real magic to big data monetization. While there is money to be made from data monetization, it is highly unlikely to be a major revenue generator. And, by no means should the promise of monetizing data be used to prop up weak smart city and Internet of Things business cases.
Big Data has been described as the “New Oil.” That may be a very attractive and compelling metaphor in a world where a barrel of oil sells for $100 or more. But, remember oil can equally drop to $40 to $50 a barrel as we are currently witnessing.