2014: The year data becomes a company’s secret weapon
This year, we’re going to see data go from an opaque, untapped, and mystifying asset to a hyper competitive, I-can’t-believe-you-don’t-use-it weapon for businesses. I don’t mean big data; I mean data of any size: big, medium, and small. In fact, it’s not about the amount of data, it’s about the kind of data you have (and, of course, being smart enough to use it). This is all starting to happen because software is being built specifically to analyze lots of data – and it’s no longer cost-prohibitive to use this software, and the insights can fundamentally change the trajectory of your business.
Think of it this way: If you’re chasing after a $10-billion market and your competitor has a way to leverage the data generated by their customers – and you don’t – the odds aren’t in your favor. Chances are, you’re going to fall behind.
The taxi industry is being upended internationally, due to the emergence of high-tech companies such as Uber and Lyft. These companies are rapidly taking over the market, and not just because they’re mobile-first. Uber and Lyft are successful because they approach a classic problem – getting from Point A to Point B – as a mathematical equation with hundreds of potential variables. All of these variables can be tested and improved upon to create the best possible user experience. And the only way they improve that result is by having better data and smarter software. Smarter software begets more customers which begets better data which begets smarter software.
If software is eating the world, then data is acting as the essential nutrients. Data is a byproduct of the Internet that enables these businesses to be so much more compelling, competitive, and defensible.
A huge market with endless questions
All businesses have a never-ending list of questions about their customers that are crucial to answer. Smart businesses have a massive amount of data to help them find the answers. Not everyone has a Steve Jobs-like intuition when it comes to building incredible products, which means the rest of us have to come with data to make our arguments more persuasive.This is such a valuable need to address that IBM predicts it will do $16 billion in annual analytics revenue by 2015 and has already spent more than $14 billion on acquisitions. IDC claims that the business analytics market is expected to grow around 9.7% for the next 4 years to $50 billion. In fact, many data companies have just recently started to go public in the last 2 years. Splunk’s shares popped 90% on the day it went public and now they’ve since doubled to a market cap over $8 billion. Tableau went public this past year and has a market capitalization over $4 billion.
It’s not just enterprise companies that are doing amazing things with data. The biggest consumer companies in the world are working hard to keep their competitive advantage – Google and Facebook have been paving the way for years. Google Search uses the data it crawls, as well as its users’ search behavior, to automatically improve its search engine. (Google’s big data could crunch through everyone else’s big data for lunch.) Google has even built Dremel to deal with all the data the company generates and needs to analyze. Facebook also has been innovating by building Presto to understand how Facebook users behave, and to analyze the impact of product development and user-base evolution. Still, there’s a lot of work to do, because Facebook and Google represent some of the most serious technology companies in the world. That means many companies without this core competency have their work cut out for them. They have to catch up, and they have figure out how to turn data into a competitive weapon that can keep them dominant in the market.
Data is the fuel for massive disruption
Data is the driving force behind the latest crop of companies looking to eat the Fortune 1000’s lunch. These innovators are utilizing data in ways their incumbents aren’t; they’re using it to learn more about what customers want and need. Not only that, but they’re building a culture that is data driven: where decisions are made with as much empirical data to support a position, instead of intuition and politics. Data has become resource that has helped efficiently democratize decision making within companies. In short, data is helping companies learn a lot faster which means better products for customers.
Nest is re-inventing and disrupting the thermostat and smoke alarm industries by building better hardware and smarter software than what exists today. As you adjust the temperature in your home, Nest learns what your preference is so you ultimately don’t have to. Data is central to Nest, as the software becomes more intelligent the more it’s used.
Data is the backbone for Palantir’s software – a company rumored to have around $1 billion in contracts this year. You know in a movie when the director of the CIA is asking an analyst to understand the connection between the villain and a location, phone number, or license plate? They’re pretty much using Palantir’s software. The company builds software used to combat terrorism, fight fraud, analyze drugs, and conduct complex equity analysis. Without data, however, it’s entirely useless.
You may not have heard of Homejoy yet, but they’re doing for home cleaning what Uber and Lyft did to the taxi industry. They’ve even raised a $38 million round from investors shortly after their launch. So how are they growing so fast? They’re using data. Homejoy built a tool called Demand Map that enables them to predict where their future demand will come from. Demand Map works by collecting data about where, when, and how frequently Homejoy’s customers are booking cleanings with the service. This tells Homejoy which locations to focus on as they grow their business.
One reason why Netflix has successfully disrupted the movie-rental industry is that it knows more about its customers than any other company. Netflix is also a great example of a company that uses data to make its product smarter and better for customers. The Atlantic recently described one of Netflix’s data-driven ideas: “Using large teams of people specially trained to watch movies, Netflix deconstructed Hollywood. They paid people to watch films and tag them with all kinds of metadata. […] They capture dozens of different movie attributes. They even rate the moral status of characters. When these tags are combined with millions of users viewing habits, they become Netflix’s competitive advantage. The company’s main goal as a business is to gain and retain subscribers.”
When you compare this to Blockbuster’s "New Releases” shelf, it’s clear that the company never had a chance. Data is Netflix’s super-weapon, and will be a driving force behind its domination of the commercial video industry.
How do business become data-driven?
At Mixpanel, we work with thousands of companies every month, helping them become data-driven. These companies are building products for mobile and web, and their customers span the globe and belong to every cross-section of our society. We’re one company in a growing industry that’s helping companies build even smarter software. Here are our key takeaways:
- To help keep the company focused, pick five of the most pressing questions you have. Here’s a good litmus test of whether a question is useful: is the ability to improve upon the answer something that will make or break your company?
- Build a culture of data-driven decision making. Many companies over the years have built growth teams that constantly create new experiments and measure them, to find clever ways to increase customer acquisition.
- Have the groups within the company measure everything that is important to them. If you can’t directly measure it, survey it. And don’t measure bullshit metrics.
- Become more transparent about the numbers and open them up to the company. People will inevitably become more accountable and transparency further reinforces a more data driven culture.
- Don’t just create a report and then shred it after it’s been read it. Execute and experiment based on what you’ve learned, and continuously aim to improve upon those results.
As markets begin to rapidly evolve, it becomes more pressing for businesses to keep up with the pace of innovation. To stay ahead, they’ll need to tap into their data and turn it into a super-weapon capable of building the smarter products that customers already expect.