Data is not the new oil

technicalstudio | March 26, 2018 | 0 | Tech News

It’s easier than ever to build software, which makes it harder than ever to build a defensible software business. So it’s no wonder investors and entrepreneurs are optimistic about the potential of data to form a new competitive advantage. Some have even hailed data as “the new oil.” We invest exclusively in startups leveraging data and AI to solve business problems, so we certainly see the appeal — but the oil analogy is flawed.

In all the enthusiasm for big data, it’s easy to lose sight of the fact that all data is not created equal. Startups and large corporations alike boast about the volume of data they’ve amassed, ranging from terabytes of data to quantities surpassing all of the information contained in the Library of Congress. Quantity alone does not make a “data moat.”

Firstly, raw data is not nearly as valuable as data employed to solve a problem. We see this in the public markets: companies that serve as aggregators and merchants of data, such as Nielsen and Acxiom, sustain much lower valuation multiples than companies that build products powered by data in combination with algorithms and ML, such as Netflix or Facebook. The current generation of AI startups recognize this difference and apply machine learning models to extract value from the data they collect.

Even when data is put to work powering ML-based solutions, the size of the data set is only one part of the story. The value of a data set, the strength of a data moat, comes from context. Some applications require models to be trained to a high degree of accuracy before they can provide any value to a customer, while others need little or no data at all. Some data sets are truly proprietary, others are readily duplicated. Some data decays in value over time, while other data setsare evergreen.

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