Data is multiplying at an exponential rate, generated by sensors, social media, transactions, smartphones, and a multitude of other sources. Naturally, companies want to tap into the potential of these vast, fast-moving, complex streams of data to achieve step-change improvements in performance. But they should set their sights higher. Big data, as a business in itself, could create billions of dollars in additional revenues that can go toward fueling growth.
Companies in a variety of information-rich industries are already generating entirely new revenue streams, business units, and stand-alone businesses out of the data they hold. Over the long term, there is strong potential for such data businesses to appear in even the most traditional industries.
There are seven primary business models that can enable big data as a business, each with their own pros and cons.
Tailoring products and services to customer specification can increase customer satisfaction and perceived value, and create barriers to new market entrants. It can also lead to long customer wait times and products that are difficult to resell.
Bundling can be profitable, drive rivals from the market, and open up opportunities to cross-sell or up-sell existing products. But keep in mind that once products and services have been bundled, it can be difficult to separate them.
Here, the same product is sold to every buyer. These offerings can be easy to deliver, lend themselves to discounting strategies, and increase margins through economies of scale. However, they do little to drive customer loyalty as customers may consider them less valuable than customized offerings.
This option gives customers easy access to a wide selection of offerings, but they only pay for what they actually use. It offers improved product margins compared with subscriptions, but it does not create a stable source of revenue. The high cost of customer acquisition must also be factored into the profit equation.
This relationship, such as a bank that analyzes transactions and offers customer discounts to those who frequent certain businesses, is generally stronger and more long-lasting than that driven by the pay-per-use model. However, companies must continue to add value in order to increase fees over time.
In this model, a partner standing between the company and the customer offers some type of rebate, discount, or additional service. Value accrues in the form of a commission paid to the partner by the company and the monetary benefit delivered to the customer. The presence of a third party that captures some of this value could be a long-term disadvantage.
This model ensures a predictable revenue stream with good potential for up-selling and cross-selling. The downside is lower margins than those typically generated by the pay-per-use model.
Of these models, those that involve the delivery of products and services to a mass market predominate. Companies can also gain value from mixing and matching these models to create new offerings.