Opinion Paper

Turning Data into Profit

Success Factors in Data-Centric Business Models

2011 / 01

We make ICT strategies work

 Turning Data into Profit

Table of Contents
1 Executive Summary............................................................................................. 3
2 Introduction.......................................................................................................... 4
3 What Makes a Business Model Data-Centric? .................................................... 5
4 Distinctive Activities: The Information Value Chain ............................................. 7
5 Success Factors of Data-Centric Business Models............................................. 9
6 Further Reading................................................................................................. 12
7 The Authors ....................................................................................................... 13
8 The Company .................................................................................................... 14

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 Turning Data into Profit

1 Executive Summary

Over the last years, data has gone from scarce to superabundant. The available data
sources, whether accessible on the World Wide Web, deliberately contributed by consumers,
or generated within organizations, are growing at a tremendous pace. This mass of data is
the key resource of the information age, paving the way for new information products and
business models.

The main value proposition of these “data-centric” business models is based on the
collection, processing, and management of this sheer unlimited volume of data, as
companies, such as Google, Amazon, and Facebook have successfully demonstrated. An
earlier Detecon analysis (2007) has illustrated that data-centric businesses show a
significantly higher profitability than their counterparts in production-driven, hardware, or IT-
services businesses. However, the underlying characteristics and phenomena, how to turn
data into profit are still vague, and the implications on business models are not yet well
understood.

Drawing upon the results of an online survey and numerous interviews with industry experts,
we have evaluated the success factors of data-centric business models. This paper presents
the key insights on how companies can effectively monetize their data assets and outlines
the recommendations for executives on how to transform their business models to
successfully integrate data-centric practices.

The following list summarizes the six key factors that are the core for setting up and
providing a successful data-centric business model.
 Use analytics to unleash value: Start comprehensively mining your data and conduct
in-depth analytics to e.g. understand your customers’ behavior, deliver product
recommendations and enable context sensitive advertising.
 Specialize and select the real data treasure troves: The diverse domains of data
entail different value. Focus on the most promising for the realm of your data-centric
business model.
 Close the customer feedback loop: Get in close touch with your customers and get
them actively engaged into your activities by providing regular feedback. Moreover,
enable them to even become data producers (i.e. “prosumers”) for your products.
 Ensure new, up-to-date content: A loyal user base requires more than just a massive,
static data set. A successful information product needs the vivid “buzz” on top of the
static data to remain sapid and to bond the users.
 Provide and own the identifiers: One special and promising type of data are unique
identifiers. Each and every industry domain requires a globally unique set. Being the
owner means to be in the driver’s seat.
 Give highest attention to data privacy and security: Act sensitively when it comes to
user-related or user-generated content.

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2 Introduction

In the Detecon paper “Data-centric business models – Leveraging the hidden treasures of
the telecom industry” (2007), we introduced and conceptualized a new type of rising ‘data-
centric’ business models. Chief among our insights was that companies embracing data-
centric approaches pose substantially higher operating margins than their counterparts in
traditional production-driven, hardware, software, and IT service businesses.

Today, as IT matures, we realize that these insights were not only directionally right, but are
playing fields for emergent, game-changing business models. Web 2.0, collective
intelligence, social networks, cloud computing, and the revolution of mobile devices – always
online and equipped with numerous data-input sensors – push data-centric initiatives to the
top of the agenda of CEOs, CIOs, and CTOs. In order to cope with the new trend, decision
makers need to clearly understand the characteristics and context of the information
economy and information products.

We therefore conducted an industry study to identify the key factors and strategies for
successfully establishing data-centric business models. The study was carried out through a
web-based questionnaire with participants from various industries and in different hierarchy
levels (see figure 1). Additionally, we interviewed a number of selected high-ranking
executives and business developers.

Industry Role

Entry Level
Executive Level /
Others (Telco, 10% SVP
Media etc.)
30% 27%
Consulting Experienced
38% 18%

7%
Hardware & 19%
Equipment 7% 26% Senior Manager
18%
Financial Services Manager
Software & Services

Figure 1: Survey demographics.

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3 What Makes a Business Model Data-Centric?

Looking at the last decade, dominant players, such as Google, eBay, Reuters, and other
new, rising startups like Facebook, Twitter, and FourSquare, have demonstrated that they no
longer build their business models upon any physical products. Instead, they act as
“infomediaries” who collect, organize and process data from multiple heterogeneous sources
and store them in structured databases, which serve as input for new information products.
Data-centric initiatives are game-changing and disrupt the economics of entire industries.
However, as the dot-com bubble burst and the recent financial crisis emerged, traditional
rules of business are still valid: Businesses need to develop offers that entail a convincing
customer value and generate sustainable profit. Naturally, a high-performance IT
infrastructure is a necessary foundation to deliver data-centric products. But to unleash the
full power of data, it is crucial for executives to develop a compelling data-centric value
proposition.

During our observations of data-centric business approaches, two major types of value
propositions became evident: firstly, physical products with a “data halo”, and, secondly,
pure-play data-centric products (see figure 2).

Pure-Play Data Product Physical Product with „Data Halo“

Data
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Data
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Ex

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Pr

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Data
Data-centric
Customer Physical Product es
Enterprise Revenue Enterprise Customer
(and/or data) Revenue

Figure 2: Two major types of data-centric value propositions: pure-play and data halo.

Physical Product with “data halo”

Data halos, or hybrid data products, are especially suited when businesses want to create an
information layer on top of established physical products. The main motivation for this is to
offer sticky, more engaging and personalized products or services that add value for
customers and enable new revenue streams. This added value for products leads to
differentiation potential towards low-cost competitors.

Amazon’s revenue, for example, is derived mainly from selling goods such as books online.
However, key to Amazon’s dominance in retailing is the rich data halo around these
products. Amazon’s rankings, reviews, and recommendation engine support users in their
buying decision.

A major driver for products with a data halo is the growing number of ubiquitous, connected
sensors. These sensors attach geographic locations, temperatures, and other environmental
data to a product. Prominent examples of “data halos” based on sensors are Bridgestone
and Nike. Bridgestone adds GPS data to its tires, which enables numerous applications for
improving driving behavior.

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Nike, the sports equipment manufacturer, launched Nike Plus, which enhances running
shoes with a motion sensor that is linked to an Apple iPhone, respectively iPod device. This
allows users to record their workout progress and continuously exchange the data with an
online community. The community again is closely integrated with other major online
networks (e.g. Facebook) and shops (e.g. iTunes).

Pure-Play data-centric products

 In contrast to physical products with a “data halo”, pure data-centric products are
completely virtual, and based on a freestanding, informational value proposition.
Information products do not comprise any physical components and are not subject to
any limitations in respect of duplication and distribution. They are easily and directly
distributed to customers via network technology. Pure-play data-centric products often
come with advertisement or license-based revenue models.
 Google, for example, takes the judgments made by millions of people as they create
links between Web Pages and harnesses the collective intelligence of the entire web to
produce amazingly intelligent answers to questions that users type into the Google
search bar. Based on these search keys, Google applies analytics to place context-
sensitive advertisements. Ads represent Google’s main revenue stream in the domain of
online search.
 Further examples for pure-play data-centric products, with focus on the B2B domain, are
Reuters, Creditreform, and Eucon. Reuters provides data on financial transactions. The
product portfolio is basically differentiated on the up-to-dateness of information: Real-
time stock prices have to be paid for, whereas historical data are, to a certain extent,
provided free of charge. Creditreform is a German provider for information services that
aggregates and allocates the credit ratings of enterprises. Eucon provides an information
database for international product and price data in the automotive aftersales realm.
Based on the provided information, spare part manufacturers can optimize the pricing for
their products throughout the whole product lifecycle. The latter examples show that
data-centric business has already existed before the Internet age. However, Internet
technology is giving it a tremendous boost, again with Google and Facebook as the
prime examples.

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4 Distinctive Activities: The Information Value Chain

In traditional production-driven business models the series of interdependent value creation

activities, which altogether produce end-user benefits, can be linked to form a value chain.
The main idea of a value chain is that the value added by each activity exceeds the costs,
which are generated by the respective activity. The same applies for data-centric business
models. But in order to cope with the specific characteristics of data, which deviate from
physical resources, we have updated the classic value chain by Porter. The outcome is the
Information Value Chain for data-centric business models (see figure 3). The Information
Value Chain has already been applied in several of our consulting projects and has further
been refined iteratively through multiple case studies and intense expert discussions. The
Information Value Chain has proven to be a valuable tool to assess, illustrate, discuss, and
share capabilities of information products and services.

The Information Value Chain

1 2 3 4

Structured
Data Generation Integration & Presentation &
Storage &
& Acquisition Analytics Marketing
Processing

Figure 3: The Information Value Chain – Four steps of value creation.

Organizations that intend to unlock value from data are advised to use the Information Value
Chain to analyze their strategic positioning and derive opportunities for data-centric activities.
Occurring gaps should be evaluated and eventually filled in order to generate value
throughout each of the four key activity fields of the Information Value Chain, which are
namely data generation & acquisition, structured storage & processing, integration &
analytics, and presentation & marketing.

(1) Data generation & acquisition

Manual data generation by internal staff, automated data capturing through emerging
sensor-equipped products and the detailed tracking of business processes (such as
successful transactions on e-commerce platforms) are valuable sources of high-profile data.
In addition, external data can be acquired: Data sources range from the vast pool of public
data that are freely accessible on the web, structured data from information providers, to the
contribution of users and innovators outside traditional company borders, with the latter
probably being the most valuable data.

(2) Structured storage & processing

In order to further process and access data, they need to be stored persistently in a
structured, machine-readable fashion. Our observation is that the strategic importance of
storage declines. Scalable and high capacity storage is becoming a commodity that can be
easily hosted in the cloud, acquired from service providers, or adopted through standards
and open source technologies. The incoming data can be both granular or complex and can
come in various, mostly heterogeneous formats. Hence, processing procedures transform
complex data into a more granular and structured scheme.

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(3) Integration & analytics

In the past, data were usually kept in separate, disconnected systems. Nowadays, standards
and technologies like the Semantic Web approach make it feasible to link, combine, and
map data. The data can be processed dynamically from various sources and heterogeneous
formats – independently whether they are structured or not. Integration approaches are
especially beneficial for incorporating external data-services that allow enriching the product
without losing focus on the business’s core competencies.

An expedient example for value added through integration services is the German real
estate portal “Immobilien Scout 24”. “Immobilien Scout 24” integrates geographic map data
with rich demographics or economic data, such as the average rental fee per square meter.
In this case three different data sources are integrated: one user generated (apartments for
rent at “Immobilien Scout 24”), one commercial (map data from Microsoft Bing), and one
public (average rental fees) source.

The amount of accessible data by far exceeds the quantity users are able to consume.
Aggregation procedures aim at counteracting today’s “information overflow”. In addition,
analytics performs advanced statistical analyses on massive data to reveal new insights,
correlations and evidences that were previously hidden. Analytics procedures focus on the
evaluation of (real-time) information flows and support time critical decisions, respectively
their automated execution. Hence, businesses can realize value by improving efficiency and
lowering the effort for users to access and consume large volumes of data. This happens
through clustering, filtering, personalization, and relevance ranking of data and information.

For instance, Microsoft’s Bing Travel search engine actively advises customers whether to
immediately buy an airline ticket or to wait for the price to go down. Basis for the given
recommendation is the examination of 225 billion flight and price records.

(4) Presentation & marketing

Presentation and marketing activities handle the distribution and provisioning of information
products through different digital channels (e.g. social communities, app stores, and
specialized hardware, such as the Apple iPad). Especially social communities can be used
to broadly distribute information products and leverage network effects (e.g. YouTube
videos). The views on the information items should be personalized according to the users’
demands. To close the feedback loop and generate direct feedback from the users, data
generation functions such as “like” buttons and rating systems can be built into the
presentation layer. The information generated through these mechanisms can again be used
as input stream for subsequent value creation activities.

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5 Success Factors of Data-Centric Business Models

In order to turn data into profit, most businesses need to rethink and partly reshape their
business models. The following compilation depicts the key strategic actions that companies
should implement to boost their data-centric activities. Decision makers should adapt the
options according to their companies’ overall industry context and business models. The
actions, which are the gist of our analysis, are listed in descending order according to
importance.

(1) Use analytics to unleash value

Analytics are perceived as the step within the Information Value Chain that creates the most
value (see figure 4). Many data-centric business models employ comprehensive analytics on
top of their databases to hunt for meaningful patterns and insights in their data treasure
troves. Typical examples of analytics are as diverse as personalized Internet search (e.g.
Google that incorporates historical search data into the current search query), the delivery of
relevant ads to customers in their current context, or the application of sensor data for
optimizing logistics. Altogether they serve to optimize the yield of each transaction.
Businesses are starting to comprehensively mine their data and conduct in-depth analytics to
enable these capabilities.

Analysts estimate that the market for analytics is growing at a rate of 10%, which is about
twice as fast as the overall market for software. The market for analytics services and
software is worth more than $100 billion. Furthermore, the relevance of analytics is
supported by the latest acquisitions of the big players in software business. Companies like
IBM, SAP, Microsoft, and Oracle spent more than $15 billion for acquiring companies that
are specialized in data management and analytics.

Importance of Steps in the Information Value Chain

1 2 3 4

29% 29% 28% 27%

18% 19%
15% 16%
12% 12% 12%

5%

Customer perspective: personal value Customer perspective: provider profit Provider perspective: profit potential

Numbers depict the share of survey participants that rated the value of the respective value chain step as „high“

Figure 4: Importance of steps in the Information Value Chain

(2) Specialize and select the real data treasure troves

The different data domains differ heavily in value. The participants of our survey were asked
to rate the value of different data domains. Not surprisingly, the evaluation reveals that
customer data are the most valuable (see figure 5). Customer data include the user identity
(i.e. name and address), the user context (i.e. current location and status) and existing
connections (i.e. friends, groups, and links).

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Value of Data Domains

User perspective Provider perspective

80% Customer 72%

62% User behavior 66%

59% Financial 63%

50% User generated 63%

41% Sensor 59%

50% Geolocation 55%

38% Price 52%

Numbers depict the share of
53% Reviews / ratings 50% survey participants that rated the
value of the respective data
41% Product 48% domains as „high“

Figure 5: Value of data domains

Businesses should focus on clearly outlined data domains through which they can sustain or
even outclass competitive advantages, respectively realize superior value. A prominent
example for such a focusing is Deutsche Börse Group with its high valuable content services
around financial data. Niche content is key, making it worthwhile to specialize and develop
domain knowledge. The superior access to and understanding of a specific data domain
should be employed for developing strong differentiators in the value of information products
and services. Companies should start with data that are close to their core business
capabilities.

(3) Close the feedback loop with the customer

Businesses that hold direct relationships with their customers are uniquely positioned to
harness user contribution and foster the “prosumer” model, in which the user becomes the
producer of data. Thus, companies should set up user contribution mechanisms to collect
the data that users are willing to provide for free: Every day, millions of users directly and
indirectly create valuable data, ranging from buying preferences, ratings, and reviews to the
stream of clicks – all in all a massive data exhaust that users leave behind while browsing
and interacting on the web. Successful data-centric businesses have demonstrated that it is
crucial to embrace the customer base and enable user contribution through easy-to-use
technical platforms and comprehensive ecosystems using this virtually unlimited amount of
external engagement and never ending stream of data. This similarly holds true for
companies that manage to establish a close relationship with their partners positioned
rearwards in the value chain. The interfaces for data generation need to be simple and easy
to use, so users and partners can seamlessly contribute valuable data.

By default, successful user contribution systems are self-reinforcing and create value for a
business only as a consequence of the value that they in turn deliver to their users. Thus,
they create a win-win situation. Well-established examples include providing personalized
purchase recommendations (e.g. online shop Amazon), assembling connections between
buyers and sellers (e.g. auction platform eBay), offering long-tail and rare products (e.g.
online movie rental Netflix), and creating social relationships (e.g. social network Facebook).

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(4) Ensure new, up-to-date content

Successful data-centric players are characterized by their capability to go beyond static data
and dive deep into their vast pools of data, aggregate and mash them up in unique ways to
unlock new value potentials and meet customer demands. It is critical to constantly provide
an up-to-date and dynamic data set. The “buzz” on top of a static data set makes the
difference. Note: A company does not necessarily have to produce the “buzz” itself, but it
should cleverly integrate the own data with input from partners, customers, governmental,
and public sources. An impressive example is the development within the realm of
geographic maps. Not long ago, geographic maps as such had a substantial value. But since
Google, amongst others, started to make maps available for free on the Internet, their value
considerably declined. The static data became a commonly and inexpensively available or
even free commodity – but a new dynamic set emerged. By today, the data overlays (e.g.
traffic information, weather data, ratings of enterprises etc.) that are the “buzz” on top of the
maps are the differentiators, and they determine the value of the data set. Summing up, it is
necessary to identify and feature both a static data set as foundation and even more
important to supply the “buzz” on top of it.

(5) Provide and own the identifiers

One special and promising type of data are unique identification labels for products and
services for aggregating and attaching rich metadata. Each and every industry domain
requires a globally unique set to establish a commonly understood language and thus enable
worldwide business trade and interaction. Being the owner of such a data set means “to be
in the driver’s seat”, to occupy a position of control. Amazon successfully established such
an identifier (i.e. Amazon Standard Identification Number, ASIN) for nearly all consumer
goods. It is not yet a standard, but it is already in use by multiple enterprises (e.g. TV
channel 3sat). Other examples are the Global Location Number (GLN) and Global Trade
Item Number (GTIN) that uniquely denote company locations, and respectively trade
products.

Absolute condition: Give highest attention to data privacy and security

Especially customer data and user-generated content are highly sensitive and private, thus
challenging attempts to monetize them. Therefore, companies need to apply a high standard
of security and privacy to any data-related service. Security breaches and data scandals
hold the potential to impact data-centric initiatives in an extremely negative way for a long
period of time. To prevent such pitfalls companies should start with a data domain that is not
critical regarding this matter, such as financial or product data.

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6 Further Reading
 Scott Cook (2008). The Contribution Revolution: Letting Volunteers Build Your Business.
 Thomas H. Davenport (2008). Competing on Analytics: The New Science of Winning.
 The Economist (2010). Data, Data Everywhere – A Special Report on Managing
Information.
 Alexander Osterwalder and Yves Pigneur (2010). Business Model Generation: A
Handbook for Visionaries, Game Changers, and Challengers.
 Michael Porter (1985). Competitive Strategy: Techniques for Analyzing Industries and
Competitors.
 Thomas Redman (2008). Data-Driven – Profiting from Your Most Important Business
Asset.
 Volker Rieger and Christoph Tempich (2007). Data-centric Business Models – Leverage
the Hidden Treasures of the Telecom Industry (Detecon Opinion Paper).
 Volker Rieger, Christoph Tempich and Philipp Bodenbenner (2008). Networked instead
of linear (Detecon Management Report 01/2008).
 Don Tapscott and Anthony Williams (2008). Wikinomics – How mass collaboration
changes everything.

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7 The Authors
Philipp Bodenbenner has been working as a management consultant in Detecon’s
Competence Practice Information Technology since 2007. He works on issues relating to the
interface between business strategy and information technology. He supports companies
mainly in the areas of data-centric business models and information management. Philipp
Bodenbenner studied Information Engineering and Management at the University of
Karlsruhe (TH) and at the Royal Institute of Technology in Stockholm, Sweden.

He can be reached at: +49 228 700 1949 or Philipp.Bodenbenner@detecon.com

Dr. Christoph Tempich is a management consultant at Detecon International in the

Competence Practice Information Technology. He advises companies in the
telecommunication industry in the functional areas of strategy development, organizational
implementation and IT-architecture. The issues he concentrates on are data-centric business
models, enterprise information management, technology markets and innovation, and
semantic technologies. He won prizes for the most innovative e-Business and software
application in 2002 and 2004. Before he received his PhD in applied informatics from the
University of Karlsruhe, Institute of Applied Informatics and Formal Description Methods
(AIFB) in 2006, he worked with BearingPoint as a management consultant.

He can be reached at: +49 228 700 1942 or Christoph.Tempich@detecon.com

Lukas Feuerstein studied Information Sciences & Information Systems at the University of
Regensburg and conducted his master thesis (“Success factors of data-centric business
models”) in cooperation with Detecon.

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8 The Company

We make ICT strategies work

Detecon is a consulting company which unites classic management consulting with a high
level of technology expertise.

Our company's history is proof of this: Detecon International is the product of the merger of
the management and IT consulting company Diebold, founded in 1954, and the
telecommunications consultancy Detecon, founded in 1977. Our services focus on
consulting and implementation solutions which are derived from the use of information and
communications technology (ICT). All around the globe, clients from virtually all industries
profit from our holistic know-how in questions of strategy and organizational design and in
the use of state-of-the-art technologies.

Detecon’s know-how bundles the knowledge from the successful conclusion of management
and ICT projects in more than 160 countries. We are represented globally by subsidiaries,
affiliates, and project offices. Detecon is a subsidiary of T-Systems International, the
business customer brand of Deutsche Telekom. In our capacity as consultants, we are able
to benefit from the infrastructure of a global player spanning our planet.

Know-how and hands-on expertise

The rapid development of information and telecommunications technologies has an

increasingly significant influence on the strategies of companies as well as on the processes
within an organization. The subsequent complex adaptations affect business models and
corporate structures, not only technological applications.

Our services for ICT management encompass classic strategy and organization consulting
as well as the planning and implementation of highly complex, technological ICT
architectures and applications. We are independent of manufacturers and obligated solely to
our clients’ success.

Detecon International GmbH

Oberkasseler Str. 2
D-53227 Bonn
Phone: +49 228 700 0
E-Mail: info@detecon.com
Internet: www.detecon.com

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