bcg.perspectives - Seven Ways to Profit from Big Data as a Business

bcg.perspectives - Seven Ways to Profit from Big Data as a Business: "Information is multiplying inside businesses at an exponential rate, generated by sensors, social media, transactions, smartphones, and other sources. Companies increasingly want to tap into the potential of these vast, fast-moving, complex streams of data to achieve step-change improvements in performance. But executives would be wise to consider whether the information they collect could do even more than boost performance. In fact, big data can generate billions of dollars in additional revenues that can go toward fueling growth."

We call these new revenue opportunities “big data as a business.” Companies in a variety of information-rich industries are already generating entirely new revenue streams, business units, and standalone businesses out of the data they hold. Over the long term, we see strong potential for such data businesses to spread to even the most traditional industries. Our on-the-ground analysis of this nascent field reveals the many ways that companies are getting in the game, as well as the important building blocks of a profitable big-data-as-a-business strategy.

How Companies Are Seizing the Opportunity

Companies can create big-data businesses by forming partnerships, developing contractual relationships, or going it alone. (See Exhibit 1.) The majority of organizations we surveyed prefer to have control over the development of new products and services. They frequently contract with third parties to help speed development, but full-fledged partnerships or alliances are still a relatively uncommon arrangement.

Companies that commercialize big data on their own have the advantage of economies of scale, control over strategy, and much greater revenue potential. Partnerships, on the other hand, allow them to share risk and take advantage of the partner’s skills, assets, or data to create new opportunities and get to market quickly. Whichever approach they use, companies must understand the profoundly disrupting digital ecosystems—the intersecting networks of companies, individual contributors, institutions, and customers—in which they will be collaborating and competing. (See “The Age of Digital Ecosystems: Thriving in a World of Big Data,” BCG article, July 2013.)

In our work with leading companies looking to develop big data as a business, we have observed two basic starting positions: companies with a great deal of existing transactional data that they can capitalize on, and companies with valuable data but not enough of it to make the business viable. Financial and telecommunications companies have the largest amounts of existing data and are typically the most advanced in commercializing it. In our survey, 80 percent of the efforts we identified were in these industries. Often, such companies sell data to those that lack enough high-quality data of their own for analytical purposes. For example, National Australia Bank records the details of millions of electronic transactions, strips the data of information that could identify individual customers, and passes it to a joint venture that the bank set up in 2008 with the data analytics company Quantium, which sells insights from the data to third parties.

Outside of finance and telecom, companies with rich stores of data are concentrated in IT-intensive insurance and retailing. Grocery retailer Tesco has worked with its Dunnhumby business unit to build a big-data business that analyzes millions of customer transactions and sells the resulting insights about shopping behavior (but not customer-level data) to major manufacturers, including Unilever, Nestlé, and Heinz. The anonymous data can pinpoint spending habits down to the level of postal areas, identifying which groups of residents buy, for example, the most wine, chocolate, or organic food. Tesco uses the insights to offer its Clubcard holders rewards worth £500 million each year. Dunnhumby generated £53 million in profits for Tesco in 2012.

Over the longer term, companies in many other industries will get into big data as a business, including those in energy, manufacturing, health care, and consumer goods. Some leading companies in these industries are already making inroads, earning an estimated tens of millions of dollars per year from the data they generate. Often these companies partner with others to get to market quickly.

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