What is your data is worth?

Post date: Feb 08, 2020 9:22:12 PM

Recently, I had the opportunity to help a client develop an approach to data monetization.  For many business executives and IT leaders building or advancing data capabilities is an important company initiative.  As a result, companies have increased investments in capabilities (e.g., data lakes, analytics tools) and people (e.g., data science and information technology).  I will explore how companies use proprietary data in two ways:

Approach #1: Inform business outcomes such as what products, goods, and services to offer customers

An industry-leading example is Netflix.  Netflix analyzes customer data (e.g., subscriber viewing history) to inform the production of original content.  Generating customer insights from subscribers is a crucial component of Netflix’s growth flywheel.  By accurately generating customer insights, it can invest in producing original content, leading to increased customer satisfaction, which adds new subscribers and increases subscriber retention.  As the flywheel spins, Netflix continues to grow its subscriber base and generate even more proprietary data.  This virtuous cycle has helped Netflix grow exponentially over the last decade.

Figure 1. Netflix Growth Flywheel(1)

Approach #2: Sell data to advertisers who in turn target customers for products, goods, and services

Companies who do not directly sell goods or services to customers rely on advertising revenue.  Social media companies are the industry-leading example of this model.  Social media companies gather and analyze user data (e.g., interests, locations, other information) to accurately generate user profiles to better help advertisers target products, goods, and services users may be interested in purchasing.  The number of active users and engagement is crucial to the growth flywheel.  Social networks attract users to the platform, develop products and features to increase engagement, analyze the proprietary data, then sell the derived user profiles to advertisers.

Advertisers value the ability to accurately target the right audience and the ability to convert users into customers (generate sales).  As a result, social networks focus on increasing the number of active users and engagement with the platform.  Stories, Messenger, and News Feed are examples of how social networks drive engagement.

Social media companies have increased the accuracy of user-profiles by augmenting proprietary data with ancillary data sources from other companies and partnerships.  This increases the value to advertisers who can potentially further segment and target specific audiences.  Examples of this include purchasing user data from credit card companies, other websites and offline (brick and mortar stores).

Figure 2. Social Network’s Growth Flywheel(1)

Many consumers contemplate, how much is my data worth?  Is it $10, maybe $100, or even $1000?

My valuation methodology uses publicly available information (Q3 2019), calculates each companies Enterprise Value and compares it to the number of active users on each of their platforms.  Creating a ratio EV / DaU provides a proxy value of what the markets determine each user is worth.

Below I evaluate a few industry-leading companies – Facebook, Snapchat, Twitter, and Netflix to compare the difference in value.

Figure 3. Enterprise Value to Daily active Users Ratio(2)(3)

Table 1. Enterprise Value to Daily active Users(2)(3)

My findings show a wide range of enterprise values per user across different platforms.  The variation in data worth is based on the market’s belief that each company will be able to continue to attract users, drive engagement, and accurately analyze the data to generate meaningful customer insights.

Sources: (1) SKN analysis; (2) S&P Capital IQ; (3) SEC Filings