Data Egalitarianism

Feb 01, 2009

Following on from my recent post about the economics of VRM, particularly as it applies to small and large enterprises, I’d like to sketch out some more examples of how I think that this could apply.

The key point in my previous post was this:

What VRM offers is a different means of using data to drive a business, where you ‘rent’ the data from its owners - the customers - rather than 'buying’ the data through mining. Just like renting, you don’t have to worry about the asset depreciating in value because you’ve failed to maintain it - in a VRM scenario, you get automatic updates to the personal data of your customers so long as they continue to consent. The costs of acquisition are negligible; it might be necessary to offer some incentive to customers to provide their data, but this can be in the form of discounts or other benefits which only apply when you’re generating cashflow in the first place. And as the quality of data improves, the need for overwhelming quantities of data is mitigated.

In other words, VRM might make it effective for small, local businesses to have access to data of just as high a quality as that available to multinationals. Consider any local, independent shop - a greengrocer, for example. Let us imagine that this greengrocer has access to the VRM data of a reasonable cross-section of the local community; this needn’t be more than a few hundred people. In return for providing (suitably anonymised) data about their shopping habits, these customers receive a small discount when shopping at the store in future. The data gleaned might be enough to alert the greengrocer to market opportunities which they could not have known about in any other way - for example, a local demand for health foods or organic produce. From studying what customers are buying when they shop at local supermarkets, the greengrocer can begin to compete with them. Customers, too, begin to get more of what they want. It’s not too hard to imagine such a system being used by a wide variety of local, independent shops.

What this represents is a shift away from the present situation, where the only businesses that can adapt effectively to our shopping patterns are those that can afford the massive data mining operations necessary to divine our habits, to a situation where that data is available (with consent as a requirement) to anyone who can make good use of it. One of the major competitive advantages of size - the ability to afford data mining - would disappear, shifting the balance in favour of the local independent suppliers. In the title of this post I have termed this 'data egalitarianism’, meaning that all parties can have equal access to our data should we deign to share it with them.

This approach is also very scalable. 'Scalability’ is a term often used by IT people to mean an approach which copes well with an expansion in its scope or intensity - for example, web server software is considered to be 'scalable’ if doubling the number of physical servers also doubles the capacity of the site. At present, monitoring what your customers want is possible for micro-businesses because there tends to be personal contact between the people running the business and their primary customers. And at the high end, large corporations have sophisticated data mining operations designed to replicate the kind of knowledge about customer desires that personal contact would yield - the personal contact approach is not scalable. Mid-tier businesses suffer because they lack the personal contact of the micro-business and the data mining of the large enterprise. VRM addresses this because it works just as well at any level.

A store with a single outlet might have, perhaps, less than a hundred customers feeding in VRM data. But when another outlet opens, they might gain another hundred. The costs - in terms of either direct payments or discounts to these customers - do go up, but only in line with the size of the business. There’s no point at which the business has to leap to the massive expense of data mining. This means that our small independent greengrocer might be able to expand, opening up a few more outlets in neighbouring towns, without incurring any disproportionate costs in gathering data about what these new customers might want to buy.