It’s common to say that platforms aggressively compete with incumbents on value capture in non-digital-native markets. A recent research sheds light on the process by which Big Tech companies enter regulated markets and the role data play in this entry strategy. How exactly do Big Tech use data to enter markets?
Over the last ten years, platforms have grown so big they are directly or indirectly controlling a significant chunk of the value of many markets (whether purely digital or influenced by digital). Their market valuation tops the usual suspects of major market capitalisation, they lead entirely new industries (digital advertising and cloud for example), they exert influence on nearly all consumer products markets (through their intermediation position). Recently, this influence has expanded to BtoB industries, where we see platforms and big tech companies take positions in newly-defined value chains.
A recent research concluded on a four-stage process by which platforms enter new markets, and highlighted the role data play in the process. Before this, let’s get back to data value forms and the role data plays in platform business models.
Data a critical asset in platform business model
In our book Datanomics, Simon and I described three main forms of value for data:
- Commodity when data are bought or sold, either by data brokers or corporations (for example banks or retailers).
- Lever when data are used to improve the performance of an existing business model (reducing costs or increasing revenue).
- Asset when companies use the data they collect as one side of their two-sided business model (like social networks or search engines) or when they use them to increase their bargaining power within an industry or a value chain.
We argued that the value as a commodity, though important when you consider data brokers’ revenues, is much lower compared to the value generated when data is used as a lever or even more as an asset.
In platforms, the three forms of value can be observed. In a previous post, I summarized the roles data plays in platforms’ business models and more specifically, how platforms use data to increase their advantage on incumbents, other platforms and ‘complementors’. Data is the main resource used by platforms to run their service because data are key to ensure liquidity and balance of the platforms’ two sides.
Additionally, data is a distinctive resource platforms leverage to have an edge on incumbents through the data flywheel effect (the more data, the better the service, the more usage, the more data, etc.). Lastly, data is used by platforms to enter other industries and upstream parts of the value chain.
The four stages of ‘digital colonization’
The research by Ozalp et al. describes more precisely the last role data plays in platforms, namely how data are used to enter new markets or value chain parts.
They analyse how Google, Amazon, Microsoft, Facebook and Apple entered education and healthcare markets, and they conclude on a four-stage process they name digital colonization:
- Provision of data infrastructure services to incumbents;
- Direct and indirect data capture in industry;
- Provision of data-driven insights;
- Design and commercialization of new products and services.
Big Tech companies’ entry strategy leverages the key capabilities they master (data, infrastructure, AI, cloud, etc.), and they use them as a Trojan horse to enter new markets
Additionally, they observe that Big Tech firms rarely end up directly offering the “primary service” (e.g., providing school education or becoming primary healthcare providers), however, they change the power dynamics in these industries over time by commoditizing incumbent service providers, turning them into mere complementors. Through this process, Big Tech firms control the data and become unique providers of critical, data-driven value.
The four stages are illustrated in the following graph:
Big Tech companies’ entry strategy leverages the key capabilities they master (data, infrastructure, AI, cloud, etc.), and they use them as a Trojan horse to enter new markets. They first offer their data and technological services on productivity promises for the incumbents, then as incumbents are progressively using them, the data part of the value proposition becomes more important, turning Big Tech into necessary partners which master distinctive capabilities.
This article was first published on Prof. Benyayer’s blog.
This post gives the views of its author, not the position of ESCP Business School.
License and Republishing
The Choice - Republishing rules
We publish under a Creative Commons license with the following characteristics Attribution/Sharealike.
- You may not make any changes to the articles published on our site, except for dates, locations (according to the news, if necessary), and your editorial policy. The content must be reproduced and represented by the licensee as published by The Choice, without any cuts, additions, insertions, reductions, alterations or any other modifications.If changes are planned in the text, they must be made in agreement with the author before publication.
- Please make sure to cite the authors of the articles, ideally at the beginning of your republication.
- It is mandatory to cite The Choice and include a link to its homepage or the URL of thearticle. Insertion of The Choice’s logo is highly recommended.
- The sale of our articles in a separate way, in their entirety or in extracts, is not allowed , but you can publish them on pages including advertisements.
- Please request permission before republishing any of the images or pictures contained in our articles. Some of them are not available for republishing without authorization and payment. Please check the terms available in the image caption. However, it is possible to remove images or pictures used by The Choice or replace them with your own.
- Systematic and/or complete republication of the articles and content available on The Choice is prohibited.
- Republishing The Choice articles on a site whose access is entirely available by payment or by subscription is prohibited.
- For websites where access to digital content is restricted by a paywall, republication of The Choice articles, in their entirety, must be on the open access portion of those sites.
- The Choice reserves the right to enter into separate written agreements for the republication of its articles, under the non-exclusive Creative Commons licenses and with the permission of the authors. Please contact The Choice if you are interested at contact@the-choice.org.
Individual cases
Extracts: It is recommended that after republishing the first few lines or a paragraph of an article, you indicate "The entire article is available on ESCP’s media, The Choice" with a link to the article.
Citations: Citations of articles written by authors from The Choice should include a link to the URL of the authors’ article.
Translations: Translations may be considered modifications under The Choice's Creative Commons license, therefore these are not permitted without the approval of the article's author.
Modifications: Modifications are not permitted under the Creative Commons license of The Choice. However, authors may be contacted for authorization, prior to any publication, where a modification is planned. Without express consent, The Choice is not bound by any changes made to its content when republished.
Authorized connections / copyright assignment forms: Their use is not necessary as long as the republishing rules of this article are respected.
Print: The Choice articles can be republished according to the rules mentioned above, without the need to include the view counter and links in a printed version.
If you choose this option, please send an image of the republished article to The Choice team so that the author can review it.
Podcasts and videos: Videos and podcasts whose copyrights belong to The Choice are also under a Creative Commons license. Therefore, the same republishing rules apply to them.
