Give Away Your Digital Services: Leveraging Big Data to Capture Value

The term "freeconomics" was invented to describe the point at which the spread of nuclear energy would make electricity "too cheap to meter" (Anderson 2007). We have yet to reach that point in the energy industry, but a similar scenario is not far from reality in other industries. As Moore's law (Moore 1965) reduces the cost of processing power, storage, bandwidth, and the other technologies that have enabled the digital revolution, computing power, and the services supported by it, is rapidly becoming "too cheap to meter," making it possible for some businesses to offer digital services for free and harvest value in other ways. Facebook, for instance, had more than 1.7 billion monthly active users in September 2016 (Statista 2016a), none of whom paid anything to enjoy its services. Facebook makes money by allowing businesses access to users' newsfeeds, through advertising and business pages. Google and all its services, from the search engine to Street View, from Translator to Google Scholar, operate in the same way- advertisers pay the cost of making those services available to users.These companies leverage an old business model, dating from the beginnings of the modern newspaper industry: advertising. The advertising-based model is a specific type of two-sided market approach in which free (or almost free) services draw large numbers of consumers, who then become targets for the advertisers that pay for access to those consumers. "Selling visitors' eyeballs" (McGrath 2010) is still one of the most popular value-capture mechanisms in the world of digital services and the main revenue-generation mechanism for the digital giants.As this approach has proliferated across the Internet and app spheres, customers have come to expect digital services to be free-even those they might pay for in the physical world. For instance, TomTom and Garmin, both manufacturers of popular GPS units, attempted to sell navigation apps for smartphones-and were shut out of the market by free navigation services like Google Maps and Waze (Buganza et al. 2015). New models have been proposed to escape this digital service ¼free equation, such as freemium models, which mix free basic services with paid premium ones (McGrath 2010; Shapiro and Varian 1999; Teece 2010); in-app purchase models, which give the basic app away but offer users opportunities to enrich their experience with it through paid add-ons (Ghose and Han 2014); and cross-selling models, in which a company offers a free service that supports a physical product, exemplified by Fitbit's companion mobile app to its fitness tracker (McGrath 2010; Matzler et al. 2013). These models offer new ways to capture value from innovations in a world dominated by "free," but none of them fit comfortably into an environment in which customers are increasingly used to not paying for what they get. Thus, the question of whether there is a sustainable way to offer digital services for free, besides advertising, remains important.One potential answer to this question lies in the considerable quantities of data that customers generate in using digital services. A number of companies have begun to explore the value of this data. For example, in 2009, Twitter started selling expanded access to its database of tweets to third parties, many of whom garner insights from it through sentiment analysis-deducing a general mood or reaction from the tweet stream (Cashmore 2009; BrightPlanet 2013). The Twitter Political Index, presented during the 2012 US presidential election, is one example of the potential for Twitter's data stream to support powerful insights (Bilton 2012). In this way, the company created a powerful revenue stream, one that accounted for almost 10 percent of revenues in the third quarter of 2015 (Twitter 2015). Google, Facebook, and many others have experimented with similar approaches, capturing economic value from the data generated by users.All of these companies operate in two-sided markets- markets in which they function as intermediaries between two sets of customers: consumers/users who access the service and advertisers or others who pay for it in exchange for some set of services (for example, advertising or access to data). …