Many executives and investors assume that it’s possible to use customer-data capabilities to gain an unbeatable competitive edge. The more customers you have, the more data you can gather, and that data, when analyzed with machine-learning tools, allows you to offer a better product that attracts more customers. You can then collect even more data and eventually marginalize your competitors in the same way that businesses with sizable network effects do. Or so the thinking goes. More often than not, this assumption is wrong. In most instances people grossly overestimate the advantage that data confers. en Data Creates Competitive Advantage.

The virtuous cycles generated by data-enabled learning may look similar to those of regular network effects, wherein an offering—like a social media platform—becomes more valuable as more people use it and ultimately garners a critical mass of users that shuts out competitors. But in practice regular network effects last longer and tend to be more powerful. To establish the strongest competitive position, you need them and data-enabled learning. However, few companies are able to develop both. Nevertheless under the right conditions customer-generated data can help you build competitive defenses, even if network effects aren’t present. In this article we’ll walk you through what those conditions are and explain how to evaluate whether they apply to your business. Read More