Platt Perspective on Business and Technology

Building a startup for what you want it to become 33: moving past the initial startup phase 19

Posted in startups by Timothy Platt on July 10, 2018

This is my 33rd installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its Page 2 continuation, postings 186 and loosely following for Parts 1-32.)

I began discussing big data as a driver of competitive success for businesses, at least in the context of this series, in Part 28. And more specifically, I have focused on the issues of in-house developed, and third party provider sourced data that would be included and used there, since Part 31.

I offered a to-address list of topics points that are related to data sourcing in Part 31 as a core part of this discussion, that I repeat here as I continue addressing their issues, with:

1. An at least brief discussion of businesses that gather in, aggregate and organize information for other businesses, as their marketable product and in accordance with the business models of those client enterprises. (I began addressing this point in Part 31 and Part 32.)
2. The questions of where all of this business intelligence comes from, and how it would be error corrected, deduplicated, and kept up to date, as well as free from what should be avoidable risk from holding and using it.
3. And that will mean addressing the sometimes mirage of data anonymization, where the more comprehensive the range and scale of such data collected, and the more effectively it is organized for practical use, the more likely it becomes that it can be linked to individual sources that it ultimately came from, from the patterns that arise within it.

And I continue delving into Point 1 of that list here, from where I left off at the end of Part 32. To briefly recap this line of discussion, for purposes of smoother continuity of narrative, I have categorically divided all third party data gathering, organizing and bundling, and selling businesses into two general categories:

• The big players in this emerging industry, such as Google, Amazon and Facebook that tend to gather in organize and sell essentially open-ended ranges and varieties of largely individual consumer-based data, and to all types of business intelligence purchasing organizations (much of which is offered as anonymized demographic-level findings, though not all),
• And smaller niche market-oriented big data providers that tend to focus in on and specialize in meeting the needs of single target business-to-business markets.

I discussed data providers in Part 32 that specifically focus on gathering, vetting, bundling and selling retail auto and small truck sales leads to retail automotive dealerships as a working example of the second of those two categorical data provider types. And my key goal for this posting is to turn to and consider the bigger players in this field that have come to fundamentally shape, and I add drive this industry: the much fewer, much larger and more powerfully placed businesses that collectively dominate third party business intelligence providing as a business model, and both for demographics level detail and for offering individualized, personally identifiable data.

I want to very clear here, focusing for the moment on Google and Facebook in what immediately follows. I am going to discuss those two companies as they are, and as they are more commonly understood to be, at the level of their basic underlying business models and the level of what the public, by and large understands of them to be. As the evidence that underlies both views of these two businesses has been freely available for a long time now, I posit the differences observed between them: actually followed and publically assumed, are ones of interpretation and not of intentional deception. Both of these businesses are what they are, and they have in fact never sought to hide that for anyone who has really looked into them and how they generate their revenue streams. And in anticipation of further discussion to follow, this same disclaimer applies to Amazon too for when I discuss that business in the context of this series.

I will begin this narrative thread with Google. It is a large enterprise that comprises just one division of a still larger umbrella organization: Alphabet Inc.. And it was in fact the first business to have been developed that now currently resides within the Alphabet Inc. system, and it is still by far the largest, best known, and most powerfully placed entity in the overall Alphabet group. That said, it is a search engine providing social media business, with its email and other social media oriented services added onto an already powerfully placed, market dominating search engine capability. And crucially importantly for this discussion, most all of the services that it provides, and to the vast majority of its users, are provided for free to them.

True, Google also generates significant levels of incoming revenue from business customers that purchase labeled advertising space on search engine results screens, with their placement in them determined by what key search words those customer businesses have paid for, and how much they have paid for them through a bidding system. And if you look to their social media-oriented tools, they also sell licensing rights to a wide range of them for use by client businesses, for use within those businesses’ own IT systems. They also license use of search tool applications that client businesses would use, for example in their own intranets. But most of what they provide as products and services, and certainly when considered on the basis of usage levels achieved with their systems, are provided gratis to end users of their offerings.

Facebook is more of a pure play social media company that offers a communications and sharing oriented networking site that is so well known that most of its users think of the name Facebook as a basic word in their vocabulary: they see the name of that business as the name for this type of social media-oriented web site per se. And this business offers their social media services for free to any and all who would like to sign up and use their site.

All of the details just noted in the above paragraphs are true: on the face of things. Much of what I have just said there is at least crucially incomplete and certainly for Facebook, if not accompanied by some there-unstated caveats too.

While Google offers software and service as profitably marketed and sold product as a part of its basic business model, it is also at least in large part a data aggregator and organizer and a data seller, organizing and packaging and selling use of the user data that they accumulate through their free services. That is how they generate the majority of their incoming revenue. But at least to my understanding, this is at least primarily if not entirely sold for access, as anonymized data as for example when meeting the targeted marketing requirements of businesses that seek more effective advertizing placement.

Gathering, aggregating and organizing, packaging and selling user-based and user-derived data is essentially the complete real, underlying business model in place for Facebook. That at least appears to underlie essentially their entire business model, and with that only starting with their offering targeted ad placement services on their users’ Facebook pages.

What does this mean, as to the level of impact and reach that Facebook can leverage through its business offerings, and when marketing itself to its business and other organizational clients?

• As of the first quarter of 2018, Facebook claims to have some 2.19 billion “active users.” In practice that number represents the total number of open accounts in place in their system, where some individual users have more than one account (e.g. a personal one and a professional one), some accounts are open but largely if not entirely unused by the person who set them up, and some account holders have actually died and any activity showing on them is coming from others posting there, with perhaps a level of family member or similar reply activity. Nevertheless, and even with those caveats added, Facebook has steady access to what can best be considered unimaginably vast amounts of personal information and from a number of actively involved individual users that has grown so large that it represents a significant percentage of the entire human population, globally. See Number of Facebook users worldwide 2008-2018 as can be found on the Statista portal.
• All Facebook users have to agree to that company’s terms of use, in order to set up and use a personal page on the web site. And they have to agree to any changes made there if they are to continue to use this service, when and as Facebook rolls out such changes to their offerings: which it has done on a regular, ongoing basis and certainly for how it can and does use and share its site users’ data.
• More specifically, Facebook usage agreements require that all users agree that they have seen these terms of usage requirements and that they understand precisely how Facebook as a company can and does use data that they post to their web site, or that they pin to and post upon the Facebook pages of others. And these agreements also allow the company to use and to sell usage of at least some of the personally identifiable information that its member users enter into their personal profiles too, that does not show live on the site for reasons of personal privacy.
• Note, and this is crucially important here: only Facebook users who have explicitly agreed to these terms of service and data usage can view content offered through the Facebook site, and only registered users can access a Facebook screen and view its contents – and for very specific legal reasons. That type and level of access restriction imposed, drives new people to join this service. They have to join there to be able to see what their friends and family are posting and sharing there. But at least as importantly and certainly from a legally framed risk liability perspective, this policy serves to keep participation limited to those who have formally, legally agreed to Facebook’s terms of service and particularly for matters such as data usage and data sharing or sale.

Google and others in this major player business category, sell targeted online ad placement insight and access to other businesses. Google’s paid advertisement search screen placement service has in fact added a significant revenue generating capability to their search engine site. Facebook profitably offers targeted advertising services to other businesses too, where those client businesses buy access to specific marketing demographics from Facebook, as identified through analysis of user data as carried out on a massive scale on an individualized member user by member user basis. But more than that, Facebook has has been highlighted in recent news stories, also sells access to its individual users’ data and of all types too, and for use in a vast and seemingly entirely open-ended manner.

I am going to continue this narrative in a next series installment where I will, among other things at least briefly discuss Facebook’s involvement with Cambridge Analytica, and its use of their data stores. I will cite at least a brief and select set of in the news links related to how Facebook sells access to user data in general too, and as a matter of explicit intent on their part. Then I will turn to consider the third business that I promised to discuss in this narrative: Amazon and how it leverages the data that it collects through its web site as a major source of incoming revenue. Amazon is primarily an online retail business, and an online store but it also generates income from a wider range of services that includes targeted ad placement and work with partner businesses that sell through its systems, tapping into the strength of its brand name and its product inventory and its purchasing user data. Like Google, this primarily means offering access to anonymized and demographic level data and the value that can be developed from that. But in anticipation of further discussion to come, this is also were Point 3 of my above-repeated to-address list enters this narrative, and the problem of how individually anonymous, anonymized data really is and can be, in a big data context.

After delving into those issues, and the issues of Point 2 from the above list as well, I will explain why I am looking so deeply into issues that are more about business intelligence providing businesses than they are about businesses that might acquire data and processed intelligence from them. I will simply add at this point in this series, that when a business purchases access to data from a third party provider they are buying into both the strengths and the weaknesses of those providing businesses, and in ways that might not be readily apparent and certainly up-front.

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

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