The value chain for information

Lately, I’ve been doing a lot of thinking about the value chain of information, based on the Porter model of doing a value chain analysis . Given there is an undeniable trend to an knowledge-based economy (that is, if we’re not already there!), it seems pretty valuable that we should at least understand the different facets in the value chain to better understand the information sector.

Below are some thoughts about what I think are the broad aspects of the value system, with some commentary under each to help you understand my thinking. I’ve used common social computing sites to help illustrates the concepts, as everyone can relate to them. Also my definitions for data, information, and knowledge .

value chain is sweet
The value chain
1) Data collection
– value is in the storage
Competitive advantage: who offers the consumers the lowest price for the most storage. You should not just consider this in terms of cost in hosting but also about whether is costs the user their rights to control over some of their data.
Example: MySpace is where you store all your demographic data; SmugMug is where you store all your photos (which I consider data)

2) Data processing
– value is in the ability to manipulate the data
Competitive advantage: The infrastructure to process vasts amount of data at the highest output with the lowest cost
Example: Facebook calculates how many friends you have. The raw computing power to calculate the information requires substantial computing power, which is why Friendster fell when it captured the imagination of the industry as the first major social networking site.

3) Information generation
– Value is in the type and diversity of information. The connection of data (objects) is what generates information. Requires unique ability to understand what data inputs to pull.
Competitive advantage: Ability to access the most data (ie, relationships with the data storage components in the chain), and be able to creatively apply the data in a unique way.
Example: LinkedIn allows me to know that I am two degrees separated from a certain individual. The ability for LinkedIn to do that is a combination of what data they can use as well as the ability to process it. Essentially, the creativity of the company’s management to determine the feature’s value and the relationships with storage vendors or methods of using their own storage. In a DataPortability enabled world, it’s not so much how much data you can store of a user – but how much you can access from the storage vendors ie, relationships with these vendors.

4) Knowledge application
– value is in the application of information
Competitive advantage is on the application of information in a unique way that has not been done before
Example: A network analysis of my social graph. So if a social networking sites can tell me that 48% of my friends are male; and another piece of information that 98% of them are heterosexual; then therefore it is likely I am a straight male. The ability to derive insight, despite the multiple piece of information available, is filtered by those with the unique ability to recognise application of information in certain ways. The determination that I am straight is inference, which is a higher order type value as opposed to just information (which is grounded in hard data and more based on fact).

Implications of the value chain
It is important to note, and why it will be difficult for you to conceptualise the above, is that the Internet industry which is the backbone of the Information Sector of the economy, is still relatively immature. Flickr for example does most of the value chain – they store my photos, they allow me to make changes to the photos and add addition data like tags; they generate information by allowing me to organise my photos into sets (hence giving more value to the photo by putting it into context). And of course, they allow for knowledge application through their community – people passing by, leaving comments, is quite a unique thing that is unique to Flickr.

By better understanding the value chain, hopefully we can also realise that business can thrive by focussing on specific areas and it may not be in their interest to be in all areas. For example, the notion that locking up a person’s user data as being a competitive advantage is silly, if you can offer value through knowledge application.

To put the above in context, MySpace’s recent data availability announcement is a step into the direction of DataPortability (something that will take until the end of this year to finalise at minimum), but whilst Google and Facebook race to offer similar services to ‘lock’ their data, they are in fact missing the point. The value of MySpace for example is the community, and they get value in accessing data and information from as many diverse places as possible to apply that in a unique way. Because they think locking in the data is what determines their business strategy, it forces them to compete in the data storage market – and that is something I would not want to be in given the ability for it to be commoditised, and the massive compliance demands with government and user expectations with their rights. As highlighted by Nitin , data redundancy is a big issue so battling in the storage market puts you at risk if you are solely relying on it as your source for information and knowledge.

As always, I write my blog posts to extend on my thoughts. I’d love feedback and people to challenge the assumptions I’ve made, because I think this can be a very valuable tool in how we view businesses on the web.

Update 1 June 2008: Tim Bull made a video of this posting, which does a better job explaining the concepts presented above

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