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Can Big Data Protect a Firm from Competition?

February 25, 2016

New research by Anja Lambrecht and Catherine E. Tucker raises a provocative question: with all the petabytes of data now collected and viewed, are businesses more competitive?

The answer is the key point of a new research report and a research brief published by the MIT IDE. As the authors note, there is plenty of hype around big data and its potential, but does it offer only operational advantages or can it provide sustainable competitive business advantage? One way to address this in a meaningful way, they say, is to look at big data using a classic framework called the ‘resource-based view of the firm.’ The framework sets four criteria that need to be met for big data to provide competitive edge: it has to be inimitable, rare, valuable and non-substitutable.

Perhaps surprisingly, the research suggests that big data does not meet these criteria: It is not inimitable or rare; substitutes exist, and by itself, big data is unlikely to be valuable. In fact, there are many alternative sources of data available reflecting the extent to which customers leave multiple digital footprints on the Internet.

Additionally, the digital economy offers many examples — such as Airbnb, Uber and Tinder — where a simple insight into customer needs allowed a startup to enter into markets where incumbents already had access to big data, according to the research. Many successful companies end up amassing big data, but big data collection itself won’t automatically lead to success.

These finding don’t mean that firms cannot derive any benefits from owning and evaluating big data, Lambrecht and Tucker conclude. It does imply, however, that “the simple act of amassing big data does not confer a long-term competitive advantage.” To achieve this higher-level value, firms need to develop complementary organizational skills and attract employees who can give meaning to the data. Secondly, “firms need to use big data to understand evolving customer needs, rather than merely using historic data to make incremental improvements to current product offerings or services.”

In other words, businesses need to institute the right big data skills and business strategy to build sustainable competitive advantage in new, data-rich environments. The focus must be “on developing tools and organizational competence that lets them use big data to provide consumer value in previously impossible ways.”

Read the MIT IDE research brief here; the full research report can be found here.

Catherine Tucker is the Sloan Distinguished Professor of Management Science and Professor of Marketing at MIT Sloan. She is also Chair of the MIT Sloan PhD Program. Her research interests lie in how technology allows firms to use digital data to improve their operations and marketing, and in the challenges this poses for regulations designed to promote innovation. She has particular expertise in online advertising, digital health, social media, and electronic privacy. Generally, most of her research lies in the interface between marketing, economics, and law.

Anja Lambrecht is Assistant Professor of Marketing at the London Business School. Her research focuses on the different aspects of pricing strategy; the adoption of services and technologies; and online advertising and electronic markets.