In The Data Decade, There Should Be Data-Driven Acquisitions

Posted by Darren on Jan 6, 2010 • (Comments)

I’ve been immersing myself into the world of data for the past few years at work, reading lots of books, and speaking to many gurus.  What interests me both personally and professionally is the application of large data sets and how to use them to gain a competitive advantage over the competition.  Call it data arbitrage, if you will.

During my commute this morning while driving down the West Side Highway, I was think that if I was a big corporation, which companies would I acquire and why – purely for their data assets.  Here are a few, I’ve obviously not thought of everything, so please chime in- in the comments section.

Also, please note that solid business strategy does not mean that these need to be acquisitions, but potential strategic relationships, tactical biz dev, and partnerships.  I have them listed as acquisitions but understand that not all of them should be.

Record Labels (Warner, EMI, Sony, Universal) acquire Pandora, MOG, and Spotify

I do not think that the labels need to acquire all of the above, but at least one.  The reason?  Why not own the data that shows what listeners are listening to around the world? (Audioscrobbling)  By having these, you can do a few things for the label:  cut down on A&R spend as you can find artists easier, view music consumption trends as you can see the types of music and their intricacies that are popular, and also, help with distribution of music/tours as you can see what artists/genres of music are popular in different market and make sure that the artist visits that region or sells their merch.

Professional Sports teams acquire fantasy sports research companies (The Huddle, FF Today) and/or leagues themselves (i.e. CBS Sports Fantasy Football)

If we believe that the wisdom of the crowd is smarter than a few humans, then why wouldn’t NFL Scouts want access to college football fantasy sports data – i.e. how many “fantasy GM’s” owned certain players, their value, etc.  I’m sure there is some value in all of the data that fantasy sports generate and the professional teams can really benefit as they are paying outrageous salaries to these particular players.

A Hedge Fund Acquires Wikipedia

Wikipedia has tons of research but what is probably most interesting to me (of which I do not have access to) is which articles/topics on Wikipedia are trending.  If someone knew which were the highest read articles and which articles were trending in near-real-time, then investors can make big decisions about where they should place their bets.  If articles about South African soccer balls are trending, then maybe an acquisition/investment can be made within the country of which these queries are being made from.

How about some others?  I know I had a few others in my head but forgot them by the time I sat down to write this.

Tagged as , , , , , , , , , , , , , + Categorized as Internet & Web X.0, Startup & Venture Capital
  • eranshir
    Darren, you can see many companies being built around this premise, basically providing a free service in exchange for either passive or active data accumulation. A great recent example I saw is Waze, which provides a free turn by turn gps app where in turn the users are building the map through their driving, enabling the company to build a very valuable asset to then sell and leverage (goog is doing the same thing). At Dapper we allowed users in the last three years to build an API from any website, allowing us to build a huge semantic layer on top of the web that we monetize through superior display advertising.

    I think the most recent M&A example I heard is connected with AdMob, where Apple wanted to buy it as a defensive move, to prevent google from getting an intimate peek into the inner working of the app store, and google ending up paying a huge premium specifically for that.
  • This will be THE driving force on any social media acquisition. Your examples are good because they are the less obvious ones. Stating the obvious, Google trying to buy Yelp was data driven. Companies like Foursquare I think also have some really interesting data that is unique.

    On your fantasy sports example, perhaps it may be more interesting to go into the next level for the analysis. For example. rather than just looking at ownership %, look to see if auction values or draft position successes have any patterns. "Hey, a high % of people that pay between $10 and $20 in the first half of an auction for an AL 3B that is in his second year after having an OPS+ over over 100 end up making a great buy". Maybe that would just be fun, rather than useful.
  • Darren - I agree with your underlying premise that many companies undervalue their data assets and these could be prize jewels in the right hands.

    To that end, the music deals you propose make a lot of sense. I'd add Last.fm to the list as I think that CBS would be happy to flip it at the right price.Services like Last.fm and Pandora could be hugely valuable as data troves.
    The one worry that I'd have is whether they would lose some of their credibility if owned by the music labels. The value in Pandora or Last.fm is to drive awareness of relevant music. I'd want to see a Chinese Wall established before trusting that a label wouldn't try to tweak the recommendations ("Pandora Payola"?) to drive sales of their products.
    In terms of Spotify, I think it would be hard for any one label to own it (would make it very hard to get the other labels to participate) but I think there could be a huge business licensing the spotify data back to the labels.

    The other two are a bit more of a reach IMO.
    I am an avid sports fan and think this is one area where the wisdom of crowds often falls victim to hype. Plus, I think much of the data is already accessible (you can see which players are being added or dropped or traded on platforms like Sportsline already)

    Wikipedia is another case where credibility is hugely important. Part of what makes the Wikipedia model work is its status as a nonprofit for the public good. Ownership by a hedge fund (especially if it were perceived that the hedge fund were leveraging that data) would generate huge animosity among the volunteer editors IMO. While I think the traffic trends on Wikipedia are interesting, I'm not sure they are more credible than Google traffic data. In fact, I'd argue that Google is more accurate, as it's a greater indicator of consumer interest.

    I'm a big believer in data driven businesses. And I think that many data businesses miss a huge opportunity to license their data (and metadata).
  • Thanks for stopping bye and commenting. As you rightly point out, there is the chance (big or small) of losing credibility when you own the asset you are deriving the data from, but this was meant to be a fun blog post that put some interesting topics together.

    Any ones you want to contribute?
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