Data, network effects, and competitive advantage
Many executives and investors assume that it’s possible to create a strong competitive position based on the ability to collect and analyze customer data. More often than not, this assumption is wrong and it can cause people to seriously overestimate the competitive advantage that data confers. While the virtuous cycles generated by “data-enabled learning” may look superficially similar to those generated by regular network effects, in practice the latter tend to be stronger and last longer. Andrei Hagiu of Boston University discusses the conditions under which customer-generated data can build a defensible competitive position, both when network effects are present and when they are not.
Andrei is a visiting associate professor of technological innovation, entrepreneurship, and strategic management at the MIT Sloan School of Management.
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