11 May 2023

Data is an asset on your balance sheet

Written byJons Janssens

This article is the second of four that are published in partnership with the M&A Community and are featured in Dutch on their site. As a service we also provide the English version for you, here. 

Data is an asset that determines the growth potential and value of a company.

How well a company manages data partly determines its value. Data is the new black gold, an asset that determines whether management can steer the company, whether operations function effectively, and what the growth potential is. How well a company handles data also contributes to its value.

Privacy concerns have significantly increased recently. Customers are becoming more aware that if something is "free," they themselves are the actual product. Nevertheless, they don't mind organizations collecting and managing data as long as it is handled appropriately. Selling data is often a line that should not be crossed. Additionally, customers expect something valuable in return for their data.

Spotify is a good example of this. The company knows a lot about us. It naturally knows our music preferences, but through the podcasts we listen to, it also knows our political and societal interests. Moreover, it knows how much free time we have and when we have it. In exchange for this highly privacy-sensitive information, we receive something valuable: personalized playlists and suggestions.

The same applies to online retail. With recommendations for products that suit a customer's preferences, the retailer can provide significant value. Customers don't mind data being collected and processed as long as it is done openly, honestly, and transparently, and as long as the data is not sold.

Not all data is the same. Some companies have extensive knowledge about their customers, such as their purchase history, items on their wishlists, email addresses, and website or app behavior. This information can be stored within the company's own environment; it is first-party data. At the same time, there are also companies that rely on large tech companies.

Consider a company that heavily relies on Meta. It advertises on Facebook and Instagram, and a significant portion of its purchases occur on those platforms. In this case, the company has limited first-party data and relies primarily on third-party data. This is a vulnerable position. Therefore, it's not just about the amount of data and how it's utilized but also about who owns the data and where it comes from.

If we compare a company that outsources a lot with a competitor that knows exactly who the customer is, what they do, and their purchasing intentions, we can easily determine which of the two will be more valuable. This holds especially true when we look five or ten years into the future. The increasing awareness of privacy contributes to this trend.

Can we measure data quality and data strategy? To a large extent, yes. We can quantify how rich a company's customer profiles are. We can also assess whether the data profiles are created in the right way.

Data itself and the software generating this data are two separate matters. The latter ultimately depends on the quality of digital processes and the technology stack. Additionally, there must be a data strategy in place.

What is certain is that data partly determines the growth potential. It is a critical factor at the strategic level.

This Article was written by Jons Janssens, Co-founder of Conway & Co. Feel free to connect to him here.

You will find the Dutch version of this article at M&A here.

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