What’s the Cost of No Data Marketplaces?

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Previously, we’ve argued that the lack of breakout successes and the repositioning of vendors like Infochimps suggests that the data marketplace opportunity is years instead of months away. If we assume, for the sake of argument, that this is plausible (Edd Dumbill is more bullish), the question is what this means. The obvious answer is the frictions that are the inevitable consequence of marketplace inefficiencies, one result of which is decreased appetites for software ranging from data management to visualization and analytics. The logic is straightforward, if data remains hard to get, consumption will experience slower growth. Slower growth and less external data, means less demand for tools to process and analyze same.

The less obvious risk, however, may be content monopolies. While these are relatively uncommon at present, they represent an obvious barrier to entry to would be content oriented businesses. Content licensing for IBM’s work around Watson in the healthcare space was inefficient, for example, because the lack of wider marketplace valuations made each negotiation a one off. But as IBM demonstrates with its continued push into the space, the costs and effort are acceptable relative to the size of the opportunity. If IBM were to explore opportunities for Watson in the legal industry, on the other hand, the costs would likely be prohibitive. Unlike other industries, control of content in the legal vertical is largely consolidated in the hands of two players, LexisNexis and Westlaw. This control has allowed them to keep licensing costs for their product, and thereby margins, high. Bloomberg is attempting to compete as a lower cost offering at $450 per seat cost per month. And even Bloomberg, with its business and technical acumen, has an uncertain competitive path ahead of it. Superior technology or no, its access to content will be asymmetrical, limited by the exclusive licensing agreements enjoyed by LexisNexis and Westlaw.

It may be that would be content monopolists in other sectors find market sentiment a significant impediment to their efforts to consolidate control. Reed Elsevier – the parent company of LexisNexis – is facing a boycott of better than 8400 researchers for its business practices relating to scientific journal subscriptions. But the economic incentives are high enough that speculators, at least, are likely to try and anticipate some of the content areas that will be in demand. From real estate to science, data will be at a premium. And without efficient markets to smooth distribution, it is probable not only that overall costs will be higher, but that certain areas will look a lot like legal: sufficiently costly so as to make data oriented businesses and greater competition impractical.

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