Warren Buffet, arguably the most famous investor, coined the term ‘economic moat’ to describe the ability to gain a durable competitive advantage that ensures long-term profitability. Specialized data assets can also serve as a differentiating core competency, creating such a moat.

In today’s data-driven world, data has become one of the most important assets a company owns. Although often referred to as such, data is not the new ‘oil’, but rather the new ‘water’ that is elemental to life in general, and here specifically to sustainable business success. Just like water, data must be accessible and clean and is needed to survive economically as data can be the source for differentiation. Among the different types of data, proprietary data can represent high business value. It can serve as a unique selling proposition, help innovate and launch new offerings, and also create a firewall against competitors.

To leverage data as an asset class in its own right, an effective data foundation must be created. In most digital transformations that we accompany at bluegain, the need for a single source of truth for the organization becomes clear early on in the program. It enables both new digital initiatives and projects that were thought to be almost lost, such as a CRM without ‘correct’ sales data, to finally cross the finish line. With the accelerated emergence of new capabilities, like generative AI, a data foundation serves not only as a basis for improving today’s business, but also for securing the future. For example, AI can help add value at specific touchpoints along the customer journey in an omnichannel environment. It can be built on different architectural concepts with their specific advantages and disadvantages: Given the exponential growth of unstructured data, data foundations are clearly moving from data warehouses to data lakes and lake houses, or even taking the form of data meshes for advanced use cases where the value outweighs the high governance overhead. Companies that have chosen to base parts of their data foundation on open source do not have to sacrifice the benefits of proprietary data. While open source, exposes what kind of data is being created, the actual information that the data contains is not accessible. Proprietary data created and used in an open source technology stack is just as valuable and company-specific as the data created by proprietary software. As long as the open source software is compatible and interoperable with your proprietary tech stack, the two parts work hand in hand to create value.

From a Warren Buffet perspective, what is the value of data in building a moat? In our increasingly tech-intensive and also asset-light world, the barriers to imitating competitive advantage are getting lower. This is in stark contrast to the 2000s and 2010s, which were dominated by asset-intensive industries. Back then, the chances of a competitor coming out of nowhere and copying your business model were slim, given the significant investment required. Today, it is just the opposite. Thus, the need to create digitally-enabled competitive advantages is obvious. In this sense, data, and especially proprietary data can help make a company unique. Proprietary data, just like corporate culture or an innovative product, can help in building a unique selling proposition. It includes all the information, insights and knowledge that a company collects and generates in the course of doing business, that no one else has in this domain. This can include proprietary customer data, product data, internal reports, market-specific research, and anything else that is unique to the company. Netflix used their monumental treasure trove of user data in its recommendation engine to distil the magic formula for successful movies and series, leading to Netflix Originals, which could be interpreted as its own digital ‘Hollywood studio’ and freeing Netflix from dependence on third-party content providers.

The uses for proprietary data are as varied as the data itself but the real power of this asset class is that the ‘golden nuggets’ do not lose their value and can help scale a differentiating process to create vast edge. By enriching your proprietary technology stack with data, you can deliver greater value to your customers through an improved business solution. Over time, your data collection expands as you convince more and more customers, hence further widening your proprietary data moat and making it even harder for competitors to pick up the slack. In other words, proprietary data is not only a differentiating asset class, but can also be used to exponentially increase competitive advantage. Amazon has perfected exactly that and refers to it as ‘economic flywheel’ approach by relentlessly focusing on the customer experience, lowering prices and expanding its product and service offerings AND collecting data, which results in a self-reinforcing cycle that drives the company’s growth. In fact, proprietary data can make your company’s flywheel spin faster and more smoothly.

And so, the power of proprietary data lies not only in its possession, but in its strategic application to create a sustainable competitive advantage. As Jeff Bezos said, ‘What’s dangerous is not to evolve.’ In the context of proprietary data, this means continuously adapting and innovating based on the insights derived from this unique asset. Proprietary data is the key to building a robust ‘economic moat’ in today’s digital age.

/ ABOUT THE AUTHORS

• Lukas Richter is a Project Manager at bluegain, previously led the group-wide digital maturity assessment at Salzburger Aluminium Group in Austria and worked as a member of the Digital Transformation Office at Saab AB in Sweden. He is certified as Project Manager (Duke University, KornFerry Digital), holds a Master in Business Development & Internationalization from Umeå University/ Sweden and a Bachelor in Business Administration from Technical University Freiberg/ Germany
• Dr. Carsten Linz is the CEO of bluegain. Formerly Group Digital Officer at BASF and Business Development Officer at SAP, he is known for building €100 million businesses and leading large-scale transformations affecting 60,000+ employees. He is represented on boards including Shareability’s Technology & Innovation Committee and Social Impact. A member of the World Economic Forum’s Expert Network, Dr. Linz is also a published author who shares his expertise as an educator in executive programs at top business schools.