Why is data such a hard sell?
I have been in the information services business since 2001 and am a confirmed data geek. I love to find ways to help businesses, people, and organizations have access to big sets of data that helps them do what they do faster, better, and cheaper. I sincerely believe that open access to information is the best path to a level playing field in the market -- if everyone has the same information, then everyone has a fair chance to win.
So, if I am right about the virtues of data, why is it so damned hard to sell? Almost every information services business spends 25% or more of its budget on sales and account management, with some as high as 50%, sales cycles are long, clients often don't use the data they pay for, and it seems that every year the data provider has to remind the customer why they are better off for being a subscriber.
I've been in the trenches with four businesses and worked as an internal consultant with many others, and I think I have finally learned why data is such a tough sell:
- Data is valuable, but that value is really hard to explain. With the possible exception of financial services, almost no industry instinctively understand exactly how much data is worth to them. At CMD Group, where I worked until 2015, many of our clients would complain about how much our data and related services cost when replacing our data with their own self-generated content would cost 10-20X more. Data "seems like it should be free" and we as an industry still haven't figured out how to make a clear, quantitative argument as to why it is so much more valuable than the price charged.
- Data companies sell the steak, but forget the sizzle. It's an old advertising saying, I know, but we data geeks see virtue in data completeness, timeliness, taxonomies, ontologies, term definitions, and content counts, but our clients all too often just see a really big data dump. Yawn. But, when a data company transforms the look and feel of that data with Venn diagrams, interactive charts, trend analyses, and the like, the perceived value skyrockets. Alas, all too many data companies either offer nothing graphical, a dated/half-hearted tool, or create something pretty cool but want too much money for it (see point #1). Clients never hear the sizzle and never get excited about what they are buying, despite the provider's exquisitely written editorial policy.
- Data companies are strategically bipolar. The data business seems to fall into two strategic camps: (1) big "near-monopolies" that have such strong market share they really don't need to compete, and (2) smaller companies with relatively low barriers to entry that beat the stuffing out of each other so much that no one really makes any money. I have always felt that the data business and the airline industry have all-too-much in common: high fixed costs, difficult differentiation, and intense price competition. If there are a bunch of airlines or data companies in a market, let the price war ensue. On the other hand, if the business is a near-monopoly and charges a big price premium, like an airline that has the only flights into an airport, it loses its "edge," slows innovation (after all, what new idea could possibly beat the margins of the near-monopoly business?), and the customers only begrudgingly stay around. Neither strategic position makes data an easy sale. Either it's a price war or a constant smoothing-over of indifferent-to-disgruntled customers who must be plied with wining and dining to keep them from leaving.
So how should data companies get out of this jam?
I have no simple solution, but I think the entire industry needs to shift away from trying to gain leverage from operating scale or market consolidation and focus more on differentiation and truly engaging their customers. The data has value, so we need to find ways to make that value accessible, approachable, and manifestly clear to everyone who pays us for all those data bits and passwords.
More on that later...
HI, Steve Ritchie, really enjoy reading your blog about data. We are in the process of transforming our platform and marketing our big NGO database. Would be great we can connect, if you are interested in the work we do....
Good stuff Steve!
Steve, great post and good insights. I just thought I’d add some observations that come from many years in the wonderful world of data. My take is that data is a hard sell primarily when there is a mismatch between the data product and its target market. For example, I worked with a client that was so in love with its data they were spending a fortune building out a dataset that was way beyond what the market wanted, and couldn’t understand why nobody would pay premium prices for it. The situation is even worse with the front-ends some publishers put on their databases, stuck as they are in the belief that more features will allow them to charge higher prices – whether or not all those new features add much value. The end result is a highly complex product that’s priced above what the market really wants to pay. On another front, public domain data creates a race to the bottom, as everyone and his brother jumps on this opportunity, creates an app, and tries to build a business by underpricing everyone else. I couldn’t agree more about sizzle. Even today, there are still data publishers selling their data as Excel spreadsheets and wondering why they can’t get more for all their quality information! Data is increasingly being fused with sophisticated front-end software, and that’ the way to bring data alive and extract maximum pricing for it. The most successful data publishers invariably have more programmers than editorial staff these days. As to the bipolar nature of the data business, I think I’d argue that there is a growing amount of activity between those two extremes. Yes, there are a lot of data companies selling commoditized data (usually because they are massaging and re-purposing public domain data), and pricing is cutthroat and profits are slim. And as you note, there are the well-fed and complacent monopolies on the other extreme. But I work with an awful lot of companies in the middle. They are characterized by some amount of proprietary content, solid user interfaces that are designed around actual user needs, and aggressive but still reasonable price points. Most of these companies are quietly minting money, and enjoying 90%+ renewal rates. It’s not the majority of the industry to be sure, but it illustrates a clear path forward while highlighting the promise of the data industry.
Spot on, Steve. These are lessons that apply to most tech oriented sales/purchases. Like medicine and insurance, no one wants data or wants to pay for it until they need it...and then they want it RIGHT NOW.
My experience echoes yours in terms of the challenges around selling information services. In part I think it's something to do with the fact that the budget holders/ decision makers are often not the intended end user. This often means that sales people in this space have to be exceptional and patient because of the long sales cycles and the need to be able to educate two different groups of people and present two sides of a value proposition. They also have to work pretty hard to get the users actively using the product to even have a shot at a sale - especially where a trial period is offered to demonstrate its value. Selling a nice-to-have product is particularly tough. I guess the key is to build something that is must-have!