An Account Manager recently asked me what the value of user data is. He’s been having a bunch of conversations with carriers around the topic lately. One of my first thoughts was simply to look at Facebook’s revenue and divide by the number of its users. This should be a simple and clear, albeit rough, metric for the value of user data. To Facebook, anyway.
I tried to think of the best examples out there of companies whose business models are entirely (or almost entirely) based on user data. The first two that come to mind are Facebook and Twitter. But there’s gotta be more. . . maybe you can think of others? I had thought of LinkedIn too but I discarded it when I discovered that premium subscriptions comprise about half of its revenue. I want to generate the most “clean” numbers as I possibly can for the potential value of user data only, not services that people are willing to pay for.
The revenue of Facebook and Twitter is almost entirely derived from advertising. Advertisers pay because these companies provide not only large user bases, but also rich data about those users. And what really interests advertisers is that the user data allows them to segment audiences and optimize their target marketing and spend. Ask any advertiser – they really love Facebook, although they’d probably like to see some competition. Check out Facebook’s most recent quarterly results to see just how much advertisers love them. . .
The large majority of Google’s revenue is also from advertising, but I excluded them too. Partly, in the interest of time and partly because “paid search,” which represents the big chunk of Google revenue, monetizes “user data” in a different way from what I’m trying to explore. But again, this is back of the envelope stuff here so I’d be happy to hear your thoughts.
I created the chart below from company reports, which plots revenue per user for Facebook and Twitter. “MAU” = monthly active users, while “DAU” = daily active users. The first thing you notice is the upward slopes. No surprise there: Facebook and Twitter are getting more clever about big data and squeezing more revenue from each user every day. Next, I noticed the notch in Q4 of each year. Again, no big surprise: yet another business affected by end of year holiday seasonality.
So, what’s the value of user data? For Twitter it’s $1.92 per MAU for 1Q16 (Twitter does not report the number of daily active users). For Facebook it’s $4.94 per DAU or $3.26 per MAU. So, between $1-$2 per user per month. Small by the standard of my monthly wireless phone bill, but it is growing quickly.
There are plenty of interesting discussions to be had here. In one sense Facebook has much richer data about its user base than a network service provider does and therefore better monetization opportunities. Facebook knows who your friends are and what your interests are. They even know what you look like – I’m not sure why that would matter, but if there’s a way to monetize your appearance I’m confident that Facebook will figure it out. On the other hand, telcos know your address, maybe your location, and what websites you visit. They also know your credit card number, and while they wouldn’t sell that information the billing relationship and customer support infrastructure are extremely valuable assets. Surely there is substantial value in this user data that telcos have yet to capture.
I’m looking forward to creating this chart again next year to get a better idea of exactly where the limits are for the value of user data.