CompetitionCompetitive advantageData act, what impact on value creation?

The Commission proposed new rules on who can use and access data generated in the EU. Jointly, these new rules are expected to create €270 billion of additional GDP by 2028. Which are the main value creation opportunities ? Where the future battles for value capture will take place? How to prepare?

Data act main measures

As stated by the commission, the proposal for the Data Act includes:

  • Measures to allow users of connected devices to gain access to data generated by them, which is often exclusively harvested by manufacturers; and to share such data with third parties to provide aftermarket or other data-driven innovative services. It maintains incentives for manufacturers to continue investing in high-quality data generation, by covering their transfer-related costs and excluding use of shared data in direct competition with their product.
  • Measures to rebalance negotiation power for SMEs by preventing abuse of contractual imbalances in data sharing contracts. The Data Act will shield them from unfair contractual terms imposed by a party with a significantly stronger bargaining position. The Commission will also develop model contractual terms in order to help such companies to draft and negotiate fair data-sharing contracts.
  • Means for public sector bodies to access and use data held by the private sector that is necessary for exceptional circumstances, particularly in case of a public emergency, such as floods and wildfires, or to implement a legal mandate if data are not otherwise available. Data insights are needed to respond quickly and securely, while minimising the burden on businesses.
  • New rules allowing customers to effectively switch between different cloud data-processing services providers and putting in place safeguards against unlawful data transfer.

Impacts on Datanomics

At first, we can sketch out what could be the impact of this regulation on each of the three forms of value: data as a commodity when they are traded, data as a lever when they are used either to reduce costs of operations or increase revenue ; and data as an asset when they are used to increase bargaining power within an industry or a value chain.

  • Data as a commodity: a bigger data market. As users will be able to access and give access to the data generated by their devices, the opportunities for monetizing data are likely to increase. The example of smartphone geolocation data market is particularly striking.
  • Data as a lever: more opportunities to improve performance, more competition on digital services. As more data will be accessible, corporations will have new opportunities to leverage them, wether on cost reduction or revenue increase. However, the companies which used proprietary data (for example data produced by connected equipment) to develop differentiating digital services, will see their lock-in reduced as clients will be able to transfer the data to other providers.
  • Data as an asset: reduced exclusivity. With portability of data, users may transfer their data to other providers, which reduces the exclusivity of the data for the company.

We can also analyse what could be the possible consequences on value distribution between competitors or partners in value chains:

  • Services: less lock-in and more competition. The owner of a “smart” washing machine, for instance, would be free to choose how the information it throws off is used, letting them pick a different company to monitor and repair the device than the one they bought it from.
  • Ecosystems: more opportunities for aggregators and platforms. As devices data are more easily transfered, the value proposition of agregation is likely to be attractive. A plant manager may use an agregator to visualize the data of its suppliers of the same products (eg: heavy trucks, planes, …).
  • Data value chain: more value captured in platforms and services (compared with devices and connectivity).  This trend is already at place and with data more easily available, it’s likely to accelerate.
  • Thougher business environment for US companies in Europe: The act’s requirements for companies to protect data from foreign government surveillance could make life harder for US tech companies, even if they store and process all the data of their European customers in Europe.
  • More competition on cloud storage and computing: the act makes it easier for customers to switch between different cloud data-processing services providers.

Questions and strategic choices

This regulation is reinforcing trends already taking place: transfer of value at the dowstream part of the value chain, growth of platforms, increase of data market.

It’s also opening for new ones mainly through portability of data which could act as a game changer. However, we already heard the story of portability as a driver of competition. It was one component of the GDPR enforced in 2018. A few years later we can see that this possibility of transfering the data to other services has not produced any significant effect. Very few, if any, users asked their personnal data from Facebook to upload them in another social network. Will the situation be different for industrial data?

Beyond this uncertainty, the regulation opens two sets of questions for companies manufacturing connected products:

  • make-or-buy decisions regarding data generation, data storage and analysis. With more data being traded, the technical and human capabilities all along the value chain are more critical than they already are. How far should the company develop their proprietary infrastructure and solution and which part of the value chain should be managed by suppliers or partners?
  • decisions on how to play the platform game. If more data is exchanged and value for aggregation increases, platform will emerge. Should one product manufacturer take the lead and establishes as the industry platform for data of all competing products? How is feasible this move in a very competitive environment? If an independent platform emerges, how to strike a favorable balance with it?

There is still a long way for this regulation to be enforced and we need to be cautious about the feasability of data portability. However, this regulations surfes on pre-existing trends which are already taking place. Future will tell how significant the impact will be and how fast the changes will take place.

Photo by Guillaume Périgois on Unsplash

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