Models Will Run the World

Steven A. Cohen and Matthew W. Granade, Models Will Run the World, Wall Street Journal, Aug. 19, 2018  

Tencent, the Chinese social-media giant and maker of WeChat , is one of our favorite examples of this new business model. A Tencent executive told us last fall: “We are the only company that has customer data across social media, payments, gaming, messaging, media, and music, and we have this information on [several hundred] million people. Our strategy is to put this data in the hands of several thousand data scientists, who can use it to make our products better and to better target advertising on our platform.” That unique data set powers a model factory that constantly improves user experience and increases profitability—attracting more users, further improving the models and profitability. That’s a model-driven business....

The implications of the rise of model-driven businesses are vast. From a business perspective, we see five key points: 

First, businesses will increasingly be valued based on the completeness, not just the quantity, of data they create.... 

Second, the goal is a flywheel, or virtuous circle. Tencent, Amazon and Netflix all demonstrate this characteristic: Models improve products, products get used more, this new data improves the product even more. This creates a near-frictionless process of continuous improvement, fueling itself, rather than being driven by human judgments and advancements.... 

Third, incumbents will be more potent competitors in this battle relative to their role in the battles of the software era.... 

Fourth, just as companies have built deep organizational capabilities to manage technology, people, and capital, the same will now happen for models.... 

Fifth, companies will face new ethical and compliance challenges....