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I want to argue that data gathering (in total) cannot be more valuable than selling stuff (in total), but I think that relies on a naive “pyramid” model of the

I want to argue that data gathering (in total) cannot be more valuable than selling stuff (in total), but I think that relies on a naive “pyramid” model of the economy. If I try to model this statement with actors (agents), I think it’s possible to build a set of mutually re-enforcing markets, where the value of data gathering for advertising is actually more valuable in aggregate than the “stuff” being advertised!

Closi 6y ago
Agreed, although the 'selling stuff' market is inevitably more fragmented than the 'data gathering' market, which means that the average 'data gathering' company will be more valuable than the average 'selling' company. That's not to say there aren't giants like Amazon trying to buck the trend...
hrktb 6y ago
Ads are not just data gathering, but behavior nudging as well. Directing people on what to do could be more valuable than actually selling goods, in aggregate. In particular when their actions have long term ramifications (e.g. politics)
- srtjstjsj 6y ago
  In aggregate, that's only true if the directors are directing people to do things that lead to more money being paid to the directors, which is via shopping or I guess slavery (wage cuts?).
  - hrktb 6y ago
    Regarding elections, that would be gaining, or staying in power. In other ways it could be for insurance or other intangible services that scale well but need to be perceived as somewhat valuable. Even in cases where you still use goods to capture money, you can price the goods higher through changing buyer’s perception of value. In a way ads can bring you money from thin air if they are effective enough.
- netcan 6y ago
  This is only just the beginning. Think credit scores, but lot more far reaching. EG qualifying people for jobs, school entry and such.
- stainforth 6y ago
  If that's the case, then advertisement is anti-competitive and thus must be regulated as it violates the economic theory we've all agreed upon. I thought we were told we were all independent consumers making our own choices.
netcan 6y ago
This isn't a theoretical question! There have been many large fortunes made recently. They prove the point. Facebook/Google are the obvious example. Companies that are selling stuff for money (spotify, netflix) are bending over backwards to convince investors that this is just pocket money... the real value is in data gathering and monopoly building. Read their prospectus. Netflix's recommendation algorithm narrative was the main focus of their PR for years. There's a reason for this. Why has Tesla's stock price gone insane? Investors are betting that Tesla's data gathering has given them a meaningful edge in autonomous driving. The market value of this edge is (evidently) more than the market value of all other car companies combined. Look to tech acquisitions. Why are free apps like snapchat, whatsapp and such worth billions to acquirers like facebook? Have any paid apps even come close to this market value? No, because spyware, adware and monopoly building are far, far more profitable. Note that I say "profitable" in regards to income and "valuable" in regards to company value. It's true that the economy of buying stuff is big. It just isn't as profitable and therefore not as valuable.
- thouitsme 6y ago
  I wasn't aware of their prospectus focus on this. I cannot stop thinking that "capitalism" is optimizing on surveillance. I wonder where that will lead us...
  - methodin 6y ago
    I'm almost thinking it will lead to ROI being less at the end. As they filter everyone through nice funnels ultimately they restrict reach such that "new customers" are less. Once that happens they will come back out to target "other people" not in their finely tuned categories and effectively be about where we are now. If roofers are my best customer as a hammer manufacturer and I market solely to them at some point all hammer manufacturers will come to the same conclusion and they will be fighting for the sole segment.
marcosdumay 6y ago
You need some complex and strange interactions for the customer interfacing market (there's no data gathering market, data gathering is a technique not product) to get larger than the real one in revenue, but it's trivial for it to happen on profit. I'm not sure it's even possible to discover if profits are concentrated there, the market can look exactly the same either way.
- thechao 6y ago
  Right — it's really hard to disentangle "discovery" from "object sales". You can end up with a lot of B2B "cycles" that become self-supporting. Basically, the B2B cycles of discovery fund other cycles of "discovery" and the businesses mutually support each (think discovery- and software- as-a-service).
- netcan 6y ago
  >>"* there's no data gathering market, data gathering is a technique not product) *" I would challenge this. It's is a technique in the sense that manufacturing cars is Toyota's technique. We would still call them an auto manufacturer and refer to this as a market, at least casually. Most social media (and also netflix, spotify... so maybe just "media) is feed driven. The anchor to these feeds is data gathering. The data gathering edge (along with network effects) is what makes a $100bn worth $100bn. It's what makes the product work. A twitter feed, e-commerce specials page or targeted advertising widget that is customised well is an entirely different product to an untargeted generic. If Tesla pulls off self driving, the difference between Tesla (worth $400b on expectation alone) and any other manufacturer their size (probably >$10bn) will be data. Data may not be the only thing that will be responsible for self driving, but it is proving to be the limiting factor in many of the most commercially important cases.
  - marcosdumay 6y ago
    So... Your post is a great example on how mixing practices and markets makes everything confusing. The OP is all about how revenue of marketing companies shouldn't be larger than the revenue of final goods companies. But there is clearly no such restriction on self driving cars, it's a final product all by itself. If you mix both into a "data gathering market", you have no means at all to analyze it.

Closi 6y ago

Agreed, although the 'selling stuff' market is inevitably more fragmented than the 'data gathering' market, which means that the average 'data gathering' company will be more valuable than the average 'selling' company. That's not to say there aren't giants like Amazon trying to buck the trend...

hrktb 6y ago

Ads are not just data gathering, but behavior nudging as well. Directing people on what to do could be more valuable than actually selling goods, in aggregate. In particular when their actions have long term ramifications (e.g. politics)

srtjstjsj 6y ago
In aggregate, that's only true if the directors are directing people to do things that lead to more money being paid to the directors, which is via shopping or I guess slavery (wage cuts?).
- hrktb 6y ago
  Regarding elections, that would be gaining, or staying in power. In other ways it could be for insurance or other intangible services that scale well but need to be perceived as somewhat valuable. Even in cases where you still use goods to capture money, you can price the goods higher through changing buyer’s perception of value. In a way ads can bring you money from thin air if they are effective enough.
netcan 6y ago
This is only just the beginning. Think credit scores, but lot more far reaching. EG qualifying people for jobs, school entry and such.
stainforth 6y ago
If that's the case, then advertisement is anti-competitive and thus must be regulated as it violates the economic theory we've all agreed upon. I thought we were told we were all independent consumers making our own choices.

netcan 6y ago

This isn't a theoretical question! There have been many large fortunes made recently. They prove the point. Facebook/Google are the obvious example. Companies that are selling stuff for money (spotify, netflix) are bending over backwards to convince investors that this is just pocket money... the real value is in data gathering and monopoly building. Read their prospectus. Netflix's recommendation algorithm narrative was the main focus of their PR for years. There's a reason for this. Why has Tesla's stock price gone insane? Investors are betting that Tesla's data gathering has given them a meaningful edge in autonomous driving. The market value of this edge is (evidently) more than the market value of all other car companies combined. Look to tech acquisitions. Why are free apps like snapchat, whatsapp and such worth billions to acquirers like facebook? Have any paid apps even come close to this market value? No, because spyware, adware and monopoly building are far, far more profitable. Note that I say "profitable" in regards to income and "valuable" in regards to company value. It's true that the economy of buying stuff is big. It just isn't as profitable and therefore not as valuable.

thouitsme 6y ago
I wasn't aware of their prospectus focus on this. I cannot stop thinking that "capitalism" is optimizing on surveillance. I wonder where that will lead us...
- methodin 6y ago
  I'm almost thinking it will lead to ROI being less at the end. As they filter everyone through nice funnels ultimately they restrict reach such that "new customers" are less. Once that happens they will come back out to target "other people" not in their finely tuned categories and effectively be about where we are now. If roofers are my best customer as a hammer manufacturer and I market solely to them at some point all hammer manufacturers will come to the same conclusion and they will be fighting for the sole segment.

marcosdumay 6y ago

You need some complex and strange interactions for the customer interfacing market (there's no data gathering market, data gathering is a technique not product) to get larger than the real one in revenue, but it's trivial for it to happen on profit. I'm not sure it's even possible to discover if profits are concentrated there, the market can look exactly the same either way.

thechao 6y ago
Right — it's really hard to disentangle "discovery" from "object sales". You can end up with a lot of B2B "cycles" that become self-supporting. Basically, the B2B cycles of discovery fund other cycles of "discovery" and the businesses mutually support each (think discovery- and software- as-a-service).
netcan 6y ago
>>"* there's no data gathering market, data gathering is a technique not product) *" I would challenge this. It's is a technique in the sense that manufacturing cars is Toyota's technique. We would still call them an auto manufacturer and refer to this as a market, at least casually. Most social media (and also netflix, spotify... so maybe just "media) is feed driven. The anchor to these feeds is data gathering. The data gathering edge (along with network effects) is what makes a $100bn worth $100bn. It's what makes the product work. A twitter feed, e-commerce specials page or targeted advertising widget that is customised well is an entirely different product to an untargeted generic. If Tesla pulls off self driving, the difference between Tesla (worth $400b on expectation alone) and any other manufacturer their size (probably >$10bn) will be data. Data may not be the only thing that will be responsible for self driving, but it is proving to be the limiting factor in many of the most commercially important cases.
- marcosdumay 6y ago
  So... Your post is a great example on how mixing practices and markets makes everything confusing. The OP is all about how revenue of marketing companies shouldn't be larger than the revenue of final goods companies. But there is clearly no such restriction on self driving cars, it's a final product all by itself. If you mix both into a "data gathering market", you have no means at all to analyze it.