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Big data, and its effects on online markets, has been thrust into the center of the tech policy chattering class debate.In the last few weeks, events have been held on both sides of the Atlantic focusing on the concept of big data as an entry barrier.If one is to conduct a survey of voting preferences for an upcoming election, one needs to construct a large enough sample size to ensure accuracy.However, each additional survey participant does not increase the quality of the survey by the same amount as the one before her.And, as industries grow, the competitive advantage a larger rival has over a smaller rival becomes even smaller.This mathematical reality leads to the conclusion that how companies utilize and parse the data is much more important than the sheer volume of data a company has.Therefore, as an input, data does not function as a barrier to entry, as say exclusive spectrum ownership or access to rare-earth minerals serve as a barriers to entry in the mobile telecommunications space (to pull two examples from the technology policy world).
First, this view of Internet markets is extremely simplistic.
Therefore, a survey that has 100,000 respondents is not twice as accurate as a survey with 50,000 respondents.
In fact, in both cases, the margin of error is less than 1%.
However plausible this argument sounds, a review of the short history of the Internet economy, which has been characterized by intense competition and frequent disruption, seems to cast doubt on the soundness of the theory.
(See Andres Lerner’s discussion of the User Scale – Service Quality feedback loop.) Besides the common examples of Facebook overtaking Myspace and Google overtaking prior search competitors (who, at the time, were predicted to be unassailable largely on account of the User Scale – Service Quality feedback loop discussed above), a casual look at online markets illustrates how competitive the market is.