Facebook’s IPO and the Laws of Big Data

Without using any predictive analytics tools, I confidently predict that Facebook’s IPO will give rise to more vocal demands for people to “get a cut” of its—and other social media companies’—profits. People deserve, so the argument goes, a share of any profits derived from mining the social data pool which they have so willingly helped create. Occupy Facebook, anyone?

But before you set up a tent in Menlo Park, consider this proposition: The value of personal data is zero. Personal data is not worth much if it’s kept personal and a sample of one is good for answering a very limited set of questions. Personal data gains value when it is shared, when it is combined with and compared to other data. 

That’s the First Law of Big Data: The value of data grows with the growth in the number of people sharing similar data. Or in the phrasing of “Metcalfe’s Law,” the value of data is proportional to the square of the number of people sharing similar data.

Metcalfe’s Law was an attempt at a mathematical formulation of the “network effect,” the notion that the value of a product or service is dependent on the number of people using it or the number of connections in the network. As with the telephone network before it, Facebook’s value to its users rose with the number of people (and companies, organizations, associations, projects, etc.) joining it. It’s the size of the directory that counts.

But regardless of its misleading label, size is just one aspect of big data, and not the most important one. It’s not just the number of connections that matters on Facebook or on any other social network. It’s the data these people share which is combined, classified, and linked, to create the value.

But that’s just the first step in the big data journey. Additional value comes from the algorithms, models, and analysis applied to the big pool of data.

That’s the Second Law of Big Data: The value of data grows with the number of innovative models applied to it.

Identifying the relationships between two sets of observations, gaining insights from disciplined testing, predicting the next move for a customer or competitor, and, yes, even optimizing targeted advertising (which is primarily where Facebook currently derives its profits) are some of the ways by which the right models turn personal data into “the new oil of the Internet and the new currency of the digital world” as Meglena Kuneva, European Consumer Commissioner, said in 2009.

The most successful models are the ones that assist our intuition and judgment in discovering something new, something that has not been known before to us or to the world. These discoveries advance our knowledge and help us live better, more productive, fruitful, and enjoyable lives. They help companies compete, and provide governments and organizations with new and better ways to serve their constituencies.

That’s the Third Law of Big Data: The value of data grows with growth in the number of discoveries.

Link the data, explain the relationships you found, discover what is new and useful that you can do with it. From data to discovery, that’s the big data journey.

Update: Vasant Dhar proposes in Wired that Facebook should “create the world’s first information market. This market-based model would pay Facebook users in exchange for permission to provide selective information to businesses looking to reach specific types of people.”

Update2: Technology Review on “What Facebook Knows“