Why External Data Is So Important For Every Business
Internal data is often the first place that companies look when they start to think about analytics and insights. But they shouldn’t overlook the wealth of value that can be gained from mining external and third-party datasets.
Information about your own operations, such as sales transactions and operational performance, can tell you what has happened in the past and help you make educated guesses about what will happen in the future. External data sources can help you understand what your competition is doing, as well as how trends such as consumer behavior patterns, market dynamics or even the weather can impact your performance. In my opinion, an understanding of both is essential today, if you want to make the most of the transformative opportunities offered by data and analytics.
Today, artificial intelligence (AI) and machine learning, fueled by data, is quickly becoming a hugely transformative force in many industries and markets. However, not every company has the resources of an Amazon or a Walmart that allow it to generate vast amounts of proprietary, internal data from a customer base of millions. Fortunately, external data can be just as useful and has the advantage of being readily available to just about anyone.
During the Covid-19 pandemic, rapidly changing behavior meant that many of the existing models used by businesses to predict demand or forecast change became obsolete overnight. A large amount of their internal data now held little use. During this period, companies often found that external data held the key to building new models to predict how people would react to changing circumstances. Data on internet search traffic was particularly valuable for everything from tracking the spread of the virus to predicting where behavior changes would be most severe, to understanding what people’s new priorities were in a changing world.
External datasets may be publicly available – for example, many governments make a wide range of information available through portals such as data.gov and data.gov.uk. Alternatively, they might be privately held, and either made available for free (for example, Google’s basic search and trends data services) or for a cost. Companies such as Nielsen and Experian provide marketing and demographic data from a huge range of sources, and niche providers have emerged carrying specialist datasets of value to many different industries.
When one US glass manufacturer was looking to diversify its revenue streams, it found that it was able to predict where window repairs were most likely to be needed by analyzing publicly available crime data. By streamlining its supply chain and prepping mobile repair units, it was able to quickly build a profitable new business unit providing emergency repairs. On an industry-wide scale, finance and credit card companies have long used external data from credit reference agencies to assess the risks of lending to individual customers. And real estate businesses use public databases of property sales to estimate the value of houses they buy, sell and lease.
