The Key to Defensibility in the Digital Age – Leveraging the Power of AI #5
The problem with most new technologies is that they quickly become obsolete. This is frustrating for distributors who are always trying to keep up with the newest thing. But AI should be viewed differently. Unlike other developments, it won’t be swept away by accelerating waves of innovation. AI does not merely endure: it adapts and becomes better over time. Using AI is an investment in the future, and one to make today.
In previous posts I’ve reviewed how AI works and what useful data distributors have to make the point that distributors should adopt AI soon. Today, I’ll explain why distributors urgently need to use their data and embrace AI technology. Distributors who get in on AI early will increase growth and experience a defensibility uncommon in the digital age. Those who are late to adopt will get left behind and will not be afforded a chance to catch up.
The timing of distributors’ adoption of AI is so important because of Data Network Effects or the Data Flywheel.
To understand Data Network Effects, it’s helpful to review the Network Effect generally. This describes an economic phenomenon wherein products or services become more valuable with more use.
Social media platforms, for example, have strong network effects because people want to use services that their friends use. Two social media sites may offer the same features, but if one has more users it instantly becomes more appealing. Facebook Growth begets growth. In this light, Facebook does not have billions of users because it is successful. Rather, Facebook is successful because it has billions of users.
Network Effects tend to produce all or nothing results, and Data Network Effects are no different. Successful early movers continue to attract users and dominate while competitors disappear.
AI creates a virtuous cycle that keeps benefitting early adopters. When consumers use products, they generate data. Next, companies capture this data. Later, smart algorithms analyze this information to create better products. Finally, the better products attract more consumers, who bring with them more data. Competitors have trouble keeping up because they don’t have as much data, so their algorithms are weaker even when they try to compete.
Once a company has collected enough data for its AI to become good at what it does — be that product recommendation, supply chain optimization or call center management — rivals with less data will struggle to challenge them. Buyers follow the best products or services, and that is what a well-fed AI will provide. If a distributor doesn’t capitalize on its data and lags behind (which means losing business, which means losing access to data) then it will stay behind.
Distributors can’t wait for the next wave of technology. There’s no making up for lost data.
Data Network Effects are truly a game changer. Those on the right side of the cut will enjoy the sort of growth and defensibility that only accumulated data can provide. Late adopters might not even know they’re in trouble until it’s too late.
But distributors shouldn’t worry. Not yet anyway. They all have an immense store of customer data: data that is practically begging to be made useful by AI. They should use AI to analyze existing data and capture new data immediately. Not just to bump a quick boost in revenue, but to inaugurate a powerful, sustainable growth strategy. In a data-driven world, those who aren’t growing, are shrinking.