Yesterday IBM acuired SPSS for $1.2 billion. SPSS is in the business of analyzing large amount of data and building models that look at the data in ways useful to a business. IBM is smart to start providing tools and services to power the web-based world.
Software like SPSS will become more valuable as we move into a networked, Internet-based software world. Data mining is a key competitive component of operating a network, in particular Internet businesses.
SPSS hits the sweet spot in the Network universe. Be it a social network, ad network, or news network – how you create value out of your data is key to your business. Sometimes called the network effect, Metcalfe’s law states (in general terms) that the value of a network increases exponentially as more users join. Here’s a snippet from Wikipedia on one aspect of the law:
In addition to the difficulty of quantifying the “value” of a network, the mathematical justification measures only the potential number of contacts, i.e., the technological side of a network. However the social utility of a network depends upon the number of nodes in contact.
Software like SPSS creates greater social utility by putting potential connection in contact.
Here are a few examples of how Internet companies create value from their network:
LinkedIn – Their “People You May Know” tool analyzes your network and predicts who you may know based on the properties of your network
Facebook – Suggested friends is based on the makeup of your friend network and their friends, and their friends friends, and so on. It’s data mining turned cool.
Amazon – Their recommendation engine is a key reason they have been so succesful. That engine is based on their network and what they buy.
Ad Networks – Use data on ad performance on network sites to show ads that are most likely to make the publisher money and be effective for the advertiser, based on real-time data.