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.