Amazon and Netflix, a site that offers films for hire, use a statistical technique called collaborative filtering to make recommendations to users based on what other users like. The technique they came up with has produced millions of dollars of additional sales. Nearly two-thirds of the film selections by Netflix’s customer come from the referrals made by computer.
EBay, which at first sight looks like nothing more than a neutral platform for commercial exchanges, makes myriad adjustments based on information culled from listing activity, bidding behaviour, pricing trends, search terms and the length of time users look at a page. Every product category is treated as a micro-economy that is actively managed. Lots of searches but few sales for an expensive item may signal unmet demand, so eBay will find a partner to offer sellers insurance to increase listings.
The company that gets the most out of its data is Google. Creating new economic value from unthinkably large amounts of information is its lifeblood. That helps explain why, on inspection, the market capitalisation of the 11-year-old firm, of around $170 billion, is not so outlandish. Google exploits information that is a by-product of user interactions, or data exhaust, which is automatically recycled to improve the service or create an entirely new product.