From Ethiopian Coffee to the Monetization of Data - Big Bucks are with the Consumer.

The traditional nature of a modern value chain.

The traditional nature of a modern value chain.

‘Grande Americano, extra shot and a splash of almond milk!’ There it is, your daily morning jolt that will push you through your early morning meetings. Today you took a step on the wild side, dabbling with the reserve coffee now available at your favorite cafe. Kenya, Ethiopia, Vietnam, Brazil, Colombia…

As you stare at your phone and flip between inbox, calendar, text and LinkedIn, you are in no state of mind to think about the value chain of the cup of coffee that you will soon balance in your hand — all the way to your desk, along with your hand bag and any other device that contains your ‘hydration.’

Coffee has traveled from all corners of the globe to reach your cup. Thousands of miles away, berries are being planted, harvested, and processed with a coffee grower. These now ‘green coffee beans’ will go through a coffee trader, a roaster, and a logistics firm then finally land at the branded cafe you just walked out of. Quite a journey for a small seed.

But — Who profited most from the three dollars that just went out of your app for the Grande Americano whose warmth is already being felt in the palm of your hand?

You are commercially savvy and will have a great day at the office if your answer was the brand owner of the cafe. If your answer was the coffee farmer, you are idealistic and will surely be supporting the emergency aid that was given to Colombian coffee farmers in April.

The value chain of coffee is one of the most traditional. It starts with a humble coffee bean, often grown by a struggling farmer in a faraway country. It ends with high profits in the hands of the brand owner of the cafe in mid-town Manhattan.

How could such a value chain provide any clue to how to monetize data?

While the data industry is nascent and hi-tech, it is also developing its own value chain. And guess what? It is no different from the traditional value chain of everyday products such as coffee or chocolate.

So, who is likely to profit how much out of the value chain of data?

Let us turn back to the coffee value chain. In the value chain of coffee, the closer you are to the end point of consumption, the more money you make. The grower of the coffee bean gets the least share of value. The converter of the bean into a pod or a bag gets a larger share, but the ultimate winner is the one who owns the brand of the coffee that you drink.

If you are in the data business, where in the value chain are you?

If you are helping businesses clean and organize their data, either as a human service or through machine learning, you are providing a service that will mostly be priced on ‘time and material’ or ‘fixed price’ basis. Such a service will lead to fixed margins and finite project time periods.

If you have created a data factory that is able to transform data and make it usable, you are in the manufacturing mode. You have scale, you have a platform, and you are able to leverage fixed costs. Your profit margin is likely to be higher and your business more stable.

Finally, if you own the outcome of this well transformed data, then you are, as in the case of coffee, closest to the point of consumption. You are now charging for the outcome and your profit margins are driven by consumer dependency and the size of your access to consumers.

Where do you want to be?

You can be the farmer or you can be the well branded cafe. Part of who you can be is your own strategic choice . Part of it, ask any coffee farmer, is your legacy.