[MUSIC] Welcome to the course on Introductory Business Analytics and Digital Media. My name is Sudhir Voleti. I am an Assistant Professor in Quantitative Marketing here at the Indian School of Business, ISB. Before I proceed and jump into the course proper, let me in some sense build a case for why we will be doing what we will be doing, right? So what is business analytics? Why should we care? Right, so I'm going to do that with the help of a motivating example. All right, so we've all heard of this company called Uber. In 2014, Uber's valuation was a mammoth $40 billion. It was what we call a decagon. That was no fluke because by 2015 that valuation number jumped 50%. It became $60 billion. My question to you, why? Think about it, think about it for a minute. So why is this number, what does this number mean in any case, right? So before I proceed any further, let us in some sense spend a minute or two looking at what this valuation number means. Now a firm's valuation is nothing but the net present value, the sum total of all of the firm's profits in today's money over the lifetime of the firm. So the NPV, net present value, of all the future profits that Uber would've earned, will earn over its lifetime, is now being presented as $40 billion. That's what the market is valuing it at. Which brings up the question, Uber is just a ride sharing business, right? I mean, there are other cab companies, so what makes Uber special? Why in some sense is the market valuing it at such a high number? Is there any competitive advantage? Is there any particular strategic asset? Is there an enabling platform that Uber has and the others don't have that accounts for this difference? What makes Uber special? Well, let's explore this answer in a little more detail, all right. Uber is what we call an asset-light company, right? Unlike most cab companies, Uber doesn't own its own fleet of cabs. The cabs and the drivers of the cabs are independent contractors who contract with Uber, right? So Uber is asset-light. However, there is one asset that Uber does own. And that asset lies at the heart of Uber's profitability, right? By now you might have guessed what that would be. Yes, that asset is data, okay? Uber owns all the data that it generates, okay? By that I mean, all rights to every bit of data, okay? From every ride, every driver, every cab, every passenger, every route on its network is actually owned by Uber and Uber alone. And that has something to do with its market value. How much data are we talking here? Well, let's see. So Uber was founded, the app was launched in June 2009, okay. By December 2015, Uber completed its billionth ride. So close to Christmas in 2015 it completed its 1 billionth ride. How much time will it take for it to get to its next billion? From six years, it took six months. Six months later, it reached its second billion mark. Think about it. 180 days, 1 billion rides, that translates to roughly 5.555 million per day, or roughly, about close to a quarter of a million per hour. So much so that when Uber basically announced a prize for the second billionth ride, there were 147 rides on five different continents tied to the exact second for that particular prize. I'd say, well, that's a lot of data, but how does that translate into great market value? How does it translate into profits? And how does it connect to analytics in any case? The question is, how does data connect to market value? And note, I am not, in some sense, referring to Uber alone. The principles behind the answer that we will now come up with are actually much more general. They apply across firms, across sectors, across industries. We know that data's a valuable asset. What is an asset? Any resource that yields returns over time is an asset. And data can be a valuable asset indeed. It yields returns over time. Data as an asset helps build what is called sustainable competitive advantage. What is competitive advantage? Anything that gives your firm a leg up over competition is a competitive advantage. And what data allows you to do is not just build competitive advantage but build one that is sustainable. It isn't transient, it isn't fleeting, it isn't here today, gone tomorrow. It is actually sustainable. A competitive advantage that is actually sustainable leads to what economists call supernormal profits or what the finance types call abnormal returns. Put all of them together and what you then have, these wonderful valuation numbers that we have been talking about. Did Uber manage all of this just by itself? Not really, Uber had help. What kind of help did they have? First off, there was the nature of demand for its offering. There'd been a lot of me too companies trying to be an Uber for this and an Uber for that. But nobody really quite managed the scale of an Uber, maybe except for an Airbnb, owing to the nature of demand. The second big help that they had was the ubiquity of its enabling platform which is a smartphone. Practically everybody in their target segment now has a smartphone. And the third thing that helped them was the profile of their typical customers. These people had purchasing power, people who could actually afford a smartphone. That purchasing power of data on them had inherent value. Put it all together and where we are now heading is a fascinating exploration of data and analytics. Join me on this journey. [MUSIC]
