Every investor has their own personal criteria that they apply in the search for successful investments. In fact, I suspect there are as many ways to choose an investment as there are investors. Once the required financial metrics have been established, the remaining criteria are a matter of experience and personal preference.
In order to maximize my chances of being a successful investor, I like to consider any reasonable criteria for recognizing and capitalizing on a potential investment. In my search, I've found a fantastic intangible criterion that every investor should at least consider in the search for the next market-beating investment. In fact, this criterion has yielded numerous multi-baggers in my personal portfolio. Want to know what it is?
The view that no one else has
Having an intimate view of their customers can give a company a powerful edge that can produce superior results and outstanding gains. Privileged or proprietary information can make the difference between being successful and being wildly successful.
Forbes declares, "Companies that possess this knowledge about their customers and use it to their profitable advantage are wildly successful. Knowing specifically what buyers want, savvy leaders can build and deliver the precise solutions to meet customers' needs.
I know what you watched last Summer
One company with this type of in-depth knowledge about its customers is Netflix (NFLX 1.55%). From the time that the company's focus was DVD rentals, one of its main competitive advantages has been recommendations. Netflix believed these were so key to its success that it invested $1 million in a contest to improve the accuracy of its algorithm by 10%. Now that the majority of fare is streamed, the amount of data that Netflix collects is staggering.
In an interview with Wired, Netflix provided color on the data it collects:
"We know what you played, searched for, or rated, as well as the time, date, and device. We even track user interactions such as browsing or scrolling behavior...All that data is fed into several algorithms, each optimized for a different purpose. In a broad sense, most of our algorithms are based on the assumption that similar viewing patterns represent similar user tastes. We can use the behavior of similar users to infer your preferences."
Salon.com reports "Every search you make, every positive or negative rating you give to what you just watched, is piped in along with ratings data from third-party providers like Nielsen. Location data, device data, social media references, bookmarks".
How does this data contribute to Netflix's success? It turns out that 75% of what people watch is a result of these recommendations. Netflix can extrapolate how successful a program will be based on the data it collects, which helps the company determine how much it should pay for programming. This even helped predict the success of recent Netflix Original programming.
"Netflix's data indicated that the same subscribers who loved the original BBC production also gobbled down movies starring Kevin Spacey or directed by David Fincher. Therefore, concluded Netflix executives, a remake of the BBC drama with Spacey and Fincher attached was a no-brainer".
Buyer's remorse?
Another company turning customer knowledge into success is Amazon.com (AMZN +0.45%) Deep within the recesses of massive server farms resides a record of every interaction customers make while on Amazon's website. Wired declares:
"Amazon.com...know things about you that you may not know yourself... For years, Amazon has collected detailed information about what its customers buy, considered buying, browsed for but never bought, recommended to others or even wished someone would buy them. It has built ever-more sophisticated tools to recommend more purchases, direct your searches toward products it thinks you're most likely to want, or even stop the forgetful among us from buying the same book we purchased five years ago".
This data allows customized recommendations for customers with each visit to Amazon's website. When you are browsing a movie Amazon advises that customers who bought that movie frequently bought these two as well, and provides the opportunity to add all three to your cart.
Amazon also uses emails to customers to suggest purchases based on their buying habits and other data. Amazon employees are provided with software tools in order to effectively target the appropriate customers. If a customer was eligible for emails from more than one department, the email with the higher average revenue response will be sent. Fortune reports "the conversion rate and efficiency of such emails are "very high," significantly more effective than on-site recommendations"
Looking for a job?
Though the company has only been in existence for a decade, LinkedIn (LNKD +0.00%) has amassed massive amounts of data from its users. At last report, it sports 225 million users in over 200 countries. As the premier networking website for professionals, users gladly provide enormous amounts of their personal and professional data.
The value of this treasure trove of data is not lost on LinkedIn. LinkedIn uses complex, carefully concocted algorithms, and analyzes users profiles and site behavior to steer them to opportunity. As the network grows, this information also grows more detailed and more comprehensive.
LinkedIn also generates revenue by providing products and aggregate data to corporate clients – data gleaned from its vast network of users. The depth and breadth of its data provides considerable opportunities to recognize and capitalize on trends and mine data.
The Washington Post states "It's big data meeting human resources. And that data, core to LinkedIn's potential, could catapult the company beyond building careers and into the realms of education, urban development and economic policy."
The Foolish bottom line
I believe each of these companies has a view that no one else has. In this case, it is detailed and intimate information about each company's customers and users that no one else has. I believe this view provides each company with an edge that will continue to manifest in the success of these companies and provide market beating gains for each of these companies' investors.
What do you think? What other company has a view that no one else has? Does it give them an edge?
