My wife and I were raised Hindu and Jain respectively, both religions that have karma as a central element. One part of the notion of karma is that you get what you give.
That may be an useful way to think about the cold start problem that one encounters when trying to create data network effects. One company that has done it well is Markit in various financial markets. The simple insight is that in order to benefit from the valuable data output, you need to input your own data: i.e, you give, then you get. Its story has it all: opaque markets, prices all over the place, and a benefit from aggregation and transparency.
This is from the Economist:
Mr Uggla’s big insight, as a former bond trader, was that opaque market structures made it tricky for banks accurately to price some of the complex financial instruments they were dealing in. Only by pooling their proprietary data could they get reliable marks. The trick was first applied to credit default swaps (CDSs), a sort of insurance policy against borrowers going bust. Unlike shares, CDSs are not traded on exchanges with transparent prices. They are bilateral contracts that give rise to a jumble of erratic price quotes. Only those banks that fed their prices into the Markit system got access to the aggregate data. They also got a majority stake in the company: Markit’s owners include the likes of Goldman Sachs, JPMorgan Chase and UBS. Staff own 30%, a handful of other investors the rest.
What came next distinguishes Mr Uggla’s approach from that of Michael Bloomberg, another former bond trader with a successful data franchise. Markit has moved into a broader role as a partner for banks that want to pool or outsource costly non-core activities.
At a facility in Dallas, for example, it receives and processes 7m faxes a year on behalf of customers. Few are of any interest to the recipients—they are mainly updates on the progress of loan repayments—but regulations require that they must be kept on file regardless. Another Markit product helps make sure that complex deals devised by hotshots on trading floors are recorded and processed accurately. Yet another ensures all sides to a transaction are using the same formula when calculating collateral payments. Last year it acquired a company central to securities lending, a practice that enables short-sellers to borrow the shares they want to bet against.