Monetizing Data Through B2B Negotiation: When is a Demonstration Appropriate?

The explosive growth of eBusiness has allowed many companies to accumulate a repertoire of rich and unique datasets that can provide substantial value to other firms. Monetizing this data is a growing source of revenue to the data owners — one that can generate millions of dollars each year. The value of the data to a potential buyer is usually uncertain to both parties, and a mutually acceptable price is arrived at through negotiation. Evidence suggests buyers tend to underestimate value in the face of uncertainty. In this paper, we first analyze the problem of monetizing and selling proprietary data in the face of uncertainty as a Nash bargaining process, and find that the negotiation will divide the expected value of the data equally between the buyer and the seller. As the seller knows that the buyer is likely to be underestimating the value, they can choose to provide a demonstration to the buyer so they can arrive at a better estimate of dataset value. We extend our analysis by adapting the approach of Myerson (1984) to identify when such demonstrations are appropriate, and when they are not. Our results show that the extent of underestimation needs to be above a threshold for a demonstration to benefit the seller, and that the seller could be worse off providing a demonstration if the extent of underestimation is low.