John Zogby’s open letter to Nate Silver has been seen as an expression of emotion and a clash of egos. But in my view, the deeper reality it revealed between the lines was that 538 has created a real business-model problem for pollsters.
Silver intelligently combines multiple polls to make more accurate predictions than those usually achieved by any one individual pollster. On one hand, the math of this is irresistible – in the real world, voting models often work. On the other hand, it would be pretty uncomfortable for a pollster to combine his own results with various competitive poll results to achieve equivalent accuracy (or at least to do so transparently). So, the pollsters do all the tedious work to collect and analyze the data, and then Nate Silver comes along and creates all this value with it in a way that is hard for the pollsters to duplicate. You can see why this situation might upset the pollsters.
In every industry that combines data collection with analysis, there is an endless battle between the data collectors and the analysts. The data collectors bear the hard costs – people, office space, telecommunications, travel budgets, etc. – that are required for interviewing people, visiting stores, and so forth. Their nightmare world is to become commodity data collectors paid for their costs plus a small margin set by competitive bidding. Their typical defenses are to attempt (1) to build proprietary methods for collecting superior data, or equivalent data at much lower cost, and (2) to integrate the analysis and the data into a single product, and forbid by contract the paying client from using this for other purposes. The analysts, on the other hand, want to have an open market in commoditized data, and compete on analytical capability.
In my experience, the value chain always unbundles eventually into separate data providers and data analysts. The lever is the client’s checkbook. It’s in their interest to push down the cost of data collection and force more competitive bidding, since this is where most of the cost, but very little of the hard-to-copy technique that produces defensible margins, sits. They can also more directly compare alternative analytical providers, allowing analytical innovation to become more rapid. The core capabilities of a data-collection operation versus an analytical operation are somewhat different, and this specialization then makes it ever harder for integrated providers to compete once the market begins to change in this way. (Though if there’s one source of revenge for the data collectors, it’s that eventually the analytical innovation plateaus, and the analysis becomes so routinized that it too becomes a commodity itself – until eventually there is some new some new analytical breakthrough, and whole cycle repeats.)
Zogby’s open letter is the cri de coeur of an incumbent smart enough to see a chunk of his economic profits under threat as polling meta-analysts seize value, potentially forcing him to compete more and more as a commodity supplier. What’s got to be especially galling is that (as far as I understand 538’s business model) his new competitors are literally giving it away.
We all laugh at the Luddites for smashing looms that threatened their livelihoods, but it is the nature of a market to constantly commoditize high-margin labor. It’s not so funny when you’re on the receiving end.