The Digital Identity Tech Conundrum: Build versus Buy

The age old question for businesses considering a new technology solution is build versus buy.  Each approach has its strengths and weaknesses, which can vary significantly by industry, the business challenges being solved, unique business considerations, etc.  For those looking to solve their Digital ID and connected products needs, we’ve compiled a list of traditional technology and data factors along with those that are unique to Digital ID and connected products.  This comparison is designed to address Digital ID service providers versus in-house development, not manufacturers of digital carriers or other provider types.

Assessing Digital ID related technologies and how they empower connected products requires consideration of several factors not commonly seen in more established industries.  Specifically, business should understand that Digital ID:

• š Is a rapidly evolving industry in most aspects, from new data carrier types and retroactive enrichment of data carriers already in market, to new revenue models and novel data privacy concerns.

• š May be the closest thing to a true “green field” opportunity businesses will see in decades, and one which requires innovative thinking to harness new business models and applications of Digital IDs.

• š Supports compliance with a legal landscape that is a moving target, with existing laws still refining their requirements (e.g. Digital Product Passport Pilots) and an overall lack of global harmonization among enacted and pending legislation.

Build versus Buy Comparison Factors

See numerically noted items below. Strikethrough indicates that the normally applicable Limited Access to or Ownership of Data factor does not apply in this comparison (see bullet below for more information).

Key Considerations

While nearly all of the traditional build versus buy guidelines apply to Digital ID technologies to some degree, there are some key differences worth noting:

• Retention of Intellectual Property (1):  The differentiating intellectual property that exists in the Digital ID space is largely around processes and applications of data, not with the underlying technology.  From a data IP perspective, much of the product data is destined to be made public, either to comply with sustainability and transparency legislation, or to support new revenue generating business models so the traditional logic that “build” better protects a business’s data is only partially relevant.

• Secondary Repository Requirement (2):  The Digital Product Passport (“DPP”) requirements under the EU’s Ecodesign for Sustainable Products Regulation (“ESPR”) have an expected requirement that the product data be accessible by consumers, recyclers, and other parties even if the business ceases operations.  As the EU’s current position is that they will not be hosting this data, it will require businesses to work with 3rd parties to host the required product data which means the protections of using only in-house operations only partially apply.

• Need to Hire In-House Experts (3):  As an emerging industry there are relatively few seasoned Digital ID data and technology experts necessary to support a build, so businesses that want to “build” will need to hire from a relatively small pool of candidates.

• Limited 3rd Party Data Access (4):  Due to the semi- or directly-competitive nature of some product lifecycle ecosystem participants, direct relationships between businesses that “build” will likely lead to reductions in what data is actually shared compared to a “buy” scenario.  Additionally, as some performance metrics require the use of personal data to create them, we expect there to be a high level of reluctance to share customer personal data with a perceived competitor, leading to less valuable data sharing.  Of note, traditionally the “buy” option leads to limited access or data ownership concerns but in the case of Digital ID, the opposite is often true.

• Build and Maintain Ecosystem Relationships (5):  Replicating and maintaining dozens or more product lifecycle ecosystem participant relationships will require significant time and staffing, which will increase costs for both the business and the ecosystem participants they work with.  Ecosystem participants are likely to resist managing hundreds of non-standardized data relationships that increase their costs and are not easily scalable.

• Access to Competitive Benchmark Data (6):  As with all emerging markets, a lack of knowledge creates risk for those investing in those industries (it’s why we created FarSight, to help solve those challenges).  Aggregated industry benchmarks can provide critical insight that can help businesses plan, set goals, measure performance, and innovate.  Most technology service providers, regardless of industry, only provide benchmarks to those who contribute, therefore access to benchmarks may be limited to those who “buy”.

Our Take

For brands looking to explore Digital ID and connected products, the “buy” option is likely the best in most cases, but that does not mean they can rest on their laurels.  Buy offers immediate access to innovative technologies and thought leadership, the ability to get to a positive ROI faster, and access to 3rd party ecosystem data that will only realistically happen through a service provider.  Critically, the in-house “build” option will still require businesses work with a 3rd party to address data survivability, and product data will need to be made public to comply with sustainability and transparency laws so several of the strengths of the “build” option do not fully apply.  However, for businesses with developed data and analytics teams, even with a “buy” approach, there will be rich new opportunities to tie product data and customer data together in-house without the investment in technology.  Such an approach will give businesses the time and insight to determine what is best for them long-term.

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This is not legal advice.