The data economy: the whys IV - Different cost structure

Cost structure differs in the world on bits and this opens up the door to new players.

Saying the transporting bits has no cost is far from true. Actually the transport of bits has cost more, globally, in terms of electrical power than the cost of global aviation in terms of fuel consumption. However, the cost of transport is a function of the overall desired capacity, not of the actual bit transported. If an airplane does not fly it does not consume fuel. On the contrary, the Internet needs electricity, independently whether it transports bits or not. Credit:

Transaction costs shape the value chains and their variation changes the ecosystem, both in offer and demand, through the increase/decrease of players and competition.

The digitalization of the economy (or, better, of services and products and of their production processes), however, is affecting more than just transaction costs. 

The cost of a bit is unrelated to the meaning associated to it. It costs the same to store a GB of radiography, a GB of selfie or a GB of satellite imaging.

True, making sure that the storage of your radiography remains always available through decades cost more (but not that much more…) than storing a selfie you may not be desperate to lose. And similarly it is true that converting your lungs into a radiography requires an equipment way more costly to buy and operate than your cell phone. The size of a radiography file varies depending on the part being imagined: a hand may require 13MB (3,000x3,000 pixels), a x-chest ray some 20MB, a mammography some 30MB, all within the range of a single photo I take with my Nikon 600. But once you have the bits… bits are bits, and operating on them has the same cost (or entails negligible differences).

Furthermore duplicating atoms requires spending for new atoms, in addition to the cost of assembling the new atoms into an arrangement that is similar to the original to make a copy.

In the world of bits, duplication comes for free. New bits don’t cost a dime. Nor it costs duplicating them. 

There’s more. In the world of atoms you discuss about the accuracy, the fidelity, of the copy, but no matter how good the copy is, it will never be indistinguishable from the original. At the very least the atoms arrangement will be different at atomic scale. This might be irrelevant: a copy of your key is fine as long as it is recognized as the original by your lock! Yet, real duplication is impossible in the world of atoms (the beam me up Scotty goes on just in movies). Not so in the world of bits. A bit copy is virtually indistinguishable from the original, it is an original. No matter how many copies you make they are all originals.

This is way the music industry was disrupted by digital music. When you copied a song from a mag tape to another, the new one was not exactly the same as the original (there was a quality loss), and the more copies you made out of subsequent copies the more different they were from the original (to the point that after a certain number of re-copying the quality got so poor to make the copy useless). In digital music every copy has exactly the same quality of the original, actually it is an original. Bad news for copyright owners.

Another crucial difference between the world of atoms and the world of bits is that it cost some money to ship atoms, it doesn’t cost any money to ship bits. 
 This difference shrinks the world of bits to a single market-square. You can offer your wares to the world and you can immediately, at no cost, transfer your bits from the market-square to your home. And by doing that you are in any way decreasing the availability of those bits in the market-square: unlimited supply.

These two characteristics of the world of bits, unlimited supply and instantaneous worldwide reachability are characterizing the data economy and changing the rules of the game.

Author - Roberto Saracco

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