TURNING ANALOG INTO DIGITAL

If you have ever seen one of my talks, be it in-person or online, you might have noticed that I reiterate one point again and again: Once something which was analog turns into a digital good, it moves on an exponential curve (as opposed to its linear growth in the age of analog). This transformation further leads to a typically massive shift in the underlying business models as you move from scarcity to abundance and from significant to insignificant unit costs.

Let me explain: For analog goods the cost of duplication (making a copy), distribution (getting that copy from me to you) and storage (you physically storing this copy somewhere) is considerable. Once you turn that same item into a digital good, all of these costs go down close to zero.

Take a music CD: Making a copy of a CD costs money – you need plastic, a machine and a place for that machine to stand (plus a bunch of other costs). Shipping it requires you to shell over money to UPS, FedEx or someone else. And for your buyer to store that CD she needs some space on a shelf somewhere. Once you turn this into a digital good (an MP3 for example), all these costs go down close to zero – enabling entirely new business models such as Spotify which gives you access to a good chunk of all human music ever recorded on a per-use basis and a flat-rate pricing model.

What this means is twofold: First, I believe strongly that you find the most significant business opportunities in industries where you turn something analog into digital. And secondly, if you find yourself in an industry/business which is digitized, you have to develop and implement new models as the old ones are rapidly being displaced (point in case: Apple iTunes, which was largely the same old business models we had with CDs, being displaced by Spotify).

Build What Matters.
Pascal ツ