Bifurcating Futures of Assets — Physical or Digital? Personal or Shared?

The asset state — where is the stuff? who uses the stuff? — is an underrated approximation for the state of the world. At the very least, it provides an informative (hopefully interesting) framework with which to view the world. And so, if you can predict changes in the state of ownership, you can imagine what the “future” will look like.

Assets can roughly be bucketed into: physical vs. digital, and personal vs. shared. These categories are exactly what they seem — physical assets can be touched, digital assets live in “The Cyber”, personal assets are used by one individual, and shared assets are used by many (not referring to legal ownership).

As Napster, Ebay, Uber, Airbnb and countless others have demonstrated, it’s hard to overstate the butterfly effect that transpires when the world’s asset state changes. The prospect of videos living on a shared cloud was a pipe-dream in the 80s, plausible in the 90s, and suddenly ubiquitous in the 00s. When some fuzzy threshold is passed, a seismic shift in the asset state takes the world by storm, affecting how we communicate, how we pay, how we move, and how we learn.

Physical vs. Digital

With respect to the location of assets, the overall macro trend of the last few decades is that physical assets are going digital. Many assets we use every day have crossed the border: music, movies, writing, photos have all gone digital (once you go digital, you’ll never go physical — or so the saying goes). But the physical world hasn’t been immune to change. Production costs (fixed cost) in the occasional vertical have dropped exponentially, while just about all transfer costs (variable cost) have dropped marginally.

Physical vs. Digital Assets: For the most part, assets are becoming digital. But which ones? And when?

New technologies are going to accelerate these trends — perhaps leading to some friction between the physical and digital:

  1. AR/VR/↑Internet Bandwidth will lead to unexpected assets being digitized and the creation of new, valuable digital assets
  2. Self-Driving Cars will push the cost of transferring physical assets towards zero

The creation of new, valuable digital assets can feel abstract. It should. New digital assets (with no physical mapping) are rarely fabricated to address the needs of the present. When they do, the “needs” are hidden by our comfort in pre-existing systems (e.g. crypto-assets: Steem is used to pay for social media content; DentCoin can be traded in for data from the cell network).

5G is slated to come out in 2020. When it does, our cell network’s download rate will go from 1Gbps to 10Gbps while download latency will drop from 40ms to 1ms. Videos will fly seamlessly from one phone to another and AR environments will be shared in realtime. Digital creations like “Stories” are just a precursor to a new era of virtual content beyond our limited imaginations.

“Zero cost” physical transfers will be even more transformative in the short-term future. Today, we’re seeing services like UberEats, Instacart, and StitchFix gain traction among wealthy Americans. Tomorrow, we’ll see similar services deliver more goods to more people — groceries, medicine, washing & folding, etc.

Narrowing costs raise the question: “If assets were free, where would they live?” Most of the time, the answer is obvious — a digital bed will provide less lumbar support than a physical one. But not always. What if a headache could be cured via a personalized VR simulation? A perfect case study to illustrate the impending “phy-gital” collision might be transportation (where the asset is you). If a self-driving car can take you to work for free, would you wait for an Uber or just Skype in? Would you Uber to the mall, or shop with friends in AR Amazon?

Personal vs. Shared

Even before self-driving cars start taking your kids to school, the price of transportation is dropping with the birth of the ride-sharing industry. The recent surge of the sharing economy has shown that many assets can approach 100% utilization (% of time in use) through sharing. Some assets are more “shareable” than others. The peak utilization % of the sofa in your living room is bounded by the fact that it requires a U-Haul to transport. But if an asset can be shared, the rule of thumb is: sharing assets increases utilization % and decreases price.

Shouldn’t we just share everything then? There can be an Uber for clothes, chopsticks, and toothbrushes right? Well…no. The counterbalance for utilization % is value retention. While a single toothbrush could serve 100x more people right now, I’m guessing you’d pay 100x to have your own personal toothbrush. Value retention can be viewed as a combination of compounding — does the value increase or decrease when sharing? (mouth germs would get me sick) — and cultural trust (I feel weird about sharing my toothbrush with a stranger).

Shareability = Utilization % ⋅ Compounding ⋅ Cultural Trust

If an asset goes from personalized to shared or visa-versa, it did so because:

  1. Possible utilization % suddenly changed → Ebay finds someone willing to wear your middle school jeans
  2. The compounding of an asset changed → Sharing anonymous healthcare data could lead to more accurate diagnoses
  3. Cultural trust changed → I’m ok letting a rando AirBnB my apartment!
Though sharing assets can save money, we often want stuff to be “mine”

A sudden shift in any of these three, and it’s time to reevaluate the asset state. In AirBnB’s case, the potential utilization % had been high for a decade with no change in the intrinsic value of a house. The dynamic factor was trust. Willingness to let a stranger into your home suddenly unlocked the massive economic rewards to sharing your home.

Reconciling The Two

To be honest, it’s quite difficult to disentangle the physical vs. digital axis from the personal vs. shared one. In practice, changes to the asset state usually involve a confluence of the two. What will become shared? What will go digital? What assets will exist in the future that we can’t even begin to fathom?

Upon first glance, it’s easy to assume all assets are gravitating towards digital and shared — but that would be a gross oversimplification. We still might be surprised by physical “necessities” that go digital (TVs). Or taken-for-granted shared utilities that become personal (Medical Diagnostics). And the digital opuses of tomorrow (AR selfies?) will continue to vex elderly 20+ year olds.

One of a few possible categorizations of assets in 2020

Do we end up moving around freely (physical) or staying at home and telecommuting (digital)? Do we share cars, houses, and medical diagnostic machines or have our own? Do we keep relying on centralized power companies (shared) or purchase solar panels / batteries (personal)? Do we have our clothes picked up, washed, & folded (shared), or have a robot fold them at home (personal)? To answer these questions, we can start by exploring changes in: fixed cost, variable cost, utilization %, compounding, and cultural trust. Here are a handful of scenarios that emerge:

  • In the short term, there is a massive amount of utility in physical goods that will be unlocked by lower transfer/variable cost. Imagine swapping wardrobes like a real life RPG character. With self-driving car fleets, a boost in physical P2P sharing feels inevitable: the volume of used good transactions on Ebay is only 1% of what it could be. High-frequency good delivery/exchange services will be huge winners in the world of physical packet switching.
  • In the long term, advances in AI/Robotics will spur significant improvements in production (fixed) costs. Instead of sharing objects, we can just create new ones. Multitasking robots could lead to democratized production costs, which will be a boon to hardware innovation (e.g. health sensors tailored for your body).
  • In the short term, low transfer costs + sharing will make physical transportation seamless. People can go to theaters, malls, and schools for hardly any money. The cost of getting from point A to point B will be a function of time, not money. The result? One last stand against the digital revolution: in-person hangouts, trips to the grocery store, and checkups with doctors.
  • In the long term, we’ll simply put on our AR headsets and have face-to-face conversations from the comfort of our home. Our identity will be highly virtual, and personal digital assets will be in vogue again: digital avatars, education programs, and AI/AR assistants. At the same time, a whole new class of personal crypto-assets will materialize to empower individuals (see earlier DentCoin example → can be used to purchase mobile data for cell networks — regardless of the carrier).

Changes in the world’s asset state are mostly just a reflection of tech adoption. But I do think the asset state provides a somewhat isomorphic abstraction that shrinks the realm of possibilities. That said, it’s only one of many filters that can be used to find patterns in a noisy future (might follow this up with a post about needs).