Since the birth of the personal computer and the internet, the term digital age has taken shape and meaning in the world we live in.
Both inventions were made around the 1970s, which is roughly 50 years ago. One could say that the digital age is around 50 years old compared to the industrial age which started over 200 years ago.
The digital age mark the beginning where information and communication technologies become widely available to the public, leading to a momentous transformation in the way we do things and the outcomes we achieve.
Just like the digital age, digital assets are fairly new. For me, they shed more light on what assets are and the different facets they can have.
Basically, assets hold, preserve and in some cases, multiply value. A definition of physical and digital assets could be derived from the above definition of assets.
Through saying that physical assets are assets that hold, preserve and multiply value physically and digital assets do the same thing more or less digitally. But I think that would be an over simplification since there are some nuances to it.
However, the main premise of this post is how physical assets are becoming burdensome in holding and maintaining in the digital age, especially the physical assets that have a digital counterpart already built.
It's important to note that assets extend beyond investing and generating a return on investment from a monetary viewpoint, although that is a key part of it.
Generally, every object around us is either an asset or a liability. Modifying Robert Kiyosaki's explanation on recognising the difference between the two, which is assets put money in our pocket and liability takes it away. I'll say generally assets aid our growth while liabilities impede it.
The retail sector is arguably one of the most active sectors as commerce is an integral part of society since it allows for the exchange of goods and services between entities.
Traditionally, one would need an inventory, a store and transportation mechanism to engage in commercial activities as a business. These are physical assets that need to be managed or maintained.
Often, there is a high cost in maintaining these assets and this usually increases when the business enters a scaling phase. For example, a brick and mortar business pays more rent with each new store it opens or the increase in size of the warehouse to store inventory.
Moreover, this high cost also acts as a limiting factor in that it limits the reach, availability or variety of products and services. Walmart isn't available in many countries. In contrast, Amazon is almost everywhere.
The internet facilitated the birth of e-commerce and two giants emerged from that sub sector. One from the east(Alibaba) and the other from the west(Amazon).
I've always been fascinated with Alibaba's business structure as a platform that connects manufacturers with wholesalers/retailers across the globe. I feel that it unlocked a crucial aspect of the digital age, which is that of commerce. In a way, it digitized and democratised global trade making it accessible to anyone.
As a business, Alibaba owns more digital than physical assets given its nature as a platform business. The business neither owns any physical inventory nor a store.
The most valuable asset it owns is probably the database of users on the platform which is digital in essence. Of course, maintaining a database isn't free. That too comes with a cost.
But this is relatively and generally cheaper compared to the most valuable asset in a traditional brick and mortar business.
Besides, digital assets offer a flexibility and convenience that physical assets lack, giving them the ability to quickly adapt to change in market conditions.
Given the option and from a business vantage point, it's more beneficial and preferable to operate a digital business than a physical one in the digital age. One will be going with the tide, riding the wave of progress.
One of the nuances that I noticed between physical and digital assets is that they aren't clearly delineated like words in a sentence. In many cases, there's an overlap between the two in which one compliments or enhances the weakness of the other. I think that's what Amazon realised with the launch of their cashier-less stores.
However, for the majority of us who don't have deep pockets like Amazon. Physical assets could be an anchor that prevents our boat from rowing forward with the pace of the tide at sea.
As a business, which would you prefer, physical or digital assets?
Thanks for reading!! Share your thoughts below on the comments.
