Taking Stock of the Obvious and Not-So-Obvious to Understand Digital Assets

Eli R. Khazzam | June 15, 2015

Anything we want or need has a cost. If we are to trade the things we want and/or need, we must be able to assign a value for them. But what about things that are digital? How can we understand them as “assets”?

From the Traditional to the Intangible

The value of goods was once determined by fairly straightforward factors such as quantity, quality, and availability within the context of supply and demand. The value of goods was based primarily on the cost of inputs (materials, labor, packaging, space, shipping, equipment, etc.). The value of services was based on factors such as time, degree of expertise, and the cost of inputs for one to perform his/her services.

Yet today, we find ourselves in a digital economy of instantaneous, one-click purchases for downloadable products that are physically imperceptible and weightless. The old inputs and outputs of industrial production are being challenged, throwing off the once finite parameters of supply and demand. To complicate matters, traditional forms of marketing have expanded to, and occasionally been replaced by, more organic, less predictable means, such as social media, as the marketplace is driven by newer types interactions.

We live in a world driven by a complex infrastructure that is used by computers, cellphones, tablets, networks, the cloud, and other devices. These machines in turn power websites, software, and apps where we generate data, documents, books, music, photos, movies, spreadsheets, database contents, and much more. We want and need these intangible things—both the information they render and the consumable end-products they become. So how do we value these digital assets?

What are Digital Assets?

There is still no standard definition of a digital asset; however, many consider a digital asset to be any content or media that is formatted electronically and the right to use it (this definition originated with Albert Van Niekerk in 2006). Today, a digital asset can include social media content, email, photos, music, writings, website design and content, and far more. There is no clear line on what shape and type a digital asset can take— textual, images, multimedia, and other forms as new technologies emerge.

Digital Assets Are Composed of Bytes

Digital assets are the intangible medium of machines. Without the systems (e.g. microchips, transistors, and microprocessors) that store, process, and transmit them, digital assets cannot exist. This is in turn formatted into “bytes”, which is the single unit of digital data. This information can be manifested into text, graphics, audio, and video. Unlike tangible goods, digital products defy the practical logic of space and longevity: they can be stored indefinitely on very small devices and replicated quickly and in exponential quantities.

Digital Assets Are Owned, Licensable, or Leasable

For it to be considered a true asset, a digital asset must include the right of use through legal ownership or official permission granted for use by another party. An individual or entity needs to have the legal right to license the digital asset to others in return for economic benefits, now or in the future. And this isn’t automatic—some of the lines between what is owned and protected aren’t always clear cut. There was a recent controversy in New York where a professional photographer printed and put on display images from other people’s Instagram accounts—once made public, is the content you created but shared yours? Online and electronic mediums make it easy to replicate, transfer, and compromise the security of the technologies that store them. And your electronic protections are unlikely to withstand someone with the right skills and determination. It is easy to imagine that a more robust legal framework may be established in the future to protect digital assets as intellectual property.

Monetary or Non-Monetary Value

Digital assets can have either monetary or non-monetary value. Virtual currencies, such as bitcoin or Litecoin, fall into the category of monetary assets, as would “in-game assets” (e.g., benefits, redeemable points, or currencies) that only have a value within specific online game(s), platform(s), or a virtual community. Non-monetary assets can include personal digital property such as family photographs, correspondence, multimedia collections, and private information—much of which is of subjective value but irreplaceable. Although these non-monetary digital assets have no specific exchangeable rate, they still have value, even if it is an arbitrary value (some insurance providers are now offering insurance for a variety of digital assets, which makes value more clear cut and less arbitrary).

Value from Interconnectedness

Digital assets can acquire some value (whether directly or indirectly) from the Internet of Things—everyday objects that are connected to the internet, such as your smartphone and your FitBit. These objects connect consumer to supplier, user to source, and peer to peer and the information derived from these relationships can be a digital asset. For example, a sensor device in a pair of shoes monitoring your jogging performance provides data about you to social networks, the manufacturer, and possibly jogging communities. This data has a value to marketers and product developers as well as those who are interested in communicating with joggers about everything from clubs to events to additional products and services.

When Collected, Information Can Become an Asset

What makes digital assets stand out is their potential to be almost anything. Digital assets can exist as composite information collected by entities, such as registration or mailing lists, customer histories, preferences, and loyalty data, and even email correspondence. Separately, these components of information may not be significance but as part of a collection of data they provide intelligence about marketing, corporate strategy, and consumer behavior, all of which can lead to more successful marketing or product development.

This collection of data can also be generated by our own appliances and devices. The smart appliances we use enable people and companies to gather personal information on many aspects of our lives. For example, there are devices that monitor medication usage, spending habits, and the thermostats in our homes. At face value this information may seem trivial but it can provide value to marketers and some personal utility for ourselves.

Digital Capital Investment

According to a 2013 report by McKinsey, the accumulating global value of digital-capital investments has reached more than US $6 trillion, about 8.5% of nominal world GDP. Globally, levels of digital intangible investment are more than half those of digital tangible investment. In more highly digitized economies, such as the UK, Japan, and the US, spending on intangibles represents two-thirds of digital capital’s total value. Digital capital sectors now include gaming, mobile, social media, online advertising, education technology, eCommerce, software as a service (SaaS), on-demand (delivered via a device or app), and more.

Taking Stock

By just beginning to understand what digital assets are, we are taking the first step toward thinking about the potential of nearly everything we do in business and our personal lives. It’s time to take stock of the obvious and not-so-obvious. If you own a business, or are a business consultant, you should start to classify all of your digital assets. What has monetary value? What has non-monetary value? What, in combination with something else, may create value? The digital assets (or things that can be transformed into digital assets) you possess may not fill current wants or needs in the marketplace, at least not today—but tomorrow could be another story.

 

How is your organization or practice addressing the emergence of digital assets?

Eli R. Khazzam

Senior Professional, Economic Development & Emerging Technologies.

Eli R. Khazzam is a senior professional focused on economic development & emerging technologies. Previously, Mr. Khazzam was the Editor-in-Chief of the IFAC Global Knowledge Gateway and had various roles working as a Governance Manager and Senior Technical Manager of Public Policy and Regulation at IFAC. Prior to joining IFAC, he was an Executive Director at Liquid Metrics, LLC., a research and consulting firm specializing in community-based economic development and public policy issues. See more by Eli R. Khazzam

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