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Digital Transformation – Scarcity vs Abundance

Moving from the economy of atoms to the economy of bits we are also shifting from the economy of scarcity to the economy of abundance

The Digital Transformation everybody is talking about today is fuelled by advances in technology, mostly transducers –i.e. sensors and actuators- and semantics extraction tools –i.e. artificial intelligence supporting data analytics.

The reasons why industries and institutions alike are interested in the Digital Transformation, however, is based on economics. The Digital Transformations is shifting the economy of atoms to the economy of bits.

The economy of atoms is an economy of scarcity: atoms are limited, if you give and atom away you no longer have it. On the contrary, the economy of bits is an economy of abundance, if you give bits away you still have them (a copy actually, but in the world of bits copies are indistinguishable from the original).

More than that. The economy of atoms has high transaction cost, i.e. it cost money (and resources) to move atoms along a value chain, whilst the cost of moving bits is basically nihl.

This decreases the capital required (CAPEX) to enter into the biz of bits and the OPEX (dealing with bits) although in the area of support infrastructures (comm networks and data centres) CAPEX and OPEX are still huge (hence the small number of companies operating in that space).

The above diagram shows the loop creating bits out of atoms (using sensors) and making sense of the data (Mirror&Model +Connect&Understand). These latter form the Digital Twins, a bit based entity that through artificial intelligence and data analytics acquire semantics. The semantics is crucial in the economy of bits because it is delivering value (and the perception thereof): we don’t pay for the data but for getting their meaning and for the convenience of getting them.

  • I am not paying for a song’s bits, I can get those bits for free through YouTube, as an example, but I prefer to buy them from an on-line store for the convenience of getting them securely and quickly.
  • I am not paying for a blood exam to get numbers but to know what the meaning of those numer  is.

Given the advantages of the economy of bits over the economy of atoms have industries scrambling to move their atoms operation as much as possible to the bit domain. The two, bits and atoms, get connected by technologies like augmented reality and virtual reality. These two provide an access to the world of bits and more and more through Digital Twins they ensure the connection to the physical twins.

Two currently running FDC initiatives have been working on crucial component of the Digital Transformation, the Digital Reality (AR and VR) and SAS (Digital Twins).

Digital Twins are at the same time a digital model of some physical entity (object, aggregated objects, processes…) and a digital shadow of the physical entity, mirroring its present situation (hence supporting monitoring and simulation) as well as its history (supporting root cause analyses). The Digital Twin can, in some situations, also be used as a proxy of the physical twin, something that is leveraged in Industry 4.0 as well as in other areas.

AR in a way connects the world of bits to the one of atoms. overlaying bits on atoms. VR, on the other hand is only leveraging on the world of bits. More on this on the next post.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the Industry Advisory Board within the Future Directions Committee and co-chairs the Digital Reality Initiative. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.