By Ben Walton, Ownum
Creating a digital asset may seem foreign or technically challenging. Is it time-consuming to create, does it cost more, and is it safe from bad actors? If the current process works well enough, why change?
That last point is the crux of the issue here. There are so many processes that remain paper based simply because they work reasonably well. Here we will make the case for digitization, starting with an argument for efficiency.
Let’s look at three different ways to buy and then start reading a new book. In each scenario, the process becomes more efficient.
Method 1: Travel to a bookstore to buy a book in person and begin to read at home.
Method 2: Go online to a website to buy a book for delivery and begin to read when it arrives.
Method 3: Pick up an eBook reader to buy a book electronically and begin to read immediately.
Before we further analyze this example, we want to be clear that we are assuming the purchaser (new owner) of the book has no preference between a physical book and eBook.
For the customer, the biggest enhancement is the reduced time to transfer ownership of the asset (the book). The first method requires the buyer to leave home and perhaps not find the book in stock. The second method allows the buyer to stay home but requires them to wait days or weeks for the arrival of a book by mail. The third method allows the buyer to stay home, and the book is available to them immediately after purchase. The third method eliminates the transportation time to acquire the physical asset (a book) since the book is now a digital asset (an eBook). In this case, the time to transfer the asset is then instantaneous.
For the seller, the biggest enhancement is the reduced cost to transfer ownership of the asset. The first method requires the seller to rent a physical storefront to sell their books. The second method requires the seller to pay for a warehouse to store their books as well as the shipping and handling costs for each book. The third method only requires the seller to pay to build and then maintain the software/hardware used to access the eBook.
To better understand some of the potential cost savings, let’s look at some numbers. According to Statista.com1, there were 675 million physical books sold in the U.S. in 2017. Let’s assume half of those books (337.5 million) were bought online and require delivery. Amazon2 charges $3.99 for domestic standard shipping for each book. If we take that as the cost of shipping and multiply it by 337.5 million books, we arrive at about $1.35 billion spent on shipping annually! Of course, there were many assumptions made here, but even if the savings amounted to a fraction of what was calculated, that would be a substantial amount. And that is in addition to the money saved for the buyer on gas or public transportation and the seller on physical storefronts or distribution centers.
We have established that digitization reduces the time and cost to transfer ownership, but it is also more efficient due to the elimination of paper. After all, eBooks do not have to be printed! It costs $3 to print a book3 so printing all the 675 million physical books sold each year would cost about $2 billion. If half of those were sold as eBooks, that saves $1 billion on printing books! By eliminating paper in the process to create and then transfer an asset, the cost savings become very appealing.
There are costs for publishing in a digital format that are analogous to printing in a paper format. According to one eBook converter and distributer4, a 100,000-word book manuscript in Word costs a one-time fee of $249 to convert into an eBook format and $99 for eBook distribution. These fees add up to the cost to print 116 books. Therefore, the cost to digitize a book becomes insignificant when compared to printing large numbers of books. The general trend is that the costs of digitizing an asset remain the same no matter the number of transactions on the asset.
For digitization, the final piece of the efficiency puzzle is that it also reduces the time and cost to verify ownership. We will cover this in more detail in a future post.
In summary, a more digitized process generally leads to a more efficient process as we saw with the shift to eBooks. The close relationship between increased efficiency and reduced process time and costs may alone convince you that the benefits of digitization outweigh most costs and risks. Still, we continue forward in our next post with the impact of enhanced security.