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The Supply Chain of Digital Content

Standing in an elevator in Changi International Airport in 2011, I saw many business travelers reading the newspaper. But how did those newspapers get in their hands? As it happens, many of the newspapers may not be “paper” at all. They are digital content, served up to dedicated or general viewing devices. And since that form of newspaper was widely unavailable up to 2010, let’s consider the supply chain behind these forms of digital content. Inevitable questions arise when we think about a digital content supply chain: is there a supply chain for digital content at all? If so, is it managed using the same principles and strategies as the more common physical version? Does the same staff run both supply chains? If not, what skills are appropriate to digital vs. material supply chains? Those are the questions behind today’s article. And to start off the discussion, let’s look at the “digitization” phenomenon from the viewpoint of a supply chain.

Digitization and Disintermediation

This may be hard to imagine, but try to picture a world where a cigarette is a service instead of a product. If that’s hard to fathom, consider the shock people experienced when music converted from a service to a product. Live music, when it was the only form that existed, was only available as a service: you paid the performers for the time they played. From a value-creation perspective, the listeners were deriving value from the stimulation of sounds in their ears. Of course, if you asked them at the time they would have identified the intermediary as the value: the musician or the sound coming from the instruments. But the advent of radio proved that the sound could come from alternate devices and be just as valuable. Likewise, recorded sound showed that the artists were an intermediary to the real value. In the end, a quality recording played on quality speakers is perceived as very valuable and it effectively disintermediates the artist and their instrument from the majority of the value created. Because it could be bought, sold, used repeatedly, stored, etc, at this point music became mostly a product.

So, when music transformed from a service to a product it suddenly required a supply chain, mostly due to its material flow. Crates of records, tapes, CDs, etc, all had to be moved carefully and quickly. Careers were spent in executing this branch of logistics, and specialty firms arose with their own expertise. But then a new change occurred, and music’s value-chain was once again disintermediated. Digital music content offers buyers the values they want without all the material to be delivered. In some situations, like on-demand streaming audio, music became a service again. But mostly it became “digital content”, meaning a purely informational product.

Similar changes occurred in other products: photography, newspaper, magazines, literature, movies, etc. In each situation, the material which has acted as the conduit for value is disintermediated. It’s easy to be blasé about past innovations. That’s part of what makes us human: we accept the naturalness and logic of past innovation. It lets us progress extremely fast as a species. But take a moment and remember that for all of these products, the material aspect was almost sacred in its connection to the value. We associate literature with libraries, cinema with the rolling film-reel, and newspapers with bundles of paper being unstacked at 5:00 AM on a street corner. For the unprepared, the change to digital content is huge. And for those whose careers were focused on moving materials, it could also be a catastrophic change.

The service cigarette

Now that we’ve looked at examples of successful, completed transitions to digital content let us take a moment to consider potential future transitions. As an example, consider the value behind a cigarette. A cigarette is currently a product, and I would suggest its main value comes from these attributes:

  1. The sensory input of smoking, namely the smell, taste, warmth, chemical release, and physical gesture of holding or manipulating a cigarette.
  2. The impression made on others as they watch us smoke, or make gestures related to smoking (such as lighting a cigarette, rolling a cigarette, etc).

Of course, for people today the value derived from the physical product (a cigarette) is unobtainable via a digital content form. It just seems obvious that in order to get the sensation of smoking and to give others the impression of smoking or smoking gestures, you must have a physical product. But is that necessarily true?

A growing area of cognitive science is leading to devices or techniques which can induce perception, sensation, or function in the brain without the usual physical or environmental stimuli. The most notable is the (potentially fake) god helmet effect in which mechanical stimulation of the brain induces a feeling of epiphany and a profoundly connected moment, as if exposed to a divine presence. In other research there is a high-probable R&D path that will lead to “wet-ware” interfaces, so that digital content can be accessed via some form of conscious thought. If it takes the form of memory, “digital content” memorable vacations or professional experiences could be purchased. If it takes the form of cognitive ability (like very fast problem solving), we may find products or services replacing specialty education (like some areas of engineering). An experiment in 2011 proved this in mice, where the mice had a brain implant which then heightened their problem solving ability without affecting their memory.

What all of this is getting at is actually pretty simple: maybe in the future we just need data to have the feeling of smoking and for others to have the impression of us in the act of smoking. We don’t need musicians to play live, or even a plastic reflective disk with their music on it, to enjoy the sounds of music. With more direct input to our sensory system, we may consume food, cigarettes, or other items as purely informational products in the future. A brand of candy bar or cigarette may just end of being a patented data profile that gets downloaded like an MP3 file. If this sounds very far-fetched and shocking, that should be a wake-up call that the current state of our lives were likewise almost as inconceivable less than a century ago.

Changing Skill Base

In all these stories of successful or potential disintermediation, we need to consider where the supply chain changes. Looking at fully complete transitions, like from CDs of music to MP3s, it’s fair to say that the supply chain probably largely disappears. I would contend that it doesn’t disappear by necessity, but instead it evaporates because the leadership of the supply chain do not remold themselves as quickly as the underlying changes. But perhaps that’s not possible most of the time. Did horse trainers become auto mechanics just because their product was in danger? No, because the product and the professional skill are separate. So what skills are needed to manage the supply chain of digital content? Let’s look at two in particular: information management and classic multi-organization supply chain coordination.

First, there is a clear need for an information management or information technology background. Just as logistics is ultimately about moving material, digital content is ultimately about a purely informational product. Purely informational products have several unique characteristics, from which we can suggest the most relevant skills for those who manage them. And first among these aspects is the fact that pure information is theoretical: real data is always embedded in the physical world somehow. Digital content comes in some format and is delivered via some format. Workers in the digital content supply chain will need to understand and appreciate the capabilities and differentiators related to data storage format, access methods, and transfer methods. I imagine that someone trying to manage a digital content supply chain would need to ensure that the various parties involved have proper access points, secure protocols, sufficient bandwidth to transfer or deliver content, a uniform approach to protecting intellectual property rights, and an eye to enabling faster time to market for digital content as its created. A background in IT is appropriate for these skills.

Second, digital content has more complex ownership paradigms than physical goods. This is where the digital content supply chain really does exist, and where the supply chain management skills are most needed. Cooperative arrangements have to be created and executed across several parties. For example, there may be a creator of content (like an author), who’s writing is published in a magazine. The magazine syndicates with a group of journals, so the article belongs partially to the journalist and partially to the original magazine, but can be re-published for a nominal fee by anyone in the syndicate. One of the journal syndicate members pays the fee and then places the article online.  Let’s now add a company which runs an aggregator service, which aggregates relevant news or editorials for subscribing customers and is paid a reference fee by the content provider for any download. The aggregator company is paying a hosting fee to be marketed on a for-fee content provider site, like Amazon.com. When a customer uses their e-reader and Amazon account to setup a download through the aggregator, you have a classic multi-organization supply chain in place. There is one source of revenue, which must be shared by all the participants in a cooperative manner. But unlike the usual retail supply chain, the goods do not exchange complete ownership during the supply chain. The complex usage agreements, and the execution of those agreements, are where supply chain management skills are most transferable between material and informational products. In an interview for a digital content supply chain management role, experience with strategic sourcing and its related game-theory underpinnings would be easily applicable.  And it is the supply chain skills here that would compete well with another candidate who had only the IT background.

Monday Morning Wrap Up:

As with all the articles on this site, I’ll close with a summary of how this discussion can be immediately applied in your working life. For those in industries which face a conversion to digital content, these may be things you’re already doing or planning.

  • In whatever industry you are in, consider carefully what the actual value-drivers are for your supply chain’s final customers. Is it a product or is it the qualities derived by the product?
  • In many situations, current or future technology will minimize the need for moving vast quantities of materials around the world in order to provide value. Instead, you’ll be moving vast quantities of information.
  • Even if the final product still remains, intermediary supplies may be converted into information-only formats. This happened already for many forms of prototyping, where remote offices share software renderings rather than machines or sewn objects.
  • In industries where the product is some form of digital content, the logistics experience and skill sets from supply chain management will likely be irrelevant.
  • Other supply chain skill-sets, like multi-organization coordination, negotiations, and the game-theory base that stand behind it, will be relevant and needed.
  • Finally, if you’ll be working in a supply chain for digital content there is no way around becoming adapt at information management, and ultimately IT. These are the tools of the trade. Compete for good jobs with them, not against them.

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