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Bits Businesses, Artifacts, and the Internet

When I worked at the PricewaterhouseCoopers Technology Centre some years ago (yes, the firm had English roots) we had a PowerPoint slide we called the “bits-to-atoms” slide.  It showed a cavalcade of businesses across the slide, with businesses on the right whose product was more and more pure information (“bits” businesses) and products moving to the left with more and more material (“atoms” businesses).  As I recall, the software business was on the far right, the cement business on the far left.

The point we were making was that the business models of the businesses were being disrupted or destroyed by the Internet in left-to-right fashion.  At the time of the slide, the software business that I knew in the ’80s’ (the so-called “shrink-wrap” software business) was being radically undermined by electronic distribution, rampant copying, and open source.  The music business was crumbling (CD sales peaked a year or two after the bits-to-atoms slide), and the newspaper business was insisting that low-grade Internet gossip would never undermine “serious” journalism.

These transitions all worked the same way: by offering a medium where perfect digital copies were effortless to make, the Internet destroyed bits businesses whose ability to monopolize content depended on the existence of an artifact-for-sale (the floppy disk, the CD, the newspaper).  And the process is continuing.

What’s next?  Video — in the form of the DVD business — has begun its decline.  Pay TV (where the “artifact”, if you will, is the set-top box and proprietary distribution network) is insisting that viewers will never give up their premium content for “junky” over-the-top Internet video content.  I predicted in a Daily Caller op-ed piece that politics was a bits business ripe for disruption.  Book publishing is tipping.

Can even the cement business be far away?

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About the author

an Gordon is Research Director for Valhalla Partners, a Northern Virginia venture capital firm. Dan has twenty-eight years experience working with technology, as a computer scientist, software developer, manager, analyst, and entrepreneur. Prior to joining Valhalla Partners, Dan was a Director and senior staff member at the PricewaterhouseCoopers Global Technology Centre, analyzing technology trends and consulting on technology-oriented strategies in the software, e-business, wireless, optical, networking, semiconductor IP, and life sciences arenas. He worked with clients from North America, Europe, the Middle East, and Australia. Dan was a Contributing Writer and Contributing Editor to the Technology Centre’s annual Technology Forecast, and a frequent speaker at industry and general business meetings. Before joining PwC, Dan spent 20 years in Silicon Valley as a software technologist, manager, director, and entrepreneur, including senior technical roles at well-known Silicon Valley firms like Symantec, Intuit, and Oracle. Dan has also been involved in startup companies in the applied Artificial Intelligence and Web applications fields. Dan has a B.A. (cum laude) from Harvard University and an M.S. from New York University in Computer Science. He is a Professional Member of the IEEE and ACM. Dan lives in Washington, D.C. with his wife and two children.