From bits to atoms

October 19, 2018

“Uber, the world’s largest taxi company, owns no vehicles. Airbnb, the world’s largest accommodation provider, owns no real estate.” Four years ago, TechCrunch used these words to illustrate the success of online platforms that did not have a stake in physical assets. However, these same online platforms are now increasingly becoming physical.

Our observations
  • Amazon now runs more than 600 physical retail stores which includes their bookstores, Amazon Go convenience stores, Whole Foods grocery stores and traveling Treasure Trucks. Furthermore, Amazon invested an unspecified amount in Plant Prefab, a housing design and prefabrication company.
  • WeWork has 287 locations in 77 cities across 23 countries and is planning to go into physical retail. Furthermore, with their WeLive brand they have opened two co-living spaces in New York and in Arlington, Virginia in the U.S.
  • Alphabet’s Sidewalk Labs is aiming to build a smart neighborhood in the city of Toronto called Quayside which covers 12 acres of land.
  • Airbnb is partnering with real estate developers (e.g. Century 21) enabling sublet constructions in which renters, owners and Airbnb share the revenue.
  • All big tech companies have heavily invested in proprietary consumer devices. Facebook just launched its own home assistant Portal, whereas Google just showcased its new line of smartphones.
Connecting the dots

Presumably, one of the main advantages of online platforms is that they are not burdened by responsibility over physical assets, but instead leverage the assets of their users through the network effects of their digital open marketplace. This dynamic did enable companies initially to scale quickly by orchestrating aggregated value units (e.g. apartments, cars, content) while not having to deal with large upfront investments, production logistics, local regulations and maintenance. Consequently, many thought that the pure digital play was the way to go. However, many of these platforms now increasingly invest in physical assets and newcomers rely on a more hybrid approach as well. Whether it be through the investment in real estate, production of proprietary content, production of consumer electronic devices or by simply hiring employees, the general trend is that these marketplaces are increasingly investing in proprietary physical value units instead of purely residing in the virtual core of the platform. There seem to be several reasons for this trend. Firstly, although these platforms were initially able to grow explosively by simply introducing a platform business model to their domain, now that these platforms are established, further optimizations that are specific to the business are needed. These optimizations include gaining influence over legislators by creating win-wins with local players with clout (e.g. Airbnb partnering with local real estate developers), competition with physical incumbent competitors (e.g. Amazon vs Walmart) and adding scarcity and unicity to value propositions which otherwise could easily be reproduced by the competition (e.g. Netflix investing in content production). Secondly, the tight integration of hardware and software will give these services more control over the user experience while at the same time creating further lock-in of the user. Thirdly, platforms want to gain a foothold in future customer IoT interfaces to secure potential data streams and service distribution points (e.g. Alexa homes). As described in a previous note, some digital platforms are driven towards hardware production in order to maintain their strategic position in the layer of the interface and the technology stack at large. Lastly, there is the long-term risk of platforms becoming more and more decentralized. With the ongoing development of decentralized systems, multi-sided platforms could in the long-term face an existential crisis as most of their functionalities could practically become a utility. As a result, the value within future online networks will increasingly reside at the edge instead of the center. Going forward, to anticipate the future we could take some inspiration from the development of personal computing. In this industry, software companies have long competed with software-hardware integrators. For instance, Microsoft and Google succeeded in the past by licensing their software platforms to many different hardware platforms, whereas Apple’s success largely came from its tailored integration of hardware and software as illustrated by their current smartphone business. Similarly, we have witnessed a paradigm in which where service platforms were able to scale from its physical substrate for the purpose of scale, whereas now platforms will specifically look for an edge by means of the physical. However, the question is to what extent the latter will gain full dominance, or that it will follow the analogy with software platforms in which the two paradigms continuously co-exist in a dynamic equilibrium.

Implications
  • The more physical touchpoints a platform has, the more a platform can be subjected to local regulation.
  • If service platforms will follow the analogy of software platforms, we could also see a dynamic equilibrium of integrated services and pure play platforms.

Series 'AI Metaphors'

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1. The tool
Category: the object
Humans shape tools.

We make them part of our body while we melt their essence with our intentions. They require some finesse to use but they never fool us or trick us. Humans use tools, tools never use humans.

We are the masters determining their course, integrating them gracefully into the minutiae of our everyday lives. Immovable and unyielding, they remain reliant on our guidance, devoid of desire and intent, they remain exactly where we leave them, their functionality unchanging over time.

We retain the ultimate authority, able to discard them at will or, in today's context, simply power them down. Though they may occasionally foster irritation, largely they stand steadfast, loyal allies in our daily toils.

Thus we place our faith in tools, acknowledging that they are mere reflections of our own capabilities. In them, there is no entity to venerate or fault but ourselves, for they are but inert extensions of our own being, inanimate and steadfast, awaiting our command.
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2. The machine
Category: the object
Unlike a mere tool, the machine does not need the guidance of our hand, operating autonomously through its intricate network of gears and wheels. It achieves feats of motion that surpass the wildest human imaginations, harboring a power reminiscent of a cavalry of horses. Though it demands maintenance to replace broken parts and fix malfunctions, it mostly acts independently, allowing us to retreat and become mere observers to its diligent performance. We interact with it through buttons and handles, guiding its operations with minor adjustments and feedback as it works tirelessly. Embodying relentless purpose, laboring in a cycle of infinite repetition, the machine is a testament to human ingenuity manifested in metal and motion.
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3. The robot
Category: the object
There it stands, propelled by artificial limbs, boasting a torso, a pair of arms, and a lustrous metallic head. It approaches with a deliberate pace, the LED bulbs that mimic eyes fixating on me, inquiring gently if there lies any task within its capacity that it may undertake on my behalf. Whether to rid my living space of dust or to fetch me a chilled beverage, this never complaining attendant stands ready, devoid of grievances and ever-willing to assist. Its presence offers a reservoir of possibilities; a font of information to quell my curiosities, a silent companion in moments of solitude, embodying a spectrum of roles — confidant, servant, companion, and perhaps even a paramour. The modern robot, it seems, transcends categorizations, embracing a myriad of identities in its service to the contemporary individual.
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4. Intelligence
Category: the object
We sit together in a quiet interrogation room. My questions, varied and abundant, flow ceaselessly, weaving from abstract math problems to concrete realities of daily life, a labyrinthine inquiry designed to outsmart the ‘thing’ before me. Yet, with each probe, it responds with humanlike insight, echoing empathy and kindred spirit in its words. As the dialogue deepens, my approach softens, reverence replacing casual engagement as I ponder the appropriate pronoun for this ‘entity’ that seems to transcend its mechanical origin. It is then, in this delicate interplay of exchanging words, that an unprecedented connection takes root that stirs an intense doubt on my side, am I truly having a dia-logos? Do I encounter intelligence in front of me?
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5. The medium
Category: the object
When we cross a landscape by train and look outside, our gaze involuntarily sweeps across the scenery, unable to anchor on any fixed point. Our expression looks dull, and we might appear glassy-eyed, as if our eyes have lost their function. Time passes by. Then our attention diverts to the mobile in hand, and suddenly our eyes light up, energized by the visual cues of short videos, while our thumbs navigate us through the stream of content. The daze transforms, bringing a heady rush of excitement with every swipe, pulling us from a state of meditative trance to a state of eager consumption. But this flow is pierced by the sudden ring of a call, snapping us again to a different kind of focus. We plug in our earbuds, intermittently shutting our eyes, as we withdraw further from the immediate physical space, venturing into a digital auditory world. Moments pass in immersed conversation before we resurface, hanging up and rediscovering the room we've left behind. In this cycle of transitory focus, it is evident that the medium, indeed, is the message.
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6. The artisan
Category: the human
The razor-sharp knife rests effortlessly in one hand, while the other orchestrates with poised assurance, steering clear of the unforgiving edge. The chef moves with liquid grace, with fluid and swift movements the ingredients yield to his expertise. Each gesture flows into the next, guided by intuition honed through countless repetitions. He knows what is necessary, how the ingredients will respond to his hand and which path to follow, but the process is never exactly the same, no dish is ever truly identical. While his technique is impeccable, minute variation and the pursuit of perfection are always in play. Here, in the subtle play of steel and flesh, a master chef crafts not just a dish, but art. We're witnessing an artisan at work.
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About the author(s)

FreedomLab Fellow Arief Hühn headed FreedomLab from 2018 until 2023, directing our research and business endeavors with a special emphasis on the impact of emerging digital technologies on the economy, politics and society. He holds a master's degree in communication sciences from Radboud University Nijmegen and a doctorate degree in human-computer interaction from Eindhoven University of Technology.

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