Appreciating The Value Of Digital Assets: Understanding The Potential Of DAM In 2016
During the course of the last eighteen months or so, I have discussed DAM with a number of people, including users, vendors, consultants and investors. While there is a general acknowledgement that demand remains firm and that the growth cycle which first commenced around 2003-2004 is still in-progress, there is also a consensus that it is starting to slow. Among some, there is a belief that the counter-cycle may have already commenced.
Usually, when this kind of analysis gets advanced to some on the sell-side of DAM, you will get offered back all kinds of proof that the wheels still remain firmly attached to the gravy-train, for example. reports of best quarters ever, high double digit revenue growth and generic research publishers making dubious predictions about market growth extrapolated from flawed historical data. Technology company valuations are more weighted towards their future earnings potential than more conventional businesses, however (hence why their valuations usually have higher than average earnings multiples compared with other sectors). This means you have to ask what will sustain the same level of revenue expansion in DAM in the future; this is where the question mark emerges.
There are several factors which could limit growth with the DAM market (in its current form):
- The opportunity to sell the vast majority of large organisations their first enterprise DAM system is mostly over and has been in a gradual, but persistent decline since 2010. The market for second or third generation replacement products is more diffuse and clients are becoming more demanding on each subsequent iteration as they gain a better understanding of the issues.
- There are an increasing number of entrants to the DAM market and competition is increasing as a result – in particular, from WCM and other adjacent fields who now regard DAM as fair game (although it is questionable whether they properly understand exactly what they are getting into).
- DAM vendors, themselves, have chosen to dilute their offer by expanding the functional scope of their solutions or offering cut-down, ‘lite’ versions. This leads to more of them fighting wars on multiple fronts and internal conflicts about what should be prioritised.
- There is a lack of a genuine defensive strategy to repel competitors and a dependency on demand across the overall market remaining buoyant. Most solutions (whether provided by large or small firms) are not significantly different from each other and are implemented in a similar manner (a scenario exacerbated by vendors copying functionality from competitors as a cheaper substitute for R&D).
- Cloud-based solutions (at least theoretically) are easier to migrate from. More of the market is heading towards cloud delivery, even formerly on-premise vendors have begun to launch cloud editions now.
As well as the above, the DAM software industry has allowed the agenda to get set by a very narrow range of influencers who lack demonstrable knowledge of or experience in our market (most of whom did not consider Digital Asset Management as very important until three or four years ago). While Customer Experience Management (CXM) has validity as a business strategy, most of the technological examples that have been offered as examples of its implementation are simply a gratuitous intellectualisation of website design. Very few of them appear to offer much relevance to anyone other than a select group of retail/consumer oriented businesses and even in that case, there appears to be little that most enterprises have not already known about for many years already. The interests promoting CXM have sought to cast Digital Asset Management as some kind of subsidiary discipline to it. In doing so they have significantly underestimated the potential of DAM with a consequent de-valuation of the value of the wider concept of digital assets.
Many vendors operating in the Digital Asset Management software market have (either by choice or accident) begun to metamorphosise into marketing technology agencies. The folly of this strategy should be obvious to anyone who has even vague experience of the marketing services industry. The majority of conventional marketing agencies do not grow to any significant size (i.e. more than a hundred employees – usually considerably less). They survive for a few years with a small number of clients until key people leave, rosters get changed and the cash runs out. If that is the extent of your ambitions for the digital asset operation you are involved in, or describes your needs for a DAM partner, you can stop reading now and skip the rest of this item as it will not apply to you.
Stating that DAM innovation is now ‘dead’ (to paraphrase a quote I discussed early last year) is, itself, a bit ‘2015’ now and a reasonable question I have been asked by some is what changes I would propose to bring it back to life again. The rest of this article should address that and also offer a preview of the DAM News editorial focus as we move further into 2016. The subject matter is deliberately more business and economics-oriented than some of the technology or information architecture pieces that we usually feature. The reason for this is because that is the context into which decisions about the role of both DAM solutions and digital assets will get made by enterprises. If there is not a compelling business case for DAM then the market will become sidelined and eventually disappear. As such, I believe this is a legitimate form of analysis and one that does not often get the consideration it deserves.
Where Next For Digital Assets?
Last year, I wrote an article for CMSWire where I described DAM as having entered a cul-de-sac (or dead end) which it needed to reverse out of to move forward again. My contention is that many in Digital Asset Management have lost sight of the meaning of digital assets, in particular the value proposition that they are supposed to represent.
The term ‘digital assets’ has acquired two independent meanings that currently co-exist, but which now need to be unified. The one that will be more familiar to most of our regular readers is as a proxy to refer to media like photos, videos, documents etc. When most people describe the type of digital assets that get held on DAM systems they are thinking of the essence, first and foremost as that is what has primary or intrinsic value for them, but metadata adds a further extrinsic dimension that you only properly understand once you have found it necessary to make more conscious decisions about digital assets, i.e. manage them. This distinction between these two categories of value is a theme I will return to later.
In other sectors (in fact, the conventional understanding of the term ‘digital asset’ by most people who do not regularly come into contact with DAM solutions) has a more straightforward and logical definition which can be summarised as follows:
digital = on a computer
asset = something that has a value
This offers a lot more potential for not only innovations in DAM technology but also a means for enterprises to enhance the value of their digital assets. How might this occur? To understand this, consider these sources of enterprise value:
To date, most of the attention in Digital Asset Management has gone into digital assets as they relate to customers, mainly because that is the chief concern of the marketing function in many businesses (who are the ones who most often invest in DAM technology). When prompted to offer examples of Digital Asset Management that are not marketing-related, it will usually be specialist and/or non-commercial verticals that get cited, like museums, educational institutions, sports, law enforcement etc. Valid though they are, most of the DAM market fixates on the ‘customer’ aspect because they cannot see much beyond it. When DAM vendors and consultants talk about ‘enterprise’, in most cases they really mean ‘enterprise marketing communications’.
Some might argue that customers are the most important element in the mix, but that assertion does not necessarily stand up to scrutiny: it is like saying selling is the most critical activity for businesses, where it would be more accurate to say that it is the first concern rather than the only one. Without a top-line, you don’t have a bottom-line, but for most organisations, the challenges are typically more multi-faceted and complex to manage because making changes at one end of the value chain has ripples across the rest of it.
At a fundamental level, all stakeholders are interested in acquiring value, which are often made manifest as assets of one kind or another:
- Customers purchase goods and services because they see value in what the organisation produces that will benefit them.
- Investors buy equity in a business because they anticipate potential capital growth and yield in the form of profit-related dividends.
- Partners form alliances with an organisation because the relationship is viewed as being value-enhancing for them.
- Staff join an organisation both for the income and also the potential development of their careers, i.e. to enhance the value of themselves as individuals.
- Suppliers similarly seek out not only fee income from their customers, but also their reputation and the opportunity to increase their market share.
Most organisations need to keep each of these sources of value in a state of equilibrium (or at least at a level where excess focus on one will not impact negatively upon the others). For example, companies usually have to deliver returns to stockholders (whether through capital growth or yield) and a way to do that is by cutting costs. If they do that excessively and without carefully evaluation of the implications, customers may leave them because the product or service is not deemed to be of sufficient value. These are widely understood and recognised principles of operations management: activities need to be synchronised, orderly and in alignment to manage them properly. As such, it should be apparent that if you are seeking to exploit untapped opportunities to create value through digital assets, looking at one aspect alone will lead to an unbalanced state and before long you will be obliged to consider the other elements in the mix, whether you wanted to or not.
Many of the easily obtainable sources of value have been drawn upon already by many organisations: the greatest untapped opportunity is now in digitally generated value, or digital assets. This is what is driving digital transformation initiatives and the reason why digital assets should be integral to them.
Metadata Defines The Extrinsic Value Of Digital Assets
Last year, I wrote an article for DAM News: Digital Assets And The Securitisation Of Human Effort, which discussed the human element integral to the value digital assets and made the point that they were essentially tokens from an intrinsic value perspective. I have read a few other items by people in DAM which point to a similar idea, such as this quote from Ben Smidt who manages the DAM Guru programme:
“We hadn’t considered using Picturepark before because we were managing people, not digital assets, But once we thought of our members as human assets, the possibilities started coming clear.” [Read More]
To make it clear, I am not endorsing the Picturepark system and I don’t think Ben necessarily is either. To a greater or lesser extent, you could do the same with other DAM solutions too. The point is that digital assets are being used to represent value, expertise (or ‘human capital’ if you prefer) in this case. As described previously, it could also apply across an organisation to generate digital representations of assets of all kinds.
This area is important enough for it to warrant a longer article which I intend to write at a later date, but one point that is becoming increasingly clear in understanding the value of digital assets is the difference between intrinsic and extrinsic value. Intrinsic value is the critical element that makes it possible for the digital asset to exist in the first place (e.g. the person, binary data, physical object, legal contract etc). Extrinsic value describes an almost limitless range of opportunities to leverage the asset and make it more useful to prospective users. To sum it up: metadata defines the extrinsic value of your digital assets and helps to inform you what value they might have for a given purpose.
Digital Transformation And Digital Assets
Many organisations are currently in the middle of multiple digital transformation initiatives. The premise is a reasonable one: digital models are used to represent existing physical ones and are then optimised and adapted to generate efficiencies that were previously unavailable. The risk is a lack of any means to properly quantify and measure the benefits accrued accurately enough. Digital assets, provide the opportunity to do that. Using a digital asset-based approach can reduce the risk of organisations committing huge amounts of investment capital without any means to assess whether or not they have been effective; they are the currency of digital transformation initiatives.
The Rise Of Blockchain Databases And Digital Assets As Commodities
One aspect of digital assets which offers some potential for innovations that (as far as I know) have not been properly assessed in DAM circles until now is the role of the so called blockchain databases. For those unfamiliar with the term, this encompasses technologies like bitcoins and what were often described as crypto-currencies in the past, although the term ‘digital asset’ now appears to be gaining favour.
I suspect a number of people reading this article may have had the same view of bitcoins that I did until I read a bit more about blockchain databases, i.e. that they were some kind of tulip mania style, techno-fetishist fad (or alternatively the preserve of the kind of people who go out and buy gold bars, then bury them in their back gardens). Looking at them from a digital asset value infrastructure perspective, however, they start to get a bit more interesting.
In simple terms, blockchains are a distributed database of transactions involving digital tokens. It so happens that bitcoins are currently the most popular kind of commodity digital assets which use blockchain infrastructures, but they do not need to be the only one. The key issue with bitcoin which makes them less interesting as a digital asset is that the intrinsic value is essentially worthless, because the underlying computation which their value is based on is a pointless exercise designed with nothing more in mind than to generate artificial scarcity. Consider the following from this blog post by Gideon Greenspan on the multichain.com blog:
“In bitcoin anonymous miners must perform expensive useless computations, and are incentivized to do so by the block rewards (and transaction fees) denominated in the blockchain’s native currency or token. Do we have any other options? It turns out that we do. We can have a closed list of permitted miners, who identify themselves by signing the blocks that they create. Rules about distributed consensus (or “mining diversity” as we call it in MultiChain) provide a different way of preventing minority control of the blockchain, so long as you can accept that miners are pre-approved.” [Read More]
If the intrinsic value of the digital asset is backed by something of current commercial value (for example, distributed data mining of big data repositories) that does not need to be a digital currency, per sé, then you can create viable commodity digital assets that people will pay for as they do with physical commodities such as energy, metals and agricultural goods.
Last year, I discussed cloud data storage exchanges and how these might become key elements of a digital asset supply chain, I expect something similar to occur with these emerging classes of commodity digital assets. These innovations will generate both opportunities and risks, but it seems likely that they will become more widespread. They may come to be regarded as economically more significant than the non-commodity digital assets which has been the focus of Digital Asset Management up until now.
Digital Assets From A Macroeconomic Perspective
Digital assets and the DAM market do not exist in a vacuum, there are wider factors which also have an influence. Overwhelmingly, the sentiment in the general economic environment at the start of 2016 is negative with concerns over failing Chinese growth, a collapse in the prices of many commodities (on-going from late 2014) and other geo-political risks with descriptions like ‘existential threat’ being liberally applied. Looking at the macroeconomic factors in isolation, you might take the view that digital initiatives might stand very little chance of surviving the current onslaught of bleak macroeconomic news. With all that said, however, the tech market (including DAM) has run counter to these prevailing trends in the recent past. In 2009, for example, demand for DAM software continued to grow at an exponential pace (despite the turmoil that was going on elsewhere). The out-performance of the wider tech market compared with other sectors during 2015 suggests this trend might continue:
“Technology stocks are trending big-time as investors latch on to innovative companies racing ahead in a slow-growth world. The tech-heavy Nasdaq is the best performing major U.S. stock index this year, gaining 6 percent as the Standard & Poor’s 500 and the Dow Jones Industrial averages have wavered between small gains and losses. The industry has re-established itself as the dominant sector in the U.S. stock market and currently accounts for 20 percent of the value of the S&P 500 index. That is tech’s largest share since the dot-com bubble, and makes it the biggest sector in the market.” [Read More]
One of the risk factors for US firms noted in the article quoted above is the strengthening US dollar and this is also sometimes cited as a reason why many commodities are under price pressure currently. Although as discussed in the previous section, I remain to be convinced that bitcoins have the intrinsic value necessary to prevail as a long-term digital asset, it is interesting to note that they have been out-performing a non-digital currency which also has no intrinsic value for the latter half of 2015.
During 2015, among a few people I spoke to (although not everyone, I must stress) there was what can only be described as despair at how the DAM market was beginning to develop and some were actively considering leaving it entirely to go off and do something else. By looking at the digital asset management topic in a slightly different context, however, it is possible to see how innovation might be re-started in a way which would appreciate the value of digital assets, rather than discounting them (as appears to have happened in recent times).
I will be both continuing this series of articles during 2016 and also introducing some new (and possibly unexpected) variations on the themes discussed in this item. All the existing coverage will continue, along with our subsidiary sites like the glossary, vendor directory, whitepapers etc (along with some new materials) but our market is overdue a shake-up (or to be ‘disrupted’ as I believe the preferred term is these days). So if you were expecting 2016 to be a continuation of the same stuff as the last few years, you might be in for a bit of a shock.