Characteristics of Intangible Economy

14564 2020-01-22 20:13

Over the past centuries, our economy has always revolved around physical assets. However, due to the development of technologies, the forms of the modern economy have changed drastically, and investments and assets in increasing numbers become non-physical, namely, intangible.

Nowadays, many of the most prominent companies in the world, such as Facebook, possess a significant amount of intangible assets, including software, branding, and development capacity, instead of real estate or factories. Companies built with intangible assets, for some reason, behave differently from those reliant on physical assets. The book Capitalism without Capital introduces three main characteristics of intangible assets.

1. Intangible assets can expand rapidly

Businesses based on physical assets have one disadvantage in common: they are easy to be limited. When we need more production capacity, we have to invest more tangible assets. However, intangible assets do not have such limits, and they can expand rapidly in no time, which is particularly evident in the tech industry. For example, one mobile app can attract millions of downloads.

Intangible-intensive companies can likely grow incredibly large and finally become monopolies, creating enormous challenges to new entrants in the same industry.

2. Intangible assets are high-risk and irrecoverable investments

Physical assets are relatively more stable than intangible assets in terms of value. Although physical assets may depreciate, they can always find a buyer in the market at a lower price. The case of intangible assets is a bit complicated. It’s hard to calculate the investments in intangible assets and recover the costs if anything goes wrong.

There is no mature secondary market for brands: on the one hand, the brand value is difficult to estimate; on the other hand, the brand may lose all the value if the business fails. Therefore, intangible assets are high-risk investments and may drop to zero overnight.

3. Intangible assets are easy to be duplicated

Your competitors can steal your intangible assets with little difficulties. When a tech company solves a problem innovatively, many imitators and competitors spring up. iPhone is a good example. And in order to obtain a larger market share, competitors always keep improving the current technology and try to innovate further.

However, being easy to be duplicated brings up a problem of abuse. Policymakers in the intangible economy should enhance the protection of intellectual property rights.

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