The sheer separation of the providers from the consumers of these infrastructures drives a lot of the value.
Imagine stringing a wire to connect your PC to your neighbour’s PC in order to play a game together. People have been doing these things. How long does that take? What is the cost? Where do you buy the cable? How are you going to run that cable? It is a lot faster to just use the internet for that.
The introduction of a separate provider changes the provisioning process. For one thing, the provisioning can go much faster. The provider has capacity (stock so to say) that can just be used. Related to that is that the service is already defined by the provider. Instead of designing it from scratch, you just pick one of the options offered. Presumably, that option has had a lot of design and thinking behind it already. It is likely to be a better option than anything that you can think of yourself.
So, that brings value: it can be faster and better than your homegrown alternatives.
Because the provider has multiple consumers, there are economies of scale that play out. Whole books have been written on this, and we will be looking into that in more detail. Think of sharing of unused capacity. Not everybody is using their internet link to the max all the time.
But ‘digital’ brings more specific benefits. It is the opportunity to automate service delivery that has immense effects on economies of scale. Think about it: if a piece of software does its work, replicating that piece of software across a lot of servers is a neglible amount of effort in comparison to creating that software, typically. In contrast, baking 1000 pizzas is a lot more work than just baking one or two.
Finally, consumers can find value in being connected with other consumers. The value of a phone or social network to the individual users, not just the network owner, increases with the number of other users connected to it. As a result the value of the network increases quadratically with the number of users. This has implications for the power balance, as we will discuss later.
In a later unit we’ll discuss some of the words that economists use for these phenomena, such as investment externalities and network externalities.