The price of zero marginal cost

To sell one additional piece of physical equipment incurs a marginal cost that is typically substantial, relative to the selling price. This is obvious given that the equipment has to be physically manufactured.

AI-powered digital services are fundamentally different. Once you are able to provide such services, adding one additional user only requires a bit more cloud computation – which is becoming cheaper by the hour. Effectively, zero marginal cost is attainable.

The “AI-powered” bit is not a detail – it is AI that allows you to replace humans with computers on the critical path of your digital value chains, and that in turn allows a transition to effectively zero marginal cost. 

How does a supplier of, say, marine auxiliary engines achieve this utopian state?

Well, the supplier would need to create a digital services platform. The equipment will need sensors and high frequency data will need to be streamed from vessels to the cloud, in a secure and robust manner. The platform must provide data handling, persistence and integration, as well as tools for UI and visualization, security, data science, machine learning and experimentation. It must be able to scale up and down quickly and automatically both for computation and storage.

On top of this platform the supplier would need to create a range of services, say for example a monitoring app that generates alerts if the efficiency of an auxiliary engine drops below expectations; a core part of that would be the AI that can predict expected performance in varying conditions.

This is just scratching the surface, and it’s the surface of a very big thing. If the supplier starts from scratch (no pun intended) the investment required to achieve the bliss of zero marginal cost will be measured in millions of dollars. 

The path is also fraught with risk. There are many bad ways of building your digital platform and services – just look at what happened with GE Digital (I don’t agree with all the conclusions in the article but that is besides the point.) 

Even if you do it perfectly, the investment will be very large. In other words, zero marginal cost is expensive

So is the answer to sit back in your comfortable non-digital, non-AI-first business model and wait for your competition to fail? 

Certainly not. AI represents a paradigm-shifting transformation that simply can’t be ignored. Imagine running your company today without computers – it’s unimaginable. It is only a matter of time before running any enterprise without AI will be unimaginable as well. 

If your company doesn’t become the AI-first leader in your part of the maritime ecosystem, a competitor will. 

The fundamental de-risking technique is to mature your company iteratively, taking baby steps at first, but with the clear long-term goal in sight of becoming an AI-first business. Learn from the mistakes of others and leverage the objective insights of experts who are not pushing to sell you the “what” but can teach you the “how” and, most importantly, the “why.”

If you are a maritime executive, I’d love to help you find a profitable path towards zero marginal cost.

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