Value Creation Comes from Technology

Some people believe value comes directly from labor. They price something based on the number of labor hours that went into it. If it takes five hours of a surgeon’s time to do some procedure, it will be really expensive. If it takes one hour, then it is cheaper.

At first that seems reasonable, except people pay for the value provided to them. They pay for the impact on them, not the cost to provide it.

It might take a lot of time for you to handcraft one chair, but a chair manufactured on an assembly line may be cheaper and better. Even though the first chair might have more labor going into it, the second chair may cost less and have higher quality.

Rather than the “labor theory of value,” I think about the “technology theory of value.” The actual value injection is from technology. Think about using a light bulb rather than having humans running around with you holding candles. It’s the same for refrigerators and automobiles.

Technology theory of value is better than labor theory of value.

This is the technology theory of value: technology is actually where the value creation is happening. We can see this most clearly on the computer.

Accelerating robotics means more and more value is created on the computer. We don't fully realize this because today we see software affecting only screens. Once more robot arms are moving the physical world, that will change.

Eventually, everything we can think of basically will be reduced to software. All the non-software components are gradually going to get commoditized. We're going to robotify a lot of things. We will have self-driving trucks and fully robotic ports. We will talk later about generalizing the concept of printing on paper to “printing out” any material thing, like a bowl of food.

The leverage on software is only going to increase. This is where all the value creation is going to come from. It will be mainly software creating value, and everything else executing it.

Technology's first law: whatever can be done over the internet will be done over the internet. (Though it might take a while for any given phenomenon to move online.) The statement might sound obvious, but the implications are far-reaching.