Digital economy refers to an economy that is based on digital computing technologies, although we increasingly perceive this as conducting business through markets based on the internet and the World Wide Web. The digital economy is also referred to as the Internet Economy, New Economy, or Web Economy. Increasingly, the digital economy is intertwined with the traditional economy, making a clear delineation harder.
The term 'Digital Economy' was first mentioned in Japan by a Japanese professor and research economist in the midst of Japan's recession of the 1990s. In the west the term followed and was coined in Don Tapscott's 1995 book, The Digital Economy: Promise and Peril in the Age of Networked Intelligence. This was among the first books to consider how the Internet would change the way we did business.
According to Thomas Mesenbourg (2001), three main components of the 'Digital Economy' concept can be identified:
- E-business infrastructure (hardware, software, telecom, networks, human capital, etc.),
- E-business (how business is conducted, any process that an organization conducts over computer-mediated networks),
- E-commerce (transfer of goods, for example when a book is sold online).
Bill Imlah comments, new applications are blurring these boundaries and adding complexity; for example, social media and Internet search.
- In the last decade of the 20th century. Nicholas Negroponte (1995) used a metaphor of shifting from processing atoms to processing bits. "The problem is simple. When information is embodied in atoms, there is a need for all sorts of industrial-age means and huge corporations for delivery. But suddenly, when the focus shifts to bits, the traditional big guys are no longer needed. Do-it-yourself publishing on the Internet makes sense. It does not for a paper copy."
In this new economy, digital networking and communication infrastructures provide a global platform over which people and organizations devise strategies, interact, communicate, collaborate and search for information. More recently, Digital Economy has been defined as the branch of economics studying zero marginal cost intangible goods over the Net.
The Digital Economy is worth three trillion dollars today. This is about 30% of the S&P 500, six times the U.S.’ annual trade deficit or more than the GDP of the United Kingdom. What is impressive is the fact that this entire value has been generated in the past 20 years since the launch of the Internet.
The Boston Consulting Group discussed “four waves of change sweeping over consumer goods and retail”, for instance.
In 2012, Deloitte ranked six industry sectors as having a “short fuse” and to experience a "big bang” as a result of the digital economy.
Given its expected broad impact, traditional firms are actively assessing how to respond to the changes brought about by the digital economy. For corporations, the timing of their response is of the essence. Banks are trying to innovate and use digital tools to improve their traditional business. Governments are investing in infrastructure. In 2013, the Australian National Broadband Network, for instance, aimed to provide a 1 GB/sec download speed fiber-based broadband to 93% of the population over ten years.
Impact on Retail
The digital economy has had a substantial impact on retail sales of consumer product goods. One effect has been the fast proliferation of retailers with no physical presence, such as Ebay or Amazon. Additionally, traditional retailers, like WalMart and Macy's have restructured their businesses to adapt to a digital economy. Some retailers, like Forever 21, have declared bankruptcy as a result of their failure to anticipate and adapt to a digital economy. Others, such as Bebe stores have worked with outside vendors to completely convert their business one that is exclusively digital. These vendors, such as IBM, Microsoft and Branded Online, have enabled smaller retailers to compete with large, multi-national established brands.
The Digital Economy uses a tenth of the world's electricity. The move to the cloud has also caused the rise in electricity use and carbon emissions by the digital economy. A server room at a data center can use, on average, enough electricity to power 180,000 homes. The Digital Economy can be used for mining Bitcoin which, according to Digiconomist, uses an average of 70.69 TWh of electricity per year. The number of households that can be powered using the amount of power that bitcoin mining uses is around 6.5 million in the US.
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