Digital Economy

The digital economy is an economy based on Information and Communication Technology (ICT), such as the Internet, smartphones, mobile and wireless networks, optical networks, Internet of Things (IoT), cloud storage and cloud computing, sharing services, apps, and cryptocurrencies. The size and impact of the digital economy are driven by people’s adoption of these technologies. In 2005, only 15% of the world’s population had access to the Internet. Twelve years later, in 2017, about half of the world’s population had access to the Internet. In all regions of the world over the last twelve years, access to the Internet has increased. However, there are differences—a digital divide—in Internet adoption between countries, regions, and within countries. While most of the western world is connected to the Internet, large parts of Africa is lagging behind.

Access to the Internet has been proposed as a basic human right, and in 2016, the United Nations (UN) released a non-binding resolution condemning intentional disruption to such access by governments? It is clear that access to the Internet has changed the lives of people and the way businesses operate, and will increasingly do so as the other half of the world’s population gets connected to the Internet. Another important evolution in the digital economy is the number of people using public narrowband and broadband mobile technologies. Cellular narrowband mobile systems (2G) offer global services, such as telephone calls and SMS. Cellular broadband mobile systems (3G, 4G, and 5G) support the use of smartphones to access the Internet. These technologies also support telephony and SMS, phasing out the use of 2G systems. The number of users of public mobile networks has surpassed the number of people in the world. The reason for this is that many people have access to more than one device; for example, one private smartphone and one for work. Moreover, mobile communications are used as local area routers and for connecting sensors and other devices in the Internet of Things (ToT) and public infrastructures.

The world’s five largest corporations by market capitalization as of the beginning of 2018 (in descending order) are: Apple, Alphabet (Google), Microsoft, Amazon, and Facebook. All of these companies produce digital goods and services, while also conducting their businesses in the digital economy. Their combined market capitalization totals over $3,400 billion.

These companies hold immense power in today’s business world due to their size, span of operations, and international impact. They can be characterized as digital conglomerates, as their business operations have expanded far beyond their original business idea. Google, for example, started out as a company delivering search engine services for Internet users. Today, Google offers, in addition to its search engine: Social networking (Google+), e-mail (Gmail), instant messaging, and voice-over IP (Google Hangouts), text editing (Google Docs), and cloud storage (Google Drive). Google has expanded its business operations into many sectors of the digital economy by acquiring competing companies and performing horizontal and vertical integration.

The main asset of these companies is the network of consumers who use the digital goods and services they offer. These users give rise to network effects that provide huge value to these companies. Maybe the most striking fact is that these companies have only needed twenty years to gain their current market dominance. Looking ten years back (in 2008), the top five companies according to market capitalization included PetroChina, Exxon Mobile, General Electric, China Mobile, and Industrial and Commercial Bank of China (ICBC). Of these companies, only China Mobile can be said to fully operate in the digital economy, providing Internet and mobile access to consumers in China. How do companies in the digital economy get so big? How is it possible for companies in the digital economy to accumulate so much value in such a brief time? These are some of the questions we will shed light on in this book.

Several disruptive innovations have contributed to the scope and size of the digital economy. A disruptive innovation is an innovation that creates a new market, often leading to a change in market leadership and the emergence of new companies which become the dominant actors.

One of the most famous examples of disruptive innovations is the fall of the photography company Kodak, which was one of the leading producers of chemical photography and camera films. Kodak failed to embrace digital photography in the 1990s and 2000s and lost the competition with Asian producers. Kodak filed for bankruptcy in 2012, and its patents were bought by a group of companies (including Google and Apple) for $525 million in 2013. Later that year, Kodak emerged from bankruptcy; however, with a very different market position compared to the market leader it once was in the 1990s. When ICT is at the core of a disruptive innovation, the market often changes from producing physical products to producing digital goods and services. Market sectors that have been significantly affected by ICT-based disruptive innovations are media, telecommunications, and finance.

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