The digital economy refers to the economic activities that emerge from connecting individuals, businesses, devices, data and operations through digital technology. It encompasses the online connections and transactions that take place across multiple sectors and technologies, such as the internet, mobile technology, big data and information and communications technology.
The digital economy differs from a traditional economy because of its reliance on digital technology, online transactions and its transformative effect on traditional industries. Digital innovations such as the internet of things (IoT), artificial intelligence (AI), virtual reality, blockchain and autonomous vehicles all play a part in creating a digital economy.
Don Tapscott first coined the term digital economy in his 1995 bestselling book The Digital Economy: Promise and Peril in the Age of Networked Intelligence.
In its earliest days, the digital economy was sometimes called the internet economy, the new economy or the web economy because of its reliance on internet connectivity. However, economists and business leaders assert that the digital economy is more advanced and complex than the internet economy. Under one definition, it simply means economic value derived from the internet.
The digital economy reflects the move from the third industrial revolution to the fourth industrial revolution. The third industrial revolution — sometimes called the digital revolution — refers to the changes that took place in the late 20th century with the transition from analog electronic and mechanical devices to digital technologies. The fourth industrial revolution builds on the digital revolution as technologies today continue to bridge the physical world and cyberworld.
The COVID-19 pandemic further accelerated digital economic growth as remote work, online shopping, telemedicine and digital entertainment became essential during lockdowns and social distancing. The digital economy continues to evolve and expand rapidly, with emerging technologies and innovations shaping its trajectory.
The digital economy has evolved significantly since its inception. There are numerous examples of traditional companies transforming to succeed in the digital economy.
The following are some notable examples of the digital economy’s evolution:
Businesses that make digital transformation a priority can streamline processes, reduce costs and create new revenue streams. But the digital economy is more than just using a computer to perform tasks traditionally done manually or on analog devices. It’s about finding ways for organizations to make their systems and people work more effectively together.
The digital economy highlights the opportunity and need for organizations and individuals to use technologies to execute those tasks better, faster and often differently than before. Such opportunities for existing entities to do better, do more, do things differently and do new things is encompassed in the related concept of digital transformation.
Numerous entrepreneurs seized on the technologies that fuel the digital economy to create new companies and new business models that couldn’t have existed or existed at the size and scale they do today, in past generations. Examples include the ride-sharing platforms Uber and Lyft; the home rental platform Airbnb; and content-on-demand services, such as Netflix and Spotify.
The digital economy is expanding rapidly with the use of new technologies that improve connectivity, enable automation, advance data analysis and create new business prospects.
Common technologies that are accelerating the digital economy include the following:
The digital economy provides numerous benefits, which have contributed to its rapid expansion and positive effect on a variety of industries:
While the digital economy provides many advantages, it also presents the following challenges:
The World Economic Forum predicts that over the next 10 years, business models built on digitally enabled platforms will account for 70% of all new value created. This proves that the digital economy is rapidly evolving and shaping how people live, work and interact.
The following key trends and technologies are expected to shape the future of the digital economy:
Digital transformation is a global business trend that’s changing how companies innovate and streamline processes using technology. Explore strategies for a successful transition to this evolving business model.
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