The digital economy is defined as “the worldwide network of economic activities, commercial transactions and professional interactions that are enabled by information and communications technologies” (Mary Pratt). Amir Hartman defines it as “the virtual arena in which business is conducted, value is created and exchanged, transactions occur, and one-to-one relationships mature by using any Internet initiative as a medium of exchange.” The digital economy is also called the Internet Economy, the New Economy, or Web Economy.
According to Science Daily, the term ‘Digital Economy’ was coined in Don Tapscott’s 1995 best-seller: “The Digital Economy: Promise and Peril in the Age of Networked Intelligence.” The Digital Economy was among the first books to show how the Internet would change the way we did business.
It became an international best-seller within one month of its release, appearing on several best-seller lists, including the New York Times Business Booklist and a seven-month run on the BusinessWeek best sellers list.
Components of Digital Economy
According to NIȚESCU ALINA, who wrote an article entitled: “TRENDS AND DIMENSIONS OF DIGITAL ECONOMY,” the components of Digital Economy are: infrastructure, supporting infrastructure (hardware, networks telecoms), Internet applications (software, consulting and training activities, etc.), economic activities, business mediation activities (“market makers,” search engines, etc.), transfer of goods or e-Commerce. Digital Economy, as a result of the interaction between personal computers, telecommunications, the Internet and electronics, is characterized by many features completely different from the traditional economy.
Advantages of the digital economy
Greater information. The internet has enabled consumers to have greater information and choice.
- Saves time. Before, if you needed office supplies, you would have to make a journey into town and purchase. Now, you can make an order over the internet, and it will arrive the next day. This saves business labour costs.
- Reduced costs. Firms can save on renting expensive buildings by running most of their business through the internet.
- Personalisation. A digital economy allows greater personalization than would be possible under a traditional economy.
- Lower barriers to entry. In some markets, aspects of the digital economy make it easier for new firms to enter.
- Creates significant data which can give new insights.
- Benefits for the developing world. The digital economy is opening up opportunities for the developing world. For example, computer programmers in India can easily underbid western counterparts, leading to new job opportunities and higher income in India.
- Enables people to work from home. The digital economy has been a tremendous asset during the COVID lockdown. (Source: Economic help)
Disadvantages of the digital economy
- Potential loss in Employment
Due to growing dependence on technology and the digital economy, jobs are lost.
- Rural areas are at a disadvantage
The digital economy required enormous investment and resources, which are hard to provide in rural areas. As a result, the rural areas are being left behind in some countries.
- Heavy Investment
A robust infrastructure, high functioning Internet, strong mobile networks and telecommunication are essential requirements for a digital economy.
While the developed world optimizes the digital economy, challenges remain for the developing countries that still lag in terms of access to the internet. However, initiatives are being made to bridge the digital gap between the haves and the have nots. Such initiatives include “The Digital Economy Initiative for Africa (DE4A),” which aims to ensure that every individual, business, and government in Africa will be digitally enabled by 2030 in support of the African Union “Digital Transformation Strategy for Africa.”