Definition and delimitation
Digitisation is gradually taking over more and more areas of everyday life. This increasing penetration is also evident in the economy. In the manufacture of products, industrial and digitalised processes are combined with each other in order to achieve greater efficiency in production, entrepreneurial growth and the exploration of new sources of revenue. Products themselves are no longer characterised exclusively by static product features, but can be enhanced by digital components. This can permanently increase the added value for customers, for example in the form of personalised experiences. Digitalisation processes are also changing the consumer behaviour of customers and the associated relationship with the company. Consumers and companies are in permanent data exchange through the use of digital products, whereby the interaction between customers and companies goes beyond the purchase of a product.
An economy based exclusively or mainly on digital products and services is called digital. How digital an economy is is difficult to measure. Nevertheless, auxiliary variables can be used on the product, supplier and demand side [1]. In the case of products, the measurement is still quite easy. For example, it is possible to measure the share of digital products, such as software, in an economy. It can be noted, for example, that the ICT sector (i.e. those companies that offer software or hardware and related services) accounted for around 4.4 % of the turnover of the entire commercial economy in Germany in 2019 [2]. Analogously, the importance of the use of digital channels can be measured on the customer side. On the supplier side, the share of turnover from digital products can be determined for this purpose, as can the relevance of digital sales channels. It can be observed, for example, that the share of online sales in the retail sector was already 11.2 % in 2019 and is steadily increasing [3]. However, measuring the degree of digitalisation in processes is more difficult.
A digital economy works differently from a non-digital economy. For the internet economy, this is particularly evident in the form of strong network effects as well as strong economies of scale. If the expected benefit of a product or service increases as the number of users increases, this is called a direct network effect. Positive direct network effects occur primarily in internet platforms. For example, the benefit of participating in social media platforms increases for each individual user as the number of users increases. In indirect network effects, the size of a network of one user group influences the behaviour of another user group. In this sense, the more users there are, the more attractive a social media platform becomes for app developers. A second characteristic of the internet-based economy is strong economies of scale. While the initial cost of creating a digital product (such as a film) is high, the reproduction and distribution of this product is almost free. When network effects and economies of scale mutually reinforce each other, this is called positive feedback [4].
History
Before the term digital economy, the term internet economy was established, as already mentioned above. This focuses on the internet, which was a formative technology for digital economies due to its emergence in the 1990s. In “The Digital Economy: Promise and Peril in the Age of Networked Intelligence”, Trapscott (1996) describes the digital economy of that time through two central economic activities: First, the digital economy acts to inform and performs basic tasks such as creating static information on websites. Next, empowered by the internet, the digital economy serves as a means of communication and interaction [5].
In the second step, since the beginning of the 2010s, the term data economy emerged. This emphasises the transformative effect of advances in the collection, aggregation and analysis of big data. Even more than in the case of the internet economy, established concepts are now being questioned, from individual behaviour to the role and design of organisations and the mechanisms of society [6].
Application and examples
Digital products
Many companies are exploiting the potential of digital technologies by transferring analogue products and services into the digital world or by opening up completely new business areas [7]. On the one hand, purely digital products can be offered, for example IT products in the form of software. Furthermore, already existing analogue and established products can be enriched with digital solutions (value added services); for example, digital customer experiences around mobility are increasingly the focus of leading car manufacturers.
Digital providers
Increasing digitalisation dynamics are making themselves felt not only in products, but also in their providers. The big players of the digital economy benefit from network effects as well as economies of scale, as outlined above. At the same time, they bind their customers with high switching costs in order to consolidate their market power. In addition to the big players, other companies are also increasingly taking advantage of the opportunities offered by digital technologies by opening up new business areas. The changes in business processes, products, services and customer interfaces brought about by digital technologies can consequently lead to the expansion of existing business processes or give rise to new digital business models [7].
Digital consumption
With the introduction of digital technologies, customer expectations have also changed. Digital players have steadily driven up customer expectations and generated new demands for service and quality through their focus on customer experience. Less digitised companies are struggling to meet these demands and are under pressure from the big players.
Criticism and problems
The specifics of the digital economy, as we have outlined them above for the internet economy, can be worked out well. For the internet economy, these concepts are largely available. For the data economy, this is still lacking. Here, for example, a special significance of dealing with privacy and special requirements for the regulation of markets and the distribution of wealth are emerging as new challenges.
In addition to new business models and new requirements for consumer protection, the question arises as to whose benefit collected data should be used and who has power over collected data. Despite demands from both consumers and industry, there is still no global agreement on how to deal with personal data. In particular, the issue of privacy protection is at odds with new digital technologies such as big data or the rapidly advancing field of artificial intelligence [8]. This is also accompanied by the danger of misuse of data for the purposes of manipulation and discrimination.
In the digital economy, the imbalance between data-processing companies and data-donating users, who are largely dependent on the services of digital providers, is criticised [9]. At the same time, the technology-driven dynamics of the market make it difficult for competitors to enter the market and lead to a concentration of power and market power among a few internet giants.
Research
The bidt is currently working on various projects on the topic of digital economies:
In addition, a whole portfolio of research projects is being pursued that examine digital economies as well as digital competition, ethics and the law of opinion, opinion power and digital working environments.
Current projects on the topic of digital competition:
Further links and literature
- Shapiro, C., Carl, S., and Varian, H.R. Information rules: A strategic guide to the network economy. 1998: Harvard Business Press.
Sources
[1] Kotarba, M. “Measuring digitalization: Key metrics”. In: Foundations of Management, 2017. 9(1): pp. 123-138.
[4] Shapiro, C., Carl, S., and Varian, H.R. Information rules: A strategic guide to the network economy. 1998: Harvard Business Press.
[5] Tapscott, D. The digital economy: Promise and peril in the age of networked intelligence. Vol. 1. 1996, McGraw-Hill: New York.
[6] Faßler, M. „Globale Netzwerke, Plattform-Kapitale und Überlegungen zu multiplen Demokratien“, in Die Zukunft der Datenökonomie. 2019, Springer Fachmedien: Wiesbaden. S. 117–140.
[7] Hess, T. and Barthel, P. „Auswirkungen von COVID-19 auf Digitalisierungsprogramme in deutschen Unternehmen“, in Ludwig-Maximilians-Universität München, Institut für Wirtschaftsinformatik und Neue Medien. 2020: München..
[8] Hess, T. and Lamla, J. „Einführung: Die Zukunft der Datenökonomie. Zwischen Geschäftsmodell, Kollektivgut und Verbraucherschutz“, in Die Zukunft der Datenökonomie. 2019, Springer Fachmedien: Wiesbaden. S. 1–7.
[9] Wessels, N., Laubach, A., and Buxmann, P. „Personenbezogene Daten in der digitalen Ökonomie – Eine wirtschaftliche und juristische Betrachtung“, in Die Zukunft der Datenökonomie. 2019, Springer Fachmedien: Wiesbaden. S. 11–27.
