Digital economy

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.[1] The digital economy is also referred to as the Internet EconomyNew 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.[2] This was among the first books to consider how the Internet would change the way we did business.[3]

According to Thomas Mesenbourg (2001),[4] 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[5] 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.”[6]

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,[7] Digital Economy has been defined as the branch of economics studying zero marginal cost intangible goods over the Net.

Economic Impact

The Digital Economy is worth three trillion dollars today.[8] 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.

It is widely accepted that the growth of the digital economy has widespread impact on the whole economy. Various attempts at categorizing the size of the impact on traditional sectors have been made.[9][10]

The Boston Consulting Group discussed “four waves of change sweeping over consumer goods and retail”, for instance.[11]

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.[12]

Telstra, a leading Australian telecommunications provider, describes how competition will become more global and more intense as a result of the digital economy.[10]


Given its expected broad impact, traditional firms are actively assessing how to respond to the changes brought about by the digital economy.[13][14][15] For corporations, the timing of their response is of the essence.[16] Banks are trying to innovate and use digital tools to improve their traditional business.[17] 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.[18]

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.[19] Additionally, traditional retailers, like WalMart and Macy’s have restructured their businesses to adapt to a digital economy.[20] Some retailers, like Forever 21, have declared bankruptcy as a result of their failure to anticipate and adapt to a digital economy.[21] Others, such as Bebe stores have worked with outside vendors to completely convert their business one that is exclusively digital.[22] These vendors, such as IBM, Microsoft and Branded Online, have [23] enabled smaller retailers to compete with large, multi-national established brands.[24]

Energy use

The Digital Economy uses a tenth of the world’s electricity.[25] 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.[25] The Digital Economy can be used for mining Bitcoin which, according to Digiconomist, uses an average of 70.69 TWh of electricity per year.[26] 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.[26]


  1. ^Some Precepts of the Digital Economy. Productivity, Innovation & Technology eJournal.Social Science Research Network (SSRN). Accessed 27 January 2020.
  2. ^Tapscott, Don (1997). The digital economy : promise and peril in the age of networked intelligence. New York: McGraw-Hill. ISBN 0-07-063342-8.
  3. ^“Don Tapscott Biography”. Retrieved 24 October 2013.
  4. ^Mesenbourg, T.L. (2001). Measuring the Digital Economy. U.S. Bureau of the Census.
  5. ^“The Concept of a “Digital Economy””. Archived from the original on 22 October 2013. Retrieved 30 March 2015.
  6. ^Nicholas Negroponte (1995-01-01). “Bits and Atoms”. Wired magazine. (MIT link). Retrieved 20 February 2017.
  7. ^Fournier, Laurent (2014). “Merchant Sharing”. arXiv:1405.2051 [q-fin.EC].
  8. ^Delices, Patrick (2010). “The Digital Economy”. Journal of International Affairs. 64 (1): 225–226. JSTOR 24385197.
  9. ^The New Digital Economy – How it will transform business, Oxford Economics
  10. ^ Jump up to:ab Taking leadership in a digital economy Archived 2013-01-28 at the Wayback Machine, Deloitte Digital & Telstra
  11. ^Digital’s Disruption of Consumer Goods and Retail. bcg.perspectives (2012-11-15). Retrieved on 2013-07-23.
  12. ^Deloitte Australia: Digital disruption – Short fuse, big bang?. Econsultancy (2012-10-22). Retrieved on 2013-07-23.
  13. ^Internet matters: Essays in digital transformation | McKinsey & Company. (2013-03-13). Retrieved on 2013-07-23.
  14. ^Welcome to Telefónica Digital. (2013-07-15). Retrieved on 2013-07-23.
  15. ^Economy is better off with digital disruption. (2012-07-23). Retrieved on 2013-07-23.
  16. ^Being too late in digital more costly than being too early: Deloitte Telstra joint report. Computerworld (2012-11-30). Retrieved on 2013-07-23.
  17. ^Retail banks to tackle “digital disruption” in 2013. CCR Magazine (2012-11-21). Retrieved on 2013-07-23.
  18. ^What is the NBN? | NBN – National Broadband Network – Australia Archived 2013-01-16 at the Wayback Machine. NBN. Retrieved on 2013-07-23.
  19. ^Ellis, 5+design, Michael (2014-07-17). “The Evolution of the Internet and Its Impact on Retail Spaces”. Wired. ISSN 1059-1028. Retrieved 2019-09-18.
  20. ^“Department Stores Bring Down Retail Results”. The Business of Fashion. 2019-08-22. Retrieved 2019-09-18.
  21. ^Newburger, Lauren Hirsch,Emma (2019-06-03). “Apparel giant Forever 21 exploring restructuring as retail continues to take hits”. CNBC. Retrieved 2019-09-18.
  22. ^Segran, Elizabeth (August 9, 2017). “Bebe, The Iconic Mall Brand, Is Back From The Dead”. Fast Company.
  23. ^“Dollar Stores Vs. Apple Stores: A Retail Nation Divided”.
  24. ^Hazzard, Tracy Leigh (2019-09-05). “The Digital Transformation of Retail and How to Stay Alive Online”. Retrieved 2019-09-18.
  25. ^ Jump up to:ab Walsh, Bryan. “The Surprisingly Large Energy Footprint of the Digital Economy [UPDATE]”. Time. ISSN 0040-781X. Retrieved 2018-06-08.
  26. ^ Jump up to:ab “Bitcoin Energy Consumption Index – Digiconomist”. Digiconomist. Retrieved 2018-06-08.

Ofer Abarbanel – Executive Profile

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library