The digital economy is becoming unusual. Best we understand it

The digital economy has been getting plenty of attention, with increasingly strong headlines offering apocalyptic in addition to breathtakingly exciting scenarios. Some warn of job losses resulting from automation, some wonder on the things digital technology can do. And then there’s real scepticism about whether it will translate into delivering to individuals who need it most.

With all of this discussion, nonetheless, there’s seldom a proof of what the digital economy actually is. What makes it different from the standard economy? Why we must always care about it?

The digital economy is a term that captures the impact of digital technology on patterns of production and consumption. This includes how goods and services are marketed, traded and paid for.

The term evolved from the Nineteen Nineties, when the main focus was on the impact of the web on the economy. This was prolonged to incorporate the emergence of recent forms of digitally-oriented firms and the production of recent technologies.

Today the term encompasses a dizzying array of technologies and their application. This includes artificial intelligence, the web of things, augmented and virtual reality, cloud computing, blockchain, robotics and autonomous vehicles.

The digital economy is now recognised to incorporate all parts of the economy that exploit technological change that results in markets, business models and day-to-day operations being transformed. So it covers all the pieces from traditional technology, media and telecoms sectors through to recent digital sectors. These include e-commerce, digital banking, and even “traditional” sectors like agriculture or mining or manufacturing which can be being affected by the applying of emerging technologies.

Understanding these dynamics has change into non-negotiable. The digital economy will, soon, change into the unusual economy because the uptake – and application – of digital technologies in every sector on the planet grows.

I even have been a part of a team of researchers taking a look at what this implies for a society like South Africa. In particular, we’ve been focused on taking a look at what the proliferation of the digital economy means for inclusion – ensuring that everybody can access it – and economic opportunities.

But step one was to get absolutely clarity on what this multifaceted phenomenon is.

The digital core

At the centre of the digital economy is a ‘digital core’. This includes the providers of physical technologies like semiconductors and processors, the devices they permit like computers and smartphones, the software and algorithms which run on them, and the enabling infrastructure these devices use just like the web and telecoms networks.

This is followed by ‘digital providers’. These are the parties that use these technologies to supply digital services like mobile payments, e-commerce platforms or machine learning solutions.

Lastly, there are the ‘digital applications’. This covers organisations that use the services of digital providers to remodel the best way they go about their business. Examples include virtual banks, digital media, and e-government services.

A concrete example helps paint the photographs. Consider a typical agriculture value chain: a smallholder farmer needs inputs (like financing) to provide after which sell crops to, say, processors or on to consumers. Today smallholders can obtain financing through their mobile phones from digital financial services providers slightly than physically visiting a bank. These digital financial services are in a position to assess the chance of lending to the farmer by constructing a profile using AI algorithms along side alternative data sets, reminiscent of cell phone usage or satellite farm imagery.

Then there are the mobile applications that might help farmers produce higher crops. They can provide advice on one of the best time for planting, soil quality and coping with pests. It implies that a farmer now not has to depend on face-to-face advice from friends or agro-dealers.

Another example within the agriculture arena is the power of farmers to rent tractors. Known as asset-sharing platforms, these enable farmers to realize access to a tractor they wouldn’t ordinarily give you the option to afford.

Digital versus traditional

So what makes the digital economy different to the standard economy?

Firstly, digital technologies allow firms to do their business in a different way in addition to more efficiently and cost-effectively. They also open up a number of recent possibilities. Take navigation apps. No team of individuals would ever give you the option to supply real time, traffic-aware navigation in the best way that smartphone apps do.

This implies that services will be offered to more consumers, particularly those that couldn’t be served before.

Secondly, these effects are giving rise to thoroughly recent market structures that remove, amongst other things, transaction costs in traditional markets. The best example of that is the rise of digital platforms reminiscent of Amazon, Uber and Airbnb. These firms connect market participants together in a virtual world. They reveal optimal prices and generate trust between strangers in recent ways.

Lastly, the digital economy is fuelled by – and generates – enormous amounts of knowledge. Traditionally once we made purchases in a brick-and-mortar store using money, no-one was keeping an account of our personal consumption or financial transactions on a big scale. Now, ordering online and paying electronically implies that a lot of our consumption and financial transactions generate electronic data which is recorded and held by someone.

The collation and evaluation of this data provides enormous opportunities – and risks – to remodel how a spread of economic activities are performed.

The digital economy is with us. Yet the boundaries between digital and traditional are blurring as technological change permeates every facet of of recent life. We all need to grasp the character of this transformation to give you the option to reply at every level: society, corporate and private.