The digital economy has been steadily taking hold over the past few decades. Reserves of tech experts and well-connected millionaires, automation and artificial intelligence (AI) have supposedly opened the internet up to all business owners.
Dubbed the driving force behind the fourth industrial revolution by the World Economic Forum, digital transformation is spearheading economic change at an unprecedented pace. But not all sectors are reaping the benefits. Yet.
What are the advantages and opportunities of the digital economy — and how can you adapt and leverage digital transformation for success?
What Is the Digital Economy?
According to Walter Brenner, a professor at the University of St. Gallen in Switzerland, “The aggressive use of data is transforming business models, facilitating new products and services, creating new processes, generating greater utility and ushering in a new culture of management.”
Brenner made this statement back in 2017, and a lot has transpired since then. COVID-19, for instance, acted as a catalyst for economic change, spurring digital-first initiatives. Today the digital economy exists alongside the traditional marketplace, utilizing automation, machine learning and interconnectivity to continually refine and improve operations.
The transition to a digital-first economy is far from over, however, and it will not be painless. Inequalities in labor markets and slow reform from governments will cause stagnation and prevent business leaders from universally embracing changes.
Zia Qureshi of the Brookings Institutions said, "Across economies, there is uneven participation in the new opportunities created by digital transformation. Many are being left behind, across industries and firms, the workforce and different segments of society."
Businesses that don’t want to get left behind will need to educate themselves and their teams on the internet economy. They’ll also have to upgrade and refine processes based on data-backed insights. The rest, though, is up to policymakers.
Considerations for Joining the Digital Economy
Brands that want to adapt and thrive in the digital-first economy must consider both the pros and cons.
Access to More Data
Data is the lifeblood of the digital economy. Companies have always relied on data for marketing, forecasting and analyzing success, and today’s digital platforms exponentially increase the amount of available data.
Companies can be ultra-specific about who they target and how by gathering information about customer interests and preferences. Algorithms sort, catalog and prioritize data to predict future behavior.
Companies can buy data, but they can also generate it themselves with apps, websites, contact forms, surveys and more. This information fuels marketing campaigns, product development, strategy and customer and employee experience.
More Mobility Options
Brands once perceived hardware, property and machinery as significantly more important than design, tech and branding. With the proliferation of social media, among other things, consumer preferences have moved to the forefront. Mobilization from tangibles to intangibles as core drivers of economic growth is an essential feature of the digital economy.
In a truly interconnected world, cross-border trade is easier than ever. Companies can expand to international territories without the expense of being physically located overseas. The ability to hire in such a way is also game-changing on an individual and global level. Look at companies like Uber and Grubhub to see the potential in action.
Other Considerations:
Some other factors brands should look at include:
- Omnichannel communications: Instead of relying on employees in a physical workspace, digital companies leverage tech and remote work to improve communications between business and consumer.
- Multi-sided market: Like Google, companies can offer free content to consumers thanks to the two-sided nature of e-platforms.
- Energy: Today’s tech requires a lot of electricity to function, which, if not addressed, could negatively impact the environment.
- Currency: New forms of currency now exist solely online and aren't susceptible to the same weaknesses as physical currency. Cryptocurrency, NFTs and virtual real estate are revolutionary concepts within the digital landscape.
The Digital Economy’s Shift to Platform Companies
One of the biggest changes spurred by the digital revolution is the shift away from physical businesses to platform companies, brands that create technology that other organizations rely on.
Not all brick-and-mortar companies should sell their buildings and shift operations online. But digitizing as much as possible looks like a sensible move. Platform firms follow a new set of rules, allowing them to innovate faster and achieve higher market value than traditional competitors with fewer employers.
Data from the World Economic Forum in 2018 gives a clear comparison between traditional and digital companies:
- Traditional: BMW, formed in 1916, has 131,000 employees and a market capitalization of $51 billion.
- Digital: Uber, formed in 2009, has 16,000 employees and a market capitalization of $76 billion.
- Traditional: Walt Disney, formed in 1923, has 199,000 employees and a market capitalization of $163 billion.
- Digital: Facebook, formed in 2004, has 35,000 employees and a market capitalization of $473 billion.
Not all companies will enjoy the extraordinary success of Uber and Facebook. But the digital landscape undeniably drives economic growth.
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If further evidence is needed, look to the proliferation of so-called unicorn companies, private start-ups with valuations of over $1 billion. According to Bloomberg, there were 39 in 2013 when the term was coined. Now there are more than 1,000.
Elements of Successful Digital-Led Companies
Technology is the main reason startups can grow fast with few employees, but it’s not the only one. Below, we’ll look at more components of successful digital-led companies.
Customer Experience
Whether in the B2B or B2C space, features that facilitate customization — such as omnichannel sales, live chat and algorithms — drive success, according to research from McKinsey & Company. Digital transformation allows brands to interact with consumers in ways that are more convenient, direct and personalized.
Data and analytics mean decision-makers can pinpoint areas that inspire growth and accurately locate pain points. With an attitude of ongoing improvement and refinement instilled at every level, a company can drive growth and success like never before.
The Internet of Things (IoT)
All things considered, it seems the digital revolution is truly underway. The workforce, global economies and people’s lives are more connected due to technology like AI, big data, robotics and cloud computing.
Perhaps one of the most exciting and life-changing ways tech is connected to daily life is via the Internet of Things, which includes devices like:
- Voice assistants (Alexa, Siri)
- Smart thermostats
- Smartwatches
- Internet-connected sensors
- Fitness trackers
- Data-connected vehicles
These devices record and transmit data as they monitor processes. Organizations can use this data to remove the guesswork from decisioning, boosting efficiency and improving the customer experience.
According to McKinsey & Company, the IoT can potentially generate between $5.5 trillion and $12.6 trillion in value globally by 2030. Manufacturing and wellness sectors are set to benefit the most, with the B2B apps the main focus of growth.
Digital Supply Networks
Digital supply networks (DSNs) actively gather insights from distributed sensors and connected assets to facilitate ongoing improvements. As such, businesses are exchanging traditional supply chains for dynamic management protocols that enable competitive differentiation.
Digital supply chains form a thread through physical and digital worlds, connecting supply and production. Deloitte outlines three main ways this happens:
- Digital-to-physical: The efficient, automated transfer of information from digital to physical, such as 3D printing.
- Physical-to-digital: Capturing data from the physical world and recording it digitally, as with the IoT.
- Digital-to-digital: Using tech, such as machine learning (ML), AI and advanced analytics, to deliver actionable insights, like tracking user preferences or using data to retarget ads.
Is the Digital Economy Thriving?
The digital economy is thriving for those standing at the intersection of technology and business. While the benefits of a digital-first approach haven’t fully translated to the general public, this is primed to change.
Business leaders must increase their understanding of the digital economy to locate areas of improvement, which includes educating all employees, not just IT teams.
As organizations upgrade systems workflows — and governments refine policies — more positive effects of the digital economy will emerge.