The chapter's main objective is to analyze the digital economy and its characteristics. In a time of overlapping disruptions, the chapter describes the fast growth of the digital environment, the emergence of digital platforms, the diffusion of innovative digital technologies, and the related development of Industry 4.0, acknowledging the need to embrace ideas and concepts from multiple fields and integrate different research areas. The other related theme is digital transformation, which implies a structural change of the economies and organizations requiring a technological and cultural shift. In addition, the chapter's analysis highlights that digital transformation and its profound changes can generate imbalances if not addressed with awareness and the right mastery of digital skills. Reaping the digital revolution's benefits, and avoiding its pitfalls, will require organizations and economies to manage an unprecedented structural transformation for which the world seems still unprepared.
TopThe Digital Economy
The digital economy includes all those economic processes, transactions, interactions, and activities based on digital technologies (Schilirò, 2021). A digital economy is where consumers, companies, and governments live in a digital society that interacts and creates value benefitting all stakeholders. The digital economy has firmly established itself since 2010 with the growth and massive progress in the sophistication of semiconductors, the internet, and its service providers.
As UNCTAD (2021, p. 25) highlights in its report, the digital economy is data driven and is rapidly evolving amid huge divides in terms of digital readiness. As a result, data play an increasingly important role as an economic and strategic resource, a trend reinforced by the COVID-19 pandemic as many activities moved online. Two countries stand out as the frontrunners in harnessing the value of data: the United States and China. Together these two countries cover 90% of the market capitalization of the world’s largest digital platforms and 94% of all funding of artificial intelligence (AI) start-ups. Moreover, the largest digital platforms increasingly control all stages of the global data value chain: collection, transmission, storage, processing, and use of data.
According to Acs et al. (2021), software programs often make economic decisions instead of managers in the digital economy. In addition to cost reductions, sophisticated algorithms, big data, and enormous computing power allow market transactions, mediated through multi-sided platforms, to reduce the need for hierarchy and hierarchical power and exploit the positive effects of the networks. Thus, coordination in the twenty-first-century economy shifts from the visible hand of management to the digital hand of platforms. Furthermore, the onset of the COVID-19 pandemic in 2020 gave rise to the global acceleration of digital platforms so that digital is now the new normal. The role of the platform business is to provide a governance structure and a set of standards and protocols that facilitate interactions at scale so that we can unleash network effects.
Digital platforms change the economics of doing business across borders, decreasing the cost of international interactions and transactions. They create increasingly efficient, transparent markets and user communities on a global scale (Schilirò, 2020). Thus, the main institutional difference of the platform economy is the role of the platform-based ecosystem that is immediately global.