The global digital economy was valued at a staggering US $11.5 trillion by the World Bank in 2016. In 2022, it contributed £158.3 billion to the UK. But, aside from the positive fiscal impact, what are the other advantages and disadvantages of the digital economy?
Before we look further into the pros and cons of the digital economy, let us take a step back and consider what do we mean when we talk about the ‘digital economy’?
What is the digital economy?
The term ‘digital economy’ was coined by best-selling author Don Tapscott in his book The Digital Economy (1994). In it, he described how modern technology, including the Internet, was helping to transform business through its impact on products, services, processes, marketing and other operational activities.
Technologies, including the internet of things (IoT), artificial intelligence (AI), virtual reality (VR), and blockchain may have advanced beyond anything imagined in the early 1990s. However, the term still refers to the economic impact of new (digital) technology. TechTarget’s definition is as clear as any:
“The digital economy refers to the economic activities that emerge from connecting individuals, businesses, devices, data and operations through digital technology. It encompasses the online connections and transactions that take place across multiple sectors and technologies, such as the internet, mobile technology, big data and information and communications technology. The digital economy differs from a traditional economy because of its reliance on digital technology, online transactions and its transformative effect on traditional industries. Digital innovations such as all play a part in creating a digital economy.”
What activities contribute to the digital economy?
In its Digital Economy Trends 2024 report, the Digital Cooperation Organization – a group of digital leaders from around the world – identifies six themes set to drive the digital economy in 2024.
This framework helps to explain how and why businesses and organisations are incorporating digital technology within their business strategies.
- Digital infrastructure: Facilitating continuous, dependable, and seamless connectivity and powering generation and management of huge amounts of data. This can improve customer and staff satisfaction and improve profitability by increasing productivity.
- Digital governance: Establishing clear protocols, being mindful of digital ethics, and adhering to best practice guidance and regulation when it comes to digital technology to improve the efficiency and effectiveness of operations. It can also avoid potential issues such as data protection or privacy violations.
- Data: Collating, storing and analysing data appropriately can provide the intelligence to inform new products and services, or improve existing operations and customer service. The value of insight does however depend on the quality and currency of data being analysed. Organisations also run the risk of compliance issues with changing legislature around data handling.
- Emerging technologies: Capitalising on up-and-coming technologies, such as digital reality and extended reality, can drive new products and create competitive advantage. For example, the Apple Vison Pro, a mixed reality 3D headset, is Apple’s first major new product since its Apple Watch nine years ago.
- Digital transformation and digital skills: Digital transformation represents a holistic approach to operations, one which ensures staff possess the necessary digital skills. It is about empowering individuals to innovate and help develop the technology to stay ahead. This can help maintain competitive advantage, profitability and longevity.
Below, we expand on some of the benefits and downsides to the digital economy.
What are the pros of the digital economy?
- Increased connectivity and enhanced communication between individuals and organisations can save time through faster response and real-time operations.
- Greater flexibility in the workplace, including remote working.
- Digital technologies help to break down geographical barriers. Online shopping and digital advertising enable businesses to reach global markets.
- Lower barriers to market entry mean companies can reach markets cheaper and faster with new products and services.
- Data insight can drive innovation and improvement within organisations. It can improve productivity, spotting and resolving problems quickly and identifying new market opportunities.
- Data-informed digital marketing strategies can enhance customer engagement and personalise customer experiences.
- Digitalisation has increased accessibility of information (24/7), education, and other online services.
- Digitalisation is increasing creativity and cultural expression. Digital content, for example, is replacing physical goods in journalism, music, literature, and gaming. Digital technology has facilitated enhanced entertainment options, for instance, via music and media streaming services. It has also allowed digital content creators to earn income.
What are the cons of the digital economy?
- Potential regulatory challenges and ethical issues arising from non-responsible technology, such as intellectual property disputes or labour exploitation, for example, within the creative digital industries.
- Unequal or unfair access to digital technology and information, particularly among marginalised communities, can cultivate inequality.
- The cost to implement and maintain ever-changing digital technology solutions can be prohibitive to smaller business and organisations.
- Data storage and use can lead to a risk of data loss, protection and privacy violations.
- Cloud computing and use of the Internet carries the threat of cybersecurity breeches. This can include anything from unauthorised access to personal information and identify theft to exposure to online threats like phishing scams and malware attacks.
- Automation and digitalisation in the labour market can lead to job displacement and problems caused by lack of appropriate digital skills or mismatched skills.
- AI-driven systems, without proper management and monitoring, may perpetuate inequalities and biases related to race, gender, and socioeconomic status.
- Addictive nature of technology can create harm to humans, for example, by way of online gambling or overuse of social media.
Why study the Digital Economies MSc?
Studying this fully online Digital Economies MSc with King's, you’ll discover how digital technologies and tech companies are transforming the economy through new digital products, processes and services. You’ll explore their influence and impact on communities, society and companies across the public, private and voluntary sectors.
The Digital Humanities Department at King’s College London is one of the largest department of its kind in the world. Our broad-ranging expertise is both applied and critical, spanning the political, entrepreneurial, and creative locally and globally.
Sharing opinions and experiences with both staff and students, you’ll draw on the latest research, theory, contemporary news, and case studies. In doing so, you’ll develop the knowledge and skills to not only implement digital initiatives, but also evaluate existing and potential strategy options.
Are you interested in learning how to make the most of the benefits of the digital economy? On our Digital Economies MSc, you’ll gain a comprehensive understanding of digital transformation in different market contexts.
