Definition

digital economy

The digital economy is the worldwide network of economic activities enabled by information and communications technologies (ICT). It can also be defined more simply as an economy based on digital technologies. Multiple definitions for the term exist, with variations in what should be included in this new economic paradigm.

The term was coined by Don Tapscott, author of the 1995 best-selling book "The Digital Economy: Promise and Peril in the Age of Networked Intelligence" and the anniversary edition released in 2014.

Nicholas Negroponte, founder of the Massachusetts Institute of Technology's Media Lab, has described the digital economy as using "bits instead of atoms."

There are several key components that enable the digital economy. There's the technology infrastructure itself -- the hardware, software and networks. There are the digital processes by which business happens, in other words, the e-business component. Another key component is e-commerce, the digital transactions through which customers buy and obtain products and services from organizations.

The digital economy is sometimes called the Internet economy, the new economy or Web economy. But some economists assert that the digital economy is more advanced and complex than the Internet economy, which, under one definition, simply means economic value derived from the Internet. Additionally, the term "digital economy" is not synonymous with earlier terms used to describe the technology-driven changes happening in 20th century economy, such as "information economy" and "network economy."

Fueled by personal devices, advanced digital technologies

The digital economy is continually evolving. First fueled by the growing use of personal computing devices, enterprise computing capabilities and Internet access, it is now being driven by more advanced digital technologies, notably wireless networks, mobile devices, positioning technologies (i.e., GPS), embedded sensors and real-time analytics.

Economists say the growing use of these technologies, coupled with the increasing use of digital technologies in conventional commercial environments, is blurring the distinction between the digital economy and the traditional one.

However, the digital economy is not simply about moving business transactions from face to face to online. The digital economy is about transforming the many facets of business interactions and transactions and also enabling economic innovations. For example, the digital economy both is enabled by and has given rise to the advent of new digital currencies and payment processes (i.e., Bitcoin and the digital wallet).

The digital economy comes with risks as well as opportunities. Unauthorized access and use of corporate and personal information are two of the most significant risks of this new economic model.

As the digital economy is still evolving, there are questions about this new economic model that have yet to be answered. Some have wondered whether cash will become extinct. Others have asked whether a single globally accepted currency will emerge. Economists say neither scenario is likely -- at least in the near future.

Economists also note that the digital economy is not just a theoretical construct; it has real impact on societies, too. Some point out that digitization and automation are replacing workers and shifting the kinds of jobs available. Some economic leaders have spoken about a tie between the rise of the digital economy and the stagnation of real wages for many workers and the growing income inequality between the richest individuals and the majority.

They also point out that the digital economy is neither global nor universal. There are many countries, notably in the developing world, where there is limited or no access to the technologies that enable the digital economy. And even in developed countries there are individuals as well as pockets of population that do not have or opt against the technology to participate in the digital economy.

This was last updated in January 2016

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