THE DIGITAL ECONOMY
Historical Backdrop
In the beginning there was the barter economy. People traded one good for another.
This gave way to the money economy, where goods were exchanged for a price. The twentieth century saw the dawn of the industrial revolution, where new methods of mass production radically altered the way the economy functioned. The telegraph gave way to the telephone, the horse carriage to the car, changing the communications and transportation industries forever. The latter half of this century has encountered yet another revolution -- the technological revolution which uses computers to simplify many procedures. The end of this century has seen the birth of the digital economy, where the use of the Internet serves to globalize the traditional market functions, creating electronic commerce and electronic business.

The Revolution
The evolution of e-commerce has fostered a brand new type of economy: a global digital
economy. This economy is comprises of two facets: e-commerce and information technology.
As this new economy flourishes, it will change many of the traditional economic models.

The Organization for Economic Co-operation and Development reviewed several estimates
regarding the impact of e-commerce. E-commerce saw its birth in 1995, with sales growing from 0 to $26 billion in 1997; with a 12.69% increase expected by 2001 and a forecast $1 trillion in sales by 2005.

As the majority of e-commerce activity switches from business-to-business to business-to-consumer; there are three economic factors that will influence its growth:

    -ease and cost of access
    -convenience
    -the appeal of mass customization
Certain industries, specifically those that deal with information and technology are
undergoing mass changes. The communications and financial industries deal with information, and are able to offer their services and deliver their products over the Internet. The computer industries, consisting of both the software and hardware sectors are the ones responsible for developing products that will fuel the digital economy.

Business Models

One aspect of economic restructuring propounded by the Internet Economy is the
implementation of new business models using combinations of old models.
At the University of Northern Carolina, Professor Michael Rappa provides a very
comprehensive breakdown of business models on the web. What you will find here is a brief summary of common business models.
When creating an Internet Business, or simply designing a virtual store front to
complement the physical one, it is important to kind in mind the structure of your business.
This will affect how you design your visual interface as well. A proper e-commerce site requires a business plan, just like a physical business would.
- Brokerage: Even though traditional stockbrokers have been displaced by technology, their major function still lives on in the brokerage firms of today. Stockbrokers brought together buyers and sellers, which is essentially what brokerages do. By doing this, they create a market. This category includes cyber-traders, virtual malls, Internet auctions etc.

-Advertising: This business model is derived from traditional paper and broadcast mediums. Newspapers report and television stations broadcast content along with specific space or time slots for advertisements. Since on the Internet, the Internet Service Provider is responsible for providing access, advertising business make profit by charging for banner space. This category includes search portals, free-model (companies offering a free product.)

-Infomediary: As the name implies, the primary asset of this business model is information. They are comparable to the consumer report agencies, essentially they gather information about consumers and businesses. The Internet has provided a medium where consumers can explore and search for the best possible price.

-Merchant: This refers to the classic retailer or wholesaler, including those that use the virtual storefront to complement the physical one.

-Manufacturer: This refers to the opportunity the Internet provides for manufacturers to bypass the distribution chain and sell directly to customers.

-Affiliate: Such a business does not actually sell its own products, but instead allows a merchant to use their site as a link to the virtual storefront. In return, the merchant offers the affiliate a portion of the revenue. The value of the payment depends on the amount of traffic the affiliate directs to the merchant's site.

-Community: The success of this site depends on the users, for they are the ones that run it. A Community with common interests seeks to offer a service on the web. This category includes knowledge networks where experts offer advice or information to customers.

-Subscription: This is a variation on the traditional paper media. Specialized magazines and scholarly journals offer their product over the Internet. Some combine free content to gain more interest in the paid content.

-Usage: This Internet business offers its services through a pay-as-you-proceed manner. They charge for the transfer and access to the information.

-Internetworked Enterprise: More commonly known as a virtual organization, its comprises of several commercial firms contributing their expertise to a business venture, allowing firms to enter and leave the organization when appropriate. Such businesses are termed 'virtual' in that they may only exist for the duration of a project and the Internet provides the medium for them to communicate.

Market Structure

The digital economy is virtually synonymous with the term global economy and Internet
economy. The Internet Economy promotes interdependency among companies, unlike the Industrial Economy, which was hierarchical in structure. There are low barriers to entry into the Internet economy, but surviving requires a strategy. Even though e-commerce is in its infancy, it is already altering the traditional market structure. This occurs in the area of competition, makeup and size.

Competition

The web has provided yet another source of competition for businesses trying to lure
consumers. Competition is not just local or national anymore, it is global. There are three strategies that drive competition on the Internet:

-setting the dominant technology standard
-obtaining customer information to increase market share
-market segmentation and niche exploitation

Makeup and Size

The Internet already alters the structure of business through the new business models.
E-commerce alters the value-added chain, also known as the traditional distribution channels. Basically, the major change the Internet economy has on the market is the transfer of power from producers to consumers through the availability of information. Geographical restrictions are no longer a limitation to consumers, thus they are able to explore more of the products on the market. Unlike physical stores, virtual storefronts have no time limitations either.

Labour Market

The onset of the digital economy has created a great demand for workers with technical
skills. Anyone involved in the information technology segments such as programmers, analysts, computer scientists and engineers will be in great demand. Thus the digital economy will bring about:

-changing skill requirements
-workforce flexibility (a flatter organizational hierarchy)
-global employees (workers communicate from various locations)
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