What is the Digital Economy? aka the question I typically get about digital economy..

In a number of recent interactions, I have been asked what is the digital economy and I realised that there are, like with any popular phrase, multiple interpretations. For example – Wikipedia provides a good summary of the use of the term and the background to it’s introduction – http://en.wikipedia.org/wiki/Digital_economy

The Oxford Digital Economy Collaboration Group also has a very good description:
http://odec.org.uk/the-concept-of-a-digital-economy/
I try to summarise digital economy as the use of a virtual representation of the real world that is of value. That value can come in many forms, from changing the behavior of a system through to being of interest to an individual.

This often leads to the following questions:
How is this digital world created?
The simplest answer is that sensors capture data from the real world and this data provides the elements for this virtual world. Sensors come in many different forms, inside machines (cars, engines, etc), through computer interactions at all levels (from simple documents we create, through to searches on the internet or social media). Cameras are another important type of sensor, they create digital images of the world which provide another representation.

What makes up this virtual representation?
The raw data captured from the various sensors is just one aspect of the virtual representation. There is the need for storage, data about the data, ways to interact with the data (computers systems and programs) and jobs to manage/use this data. The management process need to help answer questions such as where did that data come from? How correct is the data? Who should be able to use this data and for what
purpose?

In the past this data was captured for a specific purpose. In the early used of computers, this was to store accounts, or enable automation of manual tasks. The emergence of miniature sensors and wireless connectivity has made the capture of data affordable for a much wider range of uses and so more common place.

How is this any different to the IT Industry?
The IT industry is a subset of the Digital Economy. Through the explosive growth of data, advances in algorithms and reducing cost of computers, a much broader use of data is emerging and new data centric business are emerging. These data centric businesses are driving the growth of the digital economy and creating interest. Typical examples of Google and Facebook are given, however, traditional business are realising that new business revenue opportunities exist from this data and so are getting interested in the Digital Economy. Governments are realising that data can result in new jobs and new business…

How is this virtual representation valuable?

The path to value was described in this previous blog entry. Most often the value comes from being able to improve an aspect of the real world. Reducing waste in processes, or speeding up processes.

IBM’s 4 Trillion Dollar Challenge report provides a quantification of the potential value from this virtual representation. http://www-935.ibm.com/services/us/gbs/bus/html/ibv-smarter-planet-system-of-systems.html

Could this virtual representation mean we do not need aspects of the real world?

The last question I often get asked is could this mean an end to some aspects of the real world. My response is that somethings that man created may be replaced by this virtual representation. The simplest examples I use are money and boarding cards for flights. There is no reason why bank notes would need to be printed or boarding cards provided for flights. We have already seen music, videos and books moving into this virtual world. Paper forms that we used complete are also gradually being replaced.

What questions do you get asked about the Digital Economy?

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