Introduction-

Innovations in information and communications technologies have created a

digital revolution that is changing the way the world works, learns,
communicates and transacts business.
The growth, integration, and sophistication of information technology and
communications are changing our society and economy. Consumers now
routinely use computer networks to identify sellers, evaluate products and
services, compare prices, and exert market leverage. Businesses use networks
even more extensively to conduct and re-engineer production processes,
streamline procurement processes, reach new customers, and manage internal
operations.

The concept of a digital economy emerged in the last decade of the 20th
century. Nicholas Negroponte (1995) used a metaphor of shifting from
processing atoms to processing bits. He discussed the disadvantages of the
former (e.g., mass, materials, transport) and advantages of the latter (e.g.,
weightlessness, virtual, instant global movement).The communications industry
has undergone dramatic changes as a result of new technologies. One of the
most important indicators of progress in the communications industry is the
widespread proliferation of broadband Internet access.

At the beginning of 2007, there were about 300 million consumer broadband
connections in a world of around 6.5 billion people. Of those 300 million
broadband connections, 20 million offered speeds of 2 mbps or more .Digital
technologies are transforming business, government and society.

Meaning-

A digital economy is an economy that is based on electronic goods and services

produced by an electronic business and traded through electronic commerce.
The essential in the new economy is a structural shift from the industrial
economy toward an economy characterized by information, intangibles and
services and a parallel change toward new work organizations and institutional
forms. Many new terms have been coined for this new economy such as
“knowledge-based economy,” “borderless economy,” “weightless economy,”
“networked economy,” “digital economy,” “the information-based economy,”
and “the networked economy” to name a few .

Shikhar Ghosh , in his article “Making Business Sense of the Internet”, Harvard
Business Review 1998, contends that the Internet presents four distinct types of
opportunities:

- Companies can establish direct links to their customers (which

includes other businesses)
- Technology lets companies bypass others in the value chain
- It enables companies to develop and deliver new products and services
to new customers
- A company can use the Internet to become the dominant player in the
electronic channel of a specific industry
Components Of Digital Economy-
3 primary components of digital economy are:

• Firstly the infrastructure of communication system. It includes hardware,

software, telecommunication networks, support services, and human
capital used in electronic business and commerce.
• Secondly the online business procedure, which can even support the
offline business procedure,
• Thirdly the transaction procedure: booking, ordering, delivery and pay-in
online business are different from the offline business particularly in term
 of market, consumer, customer, marketing communication, business
procedure, delivery, and payment system.

In additions, online business runs in various types, for instance C2C(consumer-

to-consumer), B2C(business-to-consumer), B2B(business-to-business) and
B2G(business-to-government).

Special Characteristics of the "Digital Economy"

While the full-scale dissemination of electronic commerce is expected in the

future, in such an age of electronic commerce it is believed that the age of the
"digital economy" will arise, which has different aspects of economic activities
than there were in the past. That is to say that the following will occur.

1. Economic activities become possible without the physical movement of

people, things, money, etc., and there is rapid development in the
globalization of economic activities. (Dealing with the globalization of
the economy will become more urgent.)
2. Contracts, the transfer of value and the accumulation of assets is
conducted by electronic means. (In order for people to be able to feel
secure in conducting such new forms of economic activities, it will
become necessary to assure security and trust in these activities.)
3. Information technology, which is the foundation of the "digital
economy," continues to develop at a rapid pace, and for this reason there
will be considerable changes in the ideal situation of economic activities.
(So as not to lag behind such changes, it is necessary to formulate
economic rules swiftly and flexibly.)
4. There is widespread dissemination of electronic commerce, and digital
information will pervade into all aspects of the lives of the people. (It is
necessary to consider ways to avoid the occurrence of impediments to the
 participation by the people in electronic commerce. Also, points of view
concerning the security of personal information are important.)

The Necessity of Formulating Rules for the Digital Economy

For such reasons, the rules which applied to the economy of the past (the legal
system, commercial practices, etc.) would no longer apply in the age of the
digital economy as they are. For this reason, it is necessary to consider the
establishment of new rules to deal with this situation.

1. Constructive Efforts and Swift Response to Change -In the age of the

digital economy, for which electronic commerce will be applied, it is

anticipated that there will be a pressing need for reformation in existing
institutions and systems. So that people will be able to reap the benefits
brought on by this digital economy to as great an extent as possible, the
government must take a clear position, constructively evaluating such
reforms and involving itself with these reforms. In particular, the
government will have to flexibly introduce and make maximum use of
new technology and mechanisms, as well as ensure that its policies do not
fall behind the pace of technological progress.
2. Resolution of Problems through Technology and the Marketplace -If

new problems should arise from the introduction of information

technology for the digital economy, rather than immediately adopting
regulations to deal with these problems, these matters should basically be
solved by technological means, as well as competition in the marketplace
or through the creation of new independent business practices in the
private sector. Regulations should be kept at minimum taking into
consideration the interest of involved parties to be protected by the law
and harmonization with traditional solutions to similar issues.
 3. Security and Trust -If electronic data which are exchanged through

electronic commerce are exposed to theft, falsification or unauthorized

access, there will be remarkable damage in the degree of trust for the
foundation of the digital economy. Also, neglecting social problems
accompanying the development of the digital economy, including the
problems of the circulation of obscene information and the obstruction of
privacy, and consumer-related problems, will make it impossible to
assure security in economic activities.
4. Universal Access - In the age of the digital economy, business

opportunities for small and medium size enterprises as well as local

industries will increase dramatically through the effective application of
information technology, and in this way it will enable the economic
frontier to expand. Also, the application of information technology can be
afforded by people who do not have ready access to information, such as
the elderly, a good opportunity to expand the scope of and diversify their
everyday lives.
5. International Coordination-With an understanding of the global

characteristics of a network-based digital economy, the government

should promote the rigorous exchange of information and policy
coordination among different nations.

Impact of Digital Economy-

• Customer Empowerment- Influence on Monopolistic Trends

Empowerment is sometimes captured in the slogan "get what you want, when
you want it, where you want it, on your own terms." In Digital Economy,
Consumers shape the marketing interaction, making it more relevant for
themselves, and this should lead to greater involvement and responsiveness.
1. Customer should get everything
Consumers are no longer limited to physically visiting “main-street” or “big-
box” retailers. Instead, they are able to choose from products and services from
companies large and small, located all over the world, without leaving their
homes. Tangible points of comparison between retailers, which now can be
automatically aggregated by software buying agents in seconds, include more
than selection and price. Shipping costs, return policies, privacy practices and
personalization of products are examples of tangible points of comparison.
Online chat, bulletin boards, user reviews, auction sites, consumer feedback,
online help and other customer-oriented features are also required for any
successful e-commerce site. Businesses willingly provide these features in an
effort to create “sticky” sites that offer a sufficiently compelling experience,
successfully keeping customers coming back for more.
2. Customer acquisition and retention
Online retailers face three primary challenges. First, they must attract customers
by rising above the competition through costly marketing and promotional
campaigns. Second, they must compel customers to regularly visit the site
through a quality user interface and overall shopping experience. Third, they
must lock the customers in all the way through the checkout.
In an environment where the next competitor is a mouse click away, failure to
overcome any of these three challenges could be detrimental.
3. Know your customers better
The cornerstone of a unique, personalized and valuable shopping experience is
software that enables retailers to understand and anticipate customer needs.
It’s the difference between a random greeter at a physical store nodding and
saying “hello” as you walk through the door and an online retailer that
welcomes you by remembering your name, clothing size, favourite type of
music, hobbies, interests, and other preferences.
The benefits are mutual. Retailers are able to enhance customer service while
customers enjoy better service and more competition in the marketplace.
 • Loss of Individuality & Privacy
Maintaining a customer base has become a very important asset in today’s
economy for the organizations to gain competitive advantage. Therefore,
organizations use sophisticated tools to reach customers and get their personal
data recorded into their databases. Many believe that e-commerce technology is
eroding personal privacy because consumers have no control over their personal
data that merchants have collected during their shopping experiences. Also,
personal record keeping systems of merchants are not regulated or restricted.
People fear that if the trend of collecting information continues, they may lose
their individuality since they would have no control over the information about
them. Privacy has now become a major issue internationally. The rise of
intrusive technologies and the Internet has resulted in a surge in awareness
about the importance of privacy. Pressure is being put on companies to develop
privacy policies to protect consumers who are liberally sharing their personal
information in this new environment .The rush by large corporations to engage
in electronic commerce has meant more personal information is being gathered,
shared, sold, and disseminated than ever before.
• Organizational Changes of Enterprises
The adoption of an e-commerce strategy generally entails redefining its value
chain and re-engineering internal functions and processes to adapt to and benefit
from the new information systems implemented. The dramatic changes in the
way information flows throughout the organization deeply affect its entire value
chain. A shift of importance of single functions of an enterprise is to observe.
Value is shifting from production to product development, procurement, sales
and marketing, and the provision of after-sales services. These are also the areas
where e-commerce solutions are going to play a vital role in increasing
companies’ collaborative capabilities with partners along value chains. Co-
operation motives can be cost and risk reduction, knowledge transfer or just the
reduction of time to market .Reduced expenditures due to lower charges can be
directly used in marketing, research and development, etc. In cooperation,
enterprises can exploit the better cost position of the partner or use economies
of scale.
• Bundling or Tying- Up Arrangements
Many companies now offer a complete package of trading, information,
logistics and supply chain management services. The bundling of such products
and/ or services may provide a convenient solution for buyers, and a way in
which competing service providers can differentiate their offerings to attract
more customers. In some cases it may also be a more efficient and economical
way to provide both products and/ or services, resulting in lower prices and
promoting the development of a new competitive product or service. On the
other hand, this may arise between competing outlets – particularly when some
outlets are independently owned and operated but others have vertical links with
manufacturers.

• Impact on Tax, Trade and Regulatory Policies

Historically, the generation of income depended on the physical presence of
assets and activities. This physical presence, or permanent establishment,
generally determined which jurisdiction had the primary right to tax the
income generated. Because of the growth of electronic commerce, new e-
business models (including digital marketplaces, online catalogues, virtual
communities, subscription based information services, online auctions, and
portals) have emerged. Each allows taxpayers to conduct business and generate
income in a country with little or no physical presence in that country. The
separation of assets and activities from the source of the income represents a
significant departure from historic business models.
• Digital Economy in e-Government
With growing population and resource mobilisation, digital economy is not
limited to business trading and services only but, it encompasses every aspect of
life, from health to education and from business to banking. Further, when
everything is going digital, then why not communication with government? E-
Government is already playing its part in this digital economy by providing
eservices through various ministry/department to its e-Citizen.

Conclusion

A rapidly increasing number of countries are developing national policies and

strategies to promote the digital economy, recognizing the potential benefits of
e-business as an engine of growth and development.

Digital Economy continues to show strong growth and has been influencing the
social and economic growth of nations. On one hand e-commerce technologies
have helped nations to accelerate their economic growth and to provide more
opportunities for businesses to grow, but it has also created many challenges
and effects across numerous domains of society, and for policy makers. These
issues involve economic productivity, intellectual property rights, privacy
protection, and affordability of and access to information, among other
concerns. Moreover, their decisions drive competition towards lower product
prices and higher quality. Though, the consumer benefits are well defined, the
digital economy raises questions of security, privacy and trust. Therefore,
consumer issues in the digital economy have the highest priority for all
concerned organisation be it government or any involved business house.

However, there is lack of readily available data on the use of ICT and e-
commerce by the business sector and households has been a major obstacle to
strategic decision-making, for example in identifying priority areas of policy
action, allocation of resources, monitoring, assessing and revising ICT
strategies, or benchmarking national economies vis-à-vis those of other
countries. Only a few Governments, mainly in the more advanced countries,
have started to develop and collect ICT-related data and indicators, and little is
known about the size and features of ICT usage and e-commerce in developing
countries.

The old maxim that the best consumer is an educated consumer has never been
truer than on the Web. The educated customer – one who understands the power
that he or she holds online – is the primary force shaping the digital economy
today. Businesses that want to succeed will respect this reality.