What is Digital Economy? Meaning, Advantages & Disadvantages


All economic transactions that occur on the internet involve Digital economy, therefore it is the one collective term for all economic transactions. It is also known by different names such as the Web Economy or the Internet Economy.

As we know the world is continually changing, With the advent of technology and the process of globalization, digital transformation with the digital as well as traditional economies is emerging in the world.

So, let us discuss more about this concept of digital economy.

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What is Digital Economy?

Digital economy is defined as the economic activity which arises as a result of billions of everyday online connections among people, businesses, devices, data, and processes. In other words, you can say that it is an economy that focuses on digital technologies that are based on digital and computing technologies such as IT support Sydney. Thus, there is no specific digital economy definition. So, it includes activities that are supported by the web and other digital communication technologies and namely include business, economic, social, cultural activities.

There are three main components of the Digital economy which are:

  • e-business
  • e-business infrastructure
  • e-commerce

There has been tremendous growth in digital platforms and their influence in our day to day life. Most consumers are influenced by social media that includes Facebook, Twitter, Instagram and other such popular websites such as YouTube, etc.

Characteristics of the Digital Economy

How people and businesses connect nowadays is different from the ones they used to get connected and communicate before. So, as we realize that the economy is continually changing, and digital conversion is one of the essential factors behind this change. We see that the financial economy is building its place with time. So, here we will examine some of the Characteristics of the Digital Economy which are:

  • Digitized and Tracked.

With the advent of technology, objects generate digital signals, these signals can be measured, tracked and analyzed which helps in better decision making. While the cost involved in equipment and machinery is quite high.

  • Connected

Digital economy helps in better communication by interlinking of assets suppliers, workers and stakeholders which indirectly improves the safety, efficiency, and visibility of the business. Therefore, the business can function much better by adopting the digital economy.

  • Shared

The digital economy functions by sharing. What one company needs are fulfilled by the other, so this is their shared process i.e. Purchasing what is needed as well as buying the services.

  • Personalized

The digital economy is fully depended upon the customer personalization. Therefore, it is a fully personalized economy. Therefore, companies try to deliver products as per the need and demand of customers. Where the customer demands are highly influenced by the various economic factors which lead to economic development.

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Advantages of Digital Economy

With the coming up of digital economy many new trends and start-up ideas have started to emerge. If we look around almost every company is involved in the digital world. And some biggest examples to quote are of Google, Apple, Microsoft, Amazon companies. Now, we shall discuss the advantages of Digital Economy which are:

  • Promotes Use of the Internet

Today most of the work is done on the internet and with the help of the internet. Therefore, there is a dramatic rise in investment of technology. Thus, higher demand for hardware, technological research, software, services, digital communication, etc is there which has indirectly affected the imports as well as the exports in the world.

  • Rise in E-Commerce

With the rise of the digital economy, E-commerce has also gained importance and increasingly gaining the market. Every task related to buying, distribution, marketing, creating, selling is now just a click away all because of the digital economy.

  • Digital Goods and Services

Nowadays, goods are available to us digitally. We don’t need to go to the market and purchase goods, even the services as well are now available on the internet. If you want to watch a movie you can buy it from the online website or download it, and in case of baking services if you want to visit your bank to make payment to anyone that too you can do with the help of internet. So, goods and services have become digital now.

  • Transparency

All the transactions in the digital economy happen online. Therefore, there is no need for cash which indirectly has reduced the black money and corruption in the market giving our economy more transparency.

Disadvantages of Digital Economy

  • Loss in Employment

As we are depending more on technology, we are moving away from the natural as well as human resources in our society. And this is affecting the unemployment ratio which has grown with the advent of technology. Due to this technology and the digital economy; we are losing our jobs.

  • Lack of Experts

To set up the digital economy a huge investment, as well as resources, are required that are not possible to arrange in rural areas. So, no technical development takes place in rural areas. Therefore, we can say that the digital economy is not readily available, especially in rural and semi-rural areas.

  • Heavy Investment

A strong infrastructure, high functioning Internet, strong mobile networks and telecommunication are all essential things to work for a digital economy, which are a heavy investment thing. Thus, the digital economy in itself involves huge cost and investment as well as it is a very slow, tedious and costly process to work on.

Two Faces of the Digital Economy

When we are quite familiar with the concept of the digital economy, then we see that Digital technology has two faces which are:

  • information technology (IT) and
  • communication technology (CT)
  1. Information technology (IT)

Information technology (IT) comprises of the various items which help in economic activities. Thus, some of the components of IT are:

  • artificial intelligence (AI)
  • robotics, and machine learning

Both of which speeds up data processing as well as reduces the number of tasks, and generates concentration forces for economic activities.

2. Communication technology (CT)

communication technology (CT) discusses all the equipment and programs that are used to process and communicate information. Internet, multimedia, e-mail, telephone, etc all are some of them are examples of communication technology.

Effects of A Digital Economy

As now we have an online solution to every problem of ours, we have been addicted to the digital economy as well. Now, let us study how these digital trends have affected us:

  • Big Data

Every small detail is recorded as data. And Google is the platform where this data is available, and where we spend most of our time. And by our devoted time, google collects the data which is useful for the companies.

  • People Are Connected

Now people have more connectivity with each other. Companies are also working on to build connectivity. Moreover, people can connect digitally to share products and services.

  • Value Our Time

Convenience is being given to the people with the coming forward of the digital economy and digitalization. As people can purchase and sell things as per their need and time or say on their own convenience. As by now Checking your bank balance, you need your phone.

  • Governments functioning is digital

Health care, criminal reporting, taxes and various other daily tasks that were done offline before are now done online. This on the go service is possible only due to the effect of the digital economy.

Challenges in the Digital Transformation

Companies undergoing a digital transformation face many challenges and difficulties, as it is difficult to adapt to the new environment as well as technology. So, there exist some challenges faced by the companies in the digital transformation which can be dependent on the number of employees working in a company. Thus, we can classify the challenges based on the existing employees’ ratio in the company which is

Companies nowadays are using digital business strategy which is in all transforming their business, streamline processes, and making use of technologies. They are adopting digitalization to enhance their interaction with customers and employees as well as deliver excellent customer experience.

as follows:

  1. A company having Less than 100 Employees
  • Lack of Expertise to Lead Digitization Initiatives
  • Employee Pushback
  • No Predominant Strategy for Digitization
  • Business Partners are not able to Support the companies.
  • Limited Budget

2. A company having 100-1,000 Employees

  • Employee Pushback
  • Organizational Structure Gets in the Way
  • No Overarching Strategy for Digitization
  • Limited Budget
  • Lack of Expertise to Lead Digitization Initiatives

3. A company having 1,000-5,000 Employees

  • No Overarching Strategy for Digitization
  • Lack of Expertise to Lead Digitization Initiatives
  • Limited Access to the Required Technical Expertise
  • Employee Pushback
  • There is a Limited Budget with the companies.

4. A company having More than 5,000 Employees

  • Lack of Knowledge to Lead the Digitization Initiatives in the company
  • Organizational Structure Gets in the Way of working
  • No Predominant Strategy for Digitization exists
  • Limited Access to the Required Technical Expertise
  • Employee Pushback

Though these all challenges can be managed by overcoming them. So, to overcome the challenges of digital economy we need to:

  1. Handle Employee Pushback

As you know that the digital transformation change is vital to your company. Though, you too know it well that employees are working in their comfort zone for a long time. So, by using digitization we are disturbing their routines and practices. So, therefore you need to Empower them, guide them to attain the results using the digitalization.

2. Wide Digital Transformation Strategy

You need to clarify a vision, set goals and give your whole team a purpose to work for. As if the company goal or strategy is not clear then we cannot expect results too. Thus, forming a wide digital strategy to work with digitalization in the company is essential.

3. Expertise to Lead Digitization Initiatives

You need to train your workforce to become digitally literate and need to help them build the necessary skills needed for innovation. As you need to expertise on digitalization, and to do so one needs to guide the subordinate to achieve them.

4. Manage Your Budget

Digitalization requires investments in your company. Thus, you need to use your budget accordingly and wisely before making any strategy. As your company’s strong foundation is only based on its budgets.

The 4 Things It Takes to Succeed in the Digital Economy

To get a sure success in digital economy you need to keep your focus on the 4 basic things that will help you and your company succeed for sure.

  1. Product Innovation

While extending and restructuring the companies they try to innovate their products from the market to tackle the competition with the new technology as well.

2. Customer Expectations

Companies try to fulfil the service expectations of digitally empowered customers and offer more experiences with great costs.

3. Collaborative Innovations

Companies must try to become more innovative in order to respond to the highly competitive environment. As collaboration will lead the company to be more innovative to deal with the high competition in the economy.

4. Leadership

In order to deal with new market environments and business models, companies should try to change their organisational structures or make the necessary changes in them to deal with the fast-changing digital economy.


The concept “global economy” refers to all economic transactions done on the internet. Though with the coming of digital economy competition and productivity has increased in the market. Moreover, it drives innovation and job opportunities, as well as economic growth, is achieved. Thus, you need to understand the digital economy as a whole and the impact of the digital economy as a whole for a better and developed future.

Frequently Asked Questions

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