- 18/03/2016
- Category: Commentaries
Author: Josia Paska Darmawan
The phrase “digital economy” has been increasingly mentioned in the past years, not only by the developed economies but also by the emerging ones. Indonesia, for instance, has set up the Indonesia Digital Economy 2020 vision with its goal of making Indonesia the largest digital economy in Southeast Asia.[1] Digital India, an initiative from the Government of India that has started in July 2015, also aims to develop the digital economy of the country among others.[2] Other than states, many international institutions such as OECD have consistently released various reports on digital economy.[3] These examples show how “digital economy” has become an essential topic that needs to be discussed even further.
But before we delve into various issues of digital economy, it is only logical to firstly have a clear understanding of what digital economy really is about. In this article, I will try to provide a brief explanation of the definition and importance of digital economy.
A Term of Multitude Components
“The Digital Economy” by Don Tapscott is one of the first publications that brought up the term digital economy to the public. Through this book, Tapscott discusses how the internet has transformed the way the economy works, which covers the production to the transaction.[4] With the existence of the internet, people from all around the world will be easily connected with insignificant time constraints. This brings multiple benefits as it would significantly decrease the operational cost and widen their reach to the market. However, to optimize those benefits, we also need to suit up. It means those who fail to adapt will get crushed by the new economy.
In adapting to the digital economy, we need to put their attention into the components of it. Thomas Mesenbourg mentions three components of digital economy, namely infrastructure, e-business, and e-commerce.[5] Businesses and, of course, the government, need to invest in ICT infrastructure if they want to tap the economic potential of the digital era. The infrastructure that needs to be prepared includes hardware, software, and networks. When the infrastructure is already sufficient, then we can finally start the computer-based operational – the e-business. Finally, digital transactions will be able to be done when there are multiple institutions that have successfully transformed themselves into using digital technology. These three components, therefore, need to be developed so we can fully reach the potential benefits of digital economy.
Why Important?
Many people are getting connected to the internet. In Indonesia alone, the number of internet users has been increasing rapidly. The latest data from the World Bank shows that 17.1% of the total population are internet users.[6] This is a fivefold increase from the number in 2009, which stands at 3.6%.[7] Data from the Ministry of Communication and Information in 2014 also shows a significant number of internet users at 82 million people.[8] Worldwide, the number of internet users in 2015 reaches approximately two billion. This number is expected to increase to three billion by the end of 2016.[9] This shows how there is a huge unexploited potential behind the internet.
In regards to digital economy, the increasing number of internet users will bring not only ripe opportunities but also huge challenges for businesses. On one side, the digital community will create a huge market. We can see how businesses are starting to use digital platforms, especially for marketing. However, the development of digital economy will also threaten the existence of businesses that fail or resist transforming. This issue is especially alarming for developing countries, as the businesses in these countries are usually late to adapt to the new environment. The digital economy also has several weaknesses that need to be identified to prevent big turmoil in the future. Therefore, further discussion about digital economy is verily needed to maximize the opportunity while preparing for the worst.
[1] Embassy of the Republic of Indonesia in Washington DC, News Release: Indonesia Strengthens Partnerships with Tech Industry In California Announcements with Microsoft, Facebook, Google, Apple, MTG will Boost Investment Ties, Increase Rural Internet Access and Digital Education for Indonesians, retrieved from <http://www.embassyofindonesia.org/wordpress/?p=5373> on March 17, 2016
[2] More information about Digital India can be accessed on http://digitalindia.gov.in/
[3] OECD has published several reports such as The Competition Report of Digital Economy 2012 and Digital Economy Outlook 2015
[4] Read more on Don Tapscott, The Digital Economy: Promise and peril in the age of networked intelligence (the 20th anniversary edition), 2015, New York: McGraw-Hill.
[5] Thomas L. Mesenbourg, Measuring the Digital Economy, 2001, U.S. Bureau of the Census, p. 2-3
[6] Quoting World Bank, internet users here refers to individuals who have used the Internet in the last 12 months.
[7] Data on internet users was retrieved from <http://data.worldbank.org/indicator/IT.NET.USER.P2> on March 04, 2016
[8] The source article entitled Kemkominfo: Pengguna Internet di Indonesia Capai 82 Juta can be accessed on <>
[9] Data of worldwide internet users is quoted from European Union, The Importance of Digital Economy, retrieved from <http://ec.europa.eu/growth/sectors/digital-economy/importance/index_en.htm> on March 16, 2016
