INTRODUCTION The digital economy has given rise to a number of new business models. Although many of these models have parallels in traditional business, modern advances in ICT have made it possible to conduct many types of business at substantially greater scale and over longer distances than was previously possible.
This section discusses several prominent examples of these new business models. Some of these business models may complement each other and in some cases overlap with each other (for example, payment services could be described under e-commerce or under cloud computing).
The business models discussed below are by no means exhaustive. Indeed, just as innovation in the digital economy allows the rapid development of new business models, it can also quickly cause existing businesses to become obsolete. Types of Business Models of Digital Economy
The types of business discussed include several varieties of e-commerce, app stores, online advertising, cloud computing, participative networked platforms, high speed trading, and online payment services. Electronic commerce Electronic commerce, or e-commerce, has been defined broadly by the OECD Working Party on Indicators for the Information Society as “the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or service do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organisations” (OECD, 2011).
E-commerce can be used either to facilitate the ordering of goods or services that are then delivered through conventional channels (indirect or offline e-commerce) or to order and deliver goods or services completely electronically (direct or on-line e-commerce). Business-to-business models The vast majority of e-commerce consists of transactions in which a business sells products or services to another business (so-called business-to business (B2B)) (OECD, 2011). This can include online versions of traditional transactions in which a wholesaler purchases consignments of goods online, which it then sells to consumers from retail outlets.
It can also include the provision of goods or services to support other businesses, including, among others: logistics services such as transportation, warehousing, and distribution; application service providers offering deployment, hosting, and management of packaged software from a central facility; outsourcing of support functions for e-commerce, such as web-hosting, security, and customer care solutions; auction solutions services for the operation and maintenance of real-time auctions via the Internet. Consumer-to-consumer models Consumer-to-consumer (C2C) transactions are becoming more and more common.
Businesses involved in C2C e-commerce play the role of intermediaries, helping individual consumers to sell or rent their assets (such as residential property, cars, motorcycles, etc.) by publishing their information on the website and facilitating transactions. These businesses may or may not charge the consumer for these services, depending on their revenue model.
Growth of e-commerce The Internet facilitates transactions such as ordering goods and services. This means that many transactions that would have taken place without the Internet can be conducted more efficiently and at less expense. In addition, the Internet has expanded the reach of smaller businesses, enabling them to reach markets that would not have been possible to reach without its existence. As a result, the number of firms carrying out business transactions over the Internet has increased dramatically over the last decade. Payment services Paying for online transactions traditionally required providing some amount of financial information, such as bank account or credit card information, to a vendor, which requires a high degree of trust that is not always present in the case of an unknown vendor, particularly in the case of a C2C transaction.
Online payment service providers help address this concern by providing a secure way to enable payments online without requiring the parties to the transaction to share financial information with each other. App stores The growth of Internet access through smartphones and tablets has caused an increase in the frequency of use of online services and the development of application stores, a type of digital distribution platform for software, often provided as a component of an operating system. Application stores typically take the form of central retail platforms, accessible through the consumer’s device, through which the consumer can browse, view information and reviews, purchase and automatically download and install the application on his/her device.
Online advertising uses the Internet as a medium to target and deliver marketing messages to customers. Internet advertising offers a number of advantages over traditional advertising. For example, many Internet advertisers have developed sophisticated methods for segmenting consumers in order to allow more precise targeting of ads.
Many Internet advertising publishers have also developed ways for clients to monitor performance of ads, tracking how users interact with their brands and learning what is of interest to current and prospective customers. Online advertising takes a number of forms, the most prominent of which are display ads, in which an advertiser pays to display ads linked to particular content or user behaviour, and search engine ads, in which an advertiser pays to appear among Internet search results.
Cloud computing is the provision of standardised, configurable, on-demand, online computer services, which can include computing, storage, software, and data management, using shared physical and virtual resources (including networks, servers, and applications). Because the service is provided online using the provider’s hardware, users can typically access the service using various types of devices wherever they are located, provided they have a suitable Internet connection.
As digital technology is adopted across the economy, segmenting the digital economy is increasingly difficult. In other words, because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy.
Attempting to isolate the digital economy as a separate sector would inevitably require arbitrary lines to be drawn between what is digital and what is not. The digital economy has also enhanced the ability of companies to collect and use information about the viewing habits and preferences of customers, to enable them to better target programming.