The Enterprise in the Digital Economy

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    The digital economy is upon us, and the enterprise has a key role to play. But the question is, “Does IT have the skills, and more importantly the wisdom, to both fulfill its promises and avoid, or at least alleviate, its pitfalls?”

    My short answer is “Yes, but…”

    First off, it’s important to understand what we’re talking about with a digital economy. Many people would infer that it relates strictly to the buying and selling of digital services and products—apps, e-books, downloads and the like. But as METISfiles’s Marcel Warmerdam points out, digital technology is well on the way to transforming old-line business as well, with everyone from Adidas to Ford Motor Company generating billions of dollars per year through online transactions. Some liken this change to the introduction of steam power or even electricity in its impact on society and culture.

    Oddly, the digital economy is not the result of a particular technology or development, but rather the way we are using those technologies in new and innovative ways. This puts the enterprise in an interesting place because, as Tibco CTO Matt Quinn points out, you don’t need to spend oodles on the latest and greatest technologies in order to capitalize on the digital economy. What’s more important, Quinn says, is the need for a change in attitude concerning what can be accomplished with the technology at hand. This is more difficult than it seems, however, as it goes to the very heart of key business processes and even broad concepts like the meaning of “success” and “failure.”

    One thing should be abundantly clear, though: The old ways of customer service (or non-service) will not fly in the digital economy. As Diginomica’s Den Howlett explains, the so-called ‘gangsta economy’ by which large corporations try to frustrate customer attempts to cancel or downgrade services, or simply find information, will only lead to more churn as users flock to more responsive services. Only those who truly make an effort to fix broken processes that impede basic order/delivery execution will thrive.

    But perhaps the most far-reaching impact of the digital economy will be in the regulatory sphere, where governments and licensing/taxation authorities will end up in an Amazing Race-style hunt to track down assets and assign them with the appropriate liabilities. A case in point is the “Double Irish Dutch Sandwich” that is currently vexing the Australian government. This has a U.S. company selling intellectual property rights to an Irish subsidiary, which itself is incorporated in low-tax Bermuda. The Irish firm then re-licenses the content to another subsidiary in the Netherlands, which then sells advertising contracts to Australian businesses. Got it so far? On the return trip, however, the income, and thus the taxes, due to the Irish company are reduced by the royalty payments going to the Dutch company, which in turn only pays a small amount of tax on the difference between the royalties it receives versus what it pays out. And all the while, the royalties that wind up in Ireland are taxed hardly at all because they are actually headquartered in Bermuda.

    These kinds of arrangements are already raising some eyebrows over the use of tax inversion schemes for consumer goods like pharmaceuticals. It will only get worse when the product being exchanged is digital information.

    For the enterprise, then, the digital economy opens up the possibility of a truly stateless environment where assets reside at no fixed address and resources can be dispersed on a global scale. This can be highly advantageous in that it provides broad flexibility to disperse infrastructure, and the very companies that own it, in a wide variety of ways— most of which will likely be driven by financial concerns. On the downside, it can put at risk the very underpinnings of the company and its business model should key assets suddenly become lost in the virtual ecosphere.

    And at the same time, we have to be careful not to undermine the legal and institutional framework that allows the digital economy to flourish.

    Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata, Carpathia and NetMagic.

    Arthur Cole
    Arthur Cole
    With more than 20 years of experience in technology journalism, Arthur has written on the rise of everything from the first digital video editing platforms to virtualization, advanced cloud architectures and the Internet of Things. He is a regular contributor to IT Business Edge and Enterprise Networking Planet and provides blog posts and other web content to numerous company web sites in the high-tech and data communications industries.

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