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Three Myths About the Digital Economy

In Davos, the World Economic Forum has crowned it the Fourth Industrial Revolution.

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The digital economy is bigger than you think. Much bigger. Some call it the Second Machine Age. The Germans refer to it as Industry 4.0. In Davos, the World Economic Forum has crowned it the Fourth Industrial Revolution. No one is playing down the future impact of digital. But there is a danger that many are underestimating its prevalence today.

New research from Accenture Strategy reveals that the digital economy represents one-third of the U.S. economy. That’s equivalent to $5.9 trillion. The proportion is similar in the U.K. and Australia, and falls to about one quarter in France and Germany. China’s digital economy represents less than 15 percent of its current GDP.

Too many businesses and organizations assume that digital is something that will happen to them.

This fresh data matters. Too many businesses and organizations assume that digital is something that will happen to them. They expect technology-driven startups to disrupt their traditional business models and threaten their competitive position. That may be true. But the breadth of digital assets and skills means that incumbent organizations may have a greater digital base to build on. It tells us they can be more aggressive and proactive in disrupting markets themselves.

Most estimates of the digital economy rely predominantly on expenditure on Information and Communications Technology (ICT). Our measure is more comprehensive. It looks at the proportion of occupations and employment that have digital skills that are important to those jobs. Forty-three percent of U.S. employment can be considered digital, for example. It includes how software and hardware are delivering value in the entire economy. Accenture Strategy estimates that 26 percent of U.S. accumulated capital stock can be deemed to be digital.

None of this means that becoming a digital business will be any less effortless than we had thought. But it provides some confidence that the foundation is stronger in many countries than is presumed. As investors and companies consider their next steps in digital transformation, it is important however to address three myths:

Myth 1: A bigger digital economy means greater economic growth

Just as the size of a country’s manufacturing sector does not guarantee any particular rate of growth, so, too, with the digital economy. A larger digital slice of the pie does not automatically increase the size of the pie. It is the application of digital investments that matters, and how they can generate greater productivity and growth.

Accenture Strategy explores how digital skills, technologies and other accelerator factors can be used to drive such growth. Should American organizations pull these three levers in an optimal combination, we suggest that they could collectively add another $421 billion to U.S. GDP by 2020, equivalent to a 2.1 percent boost. That’s the difference between business as usual and smarter use of existing digital investments.

Myth 2: All we need is greater technology investment.

In order to convert existing digital investments into higher rates of growth, we must remember that organizations and economies are at different points of maturity. In order for the U.S. to pull off its 2.1 percent uplift to GDP, for instance, Accenture Strategy suggests that just 10 percent of its extra effort should be devoted to digital technology. Instead, a good 60 percent of improvements to the application of digital should be focused on skills.

The reverse is true in Brazil. Here, we estimate that the economy could enjoy a 6.6 percent boost to 2020 GDP if it pulled the right digital levers. Seventy percent of this extra effort should be directed at improving the digital capital stock. Brazil needs its enhanced skills, of course, but our analysis suggests that extra effort in skills would deliver far smaller economic returns by comparison.

Myth 3: The online giants will continue to dominate the digital economy.

Amazon, Uber, Airbnb, Facebook: These brands have reshaped multiple markets. They have done so by mastering the so-called platform economy, whereby they use the network effects of bringing suppliers, customers and partners together to deliver new forms of value. The top 15 of these platform players have a collective market cap of $2.6 trillion. European policymakers have expressed concern at their dominance.

But we now see the opportunity for traditional analog companies to benefit from digital platforms in similar ways. By generating data from their network of products and partners, they can deliver rich new services themselves. Europe’s strengths in engineering, health care and pharmaceuticals gives it the perfect chance to transform its traditional businesses into digital platform players with global clout.

Exposing these myths is important if we are to mobilize the many sectors that have yet to be disrupted by digital and to ensure that policymakers support them by channeling investments the right way. The size of the underlying digital economy is significant, and leaves no excuses to delay.


Bruno Berthon is managing director for digital strategy within Accenture Strategy. Reach him @BFB61.

This article originally appeared on Recode.net.