1、Charting Economic Opportunities in the New Digital Paradigm December 2022By Faisal Hamady,Thibault Werl and Katharina Skalnik Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer i

2、n business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring dee

3、p industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management consulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throu

4、ghout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place.1 CHARTING ECONOMIC OPPORTUNITIES IN THE NEW DIGITAL PARADIGMThe digital sectors multi-trillion-dollar expansion leaves leaders and decision-makers with onl

5、y two options:adapt to its accelerating pace,or be left behindThe recent decline in tech-heavy global stock market indices is being accompanied by news outlets sounding alarm bells for the industry.Analysts everywhere,from broadcasts to podcasts,are chiding venture capital(VC)firms for losing the ho

6、use by betting on the promise of radical technology,claiming that innovations are either early to the market or offer solutions to problems that do not exist.The reality however is more nuanced.Since the internet began gaining mainstream adoption in the early 90s,the growth of the digital economy ha

7、s experienced an unprecedented bull market.Digital streaming services are attracting more audiences than cable TV in some countries1,branchless banking is becoming the norm all over the world,millions are traded in digital art daily2,and ecommerce businesses are rapidly onboarding talent and systems

8、 to cater to consumer demand for transacting via new digital payment mediums.These phenomena indicate that despite three global economic slowdowns in the last two decades,starting from the dotcom bubble in the 2000s,the digital worlds advance has continued unabated.Digital technologys entrenchment a

9、cross industries and consumer preferences also helped ensure continuity of business(and society)despite the impact of a global pandemic,during which countries such as Italy and Saudi Arabia experienced up to a third of their annual network traffic demand in a matter of weeks3.As online activity arou

10、nd the world surges,the existence of a parallel digital realm is coming into an even clearer view.We are experiencing a new economic paradigm that exists parallel to the standing physical one.It includes(but is not limited to)content creators who work,communicate,and transact entirely online,systems

11、 and platform developers connected across geographies,networks around which the entire ecosystem is built,and intelligent analytics engines that use high-speed processing power to crunch data and simulate strategies for best performance.Additionally,as existing value pools draw en masse into the dig

12、ital economy,new value pools with an increasingly diverse array of actors continue to emerge.The gaming sector,for instance,provides compelling evidence of this,having birthed an e-sports industry and now luring entrants from the NFT phenomenon.With burgeoning growth showing no signs of peaking,the

13、digital economy will profoundly affect markets and policy makers who are watching existing industries disrupt as new ones emerge.1 https:/ https:/decrypt.co/104101/ethereum-nft-trading-volume-falls-by-70-in-june-but-number-of-sales-steady3 https:/wdr2021.worldbank.org/spotlights/how-covid-19-increas

14、ed-data-consumption-and-highlighted-the-digital-divide/https:/wdr2021.Today,every business,from financial services and healthcare to education and mobility,is embracing digital technology to attract target audiences,automate and optimize processes,cut costs,and grow revenue.Macroeconomic uncertainti

15、es might abound in the short-term,but advances expected from the use of Unprecedented economic disruption and opportunityBOSTON CONSULTING GROUP 24 Digital Spillover()5 https:/ https:/ https:/Globaleurope.eu/globalization/patents-worldwide-world-class-patents-in-cutting-edge-technologies/automation,

16、robotics,and a historic explosion of data and intelligence in the coming years,present significant opportunity for unprecedented disruption and wealth creation.For government decision-makers,the digital economys expansion carries major strategic implications.Digital technology is projected to accoun

17、t for more than two-thirds of productivity growth over the last decade.By 2030,it will account for 25 percent of global GDP4.Positioning economies appropriately can help them remain competitive,overcome productivity lags,and maintain resilience against internal and exogenous shocks.For instance,an e

18、nvironment conducive to shifting value pools can allow the creation of new value as was the case with digital platform businesses such as Uber and Amazon that have shifted demand to digital and are simultaneously accelerating value creation through increased products,services and labor participation

19、 in the countries in which they operate.However,the digital economys rapid pace of growth also raises important concerns.Only six countries in the world account for more than 80 percent of the worlds approximately 1,000 unicorns(companies with a valuation over$1 billion)5.Given that up to 25 percent

20、 of job categories in developed economies such as the US stand the risk of becoming redundant over the next 3-5 years6,the digital economy is engaged in a winner-takes-most race in terms of global economic impact and dominance.This fact is evident in how parts of the world where the digital economy

21、is concentrated are driving influence over global technology standards.Only a half dozen countries file most technology patents each year.7 These standards will not only drive the future of the digital economy but also determine who exerts the most influence over it.Additionally,the growth of the di

22、gital economy raises the risk profile of critical national assets.Defending against a new generation of threat vectors requires a completely new way of thinking about security.To derive the maximum possible benefit from a surging digital economy,vital government decision-makers must act to ensure th

23、at it is allowed to continue its proliferation,while also balancing important considerations in the exchange of digital goods and services,property rights,network access,data usage,equipment and protocol standards,and even human rights.Given that adaptability and flexibility are naturally associated

24、 with a higher propensity for survival and successful outcomes,governments need to drive a mental shift to understand the potential of the digital world and its economy.Thus,by considering how systems can change at the same pace as technology,governments can recalibrate the regulatory framework for

25、a digital-first world.This perspective can help guide thought around the right investments to make in infrastructure,specifically in merging value pools,to spur innovation and economic opportunity.25%of job categories in developed economies such as the US stand the risk of becoming redundant over th

26、e next 3-5 years.The digital economy is engaged in a winner-takes-most race in terms of terms of global economic impact and dominance3 CHARTING ECONOMIC OPPORTUNITIES IN THE NEW DIGITAL PARADIGM8 https:/www.oecd.org/sti/roadmap-toward-a-common-framework-for-measuring-the-digital-economy.pdfGiven its

27、 broad nature and impacts on society that are beyond economic measure,defining the digital economy has proven complicated.As a result,definitions in use with organizations around the world are often not congruent with each other.To find middle ground,the OECD has attempted a three-tiered definition

28、emphasizing sectors that exist due to digital technology(as opposed to those that employ it to enhance productivity).While“not a panacea”,the definition is more holistic and provides decision-makers with more clarity to make policy decisions.According to the OECD8,the digital economy:“incorporates a

29、ll economic activity reliant on,or significantly enhanced,using digital inputs,including digital technologies,digital infrastructure,digital services,and data.It refers to all producers and consumers,including governments that are utilizing these digital inputs in their economic activities.This defi

30、nition is adequate and important because given that the digital economy extends beyond what is measured in economic statistics,an appropriate definition should encompass all its aspects,be conceptually flexible,and allow for the possibility of accurate measurement.”Visualizing the digital world can

31、help better illustrate how its future will unfold in the coming years.As per the definition shared above,the digital world comprises economic activity created by producers and providers across three tiers:Defining the digital economyCore:Digital technology sectorNarrow:Digital utilities and business

32、esBroad:Digitalized economyExhibit 1-The digital economy can be defined in three tiers:core,narrow,and broadCommunication and technology hardware,Soware,and servicesIndustry 4.0Health-techGreen-techSharing economyGig economyPrecision agricltureDigital utilities(e.g.,digital identity)Platform economy

33、Core:economic activity from producers of digital content,ICT goods and services(including IT and communications businesses that cover hardware,software,and services)Narrow:adds economic activity derived from firms that are reliant on digital inputs(such as digital services and platforms businesses)t

34、hose are generally defined as digital only businessesBroad:economic activity from firms significantly enhanced by the use of digital inputs(including significantly digitalized businesses in e-commerce,industry 4.0,etc.)In its report for the G20 Digital Economy Task Force,the OECD also includes a Dig

35、ital Society tier but mentions that this layer extends beyond the definition outlined earlier and encompasses digitalized activities excluded from GDP production(such as zero-priced digital services).Source:OECD,framework for measuring the digital economyBOSTON CONSULTING GROUP 4Crypto,metaverse and

36、 AI are some of the most hyped new technologies entering the fore,but their rapid growth is evidence of how distributed technology and spatial computing innovations will impact the way that the world functions.There is no crystal ball capable of discerning how multi-billion-dollar opportunities in i

37、ndividual technologies will present themselves,but from the ongoing reimagining of how technology stacks can work,we can extrapolate how the dynamics of digital technologys evolution are outlining a future vision for the digital economy.At the core of the digital economy,we expect the emergence of a

38、 heterogeneous network-of-networks.This next-generation architecture will encompass a seamless mix of terrestrial networks and multi-layer non-terrestrial networks.This network would incorporate elements from fixed,mobile terrestrial nodes,but also non-terrestrial nodes(there are currently more than

39、 10,000 nodes in orbit9)including Lower Earth Orbit(LEO)satellites and high-altitude platform systems(HAPS)as well as other ad-hoc networks(such as vehicular networks,or blockchain-based IoT networks).Complementing the seamless integration of multi-layered networks will be the emergence of a new com

40、puting paradigm that facilitates computing with stronger combinations of centralized and distributed aspects (core and edge).Over the next half-decade,global multi-cloud networking revenue is expected to almost double and technologies such as quantum computing are projected to turn into an$10 billio

41、n industry10.This seamless virtualization of computing,coupled with an expected exponential shift in computation intensity and power via technologies such as quantum computing should allow new business models,challenge traditional digital techniques such as cryptography,and fundamentally challenge o

42、ur understanding and response to humanitys large-scale existential concerns such as climate change.Visualizing a digitally enabled future9 https:/www.unoosa.org/oosa/osoindex/search-ng.jspx10 https:/ of dataWorldwide big Data and analytics soware revenue to reach$152 billion by 2025Heightened risk a

43、nd demand for securityCybersecurity revenue is expected to grow at-10%CAGR,resulting in market volumn of$212 billion by 2026New computing paradigmGlobal multicloud networking revenue expected to grow at CAGR of 75%from 2021 to 2026Emergence of heterogenous networksIf all LEO operates realize their c

44、urrent plans,there will be 90K satellites in orbit by mid-2020s5 CHARTING ECONOMIC OPPORTUNITIES IN THE NEW DIGITAL PARADIGMThe proliferation of consumer and business devices,including IoT sensors,will generate an exponential increase in the volume of data produced.Estimates from leading vendors sug

45、gest that approximately 40 billion connected devices will be online in the next half decade11.With big data and analytics technology revenue,including from hardware,software,storage and services in the mining of unstructured data expected to reach$260 billion this year and spending forecasted to gro

46、w at a compound annual growth rate of 13 percent over the next three years12,AIs game-changing applications in education,retail,pharma,agriculture and more should compound further data generation and usage around the world.11 https:/ https:/www.businessinsider.in/enterprise/news/five-ways-big-data-a

47、nalytics-can-boost-revenues/articleshow/91954212.cmsPlatformization of traditional businessesLOGISTICSHEALTH&WEALNESSCOMMUNICATIONDIGITAL WORLDPHYSICAL WORLDSPATIAL APPLICATION LAYERBASE LAYERPlatform businesses forecasted to capture some$10 trillion in global value over the next decadeUser ownershi

48、p driven by Web 3.0Global blockchain-based Web 3.0 market estimated to reach$6B billion by 2023 and grow further at 44.6%CAGR until 2030Emergence of parallel/new virtual economyMetaverse market revenue worldwide expected to grow from about$48 to$680 billion at CAGR of 39%from 2022 to 2030Total value

49、 of all NFT transactions globally jumped 21,000%(YoY)to more that$17 billion in 2021;NFT market size expected to grow by$147 billion from 2021 to 2026 at a CAGR of 35.27%6 CHARTING ECONOMIC OPPORTUNITIES IN THE NEW DIGITAL PARADIGMIt is crucial to recognize as well that the rapid growth of the marke

50、t and accelerated convergence of informational and operational technology will create a much larger surface for the cybersecurity industry to defend against attacks or unforeseen events.The vulnerability of economic and national digital structures will heighten risk and demand for security will lead

51、 to increased spending(double-digit growth expected)on security products and services,as well as on measures to protect from or mitigate new risks(e.g.,crypto crime,climate change,etc.).At the same time as the transformation progresses through its core,the narrow tier of the digital economy could pr

52、ogress to make businesses dramatically different from their current shape.In the previous decade,the growth of people connected to devices allowed businesses such as Airbnb,Fiverr,Spotify and Uber to transcend borders and disrupt industries outside of their source markets,largely because of platform

53、-based business models that prioritized mobile-device user interactions.Airbnb now has more rooms than Marriot hotels13,Fiverr has grown into a billion-dollar freelance worker platform14,Spotify is the worlds largest audio streaming service15 and Uber is the largest taxi company in the world16.This

54、platformization is causing ripple effects and we are beginning to witness a new wave of Web 3.0 businesses emerge.Distributed autonomous organizations(DAOs),are an example of Web 3.0 businesses that rely on decentralized trust-based communities and smart contracts,eliminating the need for intermedia

55、ries,to come together and create a coin or a contract without relying on a centralized authority to define what either is.For instance,by allowing members to vote on pieces written by aspiring members,Mirror DAO allows writers to crowdfund novels.These organizations present a massive shift in how or

56、ganizations can work,and value is created.The emergence of decentralized and community-driven creation models powered by Web 3.0 is driving user ownership in a new parallel virtual economy and allowing businesses to manifest in other ways as well.NFT marketplaces OpenSea or Rarible allow artists to

57、create and collectors to speculate on the value of digital art,profile pictures and music,and transact via blockchain-based currencies.Entities such as Decentraland and Sandbox develop digital real estate on their individual metaverses for users to monetize the latter recorded 65,000 transactions in

58、 virtual land totaling$350 million in 2021.As metaverse-led investments diversify outside of augmented and virtual reality entertainment into identity,security,and productivity-centered workplace collaboration engines,the metaverse market revenue worldwide is expected to surge.Platformization and We

59、b 3.0 will likely lead to more complexities in the labour markets.The formers effect on the gig economy has been widely documented,while the latter is leading to a growing pool of artists,developers,marketers and other talent working without being bound by geography.This has implications on how orga

60、nizations process health insurance,commercial real estate and care for employees connected entirely online.Traditional businesses could also likely reinvent themselves to offer a range of services through digital marketplaces.By aggregating services and driving social dynamics,they could force the t

61、ransformation of sectors,as has been seen in how the uberization of transport opened the doors to other revenue streams and allowed the company to become a full-scale logistics firm.Similarly,Facebook transformed itself from being a pure-play social media company into a diversified communications bu

62、siness.In the broad tier of the digital economy,various sectors could face a bionic future where a new logic of competition and economic-digital advantage portends success.By bionic,we mean a future where organizations marry the power of humans and machines to achieve superior performance throughout

63、 the organization and operating model.In this scenario,businesses would compete on pace of learning instead of economies of scale.Iterative improvements to AI models and algorithms,and augmented cognitive machine capabilities blended with flexibility,adaptability,and comprehensive human experience c

64、ould lead to superhuman enterprises that produce competitive advantage.As a result,traditional businesses,not just digital natives,could be redesigned in a way where every worker has access to technology and resources that allow the use of behavioral data to deliver personalized experiences.Widespre

65、ad digitization of brick-and-mortar businesses will increase in-store conversion,while internally,businesses will want to see layers of approval replaced by small,autonomous and digitally trained teams that are empowered to make decisions quickly.In the race to seize digital and virtual opportunitie

66、s beyond national borders,conventional value chains could break along with new economies of creation (e.g.,limited add-on cost of software),triggering a pursuit for economic-digital-advantage.13 https:/ https:/ https:/ CONSULTING GROUP 7HEALTH-TECHLOGI-TECHDIGITAL FACTORYFor governments,the digital

67、economy is not an elective.It marks a profound departure from the way that economies have historically been organized and regulated.Tackling this brave new world head-on will prove essential to remaining competitive and relevant on the global scene.For instance,regulators need to rethink the coverag

68、e model of broadband connections to digital coverage,underpinned by novel ways of realizing enablers such as planning,authorization and pricing of spectrum for instance.They also need to improve the quality of connectivity and digital coverage to engage a broader segment of the population and compan

69、ies to eliminate the divide across all tiers of the digital economy.The United Nations Capital Development Fund estimates cross-border data volumes to be four times(4x)greater in 2022 than in 2017 and the volume of internet data in to grow more than five times(5.3x)from 33 zettabytes in 2018 to 175

70、zettabytes in 202517.Given the massive amount of growth expected middle-ground solutions that allow free data flows while promoting data security and sovereignty require vital consideration.It is also important to identify critical infrastructure sectors whose assets,systems,and networks,whether phy

71、sical or virtual,are vital,and implement initiatives to manage their risks.In a rapidly transforming world,new governance structures are required to address issues such as competition,taxes,data privacy,employee rights and the new view on labor market economics that extend from the growth of all thi

72、ngs digital across each of the tiers discussed earlier.Governments also need to prioritize considerations around how digital utility ecosystems can help value chains grow.For instance,standardized digital registration and verification processes for IDs and payments can help boost security and speed

73、when sharing sensitive information and resources in marketplaces.Response options for governments17.https:/policyaccelerator.uncdf.org/policy-tools/brief-cross-border-data-flows(July 2022 update)BOSTON CONSULTING GROUP 818 https:/ https:/ Pitchbook&Crunchbase,2021:FactSet21.BCG analysis via GS Statc

74、ounter;CB Insights;The Economist;NASDAQ22 https:/globaleurope.eu/globalization/patents-worldwide-world-class-patents-in-cutting-edge-technologies/23 BCG AnalysisGiven the fragmented nature of current developments,regulators also need to approach collaboration mechanisms with private sector tech play

75、ers to develop mandatory standards,and to support interactions and experiences across multiple environments.Legacy laws will need to be adapted to new frameworks in establishing sandboxes and privacy standards to allow agility in reacting to fast-moving spaces,such as in digital asset ownership for

76、instance.The digital economy will also require the blending of social concepts into the digital fabric of society(think ethics,values and inclusion).By collaborating with other public entities to align strategic priorities,governments can help address wide-ranging issues that are gaining prominence

77、such as digital inclusion,social prosperity,and questions around digital ethics including how to eliminate social bias in AI(both from a structural data perspective,and from algorithm definition and training)Similarly,a bionic future for business will mean inducing opportunities to conduct digital t

78、rade and commerce.Digital economy agreements,such as DEPA signed electronically between Chile,New Zealand and Singapore in 2020 and the UK-Singapore Digital Agreement of 2022,present an innovative approach toward addressing challenges of interoperability between digital economy activities in various

79、 countries.Through regulators,governments can set clear guidance on reforms needed to build trust across businesses,investors and end users,and promote economic opportunities in the trading of digital goods.Lastly,macro trends that most enhance total factor productivity,i.e.,where future addressable

80、 markets can allow the digital economy to contribute meaningfully to overall GDP,must be emphasized.This can be done through policies that encourage investments in digital infrastructure and R&D into frontier technologies,such as AI and robotics,and create an environment for innovation that trains o

81、r attracts highly skilled and specialized talent.However,it is important that this focus does not pull support for traditional sectors but instead facilitate providing digital on-ramps to businesses to make them more competitive and productive.The good news for the digital economy is that its pace o

82、f growth is quickening.Two-thirds of the worlds unicorns emerged in the last two years18;cross-border data flows,which have been surging since 2015,are estimated to account for two-thirds of global GDP19;and more than two-thirds of venture capital funding is now concentrated in technology20.The lead

83、ers in this area are reaping significant benefits that are allowing them to reinvest in the future while remaining competitive during downturns.In the corporate arena,this winner-takes-most dynamic is manifested in the form of the roughly five tech giants that have captured 50%of the market value of

84、 their sectors in key markets globally21.On the global stage,only five nations hold more than 80%of the patents in key technologies such as AI,blockchain,etc22,giving them a significant head start in terms of much influence they will command in the future of the digital economy.Fortunately for econo

85、mies just beginning to accelerate their digital economy ambitions,research23 shows that the maturity of digital drivers in the core,narrow,and broad tiers have a non-linear relationship to value created in the form of contribution to GDP.This means that investments toward accelerating digital maturi

86、ty in an economy can likely deliver increasingly higher economic contribution levels.An exponential increase in benefits should incentivize economies looking to advance from lower digital maturity levels as it would make it easier for an economy to become a digital leader rather than remain a digita

87、l laggard.Narrowing window of opportunity9 CHARTING ECONOMIC OPPORTUNITIES IN THE NEW DIGITAL PARADIGMDigital readinessDigital economy contribution(%of total GDP)Source:BCG AnalysisNote:1.Size of the bubble represents the current size economy in 2021(GDP,source:Oxford Economics);For trendline R=0.63

88、 and equation y=2.81e0.0274x2.Each bubble represents a country.1 Digital readiness is a composite index considering several metrics around the digital economy tiers including:Core(e.g.,ICT investments),Narrow(e.g.,eCommerce penetration),Broad(e.g.,internet speed and participation),and Enablers(e.g.,

89、RDI investments,patents,workforce)Exhibit 2-Increased digital readiness shows non-linear correlation with economic impact of digital economy 30506070809010024 https:/ Hannah Ritchie and Max Roser(2017)-Technology Adoption.Published online at OurWorldInData.org.Retrieved from:https:/ourwor

90、ldindata.org/technology-adoption+https:/ https:/hbr.org/sponsored/2017/07/digital-transformation-is-racing-ahead-and-no-industry-is-immune-2However,the data also suggests that market actors have a narrowing window of opportunity to react.To put it into perspective,the average lifespan of a company h

91、as shrunk by a factor of three over the past five decades(to 18 years from 61 years)24,the technology adoption curve is today 7x what it used to be 2 decades ago25,and industry disruption is the leading cause of Fortune 500 companies going bankrupt,being acquired,or ceasing operations since 200026.T

92、here is a need to act,and to act fast.It is no news that there is no crystal ball that exisits to discern what the future holds.Nevertheless,while it is unclear who will emerge as tomorrows winners,past decades provide ample evidence of a winner-takes-most consolidation on the horizon.What market ac

93、tors now require is to ask important questions about how to approach the digital economy and accelerate the development of each of its tiers,before constructing holistic digital economy acceleration initiatives,backed up by strategies that can help mitigate labor disruption,overcome productivity lag

94、s,stay competitive and build resilience to external shocks.As stated earlier,adaptation is survival and is the need of the hour to win the digital economy race and remain competitive in the future.BOSTON CONSULTING GROUP 10About the Authors Faisal Hamady is a Managing Director and Partner in the fir

95、ms Middle East office.He is a core member of BCGs Technology,Media&Telecommunications practice.You may contact him by email at Hamady.F.Katharina Skalnik is a Principal in the firms Middle East office.She is a core member of BCGs Technology,Media&Telecommunications practice.You may contact her by em

96、ail at Skalnik.K.Thibault Werl is a Managing Director and Partner in the firms Middle East office.He is a core member of BCGs Technology,Media&Telecommunications practice.You may contact him by email at Werle.T.AcknowledgmentThe authors are grateful to the broader team of BCG colleagues,alumni,and i

97、ndustry peers whose insights and experiences contributed to this white paper.If you would like to discuss this report,please contact the authors.For information or permission to reprint,please contact BCG at .To find the latest BCG content and register to receive e-alerts on this topic or others,please visit .Follow Boston Consulting Group on LinkedIn,Facebook,and Twitter.Boston Consulting Group 2022.All rights