Introduction to Digital Economics PDF

[email protected] [email protected] [email protected] ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Introduction to Digital Economics Dr. Ibrahim M. Elatroush 2024/2...

[email protected] [email protected] [email protected] ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Introduction to Digital Economics Dr. Ibrahim M. Elatroush 2024/2025 Department of Economics 2024/2025 2024/2025 Tanta University  [email protected] [email protected] [email protected] Preface This book is an introduction to digital economics. It is highly cross-disciplinary and depends on knowledge from several academic disciplines, such as telecommunications, computer science, management, economics, and mathematics, to explain the digital economy. To fully comprehend digital economics, it is important to understand how information and communication technology (ICT) is underpinning all digital businesses. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ The six biggest companies by capitalization (by 2021) are all major stakeholders in the digital economy. The economics of digital goods and services has become a key element in the understanding of how the world economy works. This book approaches topics in digital economics from a technological point of view. Digital economics emerged as a result of the evolution of information and communications technologies, and not vice versa. The field of digital economics is complex and cannot be fully understood using 2024/2025 2024/2025 2024/2025 theories from traditional microeconomics alone. It is necessary to adopt existing theories using knowledge from system dynamics, management science, and business modeling. This book supports the growing community of students and practitioners with textbook material that links the theoretical foundations of digital economics with practical examples and case studies.  [email protected] [email protected] [email protected] Contents 1 The Digital Economy.......................................................................... 7 ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ 2 Information and Communication Technologies.............................. 22 3 Digital Economy Ecosystem............................................................ 38 4 Digital Goods and Services.............................................................. 54 5 Production Models........................................................................ 74 6 Value Creation Models and Competitive Strategy........................ 90 2024/2025 2024/2025 2024/2025 7 Digital Monopolies and Oligopolies................................................ 111 8 Mergers and Acquisitions.................................................................... 126 9 Digital Markets...................................................................................... 137 10 Digital Market Modeling...................................................................... 156 11 Digital Regulation............................................................................ 181 Test Bank............................................................................ 195 3  [email protected] [email protected] [email protected] Abbreviations 3G Third Generation Mobile System 4G Fourth Generation Mobile System 5G Fifth Generation Mobile Systems ADSL Asymmetric Digital Subscriber Line ARPU Average Revenue per User ASP Application Service Provider B2B Business to Business B2C Business to Consumer BMC Business Model Canvas BPQ Buyer-Player-Quitter ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ C2B Consumer to Business C2C Consumer to Consumer CBPP Commons-Based Peer Production CP Content Provider CPU Central Processing Unit DAB Digital Audio Broadcasting EDGE Enhanced Data rates for GSM Evolution EEA European Economic Area FinTech 2024/2025 Financial Technologies 2024/2025 2024/2025 FTTH Fiber to the Home GPRS General Packet Radio Service GSM Global System for Mobile Communications HTML Hypertext Markup Language HTTP Hypertext Transfer Protocol IaaS Infrastructure-as-a-Service ICT Information and Communication Technology IoT Internet of Things IP Internet Protocol ISP Internet Service Provider ITS Intelligent Transport Systems ITU International Telecommunication Union LTE Long Term Evolution M&A Mergers & Acquisitions MC Marginal Cost MMOG Massive Multiplayer Online Game MMS Multimedia Messaging Service 4  [email protected] [email protected] [email protected] MOOC Massive Open Online Course MSP Multi-sided Platform MVNO Mobile Virtual Network Operator NFV Network Function Virtualization NMT Nordic Mobile Telephone NP Network Provider O-T Odlyzko-Tilly OTT Over-the-Top Services PaaS Platform-as-a-Service PC Personal Computer PDF Portable Document Format ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ PSTN Public Switched Telephone Network SaaS Software-as-a-Service SCTP Stream Control Transmission Protocol SDN Software Defined Networking SIR Susceptible-Infectious-Recovered SLA Service Level Agreement SMS Short Message Service SOA Service Oriented Architecture SRM 2024/2025 Stakeholder Relationship Model 2024/2025 2024/2025 TCP Transmission Control Protocol UDP User Datagram Protocol URL Uniform Resource Locator VCR Videocassette Recorder VHS Video Home System VNO Virtual Network Operator VoIP Voice over IP VoLTE Voice over LTE WoW World of Warcraft WWW Word Wide Web XaaS Anything as a Service 5  [email protected] [email protected] [email protected] ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Chapter 1: The Digital Economy 2024/2025 2024/2025 2024/2025 6  Learning Objectives After completing this chapter, you should be able to: Understand the importance of the digital economy. Explain how the adoption of Internet access and mobile telephony has enabled the digital economy. 1.1 Introduction Information and communication technology (ICT) is prevalent all around us - ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ from the Internet, smartphones, and laptops to wireless networks, apps, and online video services. In the developed world, ICT is abundant, and the pace of innovation in this field is fast, with modern technologies emerging every year. Over the past few decades, ICT has significantly impacted our work, spending and investment patterns, and business conduct. Telecommunications, finance, and media are among industries where ICT has fundamentally changed the business landscape. 2024/2025 2024/2025 2024/2025 The music industry, for example, has been radically transformed by online music services like Spotify, leading to a reduction in revenue from CD retail. With a growing amount of music being traded online, the need for physical stores selling CDs has almost disappeared. From 1999 to 2014, worldwide sales of recorded music decreased by 45%, and in 2014, the sales of online-traded music matched those of physical formats like CDs (Reid, 2015). Similarly, e-banking has revolutionized interactions with banks and other financial institutions. Most personal finance activities are now conducted online using smartphones or personal computers. For active e-banking users, visiting a bank to pay bills is unnecessary, and loans can be negotiated online. Moreover, cash is no longer required for bus or train tickets or car parking. At various airports, passengers can check in automatically, place their luggage on the luggage drop belt, and proceed to the plane without assistance. Nearly all passenger services are completely automated, excluding security control. 7  Digital goods and services are the fundamental components of the digital economy. While digital goods and services have been gradually reshaping the business world, we are now witnessing the initial stages of an economic revolution as the full potential of the digital economy is set to be realized. 1.2 Definitions Definition 1.1: The digital economy is an economy based on information and communication technology (ICT). ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ The digital economy relies on information and communication technologies, such as the Internet, smartphones, mobile and wireless networks, optical networks, Internet of Things (IoT), cloud storage, cloud computing, sharing services, apps, and cryptocurrencies. The adoption of these technologies by people determines the size and impact of the digital economy. According to ITU statistics from 2018, Figure 1.1 depicts the percentage of 2024/2025 2024/2025 2024/2025 households with Internet access from 2005 to 2019. In 2005, only 20% of households had Internet access, while by 2019, roughly 60% of the world’s population had access. Internet access has expanded globally over the past decade, with notable variations between and within countries. While around 85% of households in developed nations have Internet access, less than 50% of households in developing nations do. A crucial question for the future is how to extend Internet access to developing regions. The digital economy has seen a significant increase in the number of people using public narrowband and broadband mobile technologies. Cellular narrowband mobile systems (2G) provide global services such as telephony and SMS, while cellular broadband mobile systems (4G and 5G) enable smartphone users to access the Internet. These technologies also support telephony and SMS, eventually replacing 2G and 3G systems. As of 2020, there are 105 active mobile cellular subscriptions per 100 inhabitants worldwide, surpassing the global population. This is due to many individuals having access to multiple devices (e.g., personal smartphones and work 8  phones) and the use of mobile phones as autonomous communication devices for connecting sensors and other Internet of Things (IoT) devices to public infrastructures.. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Fig. 1.1 Percentage of households with the Internet for the period 2005–2019 Figure 1.2 displays the access to 4G/LTE 2024/2025 2024/2025 mobile networks from 2015 to 2020. In 2024/2025 the least developed countries, approximately 40% of the population can access 4G/LTE networks. Among the same group of countries, close to 90% of the population has access to mobile cellular networks, and about 75% have access to 3G networks. Therefore, access to mobile phones is more widespread than access to the internet.. Fig. 1.2 Worldwide access 4G/LTE mobile networks 9  The Internet has been suggested as a fundamental human right, and in 2016, the United Nations (UN) issued a non-binding resolution condemning deliberate disruptions to such access by governments (Vincent, 2016). Internet access has had a significant impact on people's lives and the way businesses operate, and this impact will only continue to grow as the remaining half of the world's population gains access to the Internet. Facets of the Digital Economy ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Three representative examples of digital goods and services are provided to illustrate the scope of the digital economy. Numerous additional examples are included throughout the book. Facebook: More than three billion people around the world extensively use social media services. Among these platforms, Facebook stands out as the most popular, boasting around 2.2 billion users. Facebook has had a significant impact 2024/2025 2024/2025 2024/2025 on the way people communicate and manage their social lives. Furthermore, the advertising industry has been greatly affected by the ability to customize social media ads to align with user attitudes and preferences. Airbnb was established in 2008 and has grown to become one of the biggest hospitality services worldwide. As of 2017, Airbnb has over 200 million users and offers over three million accommodations in 191 countries. Airbnb enables homeowners to rent out property to registered guests and is one of the best examples of the expanding sharing economy. Airbnb utilizes the concept of multisided platforms and the long tail in its business operations. Airbnb’s success is based on the widespread adoption of internet access, high-speed mobile networks, and smartphones. However, Airbnb has been blamed for reducing attractiveness in the neighborhoods in which it operates and has met resistance from authorities, like Paris and New York, for example. 10  Bitcoin was created in 2009 by Satoshi Nakamoto and has become the most valuable and well-known cryptocurrency. It uses blockchain technology to offer a decentralized currency without involving third parties. Bitcoin has the potential to become a global currency, but recent investigations have revealed some weaknesses, including long transaction times and high energy usage. Other cryptocurrencies like Litecoin (LTC), Ethereum (ETH), and Ripple (XRP) may overcome these challenges and emerge as dominant cryptocurrencies in the future - if cryptocurrencies have a ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ future at all. The size of the digital economy is difficult to estimate because ICT is not only an industry in itself (involved in the production of telecommunications networks, Internet equipment, mobile phones, applications, and software), but also because ICT is integrated into almost all other industries. ICT has enabled new business models, more efficient production methods, and new ways of interacting with consumers. One 2024/2025 2024/2025 2024/2025 example is e-commerce, where people can buy almost any kind of merchandise using the Internet. We are currently transitioning from an industrial economy to a digital one, shifting from physical products to digital goods and services. As of the first quarter of 2021, the six largest corporations in the world by market capitalization are Apple, Microsoft, Amazon, Alphabet (Google), Facebook, and Tencent (Wikipedia). These companies are major players in the digital economy, providing digital goods and services. As of March 30, 2021, their combined market capitalization exceeds $8300 billion. Figure 1.3 illustrates the market cap of the top ten companies in the world. As per Tapscott et al. (2006), these companies wield substantial influence in the contemporary business landscape because of their size, scope of operations, and global ramifications. They can be classified as digital conglomerates since their business activities have extended well beyond their initial concept. 11 ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Fig. 1.3 Top ten corporations worldwide according to market capitalization For example, Google initially provided search engine services for Internet users. Today, Google not only offers a search engine but also email (Gmail), instant messaging, 2024/2025 a learning platform (G 2024/2025 Suite for Education), voice-over-IP 2024/2025 (Google Hangouts), cloud storage (Google Drive), and various other platforms. Google has expanded its business operations across many sectors of the digital economy through acquisitions of competing companies through horizontal and vertical integration. The primary asset of these companies is the network of consumers for the digital goods and services they provide. These users create network effects that result in significant value for these companies. In 2008, the top five companies by market capitalization were PetroChina, ExxonMobil, General Electric, China Mobile, and the Industrial and Commercial Bank of China (ICBC). Out of these companies, only China Mobile fully operates in the digital economy by offering Internet and mobile access to consumers in China. As mentioned earlier, the top six businesses in 2021 all belong to the digital economy, and Tencent has become the largest company in China. How do companies in the digital economy become so massive? How is it possible for 12  companies in the digital economy to amass so much value in such a short time? These questions and more will be addressed in the book. The digital economy has been greatly impacted by several disruptive innovations. A disruptive innovation is one that creates a new market, often leading to a shift in market leadership and the rise of new companies that become the new market leaders (Christensen, 1997). "When ICT drives disruptive innovation, the market often shifts from producing ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ physical goods to producing digital goods and services. Industry sectors such as media, telecommunications, and finance have been notably impacted by ICT-based disruptive innovations (Grossman, 2016)." E-commerce is a crucial part of the digital economy, involving the online trade of both physical and digital goods. Major companies in this sector, such as Amazon, Alibaba, and eBay, are heavily involved in e-commerce. One vital aspect of e- 2024/2025 2024/2025 2024/2025 commerce is user feedback and recommendations. As consumers can only interact with products to a limited extent, feedback and comments from other consumers can enhance the trustworthiness of the shopping experience. 1.3 Digitization of the Economy The digital economy is driven by three technological advancements: the digitization of data, the development of digital ICT infrastructures, and digital processing and storage. These advancements have seen considerable progress and widespread adoption in recent decades. Figure 1.5 illustrates the relationships between these technological developments. Data has traditionally existed in analog formats such as books, letters, documents, photographs, tape recordings, and video recordings. However, an increasing amount of data is now being produced and stored digitally. 13 ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Fig. 1.5 Digitization of data, infrastructures, processing, and storage 2024/2025 2024/2025 2024/2025 Fig. 1.6 Analog and digital data Digitization of data involves encoding the data as a sequence of bits ("0" or "1"). Examples of digital data include music stored as files on a computer, books downloaded on a personal computer or tablet, bank account information in an e-bank application, emails, movies, and music streamed from the Internet, apps installed on smartphones, and instant messaging services. Most telephone services also use digital encoding, in which the voice signal is encoded as a sequence of digital bits before being transmitted over a digital ICT infrastructure to the recipient, where the bit sequence is then transformed back into an analog voice signal. Fifty years ago, all data was stored in analog formats. At that time, experiments with the transmission of digital data had just begun, and the digitization of voice and 14  video signals was also in its initial stages. As shown in Figure 1.7, the amount of data stored digitally worldwide has increased from about 1% in 1986 to approximately 94% in 2007. Simultaneously, the digitization of telecommunication networks has risen from roughly 20% to 99% during the same period (Hilbert & López, 2011). This transition from an analog to a digital society has occurred in just one generation. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Analog data Digital data Fig. 1.7 Evolution of digital data storage and communication. Today, an enormous amount of digital 2024/2025 2024/2025data is being generated. In 2017, every 2024/2025 minute saw 400 hours of video uploaded to YouTube, 15 million text messages exchanged between mobile users, three million search queries handled by Google, 510,000 comments posted on Facebook, and over 45,000 pictures shared on Instagram. Every second saw over 10,000 photos shared on Snapchat (Schultz, 2019). This is just a small fraction of the total data generated today. Data is directly generated not only by users but also by sensor devices connected to the internet (e.g., weather sensors, wearable devices, and smartwatches). These devices contain processing and data storage units, and they are becoming gradually cheaper and smaller, rapidly finding new applications resulting in the generation of more data. In addition, massive amounts of historical analog data—letters, books, films, television shows, pictures, church registers, and other documents—are being converted into digital data. The amount of data available today far exceeds what any human mind can process. Data is plentiful, while our ability to handle it effectively is limited. Since this data is 15  in digital format, it can be efficiently transmitted, processed, and stored at low costs, creating a collective knowledge base accessible to most people. Companies and governments use big data techniques and artificial intelligence to analyze this data for various purposes. Since the 1980s, there has been a widespread global rollout of digital ICT infrastructure. In 2020, the primary component of this infrastructure is the Internet. It includes components such as local wireless networks, digital subscriber lines, public ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ mobile networks, satellite networks, optical core networks, submarine optical cables, dedicated networks for distress communications, air traffic control, and broadcast. The digital infrastructure has facilitated worldwide communication of digital data with high capacity, low latency, and high reliability. 1.4 Digital Economics The digitalization of the economy is made possible by the combination of digital 2024/2025 2024/2025 2024/2025 data, fast communication networks, and mass storage. For instance, Facebook's business plan depends on all data (text, images, and video) being in digital format, a global digital communication network connecting users to the platform, and sufficient mass storage capacity to store all user data. The advancements in microprocessors and mass storage of digital data have led to the development of digital devices with fast processing and affordable storage capacities. Today's smartphones have processing power comparable to that of supercomputers from 20 years ago. In 1995, the standard storage capacity of home computers was 20 megabytes, while today's smartphones boast over 100 gigabytes of storage, marking a 5000-fold increase. The cost of storage has followed a similar trend. In 1995, one gigabyte of storage cost approximately $1000. However, twenty years later, in 2015, the same amount of storage cost only $0.02. This evolution is due to the doubling of transistor packing density on microchips, following Moore’s law since the early 1970s. Additionally, the quality and inflation-adjusted price of 16  information technology equipment decreased by an average of 16% per year from 1959 to 2009. Furthermore, network capacity has increased, and the cost of optical fibers has decreased, following similar trends. The amount of data being produced, stored, communicated, and processed continues to grow without an end in sight. The biggest increase is expected to come from IoT applications. It is estimated that by 2020, there will be more than 50 billion IoT devices connected to the Internet, which is more than four times the number in ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ 2017 (Nordrum, 2016). Digital economics is the branch of economics that studies digital goods and services. The term "digital goods" is used to collectively refer to both digital goods and services unless there is a need to make a distinction between the two. The full term is used when this distinction is necessary. Digital goods consist of all things digital: user-generated data, digital applications 2024/2025 2024/2025 2024/2025 and services offered over the Internet, and the storage and processing of such data: Any kind of software Any type of file stored digitally. A smartphone app and associated services Any type of digital information Content of a website Any communication session Any application supported by the Internet. Trade and bank transactions Digital Economics is the branch of economics that studies digital services and goods. The academic field of digital economics overlaps and relates to other fields of economics. Digital economics is also known under different designations, each designation having a slightly different focus and scope. Some of these are: 17  Network economy focuses on businesses in which much of the economic value is generated by network effects. Network effects are abundant in the digital economy and explain how value is generated in several, but not all, digital businesses. Platform economy focuses on businesses that act as platforms. The primary business idea is to connect two or more user groups (two-sided or multisided markets). The platform economy is closely related to network economies since network effects are also important drivers for platform businesses. However, not all network economies ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ are platform economies and vice versa. Information economy focuses on information products and how they are produced and traded. The information economy is part of the digital economy, but the latter is broader in scope since it also includes more than pure information goods. Data economy focuses on the business of harvesting and analyzing data. Data is gathered from users or the environment and stored in large databases. Big Data 2024/2025 2024/2025 2024/2025 techniques and artificial intelligence are applied to analyze the data, where the purpose is to extract information of value to businesses or governments. Such data may also be traded on the market, for example, as input to statistics or as the basis for producing targeted advertisements. Virtual economy is the economy of virtual worlds, e.g., World of Warcraft and Second Life. To some extent, virtual economies reflect the real economy regarding the supply and demand of goods, trading, and network feedback. Virtual economies are mostly disconnected from the real economy. However, there are examples of virtual economies that can generate trade in the real economy (e.g., gold farming in World of Warcraft). Internet economy comprises the economics of Internet goods and services. Since most of the economic activity within the context of digital economics is performed over the Internet, the Internet economy is close in scope to digital economics. One important digital market that is excluded in the Internet economy is the economics of 18  telecommunications, that is, the market for broadcast, Internet, and mobile and fixed network services. Attention economy is related to the value created by people’s attention. User attention is an essential element in many digital business models. The basis for the attention economy is that data has become abundant, while people’s attention span remains a scarce resource. There are business models that exploit people’s attention span to generate revenue; the most well-known are those based on advertisements. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Sharing economy is the economy in which people or organizations share goods and services such as Airbnb and Uber. The sharing economy has also been termed access economy, peer economy, collaborative economy, and crowdsourcing capitalism. Abundance economy is the economy of goods and services that are abundant. that is, they are close to having an unlimited supply. Many digital services exhibit abundant features since they can be copied with zero marginal cost. This challenges 2024/2025 2024/2025 2024/2025 one of the most fundamental assumptions in neo-classical economics: resources are scarce. In several digital economies, they are not! Digital economics encompasses all or parts of the terms explained above. It is important to point out that digital economics is a young academic field of study. Updated terms appear, and definitions of existing terms are revised as researchers gain an increased understanding of the field and as modern technologies expand the boundaries of the digital economy and enable new business opportunities. 1.5 Conclusions In 2020, seven of the ten largest corporations by market capitalization are in the digital economy business. Additionally, Apple is now about four times larger than the corporation ranked number eight on the list. A decade ago, only two companies in the digital economy were among the ten largest corporations, namely Apple and Microsoft. 19  The advancement of businesses in the digital economy is a direct result of the digitization of society. By 2020, nearly all communication infrastructure worldwide is digital, and almost all data is available in digital formats. Companies in the digital economy span across various industrial sectors, such as: Information and content producers and providers (e.g., newspapers, television channels, bloggers, YouTube, Netflix) Social media providers (e.g., Facebook, LinkedIn, Twitter) ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Manufacturers of devices and software (Microsoft, Apple) Operators of fixed and mobile network infrastructure (Internet and mobile network providers, Star link) Electronic payment services and banking (PayPal, Bitcoin minters) E-commerce (eBay, Amazon) Sharing service providers (Uber, Airbnb) 2024/2025 2024/2025 2024/2025 Cloud computing Multiplayer interactive game providers The digital economy has created new business opportunities that did not exist before as is evident from the list. Questions 1. Name the ten largest companies in the world by market capitalization. Which of them are in the digital economy? 2. How large a share of the world population has access to the Internet? 3. Does everyone in the world have access to mobile telephony? 4. How will digitization of the economy impact the country you live in? Search the web for news articles (two or three articles are sufficient), and discuss how digitization influences the economy, the public sector, and business domains. 20  Answers 1. Apple, Microsoft, Amazon, Alphabet, Facebook, Tencent, Tesla, Alibaba Group, TSMC, and Berkshire Hathaway. All of them are businesses in the digital economy except Tesla, TSMC, and Berkshire Hathaway. 2. About 50%. 3. No, many people in poor parts of the world do not have access to mobile phones. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ The answer to this question depends on where you live. However, there are a few general observations, such as access to the internet and mobile services, access to vast amounts of information, automation of industrial production, automated access to societal functions, and so on. 2024/2025 2024/2025 2024/2025 21 ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ 2024/2025 2024/2025 2024/2025 Chapter 2: Information and Communication Technologies 22  Learning Objectives After conducting this chapter, you should be able to: Explain how information and communication technology has evolved toward increasingly complex systems and applications. Understand that the ICT evolution has followed three tightly coupled lines of development: evolution of basic hardware technologies, evolution of fixed and mobile data networks, and evolution of application protocols, software, and ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ services. Understand the impacts and potentials of the Internet of Things evolution. 2.1 Introduction The evolution of information and communication technologies has followed three parallel timelines: The innovation of technologies from 2024/2025 simple phone and telegraph 2024/2025 2024/2025 systems to the Internet supporting social media, sensor networks, apps, and other digital services. The convergence of services in which the Internet replaces the phone and telegraph networks The evolution of the telecommunications business itself from a monopoly to a competitive market. In this chapter, more attention is given to technological evolution. The digital economy we have today started with the invention of the transistor in 1947. This new device could be packed more tightly, cheaper, use less energy, be easier to handle, and be more reliable than vacuum tubes. The transistor and its ability to be made smaller led to an amazingly fast advancement in technology that the world had never seen before. In 2019, approximately 23 billion devices containing microchip CPUs (central processing units) were connected to the Internet, making the global information and 23  communications technology (ICT) infrastructure the largest machine ever built. Moreover, the number of connections increases by 10% per year, corresponding to a doubling time of 7 years. The forecast for 2025 is that more than 40 billion devices will be connected to the Internet (Cisco Visual Networking Index, 2019). 2.2 Timeline for the ICT Evolution Figure 2.1 displays the timeline for some innovations that were essential for the development of the digital economy along with the year they became commercially ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ available. The technologies listed in the Figure are categorized as hardware, mobile wireless, or software services. Prior to the commercialization of the World Wide Web in 1993, telecommunications and information technology were developed along two different paths. 1. The telecommunications industry has a long history, dating back to the development of the first electronic telegraph systems in the early nineteenth century. The 2024/2025 2024/2025 2024/2025 predecessor of the International Telecommunications Union (ITU) was established in 1865 with the goal of standardizing telegraph technology and promoting the creation of a global telegraph network. Since then, the ITU and other standardization organizations, telecommunications companies, and international research programs have worked closely to design telecommunications networks and services. Until 1993, the focus was mainly on the development of digital transmission and switching for phone services and basic data services. 2. Information technology is a relatively young field that can be traced back to the 1950s, when the first transistorized computers were developed. Since then, it has grown into one of the world's largest and most influential industries. Fundamental aspects of information technology, such as computer architecture, processing platforms, data storage, algorithms, and programming, were studied and developed in universities, research organizations, and the computer industry. By 1993, only a few 24  applications of information technology required extensive support of communication technologies, with the most important being email on the Internet. Amazon.com (1997) ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Google Search MS-DOS Airbnb YouTube Facebook 2024/2025 2024/2025 2024/2025 Wikipedia Fig. 2.1 Timeline of ICT innovations. In 1993, the fields of information technology and telecommunications merged to form what is now known as information and communication technology (ICT). This transformation was triggered by the commercialization of the World Wide Web, resulting in a significant need for remote computer interactions and distributed processing of information. Since then, information technology and telecommunications have become inseparable. The World Wide Web operates through several key technologies: the Uniform Resource Locator (URL) helps accurately address information on the web, the Hypertext Transfer Protocol (HTTP) allows communication with web pages, and the Hypertext Markup Language (HTML) is used for formatting and creating web pages. These technologies work together to enable users to publish and access documents, 25  images, videos, and other content on the Internet. The first graphical web browser to contribute to the popularization of the WWW and the Internet itself was Mosaic in 1993. Netscape, Internet Explorer, and Google Chrome followed it. The Internet is a global system for interconnected computer networks based on technologies and protocols such as Ethernet (1974) and TCP/IP (1974), allowing data to be transferred between two or more computers. The TCP/IP protocol suite was developed and tested as a part of the ARPANET project financed by the US ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Department of Defense but is now the worldwide open standard for data transmission on the Internet. Optical fibers were invented in 1965, and by the 1980s, the technology had matured to provide a high-speed global ICT infrastructure for the Internet. Most of the Internet's backbone network is built using optical fibers. A single optical fiber, thinner than a human hair, can carry several hundred terabytes of data per second. An optical 2024/2025 2024/2025 2024/2025 cable, consisting of several (sometimes hundreds of) optical fibers, can accommodate all the traffic generated on the Internet today. With optical fiber technology, the Internet can be built with abundant capacity for decades to come. One of the first "killer applications" of the Internet was email, standardized in 1982 with the Simple Mail Transfer Protocol (SMTP). Email soon became the key technology for the exchange of messages. The first commercially available microprocessor was the Intel 4004, released in 1971. It was based on transistor technology that had been commercialized two decades earlier, enabling reliable and low-cost digital computing. Today, microprocessors are found in everything from computers to smartphones, refrigerators, cars, and toys. The personal computer (PC) was developed in the early 1970s, but it did not reach the mass market until 1977 with the release of the Apple II and Commodore PET. The PC revolutionized computing by introducing a dedicated, affordable multipurpose device for individual users, disrupting existing mainframe and 26  minicomputer systems. In 1981, Microsoft released the Microsoft Disk Operating System (MS-DOS), which laid the groundwork for the company's subsequent products and its dominant position in the digital economy. The first mass-market laptop, the Toshiba T1100, was released in 1985. A laptop integrates a display, keyboard, input-output devices, and storage into a compact package. In 2018, more than 160 million laptops were sold, according to a shipment forecast by Statista. Nonetheless, this number pales in comparison to the over 1.5 billion smartphones sold ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ globally the same year. The Nordic Mobile Telephone (NMT) was released in 1981 and was the world's first automatic cellular mobile telephony system. It introduced automatic roaming and handover but supported only voice communication. The Global System for Mobile Communications (GSM), which was launched in 1991, pioneered digital radio communication and supported voice, messaging, and data services. Initially, data 2024/2025 2024/2025 2024/2025 communication was slow, less than 10 kilobits per second, and ineffective. However, the data rate was later enhanced by technologies such as GPRS and EDGE. High- speed data, especially on the link from the base station to the mobile terminal (downlink), was introduced in 3G mobile systems in 2003. Broadband technology was further developed in the 4G mobile systems, which were launched in 2009. The latest mobile technology, 5G, was used at the 2018 Winter Olympics in South Korea and is now being rolled out on a large scale in Europe, Asia, and North America. 5G will support the Internet of Things (IoT). Bluetooth, introduced in 1997, connects devices over short distances, while Wi-Fi, also introduced in 1997, provides local network access using packet radio. Both technologies are widely used today. The introduction of Android and iPhone in 2007 transformed smartphones into advanced computers, supporting app ecosystems such as Apple’s App Store and 27  Google Play. Smartphone apps are the main building blocks of emerging location- based services such as Airbnb (2008) and Uber (2009), both being sharing services. Google, established in 1998, allows users to search the World Wide Web for information. Google surpassed its competitors and captured most of the market share. Initially focused on DVD rental and sales by mail, Netflix, founded in 1998, now offers online media streaming services to subscribers in over 190 countries. Launched ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ in 1997, Amazon.com has become a successful e-commerce website. When home computers and laptops became common in the developed world, Internet services like Wikipedia (2001), Skype (2003), Facebook (2004), YouTube (2005), Twitter (2006), Dropbox (2007), and Spotify (2008) emerged. These services, each fulfilling different user needs, were not the first in their respective categories. However, through a combination of technological superiority, smart design, and luck, 2024/2025 2024/2025 2024/2025 they managed to become dominant. Every year, new innovations emerge in various markets and fields. Bitcoin (2009) emerged with the idea of disrupting the banking system by offering a cryptocurrency that enabled trade and money transfers without third-party involvement. Similarly, Snapchat (2011) aimed to fill gaps in the social media market by enabling the private sharing of pictures and videos on mobile devices. 2.3 Factors Constraining Evolution Digital services rely on ICT (Information and Communication Technologies). Innovations in computer networking and wireless technologies lead to the development of new services, which in turn greatly impact the digital economy as a whole. It is important to note that some of the fundamental ICT technologies still in use today, such as TCP/IP, HTTP (World Wide Web), Ethernet, and GSM, are over 25 years old. Many of these technologies have been expanded and improved multiple times over their lifetime. For instance, IP has two versions (IPv4 and IPv6), and GSM 28  has spawned a new family of mobile communication systems—3G, 4G, and 5G—all based on the foundational principles established in the GSM project. Conversely, the basic connection-oriented protocol on the Internet—TCP—has remained unchanged since 1974. Despite numerous advancements, the original technologies continue to be widely used. For instance, IPv4, which is 42 years old, and GSM, which is 30 years old, still play crucial roles in Internet and mobile networks, respectively. Although 4G and 5G ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ technologies are rapidly replacing GSM, mobile networks still support GSM to facilitate global roaming services. Efforts to phase out GSM have largely been unsuccessful, with only a few countries, such as Australia, the USA, and Singapore, having successfully done so. Communication technologies are evolving gradually. The main reason for the slow adoption of modern technologies is the significant investments required for their 2024/2025 2024/2025 2024/2025 implementation. Even a small improvement to a technology is expensive to install due to the large volume of existing equipment designed to the old standard. As a result, it can take more than 10 years for a technology to be widely adopted after it is specified and ready for the market. For instance, it took over 10 years from the finalization of the HTTPS specification (encrypted web access) until it was widely used. IPv6 was ready for implementation in 1996, yet in 2016, over 95% of Internet traffic still used IPv4 networks. This is because Network Address Translation (NAT) has expanded the available address space for IPv4, delaying the introduction of IPv6. However, with 4G and 5G mobile networks supporting IPv6 and IPv6 being implemented on nearly all input/output devices of computers, this is expected to change now (2020). It is anticipated that IPv6 will soon replace IPv4 worldwide. On the other hand, the development time and adaptation time for many app-based digital services, such as Airbnb and Uber, are noticeably short. This is because many of them are simple software packages that are easy to develop, install, and use. The 29  rapid evolution of apps took place after the introduction of iPhones and Android phones in 2008. One important requirement for introducing modern technology is backward compatibility. This means that modern technology should support equipment or software designed to the old standard. One aspect of this compatibility is that new equipment should be capable of operating in the old environment. For public mobile communication, a smartphone designed for 5G must also support 4G, 3G, and GSM so that it can be used everywhere. This means that the smartphone must ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ support the radio interface for all mobile standards if these standards are in use. In addition, it must support Wi-Fi and Bluetooth. This backward compatibility ensures that new families of mobile systems can be introduced smoothly without completely rebuilding the network. The reliability of infrastructure is a concern that can influence the implementation of modern technologies. In society, ICT and electric power production are the two 2024/2025 2024/2025 2024/2025 most critical infrastructures. If either of these infrastructures fails, society would soon come to a standstill as all other infrastructures depend on them. All modern society activities involve computation, data sharing, and storage, making them vulnerable to cyberattacks aiming to destroy, disable, or illegally access computer resources and infrastructures. Events have also demonstrated that most ICT systems are taken out of service either simultaneously with a power outage or shortly afterward if devices or networks are not equipped with standby power sources such as batteries or diesel generators (which most are not) (Northeast Blackout of 2003, 2020). The ongoing innovations in ICT will continue to impact the digital economy in the future. Technologies like machine learning, robotics, smart factories, smart cities, and 3D printing all have the potential to disrupt existing business sectors and lay the groundwork for upcoming digital services. For example, machine learning techniques are already being used in various digital services, such as algorithms that recommend 30  products to consumers based on their past habits, and voice recognition systems like Apple's Siri. 2.4 Internet of Things The evolution of telecommunications technology has traditionally focused on interactions between humans (such as speech and email) and between humans and machines (such as downloading films and payment services). Telecommunications ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ statistics have mainly looked at the number of people connected to the Internet and mobile networks, the amount of generated traffic, and the revenues for telecommunication operators. However, this traditional view is changing. In the past decade, communication between machines without human involvement has become increasingly important. This includes applications such as remote sensing and control, grid computing, driverless cars, smart homes, smart cities, smart grids, and 2024/2025 2024/2025 2024/2025 infrastructure management. IoT devices can communicate with centralized platforms to report data and receive commands, or they can communicate directly with each other, for example, enabling vehicle-to-vehicle and vehicle-to-road infrastructure communication for autonomous driving. Cisco predicts that by 2022, there will be almost 30 billion devices connected to the Internet. Approximately 50% of these devices will be IoT devices, 25% will be smartphones, and the rest will be TVs, PCs, and tablets (Cisco Annual Internet Report, 2020). However, IoT devices will only generate 6% of the global Internet traffic because they typically transmit small and infrequent messages compared to other Internet users. According to Business Insider, there are nearly three times as many smart devices in people’s homes as indicated in Cisco’s statistics; however, only a small portion of them is connected to the Internet. If these devices were also connected, the increase in IoT devices would be significant, potentially tripling Cisco's estimates (Patel, 2018). 31  The applications of IoT devices are commonly divided into five categories: consumer, commercial, industrial, infrastructure, and military. There are already several applications, and it is expected that the number of applications will increase dramatically over the next few years. As a result, there is a need to implement IP version 6 on a large scale to provide enough addressing space for the new applications. The 5G mobile network is already designed for this evolution, and it is expected to play a key role in the evolution of IoT. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Consumer applications encompass a variety of uses such as smart home applications, elder care, and medical supervision managed by the users themselves. Smart home applications, for example, may involve wireless communication with light switches and appliances, as well as remote control of air conditioning and security systems using smartphones. Assistance services include voice-controlled devices, such as light switches and door openers, as well as medical and activity 2024/2025 2024/2025 2024/2025 monitoring services, designed to make life easier for elderly and disabled people. The applications of IoT in commercial settings include smart healthcare, building and home automation, and smart transport systems. These applications rely on a combination of device-to-platform communication and autonomous communication between devices. In smart healthcare, technologies are used to monitor patients both at home and in hospitals. This includes remote reading of measuring devices (e.g., blood pressure and heart rate monitors), monitoring and controlling implants such as pacemakers and insulin pumps, and supervising patients with chronic diseases and elderly individuals. According to Aruba's State of IoT Healthcare report in 2019, IoT technology in healthcare is projected to increase workforce productivity and reduce healthcare costs by more than 50%. Building and home automation encompass a range of functions, including safety alarms, energy conservation, comfort, and occupancy monitoring such as adjusting heating when no one is home. Smart transport systems involve communication 32  between vehicles, vehicles and road infrastructure, smart parking, toll collection, fleet management, and road assistance. A rapidly growing application is electric kick scooter rentals, facilitated by an autonomous system that handles location management, payment, and status reporting. Industrial applications are advancing the existing industrial automation by incorporating big data, AI, robotics, and autonomous interactions between devices, machines, control systems, and management systems on a larger scale than currently. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ This involves the use of networked sensors and complex algorithms to analyze and act upon real-time measurements, leading to improved safety management, increased process efficiency, reduced waste of time and resources, and real-time plant optimization. This is often referred to as Industry 4.0 or the Fourth Industrial Revolution. Infrastructure applications involve the management and control of various infrastructures such as freshwater and sewage systems, railway tracks, roads, tunnels, 2024/2025 2024/2025 2024/2025 bridges, and energy production and delivery networks. This category also encompasses environmental monitoring, including air pollution, freshwater quality, wildlife habitats, and soil conditions. IoT can facilitate coordination between different authorities (political, technical, and managerial) as the management of a particular infrastructure often requires involvement from multiple authorities. Military applications include technologies for surveillance, reconnaissance, and battlefield operations. There are several technologies that support IoT networking. These include short-range applications such as Bluetooth, Wi-Fi, Zigbee, and Z-Wave; medium-range systems using 5G mobile networks; long-range radio communication using ultralow bit rates (e.g., 300 bits per second); satellite networks, particularly satellite terminals with small antennas (VSAT); and wired systems such as Ethernet, cable networks, and powerline communication. Multiple technologies may be connected in tandem, for 33  example, a Wi-Fi network connecting several local sensors to a local processing platform connected to a 5G network. The Internet of Things (IoT) raises several important concerns, notably related to privacy, security, and safety. Healthcare applications generate large volumes of personal data, which could be at risk of abuse by authorities for political and social control. Other potential issues include surveillance and tracking of consumer behavior. Additionally, sensitive information may be transmitted and stored multiple times ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ across various devices in IoT applications, increasing the risk of confidential data being compromised. Security is a major concern when it comes to IoT. With billions of devices operating on different security standards or none at all, there are several security issues to address. These include weak authentication, insufficient access control protection, unencrypted messages, lack of firewall protection, and inadequate security updating. 2024/2025 2024/2025 2024/2025 This leaves the network vulnerable to cyberattacks through numerous access points. In critical applications like autonomous driving and remote monitoring of medical devices, cyberattacks could lead to accidents and loss of life. Unprotected IoT devices can also be taken over and used in large botnets to carry out distributed denial of service attacks. The Internet of Things Security Foundation, a nonprofit international organization, is dedicated to promoting security best practices and management. Safety is a crucial concern in IoT systems, especially those utilized in complex systems where mistakes can result in disasters. Like all software systems, IoT systems may contain bugs, flaws, and unintended interactions. One key characteristic of complex systems is that they may have pathways leading to hidden states, which can result in deadlock or other errors. While these states may be normal operational states in certain applications, they can cause issues in other scenarios. Detecting such conditions can be challenging using standard software production and checking tools. Systems that control hardware are particularly susceptible to errors that can lead to 34  unsafe physical states due to the potential damage they may cause. This includes systems such as power grids, sluices regulating river flows, pacemakers, and autonomous driving traffic safety systems. The term "Internet of Things" was coined by Kevin Ashton at Procter & Gamble in 1999 (Ashton, 2009). At that time, there were only a few simple logistics applications such as routing of luggage in airports, tagging of containers and goods for simple identification and sorting, and locating objects and animals (e.g., tagging of cattle and ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ pets). Between 2008 and 2009, the number of objects connected to the Internet surpassed the number of people connected to the network. According to Cisco, the ratio of connected objects to connected people was only 0.08 in 2003, while in 2010 this number had increased to 1.84 (Evans, 2011). The evolution of IoT is being slowed down by several obstacles: lack of killer applications, unclear business propositions and usability, lack of standards and interoperability, 2024/2025 security, safety, and 2024/2025 privacy concerns, and most importantly, the 2024/2025 difficulty of fitting IoT into traditional public or industrial governance structures. 2.5 Conclusions The evolution of the digital economy is intimately connected to several technological innovations. The evolution started with the invention of the transistor in 1947. The evolution ever since is intimately linked to how densely transistors can be packed on microchips and how fast microelectronic circuits can operate. The Internet offered a simple, cheap, and effective communications platform for data communication (especially since the early 1980s). The Internet allowed computers to be interconnected in a dynamic, flexible, and effective way. The World Wide Web created real killer applications (commercialized in 1993) enabling social media, high-speed streaming services, and sharing services. It is the World Wide Web that created the digital economy as we know it today. 35  The evolution of data communication over digital mobile cellular networks started with GSM in 1991 and gained speed when the 3G technology was introduced 10 years later. Cellular mobile systems make communications ubiquitous in a new way by making them independent of place and time. These events have led to the convergence of networks and services. With the Internet of Things, ICT has entered new and enormous fields of applications. Questions ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ 1. Give examples of both new and old information and communication technologies that are still in use today. 2. What are the major challenges that may hamper the evolution of IoT? 3. Why are mobile systems (public or local) so important in IoT? Answers 1. Old technologies include TCP, IP, and SMTP. Modern technologies include. smartphones, Bitcoin, and 5G. 2024/2025 2024/2025 2024/2025 2. Privacy concerns, safety, and reliability of operation, prone to cyberattacks, lack of standards, does not fit well with traditional governance standards. 3. Because very many applications require wireless access (health care, autonomous driving, smart transport, environmental surveillance, etc.), easier and faster to install. 36 ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ 2024/2025 Chapter 3:Digital Economy Ecosystem 2024/2025 2024/2025 37  3.1 Ecosystem Interpretation The concept of business ecosystems was first proposed by Moore in 1993. “To extend a systematic approach to strategy, I suggest that a company be viewed not as a member of a single industry but as part of a business ecosystem that crosses a variety of industries. In a business ecosystem, companies coevolve capabilities around an innovation: they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations.” ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Since then, the concept has been used regularly as a tool to analyze business strategies; in particular, the complex businesses arising in the digital economy. The concept is a biological metaphor. Many new digital businesses are part of a complex community of cooperating and competing businesses and customers, similar to coevolving ecosystems in biology. Removing one stakeholder from this community could have serious repercussions on the businesses of the remaining stakeholders, just 2024/2025 2024/2025 2024/2025 as removing one species in a biological ecosystem can negatively affect the entire ecosystem or even destroy it. The biological metaphor is a useful comparison because the complexity and unpredictability of information technology's development results from the visible and hidden, planned, and unplanned interactions within a business ecosystem. This ecosystem comprises entrepreneurs, researchers, developers, software and hardware platform providers, system integrators, network providers, government authorities, and communities of individuals involved directly or indirectly in the evolution (Muegge, 2013). Examples of systems originating from such complex and unpredictable interactions include the Internet and smartphone technology, which consist of a complex hierarchy of devices, services, and applications. Peer production, crowdsourcing, and the use of free and open software further enhance the ecosystem's multifaceted and unpredictably complex nature. 38  The digital economy relies intensely on information and communication technology (ICT) and includes components such as the Internet, smartphones, data storage, and processing. To put it another way, ICT is essential for managing and delivering the value of digital services to consumers. The interaction between digital services, ICT, digital service providers, competitors, digital marketplaces, consumers, and society as a whole form the fundamental framework of the digital economy, known as the digital economy ecosystem. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Definition: The digital economy ecosystem describes the relations and dependencies between digital services, ICT infrastructures, digital markets, and authorities in a socioeconomic context. 3.2 Ecosystem Components Understanding the complex business ecosystem of digital services involves identifying its basic technologies and building blocks. Figure 3.1 provides an illustration 2024/2025 of the digital economy2024/2025 ecosystem and the key2024/2025 technologies and stakeholders it relies on. The global ICT infrastructure, which is owned by Internet service providers (ISPs) and network providers (NPs), serves as the conduit for digital services, including applications and content. This infrastructure comprises interconnected networks such as the Internet, mobile, wireless, local area, fiber, and satellite networks, as well as data storage and computing facilities. Various user equipment devices, such as mobile phones, smartphones, PCs, laptops, and other terminals, access this ICT infrastructure and are manufactured and provided by device providers (DP). Application service providers (ASPs) deliver applications to consumers through digital marketplaces. These applications run on devices and may contain content from content providers (CP). For example, YouTube, an ASP, offers video content to users, with the content producers acting as CPs. Consumers and providers engage within the framework of legal regulations and societal demands. To gain a comprehensive understanding of this environment, it is crucial to explore how the different elements of the digital ecosystem interact with each other.. 39 ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ 2024/2025 2024/2025 2024/2025 Fig. 3.1 The digital economy ecosystem Digital services often rely on other digital services to bring value to consumers. In turn, existing digital services serve as the foundation for creating new ones. For example, Amazon's business relies on digital payment services to provide e- commerce, and Spotify depends on access to digitized music to offer streaming services to consumers. These services, in turn, may rely on various functions provided by different ICT providers and other hardware and software support providers. Together, these interdependencies make up the digital economy ecosystem for a specific business. It may be challenging to identify all these dependencies due to the complexity and transient relationships that can emerge and disappear during production. The complexity of this ecosystem is demonstrated in Figure 3.2, which shows that a digital Service A depends on two other digital services (B and C) as well as two technologies (cloud storage and wireless access). Moreover, Service E depends on Service A, while Service D and Service A depend on each other. Figure 3.2 also 40  proposes a simple method for modeling the ecosystem to analyze the impact of each dependency on the primary business. This analysis can reveal critical dependencies, unexpected vulnerabilities, structural weaknesses, and other issues. ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ Wireless 2024/2025 2024/2025 2024/2025 Fig. 3.2 Dependencies in the digital economy ecosystem Fig. 3.3 Transient and stationary states The digital economy ecosystem is complex and dynamic, leading to a market that constantly evolves. Factors such as new stakeholders, advancing technologies, changing consumer behavior, competition, and regulations all contribute to a market 41  that is always changing. The difference between a transient and a stationary state is illustrated in Figure 3.3. The transient view aligns with the principles of complex economics, which argues that the economy is always evolving and never reaches a stationary state, largely due to the digital economy ecosystem and the rapid pace of technological innovation. In order for a stationary market to exist, most of the market aspects mentioned above must be stable and unchanging. However, in the digital economy, modern ‫ﺣﺒﻴﺒﻪ ﻳﺎﺳﺮ ﻋﺒﺪﺍﻟﻤﻨﻌﻢ ﻋﻤﺎﺭ‬ technologies are developed and adopted at a rapid rate. A prime example is digital mobile communication, which has evolved from supporting simple telephone and messaging services (GSM in 1990) to offering a range of services including telephone, messaging, data, broadband streaming, and IoT (5G in 2020). This transformation has