Barely 20 years ago Sergey Brin and Larry Page registered the domain name google.com. Only 10 years ago Steve Jobs walked onto a stage in San Francisco and introduced the iPhone. Yet just in the span of two decades, digital technologies have changed our world.
The Digital Evolution Index was launched in 2015 to trace the emergence of a “digital planet,” how physical interactions — in communications, social and political exchange, commerce, media and entertainment — are being displaced by digitally mediated ones. The index aims to identify hotspots around the world where these changes are happening rapidly and other spots where momentum is yet to unfold.
Today’s Digital Landscape
While much has changed since 2015, five are the most salient features of today’s digital landscape.
Digital technology is widespread and spreading fast. There are more mobile connections than people on the planet, and more people have access to a mobile phone than to a toilet. Cross-border flows of digitally transmitted data have grown manifold, accounting for more than one-third of the increase in global GDP in 2014, even as the free-flow of goods and services and cross-border capital have ebbed in the aftermath of the 2008 recession. While more people can benefit from access to information and communication, the potential for bad actors to create widespread havoc increases; with every year, the incidents of cyberattacks get bigger and have wider impact.
Digital players wield outsize market power. Based on their stock prices on July 6, 2017, Apple, Alphabet, Microsoft, Amazon, and Facebook were the five most valuable companies in the world. The most valuable non-American company, 7th overall, was China’s e-commerce giant, Alibaba Group. With products that rely on network effects, these players enjoy economies of scale and dominant market share. They have deep resources for innovation with the ability to accelerate the penetration and adoption of digital products.
Digital technologies are poised to change the future of work. Automation, big data, and artificial intelligence enabled by the application of digital technologies could affect 50% of the world economy. There is both anticipation and apprehension about what lies on the other side of the threshold of the “second machine age.” More than 1 billion jobs and $14.6 trillion in wages are automatable by today’s technology, which could open the door to new ways to harness human energy as well as to displacing routine jobs and increasing social inequities.
Digital markets are uneven. Politics, regulations, and levels of economic development play a major role in shaping the digital industry and its market attractiveness. With the world’s largest internet user population – 721 million – China has a parallel digital market because so many of the major global players have no presence there. India, with its 462 million internet users, has a digital economy representing arguably the greatest market potential for global players; however, it operates in multiple languages and multiple infrastructure challenges, despite the government having taken sweeping actions that affect the digital market. The European Union has 412 million internet users, but its market is fragmented; it is still in the process of creating a “digital single market.” In many countries, several websites or digital companies are blocked. Around the world, digital access itself is far from uniform: Barely 50% of the world’s population has access to the internet today.
Digital commerce must still contend with cash. Retail e-commerce sales worldwide are expected to hit $4 trillion by 2020, about double of where it is now. A major hurdle is the continuing stickiness of cash, which has not been displaced by digital alternatives despite myriad options. In 2013 85% of the world’s transactions were in cash. While the Netherlands, France, Sweden, and Switzerland are among the least cash-reliant countries in the world, even in the Eurozone, 75% of point-of-sale payments are in cash. Most of the developing world is overwhelmingly cash-dependent; in Malaysia, Peru, and Egypt, only 1% of transactions are cashless. Even India’s demonetization experiment has not broken the country’s heavy cash dependence. Five months after the country demonetized 86% of its currency, cash withdrawals were actually 0.6% higher than a year earlier.
Each of these five features contains both upsides and challenges. Moreover, how strongly each of them is felt varies depending on where you are in the world. For global technology players and policy makers, it is essential to understand how the progress toward a digital planet is proceeding in different parts of the world.
Mapping Digital Momentum Around the World
As part of a collaboration between the Fletcher School at Tufts University and Mastercard, the Digital Evolution Index analyzes the state and rate of digital evolution across 60 countries. This evolution is the outcome of an interplay among four drivers, with about 170 indicators across them.
By measuring each country’s current state of digital evolution and its pace of digital evolution over time, researchers created the following chart separating countries into four zones: Stand Out, Stall Out, Break Out, Watch Out. Some countries are at the border of multiple zones.
Stand Out countries are highly digitally advanced and exhibit high momentum. They are leaders in driving innovation, building on their existing advantages in efficient and effective ways.
Stall Out countries enjoy a high state of digital advancement while exhibiting slowing momentum. The five top scoring countries in the DEI 2017 ranking — Norway, Sweden, Switzerland, Denmark, and Finland — are all in the Stall Out zone, reflecting the challenges of sustaining growth.
Break Out countries are low-scoring in their current states of digitalization but are evolving rapidly. The high momentum of Break Out countries and their significant headroom for growth would make them highly attractive to investors.
Watch Out countries face significant challenges with their low state of digitalization and low momentum; in some cases, these countries are moving backward in their pace of digitization.
What does the future hold? The next billion consumers to come online will be making their digital decisions on a mobile device – very different from the practices of the first billion that helped build many of the foundations of the current e-commerce industry. There will continue to be strong cross-border influences as the competitive field evolves: even if Europe slows, a European company, such as Rocket Internet, can grow by targeting the fast-growing markets in the emerging world; giants out of the emerging world, such as Alibaba, with their newfound resources and brand, will look for markets elsewhere; old stalwarts, such as Amazon and Google will seek growth in new markets and new product areas. Emerging economies will continue to evolve differently, as will their newly online consumers. Businesses will have to innovate by customizing their approaches to this multi-speed planet, and in working around institutional and infrastructural constraints, particularly in markets that are home to the next billion online consumers.
We may be on a journey toward a digital planet — but we’re all traveling at different speeds.
