2 - The Development of Digital Business

Summary

This chapter examines the development of digital business. It commences with a reflection on the huge benefits arising from digitalisation, including greater productivity, more competition, greater choice and convenience, innovation and profitability. It also notes that it is extremely difficult to separate the digital economy from the rest of the economy. The key features of digital businesses include direct and indirect network effects, economies of scale, anti-competitive lock-in effects, the importance of data and complementarity. The four most significant new types of business models are explained: multi-sided platforms, resellers, vertically integrated firms and input suppliers. Lastly, there are observations made about the key characteristics of highly digitalised business models which have significance and importance in the context of looking at the challenges to the international tax system.