Ten Trends of the Information Economy

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Ten Trends of the Information Economy

□Meng Ye

Through reforms and opening-up over the past three decades, China has achieved remarkable progress with respect to economic growth, general improvement in people’s livelihoods and the narrowing of gaps with developed countries. China’s economy has grown to be the second-largest in the world and the country is now classified as a middleincome country. However, China’s growth momentum has experienced some challenges recently. To meet the challenges of upgrading production, labor structure optimization and productivity enhancement, it is necessary that China grasps the opportunities of the digital revolution and develops an information economy. This, I believe, is the key to China’s economic growth in the future. As President Xi Jinping said at the International Conference on Engineering Science and Technology in 2014, “information technology as a pioneering technology has penetrated into all aspects of our economic and social life. It is helping our economic growth model upgrade from one based on material production and services to one based on information production and services. The world is entering a new period of IT-led economic growth.”

The information economy is sweeping across the globe and taking on strong growth momentum previously unimaginable. Studying its trends of development has thus become an important task. There are ten mega information economy trends that are rapidly changing the landscape of the global economy and social structures.

1. Exponential Growth of Information Technologies

The history of human social development has never been a smooth process. Rather, the advents of new historical eras were usually heralded by a few major events. The rapid development and extensive application of information technology is the driving force behind the current epochal changes taking place worldwide. Breakthroughs in information technology are primarily found in three aspects, namely 1) the solutions to old puzzles, 2) deepening of application levels and 3) explosive growth.

Let’s look at the solutions to old puzzles first. Tasks such as difficult pattern recognition and complex communication used to be deemed as challenges difficult even for computers. Simulating and exhausting the“limits” of human intelligence are even more difficult. However, the facts show that all these impossibles are gradually becoming possible. One successful example was in the digital pattern recognition area. In October 2010, Google announced on its official blog that it successfully adapted a Toyota Prius for driverless automated driving. The car covered a total distance of 140,000 kilometers without a driver. The only accident in its journey was a shunt by another (manned) car. In other words, with the support of Google Map and street view services, advanced equipment such as cameras, radars and LIDARs as well as advanced pattern recognition software, Google vehicles successfully achieved auto-piloting in the absence of human interventions (the car even outperformed human drivers in terms of reaction times).

A second example was in the realm of complex communication. In January 2011, Lionbridge declared that it was going to cooperate with IBM to develop a complex communication technology to translate one language into another language speedily and accurately. In their tests, customers from China and Spain tried to communicate in their native tongues with Lionbridge’s English-speaking staff. Thanks to computers’ real-time translation, the language of one party was automatically translated into themother tongue of the other party and the parties understood each other very well. Consequently, with its translation quality approved by 90 percent of users, the software was successfully commercialized on the market.

The deepening of application levels means that IT applications are being embedded deeper and deeper in systems. In this respect, practices in the industrial Internet and social physics have provided some inspiring examples. Take the practices of the industrial Internet for example. GE proposed the concept of the industrial Internet for the first time in 2012. In an attempt to optimize the performances of its machines, GE connected wired sensors and software systems to its sophisticated machines so that operational data of machines could be uploaded for analysis with the support of cloud computing, big data and the Internet of Things (IOT). The result turned out to be quite satisfactory. GE showed that the industrial Internet not only greatly increased the speed of product and service launches in many industries (including the manufacturing industry), it also enhanced productivities at systemic levels.

In other words, Internet technologies were migrating from consumption domains to production domains. The second case happened in the social physics field. In this case, a group of scientists headed by the Harvard professor Alex Pentland tried to conduct positive studies on human information communication behavior with big data tools (that is identifying problems in social organizational links and finding solutions). Their methodology turned out to be a great success. Fundamentally changing traditional approaches of social science research, their success inevitably aroused greater enthusiasm and more explorative attempts in this respect.

As for explosive growth, it means that the growth of IT has transcended linear constraints and taken on exponential growth momentum. On the one hand, IT capabilities are expanding rapidly. Based on Moore’s Law, computer’s computing power doubles every 18 months, while the prices of storage and broadband drop 50 percent every 18 months. This means that IT capabilities are always on the increase. On the other hand, the more users and devices the Internet attracts, the higher its value and utility to allusers (Metcalfe’s Law). This will also promote the development of information technology by making people have better expectations of the information economy.

Table 1: The exponential growth of information technologies

2. The New Infrastructure Made Up of Clouds, Networks and Terminals

Economic activities depend on the support and normal functioning of infrastructures. Currently, with the industrial economy upgrading to the information economy at an accelerating speed, changes in infrastructures are growing more and more evident. In general, the new infrastructures constructed on top of existing agricultural infrastructures (land and irrigation facilities, etc.) and industrial infrastructures (transportation and energy etc.) are playing a bigger and bigger role.

The new infrastructures can be understood as a combination of “clouds, networks and terminals”. “Clouds” refer to cloud computing and big data infrastructure. Continued improvement of productivity and new business models all depend on data application capabilities. In the realm of public utilities such as water and power, with the support of cloud computing and big data, consumers can use resources more efficiently and at lower costs.“Networks” mean value-added networks that connect all stakeholders with the Internet and Internet of Things. With the power of these networks being continuously expanded, new value-added will be generated. “Terminals”mean PCs, mobile devices, wearable sensors, as well as applications in formof software, which consumers can directly access. They are not only sources of data, but also service interfaces.

The mobile Internet is growing increasingly popular. But who are investing into its infrastructure? The answer is billions of ordinary consumers. China has a total of 632 million netizens. Almost 83.4 percent of these netizens choose to access the Internet via mobile devices (according to the statistics from China Internet Information Center as of June 2014). If we assume each mobile device costs 1,000 RMB and is replaced every two years, then we see a sizable investment into mobile terminals that will reach the trillion RMB scale in just a few years. Similarly, the cloud computing infrastructure constructed and operated by private enterprises such as Alibaba, Tencent, Baidu, etc. are also changing the world with their user numbers and technical standards.

The investors in such new infrastructure used to be governmental bodies or State-owned enterprises, but they are increasingly being replaced by private enterprises and individuals. Due to these changes, related service models and share structures have experienced changes too. To reap thepotential benefits in this respect, private enterprises active in infrastructural services have to innovate and expand continuously. Meanwhile, the bargaining power of consumers has increased because consumers can directly decide the life and death of enterprises by “casting ballots” with their handheld devices. In these new circumstances, the governance mode of the information economy needs to change from the original “concentrated control model” to a new model that rely more on mass innovation and collective governance.

3. The New Business Ecology of Platform Economy

With the advantages of IT, communication and scale, platforms can effectively bring various interdependent groups together and derive unique added value out of the interactions among them (e.g. e-commerce platforms bring buyers and sellers together and search engines that bring consumers and advertisement agencies together, etc.).

With access to billions of users and supported by social media, search engines and e-commerce applications, leading platforms such as Apple, Facebook, Google and Amazon from the US and Baidu, Alibaba and Tencent from China, are fast becoming major driving forces behind the global information economy.

The new business ecology of the platform economy has thus become the bedrock for a flourishing information economy in the future. As pioneers of new services, platforms decide and lead the growth paradigm in each new area by “cooperating” with the partners above them, providing endusers with increasingly powerful functions and applications. For example, Taobao as a third party platform supporting e-commerce plays an important role in the e-commerce business ecology. With the support of the platform’s operators, vendors can easily launch stores on this virtual platform to do business with consumers. In this process, the platform’s IT service providers integrate online and offline information together to facilitate shipments by logistics companies and payment collection by Zhifubao, the platform’spayment portal. Bringing buyers, sellers and other e-commerce service providers together, Taobao has managed to become a “big platform with small front desks and lively ecology”. Shoring up a trillion RMB e-commerce market with its billion RMB revenue streams, Alibaba exemplifies the power of the platform economy and the value of the Internet business ecology.

4. Unleashing Big Data’s Potential Faster

In the era of information economy, the role of information (data) can be studied better through the lens of production factors. Therefore, unleashing big data’s potential connotes the upgrade of production factors, i.e. the upgrade from IT to DT (data technology). IT breakthroughs are in essence preconditioned upon the removal of data restrictions, acceleration of data flows and increase in data utilities. The evolution of information (data) into an independent production factor took almost five decades. Technically speaking, during this process of evolution, four key technologies have been applied, with each corresponding to a specific evolutionary stage. These four key technologies are electronic technology, computer technology, e-communication technology and big data technology. Explosive growth in information (data) volume and processing capacities has been spotted in each of these stages.

Big data is characterized by big volumes of data, real-time functions, rich varieties and high values. Mature technologies for data collection, storage, processing, analysis and demonstration provide powerful tools for data mining. Besides promoting information services such as financial data and e-commerce services, the launch of new data products creates new channels to generate wealth as well, such as precision-guided targeted advertisement distribution, etc.

5. Continued Mass Innovation

The new information infrastructure made up of clouds, networks andterminals greatly lowers the hurdles facing creation and innovation. Backed by strong technical capabilities, preconditions have been created for mass innovations. Crowd funders such as Kickstarter, maker movements spawned by 3D printing technologies as well as the rise of mobile internet on the basis of cloud computing are all typical examples of mass innovation.

As Nobel Economics laureate Edmund Phelps has said, economic energy is extremely important to a country in its learning curve. Eventually the country may become a leader itself and lead global economic growth. Generally speaking, economic energy includes four components, namely innovation (opportunities and threats), capability (infrastructure and human resources), tolerance (tolerant economic environment) and supportive institution (strategic guidance). The US as the world’s economic leader has maintained its hi-tech edge for years. This is largely because the US knows how to release economic energies effectively.

Over the past more than three decades of reform and opening-up, China has achieved remarkable economic and social progress. These were largely due to its “passive advantages” such as the demographic dividend, good human resources, the optimal allocation of resources and long-term external demand.

Even though the Chinese economy has become the second-largest in the world, it is now experiencing some difficulties, such as the diminishing supply of labor and weak external demand, etc. Against this backdrop, improving productivity has become the key to the country’s sustainable economic growth and continued improvement in people’s livelihoods. Specifically, using the new infrastructures efficiently, vitalizing people’s innovativeness and developing the information economy are all necessary means to achieve such goals.

6. Crowd Cooperation as a Mainstream

In the industrial economy, monopolizing resources is very important. In contrast, the emphasis is usually laid on the utilization and sharing ofresources in an information economy. Further, the industrial economy stresses the division of labor along value chains, whereas the information economy encourages interaction and cooperation on the basis of value networks. The industrial economy cares about internal R&D, whereas the information economy embraces the power of the general public. Therefore, crowd cooperation in the new era should involve elements such as economic sharing, network-based cooperation and crowd sourcing, etc.

The new infrastructures represented by cloud computing and big data have given rise to innovative leapfrog development. When an enterprise is unable to acquire all the resources it needs, sharing becomes an option. Take the case of Amazon for example. The cloud computing business line of Amazon was devised initially for better use of the company’s redundant computing capacity. However, through the launch of public cloud services, not only were new businesses generated, but costs were considerably lowered. Thanks to Amazon’s new service, around 100,000 subscribers lowered their IT costs while increasing their flexibilities at the same time. The whole community benefited as a result.

Let’s take Hstyle’s C2B e-commerce as another example. In this case, the individual requirements of online shoppers are effectively met by information sharing among fashion designers, brands and manufacturers. Customers’needs are speedily satisfied by network-based managerial techniques which not only improve customers’ online shopping experiences but also ensure producers’ productivity. The value of network-based cooperation is thus fully tapped.

The concept of crowd sourcing is gaining more and more popularity nowadays. Crowd sourcing websites such as Mechanical Turk under Amazon, Zhubajie and Zuodao in China are not only helping enterprises reduce costs but also helping individuals get flexi-time jobs.

Based on these general trends of the information economy, we have reasons to believe that crowd cooperation will become the mainstream in the future. It will shock existing production systems by blurring business boundaries and labor divisions.

7. The Rise of Internet Economic Entities

The Internet economy used to be regarded as a tiny segment of an economy. Compared with the real economy, it was considered unreal with little influence on the total economy. However, with the rapid development of e-commerce and other related industries in recent years, quantitative changes have eventually accumulated to become a qualitative change. As a supplement to the traditional economy, the Internet economy is claiming a bigger percentage of the national economy, with its creative power and growth potential becoming more and more evident.

Economic entities used to refer to a collection of individual, national or regional economic organizations in a given geographic location. However, the concept of an economy based on geographic coordinates is disrupted by the ubiquity of Internet (ubiquity in terms of time, space and subjects) which makes possible the allocation of distributive resources, collaborative value networking as well as economic assemblage across time and space. Confined by nothing but its own potential, the Internet economy, by combining resources, production factors, markets and technologies effectively together, has spread to many places in the world and hence give rise to Internet economic entities.

The contribution of the Internet to GDP (especially the growth of GDP) is growing year by year and Internet economic entities are becoming new drivers of global economic growth. In countries with extensive Internet applications, the Internet economy already accounted for more than one tenth of their GDP growths on average from 1995 to 2009. And in the period from 2004 to 2009, the Internet economy’s contribution to GDP growth in these countries was as high as 21 percent.

By 2016, the combined size of twenty countries’ Internet economies would be about the fifth-largest economy in the world, next only to those of the US, China, Japan and India. The Internet economy will become a new form of growth before 2020.

8. The Cross-border Infiltration of the Internet

As the table below shows, cross-border infiltration of the Internet is very common nowadays. New creations that connect ideas, humans and things together are cropping up constantly and disrupting traditional industries in impressive ways.

The cross-border infiltration of the Internet can be exemplified by the way in which industries are changed by the rules and ideas of the Internet. Within the framework of internet technologies, the mechanisms that coordinate all technical protocols to function properly are TCP/ IP protocols. In a sense, it is these de-centralized, connective, boundless, open and mutually beneficial mechanisms that grant the Internet a bigger role in the IT era. Perhaps the Internet’s cross-border infiltration and the shocks it brings to other industries are just tokens of internet economy’s prowess.

Table 2: Cases of internet’s cross-border infiltration

9. Competition for Cyberspace Leadership

Economic theories hold that free trade among states benefits them allirrespective of their comparative advantages. However, a big country’s economy could be an exception, because big countries can obviously develop competitive edges in many industrial fields and therefore are more likely to have trade frictions with others. Growth backed by resources can cause even more struggles in fields such as energy. Unlike the struggles in the real world, future disputes may quite likely happen in cyberspace. In other words, struggles for land will gradually be replaced by struggles for control of cyberspace. For big countries such as China that aspire to achieve leapfrog development, leadership in cyberspace may appear even more important. Therefore, besides challenges in the real world, it should pay more attention to challenges in cyberspace, because another round of competition is imminent among states for the control of the Internet infrastructures such as cloud computing and big data, etc.

In the past two years, with the popularization of big data applications, people became aware of the importance of data resources as well as their commercial value. The very infrastructure for accumulation and application of big data is the platform of cloud computing. Storage, processing and analysis of massive volumes of data can be achieved on such platforms. Advantages such as proximity to storage and processing as well as convenience in data exchange are also possible on the platform. The integration of computing resources into a single platform would therefore unleash big data’s potential to the fullest extent. Enhancing computing power with resource integration, cloud computing can effectively liberate users from their reliance on computers. As the development of software becomes easier, functions of software will center more on backstage data utilization in the future, because without the support of backstage data the utility of software will be greatly discounted. Therefore, we expect users to care more about data than software in the future. We can even imagine that the “computer plus software” model will soon be replaced by the “cloud computing plus data”model as the future direction of IT evolution. Thus, it is very important for us to catch the current historic opportunity to develop cloud computing and integrate data resources.

10. Transnational Economy Reshaping Global Trade Structures

Massive information economic activities in recent years such as e-commerce more or less signal the rise of the “transnational economy” in the restructuring of global trade.

By making new IT breakthroughs, increasing communication efficiency and expanding commercial functions, data plays a bigger and bigger role in supporting trade, transnational payments, international logistics and international shipments. Consequently, geographic restrictions will be removed and domestic markets will be integrated into a single global market that is unlimited by national borders.

So far, leading global platform enterprises such as Amazon and Alibaba in the field of e-commerce, Facebook and Tencent in the field of social networking, as well as Google and Baidu in the field of search engines have evolved into important hubs of the “transnational economy “by expanding their geographic coverage in the world. Take China’s e-commerce sector for example. Third-party transaction platforms (both wholesale and retail) not only make possible “worldwide sales” by exporters, but also help consumers to complete “worldwide purchases”. As a result, import is promoted, consumption is revived and a balance of trade is achieved. Through“worldwide sales”, China’s production capacities are utilized more efficiently, whereas through “worldwide purchases” foreign enterprises can benefit greatly from China’s huge market. More importantly, with the support of effective communication tools, Chinese and foreign traders can understand each other better and eventually create a positive situation for international trade. In short, the IT revolution and the resultant “transnational economy”will reshape global trade and demonstrate greater vigor and vitality in the future.

Meng Yeis associated with the Ali Research.