Digitalization: using digital systems to reshape how an organization operates (shop to website, filing cabinet to database). It rebuilds the business itself, which is more than running the old processes on a computer.
Digital change hits every part of a business at once: reaching customers, pricing, stock, pay, rivals. A firm that ignores it can be undercut fast. The gains and the risks land on different players, and so does control.
Digital Business Models
E-commerce is selling online; the deeper change is the platform business, which makes no product itself but connects others (sellers and buyers, hosts and guests) and takes a share of every exchange.
Growth comes from network effects: each extra user makes the platform more valuable to others, so digital markets tip toward one or two giants and new platforms race to get big first.
This is a change and power story: platforms give tiny firms global access, but the platform sets the rules, fees, and visibility, so traders depend on decisions they cannot control.
Gains split unequally by design. The platform captures the data and sets the fees. A small trader gets reach but on terms it did not write, and the customer gets choice while funding the platform's cut.
Latin America has its own giant. MercadoLibre pairs its marketplace with Mercado Pago, a payments and lending arm that brought millions of unbanked people into digital finance, building regional power by banking its own users.
Data as a Business Asset
For many firms the most valuable thing owned is not a factory but data: every click, purchase, and search is recorded, and big data about customers becomes a resource to mine for profit.
Data drives targeted advertising: detailed profiles let a firm show each person the ads likeliest to make them buy. At the largest companies the real customer is the advertiser, and the user's attention is what gets sold.
Mechanism: as a page loads, viewer details are auctioned to advertisers in milliseconds and the highest bidder's ad appears, matched to the profile from past behaviour.
Strongest values and ethics and power tension: data-driven business means cheaper, relevant services but also constant tracking, profiling, and an imbalance of knowledge. The person the data describes usually knows the least about how it is used.
Automation and Efficiency
Through automation, tasks once done by people (taking orders, sorting warehouses, answering routine queries) are carried out by software and machines.
Efficiency gains are large: automated systems run day and night, handle huge volumes, and make fewer routine errors. Cloud computing lets a small firm rent powerful computing on demand and operate at start-up scale.
Much automation is invisible software: approving payments, flagging fraud, setting prices second by second, routing deliveries. One design choice can affect millions before anyone reviews it, so oversight matters.
A systems and change theme: automation lowers prices and removes dull work but reshapes which jobs exist and hands decisions to hard-to-see systems. Who benefits from the savings is not decided by technology alone.
Disruption and Platform Power
Through disruptive innovation, a newcomer with a cheaper or more accessible digital model can displace established firms in a few years: streaming replaced video-rental chains, online marketplaces reshaped high-street retail.
Pattern: the newcomer uses digital delivery to strip out a costly middle layer (shops, discs, branches, agents), offers something cheaper, and customers switch until the incumbent collapses.
The catch is a power question: when customers can only be reached through one or two platforms, those platforms become gatekeepers that raise fees, change rules, or drop a seller.
Disruption moves concentrated power to a new owner rather than dissolving it. Consumers and newcomers gain, displaced firms and workers lose, and the winning platform accumulates the power that once belonged to the businesses it replaced.
The Balance Sheet on Digital Business
The same bargain recurs: digital systems make firms faster, cheaper, and more global, while shifting power toward whoever owns the platforms and data. Firms gain efficiency and reach but take on new dependence and ethical duties.
Contested: is digital business ordinary buying and selling made faster, or a genuine shift in who controls markets? This is a change debate (evolution versus transformation).
Case study
Case study: Amazon
System: Amazon, an online platform business and retailer: an e-commerce store, a marketplace for outside sellers, a cloud arm (AWS), and recommendation and pricing systems throughout (networks, data, algorithms).
Specifics: founded 1994, it is now one of the world's largest companies with millions of third-party sellers. In September 2023 the US Federal Trade Commission and 17 states sued it, alleging it used its dominance to keep prices high and lock sellers in.
Impacts and implications: customers gained choice, low prices, and fast delivery and small sellers reached global markets, while rival retailers closed and warehouse conditions drew concern; one firm can shape a whole sector, concentrating power and inviting regulation.
Concepts: power (marketplace, competitor, and rule-maker at once), change, values and ethics and systems; economic context with a strong social link.
Theory of Knowledge
TOK
If one company is both the marketplace and a seller competing on it, can that market be fair, and who should decide?
When a digital business is cheaper for customers but harmful to workers or rivals, whose interests should count most?
Active recall
Self review
What is digitalization, and how does it change what a business is?
What is a platform business, and why can it grow so powerful (network effects)?
Why is data a business asset, and how does targeted advertising work?
How does automation change efficiency and control in a business?
What is disruptive innovation, and how does platform dependence concentrate power? Is digital business evolution or transformation?
