#BusinessBrief: Digital entrepreneurship

The Covid-19 pandemic and lockdown has moved a large part of life online, from work to workouts, school, socialising and shopping now happens thorough a screen. Maybe you have been wondering whether there is an online opportunity out there for you? There certainly is a lot of activity – DOMO’s Data never sleeps report 8.0 shows what is happening on the internet every minute of the day: Zoom hosts 208 333 participants in meetings, people upload 500 hours of video to YouTube, people make $239 196 worth of payments through Venmo, and Amazon ships 6 659 packages.

But what does it mean to be a digital entrepreneur?

This #BusinessBrief aims to give an introduction to the idea of digital entrepreneurship and what its impact is on business models and entrepreneurship. It draws on a recent IZA discussion paper by Wim Naude and Werner Liebregts.

Digital entrepreneurship is described as recognising and exploiting opportunities within the digital economy. It includes the creation and commercialisation of digital infrastructure (platforms), or the creation of value within existing digital platforms.

But, participation on digital platforms or marketplaces is not enough to be called a digital entrepreneur. An Uber driver, or AirBnB hostess is not a digital entrepreneur. Selling non-digital goods online, or using digital technologies in a business, also do not classify someone as a digital entrepreneur.

Naude and Liebregts narrows the definition to entrepreneurs who “pursue opportunities to produce and trade in digital artefacts on digital platforms, and/or to create these digital artefact platforms themselves”. In practical terms, think app developers, or all the new platforms created to stream live music performances.

So, the digital economy is very much digital and a specialist niche. But what does that mean for entrepreneurship in this area?

There are six key impacts on entrepreneurship:

  • It allows for revenue sharing models between a platform and its outsourced labour force.
  • It generates data, which in itself becomes a product.
  • It makes experimentation, production and diffusion is faster and less costly, and the literature mentions concepts like Lean Start-up Approaches and Agile Development practices.
  • It enables personalisation and mass customisation of products and services.
  • It is possible to crowdsource capital, ideas, and labour.
  • It shifts entrepreneurial “work” form the individual to a community, and can facilitate female entrepreneurship.

The very nature of the digital economy also has implications for the way that a business runs through the importance of indirect network effects and certain costs that fall substantially (even to zero) due to digitalisation.

The indirect network effects are network economies where the value of the network increases for one side of the market/platform, if there are more users on the other side of the market/platform – think Uber drivers and riders. This means that demand economies of scale determine how well a market or platform develops. To gain demand economies of scale the entrepreneur has to harness intangible capital (that he does not own) and communities (that he does not employ, but is sharing revenue with). This raises the uncertainty and risks of entrepreneurship.

Digitalisation changes costs in five categories:

  • Search costs are low.
  • Digital goods can be replicated at almost zero cost.
  • Transportation cost of digital goods and information is almost zero.
  • The cost of verifying reputation and trustworthiness is also much lower.

These lower costs present unprecedented opportunities for entrepreneurs to enter the digital economy.

To my mind a new South African opportunity in digital entrepreneurship is learning management systems for schools. Teachers have been creating voice-over-PPT explainer videos and setting online assignments for months. Even when teaching and learning moves back to the classroom some part of it will become “blended” in a flipped classroom setup. But unlike universities, most schools do not have a platform to bring all the resources together and manage them. It is an idea waiting for a digital entrepreneur.

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