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Internet took off there nearly 20 years ago with the wide dissemination

of Netscape, the first web browser. Among the founding myths of this

new economy was the belief that it would do away with intermediaries

placing buyers and sellers face to face. Far from disappearing, new

overpowerful intermediaries have actually emerged. The likes of Google,

Apple, Amazon, and Facebook are causing a real creative destruction, in

the way articulated by the economist Joseph Schumpeter. A process

which redefines trade, modes of distribution, balance of power, and the

way value is distributed. This is a puzzle for policy makers and traditional

incumbent businesses all around the world.

Barbarians at the gates

For two decades the Internet has been profoundly changing the economy. And this is only a beginning. In the

G20 countries, the heart of the digital economy, operated by Information and Communications Technology

(ICT) organisations, isabout 5 % of GDP.But the digitisation of the economy now affects a much larger number

of sectors: for instance the French have calculated that of their national production is affected.

This penetration is accomplished in two ways. Firstly by realising large productivity gains through the inherent

efficiency of ICTs: across sectors, businesses have become more efficient thanks to electronic orders and billing,

by monitoring their production. Secondly by a significant dematerialisation of most of the value chain: entire

parts become redundant because of digital processes. Just think that today you can book a flight and check-in

from your mobile phone, making the role of travel agents totally redundant. In turn, advertising, tourism and

the cultural industries have seen their business model deeply challenged by this digitisation.

For each sector that the digital world "cannibalises, the modus operandi is similar: barbarians from the

Internet enter the value chain at a strategic point in direct contact with the consumers, and use the data they

collect from regular and systematic monitoring of peoples activities to gain market share and cause a gradual

transfer of the margin in their favour.

This is exactly what Amazon did through the power of its recommendation system built from a detailed analysisof the behaviour of its users, and a very aggressive pricing policy. This distributor shipping books from

warehouses has become hegemonic in the sale of cultural products. With the spectacular consequence of

putting out of business a plethora of brick and mortar players, from the small bookshop at the corner of the

street, to the giant Border's that filed for bankruptcy in the US in 2011 after its 500 stores and 20,000

employees lost the battle against online distribution.

The same happened with Apple. The couple formed by the iPod music player and the iTunes software has

created a direct relationship with customers (and their bank details!). The company now dominates the online

music market (2 thirds in the US), to the point of having succeeded in imposing to record labels the prices at

which they sell their songs. With the success of the iPhone and iPad, Apple is on the way to extend this rule toother producers of content, whether video or the press.

http://www.bcg.com/documents/file100409.pdfhttp://www.bcg.com/documents/file100409.pdfhttp://www.bcg.com/documents/file100409.pdfhttp://www.abc.net.au/news/2011-02-17/bookstore-giant-borders-files-for-bankruptcy/1946182http://www.abc.net.au/news/2011-02-17/bookstore-giant-borders-files-for-bankruptcy/1946182http://money.cnn.com/2013/04/25/technology/itunes-music-decline/index.htmlhttp://money.cnn.com/2013/04/25/technology/itunes-music-decline/index.htmlhttp://money.cnn.com/2013/04/25/technology/itunes-music-decline/index.htmlhttp://money.cnn.com/2013/04/25/technology/itunes-music-decline/index.htmlhttp://www.abc.net.au/news/2011-02-17/bookstore-giant-borders-files-for-bankruptcy/1946182http://www.bcg.com/documents/file100409.pdfhttp://strategicrisks.org/

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