From IT to DT: Redefining Information Economy
Time: 2016-01-29 13:45   Views:4296
Gao Hongbing: From IT to DT: Redefining Information Economy

Introduction: 2016 Think Tank Summit on New Economic, sponsored by AliResearch, was held in Beijing on January 16, 2016. Gao Hongbing, Vice President of Alibaba Group and President of AliResearch delivered a speech entitled From IT to DT: Redefining Information Economy.

Gao Hongbing illustrated three core points: First, Internet innovation cannot be separated from the troika of “technology + commerce + rule;” second, TCP/IP restructures “information basic structure” of the economy and the society in a “top-down” manner; third, the real issue that we need to research is the digital transformation of commercial mode and social development. 

According to him, we are now in an era with radical changes. The key is to how to establish a thinking framework to observe changes and embrace challenges. The Internet has brought us brand new logics and framework. This is technological innovation, commercial innovation and, at the same time, changes of rules. The most important change is that we have established a new information basic structure for the economy and the society.

The Internet was introduced to China in 1994. Since then, the main commercialization path of the Internet in China has eventually changed from the profit model based on the Internet games and the Internet advertisement profit model based on information and contents in the early stage to e-commerce today. Combining the Internet with commerce is now a mainstream model of the Internet-based commercial business in China.

The Internet is changing not only the urban areas, but also the rural areas. It is reforming the consumption and circulation industries, the production and manufacturing, as well as financial industry; it is changing and innovating service industry. On the layer of bringing greater value creation, the Internet is increasingly breaking through the limitations of our previous industrial economy.

The Internet is remodeling our present, as well as our future. The Internet has formed a series of platform-based economies, running in an efficient, high-speed and zero-marginal-cost way. For the vertical and linear chain caused by previous industrial economic structures as well as the barriers such as high costs and overstock, the Internet has opportunities to change them and create new miracles.

DT economy, an era of redefined “information economy” has been ushered in.

Gao Hongbing, Vice President of Alibaba Group and President of AliResearch

Speech delivered by Gao Hongbing:

Distinguished guests, friends, good morning!

What is the most important thing in an era like today? I think, the most important thing should be: What approach should we take and what logic framework should we use to think about, observe and create the world?

In an era with great changes, everyone, no matter a researcher, a think tank or an entrepreneur, needs a right observing angle and should establish a new thinking framework. If we limit our environment and position to the past and traditional angles, we cannot create future. Just now, Ian Morris talked about Adam Smith. His greatest contribution was that he discovered the way for people to create fortune, that is, to find a new market. Today, the Internet is leading us to find a greater new market, to discover a new economic continent and to create a new real economy.

Ten days ago, I went to Hangzhou for Forum on Information Economic Development Summit of Zhejiang Province. In 2013, Zhejiang Provincial Government took the lead in issuing the Guiding Opinions on Energetically Promoting Information Economic Development. In the past 10 days, I have been thinking about a question: What is the most important thing for us today? In 2015, the most important thing for China and even the globe was Internet+ initiated by China, Industry 4.0 put forward by Germany and the United States making its high-end manufacturing industry back to its territory. In China, the Internet+ in 2015 could combine almost everything possible. People defined almost all the technologies, industries and departments with the Internet. However, when we look back, we will find that the thing that should be urgently redefined is the Internet+ itself, and “information economy” itself. In fact, a “traditional information economy” created in IT era is being broken by a new DT era.

DT Redefining Information Economy

We should think from the angle of the troika of “technology + commerce + rule,” instead of focusing only on technology. Technology is very important as it constantly changes the borders of commerce, economy and the world. But it is time for the technology to change the business model. More importantly, the Internet technology is comprehensively changing the business rules with its inborn new philosophy and new measures. The most important juncture of digital transformation of our economy and society is TCP and IP invented in 1973. The protocols have restructured the “information basic structure” of the economy and the society in a “top-down” manner.

In the 18th Century when steam engine was invented, it was first used for getting water and mining. Later, it was used in areas such as power stations, factories, locomotives and ships. A series of technology revolutions caused by James Watt improving steam engine triggered the change from manual labor to machine production. Hence, the first industrial revolution in human history took place.

In the late 19th Century, electricity was invented. Electricity power production and consumption system consisting of links such as power generation, power transmission, power transformation, power distribution and power consumption brought the second industrialization tide to the human race. In the 20th Century, electricity industry gained further development and large-scale electricity power system emerged. It turns primary engine in the nature into electricity power through mechanical devices, and transmits electricity power to various consumers through power transmission, power transformation and power distribution grids. 

After the 1950s, transistor invented in 1947 triggered the computer revolution, bringing a great leap-forward for the human race. This is the first information revolution, or the third industrial revolution. It is a process of developing the economy and the society with information technology.

Today, we are entering a totally new era. In the 21st Century, the technologies connected by the Internet have made computers popular in every sector of the economy and the society and begin to restructure a digitalized economy and society, leading to the second information revolution for human race.

The Internet Gradually Changing From Tool to Economy

Let’s have another look at the important junctures of information revolution: ARPANetwork in 1969. Its core element is “distributed computing” and “packet switching.” To make it simple, distributed computing is TCP while packet switching is IP. Technologically, why can your cellphone be connected with mine? Why can one terminal be connected with another? The reason is that each cellphone has an ID number and a MAC address. Two addresses can identify each other on a subnet through technological protocols. When the subnet expands, or more than 3 billion people hope to join the network with smart terminals, how can we effectively connect them? Then, we need supports of basic logic facilities consisting of routing switch, IP address, domain name, software, computing method and protocol. This is the Internet. We can say that the Internet does not create hardware, but connect hardware facilities through software and protocols. Then, it makes great subversion or reform on the applications, i.e. the economy and the society, so as to form “information-based economy” and “information-based society.”

In fact, when human beings are defining the world, the Internet is defining human beings. When the Internet was introduced to China in 1994, China began to observe the world development from the Internet angle. Of course, the new generation of entrepreneurs also created new business models by utilizing the Internet. The year 1994 was the beginning of a great change. In that year, China had three 64K International private leased circuit (IPLC), connecting the United States, and had no more than 60,000 Internet users. But today, 21 years later, every Chinese has a 3G or 4G cellphone and is using 10Mps or 20Mps broadband. The great number of the Internet wireless and broadband infrastructures has helped China quickly enter an Internet society. This is a great leap forward.

The Internet is turning from the tool or technology in the primary stage into the Internet economic system. This is a huge network of economic system across the time, across the space, across the physical national borders and across the 8-hour/24-hour working time.

The Internet also commercialized technology. In the early stage, people used these universally applicable technologies as tools. We send emails, browse information, play games and log on BBS through the Internet. This is the internet as a tool.

With the constant evolution and upgrade of technology, the Internet is now the impetus pushing the expansion and commercial development of new media. At the end of the 1990s, the Internet was upgraded into www or Web. Tim Berners-Lee’s contribution is that he connected the content websites with hyperlinks on the browser. After 2000, most people think the Internet means www and information network. Even today, many people regard Web as the essence of the Internet. But I think, Web is not the essence of the Internet, but an application of TCP/IP on the layer of information content. However, this stage has brought about an important change: Digital information is integrated into the Internet technology. The Internet, the Web to be exact, has been serving as the channel for spreading contents. The Internet has been serving as the channel for spreading contents, as well as the marketing channel for enterprises to spread their products. In 2007, we saw development of broadband, 3G and 4G, especially the emergence of Apple iPhone (Steve Jobs said that he wanted a phone, not a computer), and the rapid development of cloud computing. The Internet has become the infrastructure of the economy and the society. We can see a huge new economy covering the whole globe when the further popularization of these terminals and facilities becoming a great presence and making innovations through further integrating with the economy. The Internet is forming constructing a greater economic system than industrial economy.

From “Industrial Basic Structure” to “Information Basic Structure”

How to understand the change?

We can think about it through a structure chart with two cores.

The previous two industrial revolutions had created a huge industrial society for human beings, forming the industrial basic structure consisting of the primary industry, the secondary industry and tertiary industry; agriculture, forestry, animal husbandry, sideline production and fishery; electronic, auto, chemical industry and trade; enterprises in microscopic view, design, manufacturing and production, brand, wholesale and retailing. In general, most people base their thinking logic on the angle of the industrial economy, and regard the Internet, IT and informationization from the angle of the industrial economy. Thus, it is called industrial informationization, business informationization and the Internet enterprise. People add informationization and the Internet into the previous industrial infrastructure. It is fine if you understand it as “+ Internet.” But if we think about it under the philosophic framework, we would not have seen the new market mentioned by Adam Smith. The reason is that the new economy, the Internet economy, does not present itself in such a structure.

Based on the physical infrastructure at the bottom consisting of optical fiber, equipment and hardware terminals, a soft logic infrastructure can be constructed, that is, the above-mentioned basic protocols of TCP/IP, protocols for various technological applications, trading systems and platform rules of, etc. All these constitute the “logic infrastructure” based on “physical infrastructure.” Based on the two layers of infrastructures, industry, commerce, transportation, tourism, politics, culture, media, etc., have been restructured and redefined.

The economy and society based on the Internet have been restructured. When we think about it under such a logic, it is not a concept of “industrial basic structure,” but a new concept of “information basic structure.”

Thus, the Internet has brought us a totally new angle for thinking logic and framework. The Internet economy is emerging in the form of different platform-based economic development models. These platforms constantly absorb the fragmented industrial economic elements, put them into the Internet world, form new markets, new demands and new industries through large-scale collaboration and new combination, integration and innovation, and eventually form the new “information basic structure.”

E-commerce Economy Becoming the Mainstream and C2B Restructuring Industrial Ecology
The Internet entered China in 1994 and, since then, has been on the mainstream path in its commercialization in China. In the early stage, the Internet games were the major profit source, followed by the Internet advertisements. Today, we can see that e-commerce becomes the new profit source. E-commerce is now a mainstream application model of economic Internet in China. In 2014, the value of online wholesales and retailing totaled 16.3 trillion yuan. China’s GDP that year was approximately more than 60 trillion. Online retailing accounts for 10.6 percent of China’s total retail sales of consumer goods. If we calculate only on the basis of individual consumption, the percentage exceeds 20 percent. The conclusion is, a new commercial ecological system based on the Internet has been created.

Viewing from the data and scene on November 11 Carnival, we can see a globalized commercial ecological system based on the Internet platform. This is a typical business retailing ecological system driven by the Internet, which is not based on the previous “industrial economic structure,” but on the inter-connective, equal and open “information basic structure” with transparent rules. In this economic system, various parties such as the sellers, buyers, service providers, platforms and governments, make joint efforts to develop new business and new manufacturing industry. On November 11, we created a lot of records. About 68.7 percent of the buyers used mobile terminals, showing that the technology is constantly expanding its commercial border. We can see a reversed pressure from consumers to sales and retailing.

On November 11, about 30 million Chinese people bought imported goods from all-over the world, reflecting a grand view of “buying globe and selling globe.” Buying globe also happens in rural market. Rural consumers are rapidly participating in the construction of the Internet retailing system and commercial system. Consumers in central and west China rapidly participated in the process. The Internet is reforming not only urban cities, but also rural areas; it is reforming not only the industry, but also our consumption. The Internet is increasingly breaking through our original limitations on the layer of greater value creation.

Commercialized Turning Point of Cloud Computing: October 2015, DT Exceeding IT

October 2015 is an important juncture. No matter Amazon cloud computing, Microsoft cloud computing, or Ali cloud computing rocketed. Their stocks also increased greatly in October. In contrast, the stocks of other IT companies plummeted in that month. The rise and fall indicate the adjustment of a new industrial structure.

Of course, we also witnessed data precipitated and constantly emergence of various IOT of the Internet of things. Of them, China accounts for a large proportion. In the future five years, China will account for 18 percent to 20 percent of IOT and big data markets. We are confident that a turning point for DT to exceed IT has emerged.

The Internet is reforming our present, as well as our future. Those industries very close to digital technology such as media, telecommunications and publishing are further reformed by the Internet today, so are wholesales, retailing and service industries. In addition, heavy asset industries such as real estate, finance and energy cannot avoid reform from the Internet. This is the black hole effect. 

The Internet has formed a series of platform-based economies, running in an efficient, high-speed and zero-marginal-cost way. For the linear chain of previous industrial economic structures as well as the barriers caused by high costs, the Internet has opportunities to create new miracles.

An era of “new information economy” redefined by DT has arrived.

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