1. eC The transformative character of the IT sector and the eCommerce applications built upon it is deep and provocative. Consider the example of the entertainment industry and recorded “media.”

2. eC The history of photography, music, and film is inextricably intertwined with the technology associated with the capture and subsequent distribution of sound and images – the physical media that are used to store the information.

3. The term “recording media” alone suggests the dependence of the industry on the underlying storage medium. We will examine the issue in more detail later, but for the moment, just consider the challenge to economists as they attempt to label and measure the components of the Digital Economy.

4. eC Suppose you buy a good old-fashioned record album, made from pressed vinyl, from a garage sale. That might be the pre-digital economy. How about a compact disc, which is, after all, a medium to store digital data? Well, that might be considered a pre- digital purchase, though the recording and reproduction processes might qualify as part of the Digital Economy. If the album or CD were bar- coded and scanned in a store, then the purchases are part of the Digital Economy.

5. eC How about when a song from that compact disc is transferred onto a computer server, perhaps in the MP3 format that has become so popular? Well, that is a digital transaction, and ought to be in some manner evaluated even when no money is changing hands!

6. If you choose to buy the “album”, the transaction may well involve electronic funds transfer, digital confirmation of your identity, and a digital certificate that verifiably associates your identity with a particular transaction.

7. eC What about when new on-line licensing schemes emerge, such that digital music is downloaded, along with an accompanying digital license that establishes a control on the number of times the song can be played?

8. This would entail a digital download of digitally recorded data, played on a digital device, based upon a digital license, which was acquired through a digital payment transaction, such that an actual physical object which holds the music (an 8-track, a tape, an album, a compact disc) never even changes hands.

9. eC Now extend the example, and consider that something similar can be done for photographs, movies, software, and document processing (licenses, contracts, newspapers). It may be difficult to precisely define intermediate stages, and whether the entire transaction or merely some portion of it qualifies as part of the Digital Economy, but the trend is clear.

10. From one end of the transaction to the other, the IT sector is influencing every stage of the process, including design, procurement, manufacturing, transaction processing, payment, and delivery.

11. eC The possibilities become overwhelming. Indeed, one need look no further than the music file sharing example of Napster to show what is possible, how desirable the results, and how difficult it will be to go back to pre-digital methods.

12. eC The technical innovation behind Napster was simple and powerful, showing the transformative potential of new approaches: Napster effectively enabled the creation of the world’s largest jukebox of new and old material, including music that was commercially otherwise unavailable.

13. eC The financial and legal issues raised by threatened old-media companies and distraught artists showed how disruptive these changes can be.

14. While Napster was attacked and ultimately shut down, it had created an enormous audience devoted to the new paradigm of file-sharing, and brought murky issues regarding copyright and fair use into passionate debate amongst legal scholars and everyday citizens alike.

15. eC As Napster died, other services emerged which have proved much more difficult to shut down. That new models are emerging is clear; what remains is the challenge of how to create more comprehensive solutions that satisfy the consumers and protect the value and intellectual property of the authors and owners.