The web makes us richer

The internet is a vast economic catalyst. Almost $8 trillion changes hands through e-commerce each year—three times the annual output of the entire British economy. Around 2bn people are connected to the internet and in some developed markets about two-thirds of all businesses have a web presence of some kind.

In our recent report, “Internet matters: The net’s sweeping impact on growth, jobs, and prosperity,” we examined the web’s contribution to global growth, productivity and employment—and produced the first quantification of the internet’s global impact on economies. We analysed consumption and expenditure connected with the internet, as well as the supply of internet products and services, and examined the economic impact of the internet on 13 countries, which together account for more than 70 per cent of global GDP. This included members of the G8, other developed economies as well as emerging markets.

Our findings were striking: not only does the internet deliver value to companies and individual consumers, it also adds astonishing value to the economies of nations.

In the 13 countries studied, the internet accounts for 3.4 per cent of GDP. More than half of that impact arises from private consumption by individuals and private companies, primarily through buying things online and through paying for advertising. An additional 29 per cent comes from investments being made by companies in servers, software, and communications equipment. The result is that the internet economy is now larger than that of Spain or Canada. It also outstrips global industry sectors such as agriculture and energy.

The web’s impact on global growth is rising rapidly, to the point where it is now a critical factor in economic progress. In the mature economies we studied, we ascertained that over a 15-year period—1995 to 2009—the internet accounted for 10 per cent of GDP growth. In the period 2005-09, its contribution to GDP growth in these countries was 21 per cent.

Most of the economic value created by the internet falls outside the technology sector: companies in more traditional industries capture 75 per cent of the benefits. In our survey of 4,800 small and midsize enterprises, companies reported that the web helped them to achieve an average 10 per cent improvement in profitability, as a result of improved efficiency. And companies with a strong web presence grew more than twice as quickly as those with a minimal presence, or none. They also had twice the share of revenues from exports, and created more than double the number of jobs.

There is a belief that the internet destroys jobs; this is a misconception. While some jobs have been lost through the emergence of the internet, many more have been created in the same period. Our small and midsize enterprise survey revealed that the internet created 2.6 jobs for each one lost to technology-related efficiencies. A detailed analysis of the French economy, for example, showed that while the internet has destroyed 500,000 jobs over the past 15 years, it has created 1.2m new ones.

There is also a clear correlation between per capita GDP growth and a country’s internet maturity. The web has enabled an increase in real per capita GDP of $500 in mature countries over the last 15 years—it took the industrial revolution 50 years to provide the same results.

There are valuable market opportunities in supplying the internet. Not surprisingly, the US is the largest player in this market, with companies headquartered there capturing more than 30 per cent of global internet revenues.

But in terms of the ability to extract profit and value from the internet, Sweden and, maybe less obviously, Britain are changing the game, in part due to the strength of their telecom operators. In Britain, where the internet directly contributes 5.4 per cent of GDP, telecoms account for 87 per cent of all internet revenues and in France 60 per cent.

The British are also avid online shoppers. In 2009 they purchased online 1.4 times the amount of the average US online shopper, and 1.8 times that of the average French shopper. And there have been big gains for British consumers, who have captured more surplus than consumers in the US, Germany or France.

Developing economies are also beginning to benefit considerably from the web. India and China are rapidly strengthening their position in the global internet market with growth rates of more than 20 per cent per annum.

All of this underlines the need for policymakers and business leaders to make strengthening and exploiting their domestic internet capabilities a priority. The web’s economic power is great—and growing.