The McKinsey Global Institute released a comprehensive report last month on the Internet's influence on the world's economy. As you would expect, the results have been mostly positive: creating jobs, expanding economies, simplifying commerce, and providing unprecedented opportunities for small businesses.
How much has the Internet disrupted the economic activity of the world? According to the report, "The great transformer: The impact of the Internet on economic growth and prosperity," more than $8 trillion changes hands on the Internet every year through e-commerce alone.
The Internet makes up an astonishing 3.4 percent of GDP, as measured by McKinsey across the world's largest economies, which combined make up 70 percent of the global GDP. To put that into perspective, the report states that the Internet's contribution to the world's GDP is bigger than the entire GDP of Spain or Canada. If the Internet were listed as a sector, its percentage of worldwide GDP would be larger than agriculture, communications, or education.
Source: McKinsey & Company
Source: McKinsey & Company
The report goes on to say that the Internet has raised living standards and created jobs (even while replacing some old ones). It cites a study in France, for instance, that found over the last 15 years, the Internet accounted for half a million jobs lost, but it created 1.2 million new ones -- a rate of 2.4 jobs gained for every one lost.
But perhaps the biggest influence of the Internet is the ability to level the playing field for new businesses. It used to take tremendous amounts of capital to build the infrastructure necessary to set up a new business. Today, an individual armed with a laptop and a credit card can set up a business in minutes on the Internet, using services like Amazon Web Services for server and storage, Google Docs for office productivity, Salesforce.com for customer management, and Box.net for collaboration and file sharing -- to name just a few examples.
These free or low-cost services give small and midsized businesses the power to get up and running much faster than they could ever have done in the past without a huge influx of money. The Internet also provides businesses with the ability to scale as they grow without crushing investments, and the report clearly recognizes that leap.
Indeed, a survey of 4,800 small and medium enterprises (SMEs) conducted by McKinsey and cited in the report found that when smaller companies used Web services, they grew twice as fast as those that had "a minimum Web presence." And the report states that these gains were consistent across all sectors of the economy.
Source: McKinsey & Company
According to the report, the Internet encourages business in many ways, by fostering competition, encouraging innovation, developing human capital, and building infrastructure -- all of which can drive economic growth across countries and economies.
What's truly amazing is that for all of these gains and positive influences to this point, the report states that we are only at the very beginning of this growth, and it's only likely to fuel even more economic activity in the future.
Of course, the news isn’t all great. There is the whole issue of security and privacy on the Internet, and that cannot be minimized. But the report states that as the Internet evolves, we need to develop systems that support the Internet's growth, while finding ways to deal with security and privacy issues.
For now, McKinsey deserves tremendous credit for pulling together a report that quantifies what most of us suspected -- that the Internet is an economic juggernaut that continues to grow and thrive in spite of the worldwide downturn we have been experiencing over the last several years. And all signs point to it continuing to do so.
— Ron Miller is a freelance technology journalist, blogger, FierceContentManagement editor, and contributing editor at EContent magazine.
Great points, kq4ym. Even in the earlier models of the dot.com era, those businesses that were not founded on a sound business model failed.
The internet provides market access and increased strength to gaining market share; but only works for those businesses offering goods and services that are needed, priced competitively, and who have a clear plan for financial sustainability.
While the ability to set up a new internet business is a good thing, the ease of doing so may mislead millions into poorly thoughtout plans.
The absence of traditional blocks of buildings, rent, employees, and permits lead folks into thinking that a startup will be a breeze.
Unfortunaltely, all is easier said than done in making a profitable enterprise. While each internet business may indeed increase the "gross" dollars shown on polls and studies, the "net" might be more useful to look at.
Just how profitable are internet enterprises, especially those with no access to large capital funding?
the Internet also makes it easier for scam artists to look legit, and for every person who's delighted to be able to make a living as a freelancer, like I am and I suspect Ron is, there's also people who can no longer get regular jobs with salaries and benefits. Who is it that's getting all this people the Internet produces, anyway?
I fully agree, Ron. We have not adequately identified the contribution of all the parts. I value as well the self-employed micro-enterprise in that it produces economic value as you point out, as well as creates sales. My point was to suggest that the identifiable job expansion of 1+1= 20 will not occur alone in this segment, but will take place in the stimulus of the growth in the "new economy".
As you well point out, which is why I agree with the article, the cummulative impact of the Internet is far greater than we have realized. I think the beauty is that it stimulates multiple layers of economic growth that are producing positive results in our economy.
Even if it is freelance, and I don't agree that, that is the level of development this report is addressing, for every person in the economy able to make a living via the Internet, it has a positive impact on the economy because that person makes money and spends money. But I think it's a much bigger impact than that, and it's just not accurate to try and portray the Internet economy in this way. It's broad and it's deep and the freelance part of it is only a small part (and not even one I think that is being broadly addressed in this report).
No, I don't think it's just freelance. Small companies hire people full time all the time and in areas like New York City, Massachusetts and the Silcon Valley there is competitive market particularly for the skilled workers around engineering, but there are also jobs in sales, marketing, customer service and as companies grow there would be needs for clerical help and even maintenance and other jobs that have little to do with high tech skills.
As these companies grow and develop into businesses they can grow very quickly with the help of venture capital. As an example, one company I've been watching for a couple of years is Box.net. It was started in a dorm room in 2005. It recently got 80 million in venture funding. It's expanded every year, moving into a large space in 2010 that it's already outgrown. I don't know the exact number of employees at this point, but it's over 200 and growing quickly.
It's just one example. Look at Dropbox, which just got $250 million in venture funding or Foursquare or Groupon or Living Social. Look at Twitter. These companies started as a small venture with a few people and they all are employing hundreds of people.
I agree with your observations, Kim. A lot of the entrepreneurship has been self-employment or micro-enterprisees. What I think holds true promise in "job creation" is the wider opportunities for business incubators to take hold and open up markets and thus create jobs. The other job expansion I see as a feasibility is to incorporate the knowledge of technology use throughout the infrastructure of existing jobs, i.e., energy - as Mary points out - in reading smart meters, etc., and the entire spectrum of use of analytics.
I think the real promise is in the new economic fields targeted for growth, not just where the internet and technology is cheaper and replaces manpower.
It's great that the Internet makes entrepreneurship possible for almost everyone - and its reach really is very broad indeed - but I do have qualms about Internet start-ups providing jobs, salaries and benefits the way old school, meatworld companies do (or are forced too).
The Internet economy is very much a freelance, piecework economy, isn't it? Everyone can participate in or even start a business, but there isn't necessarily any money in doing so, or at least not a living wage.
Totally agree, Ron. But it would be interesting to think of what other sectors might be strong in the future -- clean energy? communication infrastructure? waste management of all kinds?
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The call (or, should I say, the Twitter DM) finally arrived. My Google Glass is ready. All I need to do is travel to Manhattan and fork over $1,500, and this piece of cutting-edge technology will be all mine.
When a new technology comes along, the standard reaction seems to focus on the most negative aspect of the device at the cost of all positive possibilities.
Recently, the Obama administration has been of two minds where privacy rights are concerned. On one hand, you have an administration that vowed to veto CISPA and mandated open data for government websites. On the other hand, you have an increasingly out-of-control Department of Justice on a fishing expedition at AP and demanding legislation to let the FBI wiretap private, encrypted communications and levy fines if a company fails to comply.
These days, even some usually techno-friendly people have their hackles up about the potential of Google Glass to surreptitiously record video or take pictures. I've heard more than one tech savvy friend bring up "the creep factor," the ability of a weird guy to secretly record you.
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