The internet economy is a US$4.2trn opportunity

21 Mar 2012

The internet economy will reach US$4.2trn in G-20 economies by 2016 as the world’s internet population will reach 3bn, a new study by Boston Consulting Group claims.

According to Boston Consulting Group, if the internet were a national economy, it would rank in the world’s top 5, behind only the US, China, Japan, and India, and ahead of Germany.

Across the G-20, it already amounted to 4.1pc of GDP, or US$2.3trn, in 2010 – surpassing the economies of Italy and Brazil.

According to the report, the UK’s internet economy will represent 12.4pc of GDP by 2016. In 2010, the internet economy represented 8.3pc of the UK’s GDP – making it the G20’s most web-dependent country.

According to Boston Consulting Group, the internet is contributing up to 8pc of GDP in some economies, powering growth, and creating jobs.

The scale and pace of change is still accelerating, and the nature of the internet – who uses it, how, and for what – is changing rapidly, too.

Developing G-20 countries already have 800m internet users, more than all the developed G-20 countries combined. Social networks reach about 80pc of users in developed and developing economies alike. Mobile devices – smartphones and tablets – will account for four out of five broadband connections by 2016.

The irresistible rise and rise of the internet economy

“The speed of these developments is often overlooked. Technology has long been characterised by exponential growth – in processing speed, bandwidth, and data storage, among other things – going back to Gordon Moore’s observation nearly five decades ago,” Boston Consulting said.

“The Intel 80386 microprocessor, introduced in the same year as that first domain name, held 275,000 transistors. Today, Intel’s Core i7 Sandy Bridge-E processor holds 2.27bn transistors, or nearly 213 times as many. As the growth motors along, it is easy to lose track of just how large the exponential numbers get.

“The power of exponential growth is illustrated by an ancient fable, repopularised by Ray Kurzweil in his book, The Age of Spiritual Machines. It tells of a rich ruler who agrees to reward an enterprising subject starting with one grain of rice on the first square of a chessboard, then doubling the number of grains on each of the succeeding 63 squares. The ruler thinks he’s getting off easy, and by the thirty-second square, he owes a mound weighing 100,000 kilograms, a large but manageable amount. It’s in the second half of the chessboard that the real fun starts. Quickly, 100,000 becomes 400,000, then 1.6m, and keeps growing.

“By the sixty-fourth square, the ruler owes his subject 461bn metric tons, more than 4bn times as much as on the first half of the chessboard, and about 1,000 times global rice production in 2010.”

According to Boston Consulting Group the internet has moved into the second half of the chessboard. “It has reached a scale and level of impact that no business, industry, or government can ignore. And like any technological phenomenon with its scale and speed, it presents myriad opportunities, which consumers have been quick and enthusiastic to grasp.

“Businesses, particularly small and medium enterprises (SMEs) — the growth engine of most economies – have been uneven in their uptake, but they are moving online in increasing numbers and with an increasingly intense commitment,” Boston Consulting said.

internet economy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years