McKinsey Research: Internet Now Drives Significant share of global GDP

From 2004 to 2009, the Internet’s contribution to GDP in mature countries averaged about 20% according to Internet matters: The Net’s sweeping impact on growth, jobs, and prosperity a new research report by McKinsey that “examined the Internet economies of the G8 nations (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States), as well as Brazil, China, India, South Korea, and Sweden. It found that the Internet accounts for a significant and growing portion of global GDP.”

The study also found that the U.S. remains the largest player in the global Internet supply ecosystem, with more than 30% of global Internet revenues and over 40% of net income. The U.S. also has the most balanced revenue structure within the 13 countries studied, generating relatively equal contributions from hardware, software and services, and telecommunications.

Their findings include:

  • The Internet accounts for 3.4 % of overall GDP in the 13 nations studied. More than half of that impact arises from private consumption, primarily online purchases and advertising. An additional 29% flows from investments by private-sector companies in servers, software, and communications equipment. The Internet economy, now larger than that of Spain, surpasses global industry sectors such as agriculture and energy.
  • The Internet is a critical element of economic progress, pushing a significant portion of economic growth. In the mature countries studied, the Internet accounted for 10% of GDP over the 15-year period from 1995 to 2009, and its influence is expanding.

Over the last five years of that period, its contribution to GDP growth in these countries doubled, to 21%. If we look at the 13 countries in our scope, the Internet contributed 7% of growth from 1995 to 2009 and 11% from 2004 to 2009. In the global Net’s growing ecosystem of suppliers, U.S. companies play leading roles in key sectors, but China and India rank among the fast-growing players in the Internet’s global supply chain.

  • Most of the Internet’s economic value falls outside of the technology sector: companies in more traditional industries capture 75% of the benefits.
  • In contrast to commonly held beliefs, the Internet is a catalyst for generating jobs. Among 4,800 small and midsize enterprises surveyed, the internet created 2.6 jobs for each job lost to technology-related efficiencies.

Why this matters

There remains a significant segment of the populations (22% of adults) that has not embraced the internet, for themselves or for their children according to the FCC’s report State of broadband adoption and use in America (See my blog Stats on Broadband Adoption and Use in America). That such a significant percentage of our population has chosen not to join the internet age has serious consequences. As a nation, the broad adoption of high speed internet is critical to our competitive standing in global competition.  As individuals, high speed access is critical to participation in our world.

The FTCV’s report cites three primary reasons for the lack of adoption: cost, lack of digital literacy, and the belief that the internet is not sufficiently relevant for them to purchase it:

  1. 36% of non-adopters cite cost as the main rea­son they do not have the internet at home.
  2. 22% of non-adopters cite factors pointing to lack of digital literacy as the main reason they are not online. This includes people who are uncomfortable with com­puters or, are “worried about all the bad things that can happen if I use the Internet.”
  3. 19% of non-adopters do not have internet access because they question its relevance to their lives. They do not believe digital content is sufficiently compelling.

Some of the concerns voiced by non-adopters are also echoed among those who are already online, particularly as it relates to the lack of safety. The FTC’s survey found that 65% of internet users strongly agree there is too much pornography and offensive material on the Internet.   57% strongly agree that it is too easy for their personal information to be stolen online, and a whopping 46% strongly agree that the Internet is too dangerous for children.

To maintain a competitive advantage the U.S must drive adoption rates. To drive adoption rates, focusing on making internet access available to all citizens is crucial, but in and of itself this is not sufficient. To overcome the concerns of non-adopters, focus must also be placed on three additional fronts: education, infrastructure and enforcement.

    1. Education:Service providers should be encouraged to provide site specific, easily discoverable about the benefits of internet access and clear safety information. This information should be provided in Spanish as well as English on the ISP’s websites, with material targeted to specific demographic groups – not just kids and parents, but seniors, adults, and those with unique opportunities or risks.

      Public service announcements and public awareness campaigns focus on two areas: informing consumers about the tremendous benefits of online access, as well as teaching core self-protective measures such as recognizing a phishing scam, teaching consumers to identify how information leaks, and avoid posting personal information in public access websites.

    2. Infrastructure: Service providers should be motivated to enhance their services’ infrastructure to include robust security and safety functionality – such as built-in antivirus software and personal/family safety settings – for all accounts. Companies should be encouraged to innovate and seek competitive advantage on the safety front — and emphasize that innovation in their marketing.
    3. Enforcement:The FCC needs to coordinate with the appropriate agencies to ensure that law enforcement at the local, state and national levels are provided the manpower, training, and resources needed to adequately respond to online crimes. Consumers need to feel assured that crimes committed against them online will not go unpunished.

      Service providers should be encouraged to enforce their terms of service policies – today most sites have lofty terms, but fail to adequately enforce these – and an unenforced policy is worse than no policy at all as it creates a false sense of safety.

      Service providers should also be encouraged to improve their site moderation and develop technologies to identify and respond to abuses as they occur, as well as providing parents with filtering tools and providing information enabling them to monitor and set clear rules for children’s use.

Driving adoption also includes placing a strong focus on technology inclusion in schools. Yet schools are so financially constrained that they are dramatically cutting programs and costs, technology instruction, as well as technology use in general studies. This means we are working against what must be our clear goal of driving adoption. This has to change.  Creating digitally literate students is a requirement for a digitally literate workforce.

McKinsey’s research paints a clear picture of the critical role the internet has in the nation’s financial health. The FCC’s report shows the tremendous gap that remains between internet adopters and non-adopters. The economic crisis is threatening the creation of the digital foundation we must have in place in our schools. Addressing these issues needs to be a top priority of every citizen, company, school, and governing body in this country.



Comments are closed.

%d bloggers like this: