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OECD Report Highlights Economic Growth From Internet

October 5, 2012

Yesterday, the OECD published a new report on the development and future outlook of the Internet economy. Titled “OECD Internet Economy Outlook”, this report reveals the importance of the Internet economy for driving growth and innovation. The report shows how the Internet economy has transformed peoples’ and businesses’ lives in a decade full of disruptive change. Below are some key facts that policymakers across the globe should keep in mind when making policies that impact on a sector growing and creating jobs at an unprecedented rate.

Particularly in Europe, a place where the word ‘crisis’ has dominated political and economic discourse in the last couple of years, it is encouraging to hear that the ICT sector has consistently grown over the last decade – despite the overall economic downturn. ICT sector revenues have been growing 6 percent annually between 2000 and 2011 for the top 250 ICT firms. These firms also create new jobs hiring 14 million people in 2011 alone, a 6 percent increase over 2010. Interestingly, the top 50 Internet firms outperformed the whole sector with a 31 percent average annual revenue growth between 2000 and 2011.

On the consumer side, the report found that 70 percent of OECD households have broadband Internet access, bringing access to a larger variety of goods and services online at lower prices. Furthermore, wireless broadband connections are now double that of fixed broadband subscriptions in the OECD changing the way people interact and consume content. From the business perspective, the report confirmed that the restructuring of business models in association with Internet use has led to improved efficiency and rapid growth of new online businesses. At the end of 2011, nearly all companies in OECD countries were connected to the Internet. However, there is clearly room for improvement and growth in the E-Commerce sector as, on average, only 18 percent of businesses with at least 10 employees used the Internet for selling goods and services.

Even though the report admits that it is inherently hard to quantify the economic impact of the Internet because of a lack of a widely accepted methodology or single measure to capture the whole Internet economy, it estimates that in the US at least 3 percent and up to 13 percent of business sector value added could be related to Internet-related activities. Corresponding to these trends, the ICT sector increasingly attracts venture capital with the ICT sector accounting for more than 50 percent of all venture capital in the US, the world’s largest market.

These encouraging findings also extend to the entertainment sector as the report highlights that digital content is one of the most important drivers of consumer Internet adoption, with revenues growing rapidly across all sectors. E.g., according to numbers provided by the International Federation of the Phonographic Industry (IFPI), digital music worldwide accounted for 29 percent of recording companies’ revenues. It is worthwhile to add that there is a huge, untapped potential for growth given that some sectors of the entertainment industry still have to adapt to the digital environment. Moreover, this finding essentially supports CCIA’s conclusions in its recent report “The Sky is Rising,” which has revealed that despite the often very loud statements to the contrary, the entertainment industry has grown over the last decade – in tunewith the growth of the Internet economy. This seems to be increasingly recognized by the entertainment industry as well, as recently seen by MPAA’s Chief Chris Dodd’s recent outreach to Silicon Valley.

The report underlines the fact that in only a decade the ICT sector in general and the Internet in particular have emerged as key drivers of economic growth. In order to reap the full benefits of this transformative and revolutionary process, policymakers must ensure that legislation will not harm the Internet economy and ensure that vested interests do not impede these important economic, political and social changes. Internet openness and balanced approaches to intellectual property policy are among the most fundamental ingredients for the tech sector to thrive and to help lead the economic recovery.

Last but not least, there is a clear opportunity for Europe to take advantage of the growth generated by the ICT sector. What is needed now is a clear policy framework supporting that growth and the identification of bottlenecks slowing down the development of the digital economy. In the area of intellectual property rights, a recent report by Josh Lerner has shown that legal uncertainty around the scope of copyright clearly disadvantages Europe relative to the US in attracting venture capital for cloud computing companies. This is just one example of where policymakers have yet to realize that a lot needs to be done to take full advantage of the huge potential so clearly identified in the OECD report.

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