Manifesto or False Assumptions or Rubbish: Web Economy to Reach $4.2 Trillion in a World Economy of Over $80 Trillion…

Leaving aside the question of whether economics has ever accurately predicted anything, the argument that ‘the more significant the theory, the more unrealistic are the assumptions’ is simply bad philosophy. ~Steve Keen

The World Economy in 2010 was worth $74.007 trillion in GDP terms, using the Purchasing Price Parity (PPP) method of valuation. This is expected to grow to $78.092 trillion in 2011. Fueled by the rapid growth of mobile Internet access, the value of Web Economy will nearly double, from $2.3 trillion to $4.2 trillion in G20 countries by 2016, in a report by the  Boston Consulting Group (BCG). “If the report’s predictions are correct, then speaking of a ‘web economy’ will soon become redundant terminology, and this could be reached as early as 2020” says David Dean, managing director at BCG.

The Web is the largest human information construct in history. The Web has transformed the way we live, communicate, entertain, work, and doing research. Nowadays, more than 2 billions users, worldwide, are accessing some trillion web pages, spending 700 million minutes per month in Facebook, ordering 73 items per second in Amazon, and sending 1.3 exabytes from mobile Web devices.

During the last decade, the Web has been metamorphosed from an information software system to a major socio-technical  ecosystem and this has transformed and transforms human societies. Web technologies have been proven to be an enormous stimulus for market innovation, economic growth, social discourse and the free flow of ideas. After the hard lesson of the dot-com bubble in early 2000’s, the Web economy is now an important part of the real economy, bigger and more robust with new services ranging from search to social networking, virtual entertainment and giant multi-stores.

But this also raises concerns, notably in the area of reliability, scalability, security and openness of access. If global supply chain management depends on the Web, then a breakdown or security breach could cause major economic damage. If people’s personal data are compromised online, it may breach their privacy or affect many other aspects of their lives. Looking forward, the Web is poised to connect an ever-greater number of users, objects and information infrastructures.

This means that policy framework governing its use and development also needs to be adaptable, carefully crafted and coordinated across policy domains, borders and multiple stakeholder communities…

In the report The Digital Manifesto: How Companies and Countries Can Win in the Digital Economy” by Boston Consulting Group (BCG) writes: Businesses will be fundamentally transformed over the next five years. “No company or country can afford to ignore this development. Every business needs to go digital. The ‘new’ Internet is no longer largely Western society, accessed from your PC. It is now global, ubiquitous, and participatory said David Dean, coauthor of the report. Consumers are starting to derive extraordinary value from the Internet, according to the BCG report.

The uninterrupted growth of the Internet economy is not a foregone conclusion and businesses need to take an adaptive approach to strategy: Managing their legacy businesses while creating new ones, developing new capabilities, organizational structures, and cultures. “We are still only at the beginning of realizing the potential of the Internet. To compete, companies need to strengthen what we call their digital balance sheets by building their digital assets and reining in their digital liabilities to create digital advantage” said Paul Zwillenberg, coauthor of the report.

The report also urges that governments must take actions that support rather than impede progress. “In setting policies, government should be guided by what is needed to encourage growth, innovation, and consumer choice rather than by dogma. In most areas, governments should let the market sort out the winners and losers” said Zwillenberg.

The biggest drivers are; dramatic increase in the number of users around the globe, rise of emerging markets, increasing popularity of mobile devices–especially smart phones, and growth of social media. The economic impact of the Internet will grow from 1.9 billion users in 2010 to a projected 3 billion users in 2016, about 45% of the world’s population.

In the article Understanding the Economic Potential of the Web Economy” by Tim Weber writes: The Boston Consulting Group (BCG) report’s projected numbers look impressive, but they are still just a fraction of the global economy.We don’t fill empty holes on websites any more, we engage customers” says Michael Lazerow, CEO of Buddymedia.  In 2010, the internet economy in the G20 group of leading nations was worth $2.3 trillion, but a mere 4.1% of the total size of all G20 economies.

The Boston Consulting Group researchers speak of the emergence of a ‘new internet’ where: web access will not be a luxury any more, and the majority of web users will live in emerging markets (within four years, China is expected to be home to 800 million people using the Internet; that is more than the United States, India, France, Germany and the UK taken together) about 80% of all Internet users will access the web from a mobile and the Internet will go social and allow customers and companies to engage with each other directly.

This trend will be coupled with another huge technology shift that will fundamentally change the nature of how to run a business – the rise of the so-called ‘internet of things’, where all kinds of devices, widgets, sensors… will be connected to the web. “Understanding the economic potential of the web should be an urgent priority for leaders… [with] a powerful case for countries and companies to get online and reap the rewards of an age of data says Patrick Pichette, Google CFO. IBM estimates that by 2015, one trillion devices will be internet-connected.

However, what the BCG research fails to capture is the balance of employment between new, more efficient digital companies and old-style businesses. A problem with BCG’s research is that it’s difficult to define the actual digital economy: “During the research we discovered very quickly that there is no approved way of measuring the Internet economy” says David Dean. Official statistics simply do not capture the sideways move of old technologies into the digital world; for example, when a widget maker starts upgrading its devices so that they can be hooked up to the internet…

In the article The Great Transformer: The Impact of the Internet on Economic Growth and Prosperity by James Manyika and Charles Roxburgh write: The Internet is changing the way we work, socialize, create and share information, and organize the flow of people, ideas, and things around the globe. Yet the magnitude of this transformation is still underappreciated. The Internet accounted for 21% of the GDP growth in mature economies over the past 5 years.

In that time, we went from a few thousand students accessing Facebook to more than 800 million users around the world, including many leading firms, who regularly update their pages and share content. While large enterprises and national economies have reaped major benefits from this technological revolution and individual consumers; small upstart entrepreneurs have been some of the greatest beneficiaries from the Internet’s empowering influence. If Internet were a sector, it would have a greater weight in GDP than agriculture or utilities.

Yet, we are still in the early stages of this transformations that the Internet will unleash and the opportunities it will foster. As a result, governments, policy makers, and businesses must recognize and embrace the enormous opportunities the Internet can create; even as they work to address many of its risks…

The Internet is a vast mosaic of economic activity, ranging from millions of daily online transactions and communications to smart phone downloads of TV shows. Little is known, however, about how the Internet in its entirety contributes to global growth, productivity, and employment. According to new McKinsey research 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 extensive study “Internet matters: The Internet’s sweeping impact on growth, jobs, and prosperity” by the McKinsey Global Institute (MGI), includes these findings:

  • The Web accounts for 3.4% of overall GDP in these thirteen countries. More than 50% of this relates to private usage (mainly advertising and online purchases). The Web economy now exceeds sectors such as agriculture and energy.
  • In the mature countries studied (the G8 countries plus South Korea and Sweden), McKinsey found the Web to have accounted for as much as 21% of GDP growth between 2004 and 2009.
  • McKinsey found most of the economic value of the Web to fall outside the technology sector with 75% of the benefits captured by the more traditional industry sectors.
  • In Sweden (the country where the Web economy has had the biggest contribution to GDP growth), the Web economy contributed to as much as 15% of GDP growth between 1995 and 2009 and 33% between 2004 and 2009. Germany comes second with 14% between ’95 and ’09 and 24% between ’04 and ’09.

All these numbers sound amazing, except that they still only represents a tiny proportion of the World Economy: It’s around 5% of the total world economy; yes, we have ways to go. While the BCG’s Web Economy projections sound like a major shift, they’re actually slightly more conservative than other estimates…

A report from Ericsson, for example, predicts mobile data subscriptions will hit five billion in 2016, 10 times larger than the current figure. However, the big takeaway for worldwide businesses is pay more attention to the Web; it’s critical for the survival and growth of the business…

Economics is the intellectual ‘Trojan Horse’ of our time with political propaganda hidden by known-false assumptions. The conclusions follow logically from the deception, so if you accept the known-false assumptions, then you accept the deception. ~Robert Kuttner