Web Economy 2010-2011: Boom, Inflection, or Bubble?

“We find that … millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly. … Money, again, has often been a cause of the delusion of multitudes.” Charles Mackay ( poet, journalist, song writer) wrote these words in the 40th-anniversary edition of his classic 1841-year book, Extraordinary Popular Delusions and the Madness of Crowds.

Back then, nobody could have conceived of anything like the World Wide Web, but the hysteria that surrounds it today would have seemed awfully familiar: Recall Tulip-mania.

In 1932, at the nadir of the Great Depression, financier Bernard Baruch wrote a foreword for a new edition of Mackay’s book. He reflected on the crash of 1929: “I have always thought that if, in the lamentable era of the ‘New Economics,’ we had all continuously repeated, ‘two plus two still make four,’ much of the evil might have been averted.” It was too late then, but it’s not too late for us.

In the article “I Was Seduced by the Web Economy” by Inc. Staff writes:  We’ve read and heard so much about the Internet that it’s hard to figure out what’s real. All that business about how the rules are changing or there are no rules but here are the new rules is exhausting. It breeds myths and the madness of crowds. What we say is that reality always tends to be more complicated than the hype would have you believe. The Web really is a great frontier of opportunity… it move fast…common sense still applies…

Inc. Staff continues: The Old (Current) Web Economy. As the Internet has been maturing, our first forays into business online mimicked those of our off-line exploits. Following the rules of the industrial age, it was based on a scarcity mentality… get our products to market first, be the best, horde all the customers and put everyone else out of business. That approach worked really well when, for instance, you were the only car dealership in town…

But now that geography is no longer a limiting factor, the scarcity approach isn’t working as well. You can go to any number of on-line car dealers, find the car you want, with the features you want, at the price you want and have it delivered to your door. Now, instead of having to get a lock on the local market, business owners now have to lock the world market… a slightly more difficult task! On-line, the Old Economy is characterized by premium content, pay walls and exclusive distribution agreements. These are all on-line attempts to emulate the off-line practice of cornering the local market.

Enter the New Web Economy. The New Economy is driven by abundance rather than scarcity. It’s about finding your niche and being the provider of choice for that niche. Continuing the car dealership example; be the world’s leading authority of 1996 Jeep Cherokee Classics. You can’t corner the world market on cars, even Jeeps, probably not even Jeep Cherokees… but 1996 Jeep Cherokee Classics… that’s possible. For everything else, link out to the world’s leading authority in their respective niche; this is the new Link Economy emerging from Web 2.0.

This transition is being brought about by the transition of the web from a destination based experience to an information based experience. It is the reality of the new, post-industrial, decentralized economy… and it is changing everything. Be the best in your field, and link to everything else. If your visitors find value in the links you offer them, they will associate that value with you, and your credibility grows. Hence, you not only want to be a good link target, you want to ensure that the links you give away are high quality links, not just links to any old Jeep dealership.

Inc. Staff continues: What does this changing web economy mean to the consumer? It is crowd sourcing at its best (survival of the fittest) here the best products at the best prices rise to the top. This changes search as well: Why ‘google” a source of 1996 Jeep Cherokee parts when I can Tweet, “Where can I get parts for my 1996 Jeep Cherokee Classic” and get 10 replies from trusted sources? They are immediately more valuable and reliable that anything search can return…

In the article “What & Who Will Move The Web Forward?” by Jay Deragon writes: The web has steadily become a utility of the masses. We’ve all become familiar with using the web for communicating… receiving information in different forms and a host of other usage attributes both personally and professionally. The web economy has largely been fed by advertisers vying for eyeballs and attention.

Advertisers have been a fundamental resource of the web economy. When a change occurs that alters the old models and creates improved models with a promise of higher returns then said changes are likely to create systemic shifts across the entire web. The social web brings more influential human elements with global reach than any previous technological development in the history of the web. Combine the influence of the human elements with the innovation and demand of the swarms and you have a scenario that will fuel further changes unforeseen, unpredictable and unimaginable.

In the article “£100bn Web Economy Makes Britain a World Leader” by Emma Haslett writes: We all know that the internet is transforming the way we work, but it’s also transforming the economy, too: a new study by Boston Consulting Group (BCG) claims that the UK’s web industry now constitutes 7.2% of GDP, or about £100bn a year; Brits are now spending more money online per capita than anyone else in the world. As a result, the sector now supports 250,000 jobs, and will grow to constitute 10% of GDP by 2015. Which, presumably, makes it all the more important that we get a wriggle on with this high-speed broadband roll-out…

The report suggests that 60% of that £100bn figure is made up of what we spend on ‘internet consumption’ – things like internet connections, devices to access the internet and, crucially, online shopping. The remaining 40% (that’s £40bn, remember) is, according to the report, made up of expenditure on internet infrastructure, Government IT spending and ‘net exports’.

According to the report (commissioned by Google – fitting, since it’s one of the biggest beneficiaries), if the internet was a sector it would be the UK’s fifth largest, bigger even than the construction and the utilities industry. This is a slightly odd concept to grasp, not least because some of this money would presumably have been spent anyway (e.g. online retail is a sub-sector of retail spending, not a separate category).  But it gives a sense of scale, at least.

What’s more, the amount of cash the internet is bringing into the UK economy will make George Osborne’s eyes light up – apparently, for every £1 spent on imports, it produces £2.80 worth of exports; whereas offline, a paltry 90p worth of goods is exported for every £1 spent on imports. That’s a recovery-friendly stat. And according to BCG, Britain now has a higher online expenditure per capita than any other country on the planet. So at least we’re a world leader at something.

In the article “Did the Web Kill Economy”? by GlobalComment.com writes: Douglas Rushkoff, in a keynote speech at the Web 2.0 Conference, boldly declared that the Internet caused the economic crisis… Rushkoff points out that “The Internet allows people to create value on the periphery again. “Value” that’s capital (money)…now controlled by the banks, the same financial giants that we’ve had to bail out with taxpayer dollars, and the government… The Web allows us a different hierarchy of value…Friends on social networks serve as a sort of social capital…social capital that can be translated into financial capital…

Siva Vaidhyanathan wrote a book in 2004 called “The Anarchist in the Library”. In the book Vaidhyanathan posits that the Web’s design is fundamentally anarchistic. And it is anarchistic in the best and worst of ways—it has no central authority and is difficult or impossible to control. Yet it can be used to cut yourself off even more thoroughly from people who disagree with you—only crossing lines to shout at each other like a bad episode of Crossfire (popular TV news talk show). It can facilitate conversation—or it can facilitate your own narcissism.

The Web gives everyone a platform, but it does not guarantee an audience. It gives you tools for connection, but does not guarantee that people will like you. It widens your reach, extends the likelihood of running into someone that shares your view, but occasionally it feels like shouting in the dark.

In the article “Dispatches from the Web Economy” by the “Inc. Staff” writes:  If you’re not on-line yet, you will be soon. That’s the finding of a recent study commissioned by Prodigy Biz Corp., which found that one-third of U.S. small businesses were on-line. The smallest organizations were the least likely to have taken the plunge. Only one in four companies with fewer than 10 employees reported that it had an Internet presence, while half of those with 10 or more employees were on-line already.

Nearly 75% of small companies reported that cost was not a barrier for getting onto the Web. The survey results ranked reasons for going on-line as follows: promoting to prospects (69%); doing E-commerce (57%); providing better customer service (48%); competing with other businesses (46%); and communicating with employees (11%).

Of course, few small businesses suggested that doing business on the Internet was easy. More than 40% of the small-business owners surveyed claimed that they did not have the staff or the time to maintain a Web site. And 66% didn’t believe that the Web offered them significant growth opportunities, because they are local businesses. Such quibbling aside, many off-line small businesses planned to get on-line in the near future. Some 40% of businesses that didn’t have Web sites — approximately 2.1 million — said they would be on-line soon. The study was conducted by International Communications Research. –Mike Hofman

“What is the State of the Web Economy 2010”: Chris Anderson at Wired Magazine led a lively discussion about the future of the web. We collected first-hand research to estimate the state of the web economy. While some may blog about the bad economy and the new web – our data concludes that it’s already alive; supporting some 600,000 entrepreneurs; and growing despite the recession…

Anderson continues: With no public reporting sources, we chose to mine the financial reports of public companies to estimate the size of this web economy. I ferreted out the advertising, app, and commerce revenues that represent the gross margins paid to the long tail of entrepreneurs.  Anderson continues: Here are my conclusions:

  • Earnings easily exceed $10 billion a quarter. Since this estimate represents gross margins available to pay salaries and rent, the web economy is roughly three times the size of Google.
  • Revenues are seasonal, includes eBay, Amazon, and Apple.
  • This earning stream can sustain over 600,000 paid jobs; probably from multiple millions of participants where hundreds of thousands have already gained self sustaining status.
  • We guess that most of this stream is paid to North American entrepreneurs. Asian and European entrepreneurs are not included in this study.
  • About half of this stream is exported outside of North America; with the payments repatriated to North American entrepreneurs.
  • In two years, Apple has become a significant payer to the long tail; and could pass eBay, Amazon, and Google in 2011.

In an article by Cybertech Corporate Blog “Web Economy Trends 2011” writes: Cloud computing and virtualization reflect a new economic trend driven by the Web (i.e., a shift towards a more service-driven economy). Revenue from the large range of content and services available from the Internet is rapidly increasing globally; travel, gambling, adult content, music, social networking, e commerce and health services are particularly popular and flourishing. In US, the web economy is booming to such a great extent that according to the Yankee group, the US online advertising market will reach $50.3 billion in revenue by 2011, more than doubling 2007 levels and growing.

According to the sources, after contracting by 3.1% in 2009, US retail e-commerce sales- excluding travel, digital downloads and event tickets will grow by 2.2% by the end of the year 2010, to $135.2 bn. It has been said that Pent-up demand will boost sales further in 2011, with growth pealing at 11% a year. Another research consultant predicts online sales will grab an increasing share of total retail spending in the US, rising to 8% by the end of 2010 from 6% three years earlier.

The emergence of the next generation of Internet technology and applications has led to the coining of the term Web 2.0, to indicate that the Internet now has more capabilities than ever before. The Internet Media companies such as Google, News Corp and Yahoo are some of the leaders taking advantage of this with the introduction of new services and applications. This revival of the Internet has also led in part to the re-emergence of the Internet economic trend, and more specifically e-commerce.

The online gaming industry has also had a tremendous impact on the economic trend of web technology. The top gaming sites in China are generating registered players in the millions and upwards of 500,000 co-current players. Research shows that Chinese gamers had spent 1.7 billion dollars on games in 2001, a staggering amount that is expected to reach a figure of 6 billion in 2012.

That is the spectacular annual growth of 29%. The web has also gone mobile with Mobile e-commerce proving to be very successful in the US. The Coda Research Consultancy forecasts that mobile e-commerce revenues in the US will reach $23.8bn in 2015. This is a compound annual growth rate of +65% over 2009.

These instances show that the web economy will in the near future become a major part of GDP of the whole world. It has already created a niche, so much so that future changes in web technology will become a backbone on which the global economy will run and prosper.