Macroeconomic Assessment
For Internet Industry
Staci Sulhoff

BusA 6900 – Strategic Management

5 September 2015

Author Note

Contact Information: Staci Sulhoff; Voice: 706.878.9802; email: ssulhoff0627@lions.piedmont.edu

Macroeconomic Assessment
For the Internet Industry
The face of the Internet has changed vastly since its inception approximately 30 years ago. From the humble beginnings of a network for universities in the early 1980’s came the ability for connecting multiple networks and the need for Internet Service Providers (ISP) in the late 1980’s. To say that this industry has had exponential growth is an understatement. The invention of the World Wide Web brought us into the modern Internet. No longer is it a solely a means of transporting messages. In the 1990’s it became widely known as the information superhighway. Vast amounts of information combined with the development of the search engine made the Internet a powerful resource. Meanwhile, exponential technology developments made it possible for virtually all households to own a personal computer.
In the mid 1990’s electronic retail, now commonly called ecommerce, began to take hold. Companies like Amazon and EBay developed their online shopping retails with limited products and the prediction that online retail would have a growth rate of 2000% (Stone, 2013). Online purchasing continued to grow and develop in everyday consumer transactions like online banking, purchases, and video streaming. The next paradigm shift in this digital revolution came in the 2000’s with the cell phone becoming common place among all demographics. Mergers and acquisitions changed the infrastructure and paved the way for the next development. By the 2010’s smart phones combined the communications world with desktop computing and consumers could make purchases with as little as “one-click.” Because this was a new frontier, initially no one had any idea how this impacted our Global Economy or even how to track and report it. The question was, “how big is the Internet?” The McKinsey Global Institute attempted to answer this at the G8 summit in France in 2011. To try and give some perspective they proposed that if the Internet were land, then it would be the size of Spain and it would be growing as fast as Brazil (Matthieu Pelissie du Rausas, 2011).
The economy of the Internet is becoming a core infrastructure of our economy (OECD, 2013). It is vast and widespread and therefore difficult to measure. The ecosystem of the Internet consists of backbone networks, Internet Service Providers (ISPs) and end users. The Internet economy can be separated into 4 components: Infrastructure, Applications, Commerce and Intermediary. The first layer includes hardware manufacturers, telecommunications, etc. The second layer focuses on software, training and consulting. The last 2 components concentrate on ecommerce (Gordon, 2004). Early measurements of the impact focus on sales and ecommerce trade. However as the ecosystem evolves it will have to address how businesses use the Internet to increase productivity, reduce inventory, and reduce overhead and employment (David Dean, 2012).
The development of the “Internet of Things” will usher in the next big shift of the Internet. The ability to connect everything via the Internet is changing everyday living as well as how businesses operate. For example, AT&T promotes their technology advancements of connecting automotive, energy, healthcare and transportation. They are marketing solutions to “automate business processes and improve operational efficiencies” as well as business solutions for businesses to “Reach the bottom line faster” (AT&T, 2015).
The GDP
The easiest measure is the ecommerce and sales made over the Internet and can be counted in the input and output of the Gross Domestic Product. The GDP is used as an indicator of the economy and in 2011 it accounted for 4.1% overall of the GDP for the G20 Nations by McKinsey Global Institute (Matthieu Pelissie du Rausas, 2011). The Internet has a huge impact on the GDP of a nation as well as global economic impact. The image below shows the impact of the Internet Economy at the time the report was made.
Figure 1.

The Boston Consulting Group reported that the Internet economy of the G-20 and would double between 2010 and 2016 [ (David Dean, 2012) ]. They accurately predicted that almost half of the world’s population would be Internet users by 2016. In the U.S. alone, Internet sales grew from $14.5 Trillion to an estimated $18.6 Trillion, 5.4% of the U.S. GDP during this same time period. This staggering number only represents business-to-consumer retail. Other factors not counted in the GDP are consumers who researched online and then made offline purchases. The analysis report of the Boston Consulting Group states that this adds another 2.7% to the GDP raising the Internet contribution to over 7%. The GDP does not take into consideration trade, ISPs, Cloud Storage, Network Infrastructure of the web, B2B or other significant influences in the economy. Economists have difficulty measuring all of the ways the Internet impacts our society and while the data is being gathered, a universal system for reporting and tracking has not been established globally.
Employment

Common perception is that outsourcing and the Internet are eliminating jobs. While it is true that much automation and networking has changed the face of traditional jobs. Media related jobs and some IT positions have felt the impact of the transition into the digital age. And outsourcing is often blamed for the loss of technology and customer service jobs. The Internet has created 2.6 jobs for every 1 job lost [ (Matthieu Pelissie du Rausas, 2011) ]. According to the Business Insider, companies are creating jobs centered around their headquarters, thus eliminating many brick and mortar locations. For example, companies like Amazon, Microsoft and Google have the majority of their employees located in the head quarter cities. Online job markets are surfacing like freelance.com, oDesk and elance allowing for expanded employment opportunities that are not limited by location [ (McCarthy, 2014) ]. Google Chairman Eric Schmidt maintains that growth in technology will create new jobs [ (Hargreaves, 2013) ]. He says that new jobs are created by new businesses that have a technological component, such as analytic tools in health care. Growth and expansion of high speed internet, broadband and wireless communications contribute to a high volume of job creation. Demand for developers in the “Internet of Things” is a huge opportunity for employment. As this complex web connects everything developer demand is rising. Big Data analysis is another opportunity for employment growth. The volume of data being created in the last couple of years is astounding. Being able to analyze it and compact it into useful information for governments and businesses will be a high demand. VisionMobile says, “The only way to make a profit in the Internet of Things is to build a network of entrepreneurs who create unique value on top of commodity hardware, connectivity and cloud services… In other words, developers aren't the buying audience: they create the ecosystem that makes other buyers interested in buying hardware, cloud services or some other value (Asay, 2015). ”
Figure 2.

Inflation

The Internet provides the consumer with more buying power and leverage. They are able to shop, make comparisons and learn more about the company they are buying from. This power is a strong inflation fighter as consumers use the Internet to become more savvy buyers. As the role of the Internet increases its impact on the economy, the economy is bound to grow (Casey, 1999). Growth in ecommerce keeps prices down by reducing costs associated with brick and mortar businesses.
Conclusion

The next five years will have an even greater impact on the global economy as the Internet will undergo yet another paradigm shift in the way it works. The integration into daily life will make it appear seamless. Banking, healthcare and other services drive us to want to streamline the vast amounts of information we are forced to manage. Bundling services will make it more difficult to determine exactly how the internet affects our economy from the perspective of the GDP. It is so much bigger and wider reaching than ecommerce. It is essentially its own economic structure.

References
Asay, M. (2015, August 31). The Inernet of Things Will Need Millions of Developers By 2020. Retrieved from readwrite.com: In other words, developers aren't the buying audience: they create the ecosystem that makes other buyers interested in buying hardware, cloud services or some other value.
AT&T. (2015, September 05). Internet of Things. Retrieved from AT&T Enterprise Solutions: http://www.business.att.com/enterprise/Family/mobility-services/internet-of-things/?&WT.srch=1&source=EENT52MECEXuF2yaX&wtpdsrchprg=AT&T%20-%20M2M&wtpdsrchgp=ABS_SEARCH&wtPaidSearchTerm=internet%20of%20things&wtpdsrchpcmt=internet%20of%20things#fbid=uu_ao
Casey, M. (1999, September 7). Economists Examine Impact Of E-Commerce on Inflation. Retrieved from The Wall Street Journal: http://www.wsj.com/articles/SB936650027257686920
David Dean, S. D. (2012). The Internet Economy in the G-20. Boston: The Boston Consulting Group.
Gordon, R. (2004). Productivity Growth, Inflation, and Unemployment. Cambridge: Cambridge University Press.
Hargreaves, S. (2013, September 9). Google's Schmidt: Technology can drive job growth. Retrieved from CNN Money: http://money.cnn.com/2013/09/09/news/economy/google-schmidt-jobs/
Matthieu Pelissie du Rausas, J. M. (2011). Internet Matters: the Net's sweeping impact on growth, jobs and prosperity. London: Mckinsey Global Institute .
McCarthy, P. (2014, January 2). The Internet Has Created More Jobs But They're Clustered in Just a Few Companies. Retrieved from Business Insider: http://www.businessinsider.com.au/the-internet-has-created-more-jobs-but-theyre-clustered-in-just-a-few-companies-2014-1
OECD. (2013). Measuring the Internet Economy: A contribution to the Research Agenda. OECD Digital Economy Papers, No. 226, 1-108. doi:http://dx.doi.org/10.1787/5k43gjg6r8jf-en
Stone, B. (2013). The Everything Store: Jeff Bezos and the Age of Amazon. Boston: Little Brown and Company.
Figure 1: http://www.marketingcharts.com/direct/Internet-economy-found-contributing-to-almost-5-of-us-gdp-in-10-21549/bcg-Internet-economy-percentage-of-gdp-in2010-march2012jpg/
Figure 2: http://readwrite.com/2014/06/27/internet-of-things-developers-jobs-opportunity