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Measuring the impact of the Internet on the economy

Wednesday, June 10, 2009 at 6:00 PM Posted by Rob Tai, Policy Analyst

With news of bankruptcies and bailouts dominating the headlines recently, it's easy to lose sight of one of the bright spots in our economy: the Internet. In an incredibly short amount of time the Internet has emerged as a key driver of economic growth, creating millions of American jobs that generate hundreds of billions of dollars in economic activity. This afternoon a new study commissioned by the Interactive Advertising Bureau put some real numbers on this very point. According to Harvard Business School professors John Deighton and John Quelch, the Internet is responsible for 3.1 million American jobs and $300 billion in economic activity spread throughout the United States. As Professors Deighton and Quelch put it, the web "has created unprecedented opportunities for growth among small businesses and individual entrepreneurs." As the report makes clear, it's difficult to overstate the social and economic benefits of the Internet on the United States. Unlike any other platform in history, it has empowered entrepreneurs to start new businesses and connect with customers around the world, and has provided users with access to unprecedented amounts of information. We think it's important for policymakers to understand the social and economic benefits of the Internet. That's why I was happy to see IAB also announce this afternoon the launch of the Long Tail Alliance, a group of small independent online businesses working to educate policymakers about the benefits of online advertising and to advocate against burdensome restrictions that would damage the Internet economy. In conjunction with the release of the new study, a group of Long Tail Alliance members representing 25 Congressional districts and 13 states took a maiden voyage to Washington to tell Congress their story. Check out some of what they have to say at "I Am the Long Tail." As the Internet economy continues to grow, we hope Members of Congress turn to groups like the Long Tail Alliance, the Google Small Business Network, and others to better understand the tremendous economic and social benefits of the web and its impact on small businesses and entrepreneurs across the country.


June 10, 2009 Ad-Supported Internet Contributes $300 Billion to U.S. Economy, Has Created 3.1 Million U.S. Jobs, Confirms Groundbreaking Study IAB-Commissioned Study Is First-Ever Comprehensive Analysis of Economic Impact of the AdSupported Internet WASHINGTON, D.C. (June 10, 2009) – Interactive advertising is responsible for $300 billion of economic activity in the U.S., according to a new study released today by the Interactive Advertising Bureau (IAB). The advertising-supported Internet represents 2.1% of the total U.S. gross domestic product (GDP). It directly employs more than 1.2 million Americans with aboveaverage wages in jobs that did not exist two decades ago, and another 1.9 million people work to support those with directly Internet-related jobs. A total of 3.1 million Americans are employed thanks to the interactive ecosystem. These are the key findings of the first-ever research to analyze the economic importance, as well as the social benefits, of the Internet. The study, commissioned by the IAB was produced by Harvard Business School professors John Deighton and John Quelch, along with Cambridge, MA-based Hamilton Consultants. The study was designed to provide an impartial and comprehensive review of the entire Internet economy and answer questions about its size, what comprises it, and the economic and social benefits Americans derive from it. “This is the first time anyone has undertaken a comprehensive analysis of the size and scope of the Internet economy and measurement of its economic and social benefits,” said Professor Deighton, the Harold M. Brierley Professor of Business Administration at Harvard Business School, and an author of the study. “I am convinced the results of this study will prove useful for business leaders, legislators and the educational community.” “This study underscores that the Internet ecosystem is generating an increasing level of economic activity in every corner of the nation,” said Professor Quelch, the Lincoln Filene Professor of Business Administration at Harvard Business School and a co-author of the study. The study looks at the entire interactive marketing ecosystem, which includes: • • • •

The ad-supported Internet, narrowly defined as the content and usage supported by an estimated $23.4 billion of Internet advertising in 2008 E-commerce E-mail, the cornerstone of lead generation and customer care for many companies Enterprise websites, the Web sites that businesses, large and small, develop and maintain for communication.

Among some of the other important findings: •

Small businesses have thrived as a result of the Internet: o There are more than 20,000 Internet-related small businesses in the U.S. that provide a variety of services such as web hosting, ISP services, web design,


publishing, and Internet-based software consulting. Many of these businesses have 10 or fewer employees. Internet-related employment is particularly important to certain areas of the country but exists in every one of the 435 U.S. Congressional Districts. Some Congressional Districts have more than 6,000 Internet-related employees. Interactive advertising has substantially reduced what consumers have to pay for access to the Internet and for e-commerce products and services. In addition to its financial contribution to the U.S. economy, the Internet has produced large social consequences as an infrastructure and platform, providing American society comprehensive qualitative benefits that include: o Universal access to an almost unlimited source of information o Increased productivity (output per unit of capital or labor, or increased consumer utility at a lower cost) o Innovation in business practices, consumer behavior, commerce and media o Empowerment of entrepreneurs to start small businesses, find customers and grow o Environmental benefits derived from saving natural resources lowering pollution through the reduced use of petroleum-based fuels and paper

“The results of this study confirm the vast influence and driving importance of the ad-supported Internet to the overall economy,” said Randall Rothenberg, President and CEO, IAB. “By understanding the total contribution of the Internet to the U.S. economy, we can more accurately assess the impact of potential legislative changes on the Internet’s operations, particularly the consequences of any actions that would alter ad-supported business models.” The research divided the Internet ecosystem into 14 different types of companies: • • • • • • • • • • • • • •

Internet service providers (ISPs) Hardware providers IT consulting and solutions companies Software companies Web hosting and content management companies Search engines and portals Content sites Software as a Service (SaaS) Ad agencies and support services Ad networks E-mail marketing and support Enterprise staffs and subcontractors responsible for Internet advertising, marketing and web design E-commerce companies, including physical delivery B2B e-commerce

To read the full study, please go to www.iab.net/economicvalue


About the IAB: The Interactive Advertising Bureau (IAB) is comprised of more than 375 leading media and technology companies who are responsible for selling 86% of online advertising in the United States. On behalf of its members, the IAB is dedicated to the growth of the interactive advertising marketplace, of interactive’s share of total marketing spend, and of its members’ share of total marketing spend. The IAB educates marketers, agencies, media companies and the wider business community about the value of interactive advertising. Working with its member companies, the IAB evaluates and recommends standards and practices and fields critical research on interactive advertising. Founded in 1996, the IAB is headquartered in New York City with a Public Policy office in Washington, D.C. For more information, please visit www.iab.net. IAB Media Contact: Marla Aaron Director, Marketing Communications 212.380.4714 marla@iab.net


Measuring the impact of the Internet on the economy