Business

The $8 Trillion Internet: McKinsey's Bold Attempt to Measure the E-conomy

By Derek Thompson

The Internet -- that 200 million-person, $8 trillion global economy -- accounted for 21 percent of GDP growth in the world's largest economies over the last 5 years, McKinsey found in a report released this week.* As an entity, it accounts for more GDP than the Spanish or Canadian economies, and it's growing faster than Brazil. As a sector, it is now larger than these countries' agriculture or energy industries.

Sweeping statements about the size and growth of the Internet are tough to swallow. So here are three highlights from the new McKinsey report:

1. What Is the Internet Economy?

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There is a lot of Internet to measure, with two hundred million global consumers and $8 trillion in total revenue. So McKinsey's report limited its scope to the online economy in the G-8 countries plus five more: Brazil, China, India, South Korea and Brazil. It defined Internet activities as private consumption (electronic equipment, e-commerce, broadband subscriptions, mobile Internet, and hardware and software consumption); private investment (from the telecommunications industry and the maintenance of extranet, intranet, and Web sites); public expenditure (spending and buying by government in software hardware and services); and trade (which accounts for exports of Internet equipment plus business-to-business services with overseas companies).

2. How Big Is the Internet Economy?

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As an industry, the Internet contributes more to the typical developed economy than mining, utilities, agriculture, or education. In Sweden, fully one-third of economic growth in the five years leading up to the recession came from Internet activities. For the entire G-8, the average was 21 percent. In an analysis of France since the mid-1990s, McKinsey found that the Internet created more than twice the number of jobs it destroyed.

Much of the Internet's contribution to our lives is nearly impossible to measure. For example, I use email. How much is that worth to me? I can't even begin to say. I read hundreds of news sources a day. What is that worth to me, or to the news organizations? Pricing this kind of thing is exhausting to think about. But since analyzing what the rest of us find "exhausting to think about" is McKinsey's job, their researchers looked at the "consumer surplus" of the Internet, concluding that the total annual benefit to the United States comes out to $64 billion.

3. Where Is the Internet Economy Growing Fastest?

The United States is the world leader in the online industry, grabbing 30 percent of global Internet revenues. But the UK is the world leader in online retail. The British spent $2,535 on e-stuff in 2009, more than twice the average of the world's largest countries and still 1.4 times the amount of the typical U.S. shopper. Sweden leads the world in Internet's contribution to GDP. Fully 6.3 of the country's economy is online -- twice Germany, France or India. In Russia, the Internet contributes not even one percent of GDP.

China and India have a peculiar Internet economy -- in addition to the fastest growing Internet sectors. They are the only countries that McKinsey studied where private consumers didn't make up a majority of the industry. Instead, both countries rely on exporting online services for a plurality of their economies.

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*This post originally referred to a 200-billion-person global economy. We regret the typo.

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Derek Thompson is a staff writer at The Atlantic and the author of the Work in Progress newsletter.