LONDON, 28 October 2010 – A report by The Boston Consulting Group (BCG) has identified for the first time the value of the Internet economy in the United Kingdom. The report, titled The Connected Kingdom: How the Internet Is Transforming the U.K. Economy, reveals that the U.K. Internet economy contributed £100 billion in 2009, representing 7.2 percent of U.K. GDP—more than construction, transport, or utilities. The report finds that this share is likely to grow by about 10 percent annually, reaching 10 percent of GDP by 2015.
Around 60 percent of this total is driven by “consumption”—the amount that Internet users spend on online shopping and on the cost of their connections and devices to access the Internet. The remainder comes from investment in the United Kingdom’s Internet infrastructure, government IT spending, and net exports.
The report was commissioned by Google UK but was researched and written independently by BCG. The size of the United Kingdom’s Internet economy had not previously been widely studied, and the aim of this report is to address this knowledge gap regarding this growing sector of the U.K. economy.
United Kingdom succeeding internationally
The report finds that the United Kingdom is now the world’s leading country for e-commerce and that U.K. businesses are using the Internet to expand their sales overseas. The United Kingdom is now a net exporter of e-commerce goods and services, exporting £2.80 for every £1 imported. This is the opposite of the trend seen in the offline economy, which exports 90p for every £1 imported.
In order to measure the reach and depth of the Internet in the United Kingdom—and to make comparisons with other countries—BCG created an international “e-Intensity Index” covering the nations of the Organisation for Economic Co-operation and Development (OECD). Overall, the United Kingdom ranks sixth, scoring similarly to the Netherlands, Norway, and Finland and better than Germany, the United States, and France. The highest-ranked country is Denmark.
A regional e-Intensity Index showed similar variations within the United Kingdom. London emerged as the leading region, followed by the South East and the East of England. The rest of England finished in the middle, and Wales, Scotland, and Northern Ireland scored fairly poorly.
250,000 Internet jobs
The report also analyses the structure of the U.K. Internet economy, specifically the companies that enable e-commerce and other Internet activities. The report finds that these companies—the engine of the Internet economy—employ an estimated 250,000 people and have annual revenue of £50 billion. (This sum is not comparable to the GDP calculations, which only count final sales to consumers, as many of these companies sell to other businesses.)
Small businesses growing faster, defying regional trends
As part of its research, BCG surveyed over 900 small and medium enterprises. The companies that actively use the Internet reported overall sales growth more than four times greater than that of less active companies. The results also revealed that the most active online businesses are based in the East of England, London, and Scotland—despite the fact that Scotland has one of the lowest levels of consumer online engagement in the United Kingdom.
Consumer usage of the Internet in the United Kingdom
More than 19 million households have an Internet connection—a 73 percent share—and broadband penetration has more than doubled since 2005. U.K. users spent the equivalent of an entire 24-hour day on the Internet in April, an increase of 65 percent in just three years. Nearly one-third of Internet users, or 31 percent, have accessed the Internet on their mobile handset, up from 23 percent in 2009. That share rises to 44 percent among the users aged 16 to 24.
The number of adults who bought goods or services online in the past year totaled 31 million, or 62 percent of all adults. Collectively, they spent about £50 billion last year on goods and travel.
Report methodology
The value of the Internet economy (£100 billion) was estimated using the expenditure approach to GDP measurement. This approach measures total spending on finished goods and services. It covers four key elements: consumption (both goods sold online and the costs of getting online), investment, government spending, and net exports.
The expenditure approach exposes the contributions of consumers, businesses, and governments to the Internet economy. Of the three possible methods to calculate GDP, it provides for the best balance of analytical strength and data availability.
The £100 billion figure that represents the U.K. Internet economy is made up of slices from other traditional economic sectors, such as communications and retail. The comparison of the size of Internet economy with the size of traditional sectors is therefore meant only to give a sense of scale.
The forecasted 10 percent growth of the Internet economy is based on conservative assumptions about the four key elements of the Internet economy. Consumption, the largest component of growth, is driven by rising broadband penetration and increased consumer spending online. Investment and government spending are projected to be relatively flat and exports and imports are projected to grow in line with consumption.
Paul Zwillenberg, partner with BCG in London, said, “The Internet is pervasive in the U.K. economy today, more so than in most advanced countries. Whether they are driving international expansion, improving their interactions with customers or the efficiency of their supply chains, U.K. companies are increasingly embracing the Internet’s potential. Several industries—including media, travel, insurance, and fashion—are being transformed by it.”
Matt Brittin, managing director for Google in the UK and Ireland, said, “We all know how the Internet has changed the way people access information and communicate. Now for the first time we can see how its adoption by British business has become a major contributor to the U.K.’s GDP, and that the Internet is a central pillar of the U.K.’s economy. The sector has come of age, and with great prospects for further growth the U.K. internet economy, will be vital to the U.K.’s future prosperity.”
The full report will be available from Thursday 28th October at www.connectedkingdom.co.uk.
To arrange an interview with one of the authors, please contact Eric Gregoire at +44 207 753 5353 or gregoire.eric@bcg.com.
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 70 offices in 41 countries. For more information, please visit www.bcg.com.
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