The UK has been crowned the leading Internet economy in the G20. But how has it risen to the top of the sector so rapidly, and just as importantly, will it last? Tineka Smith reports
The Internet has been booming recently, with its growth contributing billions to economies worldwide. In 2010 the G20 Internet economy was worth $2.3 trillion, and experts predict this will almost double to $4.0 trillion by 2016. Somewhat surprisingly, it is the UK that is leading the way - so much so, that it has been dubbed the number one Internet economy in the G20 group of nations.
According to a study by Boston Consulting Group (BCG), The Internet Economy in the G20, the Internet contributes 8.3% to the British economy, making it the largest sector out of all the G20 nations.
Countries such as China, the US and India have been leaders of the Internet economy in the past due to their significantly larger populations. In 2011 China made up 23% of the world's users and the US 11.3%, according to Internet World Stats.
So how has the UK become the leading Internet economy so quickly? Some experts say the growth of e-commerce and social within the UK is the cause, whilst others credit the development of a competitive telecoms marketplace and the UK's mobile commerce.
The BCG study revealed that the economic contribution made by the web to UK GDP was estimated to be more than £121bn, performing higher than sectors such as construction, healthcare, and education. If the Internet was a separate sector it would be the fifth largest in the UK.
The sector is predicted to show no signs of slowing down either, with the UK's Internet economy estimated to almost double between 2010 and 2016 to £230bn, according to BCG. The UK web economy is predicted to stay ahead of its competitors over the next four years with an approximate 11% per year growth rate; higher than the US's projected growth of 5.4% and China with 6.9%.
Businesses that have focused on the sector have seen an increase in revenues. The BCG research suggested that small and medium-sized businesses in this area have seen a 12.5% growth every year for the past three years.
Paul Zwillenberg, partner at BCG and lead author of the study, says that the UK's particular e-commerce landscape is what drives the UK's Internet economic standing.
"The Internet's contribution to UK GDP is high principally because of consumption - online retail in particular," said Zwillenberg. "We believe there are a number of factors driving this, including: relatively high Internet penetration; a very competitive online retail market comprising both British high-street retailers, who very quickly developed their online presence, and online-only retailers including the major US companies for whom our shared language made the UK their obvious first non-US market."
Recently, e-commerce has boomed in the UK, with online shoppers increasing the amount of purchases they make. The 2012 WorldPay eCommerce Basket survey revealed that consumers spent on average £3,370 online last year.
According to the WorldPay report, nearly 60% of consumers shop online up to three times per month and 40% shop at least four times per month. A tenth of respondents said that in a month it was normal to purchase products online ten or more times.
Gabriel Hopkins, head of e-commerce products at WorldPay, says the UK e-commerce sector continues to remain strong. "Every day we hear reports that consumer belts are tightening due to the current economic conditions, but e-commerce continues to grow at a healthy rate, particularly in the UK," says Hopkins. "Customers are spending vast amounts online, and use online channels to regularly purchase almost anything."
Hopkins also pointed out that mobile is an important growth area from a payments perspective.
"UK consumers are predicted to be the biggest mobile shoppers in Europe in 2012, and have been for a couple of years already," says Hopkins. "There is a huge appetite for shopping online anytime, anywhere, which the explosion in mobile devices enables. The rules are changing for retailers and they need to make sure the needs and demands of consumers are met in order to continue this growth."
Other leaders in the industry agree that mobile is an important part in keeping the UK Internet economy healthy, as is focusing on the telecoms sector.
"The creation of a competitive telecoms marketplace in 2003 drove Internet service roll-out across the UK, providing easy access to high-quality affordable connections," says George Ell, Yammer EMEA general manager. "The competition provided by BT, Sky, Virgin and others has meant that the UK infrastructure is one of the best across Europe."
Meanwhile, firms in the telecoms sector have seen an ample increase in sales, demonstrating that the industry is on the rise and an important contributor to the UK's economy.
"It comes as no surprise to find the British Internet economy is booming," says Eric Abensur, CEO at Venda, a global provider of multi-channel commerce solutions. "As broadband penetration, pervasiveness of mobile devices and public Wi-Fi connectivity increase we're seeing huge growth in online sales among our client base, far higher than stated by BCG."
Top-quality access and speed has also attributed to the success of the Internet in the UK, and further improvements are said to only make the Internet economy continue to flourish.
"The Government would do well to acknowledge and build upon the wealth generated by the Internet," says Abensur. "Improving access and speed alongside helping businesses make the move to online could see it become a powerful catalyst for growth as well as a truly significant source of income."
Government investment and interest in taking the Internet to the next level through mobile, and can also help increase growth in sectors such as mobile commerce.
"The launch of next-generation mobile Internet will be the next huge leap in the value of this sector," says Abensur. "The eventual 4G spectrum auction will provide huge impetus for growth of the mobile commerce sector. If the Government is looking for areas to galvanise growth they need look no further than pushing for the auction to happen sooner rather than later."
As online surfing and purchasing continue to increase among users in the UK, some say that better security is the reason many are willing to shop online and access the Internet through mobile devices in the first place. Consumer trust in security is a vital factor in keeping the country in the lead.
"There's no underestimating the inroads the Internet has made on the UK economy, firstly through the acceptance and trust placed in e-commerce, with people purchasing everything from household goods and holidays to cars online," says Yammer's Ell. "Without this trust, other countries have struggled to build Internet-based businesses. The UK's effective extension of consumer protection to online transactions built that trust, and once it was established provided a platform for the majority of business to add clicks operation alongside their bricks to preserve and grow their revenue while lowering costs."
According to Ofcom's Adults Media Use and Attitudes report, UK concerns about privacy and security continue to decrease as more adults spend time online. Adult concerns about risks have been decreasing over the past few years, falling from 70% of users showing concern in 2005 to just 50% last year. The average user now spends more than 15 hours a week online, up from just five hours in 2005.
The report also found that 79% of adults access the Internet on any device anywhere. The percentage is a massive jump from 2005 where only 20% of adults were doing so.
The increase in online trust when exchanging or putting information on the Internet is also cited as why adults are increasingly sharing their personal information on social networks, which have become increasingly used by adults, with a quarter saying they share personal information such as date of birth or hometown with people they don't know.
"Our obsession with communicating information and sharing content with others on social media coupled with the ready availability of fast, reliable Internet, has kept the UK close to the top of the league tables for Internet penetration per population across Europe," says Ell.
Yet some experts say that even though social is an important part, it does not stand out when it comes to driving the UK's Internet economy.
"The economic impact of social is less obvious, but it is clearly an increasingly important part of the Internet: it is changing the way we interact with each other, and all organisations are seeing that they need to adapt and change the way they interact with their customers or citizens," says Zwillenberg.
While many experts are positive about rapid evolution in years to come, researchers say that innovation in the UK is important to stay ahead of quickly growing emerging markets.
"We are seeing very fast growth, particularly in emerging markets, and the UK will need to keep innovating if it aims to lead the way," said Zwillenberg. "This innovation will only come from a highly skilled workforce, so education is extremely important."
The UK's Internet infrastructure is a very important factor in staying ahead of other countries. Tony Grace, COO at Virgin Media Business, says that data demands will continue to increase but the UK's standing will most likely remain strong.
"As the Internet economy continues to surge forwards we're going to see an ever-increasing demand for bandwidth," says Grace. "Data demands are on the increase with more data-hungry content being created, shared and consumed by consumers and businesses alike.
Combined with more and more connected devices competing for Internet resources, it doesn't look like demand will slow down any time soon. That shouldn't mean Britain will automatically slip down the rankings."
Yet, some researchers say the UK's infrastructure may be its downfall. According to BCG's e-Intensity Index, which measures Internet strength across 50 nations based on enablement,
expenditure and engagement, the UK scored low for enablement in 2011, coming in 13th place. Enablement results are based on speeds in each country.
"With particularly low scores for upload and download speeds, investment in infrastructure will be needed, not just to stay on top but to avoid being left behind."
The UK has many strong factors that are keeping it ahead of the game, such as e-commerce, telecommunications and mobile commerce, but if enablement issues are not addressed quickly it risks not only losing its Internet crown but falling dramatically in the rankings.