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The Internet's neat trick for economic growth
The continuing European financial uncertainties, the sequester issue in the US and many other countries struggling to return to positive growth show that economic global uncertainties still dominate the news cycle
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he continuing European financial uncertainties, the sequester issue in the US and many other countries struggling to return to positive growth show that economic global uncertainties still dominate the news cycle.
Luckily for us in Indonesia, relatively unscathed by the global financial crisis, we are looking at a more rosy future.
And here's some more good news. I think there's good reason to believe that, no matter what, there's an industry around the world that has a record of growing throughout the last downturn, and that's the Internet. No, I'm not talking about the number of people using it or time spent or cell phones. I'm talking about the amount of value the Internet will deliver to the gross domestic product (GDP) of Asia over the next 12 months.
I'm drawing that conclusion from the economic reports collected online at valueoftheweb.com, each one of them reviewing the economic impact the Internet has on more than 15 countries, both large and small, from Asia to Europe. The reports sought to fill a hole in the economic discussion: we all know the Internet is big, but we have very little idea of how much it's worth.
Most government statistics agencies don't track it.
When you try to track the Internet the way traditional industries are tracked in the GDP statistics, it turns out to be a serious industry: in Australia it's bigger than iron-ore exports; in Japan, it's bigger than the transportation industry.
And in Indonesia, according to Deloitte Access Economics, it's at 1.6 percent of GDP, bigger than liquefied natural gas exports.
As it happens, although these reports were mostly released over the past 20 months, they had to use data from 2009 or 2010. So, with hindsight, these reports can also be used as handy guides as to how the Internet fares in a time of economic crisis.
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In a time of horrible national crisis, many companies turned to the Internet to raise funds from customers and rebuild their communities.
Consistently, you find that the Internet keeps growing and creating jobs even as the world's trade and finance system teetered on the brink. In Japan ' where the Internet was worth 3.7 percent of GDP ' the nation's GDP grew 2.9 trillion yen between 2005 and 2010.
The value of the Internet, as measured according to GDP by Nomura, rose 4.9 trillion yen over the same period. No offline industry managed more than 5 percent year-on-year growth in that period. The Internet industry grew 8 percent.
Even Indonesia benefited from the online industry. Its Internet penetration, while exploding now, was relatively low in 2010. Surely, it was a relative economic laggard.
Think again. Overall GDP growth for the past few years has hovered around 6 percent and the IMF said in 2010 it expects it to maintain that pace.
But the Internet's value in Indonesia is growing even faster: Deloitte Access Economics expects it to grow at three times the pace of the economy, from an already sizeable base of 1.6 percent of GDP in 2010 to at least 2.5 percent of GDP over the next five years.
And consider these additional facts: Indonesia has a large youthful population (50 percent under the age of 29 years) as well as an Internet population roughly at 63 million users in 2012. This online population is expected to reach 80 million in 2013 and exceed 100 million users by 2015. Although we have millions of small and medium businesses (SMB), less than 100,000 have a website.
E-commerce sales is projected to hit $1.8 billion in 2013 and almost double to $3.5 billion in 2015 with Internet advertising projected to grow to $147 million in 2013 (out of total 2.5 billion AdEx) from $97 million in 2012. The potential of the Internet industry within Indonesia is very clear.
If we take a few steps back, one can easily see why the Internet can pull off this remarkable trick. We can't imagine living or working without the Internet and yet we all know there's more we can do with it. More and more companies are using its tools to find new customers, manage supply chains and cut costs. Those features become more valuable in a downturn.
As the Japan economic study above shows, in a time of horrible national crisis, many companies turned to the Internet to raise funds from customers and rebuild their communities.
But even more importantly, across Asia, data costs have been falling. The average price of devices is also dropping dramatically. Indonesia already has a tablet for under Rp 2 million ' that's cheaper than a basic Internet-enabled phone cost just three years ago.
So, even if our economic growth rate slows for any reason, they're likely will not fall faster than the overall price of the Internet. And here's the other thing: the Internet is blessed with a wonderful quality.
The cheaper it is the more valuable it gets. Businesses promote themselves online, so there's more to search for. People spend more time online, so advertisers support more online content.
More clients are online, so businesses offer more Internet-related features. That doesn't happen in many industries. How great would it be for the auto industry if ' as cars got cheaper ' the traffic actually improved?
But that's roughly how the Internet works: as the price goes down, it works better, feels better and looks better. That's a nice quality to have in a downturn. And in a period of growth, it's like an accelerator!
What individual companies and countries make of this opportunity is impossible to predict, of course. While some skeptics may think the Internet is just a waste of time, these figures above show that time spent on the Internet is one of the best investments around!
The writer is country head, Google Indonesia.
