The Internet Economy in the G-20

Report

The Connected World The Internet Economy in the G-20 The $4.2 Trillion Growth Opportunity The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. 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 75 offices in 42 countries. For more information, please visit bcg.com. The Connected World The Internet Economy in the G-20

The $4.2 Trillion Growth Opportunity

David Dean

Sebastian DiGrande

Dominic Field

Andreas Lundmark

James O’Day

John Pineda

Paul Zwillenberg

March 2012 | The Boston Consulting Group Contents

3 INTRODUCTION

6 THE INTERNET’S ECONOMIC IMPACT

10 THE INTERNET’S FURTHER ECONOMIC IMPACT

12 CONSUMERS (EVERYWHERE) KNOW A GOOD DEAL WHEN THEY SEE IT

14 FROM HIGH-WEB TO NO-WEB: OPPORTUNITIES FOR SMALL AND MEDIUM ENTERPRISES

17 DON’T BLINK: THE FUTURE IS RUSHING STRAIGHT AT US

18 COUNTRY PROFILES

53 NOTE TO THE READER

2 | The Internet Economy in the G-20 INTRODUCTION

he January 2012 report in our Connected World series examined how T companies and countries can win in the digital economy. This follow-up report provides a more comprehensive analysis of how the scale and speed of Internet-driven economic growth is changing countries, cultures, and companies around the world. It includes national snapshots capturing the economic impact of the Internet as well as in-depth looks into consumer and business usage in the G-20 countries.1 A forthcoming report will discuss how companies and countries can best build up their digital balance sheets and create digital advantage.

Since the day the first domain was registered in 1985, the Internet has not stopped growing. It has sailed through multiple recessions and one near-collapse and kept on increasing in use, size, reach, and impact. It has ingrained itself in daily life to the extent that most of us no longer think of it as anything new or special. The Internet has become, quite simply, indispensible.

By 2016, there will be 3 billion Internet users globally—almost half the world’s population. The Internet economy will reach $4.2 trillion in the G-20 economies. If it were a national economy, the Internet economy would rank in the world’s top five, behind only the U.S., China, Japan, and India, and ahead of Germany. Across the G-20, it already amounted to 4.1 percent of GDP, or $2.3 trillion, in 2010—sur- passing the economies of Italy and Brazil. The Internet is contributing up to 8 percent of GDP in some economies, powering growth, and creating jobs.

The scale and pace of change is still accelerating, and the nature of the Internet—who uses it, how, and for what—is changing rapidly too. Developing G-20 countries already have 800 million Internet users, more than all the developed G-20 countries combined. Social networks reach about 80 percent of users in developed and developing economies alike. Mobile devices—smartphones and tablets—will account for four out of five broadband connections by 2016.

The speed of these developments is often overlooked. Technology has long been characterized by exponential growth—in processing speed, bandwidth, and data storage, among other things—going back to Gor- don Moore’s observation nearly five decades ago. The Intel 80386 mi- croprocessor, introduced in the same year as that first domain name, held 275,000 transistors. Today, Intel’s Core i7 Sandy Bridge-E proces- sor holds 2.27 billion transistors, or nearly 213 times as many. As the growth motors along, it is easy to lose track of just how large the exponential numbers get.

The Boston Consulting Group | 3 The power of exponential growth is illustrated by an ancient fable, re- popularized by Ray Kurzweil in his book, The Age of Spiritual Machines. It tells of a rich ruler who agrees to reward an enterprising subject starting with one grain of rice on the first square of a chessboard, then doubling the number of grains on each of the succeeding 63 squares. The ruler thinks he’s getting off easy, and by the thirty-second square, he owes a mound weighing 100,000 kilograms, a large but manageable amount. It’s in the second half of the chessboard that the real fun starts. Quickly, 100,000 becomes 400,000, then 1.6 million, and keeps growing. By the sixty-fourth square, the ruler owes his subject 461 billion metric tons, more than 4 billion times as much as on the first half of the chessboard, and about 1,000 times global rice production in 2010.

The Internet has moved into the second half of the chessboard. (See Exhibit 1.) It has reached a scale and level of impact that no business, industry, or government can ignore. And like any technological phenomenon with its scale and speed, it presents myriad opportunities, which consumers have been quick and enthusiastic to grasp. Business- es, particularly small and medium enterprises (SMEs)—the growth engine of most economies—have been uneven in their uptake, but they are moving online in increasing numbers and with an increasingly in- tense commitment.

There are threats too, some misunderstood, and policymakers and regulators alike are challenged to make the right choices in a fast- moving environment. As is often the case with fast-paced change and

Exhibit 1 | Evolution of the Internet

From developed to developing markets From ﬁxed to mobile From basic content to a Internet users in the Consumer broadband data explosion G-20 countries (millions) connections (millions) Global Internet traﬃc (exabytes per year) 238 746 2005 total 508 30 167 Fixed connections Developed markets Mobile connections Developing markets

573 672

2,062 2,707 2015 total total 966

1,390 2,134

Sources: Economist Intelligence Unit; Cisco; Ovum; BCG analysis. Notes: While the European Union is a member of the G-20, the figures include only the independent European members: France, Germany, Italy, and the U.K. The developing nations are Argentina, China, India, Indonesia, Mexico, Russia, Brazil, Saudi Arabia, South Africa, and Turkey. The developed nations are Australia, Canada, France, Germany, Italy, Japan, South Korea, U.K., and U.S.

4 | The Internet Economy in the G-20 complex issues, many governments are still trying to determine what their role should be.

Meanwhile the rice pile on the next square keeps getting bigger.

This report assesses the far-reaching economic impact of the Internet. It shows how the benefits are large and getting larger, identifies the drivers behind them, and examines their clout. It quantifies gains— economic growth, consumer value, and jobs—in the context of the economies of the G-20. It demonstrates that no one—individual, business, or government—can afford to ignore the ability of the Internet to deliver more value and wealth to more consumers and citizens more broadly than any economic development since the Industrial Revolution.

Note 1. The Group of 20 major economies comprises Argentina, Australia, Brazil, Canada, China, the EU, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the U.K., and the U.S.

The Boston Consulting Group | 5 The Internet’s Economic Impact

he economic impact of the Internet is The growth is being fueled in large part by Tgetting bigger—just about everywhere— two factors: more users and faster, more ubiq- and it already has an enormous base. In the uitous access. The number of users around U.K., for example, the Internet’s contribution the globe will rise to a projected 3 billion in to 2010 GDP is more than that of construc- 2016 from 1.9 billion in 2010. Broadening ac- tion and education. In the U.S., it exceeds the cess, particularly via smartphones and other federal government’s percentage of GDP. The mobile devices, and the popularity of social Internet economy would rank among the top media are further compounding the Inter- six industry sectors in China and South Korea. net’s impact. In the developing world in particular, many consumers are going “straight Policymakers in developed countries cite with to social.” (See Exhibit 2.) envy the GDP growth rates of 5 to 10 percent per year being achieved in China and India, particularly in today’s troubled economic en- The Internet economy of the vironment. At the same time, they can often look past similar, or even higher, rates close G-20 will nearly double to home. between 2010 and 2016. The Internet economy in the developed markets of the G-20 will grow at an annual rate of 8 percent over the next five years, far out- National levels of Internet economic activity pacing just about every traditional economic generally track the BCG e-Intensity Index, sector, producing both wealth and jobs. The which measures each country’s level of en- contribution to GDP will rise to 5.7 percent ablement (the amount of Internet infrastruc- in the EU and 5.3 percent for the G-20. ture that it has in place), expenditure (the Growth rates will be more than twice as amount of money spent on online retail and fast—an average annual rate of 18 percent— online advertising), and engagement (the de- in developing markets, some of which are gree to which businesses, governments, and banking on a digital future with big invest- consumers are involved with the Internet). ments in broadband infrastructure. Overall, Big differences are apparent among the 50 the Internet economy of the G-20 will nearly countries examined, with five clusters emerg- double between 2010 and 2016, when it will ing according to their performance on the in- employ 32 million more people than it does dex in absolute terms and relative to per cap- today. ita GDP. (See Exhibit 3.)

6 | The Internet Economy in the G-20 Exhibit 2 | Developing Markets Are Going “Straight to Social” Users Are Adopting Social Networking Quickly as They Come Online

Social networking penetration among Internet users (%) Size of Internet population = 50 million 100 Social networking is strong Argentina among the connected elite Turkey 90 South Africa Mexico Australia Brazil Indonesia Canada India Russia U.K. Italy 80 France Germany U.S. 70 Chinese social network growth is exploding South Korea 60

China Heavy users of 50 Japan is experiencing more traditional Straight Social– Focus on dramatic social growth conversational to social mainstream traditional Japan media and mature Web 0 20 40 60 80 100 Internet penetration (%)

Sources: Economist Intelligence Unit; comScore; Google; Trendstream; eMarketer; local telco reports; BCG analysis. Note: Data reflect 2011 figures; where unavailable, 2010 figures were used; Saudi Arabia not included.

Exhibit 3 | Developed Markets Score Significantly Higher in BCG’s e-Intensity Index

BCG e-Intensity score 200

South Korea Denmark Netherlands Sweden U.K. Iceland 150 Japan Finland Norway U.S. Hong Kong Germany Switzerland Luxembourg France Singapore Australia Canada New Zealand Belgium 100 Czech Republic Slovenia Austria Ireland Estonia Spain Poland Portugal United Arab Emirates Russia Hungary Israel Italy Turkey Greece Malaysia Brazil Slovakia 50 Argentina Saudi Arabia Colombia Chile China Venezuela Morocco Mexico South Africa Nascent Natives Players Laggards Aspirants Egypt natives India Indonesia 0 20 40 60 80 2010 GDP per capita ($thousands)

Sources: Economist Intelligence Unit; International Monetary Fund, ITU; Speedtest.net; Gartner; Ovum; World Bank; Pyramid Research; United Nations; World Economic Forum; comScore; Magnaglobal; Euromonitor; BCG analysis. Note: The scores of several countries are estimates based on incomplete data.

The Boston Consulting Group | 7 Consumption is the principal driver of Inter- Retail represents almost one-third of total net GDP in most countries, typically repre- GDP in the G-20, and online retail contributes senting more than 50 percent of the total in a significant and increasing share in many 2010. It will remain the largest single driver countries. (See Exhibit 6.) Nowhere is the im- through 2016. Investment, mainly in infra- pact more apparent than in the U.K. Thanks structure, accounts for a higher portion of the in part to high Internet penetration, efficient total in “aspirant” nations as they are in the delivery infrastructure, a competitive retail earlier stages of development. market, and high credit-card usage, the U.K. has become a nation of digital shopkeepers, Several “natives” on BCG’s e-Intensity In- to paraphrase Adam Smith. dex—the U.K., South Korea, and Japan—are among those nations with the largest Internet Several European economies—Denmark, the contributions to GDP. China and India stand Netherlands, Sweden, and the U.K.—to name out for their enormous Internet-related ex- but four—perform strongly on BCG’s e-Inten- ports—China in goods, India in services— sity Index. But various barriers hold back the which propel their Internet-economy rank- EU as a whole, the world’s biggest single mar- ings toward the top of the chart. Mexico and ket, when it comes to cross-border e-com- South Korea have also developed significant merce. In January, the European Commission Internet export sectors. announced plans to catch up, removing these impediments and creating a “digital single Among G-20 “players,” the United States ben- market.” The commission believes that e- efits from a vibrant Internet economy, while commerce can double its share of overall re- Germany and France tend to lag. The picture tail sales by 2015. will change by 2016 as, for example, the In- ternet economies of India and the EU-27 grow rapidly to move into the top five. (See Exhibits 4 and 5.)

Exhibit 4 | The Internet Currently Accounts for 4.1% of GDP in the G-20 Countries

Internet economy as a percentage of 2010 GDP

GDP GDP ($trillions) (%)

U.K. 2.3 8.3 South Korea 1.0 7.3 China 5.9 5.5 Japan 5.5 4.7 U.S. 14.5 4.7 4.3 Developed market average G-20 54.9 4.1 India 1.7 4.1 EU-27 16.2 3.8 3.6 Developing market average Australia 1.2 3.3 Germany 3.3 3.0 Canada 1.6 3.0 France 2.6 2.9 Mexico 1.0 2.5 Brazil 2.1 2.2 Saudi Arabia 0.4 2.2 Italy 2.1 2.1 Argentina 0.4 2.0 South Africa 0.4 1.9 Russia 1.5 1.9 Turkey 0.7 1.7 Natives Players Laggards Aspirants Indonesia 0.7 1.3

Sources: Economist Intelligence Unit; Organisation for Economic Co-operation and Development (OECD); country statistical agencies; BCG analysis.

8 | The Internet Economy in the G-20 Exhibit 5 | The Internet Economy Will Account for 5.3% of GDP in the G-20 Countries in 2016

Internet economy as a percentage of 2016 GDP

GDP GDP CAGR ($trillions) (%) 2010–16 (%) U.K. 2.8 12.4 10.9 South Korea 1.4 8.0 7.4 China 12.4 6.9 17.4 EU-27 20.0 5.7 10.6 India 4.3 5.6 23.0 Japan 6.6 5.6 6.3 5.5 Developed market average U.S. 18.6 5.4 6.5 G-20 79.9 5.3 10.8 4.9 Developing market average Mexico 1.5 4.2 15.6 Germany 3.9 4.0 7.8 Saudi Arabia 0.8 3.8 19.5 Australia 1.7 3.7 7.1 Canada 2.1 3.6 7.4 Italy 2.4 3.5 11.5 France 3.1 3.4 6.1 Argentina 0.8 3.3 24.3 Russia 2.7 2.8 18.3 South Africa 0.6 2.5 12.6 Brazil 3.7 2.4 11.8 Turkey 1.3 2.3 16.5 Natives Players Laggards Aspirants Indonesia 1.5 1.5 16.6

Source: Economist Intelligence Unit; Organisation for Economic Co-operation and Development (OECD); country stastical agencies; BCG analysis.

Exhibit 6 | Online Retail Is Expected to Account for Up to 23% of Total U.K. Retail in 2016

Online retail as a percentage of total retail, 2016 Online retail (%)

U.K. 23.0 Germany 11.7 Australia 8.9 8.5 Developed market average South Korea 8.1 Saudi Arabia 8.0 Italy 8.0 U.S. 7.1 Japan 6.8 France 6.7 G-201 6.0 Canada 5.3 India 4.5 Brazil 4.3 China2 3.4 Russia 3.2 3.2 Developing market average Argentina 2.9 Mexico 1.6 South Africa 1.5 Turkey 1.1 Players Laggards Indonesia 0.3 Natives Aspirants

Sources: Economist Intelligence Unit; Organisation for Economic Co-operation and Development (OECD); country stastical agencies; BCG analysis. 1This figure does not include the EU-27. 2This figure reflects business-to-consumer retail only.

The Boston Consulting Group | 9 The Internet’s Further Economic Impact

s significant as the GDP figures are, penetration and security concerns over on- Athey capture only part of the story. In line payments hold back online commerce, retail alone, G-20 consumers researched Mexican consumers without credit cards can online and then purchased offline (ROPO) pay for their online purchases at 7-Eleven more than $1.3 trillion in goods in 2010—the stores. Like the U.S., Japan has a busy online equivalent of about 7.8 percent of consumer retail market, which totaled $89 billion in spending, or more than $900 per connected 2010. ROPO added $139 billion because consumer. Japanese consumers still prefer the experi- ence of shopping in stores. Across the G-20, ROPO is a bigger factor in developed econo- ROPO would add an additional 2.7 percent if mies, as one would expect, but consumers ev- it were counted as part of Internet GDP. erywhere research a wide variety of products online before purchasing them elsewhere. In China, groceries are a popular ROPO pur- Consumers everywhere chase; in the United States, cars; India, technology products; Brazil, electronics, applianc- research a wide variety of es, and travel packages. Multiple factors affect e-commerce and ROPO. In addition to regula- products online before pur- tory barriers like those cited above, the state chasing them elsewhere. of infrastructure for online and bricks-and- mortar retail plays a big role, as do Internet penetration, credit-card use, and consumer Mobile shopping—using a smartphone to confidence in online payment systems, deliv- identify deals, compare products and prices, ery, and fulfillment. and “seal the deal” while on the go—is growing in popularity worldwide. As device prices ROPO spending is higher than online retail in fall, especially in developing markets, in- virtually all the nations we studied. (See Ex- creased smartphone penetration will have a hibit 7.) In the U.S., online retail sales totaled dramatic impact on both retail commerce $252 billion in 2010, and ROPO added anoth- and e-commerce—further blurring the lines er $482 billion. ROPO dwarfs online retail in between online and offline buying. Mobile Turkey—$37 billion compared with $2 bil- apps such as RedLaser, Google Shopper, and lion—owing in large part to poor delivery in- Amazon Remembers make it ever easier for frastructure and consumer concern over ful- consumers to research products, compare fillment. In Mexico, although low credit-card deals, and make purchases as they see fit at

10 | The Internet Economy in the G-20 Exhibit 7 | ROPO Greatly Amplifies the Internet’s Impact on Retail

Online retail and ROPO (research online, purchase oﬄine), 2010 Value ($)

U.S. 252 482 734 Japan 89 139 228 U.K. 102 87 189 Germany 38 88 126 China¹ 10 96 106 France 27 78 105 Canada 18 58 76 Italy 20 48 68 South Korea 23 44 67 Australia 20 38 58 Russia 12 33 45 Turkey 2 37 40 Brazil 15 19 34 Mexico 2 27 29 India 7 6 13 Argentina 2 9 11 Saudi Arabia 3 5 8 South Africa 2 2 4 Online retail ROPO ($billions) ($billions)2 Indonesia 0 1 1

Sources: Euromonitor; Google-TNS; BCG analysis. Note: Figures exclude real estate for some countries; the figures for online retail and ROPO do not add up to the total due to rounding. 1This figure reflects business-to-consumer retail only. 2Total ROPO (auto and nonauto). any given moment. Retailers of all stripes Taobao in 2010 than at China’s top-five brick- face an especially fast-changing and increas- and-mortar retailers combined. ingly competitive environment in the years ahead. With the rapid growth of e-commerce The Internet is having a big impact on how and its potential to disrupt both the top and enterprises do business and interact with one bottom lines, retail may be ripe for a transfor- another, too. Cloud-based data storage, inte- mation similar to the one seen in media. A grated procurement systems, and “enterprise multichannel offering that captures sales social networks” that facilitate communica- wherever they occur will become a “must tion within and among organizations in real have” for most businesses. time are helping companies address a host of procurement, coordination, communication, Online advertising, a $65 billion business in and fragmentation issues. With spending in the G-20 in 2010, is forecast to grow 12 per- the $3 trillion range, both the U.S. and Japan cent a year to almost $125 billion in 2016. In lead the world in business-to-business e-com- countries with more developed Internet econ- merce, but penetration is picking up in other omies, 15 to 30 percent of advertising spend- countries. South Korea’s percentage of busi- ing has migrated online. Online advertising ness-to-business e-commerce is approaching spending in the U.K. overtook spending on 50 percent, as is Japan’s. television advertising in 2011—and it now exceeds spending on all other media categories.

Consumer-to-consumer Internet commerce is a big factor in China, facilitated by websites such as Taobao, a marketplace for goods of all sorts. More products were purchased on

The Boston Consulting Group | 11 Consumers (Everywhere) Know a Good Deal When They See It

onnected consumers place a consid- online. Demographics play a role in the last Cerable value on the Internet. In the G-20 factor: in many markets, the heaviest users of economies, this “consumer surplus”—the the Internet are the young—no surprise perceived value that consumers themselves there—and those over 55, whose ranks will believe they receive, over and above what swell as the population ages. (See Exhibit 8.) they pay for devices, applications, services, All these factors are on the rise, which points and access—amounts to $1,430 a person.1 to continued growth in the consumer surplus. Consumer surplus varies vastly across countries, depending in part on the impact of Various aspects of consumer surplus are illus- the drivers shaping each nation’s Internet trated in the country profiles at the end of economy. For example, it’s $323 per person in this report. These profiles also show the In- Turkey, $1,215 in South Africa, $1,287 in ternet’s impact on GDP and on the retail Brazil, and $4,453 in France. The aggregate market in each country. Most significantly, consumer surplus across 13 of the G-20 they highlight how deeply the Internet has countries is $1.9 trillion, or about 4.4 percent ingrained itself in daily life around the world, of the GDP. by showing what consumers are willing to give up—from satellite navigation to sex—in It is interesting to note that in countries such order to keep their Internet access. as France and Germany, which have relative- ly low levels of Internet GDP, consumers’ perceived value of the Internet is very high. Fur- thermore, although the consumer surplus figures are lower for many developing mar- Note kets, they are actually quite high relative to 1. In our analysis, we took into consideration the value derived from communication, content (entertainment, local incomes—lower-income people get rela- news, and social media), search, commerce, and job tively more benefit from the Internet than searches. We used a “loss aversion technique” to avoid wealthier people do. Closing the digital di- anchoring the data to the current prices of goods and services—many of which are free—and to determine vide can have a meaningful impact for the the true value that people place on them. To measure less well-off. “consumer surplus,” we subtracted from this value what people currently pay to access the Internet and the cost Consumer surplus has multiple drivers, of the devices, content, and applications. Our analysis found that consumers receive a “surplus” equal to among them the quality of online content, the about 80 percent of value, or 4 to 5 percent of personal number of devices in use, the ease and fre- income. quency of access, and the number of people

12 | The Internet Economy in the G-20 Exhibit 8 | Youngest and Oldest Consumers Tend to Value the Internet the Most

Perceived Internet value per user ($) USAF(€) ranceJ(¥thousands) apan 4,000 6,000 400 3,506 5,174 316 2,926 3,000 300 244 2,363 4,000 3,701 1,953 2,978 3,062 172 2,000 1,456 2,324 200 158 178 2,000 1,000 100

0 0 0 18–24 25–34 35–44 45–54 55+ 18–24 25–34 35–44 45–54 55+ 18–24 25–341 35–44 45–54 55+

(€) (KRW (Rp thousands) GermanySthousands) outh KoreaIndia 4,000 3,000 60 55 3,226 3,060 2,722 2,130 3,000 2,478 2,000 40 2,578 1,807 2,000 24 24 936 22 22 1,000 782 20 1,000 494

0 0 0 18–24 25–34 35–44 45–54 55+ 18–24 25–34 35–44 45–54 55+ 18–24 25–34 35–44 45–54 55+ Age categories Source: BCG survey. Note: Value comparisons are weighted by income (excluding the highest and lowest levels by country) to minimize bias. 1The figure for Japan’s 25–34 category is estimated (base size).

The Boston Consulting Group | 13 From High-Web to No-Web Opportunities for Small and Medium Enterprises

iven their agility and ability to low or no use of the Web over the last three Ginnovate, one would expect SMEs—long years. (See Exhibit 9). In the U.K., sales at the engine of economic growth in many high-Web companies increased six times as economies—to grasp the power of the fast as revenues at firms with no Internet Internet to build their businesses. Indeed, presence. many have, and these companies have helped turned the Web into an important vehicle for Many U.S. SMEs have integrated the Internet revenue growth and job creation. But a into their businesses. They are much more surprising number have not—or have ven- aggressive online than low-Web companies, tured online only to a limited extent. These particularly in activities such as search en- companies are leaving an enormous opportu- gine optimization, social networking, buying nity untapped. from and paying suppliers. They are even managing their business finances and recruit- In our view, every business needs to “go ing staff online. digital”—and fast. Policymakers, too, should pay heed. Given SMEs’ track record in job cre- In many developed and developing markets, ation, policies that encourage more of these high-Web companies are twice as likely as companies to develop an online presence their low- or no-Web counterparts to have a could help address the lingering unemploy- national and international customer base, as ment that currently characterizes the recov- opposed to selling only locally. In the U.S., ery in many countries. high- and medium-Web businesses expect to grow by 17 percent over the next three years, Over the last 18 months, BCG has surveyed compared with 12 percent for low- and no- workers at more than 15,000 companies that Web companies. operate in the world’s biggest economies and that employ fewer than 250 people (in the High- and medium-Web SMEs generate U.S., the cutoff was 500). We grouped the more jobs. In Germany, 93 percent of high- companies into four categories: high-Web, Web and 82 percent of medium-Web compa- medium-Web, low-Web, and no-Web.1 nies increased employment over the past three years, compared with only 50 percent The results are compelling. Across 11 of the of the no-Web firms. Japan experienced simi- G-20 countries, high-Web SMEs have experi- lar results. In South Korea, employment in- enced revenue growth that was up to 22 per- creased at 94 percent of high-Web SMEs and cent higher than that achieved by SMEs with at 60 percent of no-Web companies.

14 | The Internet Economy in the G-20 We’ve identified five value levers that explain enhance a wide range of functions, the “Internet advantage” of High-Web SMEs: including customer relationship management, information management, and •• Geographic Expansion. The Internet creates customer payments. As a result, these a borderless world for many SMEs, companies can grow quickly without enabling them to compete with much requiring large investments in infra- larger, multinational companies by structure. accessing markets that were previously out of reach. •• Easier and Quicker Staff Recruitment. The recruiting options available today are •• Enhanced Marketing. Online marketing more powerful and less expensive than delivers expanded reach and measurable ever before, and they enable SMEs to tap returns. It also yields valuable data about a global talent market. consumers and their preferences, enabling expressly targeted advertising and offers. The most powerful lever may be improved customer interaction, which is achieved prin- •• Improved Customer Interactions. Social cipally by exploiting the participatory nature media make it possible for companies to of today’s Internet. Nearly two-thirds of high- engage in real-time dialog with customers Web SMEs are moving quickly to match their not only to boost sales but also to build customers’ engagement in social networks. loyalty and even to help create, refine, and The impact can be seen in such developing enhance products and services. markets as Brazil and China. (See Exhibit 10.) Despite high barriers impeding SME adoption •• Leveraging the Cloud. SMEs can access of online activities (e.g., lack of infrastructure sophisticated, often cloud-based, tools to and computer penetration), these countries

Exhibit 9 | SMEs That Make Extensive Use of the Web Grow Faster

Historical three-year sales growth

(%) China Brazil India Turkey 30

20 15 8 5 25 10 20 19 13 17 22 9 12 0 –5

(%) Germany U.S. France South Korea 30

10 18 14 3 10 10 15 7 6 11 0 4 –5 –5

Source: Survey of approximately 4,700 SMEs; BCG analysis. High-Web SMEs11Low-Web and No-Web SMEs Note: Figures for some countries may not add up to the totals due to rounding. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

The Boston Consulting Group | 15 Exhibit 10 | More SMEs in Developing Markets Are Using the Internet to Engage with Consumers

Brazil and China have higher percentages of ...and generally higher percentages of SMEs High-Web SMEs... engaging consumers online Percentage of SMEs by Web involvement Percentage of SMEs using Internet activity to engage consumers 53 Website 51 35 83027 China 72

71 Online advertising 61 71

41 Brazil 27 83629 Blogging 38 22

56 Social 43 networking 39

66 U.K. 23 75416 57 E-commerce 49

No-Web Low-Web Medium-Web High-Web Brazil China U.K.

Sources: Survey of approximately 1,500 SMEs; IDC; Organisation for Economic Co-operation and Development (OECD); Brazilian Internet Steering Committee; China Network Information Centre; Internet & Mobile Association of India; Zinnov; MARS Indonesia. Note: Values were adjusted for Internet penetration rates in each country and weighted to reflect an equal distribution of company sizes.

not only boast higher percentages of high- Most of these barriers must be hurdled by the Web SMEs than their developed-market SMEs themselves. But policymakers should counterparts, but their SMEs are also substan- take note that access issues and government tially more adept at moving beyond Internet regulations were cited as impediments by marketing to exploit the Web’s facility for one in five SMEs in developed markets—and driving sales through more intensive custom- by two in five in developing economies. er interaction. These are areas where governments may have opportunities to lend a hand and can The barriers keeping SMEs from engaging reap the benefits of increased economic more broadly or deeply online fall into five growth and job creation. general categories: poor access to the requi- site technology, lack of capabilities, lack of resources, doubt over the potential returns, and an unfavorable business environment. Not surprisingly, access problems and an unfavor- Note able business environment were cited far 1. High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact more often by SMEs in developing markets with suppliers, and empower employees; medium-Web than by their developed-market counterparts. businesses market or sell goods or services online; Almost half of SMEs in India and Indonesia low-Web businesses have a website or a social networking site; no-Web businesses do not have a website. cited “local business culture” as a significant impediment; one-third of Chinese SMEs said that they are held back by lack of access to computers. Inadequate staff knowledge and time were named the biggest barriers in Ja- pan, and about one-quarter of U.S. and U.K. firms reported a lack of necessary financial resources.

16 | The Internet Economy in the G-20 Don’t Blink The Future Is Rushing Straight at Us

he Internet will change even more in Companies that have not yet developed an Tthe next five years than it has in its first online strategy for themselves need to build twenty-five. It will have more users (especial- their digital assets while reducing digital lia- ly in developing markets), more mobile users, bilities (which are often organizational) that more users using various devices throughout might prevent them from tapping opportuni- the day, and many more people engaged in ties. This topic will be the subject of the next an increasingly participatory medium. On the forthcoming report in BCG’s Connected second half of the chessboard, as the rice pile World series. starts to rival Mount Everest in magnitude (the size it would reach on the sixty-fourth Governments also face challenges and oppor- square), the rapidly evolving Internet has the tunities—and many of these are increasingly potential to both enrich and overwhelm. complex. Fifteen years ago, as the commercial Internet was beginning to make its potential Businesses in particular need to make a apparent in the U.S. and elsewhere, President choice. They can rise to the challenge of a Bill Clinton outlined five principles constitut- new Internet-driven marketplace—and ben- ing a “framework for global electronic com- efit from the expanded capabilities and high- merce”: er growth rates that high-Web SMEs are already achieving throughout the G-20 nations. 1. The private sector should lead. The alternative is following in the footsteps of such industries as music and publishing, 2. Governments should avoid undue restric- which held on to outdated business models tions on electronic commerce. for too long and are now dealing with competitive environments that have been re- 3. Where governmental involvement is shaped around them. needed, its aim should be to support and enforce a predictable, minimalist, consis- For those willing to think big, embrace tent, and simple legal environment for change, move quickly, and organize different- commerce. ly, there are countless opportunities to reap the rewards of the Internet’s creative destruc- 4. Governments should recognize the unique tion (as defined by economist Joseph Schum- qualities of the Internet. peter rather than by Karl Marx) in industries ranging from health care to retail and con- 5. Electronic commerce on the Internet sumer goods. should be facilitated on a global basis.

The Boston Consulting Group | 17 The Internet is a very different, much bigger, On a national level, policies that promote in- and more complex place now than it was vestment—especially in the infrastructure in then. New, important, and difficult issues the developing world—and emphasize educa- have moved to the fore, among them privacy, tion, training, and skills-building everywhere piracy, protection, security, “net neutrality,” are essential. Perhaps even more than the in- and taxation. They are already causing con- dustrial era and information age, the Internet flict and contention as different players with economy requires a well-educated and skilled distinct interests choose sides. The recent de- workforce. Countries that fall behind in pro- bate over SOPA—the proposed Stop Online viding educational opportunity are also likely Piracy Act—in the U.S. is one example of how to lose out to others in Internet-driven eco- fractious such issues can be. In February, nomic growth. street protests in several European cities against an antipiracy agreement seen as lim- iting the freedom of online speech showed Policies that promote invest- that citizens are paying attention and have strongly held points of view. ment and emphasize educa-

In the best of all worlds, with the Internet be- tion, training, and skills-building a global phenomenon, governments ing are essential. would act in a coordinated manner, working toward international standards when they are called for and toward cross-country agree- Different countries will take different ap- ments to limit intervention when it is better proaches, but the overarching challenge fac- to let the free market do its own work. This is ing those empowered to do the people’s busi- a high bar, to be sure, and we may need an ness is the same—ensure ready and updated framework with some new princi- affordable access, a level playing field, and an ples, but those put forth by President Clinton open competitive environment that enables offer a still-valid structure for engaging the everyone to tap the economic benefits of the debate. Internet.

COUNTRY PROFILES

n this section, we feature a series of GDP, an illustration of how consumers are Idetailed profiles illustrating Internet using the Internet and what they value, and economic activity across the G-20. For each an assessment of use by—and impact economy, we have provided information on on—small and medium enterprises. the impact of the Internet on commerce and

18 | The Internet Economy in the G-20 Argentina’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage 2016 of GDP)

GDP contribution 5 Manufacturing ($billions) Wholesale and retail trade Real estate 8 Government Agriculture, forestry, and hunting spending Education and health services TOTAL 2010 28 Logistics and communication Public administration 2 18 Financial transactions 3 Investment TOTAL Construction 8 5 Consumption Community services Mining --3 --1 Net exports Hotels and restaurants Percentage of GDP Utilities Argentina Argentina Fishing 2.0 3.3 4.1 5.3 2.0

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; INDEC; CACE; IEMR; company reports; World Bank; World Trade Organization; AméricaEconomía; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Argentina

$9 Research online, billion purchase oﬄine $2 (2.9%) 2010 billion (1.4%) $568 $9 per billion online Online 2016 user retail 2010 (5.9% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016 45.8 32.2 6.7 7.7 10.0 4.5 3.1 $0.3 40.0% $1.9 billion CAGR billion

Television Newspaper Out-of-home Magazine Radio Online Online

The Boston Consulting Group | 19 Australia’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage of GDP)

GDP contribution Real estate Financial services ($billions) 2016 and insurance Wholesale and retail trade Government spending 14 Manufacturing Mining 2010 17 Construction Professional, scientiﬁc, 9 and technical services Health care 15 Investment TOTAL Logistics 61 Public administration TOTAL 50 41 Consumption Education and training 29 Information and telecommunications Administration –12 Net exports --19 Hotels and restaurants Agriculture Percentage of GDP Utilities Australia Australia Arts, entertainment, and recreation 3.3 3.7 4.1 5.3 3.3

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Australian Bureau of Statistics; Forrester Research; IEMR; Australian Communications and Media Authority; company reports; National Broadband Network; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Australia

$38 Research online, billion purchase oﬄine $20 (8.9%) billion 2010 (5.8%) $2,302 $38 per billion online Online 2016 user retail 2010 (10.9% of total retail) Total retail Percentage of total advertising expenditures in 2010 2016

31.5 30.2 34.0 18.4 7.5 4.5 $5.3 7.9 $2.1 16.4% billion billion CAGR

Television Newspaper Radio Magazine Out-of-home Online Online

20 | The Internet Economy in the G-20 Brazil’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage 2016 of GDP) 8 Public and personal GDP contribution services ($billions) 21 Government Manufacturing spending Wholesale and retail trade, 2010 hotels, and restaurants 4 Real estate and business services TOTAL 14 Investment 76 89 Public administration Financial services and insurance TOTAL 46 34 Consumption Agriculture Construction --6 Net exports --16 Logistics

Percentage of GDP Mining Brazil Brazil Electricity, gas, and water 2.2 2.4 4.1 5.3 2.2

G-20 G-20 Internet

The Internet’s Impact on Commerce in Brazil

$36 Research online, billion purchase oﬄine $15 (4.3%) 2010 billion (3.1%) $260 $19 per billion online Online 2016 user retail 2010 (4.0% of total retail) Total retail

Percentage of total advertising expenditures in 2010

60.3 2016

10.1 15.6 17.4 7.5 2.9

3.5 $1.7 14.2% $3.7 billion CAGR billion

Television Newspaper Magazine Radio Out-of-home Online Online Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Brazilian Census Bureau (IBGE); EC; IMRG; ITU, U.K. Office for National Statistics (ONS); IE Market Research; CETIC; Teleco; CGI/ICT; Faraban; BCG analysis. Note: Percentages may not total 100 due to rounding.

The Boston Consulting Group | 21 Brazil’s Consumers Benefit from the Internet

$154 Annual value What do E-mail consumers value? $1,287 $152 $1,472 Consumer General search surplus Perceived value $131

$185 Online banking Cost and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

78 76 72 60 59 43 24 12 8 Satellite Alcohol Fast food Coﬀee Chocolate Exercise Car Sex Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in Brazil

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage) 11jobs during the last three years employment 98 95 HighHigh-Web-Web 20 77 Medium-Webdium-Web 6 20 Low-Web and 1212 53 No-Web

SMEs’ percentage of GDP High- Medium- Low-Web and Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 100100 86 74 73 70 60 38 50 54 3 26 24 3 1 0 3 3 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Brazilian Census Bureau (IBGE); EC; IMRG; ITU, U.K. Office for National Statistics (ONS); IE Market Research; CETIC; Teleco; CGI/ICT; Faraban; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium- Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

22 | The Internet Economy in the G-20 Canada’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage of GDP)

Financial services, GDP contribution 2016 insurance, and real estate ($billions) Government Manufacturing spending 13 Wholesale and retail trade Health care and social services 2010 29 Public administration 11 Construction Education services TOTAL 22 Investment 73 Professional, scientiﬁc, and technical services TOTAL 51 Logistics 48 Mining, oil, and gas extraction 27 Consumption Information and cultural industries Administrative and support --12 Net exports --20 Utilities Hotels and restaurants Percentage of GDP Agriculture, forestry, and ﬁshing Canada Canada Arts, entertainment, and recreation 3.0 3.6 4.1 5.3 3.0

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; eMarketer; Statistics Canada; Retail Council of Canada; Industry Canada; AXCO; IEMR; H2; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Canada

$33 Research online, $18 billion purchase oﬄine billion (5.3%) 2010 (3.4%) $2,082 $58 per billion online Online 2010 2016 user retail (11.3% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016

32.6 28.8 21.8 20.0 5.5 5.3 14.7 $3.8 $2.1 10.6% billion billion CAGR

Television Newspaper Radio Magazine Out-of-home Online Online

The Boston Consulting Group | 23 China’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage 27 of GDP)

GDP contribution 92 Manufacturing ($billions) Agriculture, forestry, and ﬁshing Wholesale and retail Government spending Mining 321 Construction 2010 Logistics TOTAL Financial intermediation 12 852 Real estate Public and social organizations 55 Investment Education 62 Consumption Electricity, gas, and water TOTAL 412 Information and communications technology (ICT) 326 Hotels and restaurants 197 Net exports Leasing and business services Health care, social security, and social services Percentage of GDP Services to households Scientiﬁc research and technical services China China Arts, entertainment, and recreation 5.5 6.9 5.5 4.1 5.3 G-20 G-20 Internet

The Internet’s Impact on Commerce in China

$176 billion Research online, (3.4%) $246 purchase oﬄine billion 2010 $10 (4.7%) billion $62 (0.4%) billion Online (2.5%) $213 retail (C2C) $96 per 2016 billion online Online user retail (B2C) 2010 (4.2% of total retail)

Total retail

Percentage of total advertising expenditures in 2010

45.8 2016 25.4 11.9 18.0 7.9 2.4 6.6 $10.9 $2.8 25.1% billion billion CAGR

Television Newspaper Out-of-home Radio MagazineOnline Online Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Chinese government; iResearch; China Information Almanac; BCG analysis. Note: Percentages may not total 100 due to rounding.

24 | The Internet Economy in the G-20 China’s Consumers Benefit from the Internet

$53 Annual value What do Instant messaging consumers value? $451 $47 $598 Consumer Online shopping surplus Perceived value $147 $46 Cost Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

86 85 82 79 78 56 45 37 36 Alcohol Coﬀee Chocolate Satellite Fast food Car Exercise Shower Sex navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in China

Historical three-year sales growth Percentage of SMEs that added SMEs’ percentage of of SMEs (percentage)11jobs during the last three years employment 97 90 91 High-WebHigh-Web 25 Medium-Webdium-Web 20 Low-Web and 59 80 No-Web 9

SMEs’ percentage of GDP High- Medium- Low-Web and Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 89 100100 12 76 77 12 46 64 62 59 64 3 0 6 3 0 3 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Chinese government; iResearch; China Information Almanac; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website. 2This percentage reflects fewer than 10 responses from no-Web SMEs.

The Boston Consulting Group | 25 France’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage of GDP) 16 GDP contribution Real estate ($billions) Manufacturing 33 Government Wholesale and retail trade spending Health care and social services Public administration TOTAL 2010 105 Construction 14 67 Logistics 28 Investment Education TOTAL Financial services 73 Consumption 42 Hotels and restaurants Agriculture Net exports --10 --12 Food, beverages, and tobacco Percentage of GDP Metals France France Utilities

2.9 3.4 4.1 5.3 2.9

G-20 G-20 Internet

The Internet’s Impact on Commerce in France

$46 Research online, $27 billion purchase oﬄine billion (6.7%) 2010 (4.5%) $1,682 $78 per 2016 billion online Online 2010 user retail (12.9% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016 32.2 19.4 15.3 19.7 15.1 11.1

$3.2 7.0 $2.3 5.6% billion billion CAGR

Television Newspaper Magazine Out-of-home Radio Online Online

26 | The Internet Economy in the G-20 France’s Consumers Benefit from the Internet

$597 Annual value What do E-mail consumers value? $570 $4,453 General search $4,788 Consumer surplus Perceived value $420

Online banking $335 and investing Cost

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

86 77 69 66 61 42 23 16 5 Fast food Satellite Alcohol Chocolate Coﬀee Exercise Car Sex Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in France

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage)11jobs during the last three years employment 96 87 HighHigh-We-Webb 1010 65 Medium-Webdium-Web 6 56 Low-Web and 60 No-Web 7

SMEs’ percentage of High- Medium- Low-Web and private-sector turnover Web Web No-Web Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100100 100 43 78 63 61 49 8 4 7 32 49 9 38 5 10 38 5 Website Online Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; EC; H2; IE Market Research; IDS; INSEE; company reports; Eurostat; Forrester Research; AXCO; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

The Boston Consulting Group | 27 Germany’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage 2016 of GDP) GDP contribution 15 Real estate ($billions) Government Manufacturing spending 39 2010 Wholesale and retail trade 14 Health care and social work TOTAL 31 Investment 157 Public administration 95 Logistics TOTAL 100 Education Consumption 59 Construction 8 Financial services --5 Net exports Utilities Percentage of GDP Hotels and restaurants Germany Germany Mining 3.0 4.0 4.1 5.3 3.0

G-20 G-20 Internet

The Internet’s Impact on Commerce in Germany

$68 Research online, billion purchase oﬄine $38 2010 billion (11.7%) (7.1%) $1,330 $88 per billion online Online user retail 2010 2016 (16.2% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016 34.3 26.4 22.9 20.7 13.3 4.8 $7.1 $5.0 6.2% billion 4.0 billion CAGR

Newspaper Television Magazine Out-of-home Radio Online Online

28 | The Internet Economy in the G-20 Germany’s Consumers Benefit from the Internet

$438 Annual value What do E-mail consumers value? $389 $3,487 General search $3,857 Consumer surplus Perceived value $362

Online banking $370 and investing Cost

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

89 77 77 70 55 45 23 16 10 Fast food Satellite Alcohol Chocolate Coﬀee Exercise Car Sex Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in Germany

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage)11jobs during the last three years employment 93 82 HighHigh-Web-Web 18 Medium-Webdium-Web 8 57 Low-Web and 54 61 No-Web 4

SMEs’ percentage of High- Medium- Low-Web and private-sector turnover Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100100 100 75 72 67 12 45 49 50 3 49 7 39 22 2 0 7 0 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; EC; Eurostat; Forrester Research; H2; IE Market Research; AXCO; DB Research; FBS; GfK; IDC; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

The Boston Consulting Group | 29 India’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage 112 of GDP) Agriculture GDP contribution 32 forestry, and ﬁshing ($billions) Financial services, real estate, insurance, and business services Government Hotels and restaurants 2010 spending 108 TOTAL 242 Manufacturing 2 Social and personal services 12 Investment 14 Consumption Construction TOTAL 8 91 70 41 Net exports Logistics and communications

Mining Percentage of GDP India India Utilities 4.1 5.6 4.1 4.1 5.3 G-20 G-20 Internet

The Internet’s Impact on Commerce in India

$84 Research online, billion purchase oﬄine 2010 $7 (4.5%) billion (0.9%) $78 $6 per billion online Online 2016 user retail 2010 (0.8% of total retail) Total retail

Percentage of total advertising expenditures in 2010

41.7 39.8 2016

7.7 3.4 4.6 3.5 4.0 $0.1 $0.6 25.3% billion billion CAGR

Television Newspaper Out-of-home Radio Magazine Online Online Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; H2; Reserve Bank of India; Indian government; Telecom Regulatory Authority of India; NASSCOM; MediaNama; Trendstream; BCG analysis. Note: Percentages may not total 100 due to rounding.

30 | The Internet Economy in the G-20 India’s Consumers Benefit from the Internet

$48 Annual value What do E-mail consumers value? $414 $46 $494 Consumer General search surplus Perceived value $44 $80 Cost Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

71 70 67 64 63 44 38 36 33 Satellite Alcohol Fast food Chocolate Coﬀee Exercise Car Shower Sex navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in India

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage)1 jobs during the last three years 1 employment 100 98 HighHigh-Web-Web 19 83 Medium-Webdium-Web 19 Low-Web and 17 25 No-Web 1313

SMEs’ percentage of GDP High- Medium- Low-Web and Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 100100 86 74 79 75 55 51 60 12 50 5 17 35 7 3 1 1 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; H2; Reserve Bank of India; Indian government; Telecom Regulatory Authority of India; NASSCOM; MediaNama; Trendstream; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

The Boston Consulting Group | 31 Indonesia’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage of GDP) 2 GDP contribution Manufacturing ($billions) 10 Agriculture Government spending 2010 Hotels and restaurants TOTAL Mining 1 22

13 Construction 5 Investment TOTAL Services 9 3 Consumption Financial services, real estate, and business services Net exports --2 --1 Logistics and communications Percentage of GDP Indonesia Indonesia Electricity, gas, and water 1.3 1.5 4.1 5.3 1.3

G-20 G-20 Internet

The Internet’s Impact on Commerce in Indonesia

$2 Research online, billion purchase oﬄine $0.4 (0.3%) 2010 billion (0.1%) $16 $1 per billion online Online 2016 user retail 2010 (0.3% of total retail) Total retail

Percentage of total advertising expenditures in 2010

52.6 35.1 2016

7.0 0.6 2.1 3.9 0.8 $0.03 39.3% $0.2 billion CAGR billion

Television Newspaper Out-of-home Magazine Radio Online Online

32 | The Internet Economy in the G-20 Indonesia’s Consumers Benefit from the Internet

$46 General search Annual value What do consumers value? $364 $43 $459 Consumer E-mail surplus Perceived value $36 $94 Cost Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

89 78 78 76 75 73 52 34 34 Alcohol Chocolate Shower Satellite Coﬀee Fast food Exercise Car Sex navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in Indonesia

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage)11jobs during the last three years employment 95 87 High-WebHigh-Web 16 69 Medium-Webium-Web 14 Low-Web and 57 97 No-Web 7

SMEs’ percentage of GDP High- Medium- Low-Web and Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 100100 76 79 75 10 65 60 7 56 64 63 7 22 16 0 3 0 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Magnaglobal; CCB; APEC; PTIK; Nielsen; IDC; Statistics Indonesia; H2; Indikator TIK 2010; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

The Boston Consulting Group | 33 Italy’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage of GDP)

Real estate GDP contribution and business services ($billions) Manufacturing Government 2016 Wholesale and retail trade spending 7 Public administration and defense 14 Health and social work 2010 Construction 7 Financial services TOTAL Investment Education 14 70 83 TOTAL Travel and tourism 43 31 Consumption Restaurants Agriculture --9 Net exports --9 Utilities Logistics Percentage of GDP Italy Communications Italy Mining 2.1 3.5 4.1 5.3 2.1

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Italian National Institute of Statistics (Istat); Politecnico di Milano (Polimi); Confindustria; Forrester Research; company reports; Assinform; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Italy

$50 Research online, $20 billion purchase oﬄine billion (8.0%) 2010 (3.4%) $1,499 $48 per billion online Online 2010 2016 user retail (8.4% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016 56.1 26.6 13.3 11.3 10.1 3.9 5.4 $3.8 $1.3 20.8% billion billion CAGR

Television Newspaper Magazine RadioOOut-of-home nline Online

34 | The Internet Economy in the G-20 Japan’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage of GDP)

GDP contribution 2016 Public and personal services ($billions) 36 Manufacturing Government 88 2010 spending Real estate and business services 32 Wholesale and retail trade, hotels, and restaurants 80 TOTAL Public administration 372 TOTAL Investment 271 Logistics and communications 258 163 Construction Consumption Finance and insurance Electricity, gas, and water --16 Net exports --23 Percentage of GDP Agriculture Japan Japan Mining 4.7 5.6 4.1 5.3 4.7

G-20 G-20 Internet

The Internet’s Impact on Commerce in Japan

$158 Research online, $89 billion purchase oﬄine billion (6.8%) 2010 (4.3%) $1,387 $139 per billion online Online 2010 2016 user retail (6.7% of total retail) Total retail

Percentage of total advertising expenditures in 2010

50.4 2016

13.8 21.6 26.3 8.1 4.1 $7.0 $8.7 2.0 3.7% billion billion CAGR

Television Newspaper Out-of-home MagazineORadio nline Online

The Boston Consulting Group | 35 Japan’s Consumers Benefit from the Internet

$148 Annual value What do E-mail consumers $679 value? Consumer $142 $1,446 surplus General search Perceived value $767 Cost $104

Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

86 86 85 74 70 60 56 44 17 Satellite Chocolate Fast food Coﬀee Alcohol Exercise Sex Car Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in Japan

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage)11jobs during the last three years employment 94 –3 High-Web 73 –4 Medium-Web 54 20 Low-Web and 57 –10 No-Web

SMEs’ percentage of private-sector turnover High- Medium- Low-Web and Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 88 100100 57 68 56 7 12 9 56 7 51 31 19 17 28 2 2 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Japanese government; IDC; FCR; Nomura Research Institute; Nielson; Japan External Trade Organization ( JETRO); Dentsu; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

36 | The Internet Economy in the G-20 Mexico’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage of GDP) 2 GDP contribution Manufacturing ($billions) 18 Hotels and restaurants Government spending Financial services, insurance, real estate, 2010 and business services TOTAL 0 24 61 Mining

9 Investment Construction TOTAL 26 9 Consumption Logistics and communications 18 7 Net exports Public and personal services

Agriculture, forestry, and ﬁshing Percentage of GDP Mexico Mexico Electricity, gas, and water 2.5 4.2 4.1 5.3 2.5

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Banco de México; INEGI; company reports; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Mexico

$10 Research online, billion purchase oﬄine $2 (1.6%) 2010 billion (0.3%) $706 $27 per billion online Online 2016 user retail 2010 (5.8% of total retail) Total retail

Percentage of total advertising expenditures in 2010

74.6 2016

6.7 4.0 3.1 5.6 2.6 9.1 $0.1 14.9% $0.2 billion CAGR billion

Television Radio Out-of-home Newspaper Magazine Online Online

The Boston Consulting Group | 37 Russia’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage 3 of GDP) Wholesale and GDP contribution retail trade ($billions) 21 Processing Government Real estate spending Mining Logistics and communications 2010 TOTAL 2 75 Public administration 63 Construction 12 Investment Financial services TOTAL Energy, gas, and water 27 18 Consumption Agriculture Health care --5 Net exports --12 Education Percentage of GDP Hotels and restaurants Russia Russia Fishing 1.9 2.8 4.1 5.3 1.9

G-20 G-20 Internet

Sources: Economist Intelligence Unit (EIU); Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Central Control Directorate (GKU); ITU; Datamonitor; HSE; InSales; IDC; TNS; company reports; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Russia

$43 Research online, billion purchase oﬄine $12 (3.2%) 2010 billion (1.7%) $670 $33 per billion online Online 2016 user retail 2010 (4.8% of total retail) Total retail

Percentage of total advertising expenditures in 2010

53.8 2016

19.0 13.3 9.2 10.8 8.6

4.2 28.1% $4.0 $0.9 billion billion CAGR

Television Out-of-home Newspaper Magazine Radio Online Online

38 | The Internet Economy in the G-20 Russia’s Consumers Benefit from the Internet

What do $138 General search consumers Annual value value? $102 $1,002 Social networking $1,197 Consumer Perceived surplus value $89 $196 News Cost

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

88 85 80 76 70 50 36 15 14 Fast food Satellite Alcohol Chocolate Coﬀee Exercise Car Sex Shower navigation

Sources: Economist Intelligence Unit (EIU); Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Central Control Directorate (GKU); ITU; Datamonitor; HSE; InSales; IDC; TNS; company reports; BCG analysis. Note: Due to rounding, perceived value does not total consumer surplus plus cost.

The Boston Consulting Group | 39 Saudi Arabia’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage 2016 of GDP)

GDP contribution 4 Mining ($billions) Public administration 7 Nonoil manufacturing Government spending Wholesale trade and restaurants Construction 2010 TOTAL Financial services and real estate 2 29 21 Financial services nondwellings 5 Investment Logistics and communications TOTAL 10 5 Consumption Oil manufacturing Agriculture, forestry, and ﬁshing –2 Net exports --4 Social services Percentage of GDP Electricity, gas, and water Saudi Saudi Arabia Mining and quarrying (nonoil) Arabia 2.2 3.8 4.1 5.3 2.2

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); CCB; Saudi Arabia Central Department of Statistics and Information; Arab Advisors Group; Pyramid Research; IEMR; company reports; World Bank; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in Saudi Arabia

$15 Research online, billion purchase oﬄine $3 (8.0%) 2010 billion (2.9%) $424 Online $5 per retail billion online 2016 user 2010 (4.7% of total retail) Total retail

40 | The Internet Economy in the G-20 South Africa’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage 2016 of GDP) GDP contribution Financial services, real estate, and business services ($billions) 2 Manufacturing

Government 6 Public administration spending 2010 Wholesale and retail trade, 1 TOTAL hotels, and restaurants 14 Logistics and communication 4 Investment 9 Personal services TOTAL 7 4 Consumption Mining

Construction Net exports --3 --2 Agriculture, forestry, and ﬁshing Percentage of GDP South Electricity, gas, and water South Africa Africa 1.9 2.5 4.1 5.3 1.9

G-20 G-20 Internet

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Statistics South Africa; IEMR; Pyramid Research; World Wide Worx; company reports; World Bank; World Trade Organization; BCG analysis. Note: Some columns may not add up to total contributions due to rounding.

The Internet’s Impact on Commerce in South Africa

$4 Research online, billion purchase oﬄine $2 (1.5%) 2010 billion (1.2%) $339 $2 per billion online Online 2016 user retail 2010 (1.2% of total retail) Total retail

Percentage of total advertising expenditures in 2010

45.6 2016 23.2 3.9 8.0 9.0 5.8 12.5 $0.2 24.2% $0.6 billion CAGR billion

Television Newspaper RadioMagazineOOut-of-home nline Online

The Boston Consulting Group | 41 South Africa’s Consumers Benefit from the Internet

What do $222 consumers E-mail Annual value value? $211 $1,215 General search $1,615 Consumer Perceived surplus value $211 Online banking $400 and investing Cost Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

81 80 77 74 63 49 22 13 10 Satellite Fast food Alcohol Chocolate Coﬀee Exercise Sex Shower Car navigation

42 | The Internet Economy in the G-20 South Korea’s Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage of GDP)

GDP contribution 2016 Manufacturing 9 ($billions) Public and personal services 16 Government spending Real estate and business services 2010 Wholesale and retail trade, hotels, 6 and restaurants 13 Investment 58 TOTAL Finance and insurance 114 Construction TOTAL 35 Consumption 75 Public administration Logistics Net exports 31 20 Agriculture

Percentage of GDP Electricity, gas, and water South South Mining Korea Korea 7.3 8.0 7.3 4.1 5.3 G-20 G-20 Internet

The Internet’s Impact on Commerce in South Korea

$39 Research online, billion purchase oﬄine $23 (8.1%) 2010 billion (6.6%) $1,099 $44 per billion online Online 2016 user retail 2010 (13.0% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016 41.5 26.0 27.0 17.9 6.9 5.4 15.2% $3.1 2.2 $1.3 CAGR billion billion

Television Newspaper Out-of-home Magazine Radio Online Online

The Boston Consulting Group | 43 South Korea’s Consumers Benefit from the Internet

$96 General search Annual value What do consumers value? $453 $87 Consumer $824 surplus E-mail Perceived value $372 Cost $74 Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

84 83 74 70 69 50 43 41 25 Chocolate Fast food Satellite Coﬀee Alcohol Exercise Car Sex Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in South Korea

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage) 11jobs during the last three years employment 94 91 High-WebHigh-Web 6 70 Medium-Webdium-Web 13 51 Low-Web and –5 88 No-Web

SMEs’ percentage of High- Medium- Low-Web and gross industrial output Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 100100 18 78 75 48 49 70 17 49 43 62 27 6 1 4 2 0 Website Online Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Korea National Statistics Office; IE Market Research; Bank of Korea; Korea Internet Security Agency (KISA); company reports; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

44 | The Internet Economy in the G-20 Turkey’s Internet Economy

Comparison of Internet economy with 2016 traditional industry sectors (percentage 2 of GDP) GDP contribution Manufacturing ($billions) 10 Logistics Government Ownership and dwellings spending Wholesale and retail 2010 Agriculture and ﬁshing TOTAL 1 31 Real estate 23 Public administration 4 Investment Construction TOTAL Financial services 12 Consumption 8 Education Hotels and restaurants --1 Net exports --4 Electricity, gas, and water Percentage of GDP Health care and social work Turkey Turkey Mining 1.7 2.3 4.1 5.3 1.7

G-20 G-20 Internet

The Internet’s Impact on Commerce in Turkey

$9 Research online, billion purchase oﬄine $2 (1.1%) 2010 billion (0.6%) $1,212 $37 per billion online Online 2016 user retail 2010 (8.5% of total retail) Total retail Percentage of total advertising expenditures in 2010 2016

17.8 52.2 22.0 7.7 13.0 $0.9 2.4 billion 17.9% 2.7 CAGR $0.3 billion

Television Newspaper Out-of-home Radio MagazineOnline Online

The Boston Consulting Group | 45 Turkey’s Consumers Benefit from the Internet

$68 General search Annual value What do consumers value? $323 $67 $540 Consumer E-mail surplus Perceived value $217 $61 Cost Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

82 74 71 66 65 59 32 23 19 Satellite Alcohol Fast food Chocolate Coﬀee Exercise Car Sex Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in Turkey

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage) 11jobs during the last three years employment 95 88 HighHigh-Web-Web 17 78 Medium-Webdium-Web 10 66 Low-Web and 78 No-Web –5

SMEs’ percentage of High- Medium- Low-Web and private-sector turnover Web Web No-Web

Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 100100 76 67 50 15 57 55 59 11 11 30 6 25 40 7 42 1 WebsiteOnline Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; Turkish Statistical Institute; Turkish Telecommunication Authority; World Economic Forum; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

46 | The Internet Economy in the G-20 The U.K. Internet Economy Comparison of Internet economy with 2016 traditional industry sectors (percentage of GDP) 26 47 Real estate and GDP contribution business services ($billions) Government Wholesale and retail spending Manufacturing 2010 Financial services Health care and social work 26 TOTAL 347 Construction 36 Investment 257 Education TOTAL 187 Public administration 120 Consumption Logistics Utilities Hotels and restaurants Net exports 18 4 Communications Percentage of GDP Mining U.K. U.K. Agriculture 8.3 12.4 8.3 4.1 5.3 G-20 G-20 Internet

The Internet’s Impact on Commerce in the U.K.

$230 Research online, billion purchase oﬄine $102 (23.0%) 2010 billion (13.5%) $1,641 $87 per billion online Online 2016 user retail 2010 (11.5% of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016

37.3 29.1 23.3 28.9

8.0 7.6 $8.4 $5.4 7.7% billion CAGR 3.0 billion

Television Newspaper Magazine Out-of-home Radio Online Online

The Boston Consulting Group | 47 U.K. Consumers Benefit from the Internet

$407 Annual value What do E-mail consumers value? $3,372 $377 $3,753 Consumer General search surplus Perceived value $359 $381 Cost Online banking and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

91 84 78 76 65 47 25 21 17 Fast food Satellite Chocolate Coﬀee Alcohol Exercise Sex Car Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in the U.K.

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage) 11jobs during the last three years employment 85 75 High-WebHigh-Web 12 Medium-Webium-Web 7 51 49 Low-Web and 59 No-Web 4

SMEs’ percentage of High- Medium- Low-Web and private-sector turnover Web Web No-Web Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 80 100100 53 23 22 40 39 20 78 42 9 50 9 3 10 28 3 Website Online Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Eurostat; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; U.K. Office for National Statistics (ONS); H2; IMRG; IDC; GfK; IE Market Research; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

48 | The Internet Economy in the G-20 The U.S. Internet Economy

Comparison of Internet economy with traditional industry sectors (percentage of GDP)

GDP contribution 2016 Public administration ($billions) 129 Real estate Manufacturing Government Wholesale and retail trade 2010 spending 289 Finance and insurance 128 Health care Professional, scientiﬁc TOTAL Information and technical services 236 Investment 1,000 TOTAL Construction 684 596 Logistics Waste management 330 Consumption Accomodation and food services Mining Utilities --11 Net exports --15 Business services Education Percentage of GDP Agriculture U.S. U.S. Arts, entertainment, and recreation 4.7 5.4 4.7 4.1 5.3 G-20 G-20 Internet

The Internet’s Impact on Commerce in the U.S.

$252 $456 Research online, billion billion purchase oﬄine (5.0%) (7.1%) 2010

$1,926 $482 per billion online Online 2010 2016 user retail (9.6 % of total retail) Total retail

Percentage of total advertising expenditures in 2010 2016 40.3 25.6 15.9 18.2 10.9 4.3 10.5 $47 $26 10.5% billion billion CAGR

Television Newspaper Magazine Radio Out-of-home Online Online Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; U.S. Bureau of Labor Statistics; U.S. Small Business Administration; PC; Forrester Research; H2; Fitch; World Economic Forum; BCG analysis. Note: Percentages may not total 100 due to rounding.

The Boston Consulting Group | 49 U.S. Consumers Benefit from the Internet

$321 General search Annual value What do consumers value? $2,528 $318 $3,000 Consumer E-mail surplus Perceived value $291 $472 Online banking Cost and investing

Percentage of people willing to give up a key lifestyle habit instead of the Internet for a year

84 83 77 73 69 43 21 10 7 Satellite Fast food Chocolate Alcohol Coﬀee Exercise Sex Car Shower navigation

The Internet’s Impact on Small and Medium Enterprises (SMEs) in the U.S.

SMEs’ percentage of Historical three-year sales growth Percentage of SMEs that added private-sector of SMEs (percentage) 11jobs during the last three years employment 24 High-WebHigh-Web 10 18 Medium-Webium-Web 8 13 Low-Web and 45 48 No-Web –5

SMEs’ percentage of High- Medium- Low-Web and private-sector turnover Web Web No-Web Intensity of Web usage (percentage of SMEs using the Internet for a business activity) High-Web Low-Web

100 100 100100 46 74 63 52 39 6 10 12 33 49 6 42 5 3 27 1 Website Online Search Blogging Social E-commerceRecruitmentFinancePaying E-procurement advertising engine networking suppliers optimization

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; U.S. Bureau of Labor Statistics; U.S. Small Business Administration; PC; Forrester Research; H2; Fitch; World Economic Forum; BCG analysis. 1High-Web companies use a wide range of Internet tools to market, sell, and support customers, interact with suppliers, and empower employees; medium-Web businesses market or sell goods or services online; low-Web businesses have a website or a social-networking site; no-Web businesses do not have a website.

50 | The Internet Economy in the G-20 The Internet Economy in the EU-27

Top ten national contributions to Internet GDP (percentage of the 2016 Internet GDP of the EU-27) 121 U.K. 30.0 GDP contribution ($billions) Government 223 Germany 16.1 spending 2010 France 11.8 98 TOTAL 1,133 Italy 7.1 171 Investment 810 TOTAL Netherlands 5.7 619 385 Consumption Spain 5.7

--34 Net exports --22 Sweden 5.0 Percentage of GDP Denmark 3.0 EU-27 EU-27 3.8 5.7 Poland 2.4 4.1 5.3 Belgium 2.0

G-20 G-20

The Internet’s Impact on Commerce in the EU-27

Top ten national contributions to online retail (percentage of total online retail for the EU-27) $650 $289 billion U.K. 35.1 billion (10.8%) Germany 13.3 (5.7%) France 9.3 Sweden 6.8 Italy 6.7 Online 2016 Spain 5.1 retail 2010 Netherlands 5.0 Denmark 4.0 Total Finland 2.4 retail Ireland 2.3 Percentage of total advertising expenditures in 2010 2016 33.3 23.9 27.1 19.1 11.5 6.8 $34 $20 9.2% billion 5.4 billion CAGR

Television Newspaper Magazine Out-of-home Radio Online Online

The Boston Consulting Group | 51 BCG’s e-Intensity Index Highlights Internet Prowess Across the EU-27 Economies

Denmark Sweden U.K. Netherlands Finland Luxembourg Germany France Belgium Austria Ireland Spain Slovenia Czech Republic Estonia Portugal Poland Italy Hungary Greece Natives Players Nascent Laggards natives Slovakia

050 100 150 200 BCG e-Intensity score

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; BCG analysis. Note: The index is scaled so that the geometric mean is 100 for the 34 OECD member countries. The scores of several countries were derived due to lack of complete data. The categories of Internet intensity--nascent natives, natives, players, and laggards--are illustrated in Exhibit 3 of this report. Graph excludes Bulgaria, Cyprus, Latvia, Lithuania, Malta, and Romania.

How the EU-27 Economies Stack Up on the Components of BCG’s e-Intensity Index

NativesPlayers Nascent Laggards natives Enablement Expenditure Engagement (a measure of Internet (a measure of spending in online (a measure of Internet involvement infrastructure) retail and online advertising) by businesses, the governments, and consumers) Sweden Denmark U.K. Denmark U.K. Netherlands Luxembourg Sweden Denmark Netherlands Netherlands Sweden Finland Germany Germany U.K. Finland Finland Germany France Austria Austria Czech Republic Ireland France Luxembourg Estonia Belgium Poland France Ireland Belgium Spain Portugal Hungary Belgium Spain Slovenia Luxembourg Slovenia Spain Slovenia Estonia Ireland Czech Republic Italy Austria Hungary Czech Republic Italy Portugal Greece Slovakia Poland Slovakia Portugal Greece Hungary Estonia Slovakia Poland Greece Italy

0 50 100 150 200 0 100 300 0 50 100 150 BCG e-Intensity score

Sources: Economist Intelligence Unit; Ovum; Gartner; Euromonitor International; Organisation for Economic Co-operation and Development (OECD); Magnaglobal; CCB; BCG analysis. Note: The indices were scaled so that the geometric mean is 100 for the 34 OECD members. The scores of several countries were derived due to lack of complete data. Graph excludes Bulgaria, Cyprus, Latvia, Lithuania, Malta, and Romania.

52 | The Internet Economy in the G-20 note to the reader

About the Authors Suruj Dutta, Ana Carolina Freire, Hay- James O’Day David Dean is a senior partner and wood Ho, Chip Horne, Tom Hussey, Project Leader managing director in the Munich of- Taantee Karmakar, Joe Lee, Brandon London fice of The Boston Consulting Group. Miller, Matt Pan, Lisa Robinson, Christ- +44 207 753 5353 Sebastian DiGrande is a partner and offer Rutgersson, Stevenlie Satryapu- managing director in the firm’s San tra, and Marta Szczerba for their assis- o’[email protected] Francisco office. Dominic Field is a tance. partner and managing director in John Pineda BCG’s Los Angeles office.Andreas The authors would like to thank Principal Lundmark is a principal in the firm’s David Duffy and Mark Voorhees for San Francisco Stockholm office. James O’Day is a their help in writing this report and +1 415 732 8000 project leader in BCG’s London office. Angela DiBattista, Gary Callahan, Kim John Pineda is a principal in the Friedman, Angela Goldberg, Sara [email protected] firm’s San Francisco office. Paul Zwil- Strassenreiter, and Mary DeVience for lenberg is a partner and managing di- contributions to its editing, design, Paul Zwillenberg rector in BCG’s London office. and production. Partner and Managing Director London Acknowledgments For Further Contact +44 207 753 5353 This report is a product of BCG’s Tech- If you would like to discuss this report, nology, Media & Telecommunications please contact one of the authors. [email protected] practice. David Dean For Further Reading The Boston Consulting Group publishes The authors are indebted to multiple Senior Partner and Managing Director BCG partners and colleagues for their extensively on topics related to marketing contributions and insights during the Munich in the digital economy. Recent examples preparation of this report: Marcos Agu- +49 89 2317 4150 include those listed here: iar (Sao Paulo), Jorge Becerra (Santia- [email protected] Digital Manifesto go), Jeffery Bernstein (Tokyo), Julio A Focus by The Boston Consulting Group, Bezerra (Sao Paulo), Vladislav Bouten- Sebastian DiGrande January 2012 ko (Moscow), Ethan Choi (Seoul), Ola- Partner and Managing Director vo Cunha (Sao Paulo), Tenbite Ermias San Francisco Turning Local ( Johannesburg), Yucel Ersoz (Istan- A Focus by The Boston Consulting Group, bul), Philip Evans (Boston), Patrick +1 415 732 8000 September 2011 Forth (Sydney), Tawfik Hammoud (To- [email protected] ronto), Susumu Hattori (Tokyo), Joerg The Connected Kingdom Hildebrandt (Dubai), Nimisha Jain Dominic Field A report by The Boston Consulting Group, (New Delhi), Carl Kalapesi (London), October 2010 David Michael (Beijing), Vaishali Ras- Partner and Managing Director togi (Singapore), David Rhodes (Lon- Los Angeles don), Hermann Riedl (Abu Dhabi), +1 213 621 2772 Ryoji Kimura (Tokyo), Henri Salha [email protected] (Paris), Kanchan Samtani (Mumbai), Just Schuermann (Munich), Shigeki Andreas Lundmark Ichii (Tokyo), Marc Vos (Milan), Sarah Willersdorf (New York), Yukimasa Principal Uchida (Tokyo), and Yvonne Zhou Stockholm (Beijing). +46 8 402 4400 [email protected] They are also grateful to Gaby Barrios, Patrick Böert, Jonathan Colclough,

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