Today’s Internet Usage in Financial Terms

by Fredrik Savin on 28/01/2011 · 1 comment

McKinsey Quarterly recently published a very intriguing piece on the consumer surplus created on the Internet today. The online journal found that we, perhaps not very surprisingly, today obtain considerable value from our interactions with the Web, whether it’s from using sites like LinkedIn for professional networking or services like YouTube for streaming videos. What’s more remarkable is that this usage is estimated to be worth a staggering €150 billion euro a year with a net benefit for consumers of approx. €100 billion euro a year (after subtracting elements like subscription fees, pop-up ads and privacy issues). This figure is expected to grow further to €190 billion euro by ’15, e.g. as new wireless services become available and more people get access to high speed Internet connections.

Some interesting stats from the article:

  • Four online services (e-mail, search, social networks and instant messaging) generate 52% of the consumer surplus.
  • The business models with the highest consumer surplus are those based around communications (44%) followed by Web services (38%) and entertainment (18%).
  • The online services which generate the least amount of consumer surplus are blogs, games/gambling and directory services.
  • Only some 20% of Internet users today pay to use an online service.

McKinsey also addresses how businesses and entrepreneurs might more evenly divide the surplus between consumers and their Internet ventures, e.g. by charging more for content (like Rupert Murdoch did for the Times in 2009 by requiring people to pay to gain access to the paper online). But as mentioned by some of McKinsey’s readers, is this value really for online service providers to take advantage of? As stated by a CEO from Spain: “the moment you truly monetise the Web … is the moment you lose its biggest value: participation.”. As pointed out by McKinsey, online service providers operate in a market environment which allows them to generate revenues from e.g. both advertisers as well as their end-users (a scenario an economist might refer to as a two-sided market or network). As the value to the different parties in a two-sided market/network mainly depends on the number of users on the other end of the market, why try to restrict access when engagement and participation appear to be king?

On a side note, Harvard Business Review published a great article on two-sided markets/networks and network effects in ’06 which I highly recommend to anyone looking for further reading around these topics.

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