Revealed: The real worth of Australia’s internet economy

We all know that the internet has had a huge impact on Australia’s economy. Now we know just how huge.

The Australian internet economy was worth $50 billion in 2010, according to a new report, The Connected Continent, produced by Deloitte Access Economics for Google. This figure is equivalent to 3.6% of Australia’s gross domestic product (GDP), placing it on par with sectors such as retailing, education and training, and iron ore exports.

The report also found that the contribution of the internet to the Australian economy is growing at a rate of 7% per annum – more than twice that of the broader economy – and is expected to be worth approximately $70 billion in 2015.

“This is an attempt to try to put some numbers around the impact of the internet, and also how it is influencing other parts of the economy,” says Deloitte Access Economics partner Ric Simes.

“The overall picture is one of an important part of the economy today directly. It is growing rapidly, and it is having a profound influence on other parts of the economy.”

The internet industry also employs 190,000 people in directly related occupations, including IT software developers, internet service providers and companies providing eCommerce and online advertising services.

The report also says that over the past decade the internet has delivered $27 billion in productivity gains to business and government through improved operations and service delivery, and $53 billion in benefits to households through convenience, such as access to online services and a broader selection of goods and service.

While the numbers are large, Simes describes them as conservative, and says they may only hint at what is to come.

“The combination of mobile broadband, the NBN coming down the pipeline, and what’s happening with Facebook or with a lot of applications seems to suggest that we are near the early part of a wave, and with that coming through, there is a lot more interest in trying to work out how big and how profound this is,” Simes says. “The $70 billion we think is a fairly conservative number.”

The head of public policy at Google (Australia/NZ), Iarla Flynn, says that the boost to the Australian economy that the internet is delivering is ongoing.

“We really are looking at an internet-fuelled boom where, and a boom that is open for everyone,” Flynn says.

“Technology itself is the catalyst for this change, and it’s going to mean that the competitive landscape is going to be changed right throughout the economy, and in quite a constructive way.”

However, he cautions that ongoing growth requires all sectors to continue to increase their use of online services.

“It is also dependent on government at a broad level having a policy framework that is designed to pull all these elements together,” Flynn says.

There is significant contrast between how some sectors are using the internet. The report found that 50% of transactions in the finance and real estate sectors were conducted online. This was well ahead of retailing, with less than 10%, while manufacturing achieved about 1% of transactions online.

This latest report comes as the impact of the internet on Australian business receives renewed attention.

In July a report from PwC and Frost & Sullivan showed that online shopping is expected to grow by more than 13% in 2011 to reach $13.6 billion, up from $12 billion in 2010. This has prompted closer examination of the online strategies of many large Australia retailers.

Simes says it is important that businesses such as retailers begin to the address the changes that are happening within their sectors.

“Change can be a really constructive and a positive thing if you are aware of it and embrace it with open eyes,” Simes says. “And as a country, I think that’s the call to arms. There is a danger if you don’t.”

Retail is not the only sector being shaken up. PwC’s Entertainment and Media Outlook report, released this week, reaffirmed predictions that online media will become the largest single advertising category in Australia by 2014, overtaking free-to-air television.

The Outlook also predicted that by 2015 one out of four Australians will own a tablet computer, with more than five million devices sold. This will significantly change how Australians consume media.

Many smaller businesses are taking heed of the growing impact of the internet. A July report released by the accounting software maker MYOB found that the number of Australian businesses now online had increased from 35% in November 2010 to 39%, with a further 22% planning to create a website in the next 12 months.

The results of the Deloitte Access Economics report were calculated using an expenditure-based approach, which measured the amount spent by consumers, businesses, government and overseas residents on internet-related goods and services that were produced in Australia.

Australia is still lagging some markets however. A 2010 study by Boston Consulting Group using an expenditure-based methodology found that the economic contribution of the internet in the UK in 2009 was UK100 billion, or 7% of GDP. A 2011 study by McKinsey & Company of 13 economies including the G7 and BRIC (Brazil, Russia, India and China) countries found that the internet’s contribution to GDP ranged between 0.8% and 6.3%, placing Australia roughly in the middle based on the Deloitte figures.

It is here that Simes says the Federal Government’s $36 billion National Broadband Network will play a role.

“Increased investment in broadband infrastructure including the NBN will allow us to close the gap on the leading global digital economies,” Simes says. “And included in that is a continuing strong focus on ensuring that more people have access to even faster broadband access.”

“What we see is the NBN is going to be a really important catalyst to drive this growth beyond the next few years, over the next decade.”