Just how Big is the Internet Economy?

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by Robert Spiegel

As Mark Twain said, "There's lies, damn lies and statistics." And the statistics on the size of the Internet economy are all over the place. Even the reliable sources such as Forrester Research in Cambridge, MA are sending out confusing numbers. The Internet economy in 1998 reached $4 billion in sales (Forrester) or $8 billion (Forrester again) or $43.1 billion (Forrester yet again) or $301.4 billion (Cisco and the University of Texas). That's quite a range of estimates, from $4 billion to over $300 billion.

So how big is the Internet economy? Depends on who's doing the quoting, when they're quoting and what they're quoting. Every time I see new estimates for 1998 online sales, they're bigger. Last February I regularly saw quotes of $12 to $20 billion for 1998 Internet business. The numbers for trade commerce (business-to-business sales) usually constitute about two thirds of the total, with retail sales (mostly books, CDs, clothing, travel and porn) making up the rest. But as the months go by, the 1998 figures grow, even the numbers from the most-quoted, most-reliable source: Forrester Research.

So I called Forrester to get some answers on the shifting figures. One of the firm's analysts explained the company released estimates for 1998 Internet sales in mid '98 and they were woefully low. The $4 billion (retail) and $8 billion (trade) numbers came from that mistaken study. Forrester revised its numbers last winter and came up with $43.1 billion, which the frim is now beginning to believe is too conservative. For the study, Forrester estimated all of the sales initiated or completed through Internet communication. Analysts called 80 companies and surveyed 170,000 consumers to gather data for the estimates.

The Cisco/UT study goes beyond direct Internet sales and includes everything that is necessary to connect buyers with sellers, including networking infrastructure and software applications. The portion of the $301.4 billion that constitutes direct sales online comes to $101.9 billion, which is considerably higher than the Forrester numbers. Yet some experts believe even these figures are low. The Industry Standard (the newsmagazine for the Internet economy) says the Cisco/UT numbers are a "very conservative estimate of the Net's contribution to the economy." Employment estimates were also included in the Cisco/UT study. The results contend that infrastructure and applications add up to 855,564 jobs, with an additional 481,990 jobs directly related to online transactions, bringing the total number of 1998 Internet jobs to 1,203,799.

You add all these numbers up and the Internet is no longer the "economic pip-squeak" the Wall Street Journal called it in 1998. Of course, this past year the WSJ has revised its view of the Internet. Now the rag is bullish on Net companies. With all these hearty 1998 estimates, the future of the Internet looks even more impressive. Forrester estimates that business-to-business sales alone will hit $842.7 billion in 2002. That's no typo. For 2003, the firm claims b-to-b will hit $1.3 trillion. That's just the United States. Globally, Forrester expects b-to-b sales to land in the range of $1.8 to $3.2 trillion. If Internet employment follows the same growth predictions as Internet commerce, the online economy will be the source of most new jobs in the coming decade.

If the Internet gets anywhere close to these numbers in the next few years, it will change our economy drastically. Vice President Al Gore recently predicted that by 2006 a full one half of US jobs will be in the Internet economy or computer industry. When that occurs, the Internet will not only affect our economy; it will become our economy.