Internet Pumps $507 Billion into US Economy

The Internet economy in the US grew 68 percent from the first quarter of 1998 to the first quarter of 1999, pumping an estimated $507 billion into the US economy and employing 2.3 million Americans, according to a study by the University of Texas released by Cisco Systems.

The study, which divides the Internet economy into four layers: infrastructure, applications, intermediaries, and Internet commerce, found that growth was strong in all layers of the economy. E-commerce, in particular, exploded in the past year, increasing 127 percent from Q1 1998 to Q1 1999. During the first quarter of 1998, e-commerce accounted for 25.8 percent of Internet revenues. That figure jumped to 34.8 percent in the first quarter of 1999. According to the study, this is the result of companies leveraging investments in infrastructure to expand e-commerce.

The number of Internet-related jobs increased from 1.6 million in Q1 1998 to 2.3 million in Q1 1999 as new companies were created and others shifted employees to new assignments to take advantage of the Internet.

“The fact that the Internet economy rose so much in just one year underscores that companies are embracing the Internet and that an Internet revolution is reshaping the economic landscape,” said John Chambers, president and CEO of Cisco Systems.

In the last year alone, nearly 400,000 e-commerce jobs were added, a 78 percent increase from Q1 1998. Infrastructure jobs increased by 184,000, or 39 percent; application jobs increased 156,000, or 38 percent, and intermediaries increased 89,000, or 25 percent.

Where the Jobs Are
Jobs in the Internet Industry
Sector Q1 1998 Q1 1999 Growth
Infrastructure 472,617 656,551 39%
Applications 407,858 563,124 38%
Intermediaries 355,358 444,302 25%
Internet Commerce 506,693 900,882 78%
Internet Economy* 1,572,999 2,301,707 46%
* After removing overlap
Source: University of Texas Center for Research in Electronic Commerce

According to the study, the Internet has unleashed a new entrepreneurial force in the US that has led to remarkable company growth and job creation. One in three of the 3,400 companies surveyed for the study did not exist prior to 1996. The companies created in 1996 or later employ 305,000 employees. In addition, 2,000 secure Web sites are added each month, reflecting the number of businesses flocking to the Internet or expanding their online presence.

The study also found the Internet has proven strikingly similar to the rest of the US economy in the relationship between corporate players and smaller “Mom and Pop” companies. The top ten companies in the study account for only 27 percent of all the Internet revenue, indicating that similar to the rest of the company, major corporations are important but the bulk of economic growth and job creation is driven by small businesses.

In addition, smaller companies (outside the top 350) are more focused on sales to consumers in 1999 than they were in 1998. In the first quarter of 1999, 60 percent of saleswere to consumers, compared to 45 percent in 1998.

In the last year, the Internet economy has surpassed century-old industries such as telecommunications ($300 billion) and airlines ($355 billion) in size and is now approaching the publishing ($750 billion) and the health-care industry ($1 trillion).

According to a report by International Data Corp. (IDC) the worldwide Internet economy will surpass past the $1 trillion mark in 2001, and by 2003, it will be well on its way to $3 trillion.

The report “The State of the Internet Economy – Trends Forecast, 1998-2003: Investments Will Fuel Commerce” breaks the Internet economy into three key elements — Internet commerce, Internet IT infrastructure, and Internet business infrastructure — and found that the three are shifting in importance in terms of contributions to the Internet economy.

“In the early Internet economy years, investments focused around technology products and services to strengthen the infrastructure, achieve critical mass, and introduce online users to commerce,” said Anna Giraldo Kerr, senior analyst for IDC’s Internet and eCommerce Strategies research program. “Now, however, non-technology spending is slowly catching on. The marketing and sales functions, along with content creation, will take a lead role in enhancing the Internet experience and stimulating Internet commerce.”

IDC’s report found that for every dollar of e-commerce revenue generated in 1998, $0.93 were directly invested in the Internet commerce infrastructure. IDC expects corporations to increase their investments significantly to improve this ratio by 2003.

Technology investments accounted for 52 percent of worldwide Internet spending. But in 1999, for the first time, IDC expects non-technology investments to surpass technology investments. By 2003, technology investments’ share will have decreased to 39 percent.

“Building the infrastructure to support Internet commerce is not cheap,” said Frank Gens, senior vice president of IDC’s Internet research. “Everyone praises the benefits of Internet commerce, but few understand the size of the investment required, and fewer still understand that technology infrastructure is just a part of that investment.”

More information on the ongoing study by the University of Texas and Cisco is available at the site

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