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Internet value chain soars, to hit $5.8tr in five years

By Adeyemi Adepetun
25 May 2016   |   3:31 am
The Internet is 25 years old. It has evolved from ‘surfing the World Wide Web’ to a complex ecosystem of content and services, hosted on approximately 80 million servers and delivered through...


The Internet is 25 years old. It has evolved from ‘surfing the World Wide Web’ to a complex ecosystem of content and services, hosted on approximately 80 million servers and delivered through an intricate network of cables, mobile networks, and satellites.

This is even as almost half of the people on the planet get online, with their endless drive to innovate leading to a continuous evolution of new uses for the Internet.

Indeed, GSMA in its latest report ‘The Internet Value Chain: A study on the economics of the Internet’, it informed that there has been significant growth in the Internet revenue flowing to nearly all segments of the economy.

The study showed that the total value of the Internet value chain has almost trebled from $1.2 trillion in 2008 to almost $3.5 trillion in 2015, a compound yearly growth rate of 16 per cent.

According to the study, the complete Internet value chain is estimated to grow by 11 per cent yearly over the next five years, reaching $5.8 trillion by 2020.

The study noted that this growth has been driven by three powerful factors. First, there has been a continuous increase in the number of people able to access the Internet worldwide via fixed broadband and mobile networks, at ever greater speeds. Second, the declining cost of Internet-capable devices, most notably smartphones, is making it more affordable to get online. Third, people are using the Internet for a wider array of activities and for longer periods of time each day.

GSMA, which represents the interests of mobile operators worldwide, uniting nearly 800 operators with more than 250 companies in the broader mobile ecosystem, commissioned the report, which has been produced independently by A.T. Kearney.

The report suggested that the online services segment of the value chain will continue to be the largest and experience the fastest growth, accounting for more than 50 per cent of the revenues by 2020. It noted that within that, e-commerce is the biggest driver, which reflected a clear and established business model with plenty of scope for further growth in eroding the share of offline sales.

According to it, the proportion of online services revenue that comes from advertising has risen to 29 per cent, but the majority is still direct customer payments, either for services or e-commerce purchases.

“Higher smartphone penetration, spend on data connectivity, consumption of online media, and spend on e-commerce logically fit together, and in turn they drive increased value in digital content rights, spend on online advertising, and revenues for billing platforms (to name a few of the related items)”, the report stated.

However, with online services picked as the major contributor to the value chain earnings, at a CAGR of 13 per cent over the next five years, leading this area to increase its share of internet value chain revenues to more than 50 per cent, all other areas will experience a decreased share of the total market.

The study pointed out that the biggest driver in absolute terms will continue to be e-retail, which will almost double in size by 2020 to become a nearly $2 trillion market globally.

GSMA noted that continued strong growth of mobile market revenues in developing countries in Africa and Asia is offsetting the gradual decline in developed nations.

In Africa and Asia, it observed that in addition to direct price pressure, there is a growing trend towards bundling content delivery with more advanced services such as security and hosting, which are counted in their respective categories, so the reported revenues for content delivery itself have not shown the same high levels of growth as they have in the past.