The Internet Economy: Insights on Canada vs. the U.S.
The results are in. The Internet is estimated to be worth $1.12 trillion to the U.S. economy. That translates to the equivalent of 4.1 million full-time jobs and an additional 6 million derived or indirect jobs. But what do these findings mean for the tech landscape north of the 49th parallel?
First, a little background. The above figures come from The Economic Value of the Advertising-Supported Internet Ecosystem, a report I co-authored and the third in a series conducted initially in 2008 and every four years since then.
The assignment has been to map the Internet economy and then examine a statistically significant sample of individual firms as well as entire industry sectors in order to determine the GDP contribution of Internet-based economic activity and employment. For sure, it’s a tall order but one that is as fascinating as it is the cause of many a furrowed brow.
The report is spread out over a fairly hefty 118 pages, so some topline highlights are in order:
- Online video and “OTT” content (over-the-top or non-broadcast television) were the most significant drivers of Internet activity, accounting for approximately 70% of broadband video traffic (and of which Netflix accounted for half).
- For a first time in 2016, the U.S. market shares held by digital and television advertising were neck and neck—each accounting for about 37% of all media spending.
- In 2016, only 14% of Internet-dependent jobs in the U.S. were found in the ‘usual suspect’ locations of Silicon Valley, Seattle, New York, and Boston.
- The other 86% of the jobs were scattered among companies located throughout the country, but also in the form of merchants selling on platforms such as eBay, Amazon, and Etsy, drivers for services such as Uber, Lyft, and Instacart, as well as independent workers providing technical and creative services on and for the Internet.
What about the tech landscape in Canada?
As a recently repatriated Canadian, I decided to do some thinking on the differences between the Canadian and American Internet economies. To my surprise, I found more points of similarity than I would have expected. The knee-jerk reaction would be to simply prorate the U.S. figures at 10% for Canada, as that’s the ratio of Canada’s population to that of the U.S. However, if we did that and merely assumed a relative GDP contribution of $100 billion and approximately 400,000 jobs, only part of the story would be revealed.
So what additional light can be shed on the matter, in the absence of the 6 months to a year and the team required to conduct a full-scale analysis of Canada’s Internet economy? What follows is the result of some additional scrutiny of the problem and what emerged were some expected similarities, but also a number of key differences between both countries’ Internet economies.
Canada’s population is only 11% of the U.S. population, but both countries have 82% of their respective populations that live in urban areas. And when it comes to broadband penetration, which is a determinant of the ability to receive high-speed Internet services, we find that Canada is ranked 15th in the world, whereas the U.S. lags behind in 22nd position.
One of the methods used for the U.S. study to determine the Internet’s economic impact was the measurement of digital advertising. In the U.S. that estimate was about $65 billion for 2016.
In keeping with the convenient assumption that Canadian activity represents around 10% of U.S. activity, we are served reasonably well seeing as digital advertising in Canada totalled $5.4 billion during the same period, which represents 8.3% of the U.S. total. Digital advertising in French Canada accounted for about 20% of Canada’s total $5.4 billion—a figure consistent with the proportion of Francophones in the country.
And while 2016 was the first year during which digital advertising exceeded TV advertising in the U.S., that threshold had been crossed in 2013 in Canada. This trend has continued with the market share for digital advertising in Canada ranking at 42%—well above the global average of 33%—in 2016. It is expected to reach 47% in 2017.
What about Canada as a home to innovation and high-tech education? The finding is once again surprising. Owing in no small part to hubs such as the University of Waterloo (AKA the MIT of Canada), Canada has its own Silicon Valley North in the Toronto to Kitchener-Waterloo corridor. The region is home to close to 300,000 tech industry workers, though not all jobs that are categorized as tech are necessarily Internet-dependent (e.g., pharmaceutical research, aerospace manufacturing, R&D).
Moving beyond this tech triangle, the province of Ontario is reported in terms of size and wages to rank alongside the top regions for U.S. technology clusters. Of course, there are sizeable technology clusters located across Canada, with a total of 26 innovation hubs identified in British Columbia, Alberta, Quebec, and the Atlantic region.
Furthermore, all the major U.S.-based tech companies operate one or more offices in Canada. This is namely the case of Microsoft, Yahoo, AOL, Amazon, Apple, Google, and newer firms such as BuzzFeed and Twitter.
And, each year, the number of homegrown Internet success stories grows, with the list now including such well-known names as Shopify, Slack, Kik, Hootsuite, Wattpad, BroadbandTV, Radian6 (acquired by Salesforce.com), and PlentyofFish (acquired by Match.com).
Among the sectors of the Internet economy that are likely to be future sites of disruption, our report identified fintech (short for financial technology) which allows individuals and businesses to bank, invest, and lend in new ways and at a fraction of the cost of conventional banking and investing options.
Once again, Canada—a country with some of the highest investment management fees on the planet—is well represented in this area. A host of firms already offer ‘robo advisor’ services as a viable option to the offerings of the big banks and brokerage firms, and they do so for about 20% of the regular fees.
The blockchain, i.e., the decentralized ledger behind such digital currencies as Bitcoin and Ethereum (invented by Russian-born and Canadian-raised programmer Vitalik Buterin) is widely regarded as a massive threat to the banking establishment, but it could also disrupt the traditional media distribution infrastructure.
As we approach the 25-year mark of the evolution of the consumer Internet, we continue to be confronted with the unpredictable. The wild west days of peer-to-peer technologies such as Napster in the late 1990s helped pave the way for streaming services that turned media into a combination utility and all-you-can-eat smorgasbord.
A necessarily limited number of media outlets have been broadsided by armies of digitally empowered creatives uploading to platforms such as YouTube, Medium, Soundcloud, Bandcamp, Instagram, and Snapchat. Encyclopedias have been replaced by an open platform with articles of remarkably high quality and accuracy that are written by nobody in particular and corrected by anonymous volunteers.
Where things go next is, of course, anyone’s guess, but for reasons such as the ones provided above—high broadband penetration, dozens of innovation hubs, and a healthy track record of success stories that reach well beyond the country’s borders—there is ample reason for optimism when it comes to opportunities for Canada in the Internet economy.