Ad-supported Internet is a job engine and major driver of the U.S. economy

October 8th, 2012

Employment in the ad-supported internet ecosystem doubled over the past four years to 5.1 million, making it one of the most dynamic sectors in the recessionary American economy, according to a study by researchers at the Harvard University Business School, commissioned by the Interactive Advertising Bureau (IAB).

The ecosystem contributed $530 billion to the U.S. economy last year, close to double 2007 figures, and accounted for 3.7 percent of the U.S. gross domestic product (GDP), an uptick from 2.1 percent four years ago.

While growth was fast in the consumer-facing layer among the household names like Facebook, YouTube, and Twitter, it was even faster in the less glamorous layer that supports them. Jobs grew fastest in digital advertising agencies, ad networks, ad exchanges, customer analytics firms, and listening platforms. The engine of growth was not just firms like Twitter, but firms that used their data.

Economic impact of the Internet

These key findings are from the 2012 “Economic Value of the Advertising-Supported Internet Ecosystem,” a comprehensive update to a study by the same name released by IAB in 2009, reviewing data from 2007. John Deighton, Harold M. Brierley Professor of Business Administration, Harvard Business School, who helped lead the previous version, directed the current study, with Leora D. Kornfeld, Research Associate, Harvard Business School, serving as principal investigator.

“The substantial economic impact of the internet – through its evolution and dynamism – has been born out by this study,” said Professor Deighton.

“Once accessed only from large desktop machines that connected the office or home to the world, the internet, thanks to mobile phones and tablets, has become ubiquitous. And looking to the future, features such as constant connectivity and location sensing hold the promise of unanticipated opportunities abound for technological development and new user experiences that build on the features of constant connectivity and participation.”

The report shows New York and California as home to the headquarters of the largest number of U.S. internet firms. This result is unsurprising given the renown of Madison Avenue and Silicon Valley as digital business hubs.

More light is shed upon the broad scope of the industry, revealing Washington, Massachusetts, and Illinois as the next three most digital-friendly states.

In total, nine states are the sites of headquarters that account for 72 percent of attributed employment, although the jobs themselves were dispersed across other states in the union:Even more impressive perhaps is the fact that as in the prior report, every congressional district in the U.S. was home to at least a handful of companies within the internet ecosystem, and many had thousands of such companies.

The services that support internet entrepreneurs have allowed businesses to be sited far from the traditional centers of industrial employment. Montana, for example, a state best known for agriculture, supports more Internet ecosystem businesses (from one-man shops to larger companies) than New York City’s 8th congressional district, which constitutes the majority of Manhattan’s west side and southern tip, as well as parts of Brooklyn.

Sole proprietors and very small firms were cited as big winners:

They contributed 375,000 full time equivalent jobs to the 2 million in the internet ecosystem.
Many were selling on Amazon, eBay and Etsy. Many others were self-employed web designers, writers and programmers.
App development alone accounted for 35,000 full-time equivalent jobs, and the number of moonlighters was an order of magnitude larger.
Job creation was highly dispersed, with less growth in aggregate and in percentage terms in the megaplexes of Google, Microsoft and Yahoo! than in the tiny entrepreneurial ventures across every state and county, which themselves are enabled by cloud computing, merchant platform services such as Amazon, brokers such as Craigslist, advertising media like YouTube, small finance providers like Kickstarter, payment facilitators such as Square, and social networks, recommendation engines, and search engines that have helped small sellers to find customers even though they lack the resources to build broadly recognized brands.

“The rapid growth of the ad-supported internet has become a major driver in the U.S. economy,” said Randall Rothenberg, President and CEO, IAB. “All this, despite a challenging economic climate. With encouragement from regulators and legislators in Washington, D.C. and other world capitals, there is no doubt that the interactive marketplace will bring an even greater number of jobs into the fold – not only in America, but across the globe – providing strong economic value in the years to come.”

“The extraordinary work by Professor Deighton and his team shows very clearly that the thriving internet ecosystem, sustained by digital advertising, is a powerful, economic engine for the overall U.S. economy,” said Sherrill Mane, Senior Vice President, Research, Analytics and Measurement, IAB.

“Job creation and sustained economic growth along with the many socially positive outcomes enabled by this ecosystem are a testament to the interactive industry’s creativity and innovation.”

The study also looked at the employment and economic impact of the ad-supported internet by company sector. The research divided the internet ecosystem into 12 different types of companies, within which four different category layers were identified to determine the meaningful revenue and employment figures: