Internet Economics

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Measuring the Internet Economy

Center for Research in Electronic Commerce

The University of Texas at Austin

http://crec.bus.utexas.edu

Please Note:

With a tight deadline, we only compiled aggregate numbers for the

Internet economy for the June 10, 1999, release. We are still analyzing

details, and are also in the process of preparing a longer report.

We hope to have the detailed report posted on both

and by

the end of July or early August. When available, contents will be

automatically updated with the same file name. Thank you very much for

your interest in our study.

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Measuring the Internet Economy: An Exploratory Study

Anitesh Barua*

Jon Pinnell**

Jay Shutter***

Andrew B. Whinston*

*Center for Research in Electronic Commerce

Graduate School of Business, The University of Texas at Austin

** MarketVision Research

*** Cunningham Communications

This study was sponsored by Cisco Systems

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1. Measuring the Internet Economy: Motivation and Challenges

Rapid advances in Internet technologies and the subsequent proliferation of economic activity on

the Internet have ushered in an information age where virtually every organization is trying to

position itself to take advantage of this new phenomenon. These economic developments

involving the use of the Internet as an important business driver are collectively being referred to

as the digital or the Internet economy.

The Internet Economy is also compared today to the Industrial Revolution in potential scope and

size. While the physical aspects of any economy are still based on raw materials like steel, oil

and gas, the Internet Economy is fundamentally different. This new economy relies on high-

speed networks based on the Internet Protocol (IP), Internet applications, new marketing and

business tools, and electronic intermediaries to increase the efficiency of Internet-driven markets.

In spite of the excitement and optimism surrounding the Internet Economy, few comprehensive

efforts have successfully measured the economic growth and jobs created by this emerging

economy. Estimates of the dollar volume of Web-based business are often based on the

consideration of fifty or one hundred pure Internet-based companies, and can seriously

underestimate the size of Internet based transactions. Further, electronic transactions are only one

component of the Internet Economy, which should also include infrastructure related activities.

A foundation for metrics and measurement is the key to understanding and analyzing issues

involving this Internet Economy. For example, what business sectors, products and services

should be included in this Internet Economy? What methodologies are appropriate for measuring

activities in this new world? How large is this Internet Economy? How fast is it growing?

The Internet Economy Indicators, developed at the Center for Research on Electronic

Commerce at the Graduate School of Business, the University of Texas at Austin, and sponsored

by Cisco Systems, seek to fill this void by providing a foundation for conceptualizing and

measuring the various components of the Internet Economy. These indicators - the Internet

Economy Revenues Indicator and the Internet Economy Jobs Indicator - are built on an

analysis of four layers of the Internet Economy. In contrast to previous electronic commerce

studies that focused on Web- based transactions, these Internet Economy Indicators are based on

the premise that the level of Internet commerce activity hinges on the underlying Internet

infrastructure and applications, as well as on the presence of electronic intermediaries to

facilitate interactions between buyers and sellers. Accordingly, the Internet Economy Indicators

divide the Internet Economy into four distinct but related layers: Internet infrastructure, Internet

applications, Internet intermediaries and Internet-based transactions.

2. The Four Layers of the Internet Economy