Monday, October 1, 2012
Ad-Supported Internet Responsible for 5.1 Million U.S. Jobs, Contributes $530 Billion to U.S. Economy in 2011 Alone, According to IAB Study

New York, California, Washington, Massachusetts, and Illinois are the Top 5 States Where Companies Drive Digital Industry Jobs

NEW YORK, NY (October 01, 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.

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 research was unveiled today at the annual IAB MIXX Conference in New York City to quantify the significant role the ad-supported digital sector plays in the expansion of the broader U.S. business landscape.

“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:

State Number of Firms Headquartered in the State Number of Employees Whose Firms are Headquartered in the State
New York 102 239,000
California 128 215,000
Washington 24 64,000
Massachusetts 29 60,000
Illinois 22 38,000
Minnesota 10 29,000
Pennsylvania 11 28,000
Arkansas 3 26,000
Colorado 8 19,000

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:

  • Infrastructure Layer
    • Transmission and connectivity providers
    • Hardware manufacture
  • Infrastructure Support Layer
    • Internet enabling services
    • Software manufacture
  • Consumer Support Services Layer
    • Consumer support services
    • Marketing support
    • Navigation
    • B2B internet commerce
    • Enterprise staffs
  • Consumer Services Layer
    • Content sites
    • E-commerce
    • Social networks

The biggest increase in jobs over the four-year period was seen within the infrastructure (300%) and consumer support service (229%) layers, although consumer services still ranks as the area with highest employment number (885,000).

The ad-supported digital industry directly employs 2 million Americans, and indirectly employs a further 3.1 million in other sectors.

Layer 2007 Direct Employment 2011 Direct Employment Percent Growth
Infrastructure 140,000 420,000 300%
Infrastructure Support 165,000 254,000 54%
Consumer Support Services 190,000 435,000 229%
Consumer Services 520,000 885,000 65%
TOTAL 1,015,000 1,999,000 197%

Note: the 2011 numbers are smaller than the 5.1 million jobs referred to above because they show direct employment, not direct and indirect employment. The ad-supported digital industry directly employs 2 million Americans, and indirectly employs a further 3.1 million in other sectors.

“One of the most striking findings of this report is that growth was fast in the consumer-facing layer, but that it was even faster in the less glamorous infrastructure layer that supports the high-profile brand name sites and services” said Professor Deighton. “Jobs grew fastest in digital advertising agencies, ad networks, ad exchanges, customer analytics firms, and listening platforms. The engine of growth was not just consumer-facing companies like Facebook, Twitter and YouTube, but also firms that used the data spun off by them.”

Google, 24/7 Media Inc. and ValueClick helped underwrite the third-party research for the 2012 “Economic Value of the Advertising-Supported Internet Ecosystem.”

To read the full study, please go to http://www.iab.net/economicvalue.

Methodology
The report uses three methods to provide data that, together with reasonable assumptions, can be used to estimate the U.S. domestic economic activity attributable to the advertising-supported internet ecosystem: computing the number of jobs that depend on the existence of the Internet and estimate the salaries and wages paid to these jobs; computing payments to firms for internet services, viewing the internet as if it were an island exporting to the rest of the economy; and valuing the time that users spend on the internet at its marginal value. It follows, to the extent possible, the structure and method of the earlier study, published in 2009 based on data from 2007. This update relies on data from 2011 and, when available, from the first two quarters of 2012. Note that a marginally different set of categories was applied to the 2011 internet ecosystem to reflect structural changes, and the 2007 employment was corrected from 1.2 million to 1.015 million to reflect a computation error in the earlier report.

About the IAB
The Interactive Advertising Bureau (IAB) is comprised of more than 500 leading media and technology companies that are responsible for selling 86% of online advertising in the United States. On behalf of its members, the IAB is dedicated to the growth of the interactive advertising marketplace, of interactive’s share of total marketing spend, and of its members’ share of total marketing spend. The IAB educates marketers, agencies, media companies and the wider business community about the value of interactive advertising. Working with its member companies, the IAB evaluates and recommends standards and practices and fields critical research on interactive advertising. Founded in 1996, the IAB is headquartered in New York City with a Public Policy office in Washington, D.C. For more information, please visit www.iab.net.

IAB Media Contact
Laura Goldberg
347.683.1859
[email protected]