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Can we really measure the impact of the internet?

An Infometrics paper released today by InternetNZ estimates the probable existing economic impact of the internet at between 5 and 9 percent of GDP based on global studies in developed economies. 

A second report, from NZIER, was also issued – you'll find both studies at internetnz.net.nz/ecoresearch.

InternetNZ chief executive Vikram Kumar says the studies are the first careful look New Zealand experts have taken into how the internet is changing the economy.

“We asked Infometrics and NZIER to look at the internet from an economist’s point of view, and to explore the impact it has across the economy These studies do not look at the ‘internet economy’ or the broadband market. They explore how the internet can change everything,” he says.

He says InternetNZ was surprised to find there were no previous studies from a New Zealand perspective that looked at the impact the internet is having.

The NZIER study was of the view that measuring economic impact is difficult due to the wide array of changes the internet is inducing.

"They consider that a transport metaphor is useful for thinking about the internet’s impact on the economy, effectively reducing transport costs for New Zealand firms,” says Kumar.

But as both studies point out, disruptive innovation has already happened and is likely to continue.

Impact of disruptive internet technologies

Connectivity fuelling collaboration and innovation

According to the NZIER study: "The exponential growth in the number of potential connections or collaborators is supported by the falling cost of communicating information and ideas between those collaborators ... The internet provides a huge opportunity for innovation. The number of possible connections or collaborators, or sources of information is growing exponentially. Currently less than a third of the world's population uses the internet. This suggests that the internet is likely to deliver more innovation yet."

Impact of disruptive internet technologies

It says innovation (in relation to development of new products and technologies, as well as finding ways of using existing technologies better) from the internet will be a mix of existing and new technologies, "likely to improve or recreate processes that already exist, such as emailing instead of faxing, or shifting accounting services to the cloud (cough, Xero, cough).

"The remaining innovations are those new technologies and products that are likely to bring about the most social and economic change. These are known as disruptive technologies because they have the power to completely upend how an industry operates."

The NZIER says these disruptive products introduce new attributes to the market but tend to be outperformed by existing products; however, as the disruptive technology becomes accepted, it develops to outperform the existing technology and its traditional attributes.

"The key point about the development of disruptive technologies is that highly disruptive products have attributes that are the complete opposite of existing technologies. This means that when the market shifts towards the new technologies, the existing products are at a complete disadvantage because they specialise in attributes that are no longer demanded from the market."

It cautions, however, that the internet is still growing its niches and effects on the economy, and as these settle down, it will be important to ensure that legal frameworks have adapted to provide legal cover for the different types of transactions that now take place online.

"Privacy settings and consumer protection law may need to be amended to take account of the new products being sold online. If the settings are too prohibitive then the potential impacts from the internet will be lessened."

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