The Internet Value Chain

THE INTERNET VALUE CHAIN
Enabling technology and services
The enabling technology and services segment covers a
wide range of services that often are not immediately
visible to internet users but are essential to the efficient
operation of the overall internet infrastructure and the
websites, servers, platforms, and services that use it. As
a whole the segment has grown from $159 billion in
2008 to $373 billion in 2015, posting a 13 per cent
compound annual growth rate that is slower than the
other main segments but still substantial. This
somewhat slower growth is likely because many of the
services do not scale directly with the revenue or usage
going over them but rather with the number of service
providers using them. For example, an analytics service
that tracks usage patterns on a particular retail site will
not earn double the revenue just because the numbers in
its reports have doubled in magnitude. They most likely
would double, though, if they could sell a similar
reporting service to a different retailer. There are many
different services offered in this segment, some very
niche focused, so for simplicity we have grouped them
into three main clusters.
ENABLING PLATFORMS
A range of services underpin the smooth running of
many online services and activities:
• Design and hosting covers from basic websites to
more advanced services such as distributed content.
This continues to be a significant market, driven by
both overall internet growth and the complexity of
making services available across multiple platforms
with more sophisticated functionality and layout.
This segment is worth around $124 billion in 2015 and
likely to keep growing at a steady rate of more than
10 per cent per annum.
• Payment platforms comprise companies providing
transaction systems that process end-user online
payments. A number of models are included here,
among them proprietary online services (such as
PayPal) and services that are extensions of
traditional credit or debit card platforms. The
revenue estimate of $31 billion is based on the
transaction fees the platform service provider earns,
not the gross value of payments transacted.
• Machine-to-machine (M2M) platforms include
companies providing the range of integration,
management, and operation of core platforms that
enable M2M-based services. The revenue estimate of
$9.5 billion is based on the share that is internet
related (as opposed to regular private M2M services,
for example via SMS), which is still modest but
growing quickly.
ADVERTISING
Although the bulk of advertising revenue goes to the
service provider that ‘owns’ the end-user relationship, a
range of intermediary companies act as agents to serve
and place these ads. Exchanges also exist where online
advertising space is traded, in some cases via
mini-auctions conducted in microseconds to decide
which advertisement a user will see. To avoid double
counting, we only take the ad agency or exchange
provider’s markup as the revenue in this segment, not
the full value of advertising they may handle (which
shows up as revenue to the site or service where the
advert is placed). Given the sheer scale of advertising on
the internet, this segment is worth $84 billion, and we
expect it to continue to grow at between 25 and 30
per cent annually as even more advertising revenues
shift online.
One potential threat to this growth, however, is
ad-blocking services. Companies are taking different
positions and approaches. Apple has made ad blocking
a core feature of its operating system, while Yahoo is
restricting access to certain services where ad-blocking
software is detected. In Germany, where more than 30
per cent of people use ad blocking, media groups have
taken legal action against ad-blocking software
producers. Axel Springer has gone so far as to ban
readers who use ad blocking from the website of the
country’s leading tabloid.
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