The Web’s €100 billion surplus

McKinsey Quarterly

Jacques Bughin

Consumers get the bulk of it with free services like social networks. Will industry dynamics shift as providers and advertisers try to get a bigger share?

Consumers derive significant value from all they do on the Web, and since advertising pays for much of this, it involves no immediate out-of-pocket cost. We all experience these benefits each time we log onto a social network or watch a free Web video.

But how much is all of this Web use worth? About €150 billion a year, according to new McKinsey research involving a survey of 4,500 Web users across Europe and the United States, as well as conjoint analysis of their willingness to pay for various online activities.

Consumers do pay for some of this: €30 billion for services such as music subscriptions and gaming Web sites. In a sense, they also pay for the “pollution” of their Internet experience by intrusive pop-up advertising and perceived data privacy risks, an amount we estimate to be €20 billion after asking consumers what they would pay to avoid further clutter and privacy concerns. That leaves a substantial consumer surplus of €100 billion a year, a total that we project will grow to €190 billion by 2015 as broadband becomes ubiquitous around the world and as new services and wireless devices come to the fore.

For Web service providers, this is a large parcel of value to leave on the table. In fact, it amounts to more than three times the €30 billion companies pay providers to advertise on their Web sites and is almost as much as the €120 billion consumers pay for wired and wireless broadband access. One reason for this seeming largesse may be that once a Web service is created, the cost of distributing it is very low, and most Web companies are satisfied covering their basic costs with advertising. In the off-line world, things are different, of course: the surplus is more evenly divided between consumers and suppliers, since in many markets—books, movies, or cable TV, for example—consumers pay for content.