The percentage of British GDP accounted for by the UK's "internet economy" is the highest of any G20 country, according to a report out today by global management consulting firm Boston Consulting Group (BCG).
The e-economy made up 8.3 per cent of UK GDP in 2010, almost twice the 4.3 per cent average for developed countries. The domestic internet economy was worth £121bn in 2010, or more than £2,000 per person, and is expected to be worth £221bn by 2016.
In 2010, the UK internet economy was larger than that of construction, education and public administration. If it were a sector, it would have been the UK's fifth largest that year.
David Dean, BCG senior partner and co-author of the report, said the UK internet numbers can in part be attributed to a sub-par physical shopping experience. He told New Statesman:
Part of it is probably some degree of frustration with the physical store experience. We hear of people refusing to go to a store because the customer experience is so bad.
Dean said that, on the flip side, the UK internet shopping experience is not bad and that service, including options for returns, is good.
Further adding to the strong UK numbers is the fact that it is a relatively small country geographically, having fewer logistical hurdles to e-commerce than large countries like the US or Russia, said Dean.
UK consumers are also increasingly becoming more willing to buy groceries online, he added. Some physical UK supermarkets are set up for delivery, offering free local delivery provided a certain minimum amount is spent.
By 2016, the internet is expected to make up nearly one quarter of all UK sales -- the highest percentage of any country, and more than twice the projected internet slice of Germany's economy, which the report projects will be at 12 per cent of GDP.
The UK is already above that mark, with 13.5 per cent of sales in 2010 occurring online.
China, which may be the world's largest economy by 2016, is expected to have only 3.4 per cent of retail sales happening online by that year.
The BCG report said:
Thanks in part to high internet penetration, efficient delivery infrastructure, a competitive retail market, and high credit card usage, the UK has become a nation of digital shopkeepers, to paraphrase Adam Smith.
For those willing to think big, embrace change, move quickly, and organize differently, there are countless opportunities to reap the rewards of the internet's creative destruction (as defined by economist Joseph Schumpeter rather than Karl Marx) in industries ranging from health care to retail and consumer goods.
While the UK racked up $102b (£64b) in online sales in 2010, an additional $87b (£55b) of purchases were researched online and purchased offline (ROPO). Only the U.S. and Japan posted higher ROPO sales in 2010.
Online advertising expenditures crept within a fraction of a per cent of television advertising expenses in 2010, with 29.1 per cent of ad expenses going to television versus 28.9 per cent online. By 2016, 37.3 per cent - or $8.4b (£5.3b) - of advertising expenses are expected to go to the web.
Dan Cobley, Google UK managing director, said in a statement:
This report is massively encouraging and shows that the UK internet is leading the world in e-commerce. At a time of financial uncertainty, the UK internet economy continues to grow at an incredible rate, creating thousands of new businesses and jobs.
More than three quarters of those surveyed in the UK said they would give up chocolate or coffee in order to keep internet access, while only a quarter or fewer would give up sex or a car to stay connected.
UK respondents said they would have to be paid, on average, £2,175 per year - or 9 times what they pay for broadband - to live without internet access.
In 2010, South Korea, China and Japan were behind the UK, with the internet accounting for 7.3 per cent, 5.9 per cent and 5.5 per cent of GDP respectively. In 2016, South Korea and China are expected to remain in the second and third spots respectively, and India is expected to have about the same share of GDP from internet commerce as Japan.
The internet economy in Brazil, which overtook the UK at the end of 2011 to become the world's sixth largest economy, was a 2.2 per cent slice of its GDP in 2010.
The worldwide internet economy, worth $2.3tn (£1.4tn) in 2010, will nearly double to $4.2tn (£2.6tn) by 2016, the report predicts.