The Internet generated about $301 billion in U.S. revenue last year, according to a study being released today. And despite the profitless state of many online companies, the sector's work force of 1.2 million people was more productive than that of many other industries, the study concluded.

The findings suggest that the U.S. Internet industry rivals such sectors as automobiles, at $350 billion, and telecommunications, at $270 billion, said the University of Texas team that did the study with financing from Cisco Systems Inc.

The researchers, from the University of Texas Graduate School of Business, found that one component of the Internet economy--electronic commerce--generated $102 billion of revenue in the United States last year and is growing faster than many analysts previously estimated. The Texas team said the average revenue per Internet employee was $250,000 last year, substantially higher than the overall U.S. average of $160,000 for non-Internet companies.

The study said the U.S. Internet economy grew at a compounded annual rate of 174 percent between 1995 and 1998. The country's gross domestic product was growing at 2.8 percent a year during that period.

Cisco, the networking company that calls itself the plumber of the Internet, commissioned the study at a time when investors and companies in electronic commerce are clamoring for better data to help gauge the scope of the Internet industry.

The U.S. Department of Commerce convened an industry summit last month to solicit input on its effort to formulate new ways to track the digital economy. Secretary of Commerce William Daley said the department is building data about electronic commerce because so many investment decisions depend on the government's numbers.

Elliot Maxwell, the lawyer who is leading the Commerce Department's e-commerce initiatives, said yesterday the agency will release an updated report on the digital economy this month or next.

"What we don't want to have is a situation in which an Internet tornado sweeps across the economy, changing supply chains and relationships between customers, businesses and suppliers," said Maxwell, "and reducing the value of the numbers the government releases because they don't reflect what is happening in the economy."

In a survey Cisco intends to repeat quarterly, the researchers spent the past several months interviewing about 3,000 Internet companies and evaluating data on a total of 27,000 companies whose businesses involve the Internet.

They defined the Internet industry to include electronic commerce (e-tailers, subscription services, ticket sales and professional services), its underlying infrastructure (access companies, modem manufacturers), software applications (Web browsers, search engines) and intermediary businesses (portals, brokerages and various services). The study excluded internal company Web sites and extranets, or sites that link companies directly with suppliers and customers.

Infrastructure accounted for the most revenue, $114 billion, while commerce generated the most jobs--481 million, the team estimated. The study said intermediaries, relying on a mix of commissions and advertising, generated $58 billion in revenue last year.

Several economists noted that the Texas team's electronic commerce estimates were higher than those of most Internet market research firms. Zona Research Inc., for example, produced one of the higher e-commerce estimates for 1998--$20 billion for consumer commerce and $60 billion for business-to-business transactions.

Anitesh Barua, the Texas professor who led Cisco's research team, said its revenue estimate of $102 billion probably came in higher than Zona's because they cast their research net wider. About 30 people spent several months working full time to collect and analyze data, Barua said. The group estimated, for example, that 11,000 companies were selling directly over the Internet last year and interviewed several thousand of them.

Jack Staff, Zona's chief economist, said researchers are frustrated by the lack of common definitions for online businesses and look forward to new measurement tools from Commerce.

Although Staff had not read the report, he said the Texas team's revenue estimates for e-commerce sounded credible, partly because the Internet is growing so fast. He said it would not surprise him if they jumped even more over the next few months.

"For anybody who thinks this is still about geeks and young people, they are living in the dark ages," Staff said.

Making Money on the Web

A study from the University of Texas at Austin says the Internet generated more than $300 billion in revenue last year.

Internet sector 1998 revenue*, Attributed Web jobs

in billions

Infrastructure $114.9 372,462

Applications 56.3 230,629

Intermediary 58.2 252,473

Commerce 101.9 481,990

Total 301.4 1,203,799

NOTE: Totals includes some double counting.


SOURCE: University of Texas at Austin