The Boston Consulting Group (BCG) recently produced a major report on the global internet industry. For the UK, the numbers make impressive reading, especially for a sector that was written off by the naysayers just 12 short years ago.
In 2010 the internet accounted for 8.3% of UK GDP. This is projected to grow to 12.4% (and a staggering £218bn) by 2016. From a 28.9% share of total UK advertising in 2010, BCG predicts that the share taken by the internet will rise to 37.3% by 2016.
Unfairly, George Osborne’s budget will be remembered as an attack on pensioners, pasty lovers and philanthropists. But where did it leave the UK’s internet industry? Clearly George’s heart is in the right place, as some of his measures show, including: generous tax breaks for angel investment, doubling Entrepreneur Relief from £5m to £10m, improving the EMI share options scheme and increasing R&D tax credits for small businesses to 225%. For these measures, he deserves plaudits.
However if the UK’s internet industry is to reach the giddy heights predicted by BCG, or even better them, he needs to understand far better the role of infrastructure spending. As a nation, we need to get up to the standards of South Korea to become properly wired. The chancellor talked grandly about improving the digital infrastructure and investments in the roll-out of fast speed broadband.
But he seems to misunderstand the scale of what is required and the timeframe in which it needs to be delivered. I often visit the regions. Everywhere I hear the same complaints about very poor internet speeds and connection problems. Connectivity may be great in Tech City and in Whitehall but we need to wire up the UK as a whole and quickly.
The UK has an enormous opportunity in this new century. We have the potential to become a world leader. It is not a given that Silicon Valley remains pre-eminent forever. Indeed the clampdown on skilled immigration in the USA is a potential gift to the UK’s tech industry. It means that qualified developers in Northern California are now in short supply causing rampant wage inflation. One San Francisco-based entrepreneur told me that weekly massages and gourmet food on demand were now on every skilled developer’s want list!
For the big well-funded companies such as Google and Facebook this is not a problem. But for small start-ups - the Googles and Facebooks of tomorrow - this is causing acute problems. One bright spark recently had the idea of mooring a boat off California but in international waters so that tech entrepreneurs and developers using easier-to-obtain tourist visas and short-term business visas, could hop a quick ferry ride to meet with tech employers and investors on shore!
Herein lies the opportunity for the UK for we, in contrast, provide a more open environment for developers. There is open access from Europe where EU membership allows freedom of movement. And, thankfully, no longer do the investment banks snap up all the talent. Those box-carrying ex-employees from Lehman marked the beginning of the change in the hiring aspirations of the City.
This alone will not be enough to drive home our potential competitive advantage. Our educational system remains unfit for purpose.
In August of last year, Google Chairman Eric Schmidt said that the UK - the country that invented the computer - was "throwing away your great computer heritage" by failing to teach programming in schools. "I was flabbergasted to learn that today computer science isn't even taught as standard in UK schools," he said. "Your IT curriculum focuses on teaching how to use software, but gives no insight into how it's made." Education Secretary Michael Gove needs to take a much more radical approach to ensuring that schools cater for the modern workplace.
So the budget, whilst positive news for the internet industry, is only part of the story. After two years in office, the Coalition needs to push technology infrastructure and relevant education up the agenda.
David Soskin is the co-founder of Howzat Media LLP and sits on the boards of several internet companies, including Cheapflights Media, of which he was CEO from 2000 to 2008. His book "Net Profit" has been published by John Wiley & Sons. He recently joined the board of challenger bank Aldermore PLC.