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 / Spring 2009 / Issue 54(originally published by Booz & Company)


Watching over the Web

For broadband service providers — and the Internet in general — “digital confidence” pays off.

Illustration by Lars Leetaru
The Internet’s growth is no longer driven by technology. In much of Europe, more than 70 percent of households have broadband Internet access (along with cable television and wireless access); the same technology is rapidly reaching saturation in Asia and North America as well. No wonder that online advertising is growing at 32 percent per year or that in the business-to-business realm, Forrester Research Inc. estimates Web 2.0–related sales will grow by 47 percent per year, resulting in almost US$5 billion (€4 billion) in growth worldwide by 2013. Moreover, the next-generation networks of digital video and wireless services are expected to accelerate all these trends — at increased broadband speeds, with ubiquitous connectivity, and through many types of devices.

There is a risk, however, that this momentum will founder as the hidden costs and risks of the Internet become more evident. Already, the statistics on fraud, criminal cyber-attacks, and lost business are cause for concern. Twelve percent of Europeans avoid shopping online because of concerns about Internet security. According to Booz & Company analysis, the number of online attacks approximately doubled each year between 2002 and 2005, costing the industry an estimated $1 trillion (€843 billion) in 2005 alone in lost revenue, idle time, repairs, and reputation damage. A separate analysis of Internet scams (in the U.S. in 2007) showed them costing their victims as much as $4,000 each.

In short, for those businesses — and governments — that want to see the Internet fulfill its potential, the single most critical factor is not technology. It is confidence. Digital confidence is the level of trust that consumers place in this emerging infrastructure. Digital confidence is tangible enough that its value can be estimated: In the European Union, for instance, the economic upside amounts to an extra 11 percent growth (about $58 billion or €46 billion) on top of the $550 billion (€436 billion) overall revenue base of the Internet in 2008.

When digital confidence deteriorates, content providers and ad­vertising markets are the most negatively affected businesses. In 2008, in an in-depth scenario exercise for Liberty Global Inc., a leading cable TV company, Booz & Company calculated the difference between “getting digital confidence right” (a best-case scenario for the year 2012) and getting it “wrong” (a worst-case scenario in which many people would curtail their time and activity online because they didn’t feel safe). Even in the worst-case scenario, consumers would not abandon the Internet, but they would use it less often and spend less money online. The overall cost in Europe could be $156 billion (€124 billion), or almost 30 percent of the total market at stake — approximately 1 percent of the total estimated European Union gross domestic product. And there would be similar costs elsewhere throughout the world.

In short, for any Internet-based business, digital confidence pays off. That’s why many organizations — public agencies, private companies, and not-for-profit groups — have attempted to promote it. But the industry is gradually realizing which organizations stand at the core of the issue: broadband service providers. These telephone, cable, or access companies represent the first line of contact for consumers, typically charging them a monthly subscription fee to connect their computers, entertainment systems, and mobile devices to the Internet.

The senior management teams of those companies are turning their attention to digital confidence. They recognize that they are not just selling access; their customer relationships depend on their ability to provide a reliable and attractive communications marketplace and a medium that is reasonably safe from attack, fraud, and threat. But this type of access has not been easy to deliver, and it will be even more difficult in the future. The complexities are great, and the moral and political issues are tangled and contradictory. Government cannot resolve the contradictions; no matter how enlightened and proactive Internet regulatory agencies may be, regulations in themselves cannot ensure that people trust the online world. Ultimately, the guarantors of digital confidence need to be the broadband providers. And that rec­ognition alone represents a significant step change for the industry. It means that providers will have to see themselves as the critical link in a value chain that includes consumers, the various “suppliers” of Internet services, and the governments in whose jurisdictions the providers operate.

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