The de-Americanized Internet: how international markets now drive revenues and opportunity

November 26, 2009

The blog post is part 1 of 3 in a series by Eric J. Gerritsen – Principal of Global Internet Advisors, a Silicon Valley-based international strategy consulting firm.

In the last 10 years the Internet has radically de-Americanized with profound strategic consequences for Internet CEOs, boards, VCs, investment bankers, government policy makers, and the entire U.S. economy.

Over the next 10 years the most money, the largest audiences, and the biggest opportunities for Internet growth will happen outside the United States.

This reality is poorly understood. As a result most Internet CEOs are leaving big money on the table, short-changing their investors, and limiting employee opportunity.

Without effective global strategies CEOs will never achieve maximum company scale, full revenue potential, or the high valuations that reward category leaders.

On the bright side, Internet CEOs who do rapidly grasp this permanent new reality – and who develop dynamic strategies to engage with it – will create world-leading firms, generate greater revenues and profits and deliver superior returns to investors.

Tapping the revenue potential of these gigantic new global markets is the number one driver of Internet company value for the next five years.

This remarkable situation only recently became true. Ten years ago the Internet was an overwhelmingly American phenomenon.

In 1999:

Over 50% of the world’s Internet users were in the United States.

Revenues were almost exclusively derived from American sources.

All the leading companies in 1999 – Yahoo, AOL, Lycos, Infoseek, CompuServe, Altavista, Microsoft, Netscape – were American.

Internet IPOs were all American.

Key driver technologies – browsers, search engines, directories, e-commerce platforms, advertising networks – were all American.

In 1999 European and Asian companies were caught flat-footed. From Tokyo to London media and telecom executives scrambled to partner and do deals with American Internet firms in the hope that some of the fairy dust would rub off. A lot of people drank a lot of American Kool-Aid.

Fast-forward to today and only 15% of the world’s 1.4 billion Internet users are American.

Major signposts are being passed on this journey of Internet de-Americanization. This year China moved ahead of the United States to become the country with the largest number of Internet users – 235 million – forecast to grow to 375 million users by 2012. China added 90 million new users in 2007 alone. At 19% penetration China has a lot of potential for further growth over the next decade; at 71% penetration, America’s Internet population is saturated.

On the wireless Internet the non-U.S. numbers are just as striking: in 2010 only 11% of the world’s 779 million wireless Internet users will be American. Only 12% of Americans use their phones to access the Internet, versus 78% of Japanese who do.

Beyond China:

The rise of the Global Internet is not just a China story. India will be the next 100 million user Internet country and could grow as high as 500 million users by 2012, according to targets recently set by India’s Telecom Minister A. Raja.

The Global Internet is even much more than a “Chindia” story. Vietnam’s Internet population is predicted to increase threefold to 30 million by 2010; Russia and Brazil both grew over 700% between 2000-2007; and Africa and the Middle East – both largely absent in Internet 1.0 – grew by over 1000% in the last eight years.

At the same time that America’s Web footprint is shrinking the American Internet is also falling behind in terms of technical sophistication. Broadband penetration in the U.S. has fallen to the 25th position globally and is 15th among advanced OECD countries.

Domains go global:

Another primary indicator of the de-Americanization of the Internet is the critical area of domain registrations. Of the 168 million domain names registered globally only 38% are owned in America.

The fastest-growing domains are non-.com domains, including country-code top-level domains like .de (Germany) and .cn (China), and new top-level generic domains like .eu (Europe) and .asia (pan-Asia). China domains, for example, grew to 12.4 million registrations in 2008.

Another domain-industry development that bodes for further Internet de-Americanization is ICAAN’s plan to allow for local language extensions in Chinese, Arabic, etc.

This could lead to an explosion of non-Roman language activity as businesses make their offerings truly local. The logic to go local is compelling. For example, if a Chinese vendor wanted to sell cars to Chinese people in Beijing would he rather own “beijingcars.com” or “北京.汽车”(“beijing.cars”)?

Against this backdrop of Internet de-Americanization many governments and non-U.S. players feel that the Root File (the Internet basic “address book”) should be managed by a neutral group like the United Nations or the International Telecommunications Union and not the U.S. Department of Commerce.

Search:

Another key Internet sector that is rapidly de-Americanizing is search. Google has made a spectacular sprint across the globe in recent years to be the search leader in most countries, but it is far from clear that its strength is unassailable.

In China, Baidu leads with an impressive 60 percent market share; Google sits in second with 25.9 percent. In Russia, Yandex is the leader; in Korea Naver leads.

Four out of the top 10 search engines used globally are now non-U.S. players and Baidu is the third-largest search engine in the world – ahead of Microsoft.

In query volume – the number of searches done by users and a key industry metric – the United States represents only 22% of global search activity.

Social media goes global – quickly:

In the red-hot social networking sector only 21% of the global user base of 506 million is American. The majority of Facebook users, the world’s largest social network, are not American. Half the “Tweets” on Twitter come from non-American users. Friendster has 88% of its users in Asia and almost half of LinkedIn’s users come from outside the U.S.

Internet CEOs have no choice but to adapt to these new international realities in order to deliver superior returns to investors, drive new revenue and maintain competitive positioning.

Eric J. Gerritsen is Principal of Global Internet Advisors, a Silicon Valley-based international strategy consulting firm. Gerritsen can be reached at eric@globalinternetadvisorsDOTcom. (info sources available on request)