White House broadband report highlights PPI research

I’m glad to see that the Progressive Policy Institute’s extensive research and policy program on the data-driven economy is getting some attention in the White House.

On June 14th the White House released a report entitled Four Years of Broadband Growth.  The WH report prominently highlighted PPI’s July 2012 policy brief on Investment Heroes:Who’s Betting on America’s Future, noting that

just two of the largest U.S. telecommunications companies account for greater combined
stateside investment than the top five oil/gas companies, and nearly four times more than the big three auto companies combined.

In addition, the WH report prominently featured our research on the number of jobs created by the App Economy. The White House noted that:

These devices have done more than connect Americans to one another more easily. The integration of mobile broadband, advanced operating systems and increasingly sophisticated hardware, along with low barriers to entry to an open network, have enabled an entire economy of mobile applications to develop in the United States. This “App Economy” is one of America’s most dynamic and growing sectors, and one that industry studies have cited as creating more than 500,000 U.S. jobs since 2007.

Truthfully, the White House could have cited other PPI research as well. Here’s a list of recent work that we’ve done on the data-driven economy within the last year:

The Rebalancing Of The California Economy: How Internet/Tech Jobs Are Spreading Across The State

Data, Trade, and Growth (working paper)

Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy

Investment Heroes:Who’s Betting on America’s Future

The Geography of the App Economy

We have a lot more in the pipeline!

State Broadband Index

Technet has just released its 2012 State Broadband Index. The new report, with principal author John Horrigan, “rates the states on  indicators of broadband adoption, network quality,  and economic structure as a way of taking stock of  where states stand.”

This index is important for understanding the economic and technological competitiveness of different states. The top state is Washington, followed by Massachusetts and Delaware. The worst state was Arkansas, alas.

And of course, I’d be remiss if I didn’t mention that our “App Intensity Index”  (from The Geography of the App Economy) was used as one of the inputs to the index.

 

 

 

NYT Article on App Economy Understates Jobs Impact

As most of you know, I spent years as chief economist and lead economics writer for BusinessWeek. And I have utmost respect for the difficult task that journalists face under deadline pressure.

Having said that, I feel that the NYT article As Boom Lures App Creators, Tough Part Is Making a Living understates the jobs impact of the App Economy in three ways.

First, the article notes that the App Economy “was responsible, directly and indirectly, for 466,000 jobs,” as of the end of 2011, based on a February 2012 study that I did for Technet. However, an October 2012 report entitled The Geography of the App Economy, done by myself and Judith Scherer, showed 519,000 jobs in the App Economy as of April 2012. It would have been much more accurate for the reporter to have cited the more recent–and larger–estimate of App Economy jobs.

Second, it’s certainly true that App Economy entrepreneurs are not all successful, just like entrepreneurs in other fields. However, “The Geography of the App Economy” paper makes it clear that large companies are hiring droves of app developers in-house to create and maintain apps, listing quite a few by name. That paper identified 10 different categories of App Economy jobs, only one of which consisted of the stand-alone app developers that the NYT article focuses on.

Entrepreneurs know that startup businesses typically take at least 3-5 years to make a profit. How long were the entrepreneurs they interviewed in business? And the skills and experience these people develop in their own ventures make them more appealing to be hired at large salaries by more established companies. Indeed, the article notes in passing that one of the entrepreneurs was then able to get a job as a app developer working for a larger company.

In our research, we have found that one of the biggest problems facing App Economy entrepreneurs is that they are competing with large companies for the same talent pool of skilled computer software engineers, user interface designers, and others with app economy skills. In this industry, talent is the most important input, wages are high and rising, and there’s more demand for these skilled individuals than there is supply.

Finally, the NYT article ignores the positive impact of the App Economy on state and local economic development. In an upcoming paper, South Mountain Economics will look at the ways that some leading states and cities are trying to attract app developers and other innovative companies as the foundation for growing their economies. These innovation-minded economic development efforts will turn out to be crucial for economic success going forward.

California Takes Step to Encourage Internet Job Growth

I’ve been doing a lot of research recently on state and local tech-based tech-based economic development (see here).  And I’ve been thinking a lot about California’s economy.

From 2007 to 2011 the number of jobs in California’s “Internet industry”—web search, publishing, social media, and the like–rose by 50%. What’s more, that trend has continued. Over the past year alone, the number of California want ads for computer software engineers—the key human capital input for growing internet firms–has increased by 27%, according to The Conference Board’s database of help wanted ads.

Given the job-creating strength of the state Internet industry, it’s a good thing that  California–traditionally known as a high-regulation state–is  taking steps to protect its growth. On September 28 Governor Jerry Brown signed a bill that prohibited the state’s Public Utilities Commission from regulating Voice over Internet Protocol (VoIP) and other internet-based services, including mobile apps.

The bill made two important points:*

California’s innovation economy is leading the state’s economic recovery. Silicon Valley alone added 42,000 jobs in 2011, an increase of 3.8 percent versus a national job growth rate of 1.1 percent. The newly designated “app,” for application, economy has resulted in 466,000 new jobs nationwide, with 25 percent of that total created in California.”

and

The Internet and Internet Protocol-based (IP-based) services have flourished to the benefit of all Californians under the current regulatory structure.

In other words, if it ain’t broke, don’t fix it–a good principle.

The bill would stop the state’s Public Utilities Commission from putting more rules on Internet-based services, including VoIP. Clearly this makes sense for California, which is benefiting so much from the growth of the Internet sector. But this applies to other states as well:  if individual states started regulating Internet-based services, we would get the equivalent of trade barriers between states.

But there’s a broader question as well. The Progressive Policy Institute has just released a paper entitled Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy. This paper shows how, more than ever, data is a potent source of economic growth.   Data consumption by individual Americans, if measured correctly, is responsible for adding an extra half percentage point  to GDP growth today. And that contribution is only going to grow over time.

That means states, localities, and countries have to encourage the growth of the data-driven economy, for the benefit of long-term prosperity .  And that means the old models of regulation won’t work in the 21st century economy.

Going forward,  one key question will how to regulate phone service as providers shift to a VoIP model.  Internet-based services were historically unregulated, and it may very well be that we get more innovation and growth if we pare back the regulatory structure on phone service as part of the shift to VoIP.

From that perspective,  California’s action may hold lessons for the rest of the country.

*The figure of 466,000 App Economy jobs was, of course, were drawn from my February 2012 paper Where the Jobs Are: The App Economy

One Reason Why Unemployment is Dropping

It’s difficult to reconcile the sharp drop in the unemployment rate with the relatively slow growth in measured real GDP. Some have criticized the unemployment statistics, worrying about an Obama ‘conspiracy’ to cook the unemployment books.

But an alternative explanation is that the government is underestimating the growth rate of real GDP by undercounting the strength of consumer data consumption. A new paper from PPI, Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy, makes the case that consumer consumption of Internet-related activities–email, video, social media, games, maps, and so forth–is rising much faster than the BEA numbers show. Once we correctly adjust for consumer data consumption, real GDP growth goes up about 0.6 percentage points.

So if the official GDP growth for the 3rd quarter is 2%, then the actual growth growth, adjusted for consumer data consumption, may be closer to 2.5%. That may help explain the drop in the unemployment rate.

To see why the BEA is underestimating the strength of consumer data consumption, take a look at the chart below. This chart, drawn directly from BEA data, tracks real consumer purchases of “Internet access”–both mobile and wired.

Please note that according to these BEA figures, Americans are consuming less internet access in real terms than a year ago. That can’t be right. To put it a different way, the official GDP statistics are describing a world in which Americans are retreating from the Internet. That’s not the world we live in.

Because this is “real” consumption, the effect of price changes is already taken out of the statistics. And as we explain in the paper, the “missing” internet access does not show up anywhere else.

Why the Tech Boom Has Not Yet Entered Bubble-land

There seems to be a theory going around that the current tech boom has entered into bubble territory. In a piece entitled “Is the dot com bubble about to burst?”, one journalist wrote:

Sometimes, when a love affair ends, you can’t remember what it was you ever saw in someone in the first place. That is the feeling right now of a lot of once-amorous investors who breathlessly wooed Facebook at its flotation in May and paid $38 for the privilege of a share in the social network.

And certainly some other tech stocks have been disappointing to investors, including Zynga and Pandora. Indeed, some skeptical  spirits have pointed to the surge in the venture capital investments as a sign that the top is here.

But let’s be serious. While the tech boom will likely enter Bubble-land eventually, we are nowhere near that point. I will offer three reasons. First, as long as the big telecom companies are still pouring billions into extending the capabilities of their  high speed mobile networks,  there will be new apps to develop and new companies to start.  Indeed, we have not yet seen an iPhone with 4G connections.

The second reason has to do with the evolution of bubbles. Journalists and investors start using the word ‘bubble’ to describe booms when the booms still have years yet to run. I remember (though maybe nobody else does) that Fortune wrote a cover story in 2004 called “Is the Housing Boom Over?”  The story said:

The housing market is rapidly losing touch with reality. Fueled by interest rates that have remained near record lows, prices have continued to soar, and the gap between home values and the underlying fundamentals such as personal income and job growth is greater than ever.

Of course, we know now that the boom in housing continued for years after this foresighted article. (Plenty of other publications were “too early” to the housing bubble story, including BusinessWeek in 2005).  Similarly, the odds are that the tech boom is far from over.

Finally,  we’ve learned a very simple lesson from the events of the past fifteen years. The tech boom and bust of the 1990s, no matter how frothy it felt at the time, created far more value  than the housing/debt boom and bust of the 2000s. In retrospect, a tech-driven bubble feels more like a balloon–a bit fragile, but able to lift the economy a long way before coming back to earth.

Libor scandal and public data manipulation

I found myself reacting to the Libor scandal more strongly than a lot of the earlier revelations of financial institutions misdeeds. First, the banks were just blatant out-and-out lying about a simple number.

Second, their lying led to a distortion of a crucial piece of publicly available data–the Libor rate. In a market economy, intentional misrepresentation of a market price is not a victimless crime –in fact, the victims are everyone who relied on that price to make decisions.  That includes regulators who presumably watched Libor as one of their guides to the amount of stress in the global banking system. Here’s a chart of Libor across the key period (downloaded from http://www.fedprimerate.com ).

Would Libor have shown more signs of stress sooner if it wasn’t being manipulated in 2007 and 2008? And would banks, regulators, and investors reacted sooner? We’ll never know.

But this confirms what I’ve written in the past–the financial crisis was in part a data crisis, where all sorts of numbers were sending misleading signals. In particular, the strength of the financial position of the banks was overstated.

The question is whether the Libor scandal is a vestige of the past, or a sign of future troubles to come. My sense is that we’ll see a lot more opportunities for manipulation of private data to send misleading public signals. Forget about financial markets for the moment. I’m thinking now about the way that websites continually try to game Google’s search algorithms in order to get a higher ranking. Hotels and restaurants have a big incentive to try and manipulate their reviews on consumer sites such as Yelp. App developers have an incentive to game their reviews on the Apple and Google app stores.

Will the bad information drive out the good? Or can we build information aggregation mechanisms that are more difficult to manipulate?

Military App Economy

The military and intelligence community seem to be embracing apps and the App Economy at a rapid pace. Here’s a sampling of new and recent reports, suggesting that the expenditure of relatively large sums  on the development of secure/military grade apps and smart phones.   This activity suggests that  the apps we see in the Apple App Store and Google Play may only represent a portion of the overall App Economy,  in terms of app-building and usage. The Army or the CIA  are not about to put their latest apps on public view, no matter how good they are.

“It Only Took the Army 16 Years and 2 Wars to Deploy This Network”  Wired DangerRoom blog, June 28

When the 3rd and 4th Brigade Combat Teams of the 10th Mountain Division reach Afghanistan in October, between 1,200 and 1,400 soldiers will take with them a rejiggered Motorola Atrix running Android that’s the heart of a communications program called Nett Warrior. 

Nett Warrior returns from the dead, DoD Buzz,  May 22, 2012

WHITE STANDS MISSILE RANGE, N.M. — Most people had left the Army’s Nett Warrior program and its futuristic eye scope in the expensive trash heap of Future Combat Systems. But it lives on here, where soldiers test the glorified smartphones that Army leaders want squad leaders carrying on the battlefield.

“In Camouflage, Android Could Power Military Apps”  GigaOm/Bloomberg BusinessWeek April 17, 2012

Android is still the smartphone platform of choice for the world’s consumers, and it may also be the ideal operating system for the world’s armies, navies, and security agencies. The versatile, open, and free operating system already has most of the necessary pieces in place to power the most sophisticated defense and government applications. 
Boeing to Jump into the Mobile Phone Business, NDIA, April 10, 2012

The Boeing Co. is developing a mobile phone based on the Android operating system that will compete with other manufacturers offering highly secure communication devices, company officials said April 10.

“U.S. Army deploys their own Android app store”,  Android Central, March 25, 2012

The U.S. Army recently launched a “prototype” (i.e. beta) version of their own civilian-facing mobile appstore for Android and iOS.

Business Insider Underestimates Size of App Economy

The Business Insider just published an analysis where they downplay the size of the App Economy.

Despite how much attention it’s given, the mobile app economy isn’t as big as you might think. Based on an aggregation of data points from iSuppli, Forrester Research, company releases, and our own estimates, mobile app revenues were a little under $3.5 billion last year
.

The problem with this number is that it assumes that revenues collect through app store accurately represent the whole extent of the App Economy. Nothing could be further from the truth.  Consider, for example, all the free apps distributed by retailers, financial companies, media companies, governments, religious institutions,  and so forth.   These apps collect no direct revenue through the app stores, but they are  a crucial  way for companies to reach customers and potential customers.  For example, you can download the Goldman Sachs research app for iPad  for free–but you have to be a corporate or institutional client to log on. That income flow doesn’t show up as part of the Business Insider numbers.

Or take Netflix. I download the Netflix Android App for free, so no revenues shows up in the Business Insider numbers. But guess what? I still have to put in a password for my netflix account, which costs $7.99 per month.  Another flow of income omitted from the BI numbers.

At the end of the day, revenue numbers cannot capture the full extent of the App Economy…not in a world where there are so many other ways for apps to earn their keep.

 

 

 

Does Romney Face an ‘App Surprise’?

My new piece on Atlantic.com  Zuckmentum!: Why the Silicon Valley App Boom Could Sink Romney

 

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