EDiMA

Online Intermediaries: Impact on the EU economy

The Internet as we know it today relies on the efficient operation of online intermediaries. Online intermediaries provide platforms for and facilitate the exchange of goods, services or information in the online environment. They perform or provide activities such as search, e-commerce, social networks and cloud computing. The main feature of online intermediaries (in contrast to other online services) is that online intermediaries bring different types of users together in order to enable economic or social interaction.

Our study contributes to the debate on the future of Europe’s digital economy by assessing the economic contribution of online intermediaries in terms of European growth. We do so in three ways.

First, while it is difficult to delineate the online intermediaries as a distinct group of companies and to estimate the precise size of online intermediaries in Europe, we appraise that online intermediaries have grown at a rate close to 10 per cent per year since our 2013 study. The growth of online intermediaries is expected to continue over the coming years. This is not least because of the diffusion of cloud computing and a rapid growth in e-commerce.

Second, online intermediaries help Europe’s small and medium-sized enterprises (SMEs) to grow. SMEs are the backbone of Europe’s economy: SMEs have created around 85 per cent of the new jobs in the EU during the last five years and now account for two-thirds of the total private sector employment. However, Europe’s SMEs face various barriers to growth, in particular when entering new markets. Online intermediaries help European SMEs overcome these barriers by making it easier to enter a market and reach consumers. Online intermediaries help smaller companies achieve “big company” benefits from digitalisation. Online intermediaries allow smaller companies to become early adopters of the new Internet technologies and business models. Furthermore, online intermediaries allow SMEs to enjoy these benefits at a fraction of the cost it would cost them without the availability of online intermediaries.

Third, in the same way as online intermediaries help SMEs overcome barriers and thereby create new business opportunities, online intermediaries also unlock benefits for consumers. Online intermediaries benefit consumers through the traditional channels we normally think of in standard consumer theory such as more price transparency, more choice and time savings. In addition, online intermediaries can work as a source of income for consumers, as they can offer their own products or services to other users quicker than ever before. Lastly, online intermediaries online intermediaries can help support important society goals such as democracy or freedom of speech and can enable social capital formation. These effects are all part of online intermediaries’ broader impact on EU consumers. It is difficult to quantify all of these benefits, especially those that go beyond traditional economic measures. In Chapter 3 we present quantifications of specific examples of some of the benefits. In particular, we show that online marketplaces enable lower prices to a total value of EUR 1 billion while an increased availability of niche books result in benefits of EUR 4-5 billion for European consumers. Free social networking services, wikis, generalised search and comparison shopping generate consumer surplus of EUR 22 billion. Lastly, we show that online search platforms generate time savings worth EUR 140 billion for European consumers.

We conclude that online intermediaries can continue to bring down barriers and burdens that fragment the European online markets and help cross-border e-commerce to grow. The development of a full Digital Single Market is the key enabling policy framework for online intermediaries. In further developing the DSM, it is essential to preserve a flexible regulatory framework governing online intermediaries in the EU and this will underpin the economic growth we see being generated by online intermediaries. The intermediaries’ diverse contributions to the economy would not be possible at the current level without the liability regime as it is currently designed. Preserving and improving the regulatory framework governing online intermediaries in the EU will underpin the economic growth we see being generated by online intermediaries.

The study is commissioned by the European Digital Media Association (EDiMA)

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