Campus: CSU, Long Beach -- November 3, 2000

Cal State Long Beach Professor Releases Study on 'Internet Economy' of City of Santa Monica

Over the last five years, the World Wide Web has helped create an economy all its own with entrepreneurs going online to provide goods and services in new ways as well as produce new types of goods and services to consumers and other businesses.

The resulting "internet economy" is starting to make a significant contribution in the areas of employment and production nationwide. Indeed, it is estimated that in 1999 the internet economy employed some 2.3 million workers and raked in some $500 billion in revenue, making it larger than the nation's entire airline or telecommunications industries.

The City of Santa Monica has been a part of that boom, and according to a recently completed report by the Office of Economic Research at California State University, Long Beach, the city appears to be one of the larger internet-economy clusters within Southern California.

"Santa Monica appears to be one of several cities in Southern California showing an unusual amount of internet economy growth," said Lisa Grobar, associate director of the CSULB Office of Economic Research who directed the internet study. "So, we thought it would make a interesting case study."

The study identified some 125 internet companies in Santa Monica. These businesses are employing about 5,000 workers, accounting for nearly 7 percent of the city's total employment base. In addition to the number of jobs, however, these businesses are also creating relatively high-paying jobs.

"To put these numbers in some perspective, the internet economy in the city of Santa Monica employs more people than the city's motion picture industry businesses," Grobar explained. "That is particularly impressive when you consider that many of these internet establishments have only been in business for a short time."

To help define and classify the "internet economy," Grobar used a 1999 report published by the University of Texas' Center for Research in Electronic Commerce, which divided the internet economy into four "layers."

These layers include: (1) the "infrastructure layer," representing firms that provide the physical infrastructure of the internet; (2) the "internet applications infrastructure," focusing on firms providing software that enable transactions to take place over the web; (3) the "internet intermediary layer," counting

firms that earn revenues through membership subscription fees, advertising and commissions related to their web sites; (4) and the "e-commerce layer," those firms selling goods or services through the internet to consumers or to other businesses.

The report shows that 70 percent of Santa Monica's internet-economy employment is found in either the e-commerce or the internet intermediary companies while the internet application companies account for a little more than 25 percent.

Additionally, the study points out that the city has a much higher share of national employment in the internet sectors than in other sectors of its economy. This, according to Grobar, indicates that Santa Monica contains an internet economy cluster.

"Santa Monica is not the only city in Southern California experiencing this internet economy growth, but this study offers a good first glimpse of what is happening in this area," Grobar noted. "It is also really our first attempt at quantifying the results of this new internet economy."

Grobar also said she believes the study has broader implications, especially in terms of the internet economy's creation of good, high-paying jobs.

Using aggregate data representing the average payroll for the city's internet economy firms, the report shows the average payroll exceeding that of other major sectors, including services, durable goods manufacturing and the finance, insurance and real estate sector. The payroll of these companies also compares favorably to the highly-paid entertainment sector.

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