The digital economy is bigger than you think

Innovation Observatory has just concluded a major study of the digital economy for KC, the incumbent provider of telecoms services in Hull, UK. We developed a method for measuring the digital economy that better reflects its value in terms of sales and employment than existing industrial-classification-based methods.

The digital economy is more than simply the outputs of companies that have been classified as ‘in’ or ‘out’ of the digital economy. So much economic activity is now linked to ICT and being online that a rigid sector-based approach makes no sense.

However, that does not mean it is straightforward to define what ‘digital economy’ activity is. In our work for KC, we convened a meeting of experts and local stakeholders and formulated some basic principles:

  • Staff time and sales revenues can be assigned to the ‘digital economy’
  • Having ICT to help run a business does not mean your economic activity all counts in the digital economy
  • The public sector is very difficult to include in digital economy measures because of the way that public sector bodies deal with money

The size of the digital economy

We combined reliable and recent government regional and local business demographic data on the number of businesses broken down by sector, and turnover and employment of those companies, with data from a carefully designed primary research survey that provided benchmarks for ‘digital economy’ revenues and staff activity.

This enabled us to estimate the size of the digital economy in Hull and the surrounding area. We estimate that the digital economy accounts for 24% of Hull’s total economy, and 22% of local employment. Other measures, based on counting companies in sectors, had previously indicated that 14% of Hull businesses are ‘digital economy’ companies.

As part of our research, we also asked companies, and experts locally and nationally, about the factors contributing to digital economy growth. The most significant were fast access, local cross-sector leadership, and attractiveness of the location to people with relevant skills.

For more details of Innovation Observatory’s work on the digital economy, contact Danny Dicks ( For more information on KC’s digital economy activities, see


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