Championing the internet: a pillar of future national growth.

True was recently asked by the government to contribute future policy recommendations to supercharge post-Brexit growth. Our main recommendation was to champion some of the things we, as a country of entrepreneurs, are already very good at, e-commerce, the internet and the science of following consumer behaviour.

Consumption represents 70% of the UK economy so leading in this area makes economic and social sense. People revere, admire and fear Amazon for its power and reach today but they often fail to remember that it started in very simple form, as an online bookstore with arguably the world’s best consumer entrepreneur at the helm. The UK boasts tremendous entrepreneurs and executives in e-commerce and the internet in general, many of whom pioneered their respective consumer categories. Tim Steiner at Ocado, Natalie Massanet at NAP, Nick Robertson at ASOS, Matt Moulding at THG and more recently Will Shu (Deliveroo) and Ben Francis (Gymshark) amongst many others should all be embraced and celebrated as groundbreaking entrepreneurs who can help provide a foundation and inspiration that catapults the UK’s leadership in this area. Using this foundation, why couldn’t the UK government create a Berkshire Hathaway-equivalent in e-commerce and the internet? A long term, patient capital business that champions UK competitive advantage in key future industries.

Whilst this may sound like a distortion of the playing field, the irony is that fiscal policy has thwarted UK-domiciled consumer champions for many years, compounding an advantage for the non-domiciled global tech giants which they have eagerly exploited. This “highly efficient” tax planning, compounded over many years, adds up to billions of pounds that has been re-invested to compete against UK operators, in turn impacting the UK’s long term economic prospects. With that in mind, focusing on levelling this playing field in favour of potential UK sector champions should be more of a focus than a blanket UK digital tax, which appears poorly thought through and regressive in nature given the future of consumer behaviour is undoubtedly multi-channel. Why create a dis-incentive in an industry we lead in and will undoubtedly be a bigger part of the future than today?

The good news is we are starting from a strong foundation. According to Zenith, the UK consumer spends on average >250 mins per day on the internet, second only to Estonia, comfortably ahead of the USA and more than twice that of France and Spain whilst smart phone adoption is on a par with the USA. Population densities are high, 20% higher than Germany, more than twice France and multiples that of the USA which are conducive to highly scalable economics and a fertile global testing ground. In the last decade over 120 new $1bn tech companies have emerged in Europe, today together worth >$600bn. The UK has built nearly 200 of them with Germany lagging at c.100. Contrary to popular narrative, Fintech and Biotech have been responsible for less than 20% of the unicorns built. According to the OECD, more than 4% of all employees in the UK work in new economy companies vs. just 2% for the USA and 1% for Germany meaning the supply of talent is available created by the world class universities at our disposal. Whilst London’s home as the top financial centre in Europe, if not globally, positions us well to back these entrepreneurs. These foundations matter.

So where is the incentive? The pandemic has led to a giant step forward in e-commerce penetration, a natural acceleration of 5-10 years achieved in just weeks. Few also notice that the great unbundling of traditionally named industries blurs the sector lines and open up much bigger markets to disruption than ever before. For example, the World Bank values the global retail market at $22tn whereas consumer spending (i.e. the real target for entrepreneurs) is $60tn of products and services. If we just take the front end of the internet (e-commerce, marketplaces), total earnings of the internet today account for 5-7% of all total earnings globally and represent 10% in market capitalisation. Assuming the market grows in line with global GDP (3-4%) and the penetration of the internet rises to 30-35% (still below some early adoptive categories levels) by 2040, this represents $1.6-$2.25 trillion of net profit vs. the $40-50bn delivered today, or an increase of 40-45x. True today owns direct to consumer internet businesses that deliver over £200m of revenues, growing at a compound rate of  >35% pa with EBITDA margins of >10%. Participating in the growth of these companies is exciting enough for us, imagine the potential for the UK to take a proactive, policy-driven approach to accessing these structural growth opportunities in a systematic way.

As a country, we should focus long term capital, the best talent and the best infrastructure in becoming the champions of the global internet. Whilst multi-channel will live on, the internet will dominate and technology will be at the heart of every successful future business model; whether consumer facing or not. The foundations are there, the opportunity for this country is enormous – let’s hope we can take it.

Original article published in Retail Week.


07 April 2021