Digital USA

Top priority: private sector innovation and the markets

by Vincent BONNEAU

The United States is home to many of the world’s tech industry leaders. The phenomenal growth of OTT services has created a tech market that is set to become the world’s largest within five years. A market that is currently dominated by a handful of American and Chinese companies, all offering a wide array of services through a platform-based marketplace, hosting more and more for-pay and transactional services.

Very solid monetisation of digital services

North America’s digital tech market, which is estimated at 1,244 billion EUR in 2019, is the most developed in the world. With a projection of more than 4% annual growth over the coming years, it will likely remain the globe’s biggest market at least up to 2027. Overtaken by Asia-Pacific in telecoms (as the US sector was already in decline) and OTT, largely because of the sheer size of the Asia-Pacific region’s population, the United States far outstrips all the competition when it comes to digital content and especially IT and software, thanks to a far more advanced level of computerisation in the B2B market. The US performs especially well in terms of per-user revenue (advertising, telecoms, devices, etc.) with a strong capacity to monetise premium consumer services. This monetisation in turn helps to finance innovations that are then disseminated across the globe.

Internet services market doubled in six years

Progresion of digital services markets in North America, by segment

Source : IDATE DigiWorld

Champions in virtually every tech sector

The American ecosystem is replete with tech sector heavyweights, especially the software segment and its IT and online services offshoots, including not only the top OTT players but also a sizeable percentage of the world’s unicorns (startups valued at over $1 billion). But the US is also home to champions in every other sector, not least digital content (Disney) and high-end consumer electronics (Apple). All of these players are building their business both at home and on the international stage, where they regularly top the ranks. The United States has a more modest standing when it comes to telecoms. American telcos are powerful companies, but tend not to have a global footprint (except in the B2B market, and in Mexico more recently for AT&T) and the country has no major mobile telecoms equipment supplier.

The US home to more than half the world's mega unicorns

Ranking of unicorns worth more than 10 billlion USD

Source : CB Insights, February 2020

Very mild government influence over the market

Private sector players are the masters of the US market, benefitting from a very advanced system of financing and a leading edge academic environment. Ex ante regulation is also much lighter than it is in the rest of the world (except in a few states such as California, or due to provisos imposed by the “Patriot Act”), even if regulators (FTC, FCC, anti-trust…) have tremendous a posteriori penalty powers. This means that the government gives much freer rein to economic innovation, in addition to helping finance academic and especially military R&D, previously with the Internet and tomorrow with artificial intelligence. The country’s international influence is declining steadily, notably its control over the Web (ICANN), but still remains strong.

Private sector investment heavily concentrated in the US

Percentage of US venture capital invested in OECD countries

Source : OCDE

OTT spearheading US digital tech?

OTT market leaders have become the main driving forces behind R&D, all sectors combined, providing the market with a substantial portion of innovations (services, business models) for both consumers and in B2B markets, notably via the cloud. They are dipping into their massive cash flow and leveraging heady market caps to acquire a host of startups, and even their most serious rivals, both local and international. Their influence is such that they are sometimes viewed as nations unto themselves in the global landscape, extending well beyond the reach of the US. The development of Libra (Facebook) provides a perfect example of the concerns this can raise around the world. Triggering regulatory initiatives overseas – such as taxing Big Tech, which the US government has criticised – but also at home, e.g. Uber drivers’ employment status.

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