I live in a tech world, but it’s important to remember that today, it is a small slice. Despite an average annual growth of 7.2% growth, in 2012 Software was only 2.6% of the US GDP. Real estate and related businesses (including finance, insurance, rental, leasing, housing), in contrast, are a massive portion at almost 20% of GDP!
“Finance, insurance, real estate, rental, and leasing is an astounding 19.5% of GDP which is unchanged from before the recession. Real estate and rental and leasing by itself actually grew, whereas finance and insurance shrank their percentage of the GDP pie. Considering this sector was the cause of economic implosion, this is probably not a good thing to have it being almost 20% of the overall economy. Professional and business services overall is less, 11.5% of overall GDP. The industry includes managerial positions, research, technical professions, administration and even waste management.” (http://www.economicpopulist.org/content/gdp-industry-2012-5511)
“Housing contributes to GDP in two basic ways: through private residential investment and consumption spending on housing services. Historically, residential investment has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle.” (http://www.nahb.org/generic.aspx?genericContentID=66226)
Despite the big news, Software as a percentage of GDP is still tiny.
“From 1997 to 2012, U.S. software industry production increased from $149 billion to $425 billion, increasing its direct share of U.S. GDP from 1.7 to 2.6 percent. During that same period, the industry experienced an annual average growth rate of 7.2 percent – fully two-thirds faster than the overall economy.” (http://www.nationaljournal.com/library/184206)
However, I don’t think this is truly fair. As I looked at previously, companies like Amazon are not even classified as a technology company in the Nasdaq. As technology becomes more advanced and as companies grow to adopt common tech best practice, technology will either (1) enable and grow these older businesses or (2) slim and trim them down as useless, manual jobs are eliminated. At this moment, software can help with information flow (see Zillow, Redfin), and it’s quickly moving to more complex services such as online brokerage and loans. In the end of the day, however, software won’t be able to solve the problem of space…at least, not today. In any case, tech is efficient, and I think technology is going to make these businesses move faster and more seamlessly.
There is so much opportunity in innovating with technology in massive markets such as real estate! It’s already happening, and likely not being captured by the GDP measurements.
“The study examines how software is increasingly driving overall economic productivity and finds that it accounted for 12.1 percent of all U.S. labor productivity gains from 1995 to 2004, and 15.4 percent from 2004 to 2012. From this, the study determines that software accounted for 9.5 percent of all gains in U.S. output between 1995 and 2004, and 15 percent of all gains from 2004 to 2012. In 2012, software and the productivity increase it provides accounted for $101 billion in production by other industries, bringing its total direct and indirect contribution to U.S. output to $526 billion, or 3.2 percent of GDP. Additionally, exports of software and related services have grown between 9 and 10 percent each year since 2006 – outpacing all U.S. exports by nearly 50 percent.” (http://www.nationaljournal.com/library/184206)
Plus, tech is growing fast.
“The BEA also has a special index consisting of computer and electronic product manufacturing, yet excluding navigational, measuring, electro-medical, and control instruments manufacturing. Also included in this special index are software publishers; broadcasting and telecommunications; data processing, hosting and related services; internet publishing and broadcasting and web search portals; and computer systems design and related services. This is fairly odd they would exclude so many navigational and measurement tools since the advent of GPS has advanced these technology areas. Overall this special index increased 7.2% from 2011, which is no surprise since structurally the economy is much more interwoven with technology as innovation in these sectors has changed the way the world works and communicates.” (http://www.economicpopulist.org/content/gdp-industry-2012-5511)
“According to the economist Erik Brynjolfsson of MIT, the information sector of the economy (software, telecoms, publishing, data processing, movies, TV) has scarcely grown over the past 25 years as measured by GDP. This seems bizarre but it’s easy to see the logic: GDP measures the price paid for goods and services, but many valuable digital services are free or cheap. Brynjolfsson and co-author JooHee Oh reckon that every year consumers in the US are enjoying an extra $100bn of services online they don’t have to pay for.” (http://www.forbes.com/sites/timworstall/2013/12/13/the-gdp-figures-are-wrong-because-we-dont-measure-the-tech-sector-properly/)
It’s already happening, and I’m looking forward to make it happen even faster.
 This looks only at the share of GDP. Tech companies, as a share of market capitalization, seems to be around 20%. (Specifically, this is a % of the SP 500). Tech companies are also 11% of revenues and 20% of profits. http://aswathdamodaran.blogspot.com/2015/03/illiquidity-and-bubbles-in-private.html