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How Internet Shutdowns Impact Startups

Picture of Anirudh Tagat
In-Resident Economist, Internet Society
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November 17, 2022

In an increasingly digitalized world, disruptions to the Internet come with huge costs. These costs can be measured in monetary terms and are incurred by every sector of society. This includes individuals who may not be able to communicate without stable access to the Internet, as well as businesses that rely on the Internet for their operations. Consider a small business that provides services to the local community via a website and uses WhatsApp messaging. Without access to the Internet, business dries up and newer customers cannot contact the business and purchase goods and services. In Sudan, for example, an app that connected patients with ambulance services via the Internet was disrupted due to an ongoing Internet shutdown. Without stable internet access, patients were unable to access potentially life-saving services, and the provider lost out on business.

So What Happens to Small Businesses When There Are Government-Mandated Shutdowns?

Unfortunately, there isn’t much direct evidence of the economic impact of Internet shutdowns on businesses. Existing studies consider them when coming up with a “total” cost of shutdowns figure, but there is little understanding of how businesses are impacted.

There are important reasons for specifically looking at businesses that are small and/or new. Startups (especially those in developing countries) are seen as hubs of innovation and contribute to a vibrant local economy. Many startups rely on technological innovations that, in turn, rely heavily on stable and open access to the Internet — not just for their service or product to work, but also for their users to be able to use it effectively. Internet shutdowns in any form threaten their progress and contribution to the economy, and could have some impact on the economy.

Data from Global Accelerator Learning Initiative (GALI), collected by the Aspen Institute, provides a good starting point for understanding potential impacts. GALI has data from nearly 21,000 startups across 170 countries between 2016 and 2021 on their revenues, wages, employment, and several other indicators. GALI tracks the same startups across these years so we can also understand how their business profits, revenues, and other performance indicators have changed over time. We combined this data with Internet Society Pulse data on Internet shutdowns for the same period to explore the impact of shutdowns on these businesses.

What We Found

Below are some of the main takeaways from our study related to startups that are for profit, and excludes data for non-profit startups.

  • More shutdowns mean more businesses reporting losses. If there was an Internet shutdown in a year within the country where the startup operated, 2.2% more startups, on average, reported losses compared to startups in countries where there were no shutdowns.
  • Startups facing an Internet shutdown on average reported only 1/10th of the financial revenues compared to startups that didn’t face a shutdown in that same year this equates to nearly US$1.7million!
  • Internet shutdowns have far-reaching impacts on society, and the impact on businesses is just one component of a larger economic cost. The graphs below suggest that there are huge financial impacts for small businesses around the world when faced with an Internet shutdown. However, these are not causal estimates, so we cannot conclude that the changes in revenues are due to Internet shutdowns alone.

Figure 1: Mean annual revenues (US$) compared by shutdowns.
Figure 2: Mean annual revenues since founding (US$) compared by shutdowns.

What’s Next?

There could be several other factors that affect revenues among small and medium-sized businesses and a more robust tool is needed to pin down these impacts.

More work is needed to understand how small businesses are specifically affected by Internet shutdowns in terms of their ability to continue operating in the face of disrupted Internet. Economic analysis tools allow us to go beyond simple cost estimates to look “beneath the hood” of Internet shutdowns.

Ongoing work by the Pulse team will be looking at aspects related to the characteristics of the Internet in a country, ongoing protests and civil action, and government-mandated shutdowns separately to build up a comprehensive picture of the overall economic impact of Internet shutdowns.

Take a look at the Pulse shutdowns tracker to find out more about shutdowns around the world.

Photo by Benjamin Dada on Unsplash