Mapping the Digital Economy

Mapping the Digital Economy Digital Shoreditch Festival May 2011 Cities Institute, Ladbroke House, 62-66 Highbury Grove, London N5 2AD 0207 133 5105 citiesinstitute.org

Mapping the Digital Economy Cities Institute London Metropolitan Business School Tech City and the University Digital Shoreditch Festival May 3rd 2011 Why Clusters? Over the last 20 years the formation and growth of business clusters has been widely recognised. Building on Michael Porter s initial work i and that of economists and geographers ii, recent research suggests that the agglomeration and co-location of businesses can fuel co-operation, competition and, in particular circumstances, significant innovation. iii It is widely argued that by clustering, firms gain shared advantages. Research results have also suggested that locating in a cluster and collaborating with other firms, either directly or through supporting institutions such as Universities or other business agencies, has helped maximise potential for innovation throughout the cluster - not only meeting clients and customers current needs but also shaping future markets. iv The overall argument is therefore that as clusters become established they draw in firms and labour working in similar and related sectors, increasing agglomeration through co-location and therefore maximising the benefits of a particular locality. Successful clusters create: communities of creative people who share an interest in novelty and new things (wherever they occur) a catalysing place where ideas and connections are sparked diversity of experience and freedom of expression dense but open networks of personal relationships that permit identities and uniqueness to flourish v A point is sometimes reached when a firm will be disadvantaged if it does not locate within the locality of a cluster. There is disagreement over the impact of large cities on clustering. It has been pointed out that diverse urban agglomeration economies with complex markets can have the same effect as clustering drawing in firms and labour. Some sectors do concentrate (and cluster) within core cities. However this tends to be when firms rely heavily on urban centrality, connectivity and diverse cosmopolitan cultures (for example in Finance and in the Creative Industries). vi Every cluster has its own internal dynamics. These are explored here for the creative digital cluster in inner east London. In the Digital Economy vii the convergence of technologies and platforms, content and creativity, has opened up seemingly limitless potential for entrepreneurship. This is one of the few sectors predicted to grow in the next 5 years. viii In a fast moving business culture where bust and boom, micro enterprises and global firms sit side by side, it is suggested here, that spatial clustering within a metropolitan centre takes on a particularly significant role. This role is increasingly evident in inner east London on the fringes of The City where the rapid emergence of creative digital and technology firms has been noted by industry insiders, the technology and wider press and by government. ix Here, (re)location on the fringe of established business and creative clusters has facilitated new forms of convergence between sectors of the economy (notably Publishing, Printing and Advertising with Software and Data Services) encouraging early adoption of digital formats. Early adopters engage with software developers and the cycle continues. Where is Digital Shoreditch? The question of geography was brought into sharp relief when the Technology Strategy Board announced its 1m package of financial support for Shoreditch last month. x For some, Shoreditch is a state of mind but for others who are interested in whether or not they can apply for this matched funding, the question is much more practical. It really is a question of geography.

Fig.1 Silicon Roundabout 2007 (Data Source: Dopplr) Fig.2. You re in Silicon Roundabout 2009 (Data Source: Wired January 2010) Fig.3 Digital Shoreditch 2011 (Data Source: PlayGen) 3

Cities Institute has reproduced three of the defining geographies of inner east London s new cluster (Fig. 1-3) each map has had an iconic role in creating the idea of a digital cluster. Put together they suggest rapid growth. However, each one probably underestimates the number of active firms present at the time. They are, after all, based on a combination of local knowledge and social networking both forms of data collection are destined to exclude, albeit unwittingly. Yet what these maps do suggest is that there is a growing sense of belonging to an identifiable cluster. This belonging is one of the important pre-requisites for successful business cluster development. Mapping London s Digital Economy Better understanding of the dynamics of this sub-cluster s growth can be gained from examining its position within London s wider regional Digital Economy. In Britain, the Digital Economy is overrepresented in London. xi The east London sub-cluster is therefore likely to have more than regional significance. The strength of London s Digital Economy is not only its national concentration but also its hybridity. It combines an established ICT sector (including Telecommunications and Wholesaling of Computers) with concentrations of Content industries (including a number of core creative industries TV and Radio, Film and Video Production, Publishing, Design and Advertising). xii London s Digital Economy is therefore largely shaped by the diversity of its Content industries. This generates rich opportunities for crossfertilisation of ideas and innovation and, most importantly, assembles a critical mass of potential clients, customers and collaborators across the region. Within London, ICT employment is centrally concentrated while Content employment is primarily located in a westcentral corridor (Fig.4 and Fig.5). However there are pockets of extremely high ICT and Content employment in inner east and south central London. Fig. 4 ICT Employment distribution (Data Source BRES2009/SIC 2007) 4

Fig.5 Employment distribution Digital Economy - Content (Data Source BRES2009/SIC2007) Cluster analysis (using Location Quotients) identifies ward level over representation of the Digital Economy in a continuous central corridor from Osterley in west London to Haggerston in east London, with outlying scattered pockets of significance. For example in St Katherine s and Wapping, the Isle of Dogs and Bow in east London and between London Bridge and Waterloo stations south of the Thames (Fig. 6). Over representation indicates that the level of Digital Economy employment is in a higher ratio to all employment locally than it is regionally. This indicates specialisation. Cluster analysis also confirms that four inner London wards in Islington and Hackney (Bunhill, Hoxton, St Peter s and Haggerston) mark the eastern edge of the London cluster corridor. Fig. 6 London s Digital Economy Clusters (LQs) (Data Source: BRES2009/SIC2007) 5

This eastern edge has its own specialisations and forms one of a number of London subclusters, each with their own established geographies and industry cultures for example Music Production in west London; TV, Radio, Film and Video in west and central London; and Publishing in north and central London and the Isle of Dogs (Fig. 7). Inner east sub-cluster The inner east sub-cluster is shaped by the concentration of particular ICT firms (including wireless and wired Telecommunications firms) and their colocation with a number of inter-related Content firms (especially in Advertising, Publishing and Printing) and with firms engaged in Software and related data activities (Fig.8). There is also a strong presence of Specialist Design. One estimate suggests that approximately 1550 designers are at work in an east London swathe from Clerkenwell to Bow. xiii This agglomeration of particular Content industries is further reinforced by their over representation compared to the regional norm. This is the case for Printing, Publishing, Design, Software, Advertising and PR & Communications. Although there are firms in the TV, Film and Video Production and Music Production in the area they do not exhibit sub-clustering within the regional economy (Table 1). The east London sub-cluster is therefore characterised by both specialisation (in creative representation and reproduction) and diversity (with software and data services and design). The inner east London subcluster is both part of and distinct within the London regional Digital Economy. Fig. 7 London s Digital Economy sub-clusters (Data Source: BRES 2009/SIC2007) 6

350 300 250 200 Number of Firms 150 100 50 0 Wholesale Telecommunications Computer Manufacture/Repair Other Computer Services News Agencies Database Activities TV and Radio ICTand CONTENT sectors Film & Video Production Photographic Services Prepress and Printing Advertising Publishing Software Fig. 8 Inner East London Digital Economy sub clusters (Data Source: Experian 2011 /E1, E2, E3, EC1, EC2, EC3, N1 /SIC 2003) Sector Location Quotient Digital Economy in Inner East 1.46 London ALL CONTENT INDUSTRIES 1.26 Printing, Pre-Press and Reproduction 1.90 Publishing 1.37 Specialist Design 1.36 Software and Data Services 1.12 Advertising & Market Research 1.24 PR and Communications 1.11 Music Production 0.42 TV, Radio, Film and Video Production 0.38 Data Source: BRES 2009/SIC2007 (A score > 1 indicates over representation compared to the regional ratio of industry to total employment). Table 1: Sector concentration in inner east London Fig. 9 Advertising Agglomeration A satellite agglomeration of Advertising firms can be identified in inner east London distinct from its main concentration in westcentral London (Fig. 9). This overlaps with a larger cluster of Data and Software Services firms in inner east London (Fig. 10).This may 7 go some way to explain the specific emergence of creative digital firms in east central London those combining digital design, animation, video with web design and software development. The co-presence of Data and Software Services including many

freelance and small web design and build firms (some located in the Clerkenwell and Shoreditch as a legacy from the dot.com boom of the late 1990s xiv ) with Print, Publishing and Advertising facilitates crossfertilization through sub-contracting. For example specific demand for software development has emerged from Publishing companies specialising in e-publishing of inhouse and specialist magazines for corporate and government clients. Other firms focus on developing educational and training materials suitable for delivery over multiple platforms. Both require development of bespoke software developments and applications. There are high levels of demand for software services from within the Advertising, Market Research and PR & Communications industries. Changes in these industries given rise to new forms of advertising, marketing and branding and have created opportunities for application development across platforms. However, as is argued below, the internal blending of digital and creative development within firms makes it increasing difficult to distinguish software development firms from other Content companies. This local combination of high levels of demand, availability of experimental developers and early adopters differentiates the inner east London cluster from existing established centres of Advertising (in West London) or Publishing (Bloomsbury, Holborn, Wapping) or Film, Media and Music (in Soho). To be located in inner east London is to have a particular reputation as cutting edge and forward looking. xv Convergence of Advertising, Marketing and Communications with Design and the development of digital formats including games and product or service related apps is a primary driving force of the current cluster development and the speed of its growth. Local software developers working in different fields - entertainment, education, 8 Fig. 10 Concentration of Data and Software Services transport, health, government and the other creative industries - all benefit from this demand and the core of technical and creative expertise it employs. And vice versa - those working for or within these Advertising, Marketing and Communications industries benefit from games developers, digital designers and software start ups. Particular spillovers - skills, knowledge and new markets - are emerging from this particular convergence between Content industries. There are other localities in London where there are mixes of co-located ICT and Content industries - most notably south of the Thames between London Bridge and the South Bank Centre. However these do not have the same concentrations of Advertising, Marketing, Communications and Design the driving forces behind current levels of business-led agglomeration and innovation in inner east London. South central London does have high concentrations of Market Research, Publishing and Telecommunications. All have significant potential for developing demand for software applications and innovations however these are likely to be of a different form and (possibly) pace.

Table 2: Inner East London Firms, Employment and Turnover (Data Source Experian 2011/SIC 2003) The inner east London s sub-cluster is made up of micro and SME firms - 53% have less than 10 employees. This is the same for both ICT and Content industries. Less than 5% of enterprises employ more than 100 people (Table 2). Looking at the value generated in this locality, ICT has higher levels of overall turnover (dominated by Wholesale and Telecommunications) than Content industries. These however employ more people. Publishing dominates Content turnover which is in excess of 18m. However, combined, Advertising and Software have a 16m annual turnover (Table 2). The pace of change and innovation emerging from this sub-cluster is evidently from a mix of firms with relatively small turnovers. Internal cluster geographies Analysis and mapping of firm level data supplied by Experian xvi for the east London sub-cluster shows three distinct places for Data and Software Services Clerkenwell, Shoreditch and The City (Fig.11). Each locality has a mix of firms across the ICT and Content industries. However there are some local specialisms. For example in the City, there are more firms focused on data management, systems development, web hosting and design of software applications specifically for the Finance and Business Administration sectors. Clerkenwell also has a significant number of well established web design and internet development services. The pattern for Advertising is different. There are only two peaks (Fig 12) one in Clerkenwell where some of the larger more established off centre agencies are located - and one in Shoreditch were there are a significant number of smaller firms defining themselves as creative digital agencies (see below). Defining the boundary of the inner east London digital sub-cluster is an impossible task. It is fluid and constantly changing. However based on this analysis it seems that there is currently a bipolar pattern encircling both Clerkenwell and Shoreditch with agglomeration stretching north into Islington, north east into Hackney and in particular south east into the City and Whitechapel (Fig 13). There is currently an intense concentration of Print activities in Bow, west of Stratford which may, in time, be included within the cluster. However, following the analysis presented here, a move east would be highly dependent on the location of particular Content industries with a high demand for software adaptation and development. 9

Creative Digital Firm The Creative Digital firm is a blend. It fuses technology and design in the context of Advertising, Communications and Marketing services. Typically it offers a number of products and services simultaneously to clients - a hybrid of creative strategy development, campaign implementation and technological development. Creative Digital Services Digital Branding E-Marketing Search and Content Management Flash Applications and Games Info graphics Animation and Video Web-design and Build Internet development and hosting On line advertising Mobile Apps Social Networking Sites, Services and Applications Fig. 14 Creative digital services Fig. 11 Data and Software Services firms - local agglomeration (Data Source: Experian 2011 SIC2003) From a sample of 261 firms identified for Digital Shoreditchxvii, 46% define themselves as Digital Design Consultancies (or Agencies) offering a creative digital service (Table 3). Individual firms in the sample tend to prioritise one particular activity - Marketing, Communications, PR or Branding activities and some focus on particular types of clients charities, public sector, music, technology companies, fashion houses or financial services - but all offer a combination of creative digital services and products (Fig. 14). Firms identifying themselves as Advertising Agencies operate in a similar way and if these are included, then 60% of the firms in the sample are blended creative digital companies. The amalgamation of services within individual firm portfolios is both responding to the demand for and increasing the convergence of creative campaigns and digital formats and platforms. Fig.12 Advertising firms - local agglomeration (Data Source: Experian 2011 SIC2003) 10

Fig. 13 Bipolar cluster core (Data Sources: Experian 2011 SIC 2003/ PlayGen) Main activity Advertising Digital Design Consultancy* IT Consultancy Graphic Design Photography, Film, Video, Post Production Design and Print Software development Animation Recruitment Data and Database Management Digtial Publishing and e-learning Events and Promotions Games Training Social networking Other Total No. of Firms 36 120 19 15 13 9 5 4 4 3 3 3 2 2 1 22 261 Some are also a new breed of micro global firm. These firms have offices in more than one city/country (Fig. 15) and clients spanning national boundaries. They use expertise from around the world and some sub-contract specialist skills in cheaper locations, such as Eastern Europe, where coding quality is high but costs of hiring skilled professional staff are lower. This micro global firm structure may produce value but not necessarily local jobs. London has long been recognised as a hub for brokering creative projects for international clients and for putting together financial packages to support campaigns. xviii However this role in the international division of labour is changing - clients increasingly expect digital innovation as well as strong creative input. The place of London in the overall Advertising division of labour may be increasingly dependent on the success of the inner east London cluster to maintain its reputation for innovation. *Marking, Communications, PR, Branding Table 3: Companies in Digital Shoreditch sample Whereas 19 firms offer IT Consultancy services only 5 firms identified as independent Software Development houses. Traditional local specialities in Graphic Design and Photography, Film and Video production are evident in the sample. Location, location, location... Further evidence from this sample suggests that many of these creative digital firms operate in more than one UK centre. Many also manage portfolios of clients on an international stage. Global and international brands are frequently listed in client lists. East London currently provides a fertile ground in which freelancers, micro and SME creative digital firms as well as established off centre agencies flourish. Many benefit from 11

(relatively) cheap premises with employees celebrating the independent cafes, restaurants and bars. This no brand street culture is highly valued. Digital creative and technology companies are taking tenancies in existing managed workspace buildings, alongside other creative industries. Fig. 15 Micro-global connections (sample of 10 creative digital firms) Some cluster spillovers are orchestrated by social networking intermediaries offering support services, advice from industry gurus, hacking sessions and contact opportunities with early adopters (Minibar, Tech Hub). A few have combined social networking with the provision of tech friendly workspace, developing niches in the property sector (from relatively cheap and cheerful Tech Hub to more comfortable and luxurious The Trampery). These join long established workspace providers active within this locality (such as Clerkenwell Green Association, Clerkenwell Workshop, Workspace) and commercial workspace developers (such as Derwent London). Role of Universities Some researchers have suggested that Universities play a relatively minor role in the development of clusters which generally benefit from urban agglomeration economies. xix However new roles are emerging from the co-location of University facilities in the inner east London sub cluster (Fig.16). Here, where the particular location of the sub-cluster is not the result of University spin outs, Universities nevertheless have become important cluster collaborators. As traditionally neutral partners in highly competitive commercial markets, their active engagement reinforces the collaborative ethos of clusters. By being in (and of) the cluster, some Universities have become gateways to (and from) grant funded experimental and applied research projects and labs (for example QMU s qmedia) - providing subcontracts for enterprises or collaborative work opportunities with firms. Collaboration with a University often adds a level of credibility and trust valued by particular clients. Some specialised co-located University facilities offer spaces and facilities to develop product or service ideas at reduced cost and risk (LondonMet s Accelerator and MetWorks). Others support 12

potential student and graduate entrepreneurs. The inclusive nature of workspace provision within a University environment offering support, technical backup, events and access to meeting spaces and conference rooms with no hidden costs is also refreshingly simple as other property providers begin to add on service charges for extras. A new role for Universities is to be both connected xx and responsive to changing cluster needs. Fig 16. Digital Economy firms data with University and College sites.. iv i Porter, M. (1998) Clusters and the new economics of competition, Harvard Business Review NovemberDecember; http://www.isc.hbs.edu/index.html ii Krugman, P. (1998) What s new about economic Oxford Review of Economic Policy, Vol 14. 2: 7-17; Fujita, M., P. Krugman and A.J. Venables. (1999) The Spatial Economy. Cities Regions and International Trade. Cambridge, MA: The MIT Press; Storper, M and Christopherson, S. (1987) Flexible specialisation and regional industrial agglomerations Annals of the American Association of Geographers Vol 77: 104-117; Ashiem, B, Cooke, P. and Martin, R (eds) (2004) Clusters and Regional Development, London, Routledge; Storper, M. and Venables, A. (2004) Buzz: face to face contact and the urban economy Journal of Economic Geography Vol. 4 351-370; De Propris, L., Chapain, C.,Cooke, P. McNeill, S. Mateos-Garcia, J. (2009) The geography of Creativity, London, NESTA iii Simmie, J. and Sennett, J. (1999) Innovation clusters: global or local linkages National Institute Economic Review, Vol 170: 87-107; Cooke, P. and Morgan, K. (1998) The Associational Economy: Firms, regions and Innovation, Oxford, Oxford University Press ; Simmie, J. Carpenter, J, Chadwick, A. and Martin, R. (2008) History Matters Path Dependence and Innovation in British City Regions, London NESTA; Chapain, C., Cooke, P., De Propris, L. McNeill, S. and Mateos-Garcis, J. ( 2010) Creative Clusters and Innovation: Putting Creativity on the Map, London NESTA 13 Picard, R.G. (2008) Media Clusters: Local Agglomeration in an Industry Developing Networked Virtual Clusters Jonkoping International Business School, Working Paper 2008-3 v De Propris,L. and Chapain, C. (2009) Drivers and Processes of Creative Industries in Cities and Regions, Creative Industries Journal 20 Vol 2.1, 9-18 vi Beaudry, C. and Shiffauerova, A. (2009) Who is right, Marshall or Jacobs? The localization versus urbanisation debate Research policy Vol 38, 318-337; Musterd, J and Murie, A (2010) Making Cities Competititve, Oxford WileyBlackwell vii BIS/DCMS/IPO 2010 Impact Assessment for the Digital Economy Bill List of UK Digital Economy sectors and industries at SIC level p12 viii BOP Consulting (2010) Tech City: Creating a new digital and media cluster in London s East End, BOP London. ix McKinsey & Co (2011) East London: world class centre for digital enterprise, London, McKinsey & Company x TSB 1m for Shoreditch announced at the Accelerator April 2011 Digital Shoreditch Meet Up xi This is evident from its regional Location Quotient (LQ1.76) a calculated ratio between the regional and national to determine whether or not the local economy has a greater share of the Digital Economy employment. A figure above 1 indicates over-representation and therefore spatial concentration within the national economy.

xii ICT and Content industries Definitions used by BIS Impact Assessment of Digital Britain ICT sector 92.11 Motion picture and video production 92.12 Motion picture and video distribution 92.13 Motion picture projection SIC2003Code Description 92.20 Radio & TV 30.01 Manufacture of office machinery and computers 30.02 manufacture of computers and other information processing equipment 31.30 Insulated wire and cable 32.10 Electronic valves and tubes and other electronic components 32.20 Television, radio transmitters and apparatus for telephony and telegraphy 32.30 Television and radio receivers, sound or video recording or producing apparatus and associated goods 33.20 Instruments and appliances for measuring, checking, testing and navigating and other purposes 51.43 Wholesale of electrical household appliances and radio and television goods 51.84 Wholesale of computers, computer peripheral equipment and software 51.85 wholesale of other office machinery and equipment 51.86 Wholesale of other electronic parts and equipment 51.87 Wholesale of other machinery for use in industry, trade and navigation 64.20 Telecommunications 71.33 Renting of office machinery and equipment including computers 72.10 Computer Hardware consultancy 92.40 News agency activities xiii BRES 2009/ SIC Code 74100 for wards covered by postcodes E1,E2, E3,EC1,EC2,EC3,N1 xiv Hutton, T. (2004) The new economy of the inner city Cities Vol 21.2, 89-108 Pratt, A.C, (2009) Urban regeneration: From the arts feel good 'factor to the cultural economy: A case study of Hoxton, London Urban Studies, 2009 - xv Group Discussion with start up and SME firms April 2011, Accelerator xvi Acquired from Experian in March 2011, data 2010 xvii Data collected by Playgen and analysed by Dr Jo Foord, Cities Institute, LondonMet xviii Pratt, AC 2006. Advertising and creativity, a governance approach: A case study of creative agencies in London. Environment and Planning A 38.10, 1883 1899 xix Cooke, P (2006) New media and new economy cluster dynamics, in Lievrouw, L. and Livingstone, S. (eds)(2006) The Handbook of New Media, London Sage xx Kitson, M., Howells, J. Braham, R. and Westlake, S. (2009) The Connected University NESTA 72.50 Maintenance and repair of office, accounting and computing machinery 72.60 Other computer related activities Digital content industries SIC2003Code Description 22.11 Publishing of books 22.12 Publishing of newspapers 22.13 Publishing of journals and periodicals 22.14 Publishing of sound recordings 22.15 Other publishing 22.21 Printing of newspapers 22.22 Printing not elsewhere classified 22.24 Pre-press activities 22.25 Ancillary activities relating to printing 22.31 Reproduction of sound recording 22.32 Reproduction of video recording 22.33 Reproduction of computer media 72.21 Publishing of software 72.22 Other software consultancy and supply 72.30 Data processing 72.40 Database activities 74.40 Advertising 74.81 Photographic activities 14