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How much is Facebook and Google worth to you?

How much is Facebook and Google worth to you?

May 19, 2018 / No Comments

What’s your favourite internet freebie? I reckon it’s hard to beat digital maps. It’s not just being able to navigate without reaching into the glove box for a paper street directory that makes them so appealing. I now have the power to instantly check-out locations the world over – for free.

The same goes for a plethora of useful digital tools – Wikipedia, Twitter and Google search to name a few.

If you’re willing to put up with a bit of advertising you can listen to most the world’s music via Spotify and YouTube without handing over a dollar.

Consumers derive great benefit from the abundance of free online services. But that raises an intriguing question: what is their value? The answer is quite a lot – at least for some digital goods.

Last year a large sample of Americans was asked how much money it would take for them to forego a selection of popular free internet services for a year.

Internet surfing topped the list – the typical survey respondent required a hefty US$17,500 to give up using search engines for 12 months. The next most valued service was email – respondents wanted $8,400 to relinquish their inboxes. Those digital maps I like so much were next on $3,650.

Online shopping was valued at $842, social media at $322, music at $168, and instant messaging at $155. Video streaming came in at $1,173 a year. Of course, many people already pay for those services via companies like Netflix but the researchers point out the value placed on video streaming was far higher than the subscriptions typically charged (a sign maybe that fee hikes are in store?).

Higher income earners tended to value digital maps more than others – consumers aged 35-44 years were the least willing to give them up. Men valued videos more than women while women valued search engines more than men.

Those aged 18-24 perceived the highest value in instant messaging.

The study’s authors Erik Brynjolfsson and Avinash Gannamaneni from the Massachusetts Institute of Technology, along with Felix Eggers from the University of Groningen, did a separate survey on Facebook in 2016 and 2017.

They asked a sample of users how much money they would be willing to accept to forego social media platform for a month, rather than a year. To encourage honest responses, respondents were told one out of 200 would actually have their choice enforced.

In the 2016 survey, 50 per cent of respondents would agree to give up using Facebook for one month in return for about $50 or more. In 2017 the result was about $40 a month.

Female users valued Facebook more highly than men while older users were more likely to want to keep Facebook than younger ones. The more Facebook friends each consumer had, the more money they needed to convince them to give it up.

Study co-author Felix Eggers also points out that when study subjects did give up Facebook as part of the experiment they often reported an increase in their wellbeing.

“Especially for Facebook, the feedback we get is that most people felt better not using it. It’s sort of an addiction, and if you give people an incentive not to use it anymore, they focus on getting the news from real news outlets rather than from Facebook, for example,” he told a University of Groningen blog.

That survey pre-dates this year’s revelations that Cambridge Analytica, a data-mining firm that worked for the Trump 2016 campaign, may have obtained the personal information of tens of millions of Facebook users.

That controversy drew attention to some of the potential downsides to using the free services available online.

Free digital goods are also making it harder to gauge economic progress and improvements to our collective wellbeing.

Brynjolfsson and his collaborators say the benefits of digital products are not being properly captured by traditional economic indicators, especially gross domestic product.

That’s because GDP mostly measures the goods and services that households, businesses and governments actually pay money for.  Goods that have a price of zero are not fully captured.

Many economists suspect we’re underestimating the economic significance of technological innovations.

The emergence of Wikipedia, the free online information website updated in real time by volunteers, neatly illustrates why.

As Wikipedia gained popularity after its launch in 2001, traditional printed encyclopaedias struggled to compete. In 2012 Encyclopaedia Britannica – one of the world’s most popular encyclopaedias – ceased printing books for the first time in 244 years.

“While the revenues from Britannica sales were counted in GDP statistics, Wikipedia has virtually no revenues and therefore doesn’t contribute anything to GDP other than a few minimal costs for running servers and related activities and some voluntary contributions to cover these costs,” write Brynjolfsson, Eggers and Gannamaneni.

Even though more people now use Wikipedia than ever used Encyclopaedia Britannica it hardly registers in national economic statistics.

Trends in the music industry – where consumers have shifted from buying physical units such as CDs, cassettes and vinyl records to downloading or streaming songs digitally – is also playing havoc with the way we traditionally measure economic progress. The switch to digital means people are listening to more music, at a higher quality, than ever before but the industry’s contribution to GDP statistics is shrinking.

Brynjolfsson and his collaborators claim these ubiquitous digital goods “have created enormous gains in wellbeing” which are largely missed by our conventional indicators.

New ways of measuring how consumers benefit are surely required. But value can be very hard to gauge when price tags no longer apply.

By Matt Wade

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