I came across a short but thought provoking article from Erik Brynjolfsson and Avinash Collis which tries to estimate the value of the free digital services i.e. Google, Facebook, Wikipedia by measuring their benefits for users and proposes a way to add it to the GDP.
The article notes that the average person spends more than 3 hours consuming digital goods and services like Facebook, Google, Wikipedia, Snapchat etc which are offered free of cost to consumers. These services while free are useful (maybe not all but that is another topic) and so the authors find a way to measure the benefit of these services to the users. The authors measured the benefit of these services using a concept of ‘consumer surplus’, an economic term for measuring consumer benefits; a consumer surplus occurs when the prices that the consumers pay for a good/service (in this case zero) is less than the price that they are actually willing to pay for it. The authors conducted trials and surveys of random users in US and Europe asking them to make a choice between keeping these digital services or giving them up for a month in exchange for a cash value. The results of their survey and experiment as noted in the article reveal that there is a substantial consumer surplus being generated by these digital services which is currently not captured in the economy;
- median Facebook user in US would need to be paid $48/month to give it up
- median Facebook user in Europe would need to be paid $107/month to give it up
- users with more friends value it more with 20% of users willing to pay $1000/month rather than giving it up
- women value Facebook more than men
- older users value Facebook more than younger since they have lesser alternatives like used by younger generations like Snapchat, Instagram etc
- search engines (Google) are the most valuable of these digital services at $17,000 per year followed by Emails and Maps.
- WhatsApp is more valuable outside US since in US users still rely on SMS more
Since these services are offered free they are not accounted for in the GDP calculation which measures the monetary value of goods/services produced in a country. So, the benefits of using one of these digital services say Wikipedia from your phone or laptop instead of physically going to the library and researching a topic using several books which is essentially the benefit or the consumer surplus mentioned above is not taken into account when measuring GDP and productivity. This could be one of the reasons amongst others on why the share of the information sector as a % of the total GDP has remained range bound between 4 to % 5% in the last 40 years while the economy as a whole is becoming more digital.
While overall positive i.e. stressing on benefits to users from these digital services the article sidesteps the trade-off’s from these ‘freebies’ which is the loss of data privacy. The cost of these free digital services is becoming painfully apparent to users with the loss of digital privacy which has been ramping up in the last few years. Perhaps a similar experiment should be conducted to quantify the value of the digital rights of an average user?
Random Thoughts... 