What’s Facebook worth to you?
Most of us are so addicted to the social network Facebook that we wouldn’t quit unless somebody paid us. So how does a thousand bucks sound?
That’s about how much typical Facebook users said they would take to quit the social network for a year, according to an unusual new study from scholars at Tufts University and three other schools.
That may not sound like a lot of money. But add it up: If Facebook’s entire membership of two billion users took the money en masse, it would cost more than $2 trillion a year to keep them all off the network. That’s five times Facebook’s Wednesday afternoon stock market value of $395 billion. And it means that collectively Facebook users place a very high value on what it adds to their lives, much more than the value that investors attach to it as a business.
“I’m an economist, I’m not a poet. But this is an estimate of human joy,” said Tufts economist Sean Cash.
Cash said Facebook delivers so much pleasure and practical value that users shrug off a tsunami of bad publicity about the company, ranging from violations of users’ privacy to evidence that Russia used the network to tamper with the 2016 US elections. Even the new report from The New York Times that Facebook secretly shared sensitive user data with other giant corporations, including Microsoft and Amazon.com, may have little effect on the social network’s popularity.
“Even with all its flaws, even if it might be undermining some of our institutions . . . there’s also things we’re getting out of it that make it hard from people to turn away,” said Cash.
The Tufts experiment echoed a similar study published earlier this year by researchers at the Massachusetts Institute of Technology and the University of Groningen in the Netherlands. In this study, about 2,900 people were asked how much money they would accept in exchange for doing without Facebook for one month. The researchers found that the typical user would give up Facebook for about $50 a month, or about $600 per year.
MIT economist Erik Brynjolfsson and his colleagues also sought to measure the value of other free online services — and several turned out to be much more valuable than Facebook. Google, for example: people asked more than $17,500 a year to give up its Internet search service; for e-mail, they wanted about $8,400; and $3,600 to get along without online maps.
Why do people value these services so much more highly than Facebook? Because much as they love Facebook, people can live without it. Not so for digital maps, e-mail, and online search.
“A lot of them are essential for work,” Brynjolfsson said. “I bet you’d have a hard time doing your job without search or e-mail, so we have to pay you a lot to give it up for a year.”
The Tufts and MIT studies both tackle a baffling conundrum for economists: How do you calculate the value to consumers of a product that’s free?
Policy makers usually rely on gross domestic product data to measure the size and strength of an economy. But Brynjolfsson said that GDP is lousy at measuring “consumer surplus,” the value of a thing over and above what we pay for it. People buy products and services because they’re worth more to us than the purchase price. That’s consumer surplus, and it’s present in pretty much every transaction.
Massive businesses like Facebook and Google generate billions of dollars in advertising revenue, while charging nothing for their products. People derive huge, life-changing benefits from them, but since no money changes hands, these benefits are very difficult for economists to measure.
“Imagine a hypothetical economy in the future where everything was free,” Brynjolfsson said. “Your GDP would be zero, but your welfare would be great.”
So one way to determine a value of something that is free is find out how much consumers would charge to do without it. Cash and his colleagues at Michigan State University, Kenyon College and Susquehanna University ran three real-world auctions where participants sold off their rights to use Facebook. The 1,300 participants were recruited from college campuses and through an online Amazon marketplace.
They couldn’t run a traditional auction, where the highest amount wins, because bidders would have an incentive to demand outrageous prices. So the researchers declared that the lowest bidder would win, but would be paid the amount offered by the second-lowest bidder. It seems a bit confusing, but this method eliminates the temptation to bid too high.
The researchers weren’t bluffing; they paid real money to ensure participants took the auction seriously, and demanded proof of account deactivation before paying up. While each auction had just one winner, the researchers also recorded the prices demanded by other bidders. These were used to calculate the average value that users placed on their accounts.
Auction participants consistently demanded more than $1,000 to shut down their accounts for a year. In some cases, they wanted much more. For example, 133 students at an unnamed midwestern university submitted bids that averaged more than $2,000.
Susquehanna University economist Matthew Rousu said the data suggests that governments should be careful about imposing new privacy regulations on Facebook. Such requirements could limit the services offered by the network, making it less useful to consumers.
“Anything that they could do that could diminish the value for end users could be enormous,” said Rousu. “We’re talking billions of lost value to society.”