What is the internet really worth to you?

While Washington is in a bit of a tizzy about the impact of Big Tech on our economy and society, I thought it would be worth recalling how much value consumers place on the services and products Big Tech provides. Now this is tricky with free stuff such as search or logging on to social networks. But one way to get at the “consumer surplus” issue is to cleverly ask consumers how much they would have to be paid to forego use of this or that service.

In the new working paper, “Using Massive Online Choice Experiments to Measure Changes in Well-being,” economists Erik Brynjolfsson, Felix Eggers, and Avinash Gannamaneni run an experiment where they “only ask consumers to make a single choice among two options: Whether to keep access to a certain good or to forego the good in return for a specific amount of money. We only ask one question per consumer and vary the price points systematically between consumers.”

And their findings:

The results indicate that Facebook provides substantial value to consumers who would require a median compensation of about $40-$50 per month for leaving this service. . . . According to the median [willingness-to-accept estimates for 2017,] Search Engines ($17,530) is the most valued category of digital goods followed by Email ($8,414) and digital Maps ($3,648). One possible reason that these values are high relative to the other goods in our analysis may be the lack of effective substitutes for search engines, email or digital maps compared to the other categories in our sample. . . . Video streaming services (e.g., YouTube, Netflix) are valued by consumers with a median WTA of $1,173 per year. Some consumers do pay for some of these services. However, these amounts are of the order of $10-$20 per month, or $120-$240 per year (for those who pay). Our measure suggests that the surplus the median consumers receive from these goods is a 5-10 multiple of what they actually pay (and which is visible in national accounts). The remaining  categories for which we estimated the median WTA are (in descending order) E-Commerce ($842), Social Media ($322), Music ($168), and Instant Messaging ($155).

For fun, I decided to estimate the annual consumer surplus of Google Maps. A 2014 report pegged US users at 65 million, which means the consumer surplus is about $250 billion. And $115 billion for the 214 million US users of Facebook.

A caveat from the end of the paper:

Another limitation of our study is that it is biased towards people using the internet. The massive variants of our choice experiments are only accessible online, therefore people not using the internet at all are excluded. Pew estimates that about 15% of Americans don’t use the internet. Accordingly, our results must be interpreted as relevant to this audience, but not necessarily others. That said, our approach is at least attempting to directly measure a concept that we know is not correctly measured by other official data. In short, we believe it is better to be approximately correct than precisely wrong.