What’s The Web Worth?

Several new studies attempt to put a price tag on the Internet.

It’s likely that the web has had an impact on your financial life (if not, well, enjoy the view from that cave). But is it possible to quantify that impact with numbers? Sure, there are standards like GDP that measure transactions like ad sales or eBay. But what about the time (and, therefore, money) you save by using Google instead of going to the library? Or the savings incurred when you shop on Soap.com rather than the local pharmacy?

In their March 9 issue, The Economist covers why putting a price tag on the Internet is such a tricky business:

Measuring the economic impact of all the ways the internet has changed people’s lives is devilishly difficult because so much of it has no price. It is easier to quantify the losses Wikipedia has inflicted on encyclopedia publishers than the benefits it has generated for users … This problem is an old one in economics. GDP measures monetary transactions, not welfare. Consider someone who would pay $50 for the latest Harry Potter novel but only has to pay $20. The $30 difference represents a non-monetary benefit called “consumer surplus”. The amount of internet activity that actually shows up in GDP--Google’s ad sales, for example--significantly understates its contribution to welfare by excluding the consumer surplus that accrues to Google’s users.

Plenty of researchers are attempting to quantify consumer surplus, but even that is tough. One study asked web users to estimate what they’d pay for services that are currently free, like Google:

In a study commissioned by IAB Europe, a web-advertising industry group, McKinsey, a consultancy, asked 3,360 consumers in six countries what they would pay for 16 internet services that are now largely financed by ads. On average, households would pay €38 ($50) a month each for services they now get free.

Or, you could think about the problem in terms of time saved:

In a paper partly funded by Google, Yan Chen, Grace YoungJoo Jeon and Yong-Mi Kim, all of the University of Michigan, asked a team of researchers to answer questions culled from web searches. The questions included teasers like: “In making cookies, does the use of butter or margarine affect the size of the cookie?” On average, it took participants seven minutes to answer the questions using a search engine, and 22 minutes using the University of Michigan’s library.

The point is, the Internet has saturated our lives so completely that measuring a single variable is nearly impossible. Take Facebook, for example: You could cast it as a major time and money suck on productivity (a negative value), but you could also argue that it creates networking opportunities with peers (a positive value). Traditional economic indicators--like GDP--are outdated when it comes to measuring such complex behavioral networks. Perhaps economists could learn a thing or two from the University of Vermont scientists attempting to calculate Gross Domestic Happiness using data from Twitter rather than traditional surveys.

Read the full article here.

[ILLUSTRATION: Money via Shutterstock]

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