It’s been a tough few years for Facebook: reports of Russian interference with the 2016 presidential election; the Cambridge Analytica scandal; Republicans charging that the platform suppresses conservative content; and recent revelations that Facebook exposed users’ personal photos and shared private messages. Relatively speaking, Facebook doesn’t do much to boost the economy, either. It employs around 34,000 people. By contrast, retailer Walmart employs more than 2 million. Technology writer Walt Mossberg recently joined the growing list of journalists, tech entrepreneurs, policymakers and celebrities abandoning Facebook, tweeting:
Yet there have never been more people using Facebook. Its more than 2 billion users — approaching a third of the world’s population — spend an estimated 35 minutes a day on the site, collectively spending more than 100,000 years on the social network every day.
It’s possible Facebook users just aren’t all that concerned about privacy. More likely, users do care about the platform’s assorted pitfalls, but they stick with Facebook for a simple reason: It’s worth the trade-off.
All social networks become more valuable as more people use them. A network where you can connect with old friends, new clients, grandma and your kids’ teachers is worth far more than one where you can only find a few acquaintances. Figuring Facebook’s value to its users could help explain why people are seemingly so willing to sacrifice their privacy — and ignore controversies — in exchange for being part of the world’s largest social network.
Working with Michigan State University’s Saleem Alhabash and Tufts University’s Sean B. Cash, we reported in December in the journal PLOS ONE the results of a study in which we offered cash to Facebook users in exchange for their assent to deactivate their accounts for time periods ranging from one day to one year.
This wasn’t a hypothetical exercise. Facebook users took part in auctions in which the lowest bidder was paid to deactivate their account. We offered real money, and auction winners didn’t get paid until they proved they had deactivated their accounts. Because people faced real financial consequences, they had a strong incentive to take the auction seriously. And because we paid only the lowest bidder, there was no incentive for people to overstate what they would have to be paid to stop using Facebook.
We worked with 1,258 Facebook users, with around 20 percent recruited from two college campuses via campuswide email or using an online pool of students who had previously agreed to take part in research projects. We recruited most of the users from the general population, either through an online community pool or using an online crowdsourcing marketplace. We consistently found that the average user would have to be paid more than $1,000 to deactivate their Facebook account for a year. Think of this $1,000 estimate as the cash value of the joy and utility people get from Facebook at no out-of-pocket cost — using the site is free. This measure is what economists refer to as “consumer surplus,” which is the difference between the most someone would be willing to pay for something and what they do pay.
So, what do people value about Facebook? We found that people put a higher value on the platform the more they use it to post status updates or to invite friends to events. In a related study, our co-authors found that the number of actual friends you have on Facebook is a better predictor of what Facebook is worth to you than your total number of Facebook friends. This suggests Facebook is more important for maintaining relationships with the people closest to us than it is for maintaining looser connections with acquaintances.
The results from our study provide yet more evidence that the value we get from our online lives is huge and growing: Austan Goolsbee and Peter Klenow found that in 2004, households gained anywhere from $2,500 to $3,800 of consumer surplus from the Internet in its entirety. But by 2017, people required about $3,600 per year to stop using online maps, about $8,400 to give up using email and, startlingly, about $17,500 to live without online search, according to research by Erik Brynjolfsson, Felix Eggers and Avinash Gannamaneni, based on carefully designed online surveys.
Based on its current market capitalization, Facebook is valued at roughly $200 per user. That’s about one-fifth the value the average participant in our study derived from Facebook in just one year, meaning that Facebook creates significantly more value for its users than it does for its shareholders. This is true for technological innovations more generally. Working with more than 50 years’ worth of data, Nobel Prize-winning economist William D. Nordhaus found that innovators typically capture around just 5 percent of the value from a new technology, with the rest going to consumers.
With that in mind, those interested in regulating Facebook should take care. Lawmakers who care about individuals’ well-being should make sure that, in the process of addressing security and privacy concerns, they don’t impose restrictions that take away from the benefits Facebook users currently enjoy. Concerns about how much bad Facebook has introduced into the world, though justified, should be balanced against the good that Facebook produces in the form of sharing photos, playing games, keeping up with the news and connecting with classmates and clients. Regulations making social networks less enjoyable or less useful, even if they only marginally shave away the benefit the average user enjoys, would translate to billions of dollars in lost value when applied to the billions of people who have remained Facebook users.
Cute videos and status updates may not create a lot of jobs or make us better at the jobs we have, but we get something real and measurable from social networks. We should all be concerned about Facebook’s cavalier approach toward users’ privacy, but we shouldn’t lose sight of the fact that free online services such as Facebook have created enormous value for all of us.