Economists Calculate the True Value of Facebook To Its Users in New Study (arstechnica.com)

A series of auctions revealed that Facebook users value the company's service so highly that it would take on average more than $1,000 to convince them to deactivate their accounts for a year, according to a recent paper published in PLOS One. From a report: This doesn't mean much for the company's stock market valuation, but it's a good indicator that people find value in Facebook regardless of the many concerns raised recently. The paper started out as two separate studies. Jay Corrigan, an economist at Kenyon College, and his collaborator, Matt Rousu of Susquehanna University, were interested in a session on this topic at an upcoming conference. They discovered that Sean Cash (Tufts University) and Saleem Alhabash (Michigan State University) were doing something very similar.

Since the design of both studies was so complementary, they decided to combine their data and results into a single paper. Cash and Saleem had a larger sample for their part of the study and looked at a longer time period of one year, while Corrigan and Rosein focused on shorter time frames, asking subjects to quit Facebook for one day, three days, or seven days. The studies nonetheless had similar results.

Comments

This is the wrong way to calculate value.

[dgatwood]

Value is not determined by how much people would have to be paid to give something up, but rather by how much people would spend to have it. Want to prove that they're not the same? Ask someone how much they would be reasonably able to spend on food for a year. Then ask how much you'd have to pay them to go without food for a year. :-)

And with Facebook, the disparity is even greater because it isn't something that you have to have to survive, and more importantly, because there are other alternatives that existed prior to Facebook, and there will be other alternatives that will come into existence after Facebook eventually falls apart. This makes giving up Facebook more like giving up eating out at restaurants for a year. It's a hassle, so they'll make you pay a lot for the hassle, and that cost is likely to be way more than the actual cost difference between eating out and cooking food for themselves. But if you made the cost of restaurants higher based on that, people would eat out less often.

To further compound the problem, the only thing keeping Facebook going is network effects, i.e. people use Facebook because everybody they talk to uses Facebook. One person leaving Facebook while everybody else stays is painful. If everybody flees from Facebook to something else at the same time, that's much less painful.

What this means is that if Facebook suddenly decided to charge a subscription fee — particularly the $80 per month subscription fee suggested by this analysis ($1,000 annually), Facebook would implode. I doubt they would be left with even a single subscriber at that rate by the end of the first year. I doubt they would do well at even $10 per month.

Now if Facebook offered an optional $5 per month subscription that gets you ad-free, no-tracking access, some people might do that. But even that would only work if it were optional, because the value of Facebook comes from nearly everyone you communicate with being willing to pay whatever the cost is to access it, and if that cost is too high, the value plummets.