How much is social media worth? In an interesting article in The Conversation earlier this week, Peter Martin (Australian National University) discussed the value of social media networks:
Social media is a problem for economists. They don’t know how to value it...
As the Australian Senate prepares to hold an inquiry into the impact of social media, economists meeting in Adelaide at the annual conference of the Economic Society of Australia have been presented with new findings about the value of social media that point in a shocking direction. They suggest it is negative.
That’s right: the findings suggest social media is worth less to us than the zero we pay for it. That suggests we would be better off without it.
Wait, what? There's a good that we willingly use that has negative value? People may not be purely rational decision-makers, but that will take some explaining. Here's what Martin wrote about that study:
Leonardo Bursztyn of the University of Chicago presented the findings in the keynote address to the conference...
They surveyed more than 1,000 US university students, asking a series of questions about TikTok, Instagram and Google Maps (more about maps later).
The first set of questions was designed to ascertain how much they would need to be paid (or would be prepared to pay) to be off TikTok and Instagram for a month...
The answers suggest users value these platforms a lot, on average by US$59 per month for TikTok and $47 for Instagram. An overwhelming 93% of TikTok users and 86% of Instagram users would be prepared to pay something to stay on them...
Then Bursztyn and colleagues asked a second set of questions:
If two-thirds of the students on your campus sign up to deactivate, how much would you need to be paid (or be prepared to pay) to sign up too?...
Most of the TikTok users (64%) and almost half of the Instagram users (48%) were prepared to pay to be off them, so long as others were off them, resulting in average valuations across all users of minus US$28 for TikTok and minus $10 for Instagram.
Martin notes that:
The finding is a measure of the extent to which many, many users hate TikTok and Instagram, even though they feel compelled to use them.
I'm not so sure. Maybe users dislike TikTok and Instagram that much, but there is an alternative explanation, which relates to something I cover in my ECONS101 and ECONS102 classes: positive network externalities.
An externality is the uncompensated impact of the actions of one party on someone else (a bystander). A positive externality is an externality that makes the bystander better off. For example, if I plant a nice flower garden in the front of my house, it makes me feel happy, but it also makes people walking by happier as well. The flower garden creates a positive externality for the people walking by (the bystanders). The flower garden creates value for those walkers.
A network externality means that the value of belonging to a network depends (in part) on the number of other people using the network. A positive network externality is one where the larger the size of the network, the more value each network user receives from belonging to the network. Consider Facebook as an example. If you were the only user of Facebook worldwide, you've got a place to store photos, or you can post notes to yourself. So, it provides you some value, I guess. But the value of Facebook really comes about because you can interact with your friends there. The more of your friends on Facebook, the more value it creates for you. We could tell a similar story about Instagram, or TikTok.
Now, let's consider Bursztyn's results in the context of positive network externalities. When users of TikTok or Instagram were surveyed and asked how much they would have to be paid to stop using those services for a month, they had to be paid a lot. Clearly, those services do provide value to the consumers.
Next, when the users were asked how much they would have to be paid to give up TikTok or Instagram if two-thirds of the students on their campus sign up to deactivate, the value evaporated, and became negative for many users (let's call that the 'core value' that the social network provides). Why? Because if fewer of their friends are using Instagram or TikTok, then the value from the positive network externality is much lower. They are not willing to pay much if the service doesn't provide any core value (or even negative core value), because few or none of their friends are using it (and so any positive network externality isn't enough to make it worthwhile for them to use the social network).
In The Conversation article, Martin talks about "fear of missing out" as driving the results (and so do Bursztyn et al. in the research paper that Bursztyn's keynote was based on), and that may be true to some extent, but I think that frames the total value that social networks provide in a unnecessarily negative way. We have to remember that the whole purpose of social networks is networking - interacting with others. Without the interactive and community elements, a social network might as well just be a static website. Moreover, some users do receive core value from the social network, even without the positive network externalities.
However, it is interesting that the service (excluding any positive network externalities) of Instagram and TikTok has negative core value for many (but not all) consumers. Those consumers demonstrating a negative core value wouldn't be using the social network if their friends weren't using it. This demonstrates that while particular social networks have a stranglehold on users' attention right now, that dominance is somewhat fragile. If a new service comes along that provides a higher core value, and attracts away a sufficiently large number of users, then that can cascade into a new dominant service. That is exactly what happened when Facebook took over the social network space from MySpace, Friendster, and Bebo. Or what TikTok may be doing to YouTube right now. And this creative destruction of the dominant firms is likely to be further promoted by the 'enshittification' of these products.
We could use results like Bursztyn's to argue that social networks are a bad thing, because they provide negative core value for many consumers. Or, we could recognise that overall they do provide value, because if they didn't, then consumers wouldn't use them. Just because that value comes from the fact that many other users are also using the same network, that doesn't mean that consumers don't want these products or value them. It's just that the value mostly comes from the network, not from the product. And if someone can make a better product and create a new valuable network, then consumers will move onto this next new shiny network instead.
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