Research Project

The Attention Economy: Measuring the Value of Free Goods on the Internet

Professor Erik Brynjolfsson and Dr. JooHee Oh

 

Over the past decade, there has been an explosion of digital services on the Internet, from Google and Wikipedia to Facebook and YouTube. However, the value of these innovations is difficult to quantify, because consumers pay nothing to use them. Traditional approaches based on measuring prices and quantities do not work well for goods with zero price.  In this project, we develop a framework to estimate the value of consuming information goods on the Internet that is not measured in the traditional money-based measure of GDP. Our model of the “attention economy” yields an estimate of annual change in the value of online applications that have very low prices using the insight that even when people do not pay cash, they must still pay “attention,” or time. We estimate the increase in consumer surplus created by free internet services to be over $30 billion per year in the U.S. alone, about 0.23% of average annual GDP during the period of 2002-2011. We apply our methods to television and estimate that the level of consumer surplus from television is more than three times larger, but the annual increase is comparable to the increase in surplus from the Internet. Our analysis implies that most of welfare gain from digital services on the Internet would be overlooked by traditional approaches that rely only on the direct expenditures of money. Considering the time spent on consumption, as we do, makes it possible to assess the full value of these digital innovations.