How valuable is Facebook to its users, and how can you measure the value of the site when access is free? Professor of Economics Jay Corrigan and other researchers pooled their work and expertise to assess Facebook’s value to its users, in contrast to its market value or its contribution to gross domestic product.
Using a series of auctions – in which people were actually paid to close their accounts for as little as one day or as long as one year – the project found that Facebook users would require an average of more than $1,000 to deactivate their account for one year. The study is published today in PLOS ONE.
“Social media, and the internet more broadly, have changed the way we live and the way we keep in touch with friends and family, but it’s hard to find evidence that the internet has made us richer or more productive at work,” said Corrigan, who was the first author of the study. “We know people must derive tremendous value from Facebook or they wouldn’t spend millions of hours on the site every day. The challenge is how to put a dollar value on a service people don’t pay for.”
The work began as two independent efforts: Corrigan partnered with Matthew Rousu of Susquehanna University, while Saleem Alhabash at Michigan State University and Sean B. Cash at Tufts University formed a second team, so the auctions had slightly different designs and advantages.
In total, the researchers ran three actual auctions, including two samples of college students, a community sample, and an online sample. Winners were paid upon proof that their membership was deactivated for the set period of time. For example, in an auction utilizing a sample of 122 Kenyon students, the average bid to deactivate Facebook was $4.17 for one day, $13.89 for three days and $37.00 for one week. Researchers annualized this data to calculate a one-year estimate ranging from $1,511 to $1,908.
“Auction participants faced real financial consequences, so had an incentive to seriously consider what compensation they would want to close their accounts for a set period of time and to bid truthfully,” said Cash, an economist at Tufts’ Friedman School of Nutrition Science and Policy. “Students placed a higher value on Facebook than community members. A number of participants refused to bid at all, suggesting that deactivating Facebook for a year was not a welcome possibility.”
The study contrasts the company’s market capitalization with the value placed on it by its users. For example, based on a market valuation of approximately $400 billion, and about 2.2 billion users, the market value of Facebook would be approximately $180 per user, or less than one-fifth of the annual average value of Facebook access from any of the auction samples.
The authors noted that Facebook remains the top social networking site in the world and the third most visited site on the Internet, after Google and YouTube, despite market fluctuations and controversies. “While the measurable impact Facebook and other free online services have on the economy may be small, our results show that the benefits these services provide for their users are large,” they concluded.