How much to stop using Google?
Given nearly all productive functionality on the internet is provided for free to the public in exchange for being advertised to, it is a fascinating question to consider what those web based services are actually worth to an individual if they were made to pay for them.
With free online resources like search, maps, video, email, social networking, etc. we tend to take for granted what life was like before these major technological and life changing innovations were part of the everyday.
As an adjacent consideration with respect to the online world is how people measure economic output, which is primarily thought of in terms of Gross Domestic Product (GDP). GDP basically adds-up all finished goods and services that were purchased by households, businesses, governments in a year, and is the most widely used measure of economic activity in the world. However, GDP excludes products and services that are provided for free, implying they have no direct contribution to the economy and hence go unmeasured. By extension this means most smartphone apps, Google search, Facebook, LinkedIn, YouTube, Wikipedia, etc., go largely unmeasured when we think about economic output.
While we do not have an elegant mechanism of retrofitting the effective contribution of online properties into GDP, we do know part of it is picked-up in online advertising spending, however a great deal of output is simply excluded. An interesting study led by MIT economist Erik Bryjolfsson recently tried to address this very question using the “consumer surplus” concept. As a refresher, “consumer surplus” is defined as the difference between what consumers’ are willing to pay for a good or service and the amount that they actually pay. For example, if you are willing to pay $100 for a pair of shoes, but only had to pay $70 for them, then you would gain $30 of “consumer surplus” from that transaction.
By extending this “consumer surplus” framework to a sample of around 80,000 people, the MIT researchers were able to place values on what people were willing to accept monetarily in order to forego various online properties for a year. Interestingly, internet search (e.g. Google) was found to be the most valued category of digital good, with the median of the sample requiring approximately $17,500 in annual compensation (around 1,450 per month) in order to give up their internet search privileges. Search was followed by email (e.g. G-mail) at around $8,400 per year ($700 per month), then came digital maps (e.g. Google Maps) at approximately $3,650 per year (around $300 per month). Given all of these services are provided for free, consumers are receiving a significant surplus from the products. A reason sighted in the study for these high numbers (relative to nothing) is that many people see these services as essential to their jobs and functioning in society, hence are reluctant to give up these goods even in exchange for significant monetary compensation.
It’s worth asking yourself, “how much would I need in order to give up Google for a year?” The answer may surprise you.
The Montgomery Global Funds and Montaka own shares in Alphabet. This article was prepared 30 September with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Alphabet you should seek financial advice.