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How much to stop using Google?

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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.

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Amit joined MGIM in April 2018 as a Senior Research Analyst after spending seven years as a credit analyst at Credit Agricole and Citigroup, based in New York. Prior to this, Amit was an investment banker with Citigroup for five years in New York and Sydney, focusing on Media and Telecoms; Metals and Mining; and Consumer Products.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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2 Comments

  1. Do the numbers seem rational?

    The median would require $700 of compensation to give up gmail per month

    But there are secure private alternatives to gmail for under $20 US a month, or commercial style gmail offerings such as office365/Outlook.com for a similar cost. Suggesting that either Gmail is such a superior offering that it would command a premium of 35x other offerings or that the numbers are 35x off?

    • G-mail is just one type of internet email, the compensation was in the context of giving up all internet email (g-mail being an example).

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